SecProbe.io

CORRESP
1
filename1.htm

    May
      21,
      2007

    Mr.
      Larry
      Spirgel

    Assistant
      Director

    Mail
      Stop
      0407

    Division
      of Corporation Finance

    Securities
      and Exchange Commission

    450
      Fifth
      Street, N.W.

    Washington,
      D.C. 20549

              Re:

              MDC
                Partners Inc.

                Form
                  10-K for Fiscal Year Ended December 31, 2006 (the “2006 Form
                  10-K”)

                Filed
                  March 16, 2007

                File
                  No. 1-13178

    Dear
      Mr.
      Spirgel:

    Set
      forth
      below are the responses of MDC Partners Inc. (the “Company”) to the comments of
      the Staff of the Division of Corporation Finance, which were set forth in your
      letter dated April 27, 2007 (the “April 27 Letter”) regarding the Company’s
      above-referenced filings. The responses to the Staff’s comments are provided in
      the order in which the comments were set out in the April 27 Letter and are
      numbered correspondingly.

    The
      Staff’s comments, indicated by bold, are followed by responses on behalf of the
      Company. Page references below are to the applicable Exchange Act filing, as
      the
      case may be.

    Form
      10-K for Fiscal Year Ended December 31, 2006

    Note
      2- Significant Accounting Policies

    Revenue
      Recognition - page 49

              1.

              We
                note your responses to our prior comments contained in your April
                9, 2007
                letter. We have the following additional
                comments:

              a)

              We
                note your statement that work typically begins 30 to 60 days before
                the
                contract is finalized and signed. Clarifying the point at which you
                begin
                recognizing revenue on these arrangements. Confirm that you do not
                recognize revenue before the contract is signed and that you do not
                accelerate the recognition pattern to adjust for the 30 to 60 days
                prior
                to the start of the
                contract.

          Mr.
            Larry
            Spirgel

          Securities
            and Exchange Commission

          May
            21,
            2007

          Page
            2 of
            9

    The
      Company recognizes revenue when persuasive evidence of an arrangement exists
      and
      fees are fixed or determinable. The Company does not recognize revenue until
      the
      contract is signed. The Company confirms that the revenue recognition pattern
      does not begin until the start of the contract and is not adjusted for the
      30 to
      60 days prior to the start of the contract.

              b)

              The
                sample contract that you previously provided to us contains a fixed
                fee
                pertaining to all services and deliverables covered in the agreement.
                Tell
                us whether you have any contracts accounted for using proportional
                performance that contain different fee arrangements (e.g., that are
                not
                fixed fee). Confirm for us that none of your contracts establish
                specific
                amounts for the generation of marketing ideas and concepts versus
                tangible
                deliverables to be provided to the client (such as brand videos,
                television commercials,
                etc.).

    For
      all
      contracts accounted for under the proportional performance model, the Company
      confirms that the terms of those contracts are fixed fee. The Company does
      not
      use the proportional performance model for contracts for which the fee is not
      fixed.

              c)

              Your
                sample contract also provides for the reimbursement of certain types
                of
                travel, out-of-pocket, and research expenses that you incur in providing
                your services. Tell us and disclose, the future filings, your accounting
                policy with respect to the revenues associated with these pass-through
                costs, in accordance with the guidance in EITF 01-14. Note that this
                comment applies to all pass-through costs that would fall within
                the scope
                of EITF 01-14, and is not limited solely to pass-through costs associated
                with contracts being accounted for using a proportional performance
                model.

    The
      Company follows the guidance in EITF 01-14, which requires reimbursements
      received for out-of-pocket expenses incurred as revenue. Accordingly, under
      this
      Issue the Company records reimbursements received for out-of-pocket expenses
      incurred as revenue.

    The
      Company has disclosed this policy in its Form 10-Q for the periods ended March
      31, 2007 as filed on May 8, 2007.

              d)

              We
                note your disclosure at page 49 that a small portion of your contractual
                arrangements with customers includes performance incentive provisions.
                Clarify the types of arrangements that include these payments and
                tell us
                how the incentive provisions affect your application of the proportional
                performance model.

    The
      arrangements which provide for performance incentive provisions generally
      require a base fixed fee with additional performance incentives to be earned.
      Generally, incentive provisions are only part of retainer based arrangements
      and
      are not recognized as revenue until the amount is determinable and collection
      is
      reasonably assured. Accordingly, incentive provisions are not part of
      arrangements where the proportional performance model is used and thus would
      have no impact on the application of the proportional performance
      model.

          Mr.
            Larry
            Spirgel

          Securities
            and Exchange Commission

          May
            21,
            2007

          Page
            3
of
            9

              e)

              Although
                we understand that the scope of EITF 91-6 pertains to a different
                type of
                arrangement than the nature of services you are providing, tell us
                what
                consideration you have given to this accounting guidance. We understand
                that in practice, an analogy has been made to the model set forth
                in EITF
                91-6 whereby revenue is recognized using the lesser of non-refundable
                cash
                received or the results achieved using the proportional performance
                model
                applied on a straight-line basis. This model ensures that the criteria
                has
                been met that the revenue is realized or realizable. To the extent
                that
                you have not previously given consideration to EITF 91-6, tell us
                how you
                have determined that the aforementioned criterion of revenue recognition
                has been met.

    The
      Company believes that EITF 91-6 is not applicable because the Issue concludes
      that revenue should be recognized on the basis of the lesser of two amounts.
      In
      the case of the Company’s arrangements, where the proportional performance model
      is used, the fee is fixed, thus there is only one amount which could be
      recognized. If an arrangement were to be terminated, the Company would receive
      fees for services up to the termination date. The contractual terms (having
      to
      pay for services through the termination date) ensure that these amounts are
      realizable and create a contractual obligation on the part of the client to
      pay
      for such service. In applying the proportional performance model on a
      straight-line basis (i.e., over the term of the contract) the amount of revenue
      recognized would match the fees earned through the termination date. Thus,
      at
      any time, the amount of cumulative revenue recognized on a monthly basis is
      equal to the non-refundable payments received.

              f)

              Tell
                us your consideration of whether the amount of fees that you retain
                in the
                event of a client’s termination represents a penalty. Again, while not
                directly on point, you may wish to consider the concepts in EITF
                D-96 in
                preparing your response.

    Generally,
      the amount of fees retained in the event of a client’s termination do not
      represent a penalty but rather fees for services rendered up to the termination
      date. The majority of the Company’s arrangements require a notice period to be
      given to the Company of approximately 90 days prior to the termination date.
      The
      Company does have certain contracts which do require the client to pay a fixed
      termination payment that is similar to a penalty. In these cases the Company
      will recognize the amount of the termination fee over any required service
      or
      non-action period.

          Mr.
            Larry
            Spirgel

          Securities
            and Exchange Commission

          May
            21,
            2007

          Page
            4
of
            9

    EITF
      D-96
      provides guidance regarding amounts that would be receivable upon termination
      pursuant to penalty provisions. This Issue concludes that such amounts are
      not
      an appropriate basis on which to recognize revenue, unless a termination has
      occurred. The Company follows this guidance in that revenue is recognized upon
      a
      termination based on services being provided up to the termination date. In
      the
      event of a termination payment, revenue is only recognized when there are no
      further obligations to be performed on behalf of the Company or over a stated
      termination period. Generally, the amounts to be received are determinable
      and
      not based on estimates.

    Note
      4
      - Acquisitions, page 54

              2.

              Explain
                for us in more detail how you determined that it was appropriate
                to begin
                consolidating Mono Advertising, LLC effective July 1, 2006. In this
                regard, we note at page 4 that you own 49.9% of this entity as of
                December
                31, 2006.

    FACTS

    Effective
      July 1, 2006, the Company and the Founding partners (current management and
      majority holders) amended the Mono Advertising LLC (“Mono”) operating agreement.
      The Company currently owns 49.9% of the equity at risk of Mono while the
      Founders own 50.1%. The Founders interest in Mono is held by a separate “S”
Corp. Prior to this amendment the Company determined that consolidation was
      not
      appropriate due to guidance in EITF 97-2, which states in Issue 1, under the
      caption Financial Interest, specifically the fifth criteria - “the financial
      interest must be unilaterally salable or transferable …” Section 10.1 (a) of the
      operating agreement provided that “no membership interest shall be sold or
      transferred by the Company without the consent of the Founders and similarly,
      no
      membership interest shall be sold of transferred by the founders without the
      consent of the Company.” Accordingly, the Company did not have the unilateral
      right to sell its interest in Mono and did not satisfy the required fifth
      criteria noted above in order to deem the investment to be consistent with
      that
      of a controlling interest. As part of the July 1, 2006 amendment to the
      operating agreement, Section 10.1 (a) has been changed to allow the Company
      to
      sell or transfer its membership interests without the consent of the Founders.
      The following analysis provides documentation regarding the guidance of FIN
      46(R) “ Consolidation of Variable Interest Entities”, FAS94 “Consolidation of
      All Majority-Owned Subsidiaries”, EITF’s 96-16 “Investor’s Accounting for an
      Investee When the Investor has a Majority of the Voting Interest but the
      Minority Shareholder or Shareholders Have Certain Approval or Veto Rights” and
      97-2 “Application of FASB Statement No. 94 and APB Opinion No. 16 to Physician
      Practice Management Entities and Certain Other Entities with Contractual
      Management Arrangements”;

          Mr.
            Larry
            Spirgel

          Securities
            and Exchange Commission

          May
            21,
            2007

          Page
            5
of
            9

    ANALYSIS

    FIN
      46
      (R):

    Pursuant
      to the scope paragraph 8 of FIN 46 (R), an entity
      that is deemed to be a business (which Mono has been deemed to be) need not
      be
      evaluated to determine if it is a variable interest entity (VIE) unless one
      of
      the following conditions exists:

    a.
      The reporting enterprise, its related parties, or both participated
      significantly in the design or redesign of the entity, and the entity is neither
      a joint venture nor a franchisee. The
      Company purchased its ownership from an existing operating entity, thus, this
      criteria does not apply.

    b.
      The entity is designed so that substantially all of its activities either
      involve or are conducted on behalf of the reporting enterprise and its related
      parties.

    The
      entity (Mono) is designed as a marketing communications company whose activities
      do not involve and are not conducted on behalf of the Company.

    c.
      The reporting enterprise and its related parties provide more than half of
      the
      total of the equity, subordinated debt, and other forms of subordinated
      financial support to the entity based on an analysis of the fair values of
      the
      interests in the entity.

    As
      part of the formation of Mono, the Company contributed $700,000, while the
      Founders contributed assets and liabilities of an existing business. Based
      on
      the fair values at the time, the amount contributed by the Company represented
      49.9% of the fair value of Mono. The Company currently does not provide
      financial support to Mono. The only debt on Mono’s books are capital leases
      which are not significant.

    d.
      The
      activities of the entity
      are primarily related to securitizations, other forms of asset-backed
      financings, or single-lessee leasing arrangements.

    The
      activities of Mono are marketing communications and not related
      to securitizations, other forms of asset-backed financings, or single-lessee
      leasing arrangements.

    Therefore,
      the Company has concluded that Mono is not a VIE.

    EITF
      96-16 and EITF 97-2:

              ·

              The
                Founders (majority holders) have the typical “minority shareholder” rights
                which require their consent to the following: changes to articles
                of the
                LLC, fees paid to the Company, sale of assets, changes to proportionate
                ownership - these rights are not substantive management participatory
                r