Risk & Compliance

ADT Fined Over Reporting Failures

Security company ADT was hit with a $100,000 fine from the SEC over failure to report under GAAP when presenting its financial numbers.
William SprouseDecember 27, 2018
ADT Fined Over Reporting Failures

The Securities and Exchange Commission fined home and business security company ADT Inc. $100,000 over failures to report under Generally Accepted Accounting Principles (GAAP) when presenting its financial numbers.

In May of 2018, in its first-quarter earnings release, ADT reported its adjusted net income rose 26% to $249 million. The company said its adjusted net income per share increased 10% to 34 cents. But it did not highlight GAAP net income in a bullet-point. The company actually had a net loss of $157 million, greater than the year-earlier loss of $141 million.

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“To the untrained and uncynical eye, those highlights do look good,” the financial data provider Calcbench said in a blog post.

The SEC issued guidelines in 2016 reminding companies of the rule, amid widespread concern over the use of non-GAAP metrics.

ADT used the practices when it reported its 2017 fourth-quarter and fiscal year earnings on March 15, 2018 and again when reporting first-quarter numbers for 2018, according to the SEC.

ADT was taken private by Apollo Global Management in February 2016 but went back to the public markets in January 2018. It agreed to cease and desist from the practices outlined by the SEC.

“The three crucial reporting principles are that a company: (a) explain why it believes its non-GAAP metric is worth including; (b) also reconcile that non-GAAP metric to the closest GAAP metric; and (c) give both GAAP and non-GAAP disclosures equal prominence in the earnings release,” Calcbench wrote in its blog.

“When including a non-GAAP financial measure in a filing with the commission, (companies) must include a presentation, with equal or greater prominence, of the most directly comparable financial measure or measures calculated and presented in accordance with GAAP,” the SEC said in its enforcement announcement.

The company’s stock was down more than 3.5% in midafternoon trading Thursday.

Image: ADT