Wednesday, April 22, 2009

Today's Overstock.com Q1 2009 Earnings Conference Call: Questions Submitted to Patrick Byrne

Updated

Overstock.com's (NASDAQ: OSTK) earnings conference call is scheduled to start on Wednesday, April 22, 2009 at 3:00 PM Eastern. Therefore, I have submitted the questions below for CEO Patrick Byrne to answer. Before asking each question, I provide the context of my questions. Let's see if the masquerading stock market reformer Patrick Byrne has the guts to provide a detailed truthful response to each and every question.

To Patrick M. Byrne:

Senior Note Repurchases

As of December 31, 2008, Overstock.com reported that $67.5 million of Senior Notes were outstanding. Those notes were issued in November 2004. Since that time Overstock.com has disclosed that there were material weaknesses in internal controls and that its revenue accounting did not conform to GAAP and SEC disclosure rules from the company’s inception (day one).

In addition, financial reports from Q1 2003 to Q3 2004 (periods before the Senior Notes were offered) have been restated twice. Recently, Overstock.com has been buying back such notes at a discount or profit by paying investors less than the face amount of such notes.

Questions:

Do you believe that investors would have purchased such Senior Notes under those same terms and conditions in November 2004, in light of Overstock.com’s subsequent disclosures about material weaknesses in internal controls, departures from GAAP and violations of SEC disclosure rules, as recently disclosed by the company?

Is it fair to say that you are taking advantage of investors in Senior Notes by buying the debt at a discount to face value?

James V. Joyce Resignation and Contract Termination Fee paid to Icent LLC (run by Mr. Joyce)

On April 1, 2009, James V. Joyce resigned from Overstock.com’s board of directors. In an 8-K report filed with the Securities and Exchange Commission, Overstock.com disclosed that Icent LLC (a company run by Mr. Joyce) received $1.2 million to terminate its contract with Overstock.com.

According to the proxy statement, Overstock.com "...paid Icent LLC $360,000 annually, and paid approximately $75,187 of reimbursable expenses to Icent in 2008."

Questions:

Please describe in detail the services rendered by Icent LLC to Overstock.com. What factors justified the huge $1.2 million contract termination fee which is approximately 3.5 times annual fees paid to Icent LLC?

Is it Overstock.com’s view that its agreement with Icent LLC and any amendments thereof are considered a “material definitive agreement” under SEC rules?

Please explain in detail Overstock.com’s position of that point.

Does Overstock.com intend to disclose as an exhibit in a future filing to the SEC copies of any agreements made with Icent LLC?

Please describe any contract termination provision in any agreement with Icent LLC.

Assuming that the original contract with Icent LLC had a contract termination provision, was it ever amended?

Did the original contract with Icent LLC call for a contract termination payment of $1.2 million? If not, was it agreed to at a later time?

Did James V. Joyce or Icent LLC render any services that relate to Deep Capture LLC or antisocialmedia.net?

Smear Campaign

You have viciously retaliated against me and other brave journalists and bloggers with innuendo, smears, and lies for having the courage to expose your misdeeds. Recently, your paid internet stalker Judd Bagley posted smears, innuendo, and lies about my ongoing matrimonial action in an attempt to discredit me. He even threatened me to "settle the case." (Details here)

Questions:

Do you deny orchestrating a retaliatory smear campaign against your critics through your funding and admitted control of Deep Capture LLC, compensating individuals such as Judd Bagley and Mark Mitchell to post smears, innuendos, and lies about your critics on Deep Capture's web site and internet public chat boards?

Do you deny ever violating Overstock.com’s Code of Business Conduct and Ethics?

Please explain your answer in detail.

Do you deny ever lying or misleading investors or the public about Overstock.com’s financial performance?

Please disclose the exact nature of the relationship between Overstock.com and Deep Capture, including but not limited to any Overstock.com resources used by Deep Capture, whether past or present.

Recently, Judd Bagley who claims to be compensated by Deep Capture LLC, a company that you funded, posted innuendo, lies, and smears about my divorce on the Yahoo message boards.

Do you approve of Bagley’s behavior towards me and other critics?

Recent Amendments to Financial Reports

Overstock.com recently filed amendments to prior financial reports filed with the Securities and Exchange Commission. Each of those amendments contains an “Explanatory Note” detailing the changes in certain disclosures and the reasons for such changes.

From Q2 2007 to Q2 2008, Overstock.com violated SEC Regulation G by using a non-compliant EBITDA and the company materially overstated its financial performance. In Q3 2008, Overstock.com revised its non-compliant EBITDA disclosure and called it “adjusted EBITDA” to try to conform to SEC Regulation G. Overstock.com also revised its previously reported (Q2 2007 to Q2 2008) non-compliant EBITDA disclosures in those amended reports. However, there is no explanation why such non-GAAP disclosures were changed.

Question: Please explain why Overstock.com made no reference to using a non-compliant EBITDA in its “Explanatory Note” to amended financial reports and provided no reason for changing such non-GAAP disclosures.

Update:

Lee Webb from Stockwatch analyzes Overstock.com's responses and lack of responses to my questions (detailed here).

Written by:

Sam E. Antar (former Crazy Eddie CFO and a convicted felon)

Disclosure:

I have no position in Overstock.com securities, long or short.

Saturday, April 04, 2009

Overstock.com Proxy Reveals Exit Payment to Departing Director James V. Joyce's Company is Equivalent to Three and One-Half Year's Fees

Updated:

According to Overstock.com's (NASDAQ: OSTK) proxy statement filed with the Securities and Exchange Commission on Friday, April 2, the company's $1,250,000 payment to terminate a management consulting agreement with Icent LLC, a company headed by departing Board Member James V. Joyce, was 3.5 times the amount of annual fees of $360,000 paid to Icent. In other words, the company paid Icent an equivalent to three and one-half year's fees to terminate its consulting agreement.

As I described in my last blog post, on Wednesday, April 1, James V. Joyce unexpectedly resigned from Overstock.com's Board of Directors. Overstock.com failed to mention the huge $1,250,000 termination payment to Joyce's consulting firm in its press release that announced Joyce's resignation. Instead, Overstock.com left investors with the mundane task of finding out about the $1,250,000 termination payment by disclosing it in a separate SEC filing.

See Overstock.com's recent proxy disclosure below:

James V. Joyce, who served on our Board of Directors from February 2008 through April 1, 2009, also has served as a consultant to us, through Icent LLC, a management consulting company of which Mr. Joyce serves as chief executive officer, for several years. We paid Icent LLC $360,000 annually, and paid approximately $75,187 of reimbursable expenses to Icent in 2008. On January 14, 2008 we granted 15,000 restricted stock units to Mr. Joyce, at which date the market price of the common stock was $12.21. On January 13, 2009 we granted 10,000 restricted stock units to Mr. Joyce, at which date the market price of the common stock was $9.89. The restricted stock units vest over a three-year period commencing on the date of grant at the rate of 25% at the end of year one, 25% at the end of year two, and 50% at the end of year three. On April 1, 2009, we terminated our consulting arrangement with Icent LLC, and Mr. Joyce resigned from the Board. Consequently, Mr. Joyce forfeited the unvested portion of the restricted stock units previously granted to him. In connection with the termination of the Icent LLC consulting arrangement, the Company agreed to pay Mr. Joyce $1,250,000. [Emphasis added.]

Let's compare Overstock.com $1,250,000 termination payment to Icent LLC to other payments made by the company in 2008:

  • Fees paid to PricewaterhouseCoopers (recently replaced by Grant Thornton): $820,100
  • Total salaries paid to principal executive officer, principal financial officer, and three most highly compensated executive officers: $809,760.

Therefore, Overstock.com's $1,250,000 termination payment to Icent was about 1.5 times the amounts paid to PricewaterhouseCoopers and its five senior executive officers.
As I described in my last blog post, a shrewd person posting on the Yahoo message board noted:

And another thing - why does a retailer that's been in business a decade need "management" consulting services (rhetorical question, I know the answer)? What aspect of "management" was Mr. Joyce consulting on? How many FTE's were consulting under Joyce's banner that would require a contractual payout of a whopping 1.25 million? How many man hours does that payout represent? 
Let's see, the avg cost of a non top-tier name "management consultant" has gotta be billed at around $150/hr or so these days.
Sooooooo, that's a payoff of over 8,000 man hours.
Ok hec, let's say Joyce was worth every penny of $500/hr - that's a payout of 2,500 man hours. Under most standard per-diem consulting contracts, the contracting company only has to provide 2-weeks termination warning or forfeit 2 weeks of billings. Let's see...80 hours of billable hours at the fantastic rate of $500/hr = $40,000.
Ok longs - speak up - is THIS the kind of shareholder equity stewardship you are expecting from Patrick Byrne?
Stinky, stinky

Overstock.com CEO Patrick Byrne has not fully explained why such a large payment was made to James Joyce's consulting company or explained the exact nature of services provided by his company.

Update: Unlike other Overstock.com directors who received $60,000 in annual compensation, all fees paid for James V. Joyce's services were paid to Icent LLC, his consulting company. James Joyce was an Overstock.com board member for only about a year and two months.

If we factor out the $60,000 in annual fees that can be attributed to Joyce's services as a director, Icent LLC was paid $300,000 ($360,000 total fees minus $60,000 director fees) in annual compensation for so-called consulting services rendered to Overstock.com.

Assuming that James V. Joyce did not receive any termination fees as a board member, Overstock.com actually paid Icent LLC an equivalent to four year's fees to terminate its consulting agreement.

In addition, I have never heard of a public company paying a consulting company for services rendered by an individual as a Board Member. Other directors at the company received $60,000 in annual director's compensation paid to them. For Joyce, even that amount was paid to his consulting company. Why was $60,000 in director's compensation paid to Joyce's consulting company?

Written by:

Sam E. Antar (former Crazy Eddie CFO and a convicted felon)

Disclosure:

I have no position in Overstock.com securities, long or short.

Thursday, April 02, 2009

Overstock.com Director James V. Joyce Bolts, Receives Huge Questionable Exit Payment

After yesterday's stock market closed, Overstock.com (NASDAQ: OSTK) announced the resignation of James V. Joyce from its Board of Directors. However, Overstock.com's press release made no reference to a $1,250,000 payment for the termination of consulting services to Icent LLC, a management consulting company headed by Mr. Joyce. Overstock.com left investors the mundane task of finding out about the $1,250,000 termination payment by disclosing it in a separate SEC filing. See below:

Overstock.com press release:

SALT LAKE CITY, April 1 /PRNewswire-FirstCall/ -- Overstock.com, Inc. (Nasdaq: OSTK) today announced that James V. Joyce has resigned from the Board of Directors of Overstock.com. Chairman and CEO Patrick Byrne said, "James' consulting engagement has been concluded with his customary extraordinary results. James' advice has been of tremendous value to me, the board, and the company for years, but especially over the last two years of getting the company back on the rails. I am deeply in his debt." Mr. Joyce had been a director since January 2008. [Emphasis added.]

Separate Overstock.com 8-K report filed with the SEC:

On April 1, 2009 Mr. James V. Joyce resigned from his position as a member of the Board of Directors of Overstock.com, Inc. (the “Company”). Mr. Joyce’s resignation is not the result of a disagreement with the Company on any matter relating to the Company’s operations, policies or practices. Mr. Joyce and the Company are concurrently ending the Company’s consulting arrangement with Icent LLC, which is a management consulting company of which Mr. Joyce is the chief executive officer, and through which Mr. Joyce has provided consulting services to the Company. In connection with the termination of the consulting arrangement, the Company has agreed to pay $1,250,000 to Mr. Joyce. [Emphasis added.]

On January 14, 2008, James Joyce replaced former company President Jason C. Lindsey on Overstock.com's Board of Directors after Lindsey resigned from both posts (President and Board Member) at the company. Jason Lindsey's resignation letter was dated December 31, 2007. However, in a separate sworn declaration filed in connection with a court proceeding, Lindsey said he resigned on January 2, 2008. In addition, a revolving line of credit note dated January 1, 2008 still listed Lindsey as a person "authorized to request advances" despite his claimed resignation as President of Overstock.com, a day earlier. Apparently, Lindsey's backdated his resignation.

Overstock.com's $1,250,000 contract termination payment to former Board member James Joyce is over five times the sum of $225,000 in consulting services "authorized to be paid to Mr. Joyce for services rendered to the Company during 2007." The company has not disclosed additional amounts in consulting services paid to Mr. Joyce in 2008 or 2009 to-date, aside from the termination fee.
See Overstock.com 8-K SEC filing dated January 14, 2008 below:

On January 14, 2008 the Board of Directors of Overstock.com, Inc. (the “Company”) appointed James V. Joyce to the Board of Directors. Mr. Joyce has served as a consultant to the Company since September 2005. The aggregate amount the Company has paid to Mr. Joyce since January 1, 2007 is $615,000 (including $225,000 authorized to be paid to Mr. Joyce for services rendered to the Company during 2007). The Company has previously granted Mr. Joyce options to acquire 40,000 shares of the Company’s common stock at a weighted average exercise price of $30.38 per share. In connection with the restricted stock unit grants described below, on January 14, 2008 the Company also granted Mr. Joyce restricted stock units to acquire 15,000 shares of the Company’s common stock under the Company’s 2005 Equity Incentive Plan and entered into or will enter into a Restricted Stock Unit Grant Notice and Restricted Stock Agreement with Mr. Joyce in substantially the form filed herewith as Exhibit 10.1. A copy of the press release issued by the Company on January 14, 2008 is attached hereto as Exhibit 99.1 and is incorporated by reference. [Emphasis added.]

A shrewd person posting on the Yahoo message board noted:

And another thing - why does a retailer that's been in business a decade need "management" consulting services (rhetorical question, I know the answer)? What aspect of "management" was Mr. Joyce consulting on? How many FTE's were consulting under Joyce's banner that would require a contractual payout of a whopping 1.25 million? How many man hours does that payout represent?
Let's see, the avg cost of a non top-tier name "management consultant" has gotta be billed at around $150/hr or so these days.
Sooooooo, that's a payoff of over 8,000 man hours.
Ok hec, let's say Joyce was worth every penny of $500/hr - that's a payout of 2,500 man hours. Under most standard per-diem consulting contracts, the contracting company only has to provide 2-weeks termination warning or forfeit 2 weeks of billings. Let's see...80 hours of billable hours at the fantastic rate of $500/hr = $40,000.
Ok longs - speak up - is THIS the kind of shareholder equity stewardship you are expecting from Patrick Byrne?
Stinky, stinky

Why has Overstock.com paid James Joyce such a huge sum to terminate his consulting agreement? Masquerading stock market reformer Patrick Byrne has claimed that he has "gold standard in communicating with candor” Overstock.com’s results. However, Overstock.com left out any mention of such a huge payment in its press release, leaving investors the mundane task of digging through SEC filings to obtain information about the contract termination payment.

Overstock.com CEO Patrick Byrne once said:

In our public SEC filings we chose principles at the conservative edge of GAAP….

However, Overstock.com violated GAAP in just about every financial report since inception (Details here, here, and here).

Written by:

Sam E. Antar (former Crazy Eddie CFO and a convicted felon)

Disclosure:

I have no position in Overstock.com securities, long or short.