What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-03-16 compared with 2020-03-05 · 625 added, 528 removed, 951 unchanged (55% of the section changed)

13 unchanged sentences

Schedule II — Valuation and Qualifying Accounts for each of the Three Years in the Period Ended December 31, 20 2 0

T a b l e o f C o n t e n t s

Report of Independent Registered Public Accounting Firm

5 unchanged sentences

(the “Company”) and subsidiaries as of December 31, 2020 and 2019, 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, 2020, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 , 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, 2019, 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 5, 2020 expressed an adverse opinion thereon.

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2020 and 2019, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2020 , 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, 2020, 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 16, 2021 expressed an unqualified opinion thereon.

Change in Accounting Principles

11 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition

As described in Notes 2 and 5 to the consolidated financial statements, the Company provides an extensive range of services to its clients offering a variety of marketing and communication capabilities.

The determination of the Company’s performance obligations is specific to the services included within each revenue contract.

Based on the services to be provided to a client within a contract, and how those services are provided, multiple services could represent separate performance obligations or be combined and considered as one performance obligation.

Revenue is typically recognized based on the measure of progress of each distinct performance obligation, as services are performed.

Revenue is typically recognized using input methods (including 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.

We identified the determination of the measure of progress of performance obligations as a critical audit matter.

The determination of the total estimated cost and progress toward completion requires management to make significant estimates and assumptions.

T a b l e o f C o n t e n t s

degree of auditor judgment was required to evaluate the key assumptions used to estimate costs to complete the contracts, including the labor hours, materials, and third-party costs to complete the contracts.

Changes in these estimates can have a significant impact on the revenue recognized each period.

Auditing these aspects involved especially challenging auditor judgment due to the nature and extent of audit effort required to evaluate the reasonableness of management’s assumptions and estimates over the duration of these contracts.

The primary procedures we performed to address this critical audit matter included:

Testing the operating effectiveness of certain controls relating to management’s estimation of the measure of progress of each performance obligation within revenue contracts including:

(i) development of contract budgets, (ii) ongoing assessment and revisions to contract budgets, and (iii) ongoing review of contract status including nature of activities to complete.

Assessing the reasonableness of management’s estimation of the measure of progress for a sample of contracts through:

(i) corroborating measure of progress against relevant evidence outside the accounting function, (ii) performing retrospective review of the estimated costs to complete to assess the reasonableness of management’s judgments, (iii) testing a sample of revenue contracts and underlying documents to determine the accuracy of key cost inputs, such as labor hours, materials, and third-party costs, and (iv) assessing the reasonableness of the measure of progress of performance obligations through testing of a sample of costs incurred to date and estimated costs to complete.

Goodwill Impairment Assessment

As described in Notes 2 and 8 to the consolidated financial statements, the Company’s consolidated goodwill balance as of December 31, 2020 was $668.2 million.

The Company tests for impairment annually on a reporting unit basis or more often when impairment indicators exist.

As a result of the COVID-19 pandemic, the Company performed an interim goodwill impairment test in the second quarter of 2020 that resulted in a goodwill impairment charge of $13.4 million.

In connection with the Company’s annual impairment assessment performed as of October 1, 2020 the Company recorded an additional impairment charge of $48.3 million.

The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value.

The Company determines the fair value of its reporting units using a discounted cash flow model.

The determination of the fair value using the discounted cash flow model requires management to make significant estimates and assumptions related to the amount and timing of expected future cash flows, assumed terminal values and appropriate discount rates.

We identified the valuation of certain reporting units during the impairment assessment of goodwill as a critical audit matter.

The principal considerations for our determination are:

(i) for certain reporting units, the deterioration of economic conditions led to an increased sensitivity to estimates due to the decline in the excess of fair value over book value as of the annual testing date of October 1, 2020, as such, the assumptions and judgments used were more sensitive to management’s estimates, and (ii) inherent uncertainties exist related to the Company’s forecasts and how various economic and other factors, including the projected impact from the COVID-19 pandemic, could affect the Company’s forecasted assumptions of future cash flows and the selection of the discount rate included in the income approach.

Auditing these elements involved especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge needed.

The primary procedures we performed to address this critical audit matter included:

• Evaluating the reasonableness of management’s forecasts of future cash flows given the inherent uncertainty of COVID-19 through:

(i) comparing actual results to management’s historical forecasts and industry data, (ii) corroborating the consistency of assumptions utilized in management forecasts with other internal information and with evidence obtained in other areas of the audit such as reviewing historical operating results of the reporting unit and reviewing revenue contracts and supporting documentation for cost reductions such as headcount analysis to support future projections, (iii) performing sensitivity analyses of reporting units’ cash flow projections, and (iv) performing procedures to assess the completeness, accuracy and relevance of the underlying data used in the discounted cash flow analysis.

• Utilizing personnel with specialized knowledge and skill in valuation to assist in:

(i) evaluating the appropriateness of the methodologies and the valuation models utilized by management to determine the fair values of the reporting units, and (ii) assessing the reasonableness of certain assumptions incorporated into the valuation models including terminal growth rates and discount rates.

/s/ BDO USA, LLP

2 unchanged sentences

March 16, 2021

T a b l e o f C o n t e n t s

MDC PARTNERS INC.

3 unchanged sentences

Years Ended December 31,

2020 2019 2018

Services $ 1,199,011 $ 1,415,803 $ 1,475,088

Operating Expenses:

2 unchanged sentences

Depreciation and amortization 36,905 38,329 46,196

Goodwill and other asset impairment

Operating income

Other Income (expense):

Impairment and other losses 96,399 8,599 87,204

1,244,768 1,336,343 1,473,654

Operating income (loss) ( 45,757 ) 79,460 1,434

Other Income (Expenses):

Interest expense and finance charges, net ( 62,163 ) ( 64,942 ) ( 67,075 )

Foreign exchange gain (loss) ( 982 ) 8,750 ( 23,258 )

Other, net 20,500 ( 2,401 ) 230

( 42,645 ) ( 58,593 ) ( 90,103 )

Income (loss) before income taxes and equity in earnings of non-consolidated affiliates ( 88,402 ) 20,867 ( 88,669 )

Income tax expense (benefit)

Income tax expense 116,555 10,316 29,615

Income (loss) before equity in earnings of non-consolidated affiliates ( 204,957 ) 10,551 ( 118,284 )

Equity in earnings of non-consolidated affiliates

Equity in earnings (losses) of non-consolidated affiliates ( 2,240 ) 352 62

Net income (loss) ( 207,197 ) 10,903 ( 118,222 )

Net income attributable to the noncontrolling interest ( 21,774 ) ( 16,156 ) ( 11,785 )

Net income (loss) attributable to MDC Partners Inc.

Net loss attributable to MDC Partners Inc.

( 228,971 ) ( 5,253 ) ( 130,007 )

Accretion on and net income allocated to convertible preference shares ( 14,179 ) ( 12,304 ) ( 8,355 )

Net income (loss) attributable to MDC Partners Inc.

Net loss attributable to MDC Partners Inc.

common shareholders $ ( 243,150 ) $ ( 17,557 ) $ ( 138,362 )

Income (loss) Per Common Share:

Net income (loss) attributable to MDC Partners Inc.

Loss Per Common Share:

Net loss attributable to MDC Partners Inc.

common shareholders $ ( 3.34 ) $ ( 0.25 ) $ ( 2.42 )

Net income (loss) attributable to MDC Partners Inc.

Net loss attributable to MDC Partners Inc.

common shareholders $ ( 3.34 ) $ ( 0.25 ) $ ( 2.42 )

Weighted Average Number of Common Shares Outstanding:

Stock-based compensation expense is included in the following line items above:

Cost of services sold

Office and general expenses

Basic 72,862,178 69,132,100 57,218,994

Diluted 72,862,178 69,132,100 57,218,994

See notes to the Consolidated Financial Statements.

T a b l e o f C o n t e n t s

MDC PARTNERS INC.

3 unchanged sentences

Years Ended December 31,

2020 2019 2018

Comprehensive Income (Loss)

2 unchanged sentences

Foreign currency translation adjustment 9,092 ( 6,691 ) 3,158

Benefit plan adjustment, net of income tax expense (benefit) of ($740) for 2019, $223 for 2018 and nil for 2017

Benefit plan adjustment, net of income tax expense (benefit) of ($519) for 2020, ($740) for 2019 and $223 for 2018 ( 1,354 ) ( 1,911 ) 555

Other comprehensive income (loss) 7,738 ( 8,602 ) 3,713

1 unchanged sentence

Comprehensive income attributable to the noncontrolling interests ( 22,504 ) ( 16,543 ) ( 8,824 )

Comprehensive income (loss) attributable to MDC Partners Inc.

Comprehensive loss attributable to MDC Partners Inc.

$ ( 221,963 ) $ ( 14,242 ) $ ( 123,333 )

See notes to the Consolidated Financial Statements.

T a b l e o f C o n t e n t s

MDC PARTNERS INC.

2 unchanged sentences

(thousands of United States dollars)

December 31, 2020 December 31, 2019

Current Assets:

2 unchanged sentences

Expenditures billable to clients 10,552 30,133

Assets held for sale

Other current assets 40,939 35,613

2 unchanged sentences

Right-of-use assets - operating leases 214,188 223,622

Investments in non-consolidated affiliates

Goodwill 668,211 731,691

Other intangible assets, net 33,844 54,893

Deferred tax assets 179 84,900

Other assets 17,339 30,179

Total Assets $ 1,511,314 $ 1,828,306

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND SHAREHOLDERS’ DEFICIT

2 unchanged sentences

Accruals and other liabilities 274,968 353,575

Liabilities held for sale

Advance billings 152,956 171,742

6 unchanged sentences

Other liabilities 82,065 25,771

Deferred tax liabilities

Total Liabilities 1,893,087 1,981,908

2 unchanged sentences

Shareholders’ Deficit:

Convertible preference shares, 145,000 authorized, issued and outstanding at December 31, 2019 and 95,000 at December 31, 2018

Convertible preference shares, 145,000 authorized, issued and outstanding at December 31, 2020 and 2019 152,746 152,746

Common stock and other paid-in capital 104,367 101,469

Accumulated deficit ( 709,751 ) ( 480,779 )

Accumulated other comprehensive (loss) income

Accumulated other comprehensive income (loss) 2,739 ( 4,269 )

MDC Partners Inc.

9 unchanged sentences

Years Ended December 31,

2020 2019 2018

Cash flows from operating activities:

2 unchanged sentences

Stock-based compensation 14,179 31,040 18,416

Amortization of intangibles

Amortization of deferred finance charges and debt discount

Goodwill and other asset impairment

Depreciation and amortization 36,905 38,329 46,196

Impairment and other losses 96,399 8,599 87,204

Adjustment to deferred acquisition consideration 42,187 5,403 ( 374 )

Deferred income taxes (benefits) 108,556 4,791 21,585

(Gain) loss on disposition of assets

Earnings of non-consolidated affiliates

Other non-current assets and liabilities

Foreign exchange

Gain on sale of assets and other 771 ( 4,107 ) 22,451

Changes in working capital:

11 unchanged sentences

Acquisitions, net of cash acquired ( 1,816 ) ( 4,823 ) ( 32,713 )

Distributions from non-consolidated affiliates

Other investments

Other ( 1,777 ) 484 464

Net cash provided by (used in) investing activities ( 8,287 ) 115 ( 50,431 )

Cash flows from financing activities:

Repayment of revolving credit facility

Proceeds from revolving credit facility

Repayment of borrowings under revolving credit facility ( 550,135 ) ( 1,303,350 ) ( 1,625,862 )

Proceeds from borrowings under revolving credit facility 550,135 1,235,205 1,694,005

Proceeds from issuance of common and convertible preference shares, net of issuance costs — 98,620 —

Acquisition related payments ( 35,391 ) ( 30,155 ) ( 32,172 )

Distributions to noncontrolling interests

Payment of dividends

Purchase of shares

Distributions to noncontrolling interests and other ( 16,036 ) ( 12,049 ) ( 14,537 )

Repurchase of Bonds ( 21,999 ) — —

Net cash provided by (used in) financing activities ( 73,426 ) ( 11,729 ) 21,434

Effect of exchange rate changes on cash, cash equivalents, and cash held in trusts 2,978 1 77

MDC PARTNERS INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)

(thousands of United States dollars)

Years Ended December 31,

Net increase (decrease) in cash, cash equivalents, and cash held in trusts including cash classified within assets held for sale ( 46,176 ) 74,926 ( 11,640 )

4 unchanged sentences

Cash and cash equivalents at end of period $ 60,757 $ 106,933 $ 30,873

MDC PARTNERS INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)

(thousands of United States dollars)

Years Ended December 31,

2020 2019 2018

Supplemental disclosures:

8 unchanged sentences

December 31, 2020

Convertible Preference Shares

Common Shares

Common Stock and Other Paid-in Capital

Accumulated Deficit

Accumulated Other Comprehensive Income (Loss)

MDC Partners Inc.

Shareholders' Deficit

Noncontrolling Interests

Total Shareholder's Deficit

Convertible Preference Shares Common Shares Common Stock and Other Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) MDC Partners Inc.

Shareholders' Deficit Noncontrolling Interests Total Shareholder's Deficit

Shares Amount Shares

Balance at December 31, 2019 145,000 $ 152,746 72,154,603 $ 101,469 $ ( 480,779 ) $ ( 4,269 ) $ ( 230,833 ) $ 40,258 $ ( 190,575 )

Net income attributable to MDC Partners Inc.

Other comprehensive income (loss)

Issuance of common and convertible preference shares

Issuance of restricted stock

— — — — ( 228,971 ) — ( 228,971 ) — ( 228,971 )

Other comprehensive income — — — — — 7,008 7,008 730 7,738

Vesting of restricted awards — — 1,808,984 — — — — — —

Shares acquired and cancelled — — ( 430,739 ) ( 905 ) — — ( 905 ) — ( 905 )

2 unchanged sentences

Business acquisitions and step-up transactions, net of tax — — — 1,626 — — 1,626 — 1,626

Changes in ownership interest

Other — — — ( 1,652 ) ( 1 ) — ( 1,653 ) 1 ( 1,652 )

Balance at December 31, 2020 145,000 $ 152,746 73,532,848 $ 104,367 $ ( 709,751 ) $ 2,739 $ ( 449,899 ) $ 40,989 $ ( 408,910 )

1 unchanged sentence

December 31, 2019

Convertible Preference Shares

Common Shares

Common Stock and Other Paid-in Capital

Accumulated Deficit

Accumulated Other Comprehensive Income

MDC Partners Inc.

Shareholders' Deficit

Noncontrolling Interests

Total Shareholder's Deficit

Convertible Preference Shares Common Shares Common Stock and Other Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income MDC Partners Inc.

Shareholders' Deficit Noncontrolling Interests Total Shareholder's Deficit

Shares Amount Shares

Balance at December 31, 2018 95,000 $ 90,123 57,521,323 $ 58,579 $ ( 475,526 ) $ 4,720 $ ( 322,104 ) $ 64,514 $ ( 257,590 )

Net loss attributable to MDC Partners Inc.

Net income attributable to MDC Partners Inc.

— — — — ( 5,253 ) — ( 5,253 ) — ( 5,253 )

Other comprehensive income (loss) — — — — — ( 8,989 ) ( 8,989 ) 387 ( 8,602 )

Expenses for convertible preference shares

Issuance of restricted stock

Issuance of common and convertible preference shares 50,000 62,623 14,285,714 35,997 — — 98,620 — 98,620

Vesting of restricted awards — — 576,932 — — — — — —

Shares acquired and cancelled — — ( 229,366 ) ( 601 ) — — ( 601 ) — ( 601 )

Shares issued, acquisitions

Stock-based compensation — — — 3,655 — — 3,655 — 3,655

2 unchanged sentences

Changes in ownership interest — — — ( 91 ) — — ( 91 ) ( 24,642 ) ( 24,733 )

Cumulative effect of adoption of ASC 606

Other — — — ( 1,141 ) — — ( 1,141 ) ( 1 ) ( 1,142 )

Balance at December 31, 2019 145,000 $ 152,746 72,154,603 $ 101,469 $ ( 480,779 ) $ ( 4,269 ) $ ( 230,833 ) $ 40,258 $ ( 190,575 )

5 unchanged sentences

December 31, 2018

Convertible Preference Shares

Common Shares

Common Stock and Other Paid-in Capital

Accumulated Deficit

Accumulated Other Comprehensive Income

MDC Partners Inc.

Shareholders' Deficit

Noncontrolling Interests

Total Shareholder's Deficit

Convertible Preference Shares Common Shares Common Stock and Other Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income MDC Partners Inc.

Shareholders' Deficit Noncontrolling Interests Total Shareholder's Deficit

Shares Amount Shares

Balance at December 31, 2017 95,000 $ 90,220 56,375,131 $ 38,191 $ ( 344,349 ) $ ( 1,954 ) $ ( 217,892 ) $ 58,030 $ ( 159,862 )

Net income attributable to MDC Partners Inc.

Net loss attributable to MDC Partners Inc.

— — — — ( 130,007 ) — ( 130,007 ) — ( 130,007 )

Other comprehensive income (loss) — — — — — 6,674 6,674 ( 2,961 ) 3,713

Issuance of common and convertible preference shares

Issuance of restricted stock

Expenses for convertible preference shares — ( 97 ) — — — — ( 97 ) — ( 97 )

Vesting of restricted awards — — 243,529 — — — — — —

Shares acquired and cancelled — — ( 108,898 ) ( 776 ) — — ( 776 ) — ( 776 )

Deferred acquisition consideration settled through issuance of shares

Shares issued, acquisitions — — 1,011,561 7,030 — — 7,030 — 7,030

Stock-based compensation — — — 8,165 — — 8,165 — 8,165

2 unchanged sentences

Changes in ownership interest — — — — — — — ( 5,965 ) ( 5,965 )

Cumulative effect of adoption of ASC 606 — — — — ( 1,170 ) — ( 1,170 ) — ( 1,170 )

Balance at December 31, 2018 95,000 $ 90,123 57,521,323 $ 58,579 $ ( 475,526 ) $ 4,720 $ ( 322,104 ) $ 64,514 $ ( 257,590 )

6 unchanged sentences

The accompanying consolidated financial statements include the accounts of MDC Partners Inc.

(the “Company” or “MDC”) and its subsidiaries and variable interest entities for which the Company is the primary beneficiary.

References herein to “Partner Firms” generally refer to the Company’s subsidiary agencies.

(the “Company” or “MDC”), its subsidiaries and variable interest entities for which the Company is the primary beneficiary.

MDC has prepared the consolidated financial statements included herein in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting financial information on Form 10-K.

The preparation of financial statements in conformity with GAAP, which requires us to make judgments, assumptions and estimates that affect the amounts reported and disclosed.

The preparation of financial statements in conformity with GAAP requires us to make judgments, assumptions and estimates about current and future results of operations and cash flows that affect the amounts reported and disclosed.

Actual results could differ from these estimates and assumptions.

The COVID-19 pandemic negatively impacted the Company’s results of operations, financial position, and cash flows in 2020.

The Company took actions to address the impact of the pandemic, such as working closely with our clients, reducing our expenses and monitoring liquidity.

The impact of the pandemic and the corresponding actions are reflected in our judgments, assumptions and estimates in the preparation of the financial statements.

If the duration of the COVID-19 pandemic is longer and the operational impact is greater than estimated, the judgments, assumptions and estimates will be updated and could result in different results in the future.

The accompanying financial statements reflect all adjustments, consisting of normally recurring accruals, which in the opinion of management are necessary for a fair presentation, in all material respects, of the information contained therein.

Intercompany balances and transactions have been eliminated in consolidation.

Certain reclassifications have been made to the prior year financial information to conform to the current year presentation.

Due to changes in the composition of certain businesses and the Company’s internal management and reporting structure during 2019, reportable segment results for the 2018 and 2017 periods presented have been recast to reflect the reclassification of certain businesses between segments.

See Note 21 of the Notes to the Consolidated Financial Statements included herein for further information.

The Company reorganized its management structure in 2020 which resulted in a change to our reportable segments.

Prior periods presented have been recast to reflect the change in reportable segments.

See Note 20 of the Notes to the Consolidated Financial Statements included herein.

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.

MDC Partners Inc., incorporated under the laws of Canada, is a leading provider of global marketing, advertising, activation, communications and strategic consulting solutions.

Through its Networks (and underlying agencies generally referred to as “Partner Firms”), MDC delivers a wide range of customized services in order to drive growth and business performance for its clients.

The Company operates in North America, Europe, Asia, South America, and Australia.

Recent Developments

On February 14, 2020, the Company sold substantially all the assets and certain liabilities of Sloane and Company LLC (“Sloane”), an indirectly wholly owned subsidiary of the Company, to an affiliate of The Stagwell Group LLC (“Stagwell”), for an aggregate purchase price of approximately $26 million , consisting of cash paid at closing plus contingent deferred payments expected to be paid over the next two years .

The sale resulted in a gain estimated at approximately $16 million .

An affiliate of Stagwell has a minority ownership interest in the Company.

Mark Penn is the CEO and Chairman of the Board of Directors (the "Board") of the Company and is also manager of Stagwell.

On February 27, 2020, in connection with the centralization of our New York real estate portfolio, the Company entered into an agreement to lease space at One World Trade Center.

The lease term is for approximately eleven years commencing on April 1, 2020, with rental payments totaling approximately $115 million .

As part of the centralization initiative, the Company will sublease existing properties currently under lease, resulting in the recovery of a significant portion of our rent obligation under such arrangements.

Effective in the first quarter of 2020, the Company reorganized its management structure resulting in the aggregation of certain Partner Firms into integrated groups (“Networks”).

Mark Penn, Chief Executive Officer and Chairman of the Company, appointed key agency executives, that report directly into him, to lead each Network.

In connection with the reorganization, we are assessing a change in our reportable segments, effective with the Company’s 2020 fiscal year, to align our external reporting with how we operate the Networks under our new organizational structure.

On December 21, 2020, MDC and Stagwell Media LP, a Delaware limited partnership (“Stagwell”), announced that they entered into a definitive transaction agreement (the “Transaction Agreement”) providing for the combination of MDC with the subsidiaries of Stagwell that own and operate a portfolio of marketing services companies (the “Stagwell Entities”).

Under the terms of the Transaction Agreement, the combination between MDC and the Stagwell Entities will be effected using an “Up-C” partnership structure.

Through a series of steps and transactions (collectively, the “Transactions”), including the domestication of MDC to a Delaware corporation and the merger of MDC Delaware with one of its indirect wholly owned subsidiaries (the “MDC Merger”), MDC Delaware will become a direct subsidiary (from and after the merger, “OpCo”) of a newly-formed, Delaware-organized, NASDAQ-listed corporation (“New MDC”).

Following the MDC Merger, (i) OpCo will convert into a limited liability company that will hold MDC’s operating assets and to which Stagwell will contribute the equity interests of the Stagwell Entities (the “Stagwell Contribution”) in exchange for 216,250,000 common membership interests of OpCo (the “Stagwell OpCo Units”), and (ii) Stagwell will contribute to New MDC an aggregate amount of cash equal to $ 100 in exchange for shares of a new Class C series of voting-only common stock (the “New MDC Class C Stock”) equal in number to the Stagwell OpCo Units.

On a pro forma basis, without giving effect to any outstanding preference shares of MDC, the existing holders of MDC’s Class A and Class B shares would receive interests equal to approximately 26 % of the combined company and Stagwell would be issued New MDC Class C Stock equivalent to approximately 74 % of the voting rights of the combined company and exchangeable, together with Stagwell OpCo Units, into Class A shares of New MDC on a one -for-one basis at Stagwell’s election.

The number of Stagwell OpCo Units and shares of New MDC Class C Stock that Stagwell will receive in the Transactions, and the percentage of the combined company that Stagwell will hold following the consummation of the Transactions, will be reduced, and the percentage of the combined company that existing MDC shareholders will hold will be proportionally increased, if Stagwell is unable to effect certain restructuring transactions prior to the closing of the Transactions.

MDC PARTNERS INC.

2 unchanged sentences

(thousands of United States dollars, except per share amounts, unless otherwise stated)

Basis of Presentation and Recent Developments - (continued)

On December 21, 2020, MDC and Broad Street Principal Investments, L.L.C., an affiliate of Goldman Sachs (“Broad Street”), entered into a letter agreement, pursuant to which Broad Street consented to the Transactions subject to entry with MDC into a definitive agreement reflecting revised terms of MDC’s issued and outstanding Series 4 convertible preference shares (the “Goldman Letter Agreement”).

The revised terms of the Series 4 convertible preference shares would (subject to the closing of the Transactions) reduce the conversion price from $ 7.42 to $ 5.00 and extend accretion for two years beyond the date on which accretion would have otherwise ceased, at a reduced rate of 6 %.

In connection with the closing of the Transactions, Broad Street will have the right to redeem up to $ 30 million of its preference shares in exchange for a $ 25 million subordinated note or loan with a 3 -year maturity (i.e., exchange at an approximately 17 % discount to face value).

The $25 million note or loan will accrue interest at 8.0 % per annum and is, pre-payable any time at par without penalty.

On December 21, 2020, MDC entered into consent and support agreements (the “Consent and Support Agreements”) with holders of more than 50% of the aggregate principal amount of its Senior Notes to consent to the consummation of the combination of MDC with the Stagwell Entities.

Pursuant to the Consent and Support Agreements, MDC agreed to increase the interest rate on the Senior Notes by 1 % per annum effective as of the date of the Consent and Support Agreements and to pay a consent fee of 2 % to all holders of Notes upon a successful consent solicitation, or 3 % if a supplemental indenture with the waivers and amendments is executed and becomes operative and the combination of MDC with the Stagwell Entities is consummated.

On February 5, 2021, MDC announced it had received and accepted consents from holders of at least a majority in principal amount of the Senior Notes, and on February 8, 2021, MDC entered into a supplemental indenture providing for waivers and amendments in connection with the combination of MDC with the Stagwell Entities.

On February 8, 2021, MDC filed a proxy statement/prospectus on Form S-4, which describes the Transaction Agreement, the Transactions, and ancillary agreements related thereto in more detail.

Significant Accounting Policies

5 unchanged sentences

Use of Estimates .

The preparation of consolidated financial statements in conformity with 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.

The preparation of the consolidated financial statements in conformity with 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, right-of-use 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.

1 unchanged sentence

To the extent actual results differ from the assumptions used, results of operations and cash flows could be materially affected.

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 18 of the Notes to the Consolidated Financial Statements included herein for additional information regarding fair value measurements.

9 unchanged sentences

The Company has a concentration of credit risk in that there are cash deposits in excess of federally insured amounts.

MDC PARTNERS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(thousands of United States dollars, except per share amounts, unless otherwise stated)

Significant Accounting Policies - (continued)

Allowance for Doubtful Accounts .

11 unchanged sentences

Repairs and maintenance costs are expensed as incurred.

Effective January 1, 2019, the Company adopted ASC 842, Leases.

As a result, comparative prior periods have not been adjusted and continue to be reported under ASC 840, Leases.

The Company recognizes on the balance sheet at the time of

MDC PARTNERS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(thousands of United States dollars, except per share amounts, unless otherwise stated)

Significant Accounting Policies - (continued)

lease commencement a right-of-use lease asset and a lease liability, initially measured at the present value of the lease payments.

Effective January 1, 2019, the Company adopted Accounting Standards Codification, Leases (“ASC 842”).

As a result, the 2018 fiscal year has not been adjusted and continues to be reported under ASC 840, Leases.

The Company recognizes on the balance sheet at the time of lease commencement a right-of-use lease asset and a lease liability, initially measured at the present value of the lease payments.

All right-of-use lease assets are reviewed for impairment.

See Note 3 and Note 10 of the Notes to the Consolidated Financial Statements included herein for further information on leases.

See Note 10 of the Notes to the Consolidated Financial Statements included herein for further information on leases.

Impairment of Long-lived Assets .

7 unchanged sentences

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 equity method investments, include various interests in investment funds.

The carrying amount for these investments, which are included in Other assets within the Consolidated Balance Sheets as of December 31, 2020 and 2019 was $ 3,947 and $ 6,161 , respectively.

The Company’s management periodically evaluates these investments to determine if there has been a decline in value that is other than temporary.

1 unchanged sentence

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.

Non-marketable equity 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, 2020 and 2019 was $ 7,257 and $ 9,854 , 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 Company is required to measure these other investments at fair value and recognize any changes in fair value within net income or loss.

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.

2 unchanged sentences

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 trademark) 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

MDC PARTNERS INC.

3 unchanged sentences

Significant Accounting Policies - (continued)

is not considered impaired.

Goodwill (the excess of the acquisition cost over the fair value of the net assets acquired) acquired as a result of a business combination which is not subject to amortization is tested for impairment, at the reporting unit level, annually as of October 1st of each year, or more frequently if indicators of potential impairment exist.

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.

7 unchanged sentences

See Note 8 of the Notes to the Consolidated Financial Statements included herein for additional information regarding the Company’s impairment test.

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 .

3 unchanged sentences

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.

For the 2020 annual impairment test, the Company used an income approach, which incorporates the use of the discounted cash flow (“DCF”) method.

See Note 8 of the Notes to the Consolidated Financial Statements included herein for further information.

1 unchanged sentence

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.

The Company uses several market participant measurements to determine the estimated value.

This approach includes consideration of similar and recent transactions, as well as utilizing discounted expected cash flow methodologies.

2 unchanged sentences

Deferred Acquisition Consideration .

Consistent with 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 are recorded as deferred acquisition consideration liabilities, and are derived from the projected performance of the acquired entity and are based on predetermined formulas.

Most acquisitions include an initial payment at the time of closing and provide for future additional contingent purchase price payments.

MDC PARTNERS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(thousands of United States dollars, except per share amounts, unless otherwise stated)

Significant Accounting Policies - (continued)

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.

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.

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.

These adjustments are recorded in the results of operations.

Redeemable Noncontrolling Interests .

2 unchanged sentences

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 by the Company, the amounts are recorded as redeemable noncontrolling interests in mezzanine equity on the Consolidated Balance

MDC PARTNERS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(thousands of United States dollars, except per share amounts, unless otherwise stated)

Significant Accounting Policies - (continued)

Sheets at their acquisition date fair value and adjusted for changes to their estimated redemption value through Common stock and other paid-in capital in the Consolidated Balance Sheets (but not less than their initial redemption value), except for foreign currency translation adjustments.

In the event that an incremental purchase may be required by the Company, the amounts are recorded as redeemable noncontrolling interests in mezzanine equity on the Consolidated Balance Sheets at their acquisition date fair value and adjusted for changes to their estimated redemption value through Common stock and other paid-in capital in the Consolidated Balance Sheets (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.

3 unchanged sentences

Any difference between the purchase price and noncontrolling interest is recorded to Common stock and other paid-in capital in the Consolidated Balance Sheets.

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 .

7 unchanged sentences

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.

We account for income taxes using the asset and liability method.

Under the asset and liability method, deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying value of existing assets and liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured using enacted tax rates and laws expected to be in effect when the differences are expected to reverse.

The Company records associated interest and penalties as a component of income tax expense.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, taxable income in eligible carryback years, 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.

5 unchanged sentences

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 or other acceptable method and is recorded in operating income over the service period, in this case the award’s vesting period.

The fair value measurement of the compensation cost for these awards is based on using the Black-Scholes option

MDC PARTNERS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(thousands of United States dollars, except per share amounts, unless otherwise stated)

Significant Accounting Policies - (continued)

pricing-model or other acceptable method 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.

10 unchanged sentences

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

MDC PARTNERS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(thousands of United States dollars, except per share amounts, unless otherwise stated)

Significant Accounting Policies - (continued)

In periods of net loss, all potentially issuable common shares are excluded from diluted net loss per common share because they are anti-dilutive.

13 unchanged sentences

dollar based subsidiaries to U.S.

dollar statements are included as cumulative translation adjustments in Accumulated other comprehensive (loss) income.

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.

7 unchanged sentences

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 (loss) income.

New Accounting Pronouncements

Adopted In The Current Reporting Period

Effective January 1, 2019, the Company adopted ASC 842.

As a result, comparative prior periods have not been adjusted and continue to be reported under ASC 840, Leases.

With the adoption of ASC 842, the Company has elected to apply the package of practical expedients:

(1) whether a contract is or contains a lease, (2) the classification of existing leases, and (3) whether previously capitalized costs continue to qualify as initial indirect costs.

Additionally, the Company elected the practical expedient to not separate non-lease components from lease components for all operating leases.

The adoption of ASC 842 had a material impact on the Company’s Consolidated Balance Sheets , resulting in the recognition, on January 1, 2019, of a lease liability of $299,243 which represents the present value of the remaining lease payments, and a right-of-use lease asset of $254,245 which represents the lease liability, offset by adjustments as appropriate under ASC 842.

The adoption of ASC 842 did not have a material impact on the Company’s other Consolidated Financial Statements .

New Accounting Pronouncement

In December 2019, the FASB issued ASU 2019-12, Income Taxes, to simplify the accounting for income taxes, including amending the rules for performing intra-period tax allocations and calculating income taxes in interim periods, the accounting for transactions that result in a step-up in the tax basis of goodwill, as well as other amendments.

ASU 2019-12 is effective January 1, 2021.

We do not expect the adoption of ASU 2019-12 will have a material effect on our results of operations and financial position.

MDC PARTNERS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(thousands of United States dollars, except per share amounts, unless otherwise stated)

Acquisitions and Dispositions

2020 Acquisition

On July 1, 2020, the Company acquired the remaining 10 % ownership interest of Veritas it did not already own for an aggregate purchase price of $ 2,187 , of which $ 1,087 was a deferred cash payment.

As a result of the transaction, the Company reduced noncontrolling and redeemable noncontrolling interests by $ 2,651 .

The difference between the purchase price and the noncontrolling interest of $ 464 was recorded in Common stock and other paid-in capital in the Consolidated Balance Sheets.

On March 19, 2020, the Company acquired the remaining 22.5 % ownership interest of KWT Global it did not already own for an aggregate purchase price of $ 2,118 , comprised of a closing cash payment of $ 729 and contingent deferred acquisition payments with an estimated present value at the acquisition date of $ 1,389 .

The contingent deferred payments are based on the financial results of the underlying business from 2019 to 2020 with final payment due in 2021.

As a result of the transaction, the Company reduced redeemable noncontrolling interests by $ 1,615 .

The difference between the purchase price and the redeemable noncontrolling interest of $ 503 was recorded in Common stock and other paid-in capital in the Consolidated Balance Sheets.

2020 Disposition

On February 14, 2020, the Company sold substantially all the assets and certain liabilities of Sloane and Company LLC (“Sloane”), an indirectly wholly owned subsidiary of the Company, to an affiliate of The Stagwell Group LLC (“Stagwell”), for an aggregate sale price of $ 26,696 , consisting of cash received at closing plus contingent deferred payments expected to be paid over the next two years.

The sale resulted in a gain of $ 16,827 , which is included in Other, net within the Consolidated Statement of Operations.

Sloane was included within Allison & Partners which is included within the All Other category.

2019 Acquisitions

On November 15, 2019, the Company acquired the remaining 35 % ownership interest of Laird + Partners it did not own for an aggregate purchase price of $ 2,389 , comprised of a closing cash payment of $ 1,588 and contingent deferred acquisition payments with an estimated present value at the acquisition date of $ 801 .

The contingent deferred payments are based on the financial results of the underlying business from 2018 to 2020 with final payment due in 2021.

As of the acquisition date, the fair value of the additional interest acquired was $6,005 .

The fair value was measured using a discounted cash flow model.

As a result of the transaction, the Company reduced redeemable noncontrolling interests by $ 5,045 .

The difference between the purchase price and the redeemable noncontrolling interest of $ 2,656 was recorded in common stock and other paid-in capital in the Consolidated Balance Sheets.

Effective April 1, 2019, the Company acquired the remaining 35% ownership interest of HPR Partners LLC (Hunter) it did not own for an aggregate purchase price of $10,234 , comprised of a closing cash payment of $3,890 and additional contingent

MDC PARTNERS INC.

AND SUBSIDARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(thousands of United States dollars, except per share amounts, unless otherwise stated)

Acquisitions and Dispositions - (continued)

deferred acquisition payments with an estimated present value at the acquisition date of $6,344 .

Effective April 1, 2019, the Company acquired the remaining 35 % ownership interest of HPR Partners LLC (Hunter) it did not own for an aggregate purchase price of $ 10,234 , comprised of a closing cash payment of $ 3,890 and additional contingent deferred acquisition payments with an estimated present value at the acquisition date of $ 6,344 .

The contingent deferred payments are based on the financial results of the underlying business from 2018 to 2020 with final payment due in 2021.

As of the acquisition date, the fair value of the additional interest acquired was $20,178 .

The fair value was measured using a discounted cash flow model.

As a result of the transaction, the Company reduced redeemable noncontrolling interests by $ 9,486 .

2 unchanged sentences

On March 8, 2019, the Company consummated the sale of Kingsdale, an operating segment with operations in Toronto and New York City that provides shareholder advisory services.

As consideration for the sale, the Company received cash plus the assumption of certain liabilities totaling approximately $50 million in the aggregate.

The sale resulted in a loss of approximately $3 million , which was included in Other, net within the Condensed Consolidated Statement of Operations.

Assets and Liabilities Held for Sale - Change in Plan to Sell

In the fourth quarter of 2018, the Company initiated a process to sell its ownership interest in a foreign office within the Global Integrated Agencies reportable segment.

The assets and liabilities of the entity 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.

In the second quarter of 2019, following the appointment of Mark Penn as CEO, management changed its strategy and plan to sell the foreign office.

In the second quarter of 2019, in connection with management’s decision, the amounts classified within assets and liabilities held for sale were reclassified into the respective line items within the Consolidated Balance Sheets .

2018 Acquisitions

In 2018, the Company entered into various transactions in connection with certain of its majority-owned entities.

These transactions were for an aggregate purchase price of $56,463 , resulting in an increase in contingent deferred consideration liabilities as of the acquisition dates of $16,174 , reduced redeemable noncontrolling interests of $9,790 , a net increase in noncontrolling interests equity of $15,411 , increased additional paid-in capital of $4,975 , and the issuance of 1,011,561 shares of the Company’s Class A subordinate voting stock.

As consideration for the sale, the Company received cash plus the assumption of certain liabilities totaling approximately $ 50,000 in the aggregate.

The sale resulted in a loss of approximately $ 3,000 , which was included in Other, net within the Consolidated Statement of Operations.

The Company’s revenue recognition policies are established in accordance with 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.

MDC PARTNERS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(thousands of United States dollars, except per share amounts, unless otherwise stated)

Revenue - (continued)

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.

8 unchanged sentences

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

MDC PARTNERS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(thousands of United States dollars, except per share amounts, unless otherwise stated)

Revenue - (continued)

and development are typically each considered one performance obligation as there is a significant integration of these services into a combined output.

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.

21 unchanged sentences

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.

The following table presents revenue disaggregated by client industry vertical for the twelve months ended December 31, 2019 , 2018 and 2017 :

Representation of a client rarely means

MDC PARTNERS INC.

3 unchanged sentences

Revenue - (continued)

that MDC handles marketing communications for all brands or product lines of the client in every geographical location.

The following table presents revenue disaggregated by client industry vertical for the twelve months ended December 31, 2020, 2019 and 2018:

Twelve Months Ended December 31,

Reportable Segment

Food & Beverage

Consumer Products

Communications

Transportation and Travel/Lodging

Industry Reportable Segment 2020 2019 2018

Food & Beverage All $ 205,939 $ 280,094 $ 313,368

Retail All 148,293 148,851 152,552

Consumer Products All 165,105 167,324 162,524

Communications All 77,443 184,870 178,410

Automotive All 67,339 78,985 88,807

Technology All 181,057 118,169 104,479

Healthcare All 100,727 102,221 127,547

Financials All 91,438 112,351 110,069

Transportation and Travel/Lodging All 44,510 88,958 86,419

Other All 117,160 133,980 150,913

$ 1,199,011 $ 1,415,803 $ 1,475,088

MDC has historically largely focused where the Company was founded in North America, the largest market for its services in the world.

The Company has expanded its global footprint to support clients looking for help to grow their businesses in new markets.

MDC’s Partner Firms are located in the United States, Canada, and an additional twelve countries around the world.

MDC’s Partner Firms are located in the United States, Canada, and an additional eleven 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.

1 unchanged sentence

Twelve Months Ended December 31,

Geographic Location

Reportable Segment

United States

All, excluding Media Services

All, excluding Media Services and Domestic Creative

Geographic Location Reportable Segment 2020 2019 2018

United States All $ 959,636 $ 1,116,045 $ 1,152,399

Canada All 81,930 105,067 124,001

Other All 157,445 194,691 198,688

$ 1,199,011 $ 1,415,803 $ 1,475,088

Contract assets and liabilities

3 unchanged sentences

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, 2019 and December 31, 2018 were $171,742 and $138,505 , respectively.

The increase in the advance billings balance of $33,237 for the twelve months ended December 31, 2019 was primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by $121,659 of revenues recognized that were included in the advance billings balances as of December 31, 2018 and reductions due to the incurrence of third-party costs.

Changes in the contract asset and liability balances during the twelve months ended December 31, 2019 and December 31, 2018 were not materially impacted by write offs, impairment losses or any other factors.

MDC PARTNERS INC.

3 unchanged sentences

Revenue - (continued)

Practical Expedients

As part of the adoption of 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.

Contract liabilities consist of fees billed to clients in excess of fees recognized as revenue and are classified as Advance billings and within Accruals and other liabilities on the Company’s Consolidated Balance Sheets.

In arrangements in which we are acting as an agent, the revenue recognition related to the contract liability is presented on a net basis within the Consolidated Statements of Operations.

Advance billings at December 31, 2020 and December 31, 2019 were $ 152,956 and $ 171,742 , respectively.

The decrease in the advance billings balance of $ 18,786 for the twelve months ended December 31, 2020 was primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by $ 152,361 of revenues recognized that were included in the advance billings balances as of December 31, 2019 and reductions due to the incurrence of third-party costs.

Contract liabilities classified within Accruals and other liabilities at December 31, 2020 and December 31, 2019 were $ 112,755 and $ 216,931 , respectively.

The decrease in the balance of $ 104,176 for the twelve months ended December 31, 2020 was primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by $ 210,078 of revenues recognized that were included in the balance as of December 31, 2019 and reductions due to the incurrence of third-party costs.

Changes in the contract asset and liability balances during the twelve months ended December 31, 2020 and December 31, 2019 were not materially impacted by write offs, impairment losses or any other factors.

The majority of our contracts are for periods of one year or less.

1 unchanged sentence

Income ( Loss) Per Common Share

The following table sets forth the computation of basic and diluted income (loss) per common share:

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

Twelve Months Ended December 31,

Net income (loss) attributable to MDC Partners Inc.

2020 2019 2018

Net loss attributable to MDC Partners Inc.

$ ( 228,971 ) $ ( 5,253 ) $ ( 130,007 )

Accretion on convertible preference shares ( 14,179 ) ( 12,304 ) ( 8,355 )

Net income allocated to convertible preference shares

Net income (loss) attributable to MDC Partners Inc.

common shareholders

Adjustment to net income allocated to convertible preference shares

Numerator for dilutive income (loss) per common share:

Net income (loss) attributable to MDC Partners Inc.

Net loss attributable to MDC Partners Inc.

common shareholders $ ( 243,150 ) $ ( 17,557 ) $ ( 138,362 )

Basic weighted average number of common shares outstanding 72,862,178 69,132,100 57,218,994

Effect of dilutive securities:

Impact of stock options and non-vested stock under employee stock incentive plans

Dilutive effect of equity awards — — —

Diluted weighted average number of common shares outstanding 72,862,178 69,132,100 57,218,994

Basic $ ( 3.34 ) $ ( 0.25 ) $ ( 2.42 )

Diluted $ ( 3.34 ) $ ( 0.25 ) $ ( 2.42 )

Anti-dilutive stock awards 5,341,846 5,450,426 1,442,518

Restricted stock and restricted stock unit awards of 135,386 , 1,012,637 and 1,443,921 as of December 31, 2019 , 2018 and 2017 respectively, which are contingent upon the Company meeting a cumulative three year earnings target 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, 2019 , 2018 and 2017 , respectively.

Restricted stock and restricted stock unit awards of 642,837 , 135,386 and 1,012,637 as of December 31, 2020, 2019 and 2018 respectively, are excluded from the computation of diluted loss per common share because the performance contingency necessary for vesting has not been met as of the reporting date.

In addition, there were 145,000 , 145,000 , and 95,000 Preference Shares outstanding which were convertible into 28,853,621 , 26,656,285 , and 10,970,714 Class A common shares at December 31, 2020, 2019, and 2018, respectively.

These Preference Shares were anti-dilutive for each period presented in the table above and are therefore excluded from the diluted income (loss) per common share calculation.

These Preference Shares were anti-dilutive for each period presented in the table above and are therefore excluded from the diluted loss per common share calculation.

MDC PARTNERS INC.

3 unchanged sentences

The following is a summary of the Company’s fixed assets as of December 31:

Accumulated Depreciation

Net Book Value

Accumulated Depreciation

Net Book Value

Cost Accumulated Depreciation Net Book Value Cost Accumulated Depreciation Net Book Value

Computers, furniture and fixtures

$ 93,850 $ ( 74,766 ) $ 19,084 $ 93,224 $ ( 69,687 ) $ 23,537

Leasehold improvements

132,729 ( 61,400 ) 71,329 117,409 ( 59,892 ) 57,517

$ 226,579 $ ( 136,166 ) $ 90,413 $ 210,633 $ ( 129,579 ) $ 81,054

Depreciation expense for the years ended December 31, 2020, 2019, and 2018 was $ 24,598 , $ 25,133 and $ 27,111 , respectively.

1 unchanged sentence

As of December 31, goodwill was as follows:

Global Integrated Agencies

Domestic Creative Agencies

Specialist Communications

Media Services

Goodwill Integrated Networks - Group A Integrated Networks -Group B Media & Data Network All Other Total

Balance at December 31, 2018 $ 139,452 $ 267,059 $ 101,768 $ 224,473 $ 732,752

2 unchanged sentences

Transfer of goodwill between segments (1)

Transfer of goodwill to asset held for sale (1)

— ( 120 ) 3,612 ( 3,492 ) —

Foreign currency translation — 423 217 2,153 2,793

1 unchanged sentence

Acquired goodwill — — — — —

Disposition — — — ( 7,074 ) ( 7,074 )

Impairment loss recognized — ( 16,137 ) ( 5,287 ) ( 40,237 ) ( 61,661 )

Transfer of goodwill between segments — 19,696 4,546 ( 24,242 ) —

Transfer of goodwill to asset held for sale

Foreign currency translation — 212 538 4,505 5,255

Balance at December 31, 2020 $ 134,573 $ 272,158 $ 105,394 $ 156,086 $ 668,211

(1) See Note 4 of the Notes to the Consolidated Financial Statements included herein for additional information.

(1) Transfers of goodwill relate to changes in segments.

The Company recognized an impairment of goodwill of $4,099 for the twelve months ended December 31, 2019.

The impairment consisted of the write-down of goodwill equal to the excess carrying value above the fair value of one reporting unit within the All Other category.

The Company recognized an impairment of goodwill and other assets of $80,057 for the twelve months ended December 31, 2018 .

The impairment primarily consisted 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.

In 2018, the Company also recognized the full write-down of a trademark totaling $3,180 for a reporting unit within the Global Integrated Agencies reportable segment.

The trademark is no longer in active use given its merger with another reporting unit.

The Company recognized an impairment of goodwill of $4,415 for the twelve months ended December 31, 2017 .

The impairment primarily consisted 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.

For the twelve months ended December 31, 2020, the Company recognized an impairment charge of $ 61,661 to write-down the carrying value of goodwill in excess of the fair value at four reporting units, one in the Integrated Networks - Group B reportable segment, one in Media & Data Network reportable segment and two within the All Other category.

As of December 31, 2020, there were two reporting units with negative net asset carrying value in the Integrated Networks - Group A reportable segment and the All Other category.

The goodwill allocated to these reporting units is $ 14,854 and $ 5,479 , respectively.

For the twelve months ended December 31, 2019, the Company recognized an impairment charge of $ 4,879 to write-down the carrying value of goodwill in excess of the fair value at one reporting unit within the Integrated Networks - Group A.

For the twelve months ended December 31, 2018, the Company recognized an impairment of goodwill and other assets of $ 87,204 primarily to write-down the carrying value of goodwill in excess of the fair value at three reporting units, one in each of the Integrated Networks - Group B reportable segment, the Media & Data Network reportable segment and within the All Other category.

The total accumulated goodwill impairment charges as of December 31, 2020 and 2019, were $ 238,965 and $ 177,304 , respectively.

4 unchanged sentences

Goodwill and Intangible Assets - (continued)

As of December 31, the gross and net amounts of acquired intangible assets other than goodwill were as follows:

Years Ended December 31,

The gross and net amounts of acquired intangible assets other than goodwill as of December 31,

Intangible Assets 2020 2019

3 unchanged sentences

Customer relationships – net $ 19,927 $ 25,540

Other intangibles – gross

Trademarks (definite life) – gross $ 32,711 $ 28,695

Less accumulated amortization ( 18,794 ) ( 13,942 )

Other intangibles – net

Trademarks (definite life) – net $ 13,917 $ 14,753

Total intangible assets $ 85,305 $ 101,506

1 unchanged sentence

Total intangible assets – net $ 33,844 $ 54,893

The weighted average amortization period for customer relationships is seven years and other intangible assets is nine years .

During the first quarter of 2020, the Company reassessed its estimate of the useful life of a trademark in the amount of $ 14,600 , acquired as a result of a business combination.

The Company revised the useful life to five years from indefinite lived.

During the fourth quarter of 2020, the Company recognized an impairment of two trademarks totaling $ 12,071 , equal to the excess carrying value above the fair value for a reporting unit within the Integrated Networks - Group B reportable segment and a reporting unit within the All Other category.

The intangible assets impairment is included in Impairment and other losses in the Consolidated Statement of Operations.

The weighted average amortization period for customer relationships is eight years and trademarks is nine years .

In total, the weighted average amortization period is eight years .

1 unchanged sentence

The estimated amortization expense for the five succeeding years is as follows:

Year Amortization

Thereafter 4,999

Deferred Acquisition Consideration

1 unchanged sentence

Contingent deferred acquisition consideration is 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.

The Company accounts for retention payments, tied to continued employment, through Operating income as stock-based compensation over the required retention period.

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, 2020 and December 31, 2019.

MDC PARTNERS INC.

3 unchanged sentences

Deferred Acquisition Consideration - (continued)

Beginning balance of contingent payments $ 74,671 $ 82,598

Payments ( 46,792 ) ( 30,719 )

Redemption value adjustments (1)

44,993 15,451

Additions - acquisitions and step-up transactions 7,703 7,145

Other 2,227 196

Ending balance of contingent payments $ 82,802 $ 74,671

Fixed payments 263 549

$ 83,065 $ 75,220

(1) Redemption value adjustments are fair value changes from the Company’s initial estimates of deferred acquisition payments 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.

(2) Other primarily consists of translation adjustments.

The following table presents the impact to the Company’s statement of operations due to the redemption value adjustments for the contingent deferred acquisition consideration for the twelve months ended December 31, 2019 and 2018 :

(Income) loss attributable to fair value adjustments

Redemption value adjustments are recorded within Office and general expenses on the Consolidated Statements of Operations.

The following table presents the impact to the Company’s Statements of operations due to the redemption value adjustments for the contingent deferred acquisition consideration for the twelve months ended December 31, 2020 and 2019:

Loss attributable to fair value adjustments $ 42,187 $ 5,403

Stock-based compensation 2,806 10,048

Redemption value adjustments $ 44,993 $ 15,451

Effective January 1, 2019, the Company adopted ASC 842.

As a result, comparative prior periods have not been adjusted and continue to be reported under ASC 840.

See Note 3 of the Notes to the Consolidated Financial Statements included herein for additional information regarding the Company’s adoption of ASC 842.

The policies described herein refer to those in effect as of January 1, 2019.

The Company leases office space in North America, Europe, Asia, South America, and Australia.

6 unchanged sentences

As the Company’s implicit rate in its leases is not readily determinable, in determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the commencement date.

Lease payments included in the measurement of the lease liability are comprised of noncancelable lease payments, payments based upon an index or rate, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early.

Lease payments included in the measurement of the lease liability are comprised of noncancellable lease payments, payments based upon an index or rate, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early.

Lease costs are recognized in the Consolidated Statement of Operations over the lease term on a straight-line basis.

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.

Some of the Company’s leases contain variable lease payments, including payments based upon an index or rate.

Variable lease payments based upon an index or rate are initially measured using the index or rate in effect at the lease commencement date and are included within the lease liabilities.

Lease liabilities are not remeasured as a result of changes in the index or rate, rather changes in these types of payments are recognized in the period in which the obligation for those payments is incurred.

In addition, some of our leases contain variable payments for utilities, insurance, real estate tax, repairs and maintenance, another variable operating expenses.

Such amounts are not included in the measurement of the lease liability and are recognized in the period when the facts and circumstances on which the variable lease payments are based upon occur.

MDC PARTNERS INC.

3 unchanged sentences

Leases - (continued)

Some of the Company’s leases contain variable lease payments, including payments based upon an index or rate.

Variable lease payments based upon an index or rate are initially measured using the index or rate in effect at the lease commencement date and are included within the lease liabilities.

In addition, some of our leases contain variable payments for utilities, insurance, real estate tax, repairs and maintenance, and other variable operating expenses.

Such amounts are not included in the measurement of the lease liability and are recognized in the period when the facts and circumstances on which the variable lease payments are based upon occur.

The Company’s leases include options to extend or renew the lease through 2040.

Some of the Company’s leases include options to extend or renew the lease through 2040.

The renewal and extension options are not included in the lease term as the Company is not reasonably certain that it will exercise its option.

2 unchanged sentences

Sublease income is recognized over the lease term on a straight-line basis.

Currently, the Company subleases office space in North America, Europe and Australia.

As of December 31, 2019 , the Company has entered into five operating leases for which the commencement date has not yet occurred as the space is being prepared for occupancy by the landlord.

Accordingly, these leases represent an obligation of the Company that is not on the Consolidated Balance Sheet as of December 31, 2019 .

The aggregate future liability related to these leases is approximately $13.9 million .

Currently, the Company subleases office space in North America, Asia, Europe and Australia.

As of December 31, 2020, the Company has entered into three operating leases for which the commencement date has not yet occurred as the premises are in the process of being prepared for occupancy by the landlord.

Accordingly, these three leases represent an obligation of the Company that is not reflected within the Consolidated Balance Sheet as of December 31, 2020.

The aggregate future liability related to these leases is approximately $ 25,900 .

The discount rate used for leases accounted for under ASC 842 is the Company’s collateralized credit adjusted borrowing rate.

The following table presents lease costs and other quantitative information for the twelve months ended December 31:

Twelve Months Ended December 31,

Twelve Months Ended December 31, Twelve Months Ended December 31,

Operating lease cost $ 71,257 $ 67,044

5 unchanged sentences

Operating cash flows $ 70,277 $ 69,735

Right-of-use assets obtained in exchange for operating lease liabilities

Right-of-use assets obtained in exchange for operating lease liabilities and other non-cash adjustments $ 45,663 $ 269,801

Weighted average remaining lease term (in years) - Operating leases 7.2 5.3

Weighted average discount rate - Operating leases 10.6 8.6

In the twelve months ended December 31, 2019 , the Company recorded an impairment charge of $3.7 million to reduce the carrying value of four of its right-of-use lease assets and related leasehold improvements.

These right-of-use assets were within the Global Integrated Agencies and Media Services segments as well as at Corporate.

In the twelve months ended December 31, 2020, the Company recorded a charge of $ 22,667 , of which $ 9,969 was to reduce the carrying value of its right-of-use lease assets and related leasehold improvements of certain of its agencies within its Integrated Networks - Group A and Integrated Networks - Group B reportable segments and leased space of Corporate.

The remaining $ 12,698 was related to the acceleration of the variable lease expenses associated with the exit of properties in New York as part of the centralization of the Company’s New York real estate portfolio.

The Company evaluated the facts and circumstances related to the use of the assets which indicated that they may not be recoverable.

Using adjusted quoted market prices to develop expected future cash flows, it was determined that the fair value of the assets were less than their carrying value.

This impairment charge is included in Goodwill and other asset impairment within the Consolidated Statement of Operations.

This impairment charge is included in Impairment and other losses within the Consolidated Statement of Operations.

In the twelve months ended December 31, 2019, the Company recorded an impairment charge of $ 3,700 to reduce the carrying value of four of its right-of-use lease assets and related leasehold improvements.

Operating lease expense is included in Office and general expenses in the Consolidated Statement of Operations.

The Company’s lease expense for leases with a term of 12 months or less is immaterial.

Rental expense for the twelve months ended December 31, 2018 and 2017 was $65,093 and $64,086 , respectively, offset by $3,671 and $2,797 , respectively, in sublease rental income.

Rental expense for the twelve months ended December 31, 2018 was $ 65,093 , offset by $ 3,671 , in sublease rental income.

The following table presents minimum future rental payments under the Company’s leases at December 31, 2020 and their reconciliation to the corresponding lease liabilities:

MDC PARTNERS INC.

3 unchanged sentences

Leases - (continued)

The following table presents minimum future rental payments under the Company’s leases at December 31, 2019 and their reconciliation to the corresponding lease liabilities:

Maturity Analysis

2021 $ 68,375

2026 and thereafter 150,950

Total 425,208

Present value discount ( 136,757 )

1 unchanged sentence

As of December 31, 2020 and 2019, the Company’s indebtedness was comprised as follows:

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Revolving credit agreement $ — $ —

6.50% Senior Notes due 2024

Senior Notes 870,256 900,000

Debt issuance costs ( 27,072 ) ( 12,370 )

$ 843,184 $ 887,630

Interest expense related to long-term debt for the years ended December 31, 2020, 2019, and 2018 was $ 59,147 , $ 62,210 and $ 64,420 , respectively.

The amortization of deferred finance costs included in interest expense was $3,346 , $3,193 and $3,022 for the years ended December 31, 2019 , 2018 , and 2017 , respectively.

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 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, 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

The amortization of debt issuance costs included in interest expense for the years ended December 31, 2020, 2019 and 2018 was $ 3,529 , $ 3,346 and 3,193 , respectively.

The revolving credit agreement is a variable rate debt, the carrying value of which approximates fair value.

The Company’s Senior Notes are a fixed rate debt instrument recorded at carrying value.

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 defined below), 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 notes due 2024 (the “Senior Notes”).

The Senior Notes were sold in a private placement in reliance on exceptions from registration under the Securities Act of 1933.

The Senior Notes bear interest, payable semiannually in arrears on May 1 and November 1, at a rate of 7.50 % per annum.

The Senior Notes mature on May 1, 2024, unless earlier redeemed or repurchased.

In April 2020, the Company repurchased $ 29,744 of the Senior Notes, at a weighted average price equal to 73.9 % of the principal amount totaling $ 21,999 , and accrued interest of $ 946 .

As a result of the repurchase, we recognized an extinguishment gain of $ 7,388 .

In connection with the Consent and Support Agreements, beginning December 21, 2020, the Company began to accrue interest at a rate of 7.50 % and accrued $ 17.4 million for the 2 % consent fees.

The consent fees were capitalized as an offset to the carrying value of the Senior Notes and will be recognized through interest expense over the remaining maturity term of the Senior Notes.

The Senior 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 Senior 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

MDC PARTNERS INC.

3 unchanged sentences

Debt - (continued)

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.

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 Senior Notes in whole at any time or in part from time to time, 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 Senior Notes may require MDC to repurchase any Senior Notes held by them at a price equal to 101 % of the principal amount of the Senior 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 Senior 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;

7 unchanged sentences

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 Senior 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, 2020.

Amendment to Credit Agreement

The Company is party to a $250,000 secured revolving credit facility due May 3, 2021.

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 to the existing senior secured revolving credit facility, dated as of May 3, 2016 (as amended, the “Credit Agreement”), among the Company, Maxxcom, each of their subsidiaries party thereto, Wells Fargo Capital Finance, LLC, as agent (“Wells Fargo”), and the lenders from time to time party thereto.

Revolving Credit Agreement

The Company is party to a $ 211,500 secured revolving credit facility due February 3, 2022.

The Company had no amounts outstanding under the revolving credit facility as of December 31, 2020 and December 31, 2019.

On May 29, 2020, the Company, Maxxcom Inc., a subsidiary of the Company (“Maxxcom”), and each of their subsidiaries party thereto entered into an amendment (the “Second Amendment”) to the existing senior secured revolving credit facility, dated as of May 3, 2016 (as amended, the “Credit Agreement”), among the Company, Maxxcom, each of their subsidiaries party thereto, Wells Fargo Capital Finance, LLC, as agent (“Wells Fargo”), 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.

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.

The Second Amendment reduced the aggregate maximum amount of revolving commitments provided by the lenders to $ 211,500 from $ 250,000 , extended the maturity date of the Credit Agreement from May 3, 2021 to February 3, 2022, and expanded the eligibility criteria for certain of the Company’s receivables to be included in the borrowing base.

Advances under the Credit Agreement, as amended by the Second Amendment, will bear interest as follows:

(i) Non-Prime Rate Loans bear interest at the Non-Prime Rate plus the Non-Prime Rate Margin and (ii) all other Obligations bear interest at the Prime Rate, plus the Prime Rate Margin.

The Non-Prime Rate Margin and Prime Rate Margin will range from 2.50 % to 3.00 % for Non-Prime Rate Loans and from 1.75 % to 2.25 % for Prime 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 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 connection with the Amendment, the Company reduced the aggregate maximum amount of revolving commitments provided by the lenders under the Credit Agreement to $250 million from $325 million .

The Second Amendment increased the required minimum earnings before interest, taxes and depreciation and amortization from $ 105,000 to $ 120,000 measured on a trailing 12-month basis.

The total leverage ratio applicable on each testing date through the period ending December 31, 2020 remained at 6.25 :1.0.

The total leverage ratio applicable on each testing date after December 31, 2020 will be 5.5 :1.0.

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 and subject to customary exceptions, and collateralized by a portion of MDC’s outstanding receivable balance.

2 unchanged sentences

Future Principal Repayments

Future principal repayments on the 6.50% Notes in the aggregate principal amount of $900 million are due in 2024.

Employee Benefit Plans

A subsidiary of the Company, sponsors a defined benefit plan with benefits based on each employee’s years of service and compensation.

The benefits under the defined benefit pension plan are frozen.

Future principal repayments on the Senior Notes in the aggregate principal amount of $ 870,256 are due in 2024.

MDC PARTNERS INC.

2 unchanged sentences

(thousands of United States dollars, except per share amounts, unless otherwise stated)

Employee Benefit Plans - (continued)

Employee Benefit Plans

A subsidiary of the Company, sponsors a defined benefit plan with benefits based on each employee’s years of service and compensation.

The benefits under the defined benefit pension plan are frozen.

Net Periodic Pension Cost and Pension Benefit Obligation

1 unchanged sentence

Pension Benefits

2020 2019 2018

Service cost $ — $ — $ —

Interest cost on benefit obligation 1,426 1,640 1,641

6 unchanged sentences

Pension Benefits

2020 2019 2018

Discount rate 3.39 % 4.42 % 3.83 %

Expected return on plan assets 7.00 % 7.00 % 7.00 %

Rate of compensation increase

Rate of compensation increase N/A N/A 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.

1 unchanged sentence

Pension Benefits

2020 2019 2018

Current year actuarial (gain) loss $ 2,213 $ 2,917 $ ( 520 )

8 unchanged sentences

The following table summarizes the change in benefit obligations and fair values of plan assets for the years ended December 31:

2020 2019 2018

Change in benefit obligation:

23 unchanged sentences

Discount rate 2.55 % 3.39 %

Rate of compensation increase

Rate of compensation increase N/A N/A

The discount rate assumptions at December 31, 2020 and 2019 were determined independently.

7 unchanged sentences

The fair value of the plan assets as of December 31, is as follows:

December 31, 2019

December 31, 2020 Level 1 Level 2 Level 3

Asset Category:

Money market fund – Short term investments $ 1,039 $ 1,039 $ — $ —

December 31, 2018

Mutual funds 24,442 24,442 — —

Total $ 25,481 $ 25,481 $ — $ —

December 31, 2019 Level 1 Level 2 Level 3

Asset Category:

Money market fund – Short term investments $ 1,275 $ 1,275 $ — $ —

Mutual funds 25,931 25,931 — —

Total $ 27,206 $ 27,206 $ — $ —

The pension plans weighted-average asset allocation for the years ended December 31, 2020 and 2019 are as follows:

Target Allocation

Actual Allocation

Target Allocation Actual Allocation

2020 2020 2019

Asset Category:

2 unchanged sentences

Cash/cash equivalents and Short term investments 5.0 % 4.0 % 4.7 %

100.0 % 100.0 % 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.

7 unchanged sentences

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:

MDC PARTNERS INC.

3 unchanged sentences

Employee Benefit Plans - (continued)

The following estimated benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the years ending December 31:

Period Amount

Thereafter 10,796

Noncontrolling and Redeemable Noncontrolling Interests

13 unchanged sentences

Balance, December 31, 2020 $ 20,704

(1) Other primarily 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:

5 unchanged sentences

Years Ended December 31,

Net income (loss) attributable to MDC Partners Inc.

2020 2019 2018

Net loss attributable to MDC Partners Inc.

$ ( 228,971 ) $ ( 5,253 ) $ ( 130,007 )

Transfers from the noncontrolling interest:

Increase (decrease) in MDC Partners Inc.

Increase in MDC Partners Inc.

paid-in capital for purchase of redeemable noncontrolling interests and noncontrolling interests 1,626 1,911 10,140

Net transfers from noncontrolling interests $ 1,626 $ 1,911 $ 10,140

Change from net income (loss) attributable to MDC Partners Inc.

Change from net loss attributable to MDC Partners Inc.

and transfers to noncontrolling interests $ ( 227,345 ) $ ( 3,342 ) $ ( 119,867 )

3 unchanged sentences

Beginning Balance $ 36,973 $ 51,546

Redemptions ( 12,289 ) ( 14,530 )

Changes in redemption value 2,800 ( 3,163 )

Currency translation adjustments ( 347 ) 3

Other — 3,117

Ending Balance $ 27,137 $ 36,973

(1) Other primarily consists of the redeemable noncontrolling interest balance related to a foreign entity that was classified as held for sale as of December 31, 2018 and reclassified in 2019.

See Note 4 of the Notes to the Consolidated Financial Statements included herein for further information.

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.

4 unchanged sentences

These adjustments will not impact the calculation of earnings (loss) per share if the redemption values are less than the estimated fair values.

For the twelve months ended December 31, 2019 , 2018 , and 2017, there was a $0 related impact on the Company’s loss per share calculation.

For the twelve months ended December 31, 2020, 2019, and 2018, there was no related impact on the Company’s loss per share calculation.

Commitments, Contingencies, and Guarantees

5 unchanged sentences

See Notes 9 and 13 of the Notes to the Consolidated Financial Statements included herein for information regarding potential payments associated with deferred acquisition consideration and 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, 2020, 2019, and 2018 these operations did not incur any material costs related to damages resulting from hurricanes.

MDC PARTNERS INC.

3 unchanged sentences

Commitments, Contingencies, and Guarantees - (continued)

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, 2019, 2018, and 2017 these operations did not incur any material costs related to damages resulting from hurricanes.

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.

3 unchanged sentences

At December 31, 2020, the Company had $ 18,651 of undrawn letters of credit.

The Company entered into operating leases for which the commencement date has not yet occurred as of December 31, 2020.

See Note 10 of the Notes to the Consolidated Financial Statements included herein for additional information.

Share Capital

10 unchanged sentences

The Series 6 Preference Shares’ liquidation preference accretes at 8.0 % per annum, compounded quarterly until the five-year anniversary of the Series 6 Issue Date.

During the twelve months ended December 31, 2019 , the Series 6 Preference Shares accreted at a monthly rate of $6.96 , for total accretion of $3,261 , bringing the aggregate liquidation preference to $53,261 as of December 31, 2019 .

The accretion is considered in the calculation of net loss attributable to MDC Partners Inc.

During the twelve months ended December 31, 2020 and 2019, the Series 6 Preference Shares accreted at a monthly rate of $ 7.54 and $ 6.96 per Series 6 Preference Share, for total accretion of $ 4,390 and $ 3,261 , respectively, bringing the aggregate liquidation preference to $ 57,651 as of December 31, 2020.

The accretion is considered in the calculation of net income (loss) attributable to MDC Partners Inc.

common shareholders.

See Note 6 of the Notes to the Consolidated Financial Statements included herein for further information regarding the Series 6 Preference Shares.

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.

1 unchanged sentence

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.

Series 4 Convertible Preference Shares

MDC PARTNERS INC.

3 unchanged sentences

Share Capital - (continued)

Effective March 18, 2019, the Company’s Board appointed Mark Penn as the Chief Executive Officer (“CEO”) and as a director of the Board.

Penn is manager of Stagwell.

Effective April 18, 2019, Mr.

Penn was also appointed as Chairman of the Board.

Series 4 Convertible Preference Shares

On March 7, 2017 (the “Series 4 Issue Date”), the Company issued 95,000 newly created Preference Shares (“Series 4 Preference Shares”) to affiliates of The Goldman Sachs Group, Inc.

3 unchanged sentences

Except as required by law, the Series 4 Preference Shares do not have voting rights and are not redeemable at the option of the Purchaser.

See Note 1 of the Notes to the Consolidated Financial Statements for information regarding revised terms of the Series 4 Preference Shares subject to closing of the combination between MDC and the Stagwell Entities.

Subsequent to the ninetieth day following the Series 4 Issue Date, the holders of the Series 4 Preference Shares have the right to convert their Series 4 Preference Shares in whole at any time and from time to time and in part at any time and from time to time 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”).

6 unchanged sentences

common shareholders.

See Note 6 of the Notes to the Consolidated Financial Statements included herein for further information regarding the Series 4 Preference Shares.

Holders of the Series 4 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 4 Preference Shares.

3 unchanged sentences

These are 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 were 72,150,854 (including the Class A Shares issued to Stagwell) and 57,517,568 Class A Shares issued and outstanding as of December 31, 2019 and 2018 , respectively.

There were 73,529,105 and 72,150,854 Class A Shares issued and outstanding as of December 31, 2020 and 2019, respectively.

Class B Common Shares (“Class B Shares”)

1 unchanged sentence

There were 3,743 and 3,749 Class B Shares issued and outstanding as of December 31, 2020 and 2019, respectively.

Employee Stock Incentive Plan

As of December 31, 2019 , a total of 15,650,000 shares have been authorized under our employee stock incentive plan.

Shares-based Awards

As of December 31, 2020, a total of 18,150,000 shares have been authorized under our employee stock incentive plans, of which 5,108,583 remain available to be issued for future awards.

The following tables summarize share-based activity of awards authorized under our employee stock incentive plans and awards (such as inducement awards) and other share-based commitments that have met the requirements to be issued separate from shareholder-approved stock incentive plans.

MDC PARTNERS INC.

4 unchanged sentences

The following table summarizes information about financial performance based and time based restricted stock and restricted stock unit awards:

Performance Based Awards

Time Based Awards

Weighted Average Grant Date Fair

Weighted Average

Performance-Based Awards Time-Based Awards

Shares Weighted Average Grant Date Fair

Value Shares Weighted Average

Balance at December 31, 2019 2,443,801 $ 3.11 568,960 $ 5.53

Granted 685,369 2.19 1,741,280 1.97

Vested ( 555,226 ) 2.96 ( 1,031,159 ) 3.39

Forfeited ( 336,950 ) 3.07 ( 141,821 ) 3.32

Balance at December 31, 2020 2,236,994 $ 3.37 1,137,260 $ 2.29

Performance based and time-based awards granted in the twelve months ended December 31, 2019 had a weighted average grant date fair value of $ 3.08 and $ 2.54 , respectively.

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 December 31, 2018 had a weighted average grant date fair value of $ 9.17 and $ 7.38 , respectively.

The vesting of the performance-based awards is contingent upon the Company meeting cumulative earnings targets over one to three years and continued employment through the vesting date.

7 unchanged sentences

Share Option Awards

Weighted Average

Grant Date Fair Value

Weighted Average Exercise Price

Shares Weighted Average

Grant Date Fair Value Weighted Average Exercise Price

Balance at December 31, 2019 111,866 $ 2.23 $ 4.85

Granted — — —

Forfeited ( 111,866 ) 2.23 4.85

Exercised — — —

Balance at December 31, 2020 — $ — $ —

We use the Black-Scholes option-pricing model to estimate the fair value of options granted.

No options were granted in 2019.

No options were granted in 2020 and 2019.

The grant date fair value of the options granted in 2018 was determined to be $ 2.23 .

1 unchanged sentence

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 .

Options granted in 2018 vest in 3 years.

The term of these awards is 5 years.

The vesting period of these awards is generally commensurate with the requisite service period.

At December 31, 2019 , the weighted average remaining contractual life for these awards was 2 years.

No options were granted in 2017.

These awards were all forfeited in 2020.

No options were exercised during 2020, 2019 and 2018.

The intrinsic value of options exercised during 2017 was $125 .

The aggregate intrinsic value of options outstanding as of December 31, 2019 is nil .

As of December 31, 2019 , no options were exercisable.

There are no options outstanding as of December 31, 2020.

No options vested in 2020, 2019 and 2018.

The following table summarizes information about stock appreciation rights (“SAR”) awards:

MDC PARTNERS INC.

3 unchanged sentences

Share Capital - (continued)

At December 31, 2019 , the unrecognized compensation expense for these awards was $150 to be recognized over a weighted average period of 2 years.

The cash received from the stock options exercised in 2017 was nil .

The following table summarizes information about stock appreciation rights (“SAR”) awards:

Weighted Average

Grant Date Fair Value

Weighted Average Exercise Price

Shares Weighted Average

Grant Date Fair Value Weighted Average Exercise Price

Balance at December 31, 2019 2,325,800 $ 1.14 $ 3.07

Granted — — —

Forfeited ( 250,000 ) 0.73 5.00

Exercised — — —

Balance at December 31, 2020 2,075,800 $ 1.19 $ 2.84

We use the Black-Scholes option-pricing model to estimate the fair value of the SAR awards.

SAR awards granted in 2019 vest in equal installments on each of the first three anniversaries of the grant date and have grant date fair values ranging from $0.68 to $1.41 .

No SAR awards were granted in 2020.

SAR awards granted in 2019 vest in equal installments on each of the first 3 anniversaries of the grant date and have grant date fair values ranging from $ 0.68 to $ 1.41 .

The assumptions for the model were as follows:

3 unchanged sentences

No SAR awards were granted in 2018.

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 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% .

The term of these awards is 5 years.

The vesting period of awards granted is generally commensurate with the requisite service period.

As of December 31, 2019 , no SAR awards were exercisable.

As of December 31, 2019 , there were no SAR awards that were vested.

As of December 31, 2020, 775,800 SAR awards vested and were exercisable.

The aggregate intrinsic value of the SAR awards outstanding as of December 31, 2020 is $ 480 .

4 unchanged sentences

For the years ended December 31, 2020, 2019 and 2018, $ 5,774 , $ 2,460 , and $ 5,892 was recognized in stock compensation related to all stock compensation awards, respectively.

The related income tax benefit for the years ended December 31, 2019 , 2018 and 2017 was $643 , $472 , and $1,401 , respectively.

MDC PARTNERS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(thousands of United States dollars, except per share amounts, unless otherwise stated)

The related income tax expense for the years ended December 31, 2020, 2019 and 2018 was $ 0 , $ 643 , and $ 472 , respectively.

Changes in Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) for the twelve months ended December 31 were:

Foreign Currency Translation

Pension Foreign Currency Translation Total

Balance December 31, 2018 $ ( 13,101 ) $ 17,821 $ 4,720

Other comprehensive income before reclassifications — ( 7,078 ) ( 7,078 )

Amounts reclassified from accumulated other comprehensive income (net of tax expense of $223)

Amounts reclassified from accumulated other comprehensive loss (net of tax benefit of $740) ( 1,911 ) — ( 1,911 )

Other comprehensive income ( 1,911 ) ( 7,078 ) ( 8,989 )

4 unchanged sentences

Balance December 31, 2020 $ ( 16,366 ) $ 19,105 $ 2,739

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 the U.S.

federal corporate tax rate from 35.0% to 21.0% , effective for tax years beginning after December 31, 2017 and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings.

MDC PARTNERS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(thousands of United States dollars, except per share amounts, unless otherwise stated)

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law.

The CARES Act includes provisions relating to delaying certain payroll tax payments, refundable payroll tax credits, net operating loss carryback periods, modifications to the net interest deduction limitations and technical corrections to the tax depreciation methods for qualified improvement property.

The tax law changes in the CARES Act did not have a material impact on the Company’s income tax provision.

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:

2020 2019 2018

Income (Loss):

$ ( 73,227 ) $ ( 17,491 ) $ ( 76,960 )

( 15,175 ) 38,358 ( 11,709 )

$ ( 88,402 ) $ 20,867 $ ( 88,669 )

The provision (benefit) for income taxes by taxing jurisdiction for the years ended December 31, were:

2020 2019 2018

Current tax provision

federal $ 3,016 $ 2,638 $ 444

state and local 742 12 2

4,241 2,875 7,584

7,999 5,525 8,030

Deferred tax provision (benefit):

federal 75,686 4,635 ( 10,817 )

state and local 34,404 1,130 ( 3,476 )

( 1,534 ) ( 974 ) 35,878

108,556 4,791 21,585

Income tax expense (benefit) $ 116,555 $ 10,316 $ 29,615

6 unchanged sentences

federal income tax rate compared with actual income tax expense for the years ended December 31, is as follows:

2020 2019 2018

Income (loss) before income taxes, equity in non-consolidated affiliates and noncontrolling interest $ ( 88,402 ) $ 20,867 $ ( 88,669 )

4 unchanged sentences

Non-deductible stock-based compensation 1,162 3,823 1,512

Global intangible low-taxed income 1,363 1,147 710

Base erosion and anti-abuse tax 4,697 2,504 389

Other non-deductible expense 1,043 273 1,388

2 unchanged sentences

federal and local statutory rates 67 1,422 ( 152 )

Impact of tax reform

Noncontrolling interests ( 4,649 ) ( 3,566 ) ( 2,674 )

Impact of foreign operations

Other impacts of foreign operations 1,160 2,724 612

Impact of goodwill impairments 10,158 436 8,703

Adjustments to accrued taxes in previous periods 4,641 ( 3,544 ) 1,192

Adjustment to deferred tax balances* ( 9,999 ) 1,920 ( 8,845 )

Other, net 24 129 ( 137 )

Income tax expense (benefit) $ 116,555 $ 10,316 $ 29,615

Effective income tax rate ( 131.8 )% 49.4 % ( 33.4 )%

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 period 2017 in the table above has been conformed to reflect the U.S.

statutory rate.

Income tax expense for the twelve months ended December 31, 2019 was $ 10,533 (associated with a pretax income of $21,647 ) compared to an income tax expense of $31,603 (associated with pretax loss of $80,407 ) for the twelve months ended December 31, 2018 .

Income tax expense in 2019 included the impact of reducing a valuation allowance primarily associated with Canadian deferred tax assets.

Income tax expense in 2018 included the impact of increasing a valuation allowance primarily associated with Canadian deferred tax assets.

*Adjustments to deferred tax balances in 2020 are primarily offset by changes to valuation allowance.

Income tax expense for the twelve months ended December 31, 2020 was $ 116,555 (associated with a pre-tax loss of $ 88,402 ) compared to an income tax expense of $ 10,316 (associated with pre-tax income of $ 20,867 ) for the twelve months ended December 31, 2019.

Income tax expense in 2020 included the impact of increasing valuation allowance primarily associated with U.S.

deferred tax assets and the impact of non-deductible goodwill impairments of foreign operations.

Income tax expense in 2019 included the impact of base erosion and anti-abuse tax and non-deductible stock compensation offset by a reduction in valuation allowance primarily associated with Canadian deferred tax assets.

Income taxes receivable were $ 1,480 and $ 5,025 at December 31, 2020 and 2019, respectively, and were included in other current assets on the balance sheet.

8 unchanged sentences

Deferred tax assets:

Capital assets and other

Net operating loss carry forwards

Accounting reserves and other $ 20,831 $ 10,987

Net operating loss carryforwards 47,139 60,705

Interest deductions 20,819 16,797

2 unchanged sentences

Stock compensation 1,693 1,736

Pension plan 4,856 4,414

Unrealized foreign exchange 11,995 11,373

Capital loss carry forwards

Right-of-use assets and accounting reserves

Capital loss carryforwards 13,657 13,081

Lease liabilities 77,870 76,397

Gross deferred tax asset 320,905 313,580

2 unchanged sentences

Deferred tax liabilities:

Lease liabilities

Right-of-use assets $ ( 57,890 ) $ ( 67,613 )

Refinancing charge ( 1,675 ) —

Withholding taxes ( 475 ) ( 546 )

3 unchanged sentences

Net deferred tax asset (liability) $ ( 27,806 ) $ 80,713

Disclosed as:

Deferred tax assets $ 179 $ 84,900

Deferred tax liabilities ( 27,985 ) ( 4,187 )

The Company has U.S.

federal net operating loss carry forwards of $45,094 and non-U.S.

net operating loss carry forwards of $146,037 , which expire in years 2020 through 2039.

The Company also has total indefinite loss carry forwards of $205,050 .

These indefinite loss carry forwards consist of $106,329 relating to the U.S.

and $98,721 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 $176,174 .

$ ( 27,806 ) $ 80,713

The Company has net operating loss carryforwards of $ 229,224 which expire in years 2021 through 2040.

These definite lived net operating loss carryforwards consist of $ 1,533 relating to U.S.

federal, $ 132,655 relating to U.S.

states, and $ 95,036 relating to non-U.S.

The Company also has indefinite net operating loss carryforwards of $ 122,299 .

These indefinite loss carryforwards consist of $ 42,003 relating to the U.S.

federal, $ 69,967 relating to U.S.

states, and $ 10,329 relating to non-U.S.

In addition, the Company has indefinite capital loss carryforwards of $ 103,074 in Canada and foreign tax credit carryforwards in the U.S.

of $ 5,460 which expire in years 2024 through 2027.

The Company maintained a valuation allowance of $ 198,452 as of December 31, 2020 relating to both U.S.

and foreign deferred tax assets, and $ 65,649 as of December 31, 2019 relating to foreign deferred tax assets.

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.

Management evaluates all positive and negative evidence and considers factors such as the reversal of taxable temporary differences, taxable income in eligible carryback years, 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, 2018 , the Company maintained a valuation allowance against foreign net deferred tax assets of $68,479 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, 2019 , 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, 2019 , the Company’s Canadian three-year cumulative pre-tax income increased compared to the period ended December 31, 2018 and the Company decreased its overall valuation allowance by $2,830 .

The related effect on the accompanying consolidated statements of operations

In 2020, the Company’s evaluation resulted in the recognition of a valuation allowance against its U.S.

deferred tax assets.

Given a three-year U.S.

cumulative pre-tax loss as of December 31, 2020 and other factors, the Company concluded it is more likely than not that such U.S.

deferred tax assets will not be realized.

Income tax expense for the year ended December 31, 2020

MDC PARTNERS INC.

3 unchanged sentences

Income Taxes - (continued)

and comprehensive income or loss resulted in the Company recording a U.S.

income tax benefit of $2,830 for the year ended December 31, 2019.

The Company has historically asserted that its unremitted foreign earnings are permanently reinvested, and therefore has not recorded income taxes on such amounts.

The Company reevaluated its global cash needs and as a result determined that approximately $5,462 of undistributed foreign earnings from certain international entities are no longer subject to the permanent reinvestment assertion.

We recorded a tax expense of $546 representing our estimate of the tax costs associated with this change to our assertion.

We have not changed our permanent reinvestment assertion with respect to any other international entities as we intend to use the related historical earnings and profits to fund international operations and investments.

included a charge of approximately $ 129 million in connection with the change in the valuation allowance, which primarily relates to the U.S.

The Company has historically asserted that its unremitted foreign earnings are permanently reinvested except for certain international entities.

The Company has provided $ 475 and $ 546 as an estimate of the tax costs of repatriation with respect to $ 4,745 and $ 5,462 of undistributed foreign earnings from certain international entities that are not subject to the permanent reinvestment assertion as of December 31, 2020 and 2019.

As of December 31, 2020 and 2019, the Company recorded a liability for unrecognized tax benefits as well as applicable penalties and interest in the amount of $ 1,066 and $ 1,107 , respectively.

As of December 31, 2020 and 2019, accrued penalties and interest included in unrecognized tax benefits were approximately $ 135 and $ 111 , 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.

2020 2019 2018

A reconciliation of the change in unrecognized tax benefits is as follows:

2 unchanged sentences

Prior period positions — — 7

Settlements — — ( 314 )

Lapse of statute of limitations ( 170 ) ( 166 ) ( 239 )

Unrecognized tax benefits - Ending Balance $ 1,407 $ 996 $ 887

The Company has presented $ 477 of the unrecognized tax benefits as of December 31, 2020 as a reduction to the deferred tax asset.

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.

1 unchanged sentence

federal jurisdiction and in many state and foreign jurisdictions.

Internal Revenue Service (“IRS”) concluded its review of the 2016 tax year and all years prior to 2016 are closed.

The statute of limitations has also expired in non-U.S.

jurisdictions through 2014.

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 19 of the Notes to the Consolidated Financial Statements included herein for additional information on the fair value.

The fair value of financial commitments and letters of credit are based on the stated value of the underlying instruments, if any.

The statute of limitations for tax years prior to 2017 are closed for U.S.

federal purposes.

The statute of limitations for tax years prior to 2010 have also expired in non-U.S.

jurisdictions.

Fair Value Measurements

5 unchanged sentences

• 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 not measured at fair value on a recurring basis at December 31, 2020 and 2019:

MDC PARTNERS INC.

3 unchanged sentences

Fair Value Measurements - (continued)

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 not measured at fair value on a recurring basis at December 31, 2019 and 2018 :

December 31, 2019

December 31, 2018

6.50% Senior Notes due 2024

December 31, 2020 December 31, 2019

Amount Fair Value Carrying

Amount Fair Value

Senior Notes $ 870,256 $ 883,580 $ 900,000 $ 812,250

Our long-term debt includes fixed rate debt.

1 unchanged sentence

Therefore, this debt is classified as Level 2 within the fair value hierarchy.

Non-financial Assets and Liabilities that are not Measured at Fair Value on a Recurring Basis

Certain non-financial assets are measured at fair value on a nonrecurring basis, primarily goodwill, intangible assets (Level 3 fair value assessment) and right-of-use lease assets (Level 2 fair value assessment).

Accordingly, these assets are not measured and adjusted to fair value on an ongoing basis but are subject to periodic evaluations for potential impairment.

The Company recognized an impairment of goodwill of $ 61,661 for the twelve months ended December 31, 2020 as compared to an impairment of goodwill of $ 4,879 for the twelve months ended December 31, 2019.

The Company also recognized an impairment of intangible assets of $ 12,071 for the twelve months ended December 31, 2020.

See Notes 2 and 8 of the Notes to the Consolidated Financial Statements for information related to the measurement of the fair value of goodwill.

In the twelve months ended December 31, 2020, the Company recorded a charge of $ 22,667 , of which $ 9,969 was to reduce the carrying value of right-of-use lease assets and related leasehold improvements.

Financial Liabilities Measured at Fair Value on a Recurring Basis

Contingent deferred acquisition consideration is 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).

Contingent deferred acquisition consideration (Level 3 fair value measurement) is 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 and is dependent upon significant assumptions, such as the growth rate of the earnings of the relevant subsidiary during the contractual period and the discount rate.

These growth rates are consistent with the Company’s long-term forecasts.

As of December 31, 2020, the discount rate used to measure these liabilities was 5.1 %.

As these estimates require the use of assumptions about future performance, which are uncertain at the time of estimation, the fair value measurements presented on the Consolidated Balance Sheets are subject to material uncertainty.

See Note 9 of the Notes to the Consolidated Financial Statements included herein for additional information regarding contingent deferred acquisition consideration.

At December 31, 2019 and 2018 , 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.

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, intangible assets (a Level 3 fair value assessment) and right-of-use lease assets (a Level 2 fair value assessment).

Accordingly, these assets are not measured and adjusted to fair value on an ongoing basis but are subject to periodic evaluations for potential impairment.

The Company recognized an impairment of goodwill of $4.1 million for the twelve months ended December 31, 2019 as compared to an impairment of goodwill, intangible assets, and other assets of $80.1 million for the twelve months ended December 31, 2018 .

See Note 2 and 8 of the Notes to the Consolidated Financial Statements for information related to the measurement of the fair value of goodwill.

In addition, the Company recognized an impairment charge of $3.7 million to reduce the carrying value of certain right-of-use lease assets and related leasehold improvements in the twelve months ended December 31, 2019 .

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

At December 31, 2020 and 2019, the carrying amount of the Company’s financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximated their fair value because of their short-term maturity.

Related Party Transactions

2 unchanged sentences

Below are the related party transactions that are significant in nature:

In October 2019, a Partner Firm of the Company entered into an arrangement with an affiliate of Stagwell, in which the affiliate and the Partner Firm will collaborate to provide various services to a client of the Partner Firm.

Under the arrangement the Partner Firm will pay the affiliate, for services provided by the affiliate, approximately $655 which is expected to be recognized through the end of 2020.

In October 2019, a Partner Firm of the Company entered into an arrangement with a Stagwell affiliate, in which the Stagwell affiliate and the Partner Firm will collaborate to provide various services to a client of the Partner Firm.

The Partner Firm and the Stagwell affiliate pitched and won this business together, with the client ultimately determining the general scope of work for each agency.

Under the arrangement, which was structured as a sub-contract due to client preference, the Partner Firm is expected to pay the Stagwell affiliate, for services provided by the Stagwell affiliate in connection with serving the client, approximately $ 2,000 which has been fully recognized as of December 2020.

As of December 31, 2020, $ 1,200 was owed to the affiliate.

On February 14, 2020, Sloane sold substantially all its assets and certain liabilities to an affiliate of Stagwell.

See Note 1 of the Notes to the Consolidated Financial Statements for information related to this transaction.

The Company entered into an agreement commencing on January 1, 2020 to sublease office space through July 2021 to a company whose chairman is a member of the Company’s Board of Directors.

The total future rental income related to the sublease is approximately $350 .

During 2020, a Partner Firm of the Company entered into an arrangement with certain Stagwell affiliates to perform media planning, buying and reporting services.

Under the arrangement, the Partner Firm is expected to receive from the Stagwell affiliates approximately $ 56,700 , which has been fully recognized as of December 2020.

As of December 31, 2020, $ 110 was due from the affiliates.

MDC PARTNERS INC.

2 unchanged sentences

(thousands of United States dollars, except per share amounts, unless otherwise stated)

Related Party Transactions - (continued)

In January 2020, a Partner Firm of the Company entered into an arrangement with a Stagwell affiliate to develop advertising technology for the Partner Firm.

Under the arrangement the Partner Firm recorded approximately $ 483 , of which $ 2 was owed to the affiliate as of December 31, 2020.

This transaction has been completed.

In August 2020, the Company entered into an arrangement with a Stagwell affiliate to provide audience and brand research, concept testing and landscape related to the ongoing new business pitches for clients of the Company.

Under the arrangement the Company is expected to pay the Stagwell affiliate approximately $ 145 , which has been fully recognized as of October 2020.

As of December 31, 2020, $ 63 was owed to the affiliate.

In November 2020, a Partner Firm of the Company entered into an arrangement with a certain Stagwell affiliate to perform event management services.

Under the arrangement, the Partner Firm is expected to receive from the Stagwell affiliate approximately $ 457 , which is expected to be recognized through March of 2021.

As of December 31, 2020, $ 67 was due from the affiliate.

On February 14, 2020, Sloane sold substantially all its assets and certain liabilities to an affiliate of Stagwell.

See Note 4 of the Notes to the Consolidated Financial Statements for information related to this transaction.

The Company entered into an agreement commencing on January 1, 2020 to sublease office space through July 2021 to a company whose chairman is a member of the Company’s Board of Directors.

As of December 31, 2020, the total future rental income related to the sublease is approximately $122.

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.

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”), who is Mark Penn, Chief Executive Officer and Chairman, to make decisions regarding resource allocation for the segment and assess its performance.

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 results of operations for each operating segment, together with a qualitative assessment to determine if operating segments have similar operating characteristics.

The changes were as follows:

Doner, previously within the Global Integrated Agencies reportable segment is now included within the Domestic Creative Agencies reportable segment.

HL Group Partners, previously within the Specialist Communications reportable segment, and Redscout, previously within the All Other category, are now included in the Yes & Company operating segment.

The Yes & Company operating segment previously within the Media Services reportable segment is now included within the Domestic Creative Agencies reportable segment.

Attention, previously within the Forsman & Bodenfors operating segment, has operationally merged into MDC Media Partners, which is included within the Media Services reportable segment.

Varick Media, previously within the Yes & Company operating segment, is now included within MDC Media Partners, which is included within the Media Services reportable segment.

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.”

The Global Integrated Agencies reportable segment is comprised of the Company’s four global, integrated operating segments (72andSunny, Anomaly, Crispin Porter + Bogusky, 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.

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 seven operating segments that are primarily national advertising agencies (Colle McVoy, Doner, Laird + Partners, Mono Advertising, Union, Yamamoto, and Yes & Company) 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 results of operations 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 four operating segments that are each communications agencies (Allison & Partners, Hunter, KWT Global, and Veritas) with core service offerings in public relations and related communications services.

These operating segments share similar characteristics related to (i) the

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.

The CODM uses Adjusted EBITDA (defined below) as a key metric, to evaluate the operating and financial performance of a segment, identify trends affecting the segments, develop projections and make strategic business decisions.

Adjusted EBITDA is defined as Net income (loss) attributable to MDC Partners Inc.

common shareholders plus or minus adjustments to Operating income (loss), plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates and other items.

Distributions from non-consolidated affiliates includes (i) cash received for profit distributions from non-consolidated affiliates, and (ii) consideration from the sale of ownership interests in non-consolidated affiliates, less contributions to date, plus undistributed earnings (losses).

Other items, net includes items such as severance expense and other restructuring expenses, including costs for leases that will either be terminated or sublet in connection with the centralization of our New York real estate portfolio.

Effective in the first quarter of 2020, the Company reorganized its management structure resulting in the aggregation of certain Partner Firms into integrated groups (“Networks”).

Penn appointed key agency executives, that report directly into him to lead each Network.

In connection with the reorganization, we reassessed our reportable segments to align our external reporting with how we operate the Networks under our new organizational structure.

Prior periods presented have been recast to reflect the change in reportable segments.

The three reportable segments that resulted from our reassessment are as follows:

“Integrated Networks - Group A,” “Integrated Networks - Group B” and the “Media & Data Network.” In addition, the Company combines and discloses operating segments that do not meet the aggregation criteria as “All Other.” The Company also reports corporate expenses, as further detailed below, as “Corporate.” All segments follow the same basis of presentation and accounting policies as those described in Note 2 of the Notes to the Consolidated Financial Statements included herein.

• The Integrated Networks - Group A reportable segment is comprised of the Anomaly Alliance (Anomaly, Concentric Partners, Hunter, Mono, Y Media Labs) and Colle McVoy operating segments.

• The Integrated Networks - Group B reportable segment is comprised of the Constellation (72andSunny, CPB, Instrument and Redscout) and Doner Partner Network (6degrees, Doner, KWT, Union, Veritas and Yamamoto) operating segments.

MDC PARTNERS INC.

3 unchanged sentences

Segment Information - (continued)

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.

The operating segments aggregated within the Integrated Networks - Group A and B reportable segments provide a range of services for their clients, primarily including strategy, creative and production for advertising campaigns across a variety of platforms (print, digital, social media, television broadcast) as well as public relations and communications services, experiential, social media and influencer marketing.

These operating segments share similar characteristics related to (i) the nature of their services;

(ii) the type of 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 results of operations 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 a single operating segment known as MDC Media Partners.

MDC Media Partners, which operates primarily in North America, performs media buying and planning as its 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 (through the date of sale on March 8, 2019), Instrument, 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.

While the operating segments are similar in nature, the distinction between the Integrated Networks - Group A and B is the aggregation of operating segments that have the most similar historical and expected average long-term profitability.

• The Media & Data Network reportable segment is comprised of a single operating segment that combines media buying and planning across a range of platforms (out-of-home, paid search, social media, lead generation, programmatic, television broadcast) with technology and data capabilities.

• All Other consists of the Company’s remaining operating segments that provide a range of services including advertising, public relations and 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 Allison & Partners, Bruce Mau, Forsman & Bodenfors, Hello, Team and Vitro.

• 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.

1 unchanged sentence

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.

See Note 1 of the Notes to the Consolidated Financial statements for information regarding our assessment of changes to our reportable segments in our fiscal year 2020.

MDC PARTNERS INC.

4 unchanged sentences

Years Ended December 31,

Global Integrated Agencies

Domestic Creative Agencies

Specialist Communications

Media Services

Segment operating income (loss):

Global Integrated Agencies

Domestic Creative Agencies

Specialist Communications

Media Services

Other Income (expense):

2020 2019 2018

Integrated Networks - Group A $ 379,648 $ 392,101 $ 393,890

Integrated Networks - Group B 435,589 531,717 551,317

Media & Data Network 139,015 161,451 183,287

All Other 244,759 330,534 346,594

Total $ 1,199,011 $ 1,415,803 $ 1,475,088

Adjusted EBITDA:

Integrated Networks - Group A $ 79,793 $ 74,822 $ 75,609

Integrated Networks - Group B 84,297 84,568 74,091

Media & Data Network 9,707 7,746 12,205

All Other 30,755 37,618 38,307

Corporate ( 27,220 ) ( 30,601 ) ( 38,761 )

Total Adjusted EBITDA $ 177,332 $ 174,153 $ 161,451

Depreciation and amortization $ ( 36,905 ) $ ( 38,329 ) $ ( 46,196 )

Impairment and other losses ( 96,399 ) ( 8,599 ) ( 87,204 )

Stock compensation expense ( 14,179 ) ( 31,040 ) ( 18,416 )

Deferred acquisition consideration expense/(income) ( 42,187 ) ( 5,403 ) 457

Loss on investments ( 2,175 ) ( 2,048 ) ( 779 )

Other expense ( 31,244 ) ( 9,274 ) ( 7,879 )

Total Operating Income (Loss) $ ( 45,757 ) $ 79,460 $ 1,434

Other Income (Expenses):

Interest expense and finance charges, net $ ( 62,163 ) $ ( 64,942 ) $ ( 67,075 )

Foreign exchange gain (loss) ( 982 ) 8,750 ( 23,258 )

Other, net 20,500 ( 2,401 ) 230

Income (loss) before income taxes and equity in earnings of non-consolidated affiliates ( 88,402 ) 20,867 ( 88,669 )

Income tax expense (benefit)

Income tax expense 116,555 10,316 29,615

Income (loss) before equity in earnings of non-consolidated affiliates ( 204,957 ) 10,551 ( 118,284 )

2 unchanged sentences

Net income attributable to the noncontrolling interest ( 21,774 ) ( 16,156 ) ( 11,785 )

Net income (loss) attributable to MDC Partners Inc.

Net loss attributable to MDC Partners Inc.

( 228,971 ) ( 5,253 ) ( 130,007 )

Accretion on and net income allocated to convertible preference shares ( 14,179 ) ( 12,304 ) ( 8,355 )

Net loss attributable to MDC Partners Inc.

common shareholders $ ( 243,150 ) $ ( 17,557 ) $ ( 138,362 )

MDC PARTNERS INC.

4 unchanged sentences

Years Ended December 31,

2020 2019 2018

Depreciation and amortization:

Global Integrated Agencies

Domestic Creative Agencies

Specialist Communications

Media Services

(Dollars in Thousands)

Integrated Networks - Group A $ 6,467 $ 8,559 $ 9,602

Integrated Networks - Group B 17,204 15,904 19,032

Media & Data Network 4,376 4,303 3,820

All Other 7,478 8,695 12,980

Corporate 1,380 868 762

Total $ 36,905 $ 38,329 $ 46,196

Stock-based compensation:

Global Integrated Agencies

Domestic Creative Agencies

Specialist Communications

Media Services

Integrated Networks - Group A $ 7,580 $ 24,420 $ 5,792

Integrated Networks - Group B 3,191 4,303 6,890

Media & Data Network 122 63 320

All Other 304 374 755

Corporate 2,982 1,880 4,659

Total $ 14,179 $ 31,040 $ 18,416

Capital expenditures:

Global Integrated Agencies

Domestic Creative Agencies

Specialist Communications

Media Services

Integrated Networks - Group A $ 1,087 $ 5,934 $ 8,228

Integrated Networks - Group B 987 9,270 6,352

Media & Data Network 569 627 1,632

All Other 966 2,729 3,985

Corporate 33,694 36 67

Total $ 37,303 $ 18,596 $ 20,264

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

United States Canada Other Total

Long-lived Assets

2020 $ 80,447 $ 3,461 $ 6,505 $ 90,413

2019 $ 68,497 $ 4,475 $ 8,082 $ 81,054

Goodwill and Intangible Assets

2020 $ 614,168 $ 51,267 $ 36,620 $ 702,055

2019 $ 659,584 $ 64,842 $ 62,158 $ 786,584

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.

Corporate’s capital expenditures in 2020 are primarily for leasehold improvements at its new headquarters at One World Trade Center in connection with the centralization of the Company’s New York real estate portfolio.

As of December 31, 2020, the Company had $ 12,993 of capital expenditures that were incurred in the current year, but not yet paid.

MDC PARTNERS INC.

4 unchanged sentences

A summary of the Company’s revenue by geographic region at December 31 is set forth in the following table.

United States

United States Canada Other Total

2020 $ 959,636 $ 81,930 $ 157,445 $ 1,199,011

2019 $ 1,116,045 $ 105,067 $ 194,691 $ 1,415,803

2018 $ 1,152,399 $ 124,001 $ 198,688 $ 1,475,088

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

2020 $ 327,742 $ 259,678 $ 283,423 $ 328,168

2019 $ 328,791 $ 362,130 $ 342,907 $ 381,975

Cost of services sold:

2020 $ 222,693 $ 165,632 $ 172,531 $ 209,043

2019 $ 237,154 $ 240,749 $ 222,448 $ 260,725

Net Income (loss):

2020 $ 1,794 $ 2,508 $ 14,804 $ ( 226,303 )

2019 $ 316 $ 7,333 $ 5,513 $ ( 2,259 )

Net income (loss) attributable to MDC Partners Inc.:

2020 $ 1,003 $ ( 593 ) $ 4,076 $ ( 233,457 )

2019 $ ( 113 ) $ 4,290 $ ( 1,752 ) $ ( 7,678 )

Income (loss) per common share:

2020 $ ( 0.03 ) $ ( 0.06 ) $ ( 0.07 ) $ ( 3.23 )

2019 $ ( 0.04 ) $ 0.01 $ ( 0.07 ) $ ( 0.15 )

2020 $ ( 0.03 ) $ ( 0.06 ) $ ( 0.07 ) $ ( 3.23 )

2019 $ ( 0.04 ) $ 0.01 $ ( 0.07 ) $ ( 0.15 )

The above revenue, cost of services sold, and income (loss) have primarily been affected by acquisitions and divestitures.

1 unchanged sentence

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:

The fourth quarter of 2019 and 2018 included a foreign exchange gain of $4,349 and a loss of $13,324 , respectively.

Income (loss) has been affected as follows:

• The fourth quarter of 2020 and 2019 included a foreign exchange gain of $ 6,274 and a gain of $ 4,349 , respectively.

• The fourth quarter of 2020 and 2019 included stock-based compensation charges of $ 3,611 and $ 18,408 , respectively.

• The fourth quarter of 2020 and 2019 included changes in deferred acquisition resulting in income of $ 41,672 and $ 9,030 , respectively.

The fourth quarter of 2019 and 2018 included goodwill, right-of-use assets and related leasehold improvement impairment charges of $5,875 and goodwill and other asset impairment charges of $56,732 , respectively.

MDC PARTNERS INC.

3 unchanged sentences

Quarterly Results of Operations (Unaudited) - (continued)

The fourth quarter of 2019 included income tax benefit of $ 2,830 relating to the decrease to the Company’s valuation allowance.

The fourth quarter of 2018 included income tax expense related to the increase of the Company’s valuation allowance of $49,447 .

• The fourth quarter of 2020 and 2019 included goodwill, intangible asset, right-of-use asset, related leasehold improvement impairment charges, and expenses to accelerate the variable costs associated with certain leases of $ 77,240 and goodwill, right-of-use assets and related leasehold improvement impairment charges of $ 6,655 , respectively.

• The fourth quarter of 2020 included income tax expense of approximately $129 million, related to the increase in the valuation allowance primarily for U.S.

deferred tax assets.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data