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Author: Hannibal100 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 18789  
Subject: Re: Sam’s Brain-Diarrhea Date: 3/1/2008 2:02 PM
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UR,

Let me use your statements as an example.

"As usual, its mostly sophomoric gibberish (e.g., how the heck should I know what the SEC is saying to other companies?)

"I'm not sure who asked that; I don't think it was anyone here. The question was, why is Overstock.com being told to do its revenue recognition in a manner that differs from other companies similarly situated? Amazon does theirs at shipment. The SEC rules that I can find online and have posted a few times now(*) seem to back up that method. Why is Overstock being told to change? Is it because of the large role partner fulfillment plays in your business?

"(*) http://www.sec.gov/interps/account.shtml

"Interpretative Response: Generally, no. The staff believes that delivery generally is not considered to have occurred unless the customer has taken title and assumed the risks and rewards of ownership of the products specified in the customer's purchase order or sales agreement. Typically this occurs when a product is delivered to the customer's delivery site (if the terms of the sale are "FOB destination") or when a product is shipped to the customer (if the terms are 'FOB shipping point')."

===========================================================
1) Overarching question: is anyone here so naive as to think it is appropriate for me to answer detailed questions of accounting policy on a message board? Anyone actually think that is appropriate? (other than Sam, whose sense of "'appropriate" is as fine-tuned as his sense of family honor)? Does "Reg FD" mean anything to anyone? Anyone? Bueller?

2) "The question was, why is Overstock.com being told to do its revenue recognition in a manner that differs from other companies similarly situated?" UR, welcome to my life.

3) "Is it because of the large role partner fulfillment plays in your business?" No, there is no connection between this issue and partner business. (However, are you absolutely sure you know how much of Amazon's is partner business? What percentage of their book SKU's ship from their warehouses as opposed to Ingram Book's?)

4) "I'm not sure who asked that; I don't think it was anyone here." Of course you are. You are making assumptions about what the SEC is saying (and not saying) to other companies, or at least, asking me to give answers about which I could be completely sure only if I knew what they were saying to other companies.

5) Respectfully suggest you rethink your certainty regarding FOB.

6) Respectfully suggest you consider the difference between what a company's policy and practice. It may have one policy but if its practice is to be more generous to the customer (say, by often not making the customers fight damage claims with carriers, but often reimbursing customers then handling the fights with carriers), then the practice is the one that matters for purposes of such an analysis.

7) Respectfully suggest you rethink your certainty regarding what other companies may or may not be being told.

8) Respectfully suggest you rethink your certainty that all financial and legal analyses are as mechanical as you suggest here, and as Sam insists over and over.

Such certainties are why I describe these posts as "sophomoric." Freshmen are all wild-eyed and green, sophomores are blindingly certain in areas where they know about a quarter of the facts.

Consider the possibility the the choice of policy, for any company, is a trade-off between knowledge (one KNOWS when one ships a product, one ESTIMATES when UPS delivers it to a customer) and materiality. Eight years ago the trade-off went one way. Now, for more and more companies, the trade-off cuts a different way (perhaps because systems have evolved to the point that estimates of deliveries on millions of products are better). As the accuracy of estimates shift, the trade-off between knowledge and materiality shifts, too. Eight years ago we were right in the middle of the fairway on this. In the last couple of years, that fairway has shifted. Not all companies have shifted, but some have, and the word is that the SEC is trying to get all companies to shift (but I do not know that to be a fact without knowing what they are saying to other companies, which I don't: I do see, however, what other companies are doing, and what the SEC is saying to OUR company).

Get it?

Now that it is several years in the past, I think I can safely describe an interaction we had with the FTC back in 2004. 98% of our orders left our warehouse within 2 business days ot being ordered, and our site said, "Products generally leave our warehouse within 2 business days of being ordered." I heard from the FTC. They wanted to know the grounds on which we said that we generally ship products within two business days of receipt of order. We sent them data showing that we did so 98% of the time. They came back and said, "Customers will interpret that as a guarantee, but since you only do it 98% of the time you cannot say that." We said, "OK, how about we say, 'Products USUALLY leave our warehouse within 2 business days of being ordered'?" They said, "Nope, cusomers will interpret that as a guarantee too, but since you only do it 98% of the time you cannot say it." We said, "Amazon says X (whatever "X" was at the time), so can we say that?" They said, "What other companies do has no bearing on this matter." We said, "How about we say, '98% of the time products leave our warehouse within 2 business days of being ordered'?" They said, "Nope, because customers will interpret '98%' as a guarantee, but since you only do it 98% of the time you cannot say that." We said, "OK, what phrasing would be acceptable?" The FTC said, "Oh we can't give you legal advice."

Now imagine if in the middle of all that getting peppered with questions such as those that are on this board, and you get a pretty good idea of how this board reads to me.

Let this response stand (mutatis mutandis) for the proper response to any of the dozens of other interrogations, quibbles, and quarter-baked analyses that have been posted with rote-like fervor over the last couple years, and you will, perhaps, then believe me when I say, I don't spend 5 minutes per quarter on this board anymore. Investorvillage.com is far more intelligent, and www.deepcapture.com .... well, what can I say?

Patrick

PS In fairness, there are two additional facts I should mention to round out the FTC story. These facts cut opposite ways. The first is that when we went through our IT problems the individuals at the FTC with whom we dealt turned out to be quite reasonable. The second is, all of this FTC stuff started within a few weeks of Bob O'Brien calling me for the first time and predicting that we would become the target of a federal investigation, perhaps on the weirdest of grounds. Make of those facts what you will.
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