MDC Partners Inc Annual Report 2011

FY2011 Annual Report · MDC Partners Inc
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201  ANNUAL REPORT

1

 
 
 
 
 
 
 
 
 
 
 
 
                                  
Dear Fellow Shareholders,  

My colleagues at MDC Partners accomplished a tremendous amount in 2011. We have 
successfully created a billion dollar revenue platform with an infrastructure built for 
growth, extraordinary thought leadership talent across our partner companies, a global 
perspective, and cutting edge marketing solutions that are social, analytically based, 
insight-driven and most importantly, drive significant financial results for our clients. 

During the year, we continued to invest heavily in the businesses and believe that it was 
the right thing to do.  We invested in Anomaly, Laird + Partners, Concentric and RJ 
Palmer, strengthening our integrated creative services offering and adding crucial 
strategic capabilities in two very important growing areas: healthcare and media.  These 
complemented our 2010 investments, which bolstered MDC's capabilities and leadership 
position in digital and social media, experiential marketing, public relations, and 
analytics, and added another highly-regarded innovative integrated agency, 72andSunny. 

More recently, we expanded our global reach through organic expansion of our agency 
offerings and a joint venture agreement that gave us a foothold in the extremely dynamic 
and promising Brazilian market.  We are now in a better position than ever to take 
international market share and we have already begun to see the benefits of this measured 
global approach. 

We planted a flag in the ground in the media space, which represents an enormous 
opportunity for us as we work to remold and disrupt the traditional media buying model.  
We believe that the media world is on the verge of a significant shift as scale alone ceases 
to be the differentiating advantage for media offerings, and as advancements in data 
analysis and technology increasingly make performance king.  By leveraging our 
technological prowess, we see a very real opening for MDC Partners to seize new share. 
We have begun 2012 with what we believe is a transformative investment for MDC 
Partners – the acquisition of leading media agency TargetCast and the formation of our 
media services group, Maxxcom Global Media.  

Finally, early in 2012, we invested in Doner, one of the largest independent agency 
networks in the world, and a thoroughly modern, fast-growing integrated 
creative network that is poised for even greater success and continued growth.  Doner 
brings to MDC Partners a significant international micro-network that improves our 
ability to compete for major international business, further strengthens our media 
offering, and offers extremely sophisticated integrated offerings.  I am excited about 
Doner’s prospects both from a strategic and financial perspective. 

	
 
 
 
 
 
 
 
 
 
 
 
There is no doubt in my mind that today, MDC Partners has a stronger management 
team, a better global network, more sophisticated capabilities, better prospects for 
significant revenue and cash flow expansion, and more promising business opportunities 
than ever in our history. 

Even as our business matures and achieves scale, MDC Partners continues to be 
disruptive.  We power our thinking with technology and analytics, giving us a distinct 
advantage in this digital and socially connected world, and fueling our ability to attract 
new business and new blue-chip clients that are increasingly attracted to our 
entrepreneurial, innovative network.  This has translated into triple the organic growth 
and almost 400%, or five times, the revenue growth of our peers.  We grew our revenues 
by over 70% in 2010 and 2011 and were awarded $104 million of net new business wins. 

But we can’t rest on our laurels.  As we enter 2012, we remain steadfastly focused on 
marketers’ need for innovation and results.  As such, we continue to carefully plan our 
growth and craft the partnerships and investments needed to ensure we are leading our 
industry and capturing market share.   At the same time, with our management stronger 
than ever, and many of the pieces of our growth strategy in place, we are shifting out of 
investment mode and into one focused on expanding margins and converting incremental 
revenue into cash flow and profits. 

Our goal is to deliver a 15 -17% EBITDA margin over the next several years.  That 
would imply, on average, 100 basis points of margin progression a year for the next five 
years.  Certainly this means that we will be prudent with our costs, and continue to take a 
deliberate and thoughtful approach to investments.  But it really means that we are now 
going to capitalize on the unique growth platform that we have built.  We have all the 
building blocks in place. Our acquisitions are working successfully, we're appropriately 
leveraging the impressive capital that we've built with our brand, we're utilizing our 
extraordinary talent base, and we now have broader capabilities and scale with which to 
enable us to capture more share of wallet and more share of market from these 
extraordinary clients that we are privileged to be associated with. 

We’re also looking to significantly improve our balance sheet.  Our long-term goal is to 
bring down our leverage to below 2.5 times EBITDA, and we believe that we can reach 
that goal in the next few years, and are already making good progress.  With the recent 
acquisitions and the expected improvement in our operations and working capital, we 
believe that we can achieve a 2012 year-end leverage ratio of between 3 and 3.5 times 
EBITDA, down from 4 times, where we were at the end of 2011. 

Over the last several years, we have demonstrated that we are more than a marketing 
organization, but a business transformation organization.  Unencumbered by silos or 
media biases, we are nimble, fast-moving partners to our clients and we lead with the 
solutions that have the highest measurable return on marketing investment.  And, as the 
leading disruptor in our industry, our clients now look to us to guide them through the 
landscape of an industry that is constantly changing.  Now, more than ever, we are ready 
to take on that challenge.  

	
 
 
 
 
 
 
I would like to humbly extend my gratitude, on behalf of MDC Partners, to our dedicated 
group of 8,000+ talented employees and partners, our Board of Directors, and you, our 
shareholders. Your continued confidence and investment in our business is of the utmost 
value and importance.  With our management team and Board retaining significant 
ownership of MDC Partners’ shares, our vision and interests are clearly aligned with 
yours, and with your partnership, we look forward to all that we will accomplish in 2012 
and beyond.  

Best Regards,  

Miles S. Nadal 
Founder, Chairman & Chief Executive Officer 

	
 
 
 
 
 
 
Comparison of 5 Years’ Cumulative Total Return among MDC Partners,
the S&P 500 Index and Peer Group

Set forth below is a line graph comparing the yearly percentage change in the company’s cumulative total
shareholder return for the last ﬁve years to that of the Standard & Poor’s 500 Stock Index, Russell 2000 Index
and a peer group of publicly held corporate communications and marketing holding companies. The peer
group consists of The Interpublic Group of Companies, Inc., Omnicom Group, Inc. and WPP Group plc. The
graph below shows the value at the end of each year (December 31st) of each $100 invested in our common
stock, the S&P 500 Index, Russell 2000 Index and the peer group. The graph assumes the reinvestment of
dividends. Total shareholder return for the peer group is weighted according to market capitalization at the
beginning of each annual period.

MDC Partners Inc.
Comparison of 5-Year Cumulative Total Return

$250

$200

$150

$100

$50

$0

MDC Partners
S&P 500
Russell 2000
Peer Group

2006

2007

2008

2009

2010

2011

MDC Partners . . . . . . . . . . . . . . . . . . . . .
S&P 500 Index. . . . . . . . . . . . . . . . . . . . .
Russell 2000 Index . . . . . . . . . . . . . . . . . .
Peer Group . . . . . . . . . . . . . . . . . . . . . . .

2006
100.00
100.00
100.00
100.00

2007
131.74
105.90
98.43
90.72

2008
41.15
66.46
65.18
60.02

2009
112.78
84.05
82.89
75.46

2010
240.59
96.71
105.14
95.83

2011
187.92
98.75
100.75
86.44

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2011

Commission File Number 001-13178

MDC PARTNERS INC.

(Exact Name of Registrant as Speciﬁed in Its Charter)

Canada
(State or Other Jurisdiction of
Incorporation or Organization)

98-0364441
(I.R.S. Employer
Identiﬁcation Number)

745 Fifth Avenue,
New York, NY, 10151
(646) 429-1800
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Each Exchange on Which Registered

Class A Subordinate Voting Shares, no par value

NASDAQ; Toronto Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as deﬁned in Rule 405 of the Securities

Act. Yes (cid:2) No (cid:3)

Indicate by check mark if the registrant is not required to ﬁle reports pursuant to Section 13 or Section 15(d) of the

Act. Yes (cid:2) No (cid:3)

Indicate by check mark whether the Registrant (1) has ﬁled all reports required to be ﬁled by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to ﬁle
such reports), and (2) has been subject to such ﬁling requirements for the past 90 days. Yes (cid:3) No (cid:2)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every

Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such ﬁles). Yes (cid:3) No (cid:2)

Indicate by check mark if disclosure of delinquent ﬁlers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in deﬁnitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. □

Indicate by check mark whether the registrant is a large accelerated ﬁler, an accelerated ﬁler, a non-accelerated ﬁler or a smaller

reporting company. (Check one):

Large Accelerated Filer □ Accelerated Filer (cid:3)
Indicate by check mark whether the registrant is a shell company (as deﬁned in Rule 12b-2 of the Act). Yes (cid:2) No (cid:3)

Non-Accelerated □

Smaller reporting company □

The aggregate market value of the shares of all classes of voting and non-voting common stock of the registrant held by

non-affiliates as of June 30, 2011 was approximately $446.5 million, computed upon the basis of the closing sales price
($17.56/share) of the Class A subordinate voting shares on that date.

As of March 1, 2012, there were 30,914,811 outstanding shares of Class A subordinate voting shares without par value, and

2,503 outstanding shares of Class B multiple voting shares without par value, of the registrant.

MDC PARTNERS INC.

TABLE OF CONTENTS

PART I

Item 1.

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1A.

Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1B. Unresolved Staff Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 2.

Item 3.

Item 4.

Item 5.

Item 6.

Item 7.

Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART II

Market for Registrant’s Common Equity and Related Stockholder Matters . . . . . . . . . .

Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 7A. Quantitative and Qualitative Disclosures About Market Risk. . . . . . . . . . . . . . . . . . . .

Item 8.

Item 9.

Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 9A.

Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

Item 10.

Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . .

Item 11.

Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 12.

Security Ownership of Certain Beneﬁcial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 13.

Certain Relationships and Related Transactions, and Director Independence . . . . . . . . .

Item 14.

Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 15.

Exhibits and Financial Statements Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

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99

i

References in this Annual Report on Form 10-K to ‘‘MDC Partners’’, ‘‘MDC’’, the ‘‘Company,’’ ‘‘we,’’

‘‘us’’ and ‘‘our’’ refer to MDC Partners Inc. and, unless the context otherwise requires or otherwise is
expressly stated, its subsidiaries.

All dollar amounts are stated in US dollars unless otherwise stated.

DOCUMENTS INCORPORATED BY REFERENCE

The following sections of the Proxy Statement for the Annual Meeting of Stockholders to be held on

June 5, 2012, are incorporated by reference in Parts I and III: ‘‘Election of Directors,’’ ‘‘Section 16(a)
Beneﬁcial Ownership Reporting Compliance,’’ ‘‘Executive Compensation,’’ ‘‘Report of the Human Resources
& Compensation Committee on Executive Compensation,’’ ‘‘Outstanding Shares,’’ ‘‘Appointment of
Auditors,’’ and ‘‘Certain Relationships and Related Transactions’’.

AVAILABLE INFORMATION

Information regarding the Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and any amendments to these reports, will be made available, free of charge, at
the Company’s website at http://www.mdc-partners.com, as soon as reasonably practicable after the Company
electronically ﬁles such reports with or furnishes them to the Securities and Exchange Commission (‘‘SEC’’).
The information found on, or otherwise accessible through, the Company’s website is not incorporated into,
and does not form a part of, this Annual Report or Form 10-K. Any document that the Company ﬁles with the
SEC may also be read and copied at the SEC’s public reference room located at 100 F. Street, N.E.,
Washington, DC 20549. Please call the SEC at 1 (800) SEC-0330 for further information on the public
reference room. The Company’s ﬁlings are also available to the public from the SEC’s website at
http://www.sec.gov.

The Company’s Code of Conduct, Whistleblower Policy, and each of the charters for the Audit

Committee, Human Resources & Compensation Committee and the Nominating and Corporate Governance
Committee, are available free of charge on the Company’s website at http://www.mdc-partners.com or by
writing to MDC Partners Inc., 745 Fifth Avenue, New York, NY 10151, Attention: Investor Relations.

ii

FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements. The Company’s representatives may also make
forward-looking statements orally from time to time. Statements in this document that are not historical facts,
including statements about the Company’s beliefs and expectations, recent business and economic trends,
potential acquisitions, estimates of amounts for deferred acquisition consideration and ‘‘put’’ option rights,
constitute forward-looking statements. These statements are based on current plans, estimates and projections,
and are subject to change based on a number of factors, including those outlined in this section.
Forward-looking statements speak only as of the date they are made, and the Company undertakes no
obligation to update publicly any of them in light of new information or future events, if any.

Forward-looking statements involve inherent risks and uncertainties. A number of important factors could

cause actual results to differ materially from those contained in any forward-looking statements. Such risk
factors include, but are not limited to, the following:

•

•

•

•

•

•

•

risks associated with severe effects of international, national and regional economic conditions;

the Company’s ability to attract new clients and retain existing clients;

the spending patterns and ﬁnancial success of the Company’s clients;

the Company’s ability to retain and attract key employees;

the Company’s ability to remain in compliance with its debt agreements and the Company’s ability
to ﬁnance its contingent payment obligations when due and payable, including but not limited to
those relating to ‘‘put’’ option rights and deferred acquisition consideration;

the successful completion and integration of acquisitions which complement and expand the
Company’s business capabilities; and

foreign currency ﬂuctuations.

The Company’s business strategy includes ongoing efforts to engage in material acquisitions of ownership

interests in entities in the marketing communications services industry. The Company intends to ﬁnance these
acquisitions by using available cash from operations, from borrowings under its WF Credit Agreement and
through incurrence of bridge or other debt ﬁnancing, any of which may increase the Company’s leverage
ratios, or by issuing equity, which may have a dilutive impact on existing shareholders proportionate
ownership. At any given time, the Company may be engaged in a number of discussions that may result in
one or more material acquisitions. These opportunities require conﬁdentiality and may involve negotiations
that require quick responses by the Company. Although there is uncertainty that any of these discussions will
result in deﬁnitive agreements or the completion of any transactions, the announcement of any such
transaction may lead to increased volatility in the trading price of the Company’s securities.

Investors should carefully consider these risk factors and the additional risk factors outlined in more
detail in this Annual Report on Form 10-K under the caption ‘‘Risk Factors’’ and in the Company’s other
SEC ﬁlings.

SUPPLEMENTARY FINANCIAL INFORMATION

The Company reports its ﬁnancial results in accordance with generally accepted accounting principles
(‘‘GAAP’’) of the United States of America (‘‘US GAAP’’). However, the Company has included certain non-
US GAAP ﬁnancial measures and ratios, which it believes, provide useful information to both management
and readers of this report in measuring the ﬁnancial performance and ﬁnancial condition of the Company.
These measures do not have a standardized meaning prescribed by US GAAP and, therefore, may not be
comparable to similarly titled measures presented by other publicly traded companies, nor should they be
construed as an alternative to other titled measures determined in accordance with US GAAP.

iii

[This page intentionally left blank.] 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 1. Business

MDC PARTNERS INC.

PART I

BUSINESS

MDC was formed by Certiﬁcate of Amalgamation effective December 19, 1986, pursuant to the

Business Corporations Act (Ontario). Effective December 19, 1986, MDC amalgamated with Branbury
Explorations Limited, and thereby became a public company operating under the name of MDC Corporation.
On May 28, 1996, MDC changed its name to MDC Communications Corporation and, on May 29, 1999, it
changed its name to MDC Corporation Inc. On July 31, 2003, MDC acquired the remaining 26% of
Maxxcom Inc. (‘‘Maxxcom’’) that it did not already own, privatizing the now wholly-owned subsidiary and
merging Maxxcom’s corporate functions with MDC’s existing corporate functions. On January 1, 2004,
MDC changed its name to its current name, MDC Partners Inc., and on June 28, 2004, MDC was continued
under Section 187 of the Canada Business Corporations Act. MDC’s registered address is located at
45 Hazelton Avenue, Toronto, Ontario, M5R 2E3, and head office address is located at 745 Fifth Avenue,
New York, NY 10151.

MDC is a leading provider of marketing communications services to customers globally. MDC has

operating units in the United States, Canada, Europe, and the Caribbean.

MDC’s subsidiaries provide a comprehensive range of marketing communications and consulting
services, including advertising, interactive and mobile marketing, direct marketing, database and customer
relationship management, sales promotion, corporate communications, market research, corporate identity,
design and branding, social media and marketing, ecommerce and other related services.

Part I — Business

MDC’s strategy is to build, grow and acquire market-leading businesses that deliver innovative, value-
added marketing communications and strategic consulting services to their clients. MDC Partners strives to be
a partnership of marketing communications and consulting companies (or Partners) whose strategic, creative
and innovative solutions are media-agnostic, challenge the status quo and achieve measurable superior returns
on investment for clients and stakeholders.

MDC’s Corporate Group ensures that MDC is the most Partner-responsive marketing services network
through its strategic mandate to help Partner ﬁrms ﬁnd clients, talent and tuck under acquisitions, as well as
cross-sell services and enhance their culture for innovation and growth. MDC’s Corporate Group also works
directly with Partner ﬁrms to expand their offerings through new strategic services, as well as leverage the
collective expertise and scale of the group as a whole. The Corporate Group uses this leverage to provide
various shared services to help reduce costs across the group.

The MDC model is driven by three key elements:

Perpetual Partnership. The perpetual partnership creates ongoing alignment of interests to drive

performance. The perpetual partnership model functions by (1) identifying the ‘right’ Partners with a
sustainable differentiated position in the marketplace; (2) creating the ‘right’ Partnership structure generally by
taking a majority ownership position and leaving a substantial noncontrolling equity or economic ownership
position in the hands of operating management to incentivize long-term growth; (3) providing access to more
resources and leveraging the network’s scale; and (4) focusing on delivering ﬁnancial results.

Entrepreneurialism. Entrepreneurial spirit is optimized by creating customized solutions to support and

grow our businesses.

Human and Financial Capital. The model balances accountability with ﬁnancial ﬂexibility to

support growth.

1

MDC operates through ‘‘Partner’’ companies within the following reportable segments:

Strategic Marketing Services

The Strategic Marketing Services segment generally consists of ﬁrms that offer a full suite of integrated

marketing communication and consulting services, including advertising and media, interactive marketing,
direct marketing, public relations, corporate communications, market research, corporate identity and branding,
and sales promotion to national and global clients. The Strategic Marketing Services segment is comprised of
the following agencies: 72andSunny; Allison & Partners; Anomaly; Attention; Bruce Mau Design; Capital C
Partners; Colle + McVoy; Concentric Partners; Crispin Porter + Bogusky; Crispin Porter + Bogusky Canada;
Hello Design; henderson bas kohn; HL Group Partners; kirshenbaum bond senecal + partners; Kbs+p Canada;
Kwittken; Laird + Partners; The Media Kitchen; Mono Advertising; Redscout; Sloane & Company;
Varick Media Management; Veritas Communications; Vitro and Yamamoto.

Performance Marketing Services

The Performance Marketing Services segment includes ﬁrms that provide consumer insights to satisfy the

growing need for targetable, measurable solutions or cost effective means of driving return on marketing
investment and growth for regional, national and global clients. The Performance Marketing Services segment
is comprised of the following agencies: 6degrees Communications; Accent; AIC Publishing; Boom Marketing;
Bryan Mills Iradesso; Communifx Partners; Computer Composition; Hudsun Media; Integrated Media
Solutions; Kenna Communications; Northstar Research Partners; Onbrand; Relevent; RJ Palmer; Source
Marketing; TargetCom; Team and Trade X.

Ownership Information

The following table includes certain information about MDC’s operating subsidiaries as of December 31,

2011. The ‘‘Put and Call Options’’ information represents existing contractual rights. Owners of interests in
certain subsidiaries have the right in certain circumstances to require MDC to acquire additional ownership
interests held by them. The owners’ ability to exercise any such ‘‘put’’ option right is subject to the
satisfaction of certain conditions, including conditions requiring notice in advance of exercise. In addition,
these rights cannot be exercised prior to speciﬁed staggered exercise dates. The exercise of these rights at their
earliest contractual date would result in obligations of MDC to fund the related amounts during the periods
described in the accompanying notes. It is not determinable, at this time, if or when the owners of these rights
will exercise all or a portion of these rights. The amount payable by MDC in the event such rights are
exercised is dependent on deﬁned valuation formulas and on future events, such as the average earnings of the
relevant subsidiary through the date of exercise, the growth rate of the earnings of the relevant subsidiary
during that period, and, in some cases, the currency exchange rate at the date of payment. See also
‘‘Management’s Discussion and Analysis — Other-Balance Sheet Commitments — Put Rights of Subsidiaries’
Noncontrolling Shareholders’’ for further discussion.

Put options represent puts of ownership interests by other interest holders to MDC with reciprocal call
rights held by MDC for the same ownership interests with similar terms. The percentages shown represent the
potential ownership interest MDC could achieve in each company assuming that the remaining equity
holder(s) were to fully exercise their put option rights at the earliest opportunity.

2

Company

Consolidated:

Strategic Marketing Services

72andSunny . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allison & Partners . . . . . . . . . . . . . . . . . . . . . .
Anomaly . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Attention . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bruce Mau Design . . . . . . . . . . . . . . . . . . . . . .
Capital C Partners. . . . . . . . . . . . . . . . . . . . . . .
Colle + McVoy. . . . . . . . . . . . . . . . . . . . . . . . .
Concentric Partners . . . . . . . . . . . . . . . . . . . . . .
Crispin Porter + Bogusky. . . . . . . . . . . . . . . . . .
Hello Design . . . . . . . . . . . . . . . . . . . . . . . . . .
henderson bas kohn. . . . . . . . . . . . . . . . . . . . . .
HL Group Partners . . . . . . . . . . . . . . . . . . . . . .
kirshenbaum bond senecal + partners . . . . . . . . . .
The Media Kitchen . . . . . . . . . . . . . . . . . . . .
Varick Media Management . . . . . . . . . . . . . . .
Kwittken . . . . . . . . . . . . . . . . . . . . . . . . . . .
Laird + Partners . . . . . . . . . . . . . . . . . . . . . . . .
Mono Advertising . . . . . . . . . . . . . . . . . . . . . . .
Redscout . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Skinny NYC . . . . . . . . . . . . . . . . . . . . . . . . . .
Sloane & Company. . . . . . . . . . . . . . . . . . . . . .
Veritas Communications. . . . . . . . . . . . . . . . . . .
Vitro. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Yamamoto . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Performance Marketing Services

6degrees Communications . . . . . . . . . . . . . . . . .
Accent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AIC Publishing. . . . . . . . . . . . . . . . . . . . . . . . .
Boom Marketing. . . . . . . . . . . . . . . . . . . . . . . .
Bryan Mills Iradesso . . . . . . . . . . . . . . . . . . . . .
Communifx Partners . . . . . . . . . . . . . . . . . . . . .
Computer Composition . . . . . . . . . . . . . . . . . . .
Hudson Media . . . . . . . . . . . . . . . . . . . . . . . . .
Integrated Media Solutions. . . . . . . . . . . . . . . . .
Kenna Communications . . . . . . . . . . . . . . . . . . .
Northstar Research Partners . . . . . . . . . . . . . . . .
Onbrand . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Relevent . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RJ Palmer . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Source Marketing . . . . . . . . . . . . . . . . . . . . . . .
TargetCom. . . . . . . . . . . . . . . . . . . . . . . . . . . .
TEAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade X . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

% Owned at
12/31/11

Year of
Initial
Investment

Put/Call Options

2012

Thereafter

(See Notes)

—
—
—
—
—
—
100.0%
—
—
—
100.0%
72.4%
—
—
—
—
—
65.0%
—
—
—
95.1%
97.5%
—

77.3%
—
—
—
100.0%
—
—
—
—
—
—
—
—
—
91.3%
—
—
—

Note 1
Note 2
Note 3
Note 4

Note 5
Note 6
Note 7
Note 8

Note 9
Note 10

Note 11
Note 12
Note 13
Note 14
Note 15
Note 16
Note 17
Note 18

Note 19

Note 20
Note 21

Note 22
Note 23
Note 24

Note 25

Note 26
Note 27

2010
2010
2011
2009
2004
2010
1999
2011
2001
2004
2004
2007
2004
2010
2010
2010
2011
2004
2007
2008
2010
1993
2004
2000

1993
1999
2011
2005
1989
2010
1988
2010
2010
2010
1998
1992
2010
2011
1998
2000
2010
2011

51.0%
51.0%
60.0%
51.0%
75.0%
80.0%
95.0%
70.0%
100.0%
49.0%
65.0%
65.9%
100.0%
100.0%
100.0%
60.0%
65.0%
49.9%
100.0%
50.1%
70.0%
85.3%
82.0%
100.0%

66.0%
100.0%
51.0%
85.0%
62.8%
84.6%
100.0%
51.0%
75.0%
80.0%
91.8.%
94.0%
60.0%
100.0%
83.0%
100.0%
60.0%
75.0%

3

Notes

(1) MDC has the right to increase its ownership interest in 72andSunny Partners LLC through acquisition of

an incremental interest of up to 100% in 2016.

(2) MDC has the right to increase its ownership interest in Allison & Partners LLC through acquisition of an
incremental interest, and other holders have the right to put only upon termination to MDC the same
incremental interest up to 100% of this entity in 2015.

(3) MDC has the right to increase its ownership interest in Anomaly Partners LLC through acquisition of an

incremental interest of up to 100% in 2015.

(4) Attention Partners LLC is owned by HL Group Partners, LLC. HL Group Partners, LLC has the right to

increase its ownership in Attention Partners, LLC through acquisitions of incremental interests, and the
other interest holders has the right to put to HL Group Partners, LLC the same incremental interests up to
100% only upon termination.

(5) MDC has the right to increase its ownership interest in Capital C Partners LP through acquisition of an

incremental interest, up to 90% in 2015, and up to 100% in 2017.

(6) MDC has the right to increase its economic ownership in Colle + McVoy, LLC through acquisition of an
incremental interest, and the other interest holder has the right to put to MDC the same incremental
interest, up to 100% of this entity in 2012.

(7) MDC has the right to increase its ownership in Concentric Partners LLC through acquisition of an

(8)

incremental interest of up to 100% in 2016.
Includes Crispin Porter & Bogusky LLC, Crispin Porter & Bogusky Canada LP, and certain other
domestic and international operating subsidiaries.

(9) MDC has the right to increase its ownership in HL Group Partners, LLC through acquisitions of

incremental interests, and the other interest holders have the right to put to MDC the same incremental
interests, up to 72.4% of this entity in 2012, up to 82.62% in 2013 and up to 93.73% in 2014.

(10) Consists of Kirshenbaum Bond Senecal + Partners LLC, Kwittken PR LLC, Varick Media Management
LLC, certain other domestic and international operating subsidiaries, and The Media Kitchen, a division
of kirshenbaum bond senecal + partners.

(11) MDC has the right to increase its ownership in Kwittken PR LLC through acquisitions of incremental

interests, up to 100% of this entity in 2015.

(12) MDC has the right to increase its ownership in Laird + Partners New York LLC through acquisition of

an incremental interest of up to 100% in 2016.

(13) MDC has the right to increase its ownership in Mono Advertising, LLC through acquisitions of

incremental interests, and the other interest holders have the right to put to MDC the same incremental
interests, up to 65.0% of this entity in 2012, up to 70.0% in 2013 and up to 75.0% in 2014.
(14) During 2011, MDC increased its economic ownership in Redscout, LLC through acquisition of an

incremental interest.

(15) MDC has the right to increase its ownership in Skinny NYC, LLC through acquisition of incremental

interests, and the other interest holders have the right to put to MDC the same incremental interest, up to
60.1% of this entity in 2014, up to 70.1% of this entity in 2015 and up to 80.1% of this entity in 2016.
(16) MDC has the right to increase its ownership interest in Sloane & Company LLC through acquisition of
incremental interests, and other interest holders have the right to put to MDC the same incremental
interests up to 100% in 2015.

(17) MDC has the right to increase its ownership in Veritas Communications Inc. through acquisitions of

incremental interests, and the other interest holders have the right to put to MDC the same incremental
interests, up to 95.1% of this entity in 2012 and up to 100% in 2013.

(18) MDC has the right to increase its ownership in Vitro Robertson, LLC through acquisition of an

incremental interest, and the other interest holder has the right to put to MDC the same incremental
interests, up to 97.5% of this entity in 2012 and up to 100% in 2013.

(19) MDC has the right to increase its ownership in 6degrees Integrated Communications Corp. through

acquisitions of incremental interests, and the other interest holders have the right to put to MDC the same
incremental interests up to 77.3% of this entity in 2012. MDC’s current economic interest is 53.3%.

4

(20) MDC has the right to increase its ownership in Bryan Mills Iradesso, Corp. through acquisition of an
incremental interest, and the other interest holders have the right to put to MDC the same incremental
interest, up to 100% of this entity in 2012.

(21) MDC has the right to increase its ownership in Communifx Partners, LLC through acquisitions of

incremental interests, and the other interest holders have the right to put to MDC the same incremental
interests, up to 100% of this entity in 2013.

(22) MDC has the right to increase its ownership interest in Integrated Media Solutions Partners LLC through

acquisitions of incremental interests, up to 100% of this entity in 2015.

(23) MDC has the right to increase its ownership interest in Kenna Communications LP through acquisition of

an incremental interest, up to 100% in 2015.

(24) The Northstar Research Partners consists of Northstar Research Holdings USA LP and Northstar

Research Holdings Canada Inc. MDC has the right to increase its ownership in Northstar Research
Canada through acquisitions of incremental interests, and the other holders have the right to put to
MDC the same incremental interests, up to 100% of this entity in 2013.

(25) MDC has the right to increase its ownership in Source Marketing, LLC through acquisitions of

incremental interests, and the other interest holders have the right to put to MDC the same incremental
interests up to 91.3% of this entity in 2012 and 100% in 2013.

(26) TEAM consists of The Arsenal LLC (f/k/a Team Holdings LLC) and its wholly-owned subsidiaries.

MDC has the right to increase its ownership in The Arsenal, LLC, through acquisition of an incremental
interest, up to 100% of this entity in 2013.

(27) MDC has the right to increase its ownership interest in Trade X Partners LLC through acquisitions of

incremental interests up to 100% in 2015.

5

Financial Information Relating to Business Segments and Geographic Regions

For ﬁnancial information relating to the Company’s Marketing Communications Businesses and the
geographic regions the businesses operate within, refer to Note 16 (Segmented Information) of the notes to the
consolidated ﬁnancial statements included in this Annual Report and to ‘‘Item 7. Management’s Discussion
and Analysis’’ for further discussion.

Competition

In the competitive, highly fragmented marketing and communications industry, the Company’s operating

companies compete for business with the operating subsidiaries of large global holding companies such as
Omnicom Group Inc., Interpublic Group of Companies, Inc., WPP Group plc, Publicis Group SA and
Havas Advertising. These global holding companies generally have greater resources than those available to
MDC and its subsidiaries, and such resources may enable them to aggressively compete with the Company’s
marketing communications businesses. Each of MDC’s operating companies also faces competition from
numerous independent agencies that operate in multiple markets. MDC’s operating companies must compete
with these other companies to maintain existing client relationships and to obtain new clients and assignments.
MDC’s operating companies compete at this level by providing clients with marketing ideas and strategies
that are focused on increasing clients’ revenues and proﬁts. These existing and potential clients include
multinational corporations and national companies with mid-to-large sized marketing budgets. MDC also
beneﬁts from cooperation among the operating companies through referrals and the sharing of both services
and expertise, which enables MDC to service clients’ varied marketing needs by crafting custom integrated
solutions.

A partner agency’s ability to compete for new clients is affected in some instances by the policy, which
many advertisers and marketers impose, of not permitting their agencies to represent competitive accounts in
the same market. In the vast majority of cases, however, MDC’s consistent maintenance of separate,
independent operating companies has enabled MDC to represent competing clients across its network.

Industry Trends

Historically, advertising has been the primary service provided by the marketing communications
industry. However, as clients aim to establish one-to-one relationships with customers, and more accurately
measure the effectiveness of their marketing expenditures, specialized and digital communications services and
database marketing and analytics are consuming a growing portion of marketing dollars. The Company
believes this is increasing the demand for a broader range of non-advertising marketing communications
services (i.e., direct marketing, sales promotion, interactive, public relations, etc). The notion of a mass market
audience is giving way to life-style segments, social events/networks, and online/mobile communities, each
segment requiring a different message and/or different, often non-traditional, channels of communication.
Global marketers now seek innovative ideas wherever they can ﬁnd them, providing new opportunities for
small to mid-sized communications companies.

Clients

The Company serves clients in virtually every industry, and in many cases, the same clients in various
locations. Representation of a client rarely means that MDC handles marketing communications for all brands
or product lines of the client in every geographical location. MDC’s agencies have written contracts with
many of their clients. As is customary in the industry, these contracts provide for termination by either party
on relatively short notice. See ‘‘Management’s Discussion and Analysis — Executive Overview’’ for a further
discussion of MDC’s arrangements with its clients.

During 2011, 2010 and 2009, the Company’s largest client, Sprint, accounted for approximately 6%,
8% and 16% of revenues, respectively. In addition, MDC’s ten largest clients (measured by revenue generated)
accounted for 29%, 37% and 49% of 2011, 2010 and 2009 revenues, respectively.

6

Employees

As of December 31, 2011, MDC and its subsidiaries had the following number of employees within its

reportable segments:

Segment
Strategic Marketing Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance Marketing Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total
2,779
3,986
45
6,810

See Management’s Discussion and Analysis for a discussion of the effect of cost of services sold on

MDC’s historical results of operations. Because of the personal service character of the marketing
communications businesses, the quality of personnel is of crucial importance to MDC’s continuing success.
MDC considers its relations with employees to be satisfactory.

Effect of Environmental Laws

MDC believes it is substantially in compliance with all regulations concerning the discharge of materials

into the environment, and such regulations have not had a material effect on the capital expenditures or
operations of MDC.

7

Item 1A. Risk Factors

The following factors could adversely affect the Company’s revenues, results of operations or ﬁnancial

condition. See also ‘‘Statement Regarding Forward-Looking Disclosure.’’

Future economic and ﬁnancial conditions could adversely impact our ﬁnancial condition and results.

Economic and ﬁnancial conditions deteriorated sharply in the latter part of 2008, and these deteriorating
conditions continued in 2009 and 2010. In 2011, the United States experienced modest economic growth, but
the pace of the global economic recovery is uneven and a future economic downturn could renew reductions
in client spending levels and adversely affect our results of operations and ﬁnancial position in 2012.

a. As a marketing services company, our revenues are highly susceptible to declines as a result of

unfavorable economic conditions.

Global economic conditions affect the advertising and marketing services industry more severely than

other industries. In the past, some clients have responded to weakening economic conditions with reductions
to their marketing budgets, which include discretionary components that are easier to reduce in the short term
than other operating expenses. This pattern may recur in the future. Decreases in our revenue would
negatively affect our ﬁnancial results, including a reduction of our estimates of free cash ﬂow from operations.

b. If our clients experience ﬁnancial distress, their weakened ﬁnancial position could negatively affect our

own ﬁnancial position and results.

We have a diverse client base, and at any given time, one or more of our clients may experience ﬁnancial

difficulty, ﬁle for bankruptcy protection or go out of business. The unfavorable economic and ﬁnancial
conditions that have impacted many sectors of the global economy could result in an increase in client
ﬁnancial difficulties that affect us. The direct impact on us could include reduced revenues and write-offs of
accounts receivable. If these effects were severe, the indirect impact could include impairments of goodwill,
covenant violations relating to the WF Credit Agreement or the 11% Notes, or reduced liquidity. Our
10 largest clients (measured by revenue generated) accounted for 29% of revenue in 2011.

c. Conditions in the credit markets could adversely impact our results of operations and ﬁnancial

position.

Turmoil in the credit markets or a contraction in the availability of credit would make it more difficult
for businesses to meet their capital requirements and could lead clients to change their ﬁnancial relationship
with their vendors, including us. If that were to occur, it could materially adversely impact our results of
operations and ﬁnancial position.

MDC competes for clients in highly competitive industries.

The Company operates in a highly competitive environment in an industry characterized by numerous
ﬁrms of varying sizes, with no single ﬁrm or group of ﬁrms having a dominant position in the marketplace.
MDC is, however, smaller than several of its larger industry competitors. Competitive factors include creative
reputation, management, personal relationships, quality and reliability of service and expertise in particular
niche areas of the marketplace. In addition, because a ﬁrm’s principal asset is its people, barriers to entry are
minimal, and relatively small ﬁrms are, on occasion, able to take all or some portion of a client’s business
from a larger competitor.

While many of MDC’s client relationships are long-standing, companies put their advertising and
marketing services businesses up for competitive review from time to time, including at times when clients
enter into strategic transactions. From year to year, the identities of MDC’s 10 largest customers may change,
as a result of client losses and additions and other factors. To the extent that the Company fails to maintain
existing clients or attract new clients, MDC’s business, ﬁnancial condition and operating results may be
affected in a materially adverse manner.

8

The loss of lines of credit under our WF Credit Agreement could adversely affect MDC’s liquidity and our
ability to implement MDC’s acquisition strategy and fund any put options if exercised.

MDC uses amounts available under the WF Credit Agreement, together with cash ﬂow from

operations, to fund its working capital needs, to fund the exercise of put option obligations and to fund our
strategy of making selective acquisitions of ownership interests in entities in the marketing communications
services industry.

The Company is currently in compliance with all of the terms and conditions of the WF Credit

Agreement. If, however, events were to occur, which result in MDC losing all or a substantial portion of its
available credit under the WF Credit Agreement, or if MDC was prevented from accessing such lines of credit
due to other restrictions such as those in the 11% Notes, MDC could be required to seek other sources of
liquidity. In addition, if MDC were unable to replace this source of liquidity, then MDC’s ability to fund its
working capital needs and any contingent obligations with respect to put options would be materially
adversely affected.

MDC may not realize the beneﬁts it expects from past acquisitions or acquisitions MDC may make in
the future.

MDC’s business strategy includes ongoing efforts to engage in material acquisitions of ownership

interests in entities in the marketing communications services industry. MDC intends to ﬁnance these
acquisitions by using available cash from operations and through incurrence of debt or bridge ﬁnancing, either
of which may increase its leverage ratios, or by issuing equity, which may have a dilutive impact on its
existing shareholders. At any given time MDC may be engaged in a number of discussions that may result in
one or more material acquisitions. These opportunities require conﬁdentiality and may involve negotiations
that require quick responses by MDC. Although there is uncertainty that any of these discussions will result in
deﬁnitive agreements or the completion of any transactions, the announcement of any such transaction may
lead to increased volatility in the trading price of its securities.

The success of acquisitions or strategic investments depends on the effective integration of newly
acquired businesses into MDC’s current operations. Such integration is subject to risks and uncertainties,
including realization of anticipated synergies and cost savings, the ability to retain and attract personnel and
clients, the diversion of management’s attention from other business concerns, and undisclosed or potential
legal liabilities of the acquired company. MDC may not realize the strategic and ﬁnancial beneﬁts that it
expects from any of its past acquisitions, or any future acquisitions.

MDC’s business could be adversely affected if it loses key clients.

MDC’s strategy has been to acquire ownership stakes in diverse marketing communications businesses to

minimize the effects that might arise from the loss of any one client or executive. The loss of one or more
clients could materially affect the results of the individual operating companies and the Company as a whole.
Management succession at our operating units is very important to the ongoing results of the Company
because, as in any service business, the success of a particular agency is dependent upon the leadership of key
executives and management personnel. If key executives were to leave our operating units, the relationships
that MDC has with its clients could be adversely affected.

MDC’s ability to generate new business from new and existing clients may be limited.

To increase its revenues, MDC needs to obtain additional clients or generate demand for additional
services from existing clients. MDC’s ability to generate initial demand for its services from new clients and
additional demand from existing clients is subject to such clients’ and potential clients’ requirements,
pre-existing vendor relationships, ﬁnancial condition, strategic plans and internal resources, as well as the
quality of MDC’s employees, services and reputation and the breadth of its services. To the extent
MDC cannot generate new business from new and existing clients due to these limitations. MDC’s ability to
grow its business and to increase its revenues will be limited.

9

MDC’s business could be adversely affected if it loses or fails to attract key employees.

Employees, including creative, research, media, account and practice group specialists, and their skills

and relationships with clients, are among MDC’s most important assets. An important aspect of MDC’s
competitiveness is its ability to retain key employee and management personnel. Compensation for these key
employees is an essential factor in attracting and retaining them, and MDC may not offer a level of
compensation sufficient to attract and retain these key employees. If MDC fails to hire and retain a sufficient
number of these key employees, it may not be able to compete effectively. If key executives were to leave our
operating units, the relationships that MDC has with its clients could be adversely affected.

MDC is exposed to the risk of client defaults.

MDC’s agencies often incur expenses on behalf of their clients for productions in order to secure a
variety of media time and space, in exchange for which they receive a fee. The difference between the gross
cost of the production and media and the net revenue earned by us can be signiﬁcant. While MDC takes
precautions against default on payment for these services (such as credit analysis and advance billing of
clients) and has historically had a very low incidence of default, MDC is still exposed to the risk of
signiﬁcant uncollectible receivables from our clients. The risk of a material loss could signiﬁcantly increase in
periods of severe economic downturn. Such a loss could have a material adverse effect on our results of
operations and ﬁnancial position.

MDC’s results of operations are subject to currency ﬂuctuation risks.

Although MDC’s ﬁnancial results are reported in U.S. dollars, a portion of its revenues and operating
costs are denominated in currencies other than the US dollar. As a result, ﬂuctuations in the exchange rate
between the U.S. dollar and other currencies, particularly the Canadian dollar, may affect MDC’s ﬁnancial
results and competitive position.

Goodwill and intangible assets may become impaired.

We have recorded a signiﬁcant amount of goodwill and intangible assets in our consolidated ﬁnancial

statements in accordance with U.S. GAAP resulting from our acquisition activities, which principally
represents the specialized know-how of the workforce at the agencies we have acquired. We test, at least
annually, the carrying value of goodwill for impairment, as discussed in Note 2 to our consolidated ﬁnancial
statements. The estimates and assumptions about future results of operations and cash ﬂows made in
connection with the impairment testing could differ from future actual results of operations and cash ﬂows.
While we have concluded, for each year presented in our ﬁnancial statements, that our goodwill relating to
continuing operations is not impaired, future events could cause us to conclude that the asset values associated
with a given operation may become impaired. Any resulting impairment loss could materially adversely affect
our results of operations and ﬁnancial condition.

MDC is subject to regulations and litigation risk that could restrict our activities or negatively impact
our revenues.

Advertising and marketing communications businesses are subject to government regulation, both

domestic and foreign. There has been an increasing tendency in the United States on the part of advertisers to
resort to litigation and self-regulatory bodies to challenge comparative advertising on the grounds that the
advertising is false and deceptive. Moreover, there has recently been an expansion of speciﬁc rules,
prohibitions, media restrictions, labeling disclosures, and warning requirements with respect to advertising for
certain products and usage of personally identiﬁable information. Representatives within government bodies,
both domestic and foreign, continue to initiate proposals to ban the advertising of speciﬁc products and to
impose taxes on or deny deductions for advertising which, if successful, may have an adverse effect on
advertising expenditures and consequently MDC’s revenues.

10

Certain of MDC’s agencies produce software and e-commerce tools for their clients, and these product
offerings have become increasingly subject to litigation based on allegations of patent infringement or other
violations of intellectual property rights. As we expand these product offerings, the possibility of an
intellectual property claim against us grows. Any such claim, with or without merit, could result in costly
litigation and distract management from day-to-day operations and may result in us deciding to enter into
license agreements to avoid ongoing patent litigation costs. If we are not successful in defending such claims,
we could be required to stop offering these services, pay monetary amounts as damages, enter into royalty or
licensing arrangements, or satisfy indemniﬁcation obligations that we have with some of our clients. Such
arrangements may cause our operating margins to decline.

In addition, laws and regulations related to user privacy, use of personal information and internet tracking
technologies have been proposed or enacted in the United States and certain international markets. These laws
and regulations could affect the acceptance of the internet as an advertising medium. These actions could
affect our business and reduce demand for certain of our services, which could have a material adverse effect
on our results of operations and ﬁnancial position.

The indenture governing the 11% Notes and the WF Credit Agreement governing our secured line of credit
contain various covenants that limit our discretion in the operation of our business.

The indenture governing the 11% Notes and the WF Credit Agreement governing our lines of credit

contain various provisions that limit our discretion in the operation of our business by restricting our
ability to:

•

•

•

•

•

•

•

•

•

•

•

•

•

sell assets;

pay dividends and make other distributions;

redeem or repurchase our capital stock;

incur additional debt and issue capital stock;

create liens;

consolidate, merge or sell substantially all of our assets;

enter into certain transactions with our affiliates;

make loans, investments or advances;

repay subordinated indebtedness;

undergo a change in control;

enter into certain transactions with our affiliates;

engage in new lines of business; and

enter into sale and leaseback transactions.

These restrictions on our ability to operate our business in our discretion could seriously harm our
business by, among other things, limiting our ability to take advantage of ﬁnancing, merger and acquisition
and other corporate opportunities. The WF Credit Agreement is subject to various additional covenants,
including a senior leverage ratio, a total leverage ratio, a ﬁxed charge coverage ratio, a minimum EBITDA
level (as deﬁned), and a minimum accounts receivable level. Events beyond our control could affect our
ability to meet these ﬁnancial tests, and we cannot assure you that we will meet them.

Our substantial indebtedness could adversely affect our cash ﬂow and prevent us from fulﬁlling our
obligations, including the 11% Notes.

As of December 31, 2011, MDC had $385.2 million net of original issue discount of indebtedness. In

addition, we expect to make additional drawings under the WF Credit Agreement from time to time. Our
ability to pay principal and interest on our indebtedness is dependent on the generation of cash ﬂow by our
subsidiaries. Our subsidiaries’ business may not generate sufficient cash ﬂow from operations to meet MDC’s

11

debt service and other obligations. If we are unable to meet our expenses and debt service obligations, we
may need to obtain additional debt, reﬁnance all or a portion of our indebtedness on or before maturity, sell
assets or raise equity. We may not be able to obtain additional debt, reﬁnance any of our indebtedness, sell
assets or raise equity on commercially reasonable terms or at all, which could cause us to default on our
obligations and impair our liquidity. Our inability to generate sufficient cash ﬂow to satisfy our debt
obligations, to obtain additional debt or to reﬁnance our obligations on commercially reasonable terms would
have a material adverse effect on our business, ﬁnancial condition and results of operations.

If we cannot make scheduled payments on our debt, we will be in default and, as a result, our debt
holders could declare all outstanding principal and interest to be due and payable; the lenders under the
WF Credit Agreement could terminate their commitments to loan us money and foreclose against the assets
securing our borrowings; and we could be forced into bankruptcy or liquidation. Our level of indebtedness
could have important consequences. For example it could:

•

•

•

•

•

make it more difficult for us to satisfy our obligations with respect to the 11% Notes;

increase our vulnerability to general adverse economic and industry conditions;

require us to dedicate a substantial portion of our cash ﬂow from operations to payments on our
indebtedness, thereby reducing the availability of our cash ﬂow to fund working capital and
other activities;

limit our ﬂexibility in planning for, or reacting to, changes in our business and the advertising
industry, which may place us at a competitive disadvantage compared to our competitors that have
less debt; and

limit, particularly in concert with the ﬁnancial and other restrictive covenants in our indebtedness,
our ability to borrow additional funds or take other actions.

Despite our current debt levels, we may be able to incur substantially more indebtedness, which could
further increase the risks associated with our leverage.

We may incur substantial additional indebtedness in the future. The terms of our Credit Agreement and
the indenture governing the11% Notes permit us and our subsidiaries to incur additional indebtedness subject
to certain limitations. If we or our subsidiaries incur additional indebtedness, the related risks that we face
could increase.

We are a holding company dependent on our subsidiaries for our ability to service our debt and
pay dividends.

MDC is a holding company with no operations of our own. Consequently, our ability to service our debt

and to pay cash dividends on our common stock is dependent upon the earnings from the businesses
conducted by our subsidiaries. Our subsidiaries are separate and distinct legal entities and have no obligation
to provide us with funds for our payment obligations, whether by dividends, distributions, loans or other
payments. Although our operating subsidiaries have generally agreed to allow us to consolidate and ‘‘sweep’’
cash, subject to the timing of payments due to minority holders, any distribution of earnings to us from our
subsidiaries is contingent upon the subsidiaries’ earnings and various other business considerations. Also, our
right to receive any assets of any of our subsidiaries upon their liquidation or reorganization, and therefore the
right of the holders of common stock to participate in those assets, will be structurally subordinated to the
claims of that subsidiary’s creditors. In addition, even if we were a creditor of any of our subsidiaries, our
rights as a creditor would be subordinate to any security interest in the assets of our subsidiaries and any
indebtedness of our subsidiaries senior to that held by us.

We could change or suspend our existing dividend practice in the future.

The declaration and payment of dividends on our common stock is at the discretion of MDC’s board of

directors and will depend upon limitations contained in our Credit Agreement and the indenture governing the
11% Notes, future earnings, capital requirements, our general ﬁnancial condition and general business
conditions. MDC’s practice is to pay dividends only out of excess free cash ﬂow from operations, and in the

12

event that worsening economic conditions, disruptions in the credit markets or other factors have a
signiﬁcant effect on our liquidity, MDC’s board of directors could decide to reduce or suspend dividend
payments in the future.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

See the notes to the Company’s consolidated ﬁnancial statements included in this Annual Report for a
discussion of the Company’s lease commitments and the ‘‘Management’s Discussion and Analysis’’ for the
impact of occupancy costs on the Company’s operating expenses.

The Company maintains office space in many cities in the United States, Canada, Europe, and the

Caribbean. This space is primarily used for office and administrative purposes by the Company’s employees in
performing professional services. This office space is in suitable and well-maintained condition for MDC’s
current operations. All of the Company’s materially important office space is leased from third parties with
varying expiration dates. Certain of these leases are subject to rent reviews or contain various escalation
clauses and certain of our leases require our payment of various operating expenses, which may also be
subject to escalation. In addition, leases related to the Company’s non-US businesses are denominated in other
than US dollars and are therefore subject to changes in foreign exchange rates.

Item 3. Legal Proceedings

MDC’s operating entities are involved in legal proceedings of various types. While any litigation contains
an element of uncertainty, MDC has no reason to believe that the outcome of such proceedings or claims will
have a material adverse effect on the ﬁnancial condition or results of operations of MDC.

Item 4. Mine Safety Disclosures

Not applicable.

13

PART II

Item 5. Market for Registrant’s Common Equity Related Stockholder Matters and Issuer Purchases of
Equity Securities

Market Information and Holders of Class A Subordinate Voting Shares

The principal United States market on which the Company’s Class A subordinate voting shares are traded

is the NASDAQ National Market (‘‘NASDAQ’’) (symbol: ‘‘MDCA’’), and the principal market in Canada is
the Toronto Stock Exchange (symbol: ‘‘MDZ.A’’). As of March 1, 2012, the approximate number of holders
of our Class A subordinate voting shares, including those whose shares are held in nominee name, was 2,800.
Quarterly high and low sales prices per share of the Company’s Class A subordinate voting shares, as reported
on NASDAQ and The Toronto Stock Exchange, respectively, for each quarter in the years ended
December 31, 2011 and 2010, are as follows:

Quarter Ended

Nasdaq

High

Low

($ per Share)

March 31, 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 31, 2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11.20
13.19
13.59
17.47
19.08
20.11
20.99
17.87

8.29
10.30
10.07
13.19
15.84
15.16
12.62
12.68

The Toronto Stock Exchange

Quarter Ended

High

Low

(C$ per Share)

March 31, 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 31, 2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11.30
13.51
13.78
17.37
18.55
18.45
19.00
17.42

8.54
10.46
10.11
13.39
15.79
14.57
12.50
13.50

As of March 1, 2012, the last reported sale price of the Class A subordinate voting shares was $13.01 on

NASDAQ and C$12.90 on the Toronto Stock Exchange.

Dividend Practice

In 2011, MDC’s board of directors declared the following dividends: a $0.14 per share quarterly dividend

to all shareholders of record as of the close of business on March 17, 2011; a $0.14 per share dividend
quarterly to all shareholders of record as of the close of business on May 16, 2011; a $0.14 per share
quarterly dividend to all shareholders of record as of the close of business on August 17, 2011; a $0.14 per
share quarterly dividend to all shareholders of record as of the close of business on October 28, 2011; and a
$0.14 per share quarterly dividend to all shareholders of record as of the close of business on February 15,
2012. MDC’s practice is to pay dividends only out of excess free cash ﬂow from operations. MDC is further
limited in the extent to which we are able to pay dividends under our Credit Agreement and the indenture
governing the 11% Notes. The payment of any future dividends will be at the discretion of MDC’s board of
directors and will depend upon limitations contained in our Credit Agreement and the indenture governing
the 11% Notes, future earnings, capital requirements, our general ﬁnancial condition and general business
conditions.

14

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth information regarding securities issued under our equity compensation

plans as of December 31, 2011.

Number of Securities
to Be Issued Upon
Exercise of Outstanding
Options and Rights
(a)

Weighted Average
Exercise Price of
Outstanding
Options and Rights
(b)

Number of Securities
Remaining Available for
Future Issuance
(Excluding Column (a))
(c)

Equity Compensation Plans:
Approved by stockholders:

Share options . . . . . . . . . . . . . .
Stock appreciation rights . . . . . . .

88,081
2,272,588(1)

Not approved by stockholders:

None . . . . . . . . . . . . . . . . . . . .

—

$9.12
$3.75

—

2,511,742
844,536

—

(1) Based on December 31, 2011 closing Class A subordinate voting share price on NASDAQ of $13.38.

On May 26, 2005, the Company’s shareholders’ approved the 2005 Stock Incentive Plan, which provides

for the issuance of two million Class A shares. On June 2, 2009 and June 1, 2007, the Company’s
shareholders approved amendments to the 2005 Stock Incentive Plan, which increased the number of shares
available for issuance to 4.5 million Class A shares. In addition, the plan was amended to allow shares under
this plan to be used to satisfy share obligations under the Stock Appreciation Rights Plan. On May 30, 2008,
the Company’s shareholders approved the 2008 Key Partner Incentive Plan, which provides for the issuance of
600,000 Class A shares. On June 1, 2011, the Company’s shareholders approved the 2011 Stock Incentive
Plan, which provides for the issuance of up to 2 million Class A shares.

See also Note 13 of the notes to the consolidated ﬁnancial statements included herein.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

None.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

Issuer Purchases of Equity Securities:

Shares — Class A subordinate voting shares

For the twelve months ended December 31, 2011, the Company made no open market purchases of its
Class A shares or its Class B shares. Pursuant to its Credit Agreement, the Company is currently restricted
from repurchasing its shares in the open market.

During 2011, the Company’s employees surrendered 230,262 Class A shares valued at approximately
$4.1 million in connection with the required tax withholding resulting from the vesting of restricted stock. The
Company paid these withholding taxes on behalf of the related employees. These Class A shares were
subsequently retired and no longer remain outstanding as of December 31, 2011.

Transfer Agent and Registrar for Common Stock

The transfer agent and registrar for the Company’s common stock is Canadian Stock Transfer Company

(f/k/a CIBC Mellon Trust Company). Canadian Stock Transfer Company operates a telephone information
inquiry line that can be reached by dialing toll-free 1-800-387-0825 or 416-643-5500.

Correspondence may be addressed to:
MDC Partners Inc.
C/o Canadian Stock Transfer Company
P.O. Box 4202, Postal Station A
Toronto, Ontario M5W 0E4

15

Item 6. Selected Financial Data

The following selected ﬁnancial data should be read in connection with Item 7 — ‘‘Management’s
Discussion and Analysis of Financial Condition and Results of Operations’’ and the consolidated ﬁnancial
statements and notes that are included in this annual report on Form 10-K.

2011

Years Ended December 31,
2009
(Dollars in Thousands, Except per Share Data)

2010

2008

2007

Operating Data
Revenues . . . . . . . . . . . . . . . . . . . . . . . . $ 943,274
$689,146
$ 30,315
9,307
Operating proﬁt . . . . . . . . . . . . . . . . . . . . $
Income (loss) from continuing operations . . $ (75,559) $ (1,417)
Stock-based compensation included in

$536,491
$ 22,659
$ (9,578)

$575,404
$ 21,404
$ 19,344

$524,896
$ 23,785
2,691
$

income (loss) from continuing operations

$

23,657

$ 16,507

$ 15,444

$ 14,437

$ 10,217

Earnings (Loss) per Share
Basic
Continuing operations attributable to

MDC Partners Inc. . . . . . . . . . . . . . . . . $

(2.86) $

(0.41)

$

(0.55)

$

0.41

$

(0.74)

Diluted
Continuing operations attributable to

(2.86) $
$
0.70

(0.41)
0.34

$
$

(0.55)

$
— $

0.41

$
— $

(0.74)
—

MDC Partners Inc. common shareholders. $
Cash dividends declared per share . . . . . . . $
Financial Position Data
Total assets . . . . . . . . . . . . . . . . . . . . . . . $1,055,745
Total debt . . . . . . . . . . . . . . . . . . . . . . . . $ 385,174
Redeemable noncontrolling interests . . . . . . $ 107,432
Deferred acquisition consideration . . . . . . . $ 137,223
N/A
Fixed charge coverage ratio. . . . . . . . . . . .
29,453
Fixed charge deﬁciency . . . . . . . . . . . . . . $

$914,348
$286,216
$ 77,560
$107,991
N/A
1,810

$

$604,519
$217,946
$ 33,728
$ 30,645
N/A
836

$

$529,239
$181,498
$ 21,751
5,538
$
2.07
N/A

$520,698
$164,754
$ 24,187
2,511
$
1.45
N/A

Several signiﬁcant factors that should be considered when comparing the annual results shown above are

as follows:

Year Ended December 31, 2011

During 2011, the Company completed a number of acquisitions. Please see Note 4 of the notes to the

consolidated ﬁnancial statements included herein for a summary of these acquisitions

On April 19, 2011, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold an

additional $55 million aggregate principal amount of 11% Notes due 2016. The additional notes were issued
under the Indenture governing the 11% Notes and treated as a single series with the original 11% Notes. The
additional notes were sold in a private placement in reliance on exceptions from registration under the
Securities Act of 1933, as amended. The Company received net proceeds before expenses of $59.6 million,
which included an original issue premium of $6.1 million, and underwriter fees of $1.5 million. The Company
used the net proceeds of the offering to repay the outstanding balance under the Company’s revolving credit
agreement described elsewhere herein, and for general corporate purposes.

Effective December, 31, 2011, the Performance Marketing Group, a division of Accent Marketing
Services, LLC, has been deemed a discontinued operation. All periods have been restated to reﬂect this
discontinued operation. See Note 10 of the Notes to the Consolidated Financial Statements included herein.

16

Year Ended December 31, 2010

During 2010, the Company completed a signiﬁcant number of acquisitions. Please see Note 4 of the

notes to the consolidated ﬁnancial statements included herein for a summary of these acquisitions.

On May 14, 2010, the Company and its wholly-owned subsidiaries, as guarantors issued and sold
$65 million aggregate principal amount of 11% Notes due 2016. The additional notes were issued under the
Indenture governing the 11% notes and treated as a single series with the original 11% notes. The additional
notes were sold in a private placement in reliance on exceptions from registration under the Securities Act of
1933, as amended. The Company received net proceeds before expenses of $67.2 million, which included an
original issue premium of $2.6 million, and underwriter fees of $0.4 million. The Company used the net
proceeds of the offering to repay the outstanding balance under the Company’s revolving Credit Agreement
described elsewhere herein, and for general corporate purposes, including acquisitions.

Effective September 30, 2010, the Company ceased Zig (USA) LLC operations. All periods have been

restated to reﬂect these discontinued operations. See Note 10 of the notes to the consolidated ﬁnancial
statements included herein.

Year Ended December 31, 2009

On October 23, 2009, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold
$225 million aggregate principal amount of 11% Notes due 2016 (the ‘‘11% Notes’’). The 11% Notes bear
interest at a rate of 11% per annum, accruing from October 23, 2009. Interest is payable semiannually in
arrears in cash on May 1 and November 1 of each year, beginning on May 1, 2010. The 11% Notes will
mature on November 1, 2016, unless earlier redeemed or repurchased. In addition, the Company entered into a
Credit Agreement described elsewhere herein. The Company used the net proceeds of this offering to repay
the outstanding balance and terminate its prior Fortress Financing Agreement, and redeemed its outstanding
8% C$45 million convertible debentures. As a result, the Company incurred $4.5 million of early termination
fees and wrote off of the remaining deferred ﬁnancing costs relating to its prior Financing Agreement and
convertible debentures.

Year Ended December 31, 2008

During the year ended December 31, 2008, MDC recognized $13.3 million of primarily non-cash,
unrealized, foreign exchange gains due primarily to the strengthening of the US dollar as compared to the
Canadian dollar on its intercompany balances that are denominated in the US dollar.

Effective December 31, 2008, three of the Company’s operating subsidiaries, Clifford/Bratskeir Public

Relations LLC, Ito Partners, LLC and Mobium Creative Group (a division of Colle + McVoy) have been
deemed discontinued operations. All periods have been restated to reﬂect these discontinued operations. See
Note 10 of the notes to the consolidated ﬁnancial statements included herein.

Year Ended December 31, 2007

In March 2007, due to continued operating and client losses, the Company ceased Margeotes Fertitta
Powell, LLC (‘‘MFP’’) current operations and spun off a new operating business and as a result incurred a
goodwill impairment charge of $4.5 million in 2007. The Company also recorded an impairment charge
relating to MFP of $6.3 million in 2006. After reviewing the 2008 projections of the new operating business
the Company decided to cease the operations of the new operating business as well. As a result, the Company
has classiﬁed these operations as discontinued. In addition, an additional intangible relating to an employment
contract of $0.6 million was deemed impaired and written off.

In December 2007, due to continued operating losses and the lack of new business wins the Company

ceased Banjo Strategic Entertainment, LLC operations. All periods have been restated to reﬂect these
discontinued operations. See Note 10 of the notes to the consolidated ﬁnancial statements included herein.

17

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

Unless otherwise indicated, references to the ‘‘Company’’ mean MDC Partners Inc. and its subsidiaries,
and references to a ﬁscal year means the Company’s year commencing on January 1 of that year and ending
December 31 of that year (e.g., ﬁscal 2011 means the period beginning January 1, 2011, and ending
December 31, 2011).

The Company reports its ﬁnancial results in accordance with generally accepted accounting principles

(‘‘GAAP’’) of the United States of America (‘‘US GAAP’’). However, the Company has included certain
non-US GAAP ﬁnancial measures and ratios, which it believes provide useful information to both
management and readers of this report in measuring the ﬁnancial performance and ﬁnancial condition of the
Company. One such term is ‘‘organic revenue’’, which means growth in revenues from sources other than
acquisitions or foreign exchange impacts. These measures do not have a standardized meaning prescribed by
US GAAP and, therefore, may not be comparable to similarly titled measures presented by other publicly
traded companies, nor should they be construed as an alternative to other titled measures determined in
accordance with US GAAP.

Executive Summary

The Company’s objective is to create shareholder value by building market-leading subsidiaries and
affiliates that deliver innovative, value-added marketing communications and strategic consulting to their
clients. Management believes that shareholder value is maximized with an operating philosophy of ‘‘Perpetual
Partnership’’ with proven committed industry leaders in marketing communications.

MDC manages the business by monitoring several ﬁnancial and non-ﬁnancial performance indicators.

The key indicators that we review focus on the areas of revenues and operating expenses and capital
expenditures. Revenue growth is analyzed by reviewing the components and mix of the growth, including:
growth by major geographic location; existing growth by major reportable segment (organic); growth from
currency changes; and growth from acquisitions.

MDC conducts its businesses through the Marketing Communications Group. Within the Marketing

Communications Group, there are two reportable operating segments: Strategic Marketing Services and
Performance Marketing Services. In addition, MDC has a ‘‘Corporate Group’’ which provides certain
accounting, administrative, ﬁnancial, human resource and legal functions.

Marketing Communications Businesses

Through its operating ‘‘partners’’, MDC provides advertising, consulting, customer relationship

management, and specialized communication services to clients throughout the United States, Canada, Europe,
and the Caribbean.

The operating companies earn revenue from agency arrangements in the form of retainer fees or
commissions; from short-term project arrangements in the form of ﬁxed fees or per diem fees for services;
and from incentives or bonuses. Additional information about revenue recognition appears in Note 2 of the
notes to the consolidated ﬁnancial statements.

MDC measures operating expenses in two distinct cost categories: cost of services sold, and office and
general expenses. Cost of services sold is primarily comprised of employee compensation related costs and
direct costs related primarily to providing services. Office and general expenses are primarily comprised of
rent and occupancy costs and administrative service costs including related employee compensation costs.
Also included in operating expenses is depreciation and amortization.

Because we are a service business, we monitor these costs on a percentage of revenue basis. Cost of
services sold tend to ﬂuctuate in conjunction with changes in revenues, whereas office and general expenses
and depreciation and amortization, which are not directly related to servicing clients, tend to decrease as a
percentage of revenue as revenues increase because a signiﬁcant portion of these expenses are relatively ﬁxed
in nature.

18

We measure capital expenditures as either maintenance or investment related. Maintenance capital

expenditures are primarily composed of general upkeep of our office facilities and equipment that are required
to continue to operate our businesses. Investment capital expenditures include expansion costs, the build out of
new capabilities, technology or call centers, or other growth initiatives not related to the day to day upkeep of
the existing operations. Growth capital expenditures are measured and approved based on the expected return
of the invested capital.

Certain Factors Affecting Our Business

Overall Factors Affecting our Business and Results 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 loses occur for 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 new management wants to go retain an agency 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 are trending to consolidate the use of numerous 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 providing results and they feel a change is in order to generate additional revenues.

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.

Acquisitions and Dispositions. Our strategy includes acquiring ownership stakes in well-managed
businesses with strong reputations in the industry. We engaged in a number of acquisition and disposal
transactions during the 2009 to 2011 period, which affected revenues, expenses, operating income and net
income. Additional information regarding material acquisitions is provided in Note 4 ‘‘Acquisitions’’ and
information on dispositions is provided in Note 10 ‘‘Discontinued Operations’’ in the notes to the consolidated
ﬁnancial statements.

Foreign Exchange Fluctuations. Our ﬁnancial results and competitive position are affected by
ﬂuctuations in the exchange rate between the US dollar and non-US dollars, primarily the Canadian dollar.
See also ‘‘Quantitative and Qualitative Disclosures About Market Risk — Foreign Exchange.’’

Seasonality. Historically, with some exceptions, we generate the highest quarterly revenues during the

fourth quarter in each year. The fourth quarter has historically been the period in the year in which the highest
volumes of media placements and retail related consumer marketing occur.

Fourth Quarter Results. Revenues for the fourth quarter of 2011 increased to $254.3 million, compared

to the 2010 fourth quarter revenues of $211.0 million. The increase consisted of organic growth of
$14.1 million, acquisition revenue of $29.5 million and a $0.3 million decrease due to foreign currency
ﬂuctuations. The Strategic Marketing Services segment had revenue growth of $35.3 million, of which
$10.3 million was organic and $25.1 million was acquisition related. The Performance Marketing Services
segment had increased revenue of $8.1 million in 2011 of which $3.8 million was organic and $4.4 million
was acquisition related. Operating results for the fourth quarter of 2011 resulted in a loss of $4.6 million
compared to income of $22.2 million in 2010. The decrease in operating proﬁts was primarily related to an
increase in acquisition related costs and estimated deferred acquisition consideration adjustments of
$15.3 million, and the Company’s strategic investments in talent, new office locations, and other growth
investments. Income (loss) from continuing operations for the fourth quarter of 2011 was a loss of
$55.5 million compared to income of $17.9 million in 2010. Interest expense was higher in 2011 by
$1.7 million, income tax expense was also higher by $42.2 million and equity in earnings of affiliates was
income in 2010 of $2.5 million compared to nil in 2011. Interest expense increased due to the additional
outstanding debt in 2011, relating to the 11% Notes issued in April 2011. Income tax expense was higher
primarily due to additional valuation allowance reserves and non-deductible stock-based compensation in

19

2011. The 2010 income in equity affiliates relates to distributions in excess of the Company’s carrying value
of one of its equity method investments.

Year Ended December 31, 2011

Summary of Key Transactions

The Company completed several key acquisitions in 2011. These acquisitions included the acquisition of

a 70% interest in Concentric Partners, LLC (‘‘Concentric’’), a 65% interest in Laird + Partners, New York
LLC (‘‘Laird’’), a 100% interest in RJ Palmer Partners LLC (‘‘RJ Palmer’’), a 75% interest in Trade X
Partners LLC (‘‘Trade X’’) and a 60% interest in Anomaly Partners, LLC (‘‘Anomaly’’).

The total aggregate purchase price for these 2011 transactions was $76.8 million, which included closing
cash payments equal to $40 million plus additional estimated contingent purchase payments in future years of
approximately $36.8 million. See Note 4 of the notes to the consolidated ﬁnancial statements included herein
for additional information on these and other acquisitions.

On April 19, 2011, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold an

additional $55 million aggregate principal amount of 11% Notes due 2016. The additional notes were issued
under the Indenture governing the 11% Notes and treated as a single series with the original 11% Notes. The
additional notes were sold in a private placement in reliance on exceptions from registration under the
Securities Act of 1933, as amended. The Company received net proceeds before expenses of $59.6 million,
which included an original issue premium of $6.1 million, and underwriter fees of $1.5 million. The Company
used the net proceeds of the offering to repay the outstanding balance under the Company’s WF Credit
Agreement described elsewhere herein, and for general corporate purposes.

Year Ended December 31, 2010

The Company completed several key acquisitions in 2010. These acquisitions included the acquisition of

60% of the equity interests in The Arsenal LLC (‘‘Team’’); 75% of the equity interests in Integrated Media
Solutions, LLC; 51% of the equity interests in Allison & Partners LLC; 70% of the equity interests in Sloane
& Company LLC; 60% of the equity interests of Relevent Partners LLC; 80% of the total outstanding equity
interests in each of Kenna Communications LP and Capital C Partners LP; and 51% of the equity interests in
72andSunny Partners LLC.

The total aggregate purchase price for these 2010 transactions was $182.1 million, which included
closing cash payments equal to $92.4 million and additional estimated contingent purchase payments in future
years of approximately $89.7 million. See Note 4 of the notes to the consolidated ﬁnancial statements
included herein for additional information on these and other acquisitions.

On May 14, 2010, the Company and its wholly-owned subsidiaries (as guarantors) issued and sold an

additional $65 million aggregate principal amount of 11% Notes due 2016. The additional notes were issued
under the Indenture governing the 11% notes and treated as a single series with the original 11% notes. The
additional notes were sold in a private placement in reliance on exemptions from registration under the
Securities Act of 1933, as amended. The Company used the net proceeds of the offering to repay the
outstanding balance under the Company’s revolving WF Credit Agreement, and for acquisitions and other
general corporate purposes.

Year Ended December 31, 2009

New Financing

On October 23, 2009, the Company completed a $300 million reﬁnancing of its existing debt

arrangements. The Company issued $225 million of 11% notes and obtained a new $75 million revolving WF
Credit Agreement. The proceeds were used to pay off the existing Fortress Facility, consisting of the
$130 million term loan, and the C$45 million convertible debentures. The proceeds were also used for the
early payment of $46.0 million of deferred acquisition consideration relating to kirshenbaum bond senecal &
partners LLC (‘‘KBSP’’) and Crispin Porter & Bogusky LLC (‘‘CPB’’). In connection with the repayment of
its prior indebtedness, the Company incurred termination fees and expenses of $2.0 million and wrote off
deferred ﬁnancing costs of $2.5 million.

20

Effective October 5, 2009, MDC acquired the remaining 6% equity interest in CPB from the minority
holder. In accordance with the terms of the underlying limited liability company agreement, the estimated
contingent purchase price of $8.5 million will be paid in future periods beginning in April 2011. Following
the closing of this transaction, MDC’s ownership in CPB is 100%.

Results of Operations for the Years Ended December 31, 2011, 2010 and 2009:

Revenue. . . . . . . . . . . . . . . . . . . . . . .
Cost of services sold . . . . . . . . . . . . . .
Office and general expenses . . . . . . . . .
Depreciation and amortization . . . . . . . .
Operating Proﬁt (Loss) . . . . . . . . . . . . .
Other Income (Expense):
Other income, net . . . . . . . . . . . . . . . .
Foreign exchange loss . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Interest expense, net
Loss from continuing operations before
income taxes, equity in affiliates and
noncontrolling interest

. . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . .
Loss from continuing operations before
equity in affiliates and noncontrolling
interests . . . . . . . . . . . . . . . . . . . . .
Equity in earnings of affiliates . . . . . . . .
Loss from continuing operations . . . . . .
Loss from discontinued operations

attributable to MDC Partners Inc.,
net of taxes . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling
interests . . . . . . . . . . . . . . . . . . . . .

Net loss attributable to

MDC Partners Inc. . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . .

For the Year Ended December 31, 2011

Strategic
Marketing
Services
$608,079
426,053
138,303
22,379
21,344

Performance
Marketing
Services
$335,195
248,407
45,536
17,031
24,221

Corporate
—
$
—
35,432
826
(36,258)

Total
$943,274
674,460
219,271
40,236
9,307

116
(1,677)
(41,783)

(34,037)
41,735

(75,772)
213
(75,559)

(1,361)
(76,920)

(6,203)

(1,551)

—

(7,754)

$

5,149

$

3,695

$ 14,813

$ (84,674)
$ 23,657

21

Revenue. . . . . . . . . . . . . . . . . . . . . . .
Cost of services sold . . . . . . . . . . . . . .
Office and general expenses . . . . . . . . .
Depreciation and amortization . . . . . . . .
Operating Proﬁt (Loss) . . . . . . . . . . . . .
Other Income (Expense):
Other income, net . . . . . . . . . . . . . . . .
Foreign exchange gain . . . . . . . . . . . . .
Interest expense, net
. . . . . . . . . . . . . .
Loss from continuing operations before
income taxes, equity in affiliates and
noncontrolling interest

. . . . . . . . . . .
Income tax recovery . . . . . . . . . . . . . .
Loss from continuing operations before
equity in affiliates and noncontrolling
interests . . . . . . . . . . . . . . . . . . . . .
Equity in earnings of affiliates . . . . . . . .
Loss from continuing operations . . . . . .
Loss from discontinued operations

attributable to MDC Partners Inc.,
net of taxes . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling
interests . . . . . . . . . . . . . . . . . . . . .

Net loss attributable to

MDC Partners Inc. . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . .

For the Year Ended December 31, 2010

Strategic
Marketing
Services
$438,941
289,409
90,622
17,917
40,993

Performance
Marketing
Services
$250,205
183,962
38,383
15,879
11,981

Corporate
—
$
—
22,291
368
(22,659)

Total
$689,146
473,371
151,296
34,164
30,315

381
69
(33,213)

(2,448)
(165)

(2,283)
866
(1,417)

(3,949)
(5,366)

(7,211)

(2,863)

—

(10,074)

$

7,282

$

1,992

$ 7,233

$ (15,440)
$ 16,507

22

Revenue. . . . . . . . . . . . . . . . . . . . . . .
Cost of services sold . . . . . . . . . . . . . .
Office and general expenses . . . . . . . . .
Depreciation and amortization . . . . . . . .
Operating Proﬁt (Loss) . . . . . . . . . . . . .
Other Income (Expense):
Other expense, net . . . . . . . . . . . . . . . .
Foreign exchange loss . . . . . . . . . . . . .
Interest expense, net
. . . . . . . . . . . . . .
Loss from continuing operations before
income taxes, equity in affiliates and
noncontrolling interest

. . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . .
Loss from continuing operations before
equity in affiliates and noncontrolling
interests . . . . . . . . . . . . . . . . . . . . .
Equity in loss of affiliates . . . . . . . . . . .
Loss from continuing operations . . . . . .
Loss from discontinued operations

attributable to MDC Partners Inc.,
net of taxes . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling
interests . . . . . . . . . . . . . . . . . . . . .

Net loss attributable to

MDC Partners Inc. . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . .

For the Year Ended December 31, 2009

Strategic
Marketing
Services
$370,615
220,714
87,633
25,518
36,750

Performance
Marketing
Services
$165,876
127,586
25,584
8,278
4,428

Corporate
—
$
—
18,091
428
(18,519)

Total
$536,491
348,300
131,308
34,224
22,659

(91)
(1,956)
(21,646)

(1,034)
8,536

(9,570)
(8)
(9,578)

(3,180)
(12,758)

(4,851)

(715)

—

(5,566)

$

8,742

$

868

$ 5,834

$ (18,324)
$ 15,444

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

Revenue was $943.3 million for the year ended 2011, representing an increase of $254.2 million, or
36.9%, compared to revenue of $689.1 million for the year ended 2010. This increase relates primarily to
acquisition growth of $132.1 million and an increase in organic revenue of $117.3 million. In addition, a
weakening of the US Dollar, primarily versus the Canadian dollar during the year ended December 31, 2011,
resulted in an increase of $4.8 million.

Operating proﬁt for the year ended 2011 was $9.3 million, compared to $30.3 million in 2010. Operating

proﬁt decreased by $19.6 million in the Strategic Marketing Services, and was offset by an increase of
$12.2 million within the Performance Marketing Services segment. Corporate operating expenses increased by
$13.6 million in 2011.

Loss from continuing operations was a loss of $75.6 million in 2011, compared to a loss of $1.4 million
in 2010. This increase in loss of $74.2 million was primarily attributable to the decrease in operating proﬁt of
$21.0 million, an increase in tax expense of $41.9 million and an increase in net interest expense equal to
$8.6 million. This increase in net interest expense was primarily due to the Company’s outstanding 11% notes.
These amounts were impacted by an increase in foreign exchange losses from a gain of $0.1 million in 2010
to a loss of $1.7 million in 2011, and a decrease in other income, net of $0.3 million and a decrease in equity
in earnings of non-consolidated affiliates of $0.7 million.

23

Marketing Communications Group

Revenues attributable to the Marketing Communications Group, which consists of two reportable
segments — Strategic Marketing Services and Performance Marketing Services, were $943.3 million in the
aggregate in 2011, compared to $689.1 million in 2010, representing a year-over-year increase of 36.9%.

The components of the revenue for 2011 are shown in the following table:

Year ended December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Organic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . .

Revenue

$000’s
$689,146
132,102
117,264
4,762
$943,274

%

19.2%
17.0%
0.7%
36.9%

The geographic mix in revenues was relatively consistent between 2011 and 2010 and is demonstrated in

the following table:

US . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe and other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2011
80%
16%
4%

2010
83%
14%
3%

The operating proﬁt of the Marketing Communications Group decreased by approximately 14.0% to

$45.6 million in 2011, from $53.0 million in 2010. The decrease in operating proﬁt of $7.4 million was
primarily due to an increase in acquisition related costs and estimated deferred acquisition consideration
adjustments of $12.4 million, and increased depreciation and amortization of $5.6 million, due to acquisitions.
These amounts were offset by $10.2 million of increased operating proﬁts related to the increase in revenue
and a $0.4 million decrease in non-cash stock based compensation, despite the Company’s strategic
investments in talent, new office locations, and other growth investments. Operating margins decreased to
4.8% for 2011 compared to 7.7% for 2010. This decrease in operating margin was primarily related to an
increase in reimbursed client related direct costs (excluding staff costs) as a percentage of revenues from
20.3% of revenue in 2010 to 24.3% of revenue in 2011. This increase in reimbursed client related direct costs
is due to the requirement that certain costs be included in both revenue and direct costs due to the Company
acting as principle versus agent for certain client contracts. In addition, margins were negatively impacted by
an increase in office and general expenses as a percentage of revenue from 18.7% in 2010 to 19.5% in 2011
primarily due to acquisition related costs and estimated deferred acquisition consideration adjustments as a
percentage of revenue of 1.5% in 2011 compared to 0.3% in 2010. Offsetting these increases was a reduction
in total staff costs as a percentage of revenues from 55.5% in 2010, to 53.9% in 2011. In addition,
depreciation and amortization expenses decreased as a percentage of revenue from 4.9% in 2010, to 4.2% in
2011, due to the increase in revenue in 2011.

Marketing Communications Businesses

Strategic Marketing Services

Revenues attributable to Strategic Marketing Services in 2011 were $608.1 million, compared to

$438.9 million in 2010. The year-over-year increase of $169.2 million, or 38.5%, was attributable primarily to
organic growth of $81.5 million or 18.6%; acquisition growth of $84.7 million or 19.3%; and a foreign
exchange translation of $2.9 million due to the weakening of the US dollar compared to the Canadian dollar.
This organic revenue growth was driven by net new business wins.

The operating proﬁt of Strategic Marketing Services decreased by $19.7 million to $21.3 million in 2011

from $41.0 million in 2010. Operating margins decreased to 3.5% in 2011 from 9.3% in 2010. The decrease
in operating proﬁt was primarily due to an increase in acquisition related costs and estimated deferred
acquisition consideration adjustments of $21.7 million, increased depreciation and amortization of
$4.5 million, due to acquisitions, offset by $4.4 million of increased operating proﬁts related to increased

24

revenue, and a decrease in non-cash stock based compensation of $2.1 million. The decrease in operating
margin was primarily related to an increase in direct costs (excluding staff costs) as a percentage of revenues
from 16.8% of revenue in 2010, to 22.1% of revenue in 2011. In addition, margins were negatively impacted
by an increase in office and general expenses as a percentage of revenue from 20.6% in 2010 to 22.7% in
2011 due to the increased acquisition related costs and estimated deferred acquisition consideration
adjustments of 4.0% in 2011 compared to 0.6% in 2010 offset in part from the increase in revenue. Offsetting
these increases, total staff costs as a percentage of revenue decreased from 55.8% in 2010 to 54.2% in 2011,
despite the Company’s investment in talent. Depreciation and amortization decreased as a percentage of
revenue from 4.1% during 2010 to 3.7% during 2011, due to the increase in revenues.

Performance Marketing Services

Performance Marketing Services generated revenues of $335.2 million for 2011, an increase of
$85.0 million, or 34%, compared to revenues of $250.2 million in 2010. The year-over-year increase was
attributable primarily to acquisition growth of $47.4 million, organic revenue growth of $35.8 million, and
a foreign translation increase of $1.8 million. This organic revenue growth was driven by net new
business wins.

The operating proﬁt of Performance Marketing Services increased by $12.2 million to $24.2 million in

2011, from an operating proﬁt of $12.0 million in 2010. Operating margins improved from 4.8% in 2010
compared to 7.2% in 2011. The increase in operating proﬁt was primarily due to a decrease in acquisition
related costs and estimated deferred acquisition consideration adjustments of $9.3 million and $5.8 million
relating to increased revenue. These increases were offset in part from increased depreciation and amortization
of $1.2 million, due to acquisitions and increased non-cash stock based compensation of $1.7 million. The
increase in operating margin in 2011 was due primarily to a decrease in total staff costs as a percentage of
revenue from 55.0% in 2010 to 53.2% in 2011. Office and general expenses as a percentage of revenue
decreased from 15.3% in 2010 to 13.6% in 2011 due to a decrease in acquisition related costs and estimated
deferred acquisition consideration adjustments as a percentage of revenue of a positive net adjustment of
0.3% in 2010 to a larger positive net adjustment of 3.0% in 2011. This decrease was offset by an increase in
non-cash stock based compensation expense of $1.7 million. In addition, depreciation and amortization
expense decreased as a percentage of revenue from 6.3% in 2010 to 5.1% in 2011, due to the increased
revenue. Offsetting these decreases was an increase in direct costs (excluding staff costs) as a percentage of
revenue from 26.4% in 2010 to 28.2% in 2011.

Corporate

Operating costs related to the Company’s Corporate operations increased by $13.6 million to

$36.3 million in 2011, compared to $22.7 million in 2010. This increase was primarily related to increased
compensation and related costs of $9.0 million ($7.6 million of which consisted of non-cash stock based
compensation). In addition, the Company incurred increased travel, promotional and related costs of
$2.5 million, occupancy costs of $1.0 million, professional and other costs of $0.6 million, and depreciation
expense of $0.5 million.

Other Expense, Net

Other expense, net, decreased $0.3 million in 2011 to income of $0.1 million from income of

$0.4 million in 2010.

Foreign Exchange

The foreign exchange loss was $1.7 million for 2011, compared to a gain of $0.1 million recorded in
2010. This unrealized gain and loss was due primarily to the ﬂuctuation in the US dollar during 2011 and
2010 compared to the Canadian dollar relating to the Company’s US dollar denominated intercompany
balances with its Canadian subsidiaries.

Net Interest Expense

Net interest expense for 2011 was $41.8 million, an increase of $8.6 million over the $33.2 million net
interest expense incurred during 2010. Interest expense increased $8.4 million in 2011 due to the additional
$55 million 11% notes issued in April 2011. Interest income was $0.1 million for 2011, as compared to
$0.3 million in 2010.

25

Income Tax Expense

Income tax expense in 2011 was $41.7 million compared to a beneﬁt of $0.2 million for 2010. In 2010,

the Company’s effective tax rate was substantially lower than the statutory tax rate due to a decrease in the
Company’s valuation allowance, and noncontrolling interest charges. These amounts were offset in part by
non-deductible stock based compensation and a reserve established for potential tax positions. The Company’s
effective tax rate was substantially higher than the statutory rate in 2011 due to non-deductible stock-based
compensation and an increase in the Company’s valuation allowance, offset in part by noncontrolling
interest charges.

The Company’s US operating units are generally structured as limited liability companies, which are

treated as partnerships for tax purposes. The Company is only taxed on its share of proﬁts, while
noncontrolling holders are responsible for taxes on their share of the proﬁts.

Equity in Affiliates

Equity in affiliates represents the income (loss) attributable to equity-accounted affiliate operations. In

2011, the Company recorded income of $0.2 million compared to income of $0.9 million in 2010.

Noncontrolling Interests

Noncontrolling interest expense was $7.8 million for 2011, a decrease of $2.3 million from the

$10.1 million of noncontrolling interest expense incurred during 2010. The decrease relates to a decrease in
proﬁts earned at entities the Company does not own 100% in, both the Strategic Marketing Services and
Performance Marketing Service segments.

Discontinued Operations

The loss net of taxes from discontinued operations for 2011 was $1.4 million and is primarily comprised
of the operating results of the Performance Marketing Group, a division of Accent Marketing Services, LLC.

The loss net of taxes from discontinued operations for 2010 was $3.9 million and is comprised of the

operating results of Performance Marketing Group, Zig (US) LLC (‘‘Zig US’’), Redscout’s 007 venture;
discontinued operations of Fearless Progression LLC in 2010; and Margeotes Fertitta Powell, LLC (‘‘MFP’’)
discontinued in 2007.

Net Loss

As a result of the foregoing, the net loss recorded for 2011 was $84.7 million or loss of $2.91 per diluted

share, compared to a net loss of $15.4 million or $0.55 per diluted share reported for 2010.

Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

Revenue was $689.1 million for the year ended 2010, representing an increase of $152.7 million, or
28.5%, compared to revenue of $536.5 million for the year ended 2009. This increase relates primarily to
acquisition growth of $105.8 million and an increase in organic revenue of $38.5 million. In addition, a
weakening of the US Dollar, primarily versus the Canadian dollar during the year ended December 31, 2010,
resulted in an increase of $8.4 million.

Operating proﬁt for the year ended 2010 was $30.3 million compared to $22.7 million in 2009. Operating

proﬁt increased by $4.2 million in the Strategic Marketing Services, and by $7.6 million within the
Performance Marketing Services segment. Corporate operating expenses increased by $4.1 million in 2010.

Loss from continuing operations was a loss of $1.4 million in 2010, compared to a loss of $9.6 million
in 2009. This increase in income of $8.2 million was primarily attributable to the increase in operating proﬁt,
offset by an increase in net interest expense equal to $11.6 million. This increase in net interest expense was
primarily due to the Company’s outstanding 11% notes. These amounts were impacted by a decrease in
foreign exchange losses from a loss of $2.0 million in 2009 to income of $0.1 million in 2010, and an
increase in other income, net of $0.5 million from a loss of $0.1 million in 2009 to income of $0.4 million in
2010. In addition, income tax expense decreased $8.7 million, from $8.5 million in 2009 to a beneﬁt of
$0.2 million in 2010. Equity in earnings of non-consolidated affiliates increased by $0.9 million due to
distributions in excess of the Company’s carrying value of one equity method investment of $2.6 million,
offset by the write-off of another equity method investment due to continued losses.

26

Marketing Communications Group

Revenues attributable to the Marketing Communications Group, which consists of two reportable
segments — Strategic Marketing Services and Performance Marketing Services, were $689.1 million in the
aggregate in 2010, compared to $536.5 million in 2009, representing a year-over-year increase of 28.5%.

The components of the revenue for 2010 are shown in the following table:

Year ended December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Organic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . .

Revenue

$000’s
$536,491
105,851
38,448
8,356
$689,146

%

—
19.7%
7.2%
1.6%
28.5%

The geographic mix in revenues was relatively consistent between 2010 and 2009 and is demonstrated in

the following table:

US . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe and other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2010
83%
14%
3%

2009
83%
15%
2%

The operating proﬁt of the Marketing Communications Group increased by approximately 28.6% to
$53.0 million in 2010, from $41.2 million in 2009. Operating margins were consistent at 7.7% for both 2010
and 2009. The increase in operating proﬁt is primarily attributable to a reduction in total staff costs as a
percentage of revenues from 60.5% in 2009, to 55.5% in 2010. Direct costs (excluding staff costs) offset this
increase as these costs increased as a percentage of revenues from 13.4% of revenue in 2009 to 20.3% of
revenue in 2010 due to an increase in reimbursed client related direct costs. This increase in direct costs is
due to the requirement that certain costs be included in both revenue and direct costs due to the Company
acting as principle versus agent for certain client contracts. Office and general expenses as a percentage of
revenue decreased from 21.1% in 2009, to 18.7% in 2010. This decrease was primarily a result of increased
revenues on relatively ﬁxed costs, offset by acquisition related costs and estimated deferred acquisition
consideration adjustments of 0.6% in 2010 compared to minimal impact in 2009. Depreciation and
amortization expenses decreased as a percentage of revenue from 6.3% in 2009, to 4.9% in 2010, due to these
expenses being relatively ﬂat at $33.8 million.

Marketing Communications Businesses

Strategic Marketing Services

Revenues attributable to Strategic Marketing Services in 2010 were $438.9 million, compared to

$370.6 million in 2009. The year-over-year increase of $68.3 million, or 18.4%, was attributable primarily to
organic growth of $43.2 million or 11.7%; acquisition growth of $20.2 million or 5.4%; and a foreign
exchange conversion of $4.9 million due to the weakening of the US dollar compared to the Canadian dollar.
This organic revenue growth was driven by net new business wins.

The operating proﬁt of Strategic Marketing Services increased by approximately 11.5% to $41.0 million
in 2010, from $36.8 million in 2009, while operating margins decreased to 9.3% in 2010 from 9.9% in 2009.
The increase in operating proﬁt was primarily due to the increased revenue. The decrease in operating margin
was primarily related to an increase in direct costs (excluding staff costs) as a percentage of revenues from
11.0% of revenue in 2009, to 16.8% of revenue in 2010. In addition, margins were negatively impacted by
acquisition related costs and estimated deferred acquisition consideration adjustments of 0.6% in 2010
compared to minimal impact in 2009. Total staff costs as a percentage of revenue decreased from 58.3% in
2009 to 55.8% in 2010, helping to offset increase in direct costs as a percentage of revenue despite the
Company’s investment in talent. Depreciation and amortization decreased as a percentage of revenue from
6.9% during 2009 to 4.1% during 2010.

27

Performance Marketing Services

Performance Marketing Services generated revenues of $250.2 million for 2010, an increase of
$84.3 million, or 50.8%, compared to revenues of $165.9 million in 2009. The year-over-year increase was
attributable primarily to acquisition growth of $85.7 million and a foreign translation of $3.4 million; offset by
an organic revenue decline of $4.8 million. Revenues declined due to customers reducing their outsourcing
needs and reduced client project spending in 2010.

The operating proﬁt of Performance Marketing Services increased by $7.6 million to $12.0 million in

2010, from an operating proﬁt of $4.4 million in 2009. Operating margins improved from 2.7% in 2009
compared to 4.8% in 2010. The increase in operating proﬁt dollars is primarily due to increased revenue. The
increase in operating margin in 2010 was due primarily to a decrease in total staff costs as a percentage of
revenue from 65.3% in 2009; to 55.0% in 2010. Offsetting this decrease was an increase in direct costs
(excluding staff costs) as a percentage of revenue from 18.9% in 2009 to 26.4%. Office and general expenses
as a percentage of revenue decreased from 15.4% in 2009 to 15.3% in 2010 due to relatively ﬁxed costs
compared to the increase in revenue. Depreciation and amortization increased due to amortization of acquired
intangibles from 2010 acquisitions.

Corporate

Operating costs related to the Company’s Corporate operations increased by $4.1 million to $22.7 million

in 2010, compared to $18.5 million in 2009. This increase of $4.1 million was primarily related to increased
compensation and related costs of $1.9 million ($1.4 million of which consisted of non-cash stock based
compensation), travel, promotional and related costs of $2.0 million and professional and other costs of
$0.2 million.

Other Expense, Net

Other expense, net, increased $0.5 million in 2010 to income of $0.4 million from an expense of

$0.1 million in 2009.

Foreign Exchange

The foreign exchange gain was $0.1 million for 2010, compared to a loss of $0.1 million recorded

in 2009.

During 2010, the Company settled certain intercompany accounts to reduce its exposure to the continued
foreign exchange ﬂuctuations between the US dollar and Canadian dollar. As a result, the Company recorded a
net minimal foreign exchange gain in 2010 compared to the loss incurred in 2009. In 2009, the Company
recorded an unrealized loss that was offset by a $1.3 million realized gain on foreign exchange transactions.

Net Interest Expense

Net interest expense for 2010 was $33.2 million, an increase of $11.6 million over the $21.6 million net
interest expense incurred during 2009. Interest expense increased $11.4 million in 2010 due to the reﬁnancing
completed in October 2009 and the additional $65 million 11% notes issued in May 2010. Interest expense
also increased due to the higher debt outstanding and higher interest rates on the reﬁnanced debt. Interest
income was $0.3 million for 2010, as compared to $0.5 million in 2009.

Income Taxes

Income tax beneﬁt in 2010 was $0.2 million compared to expense of $8.5 million for 2009. In 2010, the

Company’s effective tax rate was substantially lower than the statutory tax rate due to a decrease in the
Company’s valuation allowance, and noncontrolling interest charges. These amounts were offset in part by
non-deductible stock based compensation and a reserve established for potential tax positions. The Company’s
effective tax rate was substantially higher than the statutory rate in 2010 due to non-deductible stock-based
compensation and an increase in the Company’s valuation allowance, offset in part by noncontrolling
interest charges.

The Company’s US operating units are generally structured as limited liability companies, which are

treated as partnerships for tax purposes. The Company is only taxed on its share of proﬁts, while
noncontrolling holders are responsible for taxes on their share of the proﬁts.

28

Equity in Affiliates

Equity in affiliates represents the income loss attributable to equity-accounted affiliate operations. In
2010, the Company incurred income of $0.9 million due to distributions in excess of the Company’s carrying
value of one equity method investment of $2.6 million offset by the write-off of another equity method
investment due to continued losses.

Noncontrolling Interests

Noncontrolling interest expense was $10.1 million for 2010, an increase of $4.5 million from the

$5.6 million of noncontrolling interest expense incurred during 2009. The increase was primarily due to
increased proﬁtability of subsidiaries within both operating segments, which are not 100% owned.

Discontinued Operations

The loss net of taxes from discontinued operations for 2010 was $3.9 million and is comprised of the
operating results of the Performance Marketing Group, division of Accent Marketing Service, LLC, Zig (US)
LLC (‘‘Zig US’’), Redscout’s 007 venture; discontinued operations of Fearless Progression LLC in 2010; and
Margeotes Fertitta Powell, LLC (‘‘MFP’’) discontinued in 2007.

The loss net of taxes from discontinued operations for 2009 was $3.2 million and is comprised of the

operating results of the Performance Marketing Group, division of Accent, Zig US, Clifford/Bratskeir Public
Relations LLC discontinued in 2009 and MFP.

Net Income

As a result of the foregoing, the net loss recorded for 2010 was $15.4 million or loss of $0.55 per diluted

share, compared to a net loss of $18.3 million or $0.67 per diluted share reported for 2009.

Liquidity and Capital Resources

The following table provides information about the Company’s liquidity position:

Liquidity

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . .
Working capital (deﬁcit) . . . . . . . . . . . . . . . . . . . . . .
Cash from operations . . . . . . . . . . . . . . . . . . . . . . . .
Cash from investing. . . . . . . . . . . . . . . . . . . . . . . . .
Cash from ﬁnancing. . . . . . . . . . . . . . . . . . . . . . . . .
Ratio of long-term debt to shareholders’ equity . . . . . .

2011

2009

2010
(In Thousands, Except for Long-Term
Debt to Shareholders’ Equity Ratio)
$ 10,949
$(102,547)
$ 37,297
$(110,580)
$ 32,728
3.11

8,096
$
$(127,888)
$
4,548
$ (30,436)
$ 23,299
(29.76)

$ 51,926
$(40,152)
$ 67,687
$(63,663)
$ 9,717
2.31

As of December 31, 2011, 2010 and 2009, $0.9 million, $5.2 million and $14.1 million, respectively, of
the Company’s consolidated cash position was held by subsidiaries. Although this amount is available for the
subsidiaries’ use, it does not represent cash that is distributable as earnings to MDC for use to reduce its
indebtedness. It is the Company’s intent through its cash management system to reduce outstanding
borrowings under the WF Credit Agreement by using available cash.

Working Capital

At December 31, 2011, the Company had a working capital deﬁcit of $127.9 million, compared to a
deﬁcit of $102.5 million at December 31, 2010. Working capital deﬁcit increased by $25.4 million primarily
related to a $20.9 million increase in short term deferred acquisition consideration. The remainder was
primarily due to accelerated timing in the amounts collected from clients, and paid to suppliers, primarily
media outlets. The Company includes amounts due to noncontrolling interest holders, for their share of proﬁts,
in accrued and other liabilities. During 2011, 2010 and 2009, the Company made distributions to these
noncontrolling interest holders of $12.3 million, $7.7 million and $7.8 million, respectively. At December 31,
2011, $4.0 million remains outstanding to be distributed to noncontrolling interest holders over the next
twelve months.

29

The Company expects that available borrowings under its Credit Agreement, together with cash ﬂows

from operations and other initiatives, will be sufficient over the next twelve months to adequately fund
working capital deﬁcits should there be a need to do so from time to time, as well as all of the Company’s
obligations including put options and capital expenditures.

Operating Activities

Cash ﬂow provided by continuing operations for 2011 was $5.5 million. This was attributable primarily

to a loss from continuing operations of $50.0 million, plus non-cash stock based compensation of
$23.7 million, depreciation and amortization of $42.4 million, a decrease in expenditures billable to clients of
$15.3 million, deferred income taxes of $14.6 million, and adjustments to deferred acquisition consideration of
$13.3 million. This was partially offset by a decrease in advance billings of $31.4 million, increases in
accounts receivable of $12.1 million, other non-current assets and liabilities of $2.0 million, and a decrease in
accounts payable, accruals and other liabilities of $8.2 million. Discontinued operations used cash of
$0.9 million.

Cash ﬂow provided by continuing operations for 2010 was $39.5 million. This was attributable
primarily to a loss from continuing operations of $1.4 million, plus non-cash stock based compensation of
$16.5 million, depreciation and amortization of $36.3 million, a decrease in expenditures billable to clients of
$23.7 million, and an increase in advance billings of $2.4 million. This was partially offset by increases in
accounts receivable of $31.3 million, deferred income taxes of $5.4 million, other non-current assets and
liabilities of $0.5 million, and a decrease in accounts payable, accruals and other liabilities of $1.6 million.
Discontinued operations used cash of $2.2 million.

Cash ﬂow provided by continuing operations for 2009 was $69.1 million. This was attributable
primarily to a loss from continuing operations of $9.6 million, plus non-cash stock based compensation of
$15.4 million, depreciation and amortization of $38.3 million, deferred income taxes of $7.0 million, an
increase in accounts payable, accruals and other liabilities of $9.4 million, noncurrent assets and liabilities of
$3.1 million, an increase in advance billings of $15.8 million and foreign exchange translation of $6.6 million.
This was partially offset by increases in accounts receivable of $11.4 million and expenditures billable to
clients of $7.1 million. Discontinued operations used cash of $1.4 million.

Investing Activities

Cash ﬂows used in investing activities were $30.4 million for 2011, compared with $110.6 million for

2010, and $63.7 million in 2009.

Cash used in acquisitions during 2011 was $6.8 million, $22.6 million related to acquisition payments,

reduced by $15.9 million of media cash acquired, and $0.1 million related to deferred payments for
acquisitions that closed prior to January 1, 2009.

Expenditures for capital assets in 2011 were equal to $23.4 million. Of this amount, $11.7 million was

incurred by the Strategic Marketing Services segment, $4.8 million was incurred by the Performance
Marketing Services segment. These expenditures consisted primarily of computer equipment, leasehold
improvements, furniture and ﬁxtures, and $6.9 million related to the purchase of Corporate assets.

Cash used in acquisitions during 2010 was $97.4 million, of which $18.2 million related to earnout and
deferred acquisition payments for acquisitions that closed prior to January 1, 2009, and $79.2 million related
to acquisition payments.

Expenditures for capital assets in 2010 were equal to $11.1 million. Of this amount, $6.5 million was

incurred by the Strategic Marketing Services segment, $4.0 million was incurred by the Performance
Marketing Services segment. These expenditures consisted primarily of computer equipment, leasehold
improvements, furniture and ﬁxtures, and $0.6 million related to the purchase of Corporate assets.

Cash used in acquisitions during 2009 was $57.5 million, of which $54.1 million related to earnout and

deferred acquisition payments for acquisitions that closed prior to January 1, 2009, and $3.4 million related to
acquisition payments.

30

Expenditures for capital assets in 2009 were equal to $4.5 million. Of this amount, $3.6 million was

incurred by the Strategic Marketing Services segment, $0.7 million was incurred by the Performance
Marketing Services segment, and $0.2 million related to the purchase of Corporate assets. These expenditures
consisted primarily of computer equipment, leasehold improvements and furniture and ﬁxtures.

Proﬁt distributions received from affiliates amounted to $4.6 million in 2011, $0.6 million in 2010, and

$0.2 million for 2009.

Discontinued operations used cash of $0.6 million, $2.1 million, and $1.7 million in 2011, 2010 and

2009, respectively, relating to expenditures for capital assets.

Financing Activities

During the year ended December 31, 2011, cash ﬂows provided by ﬁnancing activities amounted to
$23.3 million and primarily consisted of $61.1 million of proceeds from the additional 11% notes issuance,
and proceeds from the WF Credit Agreement of $38.0 million and proceeds for the exercise of stock options
of $1.0 million. These proceeds were offset by repayments from bank overdrafts of $5.7 million, by
$3.1 million of deferred ﬁnancing costs relating to the senior notes and revolving WF Credit Agreement. The
proceeds of the 11% notes issuance were partially offset by dividends paid and proceeds for the exercise of
stock options of $1.0 million, of $16.4 million, distributions to noncontrolling shareholders of $12.3 million,
purchase of treasury shares of $4.1 million and repayment of long-term debt of $1.1 million. In addition, the
Company made acquisition related payments of $34.3 million of which $31.2 million related to earnout and
deferred acquisition payments and $3.1 million related to acquisition of additional equity interests pursuant to
put/call option exercises.

During the year ended December 31, 2010, cash ﬂows provided by ﬁnancing activities amounted to
$32.7 million and primarily consisted of $67.6 million of proceeds from the additional 11% notes issuance,
proceeds from bank overdrafts of $9.0 million, offset by $2.1 million of deferred ﬁnancing costs relating to
the senior notes and new revolving WF Credit Agreement. The proceeds of the 11% notes issuance were
partially offset by dividends paid and payable of $9.7 million, distributions to noncontrolling shareholders of
$7.7 million, purchase of treasury shares of $3.5 million and repayment of long-term debt of $1.5 million. The
Company made acquisition related payments of $19.7 million, of which $8.2 million related to earnout and
deferred acquisition payments, and $11.5 million related to acquisitions of additional equity interests pursuant
to put/call option exercises.

During the year ended December 31, 2009, cash ﬂows provided by ﬁnancing activities amounted to
$9.7 million and primarily consisted of $225 million of proceeds from the 11% notes issuance, offset by the
original issue discount of $10.5 million and $10.1 million of deferred ﬁnancing costs relating to the senior
notes and new revolving WF Credit Agreement. The proceeds were offset by repayments of $130.0 million
term loans, $42.5 million convertible notes, $9.7 million relating to the old credit facility, and $7.8 million for
distributions to noncontrolling interests. The Company made acquisition related payments of $2.5 million.

Total Debt

11% Notes Due 2016

On October 23, 2009, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold
$225 million aggregate principal amount of 11% Notes due 2016 (the ‘‘11% Notes’’). The 11% Notes bear
interest at a rate of 11% per annum, accruing from October 23, 2009. Interest is payable semiannually in
arrears in cash on May 1 and November 1 of each year, beginning on May 1, 2010. The 11% Notes will
mature on November 1, 2016, unless earlier redeemed or repurchased. The Company received net proceeds
before expenses of $209 million which included an original issue discount of approximately 4.7% or
$10.5 million and underwriter fees of $5.5 million. The 11% Notes were sold in a private placement in
reliance on exemptions from registration under the Securities Act of 1933, as amended. The Company used
the net proceeds of this offering to repay the outstanding balance and terminate its prior Fortress Financing
Agreement consisting of repayments of $130 million term loans, a $70 million delayed draw term loan, and
$9.7 outstanding on the $55 million revolving credit agreement. The Company also used the net proceeds to
redeem its outstanding 8% C$45 million convertible debentures.

31

On May 14, 2010, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold
$65 million aggregate principal amount of 11% Notes due 2016. The additional notes were issued under the
Indenture governing the 11% Notes and treated as a single series with the original 11% Notes. The additional
notes were sold in a private placement in reliance on exceptions from registration under the Securities Act of
1933, as amended. The Company received net proceeds before expenses of $67.2 million, which included an
original issue premium of $2.6 million, and underwriter fees of $0.4 million. The Company used the net
proceeds of the offering to repay the outstanding balance under the Company’s revolving credit agreement
described elsewhere herein, and for general corporate purposes, including acquisitions.

On April 19, 2011, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold an

additional $55 million aggregate principal amount of 11% Notes due 2016. The additional notes were issued
under the Indenture governing the 11% Notes and treated as a single series with the original 11% Notes. The
additional notes were sold in a private placement in reliance on exceptions from registration under the
Securities Act of 1933, as amended. The Company received net proceeds before expenses of $59.6 million,
which included an original issue premium of $6.1 million, and underwriter fees of $1.5 million. The Company
used the net proceeds of the offering to repay the outstanding balance under the Company’s WF Credit
Agreement and for general corporate purposes.

The Company may, at its option, redeem the 11% Notes in whole at any time or in part from time to
time, on and after November 1, 2013 at a redemption price of 105.5% of the principal amount thereof. If
redeemed during the twelve-month period beginning on November 1, 2014, the Company must pay a
redemption price of 102.75% of the principal amount thereof. If redeemed during the twelve-month period
beginning on November 1, 2015, the Company must pay a redemption price of 100% of the principal amount
thereof. Prior to November 1, 2013, the Company may, at its option, redeem some or all of the 11% Notes at
a price equal to 100% of the principal amount of the Notes plus a ‘‘make whole’’ premium and accrued and
unpaid interest. The Company may also redeem, at its option, prior to November 1, 2012, up to 35% of the
11% Notes with the proceeds from one or more equity offerings at a redemption price of 111% of the
principal amount thereof. If the Company experiences certain kinds of changes of control (as deﬁned in the
Indenture), holders of the 11% Notes may require the Company to repurchase any 11% Notes held by them at
a price equal to 101% of the principal amount of the 11% Notes plus accrued and unpaid interest. The
indenture governing the 11% Notes contains various covenants restricting our operations in certain respects.
See ‘‘Risk Factors.’’

Credit Agreement

On October 23, 2009, the Company and its subsidiaries entered into a $75 million ﬁve year senior
secured revolving WF Credit Agreement (the ‘‘WF Credit Agreement’’) with Wells Fargo Foothill, LLC, as
agent, and the lenders from time to time party thereto. On November 22, 2010, the Company amended its
facility to increase availability to $100 million. On April 29, 2011, the Company entered into an additional
amendment to increase the availability under the WF Credit Agreement to $150 million and extended the
maturity date to October 23, 2015. The WF Credit Agreement replaced the Company’s existing $185 million
senior secured ﬁnancing agreement with Fortress Credit Corp., as collateral agent, Wells Fargo Foothill, Inc.,
as administrative agent. Advances under the WF Credit Agreement will bear interest as follows: (a)(i) LIBOR
Rate Loans bear interest at the LIBOR Rate and (ii) Base Rate Loans bear interest at the Base Rate, plus
(b) an applicable margin. The initial applicable margin for borrowing is 2.25% in the case of Base Rate Loans
and 2.50% in the case of LIBOR Rate Loans. The applicable margin may be reduced subject to the Company
achieving certain trailing twelve month earning levels, as deﬁned. In addition to paying interest on outstanding
principal under the WF Credit Agreement, the Company is required to pay an unused revolver fee to lender
under the WF Credit Agreement in respect of unused commitments thereunder.

The WF Credit Agreement is guaranteed by all of the Company’s present and future subsidiaries, other

than immaterial subsidiaries as deﬁned and is secured by all the assets of the Company. The WF Credit
Agreement includes covenants that, among other things, restrict the Company’s ability and the ability of its
subsidiaries to incur or guarantee additional indebtedness; pay dividends on or redeem or repurchase the
capital stock of MDC; make certain types of investments; pay dividends or other amounts from the
Company’s subsidiaries; incur certain liens, sell or otherwise dispose of certain assets; enter into transactions
with affiliates; enter into sale and leaseback transactions; and consolidate or merge with or into, or sell

32

substantially all of the Company’s assets to, another person. These covenants are subject to a number of
important limitations and exceptions. The WF Credit Agreement also contains ﬁnancial covenants, including a
senior leverage ratio, total leverage ratio, a ﬁxed charge coverage ratio and a minimum earnings level,
as deﬁned.

Debt as of December 31, 2011 was $385.2 million, an increase of $99.0 million compared with the
$286.2 million outstanding at December 31, 2010, primarily as a result of proceeds from the April 2011 bond
issuance of $55 million and $38 million WF Credit Agreement to fund seasonal working capital requirements,
earnout obligations, and acquisitions. At December 31, 2011, $106.1 million is available under the WF Credit
Agreement to fund working capital requirements. After giving effect to the limitations under the indenture for
the 11% Notes, at December 31, 2011, approximately $41.2 million was available under the WF Credit
Agreement.

The Company is currently in compliance with all of the terms and conditions of its WF Credit

Agreement, and management believes, based on its current ﬁnancial projections and strategic initiatives, that
the Company will be in compliance with covenants over the next twelve months.

If the Company loses all or a substantial portion of its lines of credit under the WF Credit Agreement, it

may be required to seek other sources of liquidity. If the Company were unable to ﬁnd these sources of
liquidity, for example through an equity offering or access to the capital markets, the Company’s ability to
fund its working capital needs and any contingent obligations with respect to put options would be
adversely affected.

Pursuant to the Credit Agreement, the Company must comply with certain ﬁnancial covenants including,

among other things, covenants for (i) senior leverage ratio (ii) total leverage ratio, (iii) ﬁxed charges ratio,
(iv) minimum earnings before interest, taxes and depreciation and amortization and (v) minimum accounts
receivable level, in each case as such term is speciﬁcally deﬁned in the WF Credit Agreement. For the period
ended December 31, 2011, the Company’s calculation of certain of these covenants, and the speciﬁc
requirements under the Credit Agreement, respectively, were as follows:

Senior leverage ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maximum per covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed charges ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minimum per covenant
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total leverage ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maximum per covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings before interest, taxes, depreciation and amortization . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minimum per covenant

December 31, 2011
0.44
2.0
1.54
1.25
3.85
4.15
$99.5 million
$90.0 million

These ratios are not based on generally accepted accounting principles and are not presented as

alternative measures of operating performance or liquidity. They are presented here to demonstrate compliance
with the covenants in the Company’s WF Credit Agreement, as non-compliance with such covenants could
have a material adverse effect on the Company.

33

Disclosure of Contractual Obligations and Other Commercial Commitments

The following table provides a payment schedule of present and future obligations. Management
anticipates that the obligations outstanding at December 31, 2011 will be repaid with new ﬁnancing, equity
offerings and/or cash ﬂow from operations (in thousands):

Contractual Obligations
Indebtedness . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . .
Interest on debt
. . . . . . . . . . . . . . . . . . .
Deferred acquisition consideration . . . . . . .
Management services agreement . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . .
Total contractual obligations . . . . . . . . . . .

Total
$346,266
1,437
164,201
189,937
137,223
1,500
3,900
$844,464

Payments Due by Period

Less than
1 Year

$

600
638
26,878
38,065
51,829
1,500
1,733
$121,243

1 − 3 Years
666
$
654
48,109
75,966
65,321
—
2,167
$192,883

3 − 5 Years
$345,000
145
37,100
75,906
19,038
—
—
$477,189

After
5 Years
$ —
—
52,114
—
1,035
—
—
$53,149

The following table provides a summary of other commercial commitments (in thousands) at

December 31, 2011:

Other Commercial Commitments
Lines of credit . . . . . . . . . . . . . . . . . . . .
Letters of credit . . . . . . . . . . . . . . . . . . .
Total Other Commercial Commitments. . . .

Total
$38,032
$ 5,830
$43,862

Payments Due by Period

Less than
1 Year
$ —
5,830
$5,830

1 − 3 Years
$38,032
—
$38,032

3 − 5 Years
$ —
—
$ —

After
5 Years
$ —
—
$ —

For further detail on MDC’s long-term debt principal and interest payments, see Note 11 and Note 17
Commitments, Contingents and Guarantees of the Company’s consolidated ﬁnancial statements included in
this Form 10-K. See also ‘‘Deferred Acquisition and Contingent Consideration (Earnouts)’’ and
‘‘Other-Balance Sheet Commitments’’ below.

Capital Resources

At December 31, 2011, the Company had only utilized the Credit Agreement in the form of undrawn

letters of credit of $5.8 million. Cash and undrawn available bank credit facilities to support the Company’s
future cash requirements at December 31, 2011 was approximately $106.1 million.

The Company expects to incur approximately $20 million of capital expenditures in 2012. Such capital

expenditures are expected to include leasehold improvements, furniture and ﬁxtures, and computer equipment
at certain of the Company’s operating subsidiaries. The Company intends to maintain and expand its business
using cash from operating activities, together with funds available under the Credit Agreement. Management
believes that the Company’s cash ﬂow from operations, funds available under the Credit Agreement and other
initiatives will be sufficient to meet its ongoing working capital, capital expenditures and other cash needs
over the next twelve months. If the Company continues to spend capital on future acquisitions, management
expects that the Company may need to obtain additional ﬁnancing in the form of debt and/or equity ﬁnancing.

Deferred Acquisition and Contingent Consideration (Earnouts)

Acquisitions of businesses by the Company may include commitments to contingent deferred purchase

consideration payable to the seller. These contingent purchase obligations are generally payable within a
one to ﬁve-year period following the acquisition date, and are based on achievement of certain thresholds of
future earnings and, in certain cases, also based on the rate of growth of those earnings.

34

Contingent purchase price obligations for acquisitions completed prior to January 1, 2009 are accrued
when the contingency is resolved and payment is certain. Contingent purchase price obligations related to
acquisitions completed subsequent to December 31, 2008 are recorded as liabilities at estimated value and are
remeasured at each reporting period and changes in estimated value are recorded in results of operations. At
December 31, 2011, there was $137.2 million of deferred consideration included in the Company’s
balance sheet.

Other-Balance Sheet Commitments

Put Rights of Subsidiaries’ Noncontrolling Shareholders

Owners of interests in certain of the Company’s subsidiaries have the right in certain circumstances to
require the Company to acquire either a portion of or all of the remaining ownership interests held by them.
The owners’ ability to exercise any such ‘‘put option’’ right is subject to the satisfaction of certain conditions,
including conditions requiring notice in advance of exercise. In addition, these rights cannot be exercised prior
to speciﬁed staggered exercise dates. The exercise of these rights at their earliest contractual date would result
in obligations of the Company to fund the related amounts during the period 2012 to 2018. It is not
determinable, at this time, if or when the owners of these rights will exercise all or a portion of these rights.

The amount payable by the Company in the event such put option rights are exercised is dependent on

various valuation formulas and on future events, such as the average earnings of the relevant subsidiary
through that date of exercise, the growth rate of the earnings of the relevant subsidiary during that period,
and, in some cases, the currency exchange rate at the date of payment.

Management estimates, assuming that the subsidiaries owned by the Company at December 31, 2011,
perform over the relevant future periods at their 2011 earnings levels, that these rights, if all exercised, could
require the Company, in future periods, to pay an aggregate amount of approximately $29.0 million to the
owners of such rights to acquire such ownership interests in the relevant subsidiaries. Of this amount, the
Company is entitled, at its option, to fund approximately $3.6 million by the issuance of the Company’s
Class A subordinate voting shares. In addition, the Company is obligated under similar put option rights to
pay an aggregate amount of approximately $88.1 million only upon termination of such owner’s employment
with the applicable subsidiary or death (including $9.7 million within the Company’s control). The Company
intends to ﬁnance the cash portion of these contingent payment obligations using available cash from
operations, borrowings under the WF Credit Agreement (and reﬁnancings thereof) and, if necessary, through
incurrence of additional debt. The ultimate amount payable and the incremental operating income in the future
relating to these transactions will vary because it is dependent on the future results of operations of the subject
businesses and the timing of when these rights are exercised. Approximately $3.6 million of the estimated
$29.0 million that the Company would be required to pay subsidiaries noncontrolling shareholders’ upon the
exercise of outstanding ‘‘put’’ rights, relates to rights exercisable within the next twelve months. Upon
the settlement of the total amount of such put options, the Company estimates that it would receive
incremental operating income before depreciation and amortization of $7.2 million that would be attributable
to MDC Partners Inc.

35

The following table summarizes the potential timing of the consideration and incremental operating

income before depreciation and amortization based on assumptions as described above.

Consideration(4)

Cash . . . . . . . . . . . . . . . . . . . . .
Shares. . . . . . . . . . . . . . . . . . . .

Operating income before

depreciation and amortization to
be received(2) . . . . . . . . . . . . .

Cumulative operating income
before depreciation and
amortization(3). . . . . . . . . . . . .

2012

$3.5
0.7
$4.2

2013

$10.1
0.9
$11.0

2015

2015 &
Thereafter

($ Millions)

$3.4
0.5
$3.9

$4.2
0.3
$4.5(1)

2014

$4.2
1.2
$5.4

Total

$25.4
3.6
$29.0

$3.3

$ 1.2

$1.3

$1.3

$0.1

$ 7.2

$3.3

$ 4.5

$5.8

$7.1

7.2(5)

(1) This amount in addition to put options only exercisable upon termination or death of $78.4 million have

been recognized in Redeemable Noncontrolling Interests on the Company balance sheet in conjunction
with the adoption of a new accounting pronouncement.

(2) This ﬁnancial measure is presented because it is the basis of the calculation used in the underlying
agreements relating to the put rights and is based on actual 2011 operating results. This amount
represents additional amounts to be attributable to MDC Partners Inc., commencing in the year the put is
exercised.

(3) Cumulative operating income before depreciation and amortization represents the cumulative amounts to

be received by the company.

(4) The timing of consideration to be paid varies by contract and does not necessarily correspond to the date

of the exercise of the put.

(5) Amounts are not presented as they would not be meaningful due to multiple periods included.

Guarantees

In connection with certain dispositions of assets and/or businesses in 2001 and 2003, as well as the 2006

sale of SPI, the Company has provided customary representations and warranties whose terms range in
duration and may not be explicitly deﬁned. The Company has also retained certain liabilities for events
occurring prior to sale, relating to tax, environmental, litigation and other matters. Generally, the Company has
indemniﬁed the purchasers in the event that a third party asserts a claim against the purchaser that relates to
a liability retained by the Company. These types of indemniﬁcation guarantees typically extend for
several years.

Historically, the Company has not made any signiﬁcant indemniﬁcation payments under such agreements
and no provision has been accrued in the accompanying consolidated ﬁnancial statements with respect to these
indemniﬁcation guarantees. The Company continues to monitor the conditions that are subject to guarantees
and indemniﬁcations to identify whether it is probable that a loss has occurred, and would recognize any such
losses under any guarantees or indemniﬁcations in the period when those losses are probable and estimable.

For guarantees and indemnities entered into after January 1, 2003, in connection with the sale of the
Company’s investment in CDI and the sale of SPI, the Company has estimated the fair value of its liability to
be insigniﬁcant.

36

Transactions With Related Parties

CEO Services Agreement

On April 27, 2007, the Company entered into a Management Services Agreement (the ‘‘Services
Agreement’’) with Miles Nadal and with Nadal Management, Inc. to set forth the terms and conditions on
which Mr. Nadal would continue to provide services to the Company as its Chief Executive Officer. The
Services Agreement renewed on April 27, 2010, in accordance with its terms and conditions. In addition,
effective April 27, 2010, the annual retainer amount under the Services Agreement was increased to
$1,500,000. During 2009, 2010 and 2011 and in accordance with this new Services Agreement, Mr. Nadal
repaid an amount equal to $0.1 million of loans due to the Company. At December 31, 2011, outstanding
loans due from Nadal Management to the Company, with no stated maturity date, amounted to C$6.0 million
($5.9 million), which have been reserved for in the Company’s accounts.

Trapeze Media

In 2000, the Company purchased 1,600,000 shares in Trapeze Media Limited (‘‘Trapeze’’) for

$0.2 million. At the same time, the Company’s CEO purchased 4,280,000 shares of Trapeze for $0.6 million,
the Company’s former Chief Financial Officer and a Managing Director of the Company each purchased
50,000 Trapeze shares for $7,000 and a Board Member of the Company purchased 75,000 shares of Trapeze
for $10,000. In 2001, the Company purchased an additional 1,250,000 shares for $0.2 million, and the
Company’s CEO purchased 500,000 shares for $0.1 million. In 2002, the Company’s CEO purchased
3,691,930 shares of Trapeze for $0.5 million. All of these purchases were made at identical prices
(C$0.20/unit).

During 2010 and 2009, Trapeze provided services to certain partner ﬁrms of MDC, and the total amount

of such services provided was $0.1 million and $0.1 million, respectively. In addition, in 2011, 2010 and
2009, an MDC Partner ﬁrm provided services to Trapeze in exchange for fees equal to $0.4 million,
$0.3 million and $0.3 million, respectively. Trapeze did not provide any services to MDC nor its partner ﬁrms
in 2011.

The Company’s Board of Directors, through its Audit Committee, has reviewed and approved

these transactions.

Critical Accounting Policies

The following summary of accounting policies has been prepared to assist in better understanding the
Company’s consolidated ﬁnancial statements and the related management discussion and analysis. Readers are
encouraged to consider this information together with the Company’s consolidated ﬁnancial statements and the
related notes to the consolidated ﬁnancial statements as included herein for a more complete understanding of
accounting policies discussed below.

Estimates. The preparation of the Company’s ﬁnancial statements in conformity with generally accepted

accounting principles in the United States of America, or ‘‘GAAP’’, requires management to make estimates
and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities
including goodwill, intangible assets, redeemable noncontrolling interests, and deferred acquisition
consideration, valuation allowances for receivables and deferred income tax assets and stock based
compensation as well as the reported amounts of revenue and expenses during the reporting period. The
statements are evaluated on an ongoing basis and estimates are based on historical experience, current
conditions and various other assumptions believed to be reasonable under the circumstances. Actual results
can differ from those estimates, and it is possible that the differences could be material.

37

Revenue Recognition. The Company’s revenue recognition policies are as required by the Revenue
Recognition topics of the FASB Accounting Standards Codiﬁcation. The Company earns revenue from agency
arrangements in the form of retainer fees or commissions; from short-term project arrangements in the form of
ﬁxed fees or per diem fees for services; and from incentives or bonuses. A small portion of the Company’s
contractual arrangements with clients includes performance incentive provisions, which allow the Company to
earn additional revenues as a result of its performance relative to both quantitative and qualitative goals. The
Company records revenue net of state taxes, when persuasive evidence of an arrangement exists, services are
provided or upon delivery of the products when ownership and risk of loss has transferred to the customer, the
selling price is ﬁxed or determinable and collection of the resulting receivable is reasonably assured.

The Company recognizes the incentive portion of revenue under these arrangements when speciﬁc
quantitative goals are assured, or when the Company’s clients determine performance against qualitative goals
has been achieved. In all circumstances, revenue is only recognized when collection is reasonably assured.
The Company records revenue net of sales and other taxes due to be collected and remitted to governmental
authorities. In the majority of the Company’s businesses, the Company acts as an agent and records revenue
equal to the net amount retained, when the fee or commission is earned. In certain arrangements, the
Company acts as principal and contracts directly with suppliers for third party media and production costs. In
these arrangements, revenue is recorded at the gross amount billed. Additional information about our revenue
recognition policy appears in Note 2 to our consolidated ﬁnancial statements.

Acquisitions, Goodwill and Other Intangibles. A fair value approach is used in testing goodwill for

impairment to determine if an other than temporary impairment has occurred. One approach utilized to
determine fair values is a discounted cash ﬂow methodology. When available and as appropriate, comparative
market multiples are used. Numerous estimates and assumptions necessarily have to be made when
completing a discounted cash ﬂow valuation, including estimates and assumptions regarding interest rates,
appropriate discount rates and capital structure. Additionally, estimates must be made regarding revenue
growth, operating margins, tax rates, working capital requirements and capital expenditures. Estimates and
assumptions also need to be made when determining the appropriate comparative market multiples to be used.
Actual results of operations, cash ﬂows and other factors used in a discounted cash ﬂow valuation will likely
differ from the estimates used and it is possible that differences and changes could be material. As of
December 31, 2011, there were no reporting units at risk of failing step one of the Company’s annual
goodwill impairment test.

The Company has historically made and expects to continue to make selective acquisitions of marketing
communications businesses. In making acquisitions, the price paid is determined by various factors, including
service offerings, competitive position, reputation and geographic coverage, as well as prior experience and
judgment. Due to the nature of advertising, marketing and corporate communications services companies; the
companies acquired frequently have signiﬁcant identiﬁable intangible assets, which primarily consist of
customer relationships. The Company has determined that certain intangibles (trademarks) have an indeﬁnite
life, as there are no legal, regulatory, contractual, or economic factors that limit the useful life.

Business Combinations. Valuation of acquired companies are based on a number of factors, including
specialized know-how, reputation, competitive position and service offerings. Our acquisition strategy has been
to focus on acquiring the expertise of an assembled workforce in order to continue building upon the core
capabilities of our various strategic business platforms to better serve our clients. Consistent with our
acquisition strategy and past practice of acquiring a majority ownership position, most acquisitions completed
in 2011 and 2010 include an initial payment at the time of closing and provide for future additional contingent
purchase price payments. Contingent payments for these transactions, as well as certain acquisitions completed
in prior years, are derived using the performance of the acquired entity and are based on pre-determined
formulas. Contingent purchase price obligations for acquisitions completed prior to January 1, 2009 are
accrued when the contingency is resolved and payment is certain. Contingent purchase price obligations
related to acquisitions completed subsequent to December 31, 2008 are recorded as liabilities at estimated
value and are remeasured at each reporting period. Changes in estimated value are recorded in results of
operations. In addition, certain acquisitions also include put/call obligations for additional equity ownership
interests. The estimated value of these interests are recorded as redeemable noncontrolling interests. As of

38

January 1, 2009, the Company expenses acquisition related costs in accordance with the Accounting
Standard’s Codiﬁcation’s new guidance on acquisition accounting.

For each of our acquisitions, we undertake a detailed review to identify other intangible assets and a

valuation is performed for all such identiﬁed assets. We use several market participant measurements to
determine estimated value. This approach includes consideration of similar and recent transactions, as well as
utilizing discounted expected cash ﬂow methodologies. Like most service businesses, a substantial portion of
the intangible asset value that we acquire is the specialized know-how of the workforce, which is treated as
part of goodwill and is not required to be valued separately. The majority of the value of the identiﬁable
intangible assets that we acquire is derived from customer relationships, including the related customer
contracts, as well as trade names. In executing our acquisition strategy, one of the primary drivers in
identifying and executing a speciﬁc transaction is the existence of, or the ability to, expand our existing client
relationships. The expected beneﬁts of our acquisitions are typically shared across multiple agencies
and regions.

Redeemable Noncontrolling Interest. The minority interest shareholders of certain subsidiaries have the

right to require the Company to acquire their ownership interest under certain circumstances pursuant to a
contractual arrangement and the Company has similar call options under the same contractual terms. The
amount of consideration under the put and call rights is not a ﬁxed amount, but rather is dependent upon
various valuation formulas and on future events, such as the average earnings of the relevant subsidiary
through the date of exercise, the growth rate of the earnings of the relevant subsidiary through the date of
exercise, etc. as described in Note 18.

Allowance for Doubtful Accounts. Trade receivables are stated less allowance for doubtful accounts. The

allowance represents estimated uncollectible receivables usually due to customers’ potential insolvency. The
allowance includes amounts for certain customers where risk of default has been speciﬁcally identiﬁed.

Income Tax Valuation Allowance.

The Company records a valuation allowance against deferred income

tax assets when management believes it is more likely than not that some portion or all of the deferred
income tax assets will not be realized. Management considers factors such as the reversal of deferred income
tax liabilities, projected future taxable income, the character of the income tax asset, tax planning strategies,
changes in tax laws and other factors. A change to any of these factors could impact the estimated valuation
allowance and income tax expense.

Interest Expense.

Interest expense primarily consists of the cost of borrowing on the revolving

WF Credit Agreement and the 11% Notes. The Company uses the effective interest method to amortize the
original issue discount and original issue premium on the 11% Notes. The Company amortizes deferred
ﬁnancing costs using the effective interest method over the life of the 11% Notes and straight line over the life
of the revolving WF Credit Agreement.

Stock-based Compensation. The fair value method is applied to all awards granted, modiﬁed or settled.
Under the fair value method, compensation cost is measured at fair value at the date of grant and is expensed
over the service period that is the award’s vesting period. When awards are exercised, share capital is credited
by the sum of the consideration paid together with the related portion previously credited to additional paid-in
capital when compensation costs were charged against income or acquisition consideration. Stock-based
awards that are settled in cash or may be settled in cash at the option of employees are recorded as liabilities.
The measurement of the liability and compensation cost for these awards is based on the fair value of the
award, and is recorded into operating income over the service period, that is the vesting period of the award.
Changes in the Company’s payment obligation are revalued each period and recorded as compensation cost
over the service period in operating income.

The Company treats beneﬁts paid by shareholders to employees as a stock based compensation charge

with a corresponding credit to additional paid-in capital.

New Accounting Pronouncements

Information regarding new accounting guidance can be found in Note 18 to our consolidated

ﬁnancial statements.

39

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk related to interest rates and foreign currencies.

Debt Instruments: At December 31, 2011, the Company’s debt obligations consisted of amounts
outstanding under its WF Credit Agreement and the 11% notes. This facility bears interest at variable rates
based upon the Eurodollar rate, US bank prime rate and, US base rate, at the Company’s option. The
11% notes bear interest at a ﬁxed rate. The Company’s ability to obtain the required bank syndication
commitments depends in part on conditions in the bank market at the time of syndication. As of December 31,
2011, the Company had a $38.0 million balance on the revolving WF Credit Agreement. Given the level of
debt of $38.0 million as of December 31, 2011, a 1% increase in the weighted average interest rate, which
was 5.5% at December 31, 2011, would have a $0.4 million interest impact.

Foreign Exchange: The Company conducts business in six currencies, the US dollar, the Canadian
dollar, the Euro, Jamaican dollar, the British Pound and the Swedish Krona. Our results of operations are
subject to risk from the translation to the US dollar of the revenue and expenses of our non-US operations.
The effects of currency exchange rate ﬂuctuations on the translation of our results of operations are discussed
in the ‘‘Management’s Discussion and Analysis of Financial Condition and Result of Operations’’ and in
Note 2 of our consolidated ﬁnancial statements. For the most part, our revenues and expenses incurred related
to our non-US operations are denominated in their functional currency. This minimizes the impact that
ﬂuctuations in exchange rates will have on proﬁt margins. Intercompany debt which is not intended to be
repaid is included in cumulative translation adjustments. Translation of intercompany debt, which is not
intended to be repaid, is included in cumulative translation adjustments. Translation of current intercompany
balances are included in net earnings. The Company generally does not enter into foreign currency forward
exchange contracts or other derivative ﬁnancial instruments to hedge the effects of adverse ﬂuctuations in
foreign currency exchange rates.

The Company is exposed to foreign currency ﬂuctuations relating to its intercompany balances between
the US and Canada. For every one cent change in the foreign exchange rate between the US and Canada, the
Company will not incur a material impact to its ﬁnancial statements.

40

Item 8. Financial Statements and Supplementary Data

MDC PARTNERS INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Statements:

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Operations for the Three Years Ended December 31, 2011 . . . . . . . . . .

Consolidated Statements of Comprehensive Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Balance Sheets as of December 31, 2011 and 2010 . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2011. . . . . . . . . .

Consolidated Statements of Shareholders’ Equity for the Three Years Ended December 31, 2011 . . .

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial Statement Schedules:

Page

42

43

44

45

46

48

51

Schedule II — Valuation and Qualifying Accounts for the Three Years Ended December 31, 2011. . .

98

41

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
MDC Partners Inc.
New York, New York
Toronto, Canada

We have audited the accompanying consolidated balance sheets of MDC Partners Inc. as of December 31,
2011 and 2010 and the related consolidated statements of operations, comprehensive loss, shareholders’ equity,
and cash ﬂows for each of the three years in the period ended December 31, 2011. These ﬁnancial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
ﬁnancial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the ﬁnancial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the ﬁnancial statements,
assessing the accounting principles used and signiﬁcant estimates made by management, as well as
evaluating the overall ﬁnancial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated ﬁnancial statements referred to above present fairly, in all material respects,
the ﬁnancial position of MDC Partners Inc. at December 31, 2011 and 2010, and the results of its operations
and its cash ﬂows for each of the three years in the period ended December 31, 2011, in conformity with
accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), MDC Partners Inc. and subsidiaries’ internal control over ﬁnancial reporting as of
December 31, 2011, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated
March 15, 2012 expressed an unqualiﬁed opinion thereon.

/s/ BDO USA, LLP

New York, New York
March 15, 2012

42

MDC PARTNERS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of United States Dollars, Except Share and per Share Amounts)

Revenue:

Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

943,274 $

689,146

$

536,491

Years Ended December 31,
2010

2009

2011

Operating Expenses:

Cost of services sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office and general expenses . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . .

Operating Proﬁt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Income (Expenses)

Gain (loss) on sale of assets and other . . . . . . . . . . . . . . . . .
Foreign exchange gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense and ﬁnance charges. . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Loss from continuing operations before income taxes and equity

in affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (recovery) . . . . . . . . . . . . . . . . . . . . . . . .
Loss from continuing operations before equity in affiliates . . . . .
Equity in earnings (loss) of non-consolidated affiliates . . . . . . . .
Loss from continuing operations . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations attributable to

MDC Partners Inc., net of taxes. . . . . . . . . . . . . . . . . . . . . .
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to the non-controlling interests. . . . . . . .
Net loss attributable to MDC Partners Inc. . . . . . . . . . . . . . . . . $
Loss Per Common Share:
Basic and diluted

Loss from continuing operations attributable to

674,460
219,271
40,236
933,967
9,307

116
(1,677)
(41,922)
139
(43,344)

(34,037)
41,735
(75,772)
213
(75,559)

473,371
151,296
34,164
658,831
30,315

381
69
(33,487)
274
(32,763)

(2,448)
(165)
(2,283)
866
(1,417)

348,300
131,308
34,224
513,832
22,659

(91)
(1,956)
(22,098)
452
(23,693)

(1,034)
8,536
(9,570)
(8)
(9,578)

(1,361)
(76,920)
(7,754)
(84,674) $

(3,949)
(5,366)
(10,074)
(15,440)

$

(3,180)
(12,758)
(5,566)
(18,324)

MDC Partners Inc. common shareholders . . . . . . . . . . . . . $

(2.86) $

(0.41)

$

(0.55)

Discontinued operations attributable to MDC Partners Inc.

common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . .

(0.05)

(0.14)

(0.12)

Net loss attributable to MDC Partners Inc. common

shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

(2.91) $

(0.55)

$

(0.67)

Weighted Average Number of Common Shares Outstanding:

Basic and diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

29,120,373

28,161,144

27,396,463

Non cash stock based compensation expense is included in the following line items above:

Cost of services sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office and general expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,333
22,324
$23,657

$ 4,427
12,080
$16,507

$ 4,919
10,525
$15,444

The accompanying notes to the consolidated ﬁnancial statements are an integral part of these statements.

43

MDC PARTNERS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Thousands of United States Dollars)

Comprehensive Loss
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss), net of tax:
Foreign currency cumulative translation adjustment . . . . . . . . . .
Comprehensive loss for the year . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive loss attributable to the noncontrolling interest . . .
Comprehensive loss attributable to MDC Partners Inc. . . . . . . . .

Years Ended December 31,
2010

2009

2011

$(76,920)

$ (5,366)

$(12,758)

(504)
(77,424)
(7,760)
$(85,184)

1,736
(3,630)
(10,078)
$(13,708)

769
(11,989)
(5,582)
$(17,571)

The accompanying notes to the consolidated ﬁnancial statements are an integral part of these statements.

44

MDC PARTNERS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Thousands of United States Dollars)

Current Assets:

ASSETS

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, less allowance for doubtful accounts of $851 and

$1,990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenditures billable to clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities:

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advance billings, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred acquisition consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term portion of deferred acquisition consideration . . . . . . . . . . . . . . . . .
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemable Noncontrolling Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments, Contingencies and Guarantees (Note 17)
Shareholders’ Equity:

Preferred shares, unlimited authorized, none issued. . . . . . . . . . . . . . . . . . .
Class A Shares, no par value, unlimited authorized, 29,277,408 and

December 31,

2011

2010

$

8,096

$ 10,949

238,592
39,067
12,657
298,412
47,737
99
605,244
57,980
15,380
30,893
$1,055,745

$ 178,282
72,930
122,021
1,238
51,829
426,300
383,936
85,394
14,900
50,724
961,254
107,432

195,306
30,414
13,455
250,124
41,053
—
514,488
67,133
21,603
19,947
$ 914,348

$ 131,074
64,050
124,993
1,667
30,887
352,671
284,549
77,104
10,956
19,642
744,922
77,560

—

—

28,758,734 shares issued and outstanding in 2011 and 2010, respectively . .

228,208

226,752

Class B Shares, no par value, unlimited authorized, 2,503 issued and
outstanding in 2011 and 2010, respectively, convertible into one
Class A share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares to be issued, 28,000 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges in excess of capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deﬁcit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock subscription receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . .
MDC Partners Inc. Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities, Redeemable Noncontrolling Interests and Equity . . . . . . . . . .

1
424
—
(45,102)
(231,274)
(55)
(4,658)
(52,456)
39,515
(12,941)
$1,055,745

1
—
—
(16,809)
(146,600)
(135)
(4,148)
59,061
32,805
91,866
$ 914,348

The accompanying notes to the consolidated ﬁnancial statements are an integral part of these statements.

45

MDC PARTNERS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of United States Dollars)

Cash ﬂows from operating activities:

Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations . . . . . . . . . . . . . . .
Adjustments to reconcile loss from continuing operations to

cash provided by operating activities:
Non-cash stock-based compensation . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization primarily from intangibles . . . . . . . . . . . . . .
Amortization of deferred ﬁnance charges and debt discount .
Adjustment to deferred acquisition consideration. . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on disposition of assets . . . . . . . . . . . . . . . . . .
Loss (earnings) of non consolidated affiliates . . . . . . . . . . .
Other non-current assets and liabilities . . . . . . . . . . . . . . .
Foreign exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Increase/decrease in operating assets and liabilities

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenditures billable to clients. . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . .
Accounts payable, accruals and other current liabilities . . . .
Advance billings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash ﬂows provided by continuing operating activities . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . .

Cash ﬂows from investing activities:

Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of assets . . . . . . . . . . . . . . . . . . . . . .
Acquisitions, net of cash acquired. . . . . . . . . . . . . . . . . . .
Proﬁt distributions from affiliates . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash ﬂows used in continuing investing activities . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . .

Cash ﬂows from ﬁnancing activities:

Proceeds from issuance of 11% Notes . . . . . . . . . . . . . . . .
Proceeds/ (repayments) of revolving credit facility . . . . . . .
Repayment of term loans. . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of convertible debt . . . . . . . . . . . . . . . . . . . . .
Acquisition related payments . . . . . . . . . . . . . . . . . . . . . .
Proceeds/ (repayments) from bank overdraft . . . . . . . . . . . .
Distributions to noncontrolling interests . . . . . . . . . . . . . . .
Proceeds from exercise of options. . . . . . . . . . . . . . . . . . .
Payments of dividends . . . . . . . . . . . . . . . . . . . . . . . . . .

Years Ended December 31,
2010

2009

2011

$(76,920)
(1,361)
(75,559)

$

(5,366)
(3,949)
(1,417)

$ (12,758)
(3,180)
(9,578)

23,657
17,665
22,571
2,175
13,324
40,284
75
(213)
(1,954)
687

(12,130)
15,335
(832)
(8,259)
(31,373)
5,453
(905)
4,548

(23,383)
22
(6,790)
4,584
(4,232)
(29,799)
(637)
(30,436)

61,050
38,032
—
—
(34,287)
(5,676)
(12,264)
1,086
(16,436)

16,507
16,447
17,717
2,136
142
(5,373)
(17)
(866)
(509)
538

(31,289)
23,681
952
(1,574)
2,430
39,505
(2,208)
37,297

(11,134)
96
(97,387)
638
(717)
(108,504)
(2,076)
(110,580)

67,600
—
—
—
(19,673)
9,026
(7,685)
60
(9,727)

15,444
16,087
18,137
4,041
—
6,972
53
8
3,101
6,557

(11,420)
(7,054)
1,546
9,362
15,843
69,099
(1,412)
67,687

(4,513)
20
(57,506)
198
(163)
(61,964)
(1,699)
(63,663)

214,506
(9,701)
(130,000)
(42,470)
(2,536)
—
(7,784)
370
—

The accompanying notes to the consolidated ﬁnancial statements are an integral part of these statements.

46

MDC PARTNERS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS — (continued)
(Thousands of United States Dollars)

Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . . .
Deferred ﬁnancing costs . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock subscription receivable . . . . . . . . . . . .
Purchase of treasury shares . . . . . . . . . . . . . . . . . . . . . . .
Cash ﬂows provided by continuing ﬁnancing activities . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by ﬁnancing activities . . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents . . .
(Decrease) increase in cash and cash equivalents . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . .

Supplemental disclosures:

Years Ended December 31,
2010
(1,496)
(2,103)
206
(3,480)
32,728
—
32,728
(422)
(40,977)
51,926
$ 10,949

2009
(2,000)
(10,085)
13
(596)
9,717
—
9,717
(3,146)
10,595
41,331
$ 51,926

2011
(1,112)
(3,053)
80
(4,121)
23,299
—
23,299
(264)
(2,853)
10,949
$ 8,096

Cash income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . . .
Cash interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
240
$37,497

$ 1,128
$ 29,581

$
384
$ 14,243

Non-cash transactions:

Share capital issued on acquisitions. . . . . . . . . . . . . . . . . .
Capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note receivable exchanged for shares of subsidiary . . . . . . .
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ —
$
682
$ 1,098
$ 5,456

$
$
$
$

—
656
840
387

$
$
$
$

—
340
—
—

The accompanying notes to the consolidated ﬁnancial statements are an integral part of these statements.

47

MDC PARTNERS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Thousands of United States Dollars Except Share and per Share Amounts)

2011

2010

2009

Number of
Shares

Amount

Number of
Shares

Amount

Number of
Shares

Amount

Class A Shares
Balance at beginning

of year . . . . . . . . . . . . 28,758,734

$226,752

27,566,815

$218,532

26,987,017

$213,533

Stock appreciation rights

exercised . . . . . . . . . . .
Share options exercised. . .
Shares acquired and

130,932
113,085

211
1,109

101,107
6,495

239
60

68,261
47,625

202
370

(230,262)
cancelled . . . . . . . . . . .
Issuance of restricted stock
504,919
Balance at end of year . . . 29,277,408
Class B Shares
Balance at beginning

of year . . . . . . . . . . . .

2,503

Shares converted to

Class B shares . . . . . . .
Balance at end of year . . .
Share Capital to Be

Issued

Balance at beginning

—
2,503

(4,121)
4,257
228,208

(282,954)
1,367,271
28,758,734

(3,480)
11,401
$226,752

(156,481)
620,393
27,566,815

(596)
5,023
$218,532

$

$

1

—
1

2,503

—
2,503

$

$

1

—
1

2,503

—
2,503

$

$

1

—
1

of year . . . . . . . . . . . .

— $

—

— $

—

— $

—

Shares to be issued as
deferred acquisition
consideration . . . . . . . .

Shares issued as deferred

acquisition consideration
Balance at end of year . . .
Additional Paid-In

Capital

Balance at beginning

of year . . . . . . . . . . . .
Stock-based compensation
Reclassiﬁcation related to

redeemable
noncontrolling interests
(Note 2) . . . . . . . . . . .

Changes in redemption
value of redeemable
noncontrolling interests .

28,000

—
28,000

$

424

—
424

—

—
—

—

—
—

—

—
—

—

—
—

$

—
22,709

$

9,174
14,954

$ 33,470
13,720

—

—

(31,653)

(24,532)

(11,500)

(58)

The accompanying notes to the consolidated ﬁnancial statements are an integral part of these statements.

48

MDC PARTNERS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY — (continued)
(Thousands of United States Dollars Except Share and per Share Amounts)

2011

2010

2009

Number of
Shares

Amount

Number of
Shares

Amount

Number of
Shares

Amount

Acquisition of redeemable
noncontrolling interests .

Issuance of redeemable

noncontrolling interests .

Dividends paid and to be

paid . . . . . . . . . . . . . .
Acquisition purchase price
adjustments . . . . . . . . .
Issuance of restricted stock
Share appreciation rights

exercised . . . . . . . . . . .
Option exercised . . . . . . .
Other . . . . . . . . . . . . . . .
Transfer to charges in

excess of capital . . . . . .
Balance at end of year . . .
Changes in Excess

of Capital

Balance at beginning

of year . . . . . . . . . . . .
Transfer from additional
paid in capital . . . . . .
Balance at end of year . . .
Accumulated Deﬁcit
Balance at beginning

of year . . . . . . . . . . . .

Net loss attributable to

MDC Partners . . . . . . .
Balance at end of year . . .
Stock Subscription

Receivable

Balance at beginning

of year . . . . . . . . . . . .
Receipts . . . . . . . . . . . . .
Balance at end of year . . .
Accumulated Other

Comprehensive Income
(Loss)

Balance at beginning

of year . . . . . . . . . . . .

Foreign currency

translation adjustments. .
Balance at end of year . . .
MDC Partners Inc.

Shareholders’ Equity . .

(6,328)

(1,147)

(21,511)

7,007
(4,257)

(211)
(23)
—

28,293
—

$

$ (16,809)

(28,293)
$ (45,102)

$(146,600)

(84,674)
$(231,274)

$

$

(135)
80
(55)

$

(4,148)

(510)
(4,658)

(7,761)

158

(10,194)

—
(11,401)

(239)
—
—

16,809
—

—

$

$

(16,809)
$ (16,809)

$(131,160)

(15,440)
$(146,600)

$

$

(341)
206
(135)

(5,880)

1,732
(4,148)

(923)

—

—

—
(5,023)

(202)
—
(157)

—
9,174

—

—
—

$

$

$

$(112,836)

(18,324)
$(131,160)

$

$

(354)
13
(341)

$

(6,633)

753
(5,880)

$ (52,456)

$ 59,061

$ 90,326

The accompanying notes to the consolidated ﬁnancial statements are an integral part of these statements.

49

MDC PARTNERS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY — (continued)
(Thousands of United States Dollars Except Share and per Share Amounts)

2011

2010

2009

Number of
Shares

Amount

Number of
Shares

Amount

Number of
Shares

Amount

Noncontrolling interests
Balance at beginning

of year . . . . . . . . . . . .

Increase in noncontrolling
interest from acquisition
Decrease in noncontrolling
interests from business
combinations . . . . . . . .

Increase in noncontrolling
interests from business
combinations . . . . . . . .

Foreign currency

translation . . . . . . . . . .
Balance at end of year . . .
Total Equity . . . . . . . . .

$ 32,805

6,706

(2)

—

6
$ 39,515
$(12,941)

$ 3,820

28,990

(127)

118

4
$32,805
$91,866

$

871

3,039

(106)

—

16
$ 3,820
$94,146

The accompanying notes to the consolidated ﬁnancial statements are an integral part of these statements.

50

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

1. Basis of Presentation

MDC Partners Inc. (the ‘‘Company’’) has prepared the consolidated ﬁnancial statements included herein
pursuant to the rules and regulations of the United States Securities and Exchange Commission (the ‘‘SEC’’)
and in accordance with generally accepted accounting principles (‘‘GAAP’’) of the United States of America
(‘‘US GAAP’’).

Effective December 2011, one of the Company’s operating divisions, Performance Marketing Group
(a division of Accent) has been deemed a discontinued operation. All periods have been restated to reﬂect the
discontinued operation. For further information see Note 10 ‘‘Discontinued Operations.’’

Nature of Operations

MDC Partners Inc., formerly MDC Corporation Inc., is incorporated under the laws of Canada. The
Company commenced using the name MDC Partners Inc. on November 1, 2003 and legally changed its name
through amalgamation with a wholly-owned subsidiary on January 1, 2004. The Company’s operations are in
primarily one business group — Marketing Communications. The business group operates primarily in the
United States (‘‘US’’), Canada, Europe, and in the United Kingdom. See Note 15, ‘‘Segment Information’’, for
further description of the one business group and MDC’s reportable segments.

2. Signiﬁcant Accounting Policies

The Company’s signiﬁcant accounting policies are summarized as follows:

Principles of Consolidation. The accompanying consolidated ﬁnancial statements include the accounts

of MDC Partners Inc. its domestic and international controlled subsidiaries. Intercompany balances and
transactions have been eliminated on consolidation.

Use of Estimate. The preparation of ﬁnancial statements in conformity with US GAAP requires
management to make estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities including goodwill, intangible assets, valuation allowances for receivables and
deferred tax assets and the reported amounts of revenue and expenses during the reporting period. The
estimates are evaluated on an ongoing basis and estimates are based on historical experience, current
conditions and various other assumptions believed to be reasonable under the circumstances. Actual results
could differ from those estimates.

Fair Value. The Company applies the fair value measurement guidance of Codiﬁcation Topic 820,
Fair Value Measurements and Disclosure for ﬁnancial assets and liabilities that are required to be measured at
fair value and for nonﬁnancial assets and liabilities that are not required to be measured at fair value on a
recurring basis, including goodwill and other identiﬁable intangible assets. The measurement of fair value
requires the use of techniques based on observable and unobservable inputs. Observable inputs reﬂect market
data obtained from independent sources, while unobservable inputs reﬂect our market assumptions. The inputs
create the following fair value hierarchy:

•

•

•

Level 1 — Quoted prices for identical instruments in active markets.

Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or
similar instruments in markets that are not active; and model-derived valuations where inputs are
observable or where signiﬁcant value drivers are observable.

Level 3 — Instruments where signiﬁcant value drivers are unobservable to third parties.

51

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

2. Signiﬁcant Accounting Policies − (continued)

When available, quoted market prices are used to determine the fair value of our ﬁnancial instruments
and classify such items in Level 1. In some cases, quoted market prices are used for similar instruments in
active markets and classify such items in Level 2.

Concentration of Credit Risk. The Company provides marketing communications services to clients who

operate in most industry sectors. Credit is granted to qualiﬁed clients in the ordinary course of business. Due
to the diversiﬁed nature of the Company’s client base, the Company does not believe that it is exposed to a
concentration of credit risk; however, no client accounted for more than 10% of the Company’s consolidated
accounts receivable as of December 31, 2011 and 2010. No clients accounted for 10% of revenue in the year
ended December 31, 2011 and 2010 and one client accounted for 16% of revenue for the year ended
December 31, 2009.

Cash and Cash Equivalents. The Company’s cash equivalents are primarily comprised of investments in

overnight interest-bearing deposits, commercial paper and money market instruments and other short-term
investments with original maturity dates of three months or less at the time of purchase. The Company has a
concentration of credit risk in that there are cash deposits in excess of federally insured amounts. Included in
cash and cash equivalents at December 31, 2011 and 2010 is $46 and $64, respectively, of cash restricted as
to withdrawal pursuant to a collateral agreement and a customer’s contractual requirement.

Allowance for Doubtful Accounts. Trade receivables are stated at invoiced amounts less allowances for

doubtful accounts. The allowances represent estimated uncollectible receivables associated with potential
customer defaults usually due to customers’ potential insolvency. The allowances include amounts for certain
customers where a risk of default has been speciﬁcally identiﬁed. The assessment of the likelihood of
customer defaults is based on various factors, including the length of time the receivables are past due,
historical experience and existing economic conditions.

Expenditures Billable to Clients. Expenditures billable to clients consist principally of outside vendors

costs incurred on behalf of clients when providing advertising, marketing and corporate communications
services to clients that have not been invoiced. Such amounts are invoiced to clients at various times over the
course of the production process.

Fixed Assets. Fixed assets are stated at cost, net of accumulated depreciation. Computers, furniture and

ﬁxtures are depreciated on a straight-line basis over periods of 3 to 7 years. Leasehold improvements are
depreciated on a straight-line basis over the lesser of the term of the related lease or the estimated useful life
of the asset. Repairs and maintenance costs are expensed as incurred.

Impairment of Long-lived Assets.

In accordance with the FASB Accounting Standards Codiﬁcation

topic, Accounting for the Impairment or Disposal of Long-lived Assets, a long-lived asset or asset group is
tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may
not be recoverable. When such events occur, the Company compares the sum of the undiscounted cash ﬂows
expected to result from the use and eventual disposition of the asset or asset group to the carrying amount of
the long-lived asset or asset group. If this comparison indicates that there is an impairment, the amount of the
impairment is typically calculated using discounted expected future cash ﬂows where observable fair values
are not readily determinable. The discount rate applied to these cash ﬂows is based on the Company’s
weighted average cost of capital, risk adjusted where appropriate.

Equity Method Investments. The equity method is used to account for investments in entities in which

the Company has an ownership interest of less than 50% and has signiﬁcant inﬂuence, or joint control by
contractual arrangement with all parties having an equity interest, over the operating and ﬁnancial policies of
the affiliate or has an ownership interest of greater than 50% however the substantive participating rights of
the noncontrolling interest shareholders preclude the Company from exercising unilateral control over the
operating and ﬁnancial policies of the affiliate. The Company’s investments accounted for using the equity
method includes Adrenalina, 49.9% owned by the Company, and a 50% undivided interest in a real estate

52

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

2. Signiﬁcant Accounting Policies − (continued)

joint venture. In 2010, the Company recorded a distribution of $3,519 from this real estate joint venture, of
which $2,601 was in excess of the Company’s carrying amount and has been recorded as a gain in equity in
earnings of non-consolidated affiliates. The Company’s management periodically evaluates these investments
to determine if there has been a decline in value that is other than temporary. As of December 31, 2011and
2010, the Company has written off the amount of its investment in Adrenalina of $39 and $1,636 representing
advances previously made.

Cost Method Investments. The Company’s cost-based investments at December 31, 2011 were primarily

comprised of various interests in limited partnerships and companies where the Company does not exercise
signiﬁcant inﬂuence over the operating and ﬁnancial policies of the investee. The total net cost basis of these
investments, which are included in Other Assets on the balance sheet, as of December 31, 2011 and 2010 was
$8,785 and $4,650, respectively. These investments are periodically evaluated to determine if there have been
any other than temporary declines below book value. A variety of factors are considered when determining if
a decline in fair value below book value is other than temporary, including, among others, the ﬁnancial
condition and prospects of the investee, as well as the Company’s investment intent.

Goodwill and Indeﬁnite Lived Intangible.

In accordance with the FASB Accounting Standards

Codiﬁcation topic, Goodwill and Other Intangible Assets, goodwill and indeﬁnite life intangible assets
(trademarks) acquired as a result of a business combination which are not subject to amortization are tested
for impairment annually, and more frequently if events and circumstances indicate that the asset might be
impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair
value. For goodwill, this determination is made at the reporting unit level and consists of two steps. First, the
Company determines the fair value of a reporting unit and compares it to its carrying amount. Fair value is
determined based on earnings multiples of each subsidiary. Second, if the carrying amount of a reporting unit
exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting
unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined
by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in
accordance with the FASB Accounting Standards Codiﬁcation topic, Business Combinations. The residual fair
value after this allocation is the implied fair value of the reporting unit goodwill.

The fair value of a reporting unit was estimated using a combination of the income approach, which

incorporates the use of the discounted cash ﬂow method.

The Company has determined that each partner ﬁrm that has reported goodwill will be tested separately

as each partner ﬁrm qualiﬁes as a reporting unit under the Accounting Standards Codiﬁcation guidance.

Impairment losses, where applicable, will be charged to operating proﬁt. The Company identiﬁes certain

intangible assets (trademarks) as indeﬁnite life if there are no legal, regulatory, contractual or economic factors
that limit the useful life. If the carrying amount of an indeﬁnite life intangible exceeds its fair value, an
impairment loss is recognized for the excess. As of December 31, 2011, there was no impairment of goodwill
and no reporting units were at risk of failing step one of annual test.

Deﬁnite Lived Intangible Assets.

In accordance with the FASB Accounting Standards Codiﬁcation,

acquired intangibles, are subject to amortization over their useful lives. The method of amortization selected
reﬂects the pattern in which the economic beneﬁts of the speciﬁc intangible asset is consumed or otherwise
used up. If that pattern cannot be reliably determined, a straight-line amortization method is used over the
estimated useful life. Intangible assets that are subject to amortization are reviewed for potential impairment at
least annually or whenever events or circumstances indicate that carrying amounts may not be recoverable.
See also Note 8.

53

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

2. Signiﬁcant Accounting Policies − (continued)

Deferred Taxes. The Company uses the asset and liability method of accounting for income taxes.
Deferred income taxes are provided for the temporary difference between the ﬁnancial reporting basis and tax
basis of the Company’s assets and liabilities. Deferred tax beneﬁts result principally from certain tax carryover
beneﬁts and from recording certain expenses in the ﬁnancial statements that are not currently deductible for
tax purposes and from differences between the tax and book basis of assets and liabilities recorded in
connection with acquisitions. Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Deferred tax liabilities result principally from deductions recorded for tax purposes in excess of that recorded
in the ﬁnancial statements or income for ﬁnancial statement purposes in excess of the amount for tax
purposes. The effect of changes in tax rates is recognized in the period the rate change is enacted.

Business Combinations. Valuation of acquired companies are based on a number of factors, including

specialized know-how, reputation, competitive position and service offerings. The Company’s acquisition
strategy has been focused on acquiring the expertise of an assembled workforce in order to continue to build
upon the core capabilities of its various strategic business platforms to better serve the Company’s clients.
Consistent with the acquisition strategy and past practice of acquiring a majority ownership position, most
acquisitions completed in 2011 included an initial payment at the time of closing and provide for future
additional contingent purchase price payments. Contingent payments for these transactions, as well as certain
acquisitions completed in prior years, are derived using the performance of the acquired entity and are based
on pre-determined formulas. Contingent purchase price obligations for acquisitions completed prior to
January 1, 2009 are accrued when the contingency is resolved and payment is certain. Contingent purchase
price obligations related to acquisitions completed subsequent to December 31, 2010 are recorded as liabilities
at estimated value and are remeasured at each reporting period and changes in estimated value are recorded in
results of operations. For the year ended December 31, 2011, $12,623 related to changes in estimated value
have been recorded as operating expenses. For the years ended December 31, 2010 and 2009, $778 and nil,
respectively, related to changes in estimated value have been charged to operating income. In addition, certain
acquisitions also include put/call obligations for additional equity ownership interests. The estimated value of
these interests are recorded as Redeemable Noncontrolling Interests. As of January 1, 2009, the Company
expenses acquisition related costs in accordance with the Accounting Standard’s Codiﬁcation’s new guidance
on acquisition accounting. For the year ended December 31, 2011, 2010 and 2009 $3,819, $4,025 and $416,
respectively, of acquisition related costs were charged to operations.

For each of the Company’s acquisitions, we undertake a detailed review to identify other intangible assets
and a valuation is performed for all such identiﬁed assets. We use several market participant measurements to
determine estimated value. This approach includes consideration of similar and recent transactions, as well as
utilizing discounted expected cash ﬂow methodologies. Like most service businesses, a substantial portion of
the intangible asset value that we acquire is the specialized know-how of the workforce, which is treated as
part of goodwill and is not required to be valued separately. The majority of the value of the identiﬁable
intangible assets acquired is derived from customer relationships, including the related customer contracts, as
well as trade names. In executing the Company’s acquisition strategy, one of the primary drivers in identifying
and executing a speciﬁc transaction is the existence of, or the ability to, expand existing client relationships.
The expected beneﬁts of the Company’s acquisitions are typically shared across multiple agencies and regions.

Redeemable Noncontrolling Interest. The minority interest shareholders of certain subsidiaries have the

right to require the Company to acquire their ownership interest under certain circumstances pursuant to a
contractual arrangement and the Company has similar call options under the same contractual terms. The
amount of consideration under the put and call rights is not a ﬁxed amount, but rather is dependent upon
various valuation formulas and on future events, such as the average earnings of the relevant subsidiary
through the date of exercise, the growth rate of the earnings of the relevant subsidiary through the date of
exercise, etc. as described in Note 17.

54

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

2. Signiﬁcant Accounting Policies − (continued)

The Company has recorded its put options as mezzanine equity at their current estimated redemption
amounts. The Company accrues changes in the redemption amounts over the period from the date of issuance
to the earliest redemption date of the put options. The Company accounts for the put options with a charge to
noncontrolling interests to reﬂect the excess, if any, of the estimated exercise price over the estimated fair
value of the noncontrolling interest shares at the date of the option being exercised. For the three years ended
December 31, 2011, 2010 and 2009, there has been no charges to noncontrolling interests. Changes in the
estimated redemption amounts of the put options are adjusted at each reporting period with a corresponding
adjustment to equity. These adjustments will not impact the calculation of earnings per share.

The following table presents changes in Redeemable Noncontrolling Interests.

Beginning Balance as of January 1, . . . . . . . . . . . . . . . . . . . . .

Reclassiﬁcation related to Redeemable Noncontrolling

Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in redemption value. . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation adjustments . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .

Ending Balance as of December 31,

Years Ended December 31,
2010
$33,728

2009
$ 21,751

2011
$ 77,560

—
(9,068)
15,318
24,532
—
(910)
$107,432

—
(7,987)
40,567
10,075
—
1,177
$77,560

31,653
(28,242)
6,441
58
107
1,960
$ 33,728

Guarantees. Guarantees issued or modiﬁed by the Company to third parties after January 1, 2003 are
generally recognized, at the inception or modiﬁcation of a guarantee, as a liability for the obligations it has
undertaken in issuing the guarantee, including its ongoing obligation to stand ready to perform over the term
of the guarantee in the event that the speciﬁed triggering events or conditions occur. The initial measurement
of that liability is the fair value of the guarantee. The recognition of the liability is required even if it is not
probable that payments will be required under the guarantee. The Company’s liability associated with
guarantees is not signiﬁcant. (See Note 17.)

Revenue Recognition. The Company’s revenue recognition policies are as required by the Revenue
Recognition topics of the FASB Accounting Standards Codiﬁcation, and accordingly, revenue is generally
recognized as services are provided or upon delivery of the products when ownership and risk of loss has
transferred to the customer, the selling price is ﬁxed or determinable and collection of the resulting receivable
is reasonably assured. The Company follows the Revenue Arrangements with Multiple Deliverables topic of
the FASB Accounting Standards Codiﬁcation issued. This topic addresses certain aspects of the accounting by
a vendor for arrangements under which it will perform multiple revenue-generating activities and how to
determine whether an arrangement involving multiple deliverables contains more than one unit of accounting.
The Company also follows the topic of the FASB Accounting Standards Codiﬁcation. Reporting Revenue
Gross as a Principal versus Net as an Agent. This Issue summarized the EITF’s views on when revenue
should be recorded at the gross amount billed because it has earned revenue from the sale of goods or
services, or the net amount retained because it has earned a fee or commission. The Company also follows
Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred, for
reimbursements received for out-of-pocket expenses. This issue summarized the EITF’s views that
reimbursements received for out-of-pocket expenses incurred should be characterized in the income statement
as revenue. Accordingly, the Company has included in revenue such reimbursed expenses.

55

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

2. Signiﬁcant Accounting Policies − (continued)

The Company earns revenue from agency arrangements in the form of retainer fees or commissions;

from short-term project arrangements in the form of ﬁxed fees or per diem fees for services; and from
incentives or bonuses.

Non refundable retainer fees are generally recognized on a straight line basis over the term of the speciﬁc
customer arrangement. Commission revenue is earned and recognized upon the placement of advertisements in
various media when the Company has no further performance obligations. Fixed fees for services are
recognized upon completion of the earnings process and acceptance by the client. Per diem fees are
recognized upon the performance of the Company’s services. In addition, for certain service transactions,
which require delivery of a number of service acts, the Company uses the Proportional Performance model,
which generally results in revenue being recognized based on the straight-line method.

Fees billed to clients in excess of fees recognized as revenue are classiﬁed as Advanced Billings.

A small portion of the Company’s contractual arrangements with customers includes performance
incentive provisions, which allows the Company to earn additional revenues as a result of its performance
relative to both quantitative and qualitative goals. The Company recognizes the incentive portion of revenue
under these arrangements when speciﬁc quantitative goals are assured, or when the company’s clients
determine performance against qualitative goals has been achieved. In all circumstances, revenue is only
recognized when collection is reasonably assured. The Company records revenue net of sales and other taxes
due to be collected and remitted to governmental authorities.

Cost of Services Sold. Costs of services sold do not include depreciation charges for ﬁxed assets.

Interest Expense.

Interest expense primarily consists of the cost of borrowing on the revolving

WF Credit Agreement and the 11% Notes. The Company uses the effective interest method to amortize the
original issue discount on the 11% Notes. At December 31, 2011, 2010 and 2009, $232, $848 and $204 was
amortized, respectively, net of amortized premium of $943, $197 and nil, respectively. The Company
amortizes deferred ﬁnancing costs using the effective interest method over the life of the 11% notes and
straightline over the life of the revolving WF Credit Agreement. The total net deferred ﬁnancing costs,
included in Other Assets on the balance sheet, as of December 31, 2011 and 2010 was $11,715, and $10,605,
net of accumulated amortization of $3,526 and $1,583, respectively. During 2011, the Company recorded
$3,053 of deferred ﬁnancing costs primarily relating to the 2011 expansion of the credit agreement and the
2011 additional debt issuance.

Stock-Based Compensation. Under the fair value method, compensation cost is measured at fair value at
the date of grant and is expensed over the service period, that is the award’s vesting period. When awards are
exercised, share capital is credited by the sum of the consideration paid together with the related portion
previously credited to additional paid-in capital when compensation costs were charged against income or
acquisition consideration.

The Company uses its historical volatility derived over the expected term of the award, to determine the
volatility factor used in determining the fair value of the award. The Company uses the ‘‘simpliﬁed’’ method
to determine the term of the award due to the fact that historical share option exercise experience does not
provide a reasonable basis upon which to estimate the expected term.

Stock-based awards that are settled in cash or may be settled in cash at the option of employees are
recorded as liabilities. The measurement of the liability and compensation cost for these awards is based on
the fair value of the award, and is recorded into operating income over the service period, that is the vesting
period of the award. Changes in the Company’s payment obligation prior to the settlement date are recorded
as compensation cost in operating income in the period of the change. The ﬁnal payment amount for such
awards is established on the date of the exercise of the award by the employee.

56

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

2. Signiﬁcant Accounting Policies − (continued)

Stock-based awards that are settled in cash or equity at the option of the Company are recorded at fair

value on the date of grant and recorded as additional paid-in capital. The fair value measurement of the
compensation cost for these awards is based on using the Black-Scholes option pricing-model and is recorded
in operating income over the service period, that is the vesting period of the award.

The fair value of the stock options and similar awards at the grant date were estimated using the
Black-Scholes option-pricing model with the following weighted average assumptions for each of the
following years:

Expected dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected option life in years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average fair value of options granted . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended
December 31, 2009
$0
39.8% − 44.5%
1.76% − 2.49%

4
$1.18

For the years ended December 31, 2011 and 2010, the Company did not issue any stock options or

similar awards.

During the year ended December 31, 2011, the Company issued Equity Value Appreciation Awards to its

employees. These awards may result in the issuance of up to 1,413,000 restricted stock units and restricted
stock shares, but only upon the achievement of extraordinary stock performance targets. The Company
measured the fair value of these awards using a lattice based model (Monte Carlo) on the date of grant.
The Company used the following assumptions in calculating the fair value under the lattice model; risk free
rate 1.2%, volatility 31.7%, time to maturity 2.93 years, the weighted average fair value of the awards
granted was $9.37.

It is the Company’s policy for issuing shares upon the exercise of an equity incentive award to verify the
amount of shares to be issued, as well as the amount of proceeds to be collected (if any) and delivery of new
shares to the exercising party.

The Company has adopted the straight-line attribution method for determining the compensation cost to

be recorded during each accounting period. However, awards based on performance conditions are recorded as
compensation expense when the performance conditions are expected to be met. The fair value at the grant
date for performance based awards granted in 2011 and 2010 was $20,188 and $6,649, respectively. There
were no performance based awards granted during 2009.

The Company treats beneﬁts paid by shareholders to employees as a stock based compensation charge

with a corresponding credit to additional paid-in capital.

Pension Costs. Several of the Company’s US and Canadian subsidiaries offer employees access to
certain deﬁned contribution pension programs. Under the deﬁned contribution plans, these subsidiaries, in
some cases, make annual contributions to participants’ accounts which are subject to vesting. The Company’s
contribution expense pursuant to these plans was $2,356, $1,655 and $1,026 for the years ended December 31,
2011, 2010 and 2009, respectively.

Earnings per Common Share. Basic earnings per share is based upon the weighted average number of
common shares outstanding during each period, including the ‘‘Share capital to be issued’’ as reﬂected in the
Shareholders’ Equity on the balance sheet. Diluted earnings per share is based on the above, plus, if dilutive,
common share equivalents, which include outstanding options, warrants, stock appreciation rights, restricted
stock units and convertible notes.

57

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

2. Signiﬁcant Accounting Policies − (continued)

Subsidiary and Affıliate Stock Transactions.

In accordance with Accounting Standards Codiﬁcation

Topic on Business combinations, effective January 1, 2009, transactions involving purchases, sales or
issuances of stock of a subsidiary where control is maintained are recorded as an increase or decrease in
additional paid-in capital. In transactions involving subsidiary stock where control is lost, gains and losses are
recorded in results of operations. Gains and losses from transactions involving stock of an affiliate are
recorded in results of operations until control is achieved.

Foreign Currency Translation. The Company’s ﬁnancial statements were prepared in accordance with
the requirements of the Foreign Currency Translation topic of the FASB Accounting Standards Codiﬁcation.
The functional currency of the Company is the Canadian dollar and it has decided to use US dollars as its
reporting currency for consolidated reporting purposes. All of the Company’s subsidiaries use their local
currency as their functional currency. Accordingly, the currency impacts of the translation of the balance
sheets of the Company’s non-US dollar based subsidiaries to US dollar statements are included as cumulative
translation adjustments in accumulated other comprehensive income. Translation of intercompany debt, which
is not intended to be repaid, is included in cumulative translation adjustments. Cumulative translation
adjustments are not included in net earnings unless they are actually realized through a sale or upon complete
or substantially complete liquidation of the Company’s net investment in the foreign operation. Translation of
current intercompany balances are included in net earnings. The balance sheets of non-US dollar based
subsidiaries are translated at the period end rate. The income statements of non-US dollar based subsidiaries
are translated at average exchange rates for the period.

Gains and losses arising from the Company’s foreign currency transactions are reﬂected in net earnings.

Unrealized gains or losses arising on the translation of certain intercompany foreign currency transactions that
are of a long-term nature (that is settlement is not planned or anticipated in the future) are included as
cumulative translation adjustments in accumulated other comprehensive income.

Derivative Financial Instruments. The Company follows Accounting for Derivative Instruments and
Hedging Activities. Topic of the FASB Accounting Standards Codiﬁcation establishes accounting and reporting
standards requiring that every derivative instrument (including certain derivative instruments embedded in
other contracts and debt instruments) be recorded in the balance sheet as either an asset or liability measured
at its fair value. The accounting for the change in fair value of the derivative depends on whether the
instrument qualiﬁes for and has been designated as a hedging relationship and on the type of hedging
relationship. There are three types of hedging relationships: a cash ﬂow hedge, a fair value hedge and a hedge
of foreign currency exposure of a net investment in a foreign operation. The designation is based upon the
exposure being hedged. Derivatives that are not hedges, or become ineffective hedges, must be adjusted to fair
value through earnings.

58

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

3. Loss per Common Share

The following table sets forth the computation of basic and diluted loss per common share from

continuing operations for the years ended December 31:

Numerator
Numerator for diluted loss per common share −

loss from continuing operations . . . . . . . . . . . . . .

$

(75,559) $

(1,417)

$

(9,578)

Net income attributable to the noncontrolling

interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7,754)

(10,074)

(5,566)

2011

2010

2009

Loss attributable to MDC Partners Inc. common

shareholders from continuing operations . . . . . . . .
Effect of dilutive securities. . . . . . . . . . . . . . . . . . .
Numerator for diluted income per common share −

loss attributable to MDC Partners Inc.
common shareholders from continuing operations .

Denominator
Denominator for basic loss per common share −

(83,313)
—

(11,491)
—

(15,144)
—

$

(83,313) $

(11,491)

$

(15,144)

weighted average common shares . . . . . . . . . . . .

29,120,373

28,161,144

27,396,463

Effect of dilutive securities:
Employee stock options, warrants, and stock

appreciation rights. . . . . . . . . . . . . . . . . . . . . . .
Employee restricted stock units. . . . . . . . . . . . . . . .
Dilutive potential common shares . . . . . . . . . . . . .
Denominator for diluted loss per common share −

—
—
—

—
—
—

—
—
—

adjusted weighted shares and assumed conversions.

29,120,373

28,161,144

27,396,463

Basic loss per common share from continuing

operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted loss per common share from continuing

operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

(2.86) $

(0.41)

(2.86) $

(0.41)

$

$

(0.55)

(0.55)

At December 31, 2011, 2010 and 2009 convertible notes, warrants, options and other rights to purchase,

5,211,668, 4,665,293 and 5,240,879 shares of common stock, respectively, were not included in the
computation of diluted loss per common share because doing so would have had an antidilutive effect.

4. Acquisitions

Pro forma ﬁnancial information has not been presented for the 2011 acquisitions noted below since they

did not have a material effect on the Company’s operating results. Included in the Company’s consolidated
statement of operations for the year ended December 31, 2011 was revenue of $68,869 and a net loss of
$7,219 related to the 2011 acquisitions. The Company assumed accounts receivable of $35,200 and accounts
payable of $65,718 as of the acquisition dates.

Fourth Quarter 2011 Acquisitions

During the quarter ended December 31, 2011, the Company completed a number of transactions. The
Company, through a wholly-owned subsidiary, acquired substantially all of the assets of RJ Palmer LLC and a
75% interest in Trade X Partners LLC (‘‘Trade X’’). These acquisitions expand the Company’s portfolio with
another full service media buying agency as well as provides corporate bartering services to clients and are
included in the Performance Marketing Services segment. The Company also entered into a transaction
through its subsidiary Kwittken PR LLC (‘‘Kwittken’’) acquired 100% of Epoch PR Limited. Epoch is a

59

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

4. Acquisitions − (continued)

communications and PR agency and expands Kwittken’s capabilities to London and is included in the
Strategic Marketing Services segment. The Company also acquired a 51% interest in AIC Publishing Services
LP (‘‘AIC’’). In addition, the Company increased its ownership to 85.3% of Veritas, to 94.0% of 656712
Ontario Limited (‘‘Onbrand’’), to 66.3% of 6Degrees Integrated Communications and 85% of Boom
Marketing Inc. The aggregate purchase price for these transactions has an estimated present value at
acquisition date of $26,659 and consisted of total closing cash payments of $12,769, and additional contingent
deferred acquisition consideration, that are based on actual ﬁnancial results of the underlying businesses from
2011 to 2016 with ﬁnal payments due in 2017 with an estimated present value at acquisition date of $15,944.
An allocation of the excess purchase consideration of these acquisitions to the fair value of the net assets
acquired resulted in identiﬁable intangibles of $5,434 consisting primarily of customer lists and covenants not
to compete, and goodwill of $25,091 representing the value of assembled workforce. The identiﬁed intangible
assets will be amortized from a ﬁve to seven year period in a manner represented by the pattern in which the
economic beneﬁts of the customer contracts/relationships are realized. In addition, the Company has recorded
$1,237, the present value of redeemable noncontrolling interest in relation to Trade X. The founder of Trade X
has the put option rights only upon termination without cause, disability, or death. The Company recorded
$229, the present value of noncontrolling interest in relationship to AIC. The Company also recorded an entry
to reduce noncontrolling interests by $2,017 and additional paid-in-capital of $1,328. The intangibles and
goodwill of $28,252 are tax deductible.

The actual adjustments that the Company will ultimately make in ﬁnalizing the allocation of purchase

price to fair value of the net assets acquired, will depend on a number of factors, including additional
information such as changes in the unaudited ﬁnancial statements.

Third Quarter 2011 Acquisitions

During the quarter ended September 30, 2011, the Company completed a number of acquisitions. The

Company, through a wholly-owned subsidiary, purchased a 70% interest in Concentric Partners, LLC
(‘‘Concentric’’) and a 65% interest in Laird + Partners, New York LLC (‘‘Laird’’). The Concentric acquisition
is expected to serve as the foundation of the Company’s healthcare platform. The Laird acquisition increases
the Company’s positioning in the luxury goods and retail marketplace. Concentric and Laird are now included
in the Company’s Strategic Marketing Services segment. In addition, the Company increased its ownership to
100% of Redscout LLC (‘‘Redscout’’), 82% of VitroRobertson LLC (‘‘Vitro’’), and 91.8% of The Northstar
Group of companies. The aggregate purchase price for these transactions has an estimated present value at
acquisition date of $37,914 and consisted of total closing cash payments of $15,972, additional contingent
deferred acquisition consideration, that are based on actual ﬁnancial results of the underlying businesses from
2011 to 2016 with ﬁnal payments due in 2017 with an estimated present value at acquisition date of $21,796.
During the fourth quarter of 2011, the Company paid a $572 working capital payment. An allocation of the
excess purchase consideration of these acquisitions to the fair value of the net assets acquired resulted in
identiﬁable intangibles of $4,205 consisting primarily of customer lists and covenants not to compete, and
goodwill of $36,664 representing the value of assembled workforce. The identiﬁed intangible assets will be
amortized from a ﬁve to seven year period in a manner represented by the pattern in which the economic
beneﬁts of the customer contracts/relationships are realized. In addition, the Company has recorded $5,045,
the present value of redeemable noncontrolling interest in relation to Laird, and $6,478, the present value of
noncontrolling interest in relation to Concentric. The remaining principals of Laird have put option rights only
upon termination without cause, disability, or death. The Company also recorded an entry to reduce
noncontrolling interests by $1,297 and additional paid-in-capital of $4,251 and recorded shares to be issued of
$424 in relation to the step ups. The intangibles and goodwill are tax deductible.

The actual adjustments that the Company will ultimately make in ﬁnalizing the allocation of purchase

price to fair value of the net assets acquired, will depend on a number of factors, including additional
information such as changes in the unaudited ﬁnancial statements.

60

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

4. Acquisitions − (continued)

Second Quarter 2011 Acquisitions

During the Quarter ended June 30, 2011, the Company increased ownership in Communifx Partners LLC

(‘‘Communifx’’) by 1.3%, and increased its ownership of Varick Media Management LLC (‘‘Varick’’) to
100%. The aggregate purchase price for these two step up transactions has an estimated present value at
acquisition date of $3,930 and is recorded as deferred acquisition consideration, of which the Company paid
$81. Both of these step-up transactions were subject to put options. The Company recorded an entry to reduce
redeemable noncontrolling interests by $4,440 and recorded an increase to additional-paid-in-capital of $509.
The amounts to be paid will be tax deductible.

First Quarter 2011 Acquisitions

Effective January 31, 2011, the Company, through a wholly-owned subsidiary, purchased 60% of the total

outstanding membership interests in Anomaly Partners, LLC (‘‘Anomaly’’). This acquisition expands the
Company’s portfolio with another creatively driven agency brand with an international presence. Anomaly is
now included in the Company’s Strategic Marketing Services segment. At closing, the Company paid cash of
$15,000 plus additional contingent deferred acquisition consideration, based on actual results from 2010 to
2014 with ﬁnal payments due in 2015, with an original estimated present value of $20,951 at the date of
acquisition. During 2011, the Company made a working capital payment of $1,854. An initial estimated
allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired
resulted in identiﬁable intangibles of $4,000 (consisting primarily of customer lists and a covenant not to
compete) and goodwill of $22,297 representing the value of the assembled workforce. The fair value of the
noncontrolling interest not acquired at the acquisition date was $7,890 based on the Company’s evaluation of
the Company being acquired and the purchase price paid by the Company and has been recorded as
redeemable noncontrolling interests due to put option rights which are triggered upon such owner’s
termination without cause, disability or death. The identiﬁed intangibles will be amortized ranging from a
ﬁve to eight-year period in a manner represented by the pattern in which the economic beneﬁts of the
customer contracts/relationships are realized. The intangibles and goodwill are tax deductible.

The actual adjustments that the Company will ultimately make in ﬁnalizing the allocation of purchase

price to fair value of the net assets acquired, will depend on a number of factors, including additional
information such as changes in the unaudited ﬁnancial statements.

2010 Acquisitions

Fourth Quarter 2010 Acquisitions

Effective November 30, 2010, the Company, through a wholly-owned subsidiary, purchased 80% of the

total outstanding equity interests in each of Kenna Communications LP, an Ontario limited partnership
(‘‘Kenna’’), and Capital C Partners LP, an Ontario limited partnership (‘‘Capital C’’). Capital C is a
full-service marketing agency providing services such as business strategy and consumer insights, shopper
monitoring, and product innovation. Kenna delivers sales and marketing solutions to make organizations more
efficient, more productive and more effective. The aggregate purchase price was equal to $26,300 and
additional deferred acquisition consideration, with an original estimated present value at the acquisition date of
$12,360, that is based upon actual results from 2010 to 2015 with ﬁnal payments due in 2016 of which the
Company paid $343 in 2011. In addition, performance payments of up to $5,000 may be paid in the future
based on these results and will result in stock based compensation charges over that period. The Company
recorded $19,905 as the present value of redeemable noncontrolling interest in relation to the Kenna and
Capital C put option rights triggered upon such owner’s termination without cause, disability or death.
Beginning in 2016, the Company has a call for the remaining 20% of each of Kenna and Capital C. If the
Company does not exercise this call, the operating results of Kenna and Capital C will be allocated to the
Company on a basis less than the Company’s ownership basis as deﬁned. An initial estimated allocation of the
excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in

61

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

4. Acquisitions − (continued)

identiﬁable intangibles of $10,254 (consisting of primarily customer lists and a covenant not to compete) and
goodwill of $47,297 representing the value of assembled workforce. The identiﬁed intangible assets will be
amortized from a ﬁve to eight year period in a manner represented by the pattern in which the economic
beneﬁts of the customer contracts/relationships are realized. The intangibles and goodwill are not tax
deductible. Accordingly, the Company recorded a deferred tax liability of $3,188 representing the future
beneﬁts relating to the amortization of the identiﬁed intangibles.

During the quarter ended December 31, 2010, the Company also completed a number of other

acquisitions. The Company purchased a 51% interest in 72andSunny Partners LLC (‘‘72andSunny’’).
72andSunny is full service agency that conceives and executes fully integrated campaigns across all media for
top global brands. The Company also increased its ownership of Allard Johnson Communications Inc. (now
known as Kbs+p Canada, LP) (‘‘Kbs+p Canada’’) to 100%, and Company C Communications LLC
(‘‘Company C’’) to 100%. The aggregate purchase price paid for these other acquisitions was equal to
$35,859, and consisted of total closing cash payments of $12,937, net of $790 repayment of loans; a
$271 working capital adjustment; and additional contingent deferred acquisition consideration, that are based
on actual ﬁnancial results of the underlying business from 2010 to 2015 with ﬁnal payments due in 2016 with
an original estimated present value at acquisition date of $21,861, of which the Company paid $2,500 in
December 2010 and $3,755 in 2011. An allocation of the excess purchase consideration of this acquisition to
the fair value of the net assets acquired resulted in identiﬁable intangibles of $5,690, consisting primarily of
customer lists and covenants not to compete, and goodwill of $35,322 representing the value of assembled
workforce. The identiﬁed intangibles will be amortized ranging from a ﬁve to seven-year period in a manner
represented by the pattern in which the economic beneﬁts of the customer contracts/relationships are realized.
In addition, the Company has recorded $13,722, the present value of redeemable noncontrolling interest in
relation to 72andSunny. 72andSunny has put option rights only upon such owner’s termination without cause,
disability or death. The Company also recorded an entry to reduce redeemable noncontrolling interests by
$3,802 and additional paid-in-capital of $3,123 in relation to the Kbs+p Canada and Company C step up. The
amounts paid and to be paid will be tax deductible in relation to the 72andSunny acquisition. However, it will
not be tax deductible in relation to the Kbs+p Canada transaction.

Third Quarter 2010 Acquisitions

During the quarter ended September 30, 2010, the Company completed a number of acquisitions. The

Company purchased a 60% equity interest in Relevent Partners, LLC (‘‘Relevent’’), a 60% equity interest in
Kwittken PR, LLC (‘‘Kwittken’’), and certain assets and liabilities of Think 360 Inc. (‘‘Think 360’’). Relevent
is a full service marketing, special events, production and promotions company that builds brands with
consumers through experiential lifestyle, entertainment and relationship marketing programs. Kwittken is a full
service public relations and marketing agency. Think 360 is an integrated marketing agency. The aggregate
purchase price paid for these acquisitions consisted of total closing cash payments of $15,085, plus additional
contingent deferred acquisition consideration, that are based on the actual ﬁnancial results of the underlying
businesses from 2010 to 2014, with ﬁnal payments due in 2015 with an original estimated present value at
acquisition date of $14,898 of which the Company paid $4,417 in 2011. An allocation of the excess purchase
consideration of these acquisitions to the fair value of the net assets acquired resulted in identiﬁable
intangibles of $4,974, consisting primarily of customer lists and covenants not to compete, and goodwill of
$29,083 representing the value of the assembled workforce. The identiﬁed intangibles will be amortized
ranging from a two to seven-year period in a manner represented by the pattern in which the economic
beneﬁts of the customer contracts/relationships are realized. The present value of the redeemable
noncontrolling interest not acquired at the acquisition date was $5,513. Relevent and Kwittken have put option
rights upon an employee-owner’s termination without cause, disability or death. The amounts paid and to be
paid will be tax deductible.

The Company has also increased ownership to 100% of Zig Inc. (now known as Crispin Porter +
Bogusky Canada LP (‘‘CPB Canada’’)) and purchased an additional 25% of Bruce Mau Design LLC.,

62

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

4. Acquisitions − (continued)

increasing the Company’s ownership to 75% The aggregate purchase price paid for these step-ups consisted of
total closing cash payments of $3,115, plus the estimated present value at acquisition date of additional
deferred acquisition consideration of $626. During the fourth quarter of 2010, and ﬁrst nine months of 2011,
the Company made payments of $47 and $684, respectively. In relation to these step-ups, the Company
recorded an entry to reduce redeemable noncontrolling interests by $1,365 and an entry to reduce
noncontrolling interests by $144. The Company recorded a reduction of additional paid-in capital of $2,296
representing the difference between the fair value of the interest and the value of the redeemable
noncontrolling interests. The amounts paid and to be paid will not be tax deductible.

Second Quarter 2010 Acquisitions

Effective May 6, 2010, the Company, through a wholly-owned subsidiary, purchased 75% of the total

outstanding membership interests in Integrated Media Solutions Partners, LLC (‘‘IMS’’), which expands the
Company’s direct response marketing capabilities. At closing, the Company paid cash of $20,000 plus
additional contingent deferred acquisition consideration, based on actual results from 2010 to 2015 with ﬁnal
payments due in 2016, with an original estimated present value of $19,658 at the date of acquisition which
includes ﬁxed payments of $2,216. During 2010 and 2011, the Company made payments of $666 and $5,521,
respectively. An initial estimated allocation of the excess purchase consideration of this acquisition to the fair
value of the net assets acquired resulted in identiﬁable intangibles of $9,081 (consisting of primarily customer
lists and a covenant not to compete) and goodwill of $44,678 representing the value of the assembled
workforce. The fair value of the noncontrolling interest not acquired at the acquisition date was $13,219 based
in the Company’s evaluation of the Company being acquired and the purchase price paid by the Company.
The identiﬁed intangibles will be amortized ranging from a ﬁve to seven-year period in a manner represented
by the pattern in which the economic beneﬁts of the customer contracts/relationships are realized. The
intangibles and goodwill are tax deductible.

During the quarter ended June 30, 2010, the Company completed a number of acquisitions. The
Company purchased a 51% equity interest in Allison & Partners LLC (‘‘Allison’’), a 75% equity interest
in Sloane & Company LLC (‘‘Sloane’’), and certain assets and liabilities of CSC — ADPLUS, LLC
(d.b.a. Infolure) (‘‘Infolure’’). Allison is a full service public relations and corporate communications agency.
Sloane is a communication ﬁrm focused on corporate positioning and communications, ﬁnancial public
relations and investor relations, and crisis and transactions communications. Infolure is a direct marketing
ﬁrm. The purchase price paid for these acquisitions consisted of aggregate cash payments of $17,632 plus
additional contingent deferred acquisition consideration, that are based on actual results from 2010 to 2015
with ﬁnal payments due in 2016 with an original estimated present value at acquisition date of $15,797 which
includes ﬁxed payments of $3,805. During 2010 and 2011, the Company made payments of $2,020 and
$5,192, respectively. An allocation of the excess purchase consideration of these acquisitions to the fair value
of the net assets acquired resulted in identiﬁable intangibles of $9,431 consisting primarily of customer lists
and covenants not to compete, and goodwill of $27,697 representing the value of the assembled workforce.
The identiﬁed intangibles will be amortized ranging from a ﬁve to seven-year period in a manner represented
by the pattern in which the economic beneﬁts of the customer contracts/relationships are realized. In addition,
the Company has recorded $6,024, the present value of redeemable noncontrolling interests in relation to
Allison and Sloane. The Allison acquisition has put option rights upon termination of an employee-owner’s
employment by reason of death. The Sloane acquisition has put rights that could increase the Company’s
ownership to 100% in 2015. The amounts paid and to be paid will be tax deductible.

First Quarter 2010 Acquisitions

Effective March 1, 2010, the Company, through a wholly-owned subsidiary, purchased 60% of the total
outstanding membership interests in The Arsenal LLC (formerly known as Team Holdings LLC) (‘‘Team’’),
which expands the Company’s experiential marketing capabilities. At closing, the Company paid cash of
$11,000 plus additional contingent deferred acquisition consideration, based on actual results from 2010 to

63

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

4. Acquisitions − (continued)

2012 with ﬁnal payments in 2013, with an original estimated present value of $12,656, and the Company paid
a working capital true-up estimated at an additional $569. An initial estimated allocation of the excess
purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identiﬁable
intangibles of $5,220 (consisting of primarily customer lists and a covenant not to compete) and goodwill of
$32,993 representing the value of the assembled workforce. The fair value of the noncontrolling interest not
acquired at the acquisition date was $15,771 based in the Company’s evaluation of the Company being
acquired and the purchase price paid by the Company. The identiﬁed intangibles will be amortized up to a
seven-year period in a manner represented by the pattern in which the economic beneﬁts of the customer
contracts/relationships are realized. During the second quarter of 2010, the Company amended the purchase
agreement to include additional deferred acquisition consideration, with a current present value of $3,071,
with ﬁnal payments due in 2012. The additional deferred acquisition consideration resulted in additional
intangibles of $3,071. During 2010 and 2011, the Company made payments of $986 and $8,112, respectively.
The intangibles and goodwill are tax deductible.

During the three months ended March 31, 2010, the Company completed a number of other acquisitions

and step-ups in ownership. The Company purchased a 76% equity interest in Communifx Partners LLC
(‘‘Communifx’’), substantially all of the assets of Plaid Inc. (‘‘Plaid’’), an additional 15% equity interest in
Fletcher Martin, LLC (‘‘Fletcher Martin’’), an additional 49% equity interest in Trend Core, LLC (‘‘Trend
Core’’), and an additional 1% equity interest in HL Group Partners, LLC (‘‘HL Group’’). Communifx builds
and manages large-scale customer database solutions to enable the planning, execution, and measurement of
multi-channel marketing and advertising programs. Plaid is a marketing services business with a concentration
in the digital communication and social media arena. The Company purchased the additional equity interests
in Fletcher Martin and HL Group pursuant to the exercise of outstanding puts. The purchase price paid for
these acquisitions and step-ups consisted of aggregate cash payments of $4,921 plus additional contingent
payments of $576 that are based on actual results from 2010 to 2015 with ﬁnal payments due in 2016. During
2011, the Company made payments of $267. An allocation of the excess purchase consideration of these
acquisitions to the fair value of the net assets acquired resulted in identiﬁable intangibles of $1,851 consisting
primarily of customer lists and a covenant not to compete, and goodwill of $2,426 representing the value of
the assembled workforce. The identiﬁed intangibles will be amortized up to a seven-year period in a manner
represented by the pattern in which the economic beneﬁts of the customer contracts/relationships are realized.
In addition, the Company has recorded $710, the present value of redeemable noncontrolling interests in
relation to Communifx. The Communifx acquisition has put/call rights that could increase the Company’s
ownership to 100% in 2013. In relation to the step up acquisitions, the Company recorded an entry to reduce
Redeemable Noncontrolling Interests by $1,116. The amount paid to the employee over fair value, $608, was
recorded as a stock-based compensation charge. The Company recorded a reduction of additional paid-in
capital of $1,623 representing the difference between the fair value of the shares and the value of the
Redeemable Noncontrolling Interests. The amounts paid and to be paid will be tax deductible.

64

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

4. Acquisitions − (continued)

2009 Acquisitions

In December 2009, the Company paid an additional $38,974 pursuant to the CPB purchase agreement

originally entered into in November 2008 with the founders of Crispin Porter & Bogusky LLC (‘‘CPB’’).
In connection with this transaction, the Company recorded $14,067 as deferred acquisition consideration,
$1,450 was paid in January 2010, $433 was reversed as an adjustment and the balance was paid in
April 2010. This purchase price payment was pursuant to an accelerated exercise of a call option that was
exercised by the Company in November 2008 (the Company increased its ownership from 77% to 94%).
Because CPB was originally consolidated as a VIE, the Company reduced Redeemable Noncontrolling
Interests by $17,809. The Company recorded additional goodwill of $31,253 and identiﬁable intangible
backlog of $3,979. The amount recorded related to the 17% step up from November 2008. The backlog was
amortized over one month. In addition, the Company recorded a stock-based charge of $3,074 for amounts
paid by the former shareholder to CPB employees. The Goodwill will be tax deductible.

On December 31, 2009, the Company acquired an additional 3% interest in VitroRobertson increasing its
holdings from 79% to 82%. The purchase price totaled $845 and was paid in cash. The Company recorded an
entry to reduce Redeemable Noncontrolling Interests by $266. The amount paid over fair value, $370, was
recorded as a stock-based compensation charge. The Company recorded a reduction of additional paid-in
capital of $209 representing the difference between the fair value of the shares and the value of the
Redeemable Noncontrolling Interests. As this purchase was pursuant to the exercise of an existing put/call
option, no additional intangibles have been recorded. The Goodwill will be tax deductible.

On December 1, 2009, the Company agreed to make an early payment to KBP Management Partners

LLC originally due in March 2010 pursuant to the purchase agreement entered into in November 2007. The
additional payment totaled $14,870, of which $10,140 was paid in cash in December 2009 and $4,215 was
paid in March 2010 with the balance potentially due in March 2011, recorded as deferred acquisition
consideration. This additional payment was accounted for as additional goodwill. In addition, pursuant to an
existing phantom stock arrangement, a stock-based compensation charge of $3,028 has been recorded for
amounts paid by KBP Management Partners to phantom equity holders. The Goodwill will be tax deductible.

On October 5, 2009, the Company purchased the remaining 6% outstanding interest in CPB for an
estimated ﬁxed and contingent purchase price. The estimated purchase price of $9,818 is included in deferred
acquisition consideration and includes $518 of ﬁxed payments to be paid in 2013. The Company recorded a
reduction of $8,596 to Redeemable Noncontrolling Interests and $704 to additional paid in capital. The ﬁxed
payments of $518 are allocated to identiﬁable intangibles and will be amortized over 3 years.

On August 31, 2009, the Company, through HL Group Partners LLC (‘‘HL Group’’), acquired a 51%
interest in Attention Partners LLC (‘‘Attention’’), a social media agency that further expands HL Group’s
business capabilities. At closing, the HL Group paid $1,000 and made a capital contribution of $400 to
Attention. In addition, HL Group recorded estimated contingent payments totaling $1,313 due in 2010 and
2011 as deferred acquisition consideration. During 2010, the Company paid $1,022 and recorded adjustments
of $113 to increase the deferred acquisition consideration to $404 with the balance potentially due in
March 2011. This was paid in 2011. The allocation of the excess purchase consideration of this acquisition to
the fair value of the net assets acquired resulted in identiﬁable intangibles of $544 (consisting of primarily of
customer lists and a covenant not to compete) and goodwill of $3,057 representing the value of the assembled
workforce. The fair value of the noncontrolling interests not acquired at the acquisition date was $2,431 based
on the Company’s evaluation of the Company being acquired, the purchase price paid by the Company. The
identiﬁed intangibles will be amortized up to a three-year period in a manner represented by the pattern in
which the economic beneﬁts of the customer contracts/relationships are realized. The intangibles and goodwill
are tax deductible.

65

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

4. Acquisitions − (continued)

On July 1, 2009, the Company, through Crispin Porter & Bogusky LLC (‘‘CPB’’), acquired 100% of the

preferred shares and 52% of the common shares of Crispin Porter & Bogusky Europe AB (formerly known
as ‘‘daddy’’), a digital agency based in Sweden that has created a foothold in Europe for CPB. At closing,
CPB paid $3,052 plus an additional $50 deferred payment. Also in December 2009, CPB called an additional
24% and made a payment of 80% of the purchase price of $188. An additional amount of $50 is recorded as
deferred acquisition consideration. The Company has additional calls and the noncontrolling owners have
reciprocal puts on the remaining 24% of the common shares, which are exercisable beginning January 2012.
The current estimated cost of these puts and calls is approximately $6,600 and has been recorded as
Redeemable Noncontrolling Interests. The allocation of the excess purchase consideration of this acquisition to
the fair value of the net assets acquired resulted in identiﬁable intangibles of $650 (consisting primarily of
customer lists and a covenant not to compete) and goodwill of $8,533 representing the value of the assembled
workforce. The identiﬁed intangibles will be amortized up to a three-year period in a manner represented by
the pattern in which the economic beneﬁts of the customer contracts/relationships are realized. The intangibles
and goodwill are not tax deductible. Accordingly, CPB recorded a deferred tax liability of $221 representing
the future tax beneﬁts relating to the amortization of the identiﬁed intangibles.

Effective January 22, 2009, the Company acquired an additional 8.9% of equity interests in HL Group,

thereby increasing MDC’s ownership to 64.9%. The purchase price totaled $1,100 and was paid in cash at
closing. The Company recorded an entry to reduce Redeemable Noncontrolling Interests, as this purchase was
pursuant to the early exercise of an existing put/call option. Accordingly, no additional intangibles have been
recorded. However, the amount of the purchase price will be tax deductible.

Noncontrolling Interests

Changes in the Company’s ownership interests in our less than 100% owned subsidiaries during the three

years ended December 31, 2011 were as follows:

Net Loss Attributable to MDC Partners Inc. and
Transfers (to) from the Noncontrolling Interest

2011
$(84,674)

Year Ended December 31,
2010
$(15,440)

2009
$(18,324)

(6,328)

(7,761)

(1,147)
$ (7,475)

158
$ (7,603)

$

(923)

—
(923)

$(92,149)

$(23,043)

$(19,247)

Net Loss attributable to MDC Partners Inc. . . . . . . . . .
Transfers (to) from the noncontrolling interest

Decrease in MDC Partners Inc. paid-in capital for

purchase of equity interests in excess of
Redeemable Noncontrolling Interests . . . . . . . . . .

Increase (Decrease) in MDC Partners Inc. paid in

capital from issuance of equity interests . . . . . . . .
Net transfers to noncontrolling interest . . . . . . . . . .
Change from net loss attributable to MDC Partners Inc.
and transfers to noncontrolling interest . . . . . . . . . .

66

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

5. Fixed Assets

The following is a summary of the ﬁxed assets as of December 31:

2011
Accumulated
Depreciation

Cost

Net Book
Value

Cost

2010
Accumulated
Depreciation

Net Book
Value

Computers, furniture

and ﬁxtures . . . . .

$100,373

$ (73,521)

$26,852

$ 94,268

$(68,540)

$25,728

Leasehold

improvements . . . .

49,292
$149,665

(28,407)
$(101,928)

20,885
$47,737

41,217
$135,485

(25,892)
$(94,432)

15,325
$41,053

Included in ﬁxed assets are assets under capital lease obligations with a cost of $4,243, (2010 — $4,323)

and accumulated depreciation of $2,816 (2010 — $2,421). Depreciation expense for the years ended
December 31, 2011, 2010 and 2009 was $17,665, $16,447 and $16,087, respectively.

6. Accrued and Other Liabilities

At December 31, 2011 and 2010, accrued and other liabilities included amounts due to noncontrolling

interest holders, for their share of proﬁts, which will be distributed within the next twelve months of $4,049
and $8,577, respectively.

Changes in noncontrolling interest amounts included in accrued and other liabilities for the three years

ended December 31, 2011 were as follows:

Balance, December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions made . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions made . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions made . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Noncontrolling
Interests
$ 4,856
5,566
(7,784)
1,420
$ 4,058
10,074
(7,685)
2,130
$ 8,577
7,754
(12,264)
(18)
$ 4,049

(1) Other consists primarily of an adjustment of stock based compensation charges to additional

paid-in capital relating to obligations assumed by the non-controlling shareholders and cumulative
translation adjustments.

(2) Other consists primarily of an adjustment to record distributions to be made as a result of an acquired

company and cumulative translation adjustments.

(3) Other consists primarily of cumulative translation adjustments.

67

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

7. Financial Instruments

Financial assets, which include cash and cash equivalents and accounts receivable, have carrying
values which approximate fair value due to the short-term nature of these assets. Financial liabilities with
carrying values approximating fair value due to short-term maturities include accounts payable. Deferred
acquisition consideration is recorded at fair value. Bank debt and long-term debt are variable. rate debt, the
carrying value of which approximates fair value. The Company’s note payable is a ﬁxed rate debt instrument,
the carrying values of which approximates fair value. The fair value of ﬁnancial commitments, guarantees
and letters of credit, are based on the stated value of the underlying instruments. Guarantees have been issued
in conjunction with the disposition of businesses in 2001 and 2003 and letters of credit have been issued in
the normal course of business. The fair value for the 11% notes was approximately $367,425 as of
December 31, 2011.

8. Goodwill and Intangible Assets

As of December 31, the gross and net amounts of acquired intangible assets were as follows:

Goodwill
Balance of December 31, 2009 . . . . . . . . . . . . . . . . .
Acquired goodwill . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation. . . . . . . . . . . . . . . . . .
Balance as of December 31, 2010 . . . . . . . . . . . . . . .
Acquired goodwill . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition purchase price adjustments . . . . . . . . . .
Foreign currency translation. . . . . . . . . . . . . . . . . .
Balance as of December 31, 2011 . . . . . . . . . . . . . . .

Strategic
Marketing
Services
$248,114
78,147
(942)
1,658
$326,977
61,944
1,458
(854)
$389,525

Performance
Marketing
Services
$ 53,518
132,497
—
1,496
$187,511
23,763
5,549
(1,104)
$215,719

Total
$301,632
210,644
(942)
3,154
$514,488
85,707
7,007
(1,958)
$605,244

For the Year Ended
December 31,

2011

2010

Intangibles:

Trademarks (indeﬁnite life) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships − gross . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships − net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangibles − gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangibles − net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total intangible assets − net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 17,780
$ 79,154
(44,803)
$ 34,351
$ 16,202
(10,353)
$ 5,849
$113,136
(55,156)
$ 57,980

$ 17,780
$ 68,603
(26,517)
$ 42,086
$ 16,926
(9,659)
$
7,267
$103,309
(36,176)
$ 67,133

See Note 4 for Accounting for Business Combinations.

During 2010, the Company recorded a goodwill impairment charge of $942, which consists of
$710 relating to Fearless and $232 relating to Zig US. Fearless was a start up company that the Company
discontinued in June 2010. Zig US’s business operations have been treated as discontinued as of
September 30, 2010.

68

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

8. Goodwill and Intangible Assets − (continued)

The total accumulated impairment charges totaled $24,845 through December 31, 2011.

The weighted average amortization periods for customer relationships are 5 years and other intangible

assets are 6 years. In total, the weighted average amortization period is 5 years. The amortization expense of
amortizable intangible assets for the year ended December 31, 2011, was $22,510 (2010 — $17,631;
2009 — $17,968) the estimated amortization expense for the ﬁve succeeding years is:

Year
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amortization
$18,694
$10,217
$ 6,888
$ 3,835
566
$

9. Income Taxes

The components of the Company’s income (loss) from continuing operations before income taxes, equity

in affiliates and noncontrolling interests by taxing jurisdiction for the years ended December 31, were:

Loss:
US . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-US . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2011

2010

2009

$(20,262)
(13,775)
$(34,037)

$(3,707)
1,259
$(2,448)

$ 3,915
(4,949)
$(1,034)

The provision (beneﬁt) for income taxes by taxing jurisdiction for the years ended December 31, were:

Current tax provision

US federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
US state and local . . . . . . . . . . . . . . . . . . . . . . . .
Non-US . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred tax provision (beneﬁt):

US federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
US state and local . . . . . . . . . . . . . . . . . . . . . . . .
Non-US . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income tax provision (beneﬁt) . . . . . . . . . . . . . . . . . .

2011

2010

2009

$

—
894
557
1,451

45,110
7,750
(12,576)
40,284
$ 41,735

$ —
368
4,840
5,208

428
501
(6,302)
(5,373)
$ (165)

$ —
1,246
318
1,564

8,681
2,347
(4,056)
6,972
$ 8,536

69

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

9. Income Taxes − (continued)

A reconciliation of income tax expense using the statutory Canadian federal and provincial income tax

rate compared with actual income tax expense for the years ended December 31, is as follows:

Loss from continuing operations before income taxes,

equity in affiliates and noncontrolling interest . . . . . .
Statutory income tax rate . . . . . . . . . . . . . . . . . . . . .
Tax beneﬁt using statutory income tax rate . . . . . . . . .
State and foreign taxes . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible stock-based compensation . . . . . . . . . .
Other non-deductible expense . . . . . . . . . . . . . . . . . .
Change to valuation allowance on items affecting

taxable income . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional tax reserve . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (beneﬁt) . . . . . . . . . . . . . . . . . . .
Effective income tax rate . . . . . . . . . . . . . . . . . . . . .

2011

2010

2009

$(34,037)
31.0%
(10,551)
1,450
7,144
1,482

44,230
—
(2,368)
348
$ 41,735

122.6%

$(2,448)
31.0%
(759)
1,909
4,941
890

(7,986)
4,100
(3,123)
(137)
$ (165)
6.7%

$(1,034)
33.0%
(341)
3,045
5,160
732

2,656
—
(1,767)
(949)
$ 8,536

825.5%

(1)

Included in the change in valuation allowance in 2010 is $3,188 relating to the reversal of the valuation
allowance as a result of a non-taxable acquisition.

See Note 10 for income taxes for discontinued operations.

The 2011 effective income tax rate was signiﬁcantly higher than the statutory rate due primarily to an

increase in the valuation allowance of $44,230 and non-deductible stock based compensation of $7,144.

The 2010 effective income tax rate was signiﬁcantly lower than the statutory rate due primarily to an
additional tax reserve of $4,100, non-deductible stock-based compensation of $4,941, state and foreign income
taxes of $1,909 offset by a decrease in the Company’s valuation allowance of $7,986.

The 2009 effective income tax rate was signiﬁcantly higher than the statutory rate due primarily from the
increase in the Company’s valuation allowance of $2,656, non-deductible stock-based compensation of $5,160
and State and foreign income taxes of $1,564.

Income taxes receivable were $313 and $712 at December 31, 2011 and 2010, respectively, and were

included in accounts receivable on the balance sheet. Income taxes payable were $5,381 and $4,969 at
December 31, 2011 and 2010, respectively, and were included in accrued and other liabilities on the balance
sheet. It is the Company’s policy to classify interest and penalties arising in connection with the under
payment of income taxes as a component of income tax expense. For the year ended 2010, $1,093 is included
in the current provision of income tax expense relating to interest and penalties as a result of an identiﬁed
uncertain tax position. For the years ended 2011and 2009, income tax expense does not include any amounts
for interest and penalties.

70

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

9. Income Taxes − (continued)

The tax effects of signiﬁcant temporary differences representing deferred tax assets and liabilities at

December 31, were as follows:

Deferred tax assets:
Capital assets and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carry forwards. . . . . . . . . . . . . . . . . . . . . . . . . .
Interest deductions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred acquisition consideration . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized foreign exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital loss carry forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounting reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred tax liabilities:
Deferred ﬁnance charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset (liability) . . . . . . . . . . . . . . . . . . . . . . . . . . .

Disclosed as:
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2011

2010

$ 33,567
50,274
21,792
5,070
2,356
753
16,921
7,026
137,759
(118,655)
19,104

(514)
(417)
(53,181)
(54,112)
$ (35,008)

$ 7,292
41,313
18,201
—
896
268
17,289
6,118
91,377
(66,459)
24,918

(526)
(300)
(18,816)
(19,642)
$ 5,276

$ 15,767
(50,775)
$ (35,008)

24,966
(19,690)
$ 5,276

Included in accrued and other liabilities at December 31, 2011 and 2010 is a deferred tax liability of

$51 and $48, respectively. Included in other current assets at December 31, 2011 and 2010 is a deferred tax
asset of $387 and $3,363, respectively.

The Company has US federal net operating loss carry forwards of $70,955 and non-US net operating

loss carry forwards of $49,732, these carry forwards expire in years 2015 through 2031. The Company
also has total indeﬁnite loss carry forwards of $165,875. These indeﬁnite loss carry forwards consist of
$58,704 relating to the US and $109,171 which are related to capital losses from the Canadian operations. In
addition, the Company has net operating loss carry forwards for various state taxing jurisdictions of
approximately $201,366.

The Company records a valuation allowance against deferred income tax assets when management
believes it is more likely than not that some portion or all of the deferred income tax assets will not be
realized. Management considers factors such as the reversal of deferred income tax liabilities, projected future
taxable income, the character of the income tax asset; tax planning strategies, changes in tax laws and other
factors. A change to these factors could impact the estimated valuation allowance and income tax expense.

71

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

9. Income Taxes − (continued)

The valuation allowance has been recorded to reduce our deferred tax asset to an amount that is more

likely than not to be realized, and is based upon the uncertainty of the realization of certain US, non-US and
state deferred tax assets. The increase in the Company’s valuation allowance charged to the statement of
operations for each of the years ended December 31, 2011 and 2009 was $44,230 and $2,656, respectively. In
2010 the Company reduced its valuation and recorded a beneﬁt in the statement of operations of $7,986.

Deferred taxes are not provided for temporary differences representing earnings of subsidiaries that are

intended to be permanently reinvested. The potential deferred tax liability associated with these undistributed
earnings is not material.

As of December 31, 2011 and 2010, the Company recorded a liability for unrecognized tax beneﬁts as

well as applicable penalties and interest in the amount of $4,717, respectively. The Company identiﬁed an
uncertainty relating to the future tax deductibility of certain intercompany interest and fees, to the extent that
such future beneﬁt will be established, the resolution of this position will have no effect with respect to the
ﬁnancial statements.

Changes in the Company’s reserve is as follows:
Balance December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges to income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges to income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges to income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 617
—
617
3,007
3,624
—
$3,624

We do not expect our unrecognized tax beneﬁts to change signiﬁcantly over the next 12 months.

The Company has completed US federal tax audits through 2006 and has completed a non-US tax audit

through 2004.

10. Discontinued Operations

In December 2011, the Company discontinued a division of Accent Marketing Services, LLC, called
Performance Marketing Group. As a result, the Company has classiﬁed this entity’s results of operations as a
loss of $1,339 as discontinued operations. The Company also recorded net adjustments of $22 to increase a
previously recorded liability relating to a prior discontinued operation.

The loss net of taxes from discontinued operations for 2010 was $3,949, which is comprised of the

operating results of Performance Marketing Group of $1,455. The loss also includes the results from
operations of a start-up division of Redscout, LLC called 007. As a result, the Company has classiﬁed this
entity’s results of operations as a loss of $722 as discontinued operations. In addition, the Company ceased
Zig US current operations and as a result incurred a goodwill impairment charge of $232. Including the
impairment charge Zig US’s results of operations, net of income tax beneﬁts, for the year ended 2010,
there was a loss of $1,046. The Company discontinued a start up called Fearless Progression LLC
(‘‘Fearless’’). As a result, the Company wrote off its investment in Fearless of $710. Including the impairment
charge, Fearless’s results of operations net of income tax beneﬁts for the year ended 2010, was a loss of
$743. The Company has classiﬁed this entity’s results as discontinued operations. In December 2010, the
Company recorded net adjustments of $21 to reduce a previously recorded liability relating to prior
discontinued operations.

72

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

10. Discontinued Operations − (continued)

The loss net of taxes from discontinued operations for 2009 was $3,180 and is comprised of the
operating results of Performance Marketing Group of $1,661, Clifford/Bratskeir Public Relations LLC
(‘‘Bratskeir’’) of $361 and Margeotes Fertitta Powell, LLC (‘‘MFP’’) of $515 and Zig US of $643, relates to
an adjustment to a previously recorded liability.

Included in discontinued operations in the Company’s consolidated statements of operations for the years

ended December 31 were the following:

Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Years Ended December 31,
2010
$ 9,166

2009
$ 9,914

2011
$10,122

Impairment charge . . . . . . . . . . . . . . . . . . . . . . . . . .

—

Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax recovery . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest expense recovery . . . . . . . . .
Net loss from discontinued operations . . . . . . . . . . .

(1,336)
(25)
—
—
$ (1,361)

(942)

(4,271)
(123)
343
102
$(3,949)

—

(3,563)
(108)
270
221
$(3,180)

At December 31, 2011, $4,060 and $1,332 was included in other current assets and other current

liabilities, respectively, which represent assets held for sale and related liabilities.

11. Bank Debt, Long-Term Debt and Convertible Notes

At December 31, the Company’s indebtedness was comprised as follows:

Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11% notes due 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Original issue discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note payable and other bank loans. . . . . . . . . . . . . . . . . . . . . . . . .

Obligations under capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less:
Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2011
$ 38,032
345,000
(561)
1,266
383,737
1,437
385,174

2010

$

—
290,000
(6,843)
1,400
284,557
1,659
286,216

1,238
$383,936

1,667
$284,549

Interest expense related to long-term debt for the years ended December 31, 2011, 2010 and 2009 was

$39,044, $30,429 and $18,057, respectively. For the years ended December 31, 2011, 2010 and 2009, interest
expense included $232, $848 and $204 amortization of the original issue discount, respectively, net of
amortized premium of $943, $197 and nil, respectively, and $702, $922, and nil, of present value adjustments
for ﬁxed deferred acquisition payments, respectively.

The amortization and write off of deferred ﬁnance costs included in interest expense were $1,944,

$1,288 and $3,837 for the years ended December 31, 2011, 2010, and 2009, respectively.

73

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

11. Bank Debt, Long-Term Debt and Convertible Notes − (continued)

Issuance of 11% Notes

On October 23, 2009, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold

$225,000 aggregate principal amount of 11% Notes due 2016 (the ‘‘11% Notes’’). The 11% Notes bear
interest at a rate of 11% per annum, accruing from October 23, 2009. Interest is payable semiannually in
arrears in cash on May 1 and November 1 of each year, beginning on May 1, 2010. The 11% Notes will
mature on November 1, 2016, unless earlier redeemed or repurchased. The Company received net proceeds
before expenses of $208,881, which included an original issue discount of approximately 4.7% or $10,494,
and underwriter fees of $5,624. The 11% Notes were sold in a private placement in reliance on exemptions
from registration under the Securities Act of 1933, as amended. The Company used the net proceeds of this
offering to repay the outstanding balance and terminate its prior Fortress Financing Agreement, and redeemed
its outstanding 8% C$45,000 convertible debentures on November 26, 2009.

The Company may, at its option, redeem the 11% Notes in whole at any time or in part from time to

time, on and after November 1, 2013 at a redemption price of 105.500% of the principal amount thereof. If
redeemed during the twelve-month period beginning on November 1, 2014, at a redemption price of
102.750% of the principal amount thereof if redeemed during the twelve-month period beginning on or after
November 1, 2015 and equal to redemption price of 100% of the principal amount thereof. (Prior to
November 1, 2013, the Company may, at its option, redeem some or all of the 11% Notes at a price equal to
100% of the principal amount of the Notes plus a ‘‘make whole’’ premium and accrued and unpaid interest.)
The Company may also redeem, at its option, prior to November 1, 2012, up to 35% of the 11% Notes with
the proceeds from one or more equity offerings at a redemption price of 11% of the principal amount thereof.
If the Company experiences certain kinds of changes of control (as deﬁned in the Indenture), holders of the
11% Notes may require the Company to repurchase any 11% Notes held by them at a price equal to 101% of
the principal amount of the 11% Notes plus accrued and unpaid interest.

In connection with these transactions, the Company wrote-off $323 of deferred ﬁnancing costs relating to

its prior convertible debentures.

On May 14, 2010, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold

$65,000 aggregate principal amount of 11% Notes due 2016. The additional notes were issued under the
Indenture governing the 11% notes and treated as a single series with the original 11% notes. The additional
notes were sold in a private placement in reliance on exemptions from registration under the Securities Act of
1933, as amended. The Company received net proceeds before expenses of $67,208, which included an
original issue premium of $2,600, and underwriter fees of $392. The Company used the net proceeds of the
offering to repay the outstanding balance under the Company’s revolving WF Credit Agreement described
elsewhere herein, and for general corporate purposes, including acquisitions.

On April 19, 2011, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold an

additional $55,000 aggregate principal amount of 11% Notes due 2016. The additional notes were issued
under the Indenture governing the 11% Notes and treated as a single series with the original 11% Notes. The
additional notes were sold in a private placement in reliance on exceptions from registration under the
Securities Act of 1933, as amended. The Company received net proceeds before expenses of $59,580, which
included an original issue premium of $6,050, and underwriter fees of $1,470. The Company used the net
proceeds of the offering to repay the outstanding balance under the Company’s WF Credit Agreement
described elsewhere herein, and for general corporate purposes.

At December 31, 2011 and 2010, the Company had issued $5,830 and $6,018 of undrawn outstanding

Letters of Credit, respectively.

At December 31, 2011 and 2010, accounts payable included $3,350 and $9,026 of outstanding

checks, respectively.

74

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

11. Bank Debt, Long-Term Debt and Convertible Notes − (continued)

Credit Agreement

On October 23, 2009, the Company and its subsidiaries entered into a $75,000 ﬁve year senior secured

revolving WF Credit Agreement (the ‘‘WF Credit Agreement’’) with Wells Fargo Foothill, LLC, as agent, and
the lenders from time to time party thereto. On November 22, 2010, this agreement was amended to increase
the availability under the facility to $100,000. On April 2011, the Company entered into an additional
amendment to increase the availability under the facility to $150,000 and extend the maturity date to
October 23, 2015. The WF Credit Agreement replaced the Company’s existing $185,000 senior secured
ﬁnancing agreement with Fortress Credit Corp., as collateral agent, Wells Fargo Foothill, Inc., as
administrative agent. Advances under the WF Credit Agreement will bear interest as follows: (a)(i) LIBOR
Rate Loans bear interest at the LIBOR Rate and (ii) Base Rate Loans bear interest at the Base Rate, plus
(b) an applicable margin. The initial applicable margin for borrowing is 2.25% in the case of Base Rate Loans
and 2.50% in the case of LIBOR Rate Loans. The applicable margin may be reduced subject to the Company
achieving certain trailing twelve month earning levels, as deﬁned. In addition to paying interest on outstanding
principal under the WF Credit Agreement, the Company is required to pay an unused revolver fee to lenders
under the WF Credit Agreement in respect of unused commitments thereunder.

The WF Credit Agreement is guaranteed by all of the Company’s present and future subsidiaries, other
than immaterial subsidiaries (as deﬁned) and is secured by substantially all the assets of the Company. The
WF Credit Agreement includes covenants that, among other things, restrict the Company’s ability and the
ability of its subsidiaries to incur or guarantee additional indebtedness; pay dividends on or redeem or
repurchase the capital stock of MDC; make certain types of investments; pay dividends; incur certain liens,
sell or otherwise dispose of certain assets; enter into transactions with affiliates; enter into sale and leaseback
transactions; and consolidate or merge with or into, or sell substantially all of the Company’s assets to,
another person. These covenants are subject to a number of important limitations and exceptions. The
WF Credit Agreement also contains ﬁnancial covenants, including a senior leverage ratio, a total leverage
ratio, a ﬁxed charge coverage ratio and a minimum earnings level, as deﬁned.

In connection with these transactions, the Company incurred a termination fee of $1,850 and wrote-off

$2,240 of deferred ﬁnancing costs relating to its prior Fortress Financing Agreement.

The Company is currently in compliance with all of the terms and conditions of its WF Credit

Agreement, and management believes, based on its current ﬁnancial projections and strategic initiatives, that
the Company will be in compliance with covenants over the next twelve months.

Future Principal Repayments

Future principal repayments, including capital lease obligations, for the years ended December 31, and in

aggregate are as follows:

Period
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 and beyond. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount
1,238
$
1,128
192
107
345,038
—
$347,703

75

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

11. Bank Debt, Long-Term Debt and Convertible Notes − (continued)

Capital Leases

Future minimum capital lease payments for the years ended December 31 and in aggregate are

as follows:

Period
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: imputed interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount
$ 698
493
209
112
39
—
1,551
(114)
1,437
(638)
$ 799

12. Share Capital

The authorized share capital of the Company is as follows:

(a) Authorized Share Capital

Class A Shares

An unlimited number, subordinate voting shares, carrying one vote each, entitled to dividends equal to or

greater than Class B shares, convertible at the option of the holder into one Class B share for each Class A
share after the occurrence of certain events related to an offer to purchase all Class B shares.

Class B Shares

An unlimited number, carrying 20 votes each, convertible at any time at the option of the holder into one

Class A share for each Class B share.

Preferred A Shares

An unlimited number, non-voting, issuable in series.

The Company has not paid dividends on any class of shares during the year ended December 31, 2009.

(b) 2011 Share Capital Transactions

During the year ended December 31, 2011, Class A share capital increased by $1,456. The Company
issued 504,919 shares related to vested restricted stock, 113,085 shares related to the exercise of outstanding
stock options and 130,932 shares related to the exercise of outstanding stock appreciation rights, increasing
share capital by $5,577.

During 2011, the Company’s employees surrendered 230,262 Class A shares valued at $4,121 in
connection with the required tax withholding from the vesting of various equity awards. The Company paid
these withholding taxes on behalf of the related employees. These shares were subsequently retired and no
longer remain outstanding as of December 31, 2011.

76

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

12. Share Capital − (continued)

Additional paid-in capital decreased by $28,293 and was reclassiﬁed to changes in excess of capital. The

decrease related to $4,468 for vesting of restricted stock and stock appreciation rights, $7,475 relating to
transactions with noncontrolling interests, $21,511 of dividends paid and to be paid, $24,532 for changes in
the redemption value of redeemable noncontrolling interests, and $23 for options exercised. These decreases
were offset by $22,709 relating to an increase from stock-based compensation and $7,007 of acquisition
purchase price adjustments.

(c) 2010 Share Capital Transactions

During the year ended December 31, 2010, Class A share capital increased by $8,220. The Company
issued 1,367,271 shares relating to vested restricted stock, 6,495 shares related to the exercise of outstanding
stock options and 101,107 shares related to the exercise of outstanding stock appreciation rights, increasing
share capital by $11,700.

During 2010, the Company’s employees surrendered 282,954 Class A shares valued at $3,480 in
connection with the required tax withholding from the vesting of various equity awards. The Company paid
these withholding taxes on behalf of the related employees. These shares were subsequently retired and no
longer remain outstanding as of December 31, 2010.

Additional paid-in capital decreased by $9,174, of which $11,640 related to the vesting of restricted

stock and stock appreciation rights, $7,603 relating to transactions with noncontrolling interests, dividends
paid and to be paid of $10,194, changes in the redemption value of redeemable noncontrolling interests of
$11,500. These decreases were offset by $14,954 relating to an increase from stock-based compensation and
$16,809 transferred to charges in excess of capital.

(d) 2009 Share Capital Transactions

During the year ended December 31, 2009, Class A share capital increased by $4,999. The Company

issued 620,393 shares related to vested restricted stock, 47,625 shares related to the exercise of outstanding
stock options and 68,261 shares related to the exercise of outstanding stock appreciation rights, increasing
share capital by $5,595.

During 2009, the Company’s employees surrendered 156,481 Class A shares valued at $596 in connection

with the required tax withholding resulting from the vesting of various equity awards. The Company paid
these withholding taxes on behalf of the related employees. These shares were subsequently retired and no
longer remain outstanding as of December 31, 2009.

Additional paid-in capital decreased by $24,296, of which $31,653 related to the recording of existing put
options (Note 2), $5,225 related to the vesting of restricted stock and stock appreciation rights, $923 related to
acquisitions, and other charges of $215. These decreases were offset by $13,720 relating to increase from
stock-based compensation.

(e) Employee Stock Incentive Plan

On May 26, 2005, the Company’s shareholders approved the Company’s 2005 Stock Incentive Plan

(the ‘‘2005 Incentive Plan’’). The 2005 Incentive Plan authorizes the issuance of awards to employees,
officers, directors and consultants of the Company with respect to 2,000,000 shares of MDC Partners’ Class A
Subordinate Voting Shares or any other security in to which such shares shall be exchanged. On June 1, 2007
and on June 2, 2009, the Company’s shareholders approved a total additional authorized Class A Shares of
2,500,000 to be added to the 2005 Incentive Plan for a total of 4,500,000 authorized Class A Shares. On
May 30, 2008, the Company’s shareholders approved the 2008 Key Partner Incentive Plan, which provides for
the issuance of 600,000 Class A Shares. On June 1, 2011, the Company’s shareholders approved the 2011
Stock Incentive Plan, which provides for the issuance of up to 2,000,000 Class A Shares. As of December 31,

77

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

12. Share Capital − (continued)

2011, the Company has granted 200,000 Director options (of which 100,000 were forfeited), which
option grants were for a ten-year term and vests over ﬁve (5) years from the grant date under the
2005 Incentive Plan.

The following table summarizes information about time based and ﬁnancial performance-based restricted
stock and restricted stock unit awards granted under the 2005 Incentive Plan, 2008 Key Partner Incentive Plan
and 2011 Stock Incentive Plan:

Balance at December 31, 2008 . . .
Granted . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . .
Forfeited. . . . . . . . . . . . . . . . .
Balance at December 31, 2009 . . .
Granted . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . .
Forfeited. . . . . . . . . . . . . . . . .
Balance at December 31, 2010 . . .
Granted . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . .
Forfeited. . . . . . . . . . . . . . . . .
Balance at December 31, 2011 . . .

Performance Based Awards
Weighted
Average Grant
Date Fair Value
$ 8.05
—
7.95
7.88
$ 8.17
8.83
8.37
8.88
$ 8.83
18.39
12.74
14.59
$15.81

Shares
1,137,863
—
(545,747)
(34,158)
557,958
753,209
(804,300)
(4,944)
501,923
1,097,754
(217,697)
(1,423)
1,380,557

Time Based Awards

Shares
829,531
179,927
(74,646)
(10,652)
924,160
258,223
(562,971)
(3,345)
616,067
297,520
(287,234)
(41,454)
584,899

Weighted
Average Grant
Date Fair Value
$ 7.57
7.15
9.19
10.04
$ 7.33
10.28
8.60
8.13
$ 7.40
16.93
5.17
8.79
$12.86

The total fair value of restricted stock and restricted stock unit awards, which vested during the year
ended December 31, 2011, 2010 and 2009 was $8,269, $14,976 and $5,022, respectively. In connection with
the vesting of these awards, the Company realized a tax deduction of $7,280, $3,431 and $414 in 2011, 2010
and 2009, respectively. At December 31, 2011, the weighted average remaining contractual life for
performance based awards is 2.0 years and for time based awards is 1.7 years. At December 31 2011, the fair
value of all restricted stock and restricted stock unit awards is $26,298. The term of these awards is three
years with vesting up to three years. At December 31, 2011, the unrecognized compensation expense for these
awards was $16,612 and will be recognized through 2014. At December 31, 2011, there are 2,511,742 awards
available to grant.

The Company’s Board of Directors adopted the 2005 Incentive Plan as a replacement for MDC Partners’
Amended and Restated Stock Option Incentive Plan (the ‘‘Prior 2003 Plan’’). Following approval of the 2005
Incentive Plan, the Company ceased making awards under the Prior 2003 Plan.

Prior to adoption of the 2005 Incentive Plan, the Company’s Prior 2003 Plan provided for grants of up to

1,890,786 options to employees, officers, directors and consultants of the Company. All the options granted
were for a term of ﬁve years from the date of the grant and vest 20% on the date of grant and a further 20%
on each anniversary date. In addition, the Company granted 534,960 options, on the privatization of
Maxxcom, with a term of no more than 10 years from initial date of grant by Maxxcom and vest 20% in each
of the ﬁrst two years with the balance vesting on the third anniversary of the initial grant.

78

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

12. Share Capital − (continued)

Information related to share option transactions grant under all plans over the past three years is

summarized as follows:

Balance, December 31, 2008 . . . . .
Vested. . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . .
Exercised. . . . . . . . . . . . . . . . . . .
Expired and cancelled . . . . . . . . . .
Balance, December 31, 2009 . . . . .
Vested. . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . .
Exercised. . . . . . . . . . . . . . . . . . .
Expired and cancelled . . . . . . . . . .
Balance, December 31, 2010 . . . . .
Vested. . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . .
Exercised. . . . . . . . . . . . . . . . . . .
Expired and cancelled . . . . . . . . . .
Balance, December 31, 2011 . . . . .

Options Outstanding

Options Exercisable

Number
Outstanding
458,835
—
—
(47,625)
(171,218)
239,992
—
—
(6,495)
(17,297)
216,200
—
—
(113,085)
(15,034)
88,081

Weighted
Average
Price per
Share
$ 9.49
—
—
8.76
12.22
$ 9.55
—
—
9.19
17.08
$ 9.41
—
—
8.94
12.57
$ 9.12

Number
Outstanding
393,835

Weighted
Average
Price per
Share
$9.69

194,992

$9.64

191,200

$9.41

83,081

$9.14

Non Vested
Options
65,000
(20,000)
—
—
—
45,000
(20,000)
—
—
—
25,000
(20,000)
—
—
—
5,000

At December 31, 2011, the intrinsic value of vested options and the intrinsic value of all options was

$352 and $375, respectively. For options exercised during 2011 and 2010, the Company received cash
proceeds of $1,011 and $60, respectively. The Company did not receive any windfall tax beneﬁts. The
intrinsic value of options exercised during 2011 and 2010 was $900 and $20, respectively. At December 31,
2011, the weighted average remaining contractual life of all outstanding options was 4.1 years and for all
vested options was 4.0 years. At December 31, 2011, the unrecognized compensation expense of all options
was $14 and will be recognized through 2012.

Share options outstanding as of December 31, 2011 are summarized as follows:

Range of Exercise Prices
$5.16 − $7.74 . . . . . .
$7.75 − $9.64 . . . . . .

Outstanding
Number
7,365
80,716

Options Outstanding
Weighted
Average
Contractual
Life
0.53
4.44

Weighted
Average
Price per
Share
$6.97
$9.32

Options Exercisable
Weighted
Average
Price per
Share
$6.97
$9.36

Weighted
Average
Contractual
Life
0.53
4.36

Exercisable
Number
7,365
75,716

79

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

12. Share Capital − (continued)

(f) Stock Appreciation Rights

During 2003, the Compensation Committee of the Board of Directors approved a stock appreciation

rights (‘‘SAR’s’’) compensation program for senior officers and directors of the Company. SARS’s granted
prior to 2006 have a term of four years, for SAR’s granted in 2006 and after they have a term of up to
10 years and all awards vest one-third on each anniversary date.

SAR’s granted and outstanding are as follows:

SAR’s Outstanding

SAR’s Exercisable

Balance at December 31, 2008. .
Vested . . . . . . . . . . . . . . . .
Granted. . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . .
Expired and cancelled . . . . . .
Balance at December 31, 2009. .
Vested . . . . . . . . . . . . . . . .
Granted. . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . .
Expired and cancelled . . . . . .
Balance at December 31, 2010. .
Vested . . . . . . . . . . . . . . . .
Granted. . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . .
Expired and cancelled . . . . . .
Balance at December 31, 2011. .

Weighted
Average
Number
Outstanding
245,000
—
3,744,686
(172,759)
(298,158)
3,518,769
—
—
(187,666)
—
3,331,103
—
—
(172,974)
—
3,158,129

Weighted
Average
Price per
Share
$9.74
—
3.76
3.72
8.22
$3.80
—
—
$4.19

$3.78
—
—
4.23
—
$3.75

Number
Outstanding
238,334

Price per
Share
$9.80

30,000

$8.18

1,777,034

$3.77

2,067,123

$3.75

Non Vested
SAR’s

6,666
(6,666)
3,744,686
(172,759)
(83,158)
3,488,769
(1,747,034)
—
(187,666)
—
1,554,069
(290,089)

(172,974)
—
1,091,006

At December 31, 2011, the aggregate amount of shares to be issued on vested SAR’s was 1,488,498
shares with an intrinsic value of $19,872 and for all outstanding SAR’s, the aggregate amount of shares to be
issued was 2,272,588 with an intrinsic value of $30,407. During 2011, 2010 and 2009, the aggregate value of
SAR’s exercised was $2,289, $1,147 and $407, respectively. The Company received tax deductions of $387
and $180 in 2011 and 2010, respectively. At December 31, 2011, the weighted average remaining contractual
life of all outstanding SAR’s was 2.2 years and for all vested SAR’s was 2.2 years. At December 31, 2011,
the unrecognized compensation expense of all SAR’s was $61 and will be recognized through 2012.

Range of Exercise Prices
$3.72 − $6.60 . . . . . .
$6.61 − $8.95 . . . . . .

Outstanding
Number
3,148,129
10,000

SAR’s Outstanding
Weighted
Average
Contractual
Life
2.17
4.33

Weighted
Average
Price per
Share
$3.74
$8.95

SAR’s Exercisable
Weighted
Average
Price per
Share
$3.72
$8.95

Weighted
Average
Contractual
Life
2.17
4.33

Exercisable
Number
2,057,123
10,000

80

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

12. Share Capital − (continued)

(h) Equity Value Appreciation Awards

In January 2011, the Company awarded 1,413,000 extraordinary Equity Value Appreciation Awards

(‘‘EVARs’’) to its employees. These EVARs may result in the issuance of up to 1,413,000 restricted stock
units and restricted stock shares (‘‘RSUs’’), but only upon the achievement of extraordinary stock performance
targets. If issued the RSUs underlying the EVAR grant will vest on December 31, 2013.

The Company measured the fair value of EVARs using a lattice based model (Monte Carlo) on the

grant date.

Information related to EVAR transactions over the past three years is summarized as follows:

EVARs Outstanding

EVARs Exercisable

Weighted
Average
Issuance
Price per
Share
$ —
—
23.00
23.00
$23.00

Number
Outstanding
—
—
1,413,000
(45,000)
1,368,000

Weighted
Average
Issuance
Price per
Share
$ —

—
—
$ —

Number
Outstanding
—

—
—
—

Non Vested
EVARs

—
—
1,413,000
(45,000)
1,368,000

Balance, December 31, 2010 . . .
Vested . . . . . . . . . . . . . . . .
Granted. . . . . . . . . . . . . . . .
Expired and cancelled . . . . . .
Balance, December 31, 2011 . . .

The grant date fair value of these EVARs was $13,240. At December 31, 2011, the weighted average

remaining contractual life for these awards is two years. At December 31, 2011, the unrecognized
compensation expense of these awards is $8,790 and will be recognized through 2013.

The Company has reserved a total of 3,137,227 Class A shares in order to meet its obligations under

various conversion rights, warrants and employee share related plans. At December 31, 2011 there were
2,511,742 shares available for future option and similar grants.

13. Fair Value Measurements

Effective January 1, 2008, the Company adopted guidance regarding accounting for Fair Value
Measurements. This guidance deﬁnes fair value, establishes a framework for measuring fair value and
expands the related disclosure requirements. The statement indicates, among other things, that a fair value
measurement assumes a transaction to sell an asset or transfer a liability occurs in the principal market for
the asset or liability or, in the absence of a principal market, the most advantageous market for the asset
or liability.

In order to increase consistency and comparability in fair value measurements, the guidance establishes a
hierarchy for observable and unobservable inputs used to measure fair value into three broad levels, which are
described below:

•

•

•

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date
for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated
by market data.

Level 3: Unobservable inputs are used when little or no market data is available. The fair value
hierarchy gives the lowest priority to Level 3 inputs.

81

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

13. Fair Value Measurements − (continued)

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable

inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty
credit risk in its assessment of fair value.

On a nonrecurring basis, the Company uses fair value measures when analyzing asset impairment. Long-
lived assets and certain identiﬁable intangible assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined such
indicators are present and the review indicates that the assets will not be fully recoverable, based on
undiscounted estimated cash ﬂows over the remaining amortization periods, their carrying values are reduced
to estimated fair value. Measurements based on undiscounted cash ﬂows are considered to be level 3 inputs.
During the fourth quarter of each year, the Company evaluates goodwill and indeﬁnite-lived intangibles for
impairment at the reporting unit level. For each acquisition, the Company performed a detailed review to
identify intangible assets and a valuation is performed for all such identiﬁed assets. The Company used
several market participant measurements to determine estimated value. This approach includes consideration
of similar and recent transactions, as well as utilizing discounted expected cash ﬂow methodologies. The
amounts allocated to assets acquired and liabilities assumed in the acquisitions were determined using level
three inputs. Fair value for property and equipment was based on other observable transactions for similar
property and equipment. Accounts receivable represents the best estimate of balances that will ultimately be
collected, which is based in part on allowance for doubtful accounts reserve criteria and an evaluation of the
speciﬁc receivable balances.

The following tables present certain information for our ﬁnancial assets that is measured at fair value on

a recurring basis at December 31, 2011 and 2010:

Level 1 2011

Level 1 2010

Carrying
Amount

Fair Value

Carrying
Amount

Fair Value

Liabilities:

Long term debt . . . . . . . . . . . . . . . .

$344.4

$367.4

$283.2

$323.7

Our long term debt includes ﬁxed rate debt. The fair value of this instrument is based on quoted

market prices.

The following table presents changes in Deferred Acquisition Consideration.

Beginning Balance of contingent payments . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption value adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers to ﬁxed payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign translation adjustment
Ending Balance of contingent payments . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fair Value Measurements Using
Signiﬁcant Unobservable Inputs
(Level 3)

2011
$ 98,534
(26,656)
46,292
13,416
(1,467)
(360)
$129,759

2010
$ 29,654
(23,285)
92,383
(779)
—
561
$ 98,534

82

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

13. Fair Value Measurements − (continued)

In addition to the above amounts, there are ﬁxed payments of $7,464 and $9,457 for total deferred
acquisition consideration of $137,223 and $107,991, which reconciles to the consolidating ﬁnancial statements
at December 31, 2011 and 2010, respectively.

Level 3 payments relate to payments made for deferred acquisition consideration. Level 3 grants relate to

contingent purchase price obligations related to acquisitions. The Company records the initial liability of the
estimated present value. The estimated liability is determined in accordance with various contractual valuation
formulas that may be dependent on future events, such as the growth rate of the earning of the relevant
subsidiary during the contractual period, and, in some cases, the currency exchange rate of the date of
payment. Level 3 redemption value adjustments relate to the remeasurement and change in these various
contractual valuation formulas as well as adjustments of present value.

14. Gain on Sale of Assets and Other

The gain on sale of assets and other for the years ended December 31 were as follows:

Other income (expense) . . . . . . . . . . . . . . . . . . . . . .
Gain (loss) on disposition of assets . . . . . . . . . . . . . .

2011
$191
(75)
$116

2010
$364
17
$381

2009
$(38)
(53)
$(91)

15. Segment Information

The Company’s segment reporting is consistent with the current manner of how the Chief Operating

Decision Maker (‘‘CODM’’) and the Board of Directors view the business. The Company is focused on
expanding its capabilities in database marketing and data analytics in order to position the Company for future
business development efforts and revenue growth.

In order to position this strategic focus along the lines of how the CODM and management will base

their business decisions, the Company reports two segments. Decisions regarding allocation of resources are
made and will be made based not only on the individual operating results of the subsidiaries but also on the
overall performance of the reportable segments. These reportable segments are the aggregation of various
reporting segments.

The Company reports in two segments plus corporate. The segments are as follows:

•

•

The Strategic Marketing Services segment includes Crispin Porter & Bogusky and kirshenbaum
bond senecal + partners among others. This segment consists of integrated marketing consulting
services ﬁrms that offer a full complement of marketing consulting services including advertising
and media, marketing communications including direct marketing, public relations, corporate
communications, market research, corporate identity and branding, interactive marketing and sales
promotion. Each of the entities within the Strategic Marketing Services Group share similar
economic characteristics, speciﬁcally related to the nature of their respective services, the manner in
which the services are provided and the similarity of their respective customers. Due to the
similarities in these businesses, they exhibit similar long term ﬁnancial performance and have been
aggregated together.

The Performance Marketing Services segment includes our ﬁrms that provide consumer insights to
satisfy the growing need for targetable, measurable solutions or cost effective means of driving
return on marketing investment. These services interface directly with the consumer of a client’s
product or service. Such services include the design, development, research and implementation of
consumer service and direct marketing initiatives. Each of the entities within the Performance
Marketing Services Group share similar economic characteristics speciﬁcally related to the nature of

83

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

15. Segment Information − (continued)

their respective services, the manner in which the services are provided, and the similarity of
their respective customers. Due to the similarities in these businesses, the services provided
to the customer and they exhibit similar long term ﬁnancial performance and have been
aggregated together.

The signiﬁcant accounting policies of these segments are the same as those described in the summary of

signiﬁcant accounting policies included in the notes to the consolidated ﬁnancial statements. The Company
continues to evaluate its Corporate Group and the services provided by the Corporate Group to the operating
segments. The Company has determined that additional amounts should be allocated to the operating segments
based on additional services provided in 2009. The Company will continue to evaluate the services and
amount of time spent directly on the operating segments business operations, and adjust accordingly.

For the Year Ended December 31, 2011

Strategic
Marketing
Services
$608,079
426,053
138,303
22,379
21,344

Performance
Marketing
Services
$335,195
248,407
45,536
17,031
24,221

Corporate
—
$
—
35,432
826
(36,258)

Total
$ 943,274
674,460
219,271
40,236
9,307

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of services sold . . . . . . . . . . . . . . . . . . . . .
Office and general expenses . . . . . . . . . . . . . . . .
Depreciation and amortization. . . . . . . . . . . . . . .
Operating proﬁt (Loss) . . . . . . . . . . . . . . . . . . .

Other income (Expense):
Other income, net . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange loss . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . .
Loss from continuing operations before
income taxes, equity in affiliates and
noncontrolling interest . . . . . . . . . . . . . . . . . .
Income tax expense. . . . . . . . . . . . . . . . . . . . . .
Loss from continuing operations before equity

in affiliates and noncontrolling interests. . . . . . .
Equity in earnings of affiliates . . . . . . . . . . . . . .
Loss from continuing operations . . . . . . . . . . . . .
Loss from discontinued operations attributable to

MDC Partners Inc., net of taxes. . . . . . . . . . . .
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interests .
Net (loss) attributable to MDC Partners Inc. . . . . .

(6,203)

(1,551)

—

Stock-based compensation . . . . . . . . . . . . . . . . .

$

5,149

Capital expenditures from continuing operations . .

$ 11,657

Goodwill and intangibles . . . . . . . . . . . . . . . . . .

$426,034

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . .

$627,268

$

$

3,695

4,797

$237,190

$380,825

$ 14,813

$ 6,929

$

—

$ 47,652

84

116
(1,677)
(41,783)

(34,037)
41,735

(75,772)
213
(75,559)

(1,361)
(76,920)
(7,754)
$ (84,674)

$

$

23,657

23,383

$ 663,224

$1,055,745

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

15. Segment Information − (continued)

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of services sold . . . . . . . . . . . . . . . . . . . . .
Office and general expenses . . . . . . . . . . . . . . . .
Depreciation and amortization. . . . . . . . . . . . . . .
Operating proﬁt (Loss) . . . . . . . . . . . . . . . . . . .

Other income (Expense):
Other income, net . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange gain. . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . .
Loss from continuing operations before
income taxes, equity in affiliates and
noncontrolling interest . . . . . . . . . . . . . . . . . .
Income tax recovery . . . . . . . . . . . . . . . . . . . . .
Loss from continuing operations before equity

in affiliates and noncontrolling interests. . . . . . .
Equity in earnings of affiliates . . . . . . . . . . . . . .
Loss from continuing operations . . . . . . . . . . . . .
Loss from discontinued operations attributable to

MDC Partners Inc., net of taxes. . . . . . . . . . . .
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interests .
Net (loss) attributable to MDC Partners Inc. . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . .
Capital expenditures from continuing operations . .
Goodwill and intangibles . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . .

For the Year Ended December 31, 2010

Strategic
Marketing
Services
$438,941
289,409
90,622
17,917
40,993

Performance
Marketing
Services
$250,205
183,962
38,383
15,879
11,981

Corporate
—
$
—
22,291
368
(22,659)

(7,211)

(2,863)

—

7,282
$
6,476
$
$367,856
$552,383

1,992
$
4,048
$
$213,765
$322,520

$ 7,233
610
$
—
$
$ 39,445

Total
$689,146
473,371
151,296
34,164
30,315

381
69
(33,213)

(2,448)
(165)

(2,283)
866
(1,417)

(3,949)
(5,366)
(10,074)
$ (15,440)
$ 16,507
$ 11,134
$581,621
$914,348

85

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

15. Segment Information − (continued)

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of services sold . . . . . . . . . . . . . . . . . . . . .
Office and general expenses . . . . . . . . . . . . . . . .
Depreciation and amortization. . . . . . . . . . . . . . .
Operating Proﬁt (Loss) . . . . . . . . . . . . . . . . . . .

Other Income (Expense):
Other expense, net . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange loss . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . .
Loss from continuing operations before
income taxes, equity in affiliates and
noncontrolling interest . . . . . . . . . . . . . . . . . .
Income tax expense. . . . . . . . . . . . . . . . . . . . . .
Loss from continuing operations before equity

in affiliates and noncontrolling interests. . . . . . .
Equity in loss of affiliates. . . . . . . . . . . . . . . . . .
Loss from continuing operations . . . . . . . . . . . . .
Loss from discontinued operations attributable to

MDC Partners Inc., net of taxes. . . . . . . . . . . .
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interests .
Net loss attributable to MDC Partners Inc. . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . .
Capital expenditures from continuing operations . .
Goodwill and intangibles . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . .

For the Year Ended December 31, 2009

Strategic
Marketing
Services
$370,615
220,714
87,633
25,518
36,750

Performance
Marketing
Services
$165,876
127,586
25,584
8,278
4,428

Corporate
—
$
—
18,091
428
(18,519)

(4,851)

(715)

—

8,742
$
3,617
$
$277,992
$430,959

868
$
657
$
$ 58,355
$112,780

$ 5,834
239
$
—
$
$ 60,780

Total
$536,491
348,300
131,308
34,224
22,659

(91)
(1,956)
(21,646)

(1,034)
8,536

(9,570)
(8)
(9,578)

(3,180)
(12,758)
(5,566)
$ (18,324)
$ 15,444
4,513
$
$336,347
$604,519

A summary of the Company’s long-lived assets, comprised of ﬁxed assets, goodwill and intangibles, net,

as at December 31, is set forth in the following table.

United States

Canada

Other

Total

Long-lived Assets

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 39,555
$ 32,354

$ 7,003
$ 7,606

Goodwill and Intangible Assets

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$577,388
$495,133

$85,836
$86,488

$1,179
$1,093

$ —
$ —

$ 47,737
$ 41,053

$663,224
$581,621

86

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

15. Segment Information − (continued)

A summary of the Company’s revenue as at December 31 is set forth in the following table.

Revenue:

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$758,157
$574,043
$447,326

$152,374
$ 97,452
$ 80,124

$32,743
$17,651
$ 9,041

$943,274
$689,146
$536,491

United States

Canada

Other

Total

16. Related Party Transactions

(a) The Company incurred fees and paid cash incentive awards totaling $3,375, $1,343 and $3,495 in 2011,
2010 and 2009, respectively, relating to companies controlled by the Chairman and Chief Executive
Officer (‘‘CEO’’) of the Company in respect of services rendered pursuant to a management services
agreement and incentive plans.

On April 27, 2007, the Company entered into a new Management Services Agreement (the ‘‘Services
Agreement’’) with Miles Nadal and with Nadal Management, Inc. to set forth the terms and conditions
on which Mr. Nadal continues to provide services to the Company as its Chief Executive Officer. The
Services Agreement has a three-year term with automatic one-year extensions. Pursuant to the Services
Agreement, the annual base compensation for Mr. Nadal’s services was increased to $1,500, effective
April 27, 2010. The Services Agreement also provides for an annual bonus with a targeted payout of up
to 250% of the base compensation. The Company also makes an annual cash payment of $500 in respect
of retirement beneﬁts, employee health beneﬁts and perquisites. In addition, in the discretion of the
Compensation Committee, the Company may grant long term equity incentives with a grant-date value of
up to 300% of the then current base retainer. In addition during 2011, 2010 and 2009, in accordance with
the Services Agreement, Mr. Nadal repaid to the Company an additional $102, $95 and $95, respectively,
of loans due to the Company.

(b) Pursuant to the amended Services Agreement, the Company agreed to provide to its CEO, Miles S. Nadal

a special bonus of C$10,000 ($10,088) upon the ﬁrst to occur of (i) the average market price of
the Company’s Class A subordinate voting shares is C$30 ($30) per share or more for more than
20 consecutive trading days (measured as of the close of trading on each applicable date) or (ii) a change
of control of the Company. This bonus is payable until the date that is three years after the date on which
Mr. Nadal is no longer employed by the Company for any reason. The after-tax proceeds of such bonus
are to be applied ﬁrst as repayment of any outstanding loans due to the Company from this officer and
his related companies in the amount of C$5,953 (US$5,853), as at December 31, 2011, which has been
reserved for in the Company’s accounts. These loans have no stated maturity date.

(c)

In 2000, the Company purchased 1,600,000 shares in Trapeze Media Limited (‘‘Trapeze’’) for $215. At
the same time, the Company’s CEO purchased 4,280,000 shares of Trapeze for $576, the Company’s
former Chief Financial Officer and a Managing Director of the Company each purchased 50,000
Trapeze shares for $7 and a Board Member of the Company purchased 75,000 shares of Trapeze for $10.
In 2001, the Company purchased an additional 1,250,000 shares for $161, and the Company’s CEO
purchased 500,000 shares for $64. In 2002, the Company’s CEO purchased 3,691,930 shares of
Trapeze for $470. All of these purchases were made at identical prices (C$.20/share). In 2003, the
Company and the CEO exchanged their units in Trapeze for non-voting shares and entered into a voting
trust agreement.

During 2010 and 2009, Trapeze provided services to certain subsidiaries, the total amount of such
services provided were $70 and $105, respectively. In addition, in 2011, 2010 and 2009, a subsidiary
provided Trapeze with $390, $300 and $304 of services, respectively. Trapeze did not provide any
services to MDC or its subsidiaries in 2011.

87

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

17. Commitments, Contingencies and Guarantees

Deferred Acquisition Consideration.

In addition to the consideration paid by the Company in respect of

certain of its acquisitions at closing, additional consideration may be payable, or may be potentially payable
based on the achievement of certain threshold levels of earnings. See Note 2 and Note 4.

Put Options. Owners of interests in certain subsidiaries have the right in certain circumstances to
require the Company to acquire either a portion of or all of the remaining ownership interests held by them.
The owners’ ability to exercise any such ‘‘put option’’ right is subject to the satisfaction of certain conditions,
including conditions requiring notice in advance of exercise. In addition, these rights cannot be exercised prior
to speciﬁed staggered exercise dates. The exercise of these rights at their earliest contractual date would result
in obligations of the Company to fund the related amounts during the period 2011 to 2018. It is not
determinable, at this time, if or when the owners of these rights will exercise all or a portion of these rights.

The amount payable by the Company in the event such rights are exercised is dependent on various
valuation formulas and on future events, such as the average earnings of the relevant subsidiary through the
date of exercise, the growth rate of the earnings of the relevant subsidiary during that period, and, in some
cases, the currency exchange rate at the date of payment.

Management estimates, assuming that the subsidiaries owned by the Company at December 31, 2011,
perform over the relevant future periods at their 2011 earnings levels, that these rights, if all exercised, could
require the Company, in future periods, to pay an aggregate amount of approximately $29,040 to the owners
of such rights to acquire such ownership interests in the relevant subsidiaries. Of this amount, the Company is
entitled, at its option, to fund approximately $3,644 by the issuance of share capital. In addition, the Company
is obligated under similar put option rights to pay an aggregate amount of approximately $88,096 only upon
termination of such owner’s employment with the applicable subsidiary or death (including $9,707 that are
within the Company’s control). The ultimate amount payable relating to these transactions will vary because it
is dependent on the future results of operations of the subject businesses and the timing of when and if these
rights are exercised. The aggregate amount of these options is $117,136, of which $107,429 has been recorded
on the balance sheet at December 31, 2011 and is included in Redeemable Noncontrolling Interests.

Natural Disasters. Certain of the Company’s operations are located in regions of the United States and

Caribbean which typically are subject to hurricanes. During the year ended December 31, 2011, 2010 and
2009, these operations did not incur any costs related to damages resulting from hurricanes.

Guarantees.

In connection with certain dispositions of assets and/or businesses in 2001 and 2003, the
Company has provided customary representations and warranties whose terms range in duration and may not
be explicitly deﬁned. The Company has also retained certain liabilities for events occurring prior to sale,
relating to tax, environmental, litigation and other matters. Generally, the Company has indemniﬁed the
purchasers in the event that a third party asserts a claim against the purchaser that relates to a liability retained
by the Company. These types of indemniﬁcation guarantees typically extend for a number of years.

In connection with the sale of the Company’s investment in CDI, the amounts of indemniﬁcation
guarantees were limited to the total sale price of approximately $84,000. For the remainder, the Company’s
potential liability for these indemniﬁcations are not subject to a limit as the underlying agreements do
not always specify a maximum amount and the amounts are dependent upon the outcome of future
contingent events.

Historically, the Company has not made any signiﬁcant indemniﬁcation payments under such agreements
and no amount has been accrued in the accompanying consolidated ﬁnancial statements with respect to these
indemniﬁcation guarantees. The Company continues to monitor the conditions that are subject to guarantees
and indemniﬁcations to identify whether it is probable that a loss has occurred, and would recognize any such
losses under any guarantees or indemniﬁcations in the period when those losses are probable and estimable.

88

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

17. Commitments, Contingencies and Guarantees − (continued)

For guarantees and indemniﬁcations entered into after January 1, 2003, in connection with the sale

of the Company’s investment in CDI, the Company has estimated the fair value of its liability, which
was insigniﬁcant.

Legal Proceedings. The Company’s operating entities are involved in legal proceedings of various
types. While any litigation contains an element of uncertainty, the Company has no reason to believe that the
outcome of such proceedings or claims will have a material adverse effect on the ﬁnancial condition or results
of operations of the Company.

Commitments. At December 31, 2011, the Company has $5,830 of undrawn outstanding letters of

credit. In addition, the Company has commitments to fund investments in an aggregate amount of $3,900.

Leases. The Company and its subsidiaries lease certain facilities and equipment. Gross premises rental

expense amounted to $26,953 for 2011, $18,334 for 2010 and $16,004 for 2009, which was reduced by
sublease income of $555 in 2011, $277 in 2010 and $59 in 2009. Where leases contain escalation clauses or
other concessions, the impact of such adjustments is recognized on a straight-line basis over the minimum
lease period.

Minimum rental commitments for the rental of office and production premises and equipment under non-

cancellable leases net of sublease income, some of which provide for rental adjustments due to increased
property taxes and operating costs for 2011 and thereafter, are as follows:

Period
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount
$ 26,878
25,948
22,161
19,863
17,237
52,114
$164,201

At December 31, 2011, the total future cash to be received on sublease income is $8,411.

18. New Accounting Pronouncements

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income
(Topic 220): Presentation of Comprehensive Income (‘‘ASU 2011-05’’) Under ASU 2011-05, an entity will
have the option to present comprehensive income on the income statement or as a separate ﬁnancial statement.
ASU 2011-05 is effective January 1, 2012 and requires retrospective adoption. The Company has adopted
ASU 2011-05 as of December 31, 2011.

In April 2010, the FASB issues ASU 2010-17, ‘‘Revenue Recognition-Milestone Method.’’ ASU 2010-17
provides guidance on the criteria that should be met for determining whether the milestone method of revenue
recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a
milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone
meets all criteria to be considered substantive. The amendments in ASU 2010-17 are effective on a
prospective basis for milestones achieved in ﬁscal years, and interim periods within those years, beginning on
or after June 15, 2010. The adoption did not have a material impact on our ﬁnancial statements.

In April 2010, the FASB issued ASU 2010-13, ‘‘Compensation — Stock Compensation Effect of
Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which
the Underlying Equity Security Trades.’’ ASU 2010-13 provides amendments to clarify that an employee
share-based payment award with an exercise price denominated in the currency of a market in which a

89

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

18. New Accounting Pronouncements − (continued)

substantial portion of the entity’s equity securities trades should not be considered to contain a condition that
is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a
liability if it otherwise qualiﬁes as equity. The amendments in ASU 2010-13 are effective for ﬁscal years, and
interim periods within those ﬁscal years, beginning on or after December 15, 2010. The adoption of this
standard did not have an effect on our results of operation or our ﬁnancial position.

In October 2009, the FASB issued revised guidance on the topic of Multiple — Deliverable Revenue
Arrangements. The revised guidance amends certain accounting for revenue with multiple deliverables. In
particular when vendor speciﬁc objective evidence or third party evidence for deliverables in an arrangement
cannot be determined, the revised guidance allows use of a best estimate of the selling price to allocate the
arrangement consideration among them. This guidance is effective for the ﬁrst quarter of 2011, with early
adoption permitted. The adoption did not have a material impact on our ﬁnancial statements.

19. Quarterly Results of Operations (Unaudited) (Restated for Discontinued Operations)

The following table sets forth a summary of the Company’s consolidated unaudited quarterly results

of operations for the years ended December 31, 2011 and 2010, in thousands of dollars, except per
share amounts.

First

Second

Third

Fourth

Quarters

Revenue:

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$215,091
$133,956

$238,020
$167,704

$235,825
$176,478

$254,338
$211,008

Cost of services sold:

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$157,762
$ 95,641

$161,226
$115,326

$173,961
$121,714

$181,511
$140,690

Income (loss) from continuing operations:

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (6,754)
$ (8,359)

$
3,993
$ (2,475)

$ (17,285)
$ (8,498)

$ (55,513)
$ 17,915

Net income (loss) attributable to MDC Partners Inc.:

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (8,685)
$ (10,186)

$
1,323
$ (5,805)

$ (19,574)
$ (10,918)

$ (57,742)
$ 11,469

Income (loss) per common share:
Basic
Continuing operations:

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net income (loss):

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted
Continuing operations:

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net income (loss):

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

$
$

$
$

$
$

(0.30)
(0.34)

(0.31)
(0.37)

(0.30)
(0.34)

(0.31)
(0.37)

$
$

$
$

$
$

$
$

0.05
(0.16)

0.05
(0.21)

0.05
(0.16)

0.04
(0.21)

$
$

$
$

$
$

$
$

(0.66)
(0.35)

(0.67)
(0.38)

(0.66)
(0.35)

(0.67)
(0.38)

$
$

$
$

$
$

$
$

(1.95)
0.43

(1.97)
0.40

(1.95)
0.39

(1.97)
0.36

The above revenue, cost of services sold, and income (loss) from continuing operations have primarily

been affected by acquisitions, divestitures and discontinued operations.

90

MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

19. Quarterly Results of Operations (Unaudited) (Restated for Discontinued Operations) − (continued)

Historically, with some exceptions, the Company’s fourth quarter generates the highest quarterly revenues

in a year. The fourth quarter has historically been the period in the year in which the highest volumes of
media placements and retail related consumer marketing occur.

Income (loss) from continuing operations and net loss have been affected as follows:

•

•

•

•

The fourth quarter of 2011 includes non-cash stock based compensation charges of $5,837.

The fourth quarter of 2010 includes non-cash stock based compensation charges of $3,203.

The fourth quarter of 2011 includes deferred acquisition adjustments of $11,757 and an additional
deferred tax valuation allowance of $47,422.

The fourth quarter of 2010 includes income of $3,753 for deferred acquisition consideration
adjustments.

91

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures

Not Applicable.

Item 9A. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be
included in our SEC reports is recorded, processed, summarized and reported within the applicable time
periods speciﬁed by the SEC’s rules and forms, and that such information is accumulated and communicated
to our management, including our Chief Executive Officer (CEO) and our Chief Financial Officer (CFO), who
is our principal ﬁnancial officer, as appropriate, to allow timely decisions regarding required disclosures. There
are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the
possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly,
even effective disclosure controls and procedures can only provide reasonable assurance of achieving their
control objectives.

We conducted an evaluation, under the supervision and with the participation of our management,

including our CEO, our CFO and our management Disclosure Committee, of the effectiveness of
our disclosure controls and procedures as of the end of the period covered by this report pursuant to
Rule 13a-15(b) of the Exchange Act. Based on that evaluation, the Company has concluded that its disclosure
controls and procedures were effective.

(b) Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over ﬁnancial
reporting (as deﬁned in Rules 13a-15(f) under the Exchange Act). Because of its inherent limitations, internal
control over ﬁnancial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We evaluated the effectiveness of our internal control over ﬁnancial reporting as of December 31, 2011.
In making this assessment, we used the criteria set forth in Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management’s
assessment of and conclusion on the effectiveness of internal control over ﬁnancial reporting did not include
the internal controls of acquisitions made during 2011, which are included in the consolidated balance sheets
of the Company, and the related consolidated statements of income, stockholders’ equity, and cash ﬂows for
the year then ended. 2011 acquisitions constituted 6% of total assets, as of December 31, 2011, and 7% of
revenue for the year then ended. Management did not assess the effectiveness of internal control over ﬁnancial
reporting of the 2011 acquisitions, because of the timing of the acquisitions.

Based on our assessment, we believe that, as of December 31, 2011, we maintained effective internal

control over ﬁnancial reporting based on these criteria.

The effectiveness of our internal control over ﬁnancial reporting as of December 31, 2011, has been
independently audited by BDO USA LLP, an independent registered public accounting ﬁrm, as stated in their
report which is included herein.

(c) Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over ﬁnancial reporting during the ﬁscal quarter
ended December 31, 2011, that has materially affected, or is reasonably likely to materially affect, our internal
control over ﬁnancial reporting.

92

(d) Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
MDC Partners Inc.
New York, New York
Toronto, Canada

We have audited MDC Partners Inc. and subsidiaries’ internal control over ﬁnancial reporting as of
December 31, 2011, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). MDC Partners Inc.
and subsidiaries’ management is responsible for maintaining effective internal control over ﬁnancial reporting
and for its assessment of the effectiveness of internal control over ﬁnancial reporting, included in the
accompanying Item 9A, ‘‘Management’s Report on Internal Control Over Financial Reporting’’. Our
responsibility is to express an opinion on the company’s internal control over ﬁnancial reporting based on
our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over ﬁnancial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over ﬁnancial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over ﬁnancial reporting is a process designed to provide reasonable assurance
regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external purposes
in accordance with generally accepted accounting principles. A company’s internal control over ﬁnancial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reﬂect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of ﬁnancial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures
of the company are being made only in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
ﬁnancial statements.

Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

As indicated in the accompanying Item 9A, Management’s Report on Internal Control Over Financial
Reporting, management’s assessment of and conclusion on the effectiveness of internal control over ﬁnancial
reporting did not include the internal controls of acquisitions made after December 31, 2010, which are
included in the consolidated balance sheets of the Company, and the related consolidated statements of
operations, shareholders’ equity, and cash ﬂows for the year then ended. Post December 31, 2010, acquisitions
constituted 6% of total assets, as of December 31, 2011, and 7% of revenues for the year then ended.
Management did not assess the effectiveness of internal control over ﬁnancial reporting of the post
December 31, 2010 acquisitions because of the timing of the acquisitions. Our audit of internal control over
ﬁnancial reporting of MDC Partners Inc. and subsidiaries did not include an evaluation of the internal control
over ﬁnancial reporting of the post December 31, 2010 acquisitions.

In our opinion, MDC Partners Inc. and subsidiaries maintained, in all material respects, effective internal
control over ﬁnancial reporting as of December 31, 2011, based on the COSO criteria.

93

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of MDC Partners Inc. and subsidiaries as of December 31,
2011 and 2010, and the related consolidated statements of operations, shareholders’ equity, and cash ﬂows for
each of the three years in the period ended December 31, 2011 and our report dated March 15, 2012
expressed an unqualiﬁed opinion thereon.

/s/ BDO USA, LLP
New York, New York
March 15, 2012

Item 9B. Other Information

None.

94

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Reference is made to the sections captioned ‘‘Nomination of Directors,’’ ‘‘Information Concerning
Nominees for Election as Directors,’’ ‘‘Information Concerning Executive Officers’’, ‘‘Audit Committee’’,
‘‘Ethical Conduct’’ and ‘‘Compliance with Section 16(a) of the Exchange Act’’ in our Proxy Statement for the
2010 Annual General Meeting of Stockholders, which will be ﬁled with the Commission within 120 days of
the close of our ﬁscal year ended December 31, 2011, which sections are incorporated herein by reference.

Executive Officers of MDC Partners

The executive officers of MDC Partners as of March 1, 2012 are:

Name
Miles S. Nadal(1)
Stephen Pustil(1)
David Dabill
David B. Doft
Mitchell S. Gendel
Michael C. Sabatino
Gavin Swartzman

Age

54
68
52
40
46
47
47

Office

Chairman of the Board, Chief Executive Officer and President
Vice Chairman
Chief Operating Officer
Chief Financial Officer
General Counsel & Corporate Secretary
Senior Vice President, Chief Accounting Officer
Managing Director

(1) Also a director

There is no family relationship among any of the executive officers.

Mr. Nadal is the founder of MDC and has held the positions of Chairman of the Board and Chief
Executive Officer of MDC since 1986, and the position of President since 2007. Mr. Nadal is also the founder
and a partner of Peerage Capital, a Canadian private equity ﬁrm, Peerage Realty Partners, and Artemis
Investment Management. Mr. Nadal is active in supporting various business and community organizations
including Mount Sinai Hospital, Junior Achievement of Canada, The Young Presidents Association and the
Schulich School of Business.

Mr. David Dabill joined MDC as Chief Administrative Officer in July 2011, and was named Chief
Operating Officer in December 2011. Prior to joining MDC, from 2006 to 2010, Mr. Dabill was one of the
founders and Chief Operating Officer for Toy, an independently owned advertising agency that was located
in New York. From 2001 to 2006, Mr. Dabill served as CFO and COO of Fallon Worldwide, a global
agency network.

Mr. Pustil has been a director of MDC since 1992, and its Vice Chairman since 1992. Mr. Pustil is also

a Managing Partner at Peerage Capital, President of Peerage Realty Partners, and Chairman of Artemis
Investment Management. Mr. Pustil is a chartered accountant and serves on the Board of Mount
Sinai Hospital.

Mr. Doft joined MDC Partners in August 2007 as Chief Financial Officer. Prior to joining MDC Partners,

he oversaw media and Internet investments at Cobalt Capital Management Inc. from July 2005 to July 2007.
Prior thereto, he worked at Level Global Investors from October 2003 to March 2005 investing in media and
Internet companies. Before that, Mr. Doft was a sell side analyst for ten years predominately researching the
advertising and marketing services sector for CIBC World Markets where he served as Executive Director and
ABN AMRO/ING Barings Furman Selz where he was Managing Director.

Mr. Gendel joined MDC Partners in November 2004, as General Counsel and Corporate Secretary. Prior
to joining MDC Partners, he served as Vice President and Assistant General Counsel at The Interpublic Group
of Companies, Inc. from December 1999 until September 2004.

95

Mr. Sabatino joined MDC Partners in April 2005 as Senior Vice President and Chief Accounting Officer.

Prior to joining MDC Partners, he was an audit partner with the accounting ﬁrm of Eisner LLP from
April 2004. Prior to that, from December 2001 to March 2004, he was the Co-CFO/Senior Vice President
Finance of JAKKs Paciﬁc, Inc., a publicly-held toy company. Before that, Mr. Sabatino was an audit partner
at BDO Seidman, LLP, a public accounting ﬁrm.

Mr. Swartzman has been a Managing Director of the Company since October 2004. He is responsible for

corporate development and real estate for MDC and its operating companies. Mr. Swartzman served as an
officer in a similar capacity for the Company from September 2002 until February 2003. Prior thereto,
Mr. Swartzman joined Amadeus Capital Corporation in 2000 as Senior Vice President where he was
responsible for various corporate development activities of that company and its affiliates, including serving as
the Vice President, Corporate Development from February 2003 to October 2004 for First Asset Management
Inc., a Toronto based asset management company. Prior thereto, he was Executive Vice President of Pet Valu
International Inc., a retail chain.

Additional information about our directors and executive officers appears under the captions ‘‘Election of

Directors’’ and ‘‘Executive Compensation’’ in our Proxy Statement.

Code of Conduct

The Company has adopted a Code of Conduct, which applies to all directors, officers (including the
Company’s Chief Executive Officer and Chief Financial Officer) and employees of the Company and its
subsidiaries. The Company’s policy is to not permit any waiver of the Code of Conduct for any director or
executive officer, except in extremely limited circumstances. Any waiver of this Code of Conduct for directors
or officers of the Company must be approved by the Company’s Board of Directors. Amendments to and
waivers of the Code of Conduct will be publicly disclosed as required by applicable laws, rules and
regulations. The Code of Conduct is available free of charge on the Company’s website at
http://www.mdc-partners.com, or by writing to MDC Partners Inc., 745 Fifth Avenue, New York, NY, 10151,
Attention: Investor Relations.

Item 11. Executive Compensation

Reference is made to the sections captioned ‘‘Compensation of Directors’’ and ‘‘Executive

Compensation’’ in our next Proxy Statement, which are incorporated herein by reference.

Item 12. Security Ownership of Certain Beneﬁcial Owners and Management and Related
Stockholder Matters

Reference is made to Part II — Item 5 of this Form 10-K and to the sections captioned ‘‘Section 16 (a)

Beneﬁcial Ownership Reporting Compliance’’ in the Company’s next Proxy Statement, which are incorporated
herein by reference.

Item 13. Certain Relationships and Related Transactions and Director Independence

Reference is made to the section captioned ‘‘Certain Relationships and Related Transactions’’ in our next

Proxy Statement, which is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

Reference is made to the section captioned ‘‘Appointment of Auditors’’ in our next Proxy Statement,

which is incorporated herein by reference.

96

Item 15. Exhibits and Financial Statement Schedules.

PART IV

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
MDC Partners Inc. New York, New York
Toronto, Canada

The audits referred to in our report dated March 15, 2012 relating to the consolidated ﬁnancial statements of
MDC Partners Inc. and subsidiaries, which is contained in Item 8 of this Form 10-K also included the audit of
the ﬁnancial statement Schedule II for years ended 2011, 2010 and 2009. This ﬁnancial statement schedule is
the responsibility of the Company’s management. Our responsibility is to express an opinion on the ﬁnancial
statement schedule based on our audits.

In our opinion such ﬁnancial statement Schedule II, when considered in relation to the basic consolidated
ﬁnancial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/ BDO USA, LLP
New York, New York
March 15, 2012

97

(a) Financial Statements and Schedules

The Financial Statements and schedules listed in the accompanying index to Consolidated Financial

Statements in Item 8 are ﬁled as part of this report. Schedules not included in the index have been omitted
because they are not applicable.

Schedule II — 1 of 2

MDC PARTNERS INC. & SUBSIDIARIES

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended December 31, 2010
(Dollars in Thousands)

Column A

Column B

Column C

Column D

Balance at
Beginning of
Period

Charged to
Costs and
Expenses

Removal of
Uncollectable
Receivables

Description
Valuation accounts deducted
from assets to which they
apply − allowance for
doubtful accounts:

Column E
Translation
Adjustments
Increase
(Decrease)

Column F

Balance at the
End of Period

December 31, 2011 . . . . . . . . . . . .
December 31, 2010 . . . . . . . . . . . .
December 31, 2009 . . . . . . . . . . . .

$1,990
$2,034
$2,179

$158
$765
$946

$(1,299)
$ (824)
$(1,154)

$
2
$ 15
$ 63

$ 851
$1,990
$2,034

Schedule II — 2 of 2

MDC PARTNERS INC. & SUBSIDIARIES

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended December 31, 2011
(Dollars in Thousands)

Column A

Column B

Column C

Column D

Balance at
Beginning of
Period

Charged to
Costs and
Expenses

Other

Description
Valuation accounts deducted
from assets to which they
apply − valuation allowance for
deferred income taxes:

Column E
Translation
Adjustments
Increase
(Decrease)

Column F

Balance at the
End of Period

December 31, 2011 . . . . . . . . . . . .
December 31, 2010 . . . . . . . . . . . .
December 31, 2009 . . . . . . . . . . . .

$66,459
$77,044
$70,929

$47,422
$ (7,986)
$ 2,656

(4)(1)
$
$(3,908)(1)
$(2,705)(1)

$ (292)
$1,309
$6,164

$113,585
$ 66,459
$ 77,044

(1) Adjustment to reconcile actual net operating loss carry forwards to prior year tax accrued, utilization of
net operating loss carry forwards, which were fully reserved and adjustment for net operating loss
relating to sale of business.

(b) Exhibits

The exhibits listed on the accompanying Exhibits Index are ﬁled as a part of this report.

98

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the

registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

Date: March 15, 2012

By: /s/ Miles S. Nadal

MDC PARTNERS INC.

Name: Miles S. Nadal
Title: Chairman, Chief Executive Officer and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below

by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Date

/s/ Miles S. Nadal
Miles S. Nadal

/s/ Robert Kamerschen
Robert Kamerschen

/s/ Clare Copeland
Clare Copeland

/s/ Thomas N. Davidson
Thomas N. Davidson

/s/ Scott Kauffman
Scott Kauffman

/s/ Michael J. Kirby
Michael J. Kirby

/s/ Stephen M. Pustil
Stephen M. Pustil

/s/ David Doft
David Doft

/s/ Michael Sabatino
Michael Sabatino

Chairman, Chief Executive Officer and President

March 15, 2012

Presiding Director

March 15, 2012

Director

Director

Director

Director

March 15, 2012

March 15, 2012

March 15, 2012

March 15, 2012

Director, Vice Chairman

March 15, 2012

Chief Financial Officer

March 15, 2012

Senior Vice President and Chief Accounting Officer

March 15, 2012

99

Exhibit No.

EXHIBIT INDEX

Description

3.1

3.1.1

3.1.2

3.2

3.1.3

4.1

4.1.1

4.1.2

4.1.3

4.1.4

4.1.5

10.1

10.1.1

10.1.2

10.1.3

Articles of Amalgamation, dated January 1, 2004 (incorporated by reference to Exhibit 3.1 to the
Company’s Form 10-Q ﬁled on May 10, 2004);

Articles of Continuance, dated June 28, 2004 (incorporated by reference to Exhibit 3.3 to the
Company’s Form 10-Q ﬁled on August 4, 2004);

Articles of Amalgamation, dated July 1, 2010 (incorporated by reference to Exhibit 3.1 to the
Company’s Form 10-Q ﬁled on July 30, 2010);

General By-law No. 1, as amended on April 29, 2005 (incorporated by reference to Exhibit 3.2
to the Company’s Form 10-K ﬁled on March 16, 2007);

Articles of Amalgamation, dated May 1, 2011 (incorporated by reference to Exhibit 3.1 to the
Company’s Form 10-Q ﬁled on May 2, 2011);

Indenture, dated as of October 23, 2009, by and between the Company, the Note Guarantors, and
The Bank of New York Mellon, as trustee, relating to the issuance of the Company’s 11% Notes
due 2016 (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K ﬁled on
October 26, 2009);

First Supplemental Indenture, dated as of May 14, 2010, to the Indenture, dated as of
October 23, 2009, among the Company, the Note Guarantors and The Bank of New York
Mellon, as trustee, including the form of 11% Notes due 2016 (incorporated by reference to
Exhibit 4.1 to the Company’s Form 8-K ﬁled on May 14, 2010);
Second Supplemental Indenture, dated as of October 23, 2010, to the Indenture, dated as of
October 23, 2009, among the Company, the Note Guarantors and The Bank of New York
Mellon, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Form 10-Q ﬁled
on October 29, 2010);
Third Supplemental Indenture, dated as of April 19, 2011, to the Indenture, dated as of
October 23, 2009, among the Company, the Note Guarantors and The Bank of New York
Mellon, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K ﬁled on
April 19, 2011);
Fourth Supplemental Indenture, dated as of May 2, 2011, to the Indenture, dated as of
October 23, 2009, among the Company, the Note Guarantors and The Bank of New York
Mellon, as trustee*;
Fifth Supplemental Indenture, dated as of September 19, 2011, to the Indenture, dated as of
October 23, 2009, among the Company, the Note Guarantors and The Bank of New York
Mellon, as trustee*;
Purchase Agreement, dated October 20, 2009, by and among the Company and Goldman,
Sachs & Co., as representative of the initial purchasers, relating to the issuance of the Company’s
11% Notes due 2016 (incorporated by reference to Exhibit 1.1 to the Company’s Form 8-K ﬁled
on October 26, 2009);

Exchange and Registration Rights Agreement, dated as of October 23, 2009, by and among the
Company, and Goldman, Sachs & Co., as representative of the initial purchasers, relating to the
issuance of the Company’s 11% Notes due 2016 (incorporated by reference to Exhibit 10.1 to the
Company’s Form 8-K ﬁled on October 26, 2009);

Purchase Agreement, dated as of May 11, 2010, among the Company, the Note Guarantors and
Goldman, Sachs & Co., as representative of the initial purchasers named therein (incorporated by
reference to Exhibit 1.1 to the Company’s Form 8-K ﬁled on May 14, 2010);

Exchange and Registration Rights Agreement, dated as of May 14, 2010, among the Company,
the Note Guarantors and Goldman, Sachs & Co., as representative of the initial purchasers
named therein (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K ﬁled on
May 14, 2010);

100

Exhibit No.

10.1.5

10.1.6

10.2

10.2.1

10.2.2

10.2.3

10.2.4

10.2.5

10.2.6

10.2.7

10.2.8

Description

Purchase Agreement, dated as of April 14, 2011, among the Company, the Note Guarantors and
Goldman, Sachs & Co., as representative of the initial purchasers named therein (incorporated by
reference to Exhibit 1.1 to the Company’s Form 8-K ﬁled on April 19, 2011);

Exchange and Registration Rights Agreement, dated as of April 19, 2011, among the Company,
the Note Guarantors and Goldman, Sachs & Co., as representative of the initial purchasers
named therein (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K ﬁled on
April 19, 2011);

Credit Agreement, dated as of October 23, 2009 by and among the Company, Maxxcom Inc., a
Delaware corporation, each of their subsidiaries party thereto, Wells Fargo Foothill, LLC, as
agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s
Form 8-K ﬁled on October 26, 2009);

First Amendment, dated March 19, 2010, to Credit Agreement, dated as of October 23, 2009 by
and among the Company, Maxxcom Inc., a Delaware corporation, each of their subsidiaries party
thereto, Wells Fargo Foothill, LLC (now Wells Fargo Capital Finance, LLC), as agent, and the
lenders party thereto (incorporated by reference to Exhibit 10.1.1 to the Company’s Form 10-Q
ﬁled on May 7, 2010);

Consent and Second Amendment, dated May 6, 2010, to Credit Agreement, dated as of
October 23, 2009 by and among the Company, Maxxcom Inc., a Delaware corporation, each of
their subsidiaries party thereto, Wells Fargo Foothill, LLC (now Wells Fargo Capital Finance,
LLC), as agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1.2 to the
Company’s Form 10-Q ﬁled on May 7, 2010);
Third Amendment, dated November 22, 2010, to Credit Agreement, dated as of October 23, 2009
by and among the Company, Maxxcom Inc., a Delaware corporation, each of their subsidiaries
party thereto, Wells Fargo Capital Finance, LLC (formerly Wells Fargo Foothill, LLC), as agent,
and the lenders party thereto (incorporated by reference to Exhibit 10.2.3 to the Company’s
Form 10-K ﬁled on March 14, 2011);
Fourth Amendment, dated March 7, 2011, to Credit Agreement, dated as of October 23, 2009 by
and among the Company, Maxxcom Inc., a Delaware corporation, each of their subsidiaries party
thereto, Wells Fargo Capital Finance, LLC (formerly Wells Fargo Foothill, LLC), as agent, and
the lenders party thereto (incorporated by reference to Exhibit 10.2.4 to the Company’s
Form 10-K ﬁled on March 14, 2011);
Fifth Amendment, dated March 25, 2011, to Credit Agreement, dated as of October 23, 2009 by
and among the Company, Maxxcom Inc., a Delaware corporation, each of their subsidiaries party
thereto, Wells Fargo Capital Finance, LLC (formerly Wells Fargo Foothill, LLC), as agent, and
the lenders party thereto (incorporated by reference to Exhibit 10.1.1 to the Company’s
Form 10-Q ﬁled on May 2, 2011);

Sixth Amendment, dated April 29, 2011, to Credit Agreement, dated as of October 23, 2009 by
and among the Company, Maxxcom Inc., a Delaware corporation, each of their subsidiaries party
thereto, Wells Fargo Capital Finance, LLC (formerly Wells Fargo Foothill, LLC), as agent, and
the lenders party thereto (incorporated by reference to Exhibit 10.1.2 to the Company’s
Form 10-Q ﬁled on May 2, 2011);

Seventh Amendment, dated September 21, 2011, to Credit Agreement, dated as of October 23,
2009 by and among the Company, Maxxcom Inc., a Delaware corporation, each of their
subsidiaries party thereto, Wells Fargo Capital Finance, LLC (formerly Wells Fargo Foothill,
LLC), as agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the
Company’s Form 10-Q ﬁled on November 3, 2011);

Eighth Amendment, dated February 13, 2012, to Credit Agreement, dated as of October 23, 2009
by and among the Company, Maxxcom Inc., a Delaware corporation, each of their subsidiaries
party thereto, Wells Fargo Capital Finance, LLC (formerly Wells Fargo Foothill, LLC), as agent,
and the lenders party thereto*;

101

Exhibit No.

10.3

10.3.1

10.3.2

10.3.3

10.4

10.4.1

10.5

10.5.1

10.6

10.7

10.8

10.8.1

10.9

10.9.1

10.10

10.11

10.11.1

Description

Management Services Agreement relating to the employment of Miles Nadal as Chief Executive
Officer, dated April 27, 2007 (incorporated by reference to Exhibit 10.2 to the Company’s
Form 10-Q ﬁled on May 8, 2007);

Letter Agreement between the Company and Miles Nadal dated April 11, 2005 (incorporated by
reference to Exhibit 10.6.1 to the Company’s Form 10-K ﬁled on April 18, 2005);

Letter Agreement between the Company and Miles Nadal dated April 1, 2008 (incorporated by
reference to Exhibit 10.3.2 to the Company’s Form 10-K ﬁled on March 9, 2009);

Amendment to Management Services Agreement relating to the employment of Miles Nadal as
Chief Executive Officer, dated July 30, 2010 (incorporated by reference to Exhibit 10.1 to the
Company’s Form 10-Q ﬁled on July 30, 2010);

Employment Agreement between the Company and Stephen M. Pustil, dated as of August 20,
2007 (incorporated by reference to Exhibit 10.1 to the Company’s 10-Q ﬁled on November 8,
2007);

Amendment No. 1 dated August 5, 2010, to the Employment Agreement made as of August 20,
2007, by and between MDC Partners Inc. and Stephen Pustil (incorporated by reference to
Exhibit 10.1 to the Company’s Form 10-Q ﬁled on October 29, 2010);

Employment Agreement between the Company and David Doft, dated as of July 19, 2007
(effective August 10, 2007) (incorporated by reference to Exhibit 10.7 to the Company’s
Form 10-Q ﬁled on August 7, 2007);
Amendment No. 1 dated March 7, 2011, to the Amended and Restated Employment Agreement
made as of July 19, 2007, by and between the Company and David Doft (incorporated by
reference to Exhibit 10.2 to the Company’s Form 10-Q ﬁled on May 2, 2011);
Employment Agreement between the Company and Gavin Swartzman, dated as of September 5,
2007 (incorporated by reference to Exhibit 10.2 to the Company’s 10-Q ﬁled on November 8,
2007);
Agreement of Settlement and Release, dated as of June 6, 2011, between the Company and
Robert Dickson (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q ﬁled on
August 4, 2011);
Amended and Restated Employment Agreement between the Company and Mitchell Gendel,
dated as of July 6, 2007 (incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q
ﬁled on August 7, 2007);
Amendment No. 1 dated March 7, 2011, to the Amended and Restated Employment Agreement
made as of July 6, 2007, by and between the Company and Mitchell Gendel (incorporated by
reference to Exhibit 10.3 to the Company’s Form 10-Q ﬁled on May 2, 2011);
Amended and Restated Employment Agreement between the Company and Michael Sabatino,
dated as of July 6, 2007 (incorporated by reference to Exhibit 10.6 to the Company’s Form 10-Q
ﬁled on August 7, 2007);

Amendment No. 1 dated March 7, 2011, to the Amended and Restated Employment Agreement
made as of July 6, 2007, by and between the Company and Michael Sabatino (incorporated by
reference to Exhibit 10.4 to the Company’s Form 10-Q ﬁled on May 2, 2011);

Employment Agreement, dated as of June 28, 2011, between the Company and David Dabill
(incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q ﬁled on August 4,
2011);

Amended and Restated Stock Appreciation Rights Plan, as adopted by the shareholders of the
Company at the 2009 Annual and Special Meeting of Shareholders on June 2, 2009 (incorporated
by reference to Exhibit 10.2 to the Company’s Form 8-K ﬁled on June 5, 2009);
Form of Stock Appreciation Rights Agreement (incorporated by reference to Exhibit 10.2 to the
Company’s 10-Q ﬁled on May 5, 2006);

102

Exhibit No.

10.12

10.12.1

10.12.2

10.12.3

10.12.4

10.12.5

10.12.6

10.12.7

10.12.8

10.12.9

10.12.10

10.12.11

10.13

10.13.1

10.13.2

10.13.3
10.13.4

10.14

12

14

14.1

21

23

Description

Amended 2005 Stock Incentive Plan of the Company, as approved and adopted by the
shareholders of the Company at the 2009 Annual and Special Meeting of Shareholders on June 2,
2009 (incorporated by reference to Exhibit 10.1 to the Company’s 8-K ﬁled on June 5, 2009);

Form of Stock Option Agreement (incorporated by reference to Exhibit 10.2 to the Company’s
Form 10-Q ﬁled on November 9, 2005);

Form of Financial Performance-Based Restricted Stock Grant Agreement (incorporated by
reference to Exhibit 10.1 to the Company’s Form 8-K ﬁled on March 2, 2006);

Form of Financial Performance-Based Restricted Stock Unit Grant Agreement (incorporated by
reference to Exhibit 10.2 to the Company’s Form 8-K ﬁled on March 2, 2006);

Form of Service-Based and Financial Performance-Based Restricted Stock Unit Agreement
(incorporated by reference to Exhibit 10.4 of the Company’s Form 10-Q ﬁled on November 8,
2007);

Form of Restricted Stock Grant Agreement (2010) (incorporated by reference to Exhibit 10.12.5
to the Company’s Form 10-K ﬁled on March 10, 2010);

Form of Restricted Stock Unit (RSU) Grant Agreement (2010) (incorporated by reference to
Exhibit 10.12.6 to the Company’s Form 10-K ﬁled on March 10, 2010);

Form of EVAR Grant Agreement (incorporated by reference to Exhibit 10.1 to the Company’s
Form 8-K ﬁled on January 27, 2011);
Form of EVAR Letter Agreement (incorporated by reference to Exhibit 10.2 to the Company’s
Form 8-K ﬁled on January 27, 2011);
Form of Restricted Stock Grant Agreement (2011) (incorporated by reference to Exhibit 10.12.9
to the Company’s Form 10-K ﬁled on March 14, 2011);
Form of Restricted Stock Unit (RSU) Grant Agreement (2011) (incorporated by reference to
Exhibit 10.12.10 to the Company’s Form 10-K ﬁled on March 14, 2011);
2008 Key Partner Incentive Plan, as approved and adopted by the shareholders of the Company
at the 2008 Annual and Special Meeting of Shareholders on May 30, 2008 (incorporated by
reference to Exhibit 10.1 to the Company’s Form 10-Q ﬁled on July 31, 2008);
2011 Stock Incentive Plan of the Company, as approved and adopted by the shareholders of the
Company on June 1, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s
Form 8-K ﬁled on June 1, 2011);
Form of Restricted Stock Grant Agreement (2011 Plan) (incorporated by reference to
Exhibit 10.2 to the Company’s Form 8-K ﬁled on June 1, 2011);
Form of Restricted Stock Unit (RSU) Grant Agreement (2011 Plan) (incorporated by reference to
Exhibit 10.3 to the Company’s Form 8-K ﬁled on June 1, 2011);
Form of Restricted Stock Grant Agreement (2012)*;
Form of Restricted Stock Unit (RSU) Grant Agreement (2012)*;

Form of Incentive/Retention Payment letter agreement (incorporated by reference to Exhibit 10.1
to the Company’s Form 8-K ﬁled on August 1, 2011);

Statement of computation of ratio of earnings to ﬁxed charges*;

Code of Conduct of MDC Partners Inc. (incorporated by reference to Exhibit 14 to the
Company’s Form 10-K ﬁled on March 10, 2008);

MDC Partners’ Corporate Governance Guidelines, amended in May 2009 (incorporated by
reference to Exhibit 14.1 to the Company’s Form 10-K ﬁled on March 10, 2010);

Subsidiaries of Registrant*;

Consent of Independent Registered Public Accounting Firm BDO USA LLP*;

103

Exhibit No.

Description

31.1

31.2

32.1

32.2

Certiﬁcation by Chief Executive Officer pursuant to Rules 13a 14(a) and 15d 14(a) under the
Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002*;

Certiﬁcation by Chief Financial Officer pursuant to Rules 13a 14(a) and 15d 14(a) under the
Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002*;

Certiﬁcation by Chief Executive Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002*;

Certiﬁcation by Chief Financial Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002*.

*

Filed electronically herewith.

104

MDC Partners Inc. – Directory 

New York Office 
745 Fifth Avenue, 19th Floor 
New York, New York 10151 
Tel: 646-429-1800 
Fax: 212-937-4365 
Chief Financial Officer: 
David B. Doft 

Toronto Office 
45 Hazelton Avenue 
Toronto, Ontario  
M5R 2E3 
Tel: 416-960-9000 
Fax: 416-960-9555 
www.mdc-partners.com 
Chairman & CEO 
Miles S. Nadal 

6 Degrees Integrated 
Communications 
1210 Sheppard Ave. East 
Suite 700 
Toronto, ON  M2K 1E3 
Tel: 416-446-7758 
Fax: 416-446-1923 
www.6deg.ca 
President: 
Tom Green 

BOOM! Marketing 
1210 Sheppard Ave. East 
Suite 700 
Toronto, ON  M2K 1E3 
Tel: 416-446-7758 
www.boommarketing.ca 
President:  
Nicole Gallucci 

72andSunny 
6300 Arizona Circle 
Los Angeles, CA 90045 
Tel: 310-215-9009 
Fax: 310-215-9012 
www.72andsunny.com 
Partner, Chief Strategy 
Officer: 
Matt Jarvis 

Netherlands 
Westerhuís -1st Fl 
Westerstraat 187 
1015 MA Amsterdam 
Netherlands 
Tel: +31 (0)20 521 04 70 
Fax: +31 (0)20 521 04 85 

ACCENT 
400 Missouri Avenue 
Suite 100 
Jeffersonville, Indiana 47130 
Tel: 812-206-6200 
Fax: 812-206-6201 
www.accentonline.com 
CEO: 
Tim Searcy 

Allison & Partners 
505 Sansome St., 7th Floor 
San Francisco, CA 94111 
Tel: 415-217-7500 
Fax: 412-217-7503 
www.allisonpr.com 
President & CEO: 
Scott Allison  

Santa Monica 
2001 Wilshire Blvd 
Suite 501 
Santa Monica, CA 90403 
Tel: 310-452-7540 
Fax: 310.425.9005 
Contact: Dawn Wilcox 

New York 
116 E 27th Street,  
4th Fl 
New York, NY 10016 
Tel: 212-302-5460 
Fax: 212-302-5464 
Contact: Anne Colaiacovo 

Washington D.C. 
1025 Connecticut Avenue, 
NW 
Suite 220 
Washington, DC 20036 
Tel: 202-223-9260 
Fax: 202-466-7585 
Contacts: Brian Feldman & 
Sonia Taylor 

San Diego 
8880 Rio San Diego Drive, 
Suite 1090 
San Diego, CA 92108 
Tel: 619-533-7978 
Fax: 619-543-0030 
Contact: Tim Wheatcroft 

Phoenix 
410 N 44th Street 
Suite 1100 
Phoenix, AZ 85008 
Tel: 480-966-0100 
Fax: 480-966-0111 
Contact: Cathy Planchard 

Seattle 
84 Union Street 
Ste 208 
Seattle, WA 98101 
Tel: 206-414-8599 
Contact: Tom Biro 

Atlanta  
1708 Peachtree St 
Suite 100 
Atlanta, GA 30309 
Tel: 404-885-9596 
Fax: 404-885-9558 
Contact: Brian Feldman 

Anomaly 
536 Broadway 
11th Floor 
New York, NY 10012 
Tel: 917-595-2200 
Fax: 917-595-2299 
www.anomaly.com 
CEO: Carl Johnson 

Amsterdam 
Herengracht 257 
1016BJ Amsterdam 
The Netherlands 
Tel: +31-20-308-0380 
Contact: Hazelle Klonhammer 

London 
3-7 Herbal Hill 
London, EC1R 5EJ 
England 
Tel: +44-207-843-0600 
Contact: Paul Graham 

Toronto 
46 Spadina 
Toronto, ON M5V 2H8 
Canada 
Tel: 647-547-3440 
Contact: Franke Rodriguez 

Attention Partners 
160 Varick Street, 5th Floor 
New York, New York 10013 
Tel. 917-621-4400 
Fax: 917-591-1256 
www.attentionusa.com 
Founder & CEO: 
Curtis Hougland 

Bruce Mau Design 
469C King Street West 
Toronto, Ontario  
M5V 3M4 
Tel: 416-306-6401 
www.brucemaudesign.com 
President & CEO: Hunter 
Tura 

Chicago 
444 N. Michigan Avenue 
27th Floor 
Chicago, IL 60611 
Tel: 312-527-0500 
Fax: 312-896-2401 
President & CEO: Hunter 
Tura 

Bryan Mills Iradesso 
1129 Leslie Street 
Toronto, Ontario  
M3C 2K5 
Tel: 416-447-4740 
Fax: 416-447-4760 
www.bmir.com 
Chairman & CEO: 
Nancy Ladenheim 

Calgary 
Sun Life Plaza, North Tower 
Suite 2240, 140-4th Ave. SW 
Calgary, Alberta  
T2P 3N3 
Tel: 403-503-0144 
Fax: 403-503-0174 
President: Peter Knapp 

The Bull-Whitehouse 
c/o Tech Space 
95 Morton St. 
New York, NY 10014 
Tel: 646-794-4380 
www.thebullwhitehouse.com 
CEO & Partner: 
Matthew Bull 

Capital C 
340 King St. East, Suite 500 
Toronto, Ontario 
M5A 1K8  
Tel: 416-777-1124 
Fax: 416-777-0060 
www.capitalc.ca 
President & CEO:  
Tony Chapman 

Colle + McVoy 
400 First Avenue N. 
Suite 700 
Minneapolis, Minnesota 
55401-1954 
Tel: 612-305-6000 
Fax: 612-305-6001 
www.collemcvoy.com 
CEO: Christine Fruechte 

Communefx Partners 
1253 Freedom Road 
Suite 500 
Cranberry Township 
Pennsylvania  16066 
Tel: 724-935-8655 
Fax: 724-935-7080 
www.communefx.com 
CEO: 
Derek Correia 

Phoenix 
1705 W Parkside Lane 
Phoenix, AZ  85027 
Tel: 602-308-6700 

Computer Composition of 
Canada 
12 Stanley Court 
Whitby, Ontario  
L1N 8P9 
Tel: 905-430-3400 
Fax: 905-430-2412 
www.comptercomposition.ca 
President: 
Linda Rowe 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Newport Beach 
4675 MacArthur Court 
Suite 1000 
Newport Beach, CA 92660 
Tel: 949-623-4300 

London 
60 Charlotte Street 
London, W1T 2NU 
England 
Tel: +44-020-7632-7600 

Dotbox 
853 Broadway, Suite 400 
New York, NY 10003 
Tel: 212-937-4177 
www.dotbox.com 
CEO & Co-Founder: 
Ashley John Heather 

Exponent Public Relations 
400 First Avenue N. 
Suite 600 
Minneapolis, Minnesota 
55401-1954 
Tel: 612-305-6003 
Fax: 612-305-6501 
www.exponentpr.com 
Managing Director: Tom 
Lindell 

Hello Design 
10305 Jefferson Blvd. 
Culver City, CA 90232 
Tel: 310-839-4885 
Fax: 310-839-4886 
www.hellodesign.com 
CEO/Creative Director: 
David Lai 

henderson bas  
479 Wellington St. West 
Main Floor 
Toronto, ON  M5V 1E7 
Tel: 416-977-6660 
Fax: 416-977-2226 
www.theniceagency.com 
President: Dawna Henderson 

HL Group 
853 Broadway Ave. 
18th Floor 
New York, NY 10003 
Tel: 212-529-5533 
Fax: 212-529-2131 
www.hlgrp.com 
Founding Partners: 
Hamilton South 
Lynn Tesoro 

Los Angeles 
1800 N. Highland Ave 
Suite 100 
Los Angeles, CA 90028 
Tel: 323-966-4600 
Fax: 323.966.4601 

Concentric 
175 Varick St., 9th Floor 
New York, NY 10014 
Tel: 212-633-9700 
www.concentricpharma.com 
Co-CEOs: 
Ken Begasse 
Michael Sanzen 

Crispin Porter + Bogusky 
CP+B Miami 
3390 Mary Street 
Office 300 
Coconut Grove, FL 33133 
Tel: 305-859-2070 
Fax: 305-854-3419 
www.cpbgroup.com 
CEO:  
Andrew Keller 

CP+B Boulder 
6450 Gunpark Drive 
Boulder, CO 80301 
Tel: 303-628-5100 

CB+P Sweden  
Östra  Hamngatan 26-28 
SE-411 09 Gothenburg, 
Sweden  
Tel: 001-46-31-339-6060 
Fax: 001-46-31-339-6061 

CP+B Santa Monica 
515 Boccaccio Avenue 
Santa Monica 
CA 90291 
Tel: 310-822-3063 

CP+B London 
The Smokery, 2Greenhill 
Rents 
London 
EC1M 6BN 
Tel: 44.020.73248184 

CP+B Canada 
(Formerly Zig) 
296 Richmond St. West 
Suite 600 
Toronto, Ontario 
M5V 1X2 
Tel: 416-598-4944 
Fax: 416-593-4944 
CEO: Shelley Brown 

Doner 
25900 Northwestern Highway 
Southfield, MI 48075 
Tel: 248-354-9700 
www.doner.com 
Co-CEO & President: 
David DeMuth 
Co-CEO &Chief Creative 
Officer: 
Robert Strasberg 

Cleveland 
1100 Superior Avenue East 
10th Floor 
Cleveland, OH 44114 
Tel: 216-771-5700 

hud:sun Media  
6565 Sunset Blvd,  
Suite 501 
Los Angeles, CA 90028 
Tel: 323-410-7410 
Fax: 323-463-4794 
www.hudsunmedia.com 
CEO: Michael Rourke  

Integrated Media Solutions  
650 5th Avenue, 35th Floor  
New York, NY 10019 
Tel: 212-373-9500 
Fax: 212-333-2076 
www.imediasolutions.com 
CEO: Bob Ingram  

Los Angeles 
350 South Beverly Drive  
Suite 300  
Beverly Hills, CA  90212 
Tel: 310-407-5200 
Fax: 310-284-7931 
President: Ron Corvino 

Kenna 
1000-90 Burnhamthorpe Road 
W. 
Mississauga, Ontario 
L5B 3C3 
Tel: 905-277-2900 
Fax: 905-277-2299 
www.kenna.ca 
President & CEO: Glenn 
Chilton 

Winnipeg 
200-214 McDermot Ave 
Winnipeg, MB R3B OS3 
Tel: 204-982-3535 
Fax: 204-982-3520 

kbs+ 
160 Varick Street 
New York, NY 10013 
Tel: 212-633-0080 
Fax: 212-633-8643 
www.kbsp.com 
President & CEO: Lori 
Senecal 

kbs+ Canada Inc. (Toronto) 
(Formerly Allard Johnson) 
2 Bloor Street East 
26th Floor 
Toronto, Ontario 
M4W 3J4 
Tel: 416-260-7000 
Fax: 416-260-7100 
Chairman: 
Terry Johnson 

kbs+  Canada Inc. (Montreal) 
555 Boul René-Lévesque 
West 
17th Floor 
Montreal, Quebec 
H2Z 1B1 
Tel: 514.875.7400 
Fax: 514-875-0568 
President: 
Mario Daigle 

Kwittken & Co. 
160 Varick Street 
5th Floor 
New York, NY 10013 
Tel: 646.277.7111 
Fax: 646-658-0880 
www.kwitco.com 
President & Partner: 
Aaron Kwittken 

London 
1-2 Hatfields 
Enterprise House 
London, SE1 9PG 
United Kingdom 
Tel: +44.020.74018001 

The Media Kitchen 
160 Varick Street 
New York, NY 10013 
Tel: 212.663.0080 
212.633.8644 
CEO: Barry Lowenthal 

Media Kitchen Atlanta / 
Trend Influence 
303 Peachtree Center Ave. 
Suite 625 
Atlanta, GA 30303 
Tel: 404-221-1188 
Fax: 404-223-1136 
President: Jill Meiser 

Laird + Partners 
475 10th Avenue, 7th Floor 
New York, NY 10018 
Tel: 212-478-8181 
Fax: 212-478-5855 
www.lairdandpartners.com 
CEO: Trey Laird 

Mono Advertising 
3036 Hennepin Avenue 
Minneapolis, Minnesota 
55408 
Tel: 612-454-4900 
Fax: 612-822-4136 
www.mono-1.com 
Partner: James Scott 

Northstar Research 
Partners 
18 King Street East 
Suite 1500 
Toronto, Ontario   
M5C 1C4 
Tel: 416-907-7100 
Fax: 416-907-7149 
www.nsresearch.com 
Managing Director:  
Steve Tile 
Luke Austin 

New York 
One Penn Plaza, Suite 1630 
New York, NY 10119 
Tel: 212-986-4077 
Fax: 212-986-4088 
President: Jim Neuwirth 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Veritas Communications 
370 King Street West 
Suite 800, Box 46 
Toronto, ON  M5V 1J9 
Tel: 416-482-2248 
Toll Free:  
1-888-513-8733 
Fax: 416-482-2292 
www.veritascanada.com 
President: Beverley Hammond 

Vitro 
2305 Historic Decatur Road 
Suite 205 
San Diego, CA 92106 US 
Tel: 619.234.0408 
Fax: 619-234-4015 
www.vitroagency.com 
CEO: Tom Sullivan 

New York 
(Formerly SKINNY) 
160 Varick Street 
5th Floor 
New York, NY 10013 
Tel: 212-633-0800 
www.skinnynyc.com 
Managing Directors: Jonas 
Hallberg, Liron Reznik 

Yamamoto 
252 First Avenue North 
Minneapolis, MN 55401 
Tel: 612-375-0180 
Fax: 612-342-2424 
www.go-yamamoto.com 
President: Shelly Regan 

London 
Studio D 
22 Ebury Street 
London,  SW1W OLU 
England, U.K.  
Tel: 44.20.7824.9870 
Fax: 44.20.7730.6303 
Managing Director: 
Matthew Sell 

Los Angeles 
12437 Lewis Street 
Ste. 206 
Garden Grove, CA 92840 
Tel: 714.643.9430 
Managing Director: Charley 
Hajduk 

Boston 
Tel: 508-359-5225 
Vice President:  
Becca Kornet 

Atlanta 
Jamie Gordon 
Tel: 404-895-9872 

Onbrand 
469C King St. West 
Toronto, Ontario 
M5V 3M4 
Tel: 416-583-5710 
www.onbranddesign.com 
General Manager: 
Jeannette Williams 

Redscout 
28 West 25th Street, 10th 
Floor 
New York, NY 10010 
Tel: 646-336-6028 
Fax: 646-336-6122 
www.redscout.com 
Founding Partner & CEO: 
Jonah Disend   

San Francisco 
99 Osgood Place,2nd Floor 
San Francisco, CA 94133 
Tel: 415-644-5278 

Relevent 
27 West 24th Street 
Suite 202 
New York, NY 10010 
Tel: 212-206-0600 
Fax: 212-206-0693 
www.relevent.net 
CEO: Tony H. Berger 

RJ Palmer 
156 West 56th Street, 5th 
Floor 
New York, NY 10019 
Tel: 212-541-6770 
www.rjpalmer.com 
CEO: Peter Knobloch 

Atlanta 
260 Peachtree St. NW 
Suite 1100 
Atlanta, GA 30303 U.S. 
Tel: 404-479-2256 

Boston 
275 Washington Street 
#410 
Boston, MA 02458 U.S. 
Tel: 617-779-1874 

Sloane & Company 
7 Times Square Tower 
17th Floor 
New York, New York 10036 
Tel:212-486-9500 
Fax: 212-486-9094 
www.sloanepr.com 
CEO: Elliot Sloane 

Source Marketing 
761 Main Avenue 
Norwalk, Connecticut  06851 
Tel: 203-291-4000 
Fax: 203-229-0865 
www.source-marketing.com 
CEO: Derek Correia 

TargetCast 
909 Third Avenue, 31st Floor 
New York, NY 10022 
Tel: 212-500-6900 
Fax: 212-500-6880 
www.targetcast.com 
President & CEO: 
Steven Farella 

TargetCom, LLC 
444 North Michigan Avenue 
Suite 3300 
Chicago, IL 60611 
Tel: 312-822-1100 
Fax: 312-822-9628 
www.targetcom.com 
President: Nora Ligurotis 

TEAM Enterprises 
110 E. Broward Blvd., Suite 
2450 
Fort Lauderdale, Florida 
33301 
Tel: 954-862-2400 
Fax: 954-449-0273 
www.teament.com 
CEO: Dan Gregory 

TEAM TransActive 
110 E. Broward Blvd., Suite 
2450 
Fort Lauderdale, Florida 
33301 
Tel: 954-862-2433 
CEO: Tom Dowdy 

Trade X Media 
156 West 56th Street, 5th 
Floor 
New York, NY 10019 
Tel: 212-541-6770 
President: Vincent Laraia 

Varick Media Management 
160 Varick Street 
New York, NY 10013 
Tel: 212-243-8200 
Fax: 212-633-6693 
www.varickmm.com 
President: Paul Rotskowski 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Board of Directors and Corporate Officers 

Chairman 

Directors 

Corporate Officers 

Miles S. Nadal 
Chairman, Chief Executive Officer & 
President, 
MDC Partners Inc. 

Scott L. Kauffman (2) (3)
Presiding Director 
Chairman, Lela.com 
Chairman, Ology.com 
Chairman, Tune-Up Media 
Chairman, Lotame, 
Director, Vindicia 
Director, LookSmart Ltd. 
Former President, Chief Executive 
Officer, GeekNet 

Clare R. Copeland (1) (2) 
Corporate Director 
Chief Executive Officer, 
Falls Management Company 
Chairman, Toronto Hydro Corporation 
Chairman, Chief Executive Officer, 
OSF Inc. 
Chief Executive Officer,  
People’s Jewelers Corporation 

Miles S. Nadal 
Chairman, Chief Executive Officer, 
and President 

David B. Doft 
Chief Financial Officer 

Mitchell Gendel 
General Counsel & 
Corporate Secretary 

David Dabill 
Chief Operating Officer 

Michael Sabatino 
Senior Vice President & 
Chief Accounting Officer 

Charles Porter 
Chief Strategist 

Thomas N. Davidson (1) (2) (3) 
Corporate Director 
Chairman, NuTech Precision Metals, Inc. 
Chairman, Quarry Hill Group 
Director, Occulogix Inc. (TearLab) 

Gavin Swartzman 
Managing Director 

Anne Bologna 
Managing Director  

Robert J. Kamerschen (2) (3) 
Corporate Director 
Chairman, Survey Sampling Inc. (Ret.) 
Chairman, Chief Executive Officer, 
ADVO, Inc. (Ret.) 

Hon. Michael J.L. Kirby (1) (2) (3) 
Corporate Director 
The Senate of Canada (Ret.) 
Director, Bank of Nova Scotia 
Director, Extendicare 
Director, Just Energy Income Fund 
Director, Indigo Books & Music Inc. 
Director, ImmunoVaccine Technologies, 
Inc.  

Stephen M. Pustil 
Vice Chairman 
President, Peerage Realty Partners 
Chairman, Artemis Investment 
Management Inc. 

(1) Audit Committee 

(2) Human Resources & Compensation Committee 
(3) Nominating and Corporate Governance Committee 

Barbara Creagh 
EVP, Talent  

Glenn Gibson 
Chief Financial Officer, 
Canadian Marketing Communications 

Robert Kantor 
Chief Marketing Officer 

Brett Colbert 
Chief Procurement Officer 

David C. Ross 
Senior Vice President, Corporate 
Development 

Alexandra Delanghe Ewing 
VP, Corporate Communications 

Amie Miller 
SVP, Director of Talent Development 

David Porzio 
Chief of Staff 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Transfer Agent 

Investor Relations 

Notice of Shareholders’ Meeting 

CIBC Mellon Trust Company 
(Canadian Stock Transfer Company Inc. 
acts as the Administrative Agent for 
CIBC Mellon Trust Company) 

For Investor Relations information, 
please call David B. Doft, Chief 
Financial Officer, at: 646-429-1818. 

The annual meeting of shareholders will be 
held at The Plaza Hotel 768 Fifth Avenue, 
New York, N.Y. on Tuesday, June 5, 2012 at 
4:00 p.m. E.D.T. 

CIBC Mellon operates a telephone 
information inquiry line available by 
dialing: (toll-free) 1-800-387-0825; or 
416-682-3860. 

Correspondence may be addressed to: 
MDC Partners Inc. 
c/o CIBC Mellon Trust Company 
Corporate Trust Services 
P.O. Box 700, Station B 
Montreal, QC H3B 3K3 
Canada 

Stock Exchange Listing 

The Class A shares of the Company are 
listed in Canada on The Toronto Stock 
Exchange under trading symbol 
“MDZ.A”, and in the U.S. on the 
NASDAQ National Market under trading 
symbol “MDCA”. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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