SALT LAKE CITY, Nov. 16 /PRNewswire-FirstCall/ -- Overstock.com, Inc. (Nasdaq: OSTK) today filed an unreviewed Form 10-Q for the period ending September 30, 2009. Below is a letter from Patrick Byrne, the company's Chairman and CEO.
"All things are subject to interpretation; whichever interpretation prevails at a given time is a function of power and not truth."
- Friedrich Nietzsche
We have elected to file an unreviewed Form 10-Q for the period ending September 30, 2009. Here is why:
- In February 2009, we were notified by a partner that we had overpaid it
approximately $700,000, but that the partner wanted to reach a mutual
solution to this overpayment and another open issue (the partner has
asserted that we might owe it in excess of $400,000 regarding this other
issue). At that time, we doubted our ability to recover this overpayment
and we could not reasonably estimate what we might recover.
- Thus, we had to decide between either immediately recognizing as income a
sum whose magnitude, collection, and collectability was in doubt (which
we felt was an incorrect and aggressive position, especially in light of
the economic and retail environment of the time), or whether we should
take a more conservative position of negotiating with this vendor who
owed whom, how much, and on what terms, including timing of payment, and
recognizing those sums only if and when we received the payments.
- The accounting for this transaction required significant judgment and
interpretation of the facts and circumstances -- which others with 20/20
hindsight might later question. Weighing all the facts and circumstances
at the time, we decided it would be a mistake to book this overpayment as
an asset as of December 31, 2008, deciding instead to recognize the sums
as we recovered the money (that is, we thought the conservative position
was the correct position). Our auditors at the time,
PricewaterhouseCoopers ("PwC"), agreed with this course of action, and we
prepared our 2008 Form 10-K on the basis of this decision.
- Although PwC had given us eight years of fine service, after we filed our
2008 Form 10-K, we ran a formal RFP process for selecting our 2009
auditors as a reflection of my belief that changing auditors every decade
or so might be healthy. Grant Thornton won that RFP, and the Audit
Committee selected Grant Thornton as our 2009 auditor.
- Before Grant Thornton took our audit engagement in Q1 2009, it reviewed
our filed 2008 Form 10-K and told us it was comfortable with our past
- In late Q1 2009, we received $785,000 relating to the partner overpayment
discussed in point 1 above (even though the other issue with that partner
remained unresolved). Thus, we recognized $785,000 in our 2009 Q1 Form
10-Q financials, which Grant Thornton reviewed as our auditors. In
addition we highlighted $1.9 million (of which the $785,000 was a part)
attributable to the collected overpayment, certain partner under-billing
collections, and a freight carriers' refund of overcharges in one-time,
non-recurring income in that quarter's earnings release, earnings
conference call and Form 10-Q.
- As our auditors, Grant Thornton reviewed our financial statements in Q1
and Q2 2009 before we filed Form 10-Q's for those quarters. Throughout
2009, our Audit Committee has repeatedly asked Grant Thornton if there
was any accounting that it would do differently, and repeatedly received
the answer, "No." In fact, as recently as late-October 2009, Grant
Thornton confirmed to us that it supported our accounting method for
recognizing the $785,000.
- In early October and again in early November, the SEC sent us comment
letters asking us, among other things, to advise it on and justify the
accounting treatment we used regarding the $785,000.
- Last week, Grant Thornton advised us that, on further consultation and
review within the firm, it had revised its position and that it now
believes that we should have recorded the $785,000 as an asset in 2008.
As a result of its accounting position, Grant Thornton said it would be
unable to complete its review of the financial statements in our Q3 Form
10-Q unless we amended our previous 2009 quarterly filings and restated
our 2008 financial results. On November 13, Grant Thornton also advised
us that it believes that we should make disclosure or take action to
prevent future reliance on our March 31, 2009 financial statements and
June 30, 2009 financial statements filed in our Q1 and Q2 Form 10-Q's, as
a result of this issue.
- We disagree with Grant Thornton. We, along with PwC, continue to
believe that we have accounted for the $785,000 correctly and thus our
Q1 and Q2 financial statements are correct. Both we and PwC believe
that it is not proper to reopen our 2008 Form 10-K, subject to
resolution with the SEC of its comment letters.
- Thus, we are in a quandary: one auditing firm won't sign-off on our Q3
Form 10-Q unless we restate our 2008 Form 10-K, while our previous
auditing firm believes that it is not proper to restate our 2008 Form
10-K. Unfortunately, Grant Thornton's decision-making could not have
been more ill-timed as we ran into SEC filing deadlines.
As a result, we have elected to dismiss Grant Thornton, file an unreviewed Q3 Form 10-Q (as we have no current auditor), continue to work with the SEC on the issues addressed in its comment letters, and engage another independent audit firm. Once we have completed these last two items, we will file a reviewed Q3 Form 10-Q/A.
In the meantime, I will continue to focus on the business during this busiest part of the year.
I will hold a conference call to further explain and answer questions regarding this matter on Wednesday afternoon at 5:00 p.m. EST (details below). Until then, I remain,
Your humble servant,
Patrick M. Byrne
To listen to the conference call via telephone, dial (866) 551-1816 and enter passcode 42232838 when prompted. Participants outside the United States or Canada who do not have Internet access should dial +1 (706) 758-1198 and enter passcode 4223283 when prompted.
A replay of the webcast will be available at http://investors.overstock.com starting two hours after the live call has ended. An audio replay of the webcast will be available via telephone starting at 6:00 p.m. Eastern Time on Wednesday, November 18, 2009 through 11:59 p.m. Eastern Time on Wednesday, November 25, 2009. To listen to the recorded webcast by phone, please dial (800) 642-1687 and enter passcode 4223283 when prompted. Outside the U.S. or Canada please dial +1 (706) 645-9291 and enter passcode 4223283 when prompted.
Overstock.com, Inc. is an online retailer offering brand-name merchandise at discount prices. The company offers its customers an opportunity to shop for bargains conveniently, while offering its suppliers an alternative inventory distribution channel. Overstock.com, headquartered in Salt Lake City, is a publicly traded company listed on the NASDAQ Global Market System and can be found online at http://www.overstock.com. Overstock.com regularly posts information about the company and other related matters on its website under the heading "Investor Relations."
Overstock.com® is a registered trademark of Overstock.com, Inc. Any other trademarks are the property of their respective owners.
This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include all statements other than statements of historical fact, including statements regarding our ability to resolved any open matters with the SEC, hire another independent auditor, and the timing of any amended filing(s) with the SEC. Our Form 10-K/A for the year ended December 31, 2008, our subsequent quarterly reports on Form 10-Q, or any amendments thereto, and our other subsequent filings with the Securities and Exchange Commission identify important factors that could cause our actual results to differ materially from those contained in our projections, estimates or forward-looking statements.
SOURCE Overstock.com, Inc.
both of Overstock.com, Inc.