Stagwell Inc - Quarter Report: 2010 June (Form 10-Q)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(thousands of United States dollars, except share and per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Revenue:
Services	$	169,989		$	134,882		$	306,171		$	261,620
Operating Expenses:
Cost of services sold		116,766			88,238			213,735			174,117
Office and general expenses		39,110			30,173			73,735			61,325
Depreciation and amortization		8,039			7,604			13,872			15,197
		163,915			126,015			301,342			250,639
Operating profit		6,074			8,867			4,829			10,981
Other Income (Expenses):
Other income (expense), net		(287	)		(2,541	)		(900	)		89
Interest expense		(8,425	)		(3,723	)		(15,453	)		(7,484	)
Interest income		57			70			78			272
		(8,655	)		(6,194	)		(16,275	)		(7,123	)
Income (loss) from continuing operations before income taxes, equity in affiliates		(2,581	)		2,673			(11,446	)		3,858
Income tax expense		552			1,608			801			2,223
Income (loss) from continuing operations before equity in affiliates		(3,133	)		1,065			(12,247	)		1,635
Equity in earnings (loss) of non-consolidated affiliates		(39	)		105			(143	)		198
Income (loss) from continuing operations		(3,172	)		1,170			(12,390	)		1,833
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes		(647	)		(108	)		(647	)		(361	)
Net income (loss)		(3,819	)		1,062			(13,037	)		1,472

Net income attributable to the noncontrolling interests		(1,986	)		(983	)		(2,954	)		(1,365	)

Net income (loss) attributable to MDC Partners Inc.	$	(5,805	)	$	79		$	(15,991	)	$	107

Income (loss) Per Common Share:
Basic and Diluted:
Income (loss) from continuing operations attributable to MDC Partners Inc. common shareholders	$	(0.19	)	$	0.01		$	(0.55	)	$	0.02
Discontinued operations attributable to MDC Partners Inc. common shareholders		(0.02	)		(0.00	)		(0.02	)		(0.01	)
Net income (loss) attributable to MDC Partners Inc. common shareholders	$	(0.21	)	$	0.01		$	(0.57	)	$	0.01
Weighted Average Number of Common Shares Outstanding:
Basic		27,800,953			27,440,030			27,716,895			27,278,786
Diluted		27,800,953			27,684,194			27,716,895		27,278,786

Non cash stock-based compensation expense is included in the following line items above:
Cost of services sold	$	637		$	286		$	1,317		$	497
Office and general expenses		2,251			1,759			5,038			3,445
Total	$	2,888		$	2,045		$	6,355		$	3,942

See notes to the unaudited condensed consolidated financial statements.

MDC PARTNERS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(thousands of United States dollars)

	June 30, 2010			December 31, 2009
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	47,454		$	51,926
Accounts receivable, less allowance for doubtful accounts of $2,280 and $2,034		146,346			118,211
Expenditures billable to clients		44,708			24,003
Other current assets		10,603			8,105
Total Current Assets		249,111			202,245
Fixed assets, at cost, less accumulated depreciation of $89,247 and $82,752		37,073			35,375
Investment in affiliates		1,385			1,547
Goodwill		415,541			301,632
Other intangibles assets, net		57,164			34,715
Deferred tax asset		12,546			12,542
Other assets		19,166			16,463
Total Assets	$	791,986		$	604,519
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND EQUITY
Current Liabilities:
Accounts payable	$	88,721		$	77,450
Accruals and other liabilities		59,299			66,967
Advance billings		122,957			65,879
Current portion of long-term debt		1,502			1,456
Current portion of deferred acquisition consideration		23,640			30,645
Total Current Liabilities		296,119			242,397
Revolving credit facility		—			—
Long-term debt		284,640			216,490
Long-term portion of deferred acquisition consideration		40,328			—
Other liabilities		8,519			8,707
Deferred tax liabilities		8,989			9,051

Total Liabilities		638,595			476,645

Redeemable Noncontrolling Interests (Note 2)		34,626			33,728
Commitments, contingencies and guarantees (Note 13)
Shareholders’ Equity:
Preferred shares, unlimited authorized, none issued		—			—
Class A Shares, no par value, unlimited authorized, 27,818,986 and 27,566,815 shares issued in 2010 and 2009		220,029			218,532
Class B Shares, no par value, unlimited authorized, 2,503 shares issued in 2010 and 2009, each convertible into one Class A share		1			1
Additional paid-in capital		6,491			9,174
Accumulated deficit		(147,151	)		(131,160	)
Stock subscription receivable		(217	)		(341	)
Accumulated other comprehensive loss		(5,420	)		(5,880	)

MDC Partners Inc. Shareholders’ Equity		73,733			90,326
Noncontrolling Interests		45,032			3,820
Total Equity		118,765			94,146
Total Liabilities, Redeemable Noncontrolling Interests and Equity	$	791,986		$	604,519

See notes to the unaudited condensed consolidated financial statements.

MDC PARTNERS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(thousands of United States dollars)

	Six Months Ended June 30,
	2010			2009

Cash flows from operating activities:
Net income (loss)	$	(13,037	)	$	1,472
Net income attributable to the noncontrolling interests		(2,954	)		(1,365	)
Net income (loss) attributable to MDC Partners Inc.		(15,991	)		107
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes		(647	)		(361	)
Income (loss) attributable to MDC Partners Inc. from continuing operations		(15,344	)		468
Adjustments to reconcile net income (loss) attributable to MDC Partners Inc. from continuing operations to cash provided by (used in) operating activities
Depreciation		7,621			8,171
Amortization of intangibles		6,251			7,026
Non-cash stock-based compensation		5,287			3,511
Amortization of deferred finance charges and debt discount		862			661
Adjustment to deferred acquisition consideration		1,589			—
Gain on disposition of assets		(13	)		—
Deferred income taxes		(55	)		1,034
Loss (earnings) of non-consolidated affiliates		143			(198	)
Other non-current assets and liabilities		(1,039	)		3,303
Foreign exchange		498			920
Changes in working capital:
Accounts receivable		1,670			(11,191	)
Expenditures billable to clients		(8,418	)		(1,727	)
Prepaid expenses and other current assets		(1,031	)		1,021
Accounts payable, accruals and other liabilities		(16,508	)		7,474
Advance billings		16,023			1,248
Cash flows provided by (used in) continuing operating activities		(2,464	)		21,721
Discontinued operations		(269	)		(290	)
Net cash provided by (used in) operating activities		(2,733	)		21,431
Cash flows from investing activities:
Capital expenditures		(5,720	)		(2,087	)
Acquisitions, net of cash acquired		(57,476	)		(3,643	)
Proceeds (loss) from sale of assets		58			(56	)
Other investments		(99	)		(33	)
Profit distributions from affiliates		7			59
Cash Flows used in continuing investing activities		(63,230	)		(5,760	)
Discontinued operations		(710	)		—
Net cash used in investing activities		(63,940	)		(5,760	)
Cash flows from financing activities:
Proceeds from issuance of 11% Senior Notes		67,600			—
Proceeds from revolving credit facility		—			2,159
Repayment of long-term debt		(479	)		(897	)
Proceeds from stock subscription receivable		124			13
Proceeds from exercise options		51			—
Purchase of treasury shares		(896	)		(402	)
Deferred financing costs		(1,491	)		—
Payment of dividends		(2,781	)		—
Net cash provided by financing activities		62,128			873
Effect of exchange rate changes on cash and cash equivalents		73			59
Net increase (decrease) in cash and cash equivalents		(4,472	)		16,603
Cash and cash equivalents at beginning of period		51,926			41,331
Cash and cash equivalents at end of period	$	47,454		$	57,934

Supplemental disclosures:
Cash paid to noncontrolling partners	$	5,159		$	4,574
Cash income taxes paid	$	803		$	402
Cash interest paid	$	13,411		$	6,962
Dividends payable	$	208		$	—
Non-cash transactions:
Capital leases	$	274		$	288

See notes to the unaudited condensed consolidated financial statements.

MDC PARTNERS INC. AND SUBSIDIARIES

(thousands of United States dollars, unless otherwise stated)

1. Basis of Presentation

MDC Partners Inc. (the “Company”) has prepared the unaudited condensed consolidated interim financial statements included herein pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) of the United States of America (“US GAAP”) have been condensed or omitted pursuant to these rules.

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. Results of operations for interim periods are not necessarily indicative of annual results.

These statements should be read in conjunction with the consolidated financial statements and related notes included in the Annual Report on Form 10-K for the year ended December 31, 2009.

2. Significant Accounting Policies

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

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

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; the Company did not have a client that accounted for more than 10% of the Company’s consolidated accounts receivable at June 30, 2010 and December 31, 2009. Furthermore, the Company did not have a client that accounted for more than 10% of the Company’s revenue for the three and six months ended June 30, 2010. However, one client accounted for 18% of revenue for the three and six months ended June 30, 2009.

Cash and Cash Equivalents. The Company’s cash equivalents are primarily comprised of investments in overnight interest-bearing deposits, commercial paper and money market instruments and other short-term investments with original maturity dates of three months or less at the time of purchase. The Company has a concentration risk in that there are cash deposits in excess of federally insured amounts. Included in cash and cash equivalents at June 30, 2010 and December 31, 2009, is approximately $71 and $67, respectively, of cash restricted as to withdrawal pursuant to a collateral agreement and a customer’s contractual requirements.

(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

2. Significant Accounting Policies – (continued)

Business Combinations. Valuation of acquired companies are based on a number of factors, including specialized know-how, reputation, competitive position and service offerings. Our acquisition strategy has been focused on acquiring the expertise of an assembled workforce in order to continue to build upon the core capabilities of our various strategic business platforms to better serve our clients. Consistent with our acquisition strategy and past practice of acquiring a majority ownership position, most acquisitions completed in 2010 and 2009 included an initial payment at the time of closing and provide for future additional contingent purchase price payments. Contingent payments for these transactions, as well as certain acquisitions completed in prior years, are derived using the performance of the acquired entity and are based on pre-determined formulas. Contingent purchase price obligations for acquisitions completed prior to January 1, 2009 are accrued when the contingency is resolved and payment is certain. Contingent purchase price obligations related to acquisitions completed subsequent to December 31, 2008 are recorded as liabilities at estimated value and are remeasured at each reporting period and changes in estimated value are recorded in results of operations. For the six months ended June 30, 2010 and 2009, $1,311 and nil, respectively, and for the three months ended June 30, 2010 and 2009, $977 and nil, respectively, related to changes in estimated value, have been charged to operations. In addition, certain acquisitions also include put/call obligations for additional equity ownership interests. The estimated value of these interests are recorded as Redeemable Noncontrolling Interests. As of January 1, 2009, the Company expenses acquisition related costs in accordance with the Accounting Standard’s Codification’s new guidance on acquisition accounting. For the three and six months ended June 30, 2010, $331 and $730, respectively, of acquisition related costs have been charged to operations. For the three and six months ended June 30, 2009, no acquisition related costs were charged to operating.

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

Redeemable Noncontrolling Interest . The minority interest shareholders of certain subsidiaries have the right to require the Company to acquire their ownership interest under certain circumstances pursuant to a contractual arrangement and the Company has similar call options under the same contractual terms. The amount of consideration under the put and call rights is not a fixed amount, but rather is dependent upon various valuation formulas and on future events, such as the average earnings of the relevant subsidiary through the date of exercise, the growth rate of the earnings of the relevant subsidiary through the date of exercise, etc. as described in Note 13.

The Company has recorded its put options as mezzanine equity at their current estimated redemption amounts. The Company accounts for the put options with a charge to noncontrolling interests to reflect the excess, if any, of the estimated exercise price over the estimated fair value of the noncontrolling interest shares at the date of the option being exercised. Changes in the estimated redemption amounts of the put options are adjusted at each reporting period with a corresponding adjustment to equity. These adjustments will not impact the calculation of earnings per share.

(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

2. Significant Accounting Policies – (continued)

The following table presents changes in Redeemable Noncontrolling Interests.

	Three Months Ended June 30, 2010			Six Months Ended June 30, 2010
Beginning Balance	$	29,868		$	33,728
Redemptions		(122	)		(1,407	)
Granted		2,506			3,782
Changes in redemption value		3,218			(1,015	)
Currency Translation Adjustments		(844	)		(462	)
Ending Balance as of June 30, 2010	$	34,626		$	34,626

Revenue Recognition

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

The Company earns revenue from agency arrangements in the form of retainer fees or commissions; from short-term project arrangements in the form of fixed fees or per diem fees for services; and from incentives or bonuses.

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

(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

2. Significant Accounting Policies – (continued)

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

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

Interest Expense . Interest expense primarily consists of the cost of borrowing on the revolving credit facility and the 11% Senior Notes. The Company uses the effective interest method to amortize the original issue discount and original issue premium on the 11% Senior Notes. At June 30, 2010 and December 31, 2009, $473 and $204 was amortized, respectively, net of amortized premium of $49 and nil, respectively. The Company amortizes deferred financing costs using the effective interest method over the life of the 11% Senior Notes and straight line over the life of the revolving credit facility. The total net deferred financing costs, included in Other Assets on the balance sheet, as of June 30, 2010 and December 31, 2009 were $10,712 and $9,790, net of accumulated amortization of $869 and $295, respectively. During the six months of 2010, the Company recorded $1,491 of deferred financing costs primarily relating to the 2010 additional debt issuance.

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

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

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

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

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

The Company has adopted the straight-line attribution method for determining the compensation cost to be recorded during each accounting period. However, awards based on performance conditions are recorded as compensation expense when the performance conditions are expected to be met.

The Company treats benefits paid by shareholders to employees as a stock based compensation charge with a corresponding credit to additional paid-in-capital.

During the six months ended June 30, 2010, the Company issued 990,096 restricted stock units and restricted stock shares (“RSUs”) to its employees and directors. The RSUs have an aggregate grant date fair value of $8,991 and generally vest on the third anniversary date with certain awards subjected to accelerated vesting based on the financial performance of the Company.

For the six months ended June 30, 2010, the Company has recorded a $1,469 charge relating to these equity incentive grants.

A total of 1,077,549 Class A shares of restricted stock, granted to employees as equity incentive awards, are included in the Company’s calculation of Class A shares outstanding as of June 30, 2010.

3 . Income (loss) Per Common Share

The following table sets forth the computation of basic and diluted income (loss) per common share from continuing operations.

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Numerator
Numerator for basic income (loss) per common share - income (loss) from continuing operations	$	(3,172	)	$	1,170		$	(12,390	)	$	1,833
Net income attributable to the noncontrolling interests		(1,986	)		(983	)		(2,954	)		(1,365	)
Income (loss) attributable to MDC Partners Inc. common shareholders from continuing operations	$	(5,158	)	$	187		$	(15,344	)	$	468
Effect of dilutive securities		—			—			—			—
Numerator for diluted income (loss) per common share – income (loss) attributable to MDC Partners Inc. common shareholders from continuing operations	$	(5,158	)	$	187		$	(15,344	)	$	468
Denominator
Denominator for basic income (loss) per common share - weighted average common shares		27,800,953			27,440,030			27,716,895			27,278,786
Effect of dilutive securities:		—			244,164			—			—
Denominator for diluted income (loss) per common share - adjusted weighted shares		27,800,953			27,684,194			27,716,895			27,278,786
Basic income (loss) per common share from continuing operations attributable to MDC Partners Inc.	$	(0.19	)	$	0.01		$	(0.55	)	$	0.02
Diluted income (loss) per common share from continuing operations attributable to MDC Partners Inc.	$	(0.19	)	$	0.01		$	(0.55	)	$	0.02

During the three and six months ended June 30, 2010, options and other rights to purchase 5,824,866 shares of common stock, which includes 1,077,549 shares of non-vested restricted stock, were outstanding but were not included in the computation of diluted loss per common share because their effect would be antidilutive.

During the three and six months ended June 30, 2009, the 8% convertible debentures, options and other rights to purchase 8,863,413 shares of common stock, which includes 615,472 shares of non-vested restricted stock, were outstanding but were not included in the computation of diluted income per common share because their effect would be antidilutive.

4. Acquisitions

Second Quarter 2010 Acquisitions

Effective May 6, 2010, the Company, through a wholly-owned subsidiary, purchased 75% of the total outstanding membership interests in Integrated Media Solutions, LLC (“IMS”), which expands the Company’s direct response marketing capabilities. At closing, the Company paid cash of $20,000 plus additional contingent deferred acquisition consideration, based on actual results from 2010 to 2015 with final payments due in 2016, with a current estimated present value of $19,658. An initial estimated allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $9,081 (consisting of primarily customer lists and a covenant not to compete) and goodwill of $44,598 representing the value of the assembled workforce. The fair value of the noncontrolling interest not acquired at the acquisition date was $13,219 based in the Company’s evaluation of the Company being acquired and the purchase price paid by the Company. The identified intangibles will be amortized ranging from a five to seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized. The intangibles and goodwill are tax deductible.

The actual adjustments that the Company will ultimately make in finalizing the allocation of the purchase price of IMS to the fair value of the net assets acquired at May 6, 2010 will depend on a number of factors, including additional information such as changes in the unaudited consolidated financial statements.

During the quarter ended June 30, 2010, the Company completed a number of acquisitions. The Company purchased a 51% equity interest in Allison & Partners LLC (“Allison”), a 75% equity interest in Sloane & Company LLC (“Sloane”), and certain assets and liabilities of CSC – ADPLUS, LLC (d.b.a. Infolure) (“Infolure”). Allison is a full service public relations and corporate communications agency. Sloane is a communication firm focused on corporate positioning and communications, financial public relations and investor relations, and crisis and transactions communications. Infolure is a direct marketing firm. The purchase price paid for these acquisitions consisted of aggregate cash payments of $17,632 plus additional contingent payments of $15,795 that are based on actual results from 2010 to 2015 with final payments due in 2016. An allocation of the excess purchase consideration of these acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $9,431 consisting primarily of customer lists and covenants not to compete, and goodwill of $36,286 representing the value of the assembled workforce. The identified intangibles will be amortized ranging from a five to seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized. In addition, the Company has recorded $2,506, the present value of redeemable noncontrolling interests in relation to Sloane. The Sloane acquisition has put rights that could increase the Company’s ownership to 100% in 2015. The amounts paid and to be paid will be tax deductible.

First Quarter 2010 Acquisitions

Effective March 1, 2010, the Company, through a wholly-owned subsidiary, purchased 60% of the total outstanding membership interests in Team Holdings LLC (“Team”), which expands the Company’s experiential marketing capabilities. At closing, the Company paid cash of $11,000 plus additional contingent deferred acquisition consideration, based on actual results from 2010 to 2012 with final payments in 2013, with a current estimated present value of $12,656, and the Company paid a working capital true-up estimated at an additional $253 at March 31, 2010. An initial estimated allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $5,220 (consisting of primarily customer lists and a covenant not to compete) and goodwill of $32,830 representing the value of the assembled workforce. The fair value of the noncontrolling interest not acquired at the acquisition date was $15,771 based in the Company’s evaluation of the Company being acquired and the purchase price paid by the Company. The identified intangibles will be amortized up to a seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized. In addition, the Company amended the purchase agreement to include additional deferred acquisition consideration, with a current present value of $3,071, with final payments due in 2012. The additional deferred acquisition consideration resulted in additional intangibles of $3,071. The intangibles and goodwill are tax deductible.

During the three months ended March 31, 2010, the Company completed a number of acquisitions and step-ups in ownership. The Company purchased a 76% equity interest in Communifx Partners LLC (“Communifx”), substantially all of the assets of Plaid Inc. (“Plaid”), an additional 15% equity interest in Fletcher Martin, LLC (“Fletcher Martin”), an additional 49% equity interest in Trend Core, LLC (“Trend Core”), and an additional 1% equity interest in HL Group Partners, LLC (“HL Group”). Communifx builds and manages large-scale customer database solutions to enable the planning, execution, and measurement of multi-channel marketing and advertising programs. Plaid is a marketing services business with a concentration in the digital communication and social media arena. The Company purchased the additional equity interests in Fletcher Martin and HL Group pursuant to the exercise of outstanding puts. The purchase price paid for these acquisitions and step-ups consisted of aggregate cash payments of $4,921 plus additional contingent payments of $580 that are based on actual results from 2010 to 2015 with final payments due in 2016. An allocation of the excess purchase consideration of these acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $1,851 consisting primarily of customer lists and a covenant not to compete, and goodwill of $2,426 representing the value of the assembled workforce. The identified intangibles will be amortized up to a seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized. In addition, the Company has recorded $710, the present value of redeemable noncontrolling interests in relation to Communifx. The Communifx acquisition has put/call rights that could increase the Company’s ownership to 100% in 2013. In relation to the step up acquisitions, the Company recorded an entry to reduce Redeemable Noncontrolling Interests by $1,116. The amount paid to the employee over fair value, $608, was recorded as a stock-based compensation charge. The Company recorded a reduction of additional paid-in capital of $1,029 representing the difference between the fair value of the shares and the value of the Redeemable Noncontrolling Interests. The amounts paid and to be paid will be tax deductible.

The actual adjustments that the Company will ultimately make in analyzing the allocation of purchase price to the fair value of the net assets acquired, will depend on a number of factors, including additional information available at such time, changes in market values, and changes in operation results between the date of the unaudited financial statements and the effective date of acquisition.

2009 Acquisitions

In December 2009, the Company paid an additional $38,974 pursuant to the CPB purchase agreement originally entered into in November 2008 with the founders of Crispin Porter & Bogusky LLC (“CPB”). In connection with this transaction, the Company recorded $14,067 as deferred acquisition consideration, $1,450 was paid in January 2010, $433 was reversed as an adjustment and the balance was paid in April 2010. This purchase price payment was pursuant to an accelerated exercise of a call option that was exercised by the Company in November 2008 (the Company increased its ownership from 77% to 94%). Because CPB was originally consolidated as a Variable Interest Entity, the Company reduced Redeemable Noncontrolling Interests by $17,809. The Company recorded additional goodwill of $31,253 and identifiable intangible backlog of $3,979. The amount recorded related to the 17% step up from November 2008. The backlog was amortized over one month. In addition, the Company recorded a stock-based charge of $3,074 for amounts paid by the former shareholder to CPB employees. The goodwill will be tax deductible.

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

4. Acquisitions – (continued)

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

On December 1, 2009, the Company agreed to make an early payment to KBP Management Partners LLC originally due in March 2010 pursuant to the purchase agreement entered into in November 2007. The additional payment totaled $14,870, of which $10,140 was paid in cash in December 2009, $4,215 was paid in March 2010 with the balance due in March 2011, recorded as deferred acquisition consideration. This additional payment was accounted for as additional goodwill. In addition, pursuant to an existing phantom stock arrangement, a stock-based compensation charge of $3,028 has been recorded for amounts paid by KBP Management Partners to phantom equity holders. The goodwill will be tax deductible.

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

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

On July 1, 2009, the Company, through CPB, acquired 100% of the preferred shares and 52% of the common shares of Crispin Porter & Bogusky Europe AB (formerly known as “daddy”), a digital agency based in Sweden that has created a foothold in Europe for CPB. At closing, CPB paid $3,052 plus an additional $50 deferred payment. Also in December 2009, CPB called an additional 24% and made a payment of 80% of the purchase price of $188. An additional amount of $50 is recorded as deferred acquisition consideration. The Company has additional calls and the noncontrolling owners have reciprocal puts on the remaining 24% of the common shares, which are exercisable beginning January 2012. The current estimated cost of these puts and calls is approximately $6,600 and has been recorded as Redeemable Noncontrolling Interests. The allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $650 (consisting primarily of customer lists and a covenant not to compete) and goodwill of $8,533 representing the value of the assembled workforce. The identified intangibles will be amortized up to a three-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized. The intangibles and goodwill are not tax deductible. Accordingly, CPB recorded a deferred tax liability of $221 representing the future tax benefits relating to the amortization of the identified intangibles.

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

4. Acquisitions – (continued)

Effective January 22, 2009, the Company acquired an additional 8.9% of equity interests in HL Group, thereby increasing MDC’s ownership to 64.9%. The purchase price totaled $1,100 and was paid in cash at closing. The Company recorded an entry to reduce Redeemable Noncontrolling Interests, as this purchase was pursuant to the early exercise of an existing put/call option. Accordingly, no additional intangibles have been recorded. However, the amount of the purchase price will be tax deductible.

Pro forma Information

The following unaudited pro forma results of operations of the Company for the three and six months ended June 30, 2010 and 2009 assume that the acquisition of the operating assets of Team and IMS acquired as of the beginning of each year. These unaudited pro forma results are not necessarily indicative of either the actual results of operations that would have been achieved had the companies been combined during these periods, or are they necessarily indicative of future results of operations.

	Three Months Ended June 30,					Six Months Ended June 30,
	2010			2009		2010			2009
Revenues	$	173,085		$	154,853	$	322,911		$	298,356
Net income (loss) attributable to MDC Partners Inc.	$	(5,236	)	$	1,493	$	(15,538	)	$	1,567
Income (loss) per common share:
Basic – net income (loss) attributable to MDC Partners Inc.	$	(0.19	)	$	0.05	$	(0.56	)	$	0.06
Diluted – net income (loss) attributable to MDC Partners Inc.	$	(0.19	)	$	0.05	$	(0.56	)	$	0.06

Net Income Attributable to MDC Partners Inc. and

Transfers (to) from the Noncontrolling Interest

	Three Months Ended June 30, 2010			Six Months Ended June 30, 2010
Net Loss attributable to MDC Partners Inc.	$	(5,805	)	$	(15,991	)
Transfers (to) from the noncontrolling interest
Decrease in MDC Partners Inc. paid-in capital for purchase of equity interests in excess of Redeemable Noncontrolling Interests		(58	)		(1,696	)
Decrease in MDC Partners Inc. paid-in-capital from issuance of profits interests		—			(160	)
Net transfers (to) from noncontrolling interest	$	(58	)	$	(1,856	)
Change from net income attributable to MDC Partners Inc. and transfers (to) from noncontrolling interest	$	(5,863	)	$	(17,847	)

5. Accrued and Other Liabilities

At June 30, 2010 and December 31, 2009, accrued and other liabilities included amounts due to noncontrolling interest holders, for their share of profits, which will be distributed within the next twelve months of $3,411 and $4,058, respectively.

6. Discontinued Operations

In June 2010, the Company discontinued a start up called Fearless Progression LLC (“Fearless”). As a result, the Company wrote off its investment in Fearless of $710. The Company has classified this entity’s results as discontinued operations.

In December 2008, the Company entered into negotiations to sell certain remaining assets in Bratskeir to management. This transaction was completed in April 2009. As a result of this transaction, the Company has classified this entity’s results as discontinued operations. Bratskeir’s results of operations, net of income tax benefits, for the three and six months ended June 30, 2009 was a loss of $108 and $361, respectively.

Included in discontinued operations in the Company’s consolidated statements of operations for the three and six months ended June 30, were the following:

	Three Months Ended June 30, 2010			Three Months Ended June 30, 2009			Six Months Ended June 30, 2010			Six Months Ended June 30, 2009

Revenue	$	—		$	—		$	—		$	481
Operating loss	$	(808	)	$	(167	)	$	(979	)	$	(549	)
Other expense	$	—		$	—		$	—		$	—
Net loss from discontinued operations attributable to MDC Partners Inc., net of taxes	$	(647	)	$	(108	)	$	(647	)	$	(361	)

7. Comprehensive Loss

Total comprehensive loss and its components were:

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Net income (loss) for the period	$	(3,819	)	$	1,062		$	(13,037	)	$	1,472
Other comprehensive income, net of tax:
Foreign currency cumulative translation adjustment		(959	)		1,904		$	457			70
Comprehensive loss		(4,778	)		2,966			(12,580	)		1,542
Comprehensive income (loss) attributable to the noncontrolling interest		(1,985	)		(996	)		(2,951	)		(1,372	)
Comprehensive loss attributable to MDC Partners Inc.	$	(6,763	)	$	1,970		$	(15,531	)	$	170

8. Short-Term Debt, Long-Term Debt and Convertible Debentures

Debt consists of:

	June 30, 2010			December 31, 2009

Revolving credit facility	$	—		$	—
11% Senior Notes due 2016		290,000			225,000
Original issue discount		(7,219	)		(10,291	)
Notes payable and other bank loans		1,800			1,800
		284,581			216,509
Obligations under capital leases		1,561			1,437
		286,142			217,946
Less:
Current portions		1,502			1,456
Long term portion	$	284,640		$	216,490

MDC Financing Agreement and Senior Notes

Issuance of 11% Senior Notes

On October 23, 2009, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold $225,000 aggregate principal amount of 11% Senior Notes due 2016 (the “11% Notes”). The 11% Notes bear interest at a rate of 11% per annum, accruing from October 23, 2009. Interest is payable semiannually in arrears in cash on May 1 and November 1 of each year, beginning on May 1, 2010. The 11% Notes will mature on November 1, 2016, unless earlier redeemed or repurchased. The Company received net proceeds before expenses of $208,881, which included an original issue discount of approximately 4.7% or $10,494, and underwriter fees of $5,624. The 11% Notes were sold in a private placement in reliance on exemptions from registration under the Securities Act of 1933, as amended. The Company used the net proceeds of this offering to repay the outstanding balance and terminate its prior Fortress Financing Agreement, and redeemed its outstanding 8% C$45,000 convertible debentures on November 26, 2009.

On May 14, 2010, the Company and its wholly-owned subsidiaries, as guarantors issued and sold $65,000 aggregate principal amount of 11% Senior Notes due 2016. The additional notes were issued under the Indenture governing the 11% notes and treated as a single series with the original 11% notes. The additional notes were sold in a private placement in reliance on exceptions from registration under the Securities Act of 1933, as amended. The Company received net proceeds before expenses of $67,208, which included an original issue premium of $2,600, and underwriter fees of $392. The Company used the net proceeds of the offering to repay the outstanding balance under the Company’s revolving credit facility described elsewhere herein, and for general corporate purposes, including acquisitions.

The Company may, at its option, redeem the 11% Notes (including the additional notes) in whole at any time or in part, on and after November 1, 2013 at a redemption price of 105.500% of the principal amount thereof. If redeemed during the twelve-month period beginning on November 1, 2014, at a redemption price of 102.750% of the principal amount thereof or if redeemed during the twelve-month period beginning on or after November 1, 2015 at a redemption price of 100% of the principal amount thereof. Prior to November 1, 2013, the Company may, at its option, redeem some or all of the 11% Notes at a price equal to 100% of the principal amount of the Notes plus a “make whole” premium and accrued and unpaid interest. The Company may also redeem, at its option, prior to November 1, 2012, up to 35% of the 11% Notes with the proceeds from one or more equity offerings at a redemption price of 111% of the principal amount thereof. If the Company experiences certain kinds of changes of control (as defined in the Indenture), holders of the 11% Notes may require the Company to repurchase any 11% Notes held by them at a price equal to 101% of the principal amount of the 11% Notes plus accrued and unpaid interest. The indenture governing the 11% Notes contains certain events of default and restrictive covenants which are customary with respect to non-investment grade debt securities, including limitations on the incurrence of additional indebtedness, dividends, sales of assets and transactions with affiliates.

In connection with these transactions, the Company wrote-off $323 of deferred financing costs relating to its prior convertible debentures in December 2009.

The fair value for the 11% Senior Notes was $308,050 as of June 30, 2010.

(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

8. Bank Debt, Long-Term Debt and Convertible Notes – (continued)

New Credit Facility

On October 23, 2009, the Company and its subsidiaries entered into a new $75,000 five year senior secured revolving credit facility (the “WF Credit Agreement”) with Wells Fargo Foothill, LLC, as agent, and the lenders from time to time party thereto. The WF Credit Agreement replaced the Company’s existing $185,000 senior secured financing agreement with Fortress Credit Corp., as collateral agent, and Wells Fargo Foothill, Inc., as administrative agent. Advances under the WF Credit Agreement bear interest as follows: (a)(i) LIBOR Rate Loans bear interest at the LIBOR Rate and (ii) Base Rate Loans bear interest at the Base Rate, plus (b) an applicable margin. The initial applicable margin for borrowing is 3.00% in the case of Base Rate Loans and 3.25% in the case of LIBOR Rate Loans. The applicable margin may be reduced subject to the Company achieving certain trailing twelve month earning levels, as defined. In addition to paying interest on outstanding principal under the WF Credit Agreement, the Company is required to pay an unused revolver fee to the lender under the WF Credit Agreement in respect of unused commitments thereunder.

The WF Credit Agreement is guaranteed by all of the Company’s present and future subsidiaries, other than immaterial subsidiaries (as defined) and is secured by all of the assets of the Company. The WF Credit Agreement includes covenants that, among other things, restrict the Company’s ability and the ability of its subsidiaries to incur or guarantee additional indebtedness; pay dividends on or redeem or repurchase the capital stock of MDC; make certain types of investments; impose limitations on dividends or other amounts from the Company’s subsidiaries; incur certain liens, sell or otherwise dispose of certain assets; enter into transactions with affiliates; enter into sale and leaseback transactions; and consolidate or merge with or into, or sell substantially all of the Company’s assets to, another person. These covenants are subject to a number of important limitations and exceptions. The WF Credit Agreement also contains financial covenants, including a senior leverage ratio, a fixed charge coverage ratio and a minimum earnings level, as defined.

In connection with these transactions, the Company incurred a termination fee of $1,850 and wrote-off $2,240 of deferred financing costs relating to its prior Fortress Financing Agreement in December 2009.

The Company is currently in compliance with all of the terms and conditions of its WF Credit Agreement, and management believes, based on its current financial projections, that the Company will be in compliance with the covenants over the next twelve months. At June 30, 2010, the weighted average interest rate was 6.0%.

Prior Financing Agreement

The Prior Fortress Financing Agreement consisted of a $55,000 revolving credit facility, a $60,000 term loan and a $70,000 delayed draw term loan. Interest payable under the Financing Agreement was as follows: (a) LIBOR Rate Loans bear interest at applicable interbank rates and Reference Rate Loans bear interest at the rate of interest publicly announced by the Reference Bank in New York, New York, plus (b) a percentage spread ranging from 0% to a maximum of 4.75% depending on the type of loan and the Company’s Senior Leverage Ratio.

Effective October 23, 2009, the Company repaid all outstanding amounts under the Fortress Financing Agreement.

8% Convertible Unsecured Subordinated Debentures

On June 28, 2005, the Company completed an offering in Canada of convertible unsecured subordinated debentures amounting to $36,723 (C$45,000) (the “Debentures”). The Debentures bore interest at an annual rate of 8.00% payable semi-annually, in arrears, on June 30 and December 31 of each year.

The Company repaid the Debentures on November 26, 2009.

9.	Total Equity

During the six months ended June 30, 2010, Class A share capital increased by $1,497, as the Company issued 261,866 shares related to vested restricted stock, and 71,553 shares related to the exercise of outstanding stock appreciation rights and 5,350 related to the exercise of options. During the six months ended June 30, 2010, “Additional paid-in capital” decreased by $2,342 related to the vested restricted stock and stock appreciation rights, and $1,886 related to changes in ownership not resulting in change of control, and by $507 related to changes in put options (Note 2 and Note 13), and dividends accrued and paid of $2,989 offset by $5,039 related to an increase from stock-based compensation that was expensed during the same period.

In June 2010, the Company purchased and retired 86,598 Class A shares for $896 from employees in connection with the required tax withholding resulting from the vesting of shares of restricted stock and stock appreciation rights.

Total equity increased $24,619, which is comprised of a $41,212 increase in noncontrolling interests related to acquisitions, an increase in stock-based compensation of $5,039, a decrease in accumulated other comprehensive loss of $460 and an exercise of stock options of $50, a reduction of subscriptions receivable of $124, offset in part by a net loss attributable to MDC Partners of $15,991, dividends accrued and paid of $2,989, $1,886 related to changes in ownership not resulting in change of control, $896 of treasury stock purchases and changes in put options of $507.

10.	Fair Value Measurements

Effective January 1, 2008, the Company adopted guidance regarding accounting for Fair Value Measurements, for financial assets and liabilities. This guidance defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. The statement indicates, among other things, that a fair value measurement assumes a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.

In order to increase consistency and comparability in fair value measurements, the guidance establishes a hierarchy for observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

On a nonrecurring basis, the Company uses fair value measures when analyzing asset impairment. Long-lived assets and certain identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining amortization periods, their carrying values are reduced to estimated fair value. Measurements based on undiscounted cash flows are considered to be level 3 inputs. During the fourth quarter of each year, the Company evaluates goodwill and indefinite-lived intangibles for impairment at the reporting unit level. For each acquisition, the Company performed a detailed review to identify intangible assets and a valuation is performed for all such identified assets. The Company used several market participant measurements to determine estimated value. This approach includes consideration of similar and recent transactions, as well as utilizing discounted expected cash flow methodologies. The amounts allocated to assets acquired and liabilities assumed in the acquisitions were determined using level 3 inputs. Fair value for property and equipment was based on other observable transactions for similar property and equipment. Accounts receivable represents the best estimate of balances that will ultimately be collected, which is based in part on allowance for doubtful accounts reserve criteria and an evaluation of the specific receivable balances.

The following table presents changes in Deferred Acquisition Consideration.


	Fair Value Measurements Using Significant Unobservable Inputs
	(Level 3)


Beginning Balance as of January 1, 2010	$	30,645

Payments		(20,281	)
Grants		52,015
Redemption value adjustments		1,589

Ending Balance as of June 30, 2010	$	63,968

11.	Other Income (Expense)

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Other income (expense)	$	—		$	(56	)	$	(6	)	$	(22	)
Foreign currency transaction gain (loss)		(231	)		(2,491	)		(907	)		116
Gain (loss) on sale of assets		(56	)		6			13			(5	)
	$	(287	)	$	(2,541	)	$	(900	)	$	89

12.	Segmented Information

As a result of changing client demand and the Company’s focus on driving return on marketing investment, the Company changed its segment reporting to conform it more closely with how the Chief Operating Decision Maker (“CODM”) and management are building and managing the Company’s business segments. This will simplify the Company’s financial reporting and make its results more consistent with the current manner of how the CODM and the Board of Directors view the business. The Company is focused on expanding its capabilities in database marketing and data analytics in order to position the Company for future business development efforts and revenue growth.

(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

12. Segmented Information

– (continued)

In order to position this strategic focus along the lines of how the CODM and management will base their business decisions, the Company has now reorganized its segment reporting. Decisions regarding allocation of resources are made and will be made based not only on the individual operating results of the subsidiaries but also on the overall performance of the reportable segments. These reportable segments are the aggregation of various reporting segments. The Company changed to the current presentation during the fourth quarter of 2009 and all prior periods have been recast.

The Company reports in two segments plus corporate. The segments are as follows:

The Strategic Marketing Services segment includes Crispin Porter & Bogusky and kirshenbaum bond senecal + partners among others. This segment consists of integrated marketing consulting services firms that offer a full complement of marketing consulting services including advertising and media, marketing communications including direct marketing, public relations, corporate communications, market research, corporate identity and branding, interactive marketing and sales promotion. Each of the entities within the Strategic Marketing Services Group share similar economic characteristics, specifically related to the nature of their respective services, the manner in which the services are provided and the similarity of their respective customers. Due to the similarities in these businesses, they exhibit similar long term financial performance and have been aggregated together.