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 March 31, 2012

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 April 25, 2012 were: 30,907,377 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 Months Ended March 31, 2012 and 2011	3
	Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the Three Months Ended March 31, 2012 and 2011	4
	Condensed Consolidated Balance Sheets as of March 31, 2012 (unaudited) and December 31, 2011	5
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2012 and 2011	6
	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (unaudited) for the Three Months Ended March 31, 2012	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	42
Item 4.	Controls and Procedures	42
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	43
Signatures		44

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 March 31,
	2012			2011
Revenue:
Services	$	235,978		$	215,091
Operating Expenses:
Cost of services sold		177,260			157,762
Office and general expenses		60,372			44,464
Depreciation and amortization		10,001			10,303
		247,633			212,529
Operating profit (loss)		(11,655	)		2,562
Other Income (Expenses):
Other income (expense), net		(1,023	)		313
Interest expense		(10,996	)		(9,564	)
Interest income		41			38
		(11,978	)		(9,213	)
Loss from continuing operations before income taxes, equity in affiliates		(23,633	)		(6,651	)
Income tax expense		1,263			358
Loss from continuing operations before equity in affiliates		(24,896	)		(7,009	)
Equity in earnings of non-consolidated affiliates		272			255
Loss from continuing operations		(24,624	)		(6,754	)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes		(300	)		(326	)
Net loss		(24,924	)		(7,080	)
Net income attributable to the noncontrolling interests		(1,357	)		(1,605	)
Loss attributable to MDC Partners Inc.	$	(26,281	)	$	(8,685	)
Loss Per Common Share:
Basic and diluted:
Loss from continuing operations attributable to MDC Partners Inc. common shareholders	$	(0.87	)	$	(0.30	)
Discontinued operations attributable to MDC Partners Inc. common shareholders		(0.01	)		(0.01	)
Loss attributable to MDC Partners Inc. common shareholders	$	(0.88	)	$	(0.31	)
Weighted Average Number of Common Shares Outstanding:
Basic and diluted:		29,889,932			28,200,111
Non cash stock-based compensation expense is included in the following line items above:
Cost of services sold	$	—		$	1,040
Office and general expenses		5,884			3,234
Total	$	5,884		$	4,274

See notes to the unaudited condensed consolidated financial statements.

3

MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(thousands of United States dollars)

	Three Months Ended March 31,
	2012			2011
Comprehensive Loss:
Net loss	$	(24,924	)	$	(7,080	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment		1,868			845
Comprehensive loss for the year		(23,056	)		(6,235	)
Comprehensive loss attributable to noncontrolling interest		(1,363	)		(1,608	)
Comprehensive loss attributable to MDC Partners Inc.	$	(24,419	)	$	(7,843	)

See notes to the unaudited condensed consolidated financial statements.

4

MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(thousands of United States dollars)

	March 31, 2012			December 31, 2011
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	35,957		$	8,096
Accounts receivable, less allowance for doubtful accounts of $862 and $851		319,154			238,592
Expenditures billable to clients		56,530			39,067
Other current assets		14,517			12,657
Total Current Assets		426,158			298,412
Fixed assets, at cost, less accumulated depreciation of $106,910 and $101,928		52,352			47,737
Investment in affiliates		192			99
Goodwill		738,233			605,244
Other intangibles assets, net		74,113			57,980
Deferred tax asset		15,440			15,380
Other assets		32,122			30,893
Total Assets	$	1,338,610		$	1,055,745
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND EQUITY (DEFICIT)
Current Liabilities:
Accounts payable	$	291,795		$	178,282
Accruals and other liabilities		98,835			72,930
Advance billings		167,891			122,021
Current portion of long-term debt		1,293			1,238
Current portion of deferred acquisition consideration		67,735			51,829
Total Current Liabilities		627,549			426,300
Long-term debt		369,873			383,936
Long-term portion of deferred acquisition consideration		136,503			85,394
Other liabilities		50,597			14,900
Deferred tax liabilities		51,739			50,724
Total Liabilities		1,236,261			961,254
Redeemable Noncontrolling Interests (Note 2)		108,855			107,432
Commitments, contingencies and guarantees (Note 11)
Shareholders’ Equity (Deficit):
Preferred shares, unlimited authorized, none issued		—			—
Class A Shares, no par value, unlimited authorized, 30,063,937 and 29,277,408 shares issued in 2012 and 2011		238,717			228,208
Class B Shares, no par value, unlimited authorized, 2,503 shares issued and outstanding in 2012 and 2011, each convertible into one Class A share		1			1
Shares to be issued 28,000 shares		424			424
Charges in excess of capital		(62,393	)		(45,102	)
Accumulated deficit		(257,555	)		(231,274	)
Stock subscription receivable		(55	)		(55	)
Accumulated other comprehensive loss		(2,796	)		(4,658	)
MDC Partners Inc. Shareholders’ Equity (Deficit)		(83,657	)		(52,456	)
Noncontrolling Interests		77,151			39,515
Total Equity (Deficit)		(6,506	)		(12,941	)
Total Liabilities, Redeemable Noncontrolling Interests and Equity (Deficit)	$	1,338,610		$	1,055,745

See notes to the unaudited condensed consolidated financial statements.

5

MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(thousands of United States dollars)

	Three Months Ended March 31,
	2012			2011
Cash flows from operating activities:
Net loss	$	(24,924	)	$	(7,080	)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes		(300	)		(326	)
Loss from continuing operations		(24,624	)		(6,754	)
Adjustments to reconcile net loss from continuing operations to cash (used in) provided by operating activities:
Depreciation		4,346			4,535
Amortization of intangibles		5,655			5,768
Non-cash stock-based compensation		5,884			4,274
Amortization of deferred finance charges and debt discount		559			637
Adjustment to deferred acquisition consideration		2,675			(2,977	)
Gain on disposition of assets		(23	)		(17	)
Deferred income taxes		1,100			—
Earnings of non-consolidated affiliates		(272	)		(255	)
Other non-current assets and liabilities		(1,118	)		(1,199	)
Foreign exchange		898			(146	)
Changes in working capital:
Accounts receivable		(17,409	)		(5,882	)
Expenditures billable to clients		(17,433	)		(3,247	)
Prepaid expenses and other current assets		405			(1,745	)
Accounts payable, accruals and other liabilities		15,295			(20,674	)
Advance billings		36,466			(9,464	)
Cash flows provided by (used in) continuing operating activities		12,404			(37,146	)
Discontinued operations		115			80
Net cash provided by (used in) operating activities		12,519			(37,066	)
Cash flows from investing activities:
Capital expenditures		(5,111	)		(4,863	)
Acquisitions, net of cash acquired		39,261			(12,617	)
Proceeds from sale of assets		22			12
Other investments		(1,039	)		(868	)
Profit distributions from affiliates		—			3,783
Cash flows provided by (used in) continuing investing activities		33,133			(14,553	)
Discontinued operations		—			(159	)
Net cash provided by (used in) investing activities		33,133			(14,712	)
Cash flows from financing activities:
Proceeds (repayments) from revolving credit facility		(14,133	)		59,741
Acquisition related payments		(1,925	)		(7,453	)
Repayment of long-term debt		(46	)		(281	)
Proceeds from exercise of options		—			721
Purchase of shares		(2,146	)		(1,481	)
Deferred financing costs		(74	)		(275	)
Distributions to noncontrolling partners		(1,646	)		(4,293	)
Proceeds of bank overdrafts		6,921			1,066
Payment of dividends		(4,669	)		—
Net cash provided by (used in) financing activities		(17,718	)		47,745
Effect of exchange rate changes on cash and cash equivalents		(73	)		46
Net increase (decrease) in cash and cash equivalents		27,861			(3,987	)
Cash and cash equivalents at beginning of period		8,096			10,949
Cash and cash equivalents at end of period	$	35,957		$	6,962
Supplemental disclosures:
Cash income taxes paid	$	24		$	64
Cash interest paid	$	674		$	422
Dividends payable	$	9,752		$	387
Non-cash transactions:
Capital leases	$	134		$	313

See notes to the unaudited condensed consolidated financial statements.

6

MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(thousands of United States dollars)

	Common Stock										Share Capital							Charges in						Stock			Accumulated Other			MDC Partners Inc.
	Class A						Class B				to be issued				Additional			Excess of			Accumulated			Subscription			Comprehensive			Shareholders'			Noncontrolling
	Shares			Amount			Shares		Amount		Shares		Amount		Paid in Capital			Capital			Deficit			Receivable			Income			Equity			Interests		Total Equity
Balance at December 31, 2011		29,277,408		$	228,208			2,503	$	1		28,000	$	424	$	-		$	(45,102	)	$	(231,274	)	$	(55	)	$	(4,658	)	$	(52,456	)	$	39,515	$	(12,941	)
Net loss attributable to MDC Partners		-			-			-		-		-		-		-			-			(26,281	)		-			-			(26,281	)		-		(26,281	)
Foreign currency translation adjustments		-			-			-		-		-		-		-			-			-			-			1,862			1,862			6		1,868
Stock Appreciation Rights Exercised		26,426			100			-		-		-		-		(100	)		-			-			-			-			-			-		-
Shares acquired and cancelled		(133,217	)		(2,146	)		-		-		-		-		-			-			-			-			-			(2,146	)		-		(2,146	)
Issuance of restricted stock		893,320			12,555			-		-		-		-		(12,555	)		-			-			-			-			-			-		-
Stock-based compensation		-			-			-		-		-		-		5,539			-			-			-			-			5,539			-		5,539
Changes in redemption value of redeemable noncontrolling interests		-			-			-		-		-		-		50			-			-			-			-			50			-		50
Increase in redeemable noncontrolling interests from acquisition		-			-			-		-		-		-		(1,263	)		-			-			-			-			(1,263	)		-		(1,263	)
Increase in noncontrolling interests from acquisition		-			-			-		-		-		-		-			-			-			-			-			-			37,630		37,630
Dividends paid and to be paid		-			-			-		-		-		-		(8,962	)		-			-			-			-			(8,962	)		-		(8,962	)
Transfer to charges in excess of capital		-			-			-		-		-		-		17,291			(17,291	)		-			-			-			-			-		-
Balance at March 31, 2012		30,063,937		$	238,717			2,503	$	1		28,000	$	424	$	-		$	(62,393	)	$	(257,555	)	$	(55	)	$	(2,796	)	$	(83,657	)	$	77,151	$	(6,506	)

See notes to the unaudited condensed consolidated financial statements.

7

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, 2011.

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.

Fair Value.  The Company applies the fair value measurement guidance of Codification Topic 820, Fair Value Measurements and Disclosure for financial assets and liabilities that are required to be measured at fair value and for nonfinancial assets and liabilities that are not required to be measured at fair value on a recurring basis, including goodwill and other identifiable intangible assets. The measurement of fair value requires the use of techniques based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. The inputs create the following fair value hierarchy:

• Level 1 — Quoted prices for identical instruments in active markets.

• Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations where inputs are observable or where significant value drivers are observable.

• Level 3 — Instruments where significant value drivers are unobservable to third parties.

When available, quoted market prices are used to determine the fair value of our financial instruments and classify such items in Level 1. In some cases, quoted market prices are used for similar instruments in active markets and classify such items in Level 2.

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 March 31, 2012 or December 31, 2011.  Furthermore, the Company did not have a client that accounted for more than 10% of the Company’s revenue for the three months ended March 31, 2012 or for the three months ended March 31, 2011.

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 March 31, 2012 and December 31, 2011, is approximately $47 and $46, respectively, of cash restricted as to withdrawal pursuant to a collateral agreement and a customer’s contractual requirements.

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)

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 months ended March 31, 2012, $2,528 of expense was recognized related to changes in estimated value.  For the three months ended March 31, 2011, $2,977 of income has been recorded in 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 months ended March 31, 2012, $740 of acquisition related costs have been charged to operations.  For the three months ended March 31, 2011, $568 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 11.

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 three months ended March 31, 2012 and 2011, 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.

9

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.

	Three Months Ended March 31,
	2012			2011
Beginning Balance as of December 31,	$	107,432		$	77,560
Redemptions		(3,425	)		(362	)
Granted		4,189			7,890
Changes in redemption value		(44	)		3,781
Currency Translation Adjustments		703			979
Ending Balance as of March 31,	$	108,855		$	89,848

Variable Interest Entity. Effective March 28, 2012, MDC invested in Doner Partners LLC (“Doner”), and has determined that this entity is a variable interest entity (“VIE”) and is consolidated for the quarter ended March 31, 2012. The Company acquired a 30% voting interest and convertible preferred interests that allow the Company to increase ordinary voting ownership to 70% at MDC’s option. Doner is a full service integrated creative agency that is included as part of our portfolio in the Strategic Marketing Services Segment. The Company’s WF Credit Agreement is guaranteed and secured by all of Doner’s assets.

The Company has determined that we are the primary beneficiary because MDC receives a disproportionate share of profits and losses as compared to the Company’s ownership percentage. Total assets and total liabilities of Doner included in the Company’s consolidated balance sheet at March 31, 2012 were $202,787 and $175,504, respectively.

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.

10

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 March 31, 2012 and December 31, 2011, $4 and $232 was amortized, respectively, net of amortized premium of $326 and $943, 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 March 31, 2012 and December 31, 2011 was $11,235 and $11,715, net of accumulated amortization of $4,081 and $3,526, respectively.  During the three months of 2012, the Company recorded $74 of deferred financing costs primarily relating to the 2012 amendment of the revolving credit facility.

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.

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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 three months ended March 31, 2012, the Company issued 845,727 restricted stock units (“RSUs”) to its employees and directors.  The RSUs have an aggregate grant date fair value of $11,045 and generally vest on the third anniversary date with certain awards subjected to accelerated vesting based on the financial performance of the Company. 

A total of 846,269 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 March 31, 2012.

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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 March 31,
	2012			2011
Numerator
Numerator for basic loss per common share - loss from continuing operations	$	(24,624	)	$	(6,754	)
Net income attributable to the noncontrolling interests		(1,357	)		(1,605	)
Loss attributable to MDC Partners Inc. common shareholders from continuing operations	$	(25,981	)	$	(8,359	)
Effect of dilutive securities		—			—
Numerator for diluted loss per common share – loss attributable to MDC Partners Inc. common shareholders from continuing operations	$	(25,981	)	$	(8,359	)
Denominator
Denominator for basic loss per common share - weighted average common shares		29,889,932			28,200,111
Effect of dilutive securities:		—			—
Denominator for diluted loss per common share - adjusted weighted shares		29,889,932			28,200,111
Basic loss per common share from continuing operations attributable to MDC Partners Inc.	$	(0.87	)	$	(0.30	)
Diluted loss per common share from continuing operations attributable to MDC Partners Inc.	$	(0.87	)	$	(0.30	)

During the three months ended March 31, 2012, options and other rights to purchase 5,093,649 shares of common stock, which includes 846,269 shares of non-vested restricted stock and restricted stock units, were outstanding and were not included in the computation of diluted income per common share because their effect would be antidilutive.

During the three months ended March 31, 2011, options and other rights to purchase 5,352,121 shares of common stock, which includes 1,912,723 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 2012 acquisitions noted below since they did not have a material effect on the Company’s operating results. Included in the Company’s consolidated statement of operations for the quarter ended March 31, 2012 was revenue of $1,948 and a net loss of $283 related to 2012 acquisitions. The Company assumed cash of $57,833, accounts receivable of $63,163 and accounts payable of $99,584.

First Quarter 2012 Acquisitions

During the quarter ended March 31, 2012, the Company completed a number of transactions. Effective March 28, 2012, MDC invested in Doner Partners LLC (“Doner”). The Company acquired a 30% voting interest and a convertible preferred interest that allows the Company to increase ordinary voting ownership to 70% at MDC’s option, at no additional cost to the Company. Doner is a full service integrated creative agency. In addition, the Company acquired a 70% interest in TargetCast LLC (“TargetCast”). TargetCast is a full service media agency that expands our media strategy and activation offerings. The Company acquired a 51% interest in Dotbox LLC (“Dotbox”), The Dotbox acquisition, forms the foundation for a full-service e-commerce solution within the network. Doner and Dotbox are now included in the Company’s Strategic Marketing Services segment, while TargetCast is included in the Company’s Performance Marketing Group segment. During the quarter, the Company also entered into immaterial transactions with certain majority owned entities.

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The aggregate purchase price for these transactions has an estimated present value at acquisition date of $86,553 and consisted of total closing cash payments of $20,500, and additional contingent deferred acquisition consideration that are based on the financial results of the underlying businesses from 2011 to 2018 with final payments due in 2018 with an estimated present value at acquisition date $66,053. An allocation of excess purchase price consideration of these acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $21,581 consisting primarily of customer lists and covenants not to compete, and goodwill of $118,867 representing the value of assembled workforce. The identified assets will be amortized 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 $37,630 as the present value of noncontrolling interest. The Company also recorded an entry to increase redeemable noncontrolling interest by $763 and additional paid-in-capital of $1,262. The intangibles and goodwill are tax deductible.

The actual adjustments that the Company will ultimately make in finalizing 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.

2011 Acquisitions

Pro forma financial information has not been presented for the 2011 acquisitions noted below since they did not have a material effect on the Company’s operating results. Included in the Company’s consolidated statement of operations for the year ended December 31, 2011 was revenue of $68,869 and a net loss of $7,219 related to the 2011 acquisitions. The Company assumed accounts receivable of $35,200 and accounts payable of $65,718 as of the acquisition dates.

Fourth Quarter 2011 Acquisitions

During the quarter ended December 31, 2011, the Company completed a number of transactions. The Company, through a wholly-owned subsidiary, acquired substantially all of the assets of RJ Palmer LLC and a 75% interest in Trade X Partners LLC (“Trade X”). These acquisitions expand the Company’s portfolio with another full service media buying agency as well as provides corporate bartering services to clients and are included in the Performance Marketing Services segment. The Company also entered into a transaction through its subsidiary Kwittken PR LLC (“Kwittken”) acquired 100% of Epoch PR Limited. Epoch is a communications and PR agency and expands Kwittken’s capabilities to London and is included in the Strategic Marketing Services segment. The Company also acquired a 51% interest in AIC Publishing Services LP (“AIC”). In addition, the Company increased its ownership to 85.3% of Veritas, to 94.0% of 656712 Ontario Limited (“Onbrand”), to 66.3% of 6Degrees Integrated Communications and 85% of Boom Marketing Inc. The aggregate purchase price for these transactions has an estimated present value at acquisition date of $26,659 and consisted of total closing cash payments of $12,769, and additional contingent deferred acquisition consideration, that are based on actual financial results of the underlying businesses from 2011 to 2016 with final payments due in 2017 with an estimated present value at acquisition date of $15,944. An allocation of the excess purchase consideration of these acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $5,434 consisting primarily of customer lists and covenants not to compete, and goodwill of $25,091 representing the value of assembled workforce. The identified intangible assets will be amortized 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 $1,237, the present value of redeemable noncontrolling interest in relation to Trade X. The founder of Trade X has the put option rights only upon termination without cause, disability, or death. The Company recorded $229, the present value of noncontrolling interest in relationship to AIC. The Company also recorded an entry to reduce redeemable noncontrolling interests by $2,017 and additional paid-in-capital of $1,328. The intangibles and goodwill of $26,061 are tax deductible.

The actual adjustments that the Company will ultimately make in finalizing 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 2011 Acquisitions

During the quarter ended September 30, 2011, the Company completed a number of acquisitions. The Company, through a wholly-owned subsidiary, purchased a 70% interest in Concentric Partners, LLC (“Concentric”) and a 65% interest in Laird + Partners, New York LLC (“Laird”). The Concentric acquisition is expected to serve as the foundation of the Company’s healthcare platform. The Laird acquisition increases the Company’s positioning in the luxury goods and retail marketplace. Concentric and Laird are now included in the Company’s Strategic Marketing Services segment. In addition, the Company increased its ownership to 100% of Redscout LLC (“Redscout”), 82% of VitroRobertson LLC (“Vitro”), and 91.8% of The Northstar Group of companies. The aggregate purchase price for these transactions has an estimated present value at acquisition date of $37,914 and consisted of total closing cash payments of $15,972, additional contingent deferred acquisition consideration, that are based on actual financial results of the underlying businesses from 2011 to 2016 with final payments due in 2017 with an estimated present value at acquisition date of $21,796. During the fourth quarter of 2011, the Company paid a $572 working capital payment. An allocation of the excess purchase consideration of these acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $4,205 consisting primarily of customer lists and covenants not to compete, and goodwill of $36,664 representing the value of assembled workforce. The identified intangible assets will be amortized 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 $5,045, the present value of redeemable noncontrolling interest in relation to Laird, and $6,478, the present value of noncontrolling interest in relation to Concentric. The remaining principals of Laird have put option rights only upon termination without cause, disability, or death. The Company also recorded an entry to reduce noncontrolling interests by $1,297 and additional paid-in-capital of $4,251 and recorded shares to be issued of $424 in relation to the step ups. The intangibles and goodwill are tax deductible.

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The actual adjustments that the Company will ultimately make in finalizing 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.

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, of which the Company paid $81 in 2011 and $50 in 2012. 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. Anomaly is now included in the Company’s Strategic Marketing Services segment. 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. During 2011, the Company made a working capital payment of $1,854. 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 has 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.

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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 March 31,
	2012			2011
Net loss attributable to MDC Partners Inc.	$	(26,281	)	$	(8,685	)
Transfers to the noncontrolling interest:
Decrease in MDC Partners Inc. paid-in capital for purchase of equity interests in excess of Redeemable Noncontrolling Interests		(1,263	)		—
Net transfers to noncontrolling interest	$	(1,263	)	$	—
Change from net loss attributable to MDC Partners Inc. and transfers to noncontrolling interest	$	(27,544	)	$	(8,685	)

5. Accrued and Other Liabilities

At March 31, 2012 and December 31, 2011, accrued and other liabilities included amounts due to noncontrolling interest holders, for their share of profits, which will be distributed within the next twelve months of $3,804 and $4,049, respectively.

Changes in noncontrolling interest amounts included in accrued and other liabilities for the year ended December 31, 2011 and three months ended March 31, 2012 were as follows:

	Noncontrolling Interests
Balance, December 31, 2010	$	8,577
Income attributable to noncontrolling interests		7,754
Distributions made		(12,264	)
Other (1)		(18	)
Balance, December 31, 2011	$	4,049
Income attributable to noncontrolling interests		1,357
Distributions made		(1,646	)
Other (1)		44
Balance, March  31, 2012	$	3,804

(1) Other consists primarily of cumulative translation adjustments.

6. Discontinued Operations

In December 2011, the Company discontinued a division of Accent Marketing Services, LLC, called Performance Marketing Group. As a result, the Company has classified this entity’s results of operations as as discontinued operations. The results of operations for the three months ended March 31, 2012 and 2011 was a loss of $300 and $326, respectively.

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Included in discontinued operations in the Company’s consolidated statements of operations for the three months ended March 31, 2012 and 2011 was the following:

	Three Months Ended March 31,
	2012			2011
Revenue	$	2,062		$	2,411
Operating loss	$	(286	)	$	(318	)
Other expense	$	(14	)	$	(8	)
Net loss from discontinued operations attributable to MDC Partners Inc., net of taxes	$	(300	)	$	(326	)

7. Short-Term Debt, Long-Term Debt and Convertible Notes

Debt consists of:

	March 31,			December 31,
	2012			2011
Revolving credit facility	$	23,899		$	38,032
11% Senior Notes due 2016		345,000			345,000
Original issue discount		(557	)		(561	)
Notes payable and other bank loans		1,425			1,266
		369,767			383,737
Obligations under capital leases		1,399			1,437
		371,166			385,174
Current portion		1,293			1,238
Long term portion	$	369,873		$	383,936

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% 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% 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.

At March 31, 2012, the Company had issued $5,702 of undrawn outstanding Letters of Credit.

At March 31, 2012 and December 31, 2011, accounts payable included $8,693 and $3,350 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)

7. Short-Term 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 prior $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 for borrowing at March 31, 2012 is 2.25% in the case of Base Rate Loans and 2.50% in the case of LIBOR Rate Loans. 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 March 31, 2012, the weighted average interest rate under the WF Credit Agreement was 5.5%.

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8. 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 March 31, 2012 and 2011:

	Level 1				Level 1
	March 31, 2012				March 31, 2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Liabilities:
11% Notes due 2016	$	344,443	$	376,050	$	283,400	$	320,300

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)
	March 31,
	2012			2011
Beginning Balance of contingent payments	$	129,759		$	98,534
Payments		(208	)		(6,441	)
Grants		64,817			5,949
Redemption value adjustments		2,715			(2,470	)
Foreign translation adjustment		313			288
Ending Balance of contingent payments	$	197,396		$	95,860

In addition to the above amounts, there are fixed payments of $6,842 and $7,548 for total deferred acquisition consideration of $204,238 and $103,408, which reconciles to the consolidated financial statements at March 31, 2012 and 2011, 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 March 31, 2012 and December 31, 2011, 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.

9. Other Income (Expense)

	Three Months Ended March 31,
	2012			2011
Other income (expense)	$	(5	)	$	54
Foreign currency transaction gain (loss)		(1,041	)		242
Gain on sale of assets		23			17
	$	(1,023	)	$	313

10. 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 72andSunny, Anomaly Partners, Crispin Porter & Bogusky, Doner 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, ecommerce 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 March 31, 2012

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services			Corporate			Total
Revenue	$	160,418		$	75,560		$	—		$	235,978
Cost of services sold		119,853			57,407			—			177,260
Office and general expenses		34,978			17,461			7,933			60,372
Depreciation and amortization		5,099			4,554			348			10,001
Operating Profit/(Loss)		488			(3,862	)		(8,281	)		(11,655	)
Other Income (Expense):
Other expense, net											(1,023	)
Interest expense, net											(10,955	)
Loss from continuing operations before income taxes, equity in affiliates											(23,633	)
Income tax expense											1,263
Loss from continuing operations before equity in affiliates											(24,896	)
Equity in earnings of non-consolidated affiliates											272
Loss from continuing operations											(24,624	)
Loss from discontinuing operations attributable to MDC Partners Inc., net of taxes											(300	)
Net loss											(24,924	)
Net income attributable to the noncontrolling interests		(1,027	)		(330	)		—			(1,357	)
Net loss attributable to MDC Partners Inc.										$	(26,281	)
Non cash stock based compensation	$	1,866		$	1,691		$	2,327		$	5,884
Supplemental Segment Information:
Capital expenditures	$	2,687		$	2,324		$	100		$	5,111
Goodwill and intangibles	$	551,674		$	260,672		$	—		$	812,346
Total assets	$	837,832		$	414,448		$	86,330		$	1,338,610

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Three Months Ended March 31, 2011

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services		Corporate			Total
Revenue	$	141,493		$	73,598	$	—		$	215,091
Cost of services sold		100,770			56,992		—			157,762
Office and general expenses		27,193			10,565		6,706			44,464
Depreciation and amortization		5,807			4,392		104			10,303
Operating Profit/(Loss)		7,723			1,649		(6,810	)		2,562
Other Income (Expense):
Other income, net										313
Interest expense, net										(9,526	)
Loss from continuing operations before income taxes, equity in affiliates										(6,651	)
Income tax expense										358
Loss from continuing operations before equity in affiliates										(7,009	)
Equity in earnings of non-consolidated affiliates										255
Loss from continuing operations										(6,754	)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes										(326	)
Net loss										(7,080	)
Net income attributable to the noncontrolling interests		(1,643	)		38		—			(1,605	)
Net loss attributable to MDC Partners Inc.									$	(8,685	)
Non cash stock based compensation	$	1,547		$	505	$	2,222		$	4,274
Supplemental Segment Information:
Capital expenditures	$	3,733		$	932	$	198		$	4,863
Goodwill and intangibles	$	393,320		$	218,055	$	—		$	611,375
Total Assets	$	598,369		$	335,186	$	41,182		$	974,737

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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 March 31,
2012	$	188,185	$	36,439	$	11,354	$	235,978
2011	$	171,908	$	35,140	$	8,043	$	215,091

11. 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 March 31, 2012, 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 $29,420 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 $2,740 by the issuance of share capital. In addition, the Company is obligated under similar put option rights to pay an aggregate amount of approximately $79,435 only upon termination of such owner’s employment with the applicable subsidiary or death. Included in redeemable noncontrolling interests at March 31, 2012 is $108,855 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 March 31, 2012 and 2011, 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.

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.

24

Commitments.  The Company has commitments to fund $2,817 of investments.  At March 31, 2012, the Company had issued $5,702 of undrawn outstanding letters of credit.

12. New Accounting Pronouncements

On January 1, 2012, FASB Accounting Standards Update No. 2011-08, Testing Goodwill for Impairment ("ASU 2011-08") became effective. This standard gives an entity the option of performing a qualitative assessment to determine whether it is necessary to perform step 1 of the annual goodwill impairment test. An entity is required to perform step 1 only if it concludes that it is more likely than not that a reporting unit's fair value is less than its carrying amount. An entity may choose to perform the qualitative assessment on none, some or all of its reporting units or an entity may bypass the qualitative assessment for any reporting unit in any period and proceed directly to step 1 of the impairment test. We perform our annual impairment test at the beginning of the fourth quarter of each year.

25

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 2012 means the period beginning January 1, 2012, and ending December 31, 2012).

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 months ended March 31, 2012 and 2011, and the financial condition of the Company as of March 31, 2012. 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, 2011 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 losses 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 2012 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.

27

Results of Operations:

For the Three Months Ended March 31, 2012

(thousands of United States dollars)

	Strategic			Performance
	Marketing			Marketing
	Services			Services			Corporate			Total
Revenue	$	160,418		$	75,560		$	—		$	235,978
Cost of services sold		119,853			57,407			—			177,260
Office and general expenses		34,978			17,461			7,933			60,372
Depreciation and amortization		5,099			4,554			348			10,001
Operating Profit/(Loss)		488			(3,862	)		(8,281	)		(11,655	)
Other Income (Expense):
Other expense, net											(1,023	)
Interest expense, net											(10,955	)
Loss from continuing operations before income taxes, equity in affiliates											(23,633	)
Income tax expense											1,263
Loss from continuing operations before equity in affiliates											(24,896	)
Equity in earnings of non-consolidated affiliates											272
Loss from continuing operations											(24,624	)
Loss from discontinued operations attributable to MDC Partners Inc. net of taxes											(300	)
Net loss											(24,924	)
Net income attributable to the noncontrolling interests		(1,027	)		(330	)		—			(1,357	)
Net loss attributable to MDC Partners Inc.										$	(26,281	)
Non cash stock based compensation	$	1,866		$	1,691		$	2,327		$	5,884

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For the Three Months Ended March 31, 2011

(thousands of United States dollars)

	Strategic			Performance
	Marketing			Marketing
	Services			Services		Corporate			Total
Revenue	$	141,493		$	73,598	$	—		$	215,091
Cost of services sold		100,770			56,992		—			157,762
Office and general expenses		27,193			10,565		6,706			44,464
Depreciation and amortization		5,807			4,392		104			10,303
Operating Profit/(Loss)		7,723			1,649		(6,810	)		2,562
Other Income (Expense):
Other income, net										313
Interest expense, net										(9,526	)
Loss from continuing operations before income taxes, equity in affiliates										(6,651	)
Income tax expense										358
Loss from continuing operations before equity in affiliates										(7,009	)
Equity in earnings of non-consolidated affiliates										255
Loss from continuing operations										(6,754	)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes										(326	)
Net loss										(7,080	)
Net income attributable to the noncontrolling interests		(1,643	)		38		—			(1,605	)
Net loss attributable to MDC Partners Inc.									$	(8,685	)
Non cash stock based compensation	$	1,547		$	505	$	2,222		$	4,274

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Three Months Ended March 31, 2012, Compared to Three Months Ended March 31, 2011

Revenue was $236.0 million for the quarter ended March 31, 2012, representing an increase of $20.9 million, or 9.7%, compared to revenue of $215.1 million for the quarter ended March 31, 2011. This revenue increase related primarily to acquisition growth of $10.1 million and organic growth of $11.6 million. In addition, a strengthening of the US Dollar, primarily versus the Canadian dollar during the quarter ended March 31, 2012, resulted in decreased revenues of $0.8 million.

The operating loss for the quarter ended March 31, 2012 was $11.7 million compared to an operating profit of $2.6 million for the quarter ended March 31, 2011. The decrease in operating profit was primarily the result of a decrease in operating profit of $7.2 million in the Strategic Marketing Services segment, a decrease of $5.5 million within the Performance Marketing Services segment, and an increase in corporate operating expense of $1.5 million.

The loss from continuing operations attributable to MDC Partners Inc. for the first quarter of 2012 was $26.0 million, compared to a loss of $8.4 million in 2011. This increase in loss of $17.6 million was primarily the result of a decrease in operating profits of $14.2 million, an increase in other expense, net of $1.3 million, an increase in interest expense of $1.4 million and an increase in income tax expense of $0.9 million, offset by a decrease in net income attributable to noncontrolling interests of $0.2 million.

Marketing Communications Group

Revenues in the first quarter of 2012 attributable to the Marketing Communications Group, which consists of two reportable segments — Strategic Marketing Services and Performance Marketing Services, were $236.0 million compared to $215.1 million in the first quarter of 2011, representing a year-over-year increase of 9.7%.

The components of the increase in revenue in 2012 are shown in the following table:

	Revenue
	$ 000’s			%
Quarter ended March 31, 2011	$	215,091			—
Organic		11,569			5.4	%
Acquisitions		10,095			4.7	%
Foreign exchange impact		(777	)		(0.4	)%
Quarter ended March 31, 2012	$	235,978			9.7	%

The geographic mix in revenues was consistent between the first quarter of 2012 and 2011 and is demonstrated in the following table:

	2012			2011
US		80	%		80	%
Canada		15	%		16	%
Other		5	%		4	%

The operating profit of the Marketing Communications Group decreased by approximately 136.0% to an operating loss of $3.4 million from operating income of $9.4 million. Operating margins decreased by 5.8% and were an operating margin loss of 1.4% for 2012 compared to profit of 4.4% for 2011. The decrease in operating profit and operating margin was primarily attributable to increased revenue offset by an increase in total staff costs and direct costs as a percentage of revenue. Direct costs (excluding staff costs) increased as a percentage of revenues from 21.7% in 2011 to 22.0% in 2012. Total staff costs increased as a percentage of revenue from 58.5% in 2011 to 61.3% in 2012. Direct costs increased due to the requirement that certain costs be included in both revenue and direct costs due to the company acting as principal versus agent for certain client contracts. Total staff costs increased due to severance in 2012 and the impact of the Company’s investment spending which occurred throughout 2011. Office and general expenses increased as a percentage of revenue from 17.6% in 2011 to 22.2% in 2012.  This increase was due to adjustments relating to deferred acquisition consideration, resulting in expense of 1.1% of revenue in 2012 compared to income of 1.4% of revenue in 2011. Depreciation and amortization as a percentage of revenue decreased from 4.7% in 2011 to 4.1% in 2012.

Strategic Marketing Services (“SMS”)

Strategic Marketing Services

Revenues attributable to Strategic Marketing Services in the first quarter of 2012 were $160.4 million, compared to $141.5 million in the first quarter of 2011. The year-over-year increase of $18.9 million or 13.4% was attributable primarily to organic growth of $12.3 million as a result of net new business wins, and acquisition growth of $7.1 million. A strengthening of the US dollar versus the Canadian dollar in 2012 compared to 2011 resulted in a $0.5 million decrease in revenues from the division’s Canadian-based operations.

30

The operating profit of Strategic Marketing Services decreased by $7.2 million from $7.7 million in the first quarter of 2011 to $0.5 million in the first quarter of 2012. Operating margins decreased from 5.5% in the first quarter of 2011 to 0.3% in the first quarter of 2012. The decrease in operating profits and operating margins were primarily due to a decrease in gross margin of 0.4% and $5.6 million in gross margin dollars. Direct costs (excluding direct labor) increased as a percentage of revenue from 19.0% in the first quarter of 2011 to 22.0% in the first quarter of 2012. Direct costs increased due to the requirement that certain costs be included in both revenue and direct costs due to the company acting as principal versus agent for certain client contracts. Total staff costs increased as a percentage of revenue from 58.6% in the first quarter of 2011 to 59.8% in the first quarter of 2012. Total staff costs increased due to severance in 2012 and the impact of the Company’s investment spending which occurred throughout 2011. Office and general expenses increased as a percentage of revenue from 19.2% in the first quarter of 2011 to 21.8% in the first quarter of 2012. The increase in general and administrative costs was primarily due to a $2.8 million increase in adjustments related to deferred acquisition consideration. Offsetting these increases, was a decrease of $0.7 million in depreciation and amortization.

Performance Marketing Services

The Performance Marketing Services segment generated revenues of $75.6 million for the first quarter of 2012, an increase of $2.0 million, or 2.7% higher than revenues of $73.6 million in the first quarter of 2011. The year over year increase was attributed primarily to growth from acquisitions of $3.0 million, offset by an organic revenue decline of $0.7 million, due to timing of projects compared to last year. In addition, a strengthening of the US dollar verses the Canadian dollar in 2012 compared to 2011 resulted in a $0.3 million decrease in revenues from the division’s Canadian-based operations.

The operating profit of Performance Marketing Services decreased by $5.5 million from income of $1.7 million in the first quarter of 2011 to a loss of $3.9 million in the first quarter of 2012. Operating margin decreased from a margin of 2.2% to an operating margin loss of 5.1%. The decrease in operating profit and margin is primarily due to the decrease in organic revenue on relatively fixed general and administrative costs. General and administrative costs increased as a percentage of revenue from 14.4% in the first quarter of 2011 to 23.1% in the first quarter of 2012. The increase of $6.9 million, was due to a $1.1 million increase in stock-based compensation, a $2.7 million increase in adjustments related to deferred acquisition consideration, acquisition related costs of $1.4 million, and other of $1.7 million. Depreciation and amortization increased by $0.2 million and remained relatively flat at 6.0% of revenue. Offsetting these increases was gross margin income of $1.5 million relating to increased operating efficiencies. Cost of services sold decreased as a percentage of revenue from 77.4% in the first quarter of 2011 to 76.0% in the first quarter of 2012.

Corporate

Operating costs related to the Company’s Corporate operations totaled $8.3 million in the first quarter of 2012 compared to $6.8 million in the first quarter of 2011. This increase of $1.5 million was primarily related to increased compensation and related expenses of $0.7 million, of which non-cash stock based compensation was $0.1 million.  In addition, Corporate operations incurred $0.2 million in depreciation and amortization, a $0.1 million increase in advertising and promotions, and $0.1 million in travel and entertainment costs.

Other Income, Net

Other income (expense) decreased to an expense of $1.0 million in the first quarter of 2012 compared to an income of $0.3 million in the first quarter of 2011. The 2012 expense was primarily comprised of an unrealized foreign exchange loss of $1.0 million, compared to an unrealized gain of $0.2 million recorded in 2011.  Specifically, this unrealized gain and loss was due primarily to the fluctuation in the US dollar during 2012 and 2011 compared to the Canadian dollar primarily on the Company’s US dollar denominated intercompany balances with its Canadian subsidiaries.

Net Interest Expense

Net interest expense for the first quarter of 2012 was $11.0 million, an increase of $1.5 million over the $9.5 million of net interest expense incurred during the first quarter of 2011. Interest expense increased in 2012 due to higher average outstanding debt in 2012, relating to the 11% senior notes issued in April 2011. Interest income was nominal in both 2012 and 2011.

Income Taxes

 Income tax expense was $1.3 million in the first quarter of 2012 compared to income tax expense of $0.4 million for the first quarter of 2011. The Company’s effective tax rate in 2012 and 2011 was substantially higher than the statutory rate due to noncontrolling interest charges, offset by non-deductible stock based compensation.  In addition, 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.

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Equity in Affiliates

Equity in affiliates represents the income (losses) attributable to equity-accounted affiliate operations. For the first quarter of 2012 and 2011 the income was $0.3 million.

Noncontrolling Interests

Net income attributable to the noncontrolling interests was $1.4 million for the first quarter of 2012, a decrease of $0.2 million from the $1.6 million of noncontrolling interest expense incurred during the first quarter of 2011, primarily due to decreased profitability of certain entities which are not wholly owned.

Discontinued Operations Attributable to MDC Partners Inc.

The loss of $0.3 million, from discontinued operations in 2012 and 2011, resulted from the operating results and write-off of our investment in a division of Accent Marketing Services, LLC called Performance Marketing Group.

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 quarter of 2012 was $26.3 million or a loss of $0.88 per diluted share, compared to a net loss attributable to MDC Partners Inc. of $8.7 million or a loss of $0.31 per diluted share reported for the first quarter of 2011.

32

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 March 31, 2012			As of and for the three months ended March 31, 2011			As of and for the year ended December 31, 2011
	(000’s)			(000’s)			(000’s)
Cash and cash equivalents	$	35,957		$	6,962		$	8,096
Working capital (deficit)	$	(201,391	)	$	(70,825	)	$	(127,888	)
Cash from operations	$	12,519		$	(37,066	)	$	4,548
Cash from investing	$	33,133		$	(14,712	)	$	(30,436	)
Cash from financing	$	(17,718	)	$	47,745		$	23,299
Long-term debt to total equity ratio		(57.05	)		3.82			(29.76	)
Fixed charge coverage ratio		N/A			N/A			N/A
Fixed charge deficiency	$	23,633		$	2,868		$	29,453

As of March 31, 2012 and December 31, 2011, $0.2 million and $0.9 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 and/or available borrowings to fund operations for the next twelve months.

Working Capital

At March 31, 2012, the Company had a working capital deficit of $201.4 million compared to a deficit of $127.9 million at December 31, 2011. The decrease in working capital was primarily due to seasonal shifts in the amounts collected from clients, and paid to suppliers, primarily media outlets and 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 March 31, 2012, $3.8 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.

Cash Flows

Operating Activities

Cash flow provided by continuing operations, including changes in non-cash working capital, for the three months ended March 31, 2012 was $12.5 million. This was attributable primarily to a net loss from continuing operations of $24.6 million, payments of accounts payables, an increase in accounts receivable of $17.4 million, an increase in expenditures billable to clients of $17.4 million, and an increase in other non-current assets and liabilities of $1.1 million.  This use of cash was offset by depreciation and amortization and non-cash stock compensation of $16.4 million, a decrease in advanced billings of $36.5 million, an increase in accounts payables, accruals, and other liabilities of $15.3 million and adjustments to deferred acquisition consideration for $2.7 million. Discontinued operations attributable to MDC Partners used cash of $0.1 million in the three months ended March 31, 2012.

Cash flow used in continuing operations, including changes in non-cash working capital, for the three months ended March 31, 2011 was $37.1 million. This was attributable primarily to a net operating loss from continuing operations of $6.8 million, payments of accounts payables, accruals, and other liabilities of $20.7 million, a decrease in advanced billings of $9.5 million, increase in accounts receivable of $5.9 million, an increase in expenditures billable to clients of $3.2 million, adjustments to deferred acquisition consideration of $3.0 million, an increase in prepaid expenses and other current assets of $1.7 million. This use of cash was offset by depreciation and amortization and non-cash stock compensation of $15.2 million. Discontinued operations attributable to MDC Partners generated cash of $0.1 million in the three months ended March 31, 2011.

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Investing Activities

Cash flows provided by investing activities were $33.1 million for the three months ended March 31, 2012, compared with a cash flows use of $14.7 million in the three months ended March 31, 2011.

In the three months ended March 31, 2012, capital expenditures totaled $5.1 million, of which $2.7 million was incurred by the Strategic Marketing Services segment, $2.3 million was incurred by the Performance Marketing Services segment, and $0.1 million was incurred by corporate.  These expenditures consisted primarily of computer equipment, furniture and fixtures, and leasehold improvements. Expenditures for capital assets in the three months ended March 31, 2011 were $4.9 million. Of this amount, $3.7 million was incurred by the Strategic Marketing Services segment and $1.0 million was incurred by the Performance Marketing services Segment and $0.2 million was incurred by corporate. These expenditures consisted primarily of computer equipment and leasehold improvements.

In the three months ended March 31, 2012, cash flow provided by acquisitions net of deferred acquisition payments was $39.3 million related to the acquisitions of Doner, Dotbox and TargetCast. In addition, the Company paid $1.0 million for other investments.

In the three months ended March 31, 2011, cash flow used for acquisitions and deferred acquisition payments was $12.6 million of which $11.1 million was net cash paid in the acquisition of equity interests in Anomaly, and $1.5 million was paid related to the settlement of deferred acquisition consideration. In addition, the Company paid $0.9 million for other investments.  These outflows were offset by $3.8 million of profit distributions from affiliates.  

Financing Activities

During the three months ended March 31, 2012, cash flows used by financing activities amounted to $17.7 million, and consisted primarily of repayments of $14.1 million relating to the revolving credit facility, $4.7 million of dividend payments, the purchase of treasury shares for income tax withholding requirements of $2.1 million, $1.9 million of acquisition related payments, and $1.6 million of distributions to noncontrolling partners. These outflows were offset by $6.9 million of proceeds from bank overdrafts.

During the three months ended March 31, 2011, cash flows provided by financing activities amounted to $47.7 million, and consisted primarily from proceeds of $59.7 million relating to the revolving credit facility and $1.1 million proceeds from bank overdrafts, offset by distributions to noncontrolling partners of $4.3 million, the purchase of treasury shares for income tax withholding requirements of $1.5 million, payment of deferred financing costs of $0.3 million and repayments of long-term debt of $0.3 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% Notes due 2016. 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% 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% 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 at March 31, 2012 is 2.25% in the case of Base Rate Loans and 2.50% in the case of LIBOR Rate Loans. 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 March 31, 2012 was $371.2 million, a decrease of $14.0 million, compared with $385.2 million outstanding at December 31, 2011.  This decrease in debt was a result of repayments to the revolving credit agreement.  After giving effect to the limitations contained in the 11% Senior Notes indenture, at March 31, 2012, approximately $120.4 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, or if the Company uses the maximum available amount 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 March 31, 2012, the Company’s calculation of each of these covenants, and the specific requirements under the WF Credit Agreement, respectively, were as follows:

	March 31, 2012
Total Senior Leverage Ratio		0.03
Maximum per covenant		2.0
Total Leverage Ratio		3.05
Maximum per covenant		4.60
Fixed Charges Ratio		1.77
Minimum per covenant		1.10
Earnings before interest, taxes, depreciation and amortization	$	112.8 million
Minimum per covenant	$	93.4 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. 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. 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 March 31, 2012. The actual amount that the Company pays in connection with the obligations may differ materially from this estimate. At March 31, 2012, there was $204.2 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 March 31, 2012, 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 $29.4 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 $2.7 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 $79.4 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 $3.4 million of the estimated $29.4 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 $7.5 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)	2012		2013		2014		2015		2016 & Thereafter		Total
	($ Millions)
Cash	$	3.1	$	9.8	$	3.7	$	3.4	$	6.7	$	26.7
Shares		0.3		0.6		0.9		0.5		0.4		2.7
	$	3.4	$	10.4	$	4.6	$	3.9	$	7.1	$	29.4	(1)
Operating income before depreciation and amortization to be received(2)	$	3.1	$	1.1	$	1.3	$	1.3	$	0.7	$	7.5
Cumulative operating income before depreciation and amortization(3)	$	3.1	$	4.2	$	5.5	$	6.8	$	7.5			(5)

(1) This amount in addition to put options only exercisable upon termination not within the control of the Company, or death, of $79.4 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 discussion and analysis. Readers are encouraged to consider this information together with the Company’s consolidated financial statements and the related notes to the consolidated financial statements as included herein for a more complete understanding of accounting policies discussed below.

Estimates.  The preparation of the Company’s financial statements in conformity with generally accepted accounting principles in the United States of America, or “GAAP”, requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities including goodwill, intangible assets, redeemable noncontrolling interests, and deferred acquisition consideration, valuation allowances for receivables and deferred income tax assets and stock based compensation as well as the reported amounts of revenue and expenses during the reporting period. 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. 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. 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 records revenue net of state taxes, when persuasive evidence of an arrangement exists, 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 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. In the majority of the Company’s businesses, the Company acts as an agent and records revenue equal to the net amount retained, when the fee or commission is earned. In certain arrangements, the Company acts as principal and contracts directly with suppliers for third party media and production costs. In these arrangements, revenue is recorded at the gross amount billed. Additional information about our revenue recognition policy appears in Note 2 to our consolidated financial statements.

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. Our acquisition strategy has been to focus on acquiring the expertise of an assembled workforce in order to continue building upon the core capabilities of our various strategic business platforms to better serve our clients. Consistent with our acquisition strategy and past practice of acquiring a majority ownership position, most acquisitions completed in 2011 and 2010 include an initial payment at the time of closing and provide for future additional contingent purchase price payments. Contingent payments for these transactions, as well as certain acquisitions completed in prior years, are derived using the performance of the acquired entity and are based on pre-determined formulas. Contingent purchase price obligations for acquisitions completed prior to January 1, 2009 are accrued when the contingency is resolved and payment is certain. Contingent purchase price obligations related to acquisitions completed subsequent to December 31, 2008 are recorded as liabilities at estimated value and are remeasured at each reporting period. Changes in estimated value are recorded in results of operations. 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 each of our acquisitions, we undertake a detailed review to identify other intangible assets and a valuation is performed for all such identified assets. We use several market participant measurements to determine estimated value. This approach includes consideration of similar and recent transactions, as well as utilizing discounted expected cash flow methodologies. Like most service businesses, a substantial portion of the intangible asset value that we acquire is the specialized know-how of the workforce, which is treated as part of goodwill and is not required to be valued separately. The majority of the value of the identifiable intangible assets that we acquire is derived from customer relationships, including the related customer contracts, as well as trade names. In executing our acquisition strategy, one of the primary drivers in identifying and executing a specific transaction is the existence of, or the ability to, expand our existing client relationships. The expected benefits of our acquisitions are typically shared across multiple agencies and regions.

Redeemable Noncontrolling Interest.  The minority interest shareholders of certain subsidiaries have the right to require the Company to acquire their ownership interest under certain circumstances pursuant to a contractual arrangement and the Company has similar call options under the same contractual terms. The amount of consideration under the put and call rights is not a fixed amount, but rather is dependent upon various valuation formulas and on future events, such as the average earnings of the relevant subsidiary through the date of exercise, the growth rate of the earnings of the relevant subsidiary through the date of exercise, etc. as described in Note 11.

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.

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

Interest Expense.  Interest expense primarily consists of the cost of borrowing on the revolving WF Credit Agreement and the 11% Notes. The Company uses the effective interest method to amortize the original issue discount and original issue premium on the 11% Notes. The Company amortizes deferred financing costs using the effective interest method over the life of the 11% Notes and straight line over the life of the revolving WF Credit Agreement.

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

On January 1, 2012, FASB Accounting Standards Update No. 2011-08, Testing Goodwill for Impairment ("ASU 2011-08") became effective. This standard gives an entity the option of performing a qualitative assessment to determine whether it is necessary to perform step 1 of the annual goodwill impairment test. An entity is required to perform step 1 only if it concludes that it is more likely than not that a reporting unit's fair value is less than its carrying amount. An entity may choose to perform the qualitative assessment on none, some or all of its reporting units or an entity may bypass the qualitative assessment for any reporting unit in any period and proceed directly to step 1 of the impairment test. We perform our annual impairment test at the end of beginning of the fourth quarter of each year.

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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, earnings guidance, 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 international, national and regional economic downturn;

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

• the spending patterns and 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 the WF 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 2011 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 March 31, 2012, 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 level of borrowings under the WF Credit Agreement of $23.9 million, as of March 31, 2012, a 1.0% increase or decrease in the weighted average interest rate, which was 5.5% at March 31, 2012, would have an $0.2 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, our CEO and CFO concluded that, as of March 31, 2012, our disclosure controls and procedures are effective to ensure that decisions can be made timely with respect to required disclosures, as well as ensuring that the recording, processing, summarization and reporting of information required to be included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 is appropriate.

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 first quarter of 2012 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, 2011.

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

None

Item 3.  Defaults Upon Senior Securities

None

Item 4.  Mine Safety Disclosures

Not applicable

Item 5.  Other Information

The Company and David Dabill determined not to renew or extend the initial term of employment of Mr. Dabill, the Company’s Chief Administrative Officer, effective as of May 9, 2012.  In connection with this decision,the Company and Mr. Dabill entered into a Separation Agreement, pursuant to which the Company agreed to pay Mr. Dabill an amount equal to his base salary and health benefits for the six (6) month period following the termination date.

Item 6.  Exhibits

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

43

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

May 10, 2012

44

EXHIBIT INDEX

Exhibit No.	Description
4.1	Sixth Supplemental Indenture, dated as of  March 23, 2012, to the Indenture, dated as of October 23, 2009, among the Company, the Note Guarantors and The Bank of New York Mellon, as trustee.*
10.1	Eighth Amendment, dated February 13, 2012, 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, (incorporated by reference to Exhibit 10.2.8 to the Company’s Form 10-K filed on March 15, 2012)
10.2	Ninth Amendment, dated March 27, 2012, 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.*
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.

45

EX-4.1

Exhibit 4.1

SIXTH SUPPLEMENTAL INDENTURE

This Sixth Supplemental Indenture, dated as of March 23, 2012 (this “Supplemental Indenture”), among RJ Palmer Partners LLC, a Delaware limited liability company (the “New Note Guarantor”) and MDC Partners Inc., a corporation continued under the laws of Canada (together with its successors and assigns, the “Company”), each other Note Guarantor under the Indenture referred to below, and The Bank of New York Mellon, a New York banking corporation, as Trustee under the Indenture referred to below.

WITNESSETH:

WHEREAS, the Company, the Note Guarantors and the Trustee have heretofore executed and delivered an Indenture, dated as of October 23, 2009 (as amended by that certain First Supplemental Indenture dated as of May 14, 2010, Second Supplemental Indenture dated as of October 23, 2010, Third Supplemental Indenture dated as of April 19, 2011, Fourth Supplemental Indenture dated as of May 2, 2011 and Fifth Supplemental Indenture dated as of September 19, 2011, and as may be further amended, supplemented, waived or otherwise modified, the “Indenture”), providing for the issuance of 11% Senior Notes due 2016 of the Company (the “Notes”);

WHEREAS, pursuant to Section 10.7 of the Indenture, the Company is required to cause each Wholly Owned Subsidiary created or acquired by the Company to execute and deliver to the Trustee an Additional Note Guarantee; and

WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee, the Company and existing Note Guarantors are authorized to execute and deliver this Supplemental Indenture to supplement the Indenture, without the consent of any Holder;

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the New Note Guarantor, the Company, each other Note Guarantor and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Notes as follows:

ARTICLE I
DEFINITIONS

Section 1.1. Defined Terms. Unless otherwise defined in this Supplemental Indenture, terms defined in the Indenture are used herein as therein defined.

ARTICLE II
AGREEMENT TO BE BOUND; GUARANTEE

Section 2.1. Agreement to be Bound. The New Note Guarantor hereby becomes a party to the Indenture as a Note Guarantor and as such will have all of the rights and be subject to all of the obligations and agreements of a Note Guarantor under the Indenture. The New Note Guarantor hereby agrees to be bound by all of the provisions of the Indenture applicable to a Note Guarantor and to perform all of the obligations and agreements of a Note Guarantor under the Indenture.

Section 2.2. Guarantee. The New Note Guarantor hereby fully, unconditionally and irrevocably guarantees, as primary obligor and not merely as surety, jointly and severally with each other Note Guarantor, to each Holder of the Notes and the Trustee, the full and punctual payment when due, whether at maturity, by acceleration, by redemption or otherwise, of the Obligations, all as more fully set forth in Article X of the Indenture.

ARTICLE III
MISCELLANEOUS

Section 3.1. Notices. Any notice or communication delivered to the Company under the provisions of the Indenture shall constitute notice to the New Note Guarantor.

Section 3.2. Parties. Nothing expressed or mentioned herein is intended or shall be construed to give any Person, firm or corporation, other than the Holders and the Trustee, any legal or equitable right, remedy or claim under or in respect of this Supplemental Indenture or the Indenture or any provision herein or therein contained.

Section 3.3. Governing Law etc. This Supplemental Indenture shall be governed by the provisions set forth in Section 11.7 of the Indenture.

Section 3.4. Severability. In case any provision in this Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and such provision shall be ineffective only to the extent of such invalidity, illegality or unenforceability.

Section 3.5. Ratification of Indenture; Supplemental Indenture Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of Notes heretofore or hereafter authenticated and delivered shall be bound hereby. The Trustee makes no representation or warranty as to the validity or sufficiency of this Supplemental Indenture. The recitals contained herein shall be taken as statements of the Company, and the Trustee assumes no responsibility for their correctness.

Section 3.6. Duplicate and Counterpart Originals. The parties may sign any number of copies of this Supplemental Indenture. One signed copy is enough to prove this Supplemental Indenture. This Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be an original, but all of them together represent the same agreement.

Section 3.7. Headings. The headings of the Articles and Sections in this Supplemental Indenture have been inserted for convenience of reference only, are not intended to be considered as a part hereof and shall not modify or restrict any of the terms or provisions hereof.

[Signature Pages Follow]

-2-

IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written.

MDC PARTNERS INC.
By:
	Name:	Michael Sabatino
	Title:	Authorized Signatory
RJ PALMER PARTNERS LLC,
as New Note Guarantor
By:
	Name:	Michael Sabatino
	Title:	Authorized Signatory

ACCENT MARKETING SERVICES, LLC

ASHTON POTTER CANADA INC.

COMPUTER COMPOSITION OF CANADA LP

BY MDC CANADA GP INC.

CRISPIN PORTER + BOGUSKY CANADA LP

BY MDC CANADA GP INC.

CRISPIN PORTER & BOGUSKY LLC

DOTGLU LLC

KBP HOLDINGS LLC

KBS+P CANADA LP

BY MDC CANADA GP INC.

KIRSHENBAUM BOND SENECAL & PARTNERS LLC

MAXXCOM (USA) HOLDINGS INC.

MAXXCOM INC. (US)

MDC ACQUISITION INC.

MDC CORPORATE (US) INC.

MDC/KBP ACQUISITION INC.

MF+P ACQUISITION CO.

REDSCOUT LLC

TARGETCOM LLC

TC ACQUISITION INC.

VARICK MEDIA MANAGEMENT LLC

YAMAMOTO MOSS MACKENZIE, INC.

ZG ACQUISITION INC.,

each as Note Guarantor

-3-

By:
	Name: Michael Sabatino
	Title: Authorized Signatory

-4-

THE BANK OF NEW YORK MELLON,
as Trustee
By:
	Name: Latoya Elvin
	Title: Associate

-5-

EX-10.2

Exhibit 10.2

NINTH AMENDMENT TO CREDIT AGREEMENT

THIS NINTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), with an effective date of March 27, 2012, is by and among the Lenders party hereto, WELLS FARGO CAPITAL FINANCE, LLC, formerly known as Wells Fargo Foothill, LLC, a Delaware limited liability company, as the agent for the Lenders (in such capacity, "Agent"), MDC PARTNERS INC., a Canadian corporation ("Parent"), Maxxcom Inc., a Delaware corporation ("Borrower"), and each of the Subsidiaries of Parent identified on the signature pages hereof (together with Parent and Borrower, the "Loan Parties").

WHEREAS, Parent, Borrower, the other Loan Parties, Agent, and Lenders are parties to that certain Credit Agreement dated as of October 23, 2009 (as amended, modified or supplemented from time to time, the "Credit Agreement");

WHEREAS, Borrower, Agent and the Lenders have agreed to amend and modify the Credit Agreement as provided herein, in each case subject to the terms and provisions hereof.

NOW THEREFORE, in consideration of the premises and mutual agreements herein contained, the parties hereto agree as follows:

Defined Terms. Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Credit Agreement.

Amendments to Credit Agreement. Subject to the satisfaction of the conditions set forth in Section 4 below and in reliance upon the representations and warranties of the Loan Parties set forth in Section 5 below, the Credit Agreement is hereby amended as follows:

Section 4.11 of the Credit Agreement is hereby amended and restated in its entirety as follows:

4.11         Employee Benefits.

(a)          Except as set forth on Schedule 4.11(a), no Loan Party, none of its Subsidiaries, nor any of their respective ERISA Affiliates maintains or contributes to any Benefit Plan;

(b)          Each Loan Party and each of the ERISA Affiliates has operated each Benefit Plan in compliance in all material respects with ERISA, the IRC and all applicable laws regarding each Benefit Plan;

(c)          Each Loan Party has performed all obligations required to be performed by it under, and is not in default under or in violation of the terms of each Benefit Plan;

(d)          Each Benefit Plan that is intended to qualify under Section 401(a) of the IRC has received a favorable determination letter from the Internal Revenue Service or an application for such letter is currently being processed by the Internal Revenue Service. To the best knowledge of each Loan Party and the ERISA Affiliates after due inquiry, nothing has occurred which would prevent, or cause the loss of, such qualification;

(e)          No material liability to the PBGC (other than for the payment of current premiums which are not past due) by any Loan Party or ERISA Affiliate has been incurred or is expected by any Loan Party or ERISA Affiliate to be incurred with respect to any Benefit Plan;

(f)          Except as set forth in Schedule 4.11(f), no Notification Event exists or has occurred in the past five (5) years;

(g)          No Loan Party or ERISA Affiliate sponsors, maintains, or contributes to any Benefit Plan, including, without limitation, any such plan maintained to provide benefits to former employees of such entities that may not be terminated by any Loan Party or ERISA Affiliate in its sole discretion at any time;

(h)          No Loan Party or ERISA Affiliate has provided any security under Section 436 of the IRC at any time during the past six (6) years;

(i)          Except as set forth in Schedule 4.11, as of the Closing Date, overtime pay, vacation pay, premiums for unemployment insurance, health and welfare insurance premiums, accrued wages, salaries and commissions, severance pay and employee benefit plan payments have been fully paid by each Canadian Loan Party as they have become due in the normal course or, in the case of accrued unpaid overtime pay or accrued unpaid vacation pay for Canadian Employees, has been accurately accounted for in the books and records of each Canadian Loan Party or has been reported pursuant to the collateral reporting obligation pursuant to Section 5.2;

(j)          No improvements to any Canadian Pension Plan or Canadian Employee Plan have been promised, except such improvements as, as of the Closing Date, are disclosed on, Schedule 4.11;

(k)          No Canadian Loan Party, as of the Closing Date, provides a Canadian Pension Plan to any Canadian Employees or other retirement plan or other non-pension benefits to retired Canadian Employees or to beneficiaries or dependents of retired Canadian Employees, except as disclosed on Schedule 4.11;

(l)          The Canadian Loan Parties have administered any Canadian Pension Plans and the Canadian Employee Plans in accordance with their terms and with applicable law, as of the Closing Date, except where any default could not reasonably be expected to result in a Material Adverse Change to a Canadian Loan Party.

(m)          Except as disclosed in Schedule 4.11:

(i)         No Canadian Loan Party is, as of the Closing Date, (i) a party to any collective bargaining agreement, contract or legally binding commitment to any trade union or employee organization or group in respect of or affecting Canadian Employees or (ii) currently the subject of any union reorganization effort or any labor negotiation; and

(ii)         There is no complaint, inquiry or other investigation by any regulatory or other administrative authority or agency with regard to or in relation to any Canadian Employee or the termination of any Canadian Employee.

(n)          All contributions, assessments, premiums, fees, taxes, penalties or fines in relation to the Canadian Employees have, as of the Closing Date, been duly paid and there is no outstanding liability of any kind in relation to the employment of the Canadian Employees or the termination of employment of any Canadian Employee; and

(o)          Each Canadian Loan Party is, as of the Closing Date, in compliance with all requirements of Canadian Employee Benefits Legislation and health and safety, workers compensation, employment standards, labor relations, health insurance, employment insurance, protection of personal information, human rights laws and any Canadian federal, provincial or local counterparts or equivalents in each case, as applicable to the Canadian Employees and as amended from time to time.

Section 5 of the Credit Agreement is hereby amended to insert the following Subsection 5.18 at the end thereof:

5.18 Compliance with ERISA and the IRC.

In addition to and without limiting the generality of Section 5.8, (a) comply in all material respects with applicable provisions of ERISA and the IRC with respect to all Benefit Plans, (b) without the prior written consent of Agent and the Required Lenders, not take any action or fail to take action the result of which could result in a Loan Party or ERISA Affiliate incurring a liability to the PBGC, to a Benefit Plan or to any other Governmental Authority with respect to any Benefit Plan (other than to pay contributions or premiums payable in the ordinary course) that could reasonably be expected to result in a Material Adverse Change, (c)  not participate in any prohibited transaction that could result in other than a de minimis civil penalty excise tax, fiduciary liability or correction obligation under ERISA or the IRC, (d) operate each Benefit Plan in such a manner that will not incur any material tax liability under the IRC (including Section 4980B of the IRC), and (e) furnish to Agent upon Agent's written request such additional information about any Benefit Plan for which any Loan Party or ERISA Affiliate could reasonably expect to incur any material liability. With respect to each Benefit Plan, except as could not reasonably be expected to result in material liability to the Loan Parties, the Loan Parties and the ERISA Affiliates shall (i) satisfy in full and in a timely manner, without incurring any material late payment or underpayment charge or penalty and without giving rise to any Lien, all of the contribution and funding requirements of the IRC and of ERISA, and (ii) pay, or cause to be paid, to the PBGC in a timely manner, without incurring any material late payment or underpayment charge or penalty, all premiums required pursuant to ERISA.

Section 6 of the Credit Agreement is hereby amended to insert the following Subsection 6.15 at the end thereof:

6.15 Employee Benefits.

(a)          Terminate, or permit any ERISA Affiliate to terminate, any Benefit in a manner, or take any other action with respect to any Plan, which could reasonably be expected to result in any material liability of any Loan Party or ERISA Affiliate to the PBGC.

(b)          Fail to make, or permit any ERISA Affiliate to fail to make, full payment when due of all amounts which, under the provisions of any Benefit Plan, agreement relating thereto or applicable Law, any Loan Party or ERISA Affiliate is required to pay if such failure could reasonably be expected to result in a Material Adverse Change.

(c)          Fail to meet, or allow any ERISA Affiliate to fail to meet, the minimum funding standard within the meaning of Section 302 of ERISA or section 412 of the IRC, whether or not waived, with respect to any Plan, which such failure could reasonably be expected to result in a Material Adverse Change.

(d)          Contribute to or assume an obligation to contribute to, or permit any ERISA Affiliate to contribute to or assume an obligation to contribute to, any Benefit Plan not set forth on Schedule 4.11(a).

(e)          Amend, or permit any ERISA Affiliate to amend, a Benefit Plan resulting in a material increase in current liability such that a Loan Party or ERISA Affiliate is required to provide security to such Benefit Plan under Section 436(f) or Chapter 64 of the IRC.

Section 8 of the Credit Agreement is hereby amended to insert the following Subsection 8.12 at the end thereof:

8.12 If any of the following events occurs: (a) any Loan Party or ERISA Affiliate fails to make full payment when due of all amounts which any Loan Party or ERISA Affiliate is required to pay as contributions, installments, or otherwise to or with respect to a Benefit Plan and such failure could reasonably be expected to result in liability in excess of $4,000,000 in any fiscal year or result in the imposition of a Lien on the property of any Loan Party, (b) a Notification Event, which could reasonably be expected to result in liability in excess of $4,000,000 in any Fiscal Year, either individually or in the aggregate or result in the imposition of a Lien on the property of any Loan Party, or (c) any Loan Party or ERISA Affiliate completely or partially withdraws from one or more Benefit Plans and incurs Withdrawal Liability in excess of $4,000,000 in the aggregate, or fails to make any Withdrawal Liability payment when due.

Schedule 1.1 to the Credit Agreement is hereby amended to insert the following definitions of "PBGC", "Notification Event" and "Withdrawal Liability" in the proper order alphabetically:

"PBGC" means the Pension Benefit Guaranty Corporation or any successor agency.

"Notification Event" means (a) the occurrence of a "reportable event" described in Section 4043 of ERISA for which the 30-day notice requirement has not been waived by applicable regulations issued by the PBGC, (b) the withdrawal of any Loan Party or ERISA Affiliate from a Benefit Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (c) the termination of a Benefit Plan, the filing of a notice of intent to terminate a Benefit Plan or the treatment of a Benefit Plan amendment as a termination, under Section 4041 of ERISA, if the plan assets are not sufficient to pay all plan liabilities and such termination could reasonably be expected to give rise to material liabilities, (d) the institution of proceedings to terminate, or the appointment of a trustee with respect to, any Benefit Plan by the PBGC or any Benefit Plan administrator, (e) any other event or condition that would constitute grounds under Section 4042(a) of ERISA for the termination of, or the appointment of a trustee to administer, any Benefit Plan, (f) the imposition of a Lien pursuant to the IRC or ERISA in connection with any Benefit Plan or the existence of any facts or circumstances that could reasonably be expected to result in the imposition of a Lien, (g) the partial or complete withdrawal of any Loan Party or ERISA Affiliate from a Benefit Plan (other than any withdrawal that would not constitute an Event of Default under Section 8.12), (h) any event or condition that results in the reorganization or insolvency of a Benefit Plan under ERISA, (i) any event or condition that results in the termination of a Benefit Plan under Section 4041A of ERISA or the appointment of a trustee to administer a Benefit Plan, (j) any Benefit Plan being in "at risk status" within the meaning of IRC Section 430(i), (k) any Benefit being in "endangered status" or "critical status" within the meaning of IRC Section 432(b) or the formal determination that any Benefit Plan is or is expected to be insolvent or in reorganization within the meaning of Title IV of ERISA, (l) with respect to any Benefit Plan, the imposition of liability on any Loan Party or ERISA Affiliate as a result of incurring a substantial cessation of operations within the meaning of ERISA Section 4062(e), (m) the failure to make by its due date a required payment or contribution with respect to any Benefit Plan, (n) any event that results in or could reasonably be expected to result in a material liability by a Loan Party pursuant to Title I of ERISA or the excise tax provisions of the IRC relating to Benefit Plans or any event that results in or could reasonably be expected to result in a material liability to any Loan Party or ERISA Affiliate pursuant to Title IV of ERISA or the IRC, or (o) to the knowledge of any Loan Party or ERISA Affiliate, any of the foregoing is reasonably likely to occur in the following 30 days and the applicable Loan Party or ERISA Affiliate has no reasonable intention of preventing, or ability to prevent, such Notification Event from occurring.

"Withdrawal Liability" means liability with respect to a Benefit Plan that is considered a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA as a result of a complete or partial withdrawal from such Benefit Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

The Schedules to the Credit Agreement are hereby amended by inserting the attached Exhibit A as Schedule 4.11(a).

Ratification; Other Acknowledgments. This Amendment, subject to satisfaction of the conditions provided below, shall constitute an amendment to the Credit Agreement and all of the Loan Documents as appropriate to express the agreements contained herein. The Credit Agreement and the Loan Documents shall remain unchanged and in full force and effect in accordance with their original terms.

Conditions to Effectiveness. This Amendment shall become effective as of the date hereof and upon the satisfaction of the following conditions precedent:

Agent shall have received a fully executed copy of this Amendment; and

No Default or Event of Default shall have occurred and be continuing on the date hereof or as of the date of the effectiveness of this Amendment.

Representations and Warranties. In order to induce Agent and Lenders to enter into this Amendment, each Loan Party hereby represents and warrants to Agent and Lenders, after giving effect to this Amendment:

All representations and warranties contained in the Credit Agreement (as amended by this Amendment) and the other Loan Documents are true and correct on and as of the date of this Amendment, in each case as if then made, other than representations and warranties that expressly relate solely to an earlier date (in which case such representations and warranties were true and correct on and as of such earlier date);

No Default or Event of Default has occurred and is continuing; and

the execution, delivery and performance of this Amendment has been duly authorized by all requisite corporate action on the part of such Loan Party.

Miscellaneous.

Expenses. Borrower agrees to pay on demand all costs and expenses of Agent (including the reasonable fees and expenses of outside counsel for Agent) in connection with the preparation, negotiation, execution, delivery and administration of this Amendment and all other instruments or documents provided for herein or delivered or to be delivered hereunder or in connection herewith. All obligations provided herein shall survive any termination of this Amendment and the Credit Agreement as amended hereby.

Governing Law. This Amendment shall be a contract made under and governed by the internal laws of the State of New York.

Counterparts. This Amendment may be executed in any number of counterparts, and by the parties hereto on the same or separate counterparts, and each such counterpart, when executed and delivered, shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Amendment.

Release.

In consideration of the agreements of Agent and Lenders contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each Loan Party, on behalf of itself and its successors, assigns, and other legal representatives, hereby absolutely, unconditionally and irrevocably releases, remises and forever discharges Agent and Lenders, and their successors and assigns, and their present and former shareholders, affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, employees, agents and other representatives (Agent, each Lender and all such other Persons being hereinafter referred to collectively as the "Releasees" and individually as a "Releasee"), of and from all demands, actions, causes of action, suits, covenants, contracts, controversies, agreements, promises, sums of money, accounts, bills, reckonings, damages and any and all other claims, counterclaims, defenses, rights of set-off, demands and liabilities whatsoever (individually, a "Claim" and collectively, "Claims") of every name and nature, known or unknown, suspected or unsuspected, both at law and in equity, which such Loan Party or any of its respective successors, assigns, or other legal representatives may now or hereafter own, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the day and date of this Amendment, including, without limitation, for or on account of, or in relation to, or in any way in connection with any of the Credit Agreement, or any of the other Loan Documents or transactions thereunder or related thereto.

Each Loan Party understands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release.

Each Loan Party agrees that no fact, event, circumstance, evidence or transaction which could now be asserted or which may hereafter be discovered shall affect in any manner the final, absolute and unconditional nature of the release set forth above.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized and delivered as of the effective date first above written.

MDC PARTNERS INC., a federal company
organized under the laws of Canada
By:
Name:	Mitchell Gendel
Title:	Authorized Signatory
By:
Name:	Michael Sabatino
Title:	Authorized Signatory
MAXXCOM INC.,
a Delaware corporation
By:
Name:	Mitchell Gendel
Title:	Authorized Signatory
By:
Name:	Michael Sabatino
Title:	Authorized Signatory

Signature Pages to Ninth Amendment to Credit Agreement

72ANDSUNNY PARTNERS, LLC.

a Delaware limited liability company

Accent Marketing Services, L.L.C.,

a Delaware limited liability company

Adrenalina LLC,

a Delaware limited liability company

ANOMALY PARTNERS LLC,

a Delaware limited liability company

ALLISON & PARTNERS LLC,

a Delaware limited liability company

Attention Partners LLC,

a Delaware limited liability company

Bruce Mau Design (USA) LLC,

a Delaware limited liability company

Colle & McVoy LLC,

a Delaware limited liability company

Colle & McVoy, Inc.,

a Minnesota corporation

COMMUNIFX PARTNERS LLC,

a Delaware limited liability company

Company C Communications, Inc.,

a Delaware corporation

Company C CommunIcations LLC,

a Delaware limited liability company

CONCENTRIC PARTNERS LLC,

a Delaware limited liability company

Crispin Porter & Bogusky LLC,

a Delaware limited liability company

Dotglu LLC,

a Delaware limited liability company

Signature Pages to Ninth Amendment to Credit Agreement

EXPECTING PRODUCTIONS, LLC,

a California limited liability company

By: Hudson and Sunset Media, LLC, its sole member

GUARDIANT WARRANTY, LLC,

a Delaware limited liability company

Hello Design, LLC,

a California limited liability company

HL Group Partners LLC,

a Delaware limited liability company

HUDSON AND SUNSET MEDIA, LLC

(formerly known as Shout Media LLC),

a California limited liability company

HW ACQUISITION LLC,

a Delaware limited liability company

INTEGRATED MEDIA SOLUTIONS PARTNERS LLC,

a Delaware limited liability company

KBP Holdings LLC,

a Delaware limited liability company

kbs+p atlanta LLC

(formerly known as Fletcher Martin LLC),

a Delaware limited liability company

Kirshenbaum Bond Senecal & Partners LLC

(formerly known as Kirshenbaum Bond & Partners LLC),

a Delaware limited liability company

Kirshenbaum Bond & Partners West LLC,

a Delaware limited liability company

KWITTKEN PR LLC,

a Delaware limited liability company

LAIRD + PARTNERS NEW YORK LLC,

a Delaware limited liability company

Margeotes Fertitta Powell LLC,

a Delaware limited liability company

Signature Pages to Ninth Amendment to Credit Agreement

Maxxcom (USA) Finance Company,

a Delaware corporation

Maxxcom (USA) Holdings Inc.,

a Delaware corporation

MDC Acquisition Inc.,

a Delaware Corporation

MDC Corporate (US) Inc.,

a Delaware corporation

MDC INNOVATION PARTNERS LLC

(d/b/a Spies & Assassins),

a Delaware limited liability company

MDC Travel, Inc.,

a Delaware corporation

MDC/KBP Acquisition Inc.

(for itself and as successor-in-interest to Hello Acquisition Inc.),

a Delaware corporation

MF+P Acquisition Co.,

a Delaware corporation

Mono Advertising, LLC,

a Delaware limited liability company

NEW TEAM LLC,

a Delaware limited liability company

Northstar Research GP LLC,

a Delaware limited liability company

Northstar Research Holdings USA LP,

a Delaware limited partnership

Northstar Research Partners (USA) LLC,

a Delaware limited liability company

OUTERACTIVE, LLC,

a Delaware limited liability company

PULSE MARKETING, LLC,

a Delaware limited liability company

Signature Pages to Ninth Amendment to Credit Agreement

Redscout LLC,

a Delaware limited liability company

RELEVENT PARTNERS LLC,

a Delaware limited liability company

RJ PALMER PARTNERS LLC,

a Delaware limited liability company

Skinny NYC LLC,

a Delaware limited liability company

SLOANE & COMPANY LLC,

a Delaware limited liability company

Source Marketing LLC,

a New York limited liability company

TargetCom LLC,

a Delaware limited liability company

TC Acquisition Inc.,

a Delaware corporation

THE ARSENAL LLC

(formerly known as Team Holdings LLC),

a Delaware limited liability company

Track 21 LLC,

a Delaware limited liability company

Traffic Generators, LLC,

a Georgia limited liability company

TRADE X PARTNERS LLC,

a Delaware limited liability company

VARICK MEDIA MANAGEMENT LLC,

a Delaware limited liability company

VitroRobertson LLC,

a Delaware limited liability company

Yamamoto Moss Mackenzie, Inc.,

a Delaware corporation

ZG ACQUISITION INC.

(for itself and as successor-in-interest to MDC/CPB Holdings Inc.),

a Delaware corporation

Signature Pages to Ninth Amendment to Credit Agreement

Zyman Group, LLC,

a Delaware limited liability company

By:

Name: Mitchell Gendel

Title: Authorized Signatory

By:

Name: Michael Sabatino

Title: Authorized Signatory

Signature Pages to Ninth Amendment to Credit Agreement

ACCUMARK PARTNERS INC. (formerly known as 6 Degrees Integrated Communications Inc.), an Ontario corporation

ASHTON POTTER CANADA INC.,

an Ontario corporation

BOOM MARKETING INC., an Ontario corporation

HENDERSON BAS, an Ontario general partnership, by the members of its management committee

BRUCE MAU DESIGN INC.,

an Ontario corporation

BRUCE MAU HOLDINGS LTD.,

an Ontario corporation

TREE CITY INC.,

an Ontario corporation

VERITAS COMMUNICATIONS INC.,

an Ontario corporation

656712 ONTARIO LIMITED,

an Ontario corporation

NORTHSTAR RESEARCH HOLDINGS CANADA INC., an Ontario corporation

NORTHSTAR RESEARCH PARTNERS INC.,

an Ontario corporation

X CONNECTIONS INC., an Ontario corporation

STUDIO PICA INC., a federal company organized under the laws of Canada

6 DEGREES INTEGRATED COMMUNICATIONS CORP, an Ontario corporation

MAXXCOM (NOVA SCOTIA) CORP.,

a Nova Scotia corporation

BRYAN MILLS IRADESSO CORP.,

an Ontario corporation

Signature Pages to Ninth Amendment to Credit Agreement

KENNA COMMUNICATIONS LP,

an Ontario limited partnership

By: Kenna Communications GP Inc.

Its general partner

CAPITAL C PARTNERS LP,

an Ontario limited partnership

By: Capital C Partners GP Inc.

Its general partner

KENNA COMMUNICATIONS GP INC.,

an Ontario corporation

CAPITAL C PARTNERS GP INC.,

an Ontario corporation

CRISPIN PORTER + BOGUSKY CANADA LP,

an Ontario limited partnership

By: Its general partner, MDC Canada GP Inc.

KBS+P CANADA LP,

an Ontario limited partnership

By: Its general partner, MDC Canada GP Inc.

COMPUTER COMPOSITION OF CANADA LP,

an Ontario limited partnership

By: Its general partner, MDC Canada GP Inc.

MDC CANADA GP INC.,

a corporation incorporated under the laws of Canada

By:
Name:	Mitchell Gendel
Title:	Authorized Signatory
By:
Name:	Michael Sabatino
Title:	Authorized Signatory

Signature Pages to Ninth Amendment to Credit Agreement

CRISPIN PORTER & BOGUSKY EUROPE AB,
a limited company existing under the laws of Sweden
By:
Name:	Mitchell Gendel
Title:	Authorized Signatory
By:
Name:	Michael Sabatino
Title:	Authorized Signatory

Signature Pages to Ninth Amendment to Credit Agreement

WELLS FARGO CAPITAL FINANCE, LLC,
formerly known as Wells Fargo Foothill, LLC, as Agent and as a Lender

By:

Name:

Title:

JPMorgan Chase Bank, N.A., as a Lender

By:

Name:

Title:

Bank of Montreal, as a Lender

By:

Name:

Title:

Goldman Sachs Lending Partners LLC,
as a Lender

By:

Name:

Title:

Signature Pages to Ninth Amendment to Credit Agreement

EXHIBIT A

Schedule 4.11(a)

W.B. Doner & Company Equity Pension Plan

Schedule 4.11(f)

On March 28, 2012, a change in contributing sponsor/controlled group occurred with respect to the W.B. Doner & Company Equity Pension Plan, which is a “reportable event” described in Section 4043 of ERISA.

Signature Pages to Ninth Amendment to Credit Agreement

EX-12

Exhibit 12

Statement of Computation of Ratio of Earnings to Fixed Charges

	Three Months Ended March 31,
	2012			2011
	(000’s)			(000’s)
Earnings:
Loss from continuing operations attributable to MDC Partners Inc.	$	(25,981	)	$	(8,359	)
Additions:
Income tax expense		1,263			358
Noncontrolling interest in income of consolidated subsidiaries		1,357			1,605
Fixed charges, as shown below		13,582			11,686
Distributions received from equity-method investees		—			3,783
		16,202			17,432
Subtractions:
Equity in income (loss) of investees		272			255
Noncontrolling interest in earnings of consolidated subsidiaries that have not incurred fixed charges		—			—
		272			255
Earnings as adjusted	$	(10,051	)	$	8,818
Fixed charges:
Interest on indebtedness, expensed or capitalized		10,437			8,927
Amortization of debt discount and expense and premium on indebtedness, expensed or capitalized		559			637
Interest within rent expense		2,586			2,122
Total fixed charges	$	13,582		$	11,686
Ratio of earnings to fixed charges		N/A			N/A
Fixed charge deficiency	$	23,633		$	2,868

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 March 31, 2012 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: May 10, 2012	/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 March 31, 2012 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: May 10, 2012	/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 March 31, 2012, 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 May 10, 2012
/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 March 31, 2012, 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 May 10, 2012
/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		Put/Call Options
Company	3/31/12			Investment		2012			Thereafter
						(See Notes)
Consolidated:
Strategic Marketing Services
72andSunny		51.0	%		2010		—			Note 1
Allison & Partners		51.0	%		2010		—			Note 2
Anomaly		60.0	%		2011		—			Note 3
Attention		51.0	%		2009		—			Note 4
Bruce Mau Design		75.0	%		2004		—
Capital C Partners		80.0	%		2010		—			Note 5
Colle + McVoy		95.0	%		1999		100.0	%		Note 6
Concentric Partners		70.0	%		2011		—			Note 7
Crispin Porter + Bogusky		100.0	%		2001		—			Note 8
Hello Design		49.0	%		2004		—
Doner		30.0	%		2012		—			Note 9
Dotbox		51.0	%		2012		—
henderson bas kohn		65.0	%		2004		100.0	%
HL Group Partners		65.9	%		2007		72.4	%		Note 10
kirshenbaum bond senecal + partners		100.0	%		2004		—			Note 11
The Media Kitchen		100.0	%		2010		—
Varick Media Management		100.0	%		2010		—
Kwittken		60.0	%		2010		—			Note 12
Laird + Partners		65.0	%		2011		—			Note 13
Mono Advertising		49.9	%		2004		65.0	%		Note 14
Redscout		100.0	%		2007		—			Note 15
Sloane & Company		70.0	%		2010		—			Note 16
Veritas Communications		85.3	%		1993		95.1	%		Note 17
Vitro		71.4	%		2004		97.5	%		Note 18
Yamamoto		100.0	%		2000		—
Performance Marketing Services
6degrees Communications		66.0	%		1993		77.3	%		Note 19
Accent		100.0	%		1999		—
AIC Publishing		51.0	%		2011		—
Boom Marketing		85.0	%		2005		—
Bryan Mills Iradesso		62.8	%		1989		100.0	%		Note 20
Communifx Partners		91.0	%		2010		—			Note 21
Computer Composition		100.0	%		1988		—
Hudson Media		51.0	%		2010		—
Integrated Media Solutions		75.0	%		2010		—			Note 22
Kenna Communications		80.0	%		2010		—			Note 23
Northstar Research Partners		91.8	%		1998		—			Note 24
Onbrand		94.0	%		1992		—
Relevent		60.0	%		2010		—
RJ Palmer		100.0	%		2011		—
Source Marketing		83.0	%		1998		91.3	%		Note 25
TargetCast		70.0	%		2012		—			Note 26
TargetCom		100.0	%		2000		—
TEAM		60.0	%		2010		—			Note 27
Trade X		75.0	%		2011		—			Note 28

Notes

(1) MDC has the right to increase its ownership interest in 72andSunny Partners LLC 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 interests, 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) MDC has the right to increase its ownership in Concentric Partners LLC through acquisition of an incremental interest of up to 100% in 2016.

(8) Includes Crispin Porter & Bogusky LLC, Crispin Porter & Bogusky Canada LP, and certain other domestic and international operating subsidiaries.

(9) MDC has the right to increase its ownership in Doner Partners LLC through conversion of preferred interests and/or acquisitions of incremental interests, up to 70% of this entity in 2012 and up to 100% in 2017.

(10) 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.

(11) Consists of Kirshenbaum Bond Senecal + Partners LLC, Kwittken PR LLC, Varick Media Management LLC, certain other domestic and international operating subsidiaries, and The Media Kitchen, a division of kirshenbaum bond senecal + partners.

(12) 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.

(13) MDC has the right to increase its ownership in Laird + Partners New York LLC through acquisition of an incremental interest of up to 100% in 2016.

(14) 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 65.0% of this entity in 2012, up to 70.0% in 2013 and up to 75.0% in 2014.

(15) During 2011, MDC increased its economic ownership in Redscout, LLC through acquisition of an incremental interest.

(16) 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.

(17) 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 95.1% of this entity in 2012 and up to 100% in 2013.

(18) Effective January 1, 2012, Vitro Robertson, LLC and Skinny NYC, LLC were combined into a new entity Vitro Partners, LLC. MDC has the right to increase its ownership in Vitro Partners, LLC through acquisition interests, and other interest holders have the right to put to MDC the same incremental interests up to 77.9% of this entity in 2015, and up to 100% in 2017.

(19) MDC has the right to increase its ownership in 6degrees Integrated Communications Corp. through acquisitions of incremental interests, and the other interest holders have the right to put to MDC the same incremental interests up to 77.3% of this entity in 2012. MDC’s current economic interest is 53.3%.

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(20) 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.

(21) 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.

(22) 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.

(23) MDC has the right to increase its ownership interest in Kenna Communications LP through acquisition of an incremental interest, up to 100% in 2015.

(24) The Northstar Research Partners Group consists of Northstar Research Holdings USA LP and Northstar Research Holdings Canada Inc. MDC has the right to increase its ownership in Northstar Research Canada 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.

(25) 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 to 91.3% of this entity in 2012 and 100% in 2013.

(26) MDC has the right to increase its ownership in TargetCast LLC through acquisitions of incremental interests of up to 75% of this entity in 2015, 80% in 2016, and 100% in 2017.

(27) TEAM consists of The Arsenal LLC (f/k/a Team Holdings LLC) and its wholly-owned subsidiaries. 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.

(28) MDC has the right to increase its ownership interest in Trade X Partners LLC through acquisitions of incremental interests up to 100% in 2015.

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Significant Accounting Policies

3 Months Ended

Mar. 31, 2012

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.

Fair Value.  The Company applies the fair value measurement guidance of Codification Topic 820, Fair Value Measurements and Disclosure for financial assets and liabilities that are required to be measured at fair value and for nonfinancial assets and liabilities that are not required to be measured at fair value on a recurring basis, including goodwill and other identifiable intangible assets. The measurement of fair value requires the use of techniques based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. The inputs create the following fair value hierarchy:

• Level 1 — Quoted prices for identical instruments in active markets.

• Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations where inputs are observable or where significant value drivers are observable.

• Level 3 — Instruments where significant value drivers are unobservable to third parties.

When available, quoted market prices are used to determine the fair value of our financial instruments and classify such items in Level 1. In some cases, quoted market prices are used for similar instruments in active markets and classify such items in Level 2.

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 March 31, 2012 or December 31, 2011.  Furthermore, the Company did not have a client that accounted for more than 10% of the Company’s revenue for the three months ended March 31, 2012 or for the three months ended March 31, 2011.

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 March 31, 2012 and December 31, 2011, is approximately $47 and $46, 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 months ended March 31, 2012, $2,528 of expense was recognized related to changes in estimated value.  For the three months ended March 31, 2011, $2,977 of income has been recorded in 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 months ended March 31, 2012, $740 of acquisition related costs have been charged to operations.  For the three months ended March 31, 2011, $568 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 11.

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 three months ended March 31, 2012 and 2011, 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.

	Three Months Ended March 31,
	2012			2011
Beginning Balance as of December 31,	$	107,432		$	77,560
Redemptions		(3,425	)		(362	)
Granted		4,189			7,890
Changes in redemption value		(44	)		3,781
Currency Translation Adjustments		703			979
Ending Balance as of March 31,	$	108,855		$	89,848

Variable Interest Entity. Effective March 28, 2012, MDC invested in Doner Partners LLC (“Doner”), and has determined that this entity is a variable interest entity (“VIE”) and is consolidated for the quarter ended March 31, 2012. The Company acquired a 30% voting interest and convertible preferred interests that allow the Company to increase ordinary voting ownership to 70% at MDC’s option. Doner is a full service integrated creative agency that is included as part of our portfolio in the Strategic Marketing Services Segment. The Company’s WF Credit Agreement is guaranteed and secured by all of Doner’s assets.

The Company has determined that we are the primary beneficiary because MDC receives a disproportionate share of profits and losses as compared to the Company’s ownership percentage. Total assets and total liabilities of Doner included in the Company’s consolidated balance sheet at March 31, 2012 were $202,787 and $175,504, respectively.

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 March 31, 2012 and December 31, 2011, $4 and $232 was amortized, respectively, net of amortized premium of $326 and $943, 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 March 31, 2012 and December 31, 2011 was $11,235 and $11,715, net of accumulated amortization of $4,081 and $3,526, respectively.  During the three months of 2012, the Company recorded $74 of deferred financing costs primarily relating to the 2012 amendment of the revolving credit facility.

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 three months ended March 31, 2012, the Company issued 845,727 restricted stock units (“RSUs”) to its employees and directors.  The RSUs have an aggregate grant date fair value of $11,045 and generally vest on the third anniversary date with certain awards subjected to accelerated vesting based on the financial performance of the Company. 

A total of 846,269 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 March 31, 2012.

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Basis of Presentation

3 Months Ended

Mar. 31, 2012

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, 2011.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Revenue:
Services	$ 235,978	$ 215,091
Operating Expenses:
Cost of services sold	177,260	157,762
Office and general expenses	60,372	44,464
Depreciation and amortization	10,001	10,303
Costs and Expenses, Total	247,633	212,529
Operating profit (loss)	(11,655)	2,562
Other Income (Expenses):
Other income (expense), net	(1,023)	313
Interest expense	(10,996)	(9,564)
Interest income	41	38
Nonoperating Income (Expense), Total	(11,978)	(9,213)
Loss from continuing operations before income taxes, equity in affiliates	(23,633)	(6,651)
Income tax expense	1,263	358
Loss from continuing operations before equity in affiliates	(24,896)	(7,009)
Equity in earnings of non-consolidated affiliates	272	255
Loss from continuing operations	(24,624)	(6,754)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes	(300)	(326)
Net loss	(24,924)	(7,080)
Net income attributable to the noncontrolling interests	(1,357)	(1,605)
Loss attributable to MDC Partners Inc.	(26,281)	(8,685)
Basic and diluted:
Loss from continuing operations attributable to MDC Partners Inc. common shareholders	$ (0.87)	$ (0.30)
Discontinued operations attributable to MDC Partners Inc. common shareholders	$ (0.01)	$ (0.01)
Loss attributable to MDC Partners Inc. common shareholders	$ (0.88)	$ (0.31)
Weighted Average Number of Common Shares Outstanding:
Basic and diluted:	29,889,932	28,200,111
Non cash stock-based compensation expense is included in the following line items above:
Non-cash stock-based compensation	5,884	4,274
Cost of services sold
Non cash stock-based compensation expense is included in the following line items above:
Non-cash stock-based compensation		1,040
Office and general expenses
Non cash stock-based compensation expense is included in the following line items above:
Non-cash stock-based compensation	$ 5,884	$ 3,234

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Cash flows from operating activities:
Net loss	$ (24,924)	$ (7,080)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes	(300)	(326)
Loss from continuing operations	(24,624)	(6,754)
Adjustments to reconcile net loss from continuing operations to cash (used in) provided by operating activities:
Depreciation	4,346	4,535
Amortization of intangibles	5,655	5,768
Non-cash stock-based compensation	5,884	4,274
Amortization of deferred finance charges and debt discount	559	637
Adjustment to deferred acquisition consideration	2,675	(2,977)
Gain on disposition of assets	(23)	(17)
Deferred income taxes	1,100
Earnings of non-consolidated affiliates	(272)	(255)
Other non-current assets and liabilities	(1,118)	(1,199)
Foreign exchange	898	(146)
Changes in working capital:
Accounts receivable	(17,409)	(5,882)
Expenditures billable to clients	(17,433)	(3,247)
Prepaid expenses and other current assets	405	(1,745)
Accounts payable, accruals and other liabilities	15,295	(20,674)
Advance billings	36,466	(9,464)
Cash flows provided by (used in) continuing operating activities	12,404	(37,146)
Discontinued operations	115	80
Net cash provided by (used in) operating activities	12,519	(37,066)
Cash flows from investing activities:
Capital expenditures	(5,111)	(4,863)
Acquisitions, net of cash acquired	39,261	(12,617)
Proceeds from sale of assets	22	12
Other investments	(1,039)	(868)
Profit distributions from affiliates		3,783
Cash flows provided by (used in) continuing investing activities	33,133	(14,553)
Discontinued operations		(159)
Net cash provided by (used in) investing activities	33,133	(14,712)
Cash flows from financing activities:
Proceeds (repayments) from revolving credit facility	(14,133)	59,741
Acquisition related payments	(1,925)	(7,453)
Repayment of long-term debt	(46)	(281)
Proceeds from exercise of options		721
Purchase of shares	(2,146)	(1,481)
Deferred financing costs	(74)	(275)
Distributions to noncontrolling partners	(1,646)	(4,293)
Proceeds of bank overdrafts	6,921	1,066
Payment of dividends	(4,669)
Net cash provided by (used in) financing activities	(17,718)	47,745
Effect of exchange rate changes on cash and cash equivalents	(73)	46
Net increase (decrease) in cash and cash equivalents	27,861	(3,987)
Cash and cash equivalents at beginning of period	8,096	10,949
Cash and cash equivalents at end of period	35,957	6,962
Supplemental disclosures:
Cash income taxes paid	24	64
Cash interest paid	674	422
Dividends payable	9,752	387
Non-cash transactions:
Capital leases	$ 134	$ 313

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CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (USD $) In Thousands, except Share data	Total	Common Stock	Common Stock	Share Capital to be issued	Additional Paid in Capital	Charges in Excess of Capital	Accumulated Deficit	Stock Subscription Receivable	Accumulated Other Comprehensive Income	Shareholders' Equity	Noncontrolling Interests
Beginning Balance at Dec. 31, 2011	$ (12,941)	$ 228,208	$ 1	$ 424		$ (45,102)	$ (231,274)	$ (55)	$ (4,658)	$ (52,456)	$ 39,515
Beginning Balance (in shares) at Dec. 31, 2011		29,277,408	2,503	28,000
Net loss attributable to MDC Partners	(26,281)						(26,281)			(26,281)
Foreign currency translation adjustments	1,868								1,862	1,862	6
Stock Appreciation Rights Exercised (in shares)		26,426
Stock Appreciation Rights Exercised		100			(100)
Shares acquired and cancelled (in shares)		(133,217)
Shares acquired and cancelled	(2,146)	(2,146)								(2,146)
Issuance of restricted stock (in shares)		893,320
Issuance of restricted stock		12,555			(12,555)
Stock-based compensation	5,539				5,539					5,539
Changes in redemption value of redeemable noncontrolling interests	50				50					50
Increase in redeemable noncontrolling interests from acquisition	(1,263)				(1,263)					(1,263)
Increase in noncontrolling interests from acquisition	37,630										37,630
Dividends paid and to be paid	(8,962)				(8,962)					(8,962)
Transfer to charges in excess of capital					17,291	(17,291)
Ending Balance at Mar. 31, 2012	$ (6,506)	$ 238,717	$ 1	$ 424		$ (62,393)	$ (257,555)	$ (55)	$ (2,796)	$ (83,657)	$ 77,151
Ending Balance (in shares) at Mar. 31, 2012		30,063,937	2,503	28,000

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Comprehensive Loss:
Net loss	$ (24,924)	$ (7,080)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	1,868	845
Comprehensive loss for the year	(23,056)	(6,235)
Comprehensive loss attributable to noncontrolling interest	(1,363)	(1,608)
Comprehensive loss attributable to MDC Partners Inc.	$ (24,419)	$ (7,843)

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Segment Information

3 Months Ended

Mar. 31, 2012

Segment Information

10. 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 72andSunny, Anomaly Partners, Crispin Porter & Bogusky, Doner 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, ecommerce 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 March 31, 2012

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services			Corporate			Total
Revenue	$	160,418		$	75,560		$	—		$	235,978
Cost of services sold		119,853			57,407			—			177,260
Office and general expenses		34,978			17,461			7,933			60,372
Depreciation and amortization		5,099			4,554			348			10,001
Operating Profit/(Loss)		488			(3,862	)		(8,281	)		(11,655	)
Other Income (Expense):
Other expense, net											(1,023	)
Interest expense, net											(10,955	)
Loss from continuing operations before income taxes, equity in affiliates											(23,633	)
Income tax expense											1,263
Loss from continuing operations before equity in affiliates											(24,896	)
Equity in earnings of non-consolidated affiliates											272
Loss from continuing operations											(24,624	)
Loss from discontinuing operations attributable to MDC Partners Inc., net of taxes											(300	)
Net loss											(24,924	)
Net income attributable to the noncontrolling interests		(1,027	)		(330	)		—			(1,357	)
Net loss attributable to MDC Partners Inc.										$	(26,281	)
Non cash stock based compensation	$	1,866		$	1,691		$	2,327		$	5,884
Supplemental Segment Information:
Capital expenditures	$	2,687		$	2,324		$	100		$	5,111
Goodwill and intangibles	$	551,674		$	260,672		$	—		$	812,346
Total assets	$	837,832		$	414,448		$	86,330		$	1,338,610

Three Months Ended March 31, 2011

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services		Corporate			Total
Revenue	$	141,493		$	73,598	$	—		$	215,091
Cost of services sold		100,770			56,992		—			157,762
Office and general expenses		27,193			10,565		6,706			44,464
Depreciation and amortization		5,807			4,392		104			10,303
Operating Profit/(Loss)		7,723			1,649		(6,810	)		2,562
Other Income (Expense):
Other income, net										313
Interest expense, net										(9,526	)
Loss from continuing operations before income taxes, equity in affiliates										(6,651	)
Income tax expense										358
Loss from continuing operations before equity in affiliates										(7,009	)
Equity in earnings of non-consolidated affiliates										255
Loss from continuing operations										(6,754	)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes										(326	)
Net loss										(7,080	)
Net income attributable to the noncontrolling interests		(1,643	)		38		—			(1,605	)
Net loss attributable to MDC Partners Inc.									$	(8,685	)
Non cash stock based compensation	$	1,547		$	505	$	2,222		$	4,274
Supplemental Segment Information:
Capital expenditures	$	3,733		$	932	$	198		$	4,863
Goodwill and intangibles	$	393,320		$	218,055	$	—		$	611,375
Total Assets	$	598,369		$	335,186	$	41,182		$	974,737

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 March 31,
2012	$	188,185	$	36,439	$	11,354	$	235,978
2011	$	171,908	$	35,140	$	8,043	$	215,091

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Document and Entity Information	3 Months Ended
	Mar. 31, 2012	Apr. 25, 2012 Class A Shares	Apr. 25, 2012 Class B Shares
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
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		30,907,377	2,503

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Commitments, Contingencies and Guarantees

3 Months Ended

Mar. 31, 2012

Commitments, Contingencies and Guarantees

11. 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 March 31, 2012, 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 $29,420 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 $2,740 by the issuance of share capital. In addition, the Company is obligated under similar put option rights to pay an aggregate amount of approximately $79,435 only upon termination of such owner’s employment with the applicable subsidiary or death. Included in redeemable noncontrolling interests at March 31, 2012 is $108,855 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 March 31, 2012 and 2011, 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.

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 $2,817 of investments.  At March 31, 2012, the Company had issued $5,702 of undrawn outstanding letters of credit.

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Current Assets:
Cash and cash equivalents	$ 35,957	$ 8,096
Accounts receivable, less allowance for doubtful accounts of $862 and $851	319,154	238,592
Expenditures billable to clients	56,530	39,067
Other current assets	14,517	12,657
Total Current Assets	426,158	298,412
Fixed assets, at cost, less accumulated depreciation of $106,910 and $101,928	52,352	47,737
Investment in affiliates	192	99
Goodwill	738,233	605,244
Other intangibles assets, net	74,113	57,980
Deferred tax asset	15,440	15,380
Other assets	32,122	30,893
Total Assets	1,338,610	1,055,745
Current Liabilities:
Accounts payable	291,795	178,282
Accruals and other liabilities	98,835	72,930
Advance billings	167,891	122,021
Current portion of long-term debt	1,293	1,238
Current portion of deferred acquisition consideration	67,735	51,829
Total Current Liabilities	627,549	426,300
Long-term debt	369,873	383,936
Long-term portion of deferred acquisition consideration	136,503	85,394
Other liabilities	50,597	14,900
Deferred tax liabilities	51,739	50,724
Total Liabilities	1,236,261	961,254
Redeemable Noncontrolling Interests (Note 2)	108,855	107,432
Commitments, contingencies and guarantees (Note 11)
Shareholders' Equity (Deficit):
Preferred shares, unlimited authorized, none issued
Shares to be issued 28,000 shares	424	424
Charges in excess of capital	(62,393)	(45,102)
Accumulated deficit	(257,555)	(231,274)
Stock subscription receivable	(55)	(55)
Accumulated other comprehensive loss	(2,796)	(4,658)
MDC Partners Inc. Shareholders' Equity (Deficit)	(83,657)	(52,456)
Noncontrolling Interests	77,151	39,515
Total Equity (Deficit)	(6,506)	(12,941)
Total Liabilities, Redeemable Noncontrolling Interests and Equity (Deficit)	1,338,610	1,055,745
Class A Shares
Shareholders' Equity (Deficit):
Common Stock	238,717	228,208
Class B Shares
Shareholders' Equity (Deficit):
Common Stock	$ 1	$ 1

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Accrued and Other Liabilities

3 Months Ended

Mar. 31, 2012

Accrued and Other Liabilities

5. Accrued and Other Liabilities

At March 31, 2012 and December 31, 2011, accrued and other liabilities included amounts due to noncontrolling interest holders, for their share of profits, which will be distributed within the next twelve months of $3,804 and $4,049, respectively.

Changes in noncontrolling interest amounts included in accrued and other liabilities for the year ended December 31, 2011 and three months ended March 31, 2012 were as follows:

	Noncontrolling Interests
Balance, December 31, 2010	$	8,577
Income attributable to noncontrolling interests		7,754
Distributions made		(12,264	)
Other (1)		(18	)
Balance, December 31, 2011	$	4,049
Income attributable to noncontrolling interests		1,357
Distributions made		(1,646	)
Other (1)		44
Balance, March  31, 2012	$	3,804

(1) Other consists primarily of cumulative translation adjustments.

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Acquisitions

3 Months Ended

Mar. 31, 2012

Acquisitions

4. Acquisitions

Pro forma financial information has not been presented for the 2012 acquisitions noted below since they did not have a material effect on the Company’s operating results. Included in the Company’s consolidated statement of operations for the quarter ended March 31, 2012 was revenue of $1,948 and a net loss of $283 related to 2012 acquisitions. The Company assumed cash of $57,833, accounts receivable of $63,163 and accounts payable of $99,584.

First Quarter 2012 Acquisitions

During the quarter ended March 31, 2012, the Company completed a number of transactions. Effective March 28, 2012, MDC invested in Doner Partners LLC (“Doner”). The Company acquired a 30% voting interest and a convertible preferred interest that allows the Company to increase ordinary voting ownership to 70% at MDC’s option, at no additional cost to the Company. Doner is a full service integrated creative agency. In addition, the Company acquired a 70% interest in TargetCast LLC (“TargetCast”). TargetCast is a full service media agency that expands our media strategy and activation offerings. The Company acquired a 51% interest in Dotbox LLC (“Dotbox”), The Dotbox acquisition, forms the foundation for a full-service e-commerce solution within the network. Doner and Dotbox are now included in the Company’s Strategic Marketing Services segment, while TargetCast is included in the Company’s Performance Marketing Group segment. During the quarter, the Company also entered into immaterial transactions with certain majority owned entities.

The aggregate purchase price for these transactions has an estimated present value at acquisition date of $86,553 and consisted of total closing cash payments of $20,500, and additional contingent deferred acquisition consideration that are based on the financial results of the underlying businesses from 2011 to 2018 with final payments due in 2018 with an estimated present value at acquisition date $66,053. An allocation of excess purchase price consideration of these acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $21,581 consisting primarily of customer lists and covenants not to compete, and goodwill of $118,867 representing the value of assembled workforce. The identified assets will be amortized 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 $37,630 as the present value of noncontrolling interest. The Company also recorded an entry to increase redeemable noncontrolling interest by $763 and additional paid-in-capital of $1,262. The intangibles and goodwill are tax deductible.

The actual adjustments that the Company will ultimately make in finalizing 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.

2011 Acquisitions

Pro forma financial information has not been presented for the 2011 acquisitions noted below since they did not have a material effect on the Company’s operating results. Included in the Company’s consolidated statement of operations for the year ended December 31, 2011 was revenue of $68,869 and a net loss of $7,219 related to the 2011 acquisitions. The Company assumed accounts receivable of $35,200 and accounts payable of $65,718 as of the acquisition dates.

Fourth Quarter 2011 Acquisitions

During the quarter ended December 31, 2011, the Company completed a number of transactions. The Company, through a wholly-owned subsidiary, acquired substantially all of the assets of RJ Palmer LLC and a 75% interest in Trade X Partners LLC (“Trade X”). These acquisitions expand the Company’s portfolio with another full service media buying agency as well as provides corporate bartering services to clients and are included in the Performance Marketing Services segment. The Company also entered into a transaction through its subsidiary Kwittken PR LLC (“Kwittken”) acquired 100% of Epoch PR Limited. Epoch is a communications and PR agency and expands Kwittken’s capabilities to London and is included in the Strategic Marketing Services segment. The Company also acquired a 51% interest in AIC Publishing Services LP (“AIC”). In addition, the Company increased its ownership to 85.3% of Veritas, to 94.0% of 656712 Ontario Limited (“Onbrand”), to 66.3% of 6Degrees Integrated Communications and 85% of Boom Marketing Inc. The aggregate purchase price for these transactions has an estimated present value at acquisition date of $26,659 and consisted of total closing cash payments of $12,769, and additional contingent deferred acquisition consideration, that are based on actual financial results of the underlying businesses from 2011 to 2016 with final payments due in 2017 with an estimated present value at acquisition date of $15,944. An allocation of the excess purchase consideration of these acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $5,434 consisting primarily of customer lists and covenants not to compete, and goodwill of $25,091 representing the value of assembled workforce. The identified intangible assets will be amortized 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 $1,237, the present value of redeemable noncontrolling interest in relation to Trade X. The founder of Trade X has the put option rights only upon termination without cause, disability, or death. The Company recorded $229, the present value of noncontrolling interest in relationship to AIC. The Company also recorded an entry to reduce redeemable noncontrolling interests by $2,017 and additional paid-in-capital of $1,328. The intangibles and goodwill of $26,061 are tax deductible.

The actual adjustments that the Company will ultimately make in finalizing 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 2011 Acquisitions

During the quarter ended September 30, 2011, the Company completed a number of acquisitions. The Company, through a wholly-owned subsidiary, purchased a 70% interest in Concentric Partners, LLC (“Concentric”) and a 65% interest in Laird + Partners, New York LLC (“Laird”). The Concentric acquisition is expected to serve as the foundation of the Company’s healthcare platform. The Laird acquisition increases the Company’s positioning in the luxury goods and retail marketplace. Concentric and Laird are now included in the Company’s Strategic Marketing Services segment. In addition, the Company increased its ownership to 100% of Redscout LLC (“Redscout”), 82% of VitroRobertson LLC (“Vitro”), and 91.8% of The Northstar Group of companies. The aggregate purchase price for these transactions has an estimated present value at acquisition date of $37,914 and consisted of total closing cash payments of $15,972, additional contingent deferred acquisition consideration, that are based on actual financial results of the underlying businesses from 2011 to 2016 with final payments due in 2017 with an estimated present value at acquisition date of $21,796. During the fourth quarter of 2011, the Company paid a $572 working capital payment. An allocation of the excess purchase consideration of these acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $4,205 consisting primarily of customer lists and covenants not to compete, and goodwill of $36,664 representing the value of assembled workforce. The identified intangible assets will be amortized 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 $5,045, the present value of redeemable noncontrolling interest in relation to Laird, and $6,478, the present value of noncontrolling interest in relation to Concentric. The remaining principals of Laird have put option rights only upon termination without cause, disability, or death. The Company also recorded an entry to reduce noncontrolling interests by $1,297 and additional paid-in-capital of $4,251 and recorded shares to be issued of $424 in relation to the step ups. The intangibles and goodwill are tax deductible.

The actual adjustments that the Company will ultimately make in finalizing 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.

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, of which the Company paid $81 in 2011 and $50 in 2012. 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. Anomaly is now included in the Company’s Strategic Marketing Services segment. 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. During 2011, the Company made a working capital payment of $1,854. 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 has 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.

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

Transfers (to) from the Noncontrolling Interest

	Three Months Ended March 31,
	2012			2011
Net loss attributable to MDC Partners Inc.	$	(26,281	)	$	(8,685	)
Transfers to the noncontrolling interest:
Decrease in MDC Partners Inc. paid-in capital for purchase of equity interests in excess of Redeemable Noncontrolling Interests		(1,263	)		—
Net transfers to noncontrolling interest	$	(1,263	)	$	—
Change from net loss attributable to MDC Partners Inc. and transfers to noncontrolling interest	$	(27,544	)	$	(8,685	)

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New Accounting Pronouncements

3 Months Ended

Mar. 31, 2012

New Accounting Pronouncements

12. New Accounting Pronouncements

On January 1, 2012, FASB Accounting Standards Update No. 2011-08, Testing Goodwill for Impairment ("ASU 2011-08") became effective. This standard gives an entity the option of performing a qualitative assessment to determine whether it is necessary to perform step 1 of the annual goodwill impairment test. An entity is required to perform step 1 only if it concludes that it is more likely than not that a reporting unit's fair value is less than its carrying amount. An entity may choose to perform the qualitative assessment on none, some or all of its reporting units or an entity may bypass the qualitative assessment for any reporting unit in any period and proceed directly to step 1 of the impairment test. We perform our annual impairment test at the beginning of the fourth quarter of each year.

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Fair Value Measurements

3 Months Ended

Mar. 31, 2012

Fair Value Measurements

8. 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 March 31, 2012 and 2011:

	Level 1				Level 1
	March 31, 2012				March 31, 2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Liabilities:
11% Notes due 2016	$	344,443	$	376,050	$	283,400	$	320,300

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)
	March 31,
	2012			2011
Beginning Balance of contingent payments	$	129,759		$	98,534
Payments		(208	)		(6,441	)
Grants		64,817			5,949
Redemption value adjustments		2,715			(2,470	)
Foreign translation adjustment		313			288
Ending Balance of contingent payments	$	197,396		$	95,860

In addition to the above amounts, there are fixed payments of $6,842 and $7,548 for total deferred acquisition consideration of $204,238 and $103,408, which reconciles to the consolidated financial statements at March 31, 2012 and 2011, 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 March 31, 2012 and December 31, 2011, 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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Discontinued Operations

3 Months Ended

Mar. 31, 2012

Discontinued Operations

6. Discontinued Operations

In December 2011, the Company discontinued a division of Accent Marketing Services, LLC, called Performance Marketing Group. As a result, the Company has classified this entity’s results of operations as as discontinued operations. The results of operations for the three months ended March 31, 2012 and 2011 was a loss of $300 and $326, respectively.

Included in discontinued operations in the Company’s consolidated statements of operations for the three months ended March 31, 2012 and 2011 was the following:

	Three Months Ended March 31,
	2012			2011
Revenue	$	2,062		$	2,411
Operating loss	$	(286	)	$	(318	)
Other expense	$	(14	)	$	(8	)
Net loss from discontinued operations attributable to MDC Partners Inc., net of taxes	$	(300	)	$	(326	)

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

3 Months Ended

Mar. 31, 2012

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

7. Short-Term Debt, Long-Term Debt and Convertible Notes

Debt consists of:

	March 31,			December 31,
	2012			2011
Revolving credit facility	$	23,899		$	38,032
11% Senior Notes due 2016		345,000			345,000
Original issue discount		(557	)		(561	)
Notes payable and other bank loans		1,425			1,266
		369,767			383,737
Obligations under capital leases		1,399			1,437
		371,166			385,174
Current portion		1,293			1,238
Long term portion	$	369,873		$	383,936

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% 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% 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.

At March 31, 2012, the Company had issued $5,702 of undrawn outstanding Letters of Credit.

At March 31, 2012 and December 31, 2011, accounts payable included $8,693 and $3,350 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 prior $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 for borrowing at March 31, 2012 is 2.25% in the case of Base Rate Loans and 2.50% in the case of LIBOR Rate Loans. 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 March 31, 2012, the weighted average interest rate under the WF Credit Agreement was 5.5%.

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Other Income (Expense)

3 Months Ended

Mar. 31, 2012

Other Income (Expense)

9. Other Income (Expense)

	Three Months Ended March 31,
	2012			2011
Other income (expense)	$	(5	)	$	54
Foreign currency transaction gain (loss)		(1,041	)		242
Gain on sale of assets		23			17
	$	(1,023	)	$	313

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Accounts receivable, allowance for doubtful accounts	$ 862	$ 851
Fixed assets, accumulated depreciation	$ 106,910	$ 101,928
Preferred shares, issued
Shares to be issued, shares	28,000
Class A Shares
Common stock, no par value
Common stock, shares issued	30,063,937	29,277,408
Class B Shares
Common stock, no par value
Common stock, shares issued	2,503	2,503
Common stock, shares outstanding	2,503	2,503

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Income (Loss) Per Common Share

3 Months Ended

Mar. 31, 2012

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 March 31,
	2012			2011
Numerator
Numerator for basic loss per common share - loss from continuing operations	$	(24,624	)	$	(6,754	)
Net income attributable to the noncontrolling interests		(1,357	)		(1,605	)
Loss attributable to MDC Partners Inc. common shareholders from continuing operations	$	(25,981	)	$	(8,359	)
Effect of dilutive securities		—			—
Numerator for diluted loss per common share – loss attributable to MDC Partners Inc. common shareholders from continuing operations	$	(25,981	)	$	(8,359	)
Denominator
Denominator for basic loss per common share - weighted average common shares		29,889,932			28,200,111
Effect of dilutive securities:		—			—
Denominator for diluted loss per common share - adjusted weighted shares		29,889,932			28,200,111
Basic loss per common share from continuing operations attributable to MDC Partners Inc.	$	(0.87	)	$	(0.30	)
Diluted loss per common share from continuing operations attributable to MDC Partners Inc.	$	(0.87	)	$	(0.30	)

During the three months ended March 31, 2012, options and other rights to purchase 5,093,649 shares of common stock, which includes 846,269 shares of non-vested restricted stock and restricted stock units, were outstanding and were not included in the computation of diluted income per common share because their effect would be antidilutive.

During the three months ended March 31, 2011, options and other rights to purchase 5,352,121 shares of common stock, which includes 1,912,723 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.