SEC Company Response from Stagwell Inc (STGW) (CIK 0000876883) (STGW) — Oct 19, 2017
Stagwell Inc (STGW) (CIK 0000876883)
Date: Oct. 19, 2017 · CIK: 0000876883 · Accession: 0001144204-17-053116
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-13718
Referenced dates: October 4, 2017
Letter
Via Edgar Division of Corporation Finance Securities and Exchange Commission RE: MDC Partners Inc. Form 10-K for Fiscal Year Ended December 31, 2016 as amended SEC Correspondence Dated October 4, 2017 File No. 001-13718
Dear Mr. Spirgel and Mr. Littlepage:
Set forth below is the response of MDC Partners Inc. (the “Company” or “MDC”) to the correspondence of the Staff of the Division of Corporation Finance of the Securities and Exchange Commission (the “Staff”, the “Commission”, or “SEC”), which was set forth in your letter dated October 4, 2017, together with comments raised by the Staff during our telephone meeting of October 16, 2017.
* * * * *
Form 10-K for Fiscal Year Ended December 31, 2016 as amended
Item 9A. Controls and Procedures, page 104
1. We note in your response that you determined there was a control deficiency in your internal control over financial reporting; however, the deficiency did not rise to the level of a material weakness. A control deficiency constitutes a material weakness if there is a reasonable possibility that a material misstatement of the financial statements would not be prevented or detected in a timely manner. Based on your determination that the disclosure misstatements in your prior SEC filings were material and a result of a control deficiency, we are unable to agree with your conclusion that the related deficiency is not a material weakness. Please explain how you will address and disclose the ineffectiveness of internal control over financial reporting and disclosure controls and procedures for the periods the material weakness existed.
As set forth in the Company’s correspondence dated August 10, 2017 and August 31, 2017, the Company concluded that its prior change to one reportable segment was a good faith judgment determination based upon extensive analysis. After further discussion with the SEC, the Company acknowledged that its prior “judgment” reflected a material error and that a different aggregation of reportable segments should have been presented. Accordingly, the Company revised its disclosures to reflect the new reportable segments in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2017. Moreover, the Company amended its Annual Report on Form 10-K for the year ended December 31, 2016 and Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017 to restate applicable disclosures related to the recasting of the four (4) new reportable segments.
In connection with the foregoing determination, and as fully disclosed in its these recent filings, management assessed the effectiveness of its internal controls over financial reporting and implemented remediation steps to improve its processes and controls relating to the identification of appropriate reportable segments. Management previously determined that the deficiency relating to its internal controls over financial reporting did not rise to the level of a material weakness. However, the Company understands the Commission’s position that a control deficiency constitutes a material weakness if there is a reasonable possibility that a material misstatement of the financial statements would not be prevented or detected in a timely manner.
In response, the Company proposes to disclose the identified ineffectiveness of its internal controls and disclosure controls in the following manner in its pending Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017, including the remediation steps implemented by management:
“Evaluation of New Reportable Segments; Changes in Internal Control Over Financial Reporting
As disclosed in the Company’s prior filings on Form 10-K/A for the year ended December 31, 2016, Form 10-Q/A for the quarterly period ended March 31, 2017 and Form 10-Q for the quarterly period ended June 30, 2017, we have recast our single reportable segment and identified four (4) new reportable segments for our Partner Firms. The recasting of prior period segment information does not affect our consolidated financial condition or results of operations for the three months ended March 31, 2017 and 2016, our balance sheets as of March 31, 2017 and December 31, 2016, our cash flows for the three months ended March 31, 2017 and 2016, or goodwill for any period presented.
During the third quarter of fiscal 2017, our management, including our CEO and CFO, concluded that the previously disclosed deficiency in internal controls that led to the determination to recast the Company’s reportable segments reflected a material weakness in our internal controls over segment reporting aggregation and disclosure. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness in internal controls over financial reporting arose from an undetected error in management’s judgment and management’s misapplication of ASC 280, specifically the weighting used in the analysis regarding aggregation of operating segments with respect to future and past economic performance. Although our internal “Segment Reporting Policy” included an analysis for segment aggregation criteria, management subsequently identified a design gap in that the analysis failed to contain sufficient detail on the weighting to future and past economic performance, as required by ASC 280 and related guidance.
In response to the identified material weakness, the Company implemented remediation steps to ensure that its prospective determination of reportable segments is appropriate. The Company promptly updated its aggregation analysis and revised its disclosure of its four (4) reportable segments. Additionally, management enhanced and expanded its internal “Segment Reporting Policy” to include further detail on how the application of aggregation criteria related to economic characteristics should be applied. This additional detail includes reference to quantitative and qualitative factors, types of metrics being considered and the acceptable level of differences in those metrics between the segments being evaluated for aggregation. Under the Company’s revised approach, this analysis will be performed and documented annually. The Company’s management will continue to evaluate the impact of events (e.g., a change in operating segments, reorganization, change in management approach, etc.) that may arise and affect the Company’s reportable segment structure and document that assessment and related conclusions as necessary. The Company has further enhanced its review controls to ensure proper weighting to future and past economic performance, as required by ASC 280. Testing of both the design and operating effectiveness of the Company’s enhanced controls was completed, and management concluded that the material weaknesses described above had been fully remediated as of September 30, 2017.
Other than the foregoing actions relating to the recast of the Company’s reportable segments, management believes there have been no changes in our internal control over financial reporting during the fiscal quarter ended September 30, 2017 that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.”
* * * * *
Please direct any questions concerning the above responses to the undersigned (telephone: (646) 429-1818; fax: (212) 937-4365).
Very truly yours,
/s/ Scott L. Kauffman
Show Raw Text
CORRESP
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filename1.htm
October
18, 2017
Via Edgar
Mr. Larry Spirgel
Mr. Robert Littlepage
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
Fiscal Year Ended December 31, 2016 as amended
SEC Correspondence
Dated October 4, 2017
File No. 001-13718
Dear
Mr. Spirgel and Mr. Littlepage:
Set
forth below is the response of MDC Partners Inc. (the “Company” or “MDC”) to the correspondence of the
Staff of the Division of Corporation Finance of the Securities and Exchange Commission (the “Staff”, the “Commission”,
or “SEC”), which was set forth in your letter dated October 4, 2017, together with comments raised by the Staff during
our telephone meeting of October 16, 2017.
* * * * *
Form
10-K for Fiscal Year Ended December 31, 2016 as amended
Item
9A. Controls and Procedures, page 104
1. We note in your response that you determined there was a control deficiency
in your internal control over financial reporting; however, the deficiency did not rise to the level of a material weakness. A
control deficiency constitutes a material weakness if there is a reasonable possibility that a material misstatement of the financial
statements would not be prevented or detected in a timely manner. Based on your determination that the disclosure misstatements
in your prior SEC filings were material and a result of a control deficiency, we are unable to agree with your conclusion that
the related deficiency is not a material weakness. Please explain how you will address and disclose the ineffectiveness of internal
control over financial reporting and disclosure controls and procedures for the periods the material weakness existed.
1
As set forth
in the Company’s correspondence dated August 10, 2017 and August 31, 2017, the Company concluded that its prior change to
one reportable segment was a good faith judgment determination based upon extensive analysis. After further discussion with the
SEC, the Company acknowledged that its prior “judgment” reflected a material error and that a different aggregation
of reportable segments should have been presented. Accordingly, the Company revised its disclosures to reflect the new reportable
segments in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2017. Moreover, the Company amended its Annual Report
on Form 10-K for the year ended December 31, 2016 and Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017
to restate applicable disclosures related to the recasting of the four (4) new reportable segments.
In connection
with the foregoing determination, and as fully disclosed in its these recent filings, management assessed the effectiveness of
its internal controls over financial reporting and implemented remediation steps to improve its processes and controls relating
to the identification of appropriate reportable segments. Management previously determined that the deficiency relating to its
internal controls over financial reporting did not rise to the level of a material weakness. However, the Company understands the
Commission’s position that a control deficiency constitutes a material weakness if there is a reasonable possibility that
a material misstatement of the financial statements would not be prevented or detected in a timely manner.
In response,
the Company proposes to disclose the identified ineffectiveness of its internal controls and disclosure controls in the following
manner in its pending Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017, including the remediation
steps implemented by management:
“Evaluation of
New Reportable Segments; Changes in Internal Control Over Financial Reporting
As disclosed in the Company’s
prior filings on Form 10-K/A for the year ended December 31, 2016, Form 10-Q/A for the quarterly period ended March 31, 2017 and
Form 10-Q for the quarterly period ended June 30, 2017, we have recast our single reportable segment and identified four (4) new
reportable segments for our Partner Firms. The recasting of prior period segment information does not affect our consolidated financial
condition or results of operations for the three months ended March 31, 2017 and 2016, our balance sheets as of March 31, 2017
and December 31, 2016, our cash flows for the three months ended March 31, 2017 and 2016, or goodwill for any period presented.
During the third quarter
of fiscal 2017, our management, including our CEO and CFO, concluded that the previously disclosed deficiency in internal controls
that led to the determination to recast the Company’s reportable segments reflected a material weakness in our internal controls
over segment reporting aggregation and disclosure. A material weakness is a deficiency, or combination of deficiencies, in internal
control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim
financial statements will not be prevented or detected on a timely basis. The material weakness in internal controls over financial
reporting arose from an undetected error in management’s judgment and management’s misapplication of ASC 280, specifically
the weighting used in the analysis regarding aggregation of operating segments with respect to future and past economic performance.
Although our internal “Segment Reporting Policy” included an analysis for segment aggregation criteria, management
subsequently identified a design gap in that the analysis failed to contain sufficient detail on the weighting to future and past
economic performance, as required by ASC 280 and related guidance.
2
In response to the
identified material weakness, the Company implemented remediation steps to ensure that its prospective determination of
reportable segments is appropriate. The Company promptly updated its aggregation analysis and revised its disclosure of its
four (4) reportable segments. Additionally, management enhanced and expanded its internal “Segment Reporting
Policy” to include further detail on how the application of aggregation criteria related to economic characteristics
should be applied. This additional detail includes reference to quantitative and qualitative factors, types of metrics being
considered and the acceptable level of differences in those metrics between the segments being evaluated for aggregation.
Under the Company’s revised approach, this analysis will be performed and documented annually. The Company’s
management will continue to evaluate the impact of events (e.g., a change in operating segments, reorganization, change in
management approach, etc.) that may arise and affect the Company’s reportable segment structure and document that
assessment and related conclusions as necessary. The Company has further enhanced its review controls to ensure proper
weighting to future and past economic performance, as required by ASC 280. Testing of both the design and
operating effectiveness of the Company’s enhanced controls was completed, and management concluded that the material
weaknesses described above had been fully remediated as of September 30, 2017.
Other than the foregoing
actions relating to the recast of the Company’s reportable segments, management believes there have been no changes in our
internal control over financial reporting during the fiscal quarter ended September 30, 2017 that materially affected, or were reasonably
likely to materially affect, our internal control over financial reporting.”
* * * * *
Please
direct any questions concerning the above responses to the undersigned (telephone: (646) 429-1818; fax: (212) 937-4365).
Very truly yours,
/s/ Scott L. Kauffman
Scott L. Kauffman
Chairman and Chief Executive Officer
cc: Lindsay McCord, Associate Chief Accountant
Kathryn Jacobson, Senior Staff Accountant
Carlos Pacho, Senior Assistant Chief Accountant
David Doft, Chief Financial Officer
Mitchell Gendel, General Counsel & Corporate Secretary
Christine LaPlaca, SVP Accounting and Financial
Reporting
Members of the Audit Committee of Board
of Directors of MDC Partners Inc.
Risë Norman and Karen Kelley,
Simpson Thacher & Bartlett LLP
Robert Trinchetto, BDO USA, LLP
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