Tag: "pull forwards"
SEC charges Newell with misleading disclosure and control failures
In this settled action, the SEC charged Newell Brands and its former CEO with providing misleading disclosure about a prominently featured non-GAAP financial measure—“core sales,” a key NGFM that Newell portrayed as providing “a more complete understanding of underlying sales trends.” As described in the Order and press release, Newell and its CEO took a number of actions—reclassifications, accrual reductions, order pull-forwards—that increased “core sales” growth, but the resulting increases “were out of step with Newell’s actual but undisclosed sales trends, allowing the company to announce ‘strong’ or ‘solid’ results in quarters it internally described as disappointing due to shortfalls in sales.” In fact, the SEC charged, Newell misled investors, depriving them of “information relevant to an accurate and complete understanding of Newell’s actual sales trends.” Moreover, in Newell’s effort to manage revenues, what began as tinkering with an NGFM metastasized into problems with GAAP accounting. According to the Associate Director of Enforcement, the SEC found that “Newell’s former CEO issued an instruction to ‘scrub’ the company’s accruals after he learned that the company was projecting a ‘massive’ and ‘disappointing’ miss for the quarter….Senior executives of public companies hold positions of trust, and they risk abusing the duties attendant to their offices when they reach into a company’s accounting control processes as a way of making up for performance shortfalls.” Newell agreed to pay a civil penalty of $12.5 million and its CEO to pay $110,000.
Under Armour’s failure to disclose order “pull forwards” comes under fire at the SEC
On Monday, the SEC announced settled charges against Under Armour, Inc., a manufacturer of sports apparel, for misleading investors by failing to disclose material information about its “revenue management practices.” According to the Order, Under Armour had established a reputation for consistent revenue growth that exceeded analysts’ consensus estimates. But when internal forecasts began to indicate that it would miss those estimates, the company sought to close the gap by accelerating—“pulling forward”—existing orders that had been scheduled by customers for future quarters. Although this practice continued for six quarters, the SEC charged, the company failed to disclose this pull-forward practice as a driver of its revenue growth nor did it disclose the “known uncertainty” that this practice created with regard to revenues in future quarters. It’s worth noting that the SEC’s charges related solely to disclosure failures; the Order expressly indicated that the SEC did “not make any findings that revenue from these sales was not recorded in accordance with [GAAP].” Under Armour agreed to pay $9 million to settle the action.
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