SEC Company Response from Stagwell Inc (STGW) (CIK 0000876883) (STGW) — Aug 13, 2014
Stagwell Inc (STGW) (CIK 0000876883)
Date: Aug. 13, 2014 · CIK: 0000876883 · Accession: 0001144204-14-049351
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-13718
Letter
Division of Corporation Finance Securities and Exchange Commission Filed March 10, 2014 Form 8-K filed February 20, 2014 Response dated May 19, 2014 File No. 001-13718
Dear Mr. Spirgel and Ms. Davis,
As a follow-up to our telephonic call on July 23, 2014, the Company continues to believe that it’s accounting for the contingent payments in excess of the original amounts recorded as financing activities in the consolidated statement of cash flows is correct. As we agreed on the call there is no specific guidance on point relating to this treatment. Further we agreed that payments of contingent consideration of the original amounts recorded are deemed to be seller financed debt, as such these payments should be recorded as a financing activity.
In accordance with ASC 805 contingent consideration represents an obligation of the acquirer to transfer additional assets to selling shareholders if future events occur or conditions are met. This liability should be recognized and measured at Fair Market Value at the acquisition date with any subsequent changes flowing through the income statement. The guidance doesn’t discuss nor does the guidance indicate that the nature of the obligation changes based on relative changes in the amount of the obligation and the ultimate settlement thereof.
In accordance with ASC 230 cash flows for financing activities are: payments of dividends or other distributions to owners, including outlays to reacquire the enterprises equity instruments, the repayment of amounts borrowed for seller financed debt among other things. ASC 230 further states in relation to seller financed debt that the initial payments are investing activities and any subsequent payments are financing activities. The guidance also states that all principal payments on seller financed mortgages on productive assets shall be financing activities. The guidance further states that cash receipts and payments may have aspects of more than one class of cash flows. If so, the appropriate classification shall depend on the activity that is likely to be the predominant source of cash flows for the item.
Based on the above guidance the Company believes that since the guidance in ASC 805 does not distinguish between the nature of payments of the contingent payment obligations to be paid as to whether they are the amount originally recorded or amounts subsequently adjusted. Just that total amounts due are contingent payment obligations. The Company further believes that since the guidance in ASC 230 supports the classification of contingent payment obligations as a type of seller financing and seller financing is deemed a financing activity. As stated above ASC 230 supports the notion that payments may have aspects of more than one class of cash flows, thus the Company believes that the predominant source of cash flows in relation to total contingent payments are financing activities.
The Company did a data base search of how various companies treat these payments and found several examples of companies treating the total payments of contingent consideration as financing activities. The Company also found other companies that appear to follow this treatment but based on the limited information available we cannot conclude definitely that the increases in fair market value are in fact included in financing activities.
The Company also believes that treating all payments of contingent consideration as financing activities is consistent with how the users of these financial statements view them. The Company is consistently asked about selling financing i.e., contingent consideration and having all the payments in one place will continue to help the users of our financial statements understand the total cash outflows related to our acquisitions.
The Staff also asked the Company to comment on the cash flow treatment of original and contingent purchase price payments deemed to be compensation. While the Company believes these payments to be immaterial, for the same reasons stated above the Company believes that these payments should be treated as financing activities. Again ASC830 does not distinguish between the accounting treatment of these types of purchase price payments as something other than original purchase price or contingent purchase price. For this reason the Company believes the payments of these amounts following the guidance under ASC 230 again supports the notion that payments may have aspects of more than one class of cash flows. Thus the Company believes that the predominant source of cash flows in relation to total contingent payments is financing activities.
* * * * *
Please direct any questions concerning the above responses to the undersigned (telephone: (646) 429-1818; fax: (212) 937-4365).
Very truly yours,
/s/ David Doft
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filename1.htm
August 13, 2014
Via FedEx and Edgar
Mr. Larry Spirgel
Ms. Jill Davis
Division of Corporation Finance
Securities and Exchange Commission
100 F Street N.E.
Washington, D.C. 20549
RE: MDC Partners Inc.
Form
10-K for the Year Ended December 31, 2013
Filed
March 10, 2014
Form
8-K filed February 20, 2014
Response
dated May 19, 2014
File
No. 001-13718
Dear Mr. Spirgel and Ms. Davis,
As a follow-up to our telephonic call on
July 23, 2014, the Company continues to believe that it’s accounting for the contingent payments in excess of the original
amounts recorded as financing activities in the consolidated statement of cash flows is correct. As we agreed on the call there
is no specific guidance on point relating to this treatment. Further we agreed that payments of contingent consideration of the
original amounts recorded are deemed to be seller financed debt, as such these payments should be recorded as a financing activity.
In accordance with ASC 805 contingent consideration
represents an obligation of the acquirer to transfer additional assets to selling shareholders if future events occur or conditions
are met. This liability should be recognized and measured at Fair Market Value at the acquisition date with any subsequent changes
flowing through the income statement. The guidance doesn’t discuss nor does the guidance indicate that the nature of the
obligation changes based on relative changes in the amount of the obligation and the ultimate settlement thereof.
In accordance with ASC 230 cash flows for
financing activities are: payments of dividends or other distributions to owners, including outlays to reacquire the enterprises
equity instruments, the repayment of amounts borrowed for seller financed debt among other things. ASC 230 further states in relation
to seller financed debt that the initial payments are investing activities and any subsequent payments are financing activities.
The guidance also states that all principal payments on seller financed mortgages on productive assets shall be financing activities.
The guidance further states that cash receipts and payments may have aspects of more than one class of cash flows. If so, the appropriate
classification shall depend on the activity that is likely to be the predominant source of cash flows for the item.
Based on the above guidance the Company
believes that since the guidance in ASC 805 does not distinguish between the nature of payments of the contingent payment obligations
to be paid as to whether they are the amount originally recorded or amounts subsequently adjusted. Just that total amounts due
are contingent payment obligations. The Company further believes that since the guidance in ASC 230 supports the classification
of contingent payment obligations as a type of seller financing and seller financing is deemed a financing activity. As stated
above ASC 230 supports the notion that payments may have aspects of more than one class of cash flows, thus the Company believes
that the predominant source of cash flows in relation to total contingent payments are financing activities.
The Company did a data base search of
how various companies treat these payments and found several examples of companies treating the total payments of contingent consideration
as financing activities. The Company also found other companies that appear to follow this treatment but based on the limited information
available we cannot conclude definitely that the increases in fair market value are in fact included in financing activities.
The Company also believes that treating
all payments of contingent consideration as financing activities is consistent with how the users of these financial statements
view them. The Company is consistently asked about selling financing i.e., contingent consideration and having all the payments
in one place will continue to help the users of our financial statements understand the total cash outflows related to our acquisitions.
The Staff also asked the Company to
comment on the cash flow treatment of original and contingent purchase price payments deemed to be compensation. While the
Company believes these payments to be immaterial, for the same reasons stated above the Company believes that these payments
should be treated as financing activities. Again ASC830 does not distinguish between the accounting treatment of these types
of purchase price payments as something other than original purchase price or contingent purchase price. For this reason the
Company believes the payments of these amounts following the guidance under ASC 230 again supports the notion that payments
may have aspects of more than one class of cash flows. Thus the Company believes that the predominant source of cash flows in
relation to total contingent payments is financing activities.
* * * * *
Please direct any questions concerning
the above responses to the undersigned (telephone: (646) 429-1818; fax: (212) 937-4365).
Very truly yours,
/s/ David Doft
David Doft
Chief Financial Officer
cc: Jonathan Groff, Staff Attorney
Kathryn Jacobson, Staff Accountant
Dean Suehiro, Staff Accountant
Securities and Exchange Commission
Miles
S. Nadal, Chairman and Chief Executive Officer
Mitchell Gendel, General Counsel & Corporate Secretary
Michael Sabatino, Chief Accounting Officer
Members of the Audit Committee of Board
of Directors of MDC Partners Inc.
Thomas McLoughlin, BDO USA LLP