Recently, the Securities and Exchange Commission (SEC) charged Newell Brands and its ex-CEO for providing allegedly misleading disclosure regarding a prominently featured non-GAAP financial measure, termed “core sales”.
According to the details laid out in the SEC’s order and press release, Newell, a significant player in the market for consumer goods, portrayed the financial measure, “core sales”, as supplying “a more comprehensive understanding of underlying sales trends.”
The legal action is premised on the accusations that stemming from several extraordinary measures taken by the company and its former CEO—reclassifications, accrual reductions, and order pull-forwards—that reportedly inflated “core sales” growth. The SEC holds that the increases this caused were not, in fact, indicative of the company’s organic growth, as they were represented.
Expect this case to shape future discussions and practices around the use and presentation of non-GAAP financial measures. It serves as a noteworthy reminder to corporations about the need for ensuring accuracy and completeness in disclosure and maintaining robust internal controls.