10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2011

or

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

For the transition period from ______________ to ______________

Commission file number: 001-13178

MDC Partners Inc.

(Exact name of registrant as specified in its charter)

Canada	98-0364441
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
745 Fifth Avenue New York, New York	10151
(Address of principal executive offices)	(Zip Code)

(646) 429-1800

Registrant’s telephone number, including area code:

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   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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   x No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer; a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated Filer  ¨	Accelerated filer  x
Non-accelerated Filer  ¨   (Do not check if a smaller reporting company.)	Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   ¨ No   x

The numbers of shares outstanding as of July 25, 2011 were: 30,034,774 Class A subordinate voting shares and 2,503 Class B multiple voting shares.

Website Access to Company Reports

MDC Partners Inc.’s internet website address is www.mdc-partners.com. The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act, will be made available free of charge through the Company’s website as soon as reasonably practical after those reports are electronically filed with, or furnished to, the Securities and Exchange Commission.  The information found on, or otherwise accessible through, the Company’s website is not incorporated into, and does not form a part of, this quarterly report on Form 10-Q.

MDC PARTNERS INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2011 and 2010	3
	Condensed Consolidated Balance Sheets as of June 30, 2011 (unaudited) and December 31, 2010	4
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2011 and 2010	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	47
Item 4.	Controls and Procedures	47
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3.	Defaults Upon Senior Securities	48
Item 4.	Reserved	48
Item 5.	Other Information	48
Item 6.	Exhibits	48
Signatures		49

2

Item 1. Financial Statements

MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Revenue:
Services	$	240,476		$	169,890		$	457,978		$	305,805
Operating Expenses:
Cost of services sold		162,408			116,364			321,552			212,935
Office and general expenses		53,777			39,101			99,508			73,378
Depreciation and amortization		9,736			8,029			20,119			13,845
		225,921			163,494			441,179			300,158
Operating profit		14,555			6,396			16,799			5,647
Other Income (Expenses):
Other income (expense), net		444			(289	)		755			(877	)
Interest expense		(10,666	)		(8,425	)		(20,230	)		(15,453	)
Interest income		28			69			60			100
		(10,194	)		(8,645	)		(19,415	)		(16,230	)
Income (loss) from continuing operations before income taxes, equity in affiliates		4,361			(2,249	)		(2,616	)		(10,583	)
Income tax expense		590			552			946			801
Income (loss) from continuing operations before equity in affiliates		3,771			(2,801	)		(3,562	)		(11,384	)
Equity in earnings (loss) of non-consolidated affiliates		79			(39	)		334			(143	)
Income (loss) from continuing operations		3,850			(2,840	)		(3,228	)		(11,527	)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes		—			(932	)		—			(1,408	)
Net income (loss)		3,850			(3,772	)		(3,228	)		(12,935	)
Net income attributable to the noncontrolling interests		(2,527	)		(2,033	)		(4,132	)		(3,056	)
Net income (loss) attributable to MDC Partners Inc.	$	1,323		$	(5,805	)	$	(7,360	)	$	(15,991	)
Income (loss) Per Common Share:
Basic:
Income (loss) from continuing operations attributable to MDC Partners Inc. common shareholders	$	0.05		$	(0.18	)	$	(0.25	)	$	(0.53	)
Discontinued operations attributable to MDC Partners Inc. common shareholders		—			(0.03	)		—			(0.05	)
Net income (loss) attributable to MDC Partners Inc. common shareholders	$	0.05		$	(0.21	)	$	(0.25	)	$	(0.58	)
Diluted:
Income (loss) from continuing operations attributable to MDC Partners Inc. common shareholders	$	0.04			(0.18	)	$	(0.25	)	$	(0.53	)
Discontinued operations attributable to MDC Partners Inc. common shareholders		—			(0.03	)		—			(0.05	)
Net income (loss) attributable to MDC Partners Inc. common shareholders	$	0.04		$	(0.21	)	$	(0.25	)	$	(0.58	)
Weighted Average Number of Common Shares Outstanding:
Basic		29,016,384			27,800,953			28,952,182			27,716,895
Diluted		32,301,722			27,800,953			28,952,182			27,716,895
Non cash stock-based compensation expense is included in the following line items above:
Cost of services sold	$	(306	)	$	637		$	734		$	1,317
Office and general expenses		6,081			2,251			9,315			5,038
Total	$	5,775		$	2,888		$	10,049		$	6,355

See notes to the unaudited condensed consolidated financial statements.

3

MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(thousands of United States dollars)

	June 30, 2011			December 31, 2010
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	5,704		$	10,949
Accounts receivable, less allowance for doubtful accounts of $829 and $1,990		204,925			195,306
Expenditures billable to clients		28,160			30,414
Other current assets		15,550			13,455
Total Current Assets		254,339			250,124
Fixed assets, at cost, less accumulated depreciation of $103,561 and $94,432		41,616			41,053
Investment in affiliates		105			—
Goodwill		546,257			514,488
Other intangibles assets, net		60,404			67,133
Deferred tax asset		21,690			21,603
Other assets		28,508			19,947
Total Assets	$	952,919		$	914,348
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND EQUITY
Current Liabilities:
Accounts payable	$	101,357		$	131,074
Accruals and other liabilities		58,414			64,050
Advance billings		114,013			124,993
Current portion of long-term debt		1,575			1,667
Current portion of deferred acquisition consideration		27,654			30,887
Total Current Liabilities		303,013			352,671
Revolving credit facility		34,462			—
Long-term debt		346,050			284,549
Long-term portion of deferred acquisition consideration		63,113			77,104
Other liabilities		13,038			10,956
Deferred tax liabilities		19,554			19,642
Total Liabilities		779,230			744,922
Redeemable Noncontrolling Interests (Note 2)		89,233			77,560
Commitments, contingencies and guarantees (Note 13)
Shareholders’ Equity:
Preferred shares, unlimited authorized, none issued		—			—
Class A Shares, no par value, unlimited authorized, 29,135,054 and 28,758,734 shares issued in 2011 and 2010		228,556			226,752
Class B Shares, no par value, unlimited authorized, 2,503 shares issued and outstanding in 2011 and 2010, each convertible into one Class A share		1			1
Additional paid-in capital		—			—
Charges in excess of capital		(19,950	)		(16,809	)
Accumulated deficit		(153,960	)		(146,600	)
Stock subscription receivable		(135	)		(135	)
Accumulated other comprehensive loss		(2,864	)		(4,148	)
MDC Partners Inc. Shareholders’ Equity		51,648			59,061
Noncontrolling Interests		32,808			32,805
Total Equity		84,456			91,866
Total Liabilities, Redeemable Noncontrolling Interests and Equity	$	952,919		$	914,348

See notes to the unaudited condensed consolidated financial statements.

4

MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(thousands of United States dollars)

	Six Months Ended June 30,
	2011			2010
Cash flows from operating activities:
Net loss	$	(3,228	)	$	(12,935	)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes		—			(1,408	)
Loss from continuing operations		(3,228	)		(11,527	)
Adjustments to reconcile net loss from continuing operations to cash (used in) provided by operating activities:
Depreciation		9,204			7,621
Amortization of intangibles		10,915			6,224
Non-cash stock-based compensation		10,049			6,355
Amortization of deferred finance charges and debt discount		1,158			862
Adjustment to deferred acquisition consideration		(564	)		1,589
Gain on disposition of assets		(22	)		(13	)
Loss (earnings) of non-consolidated affiliates		(334	)		143
Other non-current assets and liabilities		(3,133	)		(631	)
Foreign exchange		(54	)		498
Changes in working capital:
Accounts receivable		(7,034	)		1,035
Expenditures billable to clients		18,606			(8,418	)
Prepaid expenses and other current assets		(1,987	)		(1,039	)
Accounts payable, accruals and other liabilities		(30,192	)		(15,612	)
Advance billings		(29,086	)		15,812
Cash flows (used in) provided by continuing operating activities		(25,702	)		2,899
Discontinued operations		—			(1,083	)
Net cash (used in) provided by operating activities		(25,702	)		1,816
Cash flows from investing activities:
Capital expenditures		(8,465	)		(5,720	)
Acquisitions, net of cash acquired		(40,046	)		(57,476	)
Proceeds from sale of assets		43			58
Other investments		(1,600	)		(99	)
Profit distributions from affiliates		3,967			7
Cash flows used in continuing investing activities		(46,101	)		(63,230	)
Discontinued operations		—			(710	)
Net cash used in investing activities		(46,101	)		(63,940	)
Cash flows from financing activities:
Proceeds from issuance of 11% Senior Notes		61,050			67,600
Proceeds from revolving credit facility		34,462			—
Repayment of long-term debt		(382	)		(479	)
Proceeds from stock subscription receivable		—			124
Proceeds from exercise of options		1,010			51
Purchase of treasury shares		(2,568	)		(896	)
Deferred financing costs		(2,985	)		(1,491	)
Distributions to noncontrolling partners		(8,329	)		(4,549	)
Repayment of bank overdrafts		(7,161	)		—
Payment of dividends		(8,367	)		(2,781	)
Net cash provided by financing activities		66,730			57,579
Effect of exchange rate changes on cash and cash equivalents		(172	)		73
Net decrease in cash and cash equivalents		(5,245	)		(4,472	)
Cash and cash equivalents at beginning of period		10,949			51,926
Cash and cash equivalents at end of period	$	5,704		$	47,454
Supplemental disclosures:
Cash income taxes paid	$	135		$	803
Cash interest paid	$	17,238		$	13,411
Dividends payable	$	609		$	208
Non-cash transactions:
Capital leases	$	515		$	274

See notes to the unaudited condensed consolidated financial statements.

5

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(thousands of United States dollars, unless otherwise stated)

1. Basis of Presentation

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

The accompanying financial statements reflect all adjustments, consisting of normally recurring accruals, which in the opinion of management are necessary for a fair presentation, in all material respects, of the information contained therein. Results of operations for interim periods are not necessarily indicative of annual results.

These statements should be read in conjunction with the consolidated financial statements and related notes included in the Annual Report on Form 10-K for the year ended December 31, 2010.

In June 2010, the Company discontinued a start-up called Fearless Progression LLC.

Effective September 2010, one of the Company’s operating subsidiaries, Zig (USA) LLC has been deemed a discontinued operation.

In addition, in December 2010, the Company discontinued a start-up division of Redscout, LLC called “007”.

All periods have been restated to reflect the discontinued operations.

Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation.  These reclassifications did not have any effect on the prior year net loss.

2. Significant Accounting Policies

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

Principles of Consolidation . The accompanying condensed consolidated financial statements include the accounts of MDC Partners Inc. and its domestic and international controlled subsidiaries that are not considered variable interest entities, and variable interest entities for which the Company is the primary beneficiary. Intercompany balances and transactions have been eliminated in consolidation.

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

Concentration of Credit Risk . The Company provides marketing communications services to clients who operate in most industry sectors. Credit is granted to qualified clients in the ordinary course of business. Due to the diversified nature of the Company’s client base, the Company does not believe that it is exposed to a concentration of credit risk; the Company did not have a client that accounted for more than 10% of the Company’s consolidated accounts receivable at June 30, 2011 or December 31, 2010.  Furthermore, the Company did not have a client that accounted for more than 10% of the Company’s revenue for the three and six months ended June 30, 2011 or for the three and six months ended June 30, 2010.

Cash and Cash Equivalents. The Company’s cash equivalents are primarily comprised of investments in overnight interest-bearing deposits, commercial paper and money market instruments and other short-term investments with original maturity dates of three months or less at the time of purchase. The Company has a concentration risk in that there are cash deposits in excess of federally insured amounts. Included in cash and cash equivalents at June 30, 2011 and December 31, 2010, is approximately $49 and $64, respectively, of cash restricted as to withdrawal pursuant to a collateral agreement and a customer’s contractual requirements.

6

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(thousands of United States dollars, unless otherwise stated)

2. Significant Accounting Policies  – (continued)

Business Combinations.   Valuation of acquired companies are based on a number of factors, including specialized know-how, reputation, competitive position and service offerings. The Company’s acquisition strategy has been focused on acquiring the expertise of an assembled workforce in order to continue to build upon the core capabilities of its various strategic business platforms to better serve the Company’s clients. Consistent with the acquisition strategy and past practice of acquiring a majority ownership position, most acquisitions completed in 2011, 2010 and 2009 included an initial payment at the time of closing and provide for future additional contingent purchase price payments. Contingent payments for these transactions, as well as certain acquisitions completed in prior years, are derived using the performance of the acquired entity and are based on pre-determined formulas. Contingent purchase price obligations for acquisitions completed prior to January 1, 2009 are accrued when the contingency is resolved and payment is certain. Contingent purchase price obligations related to acquisitions completed subsequent to December 31, 2008 are recorded as liabilities at estimated value and are remeasured at each reporting period and changes in estimated value are recorded in results of operations. For the three and six months ended June 30, 2011, $1,999 of expense and $977 of income was recognized related to changes in estimated value, respectively.  For the three months and six months ended June 30, 2010, $977 and $1,311 has been charged to 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.  For the three and six months ended June 30, 2011, $216 and $784, respectively, of acquisition related costs have been charged to operations.  For the three and six months ended June 30, 2010, $331 and $730, respectively, of acquisition related costs have been charged to operations.

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

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

The Company has recorded its put options as mezzanine equity at their current estimated redemption amounts.  The Company accrues changes in the redemption amounts over the period from the date of issuance to the earliest redemption date of the put options.  The Company accounts for the put options with a charge to noncontrolling interests to reflect the excess, if any, of the estimated exercise price over the estimated fair value of the noncontrolling interest shares at the date of the option being exercised.  For the six months ended June 30, 2011 and 2010, there have been no charges to noncontrolling interests.  Changes in the estimated redemption amounts of the put options are adjusted at each reporting period with a corresponding adjustment to equity. These adjustments will not impact the calculation of earnings per share.

7

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(thousands of United States dollars, unless otherwise stated)

2. Significant Accounting Policies  – (continued)

The following table presents changes in Redeemable Noncontrolling Interests.

	Six Months Ended June 30,
	2011			2010
Beginning Balance as of December 31,	$	77,560		$	33,728
Redemptions		(5,754	)		(1,046	)
Granted		9,036			3,546
Changes in redemption value		7,475			(1,138	)
Currency Translation Adjustments		916			(464	)
Ending Balance as of June 30,	$	89,233		$	34,626

Revenue Recognition

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

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.

8

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(thousands of United States dollars, unless otherwise stated)

2. Significant Accounting Policies  – (continued)

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

A small portion of the Company’s contractual arrangements with customers includes performance incentive provisions, which allows the Company to earn additional revenues as a result of its performance relative to both quantitative and qualitative goals. The Company recognizes the incentive portion of revenue under these arrangements when specific quantitative goals are 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 records revenue net of sales and other taxes due to be collected and remitted to governmental authorities.

Interest Expense.  Interest expense primarily consists of the cost of borrowing on the revolving credit facility and the 11% Senior Notes. The Company uses the effective interest method to amortize the original issue discount and original issue premium on the 11% Senior Notes. At June 30, 2011 and December 31, 2010, $242 and $848 was amortized, respectively, net of amortized premium of $345 and $197, respectively. The Company amortizes deferred financing costs using the effective interest method over the life of the 11% Senior Notes and straight line over the life of the revolving credit facility. The total net deferred financing costs, included in Other Assets on the balance sheet, as of June 30, 2011 and December 31, 2010 was $12,677 and $10,605, net of accumulated amortization of $2,497 and $1,583, respectively.  During the six months of 2011, the Company recorded $2,985 of deferred financing costs primarily relating to the 2011 expansion of the revolving credit facility and the 2011 additional debt issuance.

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

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

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

Stock-based awards that are settled in cash or equity at the option of the Company are recorded at fair value on the date of grant and recorded as additional paid-in capital. The fair value measurement of the compensation cost for these awards is based on using both the Black-Scholes option pricing-model and a lattice based model (Monte Carlo) and is recorded in operating income over the service period that is the vesting period of the award.  The lattice based model is used for awards which are subject to achieving stock performance targets.

9

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

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

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

During the six months ended June 30, 2011, the Company issued 1,285,574 restricted stock units and restricted stock shares  (“RSUs”) to its employees and directors.  The RSUs have an aggregate grant date fair value of $23,127 and generally vest on the third anniversary date with certain awards subjected to accelerated vesting based on the financial performance of the Company.  In addition, during the six months ended June 30, 2011, the Company awarded 1,413,000 extraordinary equity value appreciation awards (“EVARs”) to its employees.  These EVARs have an aggregate grant date fair value of $13,240 and may result in the issuance of up to 1,413,000 RSUs, but only upon the achievement of extraordinary stock performance targets.  If issued, the RSUs underlying EVAR grants will vest on December 31, 2013.

For the six months ended June 30, 2011, the Company has recorded a $6,280 charge relating to these equity incentive grants.

A total of 899,720 Class A shares of restricted stock, granted to employees as equity incentive awards, are included in the Company’s calculation of Class A shares outstanding as of June 30, 2011.

10

3 . Income (Loss) Per Common Share

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Numerator
Numerator for basic income (loss) per common share - loss from continuing operations	$	3,850		$	(2,840	)	$	(3,228	)	$	(11,527	)
Net income attributable to the noncontrolling interests		(2,527	)		(2,033	)		(4,132	)		(3,056	)
Income (loss) attributable to MDC Partners Inc. common shareholders from continuing operations	$	1,323		$	(4,873	)	$	(7,360	)	$	(14,583	)
Effect of dilutive securities		—			—			—			—
Numerator for diluted income (loss) per common share – loss attributable to MDC Partners Inc. common shareholders from continuing operations	$	1,323		$	(4,873	)	$	(7,360	)	$	(14,583	)
Denominator
Denominator for basic income (loss) per common share - weighted average common shares		29,016,384			27,800,953			28,952,182			27,716,895
Effect of dilutive securities:		3,285,338			—			—			—
Denominator for diluted income (loss) per common share - adjusted weighted shares		32,301,722			27,800,953			28,952,182			27,716,895
Basic income (loss) per common share from continuing operations attributable to MDC Partners Inc.	$	0.05		$	(0.18	)	$	(0.25	)	$	(0.53	)
Diluted income (loss) per common share from continuing operations attributable to MDC Partners Inc.	$	0.04		$	(0.18	)	$	(0.25	)	$	(0.53	)

During the three months ended June 30, 2011, options and other rights to purchase 5,374,941 shares of common stock, which includes 2,104,380 shares of non-vested restricted stock and restricted stock units, were outstanding and were included in the computation of diluted income per common share.

During the six months ended June 30, 2011, options and other rights to purchase 5,374,941 shares of common stock, which includes 2,104,380 shares of non-vested restricted stock and restricted stock units, were outstanding but were not included in the computation of diluted loss per common share because their effect would be antidilutive.

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

4. Acquisitions

Pro forma financial information has not been presented for the acquisitions noted below since they did not have a material effect on the Company’s operating results.

Second Quarter 2011 Acquisitions

During the Quarter ended June 30, 2011, the Company increased ownership in Communifx Partners LLC (“Communifx”) by 1.3%, and increased its ownership of Varick Media Management LLC (“Varick”) to 100%. The aggregate purchase price for these two step up transactions has an estimated present value at acquisition date of $3,930 and is recorded as deferred acquisition consideration. Both of these step-up transactions were subject to put options. The Company recorded an entry to reduce redeemable noncontrolling interests by $4,440 and recorded an increase to additional-paid-in-capital of $509. The amounts to be paid will be tax deductible.

First Quarter 2011 Acquisitions

Effective January 31, 2011, the Company, through a wholly-owned subsidiary, purchased 60% of the total outstanding membership interests in Anomaly Partners, LLC (“Anomaly”).  This acquisition expands the Company’s portfolio with another creatively driven agency brand with an international presence.  At closing, the Company paid cash of $15,000 plus additional contingent deferred acquisition consideration, based on actual results from 2010 to 2014 with final payments due in 2015, with an original estimated present value of $20,951 at the date of acquisition.  An initial estimated allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $4,000 (consisting primarily of customer lists and a covenant not to compete) and goodwill of $22,297 representing the value of the assembled workforce. The fair value of the noncontrolling interest not acquired at the acquisition date was $7,890 based on the Company’s evaluation of the Company being acquired and the purchase price paid by the Company and have been recorded as redeemable noncontrolling interests due to put option rights which are triggered upon such owner’s termination without cause, disability or death. The identified intangibles will be amortized ranging from a five to eight-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized. The intangibles and goodwill are tax deductible. Included in the Company’s consolidated income statement for the three and six months ended June 30, 2011 is revenue from Anomaly of $12,268 and $23,657, respectively.

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

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Fourth Quarter 2010 Acquisitions

Effective November 30, 2010, the Company, through a wholly-owned subsidiary, purchased 80% of the total outstanding equity interests in each of Kenna Communications LP, an Ontario limited partnership ("Kenna"), and Capital C Partners LP, an Ontario limited partnership ("Capital C").  Capital C is a full-service marketing agency providing services such as business strategy and consumer insights, shopper monitoring, and product innovation.  Kenna delivers sales and marketing solutions to make organizations more efficient, more productive and more effective.  The aggregate purchase price was equal to $26,300 and additional deferred acquisition consideration, with an original estimated present value at the acquisition date of $12,360, that is based upon actual results from 2010 to 2015 with final payments due in 2016 of which the Company paid $99 in 2011.  In addition, performance payments of up to $5,000 may be paid in the future based on these results and will result in stock based compensation charges over that period.  The Company recorded $19,905 as the present value of redeemable noncontrolling interest in relation to the Kenna and Capital C put option rights triggered upon such owner’s termination without cause, disability or death.   Beginning in 2016, the Company has a call for the remaining 20% of each of Kenna and Capital C.  If the Company does not exercise this call, the operating results of Kenna and Capital C will be allocated to the Company on a basis less than the Company’s ownership basis as defined.  An initial estimated allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $10,254 (consisting of primarily customer lists and a covenant not to compete) and goodwill of $47,297 representing the value of assembled workforce.  The identified intangible assets will be amortized from a five to eight year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized.  The intangibles and goodwill are not tax deductible.  Accordingly, the Company recorded a deferred tax liability of $3,188 representing the future benefits relating to the amortization of the identified intangibles.

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

During the quarter ended December 31, 2010, the Company also completed a number of other acquistions.  The Company purchased a 51% interest in 72andSunny Partners LLC (“72andSunny”).  72andSunny is full service agency that conceives and executes fully integrated campaigns across all media for top global brands.  The Company also increased its ownership of Allard Johnson Communications Inc. (now known as Kbs+p Canada, LP,) (“Kbs+p Canada”) to 100%, and Company C Communications LLC (“Company C”) to 100%.  The aggregate purchase price paid for these other acquisitions was equal to $35,859, and consisted of total closing cash payments of $12,937, net of $790 repayment of loans; a $271 working capital adjustment; and additional contingent deferred acquisition consideration, that are based on actual financial results of the underlying business from 2010 to 2015 with final payments due in 2016 with an original estimated present value at acquisition date of $21,861, of which the Company paid $2,500 in December 2010 and $1,242 in 2011.  An allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $5,690, consisting primarily of customer lists and covenants not to compete, and goodwill of $35,322 representing the value of assembled workforce.  The identified intangibles will be amortized ranging from a five to seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized.  In addition, the Company has recorded $13,722, the present value of redeemable noncontrolling interest in relation to 72andSunny.  72andSunny has put option rights only upon such owner’s termination without cause, disability or death. The Company also recorded an entry to reduce redeemable noncontrolling interests by $3,802 and additional paid-in-capital of $3,123 in relation to the Kbs+p Canada and Company C step up.  The amounts paid and to be paid will be tax deductibe in relation to the 72andSunny acquisition.  However, it will not be tax deductible in relation to the Kbs+p Canada transaction.

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

Third Quarter 2010 Acquisitions

During the quarter ended September 30, 2010, the Company completed a number of acquisitions. The Company purchased a 60% equity interest in Relevent Partners, LLC (“Relevent”), a 60% equity interest in Kwittken PR, LLC (“Kwittken”), and certain assets and liabilities of Think 360 Inc. (“Think 360”).  Relevent is a full service marketing, special events, production and promotions company that builds brands with consumers through experiential lifestyle, entertainment and relationship marketing programs.  Kwittken is a full service public relations and  marketing agency.  Think 360 is an integrated marketing agency. The aggregate purchase price paid for these acquisitions consisted of total closing cash payments of $15,085, plus additional contingent deferred acquisition consideration, that are based on the actual financial results of the underlying businesses from 2010 to 2014, with final payments due in 2015 with an original estimated present value at acquisition date of $14,898 of which the Company paid $4,417 in 2011. An allocation of the excess purchase consideration of these acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $4,974, consisting primarily of customer lists and covenants not to compete, and goodwill of $29,083 representing the value of the assembled workforce.  The identified intangibles will be amortized ranging from a two to seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized.  The present value of the redeemable noncontrolling interest not acquired at the acquisition date was $5,513. Relevent and Kwittken have put option rights upon an employee-owner’s termination without cause, disability or death.  The amounts paid and to be paid will be tax deductible.

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

The Company has also increased ownership to 100% of Zig Inc. (now known as Crispin Porter + Bogusky Canada LP (“CPB Canada”)) and purchased an additional 25% of Bruce Mau Design LLC., increasing the Company’s ownership to 75%  The aggregate purchase price paid for these step-ups consisted of total closing cash payments of $3,115, plus the estimated present value at acquisition date of additional deferred acquisition consideration of $626.  During the fourth quarter of 2010, and first six months of 2011, the Company made payments of $47 and $684, respectively.  In relation to these step-ups, the Company recorded an entry to reduce redeemable noncontrolling interests by $1,365 and an entry to reduce noncontrolling interests by $144.  The Company recorded a reduction of additional paid-in-capital of $2,296 representing the difference between the fair value of the interest and the value of the redeemable noncontrolling interests.  The amounts paid and to be paid will not be tax deductible.

Second Quarter 2010 Acquisitions

Effective May 6, 2010, the Company, through a wholly-owned subsidiary, purchased 75% of the total outstanding membership interests in Integrated Media Solutions Partners, LLC (“IMS”), which expands the Company’s direct response marketing capabilities.  At closing, the Company paid cash of $20,000 plus additional contingent deferred acquisition consideration, based on actual results from 2010 to 2015 with final payments due in 2016, with an original estimated present value of $19,658 at the date of acquisition which includes fixed payments of $2,216.  During 2010 and 2011, the Company made payments of $666 and $5,209, respectively.  An initial estimated allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $9,081 (consisting of primarily customer lists and a covenant not to compete) and goodwill of $44,678 representing the value of the assembled workforce.  The fair value of the noncontrolling interest not acquired at the acquisition date was $13,219 based in the Company’s evaluation of the Company being acquired and the purchase price paid by the Company.  The identified intangibles will be amortized ranging from a five to seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized.  The intangibles and goodwill are tax deductible.

During the quarter ended June 30, 2010, the Company completed a number of acquisitions. The Company purchased a 51% equity interest in Allison & Partners LLC (“Allison”), a 75% equity interest in Sloane & Company LLC (“Sloane”), and certain assets and liabilities of CSC – ADPLUS, LLC (d.b.a. Infolure) (“Infolure”). Allison is a full service public relations and corporate communications agency.  Sloane is a communication firm focused on corporate positioning and communications, financial public relations and investor relations, and crisis and transactions communications.  Infolure is a direct marketing firm. The purchase price paid for these acquisitions consisted of aggregate cash payments of $17,632 plus additional contingent deferred acquisition consideration, that are based on actual results from 2010 to 2015 with final payments due in 2016 with an original estimated present value at acquisition date of $15,797 which includes fixed payments of $3,805. During 2010 and 2011, the Company made payments of $2,020 and $5,192, respectively.  An allocation of the excess purchase consideration of these acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $9,431 consisting primarily of customer lists and covenants not to compete, and goodwill of $27,697 representing the value of the assembled workforce.  The identified intangibles will be amortized ranging from a five to seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized.  In addition, the Company has recorded $6,024, the present value of redeemable noncontrolling interests in relation to Allison and Sloane.  The Allison acquisition has put option rights upon termination of an employee-owner’s employment by reason of death.  The Sloane acquisition has put rights that could increase the Company’s ownership to 100% in 2015.  The amounts paid and to be paid will be tax deductible.

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First Quarter 2010 Acquisitions

Effective March 1, 2010, the Company, through a wholly-owned subsidiary, purchased 60% of the total outstanding membership interests in The Arsenal LLC (formerly known as Team Holdings LLC), (“Team”), which expands the Company’s experiential marketing capabilities.  At closing, the Company paid cash of $11,000 plus additional contingent deferred acquisition consideration, based on actual results from 2010 to 2012 with final payments in 2013, with an original estimated present value of $12,656, and the Company paid a working capital true-up estimated at an additional $569.  An initial estimated allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $5,220 (consisting of primarily customer lists and a covenant not to compete) and goodwill of $32,993 representing the value of the assembled workforce.  The fair value of the noncontrolling interest not acquired at the acquisition date was $15,771 based in the Company’s evaluation of the Company being acquired and the purchase price paid by the Company.  The identified intangibles will be amortized up to a seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized.  During the second quarter of 2010, the Company amended the purchase agreement to include additional deferred acquisition consideration, with a current present value of $3,071, with final payments due in 2012.  The additional deferred acquisition consideration resulted in additional intangibles of $3,071.  During 2010 and 2011, the Company made payments of $986 and $7,783, respectively.  The intangibles and goodwill are tax deductible.

During the three months ended March 31, 2010, the Company completed a number of other acquisitions and step-ups in ownership. The Company purchased a 76% equity interest in Communifx Partners LLC (“Communifx”), substantially all of the assets of Plaid Inc. (“Plaid”), an additional 15% equity interest in Fletcher Martin, LLC (“Fletcher Martin”), an additional 49% equity interest in Trend Core, LLC (“Trend Core”), and an additional 1% equity interest in HL Group Partners, LLC (“HL Group”). Communifx builds and manages large-scale customer database solutions to enable the planning, execution, and measurement of multi-channel marketing and advertising programs.  Plaid is a marketing services business with a concentration in the digital communication and social media arena.  The Company purchased the additional equity interests in Fletcher Martin and HL Group pursuant to the exercise of outstanding puts. The purchase price paid for these acquisitions and step-ups consisted of aggregate cash payments of $4,921 plus additional contingent payments of $576 that are based on actual results from 2010 to 2015 with final payments due in 2016. During  2011, the Company made payments of $267.  An allocation of the excess purchase consideration of these acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $1,851 consisting primarily of customer lists and a covenant not to compete, and goodwill of $2,426 representing the value of the assembled workforce.  The identified intangibles will be amortized up to a seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized.  In addition, the Company has recorded $710, the present value of redeemable noncontrolling interests in relation to Communifx.  The Communifx acquisition has put/call rights that could increase the Company’s ownership to 100% in 2013.   In relation to the step up acquisitions, the Company recorded an entry to reduce Redeemable Noncontrolling Interests by $1,116.  The amount paid to the employee over fair value, $608, was recorded as a stock-based compensation charge.  The Company recorded a reduction of additional paid-in capital of $1,623 representing the difference between the fair value of the shares and the value of the Redeemable Noncontrolling Interests.  The amounts paid and to be paid will be tax deductible.

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MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(thousands of United States dollars, unless otherwise stated)

Net Income (Loss) Attributable to MDC Partners Inc. and

Transfers (to) from the Noncontrolling Interest

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Net income (loss) attributable to MDC Partners Inc.	$	1,323		$	(5,805	)	$	(7,360	)	$	(15,991	)
Transfers to the noncontrolling interest:
Increase (decrease) in MDC Partners Inc. paid-in capital for purchase of equity interests in excess of Redeemable Noncontrolling Interests		504			(58	)		7,582			(1,696	)
Decrease in MDC Partners Inc. paid-in capital from issuance of equity interests		(1,147	)		—			(1,147	)		(160	)
Net transfers to noncontrolling interest	$	(643	)	$	(58	)	$	6,435		$	(1,856	)
Change from net income (loss) attributable to MDC Partners Inc. and transfers to noncontrolling interest	$	680		$	(5,863	)	$	(925	)	$	(17,847	)

5. Accrued and Other Liabilities

At June 30, 2011 and December 31, 2010, accrued and other liabilities included amounts due to noncontrolling interest holders, for their share of profits, which will be distributed within the next twelve months of $4,491 and $8,577, respectively.

Changes in noncontrolling interest amounts included in accrued and other liabilities for the year ended December 31, 2010 and three months ended June 30, 2011 were as follows:

	Noncontrolling Interests
Balance, December 31, 2009	$	4,058
Income attributable to noncontrolling interests		10,074
Distributions made		(7,685	)
Other (1)		2,130
Balance, December 31, 2010	$	8,577
Income attributable to noncontrolling interests		4,132
Distributions made		(8,329	)
CTA		111
Balance, June 30, 2011	$	4,491

(1)  Other consists primarily of an adjustment to record distributions to be made as a result of an acquired company and cumulative translation adjustments.

6. Discontinued Operations

In December 2010, the Company discontinued a start-up division of Redscout, LLC called “007”. As a result, the Company has classified this entity’s results of operations as discontinued operations.  The results of operations for the three and six months ended June 30, 2010 was a loss of $315 and $451, respectively.

Effective September 30, 2010, the Company ceased Zig (USA) LLC current operations and has classified this entity’s results of operations as discontinued operations.  The results of operations for the three and six months ended June 30, 2010 was a loss of $141 and $310, respectively.

In June 2010, the Company discontinued a start up called Fearless Progression LLC (“Fearless”) and wrote off its investment in Fearless of $710. The results of operations for the three and six months ended June 30, 2010, including the investment write off, was a loss of $476 and $647, net of tax, respectively.

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Included in discontinued operations in the Company’s consolidated statements of operations for the three and six months ended June 30, 2010 was the following:

	Three Months Ended  June 30, 2010			Six Months Ended June 30, 2010
Revenue	$	99		$	366
Operating loss	$	(1,301	)	$	(1,797	)
Other expense	$	(10	)	$	(45	)
Net loss from discontinued operations attributable to MDC Partners Inc., net of taxes	$	(932	)	$	(1,408	)

7. Comprehensive Income (Loss)

Total comprehensive income (loss) and its components were:

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Net income (loss) for the period	$	3,850		$	(3,772	)	$	(3,228	)	$	(12,935	)
Other comprehensive income, net of tax:
Foreign currency cumulative translation adjustment		442			(959	)		1,287			457
Comprehensive income (loss)		4,292			(4,731	)		(1,941	)		(12,478	)
Comprehensive loss attributable to the noncontrolling interest		(2,527	)		(1,985	)		(4,135	)		(2,951	)
Comprehensive income (loss) attributable to MDC Partners Inc.	$	1,765		$	(6,716	)	$	(6,076	)	$	(15,429	)

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

Debt consists of:

	June 30, 2011			December 31, 2010
Revolving credit facility	$	34,462		$	—
11% Senior Notes due 2016		345,000			290,000
Original issue discount		(550	)		(6,843	)
Notes payable and other bank loans		1,400			1,400
		380,312			284,557
Obligations under capital leases		1,775			1,659
		382,087			286,216
Current portion		1,575			1,667
Long term portion	$	380,512		$	284,549

MDC Financing Agreement and Senior Notes

Issuance of 11% Senior Notes

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

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

On April 19, 2011, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold an additional $55,000 aggregate principal amount of 11% 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 $59,580, which included an original issue premium of $6,050, and underwriter fees of $1,470. 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.

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

The fair value for the 11% Senior Notes was $386,400 as of June 30, 2011.

At June 30, 2011, the Company had issued $6,190 of undrawn outstanding Letters of Credit.

At June 30, 2011 and December 31, 2010, accounts payable included $1,865 and $9,026 of outstanding checks, respectively.

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MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(thousands of United States dollars, unless otherwise stated)

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

Credit Agreement

On October 23, 2009, the Company and its subsidiaries entered into a $75,000 five year senior secured revolving credit agreement (the “WF Credit Agreement”) with Wells Fargo Capital Finance, LLC (formerly Wells Fargo Foothill, LLC), as agent, and the lenders from time to time party thereto. On November 22, 2010, this agreement was amended to increase the availability under the facility to $100,000.  On April 29, 2011, the Company entered into an additional amendment to increase the availability under the facility to $150,000 and extend the maturity date to October 23, 2015. The WF Credit Agreement replaced the Company’s existing $185,000 senior secured financing agreement with Fortress Credit Corp., as collateral agent, and Wells Fargo Foothill, Inc., as administrative agent. Advances under the WF Credit Agreement bear interest as follows: (a)(i) LIBOR Rate Loans bear interest at the LIBOR Rate and (ii) Base Rate Loans bear interest at the Base Rate, plus (b) an applicable margin. The applicable margin as of June 30, 2011 for borrowing is 2.25% in the case of Base Rate Loans and 2.50% in the case of LIBOR Rate Loans. The applicable margin may be reduced subject to the Company achieving certain trailing twelve month earning levels, as defined. In addition to paying interest on outstanding principal under the WF Credit Agreement, the Company is required to pay an unused revolver fee to the lender under the WF Credit Agreement in respect of unused commitments thereunder.

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

The Company is currently in compliance with all of the terms and conditions of its WF Credit Agreement, and management believes, based on its current financial projections, that the Company will be in compliance with the covenants over the next twelve months.  At June 30, 2011, the weighted average interest rate under the WF Credit Agreement was 5.5%.

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9. Total Equity

During the six months ended June 30, 2011, Class A share capital increased by $4,372, as the Company issued 285,285 shares related to vested restricted stock, and 116,881 shares related to the exercise of outstanding stock appreciation rights and 112,429 related to the exercise of options.  During the six months ended June 30, 2011, charges in excess of capital increased by $3,362 related to the vested restricted stock, stock appreciation rights, and options and a debit of $7,475 related to charges in put options (Note 2 and Note 13), dividends paid and payable of $8,367 offset by $9,621 related to an increase from stock-based compensation that was expensed during the same period, and a credit of $6,434 related to changes in ownership not resulting in a change in control.

During the six months ended June 30, 2011, the Company purchased and retired 138,275 Class A shares for $2,568 from employees in connection with the required tax withholding resulting from the vesting of shares of restricted stock and stock appreciation rights.

Total equity decreased $7,410, which is comprised of changes in put options of $7,475, a net loss attributable to MDC Partners of $7,360, dividends paid and payable of $8,367 and $2,568 of treasury stock purchases, offset by an increase in stock-based compensation of $9,621, and a credit of $6,434 related to changes in ownership not resulting in a change of control, an increase in accumulated other comprehensive loss of $1,284 and an exercise of stock options of $1,010.

10. Fair Value Measurements

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

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

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

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

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

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

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

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The following tables present certain information for our financial liabilities that is disclosed at fair value on a recurring basis at June 30, 2011 and 2010:

	Level 1				Level 1
	June 30, 2011				June 30, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Liabilities:
11% Senior Notes due 2016	$	344,450	$	386,400	$	282,781	$	308,050

Our long term debt includes fixed rate debt. The fair value of this instrument is based on quoted market prices.

The following table presents changes in Deferred Acquisition Consideration.

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	June 30,
	2011			2010
Beginning Balance of contingent payments	$	101,822		$	29,928
Payments		(25,165	)		(19,779	)
Grants		10,265			48,642
Redemption value adjustments		(564	)		1,388
Foreign translation adjustment		370			—
Ending Balance of contingent payments	$	86,728		$	60,179

In addition to the above amounts, there are fixed payments of $4,039 and $3,790 for total deferred acquisition consideration of $90,767 and $63,969, which reconciles to the consolidating financial statements at June 30, 2011 and 2010, respectively.

Level 3 payments relate to payments made for deferred acquisition consideration. Level 3 grants relate to contingent purchase price obligations related to acquisitions. The Company records the initial liability of the estimated present value. The estimated liability is determined in accordance with various contractual valuation formulas that may be dependent on future events, such as the growth rate of the earnings of the relevant subsidiary during the contractual period, and, in some cases, the currency exchange rate of the date of payment. Level 3 redemption value adjustments relate to the remeasurement and change in these various contractual valuation formulas as well as adjustments of present value.

At June 30, 2011 and December 31, 2010, the carrying amount of the Company’s financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximated fair value because of their short-term maturity.

11. Other Income (Expense)

	Three Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011		2010
Other income (expense)	$	15	$	—		$	84	$	(6	)
Foreign currency transaction gain (loss)		429		(233	)		671		(884	)
Gain (loss) on sale of assets		—		(56	)		—		13
	$	444	$	(289	)	$	755	$	(877	)

12. Segment Information

The Company’s segment reporting is consistent with the current manner of how the Chief Operating Decision Maker (“CODM”) and the Board of Directors view the business. The Company is focused on expanding its capabilities in database marketing and data analytics in order to position the Company for future business development efforts and revenue growth.

In order to position this strategic focus along the lines of how the CODM and management will base their business decisions, the Company reports two segments. Decisions regarding allocation of resources are made and will be made based not only on the individual operating results of the subsidiaries but also on the overall performance of the reportable segments. These reportable segments are the aggregation of various reporting segments.

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

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

• The Performance Marketing Services segment includes our firms that provide consumer insights to satisfy the growing need for targetable, measurable solutions or cost effective means of driving return on marketing investment. These services interface directly with the consumer of a client’s product or service. Such services include the design, development, research and implementation of consumer service and direct marketing initiatives. Each of the entities within the Performance Marketing Services Group share similar economic characteristics specifically related to the nature of their respective services, the manner in which the services are provided, and the similarity of their respective customers. Due to the similarities in these businesses, the services provided to the customer and they exhibit similar long term financial performance and have been aggregated together.

The significant accounting polices of these segments are the same as those described in the summary of significant accounting policies included in the notes to the consolidated financial statements. The Company continues to evaluate its Corporate Group and the services provided by the Corporate Group to the operating segments.

 Summary financial information concerning the Company’s operating segments is shown in the following tables:

Three Months Ended June 30, 2011

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services			Corporate			Total
Revenue	$	154,957		$	85,519		$	—		$	240,476
Cost of services sold		99,247			63,161			—			162,408
Office and general expenses		27,657			15,517			10,603			53,777
Depreciation and amortization		5,182			4,437			117			9,736
Operating Profit/(Loss)		22,871			2,404			(10,720	)		14,555
Other Income (Expense):
Other income, net											444
Interest expense, net											(10,638	)
Income from continuing operations before income taxes, equity in affiliates											4,361
Income tax expense											590
Income from continuing operations before equity in affiliates											3,771
Equity in earnings of non-consolidated affiliates											79
Net income											3,850
Net income attributable to the noncontrolling interests		(2,335	)		(192	)		—			(2,527	)
Net income attributable to MDC Partners Inc.										$	1,323
Non cash stock based compensation	$	176			478		$	5,121		$	5,775
Supplemental Segment Information:
Capital expenditures	$	2,620		$	791		$	32		$	3,443
Goodwill and intangibles	$	390,835		$	215,826		$	—		$	606,661
Total assets	$	578,419		$	332,092		$	42,408		$	952,919

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Three Months Ended June 30, 2010

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services			Corporate			Total
Revenue	$	106,881		$	63,009		$	—		$	169,890
Cost of services sold		71,034			45,330			—			116,364
Office and general expenses		20,920			12,634			5,547			39,101
Depreciation and amortization		4,228			3,707			94			8,029
Operating Profit/(Loss)		10,699			1,338			(5,641	)		6,396
Other Income (Expense):
Other expense, net											(289	)
Interest expense, net											(8,356	)
Loss from continuing operations before income taxes, equity in affiliates											(2,249	)
Income tax expense											552
Loss from continuing operations before equity in affiliates											(2,801	)
Equity in loss of non-consolidated affiliates											(39	)
Loss from continuing operations											(2,840	)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes											(932	)
Net loss											(3,772	)
Net income attributable to the noncontrolling interests		(1,368	)		(665	)		—			(2,033	)
Net loss attributable to MDC Partners Inc.										$	(5,805	)
Non cash stock based compensation	$	1,078			399		$	1,411		$	2,888
Supplemental Segment Information:
Capital expenditures	$	1,361		$	1,429		$	168		$	2,958
Goodwill and intangibles	$	314,326		$	158,379		$	—		$	472,705
Total assets	$	456,637		$	270,215		$	65,134		$	791,986

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Six Months Ended June 30, 2011

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services			Corporate			Total
Revenue	$	296,450		$	161,528		$	—		$	457,978
Cost of services sold		200,017			121,535			—			321,552
Office and general expenses		54,850			27,349			17,309			99,508
Depreciation and amortization		10,989			8,909			221			20,119
Operating Profit/(Loss)		30,594			3,735			(17,530	)		16,799
Other Income (Expense):
Other income, net											755
Interest expense, net											(20,170	)
Loss from continuing operations before income taxes, equity in affiliates											(2,616	)
Income tax expense											946
Loss from continuing operations before equity in affiliates											(3,562	)
Equity in earnings of non-consolidated affiliates											334
Net loss											(3,228	)
Net income attributable to the noncontrolling interests		(3,978	)		(154	)		—			(4,132	)
Net loss attributable to MDC Partners Inc.										$	(7,360	)
Non cash stock based compensation	$	1,723		$	983		$	7,343		$	10,049
Supplemental Segment Information:
Capital expenditures	$	6,353		$	1,882		$	230		$	8,465
Goodwill and intangibles	$	390,835		$	215,826		$	—		$	606,661
Total assets	$	578,419		$	332,092		$	42,408		$	952,919

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Six Months Ended June 30, 2010

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services			Corporate			Total
Revenue	$	198,139		$	107,666		$	—		$	305,805
Cost of services sold		132,249			80,686			—			212,935
Office and general expenses		40,900			22,148			10,330			73,378
Depreciation and amortization		7,512			6,146			187			13,845
Operating Profit/(Loss)		17,478			(1,314	)		(10,517	)		5,647
Other Income (Expense):
Other expense, net											(877	)
Interest expense, net											(15,353	)
Loss from continuing operations before income taxes, equity in affiliates											(10,583	)
Income tax expense											801
Loss from continuing operations before equity in affiliates											(11,384	)
Equity in loss of non-consolidated affiliates											(143	)
Loss from continuing operations											(11,527	)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes											(1,408	)
Net loss											(12,935	)
Net income attributable to the noncontrolling interests		(2,350	)		(706	)		—			(3,056	)
Net loss attributable to MDC Partners Inc.										$	(15,991	)
Non cash stock based compensation	$	2,831		$	765		$	2,759		$	6,355
Supplemental Segment Information:
Capital expenditures	$	2,966		$	2,463		$	291		$	5,720
Goodwill and intangibles	$	314,326		$	158,379		$	—		$	472,705
Total assets	$	456,637		$	270,215		$	65,134		$	791,986

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A summary of the Company’s revenue by geographic area, based on the location in which the services originated, is set forth in the following table:

	United States		Canada		Other		Total
Revenue
Three Months Ended June 30,
2011	$	191,669	$	40,330	$	8,477	$	240,476
2010	$	143,200	$	22,427	$	4,263	$	169,890
Six Months Ended June 30,
2011	$	365,989	$	75,469	$	16,520	$	457,978
2010	$	255,082	$	42,472	$	8,251	$	305,805

13. Commitments, Contingencies and Guarantees

Deferred Acquisition Consideration. In addition to the consideration paid by the Company in respect of certain of its acquisitions at closing, additional consideration may be payable, or may be potentially payable based on the achievement of certain threshold levels of earnings. See Note 2 and Note 4.

Put Options. Owners of interests in certain subsidiaries have the right in certain circumstances to require the Company to acquire 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 rights are exercised is dependent on 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 during that period, and, in some cases, the currency exchange rate at the date of payment.

Management estimates, assuming that the subsidiaries owned by the Company at June 30, 2011, perform over the relevant future periods at their trailing twelve-months earnings levels, that these rights, if all exercised, could require the Company, in future periods, to pay an aggregate amount of approximately $32,575 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 $3,759 by the issuance of share capital. In addition, the Company is obligated under similar put option rights to pay an aggregate amount of approximately $61,888 only upon termination of such owner’s employment with the applicable subsidiary or death. Included in redeemable noncontrolling interests at June 30, 2011 is $56,660 of these put options because they are not within the control of the Company. The ultimate amount payable 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.

Natural Disasters. Certain of the Company’s operations are located in regions of the United States and Caribbean which typically are subject to hurricanes. During the three months ended June 30, 2011 and 2010, these operations did not incur any costs related to damages resulting from hurricanes.

Guarantees. In connection with certain dispositions of assets and/or businesses in 2001 and 2003, 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 a number of years.

In connection with the 2003 sale of the Company’s investment in CDI, the amounts of indemnification guarantees were limited to the total sale price of approximately $84,000. For the remainder, the Company’s potential liability for these indemnifications are not subject to a limit as the underlying agreements do not always specify a maximum amount and the amounts are dependent upon the outcome of future contingent events.

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

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

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

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Commitments.  The Company has commitments to fund $3,833 of investments.  At June 30, 2011, the Company had issued $6,190 of undrawn outstanding letters of credit.

14. New Accounting Pronouncements

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU 2011-05”) Under ASU 2011-05, an entity will have the option to present comprehensive income on the income statement or as a separate financial statement. ASU 2011-05 is effective January 1, 2012 and requires retrospective adoption. ASU 2011-05 affects financial statement presentation only and has no effect on results of operations or financial position.

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 did not have a material 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 did not have an effect on our results of operation or our financial position.

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 adoption did not have a material impact on our financial statements.

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Item 2.  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 2011 means the period beginning January 1, 2011, and ending December 31, 2011).

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.

The following discussion focuses on the operating performance of the Company for the three and six months ended June 30, 2011 and 2010, and the financial condition of the Company as of June 30, 2011. This analysis should be read in conjunction with the interim condensed consolidated financial statements presented in this interim report and the annual audited consolidated financial statements and Management’s Discussion and Analysis presented in the Annual Report for the year ended December 31, 2010 as reported on Form 10-K. All amounts are in U.S. dollars unless otherwise stated.

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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 services 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, which results in earnings before interest, income taxes and depreciation and amortization (“EBITDA”) 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 Marking Services. In addition, MDC has a “Corporate Group” which provides certain administrative, accounting, financial, human resources and legal functions. Through our 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 Unaudited Condensed 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 tends 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 also monitor the resulting EBITDA generated to assist in determining where investment needs to be made.

We measure capital expenses as either maintenance or investment related.  Maintenance capital expenses are primarily composed of general upkeep of our office facilities and equipment that are required to continue to operate our businesses.  Investment capital expenses 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 expenses 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 2009 to 2011 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 6 “Discontinued Operations” in the Notes to the Unaudited Condensed 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.

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Results of Operations:

For the Three Months Ended June 30, 2011

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services			Corporate			Total
Revenue	$	154,957		$	85,519		$	—		$	240,476
Cost of services sold		99,247			63,161			—			162,408
Office and general expenses		27,657			15,517			10,603			53,777
Depreciation and amortization		5,182			4,437			117			9,736
Operating Profit/(Loss)		22,871			2,404			(10,720	)		14,555
Other Income (Expense):
Other income, net											444
Interest expense, net											(10,638	)
Income from continuing operations before income taxes, equity in affiliates											4,361
Income tax expense											590
Income from continuing operations before equity in affiliates											3,771
Equity in earnings of non-consolidated affiliates											79
Net income											3,850
Net income attributable to the noncontrolling interests		(2,335	)		(192	)		—			(2,527	)
Net income attributable to MDC Partners Inc.										$	1,323
Non cash stock based compensation	$	176		$	478		$	5,121		$	5,775

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For the Three Months Ended June 30, 2010

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services			Corporate			Total
Revenue	$	106,881		$	63,009		$	—		$	169,890
Cost of services sold		71,034			45,330			—			116,364
Office and general expenses		20,920			12,634			5,547			39,101
Depreciation and amortization		4,228			3,707			94			8,029
Operating Profit/(Loss)		10,699			1,338			(5,641	)		6,396
Other Income (Expense):
Other expense, net											(289	)
Interest expense, net											(8,356	)
Loss from continuing operations before income taxes, equity in affiliates											(2,249	)
Income tax expense											552
Loss from continuing operations before equity in affiliates											(2,801	)
Equity in earnings of non-consolidated affiliates											(39	)
Loss from continuing operations											(2,840	)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes											(932	)
Net loss											(3,772	)
Net income attributable to the noncontrolling interests		(1,368	)		(665	)		—			(2,033	)
Net loss attributable to MDC Partners Inc.										$	(5,805	)
Non cash stock based compensation	$	1,078		$	399		$	1,411		$	2,888

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For the Six Months Ended June 30, 2011

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services			Corporate			Total
Revenue	$	296,450		$	161,528		$	—		$	457,978
Cost of services sold		200,017			121,535			—			321,552
Office and general expenses		54,850			27,349			17,309			99,508
Depreciation and amortization		10,989			8,909			221			20,119
Operating Profit/(Loss)		30,594			3,735			(17,530	)		16,799
Other Income (Expense):
Other income, net											755
Interest expense, net											(20,170	)
Loss from continuing operations before income taxes, equity in affiliates											(2,616	)
Income tax expense											946
Loss from continuing operations before equity in affiliates											(3,562	)
Equity in earnings of non-consolidated affiliates											334
Loss from continuing operations											(3,228	)
Net income attributable to the noncontrolling interests		(3,978	)		(154	)		—			(4,132	)
Net loss attributable to MDC Partners Inc.										$	(7,360	)
Non cash stock based compensation.	$	1,723			983		$	7,343		$	10,049

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For the Six Months Ended June 30, 2010

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services			Corporate			Total
Revenue	$	198,139		$	107,666		$	—		$	305,805
Cost of services sold		132,249			80,686			—			212,935
Office and general expenses		40,900			22,148			10,330			73,378
Depreciation and amortization		7,512			6,146			187			13,845
Operating Profit/(Loss)		17,478			(1,314	)		(10,517	)		5,647
Other Income (Expense):
Other expense, net											(877	)
Interest expense, net											(15,353	)
Loss from continuing operations before income taxes, equity in affiliates											(10,583	)
Income tax expense											801
Loss from continuing operations before equity in affiliates											(11,384	)
Equity in earnings of non-consolidated affiliates											(143	)
Loss from continuing operations											(11,527	)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes											(1,408	)
Net loss											(12,935	)
Net income attributable to the noncontrolling interests		(2,350	)		(706	)		—			(3,056	)
Net loss attributable to MDC Partners Inc.										$	(15,991	)
Non cash stock based compensation.	$	2,831		$	765		$	2,759		$	6,355

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Three Months Ended June 30, 2011, Compared to Three Months Ended June 30, 2010

Revenue was $240.5 million for the quarter ended June 30, 2011, representing an increase of $70.6 million, or 41.6%, compared to revenue of $169.9 million for the quarter ended June 30, 2010. This revenue increase related primarily to acquisition growth of $32.5 million and organic growth of $36.1 million. In addition, a weakening of the US Dollar, primarily versus the Canadian dollar during the quarter ended June 30, 2011, resulted in increased revenues of $2.0 million.

The operating profit for the quarter ended June 30, 2011 was $14.6 million, compared to operating profit of $6.4 million for the quarter ended June 30, 2010. The increase in operating profit was primarily the result of an increase in operating profit of $12.2 million in the Strategic Marketing Services segment, an increase of $1.1 million within the Performance Marketing Services segment, offset by an increase in corporate operating expenses of $5.1 million.

Income from continuing operations attributable to MDC Partners Inc. for the second quarter of 2011 was $1.3 million, compared to a loss of $4.9 million in 2010. This increase in income of $6.2 million was primarily the result of an increase in operating profits of $8.2 million, an increase in other income, net of $0.7 million, and an increase from equity in earning of non-consolidated affiliates of $0.1 million.  These amounts were offset by an increase in interest expense, net of $2.3 million, and an increase in net income attributable to noncontrolling interests of $0.5 million.

Marketing Communications Group

Revenues in the second quarter of 2011 attributable to the Marketing Communications Group, which consists of two reportable segments — Strategic Marketing Services and Performance Marketing Services, were $240.5 million compared to $169.9 million in the second quarter of 2010, representing a year-over-year increase of 41.6%.

The components of the increase in revenue in the second quarter of 2011 are shown in the following table:

	Revenue
	$   000’s		%
Quarter ended June 30, 2010	$	169,890		—
Organic		36,060		21.2	%
Acquisitions		32,527		19.2	%
Foreign exchange impact		1,999		1.2	%
Quarter ended June 30, 2011	$	240,476		41.6	%

The geographic mix in revenues was consistent between the second quarter of 2011 and 2010 and is demonstrated in the following table:

	2011			2010
US		80	%		84	%
Canada		17	%		13	%
Other		3	%		3	%

The operating profit of the Marketing Communications Group increased by approximately 110% to $25.3 million from $12.0 million. Operating margins increased by 3.4% and were 10.5% for 2011, compared to 7.1% for 2010. The increase in operating profit and operating margin was primarily attributable to increased revenue and a decrease in total staff costs as a percentage of revenue, offset by an increase in direct costs (excluding staff costs). Total staff costs increased $31.3 million; however, staff costs decreased as a percentage of revenue from 53.8% in 2010 to 51.0% in 2011. Direct costs increased as a percentage of revenue from 22.0% in 2010 to 23.0% in 2011, due to the requirement that certain costs be included in both revenue and direct costs for client contracts in which the Company acts as principal versus agent. General and administrative costs decreased as a percentage of revenue from 19.7% in 2010 to 18.0% in 2011.  This decrease was due to increased revenues on relatively fixed costs.  Depreciation and amortization as a percentage of revenue decreased from 4.7% in 2010 to 4.0% in 2011 due to the increased revenues.

Strategic Marketing Services (“SMS”)

Revenues attributable to Strategic Marketing Services in the second quarter of 2011 were $155.0 million, compared to $106.9 million in the second quarter of 2010. The year-over-year increase of $48.1 million or 45.0% was attributable primarily to organic growth of $27.0 million as a result of net new business wins, and acquisition growth of $19.9 million. A weakening of the US dollar versus the Canadian dollar in 2011 compared to 2010 resulted in a $1.2 million increase in revenues from the division’s Canadian-based operations.

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The operating profit of Strategic Marketing Services increased by approximately 113.8% to $22.9 million in the second quarter of 2011, from $10.7 million in the second quarter of 2010. Operating margins increased to 14.8% in 2011 from 10.0% in 2010. The increase in operating profit and margins was primarily due to the increased revenue and a decrease in total staff costs as a percentage of revenue.  Total staff costs increased by $21.4 million, however, staff costs decreased as a percentage of revenues from 53.4% in 2010 to 50.7% in 2011. Direct costs (excluding staff costs) decreased as a percentage of revenues from 19.4% in 2010 to 19.1% in 2011.  In addition, depreciation and amortization as a percentage of revenue decreased from 4.0% in 2010 to 3.3% in 2011, and general and administrative costs decreased as a percentage of revenue from 19.6% in 2010 to 17.8% in 2011. Both of these decreases resulted from increased revenues on relatively fixed costs.

Performance Marketing Services

The Performance Marketing Services segment generated revenues of $85.5 million for the second quarter of 2011, an increase of $22.5 million, or 35.7% higher than revenues of $63.0 million in the second quarter of 2010. The year over year increase was attributable primarily to growth from acquisitions of $12.6 million, and organic revenue growth of $9.1 million. In addition, a weakening of the US dollar verses the Canadian dollar in 2011 compared to 2010 resulted in a $0.8 million increase in revenues from the division’s Canadian-based operations.

The operating profit of Performance Marketing Services increased by $1.1 million in the second quarter of 2011 from $1.3 million in the second quarter of 2010 to $2.4 million in the second quarter of 2011.  Operating margins increased from 2.1% in 2010 to income of 2.8% in 2011.  Operating margins increased due to total staff costs as a percentage of revenue decreasing from 54.4% in the second quarter of 2010 to 51.6% in the second quarter of 2011. General and administrative costs decreased as a percentage of revenue from 20.1% in the second quarter of 2010 to 18.1% in the second quarter of 2011. Depreciation and amortization decreased as a percentage of revenue from 5.9% in 2010 to 5.2% in 2011. The decrease as a percentage of revenue was due to increased revenues.  Offsetting these decreases, total direct costs (excluding staff costs) increased $8.9 million and as a percentage of revenue increased from 26.5% in the second quarter of 2010 to 29.9% in the second quarter of 2011.

Corporate

Operating costs related to the Company’s Corporate operations totaled $10.7 million in the second quarter of 2011, compared to $5.6 million in the second quarter of 2010. This increase of $5.1 million was primarily related to increased compensation and related expenses of $4.3 million, of which non-cash stock based compensation was $3.7 million.  In addition, Corporate operations incurred a $0.5 million increase in advertising and promotions, and $0.3 million increase in occupancy costs.

Other Income, Net

Other income (expense) increased to income of $0.4 million in the second quarter of 2011, compared to expense of $0.3 million in the second quarter of 2010. The 2011 income was primarily comprised of an unrealized foreign exchange gain of $0.4 million, compared to an unrealized loss of $0.2 million recorded in 2010.  Specifically, this unrealized gain and loss was due primarily to the fluctuation in the US dollar during 2011 and 2010 compared to the Canadian dollar relating to the Company’s US dollar denominated intercompany balances with its Canadian subsidiaries.

Net Interest Expense

Net interest expense for the second quarter of 2011 was $10.6 million, an increase of $2.2 million over the $8.4 million of net interest expense incurred during the second quarter of 2010. Interest expense increased in 2011 due to higher average outstanding debt in 2011, relating to the 11% senior notes issued in October 2009, May 2010 and April 2011. Interest income was nominal in both 2011 and 2010.

Income Taxes

 Income tax expense was $0.6 million in both second quarter of 2011 and 2010. The Company’s effective tax rate in 2011 was substantially lower than the statutory rate due and the Company’s effective tax rate in 2010 was substantially higher than the statutory rate due to noncontrolling interest charges, offset by non-deductible stock based compensation.  In addition, effective tax rate were lower and higher due to losses in certain tax jurisdictions where the benefits are not expected to be realized.

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 (losses) attributable to equity-accounted affiliate operations. For the second quarter of 2011 the income was $0.1 million compared to a nominal loss in the second quarter of 2010.

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Noncontrolling Interests

Net income attributable to the noncontrolling interests was $2.5 million for the second quarter of 2011, an increase of $0.5 million from the $2.0 million of noncontrolling interest expense incurred during the second quarter of 2010, primarily due to increased profitability of certain entities which are not wholly owned in the Strategic Marketing Services segment.

Discontinued Operations Attributable to MDC Partners Inc.

The loss of $0.9 million, from discontinued operations in 2010, resulted from the operating results and write-off of our investment of Zig (USA) LLC, a start up division of Redscout, LLC called “007”, and a start up called Fearless progression LLC.

Net Income (Loss) Attributable to MDC Partners Inc.

As a result of the foregoing, the net income attributable to MDC Partners Inc. recorded for the second quarter of 2011 was $1.3 million or an income of $0.04 per diluted share, compared to a net loss attributable to MDC Partners Inc. of $5.8 million or a loss of $0.21 per diluted share reported for the second quarter of 2010.

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Six Months Ended June 30, 2011, Compared to Six Months Ended June 30, 2010

Revenue was $458.0 million for the six months ended June 30, 2011, representing an increase of $152.2 million, or 49.8%, compared to revenue of $305.8 million for the six months ended June 30, 2010. This revenue increase related primarily to acquisition growth of $76.6 million and organic growth of $72.1 million. In addition, a weakening of the US Dollar, primarily versus the Canadian dollar during the six months ended June 30, 2011, resulted in increased revenues of $3.4 million.

The operating profit for the six months ended June 30, 2011 was $16.8 million, compared to $5.6 million for the six months ended June 30, 2010. The increase in operating profit was primarily the result of an increase in operating profit of $13.1 million in the Strategic Marketing Services segment, an increase of $5.1 million within the Performance Marketing Services segment, offset by an increase in corporate operating expenses of $7.0 million.

The loss from continuing operations attributable to MDC Partners Inc. for the first six months of 2011 was $7.4 million, compared to a loss of $14.6 million in 2010. This decrease in loss of $7.2 million was primarily the result of an increase in operating profits of $11.1 million, an increase in other income, net of $1.6 million, and an increase from equity in earning of non-consolidated affiliates of $0.5 million.  These amounts were offset by an increase in interest expense, net of $4.8 million, an increase in net income attributable to noncontrolling interests of $1.1 million, and an increase in income tax expense of $0.1 million.

Marketing Communications Group

Revenues in the first six months of 2011 attributable to the Marketing Communications Group, which consists of two reportable segments — Strategic Marketing Services and Performance Marketing Services, were $458.0 million compared to $305.8 million in the first six months of 2010, representing a year-over-year increase of 49.8%.

The components of the increase in revenue in 2011 are shown in the following table:

	Revenue
	$   000’s		%
Six months ended June 30, 2010	$	305,805		—
Organic		72,134		23.6	%
Acquisitions		76,629		25.1	%
Foreign exchange impact		3,410		1.1	%
Six Months ended June 30, 2011	$	457,978		49.8	%

The geographic mix in revenues was consistent between the six months of 2011 and 2010 and is demonstrated in the following table:

	2011			2010
US		80	%		83	%
Canada		16	%		14	%
Other		4	%		3	%

The operating profit of the Marketing Communications Group increased by approximately 112.3% to $34.3 million from $16.2 million. Operating margins increased by 2.2% and were 7.5% for 2011, compared to 5.3% for 2010. The increase in operating profit and operating margin was primarily attributable to increased revenue and a decrease in total staff costs as a percentage of revenue, offset by an increase in direct costs (excluding staff costs) as a percentage of revenues from 19.9% in 2010 to 23.2% in 2011. Total staff costs increased $69.8 million; however, staff costs decreased as a percentage of revenue from 57.8% in 2010 to 53.8% in 2011. Direct costs increased due to the requirement that certain costs be included in both revenue and direct costs for client contracts in which the Company acts as principal versus agent. General and administrative costs decreased as a percentage of revenue from 20.6% in 2010 to 17.9% in 2011.  This decrease was due to increased revenues on relatively fixed costs. Depreciation and amortization as a percentage of revenue decreased from 4.5% in 2010 to 4.3% in 2011 due to increased revenues.

Strategic Marketing Services (“SMS”)

Revenues attributable to Strategic Marketing Services in the first six months of 2011 were $296.5 million, compared to $198.1 million in the second quarter of 2010. The year-over-year increase of $98.3 million or 49.6% was attributable primarily to organic growth of $55.3 million as a result of net new business wins, and acquisition growth of $40.9 million. A weakening of the US dollar versus the Canadian dollar in 2011 compared to 2010 resulted in a $2.0 million increase in revenues from the division’s Canadian-based operations.

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The operating profit of Strategic Marketing Services increased by approximately 75% to $30.6 million in the first six months of 2011, from $17.5 million in the first six months of 2010. Operating margins increased to 10.3% in 2011 from 8.8% in 2010. The increase in operating profit and margin was primarily due to the increased revenue, and a decrease in total staff costs as a percentage of revenue.  Total staff costs increased $44.9 million, however, staff costs as a percentage of revenue decreased from 57.4% in 2010 to 53.5% in 2011.  Direct costs (excluding staff costs) increased as a percentage of revenue from 16.7% in 2010 to 20.0% in 2011.  Depreciation and amortization as a percentage of revenue decreased from 3.8% in 2010 to 3.7% in 2011, and general and administrative costs decreased as a percentage of revenue from 20.6% in 2010 to 18.5% in 2011. Both of these decreases resulted from increased revenues on relatively fixed costs.

Performance Marketing Services

The Performance Marketing Services segment generated revenues of $161.5 million for the first six months of 2011, an increase of $53.9 million, or 50.0% higher than revenues of $107.7 million in the first six months of 2010. The year over year increase was attributable primarily to growth from acquisitions of $35.7 million, and organic revenue growth of $16.8 million. In addition, a weakening of the US dollar verses the Canadian dollar in 2011 compared to 2010 resulted in a $1.4 million increase in revenues from the division’s Canadian-based operations.

The operating profit of Performance Marketing Services increased by $5.0 million in the first six months of 2011 from a loss of $1.3 million in the first six months of 2010 to income of $3.7 million in the first six months of 2011.  Operating margins increased from a loss of 1.2% to income of 2.3%.  Operating margins increased due to total staff costs as a percentage of revenue decreasing from 58.5% in the first six months of 2010 to 54.4% in the first six months of 2011. General and administrative costs decreased as a percentage of revenue from 20.6% in the first six months of 2010 to 16.9% in the first six months of 2011. Depreciation and amortization decreased as a percentage of revenue from 5.7% in 2010 to 5.5% in 2011. The decrease as a percentage of revenue was due to increased revenues and adjustments relating to deferred acquisition consideration.  Offsetting these decreases, total direct costs (excluding staff costs) increased $18.8 million and as a percentage of revenue increased from 25.9% in the first six months of 2010 to 28.9% in the first six months of 2011.

Corporate

Operating costs related to the Company’s Corporate operations totaled $17.5 million in the first six months of 2011, compared to $10.5 million in the first six months of 2010. This increase of $7.0 million was primarily related to increased compensation and related expenses of $5.4 million, of which non-cash stock based compensation was $4.6 million.  In addition, Corporate operations incurred a $0.7 million increase in advertising and promotions, $0.6 million increase in occupancy costs and $0.3 million in travel and entertainment costs.

Other Income, Net

Other income (expense) increased to income of $0.8 million in the first six months of 2011 compared to an expense of $0.9 million in the first six months of 2010. The 2011 income was primarily comprised of an unrealized foreign exchange gain of $0.7 million, compared to an unrealized loss of $0.9 million recorded in 2010.  Specifically, this unrealized gain and loss was due primarily to the fluctuation in the US dollar during 2011 and 2010 compared to the Canadian dollar relating to the Company’s US dollar denominated intercompany balances with its Canadian subsidiaries.

Net Interest Expense

Net interest expense for the first six months of 2011 was $20.2 million, an increase of $4.8 million over the $15.4 million of net interest expense incurred during the first six months of 2010. Interest expense increased in 2011 due to higher average outstanding debt in 2011, relating to the additional 11% senior notes issued. Interest income was nominal in both 2011 and 2010.

Income Taxes

 Income tax expense was $0.9 million in the first six months of 2011 compared to income tax expense of $0.8 million for the first six months of 2010. The Company’s effective tax rate in 2011 and 2010 was substantially higher than the statutory rate due to noncontrolling interest charges, offset by non-deductible stock based compensation.  In addition, the effective tax rate was higher due to losses in certain tax jurisdictions where the benefits are not expected to be realized.

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 (losses) attributable to equity-accounted affiliate operations. For the first six months of 2011, the income was $0.3 million compared to a loss of $0.1 million in the first six months of 2010.

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Noncontrolling Interests

Net income attributable to the noncontrolling interests was $4.1 million for the first six months of 2011, an increase of $1.0 million from the $3.1 million of noncontrolling interest expense incurred during the first six months of 2010. This increase was primarily due to increased profitability of certain entities which are not wholly owned in the Strategic Marketing Services segment.

Discontinued Operations Attributable to MDC Partners Inc.

The loss of $1.4 million, from discontinued operations in 2010, resulted from the operating results and write-off of our investment of Zig (USA) LLC, a start up division of Redscout, LLC called “007”, and a start up called Fearless progression LLC.

Net Loss attributable to MDC Partners Inc.

As a result of the foregoing, the net loss attributable to MDC Partners Inc. recorded for the first six months of 2011 was $7.4 million or a loss of $0.25 per diluted share, compared to a net loss attributable to MDC Partners Inc. of $16.0 million or a loss of $0.58 per diluted share reported for the first six months of 2010.

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Liquidity and Capital Resources:

Liquidity

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

	As of and for the three months ended June 30, 2011			As of and for the three months ended June 30, 2010			As of and for the year ended December 31, 2010
	(000’s)			(000’s)			(000’s)
Cash and cash equivalents	$	5,704		$	47,454		$	10,949
Working capital (deficit)	$	(48,674	)	$	(47,008	)	$	(102,547	)
Cash from operations	$	(25,702	)	$	1,816		$	37,297
Cash from investing	$	(46,101	)	$	(63,940	)	$	(130,253	)
Cash from financing	$	66,730		$	57,579		$	52,401
Long-term debt to total equity ratio		4.52			2.41			3.11
Fixed charge coverage ratio		1.06			N/A			N/A
Fixed charge deficiency	$	N/A		$	10,576		$	3,265

As of June 30, 2011 and December 31, 2010, $1.3 million and $5.2 million, respectively, of the consolidated cash position was held by subsidiaries, which, although available for the subsidiaries’ use, does not represent cash that is distributable as earnings to MDC Partners for use to reduce its indebtedness. It is the Company’s intent through its cash management system to reduce any outstanding borrowings under the WF Credit Agreement by using available cash.

The Company intends to maintain sufficient cash to fund operations for the next twelve months.

Working Capital

At June 30, 2011, the Company had a working capital deficit of $48.7 million, compared to a deficit of $102.5 million at December 31, 2010. The improvement in working capital was primarily due to seasonal shifts in the amounts collected from clients and paid to suppliers, primarily media outlets, and continued improvements made in the Company’s billing and collecting practices. The Company includes amounts due to noncontrolling interest holders, for their share of profits, in accrued and other liabilities. At June 30, 2011, $4.5 million remained outstanding to be distributed to noncontrolling interest holders over the next twelve months.

The Company intends to maintain sufficient cash or availability of funds under the WF Credit Agreement at any particular time to adequately fund such working capital deficits should there be a need to do so from time to time.

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Cash Flows

Operating Activities

Cash flow used in continuing operations, including changes in non-cash working capital, for the six months ended June 30, 2011 was $25.7 million. This was attributable primarily to a net operating loss from continuing operations of $3.2 million, payments of accounts payables, accruals, and other liabilities of $30.2 million, a decrease in advanced billings of $29.1 million, increase in accounts receivable of $7.0 million,  adjustments to deferred acquisition consideration of $0.6 million, an increase in other non-current assets and liabilities of $3.2 million, an increase in prepaid expenses and other current assets of $2.0 million. This use of cash was offset by depreciation and amortization and non-cash stock compensation of $31.3 million and a decrease in expenditures billable to clients of $18.6 million.

Cash flow used in continuing operations, including changes in non-cash working capital, for the six months ended June 30, 2010 was $2.9 million. This was attributable primarily to a net loss from continuing operations of $11.5 million, payments of accounts payables, accruals and other liabilities of $15.6 million, an increase in expenditures billable to clients of $8.4 million, and an increase in prepaid expenses and other current assets of $1.0 million. This use of cash was offset by depreciation and amortization and non-cash stock compensation of $21.1 million, a decrease in advanced billings of $15.8 million, a decrease in accounts receivable of $1.0 million and adjustments to deferred acquisition consideration for $1.6 million. Discontinued operations attributable to MDC Partners used cash of $1.1 million in the six months ended June 30, 2010.

Investing Activities

Cash flows used in investing activities were $46.1 million for the six months ended June 30, 2011, compared with $63.9 million in the six months ended June 30, 2010.

In the six months ended June 30, 2011, capital expenditures totaled $8.5 million, of which $6.4 million was incurred by the Strategic Marketing Services segment, $1.9 million was incurred by the Performance Marketing Services segment, and $0.2 million was incurred by corporate.  These expenditures consisted primarily of computer equipment, furniture and fixtures, and leasehold improvements. Expenditures for capital assets in the six months ended June 30, 2010 were $5.7 million. Of this amount, $3.0 million was incurred by the Strategic Marketing Services segment and $2.5 million was incurred by the Performance Marketing services Segment and $0.3 million was incurred by corporate. These expenditures consisted primarily of computer equipment and leasehold improvements.

In the six months ended June 30, 2011, cash flow used for acquisitions and deferred acquisition payments was $40.0 million of which $11.1 million was net cash paid in the acquisition of equity interests in Anomaly, and $28.9 million was paid related to the settlement of deferred acquisition consideration. In addition, the Company paid $1.6 million for other investments.  These outflows were offset by $4.0 million of profit distributions from affiliates.  Cash flow used in acquisitions was $57.5 million in the six months ended June 30, 2010 of which $35.4 million related to acquisitions of Team, Communifx, IMS, Sloane, Allison, Infolure and Plaid, and $22.1 million was paid related to the settlement of deferred acquisition consideration.

Financing Activities

During the six months ended June 30, 2011, cash flows provided by financing activities amounted to $66.7 million, and consisted primarily from proceeds of $61.1 million from the issuance of the additional $55 million 11% Senior Notes, proceeds of $34.5 million relating to the revolving credit facility and $1.0 million from proceeds from exercise of options. These cash inflows were offset by dividends paid and payable of $8.4 million, distributions to noncontrolling partners of $8.3 million, repayment of bank overdrafts of $7.2 million, the purchase of treasury shares for income tax withholding requirements of $2.6 million, payment of deferred financing costs of $3.0 million and repayments of long-term debt of $0.4 million. During the six months ended June 30, 2010, cash flows provided by financing activities amounted to $57.6 million, and primarily consisted of proceeds of $67.6 million relating to the additional issuance of 11% Senior Notes, offset by distributions to noncontrolling partners of $4.5 million, payment of dividends of $2.8 million, payment of deferred financing costs of $1.5 million, the purchase of treasury shares for income tax withholding requirements of $0.9 million, and repayments of long-term debt of $0.5 million.

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 $5.6 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 of term loans, a $70 million delayed draw term loan, and $9.7 million 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 November 26, 2009.

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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 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.

On April 19, 2011, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold an additional $55 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 $59.6 million, which included an original issue premium of $6.1 million, and underwriter fees of $1.5 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.

The Company may, at its option, redeem the 11% Notes (including the additional 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 certain events of default and restrictive covenants which are customary with respect to non-investment grade debt securities, including limitations on the incurrence of additional indebtedness, dividends, sales of assets and transactions with affiliates.

Revolving Credit Agreement

On October 23, 2009, the Company and its subsidiaries entered into a $75 million five year senior secured revolving credit agreement (the “WF Credit Agreement”) with Wells Fargo Capital Finance, LLC (formerly Wells Fargo Foothill, LLC), as agent, and the lenders from time to time party thereto. On November 22, 2010, this agreement was amended to increase the availability under the facility to $100 million. On April 29, 2011, the Company entered into an additional amendment to increase the availability under the facility to $150 million and extend the maturity date to October 23, 2015. The WF Credit Agreement replaced the Company’s prior $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 Agreement bear interest as follows: (a)(i) LIBOR Rate Loans bear interest at the LIBOR Rate (as defined) and (ii) Base Rate Loans bear interest at the Base Rate (as defined), plus (b) an applicable margin. The applicable margin for borrowings as of June 30, 2011 is 2.25% in the case of Base Rate Loans and 2.50% in the case of LIBOR Rate Loans. The applicable margin may be reduced subject to the Company achieving certain trailing twelve month earning levels, as defined. In addition to paying interest on outstanding principal under the WF Credit Agreement, the Company is required to pay an unused revolver fee to the lenders under the WF Credit Agreement in respect of unused commitments thereunder.

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

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Debt as of June 30, 2011 was $382.1 million, an increase of $95.9 million, compared with $286.2 million outstanding at December 31, 2010.  This increase in debt was a result of the additional issuance of $55 million of 11% Senior Notes and borrowings under the revolving credit agreement.  At June 30, 2011, $109.3 million was available under the WF Credit Agreement.

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

If the Company loses all or a substantial portion of its lines of credit under the WF Credit Agreement, it will be required to seek other sources of liquidity. If the Company were unable to find these sources of liquidity, for example through an equity offering 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.

Pursuant to the WF Credit Agreement, the Company must comply with certain financial covenants including, among other things, covenants for (i) senior leverage ratio, (ii) total leverage ratio, (iii) fixed charges ratio, and (iv) minimum earnings before interest, taxes and depreciation and amortization and (v) minimum accounts receivable level, in each case as such term is specifically defined in the WF Credit Agreement. For the period ended June 30, 2011, the Company’s calculation of each of these covenants, and the specific requirements under the WF Credit Agreement, respectively, were as follows:

	June 30, 2011
Total Senior Leverage Ratio		0.40
Maximum per covenant		2.0
Total Leverage Ratio		3.70
Maximum per covenant		4.0
Fixed Charges Ratio		2.05
Minimum per covenant		1.25
Earnings before interest, taxes, depreciation and amortization	$	102.9 million
Minimum per covenant	$	86.3 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 Agreement, as non-compliance with such covenants could have a material adverse effect on the Company.

Deferred Acquisition 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 six-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. The contingent consideration is recorded as an obligation of the Company when the contingency is resolved and the amount is reasonably determinable, for acquisitions prior to January 1, 2009. Based on various assumptions, all deferred consideration estimates based on future operating results of the relevant entities are recorded on the Company’s balance sheet June 30, 2011. The actual amount that the Company pays in connection with the obligations may differ materially from this estimate. At June 30, 2011, there was $90.8 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 Marketing Communications Group subsidiaries have the right in certain circumstances to require the Company to acquire 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 of 2011 to 2018. It is not determinable, at this time, if or when the owners of these put option 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 June 30, 2011, perform over the relevant future periods at their trailing twelve-month earnings level, that these rights, if all exercised, could require the Company, in future periods, to pay an aggregate amount of approximately $32.6 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 $3.8 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 $61.9 million only upon termination of such owner’s employment with such 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 Agreement (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 $1.6 million of the estimated $32.6 million that the Company would be required to pay subsidiaries noncontrolling shareholders upon the exercise of outstanding put option 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 $9.7 million.

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	$	1.0	$	13.3	$	2.9	$	3.7	$	7.9	$	28.8
Shares		0.6		0.9		1.2		0.6		0.5		3.8
	$	1.6	$	14.2	$	4.1	$	4.3	$	8.4	$	32.6	(1)
Operating income before depreciation and amortization to be received(2)	$	3.0	$	1.9	$	1.2	$	0.8	$	2.8	$	9.7
Cumulative operating income before depreciation and amortization(3)	$	3.0	$	4.9	$	6.1	$	6.9	$	9.7		(5	)

(1) This amount in addition to put options only exercisable upon termination not within the control of the Company, or death of $56.7 million, has been recognized in Redeemable Noncontrolling Interests on the Company’s balance sheet.

(2) This financial measure is presented because it is the basis of the calculation used in the underlying agreements relating to the put rights and is based on actual 2010 and first quarter 2011 operating results. This amount represents additional amounts to be attributable to MDC Partners Inc., commencing in the year the put is exercised.

(3) Cumulative operating income before depreciation and amortization represents the cumulative amounts to be received by the company.

(4) The timing of consideration to be paid varies by contract and does not necessarily correspond to the date of the exercise of the put.

(5) Amounts are not presented as they would not be meaningful due to multiple periods included.

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’s 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 in the Company’s annual report on Form 10-K 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 “US GAAP”, requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities including goodwill, intangible assets, valuation allowances for receivables and deferred income tax assets, stock-based compensation, and the reporting of variable interest entities at the date of the financial statements. 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.

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 achieved, or when the Company’s clients determine performance against qualitative goals has been achieved. In all circumstances, revenue is only recognized when collection is reasonably assured.

The Company 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.

The Company has historically made and expects to continue to make selective acquisitions of marketing communications businesses. In making acquisitions, the price paid is determined by various factors, including service offerings, competitive position, reputation and geographic coverage, as well as prior experience and judgment. Due to the nature of advertising, marketing and corporate communications services companies; the companies acquired frequently have significant identifiable intangible assets, which primarily consist of customer relationships. 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. The Company’s acquisition strategy has been focused on acquiring the expertise of an assembled workforce in order to continue to build upon the core capabilities of its various strategic business platforms to better serve the Company’s clients. Consistent with the acquisition strategy and past practice of acquiring a majority ownership position, most acquisitions completed in 2011, 2010 and 2009 included an initial payment at the time of closing and provide for future additional contingent purchase price payments. Contingent payments for these transactions, as well as certain acquisitions completed in prior years, are derived using the performance of the acquired entity and are based on pre-determined formulas. Contingent purchase price obligations for acquisitions completed prior to January 1, 2009 are accrued when the contingency is resolved and payment is certain. Contingent purchase price obligations related to acquisitions completed subsequent to December 31, 2008 are recorded as liabilities at estimated value and are remeasured at each reporting period and changes in estimated value are recorded in results of operations. For the three and six months ended June 30, 2011, $1,999 of expense and $977 of income was recognized related to charges in estimated value.  For the three and six months ended June 30, 2010, $977 and $1,311 has been charged to 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.  For the three and six months ended June 30, 2011, $216 and $784, respectively, of acquisition related costs have been charged to operations.  For the three and six months ended June 30, 2010, $331 and $730, respectively, of acquisition related costs have been charged to operations.

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.

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.

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.

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New Accounting Pronouncements

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU 2011-05”) Under ASU 2011-05, an entity will have the option to present comprehensive income on the income statement or as a separate financial statement. ASU 2011-05 is effective January 1, 2012 and requires retrospective adoption. ASU 2011-05 affects financial statement presentation only and has no effect on results of operations or financial position.

In April 2010, the FASB issues ASU 2010-17, “Revenue Recognition-Milestone Method.” ASU 20110-17 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 did 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 did not have an effect on our results of operation or our financial position.

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 adoption did not have a material impact on our financial statements.

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Risks and Uncertainties

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:

• risks associated with severe effects of national and regional economic downturn;

• the Company’s ability to attract new clients and retain existing clients;

• the financial success of the Company’s clients;

• the Company’s ability to retain and attract key employees;

• the Company’s ability to remain in compliance with its debt agreements and the Company’s ability to finance its contingent payment obligations when due and payable, including but not limited to those relating to “put” option rights and deferred acquisition consideration;

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

• foreign currency fluctuations.

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 current Credit Agreement and through incurrence of bridge or other debt financing, either 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 risk factors outlined in more detail in the Company’s 2010 Annual Report on Form 10-K under the caption “Risk Factors”, and in the Company’s other SEC filings.
 

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Item 3.  Quantitative and Qualitative Disclosures about Market Risk

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

Debt Instruments:   At June 30, 2011, the Company’s debt obligations consisted of amounts outstanding under its WF Credit Agreement and Senior Notes.  The Senior Notes bear a fixed 11% interest rate. The WF Credit Agreement bears interest at variable rates based upon the Eurodollar rate, US bank prime rate and, US base rate, at the Company’s option. The Company’s ability to obtain the required bank syndication commitments depends in part on conditions in the bank market at the time of syndication. Given the existing level of debt of $34.5 million, as of June 30, 2011, a 1.0% increase or decrease in the weighted average interest rate, which was 5.5% at June 30, 2011, would have an $0.3 million interest impact.

Foreign Exchange:   The Company conducts business in five currencies, the US dollar, the Canadian dollar, Jamaican dollar, the Euro, and the British Pound. 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”. 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. The Company 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.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be included in our SEC reports is recorded, processed, summarized and reported within the applicable time periods specified by the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), who is our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. However, the Company’s disclosure controls and procedures are designed to provide reasonable assurances of achieving the Company’s control objectives.

We conducted an evaluation, under the supervision and with the participation of our management, including our CEO, our CFO and our management Disclosure Committee, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) of the Exchange Act. Based on that evaluation, the Company has concluded that its disclosure controls and procedures were effective as of June 30, 2011.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting identified in connection with the foregoing evaluation that occurred during the second quarter of 2011 that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.     Legal Proceedings

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

Item 1A.  Risk Factors

There are no material changes in the risk factors set forth in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3.  Defaults Upon Senior Securities

None

Item 4.  Reserved

Item 5.  Other Information

As disclosed in the Company’s Current Report on Form 8-K dated June 1, 2011, Robert Dickson retired from the Company effective June 1, 2011.  In connection with his retirement, Mr. Dickson entered into a Separation Agreement with the Company, pursuant to which Mr. Dickson is entitled to an aggregate payment of CAD$1,397,100, payable in equal bi-monthly installments during the twenty-four (24) month consulting period beginning effective June 1, 2011, and continuing through and until May 31, 2013.  During the consulting period, Mr. Dickson has agreed to assist the Company in connection with operating and transitional matters.  The foregoing summary is qualified in its entirety by reference to the Separation Agreement, which is included as Exhibit 10.3 to this Quarterly Report on Form 10-Q.

As set forth in the Company’s Current Report on Form 8-K filed by the Company on August 1, 2011, on July 27, 2011 the Human Resources and Compensation Committee of the Company approved mid-year incentive and retention bonus payments for the Company’s executive officers in an aggregate amount equal to $3.35 million.  Amounts paid to executives were part of the Company's semi-annual incentive compensation evaluation process, and do not represent incremental incentive bonus payments.  The Company has also retained the right, in the reasonable discretion of the Committee, to require repayment of all or a portion of the net-after tax retention payments in the event that the Company does not achieve its full year financial performance target for 2011.

Item 6.  Exhibits

The exhibits required by this item are listed on the Exhibit Table.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

MDC PARTNERS INC.

/s/ Michael Sabatino

Michael Sabatino

Senior Vice President, Chief Accounting Officer

August 04, 2011

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EXHIBIT INDEX

Exhibit No.	Description
3.1	Articles of Amalgamation, dated May 1, 2011 (incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q filed on May 2, 2011).
4.1	Third Supplemental Indenture, dated as of April 19, 2011, to the Indenture, dated as of October 23, 2009, among the Company, the Note Guarantors and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed on April 19, 2011).
10.1	Sixth Amendment, dated April 29, 2011, to Credit Agreement, dated as of October 23, 2009 by and among the Company, Maxxcom Inc., a Delaware corporation, each of their subsidiaries party thereto, Wells Fargo Capital Finance, LLC (formerly Wells Fargo Foothill, LLC), as agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1.2 to the Company's Form 10-Q filed on May 2, 2011).
10.2	Employment Agreement, dated as of June 28, 2011, between the Company and David Dabill.*
10.3	Agreement of Settlement and Release, dated as of June 6, 2011, between the Company and Robert Dickson.*
10.4.1	2011 Stock Incentive Plan of the Company, as approved and adopted by the shareholders of the Company on June 1, 2011 (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on June 1, 2011).
10.4.2	Form of Restricted Stock Grant Agreement (2011 Plan) (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed on June 1, 2011).
10.4.3	Form of Restricted Stock Unit (RSU) Grant Agreement (2011 Plan) (incorporated by reference to Exhibit 10.3 to the Company's Form 8-K filed on June 1, 2011).
10.5	Purchase Agreement, dated as of April 14, 2011, among the Company, the Note Guarantors and J.P. Morgan Securities LLC, as representative of the initial purchasers named therein (incorporated by reference to Exhibit 1.1 to the Company's Form 8-K filed on April 19, 2011).
10.6	Exchange and Registration Rights Agreement, dated as of April 19, 2011, among the Company, the Note Guarantors and J.P. Morgan Securities LLC, as representative of the initial purchasers named therein (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on April 19, 2011).
12	Statement of computation of ratio of earnings to fixed charges.*
31.1	Certification by Chief Executive Officer pursuant to Rules 13a - 14(a) and 15d - 14(a) under the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certification by Chief Financial Officer pursuant to Rules 13a - 14(a) and 15d - 14(a) under the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certification by Chief Executive Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2	Certification by Chief Financial Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
99.1	Schedule of ownership by operating subsidiary.*

* Filed electronically herewith.

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EX-10.2

Exhibit 10.2

EMPLOYMENT AGREEMENT

AGREEMENT dated as of June 28, 2011 (this “Agreement”) by and between MDC PARTNERS INC., a corporation existing under the laws of Canada (the “Company”), and DAVID DABILL (the “Executive”).

WITNESSETH:

WHEREAS, the Company wishes to employ the Executive and the Executive wishes to accept such employment, upon the terms and conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows:

1.           Employment

The Company agrees to employ the Executive during the Term specified in paragraph 2, and the Executive agrees to accept such continued employment, upon the terms and conditions hereinafter set forth.

2.           Term

Subject to the provisions contained in Sections 6 and 7, the Executive's employment by the Company shall be for a term commencing on June 28, 2011 and shall continue for an indefinite period thereafter (the “Term”) unless and until either (i) the Executive gives to the Company three (3) months advance written notice of resignation (a “Notice of Termination”) or (ii) the Company terminates the Executive’s employment without “Cause” (as defined herein).  Any Notice of Termination given by the Executive under this Section 2 shall specify the date of termination and the fact that the notice is being delivered pursuant to Section 2 of this Agreement.  The Company shall have the right at any time during such three (3) month notice period to relieve the Executive of all or any portion of his offices, duties and responsibilities and to place him on a paid leave-of-absence status.  The date on which the Executive ceases to be employed by the Company, regardless of the reason therefore is referred to in this Agreement as the "Termination Date".

3.           Duties and Responsibilities

(a)           Title.  During the Term, the Executive shall have the position of Chief Administrative Officer of the Company.

(b)           Duties.  The Executive shall report directly to the Company’s Chief Executive Officer or his designee (the "MDC Executive"), at such times and in such detail as the MDC Executive shall reasonably require.   The Executive shall perform such duties consistent with his position as Chief Administrative Officer, or as may be directed by the Chief Executive Officer of the Company, including without limitation those duties and responsibilities outlined on Exhibit A hereto.

(c)           Scope of Employment.  The Executive's employment by the Company as described herein shall be full-time and exclusive, and during the Term, the Executive agrees that he will (i) devote all of his business time and attention, his reasonable best efforts, and all his skill and ability to promote the interests of the Company; and (ii) carry out his duties in a competent manner and serve the Company faithfully and diligently under the direction of the MDC Executive.  Notwithstanding the foregoing, the Executive shall be permitted to engage in charitable and civic activities and manage his personal passive investments, provided that such passive investments are not in a company which transacts business with the Company or its affiliates or engages in business competitive with that conducted by the Company (or, if such company does transact business with the Company, or does engage in a competitive business, it is a publicly held corporation and the Executive's participation is limited to owning less than 1% of its outstanding shares), and further provided that such activities (individually or collectively) do not materially interfere with the performance of his duties or responsibilities under this Agreement.

(d)           Office Location.  During the Term, the Executive's services hereunder shall be performed at the offices of the Company, which shall be within a twenty five (25) mile radius of New York, NY, subject to necessary travel requirements to the Company’s offices in Toronto, Canada and other MDC Group company locations in order to carry out his duties in connection with his position hereunder.

4.           Compensation

(a)           Base Salary.  As compensation for his services hereunder, during the Term, the Company shall pay the Executive in accordance with its normal payroll practices, an annualized base salary of $500,000 (“Base Salary”), subject to periodic review by the Human Resources & Compensation Committee of the Board of Directors of the Company to determine appropriate increases, if any, in accordance with the Company’s practices and policies for other senior executives.

(b)           Restricted Stock Grant.  As soon as practicable following commencement of Executive’s employment with the Company, the Executive shall receive an award of 20,000 restricted shares of the Company’s Class A subordinate voting shares in accordance with and subject to the terms and conditions of a separate restricted stock agreement to be executed and delivered by the Executive and MDC Partners Inc. (the “Initial Stock Grant”).  The shares of stock issued in connection with the Initial Stock Grant shall be subject to a 3-year cliff vesting condition (with accelerated vesting upon termination without cause or upon a change of control), but will not be subject to any financial performance vesting conditions or to any contractual holding period.

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(c)           Annual Discretionary Bonus.  During the Term, the Executive shall be eligible to receive an annual discretionary bonus in an amount equal to up to 100% of the then current Base Salary, based upon criteria determined by the MDC Executive and the Compensation Committee, which criteria shall include the Executive’s performance, the overall financial performance of the Company and such other factors as the MDC Executive and the Compensation Committee shall deem reasonable and appropriate (the “Annual Discretionary Bonus”).  The amount of the Annual Discretionary Bonus shall be pro rated (50%) in respect of calendar year 2011. The Annual Discretionary Bonus will be paid in accordance with the Company’s normal bonus payment procedures, and may be paid in the form of equity incentive awards.

 (c)           Participation in Equity Incentive Programs.  The Executive shall also be eligible to ongoing participation in all current and future equity incentive plans of the Company, including but not limited to potential awards of stock options, stock appreciation rights and/or awards of restricted shares of the Company.

5.           Expenses; Fringe Benefits

(a)           Expenses.  The Company agrees to pay or to reimburse the Executive for all reasonable, ordinary, necessary and documented business or entertainment expenses incurred during the Term in the performance of his services hereunder in accordance with the policy of the Company as from time to time in effect.  The Executive, as a condition precedent to obtaining such payment or reimbursement, shall provide to the Company any and all statements, bills or receipts evidencing the travel or out-of-pocket expenses for which the Executive seeks payment or reimbursement, and any other information or materials, as the Company may from time to time reasonably require.

(b)           Benefit Plans.  During the Term, the Executive and, to the extent eligible, his dependents, shall be eligible to participate in and receive all benefits under any group health plans, welfare benefit plans and programs (including without limitation, disability, group life (including accidental death and dismemberment) and business travel insurance plans and programs) provided by the Company to its senior executives and, without duplication, its employees generally, subject, however, to the generally applicable eligibility and other provisions of the various plans and programs in effect from time to time.

(c)           Retirement Plans.  During the Term, the Executive shall be eligible to participate in all retirement plans and programs (including without limitation any profit sharing plan) provided by the Company to its senior executives generally and, without duplication, its employees generally, subject, however, to the generally applicable eligibility and other provisions of the various plans and programs in effect from time to time.  In addition, during the Term, the Executive shall be eligible to receive fringe benefits and perquisites in accordance with the plans, practices, programs and policies of the Company from time to time in effect which are made available to the senior executives of the Company generally and, without duplication, to its employees generally.

(d)           Vacation.  The Executive shall be entitled to four weeks vacation in accordance with the Company's policies, with no right of carry over, to be taken at such times as shall not materially interfere with the Executive's fulfillment of his duties hereunder, and shall be entitled to as many holidays, sick days and personal days as are in accordance with the Company's policy then in effect generally for its employees.

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6.           Termination

(a)           Termination for Cause.  The Company, by direction of the Compensation Committee, the Board of Directors or the MDC Executive, shall be entitled to terminate the Term and to discharge the Executive for “Cause” effective upon the giving of written notice to the Executive.  For purposes of this Agreement, the term “Cause” shall mean:

(i)           the Executive's failure or refusal to materially perform his duties and responsibilities as set forth in paragraph 3 hereof (other than as a result of a Disability (as defined in paragraph 6(d) hereof), provided that the Executive or a representative on his behalf has provided notice to the Company not more than 20 days following the onset of Executive’s illness or physical or mental incapacity or disability) or abide by the reasonable directives of the MDC Executive, or the failure of the Executive to devote all of his business time and attention exclusively to the business and affairs of the Company in accordance with the terms hereof, in each case if such failure or refusal is not cured (if curable) within 10 days after written notice thereof to the Executive by the Company;

(ii)          the willful and unauthorized misappropriation of the funds or property of the Company;

(iii)         the use of alcohol or illegal drugs, interfering with the performance of the Executive's obligations under this Agreement, continuing after written warning;

(iv)         the conviction in a court of law of, or entering a plea of guilty or no contest to, any felony or any crime involving moral turpitude, dishonesty or theft;

(v)          the material nonconformance with the Company's policies against racial or sexual discrimination or harassment, which nonconformance is not cured (if curable) within 10 days after written notice to the Executive by the Company;

(vi)         the commission in bad faith by the Executive of any act which materially injures or could reasonably be expected to materially injure the reputation, business or business relationships of the Company;

(vii)        the resignation by the Executive on his own initiative (other than pursuant to a termination by the Executive for "Good Reason" (as defined in paragraph 6(b) hereof); or

(viii)       any breach (not covered by any of the clauses (i) through (vii) above) of paragraphs 8, 9, 11 and 24, if such breach is not cured (if curable) within 10 days after written notice thereof to the Executive by the Company.

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Any notice required to be given by the Company pursuant to clause (i), (v) or (viii) above shall specify the nature of the claimed breach and the manner in which the Company requires such breach to be cured (if curable).  In the event that the Executive is purportedly terminated for Cause and a court determines that Cause as defined herein was not present, then such purported termination for Cause shall be deemed a termination without Cause pursuant to paragraph 6(c) and the Executive's rights and remedies will be governed by paragraph 7(b), in full satisfaction and in lieu of any and all other or further remedies the Executive may have under this Agreement.

(b)           Termination for Good Reason.  Provided that a Cause event has not occurred and has not been cured (if curable), the Executive shall be entitled to terminate this Agreement and the Term hereunder for Good Reason (as defined below) at any time during the Term by written notice to the Company not more than 20 days after the occurrence of the event constituting such Good Reason.  For purposes of this Agreement, “Good Reason” shall be limited to (i) a breach by the Company of a material provision of this Agreement, which breach remains uncured (if curable) for a period of 20 days after written notice of such breach from the Executive to the Company (such notice to specify the nature of the claimed breach and the manner in which the Executive requires such breach to be cured); (ii) relocation of the Executive’s principal office to a location more than 25 miles outside New York, N.Y.; or (iii) the Company’s failure to pay any compensation or benefits, as set forth in paragraphs 4 or 5, which action is not reversed within 10 days after written notice of the breach from the Executive to the Company.  In the event that the Executive purportedly terminates his employment for Good Reason and a court determines that Good Reason as defined herein was not present, then such purported termination for Good Reason shall be deemed a termination for Cause pursuant to paragraph 6(a)(vii) and the Executive’s rights and remedies will be governed by paragraph 7(a), in full satisfaction and in lieu of any and all other or further remedies the Executive may have under this Agreement.

(c)           Termination without Cause.  The Company, by direction of the Board or the MDC Executive, shall have the right at any time during the Term to terminate the employment of the Executive without Cause by giving written notice to the Executive setting forth a Date of Termination.

(d)           Termination for Death or Disability.  In the event of the Executive's death, the Date of Termination shall be the date of the Executive's death.  In the event the Executive shall be unable to perform his duties hereunder by virtue of illness or physical or mental incapacity or disability (from any cause or causes whatsoever) in substantially the manner and to the extent required hereunder prior to the commencement of such disability and the Executive shall fail to perform such duties for periods aggregating 120 days, whether or not continuous, in any continuous period of 360 days (such causes being herein referred to as “Disability”), the Company shall have the right to terminate the Executive's employment hereunder as at the end of any calendar month during the continuance of such Disability upon at least 30 days' prior written notice to him.

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7.           Effect of Termination of Employment.

(a)           Termination by the Company for Cause; by the Executive without Good Reason; by Death or Disability; or pursuant to a Notice of Termination delivered by the Executive pursuant to paragraph 2 above.  In the event of the termination of the employment of the Executive (1) by the Company for Cause; (2) by the Executive without Good Reason; (3) by reason of death or Disability pursuant to paragraph 6(d); or (4) pursuant to a Notice of Termination delivered by the Executive pursuant to paragraph 2 above, the Executive shall be entitled to the following, subject to any appropriate offsets, as permitted by applicable law, for debts or money due and payable by the Executive to the Company or an affiliate thereof (collectively, “Offsets”):

(i)           unpaid Base Salary through, and any unpaid reimbursable expenses outstanding as of, the Date of Termination; and

(ii)          all benefits, if any, that had accrued to the Executive through the Date of Termination under the plans and programs described in paragraphs 5(b) and (c) above, or any other applicable plans and programs in which he participated as an employee of the Company, in the manner and in accordance with the terms of such plans and programs; it being understood that any and all rights that the Executive may have to severance payments by the Company shall be determined and solely based on the terms and conditions of this Agreement and not based on the Company's severance policy then in effect, if any.

In the event of termination of the employment of Executive in the circumstances described in this paragraph 7(a), except as expressly provided in this paragraph, the Company shall have no further liability to the Executive or the Executive's heirs, beneficiaries or estate for damages, compensation, benefits, severance or other amounts of whatever nature, directly or indirectly, arising out of or otherwise related to this Agreement and the Executive's employment or cessation of employment with the Company, provided that the foregoing shall not apply to any outstanding indemnification obligations of the Company in respect of the Executive’s good faith actions in his capacity as a member, director or officer thereof arising on or prior to the Date of Termination (“Outstanding Indemnification Obligations”).

(b)           Termination by the Company without Cause; by the Company pursuant to a Notice of Termination delivered pursuant to paragraph 2 above; or by the Executive for Good Reason.  In the event of a termination (1) by the Company without Cause; or (2) by the Executive for Good Reason, the Executive shall be entitled to the following payments and benefits, subject to any Offsets:

(i) a severance payment (the “Severance Amount”) in an amount equal to his applicable Base Salary compensation when otherwise payable for a period commencing on the Termination Date and ending on the later to occur of (A) July 1, 2012 or (B) the end of the six (6) month period immediately following the Termination Date (the "Severance Period").  The Severance Amount described in this Section 7(b)(i), less applicable withholding of any tax amounts,  shall be paid by the Company to the Executive not later than 10 business days after the applicable Date of Termination;

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(ii) his Annual Discretionary Bonus with respect to the calendar year prior to the Date of Termination, when otherwise payable, but only to the extent not already paid;

(iii) eligibility for a pro-rata portion of his Annual Discretionary Bonus with respect to the calendar year in which the Date of Termination occurs, when otherwise payable, (such pro-rata amount to be equal to the product of (A) the amount of the Annual Discretionary Bonus for such calendar year, times (B) a fraction,  (x) the numerator of which shall be the number of calendar days commencing January 1 of such year and ending on the Date of Termination, and (y) the denominator of which shall equal 365;

(iv) unpaid Base Salary through, and any unpaid reimbursable expenses outstanding as of, the Date of Termination;

(v) all benefits, if any, that had accrued to the Executive through the Date of Termination under the plans and programs described in paragraphs 5(b) and (c) above, or any other applicable benefit plans and programs in which the Executive participated as an employee of the Company, in the manner and in accordance with the terms of such plans and programs; it being understood that any and all rights that the Executive may have to severance payments by the Company shall be determined and solely based on the terms and conditions of this Agreement (without duplication) and not based on the Company's severance policy then in effect, if any;

(vi) continued participation on the same basis in the plans and programs set forth in paragraph 5(b) and to the extent permitted under applicable law, paragraph 5(c) (such benefits collectively called the "Continued Plans") in which the Executive was participating on the Date of Termination (as such Continued Plans are from time to time in effect at the Company) for a period to end on the earlier of (A) the six (6) month anniversary of the Date of Termination and (B) the date on which the Executive is eligible to receive coverage and benefits under the same type of plan of a subsequent employer; provided, however, if the Executive is precluded from continuing his participation in any Continued Plan, then the Company will be obligated to pay his the economic equivalent of the benefits provided under the Continued Plan in which he is unable to participate, for the period specified above, it being understood that the economic equivalent of a benefit foregone shall be deemed the lowest cost in New York, N.Y. that would be incurred by the Executive in obtaining such benefit himself on an individual basis.

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In the event of termination of this Agreement in the circumstances described in this paragraph 7(b), except as expressly provided in this paragraph, the Company shall have no further liability to the Executive or the Executive’s heirs, beneficiaries or estate for damages, compensation, benefits, severance or other amounts of whatever nature, directly or indirectly, arising out of or otherwise related to this Agreement and the Executive’s employment or cessation of employment with the Company, provided that the foregoing shall not apply to any Outstanding Indemnification Obligations.

The Executive shall be under no duty to mitigate damages hereunder.  The making of any severance payments and providing the other benefits as provided in this paragraph 7(b) is conditioned upon the Executive signing and not revoking a separation agreement in a form reasonably satisfactory to the Company (the "Separation Agreement").  In the event the Executive breaches any provisions of the Separation Agreement or the provisions of paragraph 8 of this Agreement, in addition to any other remedies at law or in equity available to it, the Company may cease making any further payments and providing the other benefits provided for in this paragraph 7(b), without affecting its rights under this Agreement or the Separation Agreement.

8.           Non-Solicitation/Non-Servicing Agreement and Protection of Confidential Information

(a)           Non-Solicitation/Non-Servicing.  The parties hereto agree that the covenants given in this paragraph 8 are being given incident to the agreements and transactions described herein, and that such covenants are being given for the benefit of the Company.  Accordingly, the Executive acknowledges (i) that the business and the industry in which the Company competes is highly competitive; (ii) that as a key executive of the Company he has participated in and will continue to participate in the servicing of current clients and/or the solicitation of prospective clients, through which, among other things, the Executive has obtained and will continue to obtain knowledge of the "know-how" and business practices of the Company, in which matters the Company has a substantial proprietary interest; (iii) that his employment hereunder requires the performance of services which are special, unique, extraordinary and intellectual in character, and his position with the Company places and placed his in a position of confidence and trust with the clients and employees of the Company; and (iv) that his rendering of services to the clients of the Company necessarily required and will continue to require the disclosure to the Executive of confidential information (as defined in paragraph 8(b) hereof) of the Company.  In the course of the Executive's employment with the Company, the Executive has and will continue to develop a personal relationship with the clients of the Company and a knowledge of those clients' affairs and requirements, and the relationship of the Company with its established clientele will therefore be placed in the Executive's hands in confidence and trust.  The Executive consequently agrees that it is a legitimate interest of the Company, and reasonable and necessary for the protection of the confidential information, goodwill and business of the Company, which is valuable to the Company, that the Executive make the covenants contained herein and that the Company would not have entered into this Agreement unless the covenants set forth in this paragraph 8 were contained in this Agreement.  Accordingly, the Executive agrees that during the period that he is employed by the Company and for a period of eighteen (18) months thereafter (such period being referred to as the "Restricted Period"), he shall not, as an individual, employee, consultant, independent contractor, partner, shareholder, or in association with any other person, business or enterprise, except on behalf of the Company, directly or indirectly, and regardless of the reason for his ceasing to be employed by the Company:

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(i)           attempt in any manner to solicit or accept from any client business of the type performed by the Company or to persuade any client to cease to do business or to reduce the amount of business which any such client has customarily done or is reasonably expected to do with the Company, whether or not the relationship between the Company and such client was originally established in whole or in part through the Executive’s efforts; or

(ii)          employ as an employee or retain as a consultant any person, firm or entity who is then or at any time during the preceding twelve months was an employee of or exclusive consultant to the Company, or persuade or attempt to persuade any employee of or exclusive consultant to the Company to leave the employ of the Company or to become employed as an employee or retained as a consultant by any person, firm or entity other than the Company; or

(iii)         render to or for any client any services of the type which are rendered by the Company.

As used in this paragraph 8, the term "Company" shall include any subsidiaries of the Company and the term "client" shall mean (1) anyone who is a client of the Company on the Date of Termination, or if the Executive's employment shall not have terminated, at the time of the alleged prohibited conduct (any such applicable date being called the "Determination Date"); (2) anyone who was a client of the Company at any time during the one year period immediately preceding the Determination Date; (3) any prospective client to whom the Company had made a new business presentation (or similar offering of services) at any time during the one year period immediately preceding the Date of Termination; and (4) any prospective client to whom the Company made a new business presentation (or similar offering of services) at any time within six months after the Date of Termination (but only if initial discussions between the Company and such prospective client relating to the rendering of services occurred prior to the Date of Termination, and only if the Executive participated in or supervised such discussions).  For purposes of this Section 8, it is further agreed that (A) a “client” shall be limited to those entities or persons in which the Executive played a significant role in rendering or providing services; and (B) a general mailing or an incidental contact shall not be deemed a "new business presentation or similar offering of services" or a "discussion". In addition, "client" shall also include any clients of other companies operating within the MDC group of companies to whom the Executive rendered services (including supervisory services) at any time during the six-month period prior to the Determination Date.  In addition, if the client is part of a group of companies which conducts business through more than one entity, division or operating unit, whether or not separately incorporated (a "Client Group"), the term "client" as used herein shall also include each entity, division and operating unit of the Client Group where the same management group of the Client Group has the decision making authority or significant influence with respect to contracting for services of the type rendered by the Company.

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(b)           Confidential Information.  In the course of the Executive's employment with the Company (and its predecessor), he has acquired and will continue to acquire and have access to confidential or proprietary information about the Company and/or its clients, including but not limited to, trade secrets, methods, models, passwords, access to computer files, financial information and records, computer software programs, agreements and/or contracts between the Company and its clients, client contacts, client preferences, creative policies and ideas, advertising campaigns, creative and media materials, graphic design materials, sales promotions and campaigns, sales presentation materials, budgets, practices, concepts, strategies, methods of operation, financial or business projections of the Company and information about or received from clients and other companies with which the Company does business.  The foregoing shall be collectively referred to as "confidential information".  The Executive is aware that the confidential information is not readily available to the public and accordingly, the Executive also agrees that he will not at any time (whether during the Term or after termination of this Agreement), disclose to anyone (other than his counsel in the course of a dispute arising from the alleged disclosure of confidential information or as required by law) any confidential information, or utilize such confidential information for his own benefit, or for the benefit of third parties.  The Executive agrees that the foregoing restrictions shall apply whether or not any such information is marked "confidential" and regardless of the form of the information.  The term "confidential information" does not include information which (i) is or becomes generally available to the public other than by breach of this provision or (ii) the Executive learns from a third party who is not under an obligation of confidence to the Company or a client of the Company.  In the event that the Executive becomes legally required to disclose any confidential information, he will provide the Company with prompt notice thereof so that the Company may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this paragraph 8(b) to permit a particular disclosure.  In the event that such protective order or other remedy is not obtained, or that the Company waives compliance with the provisions of this paragraph 8(b) to permit a particular disclosure, the Executive will furnish only that portion of the confidential information which he is legally required to disclose and, at the Company's expense, will cooperate with the efforts of the Company to obtain a protective order or other reliable assurance that confidential treatment will be accorded the confidential information.  The Executive further agrees that all memoranda, disks, files, notes, records or other documents, whether in electronic form or hard copy (collectively, the "material") compiled by his or made available to his during his employment with the Company (whether or not the material constitutes or contains confidential information), and in connection with the performance of his duties hereunder, shall be the property of the Company and shall be delivered to the Company on the termination of the Executive's employment with the Company or at any other time upon request.  Except in connection with the Executive's employment with the Company, the Executive agrees that he will not make or retain copies or excerpts of the material; provided that the Executive shall be entitled to retain his personal files.

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(c)           Remedies.  If the Executive commits or threatens to commit a breach of any of the provisions of paragraphs 8(a) or (b), the Company shall have the right to have the provisions of this Agreement specifically enforced by any court having jurisdiction without being required to post bond or other security and without having to prove the inadequacy of the available remedies at law, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company.  In addition, the Company may take all such other actions and remedies available to it under law or in equity and shall be entitled to such damages as it can show it has sustained by reason of such breach.

(d)           Acknowledgements.  The parties acknowledge that (i) the type and periods of restriction imposed in the provisions of paragraphs 8(a) and (b) are fair and reasonable and are reasonably required in order to protect and maintain the proprietary interests of the Company described above, other legitimate business interests and the goodwill associated with the business of the Company; (ii) the time, scope and other provisions of this paragraph 8 have been specifically negotiated by sophisticated commercial parties, represented by legal counsel, and are given as an integral part of the transactions contemplated by this Agreement; and (iii) because of the nature of the business engaged in by the Company and the fact that clients can be and are serviced by the Company wherever they are located, it is impractical and unreasonable to place a geographic limitation on the agreements made by the Executive herein. The Executive specifically acknowledges that his being restricted from soliciting and servicing clients and prospective clients as contemplated by this Agreement will not prevent his from being employed or earning a livelihood in the type of business conducted by the Company.  If any of the covenants contained in paragraphs 8(a) or (b), or any part thereof, is held to be unenforceable by reason of it extending for too great a period of time or over too great a geographic area or by reason of it being too extensive in any other respect, the parties agree (x) such covenant shall be interpreted to extend only over the maximum period of time for which it may be enforceable and/or over the maximum geographic areas as to which it may be enforceable and/or over the maximum extent in all other respects as to which it may be enforceable, all as determined by the court making such determination and (y) in its reduced form, such covenant shall then be enforceable, but such reduced form of covenant shall only apply with respect to the operation of such covenant in the particular jurisdiction in or for which such adjudication is made.  Each of the covenants and agreements contained in this paragraph 8 (collectively, the "Protective Covenants") is separate, distinct and severable.  All rights, remedies and benefits expressly provided for in this Agreement are cumulative and are not exclusive of any rights, remedies or benefits provided for by law or in this Agreement, and the exercise of any remedy by a party hereto shall not be deemed an election to the exclusion of any other remedy (any such claim by the other party being hereby waived).  The existence of any claim, demand, action or cause of action of the Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of each Protective Covenant.  The unenforceability of any Protective Covenant shall not affect the validity or enforceability of any other Protective Covenant or any other provision or provisions of this Agreement.

(e)           Notification of Restrictive Covenants.  Prior to accepting employment with any person, firm or entity during the Restricted Period, the Executive shall notify the prospective employer in writing of his obligations pursuant to this paragraph 8 and shall simultaneously provide a copy of such notice to the Company (it being agreed by the Company that such notification required under this paragraph 8(e) shall not be deemed a breach of the confidentiality provisions of this Agreement).

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(f)           Tolling.  The temporal duration of the non-solicitation/non-servicing covenants set forth in this Agreement shall not expire, and shall be tolled, during any period in which the Executive is in violation of any of the non-solicitation/non-servicing covenants set forth herein, and all restrictions shall automatically be extended by the period of the Executive's violation of any such restrictions.

9.           Intellectual Property

During the Term, the Executive will disclose to the Company all ideas, inventions and business plans developed by his during such period which relate directly or indirectly to the business of the Company, including without limitation, any design, logo, slogan, advertising campaign or any process, operation, product or improvement which may be patentable or copyrightable. The Executive agrees that all patents, licenses, copyrights, tradenames, trademarks, service marks, planning, marketing and/or creative policies and ideas, advertising campaigns, promotional campaigns, media campaigns, budgets, practices, concepts, strategies, methods of operation, financial or business projections, designs, logos, slogans and business plans developed or created by the Executive in the course of his employment hereunder, either individually or in collaboration with others, will be deemed works for hire and the sole and absolute property of the Company.  The Executive agrees, that at the Company's request and expense, he will take all steps necessary to secure the rights thereto to the Company by patent, copyright or otherwise.

10.         Enforceability

The failure of any party at any time to require performance by another party of any provision hereunder shall in no way affect the right of that party thereafter to enforce the same, nor shall it affect any other party's right to enforce the same, or to enforce any of the other provisions in this Agreement; nor shall the waiver by any party of the breach of any provision hereof be taken or held to be a waiver of any subsequent breach of such provision or as a waiver of the provision itself.

11.         Assignment

The Company and the Executive agree that the Company shall have the right to assign this Agreement in connection with any asset assignment of all or substantially all of the Company’s assets, stock sale, merger, consolidation or other corporate reorganization involving the Company and, accordingly, this Agreement shall inure to the benefit of, be binding upon and may be enforced by, any and all successors and such assigns of the Company.  The Company and Executive agree that Executive's rights and obligations under this Agreement are personal to the Executive, and the Executive shall not have the right to assign or otherwise transfer his rights or obligations under this Agreement, and any purported assignment or transfer shall be void and ineffective, provided that the rights of the Executive to receive certain benefits upon death as expressly set forth under paragraph 7(a) of this Agreement shall inure to the Executive’s estate and heirs. The rights and obligations of the Company hereunder shall be binding upon and run in favor of the successors and assigns of the Company.

12

12.         Modification

This Agreement may not be orally canceled, changed, modified or amended, and no cancellation, change, modification or amendment shall be effective or binding, unless in writing and signed by the parties to this Agreement, and approved in writing by the MDC Executive.

13.         Severability; Survival

In the event any provision or portion of this Agreement is determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall nevertheless be binding upon the parties with the same effect as though the invalid or unenforceable part had been severed and deleted or reformed to be enforceable.  The respective rights and obligations of the parties hereunder shall survive the termination of the Executive's employment to the extent necessary to the intended preservation of such rights and obligations, specifically paragraphs 7, 8, 9, 10, 11, 12, 13, 14, 15, 18, 23 and 24.

14.         Notice

Any notice, request, instruction or other document to be given hereunder by any party hereto to another party shall be in writing and shall be deemed effective (a) upon personal delivery, if delivered by hand, or (b) three days after the date of deposit in the mails, postage prepaid if mailed by certified or registered mail, or (c) on the next business day, if sent by prepaid overnight courier service or facsimile transmission (if electronically confirmed), and in each case, addressed as follows:

If to the Executive:

Mr. David Dabill

105 Fifth Avenue, Apt 7-C

New York, NY  10003

If to the Company:

c/o MDC Partners Inc.

950 Third Avenue

New York, NY  10022

Attention:  Chief Financial Officer

Fax:  (212) 937-4365

Any party may change the address to which notices are to be sent by giving notice of such change of address to the other party in the manner herein provided for giving notice.

13

15.         Applicable Law

This Agreement shall be governed by, enforced under, and construed in accordance with the laws of the State of New York, NY applicable therein.

16.         No Conflict

The Executive represents and warrants that he is not subject to any agreement, instrument, order, judgment or decree of any kind, or any other restrictive agreement of any character, which would prevent his from entering into this Agreement or which would be breached by the Executive upon his performance of his duties pursuant to this Agreement.

17.         Entire Agreement

This Agreement and the documents referenced herein represent the entire agreement between the Company and the Executive with respect to the employment of the Executive by the Company, and all prior agreements (including, without limitation, the Original Employment Agreement), plans and arrangements relating to the employment of the Executive by the Company are nullified and superseded hereby.

18.         [Intentionally omitted]

19.         Headings

The headings contained in this Agreement are for reference purposes only, and shall not affect the meaning or interpretation of this Agreement.

20.         Withholdings

The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

21.         Counterparts

This Agreement may be executed in two counterparts or by facsimile transmission, both of which taken together shall constitute one instrument.

22.         No Strict Construction

The language used in this Agreement will be deemed to be the language chosen by the Company and the Executive to express their mutual intent, and no rule of law or contract interpretation that provides that in the case of ambiguity or uncertainty a provision should be construed against the draftsman will be applied against any party hereto.

14

23.         Publicity

Subject to the provisions of the next sentence, no party to this Agreement shall issue any press release or other public document or make any public statement relating to this Agreement or the matters contained herein without obtaining the prior approval of the Company and the Executive.  Notwithstanding the foregoing, the foregoing provision shall not apply to the extent that the Company is required to make any announcement relating to or arising out of this Agreement by virtue of applicable securities laws or other stock exchange rules, or any announcement by any party pursuant to applicable law or regulations.

24.         Non- Disparagement

Following the date hereof, the Executive and the Company shall each use their reasonable best efforts not to disparage, criticize or make statements to the detriment of the other.

*                      *                      *                      *                      *

IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the day and year first above written.

MDC PARTNERS INC.
By:	/s/ Barbara Creagh, Executive Vice President
/s/
David Dabill

15

EX-10.3

Exhibit 10.3

AGREEMENT OF SETTLEMENT AND RELEASE

B E T W E E N:

MDC PARTNERS INC.

(hereinafter referred to as “MDC”)

- and -

ROBERT DICKSON

(hereinafter referred to as “Dickson”)

WHEREAS, Dickson ceased to be employed with MDC on June 1, 2011;

AND WHEREAS, Dickson and MDC are parties to an Employment Agreement dated December June 26, 2002, as amended on November 20, 2007 (the “Employment Agreement”);

AND WHEREAS, the parties have agreed to resolve and settle in full all claims of any kind that could be or could have been raised by Dickson under any federal or provincial law or under any statute or contract or tort law or otherwise, against MDC and its partners, subsidiaries, affiliates, unincorporated divisions, successors or assigns, or against any past or present director, officer, agent, shareholder or individual now or previously employed by or representing any of them;

NOW THEREFORE, the parties agree as follows:

1.           MDC shall pay to a company to be incorporated and promptly identified in writing by Dickson, the sum of One Million Three Hundred Ninety-Seven Thousand One Hundred Dollars ($1,397,100)(the “Consulting Payment”). The Consulting Payment shall be paid in equal monthly instalments (in arrears) plus HST during the twenty-four (24) month period beginning effective June 1, 2011, and continuing through and until May 31, 2013 (the “Consulting Period”). Dickson’s company shall provide appropriate invoices with respect to each of the above Consulting Payments.  Payment of the remaining unpaid Consulting Payment(s), if any, will be accelerated and due promptly following any “Change of Control” (as defined in the Employment Agreement) of MDC or upon the death of Dickson.

2.           During the Consulting Period, Dickson shall provide reasonable consulting services to MDC, as requested by MDC.  The consulting services (the “Consulting Services”) to be performed by Dickson shall include, without limitation, (i) assisting MDC in connection with any operating or transitional matters and (ii) facilitating the transition of Dickson’s responsibilities.  During the Consulting Period, Dickson shall report directly to Miles Nadal or another person designated by Mr. Nadal in his discretion, at such times and in such detail as shall reasonably be required recognizing that he is no longer an employee of MDC and in any event it is not expected that such services after the August 31, 2011, will require the expenditure of any material time. In any event, such Consulting Services will terminate upon the closing of any Change of Control of MDC.  Except for the Separation Payment provided for in Section 1 hereof, Dickson shall not be entitled to any additional compensation or payment of any other amounts for providing Consulting Services to MDC.  MDC agrees to reimburse Dickson for all reasonable travel expenses incurred in connection with the Consulting Services.

3.           MDC agrees that Dickson shall be entitled to the benefit of any Officers and Directors Insurance coverage consistent with the terms and conditions of the insurance policy for any matters which arose on or before June 1, 2011 and the benefit of any bylaws and indemnities of MDC available to him as an officer of MDC for acts arising before June 1, 2011.

4.           All monetary amounts referred to herein shall be in Canadian funds and shall be subject to withholding of taxes and other deductions required by law or as agreed to, in writing, between the parties.

5.           MDC acknowledges that Dickson has 46,908 restricted stock units and 64,014 Stock Appreciation Rights (“SARs”) outstanding and not vested as of June 1, 2011 (collectively, the “Unvested Equity Awards”).  The Unvested Equity Awards shall continue to vest in accordance with their underlying terms and conditions until May 31, 2013, on the same basis as if Dickson’s term of employment had continued until May 31, 2013 except for the 5000 restricted stock units granted January 26, 2011 which shall fully vest on May 31, 2013.   Notwithstanding the foregoing, the parties agree that Dickson shall have no further right to receive any future grants of equity incentive award(s) pursuant to that certain letter agreement between MDC and Dickson dated January 26, 2011 (the “EVAR Letter Agreement”), relating to a potential grant of up to 45,000 restricted stock units.  Effective as of the date hereof, the EVAR Letter Agreement shall be deemed terminated and cancelled. Upon any exercise of any outstanding SARs, MDC shall satisfy the exercise by issuance of MDC stock.  Attached to this agreement is a schedule showing the exercise periods applicable to the SARs.

6.           Dickson agrees to notify MDC in writing not less than three (3) business days prior to any open-market sale of MDC’s Class A shares.

7.           MDC shall continue to pay the premiums for health benefits for a maximum period of one year from June 1, 2011 until May 31, 2012, or until such earlier time as Dickson obtains alternative employment, whichever occurs earlier.

8.           Dickson undertakes and agrees to abide by the terms set forth in the attached confidentiality and non-solicitation agreement.

9.           Dickson agrees and undertakes to resign as an officer and/or director of MDC and any other companies to which he has been appointed either as an officer and/or director. By the execution of these Minutes of Settlement, Dickson acknowledges that he shall have so resigned and agrees to cooperate in executing any required documents.

10.         Dickson agrees not to, either directly or indirectly, publish or disclose the contents of this agreement or any terms thereof, in any manner whether in writing or orally, to any individual or entity (except for any one from whom Dickson obtains professional advice or his immediate family regarding this agreement) directly or indirectly, whether individually or by or through any agent, representative, attorney or other person.

- Page 2 -

11.         The parties agree that this agreement may not be used as evidence by either of them in any action or proceeding except one in which one of the parties alleges a breach of this agreement.

12.         In consideration for the payments and other promises contained in this agreement, Dickson agrees to execute the attached full and final Release, as well as the attached Confidentiality and Non-solicitation Agreement.

13.         This agreement and the terms hereof supersede and replace all prior discussions and/or agreements made between the parties, whether oral or written, and shall constitute the entire agreement between the parties with respect to all matters contemplated by this agreement and the parties hereto do not rely upon or regard as material, any representations or writings whatsoever not incorporated into and made a part of this agreement.  This agreement shall not be amended, altered or modified except in writing signed by the parties.

*                         *                      *

THIS AGREEMENT may be executed in counterparts, all of which together shall constitute a single, original instrument.

HAVING READ AND UNDERSTOOD THE RELEASE, CONSULTED COUNSEL OR VOLUNTARILY ELECTED NOT TO CONSULT COUNSEL, AND HAVING HAD SUFFICIENT TIME TO CONSIDER WHETHER TO ENTER INTO THIS AGREEMENT, THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT AND RELEASE AS OF THE DAY AND YEAR FIRST WRITTEN BELOW.

DATED this 6th day of June, 2011.

	MDC Partners Inc.
	Per:	/s/
	Name: Mitchell Gendel
	Title: General Counsel
	I have the authority to bind the corporation

/s/	/s/
Witness	Robert Dickson

- Page 3 -

RELEASE AND INDEMNITY

IN CONSIDERATION of the attached Agreement of Settlement and Release dated June 6, 2011, and other good and valuable consideration, the sufficiency of which is hereby acknowledged, I ROBERT DICKSON, for myself, my heirs, executors, administrators and assigns, hereby release and forever discharge MDC PARTNERS INC.and its parent, subsidiaries, affiliates, unincorporated divisions, predecessors, successors and assigns, and all of their past and present officers, directors, representatives, agents, shareholders and employees (collectively the "Releasees") from any and all claims, demands, causes of action, fees and liabilities of any kind whatsoever, whether known or unknown, which I ever had, now have or may have hereafter against any of them, by reason of any actual or alleged act, omission, transaction, practice, conduct, occurrence or other matter whatsoever up to and including the date on which this agreement becomes effective .  Without limiting the generality of the foregoing, this instrument shall release the Releasees from any claim arising out of or in any way relating to my employment or the cessation thereof, including but not limited to all claims that could have been raised under the Employment Standards Act of Ontario, 2000 as amended, the Human Rights Code of Ontario, as amended, Workplace Safety and Insurance Act, Occupational Health and Safety Act, including but not limited to any claim for commissions, vacation pay, overtime pay, health benefits, RSUs, bonuses, payment under any bonus or other compensation plan and any other compensation of any kind whatsoever under any federal or provincial law, by statute, regulation, contract or tort law, or and that I have not been subjected to any unequal treatment contrary to the Ontario Human Rights Code.

AND FOR THE SAID CONSIDERATION I further agree not to make any claim or demand or commence, maintain or prosecute any action, cause or proceeding for damages, compensation, loss or any relief whatsoever against the said Releasees in respect of any cause, matter or thing whatsoever arising out of or in consequence of my employment or the termination of my employment with the Releasees.  I further agree that this Release shall operate conclusively as an estoppel in the event of any such claim, action or proceeding and may be pleaded accordingly.

AND FOR THIS CONSIDERATION I further agree to indemnify and save harmless the Releasees from any and all claims or demands under the Income Tax Act of Canada and/or the Income Tax Act of the Province of Ontario and/or under the Employment Insurance Act of Canada, in respect of any failure on the part of the Releasees to withhold income tax and/or any amounts previously paid to me by Social Development Canada on account of employment insurance benefits received from the said consideration any interest or penalties relating to same, and further, to indemnify the Releasees for any costs or expenses it may incur in defending such claims or demands.

NOTWITHSTANDING THE FOREGOING, this Release shall not apply to any actions, causes of action, claims and demands which I may have relating to the failure or the refusal of the Releasees to comply with the terms of settlement as agreed upon.

AND I HEREBY DECLARE that I fully understand the terms of this settlement and have received or was afforded the opportunity to receive independent legal advice prior to executing this document and that I voluntarily accept the consideration offered for the purpose of making full and final compromise and settlement of all claims as aforesaid.

- Page 4 -

AND I HEREBY AGREE AND UNDERTAKE to resign as an officer and/or director from any companies referred to above and shall execute any documentation required for such purpose.

IT IS UNDERSTOOD AND AGREED that I hereby undertake and agree not to disclose the facts of this settlement or agreement or the terms thereof to any third party without the written consent of the Releasees, except persons from whom I receive professional advice, my immediate family or as required by law.  I also hereby undertake and agree that I will not make any disparaging remarks against the Releasees.

THIS RELEASE AND INDEMNITY shall be deemed to have been made in and shall be construed in accordance with the laws of the Province of Ontario.

THIS RELEASE AND INDEMNITY shall enure to the benefit of and be binding upon the undersigned, the Releasees and their respective heirs, executors, administrators, legal personal representatives, successors and assigns.

IT IS UNDERSTOOD AND AGREED that the giving of the aforesaid consideration is deemed to be no admission whatsoever of liability on the part of the Releasees.

IN WITNESS WHEREOF I have hereunto set my hand and seal at this 6thday of June, 2011.

SIGNED, SEALED AND DELIVERED
in the presence of
/s/	/s/
Witness	Robert Dickson

- Page 5 -

Confidentiality and Non-Solicitation Agreement

Confidentiality and Non-Solicitation Agreement, dated as of June 6, 2011, between MDC Partners Inc. (together with its affiliates, “MDC”) and Robert Dickson (the “Dickson”).

In consideration of the Agreement of Settlement and Release between Dickson and MDC dated the date hereof, the parties hereto agree as follows:

1.           Non-Disclosure of Confidential Information.

(a)           Dickson acknowledges that, in the course of his employment, he was provided with information which is confidential or proprietary in nature, as to MDC or its clients relating to their business affairs, property, methods of operation or other data (the “Confidential Information”), and that, the goodwill afforded to MDC depends upon, MDC and its employees keeping such information confidential.  Dickson acknowledges that MDC would be irreparably damaged if the Confidential Information were disclosed to or utilized on behalf of others.  Therefore, Dickson agrees that, he will not at any time, disclose to any person or use any Confidential Information, or permit any person to examine and/or make copies of any documents which contain or are derived from Confidential Information, whether prepared by Dickson or otherwise coming into Dickson’s possession or control without the prior written permission of MDC.

(b)           Dickson agrees that, upon the request of MDC, Dickson shall deliver to MDC all documents, papers or other material in his possession or under his control, together with any reproductions thereof, that may contain or be derived from Confidential Information, together with all documents, notes or other work product which is connected with or derived from Dickson’s services to MDC whether or not such material is at the date hereof in Dickson’s possession.  Dickson agrees that he shall have no proprietary interest in any work product developed or used by Dickson and arising out of his employment by MDC. Dickson shall, from time to time as may be requested by MDC, do all things which may be necessary to establish or document MDC’s ownership of any such work product.  In furtherance of the foregoing, Dickson hereby irrevocably appoints each executive officer of Dickson as his attorney-in-fact, with power of substitution, to perform any obligation to Dickson hereunder.

2.           Non-Solicitation Agreement.

(a)           Dickson shall not, for a period of two (2) years commencing June 1, 2011 and until May 31, 2013:

i. solicit any business from (either directly or indirectly or through corporate entities) with any customer or client of MDC or any person or firm which has contacted or been contacted by MDC as a potential customer or client of MDC, provided that any such customer or client or prospective customer or client was a customer, client or documented prospect within the preceding 12 months (each, a “Client”);

- Page 6 -

ii. employ as an employee or retain as a consultant any person, firm or entity who is then or at any time during the preceding twelve months was an employee of MDC or any of its affiliates, or persuade or attempt to persuade any employee of MDC or any of its affiliates to leave the employ of MDC or to become employed as an employee or retained as a consultant by any person, firm or entity other than MDC;

iii. render to or for any Client any services of the type which are rendered by MDC or any of its affiliate to such client; and

iv. interfere with, or attempt to interfere with, business relationships (whether formed before or on the date of this Agreement) between MDC and any Clients, suppliers or partners.

3.           Intellectual Property.  Dickson agrees that all materials created or modified by him during his term of employment and any materials required in the performance of duties and responsibilities for MDC, including, without limitation, all works of authorship, inventions, processes, ideas, methods, concepts and other tangible and intangible materials (collectively, “Work Product”), shall be "work for hire" and that the MDC shall be the exclusive owner of the Work Product and all intellectual property rights associated with the Work Product, including all trademarks, patents or copyrights contained therein.  To the extent any Work Product does not qualify as "work for hire", Dickson hereby assigns ownership of all such Work Product to MDC and agrees to take all reasonable measures, at MDC expense, to perfect such rights in MDC.  Dickson hereby appoints MDC as his attorney-in-fact with the limited power to execute assignments of such Work Product.

4.           Miscellaneous.   This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, executors, successors and assigns. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.  This Agreement may be modified only by an instrument in writing signed by both parties hereto.  Any notice to be given under this Agreement shall be sufficient if it is in writing and is sent by certified or registered mail to Dickson at his residence address as the same appears on the books and records of MDC or to MDC at its principal office, attention General Counsel, or as otherwise directed by MDC, from time to time.

*                      *                      *                      *

- Page 7 -

IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the date first above written.

MDC Partners Inc.
By:	/s/
Name: Mitchell Gendel
Title: General Counsel

ACKNOWLEDGED AND AGREED:

  /s/

Robert Dickson

- Page 8 -

Schedule of Outstanding SARS

1. Grant of 188,276 SARS (“Base Price” = US$3.72) on February 12, 2009.  Of this amount, 124,262 SARS are vested as of the date hereof and may be exercised prior to May 31, 2013.  The remaining balance of 64,014 SARS shall vest on February 12, 2012, in accordance with their respective terms, and may be exercised beginning February 12, 2012 and continuing until May 31, 2013.

2. Grant of 10,000 SARS (“Base Price” = US$8.95) on April 28, 2006.   Such SARS are fully vested as of the date hereof and may be exercised prior to May 31, 2013.

- Page 9 -

EX-12

Exhibit 12

Statement of Computation of Ratio of Earnings to Fixed Charges

	Six Months Ended June 30,
	2011			2010
	(000’s)			(000’s)
Earnings:
Loss from continuing operations attributable to MDC Partners Inc.	$	(7,360	)	$	(14,583	)
Additions:
Income tax expense		946			801
Noncontrolling interest in income of consolidated subsidiaries		4,132			3,056
Fixed charges, as shown below		24,494			18,155
Distributions received from equity-method investees		3,967			7
		33,539			22,019
Subtractions:
Equity in income (loss) of investees		334			(143	)
Noncontrolling interest in earnings of consolidated subsidiaries that have not incurred fixed charges		—			—
		334			(143	)
Earnings as adjusted	$	25,845		$	7,579
Fixed charges:
Interest on indebtedness, expensed or capitalized		19,072			14,591
Amortization of debt discount and expense and premium on indebtedness, expensed or capitalized		1,158			862
Interest within rent expense		4,264			2,702
Total fixed charges	$	24,494		$	18,155
Ratio of earnings to fixed charges		1.06			N/A
Fixed charge deficiency	$	N/A		$	10,576

EX-31.1

Exhibit 31.1

Certification Pursuant to Rules 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section

302 of the Sarbanes-Oxley Act of 2002

I, Miles S. Nadal, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2011 of MDC Partners Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2011	/s/ MILES S. NADAL
	By:	Miles S. Nadal
	Title:	Chairman, Chief Executive Officer and President

EX-31.2

Exhibit 31.2

Certification Pursuant to Rules 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section

302 of the Sarbanes-Oxley Act of 2002

I, David B. Doft, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2011 of MDC Partners Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2011	/s/ DAVID B. DOFT
	By:	David B. Doft
	Title:	Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

In connection with the quarterly report of MDC Partners Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Miles S. Nadal, Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated as of August 4, 2011
/s/ MILES S. NADAL
By:	Miles S. Nadal
Title:	Chairman, Chief Executive Officer and President

 

EX-32.2

Exhibit 32.2

Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

In connection with the quarterly report of MDC Partners Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David B. Doft, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated as of August 4, 2011
/s/ DAVID B. DOFT
By:	David B. Doft
Title:	Chief Financial Officer

EX-99.1

Exhibit 99.1

MDC PARTNERS INC.

SCHEDULE OF CURRENT AND POTENTIAL MARKETING

COMMUNICATIONS COMPANY OWNERSHIP

				Year of
	% Owned at			Initial
Company	6/30/11			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
Anomaly Partners LLC		60.0	%		2011		—		Note 3
Attention Partners LLC		51.0	%		2009		—		Note 4
Bruce Mau Design Inc.		75.0	%		2004		—
Capital C Partners LP		80.0	%		2010		—		Note 5
Colle & McVoy, LLC		95.0	%		1999		—		Note 6
Crispin Porter & Bogusky, LLC		100.0	%		2001		—
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		—
Kwittken PR LLC		60.0	%		2010		—		Note 9
Mono Advertising, LLC		49.9	%		2004		60.0	%	Note 10
Redscout, LLC		60.0	%		2007		—		Note 11
Sloane & Company LLC		70.0	%		2010				Note 12
Skinny NYC, LLC		50.1	%		2008		—		Note 13
Veritas Communications Inc.		64.1	%		1993		81.5	%	Note 14
Vitro Robertson, LLC		77.0	%		2004		95.0	%	Note 15
Yamamoto Moss Mackenzie, Inc.		100.0	%		2000		—
Zyman Group, LLC		96.0	%		2005		—		Note 16
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 17
Bryan Mills Iradesso Corp.		62.8	%		1989		88.2	%	Note 18
Communifx Partners, LLC		84.6	%		2010		—		Note 19
Computer Composition of Canada LP		100.0	%		1988		—
Integrated Media Solutions Partners LLC		75.0	%		2010		—		Note 20
Kenna Communications LP		80.0	%		2010				Note 21
Northstar Research Partners Inc.		70.0	%		1998		—		Note 22
656712 Ontario Limited (d.b.a. Onbrand)		89.0	%		1992		—
Relevent Partners LLC		60.0	%		2010		—
Hudson and Sunset Media LLC		51.0	%		2010		—
Source Marketing, LLC		83.0	%		1998		87.1	%	Note 23
TargetCom, LLC		100.0	%		2000		—		Note 24
The Arsenal LLC (f.k.a.Team Holdings LLC)		60.0	%		2010		—		Note 25
Equity Accounted:
Adrenalina, LLC		49.9	%		2007		—		Note 26

Notes

(1)	MDC has the right to increase its ownership interest in 72 and Sunny through acquisition of an incremental interest of up to 100 % in 2016.
(2)	MDC has the right to increase its ownership interest in Allison & Partners LLC through acquisition of an incremental interest, and other holders have the right to put only upon termination to MDC the same incremental interest up to 100% of this entity in 2015.
(3)	MDC has the right to increase its ownership interest in  Anomaly Partners LLC through acquisition of an incremental interest of up to 100% in 2015.
(4)	Attention Partners LLC is owned by HL Group Partners, LLC. HL Group Partners, LLC has the right to increase its ownership in Attention Partners, LLC through acquisitions of incremental interests, and the other interest holders has the right to put to HL Group Partners, LLC the same incremental interests up to 100% only upon termination.
(5)	MDC has the right to increase its ownership interest in Capital C Partners LP through acquisition of an incremental interest, up to 90% in 2015, and up to 100% in 2017.
(6)	MDC has the right to increase its economic ownership in Colle & McVoy, LLC through acquisition of an incremental interest, and the other interest holder has the right to put to MDC the same incremental interest, up to 100% of this entity in 2012.
(7)	During 2010, MDC increased its economic ownership in Company C Communications, LLC through acquisition of an incremental interest. Effective October 1, 2008, Company C is operated as a division of kirshenbaum bond senecal & partners, LLC.
(8)	MDC has the right to increase its ownership in HL Group Partners, LLC through acquisitions of incremental interests, and the other interest holders have the right to put to MDC the same incremental interests, up to 72.4% of this entity in 2012, up to 82.62% in 2013 and up to 93.73% in 2014. Effective January 25, 2010, MDC acquired an additional 1% membership interest in HL Group Partners, LLC.
(9)	MDC has the right to increase its ownership in Kwittken PR LLC through acquisitions of incremental interests, up to 100% of this entity in 2015.
(10)	MDC has the right to increase its ownership in Mono Advertising, LLC through acquisitions of incremental interests, and the other interest holders have the right to put to MDC the same incremental interests, up to 54.9% of this entity in 2010, up to 60.0% in 2011, up to 65.0% in 2012, up to 70.0% in 2013 and up to 75.0% in 2014.
(11)	MDC has the right to increase its ownership in Redscout, LLC through acquisition of an incremental interest, and the other interest holder has the right to put to MDC the same incremental interest, up to 80% of this entity in 2012.
(12)	MDC has the right to increase its ownership interest in Sloane & Company LLC through acquisition of incremental interests, and other interest holders have the right to put to MDC the same incremental interests up to 100% in 2015.
(13)	MDC has the right to increase its ownership in Skinny NYC, LLC through acquisition of incremental interests, and the other interest holders have the right to put to MDC the same incremental interest, up to 60.1% of this entity in 2014, up to 70.1% of this entity in 2015 and up to 80.1% of this entity in 2016.
(14)	MDC has the right to increase its ownership in Veritas Communications Inc. through acquisitions of incremental interests, and the other interest holders have the right to put to MDC the same incremental interests, up to 81.5% of this entity in 2011, up to 95.1% in 2012 and up to 100% in 2013.
(15)	MDC has the right to increase its ownership in Vitro Robertson, LLC through acquisition of an incremental interest, and the other interest holder has the right to put to MDC the same incremental interest, up to 95% of this entity in 2011, up to 97.5% in 2012 and up to 100% in 2013.
(16)	In January 2009, Zyman Group, LLC has become an operating division of kirshenbaum bond senecal & partners, LLC.
(17)	MDC has the right to increase its ownership in 6degrees Integrated Communications Inc. through acquisitions of incremental interests, and the other interest holders have the right to put to MDC the same incremental interests up to 68.3% of this entity in 2011 and up to 75.0% in 2012. MDC’s current economic interest is 42%.
(18)	MDC has the right to increase its ownership in Bryan Mills Iradesso, Corp. through acquisition of an incremental interest, and the other interest holders have the right to put to MDC the same incremental interest, up to 100% of this entity in 2012.
(19)	MDC has the right to increase its ownership in Communifx Partners, LLC through acquisitions of incremental interests, and the other interest holders have the right to put to MDC the same incremental interests, up to 100% of this entity in 2013.
(20)	MDC has the right to increase its ownership interest in Integrated Media Solutions Partners LLC through acquisitions of incremental interests, up to 100% of this entity in 2015.
(21)	MDC has the right to increase its ownership interest in Kenna Communications LP through acquisition of an incremental interest, up to 100% in 2015.
(22)	MDC has the right to increase its ownership in Northstar Research Partners Inc. through acquisitions of incremental interests, and the other holders have the right to put to MDC the same incremental interests, up to 100% of this entity in 2013.
(23)	MDC has the right to increase its ownership in Source Marketing, LLC through acquisitions of incremental interests, and the other interest holders have the right to put to MDC the same incremental interests up 87.1% of this entity in 2011 and 91.3% in 2012 and 100% in 2013.
(24)	Effective January 1, 2009, Targetcom LLC is operating as a division of Accent Marketing Services, LLC.
(25)	MDC has the right to increase its ownership in The Arsenal, LLC, through acquisition of an incremental interest,  up to 100% of this entity in 2013.
(26)	Effective September 1, 2010,  MDC has written off the value of its investment in Adrenalina, LLC.

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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
Current Assets:
Cash and cash equivalents	$ 5,704	$ 10,949
Accounts receivable, less allowance for doubtful accounts of $829 and $1,990	204,925	195,306
Expenditures billable to clients	28,160	30,414
Other current assets	15,550	13,455
Total Current Assets	254,339	250,124
Fixed assets, at cost, less accumulated depreciation of $103,561 and $94,432	41,616	41,053
Investment in affiliates	105
Goodwill	546,257	514,488
Other intangibles assets, net	60,404	67,133
Deferred tax asset	21,690	21,603
Other assets	28,508	19,947
Total Assets	952,919	914,348
Current Liabilities:
Accounts payable	101,357	131,074
Accruals and other liabilities	58,414	64,050
Advance billings	114,013	124,993
Current portion of long-term debt	1,575	1,667
Current portion of deferred acquisition consideration	27,654	30,887
Total Current Liabilities	303,013	352,671
Revolving credit facility	34,462
Long-term debt	346,050	284,549
Long-term portion of deferred acquisition consideration	63,113	77,104
Other liabilities	13,038	10,956
Deferred tax liabilities	19,554	19,642
Total Liabilities	779,230	744,922
Redeemable Noncontrolling Interests (Note 2)	89,233	77,560
Commitments, contingencies and guarantees (Note 13)
Shareholders' Equity:
Preferred shares, unlimited authorized, none issued
Additional paid-in capital
Charges in excess of capital	(19,950)	(16,809)
Accumulated deficit	(153,960)	(146,600)
Stock subscription receivable	(135)	(135)
Accumulated other comprehensive loss	(2,864)	(4,148)
MDC Partners Inc. Shareholders' Equity	51,648	59,061
Noncontrolling Interests	32,808	32,805
Total Equity	84,456	91,866
Total Liabilities, Redeemable Noncontrolling Interests and Equity	952,919	914,348
Class A Shares
Shareholders' Equity:
Common stock	228,556	226,752
Class B Shares
Shareholders' Equity:
Common stock	$ 1	$ 1

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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data	Jun. 30, 2011	Dec. 31, 2010
Accounts receivable, allowance for doubtful accounts	$ 829	$ 1,990
Fixed assets, accumulated depreciation	$ 103,561	$ 94,432
Preferred shares, issued	0	0
Class A Shares
Common stock, no par value	$ 0	$ 0
Common stock, shares issued	29,135,054	28,758,734
Class B Shares
Common stock, no par value	$ 0	$ 0
Common stock, shares issued	2,503	2,503
Common stock, shares outstanding	2,503	2,503

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Document and Entity Information	6 Months Ended
	Jun. 30, 2011	Jul. 25, 2011 Class A Shares	Jul. 25, 2011 Class B Shares
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Trading Symbol	MDCA
Entity Registrant Name	MDC PARTNERS INC
Entity Central Index Key	0000876883
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		30,034,774	2,503

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Comprehensive Income (Loss)

6 Months Ended

Jun. 30, 2011

Comprehensive Income (Loss)

7. Comprehensive Income (Loss)

Total comprehensive income (loss) and its components were:

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Net income (loss) for the period	$	3,850		$	(3,772	)	$	(3,228	)	$	(12,935	)
Other comprehensive income, net of tax:
Foreign currency cumulative translation adjustment		442			(959	)		1,287			457
Comprehensive income (loss)		4,292			(4,731	)		(1,941	)		(12,478	)
Comprehensive loss attributable to the noncontrolling interest		(2,527	)		(1,985	)		(4,135	)		(2,951	)
Comprehensive income (loss) attributable to MDC Partners Inc.	$	1,765		$	(6,716	)	$	(6,076	)	$	(15,429	)

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Segment Information

6 Months Ended

Jun. 30, 2011

Segment Information

12. Segment Information

The Company’s segment reporting is consistent with the current manner of how the Chief Operating Decision Maker (“CODM”) and the Board of Directors view the business. The Company is focused on expanding its capabilities in database marketing and data analytics in order to position the Company for future business development efforts and revenue growth.

In order to position this strategic focus along the lines of how the CODM and management will base their business decisions, the Company reports two segments. Decisions regarding allocation of resources are made and will be made based not only on the individual operating results of the subsidiaries but also on the overall performance of the reportable segments. These reportable segments are the aggregation of various reporting segments.

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

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

• The Performance Marketing Services segment includes our firms that provide consumer insights to satisfy the growing need for targetable, measurable solutions or cost effective means of driving return on marketing investment. These services interface directly with the consumer of a client’s product or service. Such services include the design, development, research and implementation of consumer service and direct marketing initiatives. Each of the entities within the Performance Marketing Services Group share similar economic characteristics specifically related to the nature of their respective services, the manner in which the services are provided, and the similarity of their respective customers. Due to the similarities in these businesses, the services provided to the customer and they exhibit similar long term financial performance and have been aggregated together.

The significant accounting polices of these segments are the same as those described in the summary of significant accounting policies included in the notes to the consolidated financial statements. The Company continues to evaluate its Corporate Group and the services provided by the Corporate Group to the operating segments.

 Summary financial information concerning the Company’s operating segments is shown in the following tables:

Three Months Ended June 30, 2011

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services			Corporate			Total
Revenue	$	154,957		$	85,519		$	—		$	240,476
Cost of services sold		99,247			63,161			—			162,408
Office and general expenses		27,657			15,517			10,603			53,777
Depreciation and amortization		5,182			4,437			117			9,736
Operating Profit/(Loss)		22,871			2,404			(10,720	)		14,555
Other Income (Expense):
Other income, net											444
Interest expense, net											(10,638	)
Income from continuing operations before income taxes, equity in affiliates											4,361
Income tax expense											590
Income from continuing operations before equity in affiliates											3,771
Equity in earnings of non-consolidated affiliates											79
Net income											3,850
Net income attributable to the noncontrolling interests		(2,335	)		(192	)		—			(2,527	)
Net income attributable to MDC Partners Inc.										$	1,323
Non cash stock based compensation	$	176			478		$	5,121		$	5,775
Supplemental Segment Information:
Capital expenditures	$	2,620		$	791		$	32		$	3,443
Goodwill and intangibles	$	390,835		$	215,826		$	—		$	606,661
Total assets	$	578,419		$	332,092		$	42,408		$	952,919

Three Months Ended June 30, 2010

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services			Corporate			Total
Revenue	$	106,881		$	63,009		$	—		$	169,890
Cost of services sold		71,034			45,330			—			116,364
Office and general expenses		20,920			12,634			5,547			39,101
Depreciation and amortization		4,228			3,707			94			8,029
Operating Profit/(Loss)		10,699			1,338			(5,641	)		6,396
Other Income (Expense):
Other expense, net											(289	)
Interest expense, net											(8,356	)
Loss from continuing operations before income taxes, equity in affiliates											(2,249	)
Income tax expense											552
Loss from continuing operations before equity in affiliates											(2,801	)
Equity in loss of non-consolidated affiliates											(39	)
Loss from continuing operations											(2,840	)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes											(932	)
Net loss											(3,772	)
Net income attributable to the noncontrolling interests		(1,368	)		(665	)		—			(2,033	)
Net loss attributable to MDC Partners Inc.										$	(5,805	)
Non cash stock based compensation	$	1,078			399		$	1,411		$	2,888
Supplemental Segment Information:
Capital expenditures	$	1,361		$	1,429		$	168		$	2,958
Goodwill and intangibles	$	314,326		$	158,379		$	—		$	472,705
Total assets	$	456,637		$	270,215		$	65,134		$	791,986

Six Months Ended June 30, 2011

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services			Corporate			Total
Revenue	$	296,450		$	161,528		$	—		$	457,978
Cost of services sold		200,017			121,535			—			321,552
Office and general expenses		54,850			27,349			17,309			99,508
Depreciation and amortization		10,989			8,909			221			20,119
Operating Profit/(Loss)		30,594			3,735			(17,530	)		16,799
Other Income (Expense):
Other income, net											755
Interest expense, net											(20,170	)
Loss from continuing operations before income taxes, equity in affiliates											(2,616	)
Income tax expense											946
Loss from continuing operations before equity in affiliates											(3,562	)
Equity in earnings of non-consolidated affiliates											334
Net loss											(3,228	)
Net income attributable to the noncontrolling interests		(3,978	)		(154	)		—			(4,132	)
Net loss attributable to MDC Partners Inc.										$	(7,360	)
Non cash stock based compensation	$	1,723		$	983		$	7,343		$	10,049
Supplemental Segment Information:
Capital expenditures	$	6,353		$	1,882		$	230		$	8,465
Goodwill and intangibles	$	390,835		$	215,826		$	—		$	606,661
Total assets	$	578,419		$	332,092		$	42,408		$	952,919

Six Months Ended June 30, 2010

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services			Corporate			Total
Revenue	$	198,139		$	107,666		$	—		$	305,805
Cost of services sold		132,249			80,686			—			212,935
Office and general expenses		40,900			22,148			10,330			73,378
Depreciation and amortization		7,512			6,146			187			13,845
Operating Profit/(Loss)		17,478			(1,314	)		(10,517	)		5,647
Other Income (Expense):
Other expense, net											(877	)
Interest expense, net											(15,353	)
Loss from continuing operations before income taxes, equity in affiliates											(10,583	)
Income tax expense											801
Loss from continuing operations before equity in affiliates											(11,384	)
Equity in loss of non-consolidated affiliates											(143	)
Loss from continuing operations											(11,527	)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes											(1,408	)
Net loss											(12,935	)
Net income attributable to the noncontrolling interests		(2,350	)		(706	)		—			(3,056	)
Net loss attributable to MDC Partners Inc.										$	(15,991	)
Non cash stock based compensation	$	2,831		$	765		$	2,759		$	6,355
Supplemental Segment Information:
Capital expenditures	$	2,966		$	2,463		$	291		$	5,720
Goodwill and intangibles	$	314,326		$	158,379		$	—		$	472,705
Total assets	$	456,637		$	270,215		$	65,134		$	791,986

A summary of the Company’s revenue by geographic area, based on the location in which the services originated, is set forth in the following table:

	United States		Canada		Other		Total
Revenue
Three Months Ended June 30,
2011	$	191,669	$	40,330	$	8,477	$	240,476
2010	$	143,200	$	22,427	$	4,263	$	169,890
Six Months Ended June 30,
2011	$	365,989	$	75,469	$	16,520	$	457,978
2010	$	255,082	$	42,472	$	8,251	$	305,805

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Income (Loss) Per Common Share

6 Months Ended

Jun. 30, 2011

Income (Loss) Per Common Share

3 . Income (Loss) Per Common Share

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Numerator
Numerator for basic income (loss) per common share - loss from continuing operations	$	3,850		$	(2,840	)	$	(3,228	)	$	(11,527	)
Net income attributable to the noncontrolling interests		(2,527	)		(2,033	)		(4,132	)		(3,056	)
Income (loss) attributable to MDC Partners Inc. common shareholders from continuing operations	$	1,323		$	(4,873	)	$	(7,360	)	$	(14,583	)
Effect of dilutive securities		—			—			—			—
Numerator for diluted income (loss) per common share – loss attributable to MDC Partners Inc. common shareholders from continuing operations	$	1,323		$	(4,873	)	$	(7,360	)	$	(14,583	)
Denominator
Denominator for basic income (loss) per common share - weighted average common shares		29,016,384			27,800,953			28,952,182			27,716,895
Effect of dilutive securities:		3,285,338			—			—			—
Denominator for diluted income (loss) per common share - adjusted weighted shares		32,301,722			27,800,953			28,952,182			27,716,895
Basic income (loss) per common share from continuing operations attributable to MDC Partners Inc.	$	0.05		$	(0.18	)	$	(0.25	)	$	(0.53	)
Diluted income (loss) per common share from continuing operations attributable to MDC Partners Inc.	$	0.04		$	(0.18	)	$	(0.25	)	$	(0.53	)

During the three months ended June 30, 2011, options and other rights to purchase 5,374,941 shares of common stock, which includes 2,104,380 shares of non-vested restricted stock and restricted stock units, were outstanding and were included in the computation of diluted income per common share.

During the six months ended June 30, 2011, options and other rights to purchase 5,374,941 shares of common stock, which includes 2,104,380 shares of non-vested restricted stock and restricted stock units, were outstanding but were not included in the computation of diluted loss per common share because their effect would be antidilutive.

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

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Total Equity

6 Months Ended

Jun. 30, 2011

Total Equity

9. Total Equity

During the six months ended June 30, 2011, Class A share capital increased by $4,372, as the Company issued 285,285 shares related to vested restricted stock, and 116,881 shares related to the exercise of outstanding stock appreciation rights and 112,429 related to the exercise of options.  During the six months ended June 30, 2011, charges in excess of capital increased by $3,362 related to the vested restricted stock, stock appreciation rights, and options and a debit of $7,475 related to charges in put options (Note 2 and Note 13), dividends paid and payable of $8,367 offset by $9,621 related to an increase from stock-based compensation that was expensed during the same period, and a credit of $6,434 related to changes in ownership not resulting in a change in control.

During the six months ended June 30, 2011, the Company purchased and retired 138,275 Class A shares for $2,568 from employees in connection with the required tax withholding resulting from the vesting of shares of restricted stock and stock appreciation rights.

Total equity decreased $7,410, which is comprised of changes in put options of $7,475, a net loss attributable to MDC Partners of $7,360, dividends paid and payable of $8,367 and $2,568 of treasury stock purchases, offset by an increase in stock-based compensation of $9,621, and a credit of $6,434 related to changes in ownership not resulting in a change of control, an increase in accumulated other comprehensive loss of $1,284 and an exercise of stock options of $1,010.

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New Accounting Pronouncements

6 Months Ended

Jun. 30, 2011

New Accounting Pronouncements

14. New Accounting Pronouncements

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU 2011-05”) Under ASU 2011-05, an entity will have the option to present comprehensive income on the income statement or as a separate financial statement. ASU 2011-05 is effective January 1, 2012 and requires retrospective adoption. ASU 2011-05 affects financial statement presentation only and has no effect on results of operations or financial position.

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 did not have a material 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 did not have an effect on our results of operation or our financial position.

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 adoption did not have a material impact on our financial statements.

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Fair Value Measurements

6 Months Ended

Jun. 30, 2011

Fair Value Measurements

10. Fair Value Measurements

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

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

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

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

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

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

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

The following tables present certain information for our financial liabilities that is disclosed at fair value on a recurring basis at June 30, 2011 and 2010:

	Level 1				Level 1
	June 30, 2011				June 30, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Liabilities:
11% Senior Notes due 2016	$	344,450	$	386,400	$	282,781	$	308,050

Our long term debt includes fixed rate debt. The fair value of this instrument is based on quoted market prices.

The following table presents changes in Deferred Acquisition Consideration.

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	June 30,
	2011			2010
Beginning Balance of contingent payments	$	101,822		$	29,928
Payments		(25,165	)		(19,779	)
Grants		10,265			48,642
Redemption value adjustments		(564	)		1,388
Foreign translation adjustment		370			—
Ending Balance of contingent payments	$	86,728		$	60,179

In addition to the above amounts, there are fixed payments of $4,039 and $3,790 for total deferred acquisition consideration of $90,767 and $63,969, which reconciles to the consolidating financial statements at June 30, 2011 and 2010, respectively.

Level 3 payments relate to payments made for deferred acquisition consideration. Level 3 grants relate to contingent purchase price obligations related to acquisitions. The Company records the initial liability of the estimated present value. The estimated liability is determined in accordance with various contractual valuation formulas that may be dependent on future events, such as the growth rate of the earnings of the relevant subsidiary during the contractual period, and, in some cases, the currency exchange rate of the date of payment. Level 3 redemption value adjustments relate to the remeasurement and change in these various contractual valuation formulas as well as adjustments of present value.

At June 30, 2011 and December 31, 2010, the carrying amount of the Company’s financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximated fair value because of their short-term maturity.

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

6 Months Ended

Jun. 30, 2011

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

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

Debt consists of:

	June 30, 2011			December 31, 2010
Revolving credit facility	$	34,462		$	—
11% Senior Notes due 2016		345,000			290,000
Original issue discount		(550	)		(6,843	)
Notes payable and other bank loans		1,400			1,400
		380,312			284,557
Obligations under capital leases		1,775			1,659
		382,087			286,216
Current portion		1,575			1,667
Long term portion	$	380,512		$	284,549

MDC Financing Agreement and Senior Notes

Issuance of 11% Senior Notes

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

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

On April 19, 2011, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold an additional $55,000 aggregate principal amount of 11% 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 $59,580, which included an original issue premium of $6,050, and underwriter fees of $1,470. 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.

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

The fair value for the 11% Senior Notes was $386,400 as of June 30, 2011.

At June 30, 2011, the Company had issued $6,190 of undrawn outstanding Letters of Credit.

At June 30, 2011 and December 31, 2010, accounts payable included $1,865 and $9,026 of outstanding checks, respectively.

Credit Agreement

On October 23, 2009, the Company and its subsidiaries entered into a $75,000 five year senior secured revolving credit agreement (the “WF Credit Agreement”) with Wells Fargo Capital Finance, LLC (formerly Wells Fargo Foothill, LLC), as agent, and the lenders from time to time party thereto. On November 22, 2010, this agreement was amended to increase the availability under the facility to $100,000.  On April 29, 2011, the Company entered into an additional amendment to increase the availability under the facility to $150,000 and extend the maturity date to October 23, 2015. The WF Credit Agreement replaced the Company’s existing $185,000 senior secured financing agreement with Fortress Credit Corp., as collateral agent, and Wells Fargo Foothill, Inc., as administrative agent. Advances under the WF Credit Agreement bear interest as follows: (a)(i) LIBOR Rate Loans bear interest at the LIBOR Rate and (ii) Base Rate Loans bear interest at the Base Rate, plus (b) an applicable margin. The applicable margin as of June 30, 2011 for borrowing is 2.25% in the case of Base Rate Loans and 2.50% in the case of LIBOR Rate Loans. The applicable margin may be reduced subject to the Company achieving certain trailing twelve month earning levels, as defined. In addition to paying interest on outstanding principal under the WF Credit Agreement, the Company is required to pay an unused revolver fee to the lender under the WF Credit Agreement in respect of unused commitments thereunder.

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

The Company is currently in compliance with all of the terms and conditions of its WF Credit Agreement, and management believes, based on its current financial projections, that the Company will be in compliance with the covenants over the next twelve months.  At June 30, 2011, the weighted average interest rate under the WF Credit Agreement was 5.5%.

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Basis of Presentation

6 Months Ended

Jun. 30, 2011

Basis of Presentation

1. Basis of Presentation

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

The accompanying financial statements reflect all adjustments, consisting of normally recurring accruals, which in the opinion of management are necessary for a fair presentation, in all material respects, of the information contained therein. Results of operations for interim periods are not necessarily indicative of annual results.

These statements should be read in conjunction with the consolidated financial statements and related notes included in the Annual Report on Form 10-K for the year ended December 31, 2010.

In June 2010, the Company discontinued a start-up called Fearless Progression LLC.

Effective September 2010, one of the Company’s operating subsidiaries, Zig (USA) LLC has been deemed a discontinued operation.

In addition, in December 2010, the Company discontinued a start-up division of Redscout, LLC called “007”.

All periods have been restated to reflect the discontinued operations.

Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation.  These reclassifications did not have any effect on the prior year net loss.

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Acquisitions

6 Months Ended

Jun. 30, 2011

Acquisitions

4. Acquisitions

Pro forma financial information has not been presented for the acquisitions noted below since they did not have a material effect on the Company’s operating results.

Second Quarter 2011 Acquisitions

During the Quarter ended June 30, 2011, the Company increased ownership in Communifx Partners LLC (“Communifx”) by 1.3%, and increased its ownership of Varick Media Management LLC (“Varick”) to 100%. The aggregate purchase price for these two step up transactions has an estimated present value at acquisition date of $3,930 and is recorded as deferred acquisition consideration. Both of these step-up transactions were subject to put options. The Company recorded an entry to reduce redeemable noncontrolling interests by $4,440 and recorded an increase to additional-paid-in-capital of $509. The amounts to be paid will be tax deductible.

                First Quarter 2011 Acquisitions

Effective January 31, 2011, the Company, through a wholly-owned subsidiary, purchased 60% of the total outstanding membership interests in Anomaly Partners, LLC (“Anomaly”).  This acquisition expands the Company’s portfolio with another creatively driven agency brand with an international presence.  At closing, the Company paid cash of $15,000 plus additional contingent deferred acquisition consideration, based on actual results from 2010 to 2014 with final payments due in 2015, with an original estimated present value of $20,951 at the date of acquisition.  An initial estimated allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $4,000 (consisting primarily of customer lists and a covenant not to compete) and goodwill of $22,297 representing the value of the assembled workforce. The fair value of the noncontrolling interest not acquired at the acquisition date was $7,890 based on the Company’s evaluation of the Company being acquired and the purchase price paid by the Company and have been recorded as redeemable noncontrolling interests due to put option rights which are triggered upon such owner’s termination without cause, disability or death. The identified intangibles will be amortized ranging from a five to eight-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized. The intangibles and goodwill are tax deductible. Included in the Company’s consolidated income statement for the three and six months ended June 30, 2011 is revenue from Anomaly of $12,268 and $23,657, respectively.

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

Fourth Quarter 2010 Acquisitions

Effective November 30, 2010, the Company, through a wholly-owned subsidiary, purchased 80% of the total outstanding equity interests in each of Kenna Communications LP, an Ontario limited partnership ("Kenna"), and Capital C Partners LP, an Ontario limited partnership ("Capital C").  Capital C is a full-service marketing agency providing services such as business strategy and consumer insights, shopper monitoring, and product innovation.  Kenna delivers sales and marketing solutions to make organizations more efficient, more productive and more effective.  The aggregate purchase price was equal to $26,300 and additional deferred acquisition consideration, with an original estimated present value at the acquisition date of $12,360, that is based upon actual results from 2010 to 2015 with final payments due in 2016 of which the Company paid $99 in 2011.  In addition, performance payments of up to $5,000 may be paid in the future based on these results and will result in stock based compensation charges over that period.  The Company recorded $19,905 as the present value of redeemable noncontrolling interest in relation to the Kenna and Capital C put option rights triggered upon such owner’s termination without cause, disability or death.   Beginning in 2016, the Company has a call for the remaining 20% of each of Kenna and Capital C.  If the Company does not exercise this call, the operating results of Kenna and Capital C will be allocated to the Company on a basis less than the Company’s ownership basis as defined.  An initial estimated allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $10,254 (consisting of primarily customer lists and a covenant not to compete) and goodwill of $47,297 representing the value of assembled workforce.  The identified intangible assets will be amortized from a five to eight year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized.  The intangibles and goodwill are not tax deductible.  Accordingly, the Company recorded a deferred tax liability of $3,188 representing the future benefits relating to the amortization of the identified intangibles.

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

During the quarter ended December 31, 2010, the Company also completed a number of other acquistions.  The Company purchased a 51% interest in 72andSunny Partners LLC (“72andSunny”).  72andSunny is full service agency that conceives and executes fully integrated campaigns across all media for top global brands.  The Company also increased its ownership of Allard Johnson Communications Inc. (now known as Kbs+p Canada, LP,) (“Kbs+p Canada”) to 100%, and Company C Communications LLC (“Company C”) to 100%.  The aggregate purchase price paid for these other acquisitions was equal to $35,859, and consisted of total closing cash payments of $12,937, net of $790 repayment of loans; a $271 working capital adjustment; and additional contingent deferred acquisition consideration, that are based on actual financial results of the underlying business from 2010 to 2015 with final payments due in 2016 with an original estimated present value at acquisition date of $21,861, of which the Company paid $2,500 in December 2010 and $1,242 in 2011.  An allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $5,690, consisting primarily of customer lists and covenants not to compete, and goodwill of $35,322 representing the value of assembled workforce.  The identified intangibles will be amortized ranging from a five to seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized.  In addition, the Company has recorded $13,722, the present value of redeemable noncontrolling interest in relation to 72andSunny.  72andSunny has put option rights only upon such owner’s termination without cause, disability or death. The Company also recorded an entry to reduce redeemable noncontrolling interests by $3,802 and additional paid-in-capital of $3,123 in relation to the Kbs+p Canada and Company C step up.  The amounts paid and to be paid will be tax deductibe in relation to the 72andSunny acquisition.  However, it will not be tax deductible in relation to the Kbs+p Canada transaction.

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

Third Quarter 2010 Acquisitions

During the quarter ended September 30, 2010, the Company completed a number of acquisitions. The Company purchased a 60% equity interest in Relevent Partners, LLC (“Relevent”), a 60% equity interest in Kwittken PR, LLC (“Kwittken”), and certain assets and liabilities of Think 360 Inc. (“Think 360”).  Relevent is a full service marketing, special events, production and promotions company that builds brands with consumers through experiential lifestyle, entertainment and relationship marketing programs.  Kwittken is a full service public relations and  marketing agency.  Think 360 is an integrated marketing agency. The aggregate purchase price paid for these acquisitions consisted of total closing cash payments of $15,085, plus additional contingent deferred acquisition consideration, that are based on the actual financial results of the underlying businesses from 2010 to 2014, with final payments due in 2015 with an original estimated present value at acquisition date of $14,898 of which the Company paid $4,417 in 2011. An allocation of the excess purchase consideration of these acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $4,974, consisting primarily of customer lists and covenants not to compete, and goodwill of $29,083 representing the value of the assembled workforce.  The identified intangibles will be amortized ranging from a two to seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized.  The present value of the redeemable noncontrolling interest not acquired at the acquisition date was $5,513. Relevent and Kwittken have put option rights upon an employee-owner’s termination without cause, disability or death.  The amounts paid and to be paid will be tax deductible.

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

The Company has also increased ownership to 100% of Zig Inc. (now known as Crispin Porter + Bogusky Canada LP (“CPB Canada”)) and purchased an additional 25% of Bruce Mau Design LLC., increasing the Company’s ownership to 75%  The aggregate purchase price paid for these step-ups consisted of total closing cash payments of $3,115, plus the estimated present value at acquisition date of additional deferred acquisition consideration of $626.  During the fourth quarter of 2010, and first six months of 2011, the Company made payments of $47 and $684, respectively.  In relation to these step-ups, the Company recorded an entry to reduce redeemable noncontrolling interests by $1,365 and an entry to reduce noncontrolling interests by $144.  The Company recorded a reduction of additional paid-in-capital of $2,296 representing the difference between the fair value of the interest and the value of the redeemable noncontrolling interests.  The amounts paid and to be paid will not be tax deductible.

Second Quarter 2010 Acquisitions

Effective May 6, 2010, the Company, through a wholly-owned subsidiary, purchased 75% of the total outstanding membership interests in Integrated Media Solutions Partners, LLC (“IMS”), which expands the Company’s direct response marketing capabilities.  At closing, the Company paid cash of $20,000 plus additional contingent deferred acquisition consideration, based on actual results from 2010 to 2015 with final payments due in 2016, with an original estimated present value of $19,658 at the date of acquisition which includes fixed payments of $2,216.  During 2010 and 2011, the Company made payments of $666 and $5,209, respectively.  An initial estimated allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $9,081 (consisting of primarily customer lists and a covenant not to compete) and goodwill of $44,678 representing the value of the assembled workforce.  The fair value of the noncontrolling interest not acquired at the acquisition date was $13,219 based in the Company’s evaluation of the Company being acquired and the purchase price paid by the Company.  The identified intangibles will be amortized ranging from a five to seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized.  The intangibles and goodwill are tax deductible.

During the quarter ended June 30, 2010, the Company completed a number of acquisitions. The Company purchased a 51% equity interest in Allison & Partners LLC (“Allison”), a 75% equity interest in Sloane & Company LLC (“Sloane”), and certain assets and liabilities of CSC – ADPLUS, LLC (d.b.a. Infolure) (“Infolure”). Allison is a full service public relations and corporate communications agency.  Sloane is a communication firm focused on corporate positioning and communications, financial public relations and investor relations, and crisis and transactions communications.  Infolure is a direct marketing firm. The purchase price paid for these acquisitions consisted of aggregate cash payments of $17,632 plus additional contingent deferred acquisition consideration, that are based on actual results from 2010 to 2015 with final payments due in 2016 with an original estimated present value at acquisition date of $15,797 which includes fixed payments of $3,805. During 2010 and 2011, the Company made payments of $2,020 and $5,192, respectively.  An allocation of the excess purchase consideration of these acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $9,431 consisting primarily of customer lists and covenants not to compete, and goodwill of $27,697 representing the value of the assembled workforce.  The identified intangibles will be amortized ranging from a five to seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized.  In addition, the Company has recorded $6,024, the present value of redeemable noncontrolling interests in relation to Allison and Sloane.  The Allison acquisition has put option rights upon termination of an employee-owner’s employment by reason of death.  The Sloane acquisition has put rights that could increase the Company’s ownership to 100% in 2015.  The amounts paid and to be paid will be tax deductible.

First Quarter 2010 Acquisitions

Effective March 1, 2010, the Company, through a wholly-owned subsidiary, purchased 60% of the total outstanding membership interests in The Arsenal LLC (formerly known as Team Holdings LLC), (“Team”), which expands the Company’s experiential marketing capabilities.  At closing, the Company paid cash of $11,000 plus additional contingent deferred acquisition consideration, based on actual results from 2010 to 2012 with final payments in 2013, with an original estimated present value of $12,656, and the Company paid a working capital true-up estimated at an additional $569.  An initial estimated allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $5,220 (consisting of primarily customer lists and a covenant not to compete) and goodwill of $32,993 representing the value of the assembled workforce.  The fair value of the noncontrolling interest not acquired at the acquisition date was $15,771 based in the Company’s evaluation of the Company being acquired and the purchase price paid by the Company.  The identified intangibles will be amortized up to a seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized.  During the second quarter of 2010, the Company amended the purchase agreement to include additional deferred acquisition consideration, with a current present value of $3,071, with final payments due in 2012.  The additional deferred acquisition consideration resulted in additional intangibles of $3,071.  During 2010 and 2011, the Company made payments of $986 and $7,783, respectively.  The intangibles and goodwill are tax deductible.

During the three months ended March 31, 2010, the Company completed a number of other acquisitions and step-ups in ownership. The Company purchased a 76% equity interest in Communifx Partners LLC (“Communifx”), substantially all of the assets of Plaid Inc. (“Plaid”), an additional 15% equity interest in Fletcher Martin, LLC (“Fletcher Martin”), an additional 49% equity interest in Trend Core, LLC (“Trend Core”), and an additional 1% equity interest in HL Group Partners, LLC (“HL Group”). Communifx builds and manages large-scale customer database solutions to enable the planning, execution, and measurement of multi-channel marketing and advertising programs.  Plaid is a marketing services business with a concentration in the digital communication and social media arena.  The Company purchased the additional equity interests in Fletcher Martin and HL Group pursuant to the exercise of outstanding puts. The purchase price paid for these acquisitions and step-ups consisted of aggregate cash payments of $4,921 plus additional contingent payments of $576 that are based on actual results from 2010 to 2015 with final payments due in 2016. During  2011, the Company made payments of $267.  An allocation of the excess purchase consideration of these acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $1,851 consisting primarily of customer lists and a covenant not to compete, and goodwill of $2,426 representing the value of the assembled workforce.  The identified intangibles will be amortized up to a seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized.  In addition, the Company has recorded $710, the present value of redeemable noncontrolling interests in relation to Communifx.  The Communifx acquisition has put/call rights that could increase the Company’s ownership to 100% in 2013.   In relation to the step up acquisitions, the Company recorded an entry to reduce Redeemable Noncontrolling Interests by $1,116.  The amount paid to the employee over fair value, $608, was recorded as a stock-based compensation charge.  The Company recorded a reduction of additional paid-in capital of $1,623 representing the difference between the fair value of the shares and the value of the Redeemable Noncontrolling Interests.  The amounts paid and to be paid will be tax deductible.

Net Income (Loss) Attributable to MDC Partners Inc. and

Transfers (to) from the Noncontrolling Interest

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Net income (loss) attributable to MDC Partners Inc.	$	1,323		$	(5,805	)	$	(7,360	)	$	(15,991	)
Transfers to the noncontrolling interest:
Increase (decrease) in MDC Partners Inc. paid-in capital for purchase of equity interests in excess of Redeemable Noncontrolling Interests		504			(58	)		7,582			(1,696	)
Decrease in MDC Partners Inc. paid-in capital from issuance of equity interests		(1,147	)		—			(1,147	)		(160	)
Net transfers to noncontrolling interest	$	(643	)	$	(58	)	$	6,435		$	(1,856	)
Change from net income (loss) attributable to MDC Partners Inc. and transfers to noncontrolling interest	$	680		$	(5,863	)	$	(925	)	$	(17,847	)

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Accrued and Other Liabilities

6 Months Ended

Jun. 30, 2011

Accrued and Other Liabilities

5. Accrued and Other Liabilities

At June 30, 2011 and December 31, 2010, accrued and other liabilities included amounts due to noncontrolling interest holders, for their share of profits, which will be distributed within the next twelve months of $4,491 and $8,577, respectively.

Changes in noncontrolling interest amounts included in accrued and other liabilities for the year ended December 31, 2010 and three months ended June 30, 2011 were as follows:

	Noncontrolling Interests
Balance, December 31, 2009	$	4,058
Income attributable to noncontrolling interests		10,074
Distributions made		(7,685	)
Other (1)		2,130
Balance, December 31, 2010	$	8,577
Income attributable to noncontrolling interests		4,132
Distributions made		(8,329	)
CTA		111
Balance, June 30, 2011	$	4,491

(1)  Other consists primarily of an adjustment to record distributions to be made as a result of an acquired company and cumulative translation adjustments.

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Commitments, Contingencies and Guarantees

6 Months Ended

Jun. 30, 2011

Commitments, Contingencies and Guarantees

13. Commitments, Contingencies and Guarantees

Deferred Acquisition Consideration. In addition to the consideration paid by the Company in respect of certain of its acquisitions at closing, additional consideration may be payable, or may be potentially payable based on the achievement of certain threshold levels of earnings. See Note 2 and Note 4.

Put Options. Owners of interests in certain subsidiaries have the right in certain circumstances to require the Company to acquire 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 rights are exercised is dependent on 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 during that period, and, in some cases, the currency exchange rate at the date of payment.

Management estimates, assuming that the subsidiaries owned by the Company at June 30, 2011, perform over the relevant future periods at their trailing twelve-months earnings levels, that these rights, if all exercised, could require the Company, in future periods, to pay an aggregate amount of approximately $32,575 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 $3,759 by the issuance of share capital. In addition, the Company is obligated under similar put option rights to pay an aggregate amount of approximately $61,888 only upon termination of such owner’s employment with the applicable subsidiary or death. Included in redeemable noncontrolling interests at June 30, 2011 is $56,660 of these put options because they are not within the control of the Company. The ultimate amount payable 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.

Natural Disasters. Certain of the Company’s operations are located in regions of the United States and Caribbean which typically are subject to hurricanes. During the three months ended June 30, 2011 and 2010, these operations did not incur any costs related to damages resulting from hurricanes.

Guarantees. In connection with certain dispositions of assets and/or businesses in 2001 and 2003, 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 a number of years.

In connection with the 2003 sale of the Company’s investment in CDI, the amounts of indemnification guarantees were limited to the total sale price of approximately $84,000. For the remainder, the Company’s potential liability for these indemnifications are not subject to a limit as the underlying agreements do not always specify a maximum amount and the amounts are dependent upon the outcome of future contingent events.

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

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

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

Commitments.  The Company has commitments to fund $3,833 of investments.  At June 30, 2011, the Company had issued $6,190 of undrawn outstanding letters of credit.

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Discontinued Operations

6 Months Ended

Jun. 30, 2011

Discontinued Operations

6. Discontinued Operations

In December 2010, the Company discontinued a start-up division of Redscout, LLC called “007”. As a result, the Company has classified this entity’s results of operations as discontinued operations.  The results of operations for the three and six months ended June 30, 2010 was a loss of $315 and $451, respectively.

Effective September 30, 2010, the Company ceased Zig (USA) LLC current operations and has classified this entity’s results of operations as discontinued operations.  The results of operations for the three and six months ended June 30, 2010 was a loss of $141 and $310, respectively.

In June 2010, the Company discontinued a start up called Fearless Progression LLC (“Fearless”) and wrote off its investment in Fearless of $710. The results of operations for the three and six months ended June 30, 2010, including the investment write off, was a loss of $476 and $647, net of tax, respectively.

Included in discontinued operations in the Company’s consolidated statements of operations for the three and six months ended June 30, 2010 was the following:

	Three Months Ended  June 30, 2010			Six Months Ended June 30, 2010
Revenue	$	99		$	366
Operating loss	$	(1,301	)	$	(1,797	)
Other expense	$	(10	)	$	(45	)
Net loss from discontinued operations attributable to MDC Partners Inc., net of taxes	$	(932	)	$	(1,408	)

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Cash flows from operating activities:
Net loss	$ (3,228)	$ (12,935)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes		(1,408)
Income (loss) from continuing operations	(3,228)	(11,527)
Adjustments to reconcile net loss from continuing operations to cash (used in) provided by operating activities:
Depreciation	9,204	7,621
Amortization of intangibles	10,915	6,224
Non-cash stock-based compensation	10,049	6,355
Amortization of deferred finance charges and debt discount	1,158	862
Adjustment to deferred acquisition consideration	(564)	1,589
Gain on disposition of assets	(22)	(13)
Equity in earnings (loss) of non-consolidated affiliates	(334)	143
Other non-current assets and liabilities	(3,133)	(631)
Foreign exchange	(54)	498
Changes in working capital:
Accounts receivable	(7,034)	1,035
Expenditures billable to clients	18,606	(8,418)
Prepaid expenses and other current assets	(1,987)	(1,039)
Accounts payable, accruals and other liabilities	(30,192)	(15,612)
Advance billings	(29,086)	15,812
Cash flows (used in) provided by continuing operating activities	(25,702)	2,899
Discontinued operations		(1,083)
Net cash (used in) provided by operating activities	(25,702)	1,816
Cash flows from investing activities:
Capital expenditures	(8,465)	(5,720)
Acquisitions, net of cash acquired	(40,046)	(57,476)
Proceeds from sale of assets	43	58
Other investments	(1,600)	(99)
Profit distributions from affiliates	3,967	7
Cash flows used in continuing investing activities	(46,101)	(63,230)
Discontinued operations		(710)
Net cash used in investing activities	(46,101)	(63,940)
Cash flows from financing activities:
Proceeds from issuance of 11% Senior Notes	61,050	67,600
Proceeds from revolving credit facility	34,462
Repayment of long-term debt	(382)	(479)
Proceeds from stock subscription receivable		124
Proceeds from exercise of options	1,010	51
Purchase of treasury shares	(2,568)	(896)
Deferred financing costs	(2,985)	(1,491)
Distributions to noncontrolling partners	(8,329)	(4,549)
Repayment of bank overdrafts	(7,161)
Payment of dividends	(8,367)	(2,781)
Net cash provided by financing activities	66,730	57,579
Effect of exchange rate changes on cash and cash equivalents	(172)	73
Net decrease in cash and cash equivalents	(5,245)	(4,472)
Cash and cash equivalents at beginning of period	10,949	51,926
Cash and cash equivalents at end of period	5,704	47,454
Supplemental disclosures:
Cash income taxes paid	135	803
Cash interest paid	17,238	13,411
Dividends payable	609	208
Non-cash transactions:
Capital leases	$ 515	$ 274

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Significant Accounting Policies

6 Months Ended

Jun. 30, 2011

Significant Accounting Policies

2. Significant Accounting Policies

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

Principles of Consolidation . The accompanying condensed consolidated financial statements include the accounts of MDC Partners Inc. and its domestic and international controlled subsidiaries that are not considered variable interest entities, and variable interest entities for which the Company is the primary beneficiary. Intercompany balances and transactions have been eliminated in consolidation.

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

Concentration of Credit Risk . The Company provides marketing communications services to clients who operate in most industry sectors. Credit is granted to qualified clients in the ordinary course of business. Due to the diversified nature of the Company’s client base, the Company does not believe that it is exposed to a concentration of credit risk; the Company did not have a client that accounted for more than 10% of the Company’s consolidated accounts receivable at June 30, 2011 or December 31, 2010.  Furthermore, the Company did not have a client that accounted for more than 10% of the Company’s revenue for the three and six months ended June 30, 2011 or for the three and six months ended June 30, 2010.

Cash and Cash Equivalents. The Company’s cash equivalents are primarily comprised of investments in overnight interest-bearing deposits, commercial paper and money market instruments and other short-term investments with original maturity dates of three months or less at the time of purchase. The Company has a concentration risk in that there are cash deposits in excess of federally insured amounts. Included in cash and cash equivalents at June 30, 2011 and December 31, 2010, is approximately $49 and $64, respectively, of cash restricted as to withdrawal pursuant to a collateral agreement and a customer’s contractual requirements.

Business Combinations.   Valuation of acquired companies are based on a number of factors, including specialized know-how, reputation, competitive position and service offerings. The Company’s acquisition strategy has been focused on acquiring the expertise of an assembled workforce in order to continue to build upon the core capabilities of its various strategic business platforms to better serve the Company’s clients. Consistent with the acquisition strategy and past practice of acquiring a majority ownership position, most acquisitions completed in 2011, 2010 and 2009 included an initial payment at the time of closing and provide for future additional contingent purchase price payments. Contingent payments for these transactions, as well as certain acquisitions completed in prior years, are derived using the performance of the acquired entity and are based on pre-determined formulas. Contingent purchase price obligations for acquisitions completed prior to January 1, 2009 are accrued when the contingency is resolved and payment is certain. Contingent purchase price obligations related to acquisitions completed subsequent to December 31, 2008 are recorded as liabilities at estimated value and are remeasured at each reporting period and changes in estimated value are recorded in results of operations. For the three and six months ended June 30, 2011, $1,999 of expense and $977 of income was recognized related to changes in estimated value, respectively.  For the three months and six months ended June 30, 2010, $977 and $1,311 has been charged to 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.  For the three and six months ended June 30, 2011, $216 and $784, respectively, of acquisition related costs have been charged to operations.  For the three and six months ended June 30, 2010, $331 and $730, respectively, of acquisition related costs have been charged to operations.

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

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

The Company has recorded its put options as mezzanine equity at their current estimated redemption amounts.  The Company accrues changes in the redemption amounts over the period from the date of issuance to the earliest redemption date of the put options.  The Company accounts for the put options with a charge to noncontrolling interests to reflect the excess, if any, of the estimated exercise price over the estimated fair value of the noncontrolling interest shares at the date of the option being exercised.  For the six months ended June 30, 2011 and 2010, there have been no charges to noncontrolling interests.  Changes in the estimated redemption amounts of the put options are adjusted at each reporting period with a corresponding adjustment to equity. These adjustments will not impact the calculation of earnings per share.

The following table presents changes in Redeemable Noncontrolling Interests.

	Six Months Ended June 30,
	2011			2010
Beginning Balance as of December 31,	$	77,560		$	33,728
Redemptions		(5,754	)		(1,046	)
Granted		9,036			3,546
Changes in redemption value		7,475			(1,138	)
Currency Translation Adjustments		916			(464	)
Ending Balance as of June 30,	$	89,233		$	34,626

Revenue Recognition

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

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.

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

A small portion of the Company’s contractual arrangements with customers includes performance incentive provisions, which allows the Company to earn additional revenues as a result of its performance relative to both quantitative and qualitative goals. The Company recognizes the incentive portion of revenue under these arrangements when specific quantitative goals are 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 records revenue net of sales and other taxes due to be collected and remitted to governmental authorities.

Interest Expense.  Interest expense primarily consists of the cost of borrowing on the revolving credit facility and the 11% Senior Notes. The Company uses the effective interest method to amortize the original issue discount and original issue premium on the 11% Senior Notes. At June 30, 2011 and December 31, 2010, $242 and $848 was amortized, respectively, net of amortized premium of $345 and $197, respectively. The Company amortizes deferred financing costs using the effective interest method over the life of the 11% Senior Notes and straight line over the life of the revolving credit facility. The total net deferred financing costs, included in Other Assets on the balance sheet, as of June 30, 2011 and December 31, 2010 was $12,677 and $10,605, net of accumulated amortization of $2,497 and $1,583, respectively.  During the six months of 2011, the Company recorded $2,985 of deferred financing costs primarily relating to the 2011 expansion of the revolving credit facility and the 2011 additional debt issuance.

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

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

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

Stock-based awards that are settled in cash or equity at the option of the Company are recorded at fair value on the date of grant and recorded as additional paid-in capital. The fair value measurement of the compensation cost for these awards is based on using both the Black-Scholes option pricing-model and a lattice based model (Monte Carlo) and is recorded in operating income over the service period that is the vesting period of the award.  The lattice based model is used for awards which are subject to achieving stock performance targets.

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

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

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

During the six months ended June 30, 2011, the Company issued 1,285,574 restricted stock units and restricted stock shares  (“RSUs”) to its employees and directors.  The RSUs have an aggregate grant date fair value of $23,127 and generally vest on the third anniversary date with certain awards subjected to accelerated vesting based on the financial performance of the Company.  In addition, during the six months ended June 30, 2011, the Company awarded 1,413,000 extraordinary equity value appreciation awards (“EVARs”) to its employees.  These EVARs have an aggregate grant date fair value of $13,240 and may result in the issuance of up to 1,413,000 RSUs, but only upon the achievement of extraordinary stock performance targets.  If issued, the RSUs underlying EVAR grants will vest on December 31, 2013.

For the six months ended June 30, 2011, the Company has recorded a $6,280 charge relating to these equity incentive grants.

A total of 899,720 Class A shares of restricted stock, granted to employees as equity incentive awards, are included in the Company’s calculation of Class A shares outstanding as of June 30, 2011.

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Other Income (Expense)

6 Months Ended

Jun. 30, 2011

Other Income (Expense)

11. Other Income (Expense)

	Three Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011		2010
Other income (expense)	$	15	$	—		$	84	$	(6	)
Foreign currency transaction gain (loss)		429		(233	)		671		(884	)
Gain (loss) on sale of assets		—		(56	)		—		13
	$	444	$	(289	)	$	755	$	(877	)

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Share data	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Revenue:
Services	$ 240,476	$ 169,890	$ 457,978	$ 305,805
Operating Expenses:
Cost of services sold	162,408	116,364	321,552	212,935
Office and general expenses	53,777	39,101	99,508	73,378
Depreciation and amortization	9,736	8,029	20,119	13,845
Costs and Expenses, Total	225,921	163,494	441,179	300,158
Operating profit	14,555	6,396	16,799	5,647
Other Income (Expenses):
Other income (expense), net	444	(289)	755	(877)
Interest expense	(10,666)	(8,425)	(20,230)	(15,453)
Interest income	28	69	60	100
Nonoperating Income (Expense), Total	(10,194)	(8,645)	(19,415)	(16,230)
Income (loss) from continuing operations before income taxes, equity in affiliates	4,361	(2,249)	(2,616)	(10,583)
Income tax expense	590	552	946	801
Income (loss) from continuing operations before equity in affiliates	3,771	(2,801)	(3,562)	(11,384)
Equity in earnings (loss) of non-consolidated affiliates	79	(39)	334	(143)
Income (loss) from continuing operations	3,850	(2,840)	(3,228)	(11,527)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes		(932)		(1,408)
Net income (loss)	3,850	(3,772)	(3,228)	(12,935)
Net income attributable to the noncontrolling interests	(2,527)	(2,033)	(4,132)	(3,056)
Net income (loss) attributable to MDC Partners Inc.	1,323	(5,805)	(7,360)	(15,991)
Basic:
Income (loss) from continuing operations attributable to MDC Partners Inc. common shareholders	$ 0.05	$ (0.18)	$ (0.25)	$ (0.53)
Discontinued operations attributable to MDC Partners Inc. common shareholders		$ (0.03)		$ (0.05)
Net income (loss) attributable to MDC Partners Inc. common shareholders	$ 0.05	$ (0.21)	$ (0.25)	$ (0.58)
Diluted:
Income (loss) from continuing operations attributable to MDC Partners Inc. common shareholders	$ 0.04	$ (0.18)	$ (0.25)	$ (0.53)
Discontinued operations attributable to MDC Partners Inc. common shareholders		$ (0.03)		$ (0.05)
Net income (loss) attributable to MDC Partners Inc. common shareholders	$ 0.04	$ (0.21)	$ (0.25)	$ (0.58)
Weighted Average Number of Common Shares Outstanding:
Basic	29,016,384	27,800,953	28,952,182	27,716,895
Diluted	32,301,722	27,800,953	28,952,182	27,716,895
Non cash stock-based compensation expense is included in the following line items above:
Non-cash stock-based compensation	5,775	2,888	10,049	6,355
Cost of services sold
Non cash stock-based compensation expense is included in the following line items above:
Non-cash stock-based compensation	(306)	637	734	1,317
Office and general expenses
Non cash stock-based compensation expense is included in the following line items above:
Non-cash stock-based compensation	$ 6,081	$ 2,251	$ 9,315	$ 5,038