Overstock Plans Restatement

It's changing the way it accounts for inventory freight.
Author:
Publish date:

Overstock

(OSTK) - Get Report

will restate several years' of financial statements to change the way it records the cost of transporting inventory to warehouses.

The new accounting, which has been alluded to in other Overstock communications, will narrow the company's previously reported third-quarter loss by $1.77 million. Overstock's second-quarter 2005 loss will be narrowed by $592,000 and its first-quarter loss will be widened by $107,000.

Previously reported losses for 2002, 2003 and 2004 will be narrowed slightly by the change.

As is usually the case when such a restatement is disclosed, Overstock warned that its old financial statements should no longer be relied upon. The company also noted that such a change meets the definition of a "material weakness" in its financial controls at Dec. 31, 2005, and a year earlier.

Specifically, the misstatements relate to the company's former practice of immediately expensing inbound freight costs in the period incurred rather than capitalizing them as a component of inventory and expensing the costs as the related inventory is sold.

In a press release on Feb. 7, 2006, Overstock noted that "new systems" made it able to account for inbound freight by capitalizing and expensing it as the related inventory sells. The company said at the time that reconciling the new systems created a "knotty problem" that it was working through with auditors.

Overstock, which sells discounted merchandise over the Internet, closed at $23.07 Monday. The company has recently been at the center of a burgeoning controversy regarding allegations that a stock-research firm was paid by short sellers to write negative reports on the company.

TheStreet.com

(TSCM)

, which publishes this Web site, disclosed Monday a subpoena in the

SEC's

investigation.