Home security company ADT said it will restate several of its recent financial statements after discovering errors in its calculation of goodwill impairment losses at its solar reporting unit.
Affected financial statements include the company’s quarterly reports filed with the Securities and Exchange Commission for the third quarter of 2022 and first quarter of 2023 and its 2022 annual report. ADT disclosed the issues in a filing Monday, saying it identified the errors while preparing its financials for the second quarter of 2023.
As a result of the errors, ADT management concluded the company’s internal control over financial reporting was not effective as of Dec. 31, 2022, and its disclosure controls and procedures were not effective at the reasonable assurance level as early as Sept. 30, 2022.
The errors were the result of the company incorrectly applying the simultaneous equation method for goodwill impairment as described in the 2017 update to the Financial Accounting Standards Board’s Accounting Standards Codification Topic 350. ADT said it understated goodwill impairment loss, income tax benefit, and net loss and overstated income tax expense and net income in its financial statements as a result.
The company provided the following summary:
- During the three and nine months ended Sept. 30, 2022, goodwill impairment loss was understated by $52 million.
- During the three months ended Sept. 30, 2022, net loss and basic and diluted net loss per share were understated by $39 million and $0.05, respectively.
- During the nine months ended Sept. 30, 2022, net income and basic and diluted net income per share were overstated by $39 million and $0.04, respectively.
- During the year ended Dec. 31, 2022, goodwill impairment loss was understated by $52 million, net income was overstated by $40 million, and basic and diluted net income per share were overstated by $0.04.
- During the three months ended March 31, 2023, goodwill impairment loss was understated by $49 million, net loss was understated by $29 million, and basic and diluted net loss per share were understated by $0.03.
“We are in the process of performing an interim quantitative goodwill impairment assessment on the solar reporting unit as of June 30, 2023,” said ADT. “Currently, we expect to incur additional impairment charges of approximately $145 million to $185 million, including the impacts from the simultaneous equation, during the three months ended June 30, 2023.”
The company said it is discussing the matter with its accounting firm, PwC.