Stagwell Inc 10-K

Item 8. Financial Statements and Supplementary Data MDC PARTNERS INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Financial Statements: Report of Independent Registered Public Accounting Firm 49 Consolidated Statements of Operations for each of the Three Years in the Period Ended December 31, 2020 51 Consolidated Statements of Comprehensive Income (Loss) for each of the Three Years in the Period Ended December 31, 2020 52 Consolidated Balance Sheets as of December 31, 2020 and 2019 53 Consolidated Statements of Cash Flows for each of the Three Years in the Period Ended December 31, 2020 54 Consolidated Statements of Shareholders’ Deficit for each of the Three Years in the Period Ended December 31, 2020 56 Notes to Consolidated Financial Statements 58 Financial Statement Schedules: Schedule II — Valuation and Qualifying Accounts for each of the Three Years in the Period Ended December 31, 20 2 0 98 48 T a b l e o f C o n t e n t s Report of Independent Registered Public Accounting Firm Board of Directors and Shareholders MDC Partners Inc. New York, New York Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of MDC Partners Inc. (the “Company”) and subsidiaries as of December 31, 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, 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 As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases on January 1, 2019 due to the adoption of Accounting Standards Codification, Leases (“ASC 842”). Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. 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. A higher 49 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: a. 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. b. 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 We have served as the Company's auditor since 2006. New York, New York March 16, 2021 50 T a b l e o f C o n t e n t s MDC PARTNERS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (thousands of United States dollars, except per share amounts) Years Ended December 31, 2020 2019 2018 Revenue: Services $ 1,199,011 $ 1,415,803 $ 1,475,088 Operating Expenses: Cost of services sold 769,899 961,076 991,198 Office and general expenses 341,565 328,339 349,056 Depreciation and amortization 36,905 38,329 46,196 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 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 (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 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 ) Loss Per Common Share: Basic Net loss attributable to MDC Partners Inc. common shareholders $ ( 3.34 ) $ ( 0.25 ) $ ( 2.42 ) Diluted Net loss attributable to MDC Partners Inc. common shareholders $ ( 3.34 ) $ ( 0.25 ) $ ( 2.42 ) Weighted Average Number of Common Shares Outstanding: 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. 51 T a b l e o f C o n t e n t s MDC PARTNERS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (thousands of United States dollars) Years Ended December 31, 2020 2019 2018 Comprehensive Income (Loss) Net income (loss) $ ( 207,197 ) $ 10,903 $ ( 118,222 ) Other comprehensive income (loss), net of applicable tax: Foreign currency translation adjustment 9,092 ( 6,691 ) 3,158 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 Comprehensive income (loss) for the period ( 199,459 ) 2,301 ( 114,509 ) Comprehensive income attributable to the noncontrolling interests ( 22,504 ) ( 16,543 ) ( 8,824 ) Comprehensive loss attributable to MDC Partners Inc. $ ( 221,963 ) $ ( 14,242 ) $ ( 123,333 ) See notes to the Consolidated Financial Statements. 52 T a b l e o f C o n t e n t s MDC PARTNERS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (thousands of United States dollars) December 31, 2020 December 31, 2019 ASSETS Current Assets: Cash and cash equivalents $ 60,757 $ 106,933 Accounts receivable, less allowance for doubtful accounts of $5,473 and $3,304 374,892 449,288 Expenditures billable to clients 10,552 30,133 Other current assets 40,939 35,613 Total Current Assets 487,140 621,967 Fixed assets, at cost, less accumulated depreciation of $136,166 and $129,579 90,413 81,054 Right-of-use assets - operating leases 214,188 223,622 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 Current Liabilities: Accounts payable $ 168,398 $ 200,148 Accruals and other liabilities 274,968 353,575 Advance billings 152,956 171,742 Current portion of lease liabilities - operating leases 41,208 48,659 Current portion of deferred acquisition consideration 53,730 45,521 Total Current Liabilities 691,260 819,645 Long-term debt 843,184 887,630 Long-term portion of deferred acquisition consideration 29,335 29,699 Long-term lease liabilities - operating leases 247,243 219,163 Other liabilities 82,065 25,771 Total Liabilities 1,893,087 1,981,908 Redeemable Noncontrolling Interests 27,137 36,973 Commitments, Contingencies and Guarantees (Note 14) Shareholders’ Deficit: 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 income (loss) 2,739 ( 4,269 ) MDC Partners Inc. Shareholders' Deficit ( 449,899 ) ( 230,833 ) Noncontrolling interests 40,989 40,258 Total Shareholders' Deficit ( 408,910 ) ( 190,575 ) Total Liabilities, Redeemable Noncontrolling Interests and Shareholders' Deficit $ 1,511,314 $ 1,828,306 See notes to the Consolidated Financial Statements. 53 Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (thousands of United States dollars) Years Ended December 31, 2020 2019 2018 Cash flows from operating activities: Net income (loss) $ ( 207,197 ) $ 10,903 $ ( 118,222 ) Adjustments to reconcile net income (loss) to cash provided by operating activities: Stock-based compensation 14,179 31,040 18,416 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 on sale of assets and other 771 ( 4,107 ) 22,451 Changes in working capital: Accounts receivable 72,453 ( 37,763 ) 31,326 Expenditures billable to clients 19,581 12,236 ( 11,223 ) Prepaid expenses and other current assets 24,840 3,474 ( 17,189 ) Accounts payable, accruals and other current liabilities ( 144,123 ) ( 14,077 ) ( 18,222 ) Acquisition related payments ( 13,330 ) ( 5,223 ) ( 29,141 ) Cash in trusts — — ( 656 ) Advance billings ( 18,662 ) 32,934 ( 14,871 ) Net cash provided by operating activities 32,559 86,539 17,280 Cash flows from investing activities: Capital expenditures ( 24,310 ) ( 18,596 ) ( 20,264 ) Proceeds from sale of assets 19,616 23,050 2,082 Acquisitions, net of cash acquired ( 1,816 ) ( 4,823 ) ( 32,713 ) 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 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 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 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 ) Change in cash and cash equivalents held in trusts classified within held for sale — ( 3,307 ) ( 8,298 ) Change in cash and cash equivalents classified within assets held for sale — 4,441 — Net increase (decrease) in cash and cash equivalents ( 46,176 ) 76,060 ( 19,938 ) Cash and cash equivalents at beginning of period 106,933 30,873 50,811 Cash and cash equivalents at end of period $ 60,757 $ 106,933 $ 30,873 54 Table of Contents 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: Cash income taxes paid $ 7,946 $ 2,296 $ 3,836 Cash interest paid $ 57,752 $ 62,223 $ 64,012 See notes to the Consolidated Financial Statements. 55 Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT (thousands of United States dollars, except per share amounts) Twelve Months Ended 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 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. — — — — ( 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 ) Stock-based compensation — — — 6,629 — — 6,629 — 6,629 Changes in redemption value of redeemable noncontrolling interests — — — ( 2,800 ) — — ( 2,800 ) — ( 2,800 ) Business acquisitions and step-up transactions, net of tax — — — 1,626 — — 1,626 — 1,626 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 ) Twelve Months Ended 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 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 income attributable to MDC Partners Inc. — — — — ( 5,253 ) — ( 5,253 ) — ( 5,253 ) Other comprehensive income (loss) — — — — — ( 8,989 ) ( 8,989 ) 387 ( 8,602 ) 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 ) Stock-based compensation — — — 3,655 — — 3,655 — 3,655 Changes in redemption value of redeemable noncontrolling interests — — — 3,160 — — 3,160 — 3,160 Business acquisitions and step-up transactions, net of tax — — — 1,911 — — 1,911 — 1,911 Changes in ownership interest — — — ( 91 ) — — ( 91 ) ( 24,642 ) ( 24,733 ) 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 ) 56 Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT - (continued) (thousands of United States dollars, except per share amounts) Twelve Months Ended 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 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 loss attributable to MDC Partners Inc. — — — — ( 130,007 ) — ( 130,007 ) — ( 130,007 ) Other comprehensive income (loss) — — — — — 6,674 6,674 ( 2,961 ) 3,713 Expenses for convertible preference shares — ( 97 ) — — — — ( 97 ) — ( 97 ) Vesting of restricted awards — — 243,529 — — — — — — Shares acquired and cancelled — — ( 108,898 ) ( 776 ) — — ( 776 ) — ( 776 ) Shares issued, acquisitions — — 1,011,561 7,030 — — 7,030 — 7,030 Stock-based compensation — — — 8,165 — — 8,165 — 8,165 Changes in redemption value of redeemable noncontrolling interests — — — ( 4,171 ) — — ( 4,171 ) — ( 4,171 ) Business acquisitions and step-up transactions, net of tax — — — 10,140 — — 10,140 15,410 25,550 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 ) See notes to the Consolidated Financial Statements. 57 Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 1. Basis of Presentation and Recent Developments The accompanying consolidated financial statements include the accounts of MDC Partners Inc. (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 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. Certain reclassifications have been made to the prior year financial information to conform to the current year presentation. 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 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 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. Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 1. 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. 2. Significant Accounting Policies The Company’s significant accounting policies are summarized as follows: Principles of Consolidation . The accompanying consolidated financial statements include the accounts of MDC Partners Inc. and its domestic and international controlled subsidiaries that are not considered variable interest entities, and variable interest entities for which the Company is the primary beneficiary. Intercompany balances and transactions have been eliminated in consolidation. Use of Estimates . 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. These estimates require the use of assumptions about future performance, which are uncertain at the time of estimation. To the extent actual results differ from the assumptions used, results of operations and cash flows could be materially affected. Fair Value . The Company applies the fair value measurement guidance for financial assets and liabilities that are required to be measured at fair value and for non-financial assets and liabilities that are not required to be measured at fair value on a recurring basis, including goodwill, right-of-use assets and other identifiable intangible assets. See Note 18 of the Notes to the Consolidated Financial Statements included herein for additional information regarding fair value measurements. Concentration of Credit Risk . The Company provides marketing communications services to clients who operate in most industry sectors. Credit is granted to qualified clients in the ordinary course of business. Due to the diversified nature of the Company’s client base, the Company does not believe that it is exposed to a concentration of credit risk. No client accounted for more than 10% of the Company’s consolidated accounts receivable as of December 31, 2020 or December 31, 2019. No sales to an individual client or country other than in the United States accounted for more than 10% of revenue for the fiscal years ended December 31, 2020, 2019, or 2018. As the Company operates in foreign markets, it is always considered at least reasonably possible foreign operations will be disrupted in the near term. Cash and Cash Equivalents . The Company’s cash equivalents are primarily comprised of investments in overnight interest-bearing deposits, money market instruments and other short-term investments with original maturity dates of three months or less at the time of purchase. The Company has a concentration of credit risk in that there are cash deposits in excess of federally insured amounts. Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 2. Significant Accounting Policies - (continued) Allowance for Doubtful Accounts . Trade receivables are stated at invoiced amounts less allowances for doubtful accounts. The allowances represent estimated uncollectible receivables associated with potential customer defaults usually due to customers’ potential insolvency. The allowances include amounts for certain customers where a risk of default has been specifically identified. The assessment of the likelihood of customer defaults is based on various factors, including the length of time the receivables are past due, historical experience and existing economic conditions. Expenditures Billable to Clients . Expenditures billable to clients consist principally of outside vendor costs incurred on behalf of clients when providing services that have not yet been invoiced to clients. Such amounts are invoiced to clients at various times over the course of the production process. Fixed Assets . Fixed assets are stated at cost, net of accumulated depreciation. Computers, furniture and fixtures are depreciated on a straight-line basis over periods of three to seven years. Leasehold improvements are depreciated on a straight-line basis over the lesser of the term of the related lease or the estimated useful life of the asset. Repairs and maintenance costs are expensed as incurred. Leases . 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 10 of the Notes to the Consolidated Financial Statements included herein for further information on leases. Impairment of Long-lived Assets . A long-lived asset or asset group is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. When such events occur, the Company compares the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group to the carrying amount of such asset or asset group. If this comparison indicates that there is an impairment, the amount of the impairment is typically calculated using discounted expected future cash flows where observable fair values are not readily determinable. The discount rate applied to these cash flows is based on the Company’s weighted average cost of capital (“WACC”), risk adjusted where appropriate, or other appropriate discount rate. Equity Method Investments . Equity method investments are investments in entities in which the Company has an ownership interest of less than 50% and has significant influence, or joint control by contractual arrangement, (i) over the operating and financial policies of the affiliate or (ii) has an ownership interest greater than 50%; however, the substantive participating rights of the noncontrolling interest shareholders preclude the Company from exercising unilateral control over the operating and financial policies of the affiliate. The Company ’ s proportionate share of the net income or loss of equity method investments is included in the results of operations and any dividends and distributions reduce the carrying value of the investments. The Company’s equity method investments, include various interests in investment funds. 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. Other Investments . From time to time, the Company makes investments in start-ups, such as advertising technology and innovative consumer product companies, where the Company does not exercise significant influence over the operating and financial policies of the investee. Non-marketable equity investments 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. For investments that don’t have readily determinable fair values, and don’t qualify for certain criteria, an alternative for measurement exists. The alternative is to measure these investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The Company has elected to measure these investments under the alternative method. The Company performs a qualitative assessment to review these investments for impairment by identifying any impairment indicators, such as significant deterioration of earnings or significant change in the industry. If the qualitative assessment indicates an investment is impaired, the Company estimates the fair value and reduces the carrying value of the investment down to its fair value with the loss recorded within net income or loss. Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 2. Significant Accounting Policies - (continued) Goodwill . 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. For the annual impairment test, the Company has the option of assessing qualitative factors to determine whether it is more likely than not that the carrying amount of a reporting unit exceeds its fair value or performing a quantitative goodwill impairment test. Qualitative factors considered in the assessment include industry and market considerations, the competitive environment, overall financial performance, changing cost factors such as labor costs, and other factors specific to each reporting unit such as change in management or key personnel. If the Company elects to perform the qualitative assessment and concludes that it is more likely than not that the fair value of the reporting unit is more than its carrying amount, then goodwill is not considered impaired and the quantitative impairment test is not necessary. For reporting units for which the qualitative assessment concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount and for reporting units for which the qualitative assessment is not performed, the Company will perform the quantitative impairment test, which compares the fair value of the reporting unit to its carrying amount. If the fair value of the reporting unit exceeds the carrying amount of the net assets assigned to that reporting unit, goodwill is not considered impaired. However, if the fair value of the reporting unit is lower than the carrying amount of the net assets assigned to the reporting unit, an impairment charge is recognized equal to the excess of the carrying amount over the fair value. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. For the 2020 annual impairment test, the Company used an income approach, which incorporates the use of the discounted cash flow (“DCF”) method. The income approach requires the exercise of significant judgment, including judgment about the amount and timing of expected future cash flows, assumed terminal value and appropriate discount rates. The DCF estimates incorporate expected cash flows that represent a spectrum of the amount and timing of possible cash flows of each reporting unit from a market participant perspective. The expected cash flows are developed from the Company’s long-range planning process using projections of operating results and related cash flows based on assumed long-term growth rates, demand trends and appropriate discount rates based on a reporting unit’s WACC as determined by considering the observable WACC of comparable companies and factors specific to the reporting unit. The terminal value is estimated using a constant growth method which requires an assumption about the expected long-term growth rate. The estimates are based on historical data and experience, industry projections, economic conditions, and the Company’s expectations. See Note 8 of the Notes to the Consolidated Financial Statements included herein for additional information regarding the Company’s impairment test. Definite Lived Intangible Assets . Definite lived intangible assets are subject to amortization over their useful lives. The method of amortization selected reflects the pattern in which the economic benefits of the specific intangible asset is consumed or otherwise used. If that pattern cannot be reliably determined, a straight-line amortization method is used over the estimated useful life. Intangible assets that are subject to amortization are reviewed for potential impairment at least annually or whenever events or circumstances indicate that carrying amounts may not be recoverable. 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. Business Combinations. Business combinations are accounted for using the acquisition method and accordingly, the assets acquired (including identified intangible assets), the liabilities assumed and any noncontrolling interest in the acquired business are recorded at their acquisition date fair values. 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 the estimated value. This approach includes consideration of similar and recent transactions, as well as utilizing discounted expected cash flow methodologies. A substantial portion of the intangible assets value that the Company acquires is the specialized know-how of the workforce, which is treated as part of goodwill and is not required to be valued separately. The majority of the value of the identifiable intangible assets acquired is derived from customer relationships, including the related customer contracts, as well as trademarks. Deferred Acquisition Consideration . 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 Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 2. 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 the results of operations. Redeemable Noncontrolling Interests . Many of the Company’s acquisitions include contractual arrangements where the noncontrolling shareholders have an option to purchase, or may require the Company to purchase, such noncontrolling shareholders’ incremental ownership interests under certain circumstances. The Company has similar call options under the same contractual terms. The amount of consideration under these contractual arrangements is not a fixed amount, but rather is dependent upon various valuation formulas, such as the average earnings of the relevant subsidiary through the date of exercise or the growth rate of the earnings of the relevant subsidiary during that period. In the event that an incremental purchase may be required 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. See Note 13 of the Notes to the Consolidated Financial Statements for detail on the impact on the Company’s earnings (loss) per share calculation. Subsidiary and Equity Investment Stock Transactions. Transactions involving the purchase, sale or issuance of stock of a subsidiary where control is maintained are recorded as a reduction in the redeemable noncontrolling interests or noncontrolling interests, as applicable. Any difference between the purchase price and noncontrolling interest is recorded to 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 the results of operations. Revenue Recognition . The Company’s revenue is recognized when control of the promised goods or services is transferred to our clients, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. See Note 5 of the Notes to the Consolidated Financial Statements included herein for additional information. Cost of Services Sold . Cost of services sold primarily consists of staff costs, and does not include depreciation charges for fixed assets. Interest Expense . The Company uses the effective interest method to amortize deferred financing costs and any original issue premium or discount, if applicable. The Company also uses the straight-line method, which approximates the effective interest method, to amortize the deferred financing costs on the Credit Agreement. Income Taxes. 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. A change to any of these factors could impact the estimated valuation allowance and income tax expense. Stock-Based Compensation . Under the fair value method, compensation cost is measured at fair value at the date of grant and is expensed over the service period, generally the award’s vesting period. The Company uses its historical volatility derived over the expected term of the award to determine the volatility factor used in determining the fair value of the award. The Company recognizes forfeitures as they occur. Stock-based awards that are settled in cash or equity at the option of the Company are recorded at fair value on the date of grant. The fair value measurement of the compensation cost for these awards is based on using the Black-Scholes option Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 2. 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. The Company commences recording compensation expense related to awards that are based on performance conditions under the straight-line attribution method when it is probable that such performance conditions will be met. From time to time, certain acquisitions and step-up transactions include an element of compensation related payments. The Company accounts for those payments as stock-based compensation. Retirement Costs . Several of the Company’s subsidiaries offer employees access to certain defined contribution retirement programs. Under the defined contribution plans, these subsidiaries, in some cases, make annual contributions to participants’ accounts which are subject to vesting. The Company’s contribution expense pursuant to these plans was $ 8,203 , $ 11,909 and $ 11,136 for the years ended December 31, 2020, 2019, and 2018, respectively. The Company also has a defined benefit pension plan. See Note 12 of the Notes to the Consolidated Financial Statements included herein for additional information on the defined benefit plan. Income (Loss) per Common Share . Basic income (loss) per common share is based upon the weighted average number of common shares outstanding during each period. Diluted income (loss) per common share is based on the above, in addition, if dilutive, common share equivalents, which include outstanding options, stock appreciation rights, and unvested restricted stock units. In periods of net loss, all potentially issuable common shares are excluded from diluted net loss per common share because they are anti-dilutive. The Company has 145,000 authorized and issued convertible preference shares. The two-class method is applied to calculate basic net income (loss) attributable to MDC Partners Inc. per common share in periods in which shares of convertible preference shares are outstanding, as shares of convertible preference shares are participating securities due to their dividend rights. See Note 15 of the Notes to the Consolidated Financial Statements included herein for additional information. The two-class method is an earnings allocation method under which earnings per share is calculated for common stock considering a participating security’s rights to undistributed earnings as if all such earnings had been distributed during the period. Either the two-class method or the if-converted method is applied to calculate diluted net income per common share, depending on which method results in more dilution. The Company’s participating securities are not included in the computation of net loss per common share in periods of net loss because the convertible preference shareholders have no contractual obligation to participate in losses. Foreign Currency Translation . The functional currency of the Company is the Canadian dollar; however, it has decided to use U.S. dollars as its reporting currency for consolidated reporting purposes. Generally, the Company’s subsidiaries use their local currency as their functional currency. Accordingly, the currency impacts of the translation of the Consolidated Balance Sheets of the Company and its non-U.S. dollar based subsidiaries to U.S. dollar statements are included as cumulative translation adjustments in Accumulated other comprehensive income (loss). Translation of intercompany debt, which is not intended to be repaid, is included in cumulative translation adjustments. Cumulative translation adjustments are not included in net earnings (loss) unless they are actually realized through a sale or upon complete, or substantially complete, liquidation of the Company’s net investment in the foreign operation. Translation of current intercompany balances are included in net earnings (loss). The balance sheets of non-U.S. dollar based subsidiaries are translated at the period end rate. The Consolidated Statements of Operation of the Company and its non-U.S. dollar based subsidiaries are translated at average exchange rates for the period. Gains and losses arising from the Company’s foreign currency transactions are reflected in net earnings. Unrealized gains or losses arising on the translation of certain intercompany foreign currency transactions that are of a long-term nature (that is settlement is not planned or anticipated in the future) are included as cumulative translation adjustments in Accumulated other comprehensive (loss) income. 3. 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. Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 4. 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 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 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 a result of the transaction, the Company reduced redeemable noncontrolling interests by $ 9,486 . The difference between the purchase price and the noncontrolling interest of $ 745 was recorded in common stock and other paid-in capital in the Consolidated Balance Sheets. 2019 Disposition 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 $ 50,000 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. 5. Revenue 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 Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 5. 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. The primary source of the Company’s revenue is from agency arrangements in the form of fees for services performed, commissions, and from performance incentives or bonuses, depending on the terms of the client contract. In all circumstances, revenue is only recognized when collection is reasonably assured. Certain of the Company’s contractual arrangements have more than one performance obligation. For such arrangements, revenue is allocated to each performance obligation based on its relative stand-alone selling price. Stand-alone selling prices are determined based on the prices charged to clients or using expected cost plus margin. The determination of our performance obligations is specific to the services included within each contract. Based on a client’s requirements within the contract, and how these services are provided, multiple services could represent separate performance obligations or be combined and considered one performance obligation. Contracts that contain services that are not significantly integrated or interdependent, and that do not significantly modify or customize each other, are considered separate performance obligations. Typically, we consider media planning, media buying, creative (or strategy), production and experiential marketing services to be separate performance obligations if included in the same contract as each of these services can be provided on a stand-alone basis, and do not significantly modify or customize each other. Public relations services and application/website design and development are typically each considered one performance obligation as there is a significant integration of these services into a combined output. We typically satisfy our performance obligations over time, as services are performed. Fees for services are typically recognized using input methods (direct labor hours, materials and third-party costs) that correspond with efforts incurred to date in relation to total estimated efforts to complete the contract. Point in time recognition primarily relates to certain commission-based contracts, which are recognized upon the placement of advertisements in various media when the Company has no further performance obligation. Revenue is recognized net of sales and other taxes due to be collected and remitted to governmental authorities. The Company’s contracts typically provide for termination by either party within 30 to 90 days. Although payment terms vary by client, they are typically within 30 to 60 days. In addition, the Company generally has the right to payment for all services provided through the end of the contract or termination date. Within each contract, we identify whether the Company is principal or agent at the performance obligation level. In arrangements where the Company has substantive control over the service before transferring it to the client, and is primarily responsible for integrating the services into the final deliverables, we act as principal. In these arrangements, revenue is recorded at the gross amount billed. Accordingly, for these contracts the Company has included reimbursed expenses in revenue. In other arrangements where a third-party supplier, rather than the Company, is primarily responsible for the integration of services into the final deliverables, and thus the Company is solely arranging for the third-party supplier to provide these services to our client, we generally act as agent and record revenue equal to the net amount retained, when the fee or commission is earned. The role of MDC’s agencies under a production services agreement is to facilitate a client’s purchasing of production capabilities from a third-party production company in accordance with the client’s strategy and guidelines. The obligation of MDC’s agencies under media buying services is to negotiate and purchase advertising media from a third-party media vendor on behalf of a client to execute its media plan. We do not obtain control prior to transferring these services to our clients; therefore, we primarily act as agent for production and media buying services. A small portion of the Company’s contractual arrangements with clients include performance incentive provisions, which allow the Company to earn additional revenues as a result of its performance relative to both quantitative and qualitative goals. Incentive compensation is primarily estimated using the most likely amount method and is included in revenue up to the amount that is not expected to result in a reversal of a significant amount of cumulative revenue recognized. We recognize revenue related to performance incentives as we satisfy the performance obligation to which the performance incentives are related. Disaggregated Revenue Data The Company provides a broad range of services to a large base of clients across the full spectrum of industry verticals on a global basis. The primary source of revenue is from agency arrangements in the form of fees for services performed, commissions, and from performance incentives or bonuses. Certain clients may engage with the Company in various geographic locations, across multiple disciplines, and through multiple Partner Firms. Representation of a client rarely means Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 5. Revenue - (continued) 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, 2020, 2019 and 2018: Twelve Months Ended December 31, 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 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. The following table presents revenue disaggregated by geography for the twelve months ended December 31, 2020, 2019 and 2018: Twelve Months Ended December 31, 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 Contract assets consist of fees and reimbursable outside vendor costs incurred on behalf of clients when providing advertising, marketing and corporate communications services that have not yet been invoiced to clients. Unbilled service fees were $ 49,110 and $ 65,004 at December 31, 2020 and December 31, 2019, respectively, and are included as a component of Accounts receivable on the Consolidated Balance Sheets. Outside vendor costs incurred on behalf of clients which have yet to be invoiced were $ 10,552 and $ 30,133 at December 31, 2020 and December 31, 2019, respectively, and are included on the Consolidated Balance Sheets as Expenditures billable to clients. Such amounts are invoiced to clients at various times over the course of providing services. Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 5. Revenue - (continued) 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. For those contracts with a term of more than one year , we had approximately $ 6,105 of unsatisfied performance obligations as of December 31, 2020, of which we expect to recognize approximately 92 % in 2021, and 8 % in 2022. 6. 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, 2020 2019 2018 Numerator: 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 loss attributable to MDC Partners Inc. common shareholders $ ( 243,150 ) $ ( 17,557 ) $ ( 138,362 ) Denominator: Basic weighted average number of common shares outstanding 72,862,178 69,132,100 57,218,994 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 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 loss per common share calculation. Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 7. Fixed Assets The following is a summary of the Company’s fixed assets as of December 31: 2020 2019 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. 8. Goodwill and Intangible Assets As of December 31, goodwill was as follows: 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 Acquired goodwill — 1,025 — — 1,025 Impairment loss recognized ( 4,879 ) — — — ( 4,879 ) Transfer of goodwill between segments (1) — ( 120 ) 3,612 ( 3,492 ) — Foreign currency translation — 423 217 2,153 2,793 Balance at December 31, 2019 $ 134,573 $ 268,387 $ 105,597 $ 223,134 $ 731,691 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 ) — 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) Transfers of goodwill relate to changes in segments. 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. Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 8. Goodwill and Intangible Assets - (continued) The gross and net amounts of acquired intangible assets other than goodwill as of December 31, Intangible Assets 2020 2019 Trademark (indefinite life) $ — $ 14,600 Customer relationships – gross $ 52,594 $ 58,211 Less accumulated amortization ( 32,667 ) ( 32,671 ) Customer relationships – net $ 19,927 $ 25,540 Trademarks (definite life) – gross $ 32,711 $ 28,695 Less accumulated amortization ( 18,794 ) ( 13,942 ) Trademarks (definite life) – net $ 13,917 $ 14,753 Total intangible assets $ 85,305 $ 101,506 Less accumulated amortization ( 51,461 ) ( 46,613 ) Total intangible assets – net $ 33,844 $ 54,893 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 . Amortization expense related to amortizable intangible assets for the years ended December 31, 2020, 2019, and 2018 was $ 11,260 , $ 11,828 , and $ 17,290 , respectively. The estimated amortization expense for the five succeeding years is as follows: Year Amortization 2021 $ 8,514 2022 8,062 2023 7,711 2024 4,558 Thereafter 4,999 9. Deferred Acquisition Consideration Deferred acquisition consideration on the balance sheet consists of deferred obligations related to contingent and fixed purchase price payments, and to a lesser extent, contingent and fixed retention payments tied to continued employment of specific personnel. 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, 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. Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 9. Deferred Acquisition Consideration - (continued) December 31, 2020 2019 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 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: 2020 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 10. Leases The Company leases office space in North America, Europe, Asia, South America, and Australia. This space is primarily used for office and administrative purposes by the Company’s employees in performing professional services. These leases are classified as operating leases and expire between years 2021 through 2032. The Company’s finance leases are immaterial. The Company’s leasing policies are established in accordance with ASC 842, and accordingly, 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. Right-of-use lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. All right-of-use lease assets are reviewed for impairment. 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 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. Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 10. Leases - (continued) 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. From time to time, the Company enters into sublease arrangements both with unrelated third parties and with our partner agencies. These leases are classified as operating leases and expire between 2021 through 2025. Sublease income is recognized over the lease term on a straight-line basis. 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, 2020 2019 Lease Cost: Operating lease cost $ 71,257 $ 67,044 Variable lease cost 14,640 18,879 Sublease rental income ( 11,329 ) ( 8,965 ) Total lease cost $ 74,568 $ 76,958 Additional information: Cash paid for amounts included in the measurement of lease liabilities for operating leases Operating cash flows $ 70,277 $ 69,735 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, 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 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 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: Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 10. Leases - (continued) Maturity Analysis 2021 $ 68,375 2022 60,252 2023 56,842 2024 49,909 2025 38,880 2026 and thereafter 150,950 Total 425,208 Less: Present value discount ( 136,757 ) Lease liability $ 288,451 11. Debt As of December 31, 2020 and 2019, the Company’s indebtedness was comprised as follows: December 31, 2020 December 31, 2019 Revolving credit agreement $ — $ — 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 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. Senior Notes On March 23, 2016, MDC entered into an indenture (the “Indenture”) among MDC, its existing and future restricted subsidiaries that guarantee, are co-borrowers under, or grant liens to secure, the Credit Agreement (as 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 Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 11. Debt - (continued) 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; pay dividends on or redeem or repurchase the capital stock of MDC; make certain types of investments; create restrictions on the payment of dividends or other amounts from MDC’s restricted subsidiaries; sell assets; enter into transactions with affiliates; create liens; enter into sale and leaseback transactions; and consolidate or merge with or into, or sell substantially all of MDC’s assets to, another person. These covenants are subject to a number of important limitations and exceptions. The 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. 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. 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 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. The Company was in compliance with all of the terms and conditions of its Credit Agreement as of December 31, 2020. At December 31, 2020 and December 31, 2019, the Company had issued undrawn outstanding letters of credit of $ 18,651 and $ 4,836 , respectively. Future Principal Repayments Future principal repayments on the Senior Notes in the aggregate principal amount of $ 870,256 are due in 2024. Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 12. 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 Net periodic pension cost consists of the following components for the years ended December 31: Pension Benefits 2020 2019 2018 Service cost $ — $ — $ — Interest cost on benefit obligation 1,426 1,640 1,641 Expected return on plan assets ( 1,924 ) ( 1,604 ) ( 1,948 ) Curtailment and settlements 2,333 626 1,039 Amortization of actuarial (gains) losses 340 266 258 Net periodic benefit cost $ 2,175 $ 928 $ 990 The above costs are included within Other, net on the Consolidated Statements of Operations. The following weighted average assumptions were used to determine net periodic costs at December 31: 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 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. Other changes in plan assets and benefit obligation recognized in Other comprehensive income (loss) consist of the following components for the years ended December 31: Pension Benefits 2020 2019 2018 Current year actuarial (gain) loss $ 2,213 $ 2,917 $ ( 520 ) Amortization of actuarial loss ( 340 ) ( 266 ) ( 258 ) Total recognized in other comprehensive (income) loss 1,873 2,651 ( 778 ) Total recognized in net periodic benefit cost and other comprehensive loss $ 4,048 $ 3,579 $ 212 Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 12. Employee Benefit Plans - (continued) 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: Benefit obligation, Beginning balance $ 43,012 $ 37,938 $ 43,750 Interest Cost 1,426 1,640 1,641 Actuarial (gains) losses 5,301 6,127 ( 3,522 ) Benefits paid ( 6,728 ) ( 2,693 ) ( 3,931 ) Benefit obligation, Ending balance 43,011 43,012 37,938 Change in plan assets: Fair value of plan assets, Beginning balance 27,206 23,181 27,977 Actual return on plan assets 2,678 4,188 ( 2,093 ) Employer contributions 2,325 2,530 1,228 Benefits paid ( 6,728 ) ( 2,693 ) ( 3,931 ) Fair value of plan assets, Ending balance 25,481 27,206 23,181 Unfunded status $ 17,530 $ 15,806 $ 14,757 Amounts recognized in the balance sheet at December 31 consist of the following: Pension Benefits 2020 2019 Non-current liability $ 17,530 $ 15,806 Net amount recognized $ 17,530 $ 15,806 Amounts recognized in Accumulated Other Comprehensive Loss before income taxes consists of the following components for the years ended December 31: Pension Benefits 2020 2019 Accumulated net actuarial losses $ 17,403 $ 15,530 Amount recognized $ 17,403 $ 15,530 In 2021, the Company estimates that it will recognize $ 413 of amortization of net actuarial losses from accumulated other comprehensive loss, net into net periodic cost related to the pension plan. The following weighted average assumptions were used to determine benefit obligations as of December 31: Pension Benefits 2020 2019 Discount rate 2.55 % 3.39 % Rate of compensation increase N/A N/A The discount rate assumptions at December 31, 2020 and 2019 were determined independently. The discount rate was derived from the effective interest rate of a hypothetical portfolio of high-quality bonds, whose cash flows match the expected future benefit payments from the plan as of the measurement date. Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 12. Employee Benefit Plans - (continued) Fair Value of Plan Assets and Investment Strategy The fair value of the plan assets as of December 31, is as follows: December 31, 2020 Level 1 Level 2 Level 3 Asset Category: Money market fund – Short term investments $ 1,039 $ 1,039 $ — $ — 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 2020 2020 2019 Asset Category: Equity securities 65.0 % 69.0 % 66.7 % Debt securities 30.0 % 27.0 % 28.6 % 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. Equity securities primarily include investments in large-cap and mid-cap companies located in the United States. Debt securities are diversified across different asset types with bonds issued in the United States as well as outside the United States. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the preceding tables. Cash Flows The pension plan contributions are deposited into a trust, and the pension plan benefit payments are made from trust assets. During 2020, the Company contributed $ 2,325 to the pension plan. The Company estimates that it will make approximately $ 2,415 in contributions to the pension plan in 2021. 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: Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 12. Employee Benefit Plans - (continued) Period Amount 2021 $ 1,802 2022 1,769 2023 1,983 2024 2,231 2025 2,171 Thereafter 10,796 13. Noncontrolling and Redeemable Noncontrolling Interests When acquiring less than 100% ownership of an entity, the Company may enter into agreements that give the Company an option to purchase, or require the Company to purchase, the incremental ownership interests under certain circumstances. Where the option to purchase the incremental ownership is within the Company’s control, the amounts are recorded as noncontrolling interests in the equity section of the Company’s Consolidated Balance Sheets. Where the incremental purchase may be required of the Company, the amounts are recorded as redeemable noncontrolling interests in mezzanine equity at their estimated acquisition date redemption value and adjusted at each reporting period for changes to their estimated redemption value through common stock and other paid-in capital (but not less than their initial redemption value), except for foreign currency translation adjustments. On occasion, the Company may initiate a renegotiation to acquire an incremental ownership interest and the amount of consideration paid may differ materially from the amounts recorded in the Company’s Consolidated Balance Sheets. Noncontrolling Interests Changes in amounts due to noncontrolling interest holders included in Accruals and other liabilities on the Consolidated Balance Sheets for the twelve months ended December 31, 2020 and 2019 were as follows: Noncontrolling Interests Balance, December 31, 2018 $ 9,278 Income attributable to noncontrolling interests 16,156 Distributions made ( 11,392 ) Other ( 14 ) Balance, December 31, 2019 $ 14,028 Income attributable to noncontrolling interests 21,774 Distributions made ( 15,192 ) Other 94 Balance, December 31, 2020 $ 20,704 Changes in the Company’s ownership interests in our less than 100% owned subsidiaries during the three years ended December 31, were as follows: Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 13. Noncontrolling & Redeemable Noncontrolling Interests - (continued) Years Ended December 31, 2020 2019 2018 Net loss attributable to MDC Partners Inc. $ ( 228,971 ) $ ( 5,253 ) $ ( 130,007 ) Transfers from the noncontrolling interest: 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 loss attributable to MDC Partners Inc. and transfers to noncontrolling interests $ ( 227,345 ) $ ( 3,342 ) $ ( 119,867 ) Redeemable Noncontrolling Interests The following table presents changes in redeemable noncontrolling interests as of December 31, 2020 and 2019: Years Ended December 31, 2020 2019 Beginning Balance $ 36,973 $ 51,546 Redemptions ( 12,289 ) ( 14,530 ) Granted — — Changes in redemption value 2,800 ( 3,163 ) Currency translation adjustments ( 347 ) 3 Other — 3,117 Ending Balance $ 27,137 $ 36,973 The noncontrolling shareholders’ ability to exercise any such option right is subject to the satisfaction of certain conditions, including conditions requiring notice in advance of exercise and specific employment termination conditions. In addition, these rights cannot be exercised prior to specified staggered exercise dates. The exercise of these rights at their earliest contractual date would result in obligations of the Company to fund the related amounts during 2021 to 2025. It is not determinable, at this time, if or when the owners of these rights will exercise all or a portion of these rights. The redeemable noncontrolling interest of $ 27,137 as of December 31, 2020, consists of $ 17,184 assuming that the subsidiaries perform over the relevant future periods at their discounted cash flows earnings level and such rights are exercised, $ 9,953 upon termination of such owner’s employment with the applicable subsidiary or death and $ 0 representing the initial redemption value (required floor) recorded for certain acquisitions in excess of the amount the Company would have to pay should the Company acquire the remaining ownership interests for such subsidiaries. These adjustments will not impact the calculation of earnings (loss) per share if the redemption values are less than the estimated fair values. For the twelve months ended December 31, 2020, 2019, and 2018, there was no related impact on the Company’s loss per share calculation. 14. Commitments, Contingencies, and Guarantees Legal Proceedings. The Company’s operating entities are involved in legal proceedings of various types. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters. Additionally, while any litigation contains an element of uncertainty, the Company has no reason to believe that the outcome of such proceedings or claims will have a material adverse effect on the financial condition or results of operations of the Company. Deferred Acquisition Consideration and Options to Purchase. 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. Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 14. Commitments, Contingencies, and Guarantees - (continued) Guarantees . Generally, the Company has indemnified the purchasers of certain assets in the event that a third party asserts a claim against the purchaser that relates to a liability retained by the Company. These types of indemnification guarantees typically extend for a number of years. Historically, the Company has not made any significant indemnification payments under such agreements and no amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification guarantees. The Company continues to monitor the conditions that are subject to guarantees and indemnifications to identify whether it is probable that a loss has occurred and would recognize any such losses under any guarantees or indemnifications in the period when those losses are probable and estimable. Commitments. 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. 15. Share Capital The authorized and outstanding share capital of the Company is as follows: Series 6 Convertible Preference Shares On March 14, 2019 (the “Series 6 Issue Date”), the Company entered into a securities purchase agreement with Stagwell Agency Holdings LLC (“Stagwell Holdings”), an affiliate of Stagwell, pursuant to which Stagwell Holdings agreed to purchase (i) 14,285,714 newly authorized Class A shares (the “Stagwell Class A Shares”) for an aggregate contractual purchase price of $ 50,000 and (ii) 50,000 newly authorized Series 6 convertible preference shares (“Series 6 Preference Shares”) for an aggregate contractual purchase price of $ 50,000 . The Company received proceeds of approximately $ 98,620 , net of fees and estimated expenses, which were primarily used to pay down existing debt under the Company’s credit facility and for general corporate purposes. The proceeds allocated to the Stagwell Class A Shares were $ 35,997 and to Series 6 Preference Shares were $ 62,623 based on their relative fair value calculated by utilizing a Monte Carlo Simulation model. In connection with the closing of the transaction, the Company increased the size of its Board and appointed two nominees designated by Stagwell Holdings. Except as required by law, the Series 6 Preference Shares do not have voting rights and are not redeemable at the option of Stagwell Holdings. The holders of the Series 6 Preference Shares have the right to convert their Series 6 Preference Shares in whole at any time and from time to time, and in part at any time and from time to time, into a number of Class A Shares equal to the then-applicable liquidation preference divided by the applicable conversion price at such time (the “Conversion Price”). The initial liquidation preference per share of each Series 6 Preference Share is $ 1,000 . The initial Conversion Price is $ 5.00 per Series 6 Preference Share, subject to customary adjustments for share splits and combinations, dividends, recapitalizations and other matters, including weighted average anti-dilution protection for certain issuances of equity or equity-linked securities. The Series 6 Preference Shares’ liquidation preference accretes at 8.0 % per annum, compounded quarterly until the five-year anniversary of the Series 6 Issue Date. 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. Holders of the Series 6 Preference Shares are entitled to dividends in an amount equal to any dividends that would otherwise have been payable on the Class A Shares issued upon conversion of the Series 6 Preference Shares. The Series 6 Preference Shares are convertible at the Company’s option (i) on and after the two-year anniversary of the Series 6 Issue Date, if the closing trading price of the Class A Shares over a specified period prior to conversion is at least 125 % of the Conversion Price or (ii) after the fifth anniversary of the Issue Date, if the closing trading price of the Class A Shares over a specified period prior to conversion is at least equal to the Conversion Price. Following certain change in control transactions of the Company in which holders of Series 6 Preference Shares are not entitled to receive cash or qualifying listed securities with a value at least equal to the liquidation preference plus accrued and unpaid dividends, (i) holders will be entitled to cash dividends on the liquidation preference at an increasing rate (beginning at 7 %), and (ii) the Company will have a right to redeem the Series 6 Preference Shares for cash at the greater of their liquidation preference plus accrued and unpaid dividends or their as-converted value. Series 4 Convertible Preference Shares Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 15. Share Capital - (continued) 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. (collectively, the “Purchaser”) pursuant to a $ 95,000 private placement. The Company received proceeds of approximately $ 90,123 , net of fees and estimated expenses, which were primarily used to pay down existing debt under the Company’s credit facility and for general corporate purposes. In connection with the closing of the transaction, the Company increased the size of its Board and appointed one nominee designated by the Purchaser. 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”). The initial liquidation preference per share of each Series 4 Preference Share is $ 1,000 . The Conversion Price of a Series 4 Preference Share is subject to customary adjustments for share splits and combinations, dividends, recapitalizations and other matters, including weighted average anti-dilution protection for certain issuances of equity or equity-linked securities. In connection with the anti-dilution protection provision triggered by the issuance of equity securities to Stagwell Holdings, the Conversion Price per Series 4 Preference Share was reduced to $ 7.42 from the initial Conversion Price of $ 10.00 . The Series 4 Preference Shares’ liquidation preference accretes at 8.0 % per annum, compounded quarterly until the five-year anniversary of the Series 4 Issue Date. During the twelve months ended December 31, 2020 and 2019, the Series 4 Preference Shares accreted at a monthly rate of approximately $ 8.84 and $ 8.17 per Series 4 Preference Share, for total accretion of $ 9,789 and $ 9,043 , respectively, bringing the aggregate liquidation preference to $ 128,539 as of December 31, 2020. The accretion is considered in the calculation of net income (loss) attributable to MDC Partners Inc. common shareholders. 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. The Series 4 Preference Shares are convertible at the Company’s option (i) on and after the two-year anniversary of the Issue Date, if the closing trading price of the Class A Shares over a specified period prior to conversion is at least 125 % of the Conversion Price or (ii) after the fifth anniversary of the Series 4 Issue Date, if the closing trading price of the Class A Shares over a specified period prior to conversion is at least equal to the Conversion Price. Following certain change in control transactions of the Company in which holders of Series 4 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 4 Preference Shares for cash at the greater of their liquidation preference plus accrued and unpaid dividends or their as-converted value. Class A Common Shares (“Class A Shares”) 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 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”) These are an unlimited number of voting shares, carrying twenty votes each, with a par value of $0, convertible at any time at the option of the holder into one Class A share for each Class B share. There were 3,743 and 3,749 Class B Shares issued and outstanding as of December 31, 2020 and 2019, respectively. 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. Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 15. Share Capital - (continued) 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 Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value 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. 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. The term of the time-based awards is generally three years with vesting up to generally three years. The vesting period of the time-based and performance awards is generally commensurate with the requisite service period. The total fair value of restricted stock and restricted stock unit awards, which vested during the years ended December 31, 2020, 2019 and 2018 was $ 5,138 , $ 4,517 and $ 3,583 , respectively. At December 31, 2020, the weighted average remaining contractual life for time based and performance-based awards was 1.07 and 1.82 years, respectively. At December 31, 2020, the unrecognized compensation expense for performance-based awards was $ 3,976 to be recognized over a weighted average period of 1.82 years. At December 31, 2020, the unrecognized compensation expense for time-based awards was $ 570 to be recognized over a weighted average period of 1.07 years. The following table summarizes information about share option awards: Share Option Awards 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 2020 and 2019. The grant date fair value of the options granted in 2018 was determined to be $ 2.23 . The assumptions for the model were as follows: expected life of 4.9 years, risk free interest rate of 2.9 %, expected volatility of 52.9 % and dividend yield of 0 %. Options granted in 2018 vest in 3 years. The term of these awards is 5 years. The vesting period of these awards is generally commensurate with the requisite service period. These awards were all forfeited in 2020. No options were exercised during 2020, 2019 and 2018. 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: Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 15. Share Capital - (continued) SAR Awards 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. 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: expected life of 3 to 4 years, risk free interest rate of 1.8 % to 2.3 %, expected volatility of 62.5 % to 67.1 % 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. No SAR awards were granted in 2018. 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 . No SAR awards were exercised during 2020, 2019 and 2018. No SAR awards vested in 2019 and 2018. At December 31, 2020, the weighted average remaining contractual life for the SAR awards was 0.8 years. At December 31, 2020, the unrecognized compensation expense for these awards was $ 402 to be recognized over a weighted average period of 0.8 years. 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 expense for the years ended December 31, 2020, 2019 and 2018 was $ 0 , $ 643 , and $ 472 , respectively. 16. Changes in Accumulated Other Comprehensive Income (Loss) The changes in accumulated other comprehensive income (loss) for the twelve months ended December 31 were: Defined Benefit 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 loss (net of tax benefit of $740) ( 1,911 ) — ( 1,911 ) Other comprehensive income ( 1,911 ) ( 7,078 ) ( 8,989 ) Balance December 31, 2019 $ ( 15,012 ) $ 10,743 $ ( 4,269 ) Other comprehensive loss before reclassifications — 8,362 8,362 Amounts reclassified from accumulated other comprehensive loss (net of tax benefit of $519) ( 1,354 ) — ( 1,354 ) Other comprehensive loss ( 1,354 ) 8,362 7,008 Balance December 31, 2020 $ ( 16,366 ) $ 19,105 $ 2,739 Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 17. Income Taxes 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): U.S. $ ( 73,227 ) $ ( 17,491 ) $ ( 76,960 ) Non-U.S. ( 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 U.S. federal $ 3,016 $ 2,638 $ 444 U.S. state and local 742 12 2 Non-U.S. 4,241 2,875 7,584 7,999 5,525 8,030 Deferred tax provision (benefit): U.S. federal 75,686 4,635 ( 10,817 ) U.S. state and local 34,404 1,130 ( 3,476 ) Non-U.S. ( 1,534 ) ( 974 ) 35,878 108,556 4,791 21,585 Income tax expense (benefit) $ 116,555 $ 10,316 $ 29,615 83 Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 17. Income Taxes - (continued) A reconciliation of income tax expense (benefit) using the U.S. federal income tax rate compared with actual income tax expense for the years ended December 31, is as follows: 2020 2019 2018 Income (loss) before income taxes, equity in non-consolidated affiliates and noncontrolling interest $ ( 88,402 ) $ 20,867 $ ( 88,669 ) Statutory income tax rate 21.0 % 21.0 % 21.0 % Tax expense (benefit) using U.S. statutory income tax rate ( 18,564 ) 4,382 ( 18,621 ) State and foreign taxes ( 3,486 ) 1,496 ( 3,944 ) 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 Change to valuation allowance 128,938 ( 2,830 ) 49,482 Effect of the difference in U.S. federal and local statutory rates 67 1,422 ( 152 ) Noncontrolling interests ( 4,649 ) ( 3,566 ) ( 2,674 ) 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 )% *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. Income taxes payable were $ 9,238 and $ 11,722 at December 31, 2020 and 2019, respectively, and were included in accrued and other liabilities on the balance sheet. It is the Company’s policy to classify interest and penalties arising in connection with unrecognized tax benefits as a component of income tax expense. Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 17. Income Taxes - (continued) The tax effects of significant temporary differences representing deferred tax assets and liabilities at December 31, were as follows: 2020 2019 Deferred tax assets: Accounting reserves and other $ 20,831 $ 10,987 Net operating loss carryforwards 47,139 60,705 Interest deductions 20,819 16,797 Refinancing charge — 669 Goodwill and intangibles 122,045 117,421 Stock compensation 1,693 1,736 Pension plan 4,856 4,414 Unrealized foreign exchange 11,995 11,373 Capital loss carryforwards 13,657 13,081 Lease liabilities 77,870 76,397 Gross deferred tax asset 320,905 313,580 Less: valuation allowance ( 198,452 ) ( 65,649 ) Net deferred tax assets 122,453 247,931 Deferred tax liabilities: Right-of-use assets $ ( 57,890 ) $ ( 67,613 ) Refinancing charge ( 1,675 ) — Withholding taxes ( 475 ) ( 546 ) Capital assets ( 1,893 ) ( 382 ) Goodwill amortization ( 88,326 ) ( 98,677 ) Total deferred tax liabilities ( 150,259 ) ( 167,218 ) Net deferred tax asset (liability) $ ( 27,806 ) $ 80,713 Deferred tax assets $ 179 $ 84,900 Deferred tax liabilities ( 27,985 ) ( 4,187 ) $ ( 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. The Company records a valuation allowance against deferred income tax assets when management believes it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Management evaluates all positive and negative evidence and considers factors such as the reversal of taxable temporary differences, 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. 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 Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 17. Income Taxes - (continued) 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. 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, and therefore have not recorded income taxes on such amounts. 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. 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: Unrecognized tax benefit - Beginning Balance $ 996 $ 887 $ 1,433 Current year positions 581 275 — 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. The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. The 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. 18. Fair Value Measurements A fair value measurement assumes a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. The hierarchy for observable and unobservable inputs used to measure fair value into three broad levels are described below: • Level 1 - Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. • Level 2 - Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. • Level 3 - Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. 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: Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 18. Fair Value Measurements - (continued) December 31, 2020 December 31, 2019 Carrying Amount Fair Value Carrying Amount Fair Value Liabilities: Senior Notes $ 870,256 $ 883,580 $ 900,000 $ 812,250 Our long-term debt includes fixed rate debt. The fair value of this instrument is based on quoted market prices in markets that are not active. Therefore, this debt is classified as Level 2 within the fair value hierarchy. 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. 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. Financial Liabilities Measured at Fair Value on a Recurring Basis 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, 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. 19. Related Party Transactions In the ordinary course of business, the Company enters into transactions with related parties, including Stagwell and its affiliates. The transactions may range in the nature and value of services underlying the arrangements. 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 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. 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. Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 19. 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. 20. 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”), 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 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”). Mr. 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. Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 20. Segment Information - (continued) 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. 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. These office and general expenses include (i) salaries and related expenses for corporate office employees, including employees dedicated to supporting the operating segments, (ii) occupancy expenses relating to properties occupied by all corporate office employees, (iii) other office and general expenses including professional fees for the financial statement audits and other public company costs, and (iv) certain other professional fees managed by the corporate office. Additional expenses managed by the corporate office that are directly related to the operating segments are allocated to the appropriate reportable segment and the All Other category. Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 20. Segment Information - (continued) Years Ended December 31, 2020 2019 2018 Revenue: 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 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 ( 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 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 ) Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 20. Segment Information - (continued) Years Ended December 31, 2020 2019 2018 Depreciation and amortization: (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: 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: 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 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. Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 20. Segment Information - (continued) A summary of the Company’s revenue by geographic region at December 31 is set forth in the following table. United States Canada Other Total Revenue: 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 21. 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. Quarters First Second Third Fourth Revenue: 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: Basic 2020 $ ( 0.03 ) $ ( 0.06 ) $ ( 0.07 ) $ ( 3.23 ) 2019 $ ( 0.04 ) $ 0.01 $ ( 0.07 ) $ ( 0.15 ) Diluted 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. Historically, with some exceptions, the Company’s fourth quarter generates the highest quarterly revenues in a year. The fourth quarter has historically been the period in the year in which the highest volumes of media placements and retail related consumer marketing occur. Income (loss) 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. Table of Contents MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of United States dollars, except per share amounts, unless otherwise stated) 21. Quarterly Results of Operations (Unaudited) - (continued) • 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. Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Not Applicable.