A trail of letters…

September 7, 2007

images-1.jpegLast week, the SEC ended its nearly six-month long correspondence with electronics retailer Best Buy (BBY). Not familiar with this? That’s because Best Buy never mentioned that the letters existed, so they only became available once the SEC completed its investigation.

But going back and reading the now-available letters is pretty interesting. Start on March 2, when Best Buy’s CFO received the first letter (PDF), which, among other things, raised questions about revenues from extended warranties, and asked the company to provide greater information about changes to its gross profit rate. All told, the 5-page letter raised numerous questions about the company’s 2006 K as well as its 2006 third quarter Q. Three weeks later, Best Buy responded to the letter, which led to another letter from the SEC and another letter from Best Buy and so on. For those intent on keeping score, the tally is 5 letters from the SEC and 6 responses from Best Buy, though one of those responses just says that they plan to respond by a certain date. (Just a reminder: upload is the SEC’s term for its letters to a company; corresp is the company’s response.)

The bottom line is that while all of this back-and-forth was going on between the company and the SEC, and given the extended paper trail, it had to be at best a minor distraction to Best Buy’s management, investors were in the dark. And while learning about the SEC’s numerous concerns after-the-fact is interesting, and perhaps even educational, it feels a bit like yesterday’s news.

Of course, it is better than the way it used to be back when you had to go on a hunting expedition (and cross your fingers) to even find out about these letters, which few companies ever mention voluntarily (nor are they required to). For that, the SEC deserves some credit since this used to require an FOI request. But given the nature of some of their questions, and the quality of earnings issues that they often raise, there’s still much more work that needs to be done here to make these types of letters more readily available — and quicker — than they have been before.

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