Notes to Financial Statements
Note 1 - Plan Description
The following is a general description of the Overstock.com 401(k) Plan (the “Plan”). Participants should refer to the Summary Plan Description ("plan document") for a more complete description of the Plan’s provisions.
General
The Plan is a defined contribution plan which was originally adopted by Overstock.com, Inc. (the “Company” or “Plan Sponsor”) in 1998 and has been amended since that date. Participation in the Plan is open to all eligible employees of the Company (individually, a “Participant” and collectively, “Participants”) and its named subsidiaries. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
Plan Administration
The Overstock.com 401(k) Administrative Committee consists of certain employees of the Company and oversees the administration of the Plan.
Trustee
The Plan has engaged Fidelity Management Trust Company (the “Trustee”) as Trustee to the Plan and all Plan assets are held in trust with the Trustee. The Plan has also engaged Fidelity Workplace Services LLC (the “Record Keeper”) which provides recordkeeping and administrative services to the Plan.
Eligibility
During
2016
and
2015
, employees were eligible to participate in the Plan subject to meeting the following criteria: (1) three months of service at the Company; and (2) reaching 21 years of age. Upon meeting both criteria, employees were entered into the Plan as eligible Participants at the beginning of the following quarter and were able to make future deferral contributions any time thereafter.
Effective March 1, 2017, the Administrative Committee amended the eligibility requirements to participate in Plan. Employees are eligible to participate in the Plan after one month of service at the Company. Upon meeting one month of service and reaching 21 years of age, employees are entered into the Plan as eligible Participants at the beginning of the following month and may make future deferral contributions any time thereafter.
Contributions
Participants may contribute up to 92% of their annual compensation as defined by the Plan on a before tax basis, provided the amounts do not exceed the annual limits imposed by the Internal Revenue Code (the “IRC”). Such contributions are withheld by the Company from each Participant’s compensation and deposited with the Trustee to be applied to the appropriate fund in accordance with the Participant’s directives. Effective January 1, 2015, the Administrative Committee amended the Plan to cause matching contributions under the Plan to constitute safe harbor matching employer contributions. As a result, the matching contributions made to the Plan are considered safe harbor matching contributions and will automatically satisfy the nondiscrimination testing requirements under the IRC section 401(m). Effective January 1, 2015, the Plan provides for a Company match of 100% of Participant contributions up to 6% of annual compensation. The match is calculated and funded on a per pay period basis with a year-end “true up” for annual compensation, if necessary. Participants may elect to rollover amounts from other qualified plans into the Plan provided that certain conditions are met.
Participant Accounts
Separate accounts are valued daily and maintained for each Participant and each Participant’s account is credited with the Participant’s contribution, and an allocation of the Company’s matching contribution and discretionary profit-sharing contribution. Plan earnings are allocated to each Participant’s account in proportion to the average daily balance in each fund option. Participants may elect to have contributions invested or transferred to any one or any combination of the investment funds available on a daily basis, including the common stock of the Plan Sponsor. Notwithstanding the foregoing, Participants
are subject to restrictions on trading the common stock of the Plan Sponsor during established blackout periods in accordance with applicable securities laws of the Securities and Exchange Commission. Participants will generally receive advance notice of a blackout period and its anticipated end date.
Vesting
Participants in the Plan are 100% vested at all times with respect to their own contributions in the Plan and the earnings thereon. Effective April 1, 2014, participants are also 100% vested with respect to Company matching contributions and earnings on those contributions. The vesting of former employees who terminated employment with the Company prior to April 1, 2014 was not affected by this change.
Through March 31, 2014, vesting was based on each Participant’s length of employment with the Company, with 20% vesting per year of service increasing to 100% vested at the end of the fifth year of service. Regardless of length of employment, a Participant was 100% vested in Company matching contributions and earnings on those contributions if the Participant continued in employment with the Company until age 65, or if the Participant died or became disabled while employed by the Company. Amounts contributed by the Company which were forfeited by Participants as a result of the Participants’ separation from service prior to becoming 100% vested are being used to first pay administrative expenses of the Plan, and then applied to reduce contributions of the Company.
At
December 31, 2016
and
2015
, forfeited non-vested accounts totaled $205,123 and $116,577, respectively. For the year ended
December 31, 2016
, the Plan Sponsor did not allocate forfeited non-vested account funds to offset employer contributions.
Administration
The Plan is sponsored by the Company. Operating and administrative expenses incurred in the administration of the Plan are the responsibility of the Plan, unless assumed by the Company. During
2016
, the Company paid $17,942 of the record-keeping expenses, trustee expenses, administrative and operating expenses; however, the Company has no obligation to assume any Plan expenses in the future.
Distributions
Distributions from the Plan are available upon any of the following: (1) termination of employment with the Company; and (2) disability or death. Upon occurrence of one of these events, the Participant (or the designated beneficiary) may receive a lump sum distribution equal to the vested value of the account or receive the vested value of the account in periodic installments, transfer the vested value of the account to an Individual Retirement Account or other qualified retirement plan, or maintain the vested value of the account in the Plan subject to certain fees. Distributions from the Plan will normally be taxed as ordinary income for income tax purposes, unless the Participant (or the designated beneficiary) elects to rollover his or her distributions into an Individual Retirement Account or another qualified retirement plan, or maintain the vested value of the account in the Plan. In addition, a Participant may withdraw an amount from his or her account attributable to the Participant’s own contributions to the Plan necessary to satisfy an immediate and heavy financial need of the Participant or, upon the attainment of age 59 ½, all or any portion of the Participant’s vested account balance. In certain cases, the Plan also allows for involuntary automatic distribution of a terminated Participant’s account balance totaling less than $5,000.
Notes Receivable from Participants
Participants may borrow from their fund accounts a minimum of $1,000 and up to a maximum of $50,000 or 50% of their vested account balance, whichever is less. Loan terms may not exceed five years unless the loan is used to purchase a Participant’s principal residence, in which case repayment terms may not exceed ten years. The loans are secured by the balance in the Participant’s account and bear interest at a fixed interest rate commensurate with local prevailing lending rates determined by the 401(k) Administrative Committee. A borrowing Participant pays principal and interest ratably through payroll deductions. Loans are due in full within 60 days of termination. Notes receivable from Participants at
December 31, 2016
bear interest ranging from 5.25% to 5.50%. At
December 31, 2016
, loan maturity dates range from January 2017 to September 2026.
Amendment and Termination of the Plan
The Company anticipates that the Plan will continue without interruption; however, the Company reserves the right to amend or terminate the Plan. No amendment or termination may deprive any Participant of rights accrued prior to the enactment of such amendment or termination. No amendment shall permit any part of the assets of the Plan to revert to the Company or be used or diverted for purposes other than for the exclusive benefit of the Participants. If the Plan should be terminated or partially terminated, the amount in each affected Participant’s account as of the date of such termination (after proper adjustment for all expenses, earnings and allocations) becomes fully vested and non-forfeitable. Such amounts are distributable by the Trustee to the Participants.
Note 2 - Significant Accounting Policies
Method of Presentation
The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
December 31, 2016
and
2015
, and the reported amounts of additions to and deductions from net assets for the year ended
December 31, 2016
. Actual results could differ from those estimates.
Risks and Uncertainties
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market, and credit risk. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect Participant accounts, balances, and the amounts reported in the statements of net assets available for benefits and changes in net assets available for benefits.
Investment Valuation
The Plan’s investments are stated at fair value. Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. See Note 4 for discussion of fair value measurements.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net appreciation includes gains and losses on investments bought and sold as well as held during the year.
Contributions
Participant contributions are recorded in the period during which the Company makes payroll deductions from Participants’ compensation. Company matching contributions are recorded in the same period. Company profit sharing contributions, if any, are accrued in the period for which they are authorized and are deposited with the Trustee in the following year.
Notes Receivable from Participants
Notes receivable from Participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Delinquent notes receivable are reclassified as distributions based upon the terms of the plan document.
Benefit Payments
Benefits are recorded when paid.
Recently Adopted Accounting Standards
In July 2015, the FASB issued ASU 2015-12,
Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient.
This three-part
ASU simplifies current benefit plan accounting and requires (i) fully benefit-responsive investment contracts to be measured, presented, and disclosed only at contract value and accordingly removes the requirement to reconcile their contract value to fair value; (ii) benefit plans to disaggregate their investments measured using fair value by general type, either on the face of the financial statements or in the notes to the financial statements; and (iii) the net appreciation or depreciation in investments for the period to be presented in the aggregate rather than by general type. This ASU also removes certain disclosure requirements relevant to individual investments that represent five percent or more of net assets available for benefits. Further, the amendments in this ASU eliminate the requirement to disclose the investment strategy for certain investments that are measured using NAV per share using the practical expedient in FASB ASC Topic 820. We implemented the provisions of ASU 2015-12 for the Plan year ended December 31, 2016 on a retrospective basis. There was no effect to the Plan's net assets available for benefit or the changes in net assets, as it only affected the presentation of certain disclosures.
Subsequent Events
The Plan has evaluated all events subsequent to the date of the statements of net assets available for benefits and has determined that there are no subsequent events that require disclosure.
Note 3 - Fair Value Measurements
Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 820 emphasizes that fair value is a market-based measurement, not an entity specific measurement. Therefore, a fair value measurement should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, FASB ASC Topic 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair values. The hierarchy gives the highest priority to Level 1 measurements and the lowest priority to Level 3 measurements. The three levels of the fair value hierarchy under FASB ASC Topic 820 are described as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Assets and liabilities measured at fair value are based on one or more of the following three valuation techniques noted in ASC Topic 820:
A. Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
B. Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost).
C. Income approach: Techniques to convert future amounts to a single present amount based upon market expectations (including present value techniques, option-pricing and excess earnings models).
Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at
December 31, 2016
and
2015
.
Mutual funds:
Valued at the quoted net asset value ("NAV") of shares held by the Plan at year-end.
Money market funds:
Valued based on the quoted market price as of the reporting date.
Common collective trust:
Valued at the NAV provided by the administrator of the fund, which is the readily determinable fair value. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, divided by the number of units outstanding.
Common stock of Plan Sponsor:
Valued using the last reported sales reported on an active market prior to close of the Plan year.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following tables classify the investment assets measured at fair value by level within the fair value hierarchy at
December 31, 2016
and
2015
:
|
|
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|
|
|
|
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|
|
|
|
|
|
|
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Basis of Fair Value Measurements
|
|
|
|
|
Balance at
|
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|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Technique
|
Mutual funds
|
|
$
|
37,934,844
|
|
|
$
|
37,934,844
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
A
|
Common stock of Plan Sponsor
|
|
2,937,554
|
|
|
2,937,554
|
|
|
—
|
|
|
—
|
|
|
A
|
Common collective trust measured at NAV
|
|
4,476,067
|
|
|
—
|
|
|
4,476,067
|
|
|
—
|
|
|
A
|
|
|
$
|
45,348,465
|
|
|
$
|
40,872,398
|
|
|
$
|
4,476,067
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basis of Fair Value Measurements
|
|
|
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Balance at
|
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|
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|
|
|
|
|
|
|
December 31, 2015
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Technique
|
Mutual funds:
|
|
$
|
30,203,334
|
|
|
$
|
30,203,334
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
A
|
Money market funds
|
|
3,491,189
|
|
|
3,491,189
|
|
|
—
|
|
|
—
|
|
|
A
|
Common stock of Plan Sponsor
|
|
1,845,544
|
|
|
1,845,544
|
|
|
—
|
|
|
—
|
|
|
A
|
|
|
$
|
35,540,067
|
|
|
$
|
35,540,067
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
Note 4 - Tax Status of the Plan
On March 31, 2014, the Internal Revenue Service (“IRS”) issued an opinion letter stating that the volume submitter plan document adopted by the Plan, as then designed, qualifies under Section 401(a) of the Code. Although the volume submitter plan has been amended since receiving the opinion letter, the Plan administrator believes that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC.
GAAP requires Plan management to evaluate tax positions taken by the Plan and recognize a tax liability if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The Plan administrator has analyzed the tax positions taken by the Plan, and has concluded that at
December 31, 2016
, there were no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any periods in progress.
Note 5 - Parties in Interest
Certain investments of the Plan are shares of funds managed by the Trustee. In addition, the Plan holds an investment in Overstock.com, Inc. common stock. These transactions are considered exempt party-in-interest transactions. Fees incurred by the Plan for investment management services totaled
$33,279
for the year ended
December 31, 2016
.
Note 6 - Reconciliation of the Financial Statements and Schedule H of Form 5500
The following is a reconciliation of net assets available for benefits as reported in the financial statements to the Form 5500 at
December 31, 2016
and
2015
:
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|
|
|
|
|
|
|
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|
2016
|
|
2015
|
Net assets available for benefits as reported in the
|
|
|
|
|
Financial statements
|
|
$
|
46,911,343
|
|
|
$
|
36,682,141
|
|
Less employer contribution receivable
|
|
(273,317
|
)
|
|
(190,019
|
)
|
Less employee contribution receivable
|
|
(202,985
|
)
|
|
(151,953
|
)
|
Net assets available for benefits as reported in the Form 5500
|
|
$
|
46,435,041
|
|
|
$
|
36,340,169
|
|
The following is a reconciliation of the statement of changes of net assets available for benefits as reported in the financial statements to the Form 5500 at
December 31, 2016
:
|
|
|
|
|
|
|
|
2016
|
Net increase in net assets available for benefits per the financial statements
|
|
$
|
10,229,202
|
|
Less employer contribution receivable at December 31, 2016
|
|
(273,317
|
)
|
Less employee contribution receivable at December 31, 2016
|
|
(202,985
|
)
|
Plus employer contribution receivable at December 31, 2015
|
|
190,019
|
|
Plus employee contribution receivable at December 31, 2015
|
|
151,953
|
|
Net income per the Form 5500
|
|
$
|
10,094,872
|
|