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

FORM 10-K

 

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

For the Fiscal Year Ended December 31, 2010

Commission File Number 001-13178

MDC PARTNERS INC.

(Exact Name of Registrant as Specified in Its Charter)

Canada		98-0364441
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

45 Hazelton Avenue,
Toronto, Ontario, M5R 2E3
(416) 960-9000

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

950 Third Avenue,
New York, NY, 10022
(646) 429-1800

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

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

Title of Each Class		Name of Each Exchange on Which Registered
Class A Subordinate Voting Shares, no par value		NASDAQ; Toronto Stock Exchange

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (Check one):

Large Accelerated Filer o   Accelerated Filer x   Non-Accelerated o   Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The aggregate market value of the shares of all classes of voting and non-voting common stock of the registrant held by non-affiliates as of June 30, 2010 was approximately $260.7 million, computed upon the basis of the closing sales price ($10.48/share) of the Class A subordinate voting shares on that date.

As of March 1, 2011, there were 29,536,114 outstanding shares of Class A subordinate voting shares without par value, and 2,503 outstanding shares of Class B multiple voting shares without par value, of the registrant.

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MDC PARTNERS INC.
  
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		Page
PART I
Item 1. Business			4
Item 1A. Risk Factors			11
Item 1B. Unresolved Staff Comments			15
Item 2. Properties			15
Item 3. Legal Proceedings			15
Item 4. Reserved			15
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters			16
Item 6. Selected Financial Data			18
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			42
Item 8. Financial Statements and Supplementary Data			43
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			94
Item 9A. Controls and Procedures			94
Item 9B. Other Information			96
PART III
Item 10. Directors, Executive Officers and Corporate Governance			97
Item 11. Executive Compensation			98
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			98
Item 13. Certain Relationships and Related Transactions, and Director Independence			98
Item 14. Principal Accountant Fees and Services			98
Item 15. Exhibits and Financial Statements Schedules			99
Signatures			101

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References in this Annual Report on Form 10-K to “MDC Partners”, “MDC”, the “Company,” “we,” “us” and “our” refer to MDC Partners Inc. and, unless the context otherwise requires or otherwise is expressly stated, its subsidiaries.

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

DOCUMENTS INCORPORATED BY REFERENCE

The following sections of the Proxy Statement for the Annual Meeting of Stockholders to be held on June 1, 2011, are incorporated by reference in Parts I and III: “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Executive Compensation,” “Report of the Human Resources & Compensation Committee on Executive Compensation,” “Outstanding Shares,” “Appointment of Auditors,” and “Certain Relationships and Related Transactions”.

AVAILABLE INFORMATION

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

The Company’s Code of Conduct, Whistleblower Policy, and each of the charters for the Audit Committee, Human Resources & Compensation Committee and the Nominating and Corporate Governance Committee, are available free of charge on the Company’s website at http://www.mdc-partners.com or by writing to MDC Partners Inc., 950 Third Avenue, New York, NY 10022, Attention: Investor Relations.

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FORWARD-LOOKING STATEMENTS

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

Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. Such risk factors include, but are not limited to, the following:

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

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

SUPPLEMENTARY FINANCIAL INFORMATION

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

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PART I

Item 1. Business

BUSINESS

MDC PARTNERS INC.

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

MDC is a leading provider of marketing communications services to customers globally. MDC has operating units in the United States, Canada, Europe, and the Caribbean.

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

Part I — Business

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

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

The MDC model is driven by three key elements:

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

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

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

MDC operates through “Partner” companies within the following reportable segments:

Strategic Marketing Services

The Strategic Marketing Services segment generally consists of firms that offer a full suite of integrated marketing communication and consulting services, including advertising and media, interactive marketing,

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direct marketing, public relations, corporate communications, market research, corporate identity and branding, and sales promotion to national and global clients. The Strategic Marketing Services segment is comprised of the following agencies: 72andSunny; Allison & Partners; Attention, Bruce Mau Design; Capital C Partners; Colle + McVoy; Company C; Crispin Porter + Bogusky; Crispin Porter + Bogusky Canada; Hello Design; henderson bas; HL Group Partners; kirshenbaum bond senecal + partners; Kbs+p Canada; Kwittken; Mono Advertising; Redscout; Skinny NYC; Sloane & Company; Veritas Communications; VitroRobertson; Yamamoto Moss MacKenzie; and Zyman Group.

Performance Marketing Services

The Performance Marketing Services segment includes firms that provide consumer insights to satisfy the growing need for targetable, measurable solutions or cost effective means of driving return on marketing investment and growth for regional, national and global clients. The Performance Marketing Services segment is comprised of the following agencies: 6degrees Communications; Accent; Bryan Mills Iradesso; Communifx Partners; Computer Composition; Hudson and Sunset Media; Kenna Communications; Northstar Research Partners; Onbrand; Relevent; Source Marketing; TargetCom; and Team.

Ownership Information

The following table includes certain information about MDC’s operating subsidiaries as of December 31, 2010. The “Put and Call Options” information represents existing contractual rights. Owners of interests in certain subsidiaries have the right in certain circumstances to require MDC to acquire additional ownership interests held by them. The owners’ ability to exercise any such “put” option right is subject to the satisfaction of certain conditions, including conditions requiring notice in advance of exercise. In addition, these rights cannot be exercised prior to specified staggered exercise dates. The exercise of these rights at their earliest contractual date would result in obligations of MDC to fund the related amounts during the periods described in the accompanying notes. It is not determinable, at this time, if or when the owners of these rights will exercise all or a portion of these rights. The amount payable by MDC in the event such rights are exercised is dependent on defined valuation formulas and on future events, such as the average earnings of the relevant subsidiary through the date of exercise, the growth rate of the earnings of the relevant subsidiary during that period, and, in some cases, the currency exchange rate at the date of payment. See also “Management’s Discussion and Analysis — Other-Balance Sheet Commitments — Put Rights of Subsidiaries’ Noncontrolling Shareholders” for further discussion.

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

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MDC PARTNERS INC.

SCHEDULE OF CURRENT AND POTENTIAL MARKETING
COMMUNICATIONS COMPANY OWNERSHIP

Company		% Owned at 12/31/10				Year of Initial Investment				Put/Call Options
										2011				Thereafter
										(See Notes)
Consolidated:
Strategic Marketing Services
72andSunny Partners LLC			51.0	%			2010				—				Note 1
Allison & Partners LLC			51.0	%			2010				—				Note 2
Attention Partners LLC			51.0	%			2009				—				Note 3
Bruce Mau Design Inc.			75.0	%			2004				—
Capital C Partners LP			80.0	%			2010				—				Note 4
Colle & McVoy, LLC			95.0	%			1999				—				Note 5
Crispin Porter & Bogusky, LLC			100.0	%			2001				—
Crispin Porter + Bogusky Canada Inc. (f.k.a. Zig Inc.)			100.0	%			2004				—				Note 6
Company C Communications LLC			100.0	%			2000				—				Note 7
Hello Design, LLC			49.0	%			2004				—
henderson bas partnership			65.0	%			2004				100.0	%
HL Group Partners, LLC			65.9	%			2007				—				Note 8
kirshenbaum bond senecal & partners, LLC			100.0	%			2004				—
Kbs+p Atlanta (f.k.a. Fletcher Martin, LLC)			100.0	%			1999				—
Kbs+p Canada, Inc. (f.k.a. Allard Johnson Communications Inc.)			100.0	%			1992				—				Note 9
Kwittken PR LLC			60.0	%			2010				—				Note 10
Mono Advertising, LLC			49.9	%			2004				60.0	%			Note 11
Redscout, LLC			60.0	%			2007				—				Note 12
Sloane & Company LLC			70.0	%			2010								Note 13
Skinny NYC, LLC			50.1	%			2008				—				Note 14
Veritas Communications Inc.			64.1	%			1993				81.5	%			Note 15
Vitro Robertson, LLC			77.0	%			2004				95.0	%			Note 16
Yamamoto Moss Mackenzie, Inc.			100.0	%			2000				—
Zyman Group, LLC			96.0	%			2005				—				Note 17
Performance Marketing Services
Accent Marketing Services, LLC			100.0	%			1999				—
6degrees Integrated Communications Inc. (f.k.a. Accumark Communications Inc.)			55.0	%			1993				68.3	%			Note 18
Bryan Mills Iradesso Corp.			62.8	%			1989				88.2	%			Note 19
Communifx Partners, LLC			69.7	%			2010				—				Note 20
Computer Composition of Canada Inc.			100.0	%			1988				—
Integrated Media Solutions Partners LLC			75.0	%			2010				—				Note 21
Kenna Communications LP			80.0	%			2010								Note 22
Northstar Research Partners Inc.			70.0	%			1998				—				Note 23
656712 Ontario Limited (d.b.a. Onbrand)			89.0	%			1992				—
Relevent Partners LLC			60.0	%			2010				—
Hudson and Sunset Media LLC (f.k.a. Shout Media LLC)			51.0	%			2010				—
Source Marketing, LLC			83.0	%			1998				87.1	%			Note 24
TargetCom, LLC			100.0	%			2000				—				Note 25
The Arsenal LLC (f.k.a. Team Holdings LLC)			60.0	%			2010				—				Note 26
Equity Accounted:
Adrenalina, LLC			49.9	%			2007				—				Note 27

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Notes

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Financial Information Relating to Business Segments and Geographic Regions

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

Competition

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

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

Industry Trends

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

Clients

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

During 2010, 2009 and 2008, the Company’s largest client, Sprint, accounted for approximately 8%, 16% and 19% of revenues, respectively. In addition, MDC’s ten largest clients (measured by revenue generated) accounted for 37%, 49% and 45% of 2010, 2009 and 2008 revenues, respectively.

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Employees

As of December 31, 2010, MDC and its subsidiaries had the following number of employees within its reportable segments:

Segment		Total
Strategic Marketing Services			2,559
Performance Marketing Services			3,323
Corporate			38
Total			5,920

See Management’s Discussion and Analysis for a discussion of the effect of cost of services sold on MDC’s historical results of operations. Because of the personal service character of the marketing communications businesses, the quality of personnel is of crucial importance to MDC’s continuing success. MDC considers its relations with employees to be satisfactory.

Effect of Environmental Laws

MDC believes it is substantially in compliance with all regulations concerning the discharge of materials into the environment, and such regulations have not had a material effect on the capital expenditures or operations of MDC.

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Item 1A. Risk Factors

The following factors could adversely affect the Company’s revenues, results of operations or financial condition. See also “Statement Regarding Forward-Looking Disclosure.”

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

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

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

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

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

We have a diverse client base, and at any given time, one or more of our clients may experience financial difficulty, file for bankruptcy protection or go out of business. The recent unfavorable economic and financial conditions that have impacted many sectors of the economy could result in an increase in client financial difficulties that affect us. The direct impact on us could include reduced revenues and write-offs of accounts receivable. If these effects were severe, the indirect impact could include impairments of goodwill, credit agreement covenant violations or reduced liquidity. Our 10 largest clients (measured by revenue generated) accounted for 37% of revenue in 2010.

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

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

MDC competes for clients in highly competitive industries.

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

While many of MDC’s client relationships are long-standing, companies put their advertising and marketing services businesses up for competitive review from time to time, including at times when clients enter into strategic transactions. From year to year, the identities of MDC’s 10 largest customers may change, as a result of client losses and additions and other factors; however, the proportion of MDC’s business derived from its 10 largest clients does not vary significantly from year to year. To the extent that the Company fails to maintain existing clients or attract new clients, MDC’s business, financial condition and operating results may be affected in a materially adverse manner.

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The loss of lines of credit under our WF Credit Facility, and compliance with the covenants in the indenture governing our 11% notes, could adversely affect MDC’s liquidity and our ability to implement MDC’s acquisition strategy and fund any put options if exercised.

MDC uses amounts available under the WF Credit Facility, together with cash flow from operations, to fund its working capital needs, to fund the exercise of put option obligations and to fund our strategy of making selective acquisitions of ownership interests in entities in the marketing communications services industry.

The Company is currently in compliance with all of the terms and conditions of the WF Credit Facility. If, however, events were to occur, which result in MDC losing all or a substantial portion of its available credit under the WF Credit Facility, MDC could be required to seek other sources of liquidity. In addition, if MDC were unable to replace this source of liquidity, then MDC’s ability to fund its working capital needs and any contingent obligations with respect to put options would be materially adversely affected.

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

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

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

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

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

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

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

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

Employees, including creative, research, media, account and practice group specialists, and their skills and relationships with clients, are among MDC’s most important assets. An important aspect of MDC’s competitiveness is its ability to retain key employee and management personnel. Compensation for these key

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employees is an essential factor in attracting and retaining them, and MDC may not offer a level of compensation sufficient to attract and retain these key employees. If MDC fails to hire and retain a sufficient number of these key employees, it may not be able to compete effectively. If key executives were to leave our operating units, the relationships that MDC has with its clients could be adversely affected.

MDC is exposed to the risk of client defaults.

MDC’s agencies often incurs expenses on behalf of its clients for productions and in order to secure a variety of media time and space, in exchange for which it receives a fee. The difference between the gross cost of the production and media and the net revenue earned by us can be significant. While MDC takes precautions against default on payment for these services (such as credit analysis and advance billing of clients) and has historically had a very low incidence of default, MDC is still exposed to the risk of significant uncollectible receivables from our clients.

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

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

Goodwill and intangible assets may become impaired.

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

MDC is subject to regulations that could restrict its activities or negatively impact its revenues.

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

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

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

The indenture governing the 11% Notes and the WF Credit Facility governing our lines of credit contain various provisions that limit our discretion in the operation of our business by restricting our ability to:

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These restrictions on our ability to operate our business in our discretion could seriously harm our business by, among other things, limiting our ability to take advantage of financing, merger and acquisition and other corporate opportunities. The WF Credit Facility is subject to various additional covenants, including senior and total leverage ratios, a fixed charges ratio, a minimum Earning before interest, taxes, depreciation, and amortization level, and a minimum accounts receivable level. Events beyond our control could affect our ability to meet these financial tests, and we cannot assure you that we will meet them.

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

As of December 31, 2010, MDC had $286.2 million net of original issue discount of indebtedness. In addition, we have and expect to continue to make additional drawings under the WF Credit Facility from time to time. Our ability to pay principal and interest on our indebtedness is dependent on the generation of cash flow by our subsidiaries. Our subsidiaries’ business may not generate sufficient cash flow from operations to meet MDC’s debt service and other obligations. If we are unable to meet our expenses and debt service obligations, we may need to obtain additional debt, refinance all or a portion of our indebtedness on or before maturity, sell assets or raise equity. We may not be able to obtain additional debt, refinance any of our indebtedness, sell assets or raise equity on commercially reasonable terms or at all, which could cause us to default on our obligations and impair our liquidity. Our inability to generate sufficient cash flow to satisfy our debt obligations, to obtain additional debt or to refinance our obligations on commercially reasonable terms would have a material adverse effect on our business, financial condition and results of operations.

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

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

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

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

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

We could change our existing dividend practice in the future.

The declaration and payment of dividends on our common stock is at the discretion of MDC’s board of directors and will depend upon limitations contained in our Credit Agreement and the indenture governing the 11% Notes, future earnings, capital requirements, our general financial condition and general business conditions. MDC’s practice is to pay dividends only out of excess free cash flow from operations, and in the event that worsening economic conditions, disruptions in the credit markets or other factors have a significant effect on our liquidity, MDC’s board of directors could decide to reduce or suspend dividend payments in the future.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

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

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

Item 3. Legal Proceedings

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

Item 4. Reserved

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PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Market Information and Holders of Class A Subordinate Voting Shares

The principal United States market on which the Company’s Class A subordinate voting shares are traded is the NASDAQ National Market (“NASDAQ”) (symbol: “MDCA”), and the principal market in Canada is the Toronto Stock Exchange (symbol: “MDZ.A”). As of March 1, 2011, the approximate number of holders of our Class A subordinate voting shares, including those whose shares are held in nominee name, was 2,800. Quarterly high and low sales prices per share of the Company’s Class A subordinate voting shares, as reported on NASDAQ and The Toronto Stock Exchange, respectively, for each quarter in the years ended December 31, 2010 and 2009, are as follows:

Nasdaq

Quarter Ended		High				Low
		($ per Share)
March 31, 2009			3.87				2.50
June 30, 2009			6.00				3.24
September 30, 2009			8.10				5.44
December 31, 2009			9.00				6.88
March 31, 2010			11.20				8.29
June 30, 2010			13.19				10.30
September 30, 2010			13.59				10.07
December 31, 2010			17.47				13.19

The Toronto Stock Exchange

Quarter Ended		High				Low
		(C$ per Share)
March 31, 2009			4.75				3.22
June 30, 2009			6.85				4.00
September 30, 2009			8.74				6.27
December 31, 2009			9.98				7.50
March 31, 2010			11.30				8.54
June 30, 2010			13.51				10.46
September 30, 2010			13.78				10.11
December 31, 2010			17.37				13.39

As of March 1, 2011, the last reported sale price of the Class A subordinate voting shares was $16.84 on NASDAQ and C$16.45 on the Toronto Stock Exchange.

Dividend Practice

In 2010, MDC’s board of directors declared the following dividends: a $0.10 per share quarterly dividend to all shareholders of record as of the close of business on February 12, 2010; an $0.11 per share quarterly dividend to all shareholders of record as of the close of business on August 13, 2010; and a $0.13 per share quarterly dividend to all shareholders of record as of the close of business on November 12, 2010. MDC’s practice is to pay dividends only out of excess free cash flow from operations. MDC is further limited in the extent to which we are able to pay dividends under our Credit Agreement and the indenture governing the 11% Notes. The payment of any future dividends will be at the discretion of MDC’s board of directors and will depend upon limitations contained in our Credit Agreement and the indenture governing the 11% Notes, future earnings, capital requirements, our general financial condition and general business conditions.

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Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth information regarding securities issued under our equity compensation plans as of December 31, 2010.

		Number of Securities to Be Issued Upon Exercise of Outstanding Options and Rights				Weighted Average Exercise Price of Outstanding Options and Rights				Number of Securities Remaining Available for Future Issuance (Excluding Column (a))
		(a)				(b)				(c)
Equity Compensation Plans:
Approved by stockholders:
Share options			216,200			$	9.41				1,668,919
Stock appreciation rights			2,597,808	(1)		$	3.78				940,626
Not approved by stockholders:
None			—				—				—

On May 26, 2005, the Company’s shareholders’ approved the 2005 Stock Incentive Plan, which provides for the issuance of two million Class A shares. On June 2, 2009 and June 1, 2007, the Company’s shareholders approved amendments to the 2005 Stock Incentive Plan, which increased the number of shares available for issuance to 4.5 million Class A shares. In addition, the plan was amended to allow shares under this plan to be used to satisfy share obligations under the Stock Appreciation Rights Plan. On May 30, 2008, the Company’s shareholders approved the 2008 Key Partner Incentive Plan, which provides for the issuance of 600,000 Class A shares.

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

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

None.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

Issuer Purchases of Equity Securities:

Shares — Class A subordinate voting shares

For the twelve months ended December 31, 2010, the Company made no open market purchases of its Class A shares or its Class B shares. Pursuant to its Credit Agreement, the Company is currently restricted from repurchasing its shares in the open market.

During 2010, the Company’s employees surrendered 282,954 Class A shares valued at approximately $3.5 million in connection with the required tax withholding resulting from the vesting of restricted stock. These Class A shares were subsequently retired and no longer remain outstanding as of December 31, 2010.

Transfer Agent and Registrar for Common Stock

The transfer agent and registrar for the Company’s common stock is CIBC Mellon Trust Company. CIBC Mellon Trust Company operates a telephone information inquiry line that can be reached by dialing toll-free 1-800-387-0825 or 416-643-5500.

Correspondence may be addressed to:
MDC Partners Inc.
C/o CIBC Mellon Trust Company Corporate Trust Services
P.O. Box 7010 Adelaide Street
Postal Station Toronto, Ontario M5G 2M7

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Item 6. Selected Financial Data

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

		Years Ended December 31,
		2010				2009				2008				2007				2006
		(Dollars in Thousands, Except per Share Data)
Operating Data
Revenues		$	697,825			$	545,141			$	583,271			$	532,947			$	403,030
Operating profit		$	28,929			$	21,096			$	20,698			$	23,561			$	23,491
Income (loss) from continuing operations		$	(2,872	)		$	(11,239	)		$	18,638			$	2,467			$	8,471
Stock-based compensation included in income from continuing operations		$	16,507			$	15,444			$	14,437			$	10,217			$	8,361
Earnings (Loss) per Share
Basic
Continuing operations attributable to MDC Partners Inc.		$	(0.46	)		$	(0.61	)		$	0.39			$	(0.72	)		$	(0.35	)
Diluted
Continuing operations attributable to MDC Partners Inc. common shareholders		$	(0.46	)		$	(0.61	)		$	0.38			$	(0.72	)		$	(0.35	)
Cash dividends declared per share		$	0.34			$	—			$	—			$	—			$	—
Financial Position Data
Total assets		$	914,348			$	604,519			$	529,239			$	520,698			$	493,501
Total debt		$	286,216			$	217,946			$	181,498			$	164,754			$	95,454
Redeemable noncontrolling interest		$	77,560			$	33,728			$	21,751			$	24,187			$	45,682
Deferred acquisition consideration		$	107,991			$	30,645			$	5,538			$	2,511			$	2,721
Fixed charge coverage ratio			N/A				N/A				2.03				1.44				2.04
Fixed charge deficiency		$	3,265			$	2,497				N/A				N/A				N/A

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

Year Ended December 31, 2010

During 2010, the Company completed a significant number of acquisitions. Please see Note 4 of the notes to the consolidated financial statements included herein for a summary of these acquisitions.

On May 14, 2010, the Company and its wholly-owned subsidiaries, as guarantors issued and sold $65 million aggregate principal amount of 11% 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 $67.2 million, which included an original issue premium of $2.6 million, and underwriter fees of $0.4 million. The Company used the net proceeds of the offering to repay the outstanding balance under the Company’s revolving Credit Facility described elsewhere herein, and for general corporate purposes, including acquisitions.

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Effective September 30, 2010, the Company ceased Zig (USA) LLC operations. All periods have been restated to reflect these discontinued operations. See Note 10 of the notes to the consolidated financial statements included herein.

Year Ended December 31, 2009

On October 23, 2009, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold $225 million aggregate principal amount of 11% 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. In addition, the Company entered into a $75 million Revolving Credit Facility, expiring in October 2014. The Company used the net proceeds of this offering to repay the outstanding balance and terminate its prior Fortress Financing Agreement, and redeemed its outstanding 8% C$45 million convertible debentures. As a result, the Company incurred $4.5 million of early termination fees and wrote off of the remaining deferred financing costs relating to its prior Financing Agreement and convertible debentures.

Year Ended December 31, 2008

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

Effective December 31, 2008, three of the Company’s operating subsidiaries, Clifford/Bratskeir Public Relations LLC, Ito Partners, LLC and Mobium Creative Group (a division of Colle + McVoy) have been deemed discontinued operations. All periods have been restated to reflect these discontinued operations. See Note 10 of the notes to the consolidated financial statements included herein.

Year Ended December 31, 2007

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

In December 2007, due to continued operating losses and the lack of new business wins the Company ceased Banjo Strategic Entertainment, LLC (“Banjo”) operations. All periods have been restated to reflect these discontinued operations. See Note 10 of the notes to the consolidated financial statements included herein.

Year Ended December 31, 2006

On November 14, 2006, MDC sold its Secure Products International Products division, and all periods have been restated to reflect these discontinued operations.

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

Unless otherwise indicated, references to the “Company” mean MDC Partners Inc. and its subsidiaries, and references to a fiscal year means the Company’s year commencing on January 1 of that year and ending December 31 of that year (e.g., fiscal 2010 means the period beginning January 1, 2010, and ending December 31, 2010).

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

Executive Summary

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

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

MDC conducts its businesses through the Marketing Communications Group. Within the Marketing Communications Group, there are two reportable operating segments: Strategic Marketing Services and Performance Marketing Services. In addition, MDC has a “Corporate Group” which provides certain administrative, accounting, financial and legal functions.

Marketing Communications Businesses

Through its operating “partners”, MDC provides advertising, consulting, customer relationship management, and specialized communication services to clients throughout the United States, Canada, Europe, and the Caribbean.

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

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

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

We measure capital expenditures as either maintenance or investment related. Maintenance capital expenditures are primarily composed of general upkeep of our office facilities and equipment that are required

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

Certain Factors Affecting Our Business

Overall Factors Affecting our Business and Results of Operations. The most significant factors include national, regional and local economic conditions, our clients’ profitability, mergers and acquisitions of our clients, changes in top management of our clients and our ability to retain and attract key employees. New business wins and client loses occur for of a variety of factors. The two most significant factors are; clients’ desire to change marketing communication firms, and the creative product our firms are offering. A client may choose to change marketing communication firms for any number of reasons, such as a change in top management and the new management wants to go retain an agency that it may have previously worked with. In addition, if the client is merged or acquired by another company, the marketing communication firm is often changed. Further, global clients are trending to consolidate the use of numerous marketing communication firms to just one or two. Another factor in a client changing firms is the agency’s campaign or work product is not providing results and they feel a change is in order to generate additional revenues.

Clients will generally reduce or increase their spending or outsourcing needs based on their current business trends and profitability. These types of changes impact the Performance Marketing Services Group more than the Strategic Marketing Services Group due to the Performance Marketing Services Group having clients who require project-based work as opposed to the Strategic Marketing Services Group who primarily have retainer-based relationships.

Acquisitions and Dispositions. Our strategy includes acquiring ownership stakes in well-managed businesses with strong reputations in the industry. We engaged in a number of acquisition and disposal transactions during the 2008 to 2010 period, which affected revenues, expenses, operating income and net income. Additional information regarding material acquisitions is provided in Note 4 “Acquisitions” and information on dispositions is provided in Note 10 “Discontinued Operations” in the notes to the consolidated financial statements.

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

Seasonality. Historically, with some exceptions, we generate the highest quarterly revenues during the fourth quarter in each year. The fourth quarter has historically been the period in the year in which the highest volumes of media placements and retail related consumer marketing occur.

Fourth Quarter Results. Revenues for the fourth quarter of 2010 increased to $213.4 million, compared to the 2009 fourth quarter revenues of $149.5 million. The increase consisted of organic growth of $20.8 million acquisition revenue of $41.9 million and a $1.3 million increase due to foreign currency fluctuations. The Strategic Marketing Services segment had revenue growth of $24.4 million, of which $13.5 million is organic and $10.1 million is acquisition. The Performance Marketing Services segment had increased revenue of $39.5 million in 2010 of which $7.3 million was organic and $31.8 million was acquisition. Operating results for the fourth quarter of 2010 resulted in income of $21.8 million compared to a loss of $0.7 million in 2009. The increase in operating profits was primarily related to the increase in revenue. Income (loss) from continuing operations for the fourth quarter of 2010 was income $17.4 million compared to a loss of $15.9 million in 2009. The 2009 fourth quarter loss is attributable to a loss in operating income of $0.7 million compared to income of $21.8 million in 2010. Interest expense was higher in 2009 by $1.6 million, income tax expense was also higher by $6.4 million and equity in earning of affiliates was a loss in 2009 of $0.3 million compared to income in 2010 of $2.5 million. The increase in operating income of $22.5 million in 2010 over 2009 was primarily due to the increased revenue in 2010. Interest expense increased due to the Company’s refinancing of its outstanding debt. Income tax expense was higher primarily due to additional valuation allowance reserves and non-deductible stock-based compensation in 2009. The 2010 income in equity affiliates relates to distributions in excess of the Company’s carrying value of one of its equity method investments.

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Summary of Key Transactions

Year Ended December 31, 2010

The Company completed several key acquisitions in 2010. These acquisitions included the acquisition of 60% of the equity interests in The Arsenal LLC (“Team”); 75% of the equity interest in Integrated Media Solutions, LLC; 51% of the equity interests in Allison & Partners LLC; 70% of the equity interests in Sloane & Company LLC; 60% of the equity interests of Relevent Partners LLC; 80% of the total outstanding equity interests in each of Kenna Communications LP and Capital C Partners LP; and 51% of the equity interests in 72andSunny Partners LLC.

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

On May 14, 2010, the Company and its wholly-owned subsidiaries (as guarantors) issued and sold an additional $65 million aggregate principal amount of 11% 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 exemptions from registration under the Securities Act of 1933, as amended. The Company used the net proceeds of the offering to repay the outstanding balance under the Company’s revolving WF Credit Facility, and for acquisitions and other general corporate purposes.

Year Ended December 31, 2009

New Financing

On October 23, 2009, the Company completed a $300 million refinancing of its existing debt arrangements. The Company issued $225 million of 11% senior notes and obtained a new $75 million revolving WF Credit Facility. The proceeds were used to pay off the existing Fortress Facility, consisting of the $130 million term loan, and the C$45 million convertible debentures. The proceeds were also used for the early payment of $46.0 million of deferred acquisition consideration relating to kirshenbaum bond senecal & partners LLC (“KBSP”) and Crispin Porter & Bogusky LLC (“CPB”). In connection with the repayment of its prior indebtedness, the Company incurred termination fees and expenses of $2.0 million and wrote off deferred financing costs of $2.5 million.

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

Year Ended December 31, 2008

Step-Up Acquisitions of Key Partners

On November 10, 2008, the Company acquired an additional 17% equity interest in CPB from certain noncontrolling holders. The purchase price consisted of a cash payment equal to $6.4 million plus the issuance of 105,000 newly-issued Class A shares of the Company, plus an additional contingent purchase price payment due in April 2010 based on 2007, 2008 and 2009 performance. Following the closing of this transaction, the Company’s ownership in CPB was 94%.

On December 31, 2008, the Company acquired the remaining 6.3% of Accent Marketing Services (“Accent”). The aggregate purchase price was equal to $4.8 million and was satisfied as follows: on closing, the extinguishment of $1.8 million of outstanding loans, and payment of $1.0 million in cash and an additional payment of $2.0 million paid in 2009.

Discontinued Operations

Effective December 3, 2008, Colle & McVoy, LLC completed the sale of certain assets of its Mobium division. The purchase price consisted of minimal cash received at closing plus additional potential payments to be received through 2010. As of December 31, 2008, Mobium is treated as a discontinued operation.

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In December 2008, the Company entered into negotiations with the management of Clifford/Bratskeir Public Relations LLC (“Bratskeir”) to sell certain remaining assets to management. This transaction was completed in April 2009. As of December 31, 2008, Bratskeir has been treated as a discontinued operation.

Results of Operations for the Years Ended December 31, 2010, 2009 and 2008:

		For the Year Ended December 31, 2010
		Strategic Marketing Services				Performance Marketing Services				Corporate				Total
Revenue		$	438,941			$	258,884			$	—			$	697,825
Cost of services sold			289,409				188,082				—				477,491
Office and general expenses			90,622				44,011				22,291				156,924
Depreciation and amortization			17,917				16,196				368				34,481
Operating Profit (Loss)			40,993				10,595				(22,659	)			28,929
Other Income (Expense):
Other income, net															381
Foreign exchange gain															69
Interest expense, net															(33,282	)
Loss from continuing operations before income taxes, equity in affiliates and noncontrolling interest															(3,903	)
Income tax recovery															165
Loss from continuing operations before equity in affiliates and noncontrolling interests															(3,738	)
Equity in earnings of affiliates															866
Loss from continuing operations															(2,872	)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes															(2,494	)
Net loss															(5,366	)
Net income attributable to noncontrolling interests			(7,211	)			(2,863	)			—				(10,074	)
Net loss attributable to MDC Partners Inc.														$	(15,440	)
Stock-based compensation		$	7,282			$	1,992			$	7,233			$	16,507

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		For the Year Ended December 31, 2009
		Strategic Marketing Services				Performance Marketing Services				Corporate				Total
Revenue		$	370,615			$	174,526			$	—			$	545,141
Cost of services sold			220,714				132,297				—				353,011
Office and general expenses			87,633				30,898				18,091				136,622
Depreciation and amortization			25,518				8,466				428				34,412
Operating Profit (Loss)			36,750				2,865				(18,519	)			21,096
Other Income (Expense):
Other expense, net															(91	)
Foreign exchange loss															(1,956	)
Interest expense, net															(21,744	)
Loss from continuing operations before income taxes, equity in affiliates and noncontrolling interest															(2,695	)
Income tax expense															(8,536	)
Loss from continuing operations before equity in affiliates and noncontrolling interests															(11,231	)
Equity loss in earnings of affiliates															(8	)
Loss from continuing operations															(11,239	)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes															(1,519	)
Net loss															(12,758	)
Net income attributable to noncontrolling interests			(4,851	)			(715	)			—				(5,566	)
Net loss attributable to MDC Partners Inc.														$	(18,324	)
Stock-based compensation		$	8,742			$	868			$	5,834			$	15,444

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		For the Year Ended December 31, 2008
		Strategic Marketing Services				Performance Marketing Services				Corporate				Total
Revenue		$	362,203			$	221,068			$	—			$	583,271
Cost of services sold			225,569				165,446				—				391,015
Office and general expenses			84,071				35,725				17,622				137,418
Depreciation and amortization			24,550				9,189				401				34,140
Operating Profit (Loss)			28,013				10,708				(18,023	)			20,698
Other Income (Expense):
Other expense, net															(14	)
Foreign exchange gain															13,257
Interest expense, net															(13,255	)
Income from continuing operations before income taxes and equity in affiliates															20,686
Income tax expense															(2,397	)
Income from continuing operations before equity in affiliates and noncontrolling interests															18,289
Equity in earnings of affiliates															349
Income from continuing operations															18,638
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes															(10,205	)
Net income															8,433
Net income attributable to the noncontrolling interests			(5,466	)			(2,834	)			—				(8,300	)
Net income attributable to MDC Partners Inc.														$	133
Stock-based compensation		$	6,162			$	3,697			$	4,578			$	14,437

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

Revenue was $697.8 million for the year ended 2010, representing an increase of $152.7 million, or 28.1%, compared to revenue of $545.1 million for the year ended 2009. This increase relates primarily to acquisition growth of $105.8 million and an increase in organic revenue of $38.5 million. In addition, a weakening of the US Dollar, primarily versus the Canadian dollar during the year ended December 31, 2010, resulted in an increase of $8.4 million.

Operating profit for the year ended 2010 was $28.9 million compared to $21.1 million in 2009. Operating profit increased by $4.2 million in the Strategic Marketing Services, and by $7.7 million within the Performance Marketing Services segment. Corporate operating expenses increased by $4.1 million in 2010.

Income (loss) from continuing operations was a loss of $2.9 million in 2010, compared to a loss of $11.2 million in 2009. This increase in income of $8.3 million was primarily attributable to the increase in operating profit, offset by an increase in net interest expense equal to $11.5 million. This increase in net interest expense was primarily due to the Company’s outstanding 11% senior notes. These amounts were impacted by a decrease in foreign exchange losses from a loss of $2.0 million in 2009 to income of $0.1 million in 2010, and an increase in other income, net of $0.5 million from a loss of $0.1 million in 2009 to income of $0.4 million in 2010. In addition, income tax expense decreased $8.7 million, from $8.5 million in 2009 to a benefit of $0.2 million in 2010. Equity in earnings of non-consolidated affiliates increased by $0.9 million due to distributions in excess of the Company’s carrying value of one equity method investment of $2.6 million, offset by the write-off of another equity method investment due to continued losses.

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Marketing Communications Group

Revenues attributable to the Marketing Communications Group, which consists of two reportable segments — Strategic Marketing Services and Performance Marketing Services, were $697.8 million in the aggregate in 2010, compared to $545.1 million in 2009, representing a year-over-year increase of 28%.

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

		Revenue
		$000’s				%
Year ended December 31, 2009		$	545,141				—
Acquisition			105,851				19.4	%
Organic			38,477				7.1	%
Foreign exchange impact			8,356				1.5	%
Year ended December 31, 2010		$	697,825				28.0	%

The geographic mix in revenues was relatively consistent between 2010 and 2009 and is demonstrated in the following table:

		2010				2009
US			84	%			83	%
Canada			14	%			15	%
Europe and other			2	%			2	%

The operating profit of the Marketing Communications Group increased by approximately 30.2% to $51.6 million in 2010, from $39.6 million in 2009. Operating margins increased to 7.4% for 2010 compared to 7.3% for 2009. The increase in operating margin is primarily attributable to increased revenues and a reduction in total staff costs as a percentage of revenues from 60.2% in 2009, to 55.3% in 2010. Direct costs (excluding staff costs) offset this increase as these costs increased as a percentage of revenues from 14.0% of revenue in 2009 to 20.6% of revenue in 2010 due to an increase in reimbursed client related direct costs. This increase in direct costs is due to the requirement that certain costs be included in both revenue and direct costs due to the Company acting as principle versus agent for certain client contracts. Office and general expenses as a percentage of revenue decreased from 21.7% in 2009, to 19.3% in 2010. This decrease was primarily a result of increased revenues on relatively fixed costs, offset by acquisition related costs and estimated deferred acquisition consideration adjustments of 0.3% in 2010 compared to minimal impact in 2009. Depreciation and amortization expenses decreased as a percentage of revenue from 6.2% in 2009, to 4.9% in 2010, due to these expenses being relatively flat at $34.0 million.

Marketing Communications Businesses

Strategic Marketing Services

Revenues attributable to Strategic Marketing Services in 2010 were $438.9 million, compared to $370.6 million in 2009. The year-over-year increase of $68.3 million, or 18.4%, was attributable primarily to organic growth of $43.2 million or 11.7%; acquisition growth of $20.2 million or 5.4%; and a foreign exchange conversion of $4.9 million due to the weakening of the US dollar compared to the Canadian dollar. This organic revenue growth was driven by net new business wins.

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

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Performance Marketing Services

Performance Marketing Services generated revenues of $258.9 million for 2010, an increase of $84.4 million, or 48.3%, compared to revenues of $174.5 million in 2009. The year-over-year increase was attributable primarily to acquisition growth of $85.7 million and a foreign translation of $3.4 million; offset by an organic revenue decline of $4.8 million. Revenues declined due to customers reducing their outsourcing needs and reduced client project spending in 2010.

The operating profit of Performance Marketing Services increased by $7.7 million to $10.6 million in 2010, from an operating profit of $2.9 million in 2009. Operating margins improved from 1.6% in 2009 compared to 4.1% in 2010. The increase in operating profit dollars is primarily due to increased revenue. The increase in operating margin in 2010 was due primarily to a decrease in total staff costs as a percentage of revenue from 64.1% in 2009; to 54.5% in 2010. Offsetting this decrease was an increase in direct costs (excluding staff costs) as a percentage of revenue from 20.6% in 2009 to 27.0%. Office and general expenses as a percentage of revenue decreased from 17.7% in 2009 to 17.0% in 2010 due to relatively fixed costs compared to the increase in revenue. Depreciation and amortization increased due to amortization of acquired intangibles from 2010 acquisitions.

Corporate

Operating costs related to the Company’s Corporate operations increased by $4.1 million to $22.7 million in 2010, compared to $18.5 million in 2009. This increase of $4.1 million was primarily related to increased compensation and related costs of $1.9 million ($1.4 million of which consisted of non-cash stock based compensation), travel, promotional and related costs of $2.0 million and professional and other costs of $0.2 million.

Other Expense, Net

Other expense, net, increased $0.5 million in 2010 to income of $0.4 million from an expense of $0.1 million in 2009.

Foreign Exchange

The foreign exchange gain was $0.1 million for 2010, compared to a loss of $0.1 million recorded in 2009.

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

Net Interest Expense

Net interest expense for 2010 was $33.3 million, an increase of $11.5 million over the $21.7 million net interest expense incurred during 2009. Interest expense increased $11.4 million in 2010 due to the refinancing completed in October 2009 and the additional $65 million 11% senior notes issued in May 2010. Interest expense also increased due to the higher debt outstanding and higher interest rates on the refinanced debt. Interest income was $0.2 million for 2010, as compared to $0.4 million in 2009.

Income Taxes

Income tax benefit in 2010 was $0.2 million compared to expense of $8.5 million for 2009. In 2010, the Company’s effective tax rate was substantially lower than the statutory tax rate due to a decrease in the Company’s valuation allowance, and noncontrolling interest charges. These amounts were offset in part by non-deductible stock based compensation and a reserve established for potential tax positions. The Company’s effective tax rate was substantially higher than the statutory rate in 2010 due to non-deductible stock-based compensation and an increase in the Company’s valuation allowance, offset in part by noncontrolling interest charges.

The Company’s US operating units are generally structured as limited liability companies, which are treated as partnerships for tax purposes. The Company is only taxed on its share of profits, while noncontrolling holders are responsible for taxes on their share of the profits.

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Equity in Affiliates

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

Noncontrolling Interests

Noncontrolling interest expense was $10.1 million for 2010, an increase of $4.5 million from the $5.6 million of noncontrolling interest expense incurred during 2009. The increase was primarily due to increased profitability of subsidiaries within both operating segments, which are not 100% owned.

Discontinued Operations

The loss net of taxes from discontinued operations for 2010 was $2.5 million and is comprised of the operating results of Zig (US) LLC (“Zig US”), Redscout’s 007 venture; discontinued operations of Fearless Progression LLC in 2010; and Margeotes Fertitta Powell, LLC (“MFP”) discontinued in 2007.

The loss net of taxes from discontinued operations for 2009 was $1.5 million and is comprised of the operating results of Zig US, Clifford/Bratskeir Public Relations LLC discontinued in 2009 and MFP.

Net Income

As a result of the foregoing, the net loss recorded for 2010 was $15.4 million or loss of $0.55 per diluted share, compared to a net loss of $18.3 million or $0.67 per diluted share reported for 2009.

Year Ended December 31, 2009 Compared to Year Ended December 31, 2008

Revenue was $545.1 million for the year ended 2009, representing a decrease of $38.2 million, or 6.5%, compared to revenue of $583.3 million for the year ended 2008. This decrease relates primarily to a decrease in organic revenue of $31.6 million. In addition, a weakening of the US Dollar, primarily versus the Canadian dollar during the year ended December 31, 2009, resulted in a further reduction of revenues of $6.5 million.

Operating profit for the year ended 2009 was $21.1 million compared to $20.7 million in 2008. Operating profit increased $8.7 million in the Strategic Marketing Services, which was offset by a decrease of $7.8 million, within the Performance Marketing Services segment. Corporate operating expenses increased by $0.5 million.

Income (loss) from continuing operations was a loss of $11.2 million in 2009, compared to income of $18.6 million in 2008. This decrease in income of $29.8 million was primarily attributed to the result of an unrealized foreign exchange loss of $3.2 million, offset by a realized foreign exchange gain of $1.3 million in 2009, compared to an unrealized foreign exchange gain of $13.3 million in 2008 and net interest expense increased by $8.5 million primarily due to the termination fees and expenses, write-off of the remaining deferred financing costs and increased interest expense resulting from the refinancing of existing debt. Income tax expense increased $6.1 million from $2.4 million in 2008 to $8.5 million in 2009. Equity in earnings of non-consolidated affiliates decreased by $0.4 million.

Marketing Communications Group

Revenues in 2009 attributable to the Marketing Communications Group, which consists of two reportable segments — Strategic Marketing Services and Performance Marketing Services, were $545.1 million compared to $583.3 million in 2008, representing a year-over-year decrease of 6.5%.

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The components of the revenue for 2009 are shown in the following table:

		Revenue
		$000’s				%
Year ended December 31, 2008		$	583,271				—
Organic			(31,590	)			(5.4	)%
Foreign exchange impact			(6,540	)			(1.1	)%
Year ended December 31, 2009		$	545,141				(6.5	)%

The geographic mix in revenues was relatively consistent between 2009 and 2008 and is demonstrated in the following table:

		2009				2008
US			83	%			83	%
Canada			15	%			15	%
Europe and other			2	%			2	%

The operating profit of the Marketing Communications Group increased by approximately 2.3% to $39.6 million from $38.7 million. Operating margins increased to 7.3% for 2009 compared to 6.6% for 2008. The increase in operating margin is primarily attributable to a decrease in direct costs (excluding staff costs) as a percentage of revenues from 14.6% of revenue in 2008 to 14.0% of revenue in 2009 due to an increase in reimbursed client related direct costs. Total staff costs as a percentage of revenues was 60.2% in both 2008 and 2009 despite a reduction of staff cost dollars of $23.2 million. Depreciation and amortization expenses increased as a percentage of revenue from 5.8% in 2008 to 6.3% in 2009 despite being relatively flat at $34.0 million.

Marketing Communications Businesses

Strategic Marketing Services

Revenues attributable to Strategic Marketing Services in 2009 were $370.6 million compared to $362.2 million in 2008. The year-over-year increase of $8.4 million, or 2.3%, was attributable primarily to organic growth of $11.6 million or 3.2%. This organic growth was driven by net new business wins, offset by foreign exchange conversation of $3.2 million due to the weakening of the US dollar compared to the Canadian dollar.

The operating profit of Strategic Marketing Services increased by approximately 31.2% to $36.8 million in 2009, from $28.0 million in 2008, while operating margins increased to 9.9% in 2009 from 7.7% in 2008. The increase in operating profit and margin is primarily related to a decreased in direct costs (excluding staff costs) as a percentage of revenues from 11.7% of revenue in 2008 to 11.0% of revenue in 2009, primarily due to a decrease in reimbursed client related direct costs. Total staff costs as a percentage of revenue decreased from 58.7% in 2008 to 58.3% in 2009. Depreciation and amortization represented 6.9% and 6.8% or revenues during 2009 and 2008, respectively.

Performance Marketing Services

Performance Marketing Services generated revenues of $174.5 million for 2009, which was a decrease of $46.5 million, or 21.1%, compared to revenues of $221.1 million in 2008. The year-over-year increase was attributable primarily to organic revenue declines of $43.2 million. Revenue declines were also attributable to a weakening of the US dollar versus the Canadian dollar and British pound in 2009 compared to 2008 resulted in a $3.4 million decrease in revenues from the division’s Canadian and UK-based operations. Revenues declined due to customers reducing their outsourcing needs and reducing client project spending.

The operating profit of Performance Marketing Services decreased by $7.8 million to $2.9 million in 2009, from an operating profit of $10.7 million in 2008, with operating margins of 1.6% in 2009 compared to 4.8% in 2008. The decrease in operating margin in 2009 was due primarily to an increase in total staff costs as a percentage of revenues from 62.7% in 2008 to 64.1% in 2009. Direct costs (excluding staff costs) as a percentage of revenue increased from 19.4% in 2008 to 20.6% in 2009. This increase is a result of the timing

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of when expected clients’ projects were expected to begin, while maintaining the appropriate staffing levels to properly service those projects; however, staff costs did decrease by $26.9 million. Margins were also impacted by an increase in office and general expenses as a percent of revenue, which increased from 16.2% in 2008 to 17.7% in 2009 and an increase in depreciation and amortization from 4.2% in 2008 to 4.9% in 2009. Office and general expenses costs decreased $4.8 million; however, due to their relatively fixed nature, the decrease in revenue outpaced this decrease in costs.

Corporate

Operating costs related to the Company’s Corporate operations increased by $0.5 million to $18.5 million in 2009 compared to $18.0 million in 2008. Stock based compensation expense increased $1.3 million, while cash staff costs decreased by $0.5 million and other administrative costs decreased by $0.03 million.

Other Expense, Net

Other expense, net increased to $0.1 million in 2009 from almost nil in 2008.

Foreign Exchange

The foreign exchange loss was $2.0 million for 2009 compared to a gain of $13.3 million recorded in 2008, and was due primarily to an unrealized loss due to a weakening in the US dollar during 2009 compared to the Canadian dollar primarily on its US dollar denominated intercompany balances with its Canadian subsidiaries. During 2009, the Company recorded a $1.3 million realized gain on foreign exchange transactions, which reduced the unrealized loss. At December 31, 2009, the exchange rate was 1.05 Canadian dollars to one US dollar, compared to 1.22 at the end of 2008 and 0.99 at the end of 2007.

Net Interest Expense

Net interest expense for 2009 was $21.7 million, an increase of $8.4 million over the $13.3 million net interest expense incurred during 2008. Interest expense increased $7.1 million in 2009 due to termination fees and expenses and the write-off of deferred financing costs of $4.5 million as a result of the $300 million refinancing completed in October 2009. Interest expense also increased due to the higher debt outstanding and higher interest rates on the refinanced debt. Interest income was $0.4 million for 2009, as compared to $1.7 million in 2008. This decrease was primarily due to the interest income recognized from the notes related to the sale of SPI, which was received in full in May 2009.

Income Taxes

Income tax expense in 2009 was $8.5 million compared to $2.4 million for 2008. The Company’s effective tax rate was substantially higher than the statutory rate in 2009 due to non-deductible stock-based compensation and an increase in the Company’s valuation allowance, offset in part by noncontrolling interest charges. In 2008, the Company’s effective tax rate was substantially lower than the statutory tax rate due to a decrease in the Company’s valuation allowance, a reversal of withholding taxes due to a change in the tax law, and noncontrolling interest charges. These amounts were offset in part by non-deductible stock based compensation.

The Company’s US operating units are generally structured as limited liability companies, which are treated as partnerships for tax purposes. The Company is only taxed on its share of profits, while noncontrolling holders are responsible for taxes on their share of the profits.

Equity in Affiliates

Equity in affiliates represents the income attributable to equity-accounted affiliate operations. For 2009 and 2008, a loss of almost nil and income of $0.3 million was recorded, respectively.

Noncontrolling Interests

Noncontrolling interest expense was $5.6 million for 2009, down $2.7 million from the $8.3 million of noncontrolling interest expense incurred during 2008. The decrease was primarily due to a decrease in profitability of subsidiaries within the Performance Marketing Service operating segment, which are not 100% owned.

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Discontinued Operations

The loss net of taxes from discontinued operations for 2009 was $1.5 million and is comprised of the operating results of Zig (US) LLC (“Zig US”), discontinued in 2010, Clifford/Bratskeir Public Relations LLC (“Bratskeir”), discontinued in 2008 and Margeotes Fertitta Powell, LLC (“MFP”) discontinued in 2007.

The loss net of taxes from discontinued operations for 2008 was $10.2 million and is comprised of the operating results of Zig US, discontinued in 2010, Mobium, a division of Colle & McVoy, LLC (“Colle”), Bratskeir, The Ito Partnership (“Ito”) and MFP. MFP was previously discontinued in 2007; the other entities were discontinued in 2008.

Effective December 3, 2008, Colle completed the sale of certain assets of its Mobium division. The Company recorded a loss on sale of $1.2 million ($0.8 million net of taxes) and an operating loss of $3.4 million ($2.3 million net of taxes).

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 expected transaction, the Company recorded an impairment charge of $1.9 million ($1.3 million net of taxes). In addition, Bratskeir recorded an operating loss of $3.8 million ($2.5 million net of taxes) in 2008.

Effective June 30, 2008, the Company completed the sale of its interests in Ito. The sale resulted in a loss of $0.8 million ($0.5 million net of taxes.)

As a result, the Company has classified the MFP, Mobium, Bratskeir and Ito operations as discontinued.

Net Income

As a result of the foregoing, the net loss recorded for 2009 was $18.3 million or loss of $0.67 per diluted share, compared to net income of $0.1 million or $0.01 per diluted share reported for 2008.

Liquidity and Capital Resources

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

Liquidity		2010				2009				2008
		(In Thousands, Except for Long-Term Debt to Shareholders’ Equity Ratio)
Cash and cash equivalents		$	10,949			$	51,926			$	41,331
Working capital (deficit)		$	(102,547	)		$	(40,152	)		$	(12,091	)
Cash from operations		$	37,297			$	67,687			$	69,095
Cash from investing		$	(130,253	)		$	(66,199	)		$	(50,186	)
Cash from financing		$	52,401			$	12,253			$	11,861
Ratio of long-term debt to shareholders’ equity			3.11				2.31				1.42

As at December 31, 2010, 2009 and 2008, $5.2 million, $14.1 million and $8.4 million, respectively, of the Company’s consolidated cash position was held by subsidiaries. Although this amount is available for the subsidiaries’ use, it does not represent cash that is distributable as earnings to MDC for use to reduce its indebtedness. It is the Company’s intent through its cash management system to reduce outstanding borrowings under the WF Credit Facility by using available cash.

Working Capital

At December 31, 2010, the Company had a working capital deficit of $102.5 million, compared to a deficit of $40.2 million at December 31, 2009. Working capital deficit increased by $62.4 million of which $4.3 million related to operations and an accrued working capital deficiency of $58.1 million. The decrease in working capital was primarily due to accelerated timing in the amounts collected from clients, and paid to suppliers, primarily media outlets. The Company includes amounts due to noncontrolling interest holders, for their share of profits, in accrued and other liabilities. During 2010, 2009 and 2008, the Company made distributions to these noncontrolling interest holders of $7.7 million, $7.8 million and $11.6 million, respectively. At December 31, 2010, $8.6 million remains outstanding to be distributed to noncontrolling interest holders over the next twelve months.

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The Company expects that available borrowings under its Credit Agreement, together with cash flows from operations, will be sufficient over the next twelve months to adequately fund working capital deficits should there be a need to do so from time to time, as well as all of the Company’s obligations including put options and capital expenditures.

Operating Activities

Cash flow provided by continuing operations for 2010 was $39.8 million. This was attributable primarily to a loss from continuing operations of $2.9 million, plus non-cash stock based compensation of $16.5 million, depreciation and amortization of $36.6 million, a decrease in expenditures billable to clients of $23.7 million, and an increase in advance billings of $2.4 million. This was partially offset by increases in accounts receivable of $31.3 million, deferred income taxes of $5.4 million, other non-current assets and liabilities of $0.5 million, and a decrease in accounts payable, accruals and other liabilities of $0.1 million. Discontinued operations used cash of $2.5 million.

Cash flow provided by continuing operations for 2009 was $69.3 million. This was attributable primarily to a loss from continuing operations of $11.2 million, plus non-cash stock based compensation of $15.4 million, depreciation and amortization of $38.5 million, deferred income taxes of $7.0 million, an increase in accounts payable, accruals and other liabilities of $11.0 million, non current assets and liabilities of $3.1 million, an increase in advance billings of $15.8 million and foreign exchange translation of $6.6 million. This was partially offset by increases in accounts receivable of $11.4 million and expenditures billable to clients of $7.1 million. Discontinued operations used cash of $1.6 million.

Cash flow provided by continuing operations for 2008 was $72.8 million. This was attributable primarily to income from continuing operations of $18.6 million, plus non-cash stock based compensation of $14.4 million, depreciation and amortization of $35.5 million, a decrease in accounts receivable and expenditures billable to clients of $26.6 million and a decrease in prepaid expenses and other current assets of $1.4 million. This was partially offset by foreign exchange gains of $14.6 million, deferred taxes of $1.0 million, changes in other non-current assets and liabilities of $1.9 million and decreases in accounts payable, accruals and other current liabilities of $8.4 million. Discontinued operations used cash of $3.7 million.

Investing Activities

Cash flows used in investing activities were $130.3 million for 2010, compared with $66.2 million for 2009, and $50.2 million in 2008.

Cash used in acquisitions during 2010 was $117.1 million, of which $27.3 million related to earnout and deferred acquisition payments, $78.3 million related to acquisition payments and $11.5 million related to acquisition of additional equity interests pursuant to put/call option exercises.

Expenditures for capital assets in 2010 were equal to $12.5 million. Of this amount, $6.5 million was incurred by the Strategic Marketing Services segment, $5.4 million was incurred by the Performance Marketing Services segment. These expenditures consisted primarily of computer equipment, leasehold improvements, furniture and fixtures, and $0.6 million related to the purchase of Corporate assets.

Cash used in acquisitions during 2009 was $60.0 million, of which $54.0 million related to earnout and deferred acquisition payments, $3.4 million related to acquisition payments and $2.6 million related to acquisition of additional equity interests pursuant to put/call option exercises.

Expenditures for capital assets in 2009 were equal to $6.2 million. Of this amount, $3.6 million was incurred by the Strategic Marketing Services segment, $2.4 million was incurred by the Performance Marketing Services segment, and $0.2 million related to the purchase of Corporate assets. These expenditures consisted primarily of computer equipment, leasehold improvements and furniture and fixtures.

Cash used in acquisitions during 2008 was $35.6 million. Of this amount, $18.9 million was paid in the acquisition of equity interests in Crispin Porter & Bogusky, Texture Media, Clifford PR, Core Strategy Group, DMG Inc., Skinny NY, Source Marketing, Allard Johnson, and Accent Marketing. In addition, the Company paid $16.7 million as contingent deferred payments from prior acquisitions.

Expenditures for capital assets in 2008 were $14.4 million. Of this amount, $9.2 million was incurred by the Strategic Marketing Services segment, $5.1 million was incurred by the Performance Marketing Services

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segment, and $0.1 million related to the purchase of corporate assets. These expenditures consisted primarily of computer equipment, leasehold improvements and furniture and fixtures.

The cash used in investing activities of $0.2 million from dispositions in 2008 primarily relate to proceeds received from the sale of capital assets.

Profit distributions received from affiliates amounted to $0.6 million in 2010, $0.2 million in 2009, and $0.4 million for 2008.

Discontinued operations used cash of $0.7 million, nil, and $0.8 million in 2010, 2009 and 2008, respectively, relating to expenditures for capital assets, and in 2010 such payments also related to acquisitions and earnout payments.

Financing Activities

During the year ended December 31, 2010, cash flows provided by financing activities amounted to $52.4 million and primarily consisted of $67.6 million of proceeds from the additional 11% senior notes issuance, proceeds from bank overdrafts of $9.0 million, offset by $2.1 million of deferred financing costs relating to the senior notes and new revolving WF Credit Facility. The proceeds of the 11% senior notes issuance were partially offset by dividends paid and payable of $9.7 million, distributions to noncontrolling shareholders of $7.7 million, purchase of treasury shares of $3.5 million and repayment of long-term debt of $1.5 million.

During the year ended December 31, 2009, cash flows provided by financing activities amounted to $12.3 million and primarily consisted of $225 million of proceeds from the 11% senior notes issuance, offset by the original issue discount of $10.5 million and $10.1 million of deferred financing costs relating to the senior notes and new revolving WF Credit Facility. The proceeds were offset by repayments of $130.0 million term loans, $42.5 million convertible notes, $9.7 million relating to the old credit facility, and $7.8 million for distributions to noncontrolling interests.

During the year ended December 31, 2008, cash flows provided by financing activities amounted to $11.9 million, and primarily consisted of $26.3 million of proceeds from borrowings under the Company’s previous Financing Agreement. These proceeds were partially offset by $1.9 million of net repayments of long-term debt, $0.9 million relating to the repurchase of treasury shares for income tax withholding requirements, and $11.6 million for distributions to noncontrolling interests.

Total Debt

11% Senior Notes Due 2016

On October 23, 2009, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold $225 million aggregate principal amount of 11% 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 $209 million which included an original issue discount of approximately 4.7% or $10.5 million and underwriter fees of $5.5 million. The 11% Notes were sold in a private placement in reliance on exemptions from registration under the Securities Act of 1933, as amended. The Company used the net proceeds of this offering to repay the outstanding balance and terminate its prior Fortress Financing Agreement consisting of repayments of $130 million term loans, a $70 million delayed draw term loan, and $9.7 outstanding on the $55 million revolving credit facility. The Company also used the net proceeds to redeem its outstanding 8% C$45 million convertible debentures.

On May 14, 2010, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold $65 million 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 $67.2 million, which included an original issue premium of $2.6 million, and underwriter fees of $0.4 million. The Company used the net proceeds of the offering to repay the outstanding balance under the Company’s revolving credit facility described elsewhere herein, and for general corporate purposes, including acquisitions.

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

Credit Agreement

On October 23, 2009, the Company and its subsidiaries entered into a $75 million five year senior secured revolving WF Credit Facility (the “WF Credit Facility”) with Wells Fargo Foothill, LLC, as agent, and the lenders from time to time party thereto. On November 22, 2010, the Company amended its facility to increase availability to $100 million. The WF Credit Facility replaced the Company’s existing $185 million senior secured financing agreement with Fortress Credit Corp., as collateral agent, Wells Fargo Foothill, Inc., as administrative agent. Advances under the WF Credit Facility will bear interest as follows: (a)(i) LIBOR Rate Loans bear interest at the LIBOR Rate and (ii) Base Rate Loans bear interest at the Base Rate, plus (b) an applicable margin. The initial applicable margin for borrowing is 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 Facility, the Company is required to pay an unused revolver fee to lender under the WF Credit Facility in respect of unused commitments thereunder.

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

Debt as of December 31, 2010 was $286.2 million, which includes $6.8 million for an original issue discount. Exclusive of the original issue discount, 2010 debt was $293.0, an increase of $64.8 million compared with the $228.2 million outstanding at December 31, 2009, primarily as a result of proceeds from the May 2010 bond issuance of $65 million to fund seasonal working capital requirements, earnout obligations, and acquisitions. At December 31, 2010, $94 million is available under the WF Credit Facility to fund working capital requirements.

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

If the Company loses all or a substantial portion of its lines of credit under the WF Credit Facility, it may be required to seek other sources of liquidity. If the Company were unable to find these sources of liquidity, for example through an equity offering or access to the capital markets, the Company’s ability to fund its working capital needs and any contingent obligations with respect to put options would be adversely affected.

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Pursuant to the Credit Agreement, the Company must comply with certain financial covenants including, among other things, covenants for (i) senior leverage ratio (ii) total leverage ratio, (iii) fixed charges ratio, (iv) minimum earnings before interest, taxes and depreciation and amortization and (v) minimum accounts receivable level, in each case as such term is specifically defined in the WF Credit Facility. For the period ended December 31, 2010, the Company’s calculation of certain of these covenants, and the specific requirements under the Credit Agreement, respectively, were as follows:

		December 31, 2010
Senior leverage ratio			0.07
Maximum per covenant			2.0
Fixed charges ratio			2.16
Minimum per covenant			1.25
Total leverage ratio			3.19
Maximum per covenant			3.50*
Earnings before interest, taxes, depreciation and amortization		$	91.7  million
Minimum per covenant		$	87.8  million

These ratios are not based on generally accepted accounting principles and are not presented as alternative measures of operating performance or liquidity. They are presented here to demonstrate compliance with the covenants in the Company’s WF Credit Facility, as non-compliance with such covenants could have a material adverse effect on the Company.

Disclosure of Contractual Obligations and Other Commercial Commitments

The following table provides a payment schedule of present and future obligations. Management anticipates that the obligations outstanding at December 31, 2010 will be repaid with new financing, equity offerings and/or cash flow from operations (in thousands):

		Payments Due by Period
Contractual Obligations		Total				Less than 1 Year				1 – 3 Years				3 – 5 Years				After 5 Years
Indebtedness		$	291,400			$	800			$	600			$	—			$	290,000
Capital lease obligations			1,659				867				607				161				24
Operating leases			114,642				22,860				39,730				26,593				25,459
Interest on debt			191,601				32,023				63,865				63,813				31,900
Deferred acquisition consideration			107,991				30,887				50,006				23,392				3,706
Management services agreement			1,500				1,500				—				—				—
Other			2,200				800				1,400				—				—
Total contractual obligations		$	710,993			$	89,737			$	156,208			$	113,959			$	351,089

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The following table provides a summary of other commercial commitments (in thousands) at December 31, 2009:

		Payments Due by Period
Other Commercial Commitments		Total				Less than 1 Year				1 – 3 Years				3 – 5 Years				After 5 Years
Lines of credit		$	—			$	—			$	—			$	—			$	—
Letters of credit		$	6,018			$	6,018				—				—				—
Total Other Commercial Commitments		$	6,018			$	6,018			$	—			$	—			$	—

For further detail on MDC’s long-term debt principal and interest payments, see Note 12 and Note 18 of the Company’s consolidated financial statements included in this Form 10-K. See also “Deferred Acquisition and Contingent Consideration (Earnouts)” and “Other-Balance Sheet Commitments” below.

Capital Resources

At December 31, 2010, the Company had only utilized the Credit Agreement in the form of undrawn letters of credit of $6.0 million. Cash and undrawn available bank credit facilities to support the Company’s future cash requirements at December 31, 2010 was approximately $94 million.

The Company expects to incur approximately $17 million of capital expenditures in 2011. Such capital expenditures are expected to include leasehold improvements, furniture and fixtures, and computer equipment at certain of the Company’s operating subsidiaries. The Company intends to maintain and expand its business using cash from operating activities, together with funds available under the Credit Agreement. Management believes that the Company’s cash flow from operations and funds available under the Credit Agreement will be sufficient to meet its ongoing working capital, capital expenditures and other cash needs over the next eighteen months. If the Company continues to spend capital on future acquisitions, management expects that the Company may need to obtain additional financing in the form of debt and/or equity financing.

Deferred Acquisition and Contingent Consideration (Earnouts)

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

Contingent purchase price obligations for acquisitions completed prior to January 1, 2009 are accrued when the contingency is resolved and payment is certain. Contingent purchase price obligations related to acquisitions completed subsequent to December 31, 2008 are recorded as liabilities at estimated value and are remeasured at each reporting period and changes in estimated value are recorded in results of operations. At December 31, 2010, there was $108.0 million of deferred consideration included in the Company’s balance sheet.

Other-Balance Sheet Commitments

Put Rights of Subsidiaries’ Noncontrolling Shareholders

Owners of interests in certain of the Company’s subsidiaries have the right in certain circumstances to require the Company to acquire either a portion of or all of the remaining ownership interests held by them. The owners’ ability to exercise any such “put option” right is subject to the satisfaction of certain conditions, including conditions requiring notice in advance of exercise. In addition, these rights cannot be exercised prior to specified staggered exercise dates. The exercise of these rights at their earliest contractual date would result in obligations of the Company to fund the related amounts during the period 2011 to 2018. It is not determinable, at this time, if or when the owners of these rights will exercise all or a portion of these rights.

The amount payable by the Company in the event such put option rights are exercised is dependent on various valuation formulas and on future events, such as the average earnings of the relevant subsidiary through that date of exercise, the growth rate of the earnings of the relevant subsidiary during that period, and, in some cases, the currency exchange rate at the date of payment.

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Management estimates, assuming that the subsidiaries owned by the Company at December 31, 2010, perform over the relevant future periods at their 2010 earnings levels, that these rights, if all exercised, could require the Company, in future periods, to pay an aggregate amount of approximately $33.0 million to the owners of such rights to acquire such ownership interests in the relevant subsidiaries. Of this amount, the Company is entitled, at its option, to fund approximately $3.1 million by the issuance of the Company’s Class A subordinate voting shares. In addition, the Company is obligated under similar put option rights to pay an aggregate amount of approximately $48.8 million only upon termination of such owner’s employment with the applicable subsidiary or death. The Company intends to finance the cash portion of these contingent payment obligations using available cash from operations, borrowings under the WF Credit Facility (and refinancings thereof) and, if necessary, through incurrence of additional debt. The ultimate amount payable and the incremental operating income in the future relating to these transactions will vary because it is dependent on the future results of operations of the subject businesses and the timing of when these rights are exercised. Approximately $2.9 million of the estimated $33.0 million that the Company would be required to pay subsidiaries noncontrolling shareholders’ upon the exercise of outstanding “put” rights, relates to rights exercisable within the next twelve months. Upon the settlement of the total amount of such put options, the Company estimates that it would receive incremental operating income before depreciation and amortization of $10.0 million that would be attributable to MDC Partners Inc.

The following table summarizes the potential timing of the consideration and incremental operating income before depreciation and amortization based on assumptions as described above.

Consideration(4)		2011				2012				2013				2014				2015 & Thereafter				Total
		($ Millions)
Cash		$	2.3			$	12.6			$	3.7			$	4.0			$	7.3			$	29.9
Shares			0.6				0.7				1.0				0.5				0.3				3.1
		$	2.9			$	13.3			$	4.7			$	4.5			$	7.6			$	33.0	(1)
Operating income before depreciation and amortization to be received(2)		$	2.9			$	1.9			$	2.4			$	0.8			$	2.0			$	10.0
Cumulative operating income before depreciation and amortization(3)		$	2.9			$	4.8			$	7.2			$	8.0				10.0					(5)

Guarantees

In connection with certain dispositions of assets and/or businesses in 2001 and 2003, as well as the 2006 sale of SPI, the Company has provided customary representations and warranties whose terms range in duration and may not be explicitly defined. The Company has also retained certain liabilities for events occurring prior to sale, relating to tax, environmental, litigation and other matters. Generally, the Company has indemnified the purchasers in the event that a third party asserts a claim against the purchaser that relates to a liability retained by the Company. These types of indemnification guarantees typically extend for several years.

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

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

Transactions With Related Parties

CEO Services Agreement

On April 27, 2007, the Company entered into a Management Services Agreement (the “Services Agreement”) with Miles Nadal and with Nadal Management, Inc. to set forth the terms and conditions on which Mr. Nadal would continue to provide services to the Company as its Chief Executive Officer. The Services Agreement renewed on April 27, 2010, in accordance with its terms and conditions. In addition, effective April 27, 2010, the annual retainer amount under the Services Agreement was increased to $1,500,000. During both 2009 and 2010 and in accordance with this new Services Agreement, Mr. Nadal repaid an amount equal to $0.1 million of loans due to the Company. At December 31, 2010, outstanding loans due from Nadal Management to the Company, with no stated maturity date, amounted to C$6.1 million ($6.1 million), which have been reserved for in the Company’s accounts.

Trapeze Media

In 2000, the Company purchased 1,600,000 shares in Trapeze Media Limited (“Trapeze”) for $0.2 million. At the same time, the Company’s CEO purchased 4,280,000 shares of Trapeze for $0.6 million, the Company’s former Chief Financial Officer and a Managing Director of the Company each purchased 50,000 Trapeze shares for $7,000 and a Board Member of the Company purchased 75,000 shares of Trapeze for $10,000. In 2001, the Company purchased an additional 1,250,000 shares for $0.2 million, and the Company’s CEO purchased 500,000 shares for $0.1 million. In 2002, the Company’s CEO purchased 3,691,930 shares of Trapeze for $0.5 million. All of these purchases were made at identical prices (C$0.20/unit).

During 2010, 2009 and 2008, Trapeze provided services to certain partner firms of MDC, and the total amount of such services provided was $0.1 million, $0.1 million, and $0.4 million, respectively. In addition, in 2010, 2009 and 2008, an MDC Partner firm provided services to Trapeze in exchange for fees equal to $0.3 million, $0.3 million and $0.1 million, respectively.

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

Critical Accounting Policies

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

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

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

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

Fees billed to clients in excess of fees recognized as revenue are classified as advance billings.

A small portion of the Company’s contractual arrangements with clients includes performance incentive provisions, which allow the Company to earn additional revenues as a result of its performance relative to both quantitative and qualitative goals. The Company recognizes the incentive portion of revenue under these arrangements when specific quantitative goals are assured, or when the Company’s clients determine performance against qualitative goals has been achieved. In all circumstances, revenue is only recognized when collection is reasonably assured.

The Company follows Reporting Revenue Gross as a Principal versus Net as an Agent topic of the FASB Accounting Standards Codification. This topic provides a summary on when revenue should be recorded at the gross amount billed because revenue has been earned from the sale of goods or services, or the net amount retained because a fee or commission has been earned. The Company’s business at times acts as an agent and records revenue equal to the net amount retained, when the fee or commission is earned. The Company also follows the reimbursements received for out-of-pocket expenses. This topic of the FASB Accounting Standards Codification requires 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.

Acquisitions, Goodwill and Other Intangibles. A fair value approach is used in testing goodwill for impairment to determine if an other than temporary impairment has occurred. One approach utilized to determine fair values is a discounted cash flow methodology. When available and as appropriate, comparative market multiples are used. Numerous estimates and assumptions necessarily have to be made when completing a discounted cash flow valuation, including estimates and assumptions regarding interest rates, appropriate discount rates and capital structure. Additionally, estimates must be made regarding revenue growth, operating margins, tax rates, working capital requirements and capital expenditures. Estimates and assumptions also need to be made when determining the appropriate comparative market multiples to be used. Actual results of operations, cash flows and other factors used in a discounted cash flow valuation will likely differ from the estimates used and it is possible that differences and changes could be material. As of December 31, 2010, there were no reporting units at risk of failing step one of the Company’s annual goodwill impairment test.

The Company has historically made and expects to continue to make selective acquisitions of marketing communications businesses. In making acquisitions, the price paid is determined by various factors, including service offerings, competitive position, reputation and geographic coverage, as well as prior experience and judgment. Due to the nature of advertising, marketing and corporate communications services companies; the companies acquired frequently have significant identifiable intangible assets, which primarily consist of

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customer relationships. The Company has determined that certain intangibles (trademarks) have an indefinite life, as there are no legal, regulatory, contractual, or economic factors that limit the useful life.

Business Combinations. Valuation of acquired companies are based on a number of factors, including specialized know-how, reputation, competitive position and service offerings. Our acquisition strategy has been to focus on acquiring the expertise of an assembled workforce in order to continue building upon the core capabilities of our various strategic business platforms to better serve our clients. Consistent with our acquisition strategy and past practice of acquiring a majority ownership position, most acquisitions completed in 2010 and 2009 include an initial payment at the time of closing and provide for future additional contingent purchase price payments. Contingent payments for these transactions, as well as certain acquisitions completed in prior years, are derived using the performance of the acquired entity and are based on pre-determined formulas. Contingent purchase price obligations for acquisitions completed prior to January 1, 2009 are accrued when the contingency is resolved and payment is certain. Contingent purchase price obligations related to acquisitions completed subsequent to December 31, 2008 are recorded as liabilities at estimated value and are remeasured at each reporting period. Changes in estimated value are recorded in results of operations. For the year ended December 31, 2010 and 2009, $778 and nil, respectively, related to changes in estimated value have been recorded as operating income. In addition, certain acquisitions also include put/call obligations for additional equity ownership interests. The estimated value of these interests are recorded as redeemable noncontrolling interests. As of January 1, 2009, the Company expenses acquisition related costs in accordance with the Accounting Standard’s Codification’s new guidance on acquisition accounting. The year ended December 31, 2010 and 2009, included $2,940 and $416 of acquisition related costs, respectively.

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

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

Allowance for Doubtful Accounts. Trade receivables are stated less allowance for doubtful accounts. The allowance represents estimated uncollectible receivables usually due to customers’ potential insolvency. The allowance includes amounts for certain customers where risk of default has been specifically identified.

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

Interest Expense. Interest expense primarily consists of the cost of borrowing on the revolving WF Credit 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 December 31, 2010 and 2009, $848 and $204 was amortized, respectively, net of amortized premium of $197 and nil, respectively. The Company

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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 WF Credit Facility. The total net deferred financing costs, included in Other Assets on the balance sheet, as of December 30, 2010 and 2009 were $10,605 and $9,790, respectively, net of accumulated amortization of $1,583 and $295, respectively. During 2010, the Company recorded $2,103 of deferred financing costs primarily relating to the 2010 additional debt issuance.

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

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

New Accounting Pronouncements

In April 2010, the FASB issues ASU 2010-17, “Revenue Recognition — Milestone Method.” ASU 2010-17 provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. The amendments in ASU 2010-17 are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. The adoption will not have an impact on our financial statements.

In April 2010, the FASB issued ASU 2010-13, “Compensation — Stock Compensation Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades.” ASU 2010-13 provides amendments to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in ASU 2010-13 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The adoption of this standard will not have an effect on our financial statements.

In February 2010, The FASB issued an additional Accounting Standards Update on Subsequent Events to clarify the updated guidance issued in May 2009. This Guidance clarifies that SEC filers must evaluate subsequent events through the date the financial statements are issued. However, an SEC filer is not required to disclose the date through which subsequent events have been evaluated. The amendment is effective June 15, 2010. The adoption did not have an impact on our financial statements.

In January 2010, the FASB issued an Accounts Standards Update on Consolidation — Accounting and Reporting for Decreases in Ownership of a Subsidiary — A Scope Clarification. This Guidance clarifies the scope of the decrease in ownership provisions and expands the disclosure requirements about deconsolidation of a subsidiary or de-recognition of a group of assets. It is effective beginning in the first interim annual reporting period ending on or after December 15, 2009. The adoption did not have an impact on our financial statements.

In January 2010, the FASB issued Fair Value Measurements and Disclosures — Improving Disclosures about Fair Value Measurements. This Guidance requires new disclosures and clarifies certain existing disclosure requirements about fair value measurements. It requires a reporting entity to disclose significant transfers in and out of Level 1 and Level 2 fair value measurements, to describe the reasons for the transfers and to present separately information about purchases, sales, issuances and settlements for fair value

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measurements using significant unobservable inputs. This Guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements, which is effective for interim and annual reporting periods beginning after December 15, 2010; early adoption is permitted. The adoption did not have a material effect on our financial statements.

In October 2009, the FASB issued revised guidance on the topic of Multiple — Deliverable Revenue Arrangements. The revised guidance amends certain accounting for revenue with multiple deliverables. In particular when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, the revised guidance allows use of a best estimate of the selling price to allocate the arrangement consideration among them. This guidance is effective for the first quarter of 2011, with early adoption permitted. The Company is currently evaluating the impact on our financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

Debt Instruments: At December 31, 2010, the Company’s debt obligations consisted of amounts outstanding under its WF Credit Facility and the 11% notes. This facility bears interest at variable rates based upon the Eurodollar rate, US bank prime rate and, US base rate, at the Company’s option. The 11% notes bear interest at a fixed rate. The Company’s ability to obtain the required bank syndication commitments depends in part on conditions in the bank market at the time of syndication. As of December 31, 2010, the Company had a zero balance on the revolving WF Credit Facility.

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

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

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Item 8. Financial Statements and Supplementary Data

MDC PARTNERS INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Financial Statements:
Reports of Independent Registered Public Accounting Firm			44
Consolidated Statements of Operations for the Three Years Ended December 31, 2010			45
Consolidated Balance Sheets as of December 31, 2010 and 2009			46
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2010			47
Consolidated Statements of Shareholders’ Equity for the Three Years Ended December 31, 2010			49
Notes to Consolidated Financial Statements			52
Financial Statement Schedules:
Schedule II — Valuation and Qualifying Accounts for the Three Years Ended December 31, 2010			100

TABLE OF CONTENTS

Report of Independent Registered Public Accounting Firm

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

We have audited the accompanying consolidated balance sheets of MDC Partners Inc. as of December 31, 2010 and 2009 and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MDC Partners Inc. at December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), MDC Partners Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 14, 2011 expressed an unqualified opinion thereon.

/s/ BDO USA, LLP

New York, New York
March 14, 2011

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MDC PARTNERS INC. AND SUBSIDIARIES

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

		Years Ended December 31,
		2010				2009				2008
Revenue:
Services		$	697,825			$	545,141			$	583,271
Operating Expenses:
Cost of services sold			477,491				353,011				391,015
Office and general expenses			156,924				136,622				137,418
Depreciation and amortization			34,481				34,412				34,140
			668,896				524,045				562,573
Operating Profit			28,929				21,096				20,698
Other Income (Expenses)
Gain (loss) on sale of assets and other			381				(91	)			(14	)
Foreign exchange gain (loss)			69				(1,956	)			13,257
Interest expense and finance charges			(33,487	)			(22,098	)			(14,998	)
Interest income			205				354				1,743
			(32,832	)			(23,791	)			(12	)
Income (loss) from continuing operations before income taxes and equity in affiliates			(3,903	)			(2,695	)			20,686
Income tax expense (recovery)			(165	)			8,536				2,397
Income (loss) from continuing operations before equity in affiliates			(3,738	)			(11,231	)			18,289
Equity in earnings (loss) of non-consolidated affiliates			866				(8	)			349
Income (loss) from continuing operations			(2,872	)			(11,239	)			18,638
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes			(2,494	)			(1,519	)			(10,205	)
Net income (loss)			(5,366	)			(12,758	)			8,433
Net income attributable to the non-controlling interests			(10,074	)			(5,566	)			(8,300	)
Net income (loss) attributable to MDC Partners Inc.		$	(15,440	)		$	(18,324	)		$	133
Income (loss) Per Common Share:
Basic
Income (loss) from continuing operations attributable to MDC Partners Inc. common shareholders		$	(0.46	)		$	(0.61	)		$	0.39
Discontinued operations attributable to MDC Partners Inc. common shareholders			(0.09	)			(0.06	)			(0.38	)
Net Income (loss) attributable to MDC Partners Inc. common shareholders		$	(0.55	)		$	(0.67	)		$	0.01
Income (loss) Per Common Share:
Diluted
Income (loss) from continuing operations attributable to MDC Partners Inc. common shareholders		$	(0.46	)		$	(0.61	)		$	0.38
Discontinued operations attributable to MDC Partners Inc. common shareholders			(0.09	)			(0.06	)			(0.37	)
Net income (loss) attributable to MDC Partners Inc. common shareholders		$	(0.55	)		$	(0.67	)		$	0.01
Weighted Average Number of Common Shares Outstanding:
Basic			28,161,144				27,396,463				26,765,839
Diluted			28,161,144				27,396,463				27,430,162

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

Cost of services sold		$	4,427			$	4,919			$	7,494
Office and general expenses			12,080				10,525				6,943
Total		$	16,507			$	15,444			$	14,437

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

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MDC PARTNERS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Thousands of United States Dollars)

		December 31,
		2010				2009
ASSETS
Current Assets:
Cash and cash equivalents		$	10,949			$	51,926
Accounts receivable, less allowance for doubtful accounts of $1,990 and $2,034			195,306				118,211
Expenditures billable to clients			30,414				24,003
Other current assets			13,455				8,105
Total Current Assets			250,124				202,245
Fixed assets, net			41,053				35,375
Investment in affiliates			—				1,547
Goodwill			514,488				301,632
Other intangible assets, net			67,133				34,715
Deferred tax assets			21,603				12,542
Other assets			19,947				16,463
Total Assets		$	914,348			$	604,519
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable		$	131,074			$	77,450
Accrued and other liabilities			64,050				66,967
Advance billings, net			124,993				65,879
Current portion of long-term debt			1,667				1,456
Deferred acquisition consideration			30,887				30,645
Total Current Liabilities			352,671				242,397
Long-term debt			284,549				216,490
Long-term portion of deferred acquisition consideration			77,104				—
Other liabilities			10,956				8,707
Deferred tax liabilities			19,642				9,051
Total Liabilities			744,922				476,645
Redeemable Noncontrolling Interests			77,560				33,728
Commitments, Contingencies and Guarantees (Note 18)
Shareholders’ Equity:
Preferred shares, unlimited authorized, none issued			—				—
Class A Shares, no par value, unlimited authorized, 28,758,734 and 27,566,815 shares issued and outstanding in 2010 and 2009, respectively			226,752				218,532
Class B Shares, no par value, unlimited authorized, 2,503 issued and outstanding in 2010 and 2009, respectively, convertible into one Class A share			1				1
Additional paid-in capital			—				9,174
Charges in excess of capital			(16,809	)			—
Accumulated deficit			(146,600	)			(131,160	)
Stock subscription receivable			(135	)			(341	)
Accumulated other comprehensive loss			(4,148	)			(5,880	)
MDC Partners Inc. Shareholders’ Equity			59,061				90,326
Noncontrolling Interests			32,805				3,820
Total Equity			91,866				94,146
Total Liabilities, Redeemable Noncontrolling Interests and Equity		$	914,348			$	604,519

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

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MDC PARTNERS INC. AND SUBSIDIARIES

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

		Years Ended December 31,
		2010				2009				2008
Cash flows from operating activities:
Net income (loss)		$	(5,366	)		$	(12,758	)		$	8,433
Loss from discontinued operations			(2,494	)			(1,519	)			(10,205	)
Income (loss) from continuing operations			(2,872	)			(11,239	)			18,638
Adjustments to reconcile loss from continuing operations to cash provided by operating activities:
Non-cash stock-based compensation			16,507				15,444				14,437
Depreciation			16,764				16,275				16,746
Amortization primarily from intangibles			17,717				18,137				17,394
Amortization of deferred finance charges and debt discount			2,136				4,041				1,348
Adjustment to deferred acquisition consideration			142				—				—
Deferred income taxes			(5,373	)			6,972				(960	)
(Gain) loss on disposition of assets			(17	)			53				142
Loss (earnings) of non consolidated affiliates			(866	)			8				(349	)
Other non-current assets and liabilities			(509	)			3,101				(1,891	)
Foreign exchange			538				6,557				(14,567	)
Increase/decrease in operating assets and liabilities
Accounts receivable			(31,289	)			(11,420	)			26,555
Expenditures billable to clients			23,681				(7,054	)			2,154
Prepaid expenses and other current assets			952				1,546				1,426
Accounts payable, accruals and other current liabilities			(119	)			11,023				(8,368	)
Advance billings			2,430				15,843				98
Cash flows provided by continuing operating activities			39,822				69,287				72,803
Discontinued operations			(2,525	)			(1,600	)			(3,708	)
Net cash provided by operating activities			37,297				67,687				69,095
Cash flows from investing activities:
Capital expenditures			(12,500	)			(6,209	)			(14,384	)
Proceeds from sale of assets			96				20				242
Acquisitions, net of cash acquired			(117,060	)			(60,042	)			(35,641	)
Profit distributions from affiliates			638				198				440
Other investments			(717	)			(163	)			(85	)
Cash flows used in continuing investing activities			(129,543	)			(66,196	)			(49,428	)
Discontinued operations			(710	)			(3	)			(758	)
Net cash used in investing activities			(130,253	)			(66,199	)			(50,186	)
Cash flows from financing activities:
Proceeds from issuance of 11% Senior Note			67,600				214,506				—
Repayments of revolving credit facility			—				(9,701	)			—
Proceeds (repayment of) term loans			—				(130,000	)			18,500
Repayment of convertible debt			—				(42,470	)			—
Proceeds from revolving credit facility			—				—				7,800
Proceeds from bank overdraft			9,026				—				—
Distributions to noncontrolling interests			(7,685	)			(7,784	)			(11,649	)
Proceeds from exercise of options			60				370				—
Payments of dividends			(9,727	)			—				—
Repayment of long-term debt			(1,496	)			(2,000	)			(1,884	)
Deferred financing costs			(2,103	)			(10,085	)			—
Proceeds from stock subscription receivable			206				13				—
Purchase of treasury shares			(3,480	)			(596	)			(906	)
Cash flows provided by continuing financing activities			52,401				12,253				11,861
Discontinued operations			—				—				—
Net cash provided by financing activities			52,401				12,253				11,861

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

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MDC PARTNERS INC. AND SUBSIDIARIES

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

		Years Ended December 31,
		2010				2009				2008
Effect of exchange rate changes on cash and cash equivalents			(422	)			(3,146	)			151
Increase (decrease) in cash and cash equivalents			(40,977	)			10,595				30,921
Cash and cash equivalents at beginning of year			51,926				41,331				10,410
Cash and cash equivalents at end of year		$	10,949			$	51,926			$	41,331
Supplemental disclosures:
Cash income taxes paid		$	1,128			$	384			$	1,037
Cash interest paid		$	29,581			$	14,243			$	13,196
Non-cash transactions:
Share capital issued on acquisitions		$	—			$	—			$	1,889
Capital leases		$	656			$	340			$	349
Note receivable exchanged for shares of subsidiary		$	840			$	—			$	1,872

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

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MDC PARTNERS INC. AND SUBSIDIARIES

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

		2010								2009								2008
		Number of Shares				Amount				Number of Shares				Amount				Number of Shares				Amount
Class A Shares
Balance at beginning of year			27,566,815			$	218,532				26,987,017			$	213,533				26,235,932			$	207,958
Stock appreciation rights exercised			101,107				239				68,261				202				—				—
Share options exercised			6,495				60				47,625				370				—				—
Shares acquired and cancelled			(282,954	)			(3,480	)			(156,481	)			(596	)			(124,492	)			(1,009	)
Shares issued as acquisition consideration			—								—				—				306,922				1,889
Shares issued as deferred acquisition consideration			—								—				—				27,545				214
Issuance of restricted stock			1,367,271				11,401				620,393				5,023				541,110				4,481
Balance at end of year			28,758,734			$	226,752				27,566,815			$	218,532				26,987,017			$	213,533
Class B Shares
Balance at beginning of year			2,503			$	1				2,503			$	1				2,503			$	1
Shares converted to Class B shares			—				—				—				—				—				—
Balance at end of year			2,503			$	1				2,503			$	1				2,503			$	1
Share Capital to Be Issued
Balance at beginning of year						$	—							$	—							$	214
Shares to be issued as deferred acquisition consideration							—								—								—
Shares issued as deferred acquisition consideration							—								—								(214	)
Balance at end of year							—								—							$	—
Additional Paid-In Capital
Balance at beginning of year						$	9,174							$	33,470							$	26,743
Stock-based compensation							14,954								13,720								10,129
Reclassification related to redeemable noncontrolling interests (Note 2)							—								(31,653	)							—
Changes in redemption value of redeemable noncontrolling interests							(11,500	)							(58	)							—

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

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MDC PARTNERS INC. AND SUBSIDIARIES

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

		2010								2009								2008
		Number of Shares				Amount				Number of Shares				Amount				Number of Shares				Amount
Acquisition of noncontrolling interests							(7,761	)							(923	)							—
Disposition of noncontrolling interests							158								—								—
Dividends paid and to be paid							(10,194	)							—								—
Acquisition purchase price consideration							—								—								1,001
Issuance of restricted stock							(11,401	)							(5,023	)							(4,481	)
Share appreciation rights exercised							(239	)							(203	)							—
Other							—								—								—
Transfer to charges in excess of capital							16,809								(156	)							78
Balance at end of year						$	—							$	9,174							$	33,470
Changes in Excess of Capital
Balance at beginning of year						$	—							$	—							$	—
Transfer from additional paid in capital							(16,809	)							—								—
Balance at end of year						$	(16,809	)						$	—							$	—
Accumulated Deficit
Balance at beginning of year						$	(131,160	)						$	(112,836	)						$	(112,969	)
Income (Loss) for the year							(15,440	)							(18,324	)							133
Balance at end of year						$	(146,600	)						$	(131,160	)						$	(112,836	)
Stock Subscription Receivable
Balance at beginning of year						$	(341	)						$	(354	)						$	(357	)
Receipts							206								13								3
Balance at end of year						$	(135	)						$	(341	)						$	(354	)
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of year						$	(5,880	)							(6,633	)						$	6,343
Foreign currency translation adjustments							1,732								753								(12,976	)
Balance at end of year							(4,148	)							(5,880	)							(6,633	)
MDC Partners Inc. Shareholders’ Equity						$	59,061							$	90,326							$	127,181