You can be sure of two things when looking at Overstock.com (NASDAQ:OSTK) financial statements:
- They’re wrong
- There are massive losses (which will be even bigger when #1 comes to light)
Since 2000, Overstock.com has never had a profitable year. The only two quarters which ended up in the black are suspect… And since 2000, the company has accumulated losses over $239 million.
So it comes as no surprise that today Overstock announced it would be restating its financial statments for 2003 through 2007, reducing revenue by $12.9 million and increasing losses by over $10 million for the period.
CEO Patrick Byrne uses the following non-explanation to explain the problem:
The short version is: when we upgraded our system, we didn’t hook up some of the accounting wiring; however, we thought we had manual fixes in place. We’ve since found that these manual fixes missed a few of the unhooked wires. It also turned out there were errors cutting both ways which partially obscured the problem because we relied on reasonability testing to verify certain balances rather than a ground-up reconciliation.
A reading of David Chidester’s explanation of the problem suggests that accounts receivable have been overstated because of a failure to record customer refunds. The company also overstated revenue related to the shipping charges on orders canceled by customers, and then didn’t bill partners back for some of this cost.
Some of the financial statements that are being restated have already been restated by Overstock.com once, making the new financial statements “re-restated.” Leave it to Ringmaster Byrne and his three ring circus. Mismanagement at its finest.
I don’t think anyone would ever confuse me for a Skippy Byrne apologist. He’s a goofball. Overstock is a disaster. And anyone who owns their stock must have fecal material for brains.
With that being said, it’s a little hard to stomach the “AH HA!” factor on the part of Skippy’s other detractors that has accompanied Overstock’s disclosure in their 8-K that revenues for the past five and half years need to be restated.
Not to make light of $12.9 million, for there will come a time when Overstock will wish they had a spare $12.9 million lying around, this restatement is less than 0.4% of the gross revenues generated for the period in question. It’s a very minor detail. It was sloppy on Overstock’s part, but sloppy is what we’ve come to expect of this enterprise. More importantly, there is no reason to suspect that this minor bookkeeping gaffe was in any way an attempt to mislead investors about Overstock’s operations or their ongoing condition.
Even with the sloppy numbers Overstock has been releasing for the past five and half years, astute investors could tell this company wasn’t going anywhere. There are plenty of issues with Skippy Byrne and Overstock that border on fraud; this is not one of them. Let’s not add to the growing number of people right now who want to criminalize stupidity.
Of COURSE there’s going to be a bit of an “a-ha” when Byrne is running around claiming his statement are in accordance with GAAP.
First of all, their calculation of “EBITDA” is not EBITDA at all. It is a made-up calculation, and calling it EBITDA violates both SEC guidance and accounting rules. So for that reason alone, Overstalk has been and continues to be out of compliance with reporting standards.
Further, this is the SECOND time several years will have been restated. A-ha on that as well, because there’s simply no excuse for it. Being dumb isn’t criminal. But it’s still being dumb.
You may say that the net effect over the years is immaterial, but on an annual basis it is material. In strict dollar terms, the adjustments don’t meet typical materiality thresholds. But materiality cannot only be determined only with numbers… situational factors must be examined as well. Based on Overstalk’s history of shoddy accounting, I think the errors make this material.
Overstalk’s explanation that they did “reasonability testing” when implementing a new system that they KNEW had faults in recording transactions shows you just how stupid they are. Actual reconciliations of numbers should have been done and individual items should have been traced through the system until they were sure of what was and was not being recorded.
Byrne and his team are completely incompetent. This situation is just one of many examples.
I find his ongoing lies about EBITDA and his past lies about Overstock’s need to raise additional capital to be far more egregious than the minor discrepencies that have arisen from their treatment of customer refunds and booking revenues on “ship” date instead of “delivery” date.
Anyone with their eyes open knows that Skippy is the Jeffrey Dahmer of the corporate world. To my way of thinking, making so much noise over what is the financial equivalent of corporate jaywalking detracts from his far more serious offenses.
Point taken…