Monday, October 31, 2011

Overstock.com Nears Default While Utah Media Sleeps

The always-intriguing story of Overstock.com ratcheted up a notch on Monday, as word emerged on Sam Antar's blog that Overstock is on the verge of violating its debt covenants and is therefore close to default, This devastating news was buried in a footnote.

That's probably the best example I've found of the need to read the footnotes of financial statements. Significant news is often buried therein. In this case, the news is so significant that I wonder if perhaps there may be a disclosure issue, and that Overstock should have issued a public disclosure highlighting its flirtation with bankruptcy.

Among Sam's findings, just from reading the latest 10-Q, is that Overstock is juggling the books:

At the end of its third quarter, the Overstock.com had $18.4 million of net working capital (current assets minus current liabilities). However, the company would have reported a mere $1.4 million of net working capital had it not played a shell game and window dressed its balance sheet during the third quarter. Apparently, the company wanted to avoid reporting dangerously low net working capital going into the fourth quarter, while at the same time it is trying to renegotiate terms of its Master Lease Agreement (sale leaseback) with U.S. Bank.

One thing I find especially interesting is the utter indifference to all this by the local Utah newspapers, especially the Salt Lake Tribune and Deseret News and the local Associated Press bureau, which seem to view their role as that of extensions of Overstock's public relations department. Not a word has appeared in the local newspapers about the company's third-quarter financial woes, the libel suit against its CEO Patrick Byrne, or the downgrade that led to a sell-off in the stock on Friday.

Here is typical Salt Lake Tribune "coverage," a rewritten press release on a routine postponement in the company's lawsuit against Goldman Sachs.

Here is a typical puff piece from the Deseret News on the company's disastrous "rebranding" strategy -- but not a word from the company's conference call last week on how "O.co" was causing confusion among customers and has hurt sales.

In the unlikely event that word ekes out into the press on its financial travails, legal woes or the default threat, you can be sure that it will be written with an overt pro-Overstock bias.

In other words, one of the largest and most interesting companies in Utah just isn't covered at all, except when it issues a press release. If that isn't a "captured media," to use one of Byrne's favorite phrases, I don't know what is.

The stock today is down 7% so far, and is testing its 52-week lows. If you relied upon the Utah newspapers to tell you about this dog's breakfast of a company, you'd be scratching your head and wondering why.

UPDATE: By the end of the day Overstock shares were down 8.4%, trading at a 52-week low, possibly because of Sam's blog item.

On Nov. 1, Overstock's descent into insolvency was picked up by the Going Concern accounting blog, and the stock is still falling, but the Utah media continues its radio silence. Not to worry, if Overstock comes up with a positive spin or some non-news p.r. event they'll be right on top of it.

© 2011 Gary Weiss. All rights reserved.
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