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CORRESP
1
filename1.htm

    Unassociated Document

    January
20, 2011

    Via FedEx and
Edgar

    Mr. Larry
Spirgel

    Assistant
Director

    Division
of Corporation Finance

    Securities
and Exchange Commission

    100 F
Street NE

    Washington,
D.C.  20549

                      RE:

                      MDC
      Partners, Inc.

                      Form
      10-K for Fiscal Year Ended December 31, 2009

                      Filed
      March 10, 2008

                      Form
      10-Q Fiscal Quarter Ended September 30, 2010

                      File
      No. 1-13718

    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 December 15, 2010 (the “December 15th 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 December
15th 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, 2010

    Management’s Discussion and
Analysis of Financial Condition and Results of Operations, page
25

              1.

              From
      pages 31 and 33, we note your operating profit and margin decreased
      primarily because direct costs increased as a percentage of revenue for
      the three and nine months ended September 30, 2010.  You state direct
      costs increased on account of certain costs being included in both revenue
      and direct costs which, in turn, was on account of you acting as principle
      instead of agent on specific client contracts.  However, it is not
      clear why your operating profits would decrease depending on your status
      as principle or agent.  Please tell us how your operating profits
      changed based on your presentation of revenue on a gross or net
      basis.

    The
Company’s operating profit and margins decreased for the three and nine months
ended September 30, 2010 primarily because of the increase in direct costs as a
percentage of revenue.  This statement should have read operating margins
primarily decreased because of the increase in direct costs. The decrease in
operating profit was caused by the increase in both staff costs of $22.2 million
for the three months and $39 million for the nine months ended September 30,
2010, as well as acquisition related costs and adjustments relating to deferred
acquisition consideration.  The Company will clarify these facts in all of
our future filings.

    Form 10-K for Fiscal Year
Ending December 31, 2009

    Item 1A.  Risk Factors,
page 6

    We are a holding company…,
page 10

              2.

              We
      note your disclosure on pages 10 and 28 regarding the statutory or
      contractual restrictions which affect your subsidiaries’ ability to make
      intercompany fund transfers.  In light of these restrictions, expand
      your disclosure to comply with the requirements of Rule 4-08(e)(3)(ii) of
      Regulation S-X, if applicable.  In addition, tell us how you
      determined that it was not necessary for you to provide condensed parent
      company financial information and other data in a financial statement
      schedule in accordance with Rule 12-04 of Regulation
  S-X.

    The
Company’s disclosure on page 10 “… all of which are subject to statutory or
contractual restrictions …” generally refers to dividend surplus laws, in the
case of statutory restrictions, and partnership agreements between operating
subsidiaries of the Company and minority holders, in the case of contractual
restrictions. Under the Company’s debt agreements, none of which are at
operating company levels, there are no restrictions on our subsidiaries’ ability
to distribute net assets to the parent. The Company’s disclosure on page 28
refers to certain cash that is not “distributable as earnings to [the parent]
for use to reduce its indebtedness.”  Substantially all of the cash
referred to in this disclosure represents advances in the ordinary course of
business from clients of subsidiaries, generally for the purpose of media buying
on behalf of such clients with the Company’s subsidiaries acting as agent. There
is a corresponding liability against such cash thus representing a net asset of
nil.  The Company respectfully believes that any limitations imposed by
such clients on the use of this cash are not of the type intended to be covered
by Rule 4-08(e)(3)(ii) of Regulation S-X.  The Company further notes that
the disclosure described in Rule 4-08(e)(3)(ii) of Regulation S-X was not
applicable as of December 31, 2009 because the restricted net assets of
consolidated and unconsolidated subsidiaries and the parent's equity in the
undistributed earnings of 50% or less owned persons accounted for by the equity
method together did not exceed 25% of consolidated net assets of the
Company.  Specifically, the Company informs the Staff that such amounts
represented less than 1% of the consolidated net assets of the Company as of
December 31, 2009.

        2

    As a
result and in accordance with the Division of Corporate Finance’s Financial
Reporting Manual, Interpretation 2810.1, the Company determined that it was not
necessary to provide condensed parent company financial information or other
data in a financial statement schedule because (i) the restricted net assets of
consolidated and unconsolidated subsidiaries and the parent's equity in the
undistributed earnings of 50% or less owned persons accounted for by the equity
method together did not exceed 25% of consolidated net assets of the Company and
(ii) such information was not otherwise material to an investor’s understanding
of the Company’s financial statements.  The Company confirms that it will
continue to comply with Rules 4-08(e) and 12-04 of Regulation S-X in future
filings.

    Item 7.  Management’s
Discussion and Analysis of Financial Condition and Results of Operations, Page
15

              3.

              In
      the third paragraph from the bottom of page 22, you explained that organic
      growth in Strategic Marketing Services was driven by net new business wins
      offset by foreign exchange issues; and in the last paragraph at the bottom
      of page 22, you explain the organic revenue declines in Performance
      Marketing Services was due to customers reducing their outsourcing needs
      and client project spending.  Please provide more meaningful
      disclosure regarding the drivers that affected your results.  For
      example, explain the factors and circumstances that account for net new
      business wins or reduced client spending.  In this regard, we refer
      you to comment one in our letter dated December 11, 2008 where we
      generally asked you to explain how your operations and liquidity are
      affected by different factors such as known trends or
    events.

    There are
many factors that affect our businesses and result of operations.  The most
significant factors include national, regional and local economic conditions,
our clients’ profitability, mergers and acquisitions of our clients, changes in
top management of our clients and our ability to retain and attract key
employees.  New business wins and client losses occur because of a variety
of factors.  The two most significant factors are clients’ desire to change
marketing communication firms, and the creative product our firms are offering.
A client may choose to change marketing communication firms for any number of
reasons, such as a change in top management and the client’s new management
wants to go retain an agency firm that it may have previously worked with.
In addition, if the client is merged or acquired by another company, the
marketing communication firm is often changed.  Further, global clients
often consolidate the use of many marketing communication firms to just one or
two. Another factor in a client changing firms is the agency’s campaign or work
product is not working and they feel they need a change in order to generate
additional revenues.

        3

    Clients
will generally reduce or increase their spending or outsourcing needs based on
their current business trends and profitability. These types of changes impact
the Performance Marketing Services Group more than the Strategic Marketing
Services Group due to the Performance Marketing Services Group having clients
who require project-based work as opposed to the Strategic Marketing Services
Group who primarily have retainer-based relationships. The Company confirms that
it will add this disclosure to our future filings, as applicable.

    Liquidity and Capital
Resources, page 28

    Other Balance Sheet
Commitments, Page 33

              4.

              We
      note in the table on page 34 that you have presented amounts as “Operating
      income before depreciation and amortization to be received” and have
      described this line item as representing amounts to be received commencing
      in the year the put is exercised.  Explain for us in more detail what
      these amounts represent and clarity why operating income would increase
      upon the exercise of the options.

    The table
on page 34 presents amounts as “Operating income before depreciation and
amortization to be received” and represents the portion of operating income that
prior to the put being exercised is allocated to non-controlling interests
(minority holders).  Upon exercise of the applicable put option this would
be additional operating income to be allocated to the Company. You are correct
in that total operating income will not change but amounts attributable to MDC
will increase. We will clarify this point in our disclosure in future
filings.

    Critical Accounting
Policies, page 35

    Acquisitions, Goodwill and
Other Intangibles, page 36

              5.

              We
      note that goodwill accounting for approximately 50% of total assets as at
      December 31, 2009.  We also note that you experienced a net loss for
      the year ended December 31, 2009.  If you are at risk of failing step
      one of the goodwill impairment test for your reporting units, you should
      disclose the following information:

              ·

              The percentage by which fair
      value exceeded carrying value as of the date of the most recent
      test;

              ·

              The amount of goodwill
      allocated to the reporting
unit;

        4

              ·

              A description of the methods
      and key assumptions used and how the key assumptions were
      determined;

              ·

              A discussion of the degree of
      uncertainty associated with the key assumptions.  The discussion
      regarding uncertainty should provide specifics to the extent possible
      (e.g., the valuation model assumes recovery from a business downturn with
      a defined period of time);
and

              ·

              A description of potential
      events and/or changes in circumstances that could reasonably be expected
      to negatively affect the key
assumptions.

    Otherwise
disclose, if true, in your critical accounting policies and estimates section of
the MD&A, that none of your reporting units with significant goodwill are at
risk of failing step one of the goodwill impairment test.  For further
guidance, refer to Release 33-8350 “ Interpretation: Commission Guidance
Regarding Management’s Discussions and Analysis of Financial Condition and
Results of Operations.”  Please provide us with the proposed
disclosures you intend to include in your next Form 10-K to comply with this
comment.

    Based on
the Company’s annual testing of goodwill, which was performed as of October 1,
2009, there were no reporting units at risk of failing step one of the goodwill
impairment tests.  The Company intends to include a disclosure as to
whether any reporting unit is at risk of failing step one of the annual goodwill
impairment test and if so we will disclose the following
information:

              ·

              The
      percentage by which fair value exceeded the carrying value as of the date
      of the most recent test;

              ·

              The
      amount of goodwill allocated to the reporting
  unit;

              ·

              A
      description of the methods and key assumptions used and how the key
      assumptions were determined;

              ·

              A
      discussion of the degree of uncertainty associated with the key
      assumptions; and

              ·

              A
      description of potential events and/or changes in circumstances that could
      reasonably be expected to negatively affect the key
      assumptions.

    Note 2.  Significant
Accounting Policies, page 49

    Redeemable Noncontrolling
Interest, page 52

              6.

              You
      state that you record any excess of the estimated exercise price over the
      estimated fair value of the non controlling interest shares as a charge to
      noncontrolling interests in the statement of operations.  Tell us the
      impact of this policy on your financial statements for the year ended
      December 31, 2009, including the amount of the excess of the redemption
      price over fair value.  In this regard, you disclose in Note 4
      several acquisitions of non controlling interests whereby the amount paid
      for the additional interests exceeded the fair value of the equity
      purchased.

        5

    The
Company’s policy states that we record any excess of the estimated exercise
price of a put over the estimated fair value of the non-controlling interest
shares as a charge to non-controlling interests in the statement of
operations.  For the year ended December 31, 2009, there was no estimated
exercise prices in excess of the estimated fair values, and accordingly no
adjustments were required.

    The
disclosures made in Note 4 regarding several acquisitions of non-controlling
interests whereby the amount paid for the additional interests exceeded the fair
value of the equity purchased related to subsequent negotiated changes made to
the calculation of the actual exercise price at the time of exercise.  At
the time of exercise, separate negotiated arrangements are sometimes made which
change the exercise price terms and the accounting is then changed at that time.
As disclosed in the Note 4, the excess of the price paid over the fair value was
charged to operations.

              7.

              Tell
      us where you record the offset to the net income or loss attributable to
      non-controlling shareholders on your balance sheet.  In this regard,
      these amounts are not apparent in your rollforward of redeemable
      noncontrolling interests on page 53 or the changes in the noncontrolling
      interests in your statement of stockholders equity on page
    48.

    The
offset to the net income or loss attributable to non-controlling shareholders is
recorded in accrued and other liabilities as disclosed in Note 6.  The
Company includes these amounts as a current liability as it is the Company’s
policy to distribute these earnings to the non-controlling interest holders on a
timely basis.  In future filings the Company will include a rollforward of
the accrued liability account which includes the net income or loss attributable
to non-controlling shareholders. For the year ended December 31, 2009 the
rollforward is as follows: (in thousands)

                          Balance
      December 31, 2008

                        $
                        4,856