ACQUISITIONS, GOODWILL, AND ACQUIRED INTANGIBLE ASSETS (Notes)

12 Months Ended

Dec. 31, 2015

Business Combinations [Abstract]

Acquisitions, Goodwill, and Acquired Intangible Assets

ACQUISITIONS, GOODWILL, AND ACQUIRED INTANGIBLE ASSETS

As part of our crypto-initiatives, on August 26, 2015 Cirrus Services LLC, a wholly owned subsidiary of Medici, Inc., which is a majority owned subsidiary of Overstock.com, Inc., entered into an asset purchase agreement with Cirrus Technologies LLC. On August 26, 2015 the transaction closed, and Cirrus Services LLC acquired all or substantially all of Cirrus Technologies LLC’s assets for a purchase price of $29.1 million, consisting of approximately $11.0 million in cash and 908,364 shares of Overstock’s common stock valued at approximately $18.1 million. The proceeds for the acquisition were financed by Medici, Inc., through a note payable to Overstock that bears interest that approximates the Federal Funds Rate. The total purchase price has been allocated to the assets acquired and the liabilities assumed based on their respective fair values at the acquisition date, with amounts exceeding fair value recorded as goodwill. We do not expect to record significant deferred taxes related to the acquisition. The goodwill of the acquired business is deductible for tax purposes. During the year ended December 31, 2015, we recognized $1.1 million in acquisition costs which were included in general and administrative expenses in our consolidated income statement.

In connection with the Cirrus Technology asset acquisition, on August 26, 2015 Medici also entered into (i) an agreement to purchase all of the outstanding membership interests in SpeedRoute LLC (“SpeedRoute”) and (ii) an agreement to purchase all of the outstanding membership interests not already owned by Medici in Pro Securities, LLC (“Pro Securities”), each of which was under common control with Cirrus Technology by a party that holds a noncontrolling interest in Medici. SpeedRoute and Pro Securities are privately-held registered broker dealers, and these acquisitions were subject to certain approvals and conditions, which were satisfied subsequent to December 31, 2015. In January 2016, the acquisition of SpeedRoute and Pro Securities closed. The aggregate consideration paid for the interests acquired in SpeedRoute and Pro Securities was $600,000.

Determination and allocation of the purchase price is based upon preliminary estimates and assumptions that will be finalized when the acquisition is completed in its entirety upon the closing of SpeedRoute and Pro Securities. These preliminary estimates and assumptions could change significantly during the measurement period as we finalize the valuations of the net tangible and intangible assets acquired and liabilities assumed. Any change could result in variances between our future financial results and the amounts recognized in the accompanying condensed consolidated financial statements as of and for the period ended December 31, 2015, including variances in fair values recorded, as well as expenses associated with these items.

The preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date are as follows (in thousands): 

Purchase Price	Fair Value
Cash paid, net of cash acquired	$	10,601
Common stock issued	18,149
	$	28,750
Allocation
Goodwill	$	12,603
Intangibles	15,776
Accounts receivable	628
Property and equipment	233
Other liabilities assumed	(490		)
	$	28,750

The following table details the identifiable intangible assets acquired at their fair value and remaining useful lives (amounts in thousands): 

Intangible Assets	Fair Value			Weighted Average Useful Life (years)
Technology and developed software	$	13,600		5.79
Customer relationships	1,862			.47
Trade names	294			9.55
Other	20
Total acquired intangible assets as of the acquisition date	15,776
Less: accumulated amortization of acquired intangible assets	(1,471		)
Total acquired intangible assets, net as of December 31, 2015	$	14,305

The expense for amortizing acquired intangible assets in connection with this acquisition was $1.5 million for the year ended December 31, 2015.

Acquired intangible assets primarily include technology, customer relationships and trade names. We determined the fair value of the identifiable intangible assets using various income approach methods including excess earnings to determine the present value of expected future cash flows for each identifiable intangible asset based on discount rates which incorporate a risk premium to take into account the risks inherent in those expected cash flows. The expected cash flows were estimated using the expectations of market participants.

The acquired assets, liabilities, and associated operating results were consolidated into our financial statements at the acquisition date. The net sales and operating loss of the acquired company included in our financial statements was $1.9 million and $769,000, respectively, for the year ended December 31, 2015. The net sales of the acquired entity were generated primarily from transactions with SpeedRoute.

The following unaudited pro forma financial information presents our results as if the current year acquisitions had occurred at the beginning of 2013 (amounts in thousands):

	Year Ended December 31,
	2015		2014		2013
Net revenues	$	1,661,540	$	1,499,944	$	1,306,454
Operating income	$	640	$	10,185	$	11,943

The unaudited pro forma financial information is not intended to represent or be indicative of our consolidated results of operations that would have been reported had the acquisition been completed as of the beginning of 2013, nor should it be taken as indicative of our future consolidated results of operations.