Notes to Financial Statements
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 as listed in the Plan Document. 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
Employees are eligible to enroll and participate in the Plan subject to meeting the following criteria: (1) one month of service at the Company; and (2) reaching 21 years of age. Upon meeting both criteria, employees are deemed to be eligible Participants at the beginning of the following month and are able to make future deferral contributions any time thereafter. Effective December 20, 2019, employees are eligible to enroll and participate in the Plan upon reaching 18 years of age, as well as satisfying the one month of service at the Company requirement.
Contributions
Participants may contribute up to 92% of their annual compensation as defined by the Plan both on a before tax basis and on an after 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. The Plan provides for a Company match of 100% of Participant contributions up to 6% of annual compensation as defined in the Plan Document. Matching contributions under the Plan constitute safe harbor matching employer contributions and will automatically satisfy the nondiscrimination testing requirements under the IRC section 401(m). 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 based upon the terms of the Plan Document.
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 for former employees who terminated employment with the Company prior to April 1, 2014 was not affected by this change and will continue vesting based on each Participant's length of employment with the Company prior to termination, with 20% vesting per year of service increasing to 100% vested after five years. Forfeitures are recognized in the Plan year that the employee receives a complete distribution of their vested account, or after five consecutive one year breaks in 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. During 2017, the Plan executed and implemented an amendment to allow amounts contributed by the Company which were forfeited by Participants, as a result of the Participants' separation from service prior to becoming 100% vested, to be used to first pay administrative expenses of the Plan and then applied to reduce future employer contributions.
Forfeitures
At December 31, 2019 and 2018, forfeited non-vested accounts totaled $8,403 and $10,162, respectively. For the years ended December 31, 2019 and 2018, the Plan Sponsor allocated forfeited non-vested account funds of $37,000 and $57,615, respectively, 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 2019, the Company paid none of the record-keeping expenses, trustee expenses, administrative and operating expenses and 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, or in certain other limited circumstances as defined by the Plan. Employee contributions to the Plan will be suspended for six months following a hardship withdrawal. 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 the prevailing prime rate (currently prime rate plus 2%), as reported by Thomson Reuters ("Reuters"), and utilized by Fidelity's automated Loan Interest Rate Update Service ("LIR") to administer Plan loans. The "plus increment" percentage (currently +2%) is 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 of employment. Notes receivable from Participants at December 31, 2019 bear interest ranging from 5.25% to 7.50%. At December 31, 2019, loan maturity dates range from January 2020 to August 2029.
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.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles in the United States of America ("GAAP").
Use of Estimates
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, 2019 and 2018, and the reported amounts of additions to and deductions from net assets for the year ended December 31, 2019. 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 3—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. Interest income is recorded on the accrual basis. Delinquent notes receivable are reclassified as distributions based upon the terms of the Plan Document.
Benefit Payments
Benefits are recorded when paid.
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.
In March 2020, the novel coronavirus (or "COVID-19") outbreak was declared a pandemic by the World Health Organization. The COVID-19 pandemic has also led to extreme volatility in financial markets and has affected, and may continue to affect, the market price of the Company's common stock and other Plan assets. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets. The extent to which COVID-19 impacts the financial markets will depend on future developments that are highly uncertain and cannot be predicted.
However, because the values of the Plan's individual investments have and will fluctuate in response to changing market conditions, the amount of losses that will be recognized in subsequent periods, if any, cannot be determined. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. Despite this volatility, the Company does not believe there is substantial doubt about the Plan's ability to continue as a going concern. The Company believes the Plan administrator could continue to carry on the administrative functions of the Plan for at least the period of one year from the date of this report.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was enacted and signed into law. Certain provisions of the CARES Act eliminate the need for Plan participants to take a required minimum distribution in calendar year 2020 and permits Plan participants to request penalty-free distributions of up to $100,000 for qualifying coronavirus-related reasons through December 30, 2020. These reasons include adverse financial consequences due to being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to a lack of childcare due to COVID-19, or through a diagnosis of COVID-19 for the employee, spouse, or dependent. The participant may spread the tax consequences of these distributions over three years and they may pay these distributions back to the Plan within three years to avoid taxation on the portion that is repaid. Plan management is in the process of reviewing the CARES Act and any resulting changes to the Plan.
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.
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, 2019 and 2018.
Mutual funds: Valued at the quoted net asset value ("NAV") of shares held by the Plan at year-end or the last reported sales on an active market prior to close of the Plan year. The mutual funds held by the Plan are deemed to be actively traded.
Common stock of Plan Sponsor: Valued using the last reported sales on an active market prior to close of the Plan year.
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.
Self-directed brokerage accounts: The Plan allows participants to invest in self-directed brokerage accounts. The self-directed brokerage accounts include investment in cash, unit investment trusts, money market funds, and common stock. These investments are valued based on the quoted NAV of shares held by the Plan at year-end or the last reported sales on an active market prior to close of the Plan year.
Money market funds: Valued at approximately one dollar per share. The Adviser normally invests a majority of the fund's total assets in cash, U.S. Government securities and/or repurchase agreements that are collateralized fully (i.e., collateralized by cash or government securities).
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, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at December 31, 2019
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Mutual funds
|
|
$
|
84,630,589
|
|
|
$
|
84,630,589
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Common stock of Plan Sponsor
|
|
1,801,066
|
|
|
1,801,066
|
|
|
—
|
|
|
—
|
|
|
Common collective trust
|
|
4,288,247
|
|
|
—
|
|
|
4,288,247
|
|
|
—
|
|
|
Self-directed brokerage accounts
|
|
982,731
|
|
|
982,731
|
|
|
—
|
|
|
—
|
|
|
Money market funds
|
|
9,391
|
|
|
9,391
|
|
|
—
|
|
|
—
|
|
|
|
|
$
|
91,712,024
|
|
|
$
|
87,423,777
|
|
|
$
|
4,288,247
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at December 31, 2018
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Mutual funds
|
|
$
|
61,225,484
|
|
|
$
|
61,225,484
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Common stock of Plan Sponsor
|
|
2,246,809
|
|
|
2,246,809
|
|
|
—
|
|
|
—
|
|
|
Common collective trust
|
|
3,974,551
|
|
|
—
|
|
|
3,974,551
|
|
|
—
|
|
|
Self-directed brokerage accounts
|
|
417,636
|
|
|
417,636
|
|
|
—
|
|
|
—
|
|
|
|
|
$
|
67,864,480
|
|
|
$
|
63,889,929
|
|
|
$
|
3,974,551
|
|
|
$
|
—
|
|
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 IRC. 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, 2019, 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.
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 $169,560 for the year ended December 31, 2019.