Overstock.com 2005 Annual Report Download - page 62

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designed and in place to ensure that inbound freight costs were completely and accurately capitalized as a component of inventory
costs in accordance with generally accepted accounting principles. This control deficiency resulted in the restatement of the Company's
annual consolidated financial statements as of and for the years ended December 31, 2004, 2003 and 2002 and the interim consolidated
financial statements for each of the quarters within the years ended December 31, 2005, 2004 and 2003. Additionally, this control
deficiency could result in a misstatement of our inventory and cost of goods sold that would result in a material misstatement to the
annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management has determined
that this control deficiency constitutes a material weakness. As a result of this material weakness, management has concluded that the
Company did not maintain effective control over financial reporting as of December 31, 2005 based on the criteria set forth in internal
control—integrated framework issued by the COSO.
Management's assessment of the effectiveness of the Company's internal control over financial reporting as of December 31,
2005 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report
which is included herein.
/s/ PATRICK M. BYRNE /s/ DAVID K. CHIDESTER
Patrick M. Byrne
President (principal executive officer)
David K. Chidester
Senior Vice President, Finance
(principal financial officer)
Remediation Steps to Address Material Weakness
To remediate the material weakness in the Company's internal control over financial reporting and the ineffectiveness of its
disclosure controls and procedures and in connection with the preparation and filing of this Annual Report on Form 10-K, the
Company has conducted and completed a review of its accounting practices for accounting for inbound freight costs as a component of
inventory costs and corrected its method of accounting and has implemented changes to the design of our internal control over
financial reporting to correct the material weakness noted above. These steps were completed subsequent to December 31, 2005.
Changes in Internal Control over Financial Reporting
There were no changes in the Company's internal control over financial reporting that occurred during the quarter ended
December 31, 2005 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over
financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to the Company's definitive proxy statement for the 2006
annual meeting of stockholders.
The Company has adopted a Code of Business Conduct and Ethics, which is applicable to all employees of the Company,
including the chief executive officer and senior financial officers, as well as the
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