SEC Comment Letter for Warner Music Group Corp. (WMG) (CIK 0001319161) (WMG) — Sep 20, 2007
Warner Music Group Corp. (WMG) (CIK 0001319161)
Date: Sept. 20, 2007 · CIK: 0001319161 · Accession: 0000000000-07-045773
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-32502
Letter
UNITED STATES SECURITIES AND EXCHANGE COMMISSION CF/AD5 100 F STREET, NE WASHINGTON, D.C. 20549-3561 DIVISION OF CORPORATION FINANCE September 13, 2007 Via Mail and Fax Edgar Bronfman, Jr. Chairman and Chief Executive Officer Warner Music Group Corp. 75 Rockefeller Plaza New York, NY 10019
RE: Warner Music Group Corp. Form 10-K for the Year Ended September 30, 2006 File Number: 001-32502
Dear Mr. Bronfman:
We have reviewed your corresponden ce dated August 28, 2007, and have the following comment. We believe you should amend your filing as indicated in this comment. If you disagree, we will consider you r explanation as to why an amendment is unnecessary. Please be as deta iled as necessary in your explanation. Please file your response to our comment via EDGAR, under the label “corresp,” within 10 business days from the date of this letter.
Warner Music Group Corp.
Form 10-K for the Year Ended September 30, 2006
Notes to Consolidated and Combined Financial Statements, page 91 Note 13. Debt, page 110
1. We note your response to our prior co mment 19. You state that you believe repayment of additional PIK notes and accre tion on the discount notes were properly classified as financing activities becaus e you did not intend to pay cash interest. However, it is not clear how your intent is relevant either under applicable accounting literature or in the circumstances, consideri ng that you actually paid cash interest in connection with the June 2005 redemption. Y ou also state that you believe principal, rather than interest, was being added to the initial amount of the borrowing. However, in substance the additional PI K notes and accretion on the discount notes were simply obligations for unpaid interest, whether labeled so or not. This fact is made clear in your filing where you state “The Company was also required to pay all
Warner Music Group Corp. September 13, 2007 Page 2 accrued interest as of the redemption date …. This amount consisted of $5 million related to the Holdings Floating Rate Note s, $9 million related to the Holdings PIK notes, and $4 million in accreted value of the 35% of Holdings Discount Notes redeemed.” In addition, prior to payment, these amounts were classified as noncash interest expense in your statements of cash fl ows. Payment of this interest should be reflected as an operating cash outflow, simila r to any other interest, as required by paragraph 23.d of FAS 95. Your operating cash flows benefited in periods this interest was deferred and such benefit shoul d be reversed in subsequent repayment periods.
The tables in your response appear to address only the purported lack of qualitative impact on the trend in your operating cash flows, but not the quantitative impact on operating cash flows for the applicable periods in 2005. Exclusion of the $13 million of interest payments on the PIK and discount notes resulted in operating cash flows being overstated by 6.8% and 8.2% for the 2005 fiscal year and nine months ended June 30, 2005, respectively. In addition, based on your response it appears $5 million of additional interest paid in connection w ith the redemption of th e floating rate notes was also inappropriately excluded from opera ting cash flows. If our understanding is correct, operating cash flows were overs tated by a total of 9.6% and 11.7% for interest payments on all three instruments for the 2005 fiscal year and nine months ended June 30, 2005, respectively. In either ca se, we believe these overstatements are material. Accordingly, we believe you s hould amend your 2006 Form 10-K to restate your 2005 financial statements to correct this error.
You may contact Doug Jones at 202-551-3309 or Lyn Shenk at 202-551-3380 with any questions. You may also contact me at 202-551-3812.
Sincerely,
Michael Fay
Branch Chief
Show Raw Text
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
CF/AD5
100 F STREET, NE
WASHINGTON, D.C. 20549-3561
DIVISION OF
CORPORATION FINANCE
September 13, 2007
Via Mail and Fax
Edgar Bronfman, Jr.
Chairman and Chief Executive Officer
Warner Music Group Corp.
75 Rockefeller Plaza
New York, NY 10019
RE: Warner Music Group Corp.
Form 10-K for the Year Ended September 30, 2006
File Number: 001-32502
Dear Mr. Bronfman:
We have reviewed your corresponden ce dated August 28, 2007, and have the
following comment. We believe you should amend your filing as indicated in this
comment. If you disagree, we will consider you r explanation as to why an amendment is
unnecessary. Please be as deta iled as necessary in your explanation. Please file your
response to our comment via EDGAR, under the label “corresp,” within 10 business days
from the date of this letter.
Warner Music Group Corp.
Form 10-K for the Year Ended September 30, 2006
Notes to Consolidated and Combined Financial Statements, page 91
Note 13. Debt, page 110
1. We note your response to our prior co mment 19. You state that you believe
repayment of additional PIK notes and accre tion on the discount notes were properly
classified as financing activities becaus e you did not intend to pay cash interest.
However, it is not clear how your intent is relevant either under applicable accounting
literature or in the circumstances, consideri ng that you actually paid cash interest in
connection with the June 2005 redemption. Y ou also state that you believe principal,
rather than interest, was being added to the initial amount of the borrowing.
However, in substance the additional PI K notes and accretion on the discount notes
were simply obligations for unpaid interest, whether labeled so or not. This fact is
made clear in your filing where you state “The Company was also required to pay all
Warner Music Group Corp.
September 13, 2007
Page 2
accrued interest as of the redemption date …. This amount consisted of $5 million
related to the Holdings Floating Rate Note s, $9 million related to the Holdings PIK
notes, and $4 million in accreted value of the 35% of Holdings Discount Notes
redeemed.” In addition, prior to payment, these amounts were classified as noncash interest expense in your statements of cash fl ows. Payment of this interest should be
reflected as an operating cash outflow, simila r to any other interest, as required by
paragraph 23.d of FAS 95. Your operating cash flows benefited in periods this
interest was deferred and such benefit shoul d be reversed in subsequent repayment
periods.
The tables in your response appear to address only the purported lack of qualitative
impact on the trend in your operating cash flows, but not the quantitative impact on operating cash flows for the applicable periods in 2005. Exclusion of the $13 million of interest payments on the PIK and discount notes resulted in operating cash flows being overstated by 6.8% and 8.2% for the 2005 fiscal year and nine months ended
June 30, 2005, respectively. In addition, based on your response it appears $5 million of additional interest paid in connection w ith the redemption of th e floating rate notes
was also inappropriately excluded from opera ting cash flows. If our understanding is
correct, operating cash flows were overs tated by a total of 9.6% and 11.7% for
interest payments on all three instruments for the 2005 fiscal year and nine months
ended June 30, 2005, respectively. In either ca se, we believe these overstatements are
material. Accordingly, we believe you s hould amend your 2006 Form 10-K to restate
your 2005 financial statements to correct this error.
You may contact Doug Jones at 202-551-3309 or Lyn Shenk at 202-551-3380
with any questions. You may also contact me at 202-551-3812.
Sincerely,
Michael Fay
Branch Chief
cc: Michael D. Fleisher, Executive Vice President and Chief Financial Officer