| ACCOUNTING POLICIES | ACCOUNTING POLICIES Principles of consolidation The accompanying consolidated financial statements include our accounts and the accounts of our wholly-owned and majority-owned subsidiaries. All intercompany account balances and transactions have been eliminated in consolidation. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, investment valuation, receivables valuation, valuation of derivative financial instruments, revenue recognition, sales returns, incentive discount offers, inventory valuation, depreciable lives of fixed assets and internally-developed software, goodwill valuation, intangible asset valuation, income taxes, stock-based compensation, performance-based compensation, and contingencies. We also used estimates in our valuation of recently acquired intangible assets. Actual results could differ materially from these estimates. Cash equivalents We classify all highly liquid instruments, including instruments with a remaining maturity of three months or less at the time of purchase, as cash equivalents. Cash equivalents were $28.1 million and $28.1 million at June 30, 2016 and December 31, 2015 , respectively. Restricted cash We consider cash that is legally restricted and cash that is held as a compensating balance for letter of credit arrangements as restricted cash. Fair value of financial instruments We account for our assets and liabilities using a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. These two types of inputs have created the fair-value hierarchy below. This hierarchy requires us to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value. • Level 1 —Quoted prices for identical instruments in active markets; • Level 2 —Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and • Level 3 —Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Under GAAP, certain assets and liabilities are required to be recorded at fair value on a recurring basis. Our assets and liabilities that are adjusted to fair value on a recurring basis are investments in money market mutual funds, trading securities, derivative instruments, and deferred compensation liabilities. The fair values of our investments in money market mutual funds, trading securities, and deferred compensation liabilities are determined using quoted market prices from daily exchange traded markets on the closing price as of the balance sheet date and are classified as Level 1. The fair values of our derivative instruments are determined using standard valuation models. The significant inputs used in these models are readily available in public markets, or can be derived from observable market transactions, and therefore have been classified as Level 2. Inputs used in these standard valuation models for derivative instruments include the applicable forward rates, interest rates and discount rates. Included in the fair value of derivative instruments is an adjustment for nonperformance risk. The adjustment for nonperformance risk did not have a significant impact on the estimated fair value of our derivative instruments. For additional disclosures related to our derivative instruments, see Derivative financial instruments below. The following tables summarize our assets and liabilities measured at fair value on a recurring basis using the following levels of inputs as of June 30, 2016 and December 31, 2015 as indicated (in thousands): Fair Value Measurements at June 30, 2016: Total Level 1 Level 2 Level 3 Assets: Cash equivalents - Money market mutual funds $ 28,128 $ 28,128 $ — $ — Trading securities held in a “rabbi trust” (1) 49 49 — — Total assets $ 28,177 $ 28,177 $ — $ — Liabilities: Derivatives (2) $ 4,612 $ — $ 4,612 $ — Deferred compensation accrual “rabbi trust” (3) 51 51 — — Total liabilities $ 4,663 $ 51 $ 4,612 $ — Fair Value Measurements at December 31, 2015: Total Level 1 Level 2 Level 3 Assets: Cash equivalents - Money market mutual funds $ 28,102 $ 28,102 $ — $ — Trading securities held in a “rabbi trust” (1) 68 68 — — Total assets $ 28,170 $ 28,170 $ — $ — Liabilities: Derivatives (2) $ 2,356 $ — $ 2,356 $ — Deferred compensation accrual “rabbi trust” (3) 70 70 — — Total liabilities $ 2,426 $ 70 $ 2,356 $ — ___________________________________________ (1) — Trading securities held in a rabbi trust are included in Prepaids and other current assets and Other long-term assets, net in the consolidated balance sheets. (2) — Derivative financial instruments are included in Other current liabilities, net and Other long-term liabilities in the consolidated balance sheets. (3) — Non qualified deferred compensation in a rabbi trust is included in Accrued liabilities and Other long-term liabilities in the consolidated balance sheets. Our other financial instruments, including cash, restricted cash, accounts receivable, accounts payable, accrued liabilities, finance obligations, and long-term debt are carried at cost, which approximates their fair value. Accounts receivable Accounts receivable consist primarily of trade amounts due from customers in the United States and from uncleared credit card transactions at period end. Accounts receivable are recorded at invoiced amounts and do not bear interest. Allowance for doubtful accounts From time to time, we grant credit to some of our business customers on normal credit terms (typically 30 days). We perform credit evaluations of our business customers’ financial condition and payment history and maintain an allowance for doubtful accounts receivable based upon our historical collection experience and expected collectability of accounts receivable. The allowance for doubtful accounts receivable was $848,000 and $465,000 at June 30, 2016 and December 31, 2015 , respectively. Concentration of credit risk Cash equivalents include short-term, highly liquid instruments with maturities at date of purchase of three months or less. At June 30, 2016 and December 31, 2015 , two banks held the majority of our cash and cash equivalents. We do not believe that, as a result of this concentration, we are subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships. Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash equivalents and receivables. We invest our cash primarily in money market securities which are uninsured. Valuation of inventories Inventories, consisting of merchandise purchased for resale, are accounted for using a standard costing system which approximates the first-in-first-out (“FIFO”) method of accounting, and are valued at the lower of cost or market. We write down our inventory for estimated obsolescence and to lower of cost or market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Once established, the original cost of the inventory less the related inventory allowance represents the new cost basis of such products. Reversal of the allowance is recognized only when the related inventory has been sold or scrapped. Prepaid inventories, net Prepaid inventories, net represent inventories paid for in advance of receipt. Prepaids and other current assets Prepaids and other current assets represent expenses paid prior to receipt of the related goods or services, including advertising, license fees, maintenance, packaging, insurance, and other miscellaneous costs. Fixed assets Fixed assets, which include assets such as technology infrastructure, internal-use software, website development, furniture and fixtures, and leasehold improvements, are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets or the term of the related capital lease, whichever is shorter, as follows: Life (years) Computer software 2-4 Computer hardware 3-4 Furniture and equipment 3-5 Leasehold improvements are amortized over the shorter of the term of the related leases or estimated useful lives. Depreciation expense is classified within the corresponding operating expense categories on the consolidated statements of operations as follows (in thousands): Three months ended Six months ended 2016 2015 2016 2015 Cost of goods sold - direct $ 82 $ 68 $ 159 $ 133 Technology 5,882 5,457 11,802 10,456 General and administrative 143 281 335 563 Total depreciation, including internal-use software and website development $ 6,107 $ 5,806 $ 12,296 $ 11,152 Total accumulated depreciation of fixed assets was $169.2 million and $156.8 million at June 30, 2016 and December 31, 2015 , respectively. Capitalized interest We capitalize interest costs incurred on debt during the construction of major projects. Capitalized interest for the three and six months ended June 30, 2016 and 2015 was not significant. Internal-use software and website development Included in fixed assets is the capitalized cost of internal-use software and website development, including software used to upgrade and enhance our Website and processes supporting our business. We capitalize costs incurred during the application development stage of internal-use software and amortize these costs over the estimated useful life of two to three years. Costs incurred related to design or maintenance of internal-use software are expensed as incurred. During the three months ended June 30, 2016 and 2015 , we capitalized $5.4 million and $5.4 million , respectively, of costs associated with internal-use software and website development, both developed internally and acquired externally. Amortization of costs associated with internal-use software and website development was $3.8 million and $3.7 million , respectively, for those respective periods. During the six months ended June 30, 2016 and 2015 , we capitalized $10.1 million and $9.4 million , respectively, of such costs and had amortization of $7.6 million and $6.9 million for those respective periods. Cost and equity method investments At June 30, 2016 , we held minority interests (less than 20%) in four privately held entities. The total aggregate amount of these investments was approximately $11.0 million . Included in these investments is an approximately $4.0 million investment in a financial technology company that we made in April 2016. In conjunction with this investment we agreed to make a subsequent $3.0 million investment, and a $3.0 million loan, that are contingent on the investee reaching certain milestones. We do not know when, or if, the investee will reach such milestones. We did not acquire a controlling interest in this investee, nor would our interest become controlling if we were to make the subsequent investment. Based on the nature of our investment, we have a variable interest in this investee. However, because we do not have power to direct the investee's activities, and therefore we are not the investee's primary beneficiary, we do not consolidate the investee in our financial statements. In June 2016, in order to maintain our proportional interest, we made a $200,000 convertible loan to one of the entities in which we hold a cost method investment. The loan will convert to an equity interest no later than January 2018. These investments are recognized as cost method investments included in Other long-term assets, net in our consolidated balance sheets. Earnings from the investments are recognized to the extent of dividends received, and we will recognize subsequent impairments to the investment if they are other than temporary. We review these investments individually for impairment by evaluating if events or circumstances have occurred that may have a significant adverse effect on their fair value. If such events or circumstances have occurred, we will then estimate the fair value of the investment and determine if any decline in the fair value of the investment below its carrying value is other-than-temporary. At June 30, 2016 , the carrying amount of the investments was $11.0 million . We recognized no impairment losses during the six months ended June 30, 2016 and the year ended 2015 . During Q1 2016, we made an approximately $2.9 million loan to an entity which will convert to a minority equity interest in the entity during Q3 2016. The loan is not redeemable and the conversion is mandatory. We have classified this loan in Other long term assets, net in our consolidated balance sheets. Upon conversion, we will hold a less than 20% interest in the entity and we will recognize the interest as a cost method investment. Noncontrolling interests During 2014, we formed Medici Inc. to develop blockchain and fintech technology. Medici Inc. is a majority owned subsidiary of Overstock. During Q1 2016, Medici Inc. completed the acquisition of the assets of a financial technology firm and the membership interests in two registered broker dealers, each of which was under common control with the firm from which the financial technology assets were purchased. The former owners of that firm hold noncontrolling interests in Medici Inc. The asset and membership interest acquisition transactions are described further in Note 3—Acquisitions, Goodwill, and Acquired Intangible Assets. The proceeds for the acquisitions were financed by Medici Inc. through a note payable to Overstock that bears interest at a rate that approximates the Federal Funds Rate. Medici Inc. is included in our consolidated financial statements. Intercompany transactions have been eliminated and the amounts of contributions and gains or losses that are attributable to the noncontrolling interests are disclosed in our consolidated financial statements. Leases We account for lease agreements as either operating or capital leases depending on certain defined criteria. In certain of our lease agreements, we receive rent holidays and other incentives. We recognize lease costs on a straight-line basis without regard to deferred payment terms, such as rent holidays, that defer the commencement date of required payments. Additionally, tenant improvement allowances are amortized as a reduction in rent expense over the term of the lease. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the life of the lease, without assuming renewal features, if any, are exercised. Treasury stock We account for treasury stock under the cost method and include treasury stock as a component of stockholders’ equity. Precious metals Our precious metals consisted of $5.7 million in gold and $4.0 million in silver at June 30, 2016 and December 31, 2015 . We store our precious metals at an off-site secure facility. Because these assets consist of actual precious metals, rather than financial instruments, we account for them as an investment initially recorded at cost (including transaction fees) and then adjusted to the lower of cost or market based on an average unit cost. On an interim basis, we recognize decreases in the value of these assets caused by market declines. Subsequent increases in the value of these assets through market price recoveries during the same fiscal year are recognized in the later interim period, but may not exceed the total previously recognized decreases in value during the same year. Gains or losses resulting from changes in the value of our precious metal assets are recorded in Other income, net in our consolidated statements of operations. There were no recorded gains or losses on investments in precious metals for the three and six months ended June 30, 2016 . We recorded a $52,000 loss on investments in precious metals for the three and six months ended June 30, 2015 . Goodwill Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired in business combinations. Goodwill is not amortized but is tested for impairment at least annually. When evaluating whether goodwill is impaired, we make a qualitative assessment to determine if it is more likely than not that its fair value is less than its carrying amount. If the qualitative assessment determines that it is more likely than not that its fair value is less than its carrying amount, we compare the fair value of the reporting unit to which the goodwill is assigned to its carrying amount. If the carrying amount exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss, if any, is calculated by comparing the implied fair value of the goodwill to its carrying amount. In calculating the implied fair value of goodwill, the fair value of the reporting unit is allocated to the other assets and liabilities within the reporting unit based on estimated fair value. The excess of the fair value of a reporting unit over the amount allocated to its other assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized when the carrying amount of goodwill exceeds its implied fair value. In accordance with this guidance, we test for impairment of goodwill annually or when we deem that a triggering event has occurred. There were no impairments to goodwill recorded during the six months ended June 30, 2016 or the year ended December 31, 2015 . During the six months ended June 30, 2016 , we recognized a $688,000 adjustment in goodwill related to a business combination as described in Note 3—Acquisitions, Goodwill, and Acquired Intangible Assets. The change in goodwill relates to a non-reportable segment, included in Other as described in Note 8—Business Segments. Intangible assets other than goodwill We capitalize and amortize intangible assets other than goodwill over their estimated useful lives unless such lives are indefinite. Intangible assets other than goodwill acquired separately from third-parties are capitalized at cost while such assets acquired as part of a business combination are capitalized at their acquisition-date fair value. Intangible assets other than goodwill are amortized using the straight line method of amortization over their useful lives, with the exception of certain intangibles (such as acquired technology, customer relationships, and trade names) which are amortized using an accelerated method of amortization based on cash flows. These assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable as described below under Impairment of long-lived assets . During the six months ended June 30, 2016 , we acquired $224,000 of intangible assets other than goodwill related to a business combination as described in Note 3—Acquisitions, Goodwill, and Acquired Intangible Assets. Aggregate amortization expense for intangible assets other than goodwill was $1.1 million and $32,000 for the three months ended June 30, 2016 and 2015 , respectively. For the six months ended June 30, 2016 and 2015 , the aggregate amortization expense for intangible assets other than goodwill was $2.2 million and $62,000 , respectively. Impairment of long-lived assets We review property and equipment and other long-lived assets, including intangible assets other than goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability is measured by comparison of the assets’ carrying amount to future undiscounted net cash flows the asset group is expected to generate. Cash flow forecasts are based on trends of historical performance and management’s estimate of future performance, giving consideration to existing and anticipated competitive and economic conditions. If such asset group is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair values. There were no impairments to long-lived assets recorded during the six months ended June 30, 2016 or the year ended December 31, 2015 . Cryptocurrency holdings We hold cryptocurrency-denominated assets such as bitcoin and we include them in other current assets in our Consolidated Balance Sheets. Cryptocurrency-denominated assets were $256,000 and $226,000 at June 30, 2016 and December 31, 2015 , respectively, and are recorded at the lower of cost or market based on an average unit cost. On an interim basis, we recognize decreases in the value of these assets caused by market declines. Subsequent increases in the value of these assets through market price recoveries during the same fiscal year are recognized in the later interim period, but may not exceed the total previously recognized decreases in value during the same year. Gains or losses resulting from changes in the value of our cryptocurrency assets are recorded in Other income, net in our consolidated statements of operations. There were no recorded gains or losses on cryptocurrency holdings during the six months ended June 30, 2016 . Losses on cryptocurrency holdings were $106,000 during the six months ended June 30, 2015 . Other long-term assets Other long-term assets consist primarily of cost and equity method investments (see Cost and equity method investments above) and long-term prepaid expenses. Derivative financial instruments In 2014, we entered into a loan agreement in connection with the construction of our new corporate headquarters. We began borrowing under the facility in October 2015. Because amounts borrowed on the loan will carry a variable LIBOR-based interest rate, we will be affected by changes in certain market conditions. These changes in market conditions may adversely impact our financial performance, and as such, we use derivatives as a risk management tool to mitigate the potential impact of these changes. We do not enter into derivatives for speculative or trading purposes. The primary market risk we manage through the use of derivative instruments is interest rate risk on the amounts we expect to borrow under the loan agreement relating to our new headquarters. To manage that risk, we use interest rate swap agreements. An interest rate swap agreement is a contract between two parties to exchange cash flows based on underlying notional amounts and indices. Our interest rate swaps entitle us to pay amounts based on a fixed rate in exchange for receipt of amounts based on variable rates. The notional amounts under our hedges were $39.4 million and $20.5 million at June 30, 2016 and December 31, 2015 , respectively. Our derivatives are carried at fair value in our consolidated balance sheets in Other current liabilities, net and Other long-term liabilities on a gross basis. The accounting for gains and losses that result from changes in the fair values of derivative instruments depends on whether the derivatives have been designated and qualify as hedging instruments under GAAP. Our derivatives have been designated and qualify as cash flow hedges. We formally designated and documented, at inception, the financial instruments as hedges of specific underlying exposures, the risk management objectives, and the strategy for undertaking the hedging transactions. In addition, we formally assess, both at the inception and at least quarterly thereafter, whether the financial instruments used in hedging transactions are effective at offsetting changes in the cash flows of the related underlying exposures. To the extent that the hedges are effective, the changes in fair values of our cash flow hedges are recorded in Accumulated other comprehensive income (loss). Any ineffective portion is immediately recognized into earnings. The estimated net amount of the existing gains or losses that are reported in accumulated other comprehensive income at June 30, 2016 that is expected to be reclassified into earnings within the next 12 months is not material. We determine the fair values of our derivatives based on quoted market prices or using standard valuation models (see Fair value of financial instruments above). The notional amounts of the derivative financial instruments do not necessarily represent amounts exchanged by the parties and, therefore, are not a direct measure of our exposure to the financial risks described above. The amounts exchanged are calculated by reference to the notional amounts and by other terms of the derivatives, such as interest rates. The following table shows the effect of derivative financial instruments that were designated as accounting hedges for the period indicated (in thousands): Cash flow hedges Amount of gain (loss) recognized in OCI on derivative (effective portion) net of tax Location of gain (loss) reclassified from Accumulated OCI into income (effective portion) Amount of gain (loss) reclassified from Accumulated OCI into income (effective portion) Location of gain (loss) recognized in income on derivative (ineffective portion) Amount of gain (loss) recognized in income on derivative (ineffective portion) Three months ended June 30, 2016 Interest rate swap $ (1,020 ) Interest expense $ — Other income (expense) $ — Six months ended June 30, 2016 Interest rate swap $ (1,560 ) Interest expense $ — Other income (expense) $ — The following table provides the outstanding notional balances and fair values of derivative financial instruments that were designated as accounting hedges outstanding positions for the dates indicated, and recorded gains/(losses) during the periods indicated (in thousands): Cash flow hedges Location in balance sheet Expiration date Outstanding notional Fair value Beginning gains (losses) Gains (losses) recorded during period (1) Ending gains (losses) Three months ended June 30, 2016 Interest rate swap Current and Other long-term liabilities 2023 $ 39,433 $ (4,683 ) $ (3,991 ) $ (692 ) $ (4,683 ) Six months ended June 30, 2016 Interest rate swap Current and Other long-term liabilities 2023 $ 39,433 $ (4,683 ) $ (2,397 ) $ (2,286 ) $ (4,683 ) ___________________________________________ (1) — Gains (losses) recorded during the period are presented gross of the related tax impact. Revenue recognition We derive our revenue primarily from direct revenue and partner revenue from merchandise sales. We also earn revenue from advertising on our website and from other pages. We have organized our operations into two principal segments based on the primary source of revenue: direct revenue and partner revenue (see Note 8—Business Segments). Revenue is recognized when the following revenue recognition criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or the service has been provided; (3) the selling price or fee revenue earned is fixed or determinable; and (4) collection of the resulting receivable is reasonably assured. Revenue related to merchandise sales is recognized upon delivery to our customers. As we ship high volumes of packages through multiple carriers, it is not practical for us to track the actual delivery date of each shipment. Therefore, we use estimates to determine which shipments are delivered and, therefore, recognized as revenue at the end of the period. Our delivery date estimates are based on average shipping transit times, which are calculated using the following factors: (i) the type of shipping carrier (as carriers have different in-transit times); (ii) the fulfillment source (either our warehouses, those warehouses we control, or those of our partners); (iii) the delivery destination; and (iv) actual transit time experience, which shows that delivery date is typically one to eight business days from the date of shipment. We review and update our estimates on a quarterly basis based on our actual transit time experience. However, actual shipping times may differ from our estimates. We evaluate the criteria outlined in ASC Topic 605-45, Principal Agent Considerations , in determining whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. When we are the primary obligor in a transaction, are subject to inventory risk, have latitude in establishing prices and selecting suppliers, or have several but not all of these indicators, revenue is recorded gross. If we are not the primary obligor in the transaction and amounts earned are determined using a fixed percentage, revenue is recorded on a net basis. Currently, the majority of both direct revenue and partner revenue is recorded on a gross basis, as we are the primary obligor. We present revenue net of sales taxes. We periodically provide incentive offers to our customers to encourage purchases. Such offers include current discount offers, such as percentage discounts off current purchases and other similar offers, which, when used by customers, are treated as a reduction of revenue. Direct revenue Direct revenue is derived from merchandise sales of our owned inventory to individual consumers and businesses. Direct revenue comes from merchandise sales that occur primarily through our Website, but may also occur through offline and other channels. Partner and other revenue Partner and other revenue is derived primarily from merchandise sales of inventory owned by our partners which they generally ship directly to our consumers and businesses. Partner and other revenue comes from merchandise sales that occur primarily through our Website, but may also occur through offline and other channels. Club O loyalty program We have a customer loyalty program called Club O Gold for which we sell annual memberships. We also introduced an introductory customer loyalty program called Club O Silver for customers who agree to receive promotional emails. For Club O Gold memberships, we record membership fees as deferred revenue and we recognize revenue ratably over the membership period. Both the Club O Gold and Club O Silver loyalty programs allow members to earn Club O Reward dollars for qualifying purchases made on our Website. We also have a co-branded credit card program (see Co-branded credit card program below for more information). Co-branded cardholders are also Club O Gold members and earn additional reward dollars for purchases made on our Website, and from other merchants. We account for these transactions as multiple element arrangements and allocate revenue to the elements using their relative fair values. We include the value of reward dollars earned in deferred revenue and we record it as a reduction of revenue at the time the reward dollars are earned. Club O Reward dollars earned may be redeemed on future purchases made through our Website. Club O Gold membership reward dollars expire 90 days after the customer’s Club O Gold membership expires. Club O Silver reward dollars expire 90 days after they are earned if no additional qualifying purchases are made during that period. We recognize revenue for Club O Reward dollars when customers redeem their reward dollars as part of a purchase on our Website. When Club O Reward dollars expire, we recognize reward dollar breakage as Other income, net in our consolidated statements of operations. In instances where customers receive free Club O Reward dollars not associated with any purchases, we account for these transactions as sales incentives such as coupons and record a reduction of revenue at the time the reward dollars are redeemed. Co-branded credit card program We have a co-branded credit card agreement with a commercial bank for the issuance of credit cards bearing the Overstock.com brand, under which the bank pays us fees for new accounts and for customer usage of the cards. The agreement also provides for a customer loyalty program offering reward points that customers will accrue from card usage and can use to make purchases on our Website (see Club O loyalty program above for more informat |
