MDC Partners Inc Annual Report 2018

FY2018 Annual Report · MDC Partners Inc
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2018 ANNUAL REPORT

 
Dear Shareholders,

Welcome to the company that is at the forefront of human creativity and insight. Every day MDC
Partners agencies tackle some of the biggest challenges faced by some of the most prominent companies on
earth, helping them get their products and services to the marketplace.

I am new to MDC but not new to the advertising and marketing industry, bringing with me over 40 years

of frontline experience when I became CEO this March. Right away, I rolled up my sleeves and dug into the
issues that have seen shareholders lose value even as MDC has consistently produced award-winning work.
I believe we can reverse this, and that’s why I spearheaded a $100 million investment in MDC and took on
this job as the third CEO in its 39-year history. I will waste no time in implementing a plan to increase
growth, improve efficiency, enhance our media business and cut out unnecessary expenses in favor of
appropriate investment in more digital and data-oriented work.

The headwinds that MDC has faced are a reﬂection of industry trends that have disrupted certain
elements of our business model but they also provide unique and renewed opportunity for agencies at the
forefront of creativity and the digital world.

Differentiation for Growth in the Face of Industry Disruption

I’ve been asked repeatedly about what makes MDC different from other networks, and whether MDC’s

fundamental organizing principle of entrepreneurialism can truly scale and succeed in today’s industry
environment. My answer is a resounding ‘‘yes.’’

Every year AdAge lists the top agencies and the agencies to watch, and though we are less than

one percent of the total ad marketplace, our partner agencies are 20% of those named this year. We have more
agencies honored on these lists than any holding company of any size, and that’s a tribute to the cutting-edge
nature of our ﬂagship agencies. It’s a clear sign of the great value that I believe can be unlocked here.

However, two signiﬁcant trends have been affecting our businesses: 1) the continued move from

conventional media to more targeted digital media; and 2) the shift from agency of Record (AOR)
assignments to project work. At the same time, media and creative work, which had been separated from each
other by procurement departments, are slowly being reunited, especially for mid-sized clients seeking to boost
their online presence.

Contrary to common belief, overall media spend and the need for marketing services is increasing, not
decreasing, as platforms like Facebook are growing in advertising revenue by over 30% a year. But to take
advantage of that growth, we need to deepen our client relationships to sell more of the entire modern
marketing stack from data and strategy through creative and media placement. We have core platforms across
all of these services and we need to strengthen our go-to-market efforts to offer them on a more uniﬁed basis.
This will be an important factor in achieving enhanced growth.

Prudent Cost Management

Over the course of 2018, MDC Partners made signiﬁcant progress to set the company up for future

success with greater ﬂexibility. The restructuring efforts that began early in 2018 continued throughout the
year, with over $60 million of annualized staff costs and $7 million in annualized real estate costs taken out of
the system in 2018. We expect the beneﬁt of these moves to become fully realized in 2019, given the offset
by the one-time restructuring cost needed to achieve the savings.

At the same time, we are focused on new opportunities for efficiency throughout this year, with further

real estate and staff cost savings opportunities being pursued both in the United States and overseas. I believe
we need to invest more in state-of-the-art-the-art digital services and less in real estate palaces. Further
efficiencies are possible not just in real estate but also in healthcare, IT, accounting and travel expenses. We
will strive to be lean, nimble and competitive.

Investment in Technology and Digital Talent

In April of 2018, MDC Partners acquired a majority partnership interest in Portland, Oregon-based digital

agency Instrument, effectively expanding its digital offering in strategy, creative and technology, and
accelerating MDC’s growth, building on its portfolio of modern, innovative and digital-ﬁrst agencies.
Instrument’s 175-person team of strategists, producers, designers, engineers and content creators have an
impressive track record of leading digital marketing and technology-driven business transformation for some
of the world’s most recognized companies, including Google, Nike, Levi’s, Airbnb, Sonos and Dropbox. With
a distinct values-driven agency culture and unique team model, Instrument has been named ‘‘a top 50
company creatives would kill to work for’’ by Working Not Working three years in a row, reinforcing our
position as ‘‘The Place Where Great Talent Lives.’’ Our plan is to continue to invest in expanding our digital
platforms while putting data, digital and media throughout the network in new ways, to ensure we are
bringing the most progressive and effective solutions to the marketplace.

MDC’s Strategic Review Process

The Stagwell Group’s investment marks the end of the strategic review process initiated in the latter part
of 2018 by the company’s Board of Directors, along with its management team. The comprehensive strategic
review had clear objectives: to solidify the MDC balance sheet, bring strong leadership to the parent, create
greater stability for MDC’s partner ﬁrms in the market, and improve MDC’s ability to invest behind its core
strengths. The Board evaluated a number of options, including various forms of investment into the company,
a sale or merger of the company, divestiture of certain assets and further consolidation of the portfolio, and in
March, announced the successful completion of that strategic review process and my appointment as CEO.

The Stagwell Group’s $100 million equity investment in MDC at a premium valuation is a reﬂection of
the future potential in this business and recognizes the scarcity of the assets that make up the MDC portfolio.
Importantly, it serves to stabilize the balance sheet and reduce debt, while at the same time creating ﬂexibility
to invest in MDC’s world-class agency platforms and reapply ourselves toward priority growth opportunities,
while allowing us to focus on our position as the preeminent talent-ﬁrst network in the industry.

Board Enhancement and Settlement with Activist

This month, we also announced several changes to our Board of Directors, as well as a settlement
agreement with FrontFour Capital Group LLC, which included the addition of Kristen O’Hara and one
additional director candidate, to our slate of director nominees for election at the 2019 Annual Meeting. At the
same time, two of our longstanding directors announced that they will not stand for reelection at this meeting,
and the Board appointed me Chairman of the Board of Directors. These changes are consistent with my
belief in the importance of having directors with ﬁrst-rate industry experience as we remain focused on
maximizing value for all shareholders, and we are pleased to have reached a constructive outcome with
FrontFour — thereby eliminating a potential distraction from the task at hand.

Future-Leaning

All of these initiatives are critical to us as we reinforce our role as leaders in our industry and return to

delivering superior shareholder value.

As an organization, we have a detailed plan including meaningful run rate savings by the end of year
one, renewed focus on selected properties and products, enhanced digital offerings, and a series of growth
synergies based on more marketing collaboration across the group.

I am honored to be entrusted with leading MDC Partners into its next phase of growth, and I am excited

by the opportunities I see to better optimize the underlying strengths of our business while leveraging the
digital and technology solutions that will power our future.

On behalf of MDC Partners I would like to thank all of our global employees and you, our shareholders,

for your continued support as we work diligently to create stronger growth, more efficient operations and
increased value. I look forward to keeping you informed of our progress.

Sincerely,

Mark Penn
Chairman and CEO
MDC Partners

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Comparison of 5 Years’ Cumulative Total Return among MDC Partners,
S&P 500 Index, the Russell 2000 Index and Peer Group

Set forth below is a line graph comparing the cumulative total shareholder return of MDC Partners
common stock 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 media, corporate communications and marketing service companies. The
graph assumes that, on December 31, 2013, $100 was invested in each of the following: MDC Partners
common stock, the S&P 500 Stock Index, the Russell 2000 Index, and the peer group (and that all dividends
were reinvested).

The peer group consists of Arbitron, Central European Media, Dreamworks Animation, John Wiley &

Sons, Lee Enterprises, Morningstar, Scholastic Corporation, EW Scripps, The New York Times Co., Belo
Corp., Cumulus Media, Harte-Hanks, Lamar Advertising, Meredith Corporation, National CineMedia, Sinclair
Broadcast Group, The McClatchy Company and Valassis Communications. Total shareholder return for the
peer group is weighted according to market capitalization at the beginning of each annual period. Note that
certain companies within this peer group (including Arbitron, Belo Corp., Dreamworks Animation and Valassis
Communications) have been acquired during this ﬁve-year period and their stock is no longer publicly traded.
Accordingly, these acquired entities are included in the peer group but only up through the closing date of the
respective acquisition.

$200

$150

$100

$50

$0

MDC Partners

S&P 500

Russel 2000

Peer Group

2013

2014

2015

2016

2017

2018

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

2013
100.00
100.00
100.00
100.00

2014
92.94
111.39
103.53
93.12

2015
93.44
110.58
97.62
98.64

2016
29.27
121.13
116.63
115.68

2017
43.56
144.65
131.96
134.76

2018
11.66
135.63
115.89
131.23

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

FORM 10-K

(cid:2)

□

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

For the Fiscal Year Ended December 31, 2018

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

For the transition period from

to

Commission File Number 001-13718

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, 19th Floor,
New York, New York, 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

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:4) No (cid:2)

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:4) No (cid:2)

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:2) No (cid:4)

Indicate by check mark whether the registrant has submitted electronically and every Interactive Data File required to be
submitted 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 such ﬁles). Yes (cid:2) No (cid:4)

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. (cid:2)

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

reporting company or an emerging growth company. See the deﬁnitions of ‘‘large accelerated ﬁler,’’ ‘‘accelerated ﬁler,’’ ‘‘smaller
reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated ﬁler □ Accelerated ﬁler (cid:2) Non-accelerated ﬁler □ Smaller reporting company □ Emerging growth company □
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for

complying with any new or revised ﬁnancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. □
Indicate by check mark whether the registrant is a shell company (as deﬁned in Rule 12b-2 of the Act). Yes (cid:4) No (cid:2)
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 29, 2018, the last business day of the Registrant’s most recently completed second ﬁscal quarter, was
approximately $223.8 million, computed upon the basis of the closing sales price $4.60 of the Class A subordinate voting shares on
that date.

As of February 28, 2019, there were 57,577,825 outstanding shares of Class A subordinate voting shares without par value, and

3,755 outstanding shares of Class B multiple voting shares without par value, of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement relating to the 2019 Annual General Meeting of Stockholders are incorporated by

reference in Part III of this report.

[This Page Intentionally Left Blank]

MDC PARTNERS INC.

TABLE OF CONTENTS

PART I

Item 1.

Item 1A.

Item 1B.

Item 2.

Item 3.

Item 4.

Item 5.

Item 6.

Item 7.

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

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

Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

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

PART II

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

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.

Item 9A.

Item 9B.

Item 10.

Item 11.

Item 12.

Item 13.

Item 14.

Item 15.

Item 16.

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

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

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

Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

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

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

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

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

Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART IV

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

Page

1

6

13

13

14

14

15

16

16

52

53

106

106

108

109

110

110

110

110

111

111

112

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. References in the Annual Report on Form 10-K to ‘‘Partner Firms’’ generally
refer to the Company’s subsidiary agencies.

All dollar amounts are stated in U.S. 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 4, 2019, 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
and Compensation Committee on Executive Compensation,’’ ‘‘Outstanding Shares,’’ ‘‘Appointment of
Auditors,’’ and ‘‘Certain Relationships and Related Transactions.’’

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, and estimates of amounts for redeemable noncontrolling interests and deferred
acquisition consideration, 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:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

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 achieve the full amount of its stated cost saving initiatives;

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 redeemable noncontrolling interests and deferred acquisition consideration;

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

foreign currency ﬂuctuations.

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 Item 1A, 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 of
the United States of America (‘‘U.S. GAAP’’). However, the Company has included certain non-U.S. 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 U.S. 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 U.S. GAAP.

iii

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Item 1. Business

MDC PARTNERS INC.

PART I

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 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 33 Draper Street, Toronto, Ontario, M5V 2M3, and its head office address is located at 745 Fifth Avenue,
19th Floor, New York, New York 10151.

About Us

MDC is a leading global provider of marketing, advertising, activation, communications and strategic
consulting solutions. Through its network of Partner Firms (as deﬁned below), MDC delivers a broad range of
customized services, including (1) global advertising and marketing, (2) media buying, planning and
optimization, (3) interactive and mobile marketing, (4) direct marketing, (5) database and customer
relationship management, (6) sales promotion, (7) corporate communications, (8) market research, (9) data
analytics and insights, (10) corporate identity, design and branding services, (11) social media
communications, (12) product and service innovation, (13) e-commerce management, and (14) technology
services.

Market Strategy

MDC’s strategy is to build, grow and acquire market-leading businesses that deliver innovative,

value-added marketing, activation, communications and strategic consulting services to their clients. By doing
so, MDC strives to be a partnership of marketing communications and consulting companies (or ‘‘Partner
Firms’’) whose strategic, creative and innovative solutions are media-agnostic, challenge the status quo,
achieve measurable superior returns on investment, and drive transformative growth and business performance
for its clients and stakeholders.

The MDC model is driven by three key elements:

Perpetual Partnership. The perpetual partnership model creates ongoing alignment of interests between
MDC and its Partner Firms to drive the Company’s overall performance by (1) identifying the ‘‘right’’ Partner
Firms with a sustainable differentiated position in the marketplace, (2) creating the ‘‘right’’ partnership
structure 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
succession planning support and compensation models to incentivize future leaders and second-generation
executives, (4) leveraging the network’s scale to provide access to strategic resources and best practices and
(5) focusing on delivering ﬁnancial results.

Entrepreneurialism. The entrepreneurial spirit of both MDC and its Partner Firms is optimized through
(1) its unique perpetual partnership model that incentivizes senior-level involvement and ambition, (2) access
to shared resources within the Corporate Group that allow individual ﬁrms to focus on client business and
company growth and (3) MDC’s collaborative creation of customized solutions to support and grow Partner
Firm businesses.

Human and Financial Capital. The perpetual partnership model balances accountability with ﬁnancial

ﬂexibility and meaningful incentives to support growth.

Reporting Segments

MDC has four reportable segments, plus an All Other category, all of which form the Advertising and
Communications Group. The Partner Firms provide a wide range of service offerings both domestically and
globally. While in some cases the ﬁrms provide the same or similar service offerings, the core or principal
service offering is the key factor that distinguishes the Partner Firms from one another.

1

The following discussion provides additional detailed disclosure for the four reportable segments and the

All Other category:

Global Integrated Agencies — This segment is comprised of the Company’s ﬁve global, integrated
Partner Firms serving multinational clients around the world. The operating segments within the Global
Integrated Agencies reportable segment provides a range of different services for its clients, including
strategy, creative and production for advertising campaigns across a variety of platforms (print, digital,
social media, television broadcast).

Domestic Creative Agencies — This segment is comprised of ﬁve Partner Firms that are national
advertising agencies leveraging creative capabilities at their core.

Specialist Communications — This segment is comprised of ﬁve Partner Firms that are each
communications agencies with core service offerings in public relations and related communications
services.

Media Services — This segment is comprised of two operating segments with media buying and
planning as its core competency.

All Other — This category consists of the Company’s remaining Partner Firms that provide a range of
diverse marketing communication services but are not eligible for aggregation with the reportable
segments. Each of the Partner Firms in the All Other category represent less than 10% of consolidated
revenue and do not meet the criteria to be a separate reportable segment.

Corporate — In addition, MDC reports its corporate office expenses incurred in connection with the
strategic resources provided to the Partner Firms, as well as certain other centrally managed expenses that
are not fully allocated to the Partner Firms as Corporate. Corporate provides client and business
development support to the Partner Firms as well as certain strategic resources, including accounting,
administrative, ﬁnancial, real estate, human resource and legal functions. Additional expenses managed by
the corporate office that are directly related to the Partner Firms are allocated to the appropriate
reportable segment and the All Other category.

For further information relating to the Company’s segments, including ﬁnancial information, see Note 16
of the Notes to the Consolidated Financial Statements and ‘‘Item 7 — Management’s Discussion and Analysis
of Financial Condition and Results of Operations.’’

Ownership Information

MDC maintains a majority or 100% ownership position in substantially all of its Partner Firms with
management of the partner companies owning the remaining equity. MDC generally has rights to increase
ownership of non-wholly owned subsidiaries to 100% over a deﬁned period of time. MDC’s effective
economic interest in each Partner Firm may vary from its voting ownership interest due to certain factors,
such as the existence of contingent deferred acquisition payments and/or cash distribution hurdles related to
noncontrolling interest holders.

The table below sets forth MDC’s voting ownership percentage of each listed Partner Firm as of
December 31, 2018. The table does not display all agencies or components within each Partner Firm for
which MDC may or may not maintain the same ownership percentage.

2

MDC PARTNERS INC.

SCHEDULE OF ADVERTISING AND COMMUNICATIONS COMPANIES

Company
Consolidated:
Global Integrated Agencies:
72andSunny . . . . . . . . . . .

Anomaly . . . . . . . . . . . . .

Crispin Porter Bogusky . . . .
Doner
. . . . . . . . . . . . . . .
Forsman & Bodenfors . . . . .

Attention . . . . . . . . . . . .
The Media Kitchen . . . . .

Domestic Creative

Agencies:

Colle + McVoy . . . . . . . . .
Laird + Partners . . . . . . . . .
Mono Advertising . . . . . . .
Union . . . . . . . . . . . . . . .
Yamamoto . . . . . . . . . . . .
Civilian . . . . . . . . . . . . .

Specialist Communications:
Allison & Partners . . . . . . .

Luntz Global
. . . . . . . . .
Sloane & Company . . . . .
HL Group Partners . . . . . . .
Hunter PR . . . . . . . . . . . .
KWT Global . . . . . . . . . . .
Veritas . . . . . . . . . . . . . . .

Media Services:
MDC Media Partners . . . . .
Assembly . . . . . . . . . . .
EnPlay . . . . . . . . . . . . .
Trade X . . . . . . . . . . . .
Unique Inﬂuence . . . . . .
Yes & Company . . . . . . . .
Bruce Mau Design . . . . .
Northstar Research

Partners . . . . . . . . . . .

Varick Media

Management 2 . . . . . .

All Other:
6degrees Communications . .
Concentric Partners . . . . . . .
Gale Partners . . . . . . . . . . .
Instrument
. . . . . . . . . . . .
Kenna . . . . . . . . . . . . . . .
Kingsdale . . . . . . . . . . . . .
. . . . . . . . . . . . .
Redscout

Year of Initial
Investment

Locations

Ownership
%

2010

2011

2001
2012
2004

2009
2004

1999
2011
2004
2013
2000
2000

2010

2014
2010
2007
2014
2010
1993

2010
2010
2015
2011
2015
2018
2004

1998

2010

1993
2011
2014
2018
2010
2014
2007

Los Angeles, New York, Netherlands, UK,
Australia, Singapore
New York, Los Angeles, Netherlands, Canada, UK,
China, Germany
Boulder, Los Angeles, UK, Brazil, China
Detroit, Cleveland, Los Angeles, UK
Sweden, New York, Canada, China, UK, Los
Angeles, Singapore
New York, Los Angeles
New York, Canada, UK

Minneapolis
New York
Minneapolis, San Francisco
Canada
Minneapolis
Chicago

San Francisco, Los Angeles, New York and other
US Locations, China, France, Singapore, UK,
Japan, Germany
Washington, D.C.
New York
New York, Los Angeles, China
New York, UK
New York, UK, Canada
Canada

New York
New York, Detroit, Atlanta, Los Angeles
New York
New York
Austin
New York
Canada, New York

Canada, New York, UK, Indonesia

New York

Canada
New York, UK
Canada, New York, India, Singapore
Portland
Canada
Canada, New York
New York, San Francisco, UK

3

100.0%

100.0%
100.0%
100.0%

100.0%
100.0%
100.0%

100.0%
65.0%
70.0%
75.0%
100.0%
100.0%

100.0%
100.0%
100.0%
100.0%
65.0%
77.5%
90.0%

100.0%
100.0%
90.0%
100.0%

100.0%

100.0%

100.0%

74.9%
72.3%
60.0%
51.0%
100.0%
65.0%
100.0%

Company
. . . . . . . . . . . . .
Relevent
TEAM . . . . . . . . . . . . . . .
Vitro . . . . . . . . . . . . . . . .
Y Media Labs . . . . . . . . . .

Year of Initial
Investment
2010
2010
2004
2015

Locations

New York
Ft. Lauderdale
San Diego, Austin
Redwood City, New York, India,

Ownership
%
100.0%
100.0%
81.6%
60.0%

Competition

MDC operates in a highly competitive and fragmented industry. Our Partner Firms compete for business

and talent with the operating subsidiaries of large global holding companies such as Omnicom Group Inc.,
Interpublic Group of Companies, Inc., WPP plc, Publicis Groupe SA, Dentsu Inc. and Havas SA, as well as
with numerous independent agencies that operate in multiple markets. Our ﬁrms also face competition from
consultancies, tech platforms, media companies and other services ﬁrms that have begun to offer related
services. MDC’s Partner Firms must compete with all of these other companies to maintain existing client
relationships and to obtain new clients and assignments.

MDC’s Partner Firms compete at this level by providing clients with progressive advertising and

marketing ideas and solutions that are focused on increasing clients’ revenues and proﬁts. MDC also beneﬁts
from cooperation among its entrepreneurial Partner Firms through referrals and the sharing of both services
and expertise, which enables MDC to service clients’ varied marketing needs around the world by crafting
custom integrated solutions. Additionally, MDC’s consistent maintenance of separate, independent operating
companies enables MDC to effectively manage potential conﬂicts of interest by representing competing clients
across its network.

Industry Trends

There are several recent economic and industry trends that affect or may be expected to affect the
Company’s results of operations. 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 these changes in the way consumers interact with media is
increasing the demand for a broader range of non-advertising marketing communications services (i.e., direct
marketing, sales promotion, interactive, mobile, strategic communications and public relations), which we
expect could have a positive impact on our results of operations. In addition, the rise of technology and data
solutions have rendered scale less crucial as it once was in areas such as media buying, creating signiﬁcant
opportunities for agile and modern players. Global marketers now demand breakthrough and integrated
creative ideas, and no longer require traditional brick-and-mortar communications partners in every market to
optimize the effectiveness of their marketing efforts. Combined with the fragmentation of the media landscape,
these factors provide new opportunities for small to mid-sized communications companies like those in the
MDC network. In addition, marketers now require ever greater speed-to-market to drive ﬁnancial returns on
their marketing and media investment, causing them to turn to more nimble, entrepreneurial and collaborative
communications ﬁrms like MDC Partner Firms.

As client procurement departments have focused increasingly on marketing services company fees in

recent years, the Company has invested in resources to work with client procurement departments to ensure
that we are able to deliver against client goals in a mutually beneﬁcial way. For example, the Company has
explored new compensation models, such as performance-based incentive payments and equity, in order to
greater align our success with our clients. These incentive payments may offset negative pricing pressure from
client procurement departments.

Clients

MDC serves a large base of clients across the full spectrum of industry verticals. In many cases, we

serve the same clients in various geographic locations, across multiple disciplines, and through multiple
Partner Firms. Representation of a client rarely means that MDC handles marketing communications for all
brands or product lines of the client in every geographical location. During 2018, 2017 and 2016, the

4

Company did not have a client that accounted for 5% or more of revenues. In addition, MDC’s ten largest
clients (measured by revenue generated) accounted for 23% of revenue for the three year period ended
December 31, 2018.

MDC’s agencies have written contracts with many of their clients. As is customary in the industry, these

contracts generally provide for termination by either party on relatively short notice, usually 90 days. See
‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive
Overview’’ for a further discussion of MDC’s arrangements with its clients.

Employees

As of December 31, 2018, we employed approximately 6,024 people worldwide. The following table
provides a breakdown of full time employees across MDC’s four reportable segments, the All Other category,
and Corporate:

Segment
Global Integrated Agencies
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Domestic Creative Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Specialist Communications
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Media Services
All Other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

Total
2,719
482
705
535
1,513
70
6,024

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

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. See Note 22 of the Notes to the Consolidated
Financial Statements for information relating to the Company’s quarterly results.

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 (the
‘‘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. 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 and Compensation Committee and 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, 19th Floor, New York, New York 10151, Attention: Investor
Relations.

5

Item 1A. Risk Factors

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

condition. See also ‘‘Forward-Looking Statements.’’

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

Advertising, marketing and communications expenditures are sensitive to global, national and regional
macroeconomic conditions, as well as speciﬁc budgeting levels and buying patterns. Adverse developments
including heightened uncertainty could reduce the demand for our services, which could adversely affect our
revenue, results of operations, and ﬁnancial position in 2019.

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 MDC’s senior secured revolving credit agreement (as amended, the ‘‘Credit
Agreement’’) or the $900 million aggregate principal amount of 6.50% notes due 2024 (the ‘‘6.50% Notes’’),
or reduced liquidity. Our ten largest clients (measured by revenue generated) accounted for 23% of our
revenue in 2018.

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 or experienced senior management changes. From year to year, the identities
of MDC’s ten 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.

6

The loss of lines of credit under the 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 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, including through contingent deferred acquisition payments.

On March 12, 2019, in connection with an amendment to the Credit Agreement, we reduced the
maximum amount of revolving commitments provided by the lenders to $250 million from $325 million.

The Company is currently in compliance with all of the terms and conditions of the Credit Agreement. If,

however, events were to occur, which result in MDC losing all or a substantial portion of its available credit
under the Credit Agreement, or if MDC was prevented from accessing such lines of credit due to other
restrictions such as those in the indenture governing the 6.50% Notes, MDC could be required to seek other
sources of liquidity. In addition, if MDC were unable to replace these sources of liquidity, then MDC’s ability
to fund its working capital needs and any contingent obligations with respect to put options or contingent
deferred acquisition payments would be materially adversely affected.

We have signiﬁcant contingent obligations related to deferred acquisition consideration and noncontrolling
interests in our subsidiaries, which will require us to utilize our cash ﬂow and/or to incur additional debt to
satisfy.

The Company has made a number of acquisitions for which it has deferred payment of a portion of the
purchase price, usually for a period between one to ﬁve years after the acquisition. The deferred acquisition
consideration is generally payable based on achievement of certain thresholds of future earnings of the
acquired company and, in certain cases, also based on the rate of growth of those earnings. Once any
contingency is resolved, the Company may pay the contingent consideration over time.

The Company records liabilities on its balance sheet for deferred acquisition payments at their estimated
value based on the current performance of the business, which are remeasured each quarter. At December 31,
2018, these aggregate liabilities were $83.7 million, of which $32.9 million, $29.5 million and $21.3 million
would be payable in 2019, 2020 and 2021.

In addition to the Company’s obligations for deferred acquisition consideration, managers of certain of
the Company’s acquired subsidiaries hold noncontrolling interests in such subsidiaries. In the case of certain
noncontrolling interests related to acquisitions, such managers are entitled to a proportionate distribution of
earnings from the relevant subsidiary, which is recognized on the Company’s consolidated income statement
under ‘‘Net income attributable to the noncontrolling interests.’’

Noncontrolling shareholders often have the right to require the Company to purchase all or part of its

interest, either at speciﬁed dates or upon the termination of such shareholder’s employment with the
subsidiary or death (put rights). In addition, the Company usually has rights to call noncontrolling
shareholders’ interests at a speciﬁed date. The purchase price for both puts and calls is typically calculated
based on speciﬁed formulas tied to the ﬁnancial performance of the subsidiary.

The Company recorded $51.5 million on its December 31, 2018 balance sheet as redeemable
noncontrolling interests for its estimated obligations in respect of noncontrolling shareholder put and call
rights based on the current performance of the subsidiaries, $20.0 million of which related to put rights for
which, if exercised, the payments are due at speciﬁed dates, with the remainder of redeemable noncontrolling
interests attributable to put or call rights exercisable only upon termination of employment or death. No
estimated obligation is recorded on the balance sheet for noncontrolling interests for which the Company has a
call right but the noncontrolling holder has no put right.

Payments to be made by the Company in respect of deferred acquisition consideration and noncontrolling

shareholder put rights may be signiﬁcantly higher than the estimated amounts described above because the
actual obligation adjusts based on the performance of the acquired businesses over time, including future
growth in earnings from the calculations made at December 31, 2018. Similarly, the payments made by the
Company under call rights would increase with growth in earnings of the acquired businesses. The Company

7

expects that deferred contingent consideration and noncontrolling interests for managers may be features of
future acquisitions that it may undertake and that it may also grant similar noncontrolling interests to
managers of its subsidiaries unrelated to acquisitions.

The Company expects that its obligations in respect of deferred acquisition consideration and payments to

noncontrolling shareholders under put and call rights will be a signiﬁcant use of the Company’s liquidity in
the foreseeable future, whether in the form of free cash ﬂow or borrowings under the Company’s revolving
credit agreement or from other funding sources. For further information, see the disclosure under the heading
‘‘Business — Ownership Information’’ and the heading ‘‘Liquidity and Capital Resources.’’

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 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.

Our expenses have, in certain periods, increased at a greater rate than revenues, which in part reﬂects
both the increase in expenses for deferred acquisition consideration and from our investment in headcount for
certain growth initiatives. Should our acquisitions continue to outperform current expectations, expenses for
deferred acquisition consideration could increase as well in future periods. If our growth initiatives do not
provide sufficient revenue to offset the incremental costs in future periods, proﬁts could be reduced and
severance expense could be incurred in order to return to targeted proﬁt margins over time.

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 or executives.

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 Partner Firms 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 conditions, 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.

8

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

Employees, including creative, research, analytics, media, technology development, 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 U.S. 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 of the Notes to the
Consolidated Financial Statements included herein. 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.

The Company recognized an impairment of goodwill and other assets of $80.1 million for the

twelve months ended December 31, 2018. The impairment primarily consists of the write-down of goodwill
equal to the excess carrying value above the fair value of a reporting unit one in each of the Global Integrated
Agencies reportable segment, the Media Services reportable segment and within the All Other category and
the full write-down of a trademark for a reporting unit also within the Global Integrated Agencies reportable
segment. The trademark is no longer in active use following the merger of the underlying agency with another
reporting unit in the third quarter of 2018. See Note 10 of the Notes to the Consolidated Financial Statements
for information related to the merger.

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 the 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.

9

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 (including
the European Union’s recently enacted General Data Protection Regulation, or ‘‘GDPR’’). 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.

We rely extensively on information technology systems and cybersecurity incidents could adversely affect us.

We rely on information technologies and infrastructure to manage our business, including digital storage

of client marketing and advertising information and developing new business opportunities. Increased
cybersecurity threats and attacks, which are becoming more sophisticated, pose a risk to our systems and
networks. Security breaches, improper use of our systems and unauthorized access to our data and information
by employees and others may pose a risk that sensitive data may be exposed to unauthorized persons or to the
public. We also have access to sensitive or personal data or information that is subject to privacy laws and
regulations. Our systems and processes to protect against, detect, prevent, respond to and mitigate
cybersecurity incidents and our organizational training for employees to develop an understanding of
cybersecurity risks and threats may be unable to prevent material security breaches, theft, modiﬁcation or loss
of data, employee malfeasance and additional known and unknown threats. In addition, we use third-party
service providers, including cloud providers, to store, transmit and process data. Any breakdown or breach in
our systems or data-protection policies, or those of our third-party service providers, could adversely affect our
reputation or business.

Future issuances of equity securities, which may include securities that would rank senior to our Class A
shares, may cause dilution to our existing shareholders and adversely affect the market price of our
Class A shares.

The market price of our Class A shares could decline as a result of sales of a large number of our
Class A shares in the market, or the sale of securities convertible into a large number of our Class A shares.
The perception that these sales could occur may also depress the market price of our Class A shares. On
March 4, 2017, we issued 95,000 Series 4 convertible preference shares (the ‘‘Series 4 Preference Shares’’)
with an initial aggregate liquidation preference of $95.0 million, which will be convertible into Class A shares
or our Series 5 convertible preference shares at a current conversion price of $7.42 per share. On March, 15,
2019, we issued 50,000 Series 6 convertible preference shares (the ‘‘Series 6 Preference Shares’’ and, together
with the Series 4 Preference Shares, the ‘‘Preference Shares’’) with an initial aggregate liquidation preference
of $50.0 million, which will be convertible into Class A shares or our Series 7 convertible preference shares at
an initial conversion price of $5.00 per share. The terms of the Preference Shares provide that the conversion
price may be reduced, which would result in the Preference Shares being convertible into additional Class A
shares, upon certain events including distributions on our Class A shares or issuances of additional Class A
shares or equity-linked securities at a price less than the then-applicable conversion price. The issuance of
Class A Shares upon conversion of the Preference Shares may result in immediate and substantial dilution to
the interests of our Class A Shares holders since the holders of the Preference Shares may ultimately receive
and sell all of shares issuable in connection with the conversion of such Preference Shares. The market price
of our Class A shares may also be affected by factors, such as whether the market price is near or above the
conversion price, that could make conversion of the Preference Shares more likely.

10

Further, the Preference Shares will rank senior to the Class A shares, which could affect the value of the
Class A shares on liquidation or, as a result of contractual provisions, on a change in control transaction. For
example, pursuant to the related purchase agreements, the Company has agreed, with certain exceptions, not to
become party to certain change in control transactions that are approved by the Board other than a qualifying
transaction in which holders of Preference Shares are entitled to receive cash or qualifying listed securities
with a value equal to the then-applicable liquidation preference plus accrued and unpaid dividends.

See Note 14 and 23 of the Notes to the Consolidated Financial Statements for more information

regarding the Series 4 Preference Shares and the Series 6 Preference Shares, respectively.

Additionally, any convertible or exchangeable securities that we issue may have rights, preferences and

privileges more favorable than those of our Class A shares, and may result in dilution to owners of our
Class A shares. Because our decision to issue additional debt or equity securities in any future offering will
depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount,
timing or nature of our future issuances. Also, we cannot predict the effect, if any, of future issuances of our
Class A shares on the market price of our Class A shares.

The indenture governing the 6.50% Notes and the 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 6.50% Notes and the 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:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

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, mergers and acquisitions
and other corporate opportunities. The Credit Agreement is subject to various additional covenants, including a
senior leverage ratio, a total leverage ratio, a ﬁxed charge coverage ratio, and a minimum EBITDA level (as
deﬁned). Events beyond our control could affect our ability to meet these ﬁnancial tests, and we cannot assure
you that they will be met.

Our substantial indebtedness could adversely affect our cash ﬂow and prevent us from fulﬁlling our
obligations, including the 6.50% Notes.

As of December 31, 2018, MDC had $954.6 million, net of debt issuance costs, of indebtedness. In
addition, we expect to make additional drawings under the 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 debt service
and other obligations. If we are unable to meet our expenses and debt service obligations, we may need to

11

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.

Further, we currently receive senior unsecured and long-term debt and corporate quality ratings from
Standard & Poor’s and Moody’s. Our ratings are subject to periodic review, and we cannot assure you that we
will be able to retain our current or any future ratings. If our ratings are reduced from their current levels, this
could further adversely affect our liquidity and our business, ﬁnancial condition and results of operation.

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 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:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

make it more difficult for us to satisfy our obligations with respect to the 6.50% Notes;

make it difficult for us to meet our obligations with respect to our contingent deferred acquisition
payments;

limit our ability to increase our ownership stake in our Partner Firms;

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 the 6.50% 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 may be subject to adverse tax consequences such as those related to changes in tax laws or tax rates or
their interpretations, and the related application of judgment in determining our global provision for
income taxes, deferred tax assets or liabilities or other tax liabilities given the ultimate tax determination is
uncertain.

We are a Canada-domiciled multinational company subject to tax in multiple U.S. and foreign tax
jurisdictions. Signiﬁcant judgment is required in determining our global provision for income taxes, deferred
tax assets or liabilities and in evaluating our tax positions on a worldwide basis. While we believe our tax
positions are consistent with the tax laws in the jurisdictions in which we conduct our business, it is possible
that these positions may be overturned by jurisdictional tax authorities, which may have a signiﬁcant impact
on our global provision for income taxes.

Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law
are issued or applied. The U.S. recently enacted signiﬁcant tax reform, and certain provisions of the new law
may adversely affect us. In addition, governmental tax authorities are increasingly scrutinizing the tax

12

positions of companies. Many countries in the European Union, as well as a number of other countries and
organizations such as the Organization for Economic Cooperation and Development, are actively considering
changes to existing tax laws that, if enacted, could increase our tax obligations in countries where we do
business. If U.S. or other foreign tax authorities change applicable tax laws, our overall taxes could increase,
and our business, ﬁnancial condition or results of operations may be adversely impacted.

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

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

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
noncontrolling interest 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.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

See Note 18 of the Consolidated Financial Statements included in this Annual Report for a discussion of

the Company’s lease commitments and ‘‘Management’s Discussion and Analysis of Financial Condition and
Results of Operations’’ 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, Asia and

South America. 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-U.S. businesses are
denominated in currencies other than U.S. dollars and are therefore subject to changes in foreign exchange
rates.

The table below provides a brief description of all locations in which office space is maintained and the

related reportable segment.

Reportable Segment

Global Integrated Agencies

Office Locations

Los Angeles, New York, Boulder, Detroit, Cleveland, Canada, Sweden,
UK, Netherlands, China, Australia, Singapore, Germany, and Brazil.

Domestic Creative Agencies

New York, Minneapolis, San Francisco, and Canada.

Specialist Communications

San Francisco, Los Angeles, New York, Washington D.C., Canada,
UK, China, France, Singapore, Japan, Germany and Thailand.

Media Services

All Other

New York, Detroit, Atlanta, Los Angeles, and Austin.

New York, Portland, San Francisco, Ft. Lauderdale, San Diego, Austin,
Redwood City, Canada, India, Singapore, UK.

Corporate

New York

13

Item 3. Legal Proceedings

Dismissal of Class Action Litigation

On August 7, 2015, Roberto Paniccia issued a Statement of Claim in the Ontario Superior Court of

Justice in the City of Brantford, Ontario seeking to certify a class action suit naming the following as
defendants: MDC, former CEO Miles S. Nadal, former CAO Michael C. Sabatino, CFO David Doft and BDO
U.S.A. LLP. The Plaintiff alleged violations of section 138.1 of the Ontario Securities Act (and equivalent
legislation in other Canadian provinces and territories) as well as common law misrepresentation based on
allegedly materially false and misleading statements in the Company’s public statements, as well as omitting
to disclose material facts with respect to the SEC investigation. The Company vigorously defended this suit.
On June 1, 2018, the Ontario Superior Court of Justice dismissed the plaintiff’s motion to proceed with the
class action. Plaintiff agreed not to appeal this dismissal decision, and in July 2018 the Court entered a ﬁnal
order approving the dismissal of this claim.

Closing of Antitrust Investigation

In June 2016, one of the Company’s subsidiaries received a subpoena from the U.S. Department of
Justice Antitrust Division (the ‘‘DOJ’’) concerning the DOJ’s ongoing investigation of production practices in
the advertising industry. The Company and its subsidiary fully cooperated with this conﬁdential investigation.
By letter dated November 5, 2018 (received by the Company’s counsel on November 12, 2018), the DOJ
conﬁrmed that the foregoing investigation had been closed. The DOJ did not bring any charges against the
Company, its subsidiary or any of their respective employees.

Item 4. Mine Safety Disclosures

Not applicable.

14

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 market on which the Company’s Class A subordinate voting shares are traded is the

NASDAQ National Market (‘‘NASDAQ’’) (symbol: ‘‘MDCA’’). There is no established public trading market
for our Class B voting shares. As of February 28, 2019, the approximate number of registered holders of our
Class A subordinate voting shares and Class B voting shares, including those whose shares are held in
nominee name, was 220 and 87, respectively.

Dividend Practice

On November 3, 2016, the Company announced that it was suspending its quarterly dividend indeﬁnitely.

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 6.50% Notes,
future earnings, capital requirements, our general ﬁnancial condition and general business conditions.

Securities Authorized for Issuance Under Equity Compensation Plans

As of December 31, 2018, the total number of securities remaining available for future issuance is

2,766,602, including 111,866 securities to be issued upon exercise of outstanding options.

Equity Compensation Plans Not Approved by Security Holders

In connection with an employment agreement with a Senior Vice President, the Company awarded an

inducement grant of 25,000 restricted shares of the Company’s Class A subordinated voting stock. The
restricted stock award will vest on June 11, 2021, subject to continued employment.

See Note 13 of the Notes to the Consolidated Financial Statements included herein for further

information on our equity compensation plans.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

For the twelve months ended December 31, 2018, the Company made no open market purchases of its

Class A shares or its Class B shares. Pursuant to its Credit Agreement and the indenture governing the 6.50%
Notes, the Company is currently limited from repurchasing its shares in the open market.

During 2018, the Company’s employees surrendered Class A shares 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, 2018. The following table details those shares withheld during the fourth
quarter of 2018:

Period
10/1/2018 − 10/31/2018 . . . . . . . . . . . . . . .
11/1/2018 − 11/30/2018 . . . . . . . . . . . . . . .
12/1/2018 − 12/31/2018 . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total Number
of Shares
Purchased
116
—
—
116

Average Price
Paid Per Share
$2.47
—
—
$2.47

Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Program
—
—
—
—

Maximum
Number of
Shares That
May Yet Be
Purchased
Under the
Program
—
—
—
—

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 related Notes that are included in this Form 10-K.

2018

Years Ended December 31,
2016
(Dollars in Thousands, Except per Share Data)

2015

2017

2014

Operating Data
Revenues . . . . . . . . . . . . . . . . . . . . . . . $1,476,203
9,696
Operating income . . . . . . . . . . . . . . . . . $
Net income (loss)
Stock-based compensation included in

$1,513,779
$ 131,959
. . . . . . . . . . . . . . . . . $ (111,948) $ 257,223

$1,223,512
$1,326,256
$1,385,785
87,749
$
72,110
$
48,431
$
6,739
$ (40,621) $ (20,119) $

income (loss)

. . . . . . . . . . . . . . . . . . $

18,416

$

24,350

$

21,003

$

17,796

$

17,696

Net income (loss) per Share
Basic
Net income (loss) attributable to MDC

Partners Inc. common shareholders . . . . $

(2.31) $

3.72

$

(0.89) $

(0.58) $

(0.06)

Diluted
Net income (loss) attributable to MDC

Partners Inc. common shareholders . . . . $
Cash dividends declared per share . . . . $

(2.31) $
— $

3.71

$
— $

(0.89) $
$
0.63

(0.58) $
$
0.84

(0.06)
0.74

Financial Position Data
Total assets
Total debt
Redeemable noncontrolling interests . . . . . $
Deferred acquisition consideration . . . . . . $

. . . . . . . . . . . . . . . . . . . . . $1,611,573
. . . . . . . . . . . . . . . . . . . . . . $ 954,585
51,546
83,695

$1,698,892
$ 883,119
$
62,886
$ 122,426

$1,577,378
$ 936,436
$
60,180
$ 229,564

$1,577,625
$ 728,883
$
69,471
$ 347,104

$1,633,751
$ 727,988
$ 194,951
$ 205,368

Effective January 1, 2018, the Company adopted Financial Accounting Standards Board (the ‘‘FASB’’)

ASC Topic 606, Revenue from Contracts with Customers (‘‘ASC 606’’). As a result of the adoption of
ASC 606, in 2018 revenue declined $51.6 million and operating income increased $10.7 million. See Notes 3
and 19 of the Notes to the Consolidated Financial Statements for additional information regarding the
adoption of ASC 606.

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

Unless otherwise indicated, 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 year 2018 means the period beginning
January 1, 2018, and ending December 31, 2018).

The Company reports its ﬁnancial results in accordance with generally accepted accounting principles of
the United States of America (‘‘U.S. GAAP’’). In addition, the Company has included certain non-U.S. GAAP
ﬁnancial measures and ratios, which it believes provide useful supplemental 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 U.S. GAAP and should not be construed as
an alternative to other titled measures determined in accordance with U.S. GAAP.

Two such non-U.S. GAAP measures are ‘‘organic revenue growth’’ or ‘‘organic revenue decline’’ that
refer to the positive or negative results, respectively, of subtracting both the foreign exchange and acquisition
(disposition) components from total revenue growth, excluding the impact of adoption of Financial Accounting
Standards Board (the ‘‘FASB’’) Accounting Standards Codiﬁcation Topic 606 (‘‘ASC 606’’). The acquisition
(disposition) component is calculated by aggregating the prior period revenue for any acquired businesses, less
the prior period revenue of any businesses that were disposed of in the current period. The organic revenue
growth (decline) component reﬂects the constant currency impact (a) of the change in revenue of the Partner

16

Firms which the Company has held throughout each of the comparable periods presented and (b) ‘‘non-GAAP
acquisitions (dispositions), net.’’ Non-GAAP acquisitions (dispositions), net consists of (i) for acquisitions
during the current year, the revenue effect from such acquisition as if the acquisition had been owned during
the equivalent period in the prior year and (ii) for acquisitions during the previous year, the revenue effect
from such acquisitions as if they had been owned during that entire year or same period as the current
reportable period, taking into account their respective pre-acquisition revenues for the applicable periods and
(iii) for dispositions, the revenue effect from such disposition as if they had been disposed of during the
equivalent period in the prior year. The Company believes that isolating the impact of acquisition activity,
foreign currency impacts and changes in accounting standards is an important and informative component to
understand the overall change in the Company’s consolidated revenue. The change in the consolidated revenue
that remains after these adjustments illustrates the underlying ﬁnancial performance of the Company’s
businesses. Speciﬁcally, it represents the impact of the Company’s management oversight, investments and
resources dedicated to supporting the businesses’ growth strategy and operations. In addition, it reﬂects the
network beneﬁt of inclusion in the broader portfolio of ﬁrms that includes, but is not limited to, cross-selling
and sharing of best practices. This approach isolates changes in performance of the business that take place
under the Company’s stewardship, whether favorable or unfavorable, and thereby reﬂects the potential beneﬁts
and risks associated with owning and managing a talent-driven services business.

Accordingly, during the ﬁrst twelve months of ownership by the Company, the organic growth measure

may credit the Company with growth from an acquired business that is dependent on work performed prior to
the acquisition date, and may include the impact of prior work in progress, existing contracts and backlog of
the acquired businesses. It is the presumption of the Company that positive developments that may have taken
place at an acquired business during the period preceding the acquisition will continue to result in value
creation in the post-acquisition period.

While the Company believes that the methodology used in the calculation of organic revenue change is

consistent with our closest U.S. competitors, the calculations may not be comparable to similarly titled
measures presented by other publicly traded companies in other industries. Additional information
regarding the Company’s acquisition activity as it relates to potential revenue growth is provided in
Item 7 ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ under
‘‘Certain Factors Affecting our Business.’’

All amounts are in dollars unless otherwise stated. Amounts reported in millions herein are computed
based on the amounts in thousands. As a result, the sum of the components, and related calculations, reported
in millions may not equal the total amounts due to rounding.

Recent Developments
Strategic Review Process and Successor CEO Search

On September 20, 2018, the Company announced its evaluation of potential strategic alternatives, which

included, among other things, the possible sale of the Company. On September 12, 2018, the Company
announced that Scott Kauffman’s employment as the Company’s Chief Executive Officer would terminate,
which it did effective December 31, 2018. The strategic review process proceeded in parallel with the
Company’s search to identify a successor CEO.

During the interim period in which the Company was evaluating strategic alternatives and assessing
potential new CEO candidates, the Board of Directors has established an executive committee comprised of
David Doft (EVP, Chief Financial Officer), Mitchell Gendel (EVP, General Counsel), Stephanie Nerlich (EVP,
Partner Development and Talent), and David Ross (EVP, Strategy & Corporate Development) (collectively, the
‘‘Executive Committee’’). Effective January 1, 2019, the Executive Committee assumed the role and
responsibilities of the Chief Executive Officer until the appointment of a successor. The Board of Directors’
Strategic Alternatives Committee, comprised of three independent directors of the Board (Irwin Simon, Larry
Kramer and Anne Marie O’Donovan), have provided oversight for the Executive Committee during the
interim period.

The Company has completed the strategic review process and search for a new CEO. On March 14,

2019, the Company entered into a securities purchase agreement with Stagwell Agency Holdings LLC
(‘‘Stagwell Holdings’’), an affiliate of Stagwell Group LLC (‘‘Stagwell’’), pursuant to which Stagwell

17

Holdings agreed to purchase, (i) 14,285,714 newly authorized Class A shares for $3.50 per share for an
aggregate purchase price of $50 million and (ii) 50,000 newly authorized Series 6 convertible preference
shares for an aggregate purchase price of $50 million. See Note 23 of the Notes to the Consolidated Financial
Statements included herein for additional information.

Effective March 18, 2019, the Company’s Board of the Directors appointed Mark Penn as the Chief
Executive Officer (succeeding the Executive Committee) and as a director of the Board. Mr. Penn is manager
of Stagwell.

Amendment to Credit Agreement

On March 12, 2019 (the ‘‘Amendment Effective Date’’), the Company, Maxxcom Inc. (a subsidiary of

the Company) (‘‘Maxxcom’’) and each of their subsidiaries party thereto entered into an amendment (the
‘‘Amendment’’) to the existing senior secured revolving credit facility, dated as of May 3, 2016 (as amended,
the ‘‘Credit Agreement’’), among the Company, Maxxcom Inc., a Delaware corporation, each of their
subsidiaries party thereto, Wells Fargo Capital Finance, LLC, as agent (‘‘Wells Fargo’’), and the lenders from
time to time party thereto.

The Amendment provides ﬁnancial covenant relief by increasing the total leverage ratio applicable on
each testing date after the Amendment Effective Date through the period ending December 31, 2020 from
5.5:1.0 to 6.25:1.0. The total leverage ratio applicable on each testing date after December 31, 2020 will
revert to 5.5:1.0.

In addition, the Company is permitted to apply a portion of the net cash proceeds of the Kingsdale Sale

(as deﬁned below) to the prepayment, redemption, defeasement, purchase or other acquisition of the
Company’s senior unsecured debt.

In connection with the Amendment, the Company reduced the aggregate maximum amount of revolving
commitments provided by the lenders under the Credit Agreement to $250.0 million from $325.0 million. The
foregoing summary description of the Amendment to the Credit Agreement does not purport to be complete
and is qualiﬁed in its entirety by reference to the full text of the agreement. The Amendment is ﬁled as an
exhibit to this Form 10-K.

Sale of Kingsdale

On March 8, 2019, the Company consummated the sale of its Kingsdale business (the ‘‘Kingsdale Sale’’),

including operations in Toronto and New York City, back to the Kingsdale Founder and CEO. As
consideration for the sale, the Company was paid cash plus the assumption of certain liabilities totaling
approximately $50 million in the aggregate.

18

Executive Summary

MDC conducts its business through its network of Partner Firms, the ‘‘Advertising and Communications

Group,’’ who provide a comprehensive array of marketing and communications services for clients both
domestically and globally. The Company’s objective is to create shareholder value by building, growing and
acquiring market-leading Partner Firms that deliver innovative, value-added marketing, activation,
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 its business by monitoring several ﬁnancial and non-ﬁnancial performance indicators. The
key indicators that we focus on are revenues, operating expenses and capital expenditures. Revenue growth is
analyzed by reviewing a mix of measurements, including (i) growth by major geographic location, (ii) growth
by client industry vertical, (iii) growth from existing clients and the addition of new clients, (iv) growth by
primary discipline (v) growth from currency changes, (vi) growth from acquisitions, and (vii) the impact of
dispositions. In addition to monitoring the foregoing ﬁnancial indicators, the Company assesses and monitors
several non-ﬁnancial performance indicators relating to the business performance of our Partner Firms. These
indicators may include a Partner Firm’s recent new client win/loss record; the depth and scope of a pipeline of
potential new client account activity; the overall quality of the services provided to clients; and the relative
strength of the Company’s next generation team that is in place as part of a potential succession plan to
succeed the current senior executive team.

The Company aggregates operating segments into one of the four reportable segments and combines and
discloses those operating segments that do not meet the aggregation criteria in the All Other category. Due to
changes in the Company’s internal management and reporting structure during 2018, reportable segment
results for 2017 and prior periods presented have been recast to reﬂect the reclassiﬁcation of certain
businesses between segments. Prior period segment information included herein has been adjusted to reﬂect
this change. See Note 16 of the Notes to the Consolidated Financial Statements included herein for a
description of each of our reportable segments and All Other category and further information regarding the
reclassiﬁcation of certain business between segments.

In addition, MDC reports its corporate office expenses incurred in connection with the strategic resources
provided to the Partner Firms, as well as certain other centrally managed expenses that are not fully allocated
to the Partner Firms as Corporate. Corporate provides client and business development support to the Partner
Firms as well as certain strategic resources, including accounting, administrative, ﬁnancial, real estate, human
resource and legal functions. Additional expenses managed by the corporate office that are directly related to
the Partner Firms are allocated to the appropriate reportable segment and the All Other category.

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 losses occur due to a variety of factors. The two most signiﬁcant factors are (i) our
clients’ desire to change marketing communication ﬁrms, and (ii) the creative product that our Partner Firms
offer. A client may choose to change marketing communication ﬁrms for a number of reasons, such as a
change in top management and the new management wants to 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.

Acquisitions and Dispositions. The Company’s strategy includes acquiring ownership stakes in
well-managed businesses with world class expertise and strong reputations in the industry. The Company

19

provides post-acquisition support to Partner Firms in order to help accelerate growth, including in areas such
as business and client development (including cross-selling), corporate communications, corporate
development, talent recruitment and training, procurement, legal services, human resources, ﬁnancial
management and reporting, and real estate utilization, among other areas. As most of the Company’s
acquisitions remain as stand-alone entities post acquisition, integration is typically implemented promptly, and
new Partner Firms can begin to tap into the full range of MDC’s resources immediately. Often the acquired
businesses may begin to tap into certain MDC resources in the pre-acquisition period, such as talent
recruitment or real estate. The Company engaged in a number of acquisition and disposition transactions
during the 2009 to 2018 period, which affected revenues, expenses, operating income and net income.
Additional information regarding acquisitions and dispositions is provided in Note 5 of the Notes to the
Consolidated Financial Statements included herein for further information.

Foreign Exchange Fluctuation. Our ﬁnancial results and competitive position are affected by

ﬂuctuations in the exchange rate between the U.S. dollar and non-U.S. dollar, primarily the Canadian dollar.
See also ‘‘Item 7A — 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. See Note 22 of the Notes to the
Consolidated Financial Statements for information relating to the Company’s quarterly results.

Results of Operations for the Years Ended December 31, 2018, 2017 and 2016:

Revenue:
Global Integrated Agencies . . . . . . . . . . . . . . . . . . . . . . . .
Domestic Creative Agencies
. . . . . . . . . . . . . . . . . . . . . . .
Specialist Communications . . . . . . . . . . . . . . . . . . . . . . . .
Media Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

Segment operating income (loss):
Global Integrated Agencies* . . . . . . . . . . . . . . . . . . . . . . .
Domestic Creative Agencies
. . . . . . . . . . . . . . . . . . . . . . .
Specialist Communications . . . . . . . . . . . . . . . . . . . . . . . .
Media Services* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

Other Income (Expense):
Interest expense and ﬁnance charges, net . . . . . . . . . . . . . . .
Foreign exchange transaction gain (loss) . . . . . . . . . . . . . . .
Loss on redemption of Notes . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes and equity in earnings

(losses) of non-consolidated affiliates . . . . . . . . . . . . . . . .
Income tax expense (beneﬁt) . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before equity in earnings (losses) of

non-consolidated affiliates . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings of non-consolidated affiliates . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss)
Net income attributable to the noncontrolling interest
. . . . . .
Net income (loss) attributable to MDC Partners Inc. . . . . .

20

2018

Years Ended December 31,
2017
(Dollars in Thousands)

2016

$ 698,872
102,063
179,065
140,753
355,450
$1,476,203

$

$

44,868
18,552
18,629
(51,196)
34,000
(55,157)
9,696

$ 797,347
104,417
172,565
166,216
273,234
$1,513,779

$

71,857
19,333
20,728
13,126
47,771
(40,856)
$ 131,959

$ 712,793
97,199
170,285
157,696
247,812
$1,385,785

$

$

59,193
18,089
1,940
5,554
7,773
(44,118)
48,431

$ (67,075)
(23,258)
—
230

$ (64,364)
18,137
—
1,346

$ (65,050)
(213)
(33,298)
414

(80,407)
31,603

87,078
(168,064)

(49,716)
(9,404)

(112,010)
62
(111,948)
(11,785)
$ (123,733)

255,142
2,081
257,223
(15,375)
$ 241,848

(40,312)
(309)
(40,621)
(5,218)
$ (45,839)

*

An impairment charge primarily for goodwill and other intangible assets was recognized within the
Global Integrated Agencies for $21,008, within Media Services for $52,041 and within the All Other
category for $4,691 for the twelve months ended December 31, 2018. See Note 10 of the Notes to the
Consolidated Financial Statements for information related to the impairment.

2018

Years Ended December 31,
2017
(Dollars in Thousands)

2016

Depreciation and amortization:
Global Integrated Agencies . . . . . . . . . . . . . . . . . . . . . . . .
Domestic Creative Agencies
. . . . . . . . . . . . . . . . . . . . . . .
Specialist Communications . . . . . . . . . . . . . . . . . . . . . . . .
Media Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

Stock-based compensation:
Global Integrated Agencies . . . . . . . . . . . . . . . . . . . . . . . .
Domestic Creative Agencies
. . . . . . . . . . . . . . . . . . . . . . .
Specialist Communications . . . . . . . . . . . . . . . . . . . . . . . .
Media Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

Capital expenditures:
Global Integrated Agencies . . . . . . . . . . . . . . . . . . . . . . . .
Domestic Creative Agencies
. . . . . . . . . . . . . . . . . . . . . . .
Specialist Communications . . . . . . . . . . . . . . . . . . . . . . . .
Media Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

$23,571
1,583
4,252
3,119
12,909
762
$46,196

$ 8,521
1,100
714
318
3,104
4,659
$18,416

$10,088
951
3,618
966
4,574
67
$20,264

$23,831
1,582
4,714
4,052
8,197
1,098
$43,474

$15,225
887
2,954
656
2,494
2,134
$24,350

$20,760
1,168
1,288
3,842
5,877
23
$32,958

$21,555
1,811
6,637
6,091
8,768
1,584
$46,446

$12,177
651
3,629
318
1,703
2,525
$21,003

$16,486
1,153
2,741
5,266
3,753
33
$29,432

21

YEAR ENDED DECEMBER 31, 2018 COMPARED TO YEAR ENDED DECEMBER 31, 2017

Consolidated Results of Operations

Revenues

Revenue was $1.48 billion for the twelve months ended December 31, 2018, compared to revenue of
$1.51 billion for the twelve months ended December 31, 2017. See the Advertising and Communications
Group section below for a discussion regarding consolidated revenues.

Operating Income

Operating income for the twelve months ended December 31, 2018 was $9.7 million, compared to
$132.0 million for the twelve months ended December 31, 2017, representing a decrease of $122.3 million, or
92.7%. Operating income decreased by $108.0 million, or 62.5% in the Advertisement and Communication
Group, while Corporate operating expenses increased by $14.3 million, or 35.0%. The decrease in operating
income was largely due to an increase in the goodwill and other assets impairment charge and a decrease in
revenue. The impact of adoption of ASC 606 increased operating income by $10.7 million. Adjusted to
exclude the impact of the adoption of ASC 606, operating loss would have been $1.0 million, representing a
decrease of $133.0 million compared to 2017.

Interest Expense and Finance Charges, Net

Interest expense and ﬁnance charges, net, for the twelve months ended December 31, 2018 was
$67.1 million compared to $64.4 million for the twelve months ended December 31, 2017, representing an
increase of $2.7 million. The increase was primarily due to higher interest rates in the current year as well as
increased borrowings under the Company’s revolving Credit Agreement in comparison to the prior period. See
Note 12 of the Notes to the Consolidated Financial Statements for additional information on the Credit
Agreement.

Foreign Exchange Transaction Gain (Loss)

Foreign exchange loss was $23.3 million for the twelve months ended December 31, 2018 compared to a

foreign exchange gain of $18.1 million for the twelve months ended December 31, 2017. The foreign
exchange loss is primarily attributable to the weakening of the Canadian dollar against the U.S. dollar in
2018. In 2017, foreign exchange gain was primarily attributable to the Canadian dollar strengthening against
the U.S. dollar. The change primarily related to U.S. dollar denominated indebtedness that is an obligation of
our Canadian parent company.

Goodwill and Other Asset Impairment

The Company recognized an impairment of goodwill and other assets of $80.1 million in the

twelve months ended December 31, 2018. The impairment primarily consists of the write-down of goodwill
equal to the excess carrying value above the fair value of a reporting unit one in each of the Global Integrated
Agencies reportable segment, the Media Services reportable segment and within the All Other category and
the full write-down of a trademark for a reporting unit also within the Global Integrated Agencies reportable
segment. The trademark is no longer in active use given its merger with another reporting unit in the third
quarter of 2018. See Note 10 of the Notes to the Consolidated Financial Statements for information related to
the merger.

Other, Net

Other income, net was $0.2 million for the twelve months ended December 31, 2018 compared to

$1.3 million for the twelve months ended December 31, 2017.

22

Income Tax Expense (Beneﬁt)

Income tax expense for the twelve months ended December 31, 2018 was $31.6 million (associated with

a pretax loss of $80.4 million) compared to an income tax beneﬁt of $168.1 million (associated with pretax
income of $87.1 million) for the twelve months ended December 31, 2017. Income tax expense in 2018
included the impact of establishing a valuation allowance of $49.4 million primarily associated with Canadian
deferred tax assets and the income tax beneﬁt in 2017 included the impact of a release of a valuation
allowance of $232.6 million in certain jurisdictions as well as the incremental tax beneﬁt associated with the
Tax Cuts and Jobs Act of 2017.

Equity in Earnings (Losses) of Non-Consolidated Affiliates

Equity in earnings (losses) of non-consolidated affiliates was income of $0.1 million for the
twelve months ended December 31, 2018 compared to $2.1 million for the twelve months ended
December 31, 2017.

Noncontrolling Interests

Net income attributable to noncontrolling interests was $11.8 million for the twelve months ended

December 31, 2018, compared to $15.4 million for the twelve months ended December 31, 2017, representing
a decrease of $3.6 million. This decrease was attributable to a reduction in operating results at Partner Firms
with a noncontrolling interest.

Net Income (Loss) Attributable to MDC Partners Inc. Common Shareholders

As a result of the foregoing, net loss attributable to MDC Partners Inc. common shareholders for the

twelve months ended December 31, 2018 was $132.1 million or $2.31 per diluted share, compared to a net
income of $205.6 million, or $3.71 per diluted share reported for the twelve months ended December 31,
2017.

Advertising and Communications Group

The following discussion provides additional detailed disclosure for each of the Company’s four
reportable segments, plus the ‘‘All Other’’ category, within the Advertising and Communications Group.

Revenue in the Advertising and Communications Group was $1.48 billion for the twelve months ended
December 31, 2018, compared to revenue of $1.51 billion for the twelve months ended December 31, 2017,
representing a decrease of $37.6 million, or 2.5%. The impact of the adoption of ASC 606 reduced revenue by
$51.6 million, or 3.4%, primarily due to the shift in treatment of third-party costs from principal to agent for
various client arrangements of certain Partner Firms and timing of revenue recognition. The other components
of the change in revenue included a negative foreign exchange impact of $0.5 million, and an adverse impact
from dispositions of $14.7 million, or 1.0%, offset by revenue from acquisitions of $28.3 million, or 1.9%,
and an increase in revenue from existing Partner Firms of $0.9 million. Excluding the impact of the adoption
of ASC 606, the change in revenue was attributable to contribution from new client wins that was partially
offset by client losses and reduction in spending by some clients. Additionally, the change in revenue was
driven by growth in categories including transportation, consumer products, ﬁnancials and healthcare offset by
declines in automotive, and retail.

23

The components of the change in revenues in the Advertising and Communications Group for the

twelve months ended December 31, 2018 were as follows:

Total

$

%

United States
$

%

Canada

Other

$

%

$

%

(Dollars in Thousands)

December 31, 2017 . . . . $1,513,779

$1,172,364

$123,093

$218,322

Components of revenue

change:
Foreign exchange

impact . . . . . . . .

(463) —%

—

—%

(301)

(0.2)%

(162)

(0.1)%

Non-GAAP

acquisitions
(dispositions),
net

. . . . . . . . . .

Impact of adoption

13,644

0.9%

14,466

1.2%

—

—%

(822)

(0.4)%

of ASC 606 . . . .

(51,636)

(3.4)%

(20,699)

(1.8)%

1,288

1.0% (32,225)

(14.8)%

Organic revenue

growth (decline) . .

879
. . . . . . $ (37,576)
December 31, 2018 . . . . $1,476,203

Total Change

0.1%
(12,940)
(2.5)% $ (19,173)
$1,153,191

(1.1)%
(1.6)% $

(79)
908
$124,001

(0.1)% 13,898
0.7% $ (19,311)
$199,011

6.4%
(8.8)%

The Company also utilizes a non-GAAP metric called organic revenue growth (decline), as deﬁned
above. For the twelve months ended December 31, 2018, organic revenue growth was $0.9 million, or 0.1%,
of which growth of $7.6 million, or 0.5% was generated through acquired Partner Firms and decline of
$6.7 million or 0.4% was related to Partner Firms which the Company has held throughout each of the
comparable periods presented.

The table below provides a reconciliation between the revenue in the Advertising and Communications
Group from acquired businesses in the statement of operations to non-GAAP acquisitions (dispositions), net
for the twelve months ended December 31, 2018:

Acquisition Revenue Reconciliation
GAAP revenue from 2018

Global
Integrated

Specialist
Communications

Media
Services

All Other

Total

acquisitions(1)

. . . . . . . . . . . .

$ —

$1,276

$

Impact of adoption of ASC 606

from 2018 acquisition . . . . . .

Contribution to non-GAAP
organic revenue (growth)

. . . .

Prior year revenue from

—

—

dispositions

. . . . . . . . . . . . .

(1,910)

—

—

—

—

—

—

$34,841

$ 36,117

(168)

(168)

(7,606)

(7,606)

(11,569)

(1,220)

(14,699)

Non-GAAP acquisitions
(dispositions), net

. . . . . . . . .

$(1,910)

$1,276

$(11,569)

$25,847

$ 13,644

(1) Operating segments not impacted by revenue from acquired Partner Firms in the 2018 and 2017 were

excluded. See Note 5 of the Notes to the Consolidated Financial Statements included herein for further
information pertaining to the acquisitions and dispositions.

(2) Contributions to organic revenue growth (decline) represents the change in revenue, measured on a

constant currency basis, relative to the comparable pre-acquisition period for acquired businesses that is
included in the Company’s organic revenue growth (decline) calculation.

24

The geographic mix in revenues in the Advertising and Communications Group for the years ended

December 31, 2018 and 2017 was as follows:

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other

2018
78.1%
8.4%
13.5%

2017
77.5%
8.1%
14.4%

The impact of the adoption of ASC 606 decreased revenue in the United States by $20.7 million or 1.8%,

and $32.2 million or 14.8% in other regions outside of North America with a minimal impact in Canada.

Organic revenue performance was attributable to a contribution from net client wins and additional
spending by some clients. The United States had organic revenue decline of $12.9 million, or 1.1%. In
Canada, organic revenue declined $0.1 million, or 0.1%. Organic revenue growth outside of North America
was $13.9 million, or 6.4%, consisting of contributions from existing Partner Firms due to net new client
wins.

The negative foreign exchange impact of $0.5 million was primarily due to the ﬂuctuation of the

U.S. dollar against British Pound, Euro, Canadian dollar and Swedish Króna.

The change in expenses and operating proﬁt as a percentage of revenue in the Advertising and

Communications Group for the years ended December 31, 2018 and 2017 was as follows:

Advertising and Communications Group

2018

$

% of
Revenue

2017

Change

% of
Revenue
(Dollars in Thousands)

$

$

%

Revenue . . . . . . . . . . . . . . . . . . . . . . . . $1,476,203
Operating expenses

$1,513,779

$ (37,576)

(2.5)%

Cost of services sold . . . . . . . . . . . . . .
Office and general expenses
. . . . . . . . .
Depreciation and amortization . . . . . . . .
. . .
Goodwill and other asset impairment

Operating proﬁt

. . . . . . . . . . . . . . . . . . . $

991,215
296,961
45,434
77,740
$1,411,350
64,853

67.1% 1,023,476
271,874
20.1%
42,376
3.1%
3,238
5.3%
95.6% $1,340,964
4.4% $ 172,815

67.6%
18.0%
2.8%
0.2%

(32,261)
25,087
3,058
74,502
88.6% $ 70,386
11.4% $(107,962)

(3.2)%
9.2%
7.2%
NM
5.2%
(62.5)%

The decrease in operating proﬁt was largely due to an increase in the goodwill and other asset

impairment charge, and a decrease in revenue. The impact of the adoption of ASC 606 increased operating
proﬁt by $10.7 million. Excluding the impact of the adoption of ASC 606, operating proﬁt would have been
$54.1 million, representing a decrease of $118.7 million compared to 2017.

The change in the categories of expenses as a percentage of revenue in the Advertising and

Communications Group for the years ended December 31, 2018 and 2017 was as follows:

Advertising and Communications Group

2018

$

% of
Revenue

2017

Change

% of
Revenue
(Dollars in Thousands)

$

$

%

Direct costs(1) . . . . . . . . . . . . . . . . . . . . . $ 213,354
Staff costs(2) . . . . . . . . . . . . . . . . . . . . . .
872,459
Administrative costs
189,063
. . . . . . . . . . . . . . . .
Deferred acquisition consideration . . . . . . .
13,757
Stock-based compensation . . . . . . . . . . . .
45,434
Depreciation and amortization . . . . . . . . . .
Goodwill and other asset impairment
77,740
. . . . .
. . . . . . . . . . . . . $1,411,350
Total operating expenses

14.5% $ 260,776
829,568
59.1%
187,687
12.8%
(4,898)
(457) —%
22,217
0.9%
42,376
3.1%
5.3%
3,238
95.6% $1,340,964

17.2% $(47,422)
42,891
54.8%
1,376
12.4%
4,441
(0.3)%
(8,460)
1.5%
3,058
2.8%
0.2%
74,502
88.6% $ 70,386

(18.2)%
5.2%
0.7%
(90.7)%
(38.1)%
7.2%
NM
5.2%

(1) Excludes staff costs.

25

(2) Excludes stock-based compensation and is comprised of amounts reported in both cost of services sold

and office and general expenses.

The decrease in direct costs was primarily attributed to the adoption of ASC 606 in which various client

arrangements of certain Partner Firms previously accounted for as principal are now accounted for as agent
under ASC 606. The change resulted in a decrease in third-party costs included in revenue of approximately
$62.4 million. This decrease was partially offset by revenue of an acquisition during the year.

The increase in staff costs was primarily attributed to contributions from an acquired Partner Firm, and

higher costs to support the growth of certain Partner Firms, partially offset by staffing reductions at other
Partner Firms.

Deferred acquisition consideration change for the twelve months ended December 31, 2018 and 2017 was

primarily due to the aggregate performance of certain Partner Firms in the respective years relative to the
previously projected expectations.

Stock-based compensation change for the twelve months ended December 31, 2018 was primarily due to

the aggregate performance of certain Partner Firms in 2018 relative to the previously projected expectations.

The goodwill and other asset impairment in 2018 primarily consists of the write-down of goodwill equal

to the excess carrying value above the fair value of a reporting unit one in each of the Global Integrated
Agencies reportable segment, the Media Services reportable segment and within the All Other category and
the full write-down of a trademark for a reporting unit also within the Global Integrated Agencies reportable
segment in comparison to a partial impairment in 2017. For more information see Note 10 of the Notes to the
Consolidated Financial Statements included herein.

Global Integrated Agencies

The change in revenue and expenses as a percentage of revenue in the Global Integrated Agencies

reportable segment for the twelve months ended December 31, 2018 and 2017 was as follows:

Global Integrated Agencies

$

% of
Revenue

Revenue . . . . . . . . . . . . . . . . . . . . . . . . $698,872
Operating expenses

$

% of
Revenue
(Dollars in Thousands)
$797,347

$

%

$(98,475)

(12.4)%

2018

2017

Change

Cost of services sold . . . . . . . . . . . . . .
Office and general expenses
. . . . . . . . .
Depreciation and amortization . . . . . . . .
. . .
Goodwill and other asset impairment

464,304
145,121
23,571
21,008
$654,004
. . . . . . . . . . . . . . . . . . . $ 44,868

Operating proﬁt

66.4% 549,443
20.8% 149,475
23,831
2,741
93.6% $725,490
6.4% $ 71,857

3.4%
0.3%

68.9% (85,139)
(4,354)
18.7%
(260)
3.0%
18,267
0.3%
91.0% $(71,486)
9.0% $(26,989)

(15.5)%
(2.9)%
(1.1)%
NM
(9.9)%
(37.6)%

The impact of the adoption of ASC 606 reduced the Global Integrated Agencies reportable segment
revenue by $56.3 million or 7.1%. The other components of the change included a decline in revenue from
existing Partner Firms of $39.5 million, or 5.0%, due to cutbacks and spending delays from several existing
clients and a slower pace of conversion of new business, partially offset by client wins, and a negative impact
from dispositions of $1.9 million or 0.2%, as well as a negative foreign exchange impact of $0.8 million,
or 0.1%.

The decrease in operating proﬁt was primarily attributed to the goodwill and other asset impairment
recognized in 2018. In addition, lower revenues were mostly offset by a decline in expenses, as outlined
below. The impact of the adoption of ASC 606 increased operating proﬁt by $7.4 million. Excluding the
impact of the adoption of ASC 606, operating proﬁt would have been $37.5 million in 2018, representing a
decrease of $34.4 million compared to 2017.

26

The change in the categories of expenses as a percentage of revenue in the Global Integrated Agencies

reportable segment for the years ended December 31, 2018 and 2017 was as follows:

Global Integrated Agencies

2018

2017

Change

$

% of
Revenue

% of
Revenue
(Dollars in Thousands)

$

$

%

Direct costs(1) . . . . . . . . . . . . . . . . . . . . . $ 44,358
Staff costs(2) . . . . . . . . . . . . . . . . . . . . . .
461,286
100,604
Administrative . . . . . . . . . . . . . . . . . . . .
(5,344)
Deferred acquisition consideration . . . . . . .
8,521
Stock-based compensation . . . . . . . . . . . .
23,571
Depreciation and amortization . . . . . . . . . .
Goodwill and other asset impairment
21,008
. . . . .
. . . . . . . . . . . . . $654,004
Total operating expenses

6.3% $108,688
66.0% 465,522
14.4% 104,879
4,604
(0.8)%
15,225
1.2%
23,831
3.4%
2,741
0.3%
93.6% $725,490

13.6% $(64,330)
(4,236)
58.4%
(4,275)
13.2%
(9,948)
0.6%
(6,704)
1.9%
(260)
3.0%
18,267
—%
91.0% $(71,486)

(59.2)%
(0.9)%
(4.1)%
(216.1)%
(44.0)%
(1.1)%
—%
(9.9)%

(1) Excludes staff costs.
(2) Excludes stock-based compensation and is comprised of amounts reported in both cost of services sold

and office and general expenses.

The decrease in direct costs was primarily attributed to the adoption of ASC 606 in which various client

arrangements of certain Partner Firms previously accounted for as principal are now accounted for as agent
under ASC 606. The change resulted in a decrease in third-party costs included in revenue of $62.4 million.

The decrease in staff costs was attributed to staffing reductions at certain Partner Firms.

Deferred acquisition consideration change for the twelve months ended December 31, 2018 was primarily

due to the aggregate performance of certain Partner Firms in 2018 relative to the previously projected
expectations.

Stock-based compensation change for the twelve months ended December 31, 2018 was primarily due to

the aggregate performance of certain Partner Firms in 2018 relative to the previously projected expectations.

The goodwill and other asset impairment in 2018 primarily consist of the write-down of goodwill equal

to the excess carrying value above the fair value of a reporting unit and the full write-down of a trademark for
a reporting unit in comparison to a partial impairment in 2017. For more information see Note 10 of the
Notes to the Consolidated Financial Statements included herein.

Domestic Creative Agencies

The change in revenue and expenses as a percentage of revenue in the Domestic Creative Agencies

reportable segment for the twelve months ended December 31, 2018 and 2017 was as follows:

Domestic Creative Agencies

$

% of
Revenue

Revenue . . . . . . . . . . . . . . . . . . . . . . . . $102,063
Operating expenses

$

% of
Revenue
(Dollars in Thousands)
$104,417

$

%

$(2,354)

(2.3)%

2018

2017

Change

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

59,888
22,040
1,583
$ 83,511
. . . . . . . . . . . . . . . . . . . $ 18,552

Operating proﬁt

61,623
58.7%
21,879
21.6%
1.6%
1,582
81.8% $ 85,084
18.2% $ 19,333

(1,735)
59.0%
161
21.0%
1.5%
1
81.5% $(1,573)
18.5% $ (781)

(2.8)%
0.7%
0.1%
(1.8)%
(4.0)%

27

The impact of the adoption of ASC 606 increased revenue in the Domestic Creative Agencies reportable

segment by $1.2 million or 1.2%. In addition, revenue from existing Partner Firms declined $3.6 million or
3.5%.

The adoption of ASC 606 did not have a signiﬁcant impact on operating proﬁt.

The change in the categories of expenses as a percentage of revenue in the Domestic Creative Agencies

reportable segment for the twelve months ended December 31, 2018 and 2017 was as follows:

Domestic Creative Agencies

2018

2017

Change

$

% of
Revenue

$

% of
Revenue

$

%

Direct costs(1) . . . . . . . . . . . . . . . . .
Staff costs(2) . . . . . . . . . . . . . . . . . .
Administrative . . . . . . . . . . . . . . . .
Deferred acquisition consideration . . .
Stock-based compensation . . . . . . . .
Depreciation and amortization . . . . . .
. . . . . . . . .
Total operating expenses

$ 2,888
66,020
11,920
—
1,100
1,583
$83,511

2.8%
64.7%
11.7%
—%
1.1%
1.6%
81.8%

(Dollars in Thousands)
$ 4,362
65,814
12,080
359
887
1,582
$85,084

4.2%
63.0%
11.6%
0.3%
0.8%
1.5%
81.5%

$(1,474)
206
(160)
(359)
213
1
$(1,573)

(33.8)%
0.3%
(1.3)%
(100.0)%
24.0%
0.1%
(1.8)%

(1) Excludes staff costs.
(2) Excludes stock-based compensation and is comprised of amounts reported in both cost of services sold

and office and general expenses.

The decrease in direct costs was primarily attributed to lower costs to support the decline in revenue of

certain Partner Firms.

Specialist Communications

The change in revenue and expenses as a percentage of revenue in the Specialist Communications

reportable segment for the twelve months ended December 31, 2018 and 2017 was as follows:

Specialist Communications

$

% of
Revenue

Revenue . . . . . . . . . . . . . . . . . . . . . . . . $179,065
Operating expenses

$

% of
Revenue
(Dollars in Thousands)
$172,565

$

%

$ 6,500

3.8%

2018

2017

Change

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

122,710
33,474
4,252
$160,436
. . . . . . . . . . . . . . . . . . . $ 18,629

Operating proﬁt

68.5% 117,195
29,928
18.7%
2.4%
4,714
89.6% $151,837
10.4% $ 20,728

5,515
67.9%
3,546
17.3%
2.7%
(462)
88.0% $ 8,599
12.0% $(2,099)

4.7%
11.8%
(9.8)%
5.7%
(10.1)%

The impact of the adoption of ASC 606 increased revenue in the Specialist Communications reportable

segment by $1.2 million or 0.7%. The other components of the change included growth in revenue from
existing Partner Firms of $3.8 million or 2.2%, revenue contributions of $1.3 million or 0.7% from an
acquired Partner Firm.

The decrease in operating proﬁt was due to the increase in revenues, offset by higher operating expenses,

as outlined below.

28

The change in the categories of expenses as a percentage of revenue in the Specialist Communications

reportable segment for the twelve months ended December 31, 2018 and 2017 was as follows:

Specialist Communications

2018

2017

Change

$

% of
Revenue

% of
Revenue
(Dollars in Thousands)

$

$

%

Direct costs(1) . . . . . . . . . . . . . . . . . . . . . $ 45,627
Staff costs(2) . . . . . . . . . . . . . . . . . . . . . .
85,767
22,969
Administrative . . . . . . . . . . . . . . . . . . . .
1,107
Deferred acquisition consideration . . . . . . .
714
Stock-based compensation . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . .
4,252
. . . . . . . . . . . . . $160,436
Total operating expenses

25.5% $ 42,754
79,873
47.9%
21,961
12.8%
(419)
0.6%
2,954
0.4%
2.4%
4,714
89.6% $151,837

24.8% $ 2,873
5,894
46.3%
1,008
12.7%
1,526
(0.2)%
(2,240)
1.7%
2.7%
(462)
88.0% $ 8,599

6.7%
7.4%
4.6%
(364.2)%
(75.8)%
(9.8)%
5.7%

(1) Excludes staff costs.
(2) Excludes stock-based compensation and is comprised of amounts reported in both cost of services sold

and office and general expenses.

The increase in direct and staff costs were primarily attributed to supporting the growth in revenue of

certain Partner Firms, and contributions from an acquired Partner Firm.

The change in the deferred acquisition consideration adjustment was due to the aggregate performance of

certain Partner Firms in 2018 as compared to their performance in 2017.

Stock-based compensation declined for the twelve months ended December 31, 2018 primarily due to the

aggregate performance of certain Partner Firms in 2018 relative to the previously projected expectations.

Media Services

The change in revenues and expenses as a percentage of revenue in the Media Services reportable

segment for the twelve months ended December 31, 2018 and 2017 was as follows:

Media Services

$

% of
Revenue

Revenue . . . . . . . . . . . . . . . . . . . . . . . . $140,753
Operating expenses

$

% of
Revenue
(Dollars in Thousands)
$166,216

$

%

$(25,463)

(15.3)%

2018

2017

Change

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

102,117
34,672
3,119
52,041
$191,949
. . . . . . . . . . . . . . . $ (51,196)

Operating proﬁt (loss)

72.6% 111,850
36,691
24.6%
4,549
2.2%
—
37.0%
136.4% $153,090
(36.4)% $ 13,126

67.3%
22.1%
2.7%
—%

(9,733)
(2,019)
(1,430)
52,041
92.1% $ 38,859
7.9% $(64,322)

(8.7)%
(5.5)%
(31.4)%
100.0%
25.4%
(490.0)%

The impact of the adoption of ASC 606 increased revenue in the Media Services reportable segment by

$1.1 million or 0.7%. The other components of the change included a negative impact from the disposition of
a Partner Firm in the third quarter of 2017 of $11.6 million, or 7.0%, and a decline in revenue from existing
Partner Firms of $15.4 million or 9.3%.

The operating loss in 2018 was driven by the goodwill impairment. The change in operating proﬁt was

also due to a decline in revenue, partially offset by a decrease in operating expenses, as outlined below.

The adoption of ASC 606 did not have a signiﬁcant impact on operating proﬁt.

29

The change in the categories of expenses as a percentage of revenue in the Media Services reportable

segment for the twelve months ended December 31, 2018 and 2017 was as follows:

Media Services

2018

2017

Change

$

% of
Revenue

% of
Revenue
(Dollars in Thousands)

$

$

%

Direct costs(1) . . . . . . . . . . . . . . . . . . . . . $ 38,834
Staff costs(2) . . . . . . . . . . . . . . . . . . . . . .
76,510
20,809
Administrative . . . . . . . . . . . . . . . . . . . .
318
Deferred acquisition consideration . . . . . . .
318
Stock-based compensation . . . . . . . . . . . .
3,119
Depreciation and amortization . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . .
52,041
. . . . . . . . . . . . . $191,949
Total operating expenses

27.6% $ 46,411
80,234
54.4%
22,059
14.8%
(819)
0.2%
656
0.2%
4,549
2.2%
37.0%
—
136.4% $153,090

27.9% $ (7,577)
(3,724)
48.3%
(1,250)
13.3%
1,137
(0.5)%
(338)
0.4%
(1,430)
2.7%
52,041
—%
92.1% $38,859

(16.3)%
(4.6)%
(5.7)%
(138.8)%
(51.5)%
(31.4)%
100.0%
25.4%

(1) Excludes staff costs.
(2) Excludes stock-based compensation and is comprised of amounts reported in both cost of services sold

and office and general expenses.

The decline in direct costs was primarily attributed to costs incurred in the prior year for a disposed

Partner Firm.

The decline in staff costs was primarily attributed to staffing reductions at certain Partner Firms due to

declines in revenue and costs incurred in the prior year for a disposed Partner Firm.

The goodwill impairment in 2018 primarily consist of the write-down of goodwill equal to the excess
carrying value above the fair value of a reporting unit. For more information see Note 10 of the Notes to the
Consolidated Financial Statements included herein.

All Other

The change in revenue and expenses as a percentage of revenue in the All Other category for the years

ended December 31, 2018 and 2017 was as follows:

All Other

$

% of
Revenue

Revenue . . . . . . . . . . . . . . . . . . . . . . . . $355,450
Operating expenses

$

% of
Revenue
(Dollars in Thousands)
$273,234

$

%

$ 82,216

30.1%

2018

2017

Change

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

242,197
61,653
12,909
4,691
$321,450
. . . . . . . . . . . . . . . . . . . $ 34,000

Operating proﬁt

68.1% 183,366
33,901
17.3%
8,197
3.6%
1.3% $
—
90.4% $225,464
9.6% $ 47,771

67.1%
12.4%
3.0%
—%

58,831
27,752
4,712
4,691
82.5% $ 95,986
17.5% $(13,770)

32.1%
81.9%
57.5%
100.0%
42.6%
(28.8)%

The impact of the adoption of ASC 606 increased revenue in the All Other category by $1.0 million or

0.4%. The other components of the change included revenue growth from existing Partner Firms of
$55.6 million or 20.3%, revenue contributions of $25.8 million or 9.5% from an acquired Partner Firm net of
dispositions, offset by an immaterial negative foreign exchange impact.

These decrease in operating proﬁt was primarily due to higher revenue, being more than offset by an
increase in operating expenses, as outlined below. The impact of the adoption of ASC 606 increased operating
proﬁt by $1.0 million or 0.4%.

30

The change in the categories of expenses as a percentage of revenue in the All Other category for

the years ended December 31, 2018 and 2017 was as follows:

All Other

2018

2017

Change

$

% of
Revenue

% of
Revenue
(Dollars in Thousands)

$

$

%

Direct costs(1) . . . . . . . . . . . . . . . . . . . . . $ 81,647
Staff costs(2) . . . . . . . . . . . . . . . . . . . . . .
182,878
32,758
Administrative . . . . . . . . . . . . . . . . . . . .
3,463
Deferred acquisition consideration . . . . . . .
3,104
Stock-based compensation . . . . . . . . . . . .
12,909
Depreciation and amortization . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . .
4,691
. . . . . . . . . . . . . $321,450
Total operating expenses

23.0% $ 58,561
51.4% 138,127
26,707
9.2%
(8,623)
1.0%
2,495
0.9%
8,197
3.6%
1.3% $
—
90.4% $225,464

21.4% $23,086
44,751
50.6%
9.8%
6,051
(3.2)% 12,086
609
0.9%
4,712
3.0%
4,691
—%
82.5% $95,986

39.4%
32.4%
22.7%
(140.2)%
24.4%
57.5%
100.0%
42.6%

(1) Excludes staff costs.
(2) Excludes stock-based compensation and is comprised of amounts reported in both cost of services sold

and office and general expenses.

These increase in direct and staff costs were primarily due to contributions from an acquired Partner Firm

and an expansion in workforce in certain Partner Firms to support revenue growth.

The change in deferred acquisition consideration was primarily due to aggregate higher performance of

certain Partner Firms as compared to forecasted expectations in the current period.

The goodwill impairment in 2018 was comprised of a partial impairment relating to a Partner Firm that

was classiﬁed as Held For Sale as of December 31, 2018. For more information see Note 5 and 10 of the
Notes to the Consolidated Financial Statements included herein.

Corporate

The change in operating expenses for Corporate for the years ended December 31, 2018 and 2017 was as

follows:

Corporate

2018
$

2017
$

Change

$

%

Staff costs(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30,179
17,240
Administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,659
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . .
762
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . .
Other asset impairment
2,317
. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . $55,157
Total operating expenses

(Dollars in Thousands)
$ 9,253
$20,926
1,719
15,521
2,525
2,134
(336)
1,098
1,140
1,177
$14,301
$40,856

44.2%
11.1%
118.3%
(30.6)%
96.9%
35.0%

(1) Excludes stock-based compensation.

The increase in staff costs for Corporate was primarily attributed to severance expense related to certain

corporate actions taken in 2018 in comparison to 2017.

The increase in administrative costs was primarily related to an increase in professional fees of
$5.4 million, primarily related to fees for the implementation of ASC 606, which was adopted effective
January 1, 2018.

31

YEAR ENDED DECEMBER 31, 2017 COMPARED TO YEAR ENDED DECEMBER 31, 2016

Consolidated Results of Operations

Revenues

Revenue was $1.51 billion for the twelve months ended December 31, 2017, compared to revenue of

$1.39 billion the twelve months ended December 31, 2016. See the Advertising and Communications Group
section below for a discussion regarding consolidated revenues.

Operating Income

Operating income for twelve months ended December 31, 2017 was $132.0 million, compared to
$48.4 million for the twelve months ended December 31, 2016, representing an increase of $83.6 million, or
172.5%. Operating income increased by $80.3 million, or 86.7% in the Advertisement and Communication
Group, while Corporate operating expenses decreased by $3.3 million, or 7.4%.

Interest Expense and Finance Charges, Net

Interest expense and ﬁnance charges, net, for the twelve months ended December 31, 2017 was
$64.4 million compared to $65.1 million for the twelve months ended December 31, 2016, representing a
decrease of $0.7 million. The decrease was primarily due to lower borrowings under the Company’s revolving
Credit Agreement in comparison to the prior period. See Note 12 of the Notes to the Consolidated Financial
Statements for additional information on the Wells Fargo Credit Agreement.

Foreign Exchange Transaction Gain (Loss)

Foreign exchange gain was $18.1 million for the twelve months ended December 31, 2017 compared to a
foreign exchange loss of $0.2 million for the twelve months ended December 31, 2016. The foreign exchange
gain in 2017 was primarily related to the U.S. dollar denominated indebtedness that was an obligation of the
Company’s Canadian parent company and was driven by the appreciation of the Canadian dollar against the
U.S. dollar in the period.

Goodwill and Other Asset Impairment

The Company recognized an impairment of goodwill and other assets of $4.4 million from two
operating units in the Global Integrated Agencies reportable segment and the Media Services reportable
segment and other assets in the Corporate segment for twelve months ended December 31, 2017 as compared
to $48.5 million from partial impairment of goodwill relating to one of the Company’s reporting units and for
the twelve months ended December 31, 2016. The impairment primarily consists of the write-down of
goodwill equal to the excess carrying value above the fair value of a reporting unit.

Other, Net

Other income, net was $1.3 million for the twelve months ended December 31, 2017 compared to

$0.4 million for the twelve months ended December 31, 2016.

Income Tax Expense (Beneﬁt)

Income tax beneﬁt for the twelve months ended December 31, 2017 was $168.1 million (associated with

pretax income of $87.1 million) compared to an income tax beneﬁt of $9.4 million (associated with a pretax
loss of $49.7 million) for the twelve months ended December 31, 2016. The change in tax beneﬁt year over
year was primarily driven by the release of a valuation allowance in certain jurisdictions as well as the
incremental tax beneﬁt associated with the Tax Cuts and Jobs Act of 2017.

Equity in Earnings (Losses) of Non-Consolidated Affiliates

Equity in earnings (losses) of non-consolidated affiliates was income of $2.1 million for the

twelve months ended December 31, 2017 compared to loss of $0.3 million for the twelve months ended
December 31, 2016.

32

Noncontrolling Interests

Net income attributable to noncontrolling interests was $15.4 million for the twelve months ended
December 31, 2017, compared to $5.2 million for the twelve months ended December 31, 2016, representing
an increase of $10.2 million. This increase was attributable to an increase in operating results at Partner Firms
with a noncontrolling interest.

Net Income (Loss) Attributable to MDC Partners Inc. Common Shareholders

As a result of the foregoing, net income attributable to MDC Partners Inc. common shareholders for the
twelve months ended December 31, 2017 was $205.6 million, or $3.71 per diluted share, compared to a net
loss of $45.8 million, or $0.89 per diluted share reported for the twelve months ended December 31, 2016.

Advertising and Communications Group

The following discussion provides additional detailed disclosure for each of the Company’s four
reportable segments, plus the ‘‘All Other’’ category, within the Advertising and Communications Group.

Revenue in the Advertising and Communications Group was $1.51 billion for the twelve months ended
December 31, 2017, compared to revenue of $1.39 billion for the twelve months ended December 31, 2016,
representing an increase of $128.0 million, or 9.2%. The change in revenue was driven by revenue growth
from existing Partner Firms of $91.5 million, or 6.6%, and a positive foreign exchange impact of $3.6 million,
or 0.3%. Revenue from acquired Partner Firms was $43.5 million, or 3.1%, including growth of $4.9 million
from organic revenue growth, partially offset by a negative impact from dispositions of $10.6 million.
Revenue growth was attributable to net new client wins, increased spending as well as expanded scopes of
services by existing clients, and increased pass-through costs. There was broad based growth by client sector,
with particular strength in communications, food & beverage, ﬁnancials, and consumer products, partially
offset by declines within technology and retail.

The components of the change in revenues in the Advertising and Communications Group for the

twelve months ended December 31, 2017 were as follows:

Total

$

%

United States
$

%

Canada

Other

$

%

$

%

December 31, 2016 . . . . . $1,385,786

$1,103,712

(Dollars in Thousands)
$124,102

$157,972

Components of revenue

change:
Foreign exchange

impact
Non-GAAP

. . . . . . . . .

acquisitions
(dispositions), net . .

Organic revenue

1,227

0.1%

— —%

2,208

1.8%

(981)

(0.6)%

30,385

2.2%

(5,609)

(0.5)% (1,499)

(1.2)% 37,493

23.7%

growth (decline)

96,381
Total Change . . . . . . . . $ 127,993
December 31, 2017 . . . . . $1,513,779

. .

7.0%
9.2% $

74,261
68,652
$1,172,364

(1,718)
6.7%
6.2% $ (1,009)
$123,093

(1.4)% 23,838
(0.8)% $ 60,350
$218,322

15.1%
38.2%

The Company also utilizes a non-GAAP metric called organic revenue growth (decline), as deﬁned
above. For the twelve months ended December 31, 2017, organic revenue growth was $96.4 million, or 7.0%,
of which $91.5 million, or 6.6% pertained to Partner Firms which the Company has held throughout each of
the comparable periods presented. The remaining $4.9 million, or 0.4%, was generated through acquired
Partner Firms. The other components of non-GAAP activity include non-GAAP acquisitions (dispositions), net
adjustments of $30.4 million, or 2.2%, and a positive foreign exchange impact of $1.2 million, or 0.1%.

33

The below is a reconciliation between the revenue in the Advertising and Communications Group from

acquired businesses in the statement of operations to non-GAAP acquisitions (dispositions), net for the
twelve months ended December 31, 2017:

Acquisition Revenue Reconciliation

GAAP revenue from prior year acquisitions(1)
Foreign exchange impact
Contribution to non-GAAP organic revenue growth

. . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .

(decline)(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior year revenue from dispositions . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Non-GAAP acquisitions (dispositions), net

Global
Integrated
Agencies

$43,536
2,387

Media
Services
All Other
(Dollars in Thousands)
$ — $ — $ 43,536
2,387

Total

—

—

(4,930)
(3,500)
$37,493

—
(5,609)
$(5,609)

—
(1,499)
$(1,499)

(4,930)
(10,608)
$ 30,385

(1) Operating segments not impacted by revenue from acquired Partner Firms in the 2017 and 2016 were

excluded. See Note 5 of the Notes to the Consolidated Financial Statements included herein for further
information pertaining to the acquisitions and dispositions.

(2) Contributions to organic revenue growth (decline) represents the change in revenue, measured on a

constant currency basis, relative to the comparable pre-acquisition period for acquired businesses that is
included in the Company’s organic revenue growth (decline) calculation.

The geographic mix in revenues in the Advertising and Communications Group for the twelve months

ended December 31, 2017 and 2016 was as follows:

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other

2017
77.5%
8.1%
14.4%

2016
79.6%
9.0%
11.4%

Organic revenue growth in the Advertising and Communications Group was driven by the Company’s
business in the United States with growth of $74.3 million, or 6.7%, due to net new client wins, increased
spending as well as expanded scopes of services by existing clients, and higher pass-through costs. In Canada,
organic revenue declined $1.7 million, or 1.4%, due to a decrease in pass-through costs. Organic revenue
growth from outside of North America was $23.8 million, or 15.1%, consisting of contributions from existing
Partner Firms due to net new client wins, partially offset by an organic revenue decline of $4.9 million from
acquired Partner Firms.

The positive foreign exchange impact of $1.2 million, or 0.1%, was primarily due to the strengthening of

the Canadian dollar and the European Euro against the U.S. dollar, partially offset by the weakening of the
British Pound against the U.S. dollar.

34

The change in revenue and expenses as a percentage of revenue in the Advertising and Communications

Group for the twelve months ended December 31, 2017 and 2016 was as follows:

Advertising and Communications Group

2017

2016

Change

$

% of
Revenue

% of
Revenue
(Dollars in Thousands)

$

$

%

Revenue . . . . . . . . . . . . . . . . . . . . . . . . $1,513,779
Operating expenses

Cost of services sold . . . . . . . . . . . . . . 1,023,476
271,874
Office and general expenses
. . . . . . . . .
42,376
Depreciation and amortization . . . . . . . .
3,238
. . .
Goodwill and other asset impairment
$1,340,964
. . . . . . . . . . . . . . . . . . . $ 172,815

Operating proﬁt

$1,385,785

$127,994

9.2%

67.6%
18.0%
2.8%
0.2%

936,133
263,717
44,861
48,524
88.6% $1,293,235
92,550
11.4% $

67.6%
19.0%
3.2%
3.5%

87,343
8,157
(2,485)
(45,286)
93.3% $ 47,729
6.7% $ 80,265

9.3%
3.1%
(5.5)%
(93.3)%
3.7%
86.7%

Operating proﬁt in the Advertising and Communications Group for the twelve months ended
December 31, 2017 was $172.8 million, compared to $92.6 million for the twelve months ended
December 31, 2016, representing an increase of $80.3 million, or 86.7%. Operating margins improved by 470
basis points from 6.7% in 2016, to 11.4% in 2017. These improvements were largely due to a decline in the
goodwill impairment charge, a decrease in staff costs as a percentage of revenue, and a change in the deferred
acquisition consideration adjustment, partially offset by an increase in direct costs.

The change in the categories of expenses as a percentage of revenue in the Advertising and
Communications Group for the twelve months ended December 31, 2017 and 2016 was as follows:

Advertising and Communications Group

2017

2016

Change

$

% of
Revenue

% of
Revenue
(Dollars in Thousands)

$

$

%

Direct costs(1) . . . . . . . . . . . . . . . . . . . . . $ 260,776
Staff costs(2) . . . . . . . . . . . . . . . . . . . . . .
829,568
187,687
. . . . . . . . . . . . . . . .
Administrative costs
(4,898)
Deferred acquisition consideration . . . . . . .
22,217
Stock-based compensation . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . .
42,376
3,238
. . . . .
Goodwill and other asset impairment
. . . . . . . . . . . . . $1,340,964
Total operating expenses

17.2% $ 212,259
781,947
54.8%
179,199
12.4%
7,968
(0.3)%
18,478
1.5%
2.8%
44,861
48,524
0.2%
88.6% $1,293,236

15.3% $ 48,517
47,621
56.4%
8,488
12.9%
0.6% (12,866)
3,739
1.3%
3.2%
(2,485)
3.5% (45,286)
93.3% $ 47,728

22.9%
6.1%
4.7%
(161.5)%
20.2%
(5.5)%
(93.3)%
3.7%

(1) Excludes staff costs.
(2) Excludes stock-based compensation and is comprised of amounts reported in both cost of services sold

and office and general expenses.

Direct costs in the Advertising and Communications Group for the twelve months ended December 31,

2017 were $260.8 million, compared to $212.3 million for the twelve months ended December 31, 2016,
representing an increase of $48.5 million, or 22.9%. As a percentage of revenue, direct costs increased from
15.3% in 2016 to 17.2% in 2017. The increase in direct costs and as a percentage of revenue was primarily
due to contributions from an acquired Partner Firm which has a higher direct cost to revenue ratio, in addition
to an increase in costs incurred on the client’s behalf from some of our existing Partner Firms acting as
principal.

Staff costs for the twelve months ended December 31, 2017 were $829.6 million, compared to

$781.9 million for the twelve months ended December 31, 2016, representing an increase of $47.6 million, or
6.1%. The increase in staff costs was due to increased headcount driven by certain Partner Firms to support
the growth of their businesses as well as additional contributions from acquired Partner Firms. Staff costs as

35

a percentage of revenue in the Advertising and Communications Group decreased from 56.4% in 2016 to
54.8% in 2017, which was primarily driven by revenue growth as well improvements in staffing relative to the
prior period.

Goodwill impairment in the Advertising and Communications Group for the twelve months ended
December 31, 2017 was $3.2 million, compared to $48.5 million for the twelve months ended December 31,
2016, representing a decrease of $45.3 million, or 93.3%. The decrease was due to a partial impairment in
2017 of $3.2 million relating to the Global Integrated Agencies reportable segment and the Media Services
reportable segment in comparison to a partial impairment in 2016 of $48.5 million relating to the All Other,
Specialist Communications and Media Services reportable segments. For more information see Note 10 of the
Notes to the Consolidated Financial Statements included herein.

Deferred acquisition consideration in the Advertising and Communications Group for the twelve months
ended December 31, 2017 resulted in income of $4.9 million compared to an expense of $8.0 million for the
twelve months ended December 31, 2016, representing a change of $12.9 million, or 161.5%. The change in
the deferred acquisition consideration adjustment was primarily due to the higher than estimated liability in
the prior period driven by the decrease in the Company’s estimated future stock price, pertaining to an equity
funded acquisition, increased expenses pertaining to amendments to purchase agreements of previously
acquired incremental ownership interest entered into during 2016, and the aggregate under-performance of
certain Partner Firms in 2017 relative to the previously forecasted expectations.

Stock-based compensation in the Advertising and Communications Group was $22.2 million for the

twelve months ended December 31, 2017, compared to $18.5 million for the twelve months ended
December 31, 2016, representing an increase of $3.7 million, or 20.2%. As a percentage of revenue, stock-
based compensation increased from 1.3% in 2016 to 1.5% in 2017.

Depreciation and amortization expense in the Advertising and Communications Group for the

twelve months ended December 31, 2017 was $42.4 million compared to $44.9 million for the twelve months
ended December 31, 2016, representing a decrease of $2.5 million, or 5.5%. The decrease was primarily due
to lower amortization from intangibles related to prior period acquisitions.

Global Integrated Agencies

The change in revenue and expenses as a percentage of revenue in the Global Integrated Agencies

reportable segment for twelve months ended December 31, 2017 and 2016 was as follows:

Global Integrated Agencies

$

% of
Revenue

Revenue . . . . . . . . . . . . . . . . . . . . . . . . $797,347
Operating expenses

$

% of
Revenue
(Dollars in Thousands)
$712,793

$

%

$84,554

11.9%

2017

2016

Change

Cost of services sold . . . . . . . . . . . . . .
Office and general expenses
. . . . . . . . .
Depreciation and amortization . . . . . . . .
. . .
Goodwill and other asset impairment

549,443
149,475
23,831
2,741
$725,490
. . . . . . . . . . . . . . . . . . . $ 71,857

Operating proﬁt

68.9% 485,081
18.7% 146,964
21,555
—
91.0% $653,600
9.0% $ 59,193

3.0%
0.3%

68.1%
20.6%
3.0%
—%

64,362
2,511
2,276
2,741
91.7% $71,890
8.3% $12,664

13.3%
1.7%
10.6%
100.0%
11.0%
21.4%

Revenue in the Global Integrated Agencies reportable segment for the twelve months ended

December 31, 2017 was $797.3 million, compared to $712.8 million for the twelve months ended
December 31, 2016, representing an increase of $84.6 million, or 11.9%. The change in revenue included
contributions from existing Partner Firms consisting of revenue growth of $45.9 million, or 6.4%, and a
positive foreign exchange impact of $0.2 million. Revenue growth was primarily driven by net new client
wins, increased spending as well as expanded scopes of services by existing clients, and increased
pass-through costs. Revenue from acquired Partner Firms was $42.0 million, or 5.9%, partially offset by a
negative impact from dispositions of $3.5 million, or 0.5%.

36

Operating proﬁt in the Global Integrated Agencies reportable segment in 2017 was $71.9 million,

compared to $59.2 million in 2016. Operating margins declined by 70 basis points from 9.0% in 2017 to 8.3%
in 2016. The increases in operating proﬁt and margin were largely due to improvements in staff costs as
a percentage of revenue and a reduction in the deferred acquisition consideration expense, partially offset by
an increase in direct costs.

The change in the categories of expenses as a percentage of revenue in the Global Integrated Agencies

reportable segment for the twelve months ended December 31, 2017 and 2016 was as follows:

Global Integrated Agencies

2017

2016

Change

$

% of
Revenue

% of
Revenue
(Dollars in Thousands)

$

$

%

Direct costs(1) . . . . . . . . . . . . . . . . . . . . . $108,688
Staff costs(2) . . . . . . . . . . . . . . . . . . . . . .
465,522
104,879
. . . . . . . . . . . . . . . .
Administrative costs
4,604
Deferred acquisition consideration . . . . . . .
15,225
Stock-based compensation . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . .
23,831
2,741
. . . . .
Goodwill and other asset impairment
. . . . . . . . . . . . . $725,490
Total operating expenses

13.6% $ 72,995
58.4% 440,723
94,595
13.2%
11,555
0.6%
12,177
1.9%
3.0%
21,555
—
0.3%
91.0% $653,600

10.2% $35,693
24,799
61.8%
10,284
13.3%
(6,951)
1.6%
3,048
1.7%
2,276
3.0%
2,741
—%
91.7% $71,890

48.9%
5.6%
10.9%
(60.2)%
25.0%
10.6%
100.0%
11.0%

(1) Excludes staff costs.
(2) Excludes stock-based compensation and is comprised of amounts reported in both cost of services sold

and office and general expenses.

Direct costs in the Global Integrated Agencies reportable segment for the twelve months ended

December 31, 2017 were $108.7 million compared to $73.0 million for the twelve months ended
December 31, 2016, representing an increase of $35.7 million, or 48.9%. As a percentage of revenue, direct
costs increased from 10.2% in 2016 to 13.6% in 2017. These increases were primarily due to contributions
from an acquired Partner Firm which has a higher direct cost to revenue ratio, in addition to an increase in
costs incurred on certain clients’ behalf from some of our existing Partner Firms acting as principal.

Staff costs in the Global Integrated Agencies reportable segment for the twelve months ended
December 31, 2017 were $465.5 million compared to $440.7 million for the twelve months ended
December 31, 2016, representing an increase of $24.8 million, or 5.6%. The increase in staff costs was due to
increased headcount driven by certain Partner Firms to support the growth of their businesses as well as
additional contributions from acquired Partner Firms. As a percentage of revenue, staff costs decreased from
61.8% in 2016 to 58.4% in 2017, primarily driven by revenue growth as well improvements in staffing
relative to the prior period.

Deferred acquisition consideration in the Global Integrated Agencies reportable segment resulted in an

expense of $4.6 million in 2017, compared to $11.6 million in 2016, representing a decrease of $7.0 million,
or 60.2%. The change in the deferred acquisition consideration adjustment was primarily due to the increased
estimated liability in the prior period driven by the decrease in the Company’s estimated future stock price,
pertaining to an equity funded acquisition completed in 2016 as well as increased expenses pertaining to
amendments to purchase agreements of previously acquired incremental ownership interest entered into during
2016.

37

Domestic Creative Agencies

The change in expenses as a percentage of revenue in the Domestic Creative Agencies reportable

segment for the twelve months ended December 31, 2017 and 2016 was as follows:

Domestic Creative Agencies

$

% of
Revenue

Revenue . . . . . . . . . . . . . . . . . . . . . . . . $104,417
Operating expenses

$

% of
Revenue
(Dollars in Thousands)
$97,199

$

%

$7,218

7.4%

2017

2016

Change

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

61,623
21,879
1,582
$ 85,084
. . . . . . . . . . . . . . . . . . . $ 19,333

Operating proﬁt

56,588
59.0%
20,712
21.0%
1.5%
1,811
81.5% $79,111
18.5% $18,088

5,035
58.2%
1,167
21.3%
1.9%
(229)
81.4% $5,973
18.6% $1,245

8.9%
5.6%
(12.6)%
7.6%
6.9%

Revenue in the Domestic Creative Agencies reportable segment was $104.4 million for the
twelve months ended December 31, 2017, compared to $97.2 million for the twelve months ended
December 31, 2016, representing an increase of $7.2 million, or 7.4%. The change in revenue was due to
revenue growth from Partner Firms of $7.0 million, or 7.2%, and a positive foreign exchange impact of
$0.2 million, or 0.2%.

Operating proﬁt in the Domestic Creative Agencies reportable segment for the twelve months ended
December 31, 2017 was $19.3 million compared to $18.1 million for the twelve months ended December 31,
2016, representing an increase of $1.2 million, or 6.9%. Operating margins declined by 10 basis points from
18.6% in 2016 to 18.5% in 2017. The increase in operating proﬁt was largely due to revenue growth, partially
offset by an increase in staff costs.

The change in the categories of expenses as a percentage of revenue in the Domestic Creative Agencies

reportable segment for the twelve months ended December 31, 2017 and 2016 was as follows:

Domestic Creative Agencies

2017

2016

Change

$

% of
Revenue

$

% of
Revenue

$

%

Direct costs(1) . . . . . . . . . . . . . . . . . . . . . $ 4,362
Staff costs(2) . . . . . . . . . . . . . . . . . . . . . .
65,814
12,080
Administrative costs
. . . . . . . . . . . . . . . .
359
Deferred acquisition consideration . . . . . . .
887
Stock-based compensation . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . .
1,582
. . . . . . . . . . . . . $85,084
Total operating expenses

(Dollars in Millions)

63.0%
11.6%
0.3%
0.8%
1.5%

4.2% $ 3,852
60,803
12,275
(281)
651
1,811
81.5% $79,111

62.6%
12.6%
(0.3)%
0.7%
1.9%

4.0% $ 510
5,011
(195)
640
236
(229)
81.4% $5,973

13.2%
8.2%
(1.6)%
(227.8)%
36.3%
(12.6)%
7.6%

(1) Excludes staff costs.
(2) Excludes stock-based compensation and is comprised of amounts reported in both cost of services sold

and office and general expenses.

Staff costs in the Domestic Creative Agencies reportable segment for the twelve months ended

December 31, 2017 were $65.8 million compared to $60.8 million for the twelve months ended December 31,
2016, representing an increase of $5.0 million, or 8.2%. As a percentage of revenue, staff costs increased from
62.6% in 2016 to 63.0% in 2017. These increases were primarily due to increases in workforces at certain
Partner Firms to support revenue growth and new business wins.

38

Specialist Communications

The change in revenue and expenses as a percentage of revenue in the Specialist Communications

reportable segment for the twelve months ended December 31, 2017 and 2016 was as follows:

Specialist Communications

$

% of
Revenue

Revenue . . . . . . . . . . . . . . . . . . . . . . . . $172,565
Operating expenses

$

% of
Revenue
(Dollars in Thousands)
$170,285

$

%

$ 2,280

1.3%

2017

2016

Change

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

117,195
29,928
4,714
—
$151,837
. . . . . . . . . . . . . . . . . . . $ 20,728

Operating proﬁt

67.9% 118,136
24,679
17.3%
6,637
2.7%
18,893
—%
88.0% $168,345
1,940
12.0% $

(941)
69.4%
5,249
14.5%
3.9%
(1,923)
11.1% (18,893)
98.9% $(16,508)
1.1% $ 18,788

(0.8)%
21.3%
(29.0)%
(100.0)%
(9.8)%
968.5%

Revenue in the Specialist Communications reportable segment was $172.6 million for the twelve months
ended December 31, 2017, compared to revenue of $170.3 million for the twelve months ended December 31,
2016, representing an increase of $2.3 million, or 1.3%. The increase in revenue was attributable to revenue
growth of $2.2 million, or 1.3%, from existing Partner Firms and a positive foreign exchange impact of
$0.1 million.

Operating proﬁt in the Specialist Communications reportable segment for the twelve months ended
December 31, 2017 was $20.7 million compared to $1.9 million in for the twelve months ended December 31,
2016, representing an increase of $18.8 million, or 968.5%. Operating margins improved by 1,090 basis points
from 1.1% in 2016 to 12.0% in 2017. These increases were largely due to a goodwill impairment recognized
in the prior period and lower income from deferred acquisition consideration.

The change in the categories of expenses as a percentage of revenue in the Specialist Communications

reportable segment for the twelve months ended December 31, 2017 and 2016 was as follows:

Specialist Communications

2017

2016

Change

$

% of
Revenue

% of
Revenue
(Dollars in Thousands)

$

$

%

Direct costs(1) . . . . . . . . . . . . . . . . . . . . . $ 42,754
Staff costs(2) . . . . . . . . . . . . . . . . . . . . . .
79,873
21,961
Administrative costs
. . . . . . . . . . . . . . . .
(419)
Deferred acquisition consideration . . . . . . .
2,954
Stock-based compensation . . . . . . . . . . . .
4,714
Depreciation and amortization . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . .
—
. . . . . . . . . . . . . $151,837
Total operating expenses

24.8% $ 41,914
80,818
46.3%
21,670
12.7%
(5,216)
(0.2)%
3,629
1.7%
6,637
2.7%
18,893
—%
88.0% $168,345

840
24.6% $
(945)
47.5%
291
12.7%
4,797
(3.1)%
(675)
2.1%
3.9%
(1,923)
11.1% (18,893)
98.9% $(16,508)

2.0%
(1.2)%
1.3%
(92.0)%
(18.6)%
(29.0)%
(100.0)%
(9.8)%

(1) Excludes staff costs.
(2) Excludes stock-based compensation and is comprised of amounts reported in both cost of services sold

and office and general expenses.

Deferred acquisition consideration in the Specialist Communications reportable segment for the year

ended twelve months ended December 31, 2017 resulted in income of $0.4 million compared to income of
$5.2 million in for the twelve months ended December 31, 2016, representing a decrease in income of
$4.8 million, or 92.0%. The change in the deferred acquisition consideration adjustment was due to the
aggregate under-performance of certain Partner Firms in 2016 as compared to forecasted expectations.

39

Goodwill impairment in the Specialist Communications reportable segment was $18.9 million for the
twelve months ended December 31, 2016 pertaining to a partial impairment of goodwill relating to one of the
Company’s strategic communications reporting units. For more information see Note 10 of the Notes to the
Consolidated Financial Statements included herein for further information.

Media Services

The change in expenses as a percentage of revenue in the Media Services reportable segment for the

twelve months ended December 31, 2017 and 2016 was as follows:

Media Services

$

% of
Revenue

Revenue . . . . . . . . . . . . . . . . . . . . . . . . $166,216
Operating expenses

$

% of
Revenue
(Dollars in Thousands)
$157,696

$

%

$ 8,520

5.4%

2017

2016

Change

Cost of services sold . . . . . . . . . . . . . .
Office and general expenses
. . . . . . . . .
Depreciation and amortization . . . . . . . .
Goodwill and other asset amortization . . .

111,850
36,691
4,052
497
$153,090
. . . . . . . . . . . . . . . . . . . $ 13,126

Operating proﬁt

67.3% 115,820
28,493
22.1%
7,829
2.4%
—
0.3%
92.1% $152,142
5,554
7.9% $

73.4%
18.1%
5.0%
—%

(3,970)
8,198
(3,777)
497
96.5% $
948
3.5% $ 7,572

(3.4)%
28.8%
(48.2)%
100.0%
0.6%
136.3%

Revenue in the Media Services reportable segment was $166.2 million for the twelve months ended
December 31, 2017, compared to revenue of $157.7 million for the twelve months ended December 31, 2016,
representing an increase of $8.5 million, or 5.4%. The increase in revenue was driven by revenue growth of
$8.3 million, or 5.3%, primarily due to new business wins and an increase in pass-through costs, and positive
foreign exchange impact of $5.8 million, or 3.7%, partially offset by a negative disposition impact of
$5.6 million, or 3.6%.

Operating proﬁt in the Media Services reportable segment for the twelve months ended December 31,

2017 was $13.1 million compared to $5.6 million for the twelve months ended December 31, 2016,
representing an increase of $7.6 million, 136.3%. Operating margins improved by 440 basis points from 3.5%
in 2016 to 7.9% in 2017. These increases were largely due to revenue growth and a decrease in office and
general expenses as well as depreciation and amortization expense, partially offset by an increase in direct
costs.

The change in the categories of expenses as a percentage of revenue in the Media Services reportable

segment for the twelve months ended December 31, 2017 and 2016 was as follows:

Media Services

2017

2016

Change

$

% of
Revenue

% of
Revenue
(Dollars in Thousands)

$

$

%

Direct costs(1) . . . . . . . . . . . . . . . . . . . . . $ 46,411
Staff costs(2) . . . . . . . . . . . . . . . . . . . . . .
80,234
22,059
Administrative . . . . . . . . . . . . . . . . . . . .
(819)
Deferred acquisition consideration . . . . . . .
656
Stock-based compensation . . . . . . . . . . . .
4,052
Depreciation and amortization . . . . . . . . . .
497
Goodwill and other asset amortization . . . .
. . . . . . . . . . . . . $153,090
Total operating expenses

27.9% $ 39,791
77,677
48.3%
25,954
13.3%
573
(0.5)%
318
0.4%
7,829
2.4%
—
0.3%
92.1% $152,142

25.2% $ 6,620
2,557
49.3%
(3,895)
16.5%
(1,392)
0.4%
338
0.2%
(3,777)
5.0%
497
—%
948

96.5% $

16.6%
3.3%
(15.0)%
(242.9)%
106.3%
(48.2)%
100.0%
0.6%

(1) Excludes staff costs.
(2) Excludes stock-based compensation and is comprised of amounts reported in both cost of services sold

and office and general expenses.

40

Direct costs in the Media Services reportable segment for the twelve months ended December 31, 2017
were $46.4 million compared to $39.8 million for the twelve months ended December 31, 2016, representing
an increase of $6.6 million, or 16.6%. As a percentage of revenue, direct costs increased from 25.2% in 2016
to 27.9% in 2017. The increase in direct costs is primarily due to increases in pass-through costs incurred on
clients’ behalf, from one of the Company’s Partner Firms acting as Principal versus Agent.

Administrative costs in the Media Services reportable segment for the twelve months ended

December 31, 2017 were $22.1 million compared to $26.0 million for the twelve months ended December 31,
2016, representing a decrease of $3.9 million, or 15.0%. As a percentage of revenue, administrative costs
decreased from 16.5% in 2016 to 13.3% in 2017. The decrease in administrative costs was due to a reduction
in outside professional services fees as well as occupancy cost savings realized from real estate consolidation
initiatives.

Depreciation and amortization expense in the Media Services reportable segment for the twelve months

ended December 31, 2017 was $4.1 million compared to $7.8 million for the twelve months ended
December 31, 2016, representing a decrease of $3.8 million or 48.2%. The decrease was primarily due to
lower amortization from intangibles related to prior period acquisitions.

The goodwill impairment in 2017 was comprised of an impairment on a non-material reporting unit. For

more information see Note 10 of the Notes to the Consolidated Financial Statements included herein for
further information.

All Other

The change in expenses as a percentage of revenue in the All Other category for the twelve months

ended December 31, 2017 and 2016 was as follows:

All Other

$

% of
Revenue

Revenue . . . . . . . . . . . . . . . . . . . . . . . . $273,234
Operating expenses

$

% of
Revenue
(Dollars in Thousands)
$247,812

$

%

$ 25,422

10.3%

2017

2016

Change

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

183,366
33,901
8,197
—
$225,464
. . . . . . . . . . . . . . . . . . . $ 47,771

Operating proﬁt

67.1% 160,508
42,870
12.4%
8,768
3.0%
27,893
—%
82.5% $240,039
7,773
17.5% $

22,858
64.8%
(8,969)
17.3%
3.5%
(571)
11.3% (27,893)
96.9% $(14,575)
3.1% $ 39,997

14.2%
(20.9)%
(6.5)%
(100.0)%
(6.1)%
514.6%

Revenue in the All Other category was $273.2 million for the twelve months ended December 31, 2017

compared to revenue of $247.8 million for the twelve months ended December 31, 2016, representing an
increase of $25.4 million, or 10.3%. The increase was driven by revenue growth from existing Partner Firm of
$25.9 million, or 10.4%, and a positive foreign exchange impact of $1.0 million, or 0.4%, partially offset by a
negative impact from dispositions of $1.5 million, or 0.6%.

Operating proﬁt in the All Other category for the twelve months ended December 31, 2017 was
$47.8 million compared to $7.8 million for the twelve months ended December 31, 2016, representing an
increase of $40.0 million, or 514.6%. These increases were largely due to a decline in the goodwill
impairment charge and the change in the deferred acquisition consideration adjustment, partially offset by an
increase in staff costs as a percentage of revenue.

41

The change in the categories of expenses as a percentage of revenue in the All Other category for the

twelve months ended December 31, 2017 and 2016 was as follows:

All Other

2017

2016

Change

$

% of
Revenue

% of
Revenue
(Dollars in Thousands)

$

$

%

Direct costs(1) . . . . . . . . . . . . . . . . . . . . . $ 58,561
Staff costs(2) . . . . . . . . . . . . . . . . . . . . . .
138,127
26,707
Administrative . . . . . . . . . . . . . . . . . . . .
(8,623)
Deferred acquisition consideration . . . . . . .
2,495
Stock-based compensation . . . . . . . . . . . .
8,197
Depreciation and amortization . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . .
—
. . . . . . . . . . . . . $225,464
Total operating expenses

21.4% $ 53,705
50.6% 121,925
24,707
1,337
1,703
8,768
27,893
82.5% $240,038

9.8%
(3.2)%
0.9%
3.0%
—%

21.7% $ 4,856
16,202
49.2%
2,000
10.0%
(9,960)
0.5%
792
0.7%
3.5%
(571)
11.3% (27,893)
96.9% $(14,574)

9.0%
13.3%
8.1%
NM
46.5%
(6.5)%
(100.0)%
(6.1)%

(1) Excludes staff costs.
(2) Excludes stock-based compensation and is comprised of amounts reported in both cost of services sold

and office and general expenses.

Staff costs in the All Other category for the twelve months ended December 31, 2017 were

$138.1 million compared to $121.9 million for the twelve months ended December 31, 2016, representing an
increase of $16.2 million, or 13.3%. As a percentage of revenue, staff costs increased from 49.2% in 2016 to
50.6% in 2017. These increases were primarily due to higher headcount at certain Partner Firms to support
growth of the business.

Deferred acquisition consideration in the All Other category resulted in income of $8.6 million for the

twelve months ended December 31, 2017 compared to an expense of $1.3 million for the twelve months
ended December 31, 2016, representing a change of $10.0 million. The change was primarily due to aggregate
under performance of certain Partner Firms as compared to forecasted expectations in the current period.

The goodwill impairment in 2016 was comprised of a partial impairment of goodwill relating to an All

Other reporting unit. For more information see Note 10 of the Notes to the Consolidated Financial Statements
included herein for further information.

Corporate

The change in operating expenses for Corporate for the twelve months ended December 31, 2017 and

2016 was as follows:

Corporate

2017

2016

$

%

Change

Staff costs(1)
. . . . . . . . . . . . . . . . . . . . . . . . . .
Administrative costs . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . .

$20,926
15,521
2,134
1,098
1,177
$40,856

(1) Excludes stock-based compensation.

(Dollars in Thousands)

$26,048
13,960
2,525
1,585
—
$44,118

$(5,122)
1,561
(391)
(487)
1,177
$(3,262)

(19.7)%
11.2%
(15.5)%
(30.7)%
100.0%
(7.4)%

Total operating expenses for Corporate decreased by $3.3 million to $40.9 million in 2017, compared to

$44.1 million in 2016.

Staff costs for Corporate decreased by $5.1 million, or 19.7%. The decrease was primarily due to

reductions in executive compensation expense and severance expense.

42

Administrative costs for Corporate increased by $1.6 million, or 11.2%. This increase was primarily due
to an increase in professional fees of $2.4 million relating to the implementation of ASC 606, Revenue from
Contracts with Customers, which is effective January 1, 2018. Additionally, there was a reduction in insurance
proceeds of $4.8 million received by the Company in 2016 compared to 2017, relating to the class action
litigation and the completed SEC investigation, offset by reductions in legal fees in 2017 relating to the class
action litigation and the completed SEC investigation. In addition, for the year ended December 31, 2016, the
Company paid a one-time SEC civil penalty payment of $1.5 million.

Liquidity and Capital Resources

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

Liquidity

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . .
Working capital (deﬁcit)
. . . . . . . . . . . . . . . . . . . . .
Cash provided by (used in) operating activities . . . . . .
Cash used in investing activities . . . . . . . . . . . . . . . .
Cash provided by (used in) ﬁnancing activities . . . . . .
Ratio of long-term debt to shareholders’ deﬁcit . . . . . .

2018
2016
2017
(In Thousands, Except for Long-Term Debt
to Shareholders’ Equity Ratio)
$ 46,179
$(232,859)
$ 71,786
$ (20,884)
$ (32,599)
(5.68)

$ 30,873
$(152,682)
$ 17,280
$ (50,431)
$ 21,434
(3.87)

$ 27,921
$(313,239)
$ (45,907)
$ (25,196)
$ 35,657
(1.84)

As of December 31, 2018, 2017 and 2016, $3.9 million (classiﬁed within Assets held for sale in the
Consolidated Balance Sheet), $4.6 million, and $5.3 million, respectively, of the Company’s consolidated cash
position was held by subsidiaries in trust, and was available for use against the trust liability. This amount
does not represent cash that is distributable as earnings to MDC for use to reduce its indebtedness.

The Company intends to maintain sufficient cash and/or available borrowings to fund operations for the
next twelve months. The Company has historically been able to maintain and expand its business using cash
generated from operating activities, funds available under its Credit Agreement, and other initiatives, such as
obtaining additional debt and equity ﬁnancing. At December 31, 2018, there were $68.1 million borrowings
under the Credit Agreement and $4.7 million of undrawn outstanding letters of credit resulting in
$152.3 million available borrowings under the Credit Agreement. Advances under the Credit Agreement will
be used for working capital and general corporate purposes, in each case pursuant to the terms of the Credit
Agreement. See the Recent Developments section above for information regarding the Company’s amendment
to the Credit Agreement, including the reduction of the maximum revolving commitment amount under the
Credit Agreement to $250 million from $325 million.

The Company’s obligations extending beyond twelve months primarily consist of deferred acquisition

payments, capital expenditures, scheduled lease obligation payments, and the principal and interest payments
on borrowings under the Company’s 6.50% Senior Notes due 2024 (the ‘‘Senior Notes’’). Based on the
current outlook, the Company believes future cash ﬂows from operations, together with the Company’s
existing cash balance and availability of funds under the Company’s Credit Agreement, will be sufficient to
meet the Company’s anticipated cash needs for the next twelve months. The Company’s ability to make
scheduled deferred acquisition payments, principal and interest payments, to reﬁnance indebtedness or to fund
planned capital expenditures will depend on future performance, which is subject to general economic
conditions, the competitive environment and other factors, including those described in Item 1A of Part I of
this Annual Report on Form 10-K and in the Company’s other SEC ﬁlings.

As market conditions warrant, the Company may from time to time seek to purchase its notes, in

privately negotiated or open market transactions, by tender offer or otherwise. Subject to any applicable
limitations contained in the agreements governing its indebtedness, any purchase made by the Company may
be funded by the net proceeds from any asset dispositions or the use of cash on its balance sheet. The
amounts involved in any such purchase transactions, individually or in the aggregate, may be material.

43

Working Capital

At December 31, 2018, the Company had a working capital deﬁcit of $152.7 million compared to a

deﬁcit of $232.9 million at December 31, 2017. The working capital deﬁcit decreased by $80.2 million
primarily due to the timing of media payments, partially offset by net borrowings on the Company’s credit
agreement. The Company’s working capital is impacted by seasonality in media buying, amounts spent by
clients, and timing of amounts received from clients and subsequently paid to suppliers. Media buying is
impacted by the timing of certain events, such as major sporting competitions and national holidays, and there
can be a quarter to quarter lag between the time amounts received from clients for the media buying are
subsequently paid to suppliers. The Company intends to maintain sufficient cash or availability of funds under
the Credit Agreement at any particular time to adequately fund working capital should there be a need to do
so from time to time.

Operating Activities

Cash ﬂows provided by operating activities for the twelve months ended December 31, 2018 was

$17.3 million, primarily reﬂecting unfavorable working capital requirements, driven by media and other
supplier payments, as well as acquisition related contingent consideration payments, being more than offset by
the net loss adjusted to reconcile to net cash provided by operating activities.

Cash ﬂows provided by operating activities for the twelve months ended December 31, 2017 was
$71.8 million, primarily reﬂecting unfavorable working capital requirements, driven by timing of accounts
receivable, as well as acquisition related contingent consideration payments, being more than offset by the net
income adjusted to reconcile to net cash provided by operating activities.

Cash ﬂows used in operating activities for the twelve months ended December 31, 2016 was

$45.9 million, primarily reﬂecting unfavorable working capital requirements, driven by timing of accounts
receivable, and media and other supplier payments, as well as acquisition related contingent consideration
payments, partially offset by the net loss adjusted to reconcile to net cash used in operating activities.

Investing Activities

During the twelve months ended December 31, 2018, cash ﬂows used in investing activities was
$50.4 million, primarily consisting of cash paid of $32.7 million for acquisitions (see Note 5 of the Notes to
the Consolidated Financial Statements for additional information) and capital expenditures related primarily to
computer equipment, furniture and ﬁxtures, and leasehold improvements of $20.3 million.

During the twelve months ended December 31, 2017, cash ﬂows used in investing activities was

$20.9 million, primarily consisting of capital expenditures related primarily to computer equipment, furniture
and ﬁxtures, and leasehold improvements of $33.0 million, partially offset by net proceeds from sale of three
subsidiaries of $10.6 million.

During the twelve months ended December 31, 2016, cash ﬂows used in investing activities was

$25.2 million, primarily consisting of capital expenditures related primarily to computer equipment, furniture
and ﬁxtures, and leasehold improvements of $29.4 million, partially offset by $7.4 million of distributions
from non-consolidated affiliates.

Financing Activities

During the twelve months ended December 31, 2018, cash ﬂows provided by ﬁnancing activities was
$21.4 million, primarily driven by $68.1 million in net borrowings under the Credit Agreement, partially offset
by $32.2 million of acquisition related payments and distributions to noncontrolling partners of $13.4 million.

During the twelve months ended December 31, 2017, cash ﬂows used in ﬁnancing activities was

$32.6 million, primarily driven by $54.4 million in net repayments under the Credit Agreement, $57.1 million
of acquisition related payments and distributions to noncontrolling partners of $8.9 million. These amounts
were partially offset by $95.0 million of gross proceeds from the issuance of convertible preference shares.

During the twelve months ended December 31, 2016, cash ﬂows provided by ﬁnancing activities was

$35.7 million, primarily driven by redemption of the 6.75% Notes of $735.0 million, a premium paid in
connection with such redemption of $26.9 million including accrued interest through the settlement date,

44

$90.8 million of acquisition related payments, payment of dividends of $32.9 million, $21.6 million of debt
issuance costs paid in connection with the issuance of the 6.50% Notes, and distributions to noncontrolling
partners of $7.8 million. These amounts were partially offset by $900.0 million in proceeds from the issuance
of the 6.50% Notes and $54.4 million in net borrowings under the Credit Agreement.

Total Debt

Debt, net of debt issuance costs, as of December 31, 2018 was $954.6 million, an increase of

$71.5 million, compared with $883.1 million outstanding at December 31, 2017. This increase in debt was
primarily a result of the Company’s net borrowings under the Credit Agreement. See Note 12 of the Notes to
the Consolidated Financial Statements for information regarding the Company’s $900 million Senior Notes.

The Credit Agreement is guaranteed by substantially all of MDC’s present and future subsidiaries, other
than immaterial subsidiaries and subject to customary exceptions. The Credit Agreement includes covenants
that, among other things, restrict MDC’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; impose limitations on dividends or other amounts from MDC’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 substantially all of MDC’s assets to,
another person. These covenants are subject to a number of important limitations and exceptions. The Credit
Agreement also contains ﬁnancial covenants (see below and each as more fully described in the Credit
Agreement). The Credit Agreement is also subject to customary events of default.

The Company is currently in compliance with all of the terms and conditions of the Credit Agreement,
and management believes, based on its current ﬁnancial projections, that the Company will be in compliance
with its covenants over the next twelve months.

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

the Company uses the maximum available amount under the Credit Agreement, it will 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, access to the capital markets or asset sales, the Company’s ability to fund its working
capital needs and any contingent obligations with respect to acquisitions and redeemable noncontrolling
interests 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,
and (iv) minimum earnings before interest, taxes and depreciation and amortization, in each case as such term
is speciﬁcally deﬁned in the Credit Agreement. For the period ended December 31, 2018, the Company’s
calculation of each of these covenants, and the speciﬁc requirements under the Credit Agreement, respectively,
were calculated based on the trailing twelve months as follows:

Senior Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maximum per covenant
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maximum per covenant
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed Charges Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minimum per covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings before interest, taxes, depreciation and amortization . . . . . . . . . . . . .
Minimum per covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31, 2018
0.3
2.0
5.2
5.5
2.4
1.1
$183.1 million
$105.0 million

These ratios and measures are not based on generally accepted accounting principles and are not
presented as alternative measures of operating performance or liquidity. Some of these ratios and measures
include, among other things, pro forma adjustments for acquisitions, one-time charges, and other items, as
deﬁned in the Credit Agreement. They are presented here to demonstrate compliance with the covenants in the
Credit Agreement, as non-compliance with such covenants could have a material adverse effect on the
Company.

45

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, 2018 will be repaid with new ﬁnancing, equity
offerings, asset sales and/or cash ﬂow from operations:

(in thousands)

Payments Due by Period

Contractual Obligations

Total

Indebtedness(1) . . . . . . . . . . . . . . . . . $ 968,143
478
Capital lease obligations . . . . . . . . . .
345,910
Operating leases . . . . . . . . . . . . . . . .
312,000
. . . . . . . . . . . . . . . .
Interest on debt
Deferred acquisition consideration(2)
83,695
. .
5,133
Other long-term liabilities . . . . . . . . .
Total contractual obligations(3)
. . . . . . $1,715,359

Less than
1 Year

$

—
356
58,015
58,500
32,928
2,788
$152,587

1 − 3 Years
(Dollars in Thousands)
$ 68,143
122
101,185
117,000
29,517
2,345
$318,312

3 − 5 Years

After
5 Years

$

— $ 900,000
—
—
107,975
78,735
19,500
117,000
—
21,250
—
—
$1,027,475
$216,985

Indebtedness includes $68.1 million borrowings under the Credit Agreement due in 2021.

(1)
(2) Deferred acquisition consideration excludes future payments with an estimated fair value of $17.5 million
that are contingent upon employment terms as well as ﬁnancial performance and will be expensed as
stock-based compensation over the required retention period. Of this amount, the Company estimates
$1.8 million will be paid in less than one year and $15.7 million will be paid in one to three years.
(3) Pension obligations of $14.8 million are not included since the timing of payments are not known.

Other-Balance Sheet Commitments

Media and Production

The Company’s agencies enter into contractual commitments with media providers and agreements with

production companies on behalf of our clients at levels that exceed the revenue from services. Some of our
agencies purchase media for clients and act as an agent for a disclosed principal. These commitments are
included in accounts payable when the media services are delivered by the media providers. MDC takes
precautions against default on payment for these services 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.

Deferred Acquisition Consideration

Deferred acquisition consideration on the balance sheet consists of deferred obligations related to

contingent and ﬁxed purchase price payments, and to a lesser extent, contingent and ﬁxed retention payments
tied to continued employment of speciﬁc personnel. See Notes 2 and 6 of the Notes to the Consolidated
Financial Statements included herein for further information.

46

The following table presents the Company’s obligation by segment for deferred acquisition consideration

and the changes for the year ended December 31, 2018:

Global
Integrated
Agencies

Domestic
Creative
Agencies

December 31, 2018

Specialist
Communications

Media
Services

(Dollars in Thousands)

All Other

Total

Beginning Balance of

contingent payments . .
Payments . . . . . . . . . . .
Additions − acquisition

and step-up
transactions . . . . . . . .

Redemption value

adjustments . . . . . . . .

Foreign translation

adjustment . . . . . . . . .

Ending Balance of

contingent payments . .
Fixed payments . . . . . . .

$ 81,411
(32,792)

3,092

(84)

—

51,627
1,096
$ 52,723

$—
—

—

—

—

—
—
$—

$ 5,467
(5,355)

$ 3,735
(1,325)

$ 28,473
(15,475)

$119,086
(54,947)

11,851

1,226

4

13,193
—
$13,193

—

279

—

—

14,943

2,091

3,512

—

4

2,689
—
$ 2,689

15,089
1
$ 15,090

82,598
1,097
$ 83,695

Redemption value adjustments are fair value changes from the Company’s initial estimates of deferred

acquisition payments, including the accretion of present value and stock-based compensation charges relating
to acquisition payments that are tied to continued employment.

Redeemable Noncontrolling Interest

When acquiring less than 100% ownership of an entity, the Company may enter into agreements that
give the Company an option to purchase, or require the Company to purchase, the incremental ownership
interests under certain circumstances. Where the option to purchase the incremental ownership is within the
Company’s control, the amounts are recorded as noncontrolling interests in the equity section of the
Company’s balance sheet. Where the incremental purchase may be required of the Company, the amounts are
recorded as redeemable noncontrolling interests in mezzanine equity. See Notes 2 and 8 of the Notes to the
Consolidated Financial Statements included herein for further information.

Upon the settlement of the total amount of such options to purchase, the Company estimates that it
would receive incremental annual operating income before depreciation and amortization of $4.4 million. The
following table summarizes the potential timing of the consideration and incremental operating income before
depreciation and amortization.

Consideration(4)

2019

2020

2021

2022

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

Operating income before depreciation

$4,696
19
$4,715

$2,320
35
$2,355

(Dollars in Thousands)
$2,881
$4,053
53
34
$2,915
$4,106

2023 &
Thereafter

Total

$3,264
18
$3,282

$17,214
159
$17,373(1)

and amortization to be received(2) . . .

$2,378

$ —

$1,778

$ —

$ 237

$ 4,393

Cumulative operating income before
depreciation and amortization(3)

. . . .

$2,378

$2,378

$4,156

$4,156

$4,393

(5)

(1) This amount is in addition to (i) $31.5 million of options to purchase only exercisable upon termination

not within the control of the Company, or death, and (ii) $2.6 million excess of the initial redemption
value recorded in redeemable noncontrolling interests over the amount the Company would be required to
pay to the holders should the Company acquire the remaining ownership interests.

47

(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 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

Generally, the Company has indemniﬁed the purchasers of certain of its assets 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.

Critical Accounting Policies and Estimates

Our Consolidated Financial Statements have been prepared in accordance with U.S. GAAP. Preparation
of the Consolidated Financial Statements and related disclosures requires us to make judgments, assumptions
and estimates that affect the amounts reported and disclosed in the accompanying ﬁnancial statements and
footnotes. Our signiﬁcant accounting policies are discussed in Note 2 of the Consolidated Financial
Statements. Our critical accounting policies are those that are considered by management to require signiﬁcant
judgment and use of estimates and that could have a signiﬁcant impact on our ﬁnancial statements. An
understanding of our critical accounting policies is necessary to analyze our ﬁnancial results.

Our critical accounting policies include our accounting for revenue recognition, business combinations,

deferred acquisition consideration, redeemable noncontrolling interests, goodwill and intangible assets, income
taxes and stock-based compensation. The ﬁnancial 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.

Revenue Recognition. Effective January 1, 2018, the Company adopted ASC 606. The Company’s
revenue is recognized when control of the promised goods or services is transferred to our clients, in an
amount that reﬂects the consideration we expect to be entitled to in exchange for those goods or services. See
Note 3 of the Notes to the Consolidated Financial Statements included herein for further information.

Business Combinations. 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.

For each of the Company’s acquisitions, a detailed review is undertaken to identify other intangible assets

and a valuation is performed for all such identiﬁed assets. The Company uses 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 the Company acquires 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 the Company acquires 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

48

the ability to, expand our existing client relationships. The expected beneﬁts of our acquisitions are typically
shared across multiple agencies and regions.

Deferred Acquisition Consideration. Consistent with our acquisition strategy and past practice of
acquiring a majority ownership position, most acquisitions include an initial payment at the time of closing
and provide for future additional contingent purchase price payments. Contingent purchase price obligations
for these transactions is recorded as a deferred acquisition consideration liability and are derived from the
performance of the acquired entity and are based on predetermined formulas. These various contractual
valuation formulas may be dependent on future events, such as the growth rate of the earnings of the relevant
subsidiary during the contractual period, and, in some cases, the currency exchange rate on the date of
payment. The liability is adjusted quarterly based on changes in current information affecting each subsidiary’s
current operating results and the impact this information will have on future results included in the calculation
of the estimated liability. In addition, changes in various contractual valuation formulas as well as adjustments
to present value impact quarterly adjustments. These adjustments are recorded in results of operations.

Redeemable Noncontrolling Interests. Many of the Company’s acquisitions include contractual

arrangements where the noncontrolling shareholders have an option to purchase, or may require the Company
to purchase, such noncontrolling shareholders’ incremental ownership interests under certain circumstances
and the Company has similar call options under the same contractual terms. The amount of consideration
under these contractual arrangements is not a ﬁxed amount, but rather is dependent upon various valuation
formulas, such as the average earnings of the relevant subsidiary through the date of exercise or the growth
rate of the earnings of the relevant subsidiary during that period. In the event that an incremental purchase
may be required of the Company, the amounts are recorded as redeemable noncontrolling interests in
mezzanine equity on the balance sheet at their acquisition date fair value and adjusted for changes to their
estimated redemption value through additional paid-in capital (but not less than their initial redemption value),
except for foreign currency translation adjustments. These adjustments will not impact the calculation of
earnings (loss) per share if the redemption values are less than the estimated fair values. There was no impact
on the Company’s earnings (loss) per share calculation in any period.

Goodwill and Other Intangibles. The Company reviews goodwill and other intangible assets with
indeﬁnite lives not subject to amortization for impairment annually as of October 1st of each year or more
frequently if indicators of potential impairment exist. The Company performs its goodwill impairment test by
comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for
the amount by which the carrying amount exceeds the reporting unit’s fair value provided the loss recognized
does not exceed the total amount of goodwill allocated to that reporting unit.

For the annual impairment testing the Company has the option of assessing qualitative factors to

determine whether it is more likely than not that the carrying amount of a reporting unit exceeds its fair value
or performing a quantitative goodwill impairment test. Qualitative factors considered in the assessment include
industry and market considerations, the competitive environment, overall ﬁnancial performance, changing cost
factors such as labor costs, and other factors speciﬁc to each reporting unit such as change in management or
key personnel.

If the Company elects to perform the qualitative assessment and concludes that it is more likely than not

that the fair value of the reporting unit is more than its carrying amount, then goodwill is not considered
impaired and the quantitative impairment test is not necessary. For reporting units for which the qualitative
assessment concludes that it is more likely than not that the fair value of the reporting unit is less than its
carrying amount and for reporting units for which the qualitative assessment is not performed, the Company
will perform the quantitative impairment test, which compares the fair value of the reporting unit to its
carrying amount. If the fair value of the reporting unit exceeds the carrying amount of the net assets assigned
to that reporting unit, goodwill is not considered impaired and additional analysis is not required. However, if
the carrying amount of the net assets assigned to the reporting unit exceeds the fair value of the reporting
unit, then the recognition of an impairment charge is required.

Determining the fair value of a reporting unit involves the use of signiﬁcant estimates and assumptions.
For the 2018 annual impairment test, the Company used an income approach, which incorporates the use of

49

the discounted cash ﬂow (‘‘DCF’’) method. The income approach requires the exercise of signiﬁcant
judgment, including judgment about the amount and timing of expected future cash ﬂows, assumed terminal
value and appropriate discount rates.

The DCF estimates incorporate expected cash ﬂows that represent a spectrum of the amount and timing
of possible cash ﬂows of each reporting unit from a market participant perspective. The expected cash ﬂows
are developed from the Company’s long-range planning process using projections of operating results and
related cash ﬂows based on assumed long-term growth rates and demand trends and appropriate discount rates
based on a reporting units weighted average cost of capital (‘‘WACC’’) as determined by considering the
observable WACC of comparable companies and factors speciﬁc to the reporting unit. The terminal value is
estimated using a constant growth method which requires an assumption about the expected long-term growth
rate. The estimates are based on historical data and experience, industry projections, economic conditions, and
the Company’s expectations. We performed the quantitative impairment test in 2018. See Note 10 of the
Consolidated Financial Statements for additional information regarding the Company’s impairment test and
impairment charges recognized.

The assumptions used for the long-term growth rate and WACC in the annual goodwill impairment test

are as follows:

Long-term growth rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
WACC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

October 1, 2018
3.0%
9.13% − 11.05%

For the 2018 annual goodwill impairment test, the Company had 28 reporting units, all of which were

subject to the quantitative goodwill impairment test and the carrying amount of three of the Company’s
reporting units exceeded their fair value. The range of the excess of fair value over the carrying amount for
the Company’s reporting units was from 3% to over 100%. The Company performed a sensitivity analysis
which included a 1% increase to the WACC. Based on the results of that analysis, one additional reporting
unit with goodwill of approximately $131.2 million would fail the quantitative impairment test.

The Company believes the estimates and assumptions used in the calculations are reasonable. However, if

there was an adverse change in the facts and circumstances, then an impairment charge may be necessary in
the future. Speciﬁcally, as mentioned above, the fair value of one reporting unit, with goodwill of
approximately $131.2 million, exceeded its carrying value by 3% and therefore is highly sensitive to adverse
changes in the facts and circumstances that could result in a possible future impairment. Should the fair value
of any of the Company’s reporting units fall below its carrying amount because of reduced operating
performance, market declines, changes in the discount rate, or other conditions, charges for impairment may
be necessary. The Company monitors its reporting units to determine if there is an indicator of potential
impairment.

Indeﬁnite-lived intangible assets are primarily evaluated on an annual basis, generally in conjunction with

the Company’s evaluation of goodwill balances. See Note 10 of the Consolidated Financial Statements for
additional information regarding the Company’s impairment of a trademark.

Income Taxes. 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 evaluates on a quarterly basis all available positive and negative evidence
considering 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. The periodic
assessment of the net carrying value of the Company’s deferred tax assets under the applicable accounting
rules requires signiﬁcant management judgment. A change to any of these factors could impact the estimated
valuation allowance and income tax expense.

See Note 11 of the Notes to the Consolidated Financial Statements included herein for information
related to the 2017 Tax Cuts and Jobs Act (the ‘‘Tax Act’’) enacted into law on December 22, 2017, and Staff
Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (‘‘SAB 118’’)
issued by the SEC in December 2017.

50

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. Awards based on performance conditions are
recorded as compensation expense when the performance conditions are expected to be met.

From time to time, certain acquisitions and step-up transactions include an element of compensation

related payments. The Company accounts for those payments as stock-based compensation. See Note 13 of
the Notes to the Consolidated Financial Statements for further information.

New Accounting Pronouncements

Information regarding new accounting guidance can be found in Note 19 of the Notes to the

Consolidated Financial Statements included herein.

51

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

risk.

Debt Instruments: At December 31, 2018, the Company’s debt obligations consisted of amounts
outstanding under its Credit Agreement and the Senior Notes. The Senior Notes bear a ﬁxed 6.50% interest
rate. The Credit Agreement bears interest at variable rates based upon the Eurodollar rate, U.S. bank prime
rate and U.S. base rate, at the Company’s option. 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. Given
that there were $68.1 million of borrowings under the Credit Agreement, as of December 31, 2018, a 1%
increase or decrease in the weighted average interest rate, which was 4.16% at December 31, 2018, would
have an immaterial interest impact.

Foreign Exchange: While the Company primarily conducts business in markets that use the U.S. dollar,

the Canadian dollar, the Euro and the British Pound, its non-U.S. operations transact business in numerous
different currencies. The Company’s results of operations are subject to risk from the translation to the
U.S. dollar of the revenue and expenses of its non-U.S. operations. The effects of currency exchange rate
ﬂuctuations on the translation of the Company’s results of operations are discussed in ‘‘Management’s
Discussion and Analysis of Financial Condition and Results of Operations’’ and in Note 2 of the Notes to the
Consolidated Financial Statements included herein. For the most part, revenues and expenses incurred related
to the non-U.S. 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 U.S. and Canada. For every one cent change in the foreign exchange rate between the U.S. and Canada,
the impact to the Company’s Consolidated Statements of Operations would be approximately $3 million.

Impairment Risk: At December 31, 2018, the Company had goodwill of $741.0 million and other
intangible assets of $67.8 million. The Company reviews goodwill and other intangible assets with indeﬁnite
lives not subject to amortization for impairment annually as of October 1st of each year or more frequently if
indicators of potential impairment exist. See the Critical Accounting Policy and Estimates section above and
Note 10 of the Notes to the Consolidated Financial Statements for further information.

52

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 each of the Three Years in the Period Ended

December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Comprehensive Income (Loss) for each of the Three Years in the

Period Ended December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Balance Sheets as of December 31, 2018 and 2017 . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Cash Flows for each of the Three Years in the Period Ended

December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Shareholders’ Deﬁcit for each of the Three Years in the Period Ended

December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Page

54

55

56

57

58

60

63

Financial Statement Schedules:

Schedule II — Valuation and Qualifying Accounts for each of the Three Years in the Period Ended

December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

111

53

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders
MDC Partners Inc.
New York, New York

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of MDC Partners Inc. (the ‘‘Company’’) and
subsidiaries as of December 31, 2018 and 2017, the related consolidated statements of operations,
comprehensive income (loss), shareholders’ deﬁcit, and cash ﬂows for each of the three years in the period
ended December 31, 2018, and the related notes and schedules presented in Item 15 (collectively referred to
as the ‘‘consolidated ﬁnancial statements’’). In our opinion, the consolidated ﬁnancial statements present fairly,
in all material respects, the ﬁnancial position of the Company and subsidiaries at December 31, 2018 and
2017, and the results of their operations and their cash ﬂows for each of the three years in the period ended
December 31, 2018, 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) (‘‘PCAOB’’), the Company’s internal control over ﬁnancial reporting as of December 31,
2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (‘‘COSO’’) and our report dated
March 18, 2019 expressed an unqualiﬁed opinion thereon.

Change in Accounting Principles

On January 1, 2018, the Company adopted Accounting Standards Update 2014-09, Revenue from Contracts
with Customers (Topic 606). The effects of adoption are described in Note 3 to the consolidated ﬁnancial
statements.

Basis for Opinion

These consolidated ﬁnancial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the Company’s consolidated ﬁnancial statements based on our
audits. We are a public accounting ﬁrm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the consolidated ﬁnancial statements
are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated
ﬁnancial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated ﬁnancial statements. Our audits also included evaluating the accounting principles used and
signiﬁcant estimates made by management, as well as evaluating the overall presentation of the consolidated
ﬁnancial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ BDO USA, LLP

We have served as the Company’s auditor since 2006.

New York, New York
March 18, 2019

54

MDC PARTNERS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of United States Dollars, Except per Share Amounts)

Revenue:

Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,476,203

$ 1,513,779

$ 1,385,785

Years Ended December 31,
2017

2016

2018

Operating Expenses:

Cost of services sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Office and general expenses
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Goodwill and other asset impairment

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other Income (Expenses):

Interest expense and ﬁnance charges, net . . . . . . . . . . . . . . . .
Foreign exchange gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income, net
Loss on redemption of Notes . . . . . . . . . . . . . . . . . . . . . . . .

Income (loss) before income taxes and equity in earnings of

non-consolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .

Income tax expense (beneﬁt)
Income (loss) before equity in earnings of non-consolidated

affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings (losses) of non-consolidated affiliates . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to the noncontrolling interests . . . . . . . .
Net income (loss) attributable to MDC Partners Inc. . . . . . . . . . .
Accretion on and net income allocated to convertible preference

991,198
349,056
46,196
80,057
1,466,507
9,696

1,023,476
310,455
43,474
4,415
1,381,820
131,959

936,133
306,251
46,446
48,524
1,337,354
48,431

(67,075)
(23,258)
230
—
(90,103)

(64,364)
18,137
1,346
—
(44,881)

(80,407)
31,603

87,078
(168,064)

(112,010)
62
(111,948)
(11,785)
(123,733)

255,142
2,081
257,223
(15,375)
241,848

(65,050)
(213)
414
(33,298)
(98,147)

(49,716)
(9,404)

(40,312)
(309)
(40,621)
(5,218)
(45,839)

shares

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8,355)

(36,254)

—

Net income (loss) attributable to MDC Partners Inc. common

shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (132,088) $

205,594

$

(45,839)

Income (Loss) Per Common Share:
Basic

Net income (loss) attributable to MDC Partners Inc. common

shareholders

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

(2.31) $

3.72

$

(0.89)

Diluted

Net income (loss) attributable to MDC Partners Inc. common

shareholders

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

(2.31) $

3.71

$

(0.89)

Weighted Average Number of Common Shares Outstanding:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

57,218,994
57,218,994

55,255,797
55,481,786

51,345,807
51,345,807

Stock-based compensation expense is included in the following

line items above:
Cost of services sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Office and general expenses
Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

. . . . . . . . . . . . . . . . . . . . . . . .

12,513
5,903
18,416

$

$

19,015
5,335
24,350

$

$

14,237
6,766
21,003

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

55

MDC PARTNERS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Thousands of United States Dollars)

Years Ended December 31,
2017

2016

2018

Comprehensive Income (Loss)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(111,948)

$257,223

$(40,621)

Other comprehensive income (loss), net of applicable tax:
Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . .
Beneﬁt plan adjustment, net of income tax expense of $223 in

2018 and nil for 2017 and 2016 . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income (loss) for the year
. . . . . . . . . . . . . . . . . .
Comprehensive income attributable to the noncontrolling interests . .
. . .
Comprehensive income (loss) attributable to MDC Partners Inc.

3,158

3,611

(4,586)

555
3,713
(108,235)
(8,824)
$(117,059)

(1,336)
2,275
259,498
(17,780)
$241,718

(3,101)
(7,687)
(48,308)
(5,612)
$(53,920)

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

56

MDC PARTNERS INC.
CONSOLIDATED BALANCE SHEETS
(Thousands of United States Dollars)

Current Assets:

ASSETS

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash held in trusts
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, less allowance for doubtful accounts of $1,879 and

$2,453 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenditures billable to clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets, at cost, less accumulated depreciation of $128,546 and

$123,599 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in non-consolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net, less accumulated amortization of $161,868 and

December 31,

2018

2017

$

30,873
—

$

46,179
4,632

395,200
42,369
78,913
42,499
589,854

88,189
6,556
740,955

434,072
31,146
—
26,742
542,771

90,306
6,307
835,935

$173,546 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets

67,765
92,741
25,513
$1,611,573

70,605
115,325
37,643
$1,698,892

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS,
AND SHAREHOLDERS’ DEFICIT

Current Liabilities:

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accruals and other liabilities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advance billings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of deferred acquisition consideration . . . . . . . . . . . . . . . . .
Total Current Liabilities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term portion of deferred acquisition consideration . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemable Noncontrolling Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 221,995
—
312,785
35,967
138,505
356
32,928
742,536
954,229
50,767
54,133
5,329
1,806,994
51,546

$ 244,527
4,632
327,812
—
148,133
313
50,213
775,630
882,806
72,213
54,110
6,760
1,791,519
62,886

Commitments, Contingencies and Guarantees (See Note 18)

Shareholders’ Deﬁcit:
Convertible preference shares, 95,000 authorized, issued and outstanding at

December 31, 2018 and 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock and other paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deﬁcit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss
MDC Partners Inc. Shareholders’ Deﬁcit
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling Interests
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Shareholders’ Deﬁcit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders’

90,123
58,579
(464,903)
4,720
(311,481)
64,514
(246,967)

90,220
38,191
(340,000)
(1,954)
(213,543)
58,030
(155,513)

Deﬁcit

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,611,573

$1,698,892

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

57

MDC PARTNERS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of United States Dollars)

Cash ﬂows provided by (used in) operating activities:

Net Income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(111,948)

$ 257,223

$ (40,621)

Years Ended December 31,
2017

2018

2016

Adjustments to reconcile income to cash provided by (used in)

operating activities:

Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred ﬁnance charges and debt discount .
. . . . . . . . . . . . . . . .
Goodwill and other asset impairment
Loss on redemption of Notes
. . . . . . . . . . . . . . . . . . . . .
Adjustment to deferred acquisition consideration . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of assets
(Earnings) losses of non-consolidated affiliates . . . . . . . . . .
Other and non-current assets and liabilities . . . . . . . . . . . .
Foreign exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in working capital:

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenditures billable to clients . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . .
Accounts payable, accruals and other current liabilities . . . .
Acquisition related payments
. . . . . . . . . . . . . . . . . . . . .
Cash in trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advance billings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) operating activities . . . . .

Cash ﬂows used in investing activities:

. . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures
Deposits
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of assets . . . . . . . . . . . . . . . . . . . . . .
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . .
Distributions from non-consolidated affiliates . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . .

18,416
27,111
19,085
3,193
80,057
—
(374)
23,573
(1,867)
(62)
392
20,795

30,211
(11,223)
(17,189)
(18,222)
(29,141)
(656)
(14,871)
17,280

(20,264)
—
2,082
(32,713)
963
(499)
(50,431)

24,350
23,873
19,601
3,022
4,415
—
(4,819)
(173,019)
(1,600)
(2,081)
(4,420)
(17,637)

(50,030)
1,892
6,569
13,398
(42,790)
(709)
14,548
71,786

(32,958)
—
10,631
—
3,672
(2,229)
(20,884)

21,003
22,293
24,153
9,135
48,524
26,873
8,227
(10,038)
(424)
309
13,527
(8,240)

(16,752)
13,048
(13,608)
(110,018)
(44,914)
219
11,397
(45,907)

(29,432)
(2,528)
666
2,531
7,402
(3,835)
(25,196)

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

58

MDC PARTNERS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of United States Dollars) − (continued)

Cash ﬂows provided by (used in) ﬁnancing activities:

Proceeds from issuance of 6.50% Notes . . . . . . . . . . . . . . .
Repayment of 6.75% Notes . . . . . . . . . . . . . . . . . . . . . . . .
Repayments of revolving credit facility . . . . . . . . . . . . . . . .
Proceeds from revolving credit facility . . . . . . . . . . . . . . . .
Proceeds from issuance of convertible shares . . . . . . . . . . . .
Convertible preference shares issuance costs . . . . . . . . . . . .
Acquisition related payments . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
Distributions to noncontrolling interests
Payment of dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of long-term debt
. . . . . . . . . . . . . . . . . . . . . .
Premium paid on redemption of Notes . . . . . . . . . . . . . . . .
Deferred ﬁnancing costs . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) ﬁnancing activities . . . . . .

Effect of exchange rate changes on cash, cash equivalents, and

cash held in trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash, cash equivalents, and cash
held in trusts including cash classiﬁed within assets held
for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net decrease in cash, cash equivalents, and cash held in

Years Ended December 31,
2017

2018

2016

—
—
(1,625,862)
1,694,005
—
—
(32,172)
(13,419)
(196)
(146)
—
—
(776)
21,434

—
—
(1,479,632)
1,425,207
95,000
(4,780)
(57,083)
(8,865)
(284)
(404)
—
—
(1,758)
(32,599)

900,000
(735,000)
(1,790,108)
1,844,533
—
—
(90,779)
(7,772)
(32,918)
(507)
(26,873)
(21,569)
(3,350)
35,657

77

(754)

2,128

(11,640)

17,549

(33,318)

trusts classiﬁed within assets held for sale . . . . . . . . . . . .

(8,298)

—

—

Net increase (decrease) in cash, cash equivalents, and cash held

in trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(19,938)

17,549

(33,318)

Cash, cash equivalents, and cash held in trusts at beginning of

year

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. .

Cash, cash equivalents, and cash held in trusts at end of year

Supplemental disclosures:

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

Non-cash transactions:

Capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note receivable exchanged for shares of subsidiary . . . . . . .
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition related consideration settled through issuance of

shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Value of shares issued for acquisition . . . . . . . . . . . . . . . . .
Leasehold improvements paid for by landlord . . . . . . . . . . .

50,811
30,873

3,836
64,012

$

$
$

33,262
50,811

8,099
62,895

$
95
— $
$

196

670
6,139
453

66,580
33,262

2,895
64,671

265
—
739

$

$
$

$
$
$

7,030

— $
$
— $

28,727

$
— $
— $

10,458
34,219
7,250

$

$
$

$
$
$

$
$
$

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

59

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T

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

1. Basis of Presentation and Recent Developments

The accompanying consolidated ﬁnancial statements include the accounts of MDC Partners Inc. (the
‘‘Company’’ or ‘‘MDC’’) and its subsidiaries. References herein to ‘‘Partner Firms’’ generally refer to the
Company’s subsidiary agencies.

MDC has prepared the consolidated ﬁnancial statements included herein in accordance with generally
accepted accounting principles of the United States of America (‘‘U.S. GAAP’’) and pursuant to the rules and
regulations of the Securities and Exchange Commission (the ‘‘SEC’’) for reporting ﬁnancial information on
Form 10-K.

Nature of Operations

MDC is a leading provider of global marketing, advertising, activation, communications and strategic

consulting solutions. MDC’s Partner Firms deliver a wide range of customized services in order to drive
growth and business performance for its clients.

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 operates primarily
in the U.S., Canada, Europe, Asia, and Latin America.

Recent Developments
Strategic Review Process and Successor CEO Search

On September 20, 2018, the Company announced its evaluation of potential strategic alternatives, which

included, among other things, the possible sale of the Company. On September 12, 2018, the Company
announced that Scott Kauffman’s employment as the Company’s Chief Executive Officer would terminate,
which it did effective December 31, 2018. The strategic review process proceeded in parallel with the
Company’s search to identify a successor CEO.

During the interim period in which the Company was evaluating strategic alternatives and assessing
potential new CEO candidates, the Board of Directors has established an executive committee comprised of
David Doft (EVP, Chief Financial Officer), Mitchell Gendel (EVP, General Counsel), Stephanie Nerlich (EVP,
Partner Development and Talent), and David Ross (EVP, Strategy & Corporate Development) (collectively, the
‘‘Executive Committee’’). Effective January 1, 2019, the Executive Committee assumed the role and
responsibilities of the Chief Executive Officer until the appointment of a successor. The Board of Directors’
Strategic Alternatives Committee, comprised of three independent directors of the Board (Irwin Simon, Larry
Kramer and Anne Marie O’Donovan), have provided oversight for the Executive Committee during the
interim period.

The Company has completed the strategic review process and search for a new CEO. On March 14,

2019, the Company entered into a securities purchase agreement with Stagwell Agency Holdings LLC
(‘‘Stagwell Holdings’’), an affiliate of Stagwell Group LLC (‘‘Stagwell’’), pursuant to which Stagwell
Holdings agreed to purchase, (i) 14,285,714 newly authorized Class A shares for $3.50 per share for an
aggregate purchase price of $50 million and (ii) 50,000 newly authorized Series 6 convertible preference
shares for an aggregate purchase price of $50 million. See Note 23 of the Notes to the Consolidated Financial
Statements included herein for additional information.

Effective March 18, 2019, the Company’s Board of the Directors appointed Mark Penn as the Chief
Executive Officer (succeeding the Executive Committee) and as a director of the Board. Mr. Penn is manager
of Stagwell.

Amendment to Credit Agreement

On March 12, 2019, the Company, Maxxcom Inc. (a subsidiary of the Company) (‘‘Maxxcom’’) and each

of their subsidiaries party thereto entered into an amendment (the ‘‘Amendment’’) to the existing senior
secured revolving credit facility, dated as of May 3, 2016 (as amended, the ‘‘Credit Agreement’’), among the

63

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

1. Basis of Presentation and Recent Developments − (continued)

Company, Maxxcom Inc., a Delaware corporation, each of their subsidiaries party thereto, Wells Fargo Capital
Finance, LLC, as agent (‘‘Wells Fargo’’), and the lenders from time to time party thereto. See Note 12 of the
Notes to the Consolidated Financial Statements included herein for additional information regarding the
amendments to the Credit Agreement.

Sale of Kingsdale

On March 8, 2019, the Company consummated the sale of its Kingsdale business, including operations in

Toronto and New York City, back to the Kingsdale Founder and CEO. As consideration for the sale, the
Company was paid cash plus the assumption of certain liabilities totaling approximately $50 million in the
aggregate.

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. and its domestic and international controlled subsidiaries that are not considered
variable interest entities, and variable interest entities for which the Company is the primary beneﬁciary.
Intercompany balances and transactions have been eliminated in consolidation.

Reclassiﬁcations. Certain reclassiﬁcations have been made to the prior period consolidated ﬁnancial
statements to conform to the current period presentation. Additionally, certain changes to presentation have
been made. The Company changed its presentation of net income allocated to convertible preference
shareholders. In the Company’s Form 10-K for the year ended December 31, 2017, this amount was presented
in the Income (Loss) per Common Share footnote and not on the Consolidated Statements of Operations. In
connection with the presentation of the Form 10-K for the year ended December 31, 2018, the Company
changed the 2017 Consolidated Statement of Operations to include the net income allocated to convertible
preference shares, which was previously disclosed in footnote 3 of the December 31, 2017 ﬁnancial
statements.

Use of Estimates. The preparation of consolidated ﬁnancial statements in conformity with U.S. GAAP
requires management to make judgments, estimates and assumptions. These estimates and assumptions affect
the reported amounts of assets and liabilities including goodwill, intangible assets, contingent deferred
acquisition consideration, redeemable noncontrolling interests, deferred tax assets and the amounts of revenue
and expenses reported during the period. These estimates are evaluated on an ongoing basis and are based on
historical experience, current conditions and various other assumptions believed to be reasonable under the
circumstances. These estimates require the use of assumptions about future performance, which are uncertain
at the time of estimation. To the extent actual results differ from the assumptions used, results of operations
and cash ﬂows could be materially affected.

Fair Value. The Company applies the fair value measurement guidance for ﬁnancial assets and

liabilities that are required to be measured at fair value and for non-ﬁnancial 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 market assumptions.

When available, the Company uses quoted market prices in active markets to determine the fair value of
its ﬁnancial instruments and classiﬁes such items in Level 1. In some cases, quoted market prices are used for
similar instruments in active markets and the Company classiﬁes such items in Level 2. See Note 15 of the
Notes to the Consolidated Financial Statements included herein for additional information regarding fair value
measurements.

64

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

2. Signiﬁcant Accounting Policies − (continued)

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. No client accounted for more than 10% of the Company’s consolidated accounts
receivable as of December 31, 2018 and 2017. No sales to an individual client or country other than the
United States accounted for more than 10% of revenue for the ﬁscal years ended December 31, 2018, 2017,
or 2016. As the Company operates in foreign markets, it is always considered at least reasonably possible
foreign operations will be disrupted in the near term.

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

overnight interest-bearing deposits, 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.

Cash in Trust. A subsidiary of the Company holds restricted cash in trust accounts related to funds

received on behalf of clients. Such amounts are held in escrow under depositary service agreements and
distributed at the direction of the clients. The funds are presented as a corresponding liability on the balance
sheet. As of December 31, 2018, cash held in trusts and the trust liability totaling $3,976 were classiﬁed
within assets and liabilities held for sale within the Consolidated Balance Sheet. Refer to Note 5 in the Notes
to Consolidated Financial Statements included herein for further information regarding the sale of this
subsidiary.

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 vendor
costs incurred on behalf of clients when providing services that have not yet been invoiced to clients. 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 three to seven 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. 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 such 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 (‘‘WACC’’), risk
adjusted where appropriate.

Equity Method Investments. Equity method investments are 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, (i) over the operating and ﬁnancial policies of the affiliate or (ii) has an ownership
interest 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

65

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

2. Signiﬁcant Accounting Policies − (continued)

of the affiliate. The Company’s proportionate share of the net income or loss of equity method investments is
included in the results of operations and any dividends and distributions reduce the carrying value of the
investments. The Company’s equity method investments, include various interests in investment funds, are
included in Investments in non-consolidated affiliates within the Consolidated Balance Sheets. The Company’s
management periodically evaluates these investments to determine if there has been a decline in value that is
other than temporary.

Other Investments. From time to time, the Company makes investments in start-ups, such as advertising

technology and innovative consumer product companies, where the Company does not exercise signiﬁcant
inﬂuence over the operating and ﬁnancial policies of the investee. Non-marketable equity investments (cost
method investments) do not have a readily determinable fair value and are recorded at cost, less any
impairment, adjusted for qualifying observable investment balance changes. The carrying amount for these
investments, which are included in Other Assets within the Consolidated Balance Sheets as of December 31,
2018 and 2017 was $8,072 and $9,527, respectively.

The Company is required to measure these other investments at fair value and recognize any changes in

fair value within net income or loss unless for investments that don’t have readily determinable fair values
and don’t qualify for certain criteria an alternative for measurement exists. The alternative is to measure these
investments at cost, less any impairment, plus or minus changes resulting from observable price changes in
orderly transactions for the identical or a similar investment of the same issuer. The Company has elected to
measure these investments under the alternative method effective January 1, 2018. The Company performs a
qualitative assessment to review these investments for impairment by identifying any impairment indicators,
such as signiﬁcant deterioration of earnings or signiﬁcant change in the industry. If the qualitative assessment
indicates an investment is impaired, the Company estimates the fair value and reduces the carrying value of
the investment down to its fair value with the loss recorded within net income or loss.

Goodwill and Indeﬁnite Lived Intangibles. Goodwill (the excess of the acquisition cost over the fair
value of the net assets acquired) and an indeﬁnite life intangible asset (a tradename) acquired as a result of a
business combination which are not subject to amortization are tested for impairment annually as of
October 1st of each year, or more frequently if indicators of potential impairment exist. For goodwill,
impairment is assessed at the reporting unit level.

For the annual impairment test, the Company has the option of assessing qualitative factors to determine

whether it is more likely than not that the carrying amount of a reporting unit exceeds its fair value or
performing a quantitative goodwill impairment test. Qualitative factors considered in the assessment include
industry and market considerations, the competitive environment, overall ﬁnancial performance, changing cost
factors such as labor costs, and other factors speciﬁc to each reporting unit such as change in management or
key personnel.

If the Company elects to perform the qualitative assessment and concludes that it is more likely than not

that the fair value of the reporting unit is more than its carrying amount, then goodwill is not considered
impaired and the quantitative impairment test is not necessary. For reporting units for which the qualitative
assessment concludes that it is more likely than not that the fair value of the reporting unit is less than its
carrying amount and for reporting units for which the qualitative assessment is not performed, the Company
will perform the quantitative impairment test, which compares the fair value of the reporting unit to its
carrying amount. If the fair value of the reporting unit exceeds the carrying amount of the net assets assigned
to that reporting unit, goodwill is not considered impaired. However, if the fair value of the reporting unit is
lower than the carrying amount of the net assets assigned to the reporting unit, an impairment charge is
recognized equal to the excess of the carrying amount over the fair value.

Determining the fair value of a reporting unit involves the use of signiﬁcant estimates and assumptions.
For the 2018 annual impairment test, the Company used an income approach, which incorporates the use of

66

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

2. Signiﬁcant Accounting Policies − (continued)

the discounted cash ﬂow (‘‘DCF’’) method. The income approach requires the exercise of signiﬁcant
judgment, including judgment about the amount and timing of expected future cash ﬂows, assumed terminal
value and appropriate discount rates.

The DCF estimates incorporate expected cash ﬂows that represent a spectrum of the amount and timing
of possible cash ﬂows of each reporting unit from a market participant perspective. The expected cash ﬂows
are developed from the Company’s long-range planning process using projections of operating results and
related cash ﬂows based on assumed long-term growth rates and demand trends and appropriate discount rates
based on a reporting units WACC as determined by considering the observable WACC of comparable
companies and factors speciﬁc to the reporting unit. The terminal value is estimated using a constant growth
method which requires an assumption about the expected long-term growth rate. The estimates are based on
historical data and experience, industry projections, economic conditions, and the Company’s expectations. We
performed the quantitative impairment test in 2018. See Note 10 for additional information regarding the
Company’s impairment test and impairment charges recognized.

Indeﬁnite-lived intangible assets are primarily evaluated on an annual basis, generally in conjunction with

the Company’s evaluation of goodwill balances.

Deﬁnite Lived Intangible Assets. Deﬁnite lived intangible assets 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. 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 Note 10 included herein for further information.

Business Combinations. Business combinations are accounted for using the acquisition method and

accordingly, the assets acquired (including identiﬁed intangible assets), the liabilities assumed and any
noncontrolling interest in the acquired business are recorded at their acquisition date fair values. The
Company’s acquisition model typically provides for an initial payment at closing and for future additional
contingent purchase price obligations. Contingent purchase price obligations are recorded as deferred
acquisition consideration on the balance sheet at the acquisition date fair value and are remeasured at each
reporting period. Changes in such estimated values are recorded in the results of operations.

For each acquisition, the Company undertakes a detailed review to identify other intangible assets and a

valuation is performed for all such identiﬁed assets. The Company uses 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. A substantial portion of the
intangible assets value that the Company acquires 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 overall acquisition strategy, one of the primary
drivers in identifying and executing a speciﬁc transaction is the existence of, or the ability to, expand the
existing client relationships. The expected beneﬁts of the Company’s acquisitions are typically shared across
multiple agencies and regions.

Deferred Acquisition Consideration. Consistent with our acquisition strategy and past practice of
acquiring a majority ownership position, most acquisitions include an initial payment at the time of closing
and provide for future additional contingent purchase price payments. Contingent purchase price obligations
for these transactions is recorded as a deferred acquisition consideration liability and are derived from the
performance of the acquired entity and are based on predetermined formulas. These various contractual
valuation formulas may be dependent on future events, such as the growth rate of the earnings of the relevant
subsidiary during the contractual period. The liability is adjusted quarterly based on changes in current

67

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

2. Signiﬁcant Accounting Policies − (continued)

information affecting each subsidiary’s current operating results and the impact this information will have on
future results included in the calculation of the estimated liability. In addition, changes in various contractual
valuation formulas as well as adjustments to present value impact quarterly adjustments. These adjustments
are recorded in results of operations.

Redeemable Noncontrolling Interests. Many of the Company’s acquisitions include contractual

arrangements where the noncontrolling shareholders have an option to purchase, or may require the Company
to purchase, such noncontrolling shareholders’ incremental ownership interests under certain circumstances
and the Company has similar call options under the same contractual terms. The amount of consideration
under these contractual arrangements is not a ﬁxed amount, but rather is dependent upon various valuation
formulas, such as the average earnings of the relevant subsidiary through the date of exercise or the growth
rate of the earnings of the relevant subsidiary during that period. In the event that an incremental purchase
may be required of the Company, the amounts are recorded as redeemable noncontrolling interests in
mezzanine equity on the balance sheet at their acquisition date fair value and adjusted for changes to their
estimated redemption value through additional paid-in capital (but not less than their initial redemption value),
except for foreign currency translation adjustments. These adjustments will not impact the calculation of
earnings (loss) per share if the redemption values are less than the estimated fair values. There was no impact
on the Company’s earnings (loss) per share calculation in any period.

Subsidiary and Equity Investment Stock Transactions. Transactions involving the purchase, sale or
issuance of stock of a subsidiary where control is maintained are recorded as a reduction in the redeemable
noncontrolling interests or noncontrolling interests, as applicable. Any difference between the purchase price
and noncontrolling interest is recorded to additional paid-in capital. In circumstances where the purchase of
shares of an equity investment results in obtaining control, the existing carrying value of the investment is
remeasured to the acquisition date fair value and any gain or loss is recognized in results of operations.

Revenue Recognition. Effective January 1, 2018, the Company adopted Financial Accounting Standards
Board (the ‘‘FASB’’) ASC Topic 606, Revenue from Contracts with Customers (‘‘ASC 606’’). The Company’s
revenue is recognized when control of the promised goods or services is transferred to our clients, in an
amount that reﬂects the consideration we expect to be entitled to in exchange for those goods or services. See
Note 3 of the Notes to the Consolidated Financial Statements included herein for additional information.

Cost of Services Sold. Cost of services sold primarily consists of staff costs, and does not include

depreciation charges for ﬁxed assets.

Interest Expense. The Company uses the effective interest method to amortize deferred ﬁnancing costs

and any original issue premium or discount, if applicable. The Company also uses the straight-line method,
which approximates the effective interest method, to amortize the deferred ﬁnancing costs on the Credit
Agreement.

Income Taxes. 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 evaluates on a quarterly basis all available positive and negative evidence
considering 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. The periodic
assessment of the net carrying value of the Company’s deferred tax assets under the applicable accounting
rules requires signiﬁcant management judgment. A change to any of these factors could impact the estimated
valuation allowance and income tax expense.

See Note 11 of the Notes to the Consolidated Financial Statements included herein for information
related to the 2017 Tax Cuts and Jobs Act (the ‘‘Tax Act’’) enacted into law on December 22, 2017, and Staff
Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (‘‘SAB 118’’)
issued by the SEC in December 2017.

68

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

2. Signiﬁcant Accounting Policies − (continued)

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, generally the award’s vesting period. 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 recognizes forfeitures as they occur.

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. 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, in
this case the award’s vesting period.

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

be recorded during each accounting period. The Company commences recording compensation expense related
to awards that are based on performance conditions under the straight-line attribution method when it is
probable that such performance conditions will be met.

From time to time, certain acquisitions and step-up transactions include an element of compensation

related payments. The Company accounts for those payments as stock-based compensation.

Retirement Costs. Several of the Company’s U.S. and Canadian subsidiaries offer employees access to
certain deﬁned contribution retirement 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 $9,810, $10,124 and $10,026 for the years ended
December 31, 2018, 2017, and 2016, respectively. The Company also has a deﬁned beneﬁt pension plan. See
Note 20 of the Notes to the Consolidated Financial Statements included herein for additional information.

Income (Loss) per Common Share. Basic income (loss) per common share is based upon the weighted
average number of common shares outstanding during each period. Diluted income (loss) per common share
is based on the above, in addition, if dilutive, common share equivalents, which include outstanding options,
stock appreciation rights, and unvested restricted stock units. In periods of net loss, all potentially issuable
common shares are excluded from diluted net loss per common share because they are anti-dilutive.

The Company has 95,000 authorized and issued Series 4 Convertible Preference Shares (the ‘‘Preference

Shares’’) sold in a private placement in 2017. The two-class method is applied to calculate basic net income
(loss) attributable to MDC Partners Inc. per common share in periods in which shares of convertible
preference shares are outstanding, as shares of convertible preference shares are participating securities due to
their dividend rights. See Note 14 of the Notes to the Consolidated Financial Statements included herein for
additional information. The two-class method is an earnings allocation method under which earnings per share
is calculated for common stock considering a participating security’s rights to undistributed earnings as if all
such earnings had been distributed during the period. Either the two-class method or the if-converted method
is applied to calculate diluted net income per common share, depending on which method results in more
dilution. The Company’s participating securities are not included in the computation of net loss per common
share in periods of net loss because the convertible preference shareholders have no contractual obligation to
participate in losses.

Foreign Currency Translation. The functional currency of the Company is the Canadian dollar;
however, it has decided to use U.S. dollars as its reporting currency for consolidated reporting purposes.
Generally, the Company’s subsidiaries use their local currency as their functional currency. Accordingly, the
currency impacts of the translation of the Consolidated Balance Sheets of the Company and its non-U.S.
dollar based subsidiaries to U.S. dollar statements are included as cumulative translation adjustments in
accumulated other comprehensive income (loss). 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

69

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

2. Signiﬁcant Accounting Policies − (continued)

balances are included in net earnings. The balance sheets of non-U.S. dollar based subsidiaries are translated
at the period end rate. The Consolidated Statements of Operating of the Company and its non-U.S. 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 (loss).

3. Revenue

Effective January 1, 2018, the Company adopted ASC Topic 606. ASC 606 was applied using the
modiﬁed retrospective method, with the cumulative effect of the initial adoption being recognized as an
adjustment to opening retained earnings at January 1, 2018. As a result, comparative prior periods have not
been adjusted and continue to be reported under FASB ASC Topic 605, Revenue Recognition (‘‘ASC 605’’).
See Note 19 of the Notes to the Consolidated Financial Statements included herein for additional information
surrounding the Company’s adoption of ASC 606.

The Company’s revenue recognition policies are established in accordance with the Revenue Recognition
topics of ASC 606, and accordingly, revenue is recognized when control of the promised goods or services is
transferred to our clients, in an amount that reﬂects the consideration we expect to be entitled to in exchange
for those goods or services.

The MDC network provides an extensive range of services to our clients offering a variety of marketing
and communication capabilities including strategy, creative and production for advertising campaigns across a
variety of platforms (print, digital, social media, television broadcast), public relations services including
strategy, editorial, crisis support or issues management, media training, inﬂuencer engagement and events
management. We also provide media buying and planning across a range of platforms (out-of-home, paid
search, social media, lead generation, programmatic, television broadcast), experiential marketing and
application/website design and development.

The primary source of the Company’s revenue is from agency arrangements in the form of fees for
services performed, commissions, and from performance incentives or bonuses, depending on the terms of the
client contract. In all circumstances, revenue is only recognized when collection is reasonably assured. Certain
of the Company’s contractual arrangements have more than one performance obligation. For such
arrangements, revenue is allocated to each performance obligation based on its relative stand-alone selling
price. Stand-alone selling prices are determined based on the prices charged to clients or using expected cost
plus margin.

The determination of our performance obligations is speciﬁc to the services included within each
contract. Based on a client’s requirements within the contract, and how these services are provided, multiple
services could represent separate performance obligations or be combined and considered one performance
obligation. Contracts that contain services that are not signiﬁcantly integrated nor interdependent, nor that
signiﬁcantly modify or customize each other, are considered separate performance obligations. Typically, we
consider media planning, media buying, creative (or strategy), production and experiential marketing services
to be separate performance obligations if included in the same contract as each of these services can be
provided on a stand-alone basis, and do not signiﬁcantly modify or customize each other. Public relations
services and application/website design and development are typically each considered one performance
obligation as there is a signiﬁcant integration of these services into a combined output.

We typically satisfy our performance obligations over time, as services are performed. Fees for services

are typically recognized using input methods (direct labor hours, materials and third-party costs) that
correspond with efforts incurred to date in relation to total estimated efforts to complete the contract. Point in

70

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

3. Revenue − (continued)

time recognition primarily relates to certain commission-based contracts, which are recognized upon the
placement of advertisements in various media when the Company has no further performance obligation.

Revenue is recognized net of sales and other taxes due to be collected and remitted to governmental

authorities. The Company’s contracts typically provide for termination by either party within 30 to 90 days.
Although payment terms vary by client, they are typically within 30 to 60 days. In addition, the Company
generally has the right to payment for all services provided through the end of the contract or termination
date.

Within each contract, we identify whether the Company is principal or agent at the performance
obligation level. In arrangements where the Company has substantive control over the service before
transferring it to the client, and is primarily responsible for integrating the services into the ﬁnal deliverables,
we act as principal. In these arrangements, revenue is recorded at the gross amount billed. Accordingly, for
these contracts the Company has included reimbursed expenses in revenue. In other arrangements where a
third-party supplier, rather than the Company is primarily responsible for the integration of services into the
ﬁnal deliverables, and thus the Company is solely arranging for the third-party supplier to provide these
services to our client, we generally act as agent and record revenue equal to the net amount retained, when the
fee or commission is earned. The role of MDC’s agencies under a production services agreement is to
facilitate a client’s purchasing of production capabilities from a third-party production company in accordance
with the client’s strategy and guidelines. The obligation of MDC’s agencies under media buying services is to
negotiate and purchase advertising media from a third-party media vendor on behalf of a client to execute its
media plan. We do not obtain control prior to transferring these services to our clients; therefore, we primarily
act as agent for production and media buying services.

A small portion of the Company’s contractual arrangements with clients include performance incentive

provisions, which allow the Company to earn additional revenues as a result of its performance relative to
both quantitative and qualitative goals. Incentive compensation is primarily estimated using the most likely
amount method and is included in revenue up to the amount that is not expected to result in a reversal of a
signiﬁcant amount of cumulative revenue recognized. We recognize revenue related to performance incentives
as we satisfy the performance obligation to which the performance incentives are related.

Disaggregated Revenue Data

The Company provides a broad range of services to a large base of clients across the full spectrum of

industry verticals on a global basis. The primary source of revenue is from agency arrangements in the form
of fees for services performed, commissions, and from performance incentives or bonuses. Certain clients may
engage with the Company in various geographic locations, across multiple disciplines, and through multiple
Partner Firms. Representation of a client rarely means that MDC handles marketing communications for all
brands or product lines of the client in every geographical location. The Company’s Partner ﬁrms often
cooperate with one another through referrals and the sharing of both services and expertise, which enables
MDC to service clients’ varied marketing needs by crafting custom integrated solutions. Additionally, the
Company maintains separate, independent operating companies to enable it to effectively manage potential
conﬂicts of interest by representing competing clients across the MDC network.

71

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

3. Revenue − (continued)

The following table presents revenue disaggregated by client industry vertical for the twelve months

ended December 31, 2018, 2017, and 2016 and the impact of adoption of ASC 606:

Industry
Food & Beverage . . .
Retail
. . . . . . . . . . .
Consumer Products . .
Communications . . . .
Automotive . . . . . . .
Technology . . . . . . .
Healthcare . . . . . . . .
Financials
. . . . . . . .
Transportation and

Travel/Lodging . . .
. . . . . . . . . . .

Other

Reportable
Segment
All
All
All
All
All
All
All
All

All
All

As reported
$ 313,368
152,552
162,524
178,410
88,807
104,479
127,547
110,069

86,419
152,028
$1,476,203

Twelve Months Ended December 31,

2018
Adjustment to
exclude impact
of Adoption of
ASC 606
$ 7,064
(2,683)
585
25,957
8,587
38
507
146

Adjusted
$ 320,432
149,869
163,109
204,367
97,394
104,517
128,054
110,215

2017
$ 313,786
178,152
162,307
208,701
127,023
99,325
124,261
104,713

2016
$ 266,600
182,428
147,849
160,064
129,352
109,309
115,159
85,480

2,461
8,974
$51,636

88,880
161,002
$1,527,839

56,955
138,556
$1,513,779

58,298
131,246
$1,385,785

MDC has historically largely focused where the Company was founded in North America, the largest
market for its services in the world. In recent years the Company has expanded its global footprint to support
clients looking for help to grow their businesses in new markets. Today, MDC’s Partner Firms are located in
the United States, Canada, and an additional thirteen countries around the world. In the past, some clients
have responded to weakening economic conditions with reductions to their marketing budgets, which included
discretionary components that are easier to reduce in the short term than other operating expenses.

The following table presents revenue disaggregated by geography for the twelve months ended

December 31, 2018, 2017, and 2016 and the impact of adoption of ASC 606:

Twelve Months Ended December 31,

2018
Adjustment to
exclude impact
of Adoption of
ASC 606
$20,699
(1,288)

As reported
$1,153,192
124,000

Adjusted
$1,173,891
122,712

2017
$1,172,364
123,092

2016
$1,103,714
124,101

199,011
$1,476,203

32,225
$51,636

231,236
$1,527,839

218,323
$1,513,779

157,970
$1,385,785

Geographic Location
United States . . . . . .
Canada . . . . . . . . . .

Other

. . . . . . . . . . .

Reportable
Segment
All
All
All,
Excluding
Domestic
Creative
Agencies

Contract Assets and Liabilities

Contract assets consist of fees and reimbursable outside vendor costs incurred on behalf of clients when

providing advertising, marketing and corporate communications services that have not yet been invoiced to
clients. Unbilled service fees were $64,362 and $54,177 at December 31, 2018 and December 31, 2017,
respectively, and are included as a component of accounts receivable on the Consolidated Balance Sheets.
Outside vendor costs incurred on behalf of clients which have yet to be invoiced were $42,369 and $31,146 at

72

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

3. Revenue − (continued)

December 31, 2018 and December 31, 2017, respectively, and are included on the Consolidated Balance
Sheets as expenditures billable to clients. Such amounts are invoiced to clients at various times over the
course of providing services.

Contract liabilities consist of fees billed to clients in excess of fees recognized as revenue and are

classiﬁed as advance billings on the Company’s Consolidated Balance Sheets. Advance billings at
December 31, 2018 and December 31, 2017 were $138,505 and $148,133, respectively. The decrease in the
advance billings balance of $9,628 for the twelve months ended December 31, 2018 is primarily driven by
$135,573 of revenues recognized that were included in the advance billings balances as of December 31, 2017
and reductions due to the incurrence of third-party costs, offset by cash payments received or due in advance
of satisfying our performance obligations.

Changes in the contract asset and liability balances during the twelve months ended December 31, 2018

and December 31, 2017 were not materially impacted by write offs, impairment losses or any other factors.

Practical Expedients

In adopting ASC 606, the Company applied the practical expedient to not disclose information about
remaining performance obligations that have original expected durations of one year or less. Amounts related
to those performance obligations with expected durations of more than one year are immaterial.

4. Income (Loss) per Common Share

The following table sets forth the computation of basic and diluted income (loss) per common share for

the years ended December 31:

2018

2017

2016

Numerator:
Net income (loss) attributable to MDC Partners Inc.
Accretion on convertible preference shares
. . . . . . . . .
Net income allocated to convertible preference shares . .
Net income (loss) attributable to MDC Partners Inc.

. . . $ (123,733) $

(8,355)
—

$

241,848
(6,352)
(29,902)

(45,839)
—
—

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

(132,088)

205,594

(45,839)

Adjustment to net income allocated to convertible

preference shares . . . . . . . . . . . . . . . . . . . . . . . . .

—

106

—

Net income (loss) attributable to MDC Partners Inc.

common shareholders . . . . . . . . . . . . . . . . . . . . . . $ (132,088) $

205,700

$

(45,839)

Denominator:
Basic weighted average number of common shares

outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

57,218,994

55,255,797

51,345,807

Effect of dilutive securities:
Impact of stock options and non-vested stock under

employee stock incentive plans . . . . . . . . . . . . . . . .

—

225,989

—

Diluted weighted average number of common shares

outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

57,218,994

55,481,786

51,345,807

Net income (loss) attributable to MDC Partners Inc.

common shareholders per common share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

(2.31) $
(2.31) $

3.72
3.71

$
$

(0.89)
(0.89)

Anti-dilutive stock awards . . . . . . . . . . . . . . . . . . .

1,442,518 − 1,391,456

73

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

4. Income (Loss) per Common Share − (continued)

Restricted stock and restricted stock unit awards of 1,012,637, 1,443,921, and 503,321 for the
twelve months ended December 31, 2018, 2017, and 2016, respectively, which are contingent upon the
Company meeting a cumulative three year earnings target (2018, 2019, and 2020) and contingent upon
continued employment, are excluded from the computation of diluted income per common share as the
contingencies were not satisﬁed at December 31, 2018, 2017, and 2016, respectively. In addition, there were
95,000 shares of Preference Shares outstanding which were convertible into 10,970,714 and 10,135,244
Class A common shares at December 31, 2018 and 2017, respectively. These Preference Shares were
anti-dilutive for the twelve months ended December 31, 2018 and 2017 and are therefore excluded from the
diluted income (loss) per common share calculation.

5. Acquisitions and Dispositions

2018 Acquisitions

On September 7, 2018, a subsidiary of the Company purchased 100% interests of OneChocolate

Communications Limited and OneChocolate Communications LLC, PR (‘‘OneChocolate’’) a digital marketing
consultancy headquartered in London, UK, for an aggregate purchase price of $3,231, working capital
payment of $966 and additional deferred acquisition payments with an estimated present value of $2,146.
OneChocolate’s results are reﬂected in the Allison & Partners operating segment which is included in the
Specialist Communications reportable segment which had an immaterial impact on our results.

On July 1, 2018, the Company acquired the remaining 14.87% and 3% of membership interests of Doner

Partners, LLC and Source Marketing LLC respectively for an aggregate purchase price of $7,618, comprised
of a closing cash payment of $3,279 and additional deferred acquisition payments with an estimated present
value of $4,305 as of December 31, 2018. As of the acquisition date, the fair value of the additional interests
acquired was $16,361 for Doner Partners LLC. The fair values were measured using a discounted cash ﬂow
model. As a result of the transaction, the Company reduced noncontrolling interest by $11,946 and redeemable
noncontrolling interest by $933.

On April 2, 2018, the Company purchased 51% of the membership interests of Instrument LLC
(‘‘Instrument’’), a digital creative agency based in Portland, Oregon, for an aggregate purchase price of
$35,591. The acquisition is expected to facilitate the Company’s growth and help to build its portfolio of
modern, innovative and digital-ﬁrst agencies. The purchase price consisted of a cash payment of $28,561 and
the issuance of 1,011,561 shares of the Company’s Class A subordinate voting stock with an acquisition date
fair value of $7,030. The Company issued these shares in a transaction exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) of the Securities Act.

The purchase price allocation for Instrument resulted in tangible assets of $10,304, identiﬁable intangibles
of $23,130, consisting primarily of customer lists and a trade name, and goodwill of $32,776. In addition, the
Company has recorded $27,357 as the fair value of noncontrolling interests, which was derived from the
Company’s purchase price less a discount related to the noncontrolling parties’ lack of control. The identiﬁed
assets have a weighted average useful life of approximately six years and will be amortized in a manner
represented by the pattern in which the economic beneﬁts of such assets are expected to be realized. The
goodwill is tax deductible. Instruments’ results are included in the All Other category from a segment
reporting perspective. The Company has a controlling ﬁnancial interest in Instrument through its majority
voting interest, and as such, has aggregated the acquired Partner Firm’s ﬁnancial data into the Company’s
consolidated ﬁnancial statements. The operating results of Instrument in the current year is not material.

Effective January 1, 2018, the Company acquired the remaining 24.5% ownership interest of Allison &
Partners LLC for an aggregate purchase price of $10,023, comprised of a closing cash payment of $300 and
additional deferred acquisition payments with an estimated present value at the acquisition date of $9,723. The
deferred payments are based on the future ﬁnancial results of the underlying business from 2017 to 2020 with
ﬁnal payments due in 2021. As of the acquisition date, the fair value of the additional interest acquired was

74

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

5. Acquisitions and Dispositions − (continued)

$20,096. The fair value was measured using a discounted cash ﬂow model. As a result of the transaction, the
Company reduced redeemable noncontrolling interests by $8,857. The difference between the purchase price
and the noncontrolling interest of $1,166 was recorded in additional paid-in capital.

Assets and Liabilities Held for Sale

The Company has initiated a process to sell its ownership interest in Kingsdale, an operating segment

that provides shareholder services, and a foreign office within the Global Integrated Agencies reportable
segment. The assets and liabilities of both entities were classiﬁed as Assets and Liabilities held for sale, at
their fair value less cost to sell, within the Consolidated Balance Sheet as of December 31, 2018. The
signiﬁcant assets classiﬁed as held for sale were accounts receivable and goodwill and signiﬁcant liabilities
were accounts payable and accrued liabilities. This also resulted in a write down of goodwill of Kingsdale
totaling $4,691. This charge is included in Goodwill and other asset impairment within the Consolidated
Statement of Operations for the year ended December 31, 2018. The sale of Kingsdale was consummated on
March 8, 2019. See Note 1 of the Notes to the Consolidated Financial Statements for additional information.
The sale of the foreign office is expected to be completed within the next twelve months.

2017 Acquisitions

In 2017, the Company entered into various non-material transactions in connection with certain of its

majority-owned entities. As a result of the foregoing, the Company made total cash closing payments of
$3,858, increased ﬁxed deferred consideration liability by $7,208, reduced redeemable noncontrolling interests
by $816, reduced noncontrolling interests equity by $11,965, reduced noncontrolling interest payable by $397,
and increased additional paid-in capital by $2,315. In addition, a stock-based compensation charge of $996
has been recognized representing the consideration paid in excess of the fair value of the interest acquired.

2017 Dispositions

During 2017, the Company sold all of its ownership interests in three subsidiaries resulting in recognition

of a net loss on sale of business of $1,732. The net assets reﬂected in the calculation of the net loss on sale
was inclusive of goodwill of $17,593. Goodwill was allocated to the subsidiaries based on the relative fair
value of the sold subsidiaries compared to the fair value of the respective reporting units. Additionally, the
Company recorded a reduction in noncontrolling interests of $10,657.

In addition, the Company sold a noncontrolling ownership interest in two subsidiaries during 2017. The
Company recorded $6,961 of noncontrolling interest equity and $1,690 of redeemable noncontrolling interest,
representing the fair value of the disposed ownership interest at the time of execution. Additionally, stock-
based compensation of $2,473 was recognized, representing the excess in the proportionate fair value over the
total consideration received.

6. Deferred Acquisition Considerations

Deferred acquisition consideration on the balance sheet consists of deferred obligations related to

contingent and ﬁxed purchase price payments, and to a lesser extent, contingent and ﬁxed retention payments
tied to continued employment of speciﬁc personnel. Contingent deferred acquisition consideration are recorded
at the acquisition date fair value and adjusted at each reporting period through operating income, for
contingent purchase price payments, or net interest expense, for ﬁxed purchase price payments. The Company
accounts for retention payments through operating income as stock-based compensation over the required
retention period.

75

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

6. Deferred Acquisition Considerations − (continued)

The following table presents changes in contingent deferred acquisition consideration, which is measured

at fair value on a recurring basis using signiﬁcant unobservable inputs, and a reconciliation to the amounts
reported on the balance sheets as of December 31, 2018 and 2017.

Beginning balance of contingent payments . . . . . . . . . . . . . . . . . . .
Payments(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions − acquisition and step-up transactions
. . . . . . . . . . . . . . .
Redemption value adjustments(2) . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign translation adjustment
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance of contingent payments . . . . . . . . . . . . . . . . . . . . .
Fixed payments(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2018
$119,086
(54,947)
14,943
3,512
4
$ 82,598
1,097
$ 83,695

2017
$ 224,754
(110,234)
—
3,273
1,293
$ 119,086
3,340
$ 122,426

(1) For the twelve months ended December 31, 2017, payments include $28,727 of deferred acquisition

consideration settled through the issuance of 3,353,939 MDC Class A subordinate voting shares in lieu of
cash.

(2) Redemption value adjustments are fair value changes from the Company’s initial estimates of deferred

acquisition payments, including the accretion of present value and stock-based compensation charges
relating to acquisition payments that are tied to continued employment. Redemption value adjustments
are recorded within cost of services sold and office and general expenses on the Consolidated Statements
of Operations.

(3) The Company made $6,366 in ﬁxed payments for the twelve months ended December 31, 2018.

The following table presents the impact to the Company’s statement of operations due to redemption

value adjustments for the twelve months ended December 31, 2018 and 2017:

Income attributable to fair value adjustments
. . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . .
Redemption value adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . .

2018
$(3,679)
7,191
$ 3,512

2017
$(6,021)
9,294
$ 3,273

7. Fixed Assets

The following is a summary of the Company’s ﬁxed assets as of December 31:

Computers, furniture and

ﬁxtures

. . . . . . . . . . . .
Leasehold improvements . .

2018
Accumulated
Depreciation

Cost

$100,276
116,459
$216,735

$ (73,060)
(55,486)
$(128,546)

Net Book
Value

$27,216
60,973
$88,189

2017
Accumulated
Depreciation

Cost

$101,806
112,099
$213,905

$ (74,429)
(49,170)
$(123,599)

Net Book
Value

$27,377
62,929
$90,306

At December 31, 2018 and 2017, included in ﬁxed assets are assets under capital lease obligations with a

cost of $1,447 and $1,903, respectively, and accumulated depreciation of $780 and $1,176, respectively.
Depreciation expense for the years ended December 31, 2018, 2017, and 2016 was $27,111, $23,873 and
$22,293, respectively.

76

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

8. Noncontrolling and Redeemable Noncontrolling Interests

When acquiring less than 100% ownership of an entity, the Company may enter into agreements that
give the Company an option to purchase, or require the Company to purchase, the incremental ownership
interests under certain circumstances. Where the option to purchase the incremental ownership is within the
Company’s control, the amounts are recorded as noncontrolling interests in the equity section of the
Company’s Consolidated Balance Sheets. Where the incremental purchase may be required of the Company,
the amounts are recorded as redeemable noncontrolling interests in mezzanine equity at their estimated
acquisition date redemption value and adjusted at each reporting period for changes to their estimated
redemption value through additional paid-in capital (but not less than their initial redemption value), except
for foreign currency translation adjustments. On occasion, the Company may initiate a renegotiation to acquire
an incremental ownership interest and the amount of consideration paid may differ materially from the
amounts recorded in the Company’s Consolidated Balance Sheets.

Noncontrolling Interests

Changes in amounts due to noncontrolling interest holders included in accruals and other liabilities on the

Consolidated Balance Sheets for the twelve months ended December 31, 2018 and 2017 were as follows:

Balance, December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions made . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions made . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Noncontrolling
Interests
$ 4,154
15,375
(8,865)
366
$ 11,030
11,785
(13,419)
(118)
$ 9,278

(1) Other consists of cumulative translation adjustments.

Changes in the Company’s ownership interests in our less than 100% owned subsidiaries during the

three years ended December 31, were as follows:

2018
$(123,733)

Year Ended December 31,
2017
$241,848

2016
$(45,839)

10,140
$ 10,140

2,315
2,315

$

22,776
$ 22,776

$(113,593)

$244,163

$(23,063)

Net income (loss) attributable to MDC Partners Inc.

. .

Transfers from the noncontrolling interests

Increase in MDC Partners Inc. paid-in capital for

purchase of equity interests in excess of
noncontrolling interests and redeemable
noncontrolling interests . . . . . . . . . . . . . . . . . . .
Net transfers from noncontrolling interests . . . . . . .

Change from net income (loss) attributable to MDC

Partners Inc. and transfers (to) from noncontrolling
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

77

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

8. Noncontrolling and Redeemable Noncontrolling Interests − (continued)

Redeemable Noncontrolling Interests

The following table presents changes in redeemable noncontrolling interests as of December 31, 2018

and 2017:

Beginning Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemptions
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in redemption value . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2018
$ 62,886
(11,943)
—
1,067
(464)
$ 51,546

2017
$60,180
(910)
1,666
1,498
452
$62,886

The noncontrolling shareholders’ ability to exercise any such option right is subject to the satisfaction of

certain conditions, including conditions requiring notice in advance of exercise and speciﬁc employment
termination conditions. 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 2019 to 2024. 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 redeemable noncontrolling interest of $51,546 as of December 31, 2018, consists of $17,373

assuming that the subsidiaries perform over the relevant future periods at their discounted cash ﬂows earnings
level and such rights are exercised, $31,567 upon termination of such owner’s employment with the applicable
subsidiary or death and $2,606 representing the initial redemption value (required ﬂoor) recorded for certain
acquisitions in excess of the amount the Company would have to pay should the Company acquire the
remaining ownership interests for such subsidiaries.

These adjustments will not impact the calculation of earnings (loss) per share if the redemption values
are less than the estimated fair values. There was no related impact on the Company’s income (loss) per share
calculations.

9. 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. The revolving credit agreement is a variable rate debt, the carrying
value of which approximates fair value. The Company’s notes are a ﬁxed rate debt instrument recorded at
carrying value. See Note 15 of the Notes to the Consolidated Financial Statements included herein for
additional information for the fair value. The fair value of ﬁnancial commitments, guarantees and letters of
credit, are based on the stated value of the underlying instruments, if any.

78

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

10. Goodwill and Intangible Assets

As of December 31, goodwill was as follows:

Global
Integrated
Goodwill
Agencies
Balance at December 31, 2016 . . . . . . $350,716
—
(964)
(2,741)

. . . . . . . . . . . .
Acquired goodwill
Disposition . . . . . . . . . . . . . . . . .
Impairment loss recognized . . . . . .
Transfer of goodwill between

segments . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . .

6,371
5,689
Balance at December 31, 2017 . . . . . . $359,071
—
(17,828)

Acquired goodwill
. . . . . . . . . . . .
Impairment loss recognized . . . . . .
Transfer of goodwill between

Domestic
Creative
Agencies
$36,762
—
—
—

—
218
$36,980
—
—

Specialist
Communications
$78,691
—
—
—

—
15
$78,706
4,816
—

Total

Media
Services
All Other
$176,686 $201,904 $844,759
—
— (17,593)
(3,238)
—

—
(16,629)
(497)

497
—

(6,868)
6,085

—
12,007
$160,057 $201,121 $835,935
37,592
(74,560)

— 32,776
(4,691)

(52,041)

segments . . . . . . . . . . . . . . . . .

17,081

2,066

—

3,773

(22,920)

—

Transfer of goodwill to asset held

for sale(1)

. . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . .

—
(5,169)
Balance at December 31, 2018 . . . . . . $353,155

—
(266)
$38,780

—
(19)
$83,503

— (45,224)
(6,891)

(45,224)
(12,788)
$111,346 $154,171 $740,955

(443)

(1) See Note 5 of the Notes to the Consolidated Financial Statements included herein for additional

information.

The Company recognized an impairment of goodwill and other assets of $80,057 for the twelve months

ended December 31, 2018. The impairment primarily consists of the write-down of goodwill equal to the
excess carrying value above the fair value of three reporting units, one in each of the Global Integrated
Agencies reportable segment, the Media Services reportable segment and within the All Other category. The
impairment of goodwill was in connection with the Company’s interim and annual impairment tests performed
in 2018. See below for information regarding an impairment of a tradename.

The Company recognized an impairment of goodwill and other assets of $4,415 for the twelve months

ended December 31, 2017. The impairment primarily consists of the write-down of goodwill equal to the
excess carrying value above the fair value of two reporting units, one in each of the Global Integrated
Agencies reportable segment and the Media Services reportable segment. The impairment of goodwill was in
connection with the Company’s annual impairment test performed in 2017.

The Company recognized an impairment of goodwill of $48,524 for the twelve months ended

December 31, 2016. The impairment was recognized at three reporting units, the Specialist Communications
reportable segment, Media Services reportable segment and All Other reportable segment. The impairment of
goodwill was in connection with the Company’s interim and annual impairment tests performed in 2016.

The total accumulated goodwill impairment charges are $173,205 through December 31, 2018.

79

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

10. Goodwill and Intangible Assets − (continued)

As of December 31, the gross and net amounts of acquired intangible assets other than goodwill were as

follows:

Intangible Assets

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

For the Year Ended
December 31,

2018
$ 14,600
$ 93,296
(59,144)
$ 34,152
$ 40,803
(21,790)
$ 19,013
$148,699
(80,934)
$ 67,765

2017
$ 17,780
$102,325
(73,767)
$ 28,558
$ 37,273
(13,006)
$ 24,267
$157,378
(86,773)
$ 70,605

In 2018, the Company recognized the full write-down of a trademark totaling $3,180 for a reporting unit
within the Global Integrated Agencies reportable segment. The tradename is no longer in active use given its
merger with another reporting unit. See Note 16 of the Notes to the Consolidated Financial Statements for
information related to the merger.

The weighted average amortization period for customer relationships is six years and other intangible

assets is eight years. In total, the weighted average amortization period is seven years. Amortization expense
related to amortizable intangible assets for the years ended December 31, 2018, 2017, and 2016 was $17,290,
$17,125, and $21,726, respectively.

The estimated amortization expense for the ﬁve succeeding years is as follows:

Year
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amortization
$12,257
9,601
8,220
7,666
15,421

11. Income Taxes

On December 22, 2017, the U.S. government enacted the Tax Act. The Tax Act makes broad and
complex changes to the U.S. tax code including but not limited to a reduction in U.S. federal corporate tax
rate from 35% to 21%, effective for tax years beginning after December 31, 2017 and a one-time transition
tax on the mandatory deemed repatriation of cumulative foreign earnings.

The SEC issued SAB 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB
118 provided a measurement period that should not extend beyond one year from the Tax Act enactment date
for companies to complete the accounting under ASC 740. The Company has completed its accounting for the
provisions of the Act in accordance with SAB 118. As of December 31, 2017 the Company recorded a
provisional amount of $26,674 related to the re-measurement of its deferred tax assets and liabilities resulting
from the change in the corporate tax rate from 35% to 21% and has not adjusted the amount when completing
its analysis.

80

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

11. Income Taxes − (continued)

The Tax Act created a new requirement that Global Intangible Low-Taxed Income (i.e., GILTI) earned

by controlled foreign corporations (CFCs) must be included currently in the gross income of the CFCs’
U.S. shareholder. A deduction is permitted to a domestic corporation in an amount up to 50% of the sum of
the GILTI inclusion and the amount treated as a dividend because the corporation has claimed a foreign tax
credit (FTC) as a result of the inclusion of the GILTI amount in income. The Company has made a policy
election to record tax effects of GILTI as a period expense when incurred.

The components of the Company’s income (loss) before income taxes and equity in earnings of

non-consolidated affiliates by taxing jurisdiction for the years ended December 31, were:

Income (Loss):
U.S.
Non-U.S.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2018

2017

2016

$(68,698)
(11,709)
$(80,407)

$48,053
39,025
$87,078

$(16,661)
(33,055)
$(49,716)

The provision (beneﬁt) for income taxes by taxing jurisdiction for the years ended December 31, were:

Current tax provision

U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. state and local
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S.

Deferred tax provision (beneﬁt):

U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. state and local
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S.

Income tax provision (beneﬁt) . . . . . . . . . . . . . . . . . . . . .

2018

2017

2016

$

444
2
7,584
8,030

$

(1,657)
98
6,514
4,955

$

—
(1,520)
2,154
634

(9,315)
(2,990)
35,878
23,573
$31,603

(172,873)
(7,775)
7,629
(173,019)
$(168,064)

5,785
(3,550)
(12,273)
(10,038)
$ (9,404)

81

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

11. Income Taxes − (continued)

A reconciliation of income tax expense (beneﬁt) using the U.S. federal income tax rate compared with

actual income tax expense for the years ended December 31, is as follows:

Income (loss) before income taxes, equity in

non-consolidated affiliates and noncontrolling interest

. . .
Statutory income tax rate . . . . . . . . . . . . . . . . . . . . . . . .
Tax expense (beneﬁt) using statutory income tax rate . . . . .
State and foreign taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible stock-based compensation . . . . . . . . . . . . .
Other non-deductible expense . . . . . . . . . . . . . . . . . . . . .
Change to valuation allowance . . . . . . . . . . . . . . . . . . . .
Effect of the difference in U.S. federal and local statutory

rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of tax reform . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of foreign operations . . . . . . . . . . . . . . . . . . . . . .
Adjustment to deferred tax balances . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (beneﬁt) . . . . . . . . . . . . . . . . . . . . . .
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . .

2018

2017

2016

$(80,407)

$ 87,078

$(49,716)

21.0%
(16,886)
(2,988)
1,512
10,091
49,482

35.0%

30,477
8,863
1,441
(220)
(103,212)

35.0%
(17,401)
(94)
1,123
1,848
6,605

(152)

(2,939)
— (100,472)
(4,413)
(2,453)
—
4,864
$(168,064)

(2,674)
1,711
(8,865)
372
$ 31,603

(353)
—
(1,287)
—
—
155
$ (9,404)

(39.3)%

(193.0)%

18.9%

The Company has evaluated the usefulness of our rate reconciliation presented in prior periods which
utilized the Canadian statutory tax rate of 26.5%. As the majority of our business operations and shareholders
are located in the U.S., we believe using the U.S. statutory rate is more informative. The periods 2017 and
2016 in the table above have been conformed to reﬂect the U.S. statutory rate.

Income tax expense for the twelve months ended December 31, 2018 was $31,603 (associated with a
pretax loss of $80,407) compared to an income tax beneﬁt of $168,064 (associated with pretax income of
$87,078) for the twelve months ended December 31, 2017. Income tax expense in 2018 included the impact
of establishing a valuation allowance primarily associated with Canadian deferred tax assets and the income
tax beneﬁt in 2017 included the impact of a release of a valuation allowance in certain jurisdictions as well as
the incremental tax beneﬁt associated with the Tax Act.

Income taxes receivable were $4,388 and $4,582 at December 31, 2018 and 2017, respectively, and were

included in other current assets on the balance sheet. Income taxes payable were $10,045 and $3,810 at
December 31, 2018 and 2017, 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 unrecognized tax
beneﬁts as a component of income tax expense.

82

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

11. Income Taxes − (continued)

The tax effects of signiﬁcant temporary differences representing deferred tax assets and liabilities at

December 31, were as follows:

2018

2017

Deferred tax assets:
Capital assets and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carry forwards . . . . . . . . . . . . . . . . . . . . . . . . .
Interest deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reﬁnancing charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized foreign exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital loss carry forwards
Accounting reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax asset
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets

$

905
70,646
8,911
2,926
123,504
2,101
3,872
14,645
11,827
8,280
247,617
(68,479)
179,138

$

5,059
49,318
2,026
5,578
129,455
1,208
4,165
8,653
11,450
412
217,324
(19,032)
198,292

Deferred tax liabilities:
Goodwill amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset (liability)

(91,726)
(91,726)
$ 87,412

(89,727)
(89,727)
$108,565

Disclosed as:
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 92,741
(5,329)
$ 87,412

$115,325
(6,760)
$108,565

The Company has U.S. federal net operating loss carry forwards of $68,325 and non-U.S. net operating
loss carry forwards of $153,021. These carry forwards expire in years 2017 through 2032. The Company also
has total indeﬁnite loss carry forwards of $122,830. These indeﬁnite loss carry forwards consist of $33,572
relating to the U.S. and $89,258 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
$118,575.

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 evaluates all positive and negative evidence and considers factors such as the reversal
of taxable temporary differences, future taxable income, and tax planning strategies. A change to these factors
could impact the estimated valuation allowance and income tax expense.

As of December 31, 2017, the Company maintained valuation allowance against foreign net deferred tax

assets of $19,032 as it believed it was more likely than not that some or all of the deferred tax assets would
not be realized. This assessment was based on the Company’s historical losses and uncertainties as to the
amount of future taxable income.

As of December 31, 2018, the Company evaluated positive and negative evidence in determining the
likelihood that it will be able to realize all or some portion of its deferred tax assets prior to their expiration.
As of December 31, 2018, the Company’s Canadian three-year cumulative pre-tax income declined compared

83

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

11. Income Taxes − (continued)

to the period ended December 31, 2017 and the Company recorded a valuation allowance of $49,447.
The related effect on the accompanying consolidated statements of operations and comprehensive income or
loss resulted in the Company recording a U.S. income tax expense of $49,447 for the year ended
December 31, 2018.

The Company is permanently reinvested with respect to its foreign earnings in certain jurisdictions, and

no deferred taxes have been recorded related to such earnings as the determination of the amount is not
practicable. The Company currently does not intend to distribute previously taxed income under the Tax Act.
Upon distribution in the future, the Company may incur state and foreign withholding taxes on such income,
the amount of which is not practicable to compute.

As of December 31, 2018 and 2017, the Company recorded a liability for unrecognized tax beneﬁts as

well as applicable penalties and interest in the amount of $973 and $1,556, respectively. As of December 31,
2018 and 2017, accrued penalties and interest included in unrecognized tax beneﬁts were approximately $87
and $123, respectively. The Company identiﬁed an uncertainty relating to the future tax deductibility of
certain intercompany fees. To the extent that such future beneﬁt will be established, the resolution of this
position will have no effect with respect to the consolidated ﬁnancial statements. If these unrecognized tax
beneﬁts were to be recognized, it would affect the Company’s effective tax rate.

2018

2017

2016

A reconciliation of the change in unrecognized tax

beneﬁts is as follows:

Unrecognized tax beneﬁt − Beginning Balance . . . . . . . . . .
Current year positions . . . . . . . . . . . . . . . . . . . . . . . . .
Prior period positions . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lapse of statute of limitations . . . . . . . . . . . . . . . . . . .
Unrecognized tax beneﬁts − Ending Balance . . . . . . . . . . .

$1,433
—
7
(314)
(239)
$ 887

$1,465
489
(436)
—
(85)
$1,433

$ 3,605
—
(134)
(1,374)
(632)
$ 1,465

It is reasonably possible that the amount of unrecognized tax beneﬁts could decrease by a range of $400

to $500 in the next twelve months as a result of expiration of certain statute of limitations.

The Company is subject to taxation and ﬁles income tax returns in the U.S. federal jurisdiction and in

many state and foreign jurisdictions. The U.S. Internal Revenue Service (‘‘IRS’’) concluded its review of the
2013 tax year and all years prior to 2015 are closed. The statute of limitations has also expired in non-U.S.
jurisdictions through 2013.

12. Debt

As of December 31, the Company’s indebtedness was comprised as follows:

Revolving credit agreement
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.50% Notes due 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Obligations under capital leases . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . .

2018
$ 68,143
900,000
(14,036)
954,107
478
954,585
(356)
$954,229

2017

$

—
900,000
(17,587)
882,413
706
883,119
(313)
$882,806

84

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

12. Debt − (continued)

Interest expense related to long-term debt for the years ended December 31, 2018, 2017, and 2016 was
$64,420, $62,001 and $56,468, respectively. For the twelve months ended December 31, 2016, the Company
recorded a charge for the loss on redemption of the 6.75% Notes of $33,298, which included accrued interest,
related premiums, fees and expenses, write offs of unamortized original issue premium, and unamortized debt
issuance costs. For the year ended December 31, 2016, interest expense included income of $312, related to
the amortization of the original issue premium. For the years ended December 31, 2018, 2017, and 2016,
interest expense included $87, $100 and $255, respectively, of present value adjustments for ﬁxed deferred
acquisition payments.

The amortization of deferred ﬁnance costs included in interest expense were $3,193, $3,022 and $3,022

for the years ended December 31, 2018, 2017, and 2016, respectively.

6.50% Notes

On March 23, 2016, MDC entered into an indenture (the ‘‘Indenture’’) among MDC, its existing and

future restricted subsidiaries that guarantee, are co-borrowers under or grant liens to secure, the Credit
Agreement, as guarantors (the ‘‘Guarantors’’) and The Bank of New York Mellon, as trustee, relating to the
issuance by MDC of $900,000 aggregate principal amount of the senior unsecured notes due 2024 (the
‘‘6.50% Notes’’). The 6.50% Notes were sold in a private placement in reliance on exceptions from
registration under the Securities Act of 1933. The 6.50% Notes bear interest payable semiannually in arrears
on May 1 and November 1, at a rate of 6.50% per annum. The 6.50% Notes mature on May 1, 2024, unless
earlier redeemed or repurchased.

The 6.50% Notes are guaranteed on a senior unsecured basis by all of MDC’s existing and future
restricted subsidiaries that guarantee, are co-borrowers under, or grant liens to secure, the Credit Agreement.
The 6.50% Notes are unsecured and unsubordinated obligations of MDC and rank (i) equally in right of
payment with all of MDC’s or any Guarantor’s existing and future senior indebtedness, (ii) senior in right of
payment to MDC’s or any Guarantor’s existing and future subordinated indebtedness, (iii) effectively
subordinated to all of MDC’s or any Guarantor’s existing and future secured indebtedness to the extent of the
collateral securing such indebtedness, including the Credit Agreement, and (iv) structurally subordinated to all
existing and future liabilities of MDC’s subsidiaries that are not Guarantors.

MDC may, at its option, redeem the 6.50% Notes in whole at any time or in part from time to time, on

and after May 1, 2019, at varying prices based on the timing of the redemption.

If MDC experiences certain kinds of changes of control (as deﬁned in the Indenture), holders of the
6.50% Notes may require MDC to repurchase any 6.50% Notes held by them at a price equal to 101% of the
principal amount of the 6.50% Notes plus accrued and unpaid interest. In addition, if MDC sells assets under
certain circumstances, it must apply the proceeds from such sale and offer to repurchase the 6.50% Notes at a
price equal to 100% of the principal amount plus accrued and unpaid interest.

The Indenture includes covenants that, among other things, restrict MDC’s ability and the ability of its

restricted subsidiaries (as deﬁned in the Indenture) to incur or guarantee additional indebtedness; pay
dividends on or redeem or repurchase the capital stock of MDC; make certain types of investments; create
restrictions on the payment of dividends or other amounts from MDC’s restricted subsidiaries; sell assets;
enter into transactions with affiliates; create liens; enter into sale and leaseback transactions; and consolidate
or merge with or into, or sell substantially all of MDC’s assets to, another person. These covenants are subject
to a number of important limitations and exceptions. The 6.50% Notes are also subject to customary events of
default, including a cross-payment default and cross-acceleration provision. The Company was in compliance
with all covenants at December 31, 2018.

85

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

12. Debt − (continued)

Redemption of 6.75% Notes

On March 23, 2016, the Company redeemed the 6.75% Notes in whole at a redemption price of

103.375% of the principal amount thereof with the proceeds from the issuance of the 6.50% Notes.

Credit Agreement

On May 3, 2016 MDC, Maxxcom Inc. (a subsidiary of MDC) and each of their subsidiaries party thereto

entered into a second amended and restated, $325,000 senior secured revolving credit agreement due May 3,
2021 (as amended, the ‘‘Credit Agreement’’) with Wells Fargo Capital Finance, LLC, as agent, and the lenders
from time to time party thereto. Advances under the Credit Agreement are to be used for working capital and
general corporate purposes, in each case pursuant to the terms of the Credit Agreement. Capitalized terms
used in this section and not otherwise deﬁned have the meanings set forth in the Credit Agreement.

Advances under the Credit Agreement 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 0.75% in the case of Base Rate Loans and 1.50% in the case of
LIBOR Rate Loans. In addition to paying interest on outstanding principal under the Credit Agreement, MDC
is required to pay an unused revolver fee to lenders under the Credit Agreement in respect of unused
commitments thereunder.

The Credit Agreement, which includes ﬁnancial and non-ﬁnancial covenants, is guaranteed by
substantially all of MDC’s present and future subsidiaries, other than immaterial subsidiaries, subject to
customary exceptions and collateralized by a portion of MDC’s outstanding receivable balance. The Credit
Agreement includes covenants that, among other things, restrict MDC’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; impose limitations on dividends or other amounts
from MDC’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
substantially all of MDC’s assets to, another person. These covenants are subject to a number of important
limitations and exceptions. The Company is currently in compliance with all of the terms and conditions of its
Credit Agreement, and management believes, based on its current ﬁnancial projections, that the Company will
be in compliance with the covenants over the next twelve months.

Amendment to Credit Agreement

On March 12, 2019 (the ‘‘Amendment Effective Date’’), the Company, Maxxcom Inc. (a subsidiary of

the Company) (‘‘Maxxcom’’) and each of their subsidiaries party thereto entered into an amendment (the
‘‘Amendment’’) to the existing senior secured revolving credit facility, dated as of May 3, 2016 (as amended,
the ‘‘Credit Agreement’’), among the Company, Maxxcom Inc., a Delaware corporation, each of their
subsidiaries party thereto, Wells Fargo Capital Finance, LLC, as agent (‘‘Wells Fargo’’), and the lenders from
time to time party thereto.

The Amendment provides ﬁnancial covenant relief by increasing the total leverage ratio applicable on
each testing date after the Amendment Effective Date through the period ending December 31, 2020 from
5.5:1.0 to 6.25:1.0. The total leverage ratio applicable on each testing date after December 31, 2020 will
revert to 5.5:1.0.

In addition, the Company is permitted to apply a portion of the net cash proceeds of the Kingsdale Sale

to the prepayment, redemption, defeasement, purchase or other acquisition of the Company’s senior unsecured
debt.

In connection with the Amendment, the Company reduced the aggregate maximum amount of revolving

commitments provided by the lenders under the Credit Agreement to $250.0 million from $325.0 million.

86

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

12. Debt − (continued)

At December 31, 2018, the Company had issued $4,701 of undrawn letters of credit.

At December 31, 2018 and 2017, accounts payable included $40,271 and $41,989, respectively, of

outstanding checks.

Future Principal Repayments

Future principal repayments, including capital lease obligations, for the years ended December 31, and in

aggregate, are as follows:

Period
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount
356
$
101
68,164
—
—
900,000
$968,621

Capital Leases

Future minimum capital lease payments for the years ended December 31 and in aggregate, are as

follows:

Period
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: imputed interest

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Capital lease obligations at December 31 were:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current
Long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2018
$356
122
$478

Amount
$ 356
101
21
—
—
—
478
(42)
436
(356)
$ 80

2017
$313
393
$706

13. Share Capital

As of December 31, 2018, we changed the presentation of our Consolidated Statements of Shareholders’

Deﬁcit to combine the amounts in common shares and charges in excess of capital to present a combined
‘‘Common stock and other paid-in capital’’ as SEC Regulation S-X allows for this presentation. As such, we
reclassiﬁed the prior year balances as of December 31, 2017 and 2016 to conform with the current period
presentation.

87

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

13. Share Capital − (continued)

Authorized Share Capital

The authorized share capital of the Company is as follows:

Series 4 Convertible Preference Shares

See Note 14 of the Notes to the Consolidated Financial Statements included herein for additional

information.

Class A Shares

An unlimited number of subordinate voting shares, carrying one vote each, with a par value of $0,
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. There is an unlimited number of Class A shares authorized, 57,517,568 and 56,371,376
Class A shares are issued and outstanding as of December 31, 2018, and 2017, respectively.

Class B Shares

An unlimited number, carrying 20 votes each, with a par value of $0, convertible at any time at the
option of the holder into one Class A share for each Class B share. There is an unlimited number of Class B
shares authorized, 3,755 Class B shares are issued and outstanding as of December 31, 2018, and 2017,
respectively.

Employee Stock Incentive Plan

As of December 31, 2018, a total of 15,650,000 shares have been authorized under our employee stock

incentive plan.

The following table summarizes information about ﬁnancial performance based and time based restricted

stock and restricted stock unit awards:

Balance at December 31, 2017 . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2018 . . . . . . . . . . .

Performance Based Awards

Time Based Awards

Weighted
Average
Grant Date
Fair Value
$ —
9.17
10.30
9.29
$ 9.15

Shares
—
503,321
(4,444)
(45,965)
452,912

Weighted
Average
Grant Date
Fair Value
$11.94
7.38
14.99
9.75
$ 9.83

Shares
785,085
156,440
(239,085)
(75,500)
626,940

Time-based awards granted in the twelve months ended December 31, 2017 had a weighted average grant

date fair value of $8.98. No performance based awards were granted in 2017. Performance based and time
based awards granted in the twelve months ended December 31, 2016 had a weighted average grant date fair
value of $14.00 and $12.53, respectively. The vesting of the performance based awards is contingent upon the
Company meeting a cumulative three year earnings target and continued employment through the vesting date.
Once the Company deﬁnes the earnings target, the grant date is established and the Company will record the
compensation expense over the vesting period. The term of the time based awards is generally three years
with vesting up to generally three years. The vesting period of the time-based awards is generally
commensurate with the requisite service period.

88

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

13. Share Capital − (continued)

The total fair value of restricted stock and restricted stock unit awards, which vested during the years
ended December 31, 2018, 2017 and 2016 was $3,583, $7,316 and $6,272, respectively. At December 31,
2018, the weighted average remaining contractual life for time based and performance based awards was 1.98
and less than a year, respectively.

At December 31, 2018, the unrecognized compensation expense for performance based awards was $260
to be recognized over a weighted average period of less than a year. At December 31, 2018, the unrecognized
compensation expense for time based awards was $2,325 to be recognized over a weighted average period of
1.98 years.

The following table summarizes information about share option awards:

Balance at December 31, 2017 . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2018 . . . . . . . . . . . . . . . . . . . .

Share Option Awards
Weighted
Average
Grant Date
Fair Value
$ —
2.23
—
—
—
$2.23

Weighted
Average
Exercise
Price
$ —
4.85
—
—
—
$4.85

Shares
—
111,866
—
—
—
111,866

We use the Black-Scholes option-pricing model to estimate the fair value of options granted. The grant

date fair value of the options granted in 2018 was determined to be $2.23. The assumptions for the model
were as follows: expected life of 4.9 years, risk free interest rate of 2.9%, expected volatility of 52.9% and
dividend yield of 0%. Options granted in 2018 vest in three years. The vesting period of these awards is
generally commensurate with the requisite service period. At December 31, 2018, the weighted average
remaining contractual life for these awards was 3 years.

No options were exercised during 2018. The intrinsic value of options exercised during 2017 and 2016,

was $125 and $471, respectively. The aggregate intrinsic value of options outstanding as of December 31,
2018 is nil. As of December 31, 2018, no options were exercisable. No options were granted in 2017 or 2016.

At December 31, 2018, the unrecognized compensation expense for these awards was $225 to be
recognized over a weighted average period of 3 years. The cash received from the stock options exercised in
2017 and 2016 was nil and nil.

The following table summarizes information about stock appreciation rights (‘‘SAR’’) awards:

SAR Awards
Weighted
Average
Grant Date
Fair Value
$2.35
—
—
2.35
—
$2.35

Weighted
Average
Exercise
Price
$6.60
—
—
6.60
—
$6.60

Shares
327,500
—
—
(76,700)
—
250,800

Balance at December 31, 2017 . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2018 . . . . . . . . . . . . . . . . . . . .

89

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

13. Share Capital − (continued)

We use the Black-Scholes option-pricing model to estimate the fair value of the SAR awards. The
assumptions for the model were as follows: expected life of 4 years, risk free interest rate of 1.7%, expected
volatility of 46.2% and dividend yield of 0%. SAR awards granted in 2017 vest on the third anniversary of
the grant date, and have a grant date fair value of $2.35. The vesting period of awards granted is generally
commensurate with the requisite service period. At December 31, 2018, the weighted average remaining
contractual life for these awards was 1.08 years.

No SAR awards were granted in 2016. As of December 31, 2018, no SAR awards were exercisable. As

of December 31, 2018, there were no SAR awards that were vested. The aggregate intrinsic value of the SAR
awards outstanding as of December 31, 2018 is nil.

At December 31, 2018, the unrecognized compensation expense for these awards was $213 to be

recognized over a weighted average period of 1.08 years.

For the years ended December 31, 2018, 2017 and 2016, $5,892, $5,335, and $5,808 was recognized in
stock compensation related to all stock compensation awards, respectively. The related income tax beneﬁt for
the years ended December 31, 2018, 2017 and 2016 was $472, $1,401, and $2,030, respectively.

14. Convertible Preference Shares

On March 7, 2017 (the ‘‘Issue Date’’), the Company issued 95,000 newly created Preference Shares to

affiliates of The Goldman Sachs Group, Inc. (collectively, the ‘‘Purchaser’’) pursuant to a $95,000 private
placement. The Company received proceeds of approximately $90,123, net of fees and estimated expenses,
which were primarily used to pay down existing debt under the Company’s credit facility and for general
corporate purposes. Except as required by law, the Preference Shares do not have voting rights, and are not
redeemable at the option of the Purchaser.

The holders of the Preference Shares have the right to convert their Preference Shares in whole at any
time and from time to time, and in part at any time and from time to time after the ninetieth day following
the original issuance date of the Preference Shares, into a number of Class A Shares equal to the
then-applicable liquidation preference divided by the applicable conversion price at such time (the
‘‘Conversion Price’’). The initial liquidation per share preference of each Preference Share is $1,000. The
initial Conversion Price is $10.00 per Preference Share, subject to customary adjustments for share splits and
combinations, dividends, recapitalizations and other matters, including weighted average anti-dilution
protection for certain issuances of equity or equity-linked securities. In connection with the anti-dilution
protection provision associated with the issuance of equity securities on March 14, 2019 (see Note 23), the
Conversion Price has been reduced to $7.42 from $10.00 per Preference Share.

The Preference Shares’ liquidation preference accretes at 8.0% per annum, compounded quarterly until

the ﬁve-year anniversary of the Issue Date. For the twelve months ended 2018 and 2017, the Preference
Shares accreted at a monthly rate of approximately $7.55 and $6.97 per Preference Share, for total accretion
of $8,355 and $6,352, respectively, bringing the aggregate liquidation preference to $109,707 as of
December 31, 2018. The accretion is considered in the calculation of net income (loss) attributable to MDC
Partners Inc. common shareholders.

Holders of the Preference Shares are entitled to dividends in an amount equal to any dividends that
would otherwise have been payable on the Class A Shares issued upon conversion of the Preference Shares.
The Preference Shares are convertible at the Company’s option (i) on and after the two-year anniversary of
the Issue Date, if the closing trading price of the Class A Shares over a speciﬁed period prior to conversion is
at least 125% of the Conversion Price or (ii) after the ﬁfth anniversary of the Issue Date, if the closing trading
price of the Class A Shares over a speciﬁed period prior to conversion is at least equal to the Conversion
Price.

90

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

14. Convertible Preference Shares − (continued)

Following certain change in control transactions of the Company in which holders of Preference Shares

are not entitled to receive cash or qualifying listed securities with a value at least equal to the liquidation
preference plus accrued and unpaid dividends, (i) holders will be entitled to cash dividends on the liquidation
preference at an increasing rate (beginning at 7%), and (ii) the Company will have a right to redeem the
Preference Shares for cash at the greater of their liquidation preference plus accrued and unpaid dividends or
their as-converted value.

15. Fair Value Measurements

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 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. The hierarchy for observable inputs and unobservable inputs used to
measure fair value into three broad levels are described below:

(cid:129)

(cid:129)

(cid:129)

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.

Financial Liabilities that are not Measured at Fair Value on a Recurring Basis

The following table presents certain information for our ﬁnancial liability that is measured at fair value

on a recurring basis at December 31:

2018

2017

Carrying
Amount

Fair Value

Carrying
Amount

Fair Value

Liabilities:
6.50% Senior Notes due 2024 . . . . . . . . . . . . . . . . . . .

$900,000

$834,750

$900,000

$904,500

Our long-term debt includes ﬁxed rate debt. The fair value of this instrument is based on quoted market

prices in markets that are not active. Therefore, this debt is classiﬁed as Level 2 within the fair value
hierarchy.

Financial Liabilities Measured at Fair Value on a Recurring Basis

Contingent deferred acquisition consideration are recorded at the acquisition date fair value and adjusted

at each reporting period. The estimated liability is determined in accordance with various contractual valuation
formulas that may be dependent upon future events, such as the growth rate of the earnings of the relevant
subsidiary during the contractual period and, in some cases, the currency exchange rate as of the date of
payment (Level 3). See Note 6 of the Notes to the Consolidated Financial Statements for additional
information regarding contingent deferred acquisition consideration.

At December 31, 2018 and 2017, the carrying amount of the Company’s ﬁnancial instruments, including
cash and cash equivalents, accounts receivable and accounts payable, approximated fair value because of their
short-term maturity.

91

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

15. Fair Value Measurements − (continued)

Non-ﬁnancial Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis

Certain non-ﬁnancial assets are measured at fair value on a nonrecurring basis, primarily goodwill and
intangible assets. Accordingly, these assets are not measured and adjusted to fair value on an ongoing basis
but are subject to periodic evaluations for potential impairment. See Note 2 and 10 of the Notes to the
Consolidated Financial Statements for information related to the measurement of the fair value of goodwill
(a Level 3 fair value assessment).

16. Segment Information

The Company determines an operating segment if a component (i) engages in business activities from

which it earns revenues and incurs expenses, (ii) has discrete ﬁnancial information, and is (iii) regularly
reviewed by the Chief Operating Decision Maker (‘‘CODM’’) to make decisions regarding resource allocation
for the segment and assess its performance. Effective January 1, 2019, the Executive Committee assumed the
role and responsibilities of the Chief Executive Officer until the appointment of a successor which occurred on
March 18, 2019. See Note 1 of the Notes to the Consolidated Financial Statements included herein for
additional information. Once operating segments are identiﬁed, the Company performs an analysis to
determine if aggregation of operating segments is applicable. This determination is based upon a quantitative
analysis of the expected and historic average long-term proﬁtability for each operating segment, together with
a qualitative assessment to determine if operating segments have similar operating characteristics.

Due to changes in the Company’s internal management and reporting structure during 2018, reportable

segment results for 2017 and prior periods presented have been recast to reﬂect the reclassiﬁcation of certain
businesses between segments. The changes were as follows:

(cid:129)

(cid:129)

(cid:129)

Source Marketing, previously within the All Other category, was included within the Doner
operating segment, which is aggregated into the Global Integrated Agencies reportable segment;

Yamamoto, previously within the All Other category, was operationally merged with Civilian and is
now included within the Domestic Creative Agencies reportable segment;

Bruce Mau Design, Hello Design and Northstar Research Partners, previously within the All Other
category, and Varick Media Management, previously within the Media Services reportable segment,
were included into a newly-formed operating segment, Yes & Company, which is aggregated within
the Media Services reportable segment.

Also in 2018, Forsman & Bodenfors and kbs+, both within the Global Integrated Agencies reportable

segment, merged under the Forsman & Bodenfors name.

The four reportable segments that result from applying the aggregation criteria are as follows: ‘‘Global

Integrated Agencies’’; ‘‘Domestic Creative Agencies’’; ‘‘Specialist Communications’’; and ‘‘Media Services.’’
In addition, the Company combines and discloses those operating segments that do not meet the aggregation
criteria as ‘‘All Other.’’ The Company also reports corporate expenses, as further detailed below, as
‘‘Corporate.’’

(cid:129)

The Global Integrated Agencies reportable segment is comprised of the Company’s ﬁve global,
integrated operating segments (72andSunny, Anomaly, Crispin Porter Bogusky, Doner and Forsman
& Bodenfors) serving multinational clients around the world. These operating segments share similar
characteristics related to (i) the nature of their services; (ii) the type of global clients and the
methods used to provide services; and (iii) the extent to which they may be impacted by global
economic and geopolitical risks. In addition, these operating segments compete with each other for
new business and from time to time have business move between them. The Company believes the
historic and expected average long-term proﬁtability is similar among the operating segments
aggregated in the Global Integrated Agencies reportable segment.

92

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

16. Segment Information − (continued)

The operating segments within the Global Integrated Agencies reportable segment provides a range
of different services for its clients, including strategy, creative and production for advertising
campaigns across a variety of platforms (print, digital, social media, television broadcast).

The Domestic Creative Agencies reportable segment is comprised of ﬁve operating segments that
are national advertising agencies (Colle + McVoy, Laird + Partners, Mono Advertising, Union and
Yamamoto) leveraging creative capabilities at their core. These operating segments share similar
characteristics related to (i) the nature of their services; (ii) the type of domestic client accounts and
the methods used to provide services; and (iii) the extent to which they may be impacted by
domestic economic and policy factors within North America. In addition, these operating segments
compete with each other for new business and from time to time have business move between them.
The Company believes the historic and expected average long-term proﬁtability is similar among the
operating segments aggregated in the Domestic Creative Agencies reportable segment.

The operating segments within the Domestic Creative Agencies reportable segment provide similar
services as the Global Integrated Agencies.

The Specialist Communications reportable segment is comprised of ﬁve operating segments that
are each communications agencies (Allison & Partners, HL Group Partners, Hunter PR, KWT
Global (formerly Kwittken), and Veritas) with core service offerings in public relations and related
communications services. These operating segments share similar characteristics related to (i) the
nature of their services; (ii) the type of client accounts and the methods used to provide services;
(iii) the extent to which they may be impacted by domestic economic and policy factors within
North America; and (iv) the regulatory environment regarding public relations and social media. In
addition, these operating segments compete with each other for new business and from time to time
have business move between them. The Company believes the historic and expected average long-
term proﬁtability is similar among the operating segments aggregated in the Specialist
Communications reportable segment.

The operating segments within the Specialist Communications reportable segment provide public
relations and communications services including strategy, editorial, crisis support or issues
management, media training, inﬂuencer engagement, and events management.

The Media Services reportable segment is comprised of two operating segments (MDC Media
Partners and Yes & Company). These operating segments perform media buying and planning as
their core competency across a range of platforms (out-of-home, paid search, social media, lead
generation, programmatic, television broadcast).

All Other consists of the Company’s remaining operating segments that provide a range of diverse
marketing communication services, but generally do not have similar services offerings or ﬁnancial
characteristics as those aggregated in the reportable segments. The All Other category includes
6Degrees Communications, Concentric Partners, Gale Partners, Kenna, Kingsdale, Instrument,
Redscout, Relevent, Team, Vitro, and Y Media Labs. The nature of the specialist services provided
by these operating segments vary among each other and from those operating segments aggregated
into the reportable segments. This results in these operating segments having current and long-term
performance expectations inconsistent with those operating segments aggregated in the reportable
segments. The operating segments within All Other provide a range of diverse marketing
communication services, including application and website design and development, data and
analytics, experiential marketing, customer research management, creative services, and branding.

Corporate consists of corporate office expenses incurred in connection with the strategic resources
provided to the operating segments, as well as certain other centrally managed expenses that are not
fully allocated to the operating segments. These office and general expenses include (i) salaries and

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

93

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

16. Segment Information − (continued)

related expenses for corporate office employees, including employees dedicated to supporting the
operating segments, (ii) occupancy expenses relating to properties occupied by all corporate office
employees, (iii) other office and general expenses including professional fees for the ﬁnancial
statement audits and other public company costs, and (iv) certain other professional fees managed by
the corporate office. Additional expenses managed by the corporate office that are directly related to
the operating segments are allocated to the appropriate reportable segment and the All Other
category.

Revenue:
Global Integrated Agencies . . . . . . . . . . . . . . . . . . . . . . . . . .
Domestic Creative Agencies
. . . . . . . . . . . . . . . . . . . . . . . . .
Specialist Communications . . . . . . . . . . . . . . . . . . . . . . . . . .
Media Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

Segment operating income (loss):
Global Integrated Agencies . . . . . . . . . . . . . . . . . . . . . . . . . .
Domestic Creative Agencies
. . . . . . . . . . . . . . . . . . . . . . . . .
Specialist Communications . . . . . . . . . . . . . . . . . . . . . . . . . .
Media Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

Other Income (Expense):
Interest expense and ﬁnance charges, net . . . . . . . . . . . . . . . . .
Foreign exchange transaction gain (loss) . . . . . . . . . . . . . . . . .
Loss on redemption of Notes . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes and equity in earnings (losses)
. . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (beneﬁt) . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before equity in earnings (losses) of

of non-consolidated affiliates

non-consolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings (losses) of non-consolidated affiliates . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss)
Net income attributable to the noncontrolling interest
. . . . . . . .
Net income (loss) attributable to MDC Partners Inc. . . . . . . .

Years Ended December 31,
2017

2016

2018

$ 698,872
102,063
179,065
140,753
355,450
$1,476,203

$ 797,347
104,417
172,565
166,216
273,234
$1,513,779

$ 712,793
97,199
170,285
157,696
247,812
$1,385,785

$

$

44,868
18,552
18,629
(51,196)
34,000
(55,157)
9,696

$

71,857
19,333
20,728
13,126
47,771
(40,856)
$ 131,959

$

$

59,193
18,089
1,940
5,554
7,773
(44,118)
48,431

(67,075)
(23,258)
—
230

(64,364)
18,137
—
1,346

(80,407)
31,603

87,078
(168,064)

(65,050)
(213)
(33,298)
414

(49,716)
(9,404)

(112,010)
62
(111,948)
(11,785)
$ (123,733)

255,142
2,081
257,223
(15,375)
$ 241,848

(40,312)
(309)
(40,621)
(5,218)
$ (45,839)

94

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

16. Segment Information − (continued)

Years Ended December 31,
2017

2016

2018

Depreciation and amortization:
Global Integrated Agencies . . . . . . . . . . . . . . . . . . . . . . . . . .
Domestic Creative Agencies
. . . . . . . . . . . . . . . . . . . . . . . . .
Specialist Communications . . . . . . . . . . . . . . . . . . . . . . . . . .
Media Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

Stock-based compensation:
Global Integrated Agencies . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Domestic Creative Agencies
Specialist Communications . . . . . . . . . . . . . . . . . . . . . . . . . .
Media Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

Capital expenditures:
Global Integrated Agencies . . . . . . . . . . . . . . . . . . . . . . . . . .
Domestic Creative Agencies
. . . . . . . . . . . . . . . . . . . . . . . . .
Specialist Communications . . . . . . . . . . . . . . . . . . . . . . . . . .
Media Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

$23,571
1,583
4,252
3,119
12,909
762
$46,196

$ 8,521
1,100
714
318
3,104
4,659
$18,416

$10,088
951
3,618
966
4,574
67
$20,264

$23,831
1,582
4,714
4,052
8,197
1,098
$43,474

$15,225
887
2,954
656
2,494
2,134
$24,350

$20,760
1,168
1,288
3,842
5,877
23
$32,958

$21,555
1,811
6,637
6,091
8,768
1,584
$46,446

$12,177
651
3,629
318
1,703
2,525
$21,003

$16,486
1,153
2,741
5,266
3,753
33
$29,432

A summary of the Company’s long-lived assets, comprised of ﬁxed assets, goodwill and intangibles, net,

by geographic region at December 31, is set forth in the following table.

United States

Canada

Other

Total

Long-lived Assets

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 76,781
$ 77,163

$
$

4,779
5,638

$ 6,629
$ 7,505

$ 88,189
$ 90,306

Goodwill and Intangible Assets

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$679,344
$706,241

$ 61,748
$127,014

$67,628
$73,285

$808,720
$906,540

The Company’s CODM does not use segment assets to allocate resources or to assess performance of the

segments and therefore, total segment assets have not been disclosed.

95

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

16. Segment Information − (continued)

A summary of the Company’s revenue by geographic region at December 31 is set forth in the following

table.

Revenue:

United States

Canada

Other

Total

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,153,192
$1,172,364
$1,103,714

$124,000
$123,092
$124,101

$199,011
$218,323
$157,970

$1,476,203
$1,513,779
$1,385,785

17. Related Party Transaction

Scott L. Kauffman is Chairman of the Company’s Board of Directors, and is the former Chief Executive

Officer of the Company. His daughter, Sarah Kauffman, has been employed by Partner Firm Forsman &
Bodenfors since July 2011, and currently acts as Director of Operations, Attention Partners. In 2018 and 2017,
her total compensation, including salary, bonus and other beneﬁts, totaled approximately $172 and $155,
respectively. Her compensation is commensurate with that of her peers.

18. Commitments, Contingencies and Guarantees

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.

Dismissal of Class Action Litigation. On August 7, 2015, Roberto Paniccia issued a Statement of Claim
in the Ontario Superior Court of Justice in the City of Brantford, Ontario seeking to certify a class action suit
naming the following as defendants: MDC, former CEO Miles S. Nadal, former CAO Michael C. Sabatino,
CFO David Doft and BDO U.S.A. LLP. The Plaintiff alleged violations of section 138.1 of the Ontario
Securities Act (and equivalent legislation in other Canadian provinces and territories) as well as common law
misrepresentation based on allegedly materially false and misleading statements in the Company’s public
statements, as well as omitting to disclose material facts with respect to the SEC investigation. On June 4,
2018, the Court dismissed (with costs) the putative class members’ motion for leave to proceed with the
Plaintiff’s claims for misrepresentations of material facts pursuant to the Ontario Securities Act. Following the
Court’s decision, on June 18, 2018, the Plaintiff, MDC and each of the other defendants consented to the
dismissal of the action with prejudice (and without costs). In July 2018, the Court entered a ﬁnal order
approving the dismissal of this claim.

Closing of Antitrust Investigation.

In 2016, one of the Company’s subsidiary agencies received a

subpoena from the U.S. Department of Justice Antitrust Division (the ‘‘DOJ’’) concerning the DOJ’s ongoing
investigation of production bidding practices in the advertising industry. The Company and its subsidiary fully
cooperated with this conﬁdential investigation. By letter dated November 5, 2018 (received by the Company’s
counsel on November 12, 2018), the DOJ conﬁrmed that the foregoing investigation had been closed. The
DOJ did not bring any charges against the Company, its subsidiary or any of their respective employees.

Deferred Acquisition Consideration and Option to Purchase. See Note 6 of the Notes to the

Consolidated Financial Statements included herein for additional information regarding potential payments
associated with deferred acquisition consideration and Note 8 for the acquisition of noncontrolling
shareholders’ ownership interest in subsidiaries.

Natural Disasters. Certain of the Company’s operations are located in regions of the United States
which typically are subject to hurricanes. During the twelve months ended December 31, 2018 and 2017,
these operations did not incur any material costs related to damages resulting from hurricanes.

96

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

18. Commitments, Contingencies and Guarantees − (continued)

Guarantees. Generally, the Company has indemniﬁed the purchasers of certain assets 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. 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 these losses are probable and estimable.

Commitments. At December 31, 2018, the Company had $4,701 of undrawn letters of credit. In

addition, the Company has commitments to fund investments in an aggregate amount of $40.

Leases. The Company and its subsidiaries lease certain facilities and equipment. For the years ended

December 31, 2018, 2017, and 2016, gross premises rental expense amounted to $65,093, $64,086, and
$56,725, respectively, which was reduced by sublease income of $3,671, $2,797, and $3,027, respectively.
Certain of our office facilities’ leases contain escalation clauses, lease renewals and lease incentives, including
periods of free rent and allowances from landlords to be applied against necessary leasehold improvements.

In circumstances where the exercise of renewal options is reasonably assured at the inception of the
lease, the renewal period is included in the determination of the lease term. 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 the years ending December 31, 2019 and thereafter, are as follows:

Period
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount
$ 58,015
55,211
45,974
40,387
38,348
107,975
$345,910

At December 31, 2018, the total future cash to be received on sublease income is $15,930.

19. New Accounting Pronouncements

Adopted In The Current Reporting Period

Effective January 1, 2018, the Company adopted ASC 606. ASC 606 was applied using the modiﬁed
retrospective method, with the cumulative effect of the initial adoption being recognized as an adjustment to
opening retained earnings at January 1, 2018. As a result, comparative prior periods have not been adjusted
and continue to be reported under ASC 605.

The following represents changes to the Company’s policies resulting from the adoption of ASC 606:

i.

Under the guidance in effect through December 31, 2017, performance incentives were recognized in
revenue when speciﬁc quantitative goals were achieved, or when the Company’s performance
against qualitative goals was determined by the client. Under ASC 606, the Company now estimates
the amount of the incentive that will be earned at the inception of the contract and recognizes such

97

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

19. New Accounting Pronouncements − (continued)

incentive over the term of the contract. This results in an acceleration of revenue recognition for
certain contract incentives compared to ASC 605.

ii. Under the guidance in effect through December 31, 2017, non-refundable retainer fees were

generally recognized on a straight-line basis over the term of the speciﬁc customer arrangement.
Under ASC 606, an input method is typically used to measure progress and recognize revenue for
these types of arrangements. This resulted in both the deferral and acceleration of revenue
recognition in certain instances.

iii.

In certain client arrangements, the Company records revenue as a principal and includes within
revenue certain third-party-pass-through and out-of-pocket costs, which are billed to clients in
connection with the services provided. In other arrangements, the Company acts as an agent and
records revenue equal to the net amount retained. The adoption of ASC 606 resulted in certain
arrangements previously being accounted for as principal, now being accounted for as agent.

As a result of these changes, the Company recorded a cumulative effect adjustment to increase opening

accumulated deﬁcit at January 1, 2018 by $1,170.

The following table summarizes the impact of adoption of ASC 606 on the Consolidated Statement of

Operations during the twelve months ended December 31, 2018:

Revenue − Services . . . . . . . . . . . . . . . . . . . . . . . . .
Costs of services sold . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss)
. . . . . . . . . . . . . . . . . . . . .
Net loss attributable to MDC Partners Inc. common

Twelve Months Ended December 31, 2018

As Reported
$1,476,203
$ 991,198
9,696
$

Adjustments
$ 51,636
$ 62,358
$(10,722)

Adjusted to
Exclude
Adoption of
ASC 606
$1,527,839
$1,053,556
(1,026)
$

shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss per common share − basic and diluted . . . . . . . .

$ (132,088)
(2.31)
$

$ (6,883)
(0.12)
$

$ (138,971)
(2.43)
$

The impact on the Consolidated Balance Sheet and Consolidated Statement of Shareholders’ Deﬁcit as of
and for the twelve months ended December 31, 2018 was immaterial. There was no effect on the Consolidated
Statement of Comprehensive Income (Loss) and the Consolidated Statement of Cash Flows for the
twelve months ended December 31, 2018 and 2017.

In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740) — Amendments to SEC
Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119, which provides guidance on the accounting
for tax on the global intangible low-taxed income (‘‘GILTI’’) provisions of the Tax Cuts and Jobs Act (the
‘‘Act’’). The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets
of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI
inclusions or treating any taxes on GILTI inclusions as period cost are both acceptable methods subject to an
accounting policy election. The Company has adopted this standard effective January 1, 2018 and has made a
policy election to record tax effects of GILTI as an expense in the period incurred. For the twelve months
ending December 31, 2018 GILTI resulted in additional income tax expense of $710. For more information on
the adoption of the Act, see Note 11.

In May 2017, the FASB issued Accounting Standards Update (‘‘ASU’’) 2017-09, Compensation — Stock
Compensation: Scope of Modiﬁcation Accounting, which provides guidance concerning which changes to the
terms or conditions of a share-based payment award require an entity to apply modiﬁcation accounting in
ASC 718. This guidance is effective for annual and interim periods beginning after December 15, 2017.
Amendments in this ASU are applied prospectively to any award modiﬁed on or after the adoption date. The

98

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

19. New Accounting Pronouncements − (continued)

Company adopted this guidance on January 1, 2018. The impact on the Company’s consolidated statement of
ﬁnancial position and results of operations was not material.

In March 2017, the FASB issued ASU 2017-07, Compensation — Retirement Beneﬁts, which requires the
presentation of the service cost component of the net periodic pension and postretirement beneﬁts costs in the
same line item in the statement of operations as other compensation costs arising from services rendered by
the pertinent employees during the period. The other components of the net periodic pension and
postretirement beneﬁts costs are required to be presented as non-operating expenses in the statement of
operations. This guidance is effective for annual periods beginning after December 15, 2017. The Company
adopted this guidance on January 1, 2018. The impact on the Company’s consolidated statement of ﬁnancial
position and results of operations was not material.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) which requires

that the Consolidated Statement of Cash Flows present the change during the period in the total cash, cash
equivalents and amounts generally described as restricted cash or restricted cash equivalents. We have adopted
this amended guidance retrospectively as of the year ended December 31, 2018. The Consolidated Statements
of Cash Flows now reﬂect the inclusion and activity of restricted cash balances of $3.9 million (classiﬁed
within Assets held for sale in the Consolidated Balance Sheet), $4.6 million, and $5.3 million as of
December 31, 2018, 2017, and 2016 respectively.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows. This new guidance is intended

to reduce diversity in practice regarding the classiﬁcation of certain transactions in the statement of cash
ﬂows. This guidance is effective January 1, 2018 and requires a retrospective transition method. Prior to the
Company’s adoption on January 1, 2018, all cash outﬂows for contingent consideration were classiﬁed as a
ﬁnancing activity. Effective January 1, 2018, the Company is now required to classify any cash payments
made soon after the acquisition date of a business to settle a contingent consideration liability as cash outﬂows
for investing activities. Cash payments which are not made soon after the acquisition date of a business to
settle a contingent consideration liability are separated and classiﬁed as cash outﬂows for ﬁnancing activities
up to the amount of the contingent consideration liability recognized at the acquisition date and as cash
outﬂows from operating activities for any excess. As a result, $29,141, $42,790, and $44,914 of an
acquisition-related contingent consideration payment of $61,313, $99,873, and $135,693, which was in excess
of the liability initially recognized at the acquisition date, has been classiﬁed as a cash outﬂow within net cash
provided by operating activities in the accompanying consolidated statement of cash ﬂows for the
twelve months ended December 31, 2018, 2017, and 2016 respectively. There was no impact on the
Company’s consolidated statement of ﬁnancial position and results of operations.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments — Overall: Recognition and
Measurement of Financial Assets and Liabilities, which will require equity investments, except equity method
investments, to be measured at fair value and any changes in fair value will be recognized in results of
operations. This guidance is effective for annual and interim periods beginning after December 15, 2017.
Additionally, this guidance provides for the recognition of the cumulative effect of retrospective application of
the new standard in the period of initial application. The Company adopted this guidance on January 1, 2018.
The impact on the Company’s consolidated statement of ﬁnancial position and results of operations was not
material.

To be Adopted in Future Reporting Periods

In February 2016, the FASB issued ASU 2016-02, Leases. The new guidance will require lessees to

recognize a right-to-use asset and lease liability for most of its leases with a term of more than
twelve months, including those classiﬁed as operating leases. The new guidance also requires additional
quantitative and qualitative disclosures. This guidance will be effective for annual periods beginning after
December 15, 2018, with early adoption permitted. The FASB issued ASU No. 2018-10 ‘‘Codiﬁcation
Improvements to Topic 842, Leases’’ and ASU No. 2018-11 ‘‘Leases (Topic 842) Targeted Improvements’’ in

99

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

19. New Accounting Pronouncements − (continued)

July 2018. ASU 2018-10 provides certain amendments that affect narrow aspects of the guidance issued in
ASU 2016-02. ASU 2018-11 provides an optional transition method allowing entities to apply the new lease
standard at the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings
in the period of adoption (modiﬁed retrospective approach) as opposed to restating prior period consolidated
ﬁnancial statements. The Company elected to adopt the standard on January 1, 2019, which is the date of
initial application, using the modiﬁed retrospective adoption method. The Company has implemented a new
system to support the Company’s ﬁnancial reporting and disclosure under the new standard and is ﬁnalizing
its new accounting policies, processes and internal controls. The Company is in the process of quantifying the
full impact of the application of the new guidance; however, it expects that the recognition of a right-to-use
asset and lease liability for operating leases will have a signiﬁcant impact on its balance sheet.

20. Employee Beneﬁt Plans

A subsidiary acquired in 2012 sponsors a deﬁned beneﬁt plan. The beneﬁts under the deﬁned beneﬁt plan

are based on each employee’s years of service and compensation. Effective February 28, 2007, the plan was
closed to all new entrants, and effective February 28, 2010, all beneﬁt accruals under the plan were frozen.

Net Periodic Pension Cost and Pension Beneﬁt Obligation

Net periodic pension cost consists of the following components for the years ended December 31:

Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost on beneﬁt obligation . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . .
Curtailment and settlements . . . . . . . . . . . . . . . . . . .
Amortization of actuarial losses . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .

Net periodic beneﬁt cost

Pension
Beneﬁts
2018
$ —
1,641
(1,948)
1,039
258
990

$

Pension
Beneﬁts
2017
$ —
1,725
(1,830)
—
222
117

$

Pension
Beneﬁts
2016
$ —
1,855
(1,863)
929
137
$ 1,058

The above costs are included within Other income, net on the Consolidated Statements of Operations.

The following weighted average assumptions were used to determine net periodic costs at December 31:

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . .

Pension
Beneﬁts
2018
3.83%
7.00%
N/A

Pension
Beneﬁts
2017
4.32%
7.40%
N/A

Pension
Beneﬁts
2016
4.69%
7.40%
N/A

The expected return on plan assets is a long-term assumption established by considering historical and

anticipated returns of the asset classes invested in by the pension plan and the allocation strategy currently in
place among those classes.

100

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

20. Employee Beneﬁt Plans − (continued)

Other changes in plan assets and beneﬁt obligation recognized in Other Comprehensive Income (Loss)

consist of the following components for the years ended December 31:

. . . . . . . . . . . . . . . . . . . . . . . . .
Current year actuarial (gain) loss
Amortization of actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total recognized in other comprehensive (income) loss
. . . . . . . . . .
Total recognized in net periodic beneﬁt cost and other comprehensive
(income) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pension
Beneﬁts
2018
$(520)
(258)
$(778)

Pension
Beneﬁts
2017
$1,558
(222)
$1,336

$ 212

$1,453

The following table summarizes the change in beneﬁt obligations and fair values of plan assets for

the years ended December 31:

2018

2017

Change in beneﬁt obligation:
Beneﬁt obligation, Beginning balance . . . . . . . . . . . . . . . . . . . . . .
Interest Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial losses
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beneﬁts paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beneﬁt obligation, Ending balance . . . . . . . . . . . . . . . . . . . . . . . .

Change in plan assets:
Fair value of plan assets, Beginning balance . . . . . . . . . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beneﬁts paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets, Ending balance . . . . . . . . . . . . . . . . . . . .
Unfunded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$43,750
1,641
(3,522)
(3,931)
37,938

27,977
(2,093)
1,228
(3,931)
23,181
$14,757

Amounts recognized in the balance sheet at December 31 consist of the following:

Non-current liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pension
Beneﬁts
2018
$14,757
$14,757

$40,722
1,725
3,088
(1,785)
43,750

24,482
3,360
1,920
(1,785)
27,977
$15,773

Pension
Beneﬁts
2017
$15,773
$15,773

Amounts recognized in Accumulated Other Comprehensive Loss before income taxes consists of the

following components for the years ended December 31:

Accumulated net actuarial losses . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pension
Beneﬁts
2018
$12,878
$12,878

Pension
Beneﬁts
2017
$13,656
$13,656

In 2019, the Company estimates that it will recognize $266 of net actuarial losses from accumulated

other comprehensive loss, net into net periodic cost related to the pension plan.

101

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

20. Employee Beneﬁt Plans − (continued)

The following weighted average assumptions were used to determine beneﬁt obligations as of

December 31:

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pension
Beneﬁts
2018
4.42%
N/A

Pension
Beneﬁts
2017
3.83%
N/A

The discount rate assumptions at December 31, 2018 and 2017 were determined independently. A yield
curve was produced for a universe containing the majority of U.S.-issued AA-graded corporate bonds, all of
which were non-callable (or callable with make-whole provisions). The discount rate was developed as the
level equivalent rate that would produce the same present value as that using spot rates aligned with the
projected beneﬁt payments.

Fair Value of Plan Assets and Investment Strategy

The fair value of the plan assets as of December 31 is as follows:

Asset Category:
Money Market Fund − Short Term Investments . . . . . .
Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,
2018

Level 1

Level 2

Level 3

$ 1,736
21,445
$23,181

$ 1,736
21,445
$23,181

$—
—
$—

$—
—
$—

December 31,
2017

Level 1

Level 2

Level 3

Asset Category:
Money Market Fund − Short Term Investments . . . . . .
Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,695
26,282
$27,977

$ 1,695
26,282
$27,977

$—
—
$—

$—
—
$—

The pension plans weighted-average asset allocation for the years ended December 31, 2018, and 2017

are as follows:

Asset Category:
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash/Cash Equivalents and Short Term Investments . . . . . .

Target
Allocation
2018

Actual
Allocation
2018

Actual
Allocation
2017

65.0%
30.0%
5.0%
100.0%

67.0%
25.5%
7.5%
100.0%

68.9%
25.0%
6.1%
100.0%

The goals of the pension plan investment program are to fully fund the obligation to pay retirement

beneﬁts in accordance with the plan documents and to provide returns that, along with appropriate funding
from the Company, maintain an asset/liability ratio that is in compliance with all applicable laws and
regulations and assures timely payment of retirement beneﬁts.

Equity securities primarily include investments in large-cap and mid-cap companies primarily located in

the United States, as well as a smaller percentage invested in large-cap and mid-cap companies located outside
of the United States. Debt securities are diversiﬁed across different asset types with bonds issued in the
United States as well as outside the United States. Investment securities are exposed to various risks such as

102

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

20. Employee Beneﬁt Plans − (continued)

interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it
is at least reasonably possible that changes in the values of investment securities will occur in the near term
and that such changes could materially affect the amounts reported in the preceding tables.

Cash Flows

The pension plan contributions are deposited into a trust, and the pension plan beneﬁt payments are made
from trust assets. During 2018, the Company contributed $1,228 to the pension plan. The Company estimates
that it will make approximately $1,156 in contributions to the pension plan in 2019. Fluctuations in actual
market returns as well as changes in general interest rates will result in changes in the market value of plan
assets and may result in increased or decreased retirement beneﬁt costs and contributions in future periods.

The following estimated beneﬁt payments, which reﬂect expected future service, as appropriate, are

expected to be paid in the years ending December 31:

Period
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 − 2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount
$ 1,690
1,857
1,848
1,912
2,139
11,047

21. Changes in Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) for the twelve months ended

December 31, were:

Balance December 31, 2016 . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income before reclassiﬁcations . . . .
Amounts reclassiﬁed from accumulated other

comprehensive income (loss)

. . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) . . . . . . . . . . . . . . . .
Balance December 31, 2017 . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income before reclassiﬁcations . . . .
Amounts reclassiﬁed from accumulated other

comprehensive income (loss) (net of tax expense of
$223)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . . . . .
Balance December 31, 2018 . . . . . . . . . . . . . . . . . . . . . .

Deﬁned
Beneﬁt
Pension
$(12,320)
—

(1,336)
(1,336)
$(13,656)
—

Foreign
Currency
Translation
$10,496
1,206

—
1,206
$11,702
6,119

Total
$(1,824)
1,206

(1,336)
(130)
$(1,954)
6,119

555
555
$(13,101)

—
6,119
$17,821

555
6,674
$ 4,720

103

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

22. Quarterly Results of Operations (Unaudited)

The following table sets forth a summary of the Company’s consolidated unaudited quarterly results of

operations for the years ended December 31, in thousands of dollars, except per share amounts.

First

Second

Third

Fourth

Quarters

Revenue:

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$326,968
$344,700

$379,743
$390,532

$375,830
$375,800

$393,662
$402,747

Cost of services sold:

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$243,030
$237,563

$253,390
$267,822

$238,690
$249,418

$256,088
$268,673

Net Income (loss):

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (28,519)
$ (9,683)

$
5,951
$ 13,467

$ (13,667)
$ 21,984

$ (75,713)
$231,455

Net income (loss) attributable to MDC Partners Inc.:

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (29,416)
$ (10,566)

$
3,406
$ 11,253

$ (16,125)
$ 18,493

$ (81,598)
$222,668

Income (loss) per common share:
Basic

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

$
$

(0.56)
(0.21)

(0.56)
(0.21)

$
$

$
$

0.02
0.14

0.02
0.14

$
$

$
$

(0.32)
0.25

(0.32)
0.24

$
$

$
$

(1.46)
3.33

(1.46)
3.30

The above revenue, cost of services sold, and income (loss) have primarily been affected by acquisitions

and divestitures.

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) have been affected as follows:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

The fourth quarter of 2018 and 2017 included a foreign exchange loss of $13,324 and $660,
respectively.

The fourth quarter of 2018 and 2017 included stock-based compensation charges of $1,534 and
$7,480, respectively.

The fourth quarter of 2018 and 2017 included changes in deferred acquisition resulting in income of
$8,979 and $18,173, respectively.

The fourth quarter of 2018 included goodwill and other asset impairment charges of $56,732 and the
third and fourth quarter of 2017 included goodwill impairment charges of $29,631 and $18,893,
respectively.

The fourth quarter of 2018 included income tax expense related to the establishment of the
Company’s valuation allowance of $49,447. The fourth quarter of 2017 included income tax beneﬁt
of $226,466 relating to the decrease to the valuation allowance.

104

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

23. Subsequent Events

On March 14, 2019 (the ‘‘Issue Date’’), the Company entered into a securities purchase agreement with

Stagwell Holdings, an affiliate of Stagwell, pursuant to which Stagwell Holdings agreed to purchase,
(i) 14,285,714 newly authorized Class A shares for $3.50 per share for an aggregate purchase price of
$50 million and (ii) 50,000 newly authorized Series 6 convertible preference shares (‘‘Series 6 Preference
Shares’’) for an aggregate purchase price of $50 million.

The holders of the Series 6 Preference Shares have the right to convert their Series 6 Preference Shares

in whole at any time and from time to time, and in part at any time and from time to time after 1.00 year
following the original issuance date of the Preference Shares, into a number of Class A Shares equal to the
then-applicable liquidation preference divided by the applicable conversion price at such time (the
‘‘Conversion Price’’). The initial liquidation per share preference of each Series 6 Preference Share is $1,000.
The initial Conversion Price is $5.00 per Preference Share, subject to customary adjustments for share splits
and combinations, dividends, recapitalizations and other matters, including weighted average anti-dilution
protection for certain issuances of equity or equity-linked securities.

The Series 6 Preference Shares’ liquidation preference accretes at 8.0% per annum, compounded

quarterly until the ﬁve-year anniversary of the Issue Date.

Holders of the Series 6 Preference Shares are entitled to dividends in an amount equal to any dividends

that would otherwise have been payable on the Class A Shares issued upon conversion of the Series 6
Preference Shares. The Series 6 Preference Shares are convertible at the Company’s option (i) on and after the
two-year anniversary of the Issue Date, if the closing trading price of the Class A Shares over a speciﬁed
period prior to conversion is at least 125% of the Conversion Price or (ii) after the ﬁfth anniversary of the
Issue Date, if the closing trading price of the Class A Shares over a speciﬁed period prior to conversion is at
least equal to the Conversion Price.

Following certain change in control transactions of the Company in which holders of Series 6 Preference

Shares are not entitled to receive cash or qualifying listed securities with a value at least equal to the
liquidation preference plus accrued and unpaid dividends, (i) holders will be entitled to cash dividends on the
liquidation preference at an increasing rate (beginning at 7%), and (ii) the Company will have a right to
redeem the Series 6 Preference Shares for cash at the greater of their liquidation preference plus accrued and
unpaid dividends or their as-converted value.

Subject to certain limitations, the Series 6 Preference Shares are not convertible into Class A Shares to
the extent upon conversion the holder will beneﬁcially hold more than 19.9% of the Company’s outstanding
common shares or voting power. In the event that such restrictions would prevent the conversion of any
Series 6 Preference Shares, such Series 6 Preference Shares will be converted into a separate newly authorized
series of convertible preference shares of the Company, the Series 7 convertible preference shares (the
‘‘Alternative Preference Shares’’), at the same conversion rate at which the Series 6 Preference Shares would
convert into Class A Shares. The Alternative Preference Shares, in turn, are convertible into Class A Shares on
a One-to-one basis, subject to certain conversion rate adjustments.

Series 6 Preference Shares or Alternative Preference Shares will not entitle their holders to vote in the
election of directors and, other than as required by applicable law, holders of the Series 6 Preference Shares
will not have voting rights.

105

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 Officers (CEOs) 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, our disclosure controls and procedures provide reasonable assurance, but not absolute assurance,
of achieving their objectives.

We conducted an evaluation, under the supervision and with the participation of our management,

including our CEOs, 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 CEOs and CFO concluded that the
Company’s disclosure controls and procedures were effective at such time at the reasonable assurance level.

(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) and 15d-15(f) under the Exchange Act). The Company’s internal
control over ﬁnancial reporting includes those policies and procedures that:

(cid:129)

(cid:129)

(cid:129)

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reﬂect the
transactions and dispositions of the assets of the Company;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of
ﬁnancial statements in accordance with U.S. generally accepted accounting principles, and that
receipts and expenditures are being made only in accordance with authorizations of the Company’s
management and directors; and

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of 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.

Management (with the participation of our CEOs and CFO) conducted an evaluation of the effectiveness

of our internal control over ﬁnancial reporting as of December 31, 2018 based on the criteria set forth in
Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).

Based on this evaluation, our CEOs and CFO concluded that our internal control over ﬁnancial reporting

was effective as of December 31, 2018.

Our management, including our CEOs and CFO, believes there have been no changes in our internal
control over ﬁnancial reporting during the ﬁscal quarter ended December 31, 2018, that materially affected, or
were reasonably likely to materially affect, our internal control over ﬁnancial reporting.

The effectiveness of our internal control over ﬁnancial reporting as of December 31, 2018 has been
independently audited by BDO USA LLP, an independent registered public accounting ﬁrm, as stated in their
report which is included herein.

106

(c) Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders
MDC Partners Inc.
New York, New York

Opinion on Internal Control over Financial Reporting

We have audited MDC Partners Inc.’s (the ‘‘Company’s’’) internal control over ﬁnancial reporting as of
December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission (the ‘‘COSO criteria’’). In our
opinion, the Company maintained, in all material respects, effective internal control over ﬁnancial reporting as
of December 31, 2018, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (‘‘PCAOB’’), the consolidated balance sheets of the Company and subsidiaries as of
December 31, 2018 and 2017, and the related consolidated statements of operations and comprehensive
income (loss), shareholders’ deﬁcit, and cash ﬂows for each of the three years in the period ended
December 31, 2018, and the related notes and schedules presented in Item 15 and our report dated March 18,
2019 expressed an unqualiﬁed opinion thereon.

Basis for Opinion

The Company’s 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 are a public accounting ﬁrm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of internal control over ﬁnancial reporting in accordance with the standards of the
PCAOB. 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.

Deﬁnition and Limitations of Internal Control over Financial Reporting

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.

107

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.

/s/ BDO USA, LLP

New York, New York
March 18, 2019

Item 9B. Other Information

None.

108

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
2019 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, 2018, which sections are incorporated herein by reference.

Executive Officers of MDC Partners

The executive officers of MDC Partners as of March 1, 2019 are:

Name

David B. Doft

Mitchell S. Gendel

Stephanie Nerlich

David C. Ross

Ryan Linder
Vincenzo DiMaggio

Age

47

53

49

38

42
44

Office

Chief Financial Officer and member of CEO Executive
Committee
Executive Vice President, General Counsel and member of CEO
Executive Committee
Executive Vice President, Partner Development & Talent, and
member of CEO Executive Committee
Executive Vice President, Strategy and Corporate Development,
and member of CEO Executive Committee
Executive Vice President, Global Chief Marketing Officer
Senior Vice President, Chief Accounting Officer

There is no family relationship among any of the executive officers or directors.

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 a 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.

Ms. Nerlich joined MDC Partners in April 2016, and currently serves as Executive Vice President,
Partner Development & Talent. Prior to joining MDC Partners, Ms. Nerlich served as CEO of Grey Canada
and President of Lowe Roche, and also as EVP, Executive Managing Director of BBDO, where she spent
12 years servicing the agencies’ largest clients.

Mr. Ross joined MDC Partners in March 2010 and currently serves as Executive Vice President, Strategy

and Corporate Development. Prior to joining MDC Partners, Mr. Ross was an attorney at Skadden Arps LLP
where he represented global clients in a wide range of capital markets offerings, M&A transactions, and
general corporate matters.

Mr. Linder joined MDC Partners in 2013 as SVP, Strategic Growth and currently serves as Executive

Vice President, Global Chief Marketing Officer. Prior to joining MDC Partners, he was EVP, CMO for
Omnicom shop, Zimmerman Advertising and led marketing and business development efforts for Olson in
Minneapolis and IPG’s Jack Morton Worldwide.

Mr. DiMaggio joined MDC Partners in June 2018 as Chief Accounting Officer. Prior to joining MDC

Partners, he served as the Senior Vice President, Global Controller & Chief Accounting Officer at Endeavor,
from October 2017 to June 2018. Prior thereto, he worked at Viacom Inc. from October 2012 to October 2017
as Senior Vice President, Deputy Controller and at the New York Times Company from October 1999 to
October 2012 ultimately serving as its Vice President, Assistant Corporate Controller.

109

Additional information about our directors and executive officers appears under the captions ‘‘Election of

Directors’’ and ‘‘Executive Compensation’’ in the Company’s Proxy Statement for the 2019 Annual General
Meeting of Stockholders.

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, 19th Floor, New York,
New York, 10151, Attention: Investor Relations.

Item 11. Executive Compensation

Reference is made to the sections captioned ‘‘Compensation of Directors’’ and ‘‘Executive

Compensation’’ in the Company’s Proxy Statement for the 2019 Annual General Meeting of Stockholders,
which are incorporated herein by reference.

Item 12. Security Ownership of Certain Beneﬁcial Owners and Management and Related Stockholder
Matters

Reference is made to 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 for the 2019 Annual General
Meeting of Stockholders, which are incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions and Director Independence

Reference is made to Note 17 of the Notes to the Consolidated Financial Statements included in
Item 8 of this Form 10-K and to ‘‘Certain Relationships and Related Transactions’’ in the Company’s Proxy
Statement for the 2019 Annual General Meeting of Stockholders, which is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

Reference is made to the section captioned ‘‘Appointment of Auditors’’ in the Company’s Proxy
Statement for the 2019 Annual General Meeting of Stockholders, which is incorporated herein by reference.

110

PART IV

Item 15. Exhibits and Financial Statement Schedules

(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,
(Dollars in Thousands)

Column A

Column B

Column C

Column D

Balance at
Beginning
of Period

Charged to
Costs and
Expenses

Removal of
Uncollectible
Receivables

Column E
Translation
Adjustments
Increase
(Decrease)

Column F

Balance at
the End of
Period

Description
Valuation accounts deducted from
assets to which they apply −
allowance for doubtful accounts:
December 31, 2018 . . . . . . . . . . .
December 31, 2017 . . . . . . . . . . .
December 31, 2016 . . . . . . . . . . .

$2,453
$1,523
$1,306

$1,538
$1,989
$1,053

$(1,795)
$ (924)
$ (830)

$(317)
$(135)
(6)
$

$1,879
$2,453
$1,523

Schedule II — 2 of 2

MDC PARTNERS INC. & SUBSIDIARIES

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended December 31,
(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, 2018 . . . . . . . . . . .
December 31, 2017 . . . . . . . . . . .
December 31, 2016 . . . . . . . . . . .

$ 19,032
$248,867
$247,967

$ 49,447
$(230,358)
6,605
$

$ —
$ 4,108
$(6,032)

$ —
$(3,585)
327
$

$ 68,479
$ 19,032
$248,867

(b) Exhibits

The exhibits listed on the accompanying Exhibits Index are ﬁled as a part of this report.

Item 16. Form 10-K Summary

None.

111

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 18, 2019

MDC PARTNERS INC.

By: /s/ David Doft

Name: David Doft
Title: Chief Financial Officer

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

/s/ David Doft
David Doft

/s/ Vincenzo DiMaggio
Vincenzo DiMaggio

/s/ Clare Copeland
Clare Copeland

/s/ Daniel Goldberg
Daniel Goldberg

/s/ Bradley Gross
Bradley Gross

/s/ Scott L. Kauffman
Scott L. Kauffman

/s/ Lawrence S. Kramer
Lawrence S. Kramer

/s/ Anne Marie O’Donovan
Anne Marie O’Donovan

/s/ Desirée Rogers
Desirée Rogers

/s/ Irwin D. Simon
Irwin D. Simon

Title

Date

Chief Financial Officer and member of CEO Executive
Committee

March 18, 2019

March 18, 2019

March 18, 2019

March 18, 2019

March 18, 2019

March 18, 2019

March 18, 2019

March 18, 2019

March 18, 2019

March 18, 2019

Chief Accounting Officer

Director

Director

Director

Chairman

Director

Director

Director

Director

112

Exhibit No.

EXHIBIT INDEX

Description

3.1

3.1.1

3.1.2

3.1.3

3.1.4

3.1.5

3.1.6

3.1.7

3.1.8

3.2

3.2.1

4.1

4.1.1

10.1

10.1.1

10.2

10.3

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);

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);

Articles of Amalgamation, dated January 1, 2013 (incorporated by reference to Exhibit 3.1.4 to
the Company’s Form 10-K ﬁled on March 10, 2014);

Articles of Amalgamation, dated April 1, 2013 (incorporated by reference to Exhibit 3.1.5 to the
Company’s Form 10-K ﬁled on March 10, 2014);

Articles of Amalgamation, dated July 1, 2013 (incorporated by reference to Exhibit 3.1.6 to the
Company’s Form 10-K ﬁled on March 10, 2014);

Articles of Amendment, dated March 7, 2017 (incorporated by reference to Exhibit 3.1 to the
Company’s Form 8-K ﬁled on March 7, 2016);
Articles of Amendment, dated March 14, 2019 (incorporated by reference to Exhibit 3.1 to the
Company’s Form 8-K ﬁled on March 15, 2019);
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);
By-law No. 2 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K ﬁled on
January 18, 2019);
Indenture, dated as of March 23, 2016, among the Company, the 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 March 23, 2016);
6.50% Senior Notes due 2024 (incorporated by reference to Exhibit 4.2 to the Company’s
Form 8-K ﬁled on March 23, 2016);
Second Amended and Restated Credit Agreement, dated as of May 3, 2016, among the Company,
Maxxcom Inc., a Delaware corporation, each of their subsidiaries party thereto, Wells Fargo
Capital Finance, LLC, as agent, and the lenders from time to time party thereto (incorporated by
reference to Exhibit 10.1 to the Company’s Form 8-K ﬁled on May 4, 2016);
Consent and First Amendment to the Second Amended and Restated Credit Agreement, dated as
of May 3, 2016, among the Company, Maxxcom Inc., a Delaware corporation, each of their
subsidiaries party thereto, Wells Fargo Bank, N.A., as agent, and the lenders from time to time
party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K ﬁled on
March 15, 2019);

Securities Purchase Agreement, by and between MDC Partners Inc. and Broad Street Principal
Investments, L.L.C., dated as of February 14, 2017 (incorporated by reference to Exhibit 10.1 to
the Company’s Form 8-K ﬁled on February 15, 2016);

Securities Purchase Agreement, by and between MDC Partners Inc. and Stagwell Agency
Holdings LLC, dated as of March 14, 2019 (incorporated by reference to Exhibit 10.2 to the
Company’s Form 8-K ﬁled on March 15, 2019);

10.4†

Employment Agreement, effective March 18, 2019, by and between the Company and Mark Penn
(incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K ﬁled on March 15, 2019);

113

Exhibit No.

10.5†

10.5.1†

10.6†

10.6.1†

10.7†

10.7.1†

10.8†

10.9†

10.10†

10.11†

10.12†

10.13†

10.14†

10.15†

10.16†

10.17†

10.17.1†

Description

Employment Agreement between the Company and Scott Kauffman, dated as of August 6, 2015
(incorporated by reference to Exhibit 10.2 to the Company’s Form 10-K ﬁled on February 26,
2016);

Succession Agreement between the Company and Scott Kauffman, dated as of September 9, 2018
(incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K ﬁled on September 12,
2018);

Amended and Restated 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);

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);
Second Amended and Restated Employment Agreement between the Company and David Ross,
dated as of February 27, 2017 (incorporated by reference to Exhibit 10.7 to the Company’s 10-K
ﬁled on March 1, 2017);
Amended and Restated Employment Agreement between the Company and Stephanie Nerlich,
dated as of November 1, 2017 (incorporated by reference to Exhibit 10.9 to the Company’s 10-K
ﬁled on March 1, 2018);
Employment Agreement between the Company and Vincenzo DiMaggio, dated as of May 8,
2018*;
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);
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);
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 Incentive/Retention Payment letter agreement (incorporated by reference to Exhibit 10.1
to the Company’s Form 8-K ﬁled on August 1, 2011);

MDC Partners Inc. 2014 Long Term Cash Incentive Compensation Plan, as adopted March 6,
2014, including forms of 2014 Award Agreement (incorporated by reference to Exhibit 10.12 to
the Company’s Form 10-K ﬁled on March 10, 2014);

2016 Stock Incentive Plan, as amended June 6, 2018 (incorporated by reference to Exhibit 10.1
to the Company’s Form 8-K ﬁled on June 7, 2018);

Form of Financial-Performance Based Restricted Stock Grant Agreement (2017) under the 2016
Stock Incentive Plan (incorporated by reference to Exhibit 10.14.1 to the Company’s 10-K ﬁled
on March 1, 2017);

114

Exhibit No.

10.18†

14

14.1

21

23

31.1

31.2

31.3

31.4

32.1

32.2

32.3

32.4

Description

Amended Form of Senior Executive Retention Award (December 2018) (incorporated by
reference to Exhibit 10.1 to the Company’s Form 8-K ﬁled on December 27, 2018);

Code of Conduct of MDC Partners Inc. (as amended, February 2016) (incorporated by reference
to Exhibit 14 to the Company’s Form 10-K ﬁled on February 26, 2016);

MDC Partners’ Corporate Governance Guidelines (as amended, February 2016) (incorporated by
reference to Exhibit 14.1 to the Company’s Form 10-K ﬁled on February 26, 2016);

Subsidiaries of Registrant*;

Consent of Independent Registered Public Accounting Firm BDO USA LLP*;

Certiﬁcation by Chief Financial Officer Co-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 Co-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 Co-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 Co-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 and Co-Chief Executive Officer pursuant to 18 USC.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*.
Certiﬁcation by Co-Chief Executive Officer pursuant to 18 USC. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*;
Certiﬁcation by Co-Chief Executive Officer pursuant to 18 USC. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*;
Certiﬁcation by Co-Chief Executive Officer pursuant to 18 USC. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*;

*
†

Filed electronically herewith.
Indicates management contract or compensatory plan

115

[This Page Intentionally Left Blank]

MDC PARTNERS INC.

SUBSIDIARIES OF THE REGISTRANT

Name

1208075 Ontario Limited
2340432 Ontario Inc.
6 Degrees Integrated Communications Corp.
72 Consulting LLC
72andSunny Midco LLC
72andSunny NL B.V.
72andSunny Partners LLC
72andSunny Partners LLC
72andSunny Pte. Ltd.
72andSunny Pty Ltd
7thﬂ LLC
7thﬂ LP
7thﬂ, LTD
939GP Inc.
Accumark Partners Inc.
ACE Content LLC
Albion Brand Communication Limited
Allegory LLC
Allison & Partners Holdings (Thailand) Limited
Allison & Partners LLC
Allison & Partners Thailand Limited
Allison and Partners K.K.
Allison Kommunikation GmbH
Allison Partners Limited
Allison PR (Beijing) Limited
Allison+Partners Singapore Pte Ltd
Allison+Partners UK Limited
Alveo LLC
Anomaly (Shanghai) Advertising Co., Ltd.
Anomaly B.V.
Anomaly GmbH
Anomaly Inc.
Anomaly London LLP
Anomaly Partners LA LLC
Anomaly Partners LLC
Anomaly UK Limited
Antidote 360 LLC
Apollo Program LLC
Attention Partners LLC
Boom Marketing Inc.
Born AI LLC
Bruce Mau Design (USA) LLC
Bruce Mau Design Inc.
Bruce Mau Holdings Ltd.
Colle & McVoy LLC
Com.motion Inc.
Concentric Health Experience Limited

Exhibit 21

Jurisdiction of
Incorporation/Formation

Ontario
Ontario
Ontario
Delaware
Delaware
Netherlands
Delaware
New York
Republic of Singapore
New South Wales
Delaware
Ontario
United Kingdom
Ontario
Ontario
Delaware
United Kingdom
Delaware
Bangkok
Delaware
Bangkok
Tokyo
Berlin
Wanchai
Beijing
Republic of Singapore
England
Delaware
Shanghai
Netherlands
Berlin
Ontario
United Kingdom
Delaware
Delaware
United Kingdom
Delaware
Delaware
Delaware
Ontario
Delaware
Delaware
Ontario
Ontario
Delaware
Ontario
United Kingdom

Name

Concentric Partners LLC
CP+B − Crispin Porter & Bogusky Brasil Publicidade e Participacao Ltda.
Crispin Porter & Bogusky (Hong Kong) Limited
Crispin Porter & Bogusky LLC
Crispin Porter & Bogusky Ltd
Crispin Porter + Bogusky Denmark ApS
Doner Limited
Doner Partners LLC
Dotglu LLC
Elixir Health Experience LLC
Enplay Partners LLC
Expecting Productions, LLC
Forsman & Bodenfors AB
Forsman & Bodenfors Factory AB
Forsman & Bodenfors Inhouse AB
Forsman & Bodenfors Pte. Ltd.
Forsman & Bodenfors Studios AB
Gale Creative Agency Private Limited
Gale Partners Inc.
Gale Partners LLC
Gale Partners LP
Happy Forsman & Bodenfors AB
Hecho Studios LLC
Hello Design, LLC
HL Group Partners Limited
HL Group Partners LLC
HPR Partners, LLC
Hudson and Sunset Media, LLC
Hunter PR Canada LP
Hunter PR UK Limited
Hunter Public Relations UK Limited
Instrument A/V LLC
Instrument Fun LLC
Instrument Gemini LLC
Instrument LLC
Instrument Spirit LLC
Instrument Wizard Wizard LLC
KBP Holdings LLC
KBS (Hong Kong) Limited
KBS (Shanghai) Advertising Co., Ltd.
KBS+P Canada LP KBS+P Canada SEC
KBS+P Ventures LLC
Kenna Communications GP Inc.
Kenna Communications LP
Kingsdale Partners LP
Kingsdale Shareholder Services US LLC
Kirshenbaum Bond Senecal & Partners LLC
KIS Investor Services Inc. (Barbados)
Kollo AB
Kwittken & Company Limited
Kwittken LLC

Jurisdiction of
Incorporation/Formation

Delaware
Sao Paulo
Hong Kong
Delaware
United Kingdom
Copenhagen
United Kingdom
Delaware
Delaware
Delaware
Delaware
California
Sweden
Sweden
Sweden
Singapore
Sweden
Bangalore
Ontario
Delaware
Ontario
Sweden
Delaware
California
United Kingdom
Delaware
Delaware
Delaware
Ontario
United Kingdom
United Kingdom
Oregon
Oregon
Oregon
Delaware
Oregon
Oregon
Delaware
Unknown
Shanghai
Ontario
Delaware
Ontario
Ontario
Ontario
Delaware
Delaware
Barbados
Sweden
United Kingdom
Delaware

Name

Kwittken LP
Kwittken Ltd.
Laird + Partners New York LLC
Laurie, Foard & Wheeler Limited
Laurie, Ford + Wheeler LLC
Legend PR Partners LLC
LifeMed Media, Inc.
Longacre Square Communications LLC
Luntz Global Partners LLC
Main North LP
Maxxcom (Barbados) Inc.
Maxxcom (USA) Finance Company
Maxxcom (USA) Holdings Inc.
Maxxcom Global Media LLC
Maxxcom Inc.
MDC Acquisition Inc.
MDC Canada GP Inc.
MDC Corporate (US) Inc.
MDC Europe Ltd.
MDC Gale43 GP Inc.
MDC Innovation Partners LLC
MDC Kingsdale GP Inc.
MDC Partners Inc.
MDC Partners UK Holdings Limited
Media Assembly LP
Mono Advertising, LLC
New Team LLC
Northstar Management Holdco Inc.
Northstar Research GP LLC
Northstar Research Holdings Canada Inc.
Northstar Research Holdings USA LP
Northstar Research Partners (UK) Limited
Northstar Research Partners (USA) LLC
Northstar Research Partners Inc. (ON)
Not No and Company, LLC
OneChocolate Communications Limited
OneChocolate Communications LLC
Pictor Digital Creative Services LLC
Plus Productions, LLC
Pt. Northstar Business Consulting Partners
Redscout LLC
Redscout Ltd.
Relevent Partners LLC
Sloane & Company LLC
SML Partners Holdings LLC
Source Marketing LLC
Strategic Sourcing Solutions LLC
Studio Pica Inc.
Sugar Daddy Development, LLC
TargetCast LLC
Targetcom LLC

Jurisdiction of
Incorporation/Formation

Ontario
United Kingdom
Delaware
Hong Kong
Delaware
Delaware
Delaware
Delaware
Delaware
Ontario
Barbados
Delaware
Delaware
Delaware
Delaware
Delaware
Canada
Delaware
United Kingdom
Ontario
Delaware
Ontario
Canada
United Kingdom
Ontario
Delaware
Delaware
Ontario
Delaware
Ontario
Delaware
United Kingdom
Delaware
Ontario
Delaware
United Kingdom
Delaware
Delaware
Delaware
Republic of Indonesia
Delaware
United Kingdom
Delaware
Delaware
Delaware
New York
Delaware
Canada
Delaware
Delaware
Delaware

Name

TC Acquisition Inc.
TEAM LP
The Arsenal LLC
The Path Worldwide Limited
Trade X Partners LLC
Trailer Productions, LLC
Union Advertising Canada LP
Unique Inﬂuence Partners LLC
Varick Media Management LLC
Veritas Communications Inc.
Veritas Communications Inc.
Vitro Partners LLC
VitroRobertson LLC
Walker Brook Capital LLC
Y Media Labs LLC
Y Media Labs Private Limited
Yamamoto Moss Mackenzie, Inc.
Zig Management (USA) Inc.
Zyman Group, LLC

Jurisdiction of
Incorporation/Formation

Delaware
Ontario
Delaware
United Kingdom
Delaware
California
Ontario
Delaware
Delaware
Delaware
Ontario
Delaware
Delaware
Delaware
Delaware
India
Delaware
Delaware
Delaware

Exhibit 23

Consent of Independent Registered Public Accounting Firm

MDC Partners Inc.
New York, New York

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8
(No. 333-212261) and Form S-3 (Nos. 333-222101 and 333-222095) of MDC Partners, Inc., of our reports
dated March 1, 2018, relating to the consolidated ﬁnancial statements and ﬁnancial statement schedules
presented in Item 15, and the effectiveness of MDC Partners, Inc.’s internal control over ﬁnancial reporting
which appear in this Form 10-K.

/s/ BDO USA, LLP
New York, New York

March 18, 2019

[This Page Intentionally Left Blank]

Certiﬁcation Pursuant to Rules 13a-14(a) and 15d-14(a) as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, David Doft, certify that:

Exhibit 31.1

1.

I have reviewed this annual report on Form 10-K for the year ended December 31, 2018 of
MDC Partners Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the ﬁnancial statements, and other ﬁnancial information included in this
report, fairly present in all material respects the ﬁnancial condition, results of operations and cash
ﬂows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as deﬁned in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over ﬁnancial reporting (as deﬁned in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and

procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over ﬁnancial reporting, or caused such internal control over
ﬁnancial reporting to be designed under our supervision, 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;

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over ﬁnancial reporting
that occurred during the registrant’s most recent ﬁscal quarter (the registrant’s fourth ﬁscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over ﬁnancial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over ﬁnancial reporting, to the registrant’s auditors and the audit committee of
registrant’s board of directors (or persons performing the equivalent function):

a. All signiﬁcant deﬁciencies and material weaknesses in the design or operation of internal

control over ﬁnancial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report ﬁnancial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a

signiﬁcant role in the registrant’s internal control over ﬁnancial reporting.

Date: March 18, 2019

/s/ David Doft
By: David Doft
Title: Chief Financial Officer and member of the

CEO Executive Committee

Exhibit 31.2

Certiﬁcation Pursuant to Rules 13a-14(a) and 15d-14(a) as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Mitchell Gendel, certify that:

1.

I have reviewed this annual report on Form 10-K for the year ended December 31, 2018 of
MDC Partners Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the ﬁnancial statements, and other ﬁnancial information included in this
report, fairly present in all material respects the ﬁnancial condition, results of operations and cash
ﬂows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as deﬁned in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over ﬁnancial reporting (as deﬁned in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and

procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over ﬁnancial reporting, or caused such internal control over
ﬁnancial reporting to be designed under our supervision, 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;

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over ﬁnancial reporting
that occurred during the registrant’s most recent ﬁscal quarter (the registrant’s fourth ﬁscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over ﬁnancial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over ﬁnancial reporting, to the registrant’s auditors and the audit committee of
registrant’s board of directors (or persons performing the equivalent function):

a. All signiﬁcant deﬁciencies and material weaknesses in the design or operation of internal

control over ﬁnancial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report ﬁnancial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a

signiﬁcant role in the registrant’s internal control over ﬁnancial reporting.

Date: March 18, 2019

/s/ Mitchell Gendel
By: Mitchell Gendel
Title: Member of the CEO Executive Committee

Exhibit 31.3

Certiﬁcation Pursuant to Rules 13a-14(a) and 15d-14(a) as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, David Ross, certify that:

1.

I have reviewed this annual report on Form 10-K for the year ended December 31, 2018 of
MDC Partners Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the ﬁnancial statements, and other ﬁnancial information included in this
report, fairly present in all material respects the ﬁnancial condition, results of operations and cash
ﬂows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as deﬁned in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over ﬁnancial reporting (as deﬁned in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and

procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over ﬁnancial reporting, or caused such internal control over
ﬁnancial reporting to be designed under our supervision, 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;

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over ﬁnancial reporting
that occurred during the registrant’s most recent ﬁscal quarter (the registrant’s fourth ﬁscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over ﬁnancial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over ﬁnancial reporting, to the registrant’s auditors and the audit committee of
registrant’s board of directors (or persons performing the equivalent function):

a. All signiﬁcant deﬁciencies and material weaknesses in the design or operation of internal

control over ﬁnancial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report ﬁnancial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a

signiﬁcant role in the registrant’s internal control over ﬁnancial reporting.

Date: March 18, 2019

/s/ David Ross
By: David Ross
Title: Member of the CEO Executive Committee

Exhibit 31.4

Certiﬁcation Pursuant to Rules 13a-14(a) and 15d-14(a) as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Stephanie Nerlich, certify that:

1.

I have reviewed this annual report on Form 10-K for the year ended December 31, 2018 of
MDC Partners Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the ﬁnancial statements, and other ﬁnancial information included in this
report, fairly present in all material respects the ﬁnancial condition, results of operations and cash
ﬂows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as deﬁned in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over ﬁnancial reporting (as deﬁned in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and

procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over ﬁnancial reporting, or caused such internal control over
ﬁnancial reporting to be designed under our supervision, 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;

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over ﬁnancial reporting
that occurred during the registrant’s most recent ﬁscal quarter (the registrant’s fourth ﬁscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over ﬁnancial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over ﬁnancial reporting, to the registrant’s auditors and the audit committee of
registrant’s board of directors (or persons performing the equivalent function):

a. All signiﬁcant deﬁciencies and material weaknesses in the design or operation of internal

control over ﬁnancial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report ﬁnancial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a

signiﬁcant role in the registrant’s internal control over ﬁnancial reporting.

Date: March 18, 2019

/s/ Stephanie Nerlich
By: Stephanie Nerlich
Title: Member of the CEO Executive Committee

Exhibit 32.1

Certiﬁcation Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the annual report of MDC Partners Inc. (the ‘‘Company’’) on Form 10-K for ﬁscal
year ended December 31, 2018, as ﬁled with the Securities and Exchange Commission on the date hereof (the
‘‘Report’’), I, David Doft, Chief Financial Officer and member of the CEO Executive Committee of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, to my knowledge, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities

Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the ﬁnancial

condition and results of operations of the Company.

Date: March 18, 2019

/s/ David Doft
By: David Doft
Title: Chief Financial Officer and member of the

CEO Executive Committee

This certiﬁcation is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed ‘‘ﬁled’’ by the
Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be
incorporated by reference into any ﬁling of the Company under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, whether made before or after the date of this Report,
irrespective of any general incorporation language contained in such ﬁling.

A signed original of this written statement required by Section 906, or other documents authenticating,
acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of
this written statement required by Section 906, has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

Certiﬁcation Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the annual report of MDC Partners Inc. (the ‘‘Company’’) on Form 10-K for ﬁscal
year ended December 31, 2018, as ﬁled with the Securities and Exchange Commission on the date hereof (the
‘‘Report’’), I, Mitchell Gendel, member of the CEO Executive Committee of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my
knowledge, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities

Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the ﬁnancial

condition and results of operations of the Company.

Date: March 18, 2019

/s/ Mitchell Gendel
By: Mitchell Gendel
Title: Member of the CEO Executive Committee

This certiﬁcation is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed ‘‘ﬁled’’ by the
Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be
incorporated by reference into any ﬁling of the Company under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, whether made before or after the date of this Report,
irrespective of any general incorporation language contained in such ﬁling.

A signed original of this written statement required by Section 906, or other documents authenticating,
acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of
this written statement required by Section 906, has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.3

Certiﬁcation Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the annual report of MDC Partners Inc. (the ‘‘Company’’) on Form 10-K for ﬁscal
year ended December 31, 2018, as ﬁled with the Securities and Exchange Commission on the date hereof (the
‘‘Report’’), I, David Ross, member of the CEO Executive Committee of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my
knowledge, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities

Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the ﬁnancial

condition and results of operations of the Company.

Date: March 18, 2019

/s/ David Ross
By: David Ross
Title: Member of the CEO Executive Committee

This certiﬁcation is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed ‘‘ﬁled’’ by the
Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be
incorporated by reference into any ﬁling of the Company under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, whether made before or after the date of this Report,
irrespective of any general incorporation language contained in such ﬁling.

A signed original of this written statement required by Section 906, or other documents authenticating,
acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of
this written statement required by Section 906, has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.4

Certiﬁcation Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the annual report of MDC Partners Inc. (the ‘‘Company’’) on Form 10-K for ﬁscal
year ended December 31, 2018, as ﬁled with the Securities and Exchange Commission on the date hereof (the
‘‘Report’’), I, Stephanie Nerlich, member of the CEO Executive Committee of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my
knowledge, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities

Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the ﬁnancial

condition and results of operations of the Company.

Date: March 18, 2019

/s/ Stephanie Nerlich
By: Stephanie Nerlich
Title: Member of the CEO Executive Committee

This certiﬁcation is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed ‘‘ﬁled’’ by the
Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be
incorporated by reference into any ﬁling of the Company under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, whether made before or after the date of this Report,
irrespective of any general incorporation language contained in such ﬁling.

A signed original of this written statement required by Section 906, or other documents authenticating,
acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of
this written statement required by Section 906, has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff upon request.

MDC Partners Inc. − Directory

New York Headquarters
745 Fifth Avenue
19th Floor
New York, NY 10151
Tel: 646-429-1800
Fax: 212-937-4365
www.mdc-partners.com
Chairman & CEO:
Mark J. Penn

Toronto
33 Draper Street
Toronto, ON M5V 2M3
Tel: 416-960-9000
Fax: 416-960-9555

6degrees Integrated
Communications
121 Bloor Street E.
Suite 300
Toronto ON M4W 3M5
Tel: 416-446-7758
Fax: 416-446-1923
www.6deg.ca
President & Partner:
Troy Yung

72andSunny
12101 W. Bluff Creek Drive
Playa Vista, CA 90094
Tel: 310-215-9009
Fax: 310-215-9012
www.72andsunny.com
Founder, Creative Co-Chair:
John Boiler
Founder, Creative Co-Chair:
Glenn Cole
Partner, Chief Executive
Officer: Matt Jarvis

Amsterdam
Westerhuis, First Floor
Westerstraat 187
1015 MA Amsterdam
Netherlands
Tel: +31-20-218-2400
Managing Director:
Nic Owen

New York
55 Water Street
6th Floor
New York, NY 11201
Tel: 212-993-1300
Managing Director:
James Townsend

Singapore
15A Duxton Hill
Singapore 089598
Contact: Chris Kay

Sydney
120 Bourke Street
Woolloomooloo, NSW 2011
Contact: Chris Kay

Allison + Partners
40 Gold Street
San Francisco, CA 94133
Tel: 415-217-7500
www.allisonpr.com
Chairman & CEO:
Scott Allison

Atlanta
1776 Peachtree Street
Studio 4
Atlanta, GA 30309
Tel: 404-885-1723
Contact:
Brian Feldman

Bangkok
571 RSU Tower, 10th Floor
Units 4-5, Soi Sukumvit 31
Sukumvit Road
Klongton Nua, Wattana
Bangkok, 10110
Thailand
Tel: +66-267-100-61
Contact:
Paul Mottram

Boston
50 Milk Street
Boston, MA 02109
Tel: 646-428-0645
Contact:
Anne Colaiacovo

Beijing
Room 909, Building B
Winterless Center, No. 1
West Dawang Road
Beijing, China 100026
Tel: +86-10-8556-3192
Contact:
Jerry Zhu

Berlin
Wolliner Strasse 70
Berlin 10435
Germany
Tel: +49 (0) 173-619-61-88
Contact:
Martina Mueller

Chengdu
Level 18
Shangri-La Office Tower
No. 9 East Binjiang Road
Chengdu 610021
China
Tel: +86-28-6606-5238
Contact:
Nicole Zhang

Chicago
444 N. Michigan Avenue
Suite 3300
Chicago, IL 60611
Tel: 312-635-8202
Contact:
Shane Winn

Dallas
1919 McKinney Avenue
Dallas, TX 75202
Tel: 214-975-8774
Contact:
Tony Katsulos

Hong Kong
Unit 4, 9F, 40 Bonham
Strand
Sheung Wan, Hong Kong
China
Tel: +852-9038-8721
Contact:
Paul Mottram

London
The Brassworks
32 York Way
London, N1 9AB
England
Tel: +44-0203-551-7725
Contact:
Jim Selman

Los Angeles
11611 San Vicente
Boulevard
Suite 910
Los Angeles, CA 90049
Tel: 310-496-4440
Contact:
Milind Raval

Lyon
31 Rue Mazenod
Lyon 69003
France
Tel: +33-4-72-00-87-87
Contact:
Yann Le Flohic

Mumbai
Tel: +91-982-0454541
Contact:
Pranav Kumar

Munich
Theresienstrasse 43
Munich Germany 80333
Tel: +49 (0) 89 38889200
Contact:
Vivian Dadamio

New Delhi
Tel: +91-124-4712000
Contact:
Pranav Kumar

New York
71 Fifth Avenue
7th Floor
New York, NY 10003
Tel: 646-428-0645
Contact:
Tracey Cassidy

Paris
20 Avenue de L’Opera
Paris 75001
France
Tel: +33-4-72-00-87-87
Contact:
Yann Le Flohic

Phoenix
7135 E. Camelback Road
Suite 204
Scottsdale, AZ 85251
Tel: 623-201-5500
Contact:
Lisa Schmidtke

Portland
252 SE 2nd Avenue
Portland, OR 97214
Tel: 503-290-7301
Contact:
Katy Spaulding

San Diego
2750 Womble Road
Suite 104
San Diego, CA 92106
Tel: 619-533-7971
Contact:
Brian Brokowski

São Paulo
Alameda Vicente Pinzon, 51
8˚ Andar
Vila Olimpia, SP 04547-130
Brazil

Seattle
710 Second Avenue
#500
Seattle, WA 98104
Tel: 206-686-6424
Contact:
Katy Spaulding

Shanghai
#181, Lane 465
Zhen Ning Road
Office Building 3, Suite 1A
Shanghai 200042
China
Tel: +86-182-1701-8948
Contact:
Jerry Zhu

Singapore
250 North Bridge Road
Raffles City Tower #13-01A
Singapore 179101
Tel: +65-6661-0600
Contact:
Serina Tan

Sydney
15 Nullaburra Road
Newport, NSW 2106
Australia
Tel: +61-408-441-662
Contact:
Michelle Rovere

Tokyo
5-5-1, Shimbashi
Minatu-Ku
Tokyo 105-0004
Japan
Tel: +81-3-6809-1300
Contact:
Akemi Ichise

Washington D.C.
1100 17th Street
Suite 350
Washington, DC 20036
Tel: 202-772-1450
Contact:
Tara Chiarell

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 551
1017 BW Amsterdam
Netherlands
Tel: +31-20-308-0380
Partner & CEO:
Engin Celikbas

Berlin
Christinenstraße 19a
10119 Berlin
Germany
Contact: Simon Owen

Los Angeles
1319 Abbot Kinney
Boulevard
Venice, CA 90291
Tel: 310-392-3233
Managing Director:
Jiah Choi

London
25 Charterhouse Square
London, EC1M 6AE
England
Tel: +44-020-7843-0600
Partner & CEO:
Camilla Harrisson

Shanghai
No. 205 Wulumugi S. Road
Shanghai 200031
China
Tel: +86-21-5121-9101
Partner & CEO:
Eric Lee

Toronto
46 Spadina Avenue
Suite 200
Toronto, ON M5V 2H8
Tel: 647-547-3440
Partner & CEO:
Franke Rodriguez

Assembly
711 Third Avenue
3rd Floor
New York, NY 10017
Tel: 212-500-6900
Fax: 212-500-6880
CEO:
Martin Cass

Detroit
25800 Northwestern
Highway
3rd Floor
Southﬁeld, MI 48075
Tel: 248-354-9700

Los Angeles
1999 Avenue of the Stars
Suite 200
Century City, CA 90067
Tel: 424-220-7200

Enplay
711 Third Avenue
3rd Floor
New York, NY 10017
Tel: 212-500-6900
www.enplay-media.com
Contact:
Connie Garrido

Attention Partners
711 Third Avenue
3rd Floor
New York, NY 10017
Tel. 917-621-4400
Fax: 917-591-1256
www.attentionglobal.com

London
1.03 Tea Building
56 Shoreditch High St
London, England E1 6JJ

Montreal
3510 Boulevard
Saint-Laurent
Suite 410
Montréal, QC H2X 2V2

Shanghai
Suite 1AB
Building 3, No. 181
465 Lane Zhen Ning Road
Chang Ning District,
Shanghai
China

Toronto
340 King Street E.
Suite 500
Toronto, ON M5A 1K8

Bruce Mau Design
340 King Street E.
Suite 402
Toronto, ON M5A 1K8
Tel: 416-306-6401
www.brucemaudesign.com
President & CEO:
Hunter Tura

London
The Brassworks
32 York Way
London, N1 9AB
England

New York
711 Third Avenue
2nd Floor
New York, NY 10017

Civilian
444 N. Michigan Avenue
Suite 3300
Chicago, IL 60611
Tel: 312-822-1100
Fax: 312-822-9628
www.civilianagency.com
Executive Creative Director:
Tim Claffey

Colle McVoy
400 First Avenue N.
Suite 700
Minneapolis, MN 55401
Tel: 612-305-6000
Fax: 612-305-6001
www.collemcvoy.com
CEO:
Christine Fruechte

Concentric
330 Hudson Street
5th Floor
New York, NY 10013
Tel: 212-633-9700
www.concentricpharma.com
Co-CEOs:
Ken Begasse
Michael Sanzen

London
60 Charlotte Street
London, W1T 2NU
England
Tel: +44-020-7632-7685

Crispin Porter + Bogusky
Boulder
6450 Gunpark Drive
Boulder, CO 80301
Tel: 303-628-5100
www.cpbgroup.com
Global CEO:
Erik Sollenberg

Copenhagen
Strandgade 70
2nd Floor
Copenhagen 1401
Denmark
Tel: +45-4278-2099
Managing Director:
Mathias Birkvad

Hong Kong
14 Taikoo Wan Road
Suite 19-62
Quarry Bay, Hong Kong
China

London
The Brassworks
32 York Way
London, N1 9AB
England
Tel: +44-020-7324-8184
CEO:
Richard Pinder

Sao Paulo
Alameda Vicente Pinzon, 51
8˚ Andar
Vila Olimpia, SP 04547-130
Brazil
Tel: +55-11-2589-6733
Chief Operating Officer:
Vinicius Reis

Doner
25900 Northwestern
Highway
Southﬁeld, MI 48075
Tel: 248-354-9700
www.doner.com
CEO & President:
David DeMuth

Cranberry Township
(DonerCX)
8050 Rowan Road
Suite 200
Cranberry Township,
PA 16066
Tel: 724-742-7100
Fax: 724-935-7080

Detroit
1456 Woodward Avenue
Detroit, MI 48226
Tel: 248-354-9700

Los Angeles
Water’s Edge
5510 Lincoln Boulevard
Suite 220
Playa Vista, CA 90094
Tel: 424-216-3400
Managing Director:
Jason Gaboriau

Norwalk (DonerCX)
101 Merritt 7
2nd Floor
Norwalk, CT 06851
Tel: 203-291-4000

Exponent Public Relations
400 First Avenue N.
Suite 700
Minneapolis, MN 55401
Tel: 612-305-6003
Fax: 612-305-6501
www.exponentpr.com
Managing Director:
Tom Lindell

Forsman & Bodenfors
Kyrkogatan 48
5th Floor
SE-40 317, Gothenburg
Sweden
Tel: +46-31-17-67-30
www.fb.se
CEO: Silla Levin

Montréal
3500-3536 St. Laurent
Boulevard
Suite 411
Montréal, QC H2X 2V2
Tel: 514-875-7400
Fax: 514-875-0568
President:
Nick Dean

New York
160 Varick Street
New York, NY 10013
Tel: 212-633-0080
Fax: 212-633-8643
www.kbsagency.com
Global CEO:
Guy Hayward
CEO US:
Ed Brojerdi

Shanghai
#181, Lane 465
Zhen Ning Road
Office Building 3, Suite 1A
Shanghai 200042
China
Tel: +86-156-9219-1540
Managing Director:
Douglas Lin

Singapore
47 Craig Road
Singapore 089685
Republic of Singapore

Stockholm
Kungsgatan 48
2nd Floor
SE-111 35, Stockholm
Sweden
Tel: +46-84-11-77-11

Toronto
340 King Street E.
Suite 400
Toronto, ON M5A 1K8
Tel: 416-260-7000
Fax: 416-260-7100
President:
Nick Dean

Gale Partners
171 E. Liberty Street
Suite 360
Toronto, ON M6K 3P6
Tel: 416-306-8000
www.gale.agency
CEO & President:
Brad Simms

Bangalore
#8, 1st Main Road
Vasanth Nagar
Bangalore 560052
India
Tel: +91-80-6999-0163
Managing Director:
Sanjay Krishnamurthy

Bengaluru
#3/1 JP Techno Park
Millers Road, Vasanth
Nagar
Bengaluru, KA 560 052
Tel: +91-80-6182-8500
Managing Director:
Sanjay Krishnamurthy

New York
170 Varick Street
12th Floor
New York, NY 10013
Tel: 646-862-3555

Singapore
22 Cross Street
Singapore 048421
Republic of Singapore

Zero & One
170 Varick Street
12th Floor
New York, NY 10013
www.zeroandone.io
Tel: 646-862-3555
CEO & President:
Brad Simms

Hello Design
10305 Jefferson Boulevard
Culver City, CA 90232
Tel: 310-839-4885
Fax: 310-839-4886
www.hellodesign.com
CEO & Creative Director:
David Lai

HL Group
350 Madison Avenue
17th Floor
New York, NY 10017
Tel: 212-529-5533
Fax: 212-529-2131
www.hlgrp.com
Founding Partners:
Hamilton South
Lynn Tesoro

Los Angeles
9300 Wilshire Boulevard
Suite 300
Los Angeles, CA 90212
Tel: 323-966-4600
Fax: 323-966-4601

Hud:sun Media
200 Varick Street
Suite 611
New York, NY 10014
Tel: 646-582-8630
www.hudsunmedia.com
CEO:
Michael Rourke

Hunter Public Relations
41 Madison Avenue
5th Floor
New York, NY 10010
Tel: 212-679-6600
Fax: 212-679-6607
www.hunterpr.com
Managing Partners:
Grace Leong
Jon Lyon

London
The Brassworks
32 York Way
London, N1 9AB
England
Tel: +44-020-7033-8920
Contact:
Alex Conway

Toronto
33 Draper Street
Toronto, ON M5V 2M3

Instrument
3529 N. Williams Avenue
Portland, OR 97227
Tel: 503-928-3188
www.instrument.com
CEO:
Justin Lewis

New York
32 Court Street
Suite 1700
Brooklyn, NY 11201

Kenna
90 Burnhamthorpe Road W.
5th Floor
Mississauga, ON L5B 3C3
Tel: 905-277-2900
Fax: 905-277-2299
www.kenna.ca
President & CEO:
Jeff Bowles

KWT Global
160 Varick Street
5th Floor
New York, NY 10013
Tel: 646-277-7111
Fax: 212-954-5362
www.kwtglobal.com
President & Partner:
Aaron Kwittken

London
60 Charlotte Street
London, W1T 2NU
England
Tel: +44-020-7401-8001
Contact:
Sarah Moloney

Toronto
33 Draper Street
Toronto, ON M5V 2M3
Tel: 647-490-6618
Contact:
Gabrielle Zucker

Laird + Partners
475 Tenth Avenue
7th Floor
New York, NY 10018
Tel: 212-478-8181
Fax: 212-478-5855
www.lairdandpartners.com
CEO:
Trey Laird

Legend
41 Madison Avenue
4th Floor
New York, NY 10010
Tel: 212-679-6844
www.legendpr.com
Contact:
Ariana Macrina

Luntz Global
1401 K Street
Suite 1150
Washington, DC 20005
Tel: 703-330-3784
President:
Alyssa Salvo

MDC Media Partners
711 Third Avenue
3rd Floor
New York, NY 10017
Tel: 212-500-6900
Fax: 212-500-6880
CEO:
Martin Cass

The Media Kitchen
160 Varick Street
New York, NY 10013
Tel: 646-336-9400
Fax: 212-463-8643
CEO:
Barry Lowenthal

Mono Advertising
1350 Lagoon Avenue
Suite 1000
Minneapolis, MN 55408
Tel: 612-454-4900
Fax: 612-822-4136
www.mono-1.com
Founding Partners:
Michael Hart
Chris Lang
James Scott

Northstar Research
Partners
18 King Street E.
Suite 1500
Toronto, ON M5C 1C4
Tel: 416-907-7100
Fax: 416-907-7149
www.northstarhub.com
CEO:
Jeff Histed

London
The City Cloisters
196 Old Street
Suite B3
London, EC1V 9FR
England
Tel: +44-020-7824-9870
Fax: +44-020-7730-6303
COO:
Matthew Sell

New York
30 Cooper Square
10th Floor
New York, NY 10003
Tel: 646-651-1612
Contact:
Vanessa Dziura

Redscout
30 Cooper Square
10th Floor
New York, NY 10003
Tel: 646-336-6028
Fax: 646-336-6122
www.redscout.com
Founder and Chairman:
Jonah Disend

Los Angeles
Neuehouse
6121 Sunset Boulevard
Los Angeles, CA 90028
Tel: 323-821-0649

Relevent
475 Tenth Avenue
9th Floor
New York, NY 10018
Tel: 212-206-0600
Fax: 212-206-0693
www.relevent.net
CEO:
H. Tony Berger

Sloane & Company
7 Times Square Tower
17th Floor
New York, NY 10036
Tel: 212-486-9500
Fax: 212-486-9094
www.sloanepr.com
Co-CEOs:
Darren Brandt
Whit Clay

TEAM Enterprises
1 W. Las Olas
4th Floor
Fort Lauderdale, FL33301
Tel: 954-862-2400
Fax: 954-449-0273
www.teamenterprises.com
CEO:
Dan Gregory

Trade X Media
711 Third Avenue
2nd Floor
New York, NY 10017
Tel: 212-541-6770
President:
Vincent Laraia

Unique Inﬂuence
1303 San Antonio Street
Suite 700
Austin, TX 78701
Tel: 800-489-8023
www.uniqueinﬂuence.com
CEO:
Ryan Pitylak

New York
711 Third Avenue
3rd Floor
New York, NY 10017
Tel: 212-500-6900

Union
479 Wellington Street W.
Toronto, ON M5V 1E7
Tel: 416-598-4944
Fax: 416-593-4944
www.unioncreative.com
President:
Subtej Nijjar

Montréal
1751 Richardson, #6.118
Montréal, QC H3K 1G6
Tel: 514-447-9180

Varick Media
Management
711 Third Avenue
2nd Floor
New York, NY 10017
Tel: 212-243-8200
Fax: 212-633-6693
www.varickmm.com
Chief Executive Officer:
Paul Dolan

Veritas Communications
370 King Street W.
Suite 800, Box 46
Toronto, ON M5V 1J9
Tel: 416-482-2248
Fax: 416-482-2292
www.veritascanada.com
President:
Krista Webster

Montréal
445 rue Saint-Pierre
Suite 202
Montréal, QC H2Y 2M8
Tel: 514-962-3027

Vancouver
838 W. Hastings
Suite 700
Vancouver, BC V6C 0A6
Tel: 604-340-2440

Vitro
2305 Historic Decatur Road
Suite 205
San Diego, CA 92106
Tel: 619-234-0408
Fax: 619-234-4015
www.vitroagency.com
CEO:
Tom Sullivan

Austin
1135 W. 6th Street
Suite 140
Austin, TX 78703
Tel: 512-537-4675

Y Media Labs
255 Shoreline Drive
Suite 600
Redwood City, CA 94065
Tel: 415-839-8584
www.ymedialabs.com
CEO:
Ashish Toshniwal

Atlanta
165 Ottley Drive
Suite 206
Atlanta, GA 30324
Contact:
Atandra Burman

Bangalore
#301, 150
B-1 Lower Floor, Tower B
Diamond District, Kodihalli
Bangalore 560008
India
Tel: +91-80-41106986
Contact:
Raj Shekhar Reddy

Indianapolis
101 W. Ohio Street
#1180
Indianapolis, IN 46204

New York
745 Fifth Avenue
19th Floor
New York, NY 10151
Tel: 646-429-1800

Yamamoto
219 2nd Street N.
Suite 200
Minneapolis, MN 55401
Tel: 612-375-0180
Fax: 612-342-2424
www.go-yamamoto.com
CEO:
Kathy McCuskey

Yes and Company
711 Third Avenue
2nd Floor
New York, NY 10017
Tel: 646-412-6893
www.yesandco.com
CEO:
Michael Bassik

Board of Directors and Corporate Officers

Chairman

Directors

Executive Officers

Mark J. Penn
Chairman and Chief Executive Offıcer
MDC Partners Inc.

Mark J. Penn
Chairman and Chief Executive Offıcer

David Doft
Chief Financial Offıcer

Mitchell Gendel
EVP, General Counsel and Corporate
Secretary

David Ross
EVP, Strategy and Corporate
Development

Stephanie Nerlich
EVP, Partner Development and Talent

Ryan Linder
EVP, Global Chief Marketing Offıcer

Alexandra Delanghe Ewing
Chief Communications Offıcer

Lotta Malm Hallqvist
Managing Director,
Chief Marketing Offıcer — Europe

Vincenzo DiMaggio
SVP, Chief Accounting Offıcer

Randy Duax
Senior Vice President, Talent Recruiting

Kerry Robinson
Senior Vice President,
Compliance and Risk Management

Irwin D. Simon(2)(3)
Presiding Director
Chairman and Chief Executive Officer,
Aphria Inc.
Director, Barnes & Noble Inc.
Trustee, Tulane University
Trustee, Poly Prep Country Day School
Charlene Barshefsky(1)(3)
Director
Senior International Partner, WilmerHale
Director, The American Express
Company
Director, The Estee Lauder Companies
Trustee, Howard Hughes Medical
Institute
Member, Council on Foreign Relations
Clare R. Copeland(2)
Director
Vice Chairman, Falls Management
Company
Director, Chesswood
Trustee, RioCan Real Estate Investment
Trust
Trustee, Telesat

Daniel S. Goldberg(1)(3)
Director
President and Chief Executive Officer,
Telesat
Bradley J. Gross
Director
Managing Director, Goldman
Sachs & Co.
Director, Americold Realty Trust
Director, Neovia Logistics Holdings
Director, Open Road Parent LLC
Director, Proquest Holdings

Scott Kauffman
Director
Chairman, Lotame
Larry S. Kramer(1)(2)
Director
Chairman, The Street Inc.
Director, Gannett
Trustee, Syracuse University
Trustee, Harvard Business School
Publishing
Anne Marie O’Donovan(1)(3)
Director
Director, Indigo Books & Music Inc.
Director, Aviva Canada
Director, Cadillac Fairview
Director, Investco
Desirée Rogers(2)(3)
Director
Chairman, Choose Chicago
Director, World Business Chicago
Director, Cradles to Crayons
Director, The Economic Club of Chicago
Director, Conquer Cancer Foundation
Director, Donors Choose
Director, Inspired Entertainment Inc.

(1) Audit Committee
(2) Human Resources & Compensation

Committee

(3) Nominating and Corporate

Governance Committee

Transfer Agent

Investor Relations

Notice of Shareholders’ Meeting

AST Trust Company (Canada)

AST 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 AST Trust Company (Canada)
P.O. Box 700, Station B
Montreal, QC H3B 3K3
Canada

For Investor Relations information,
please call David B. Doft, Chief
Financial Officer, at: 646-429-1818.

Stock Exchange Listing

The Class A shares of the Company are
listed on the NASDAQ National Market
under trading symbol ‘‘MDCA’’.

The annual meeting of shareholders will
be held at The MDC Partners Innovation
Center, 745 Fifth Avenue, 19th Floor,
New York, NY on Tuesday, June 4, 2019
at 10:00 a.m. E.D.T.