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EX-99.1 - Stagwell Inc | v184210_ex99-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
Current
Report Pursuant to Section 13 or 15(d)
of the
Securities Exchange Act of 1934
Date of
Report (Date Earliest Event reported) — May 10, 2010
MDC
PARTNERS INC.
(Exact
name of registrant as specified in its charter)
Canada
(Jurisdiction
of Incorporation)
|
001-13718
(Commission
File Number)
|
98-0364441
(IRS
Employer Identification
No.)
|
45
Hazelton Ave., Toronto, Ontario, Canada M5R 2E3
(Address
of principal executive offices and zip code)
(416)
960-9000
(Registrant’s
Telephone Number)
Check the
appropriate box below if the Form 8−K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
o
|
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|
o
|
Soliciting
material pursuant to Rule 14a−12 under the Exchange Act (17 CFR
240.14a−12)
|
o
|
Pre−commencement
communications pursuant to Rule 14d−2(b) under the Exchange Act (17 CFR
240.14d−2(b))
|
o
|
Pre−commencement communications
pursuant to Rule 13e−4(c) under the Exchange Act (17 CFR 240.13e−
4(c))
|
Item
7.01. Regulation FD Disclosure.
On May 10, 2010, MDC Partners Inc. (
“MDC”) commenced a private offering of $65 million aggregate principal amount of
senior unsecured notes due 2016 (the “Notes”). MDC is updating its
disclosure under Item 7.01 of this Current Report on Form 8-K. This
information, some of which has not previously been reported, is excerpted from a
confidential offering circular that is being disseminated in connection with the
private offering.
Debt
Financing
As of April 30, 2010, MDC had $48.8
million outstanding under its senior secured revolving credit facility that
matures on October 23, 2014 (the “Facility”). MDC intends to use the net
proceeds of the potential Notes offering to repay in full the outstanding
balance under the Facility, and to use the remaining net proceeds for general
corporate purposes, including acquisitions.
Strengths and Strategies of
MDC
Strengths
Proven
Partnership Model with Leading Marketing Services
Agencies
|
MDC
partners with entrepreneurial and media-agnostic marketing services agencies
across North America and Europe, including firms such as Crispin Porter +
Bogusky, kirshenbaum bond senecal + partners, Zig, Source Marketing, Vitro,
Colle + McVoy, Allison Partners, Sloane & Company, and IMS. MDC’s
partnership structure creates an ongoing alignment of interests between the
parent company and the core operational talent to drive financial performance.
The perpetual partnership model functions by (1) identifying partners with a
sustainable differentiated position in the marketplace and understanding the
increasingly complex and fragmented media landscape; (2) creating a partnership
structure generally by taking a majority ownership position and leaving a
substantial minority equity or economic ownership position in the hands of
operating management to incentivize long-term growth; (3) providing access to
more financial and human resources and leveraging the network’s scale; and (4)
delivering strong financial results. As a result of MDC’s experience in
acquiring over 30 companies since its founding, MDC has developed a sound
investment strategy and best practices for integration which combine to reduce
risk broadly inherent with strategic acquisitions.
Media-Agnostic
Focus with Market Leading Exposure to Digital
Advertising
|
MDC
believes that the agency model of the future relies on being able to provide
clients with media-agnostic solutions that navigate the increasingly fragmented
media landscape by reaching MDC’s clients’ target customers no matter where they
may be. This means being able to provide solutions leveraging digital
technologies and media in addition to traditional media advertising such as on
television. Given this focus, digital revenues now make up 40.5% of MDC’s
revenue as of the first quarter of 2010, which MDC believes and according to
analyst estimates is higher than all of MDC’s direct public-company peers. MDC’s
digital capabilities not only enhance its clients’ ability to target their
customers, but given that they are interactive in nature, enable us to more
accurately measure the effectiveness of their marketing expenditures. Digital
marketing communications services are consuming a growing portion of marketing
dollars and expect to continue to aggressively grow MDC’s capabilities in this
area.
2
High
Quality Portfolio of Clients in Diverse
Industries
|
MDC’s
clients include some of the most notable global brands and are broadly spread
across numerous industries. MDC’s partnership structure allows it to work with
clients within the same business sector through its different agencies, as well
as maintain a diversified client base by sector. In the aggregate, MDC’s top ten
clients based on revenue accounted for approximately 49% and 45% of revenue in
2009 and 2008, respectively. As MDC continues to grow, MDC expects its client
base to diversify and the percentage of its total revenue attributable to its
top ten clients to decrease. Currently, within many of MDC’s largest clients,
MDC represents multiple brands or divisions across multiple advertising and
marketing disciplines, thereby providing a further layer of
diversity.
High
Free Cash Flow Generation that is Expected to Fuel Future
Growth
|
MDC is
focused on optimizing its operations to maximize free cash flow given its view
that free cash flow is the best metric with which to improve its credit
worthiness. MDC’s business model allows it to generate significant operating
cash flow due to its strong operating margins, moderate capital expenditures
needs and tightly managed working capital requirements. Additionally, MDC’s
partnership platform seeks to take advantage of MDC’s scale and is designed to
potentially increase purchasing efficiencies and centralize certain non-revenue
generating business activities.
Experienced
Management Team Featuring Industry Leaders across
Partnerships
|
MDC’s
management team has a track record of efficiently operating and managing a
profitable advertising business through economic cycles. The management team is
continually seeking to improve profitability, growth and cash flow generation.
In addition, the team has a long-standing record of executing acquisitions,
investments and integration efforts as well as recruiting and incentivizing key
talent that are the drivers of MDC’s operating businesses.
Strategies
Based on
the simple premise that the best talent will attract the most desirable clients,
MDC purposefully keeps equity in the hands of the founders and successive
generations of management through its operating philosophy of “perpetual
partnership” to foster entrepreneurial growth. MDC offers an alternative to
traditional agency networks that have rigid structures, standardized procedures,
and a geographical client focus. MDC encourages creativity, innovation, and
autonomy in its Partner firms while providing human and financial resources with
the goal of improving operating performance. While MDC is the ninth largest
advertising and marketing services firm in the world according to AdAge, MDC
believes there is opportunity to gain market share both in North America and
around the world. MDC believes that it can enhance its success by implementing
the following business strategies:
Emphasize
Nimble, Media-Agnostic
Platform
|
MDC
believes that its firms are smaller and more nimble than many of the legacy
agencies against which they compete. Therefore they are able to offer an
integrated media-agnostic solution without being limited to any particular media
or marketing discipline. This means being able to provide solutions leveraging
digital technologies and media, in addition to traditional media advertising
such as on television or in print. The rise of social media is only adding to
the complexity of the advertising landscape, thereby MDC believes making its
media-agnostic approach even more advantageous.
3
Selectively
Pursue Favorable Acquisitions
|
Part of
MDC’s growth strategy is to pursue selective acquisitions that add to MDC’s
broader capabilities and where MDC believes it can help change the revenue and
profit growth of the underlying business. MDC’s partnership strategy facilitates
an ongoing alignment of interests to drive performance across the businesses and
is designed to secure agency management for the long-term and facilitate
succession planning. MDC looks for the opportunity to partner with businesses
that (1) have a sustainable competitive differentiation, (2) understand how
consumers consume influence in a digital economy, (3) have significant growth
potential with strong margins, (4) have capable management teams, (5) have an
ability to collaborate across the MDC network and (6) have a proven track record
of success. MDC believes that this disciplined approach to new partnership
opportunities given the above focus and its priority return acquisition
structure reduces the risk broadly inherent in strategic
acquisitions.
Continued
Focus on High Growth Digital
Platforms
|
MDC
continues to focus on ensuring that it offers its clients the ability
to leverage digital technologies and media to effectively market to consumers.
MDC’s business plan is to grow digital revenues as a percent of total revenue.
MDC plans to meet this goal through internal investment in digital and social
media talent, by partnering and investing with innovative digital firms and by
organically growing its existing digital initiatives. MDC expects these digital
capabilities will serve to help MDC agencies to differentiate their respective
competitive offerings and deliver results to its clients.
Expand
Margins through Corporate Overhead
Structure
|
MDC plans
to contain corporate expense growth to a rate lower than the growth of its
overall business, thereby providing further operating leverage, especially as
MDC moves to centralize more purchasing and other functions. Currently, MDC
provides centralized functional services, including accounting and finance,
legal services, real estate expertise, strategic sourcing, recruitment
assistance, employee benefits and executive compensation
management.
4
Unuaudited Pro Forma
Information
The
following unaudited pro forma financial information is based on MDC’s audited
and unaudited financial statements which appears in MDC’s Annual Report on Form
10-K for the year ended December 31, 2009 and Quarterly Report on Form 10-Q for
the three months ended March 31, 2010 , as adjusted to illustrate the estimated
pro forma effects of the Acquisitions (including the preliminary application of
purchase accounting). The “Acquisitions” include MDC’s acquisition of
each of (i) Communifx Partners LLC (“Communifx”), (ii) Team Holdings LLC
(“Team”), (iii) Plaid, Inc. (“Plaid”), (iv) Allison and Partners LLC
(“Allison”), (v) Integrated Media Solutions LLC (“IMS”), (vi) Sloane &
Company LLC (“Sloane”) and (vii) CCS-ADPLUS, LLC (d.b.a. Infolure) (“Infolure”).
The unaudited pro forma financial information should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in MDC’s Annual Report on Form 10-K for the year ended December 31,
2009 and MDC’s audited and unaudited consolidated financial statements and
related notes appearing in MDC’s Annual Report on Form 10-K for the year ended
December 31, 2009 and Quarterly Report on Form 10-Q for the three months ended
March 31, 2010.
The
unaudited pro forma financial information gives effect to the Acquisitions as if
they had occurred on January 1, 2009 for purposes of the unaudited pro forma
condensed consolidated statements of operations and on March 31, 2010 with
respect to the unaudited pro forma condensed consolidated balance sheet
information. The summary unaudited pro forma financial information
for the twelve months ended March 31, 2010 was calculated by subtracting the pro
forma results for the three months ended March 31, 2009 from the pro forma
results for the year ended December 31, 2009, and then adding the pro forma
results for the three months ended March 31, 2010.
MDC
will account for the Acquisitions under the purchase method of accounting. The
pro forma adjustments related to the purchase price allocation in connection
with the Acquisitions are preliminary and based upon information obtained to
date and assumptions that MDC believes are reasonable. The actual purchase
accounting adjustments described in the accompanying notes will be made after
the closing of the Acquisitions and finalized within twelve months and may
differ from those reflected in the unaudited pro forma financial information
presented below. The actual amounts that MDC records based on MDC’s final
allocation of the purchase price, after giving effect to final purchase price
adjustments at the closing date, and MDC’s final assessment of fair values may
differ materially from those recorded in MDC’s unaudited pro forma financial
information.
The
unaudited pro forma financial information is for illustrative and informational
purposes only and does not purport to represent or be indicative of what MDC’s
financial condition or results of operations would have been had the
Acquisitions occurred on such dates. The unaudited pro forma
financial information should not be considered representative of MDC’s future
financial condition or results of operations.
5
Unaudited
Pro Forma Condensed Consolidated Balance Sheet
as
of March 31, 2010
Historical
for
MDC (2)
|
Historical
for
IMS
|
Historical
Combined
Other
Acquisitions
|
Combined
Pro
Forma
Adjustments
|
Combined
Pro
Forma
for
the
Acquisitions
|
||||||||||||||||
(Dollars
in Thousands)
|
||||||||||||||||||||
Financial
Position Data:
|
||||||||||||||||||||
Cash,
cash equivalents & marketable securities (3)(i)
|
$ | 21,247 | $ | 11,419 | $ | 1,221 | $ | (33,887 | ) | $ | — | |||||||||
Total
assets (3)(i),(ii),(iii),(iv)
|
$ | 633,066 | $ | 48,335 | $ | 4,755 | $ | 64,233 | $ | 750,389 | ||||||||||
Total
debt (3)(v)
|
$ | 228,514 | $ | 25 | $ | 364 | $ | 2957 | $ | 231,860 | ||||||||||
Total
liabilities (3)(v),(vi)
|
$ | 500,652 | $ | 49,911 | $ | 1,090 | $ | 35,028 | $ | 586,681 | ||||||||||
Total
equity (3)(viii),(ix)
|
$ | 102,546 | $ | (1,576 | ) | $ | 3,665 | $ | 21,980 | $ | 126,615 | |||||||||
See
accompanying notes to the unaudited pro forma condensed consolidated financial
statements.
6
Notes
to Unaudited Pro Forma
Condensed
|
Consolidated
Balance Sheet
|
1.
|
Basis
of Presentation
|
The
accompanying unaudited pro forma consolidated financial statements as of March
31, 2010, for the year ended December 31, 2009 and for each of the three months
ended March 31, 2009 and 2010 give effect to the acquisitions (the
“Acquisitions”) of Team, IMS, Communifx, Plaid, Infolure, Sloane and Allison
(the “Acquired Entities”). The unaudited pro forma consolidated balance sheet
presents MDC’s financial position as if the Acquisitions had occurred as of
March 31, 2010. Both MDC’s fiscal year end and each Acquired Entity’s fiscal
year end is December 31. The unaudited pro forma consolidated balance sheet as
of March 31, 2010 is based upon MDC’s historical unaudited consolidated balance
sheet as of March 31, 2010 and the historical unaudited consolidated balance
sheets of the Acquired Entities as of March 31, 2010.
The
unaudited pro forma consolidated financial statements include, in MDC’s opinion,
all material adjustments necessary to reflect these Acquisitions. The unaudited
pro forma consolidated financial statements do not purport to represent what
MDC’s actual results of operations including the Acquisitions would have been,
nor do they purport to predict or indicate MDC’s financial position or results
of operations at any future date or for any future period. The unaudited pro
forma consolidated financial statements should be read in conjunction with MDC’s
audited consolidated financial statements and the related notes thereto and
Team’s and IMS’s audited consolidated financial statements and the related notes
thereto. The statements have been prepared by management in accordance with
generally accepted accounting principles of the United States of America (“U.S.
GAAP”). The accounting policies used in the preparation of the unaudited pro
forma consolidated financial statements are consistent with those used by MDC in
the preparation of the consolidated financial statements as of and for the year
ended December 31, 2009.
In the
preparation of these unaudited pro forma consolidated financial statements, the
purchase consideration has been allocated on a preliminary basis to the fair
value of assets acquired and liabilities assumed based on management’s best
estimates and taking into account all relevant information available at the time
these unaudited pro forma consolidated financial statements were prepared. MDC
expects that the actual amounts for each of the fair values of these assets and
liabilities acquired will vary from the pro forma amounts and that the variation
may be significant.
The
actual adjustments that MDC will ultimately make in finalizing the allocation of
the purchase price of the Acquisitions to the fair value of the net assets
acquired at the acquisition dates will depend on a number of factors, including
additional information available at such time, changes in market values and
changes in the Acquired Entities’ operating results between the date of these
unaudited pro forma consolidated financial statements and the effective date of
the Acquisitions.
2.
|
The
acquisition of Team closed on March 5, 2010. This column includes the
balance sheet data for WWG, LLC
(Team).
|
7
3.
|
The
unaudited pro forma consolidated balance sheet as at March 31, 2010
incorporates the following
adjustments:
|
|
(i)
|
The
funding for the Acquisitions, which reduced the current cash balances in
the amount of $33,887, has been reflected in the unaudited pro forma
consolidated balance sheet as if it had occurred on March 31,
2010.
|
|
(ii)
|
The
Acquired Entities’ other current assets of $98 representing certain assets
which were not purchased in the
Acquisitions.
|
|
(iii)
|
Intangible
assets acquired from the Acquired Entities have been recorded at their
estimated fair values as part of the allocation of the purchase price.
Intangible assets acquired include the Acquired Entities’ customer
contracts and relationships, including backlog of $18,285. The estimated
fair values are based on preliminary studies undertaken by management. The
estimated value allocated to goodwill of $80,112 was based on the residual
of the preliminary fair values of the identifiable tangible and intangible
assets less the preliminary fair values of the liabilities assumed. The
actual allocation may differ significantly from these
estimates.
|
|
(iv)
|
The
Acquired Entities’ other assets of $179 representing certain assets, which
were not purchased in the
Acquisitions.
|
|
(v)
|
At
closing, certain of the Acquired Entities’ outstanding debt of $148 was
repaid utilizing the proceeds from the Acquisitions. In addition, $3,105
of borrowings were assumed under MDC’s revolving credit facility to fund
these acquisitions.
|
|
(vi)
|
Deferred
acquisition consideration in the amount of $32,047 has been recorded to
reflect the estimated present value of such
payments.
|
|
(vii)
|
Redeemable
Noncontrolling Interests in the amount of $7,225 have been recorded, which
represent noncontrolling interests subject to future mandatory put
obligations.
|
|
(viii)
|
The
Acquired Entities’ members equity of $2,089 has been eliminated to reflect
the Acquisitions.
|
|
(ix)
|
Noncontrolling
interests in the amount of $24,069 have been recorded representing the
fair value of the noncontrolling interests not purchased and not subject
to mandatory put obligations.
|
8
Unaudited
Pro Forma Condensed Consolidated
Statement
of Operations
for
the Year Ended December 31, 2009
Historical
for
MDC
|
Historical
for
WWG,
LLC
(Team)
|
Historical
for
IMS
|
Historical
Combined
Other
Acquisitions
|
Combined
Pro
Forma
Adjustments
|
Combined
Pro
Forma
for
the
Acquisitions
|
|||||||||||||||||||
(Dollars
in Thousands)
|
||||||||||||||||||||||||
Operating
Data
|
||||||||||||||||||||||||
Revenues
|
$ | 545,924 | $ | 53,583 | $ | 28,618 | $ | 42,470 | $ | 670,595 | ||||||||||||||
Operating
Expenses:
|
||||||||||||||||||||||||
Cost
of services sold
|
$ | 354,312 | $ | 42,480 | $ | 13,522 | $ | 22,559 | $ | 432,873 | ||||||||||||||
Office
and general expenses(2)(b)(ii)
|
$ | 136,897 | $ | 6,652 | $ | 5,383 | $ | 15,510 | $ | 2,217 | $ | 166,659 | ||||||||||||
Depreciation
and amortization(2)(b)(i)
|
$ | 34,471 | $ | 104 | $ | 326 | $ | 436 | $ | 10,249 | $ | 45,586 | ||||||||||||
Total
Operating Expenses
|
$ | 525,680 | $ | 49,236 | $ | 19,231 | $ | 38,505 | $ | 12,466 | $ | 645,118 | ||||||||||||
Operating
income (loss)
|
$ | 20,244 | $ | 4,347 | $ | 9,387 | $ | 3,965 | $ | (12,466 | ) | $ | 25,477 | |||||||||||
Other
Income (Expenses) (2)(b)(iii)
|
$ | (23,792 | ) | $ | (96 | ) | $ | 22 | $ | (95 | ) | $ | (4,622 | ) | $ | (28,583 | ) | |||||||
Income
taxes(2)(b)(iv)
|
$ | 8,536 | $ | 79 | $ | 300 | $ | 183 | $ | (305 | ) | $ | 8,793 | |||||||||||
Income
(Loss) from continuing operations
|
$ | (12,092 | ) | $ | 4,172 | $ | 9,109 | $ | 3,687 | $ | (16,783 | ) | $ | (11,907 | ) | |||||||||
Loss
from discontinued operations
|
$ | (876 | ) | $ | (876 | ) | ||||||||||||||||||
Net
income attributable to noncontrolling interests
|
$ | (5,356 | ) | $ | (5,356 | ) | ||||||||||||||||||
Net
(loss) income attributable to MDC common shareholders
|
$ | (18,324 | ) | $ | 4,172 | $ | 9,109 | $ | 3,687 | $ | (16,783 | ) | $ | (18,139 | ) |
See
accompanying notes to the unaudited pro forma condensed consolidated statement
of operations.
9
Unaudited
Pro Forma Condensed Consolidated
Statement
of Operations
for
the Three Months Ended March 31, 2009
Historical
for
MDC
|
Historical
for
WWG,
LLC
(Team)
|
Historical
for
IMS
|
Historical
Combined
Other
Acquisitions
|
Combined
Pro
Forma
Adjustments
|
Combined
Pro
Forma
for
the
Acquisitions
|
|||||||||||||||||||
(Dollars
in Thousands)
|
||||||||||||||||||||||||
Operating
Data
|
||||||||||||||||||||||||
Revenues
|
$ | 126,738 | $ | 10,270 | $ | 6,496 | $ | 11,764 | $ | 155,268 | ||||||||||||||
Operating
Expenses:
|
||||||||||||||||||||||||
Cost
of services sold
|
$ | 85,879 | $ | 7,977 | $ | 3,181 | $ | 5,768 | $ | 102,805 | ||||||||||||||
Office
and general expenses(2)(c)(ii)
|
$ | 31,152 | $ | 1,382 | $ | 1,360 | $ | 4,701 | $ | 664 | $ | 39,259 | ||||||||||||
Depreciation
and amortization(2)(c)(i)
|
$ | 7,593 | $ | 22 | $ | 100 | $ | 114 | $ | 2,719 | $ | 10,548 | ||||||||||||
Total
Operating Expenses
|
$ | 124,624 | $ | 9,381 | $ | 4,641 | $ | 10,583 | $ | 3,383 | $ | 152,612 | ||||||||||||
Operating
income (loss)
|
$ | 2,114 | $ | 889 | $ | 1,855 | $ | 1,181 | $ | (3,383 | ) | $ | 2,656 | |||||||||||
Other
Income (Expenses) (2)(c)(iii)
|
$ | (929 | ) | $ | (25 | ) | $ | 3 | $ | (14 | ) | $ | (1,333 | ) | $ | (2,298 | ) | |||||||
Income
taxes(2)(c)(iv)
|
$ | 615 | $ | 25 | $ | 36 | $ | (391 | ) | $ | 285 | |||||||||||||
Income
(Loss) from continuing operations
|
$ | 663 | $ | 839 | $ | 1,858 | $ | 1,131 | $ | (4,326 | ) | $ | 166 | |||||||||||
Loss
from discontinued operations
|
$ | (252 | ) | $ | (252 | ) | ||||||||||||||||||
Net
income attributable to noncontrolling interests
|
$ | (382 | ) | $ | (382 | ) | ||||||||||||||||||
Net
(loss) income available to MDC common shareholders
|
$ | 29 | $ | 839 | $ | 1,858 | $ | 1,131 | $ | (4,326 | ) | $ | (468 | ) |
See
accompanying notes to the unaudited pro forma condensed consolidated statement
of operations.
10
Unaudited
Pro Forma Condensed Consolidated
Statement
of Operations
for
the Three Months Ended March 31, 2010
Historical
for
MDC
|
Historical
for
WWG,
LLC
(Team)
|
Historical
for
IMS
|
Historical
Combined
Other
Acquisitions
|
Combined
Pro
Forma
Adjustments
|
Combined
Pro
Forma
for
the
Acquisitions
|
|||||||||||||||||||
(Dollars
in Thousands)
|
||||||||||||||||||||||||
Operating
Data
|
||||||||||||||||||||||||
Revenues
|
$ | 136,182 | $ | 6,636 | $ | 7,085 | $ | 6,520 | $ | 156,423 | ||||||||||||||
Operating
Expenses:
|
||||||||||||||||||||||||
Cost
of services sold
|
$ | 96,969 | $ | 5,505 | $ | 3,878 | $ | 3,426 | $ | 109,778 | ||||||||||||||
Office
and general expenses(3)(d)(ii)
|
$ | 34,625 | $ | 1,509 | $ | 1,340 | $ | 2,274 | $ | (38 | ) | $ | 39,710 | |||||||||||
Depreciation
and amortization(3)(d)(i)
|
$ | 5,833 | $ | 20 | $ | 81 | $ | 70 | $ | 1,918 | $ | 7,922 | ||||||||||||
Total
Operating Expenses
|
$ | 137,427 | $ | 7,034 | $ | 5,299 | $ | 5,770 | $ | 1,881 | $ | 157,411 | ||||||||||||
Operating
income (loss)
|
$ | (1,245 | ) | $ | (398 | ) | $ | 1,786 | $ | 750 | $ | (1,881 | ) | $ | (988 | ) | ||||||||
Other
Income (Expenses) (3)(d)(iii)
|
$ | (7,620 | ) | $ | (11 | ) | $ | 6 | $ | 1 | $ | (200 | ) | $ | (7,824 | ) | ||||||||
Income
taxes(3)(d)(iv)
|
$ | 249 | $ | (5 | ) | $ | — | $ | 36 | $ | (15 | ) | $ | 265 | ||||||||||
Income
(Loss) from continuing operations
|
$ | (9,218 | ) | $ | (404 | ) | $ | 1,792 | $ | 715 | $ | (2,066 | ) | $ | (9,181 | ) | ||||||||
Loss
from discontinued operations
|
||||||||||||||||||||||||
Net
income attributable to noncontrolling interests
|
$ | (968 | ) | $ | (968 | ) | ||||||||||||||||||
Net
(loss) income available to MDC common shareholders
|
$ | (10,186 | ) | $ | (404 | ) | $ | 1,792 | $ | 715 | $ | (2,066 | ) | $ | (10,149 | ) |
See accompanying notes to the
unaudited pro forma condensed consolidated statement of
operations.
11
Unaudited
Pro Forma Condensed Consolidated
Statement
of Operations
for
the Twelve Months Ended March 31, 2010
Historical
for
MDC
|
Historical
for
WWG,
LLC
(Team)
|
Historical
for
IMS
|
Historical
Combined
Other
Acquisitions
|
Combined
Pro
Forma
Adjustments
|
Combined
Pro
Forma
for
the
Acquisitions
|
|||||||||||||||||||
(Dollars
in Thousands)
|
||||||||||||||||||||||||
Operating
Data
|
||||||||||||||||||||||||
Revenues
|
$ | 555,368 | $ | 49,949 | $ | 29,207 | $ | 37,226 | $ | 671,750 | ||||||||||||||
Operating
Expenses:
|
||||||||||||||||||||||||
Cost
of services sold
|
$ | 365,402 | $ | 40,008 | $ | 14,219 | $ | 20,217 | $ | 439,846 | ||||||||||||||
Office
and general expenses (2)
|
$ | 140,370 | $ | 6,779 | $ | 5,363 | $ | 13,083 | $ | 1,516 | $ | 167,111 | ||||||||||||
Depreciation
and amortization (2)
|
$ | 32,711 | $ | 102 | $ | 307 | $ | 392 | $ | 9,448 | $ | 42,960 | ||||||||||||
Total
Operating Expenses
|
$ | 538,483 | $ | 46,889 | $ | 19,889 | $ | 33,692 | $ | 10,964 | $ | 649,917 | ||||||||||||
Operating
income (loss)
|
$ | 16,885 | $ | 3,060 | $ | 9,318 | $ | 3,534 | $ | (10,964 | ) | $ | 21,833 | |||||||||||
Other
Income (Expenses)(2)
|
$ | (30,483 | ) | $ | (82 | ) | $ | 25 | $ | (80 | ) | $ | (3,489 | ) | $ | (34,109 | ) | |||||||
Income
taxes (2)
|
$ | 8,170 | $ | 49 | $ | 300 | $ | 183 | $ | 71 | $ | 8,773 | ||||||||||||
Income
(Loss) from continuing operations
|
$ | (21,973 | ) | $ | 2,929 | $ | 9,760 | $ | 3,271 | $ | (14,524 | ) | $ | (21,254 | ) | |||||||||
Loss
from discontinued operations
|
$ | (624 | ) | $ | (624 | ) | ||||||||||||||||||
Net
income attributable to noncontrolling interests
|
$ | (5,942 | ) | $ | (5,942 | ) | ||||||||||||||||||
Net
(loss) income available to MDC common shareholders
|
$ | (28,539 | ) | $ | 2,929 | $ | 9,760 | $ | 3,271 | $ | (14,524 | ) | $ | (27,820 | ) |
See
accompanying notes to the unaudited pro forma condensed consolidated statement
of operations.
12
Notes
to Unaudited Pro Forma Condensed Consolidated Statement of
Operations
(In
Thousands, Except Share and per Share Amounts)
Basis
of Presentation
|
The
accompanying unaudited pro forma consolidated financial statements as of March
31, 2010, for the year ended December 31, 2009 and for each of the three months
ended March 31, 2009 and 2010 give effect to the Acquisitions of the Acquired
Entities. The unaudited pro forma consolidated statement of operations presents
its results as if the Acquisitions had occurred on January 1, 2009. Both MDC’s
fiscal year end and each Acquired Entity’s fiscal year end is December 31. The
unaudited pro forma consolidated statement of operations for the year ended
December 31, 2009 and for each of the three months ended March 31, 2009 and 2010
is based on upon MDC’s historical audited consolidated statement of operations
for the year ended December 31, 2009 and the unaudited statement of operations
for the three months ended March 31, 2009 and 2010 and the historical audited
consolidated statement of operations of Team and IMS and the historical
unaudited statement of operations of the other Acquired Entities for the year
ended December 31, 2009. The unaudited statements of operations for each of the
three months ended March 31, 2009 and 2010 are based on the historical unaudited
statements of operations for the three months ended March 31, 2009 and 2010 of
the Acquired Entities.
The
unaudited pro forma consolidated financial statements include, in MDC’s opinion,
all material adjustments necessary to reflect these Acquisitions. The unaudited
pro forma consolidated financial statements do not purport to represent what
MDC’s actual results of operations including the Acquisitions would have been,
nor do they purport to predict or indicate MDC’s financial position or results
of operations at any future date or for any future period. The unaudited pro
forma consolidated financial statements should be read in conjunction with MDC’s
audited consolidated financial statements and the related notes thereto and
Team’s and IMS’s audited consolidated financial statements and the related notes
thereto. The statements have been prepared by management in accordance with U.S.
GAAP. The accounting policies used in the preparation of the unaudited pro forma
consolidated financial statements are consistent with those used by MDC in the
preparation of the consolidated financial statements as of and for the year
ended December 31, 2009.
In the
preparation of these unaudited pro forma consolidated financial statements, the
purchase consideration has been allocated on a preliminary basis to the fair
value of assets acquired and liabilities assumed based on management’s best
estimates and taking into account all relevant information available at the time
these unaudited pro forma consolidated financial statements were prepared. MDC
expects that the actual amounts for each of the fair values of these assets and
liabilities acquired will vary from the pro forma amounts and that the variation
may be significant.
The
actual adjustments that MDC will ultimately make in finalizing the allocation of
the purchase price of the Acquisitions to the fair value of the net assets
acquired at the acquisition dates will depend on a number of factors, including
additional information available at such time, changes in market values and
changes in the Acquired Entities’ operating results between the date of these
unaudited pro forma consolidated financial statements and the effective date of
the Acquisitions.
2.
|
Pro
forma assumptions and
adjustments:
|
(a) | Not used. |
(b)
|
The
unaudited pro forma consolidated statement of operations for the year
ended December 31, 2009 incorporates the following assumptions and
adjustments:
|
|
(i)
|
Pro
forma depreciation and amortization has been increased by $10,249 for the
year ended December 31, 2009 to reflect the amortization of other
intangible assets arising from the Acquisitions, over their estimated
lives of five years over both a straight line basis and in a manner
represented by the pattern in which the economic benefits are
realized.
|
13
|
(ii)
|
Pro
forma office and general expenses have been increased by $2,217 for the
year ended December 31, 2009 to reflect adjustments as follows; (a) an
increase of expenses of $4,874 representing the accretion of the present
value of the deferred acquisition consideration and (b) a decrease of
expenses of $2,657 representing compensation and related benefits and
other costs not expected to continue due to the
Acquisitions.
|
|
(iii)
|
Pro
forma interest expense has been increased by $4,572 for the year ended
December 31, 2009 to reflect three adjustments; (a) an increase of $3,053
representing the financing of the Acquisitions assuming MDC issued $24,352
of its Existing Notes on January 1, 2009, instead of October 23, 2009; (b)
a decrease of $253 to eliminate historical interest expense of certain
Acquired Entities as a result of MDC not assuming those Acquired Entities’
outstanding debt and (c) an increase of $1,266 representing interest
expense on non-contingent deferred acquisition
payments.
|
|
(iv)
|
Pro
forma income tax expense has been decreased by $305 for the year ended
December 31, 2009 to reflect the tax effect of the related pro forma
adjustments and the Acquisition’s historical pre-tax income of $17,530
based on an estimated blended state and federal rate of 40%. After taking
into effect the amount of tax expense previously recorded on the Acquired
Entities’ historical financial statements of
$562.
|
(c)
|
The
unaudited pro forma consolidated statement of operations for the three
months ended March 31, 2009 incorporates the following assumptions and
adjustments:
|
|
(i)
|
Pro
forma depreciation and amortization has been increased by $2,719 for the
three months ended March 31, 2009 to reflect the amortization of other
intangible assets arising from the Acquisitions, over their estimated
lives of five years over both a straight line basis and in a manner
represented by the pattern in which the economic benefits are
realized.
|
|
(ii)
|
Pro
forma office and general expenses have been increased by $664 for the
three months ended March 31, 2009 to reflect adjustments as follows; (a)
an increase of expenses of $1,219 representing the accretion of the
present value of the deferred acquisition consideration and (b) a decrease
of expenses of $555 representing compensation and related benefits and
other costs not expected to continue due to the
Acquisitions.
|
|
(iii)
|
Pro
forma interest expense has been increased by $1,321 for the three months
ended March 31, 2009 to reflect three adjustments; (a) an increase of
$1,068 representing the financing of the Acquisitions assuming MDC issued
$24,352 of its 11% senior notes on January 1, 2009, instead of October 23,
2009; (b) a decrease of $63 to eliminate historical interest expense of
certain Acquired Entities as a result of MDC not assuming those Acquired
Entities’ outstanding debt and (c) an increase of $317 representing
interest expense on non-contingent deferred acquisition
consideration.
|
|
(iv)
|
Pro
forma income tax expense has been decreased by $391 for the three months
ended March 31, 2009 to reflect the tax effect of the related pro forma
adjustments and the Acquired Entities’ historical pre-tax income of $3,889
based on an estimated blended state and federal rate of 40%. After taking
into effect the amount of tax expense previously recorded on the Acquired
Entities’ historical financial statements of
$61.
|
14
(d)
|
The
unaudited pro forma consolidated statement of operations for the three
months ended March 31, 2010 incorporates the following assumptions and
adjustments:
|
|
(i)
|
Pro
forma depreciation and amortization has been increased by $1,918 for the
three months ended March 31, 2010 to reflect the amortization of other
intangible assets arising from the Acquisitions over their estimated lives
of five years on both a straight line basis and in a manner represented by
the pattern in which the economic benefits are
realized.
|
|
(ii)
|
Pro
forma office and general expenses have been decreased by $38 for the three
months ended March 31, 2010 to reflect adjustments as follows; (a) an
increase of expenses of $1,055 representing the accretion of the present
value of the deferred acquisition consideration and (b) a decrease of
expenses of $1,093 representing compensation and related benefits and
other costs not expected to continue due to the
Acquisitions.
|
|
(iii)
|
Pro
forma interest expense has been increased by $200 representing interest
expense on non-contingent deferred acquisition
consideration.
|
|
(iv)
|
Pro
forma income tax expense has been decreased by $15 for the three months
ended March 31, 2010 to reflect the tax effect of the related pro forma
adjustments and the Acquired Entities’ historical pre-tax income of $2,134
based on an estimated blended state and federal rate of 40%. After taking
into effect the amount of tax expense previously recorded on the Acquired
Entities’ historical financial statements of
$31.
|
15
Item
8.01. Other Events
Proposed
Senior Unsecured Notes Offering
On May 10, 2010, MDC issued a press
release announcing its intention to offer, in a private placement, the
Notes. MDC intends to use the net proceeds of this offering to repay
the outstanding balance under the Facility in full and for general
corporate purposes, including acquisitions. A copy of the press
release is attached hereto as Exhibit 99.1 and is incorporated herein by
reference.
Item
9.01. Financial Statements and
Exhibits
|
(d)
Exhibits.
|
99.1
|
Text
of press release issued by MDC Partners Inc. on May 10, 2010, regarding
the Notes.
|
16
Signatures
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed by the undersigned hereunto duly
authorized.
Date:
May 10, 2010
|
MDC
Partners Inc.
|
||
By:
|
/s/ Mitchell Gendel
|
||
Mitchell
Gendel,
|
|||
General
Counsel & Corporate Secretary
|
17