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EX-23.1 - Stagwell Inc | v210766_ex23-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K/A
(Amendment
No. 1)
Current
Report Pursuant to Section 13 or 15(d)
of
the Securities Exchange Act of 1934
Date of
Report (Date Earliest Event reported) – February 10, 2011 (November 30,
2010)
MDC
PARTNERS INC.
(Exact
name of registrant as specified in its charter)
Ontario
|
001-13718
|
98-0364441
|
||
(Jurisdiction of Incorporation)
|
(Commission File Number)
|
(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:
¨
|
Written communications pursuant
to Rule 425 under the Securities Act (17 CFR
230.425)
|
¨
|
Soliciting material pursuant to
Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|
¨
|
Pre-commencement communications
pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
|
¨
|
Pre-commencement communications
pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-
4(c))
|
EXPLANATORY
NOTE
This
Current Report on Form 8-K/A amends the Current Report on Form 8-K filed by MDC
Partners Inc. (the “Company”) on December 6, 2010, concerning the acquisition of
a majority equity interest in each of Kenna Communications LP, an Ontario
limited partnership (“Kenna”), and Capital C Partners LP, an Ontario limited
partnership (“Capital C”). Kenna and Capital C were formerly operated as Capital
C Communications LP. Immediately prior to the acquisition, the businesses were
demerged into Kenna and Capital C. This Current Report on Form 8-K/A includes
the historical financial information of Capital C Communications LP and the
required pro forma financial information of the Company giving effect to the
acquisition, each as required by Item 9.01 of Form 8-K.
Item
9.01 Financial Statements and Exhibits.
(a) Financial Statements of businesses
acquired.
Audited
financial statements of Capital C Communications LP for the eleven months ended
November 30, 2010 and for the year ended December 31, 2009, and the related
notes thereto.
The
required historical financial information of Capital C Communications LP
included in this Form 8-K shall be deemed filed for purposes of the Securities
Exchange Act of 1934, as amended. Capital C Communications LP’s
historical financial results set forth below should not be viewed as indicative
of the contribution by Kenna and Capital C to the Company’s future operating
results.
Capital
C Communications LP
Financial
Statements
For the
eleven months period ended November 30, 2010
(in US
dollars)
Independent
Accountants’ Report
|
2
|
|
Financial
Statements
|
||
Balance
Sheets
|
3
|
|
Statements
of Income, Partners’ Equity and Accumulated Other Comprehensive
Income
|
4
|
|
Statements
of Cash Flows
|
5
|
|
Summary
of Significant Accounting Policies
|
6-10
|
|
Notes
to Financial Statements
|
|
11-15
|
Independent
Accountants’ Report
Partners
of Capital C Communications LP
We have
audited the accompanying balance sheets of Capital C Communications LP as of
November 30, 2010 and December 31, 2009, and the related statements of income,
partners’ equity, accumulated other comprehensive income, and cash flows for the
eleven months ended November 30, 2010 and twelve months ended December 31, 2009.
These financial statements are the responsibility of the Partnership’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit include consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Partnership’s internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Capital C Communications LP at
November 30, 2010 and December 31, 2009, and the results of its operations and
its cash flows for the eleven months ended November 30, 2010 and twelve months
ended December 31, 2009, in conformity with accounting principles generally
accepted in the United States of America.
/s/ BDO
Canada LLP
Chartered
Accountants, Licensed Public Accountants
Toronto,
Ontario
February
4, 2011
2
Capital
C Communications LP
Balance
Sheets
|
November
30, 2010
|
December
31, 2009
|
|||||||
in
US dollars
|
||||||||
Assets
|
||||||||
Current
Assets
|
||||||||
Cash
|
$ | 1,852,957 | $ | 2,834,879 | ||||
Accounts
receivable
|
6,803,223 | 7,315,087 | ||||||
Receivable
from employees
|
29,497 | 256,084 | ||||||
Unbilled
work in progress
|
2,259,118 | 2,985,625 | ||||||
Prepaid
expenses
|
790,243 | 637,992 | ||||||
Due
from related parties (Note 5)
|
33,727 | 24,868 | ||||||
11,768,765 | 14,054,535 | |||||||
Property and Equipment, net
(Note 1)
|
3,296,092 | 3,172,919 | ||||||
Intangible Assets, net
(Note 2)
|
203,590 | 360,585 | ||||||
Goodwill
|
6,774,438 | 6,528,132 | ||||||
$ | 22,042,885 | $ | 24,116,171 | |||||
Liabilities
and Partners’ Equity
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable
|
$ | 2,679,868 | $ | 1,630,203 | ||||
Accrued
liabilities
|
1,252,157 | 751,126 | ||||||
Deferred
revenue
|
4,333,916 | 4,816,480 | ||||||
Loan
payable to related party (Note 3)
|
- | 2,774,919 | ||||||
Current
portion of obligations under capital leases (Note 4)
|
109,157 | 82,215 | ||||||
Due
to related parties (Note 5)
|
1,866,094 | 2,848,830 | ||||||
10,241,192 | 12,903,773 | |||||||
Obligations under capital
leases (Note 4)
|
131,203 | 178,433 | ||||||
Deferred
rent
|
435,478 | 463,846 | ||||||
10,807,873 | 13,546,052 | |||||||
Partners’
Equity
|
||||||||
Accumulated
other comprehensive income
|
1,434,563 | 1,030,768 | ||||||
Partners’
Equity (Note 6)
|
9,800,449 | 9,539,351 | ||||||
11,235,012 | 10,570,119 | |||||||
$ | 22,042,885 | $ | 24,116,171 |
See
accompanying independent accountants' report and notes to financial
statements.
3
Capital
C Communications LP
Statements
of Income, Partners’ Equity and
|
Accumulated Other Comprehensive
Income
|
11
months ended
November
30, 2010
|
Year
ended
December
31, 2009
|
|||||||
in
US dollars
|
||||||||
Statement
of Income
|
||||||||
Revenue
|
$ | 48,738,073 | $ | 44,334,985 | ||||
Cost
of services provided
|
35,381,713 | 30,863,875 | ||||||
Operating
Expenses
|
||||||||
Amortization
of intangible assets
|
167,404 | 164,924 | ||||||
Amortization
of property and equipment
|
873,777 | 727,227 | ||||||
General
and administrative
|
6,544,126 | 6,040,464 | ||||||
Income
from operations before loss on investment and interest
expense
|
5,771,053 | 6,538,495 | ||||||
Loss
on sale of investment in P2P
|
- | (70,044 | ) | |||||
Interest
expense, net (Note 5)
|
(89,066 | ) | (116,456 | ) | ||||
Net
Income
|
5,681,987 | 6,351,995 | ||||||
Other
comprehensive income
|
403,795 | 1,589,248 | ||||||
Comprehensive
income
|
$ | 6,085,782 | $ | 7,941,243 | ||||
Statement
of Partners’ Equity
|
||||||||
Partners’
equity – beginning of period
|
$ | 9,539,351 | $ | 9,734,320 | ||||
Net
income
|
5,681,987 | 6,351,995 | ||||||
Distributions
|
(5,420,889 | ) | (6,546,964 | ) | ||||
Partners’
equity – end of period
|
$ | 9,800,449 | $ | 9,539,351 | ||||
Statement
of Accumulated Other Comprehensive Income
|
||||||||
Balance
– beginning of period
|
$ | 1,030,768 | $ | (558,480 | ) | |||
Other
comprehensive income
|
403,795 | 1,589,248 | ||||||
Balance
– end of period
|
$ | 1,434,563 | $ | 1,030,768 |
See accompanying independent
accountants' report and notes to financial statements.
4
Capital
C Communications LP
Statements of Cash
Flows
|
November
30,
2010
|
December
31,
2009
|
|||||||
in
US dollars
|
||||||||
Operating
Activities
|
||||||||
Net
income
|
$ | 5,681,987 | $ | 6,351,995 | ||||
Adjustments
to reconcile net income to net cash from (for) operating
activities:
|
||||||||
Amortization
of Intangible assets
|
167,404 | 164,924 | ||||||
Amortization
of property and equipment
|
873,777 | 727,227 | ||||||
Loss
on sale of investment in P2P Proximite Marketing Inc.
|
- | 70,044 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
773,098 | 1,240,031 | ||||||
Receivable
from employees
|
231,822 | (228,352 | ) | |||||
Unbilled
work in progress
|
823,432 | (663,072 | ) | |||||
Prepaid
expenses
|
(125,778 | ) | (248,506 | ) | ||||
Accounts
payable
|
969,644 | 88,367 | ||||||
Accrued
liabilities
|
463,835 | (1,070,237 | ) | |||||
Deferred
revenue
|
(651,843 | ) | 789,297 | |||||
Deferred
rent
|
(45,009 | ) | 14,410 | |||||
Net
cash from operating activities
|
9,162,369 | 7,236,128 | ||||||
Investing
Activities
|
||||||||
Proceeds
on disposal of investment in P2P Proximite Marking Inc.
|
- | 175,392 | ||||||
Due
from related parties
|
(7,772 | ) | (22,869 | ) | ||||
Purchase
of property and equipment
|
(816,991 | ) | (589,956 | ) | ||||
Net
cash used for investing activities
|
(824,763 | ) | (437,433 | ) | ||||
Financing
Activities
|
||||||||
Advance
(repayment) of loan payable
|
(2,879,617 | ) | 240,616 | |||||
Capital
lease repayments
|
(89,737 | ) | (116,094 | ) | ||||
Distributions
to partners
|
(6,490,685 | ) | (5,931,539 | ) | ||||
Net
cash used for financing activities
|
(9,460,039 | ) | (5,807,017 | ) | ||||
Effect
on exchange rate changes in cash
|
140,511 | 347,682 | ||||||
Net
change in cash
|
(981,922 | ) | 1,339,360 | |||||
Cash, beginning of
period
|
2,834,879 | 1,495,519 | ||||||
Cash, end of
period
|
$ | 1,852,957 | $ | 2,834,879 | ||||
Supplemental
Information
|
||||||||
Cash
paid for interest
|
$ | 91,272 | $ | 121,048 | ||||
Non-cash
Transactions
|
||||||||
Distributions
to partners
|
$ | 1,913,502 | $ | 2,848,830 | ||||
Purchase
of capital assets with capital leases
|
$ | 60,178 | $ | - |
See
accompanying independent accountants' report and notes to financial
statements.
5
Capital
C Communications LP
Summary of Significant Accounting
Policies
|
Nature
of Business
Capital C
Communications LP is a limited partnership registered in Ontario, Canada and
operating under its general partner Capital C GP Corp. The Partnership provides
integrated marketing services to clients in Canada and the U.S. These
financial statements do not include any assets, liabilities, revenues and
expenses of the partners.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates and assumptions.
Foreign
Currency Translation
Transactions
denominated in currencies other than the Canadian functional currency result in
transactions gains and losses based on the exchange rate changes.
For
reporting purposes, assets and liabilities are translated into US dollars at the
period-end exchange rates, and the results of its operations are translated at
the average rate of exchange for the period. The resulting translation
adjustments are recorded in accumulated other comprehensive income.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable consists of trade receivables recorded at original invoice amounts,
less an estimated allowance for uncollectible accounts. Trade credit is
generally extended on a short-term basis; thus trade receivables do not bear
interest. Trade receivables are periodically evaluated for collectibility
based on past credit histories with customers and their current financial
conditions. Changes in the estimated collectibility of trade receivables
are recorded in the results of operations for the period in which the estimates
are revised. Trade receivables that are deemed uncollectible are offset
against the allowance for uncollectible accounts. The Partnership
generally does not require collateral for trade receivables. As at
November 30, 2010 and December 31, 2009, no accounts receivable were considered
at risk and the allowance for doubtful accounts was consequently
nil.
Unbilled
Work In Progress
Amount
represents fees earned and unbilled to clients. For amounts determined not
collectible, an allowance is provided.
6
Capital
C Communications LP
Summary of Significant Accounting
Policies
|
Property
and Equipment
Property
and equipment are stated at cost, less accumulated amortization.
Amortization is provided over the estimated useful lives using the half-year
convention as follows:
Computer
hardware and software
|
straight
line over 3-4 years
|
|
Office
equipment
|
straight
line over 5-10 years
|
|
Leasehold
improvements
|
|
straight
line over the lease
term
|
Impairment
of Long-lived Assets
In
accordance with the FASB Accounting Standards Codification (“ASC”) topic,
Property, Plant and Equipment, a long-lived asset or asset group is tested for
recoverability whenever events or changes in circumstances indicate that its
carrying amount may not be recoverable. When such events occur, the Partnership
compares the sum of the undiscounted cash flows expected to result from the use
and eventual disposition of the asset or asset group to the carrying amount of
the long-lived asset or asset group. If this comparison indicates that there is
an impairment, the amount of the impairment is typically calculated using
discounted expected future cash flows where observable fair values are not
readily determinable. The discount rate applied to these cash flows is based on
the Partnership’s weighted average cost of capital, risk adjusted where
appropriate. If the discounted cash flows are less than the carrying value
of the assets, this amount is recorded as an impairment charge.
Definite
Lived Intangible Assets
Intangible
asset represents customer relationships acquired during a business acquisition
in 2007. In accordance with the FASB Accounting Standards Codification,
acquired intangibles, are subject to amortization over their useful lives. The
method of amortization selected reflects the pattern in which the economic
benefits of the specific intangible asset is consumed or otherwise used
up. Straight-line amortization method over the estimated useful life of 5
years is used. Intangible assets that are subject to amortization are reviewed
for potential impairment whenever events or circumstances indicate that carrying
amounts may not be recoverable. As of November 30, 2010 and December 31,
2009, there was no impairment of intangible assets.
7
Capital
C Communications LP
Summary of Significant Accounting
Policies
|
Goodwill
Goodwill
relates to a business acquisition in 2005. There have been no additions or
impairment to the goodwill since inception. Changes in the goodwill
balance arise due to foreign exchange differences on the conversion from
functional currency to reporting currency.
In
accordance with the FASB Accounting Standards Codification (“ASC”) topic,
Goodwill and Other Intangible Assets, goodwill acquired as a result of a
business combination which is not subject to amortization are tested for
impairment annually and more frequently if events and circumstances indicate
that the asset might be impaired. An impairment loss is recognized to the extent
that the carrying amount exceeds the asset’s fair value. For goodwill, this
determination is made at the reporting unit level and consists of two steps.
First, the Partnership determines the fair value of a reporting unit and
compares it to its carrying amount. Second, if the carrying amount of a
reporting unit exceeds its fair value, an impairment loss is recognized for any
excess of the carrying amount of the reporting unit’s goodwill over the implied
fair value of that goodwill. The implied fair value of goodwill is determined by
allocating the fair value of the reporting unit in a manner similar to a
purchase price allocation, in accordance with the FASB Accounting Standards
Codification topic, Business Combinations. The residual fair value after this
allocation is the implied fair value of the reporting unit
goodwill.
The fair
value of a reporting unit was estimated using a combination of the income
approach, which incorporates the use of the discounted cash flow method, and the
market approach, which incorporates the use of earnings and revenue multiples
based on market data.
Impairment
losses, where applicable, will be charged to operating profit. As of November
30, 2010 and December 31, 2009, there was no impairment of
goodwill.
Accounts
payable
Accounts
payable generally represents supplier payables and other unpaid costs incurred
in the ordinary course of business.
Deferred
rent
The
Partnership accounts for operating leases with scheduled rent increases during
the lease term in accordance with ASC 840, “Leases” which requires that rental
payments that are not made on a straight-line basis be recognized on a
straight-line basis. Any rent escalations, concessions and holidays in the
Partnership’s operating leases are recognized on a straight-line basis over the
lease term with the difference recorded as deferred rent.
Accumulated
Other Comprehensive Income
Accumulated
other comprehensive income represents the cumulative effect of foreign currency
translation adjustments recorded as other comprehensive income.
8
Capital
C Communications LP
Summary of Significant Accounting
Policies
|
Revenue
Recognition
The
Partnership’s revenue recognition policies are in compliance with the SEC Staff
Accounting Bulletin 104, “Revenue Recognition” (“SAB 104”), and accordingly,
revenue is generally recognized as services are provided, the selling price is
fixed or determinable and collection of the resulting receivable is reasonably
assured.
The
Partnership earns revenue from agency arrangements in the form of retainer fees,
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 and licensing contracts are generally recognized on a
straight line basis over the term of the specific customer contract. Fixed
fees for services are recognized using proportional performance model, where
revenue is recognized as performance occurs, based on the relative value of the
performance that has occurred to that point in time. Per diem fees are
recognized upon the performance of the Partnership’s services. A small
portion of the Partnership’s contractual arrangements with customers includes
performance incentive provisions, which allows the Partnership to earn
additional revenues as a result of its performance relative to both quantitative
and qualitative goals. The Partnership recognizes the incentive portion of
revenue under these arrangements when specific quantitative goals are achieved,
or when the Partnership’s clients determine performance against qualitative
goals has been achieved. In all circumstances, revenue is only recognized when
collection is reasonably assured.
Fees
billed to clients in excess of fees recognized as revenue are classified as
deferred revenue.
The
Partnership follows Accounting ASC 605-45 “Principle Agent Considerations –
Reporting Revenue Gross or Net”. This standard addresses when revenue
should be recorded at the gross amount billed because revenue has been earned
from the sale of goods or services, or the net amount retained because a fee or
commission has been earned. The Partnership reports revenue on a gross
basis.
Cost of Services
Provided.
Costs of
services provided do not include amortization charges for property and
equipment.
Interest
Expense
Interest
expense primarily consists of interest paid on capital lease obligations and
loan payable to related party.
9
Capital
C Communications LP
Summary of Significant Accounting
Policies
|
Financial
Instruments
ASC 825 (formerly SFAS
107, ―Disclosures about Fair Value of Financial Instruments) defines financial
instruments and requires disclosure of the fair value of those instruments. ASC
820 (formerly SFAS 157, ―Fair Value Measurements), defines fair value,
establishes a three-level valuation hierarchy for disclosures of fair value
measurement and enhances disclosure requirements for fair value measures.
The carrying amounts reported in the balance sheets for current receivables and
payables, including short-term loans, qualify as financial instruments and are a
reasonable estimate of fair value because of the short period of time between
the origination of such instruments, their expected realization and, if
applicable, the stated rate of interest is equivalent to rates currently
available. The three levels are defined as follows: Level 1: inputs to the
valuation methodology are quoted prices (unadjusted) for identical assets or
liabilities in active markets. Level 2: inputs to the valuation
methodology include quoted prices for similar assets and liabilities in active
markets, and inputs that are observable for the assets or liabilities, either
directly or indirectly, for substantially the full term of the financial
instruments. Level 3: inputs to the valuation methodology are unobservable
and significant to the fair value. The Company did not identify any assets
or liabilities that are required to be presented on the balance sheet at fair
value in accordance with ASC 820 (formerly SFAS 157).
New
Accounting Pronouncements
In
October 2009, the FASB issued revised guidance on the topic of
Multiple — Deliverable Revenue Arrangements. The revised guidance
amends certain accounting for revenue with multiple deliverables. In particular
when vendor specific objective evidence or third party evidence for deliverables
in an arrangement cannot be determined, the revised guidance allows use of a
best estimate of the selling price to allocate the arrangement consideration
among them. This guidance is effective for the first quarter of 2011, with early
adoption permitted. We do not expect that the adoption will have a
material impact on our financial statements.
In June
2009, the FASB introduced the FASB Accounting Standards Codification and issued
the revised guidance on Hierarchy of Generally Accepted Accounting Principles,
which is effective for the Company July 1, 2009. This standard does not alter
current U.S. GAAP, but rather integrates existing accounting standards with
other authoritative guidance. Under this standard there is a single source of
authoritative U.S. GAAP for nongovernmental entities and which superseded all
other previously issued non-SEC accounting and reporting
guidance.
10
Capital
C Communications LP
Notes to Financial
Statements
|
1.
|
Property
and Equipment, net
|
November
|
December
|
|||||||||||||||
30,
2010
|
31, 2009
|
|||||||||||||||
Accumulated
|
Accumulated
|
|||||||||||||||
Cost
|
Amortization
|
Cost
|
Amortization
|
|||||||||||||
Computer
hardware and software
|
$ | 3,859,234 | $ | 2,415,511 | $ | 3,001,788 | $ | 1,803,552 | ||||||||
Computer hardware
under capital
lease
|
83,669 | 83,669 | 80,627 | 70,549 | ||||||||||||
Office
equipment
|
1,092,219 | 612,045 | 972,102 | 472,612 | ||||||||||||
Office
equipment under capital leases
|
462,987 | 144,419 | 387,057 | 90,859 | ||||||||||||
Leasehold
improvements
|
1,510,256 | 529,129 | 1,450,564 | 344,988 | ||||||||||||
Leasehold
improvements under capital leases
|
101,361 | 28,861 | 83,690 | 20,349 | ||||||||||||
7,109,726 | 3,813,634 | 5,975,828 | 2,802,909 | |||||||||||||
$ | 3,296,092 | $ | 3,172,919 |
During
2010 fiscal year, the Partnership acquired office equipment of $60,178 by means
of a capital lease and therefore pledged as security for the lease
obligations.
2.
|
Intangible
Assets
|
November
|
December
|
|||||||||||||||
30,
2010
|
31, 2009
|
|||||||||||||||
Accumulated
|
Accumulated
|
|||||||||||||||
Cost
|
Amortization
|
Cost
|
Amortization
|
|||||||||||||
Intangible
assets
|
$ | 932,518 | $ | 728,928 | $ | 898,614 | $ | 538,029 | ||||||||
$ | 203,590 | $ | 360,585 |
3.
|
Loan
payable to Related Party
|
Loan
payable is due to Newport Partners with 67% ownership of the Partnership.
The loan payable is due on demand, unsecured and interest bearing at prime plus
1%. The loan was fully repaid during the year.
11
Capital
C Communications LP
Notes to Financial
Statements
|
4.
|
Obligations
under Capital Leases
|
November
30, 2010
|
December
31, 2009
|
|||||||
Due
March 2015, repayable in blended quarterly instalments of Cdn$3,705,
secured by office equipment under capital lease
|
$ | 55,195 | $ | - | ||||
Due
September 2012, repayable in blended monthly instalments of Cdn$7,456,
secured by office equipment and leasehold improvements under capital
leases
|
144,627 | 203,585 | ||||||
Due
September 2012, repayable in blended monthly instalments of Cdn$2,090,
secured by office equipment and leasehold improvements under capital
leases
|
40,538 | 57,063 | ||||||
240,360 | 260,648 | |||||||
Less
current portion
|
109,157 | 82,215 | ||||||
$ | 131,203 | $ | 178,433 |
The
future minimum lease payments over the next five years are as
follows:
Year
ending November 30,
|
|||||
2011
|
$ | 127,742 | |||
2012
|
108,890 | ||||
2013
|
14,633 | ||||
2014
|
14,633 | ||||
2015
|
7,317 | ||||
273,215 | |||||
Less:
imputed interest
|
32,855 | ||||
$ | 240,360 |
12
Capital
C Communications LP
Notes to Financial
Statements
|
5.
|
Due
from / to Related Parties
|
Amounts
due from / to related parties noted below are unsecured, non-interest bearing
with no fixed terms of repayment.
Due from
related parties
November
30, 2010
|
December
31, 2009
|
|||||||
Capital
C GP Corp, general partner
|
$ | 33,727 | $ | 249 | ||||
Capital
C LP Holdco Inc., 32.86% ownership of Partnership
|
- | 24,619 | ||||||
$ | 33,727 | $ | 24,868 |
Due to
related parties
November
30, 2010
|
December
31, 2009
|
|||||||
Distribution
to Newport Partners, 67.13% ownership of Partnership
|
$ | 403,163 | $ | 1,538,702 | ||||
Distribution
payable to Capital C LP Holdco, 32.86% ownership of
Partnership
|
1,462,931 | 1,310,128 | ||||||
$ | 1,866,094 | $ | 2,848,830 |
During
the period, transactions with related parties were as follows:
November
30, 2010
|
December
31, 2009
|
|||||||
Interest
expense
|
||||||||
Newport
Partners (see Note 3)
|
$ | 66,282 | $ | 88,379 | ||||
Capital
C LP Holdco
|
$ | - | $ | 9,181 |
13
Capital
C Communications LP
Notes to Financial
Statements
|
6.
|
Partner’
Equity
|
Authorized
|
Issued
|
|||||||
Class
A
|
1 | 1 | ||||||
Class
B
|
Unlimited
|
7,999 | ||||||
Class
C
|
Unlimited
|
2,000 | ||||||
Class
D
|
Unlimited
|
7,500 |
Each
issued and outstanding unit has right to one vote.
Capital C
GP Corp., general partner, holds 1 unit of Class A and 1 unit of Class
D.
Capital
CEK LP, limited partner, holds 7,999 units of Class B, 2,000 units of Class C
and 7,499 units of Class D. In turn, the following entities own the
respective partnership interest in Capital CEK LP; Newport Partners with 67.13%,
Capital C LP Holdco Inc. with 32.86% and Kenna Group GP Corp with 0.01%
ownership interest.
Income
and loss of the Partnership is allocated among the holders of the units in
accordance with their respective partnership interests.
7.
|
Lease
Commitments
|
The
Partnership leases three office facilities for its business locations in
Winnipeg and Toronto under long-term, non-cancelable operating lease agreements
and contain provisions for future rent increases. The total amount of
rental payments due over the terms of each lease are being charged to rent
expense on the straight-line method over the terms of each lease. The
leases expire between January 2012 and February 2019.
Approximate
minimum future rental commitments under non-cancellable leases are payable as
follows:
Year
ending November 30,
|
||||
2011
|
$ | 917,000 | ||
2012
|
897,000 | |||
2013
|
882,000 | |||
2014
|
818,000 | |||
2015
|
720,000 | |||
Thereafter
|
2,516,000 | |||
$ | 6,750,000 |
8.
|
Concentration
of Customers
|
Customer
A accounts for approximately 18% (2009 – 20%) of total sales and Customer B
accounts for approximately 19% (2009 – 20%) of total sales. Total accounts
receivable from four customers (2009 – three) accounted for approximately 64%
(2009 – 44%) of total accounts receivable, of which Customer A accounts for 17%
(2009 – 19%).
14
Capital
C Communications LP
Notes to Financial
Statements
|
9.
|
Financial
Instruments
|
The
Partnership’s financial instruments consist primarily of cash, accounts
receivable, due from related parties, accounts payable, accrued liabilities,
loan payable and due to related parties. The carrying values of financial
instruments are representative of their fair values due to their short-term
maturities.
10.
|
Subsequent
Event
|
On
November 30, 2010, MDC Partners Inc. ("MDC" or the "Company") acquired a
majority equity interest in each of Kenna Communications LP, an Ontario limited
partnership ("Kenna"), and Capital C Partners LP, an Ontario limited partnership
("Capital C"). The aggregate purchase price was equal to CDN $27,000,000 paid to
Newport Partners Holdings LP ("Newport"), plus contingent payments due to the
management equity holders based on future financial performance. Kenna and
Capital C were formerly operated by Capital C Communications LP and owned 67.13%
by Newport and the remainder by management held under Capital C LP Holdco.
Immediately prior to the transaction, the businesses were demerged into Kenna
and Capital C, respectively. Management retained ownership of the remaining
limited partnership interests in each business following the transaction. In
addition, MDC has a priority return on profits from each new limited
partnership, and call rights with respect to the remaining partnership interests
in each of Kenna and Capital C that could ultimately increase MDC's economic
ownership to 100%.
Subsequent
events have been evaluated up to February 4, 2011 which is the day financial
statements were available to be issued.
15
(b) Pro forma financial
information.
Unaudited
pro forma consolidated financial statements of the Company and subsidiaries as
of September 30, 2010 and for the nine months then ended and unaudited pro forma
consolidated financial statements for the year ended December 31, 2009, and the
related notes thereto.
The pro
forma financial information of the Company giving effect to the Kenna and
Capital C acquisition is intended to be furnished pursuant to Item 9.01(b) of
Form 8-K and such information shall not be deemed “filed” for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be
deemed incorporated by reference in any filing under the Securities Act of 1933,
as amended, except as shall be expressly set forth by specific reference in such
filing. The unaudited pro forma consolidated financial information is presented
below for informational purposes only. The pro forma data is not necessarily
indicative of what the Company’s financial position or results of operations
actually would have been had the Kenna and Capital C acquisition been completed
at and as of the dates indicated. In addition, the unaudited pro forma financial
information does not purport to project the future financial position or
operating results of the Company.
16
MDC
PARTNERS INC. AND SUBSIDIARIES
UNAUDITED
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(in
thousands, except share and per share amounts)
YEAR
ENDED DECEMBER 31, 2009
|
||||||||||||||||||||
Historical MDC
Partners Inc.
|
Historical Capital C
Communications,
LP
|
Pro forma
Adjustments
|
Notes
|
Pro forma Statements
of Operations
|
||||||||||||||||
Revenue:
|
||||||||||||||||||||
Services
|
$
|
545,924
|
$
|
44,335
|
$
|
—
|
$
|
590,259
|
||||||||||||
Operating
Expenses:
|
||||||||||||||||||||
Cost
of services sold
|
354,312
|
30,864
|
—
|
385,176
|
||||||||||||||||
Office
and general expenses
|
136,897
|
6,040
|
663
|
4(b)(ii)
|
143,600
|
|||||||||||||||
Depreciation
and amortization
|
34,471
|
892
|
1,937
|
4(b)(i)
|
37,300
|
|||||||||||||||
525,680
|
37,796
|
2,600
|
566,076
|
|||||||||||||||||
Operating
profit (loss)
|
20,244
|
6,539
|
(2,600
|
)
|
24,183
|
|||||||||||||||
Other
Income (Expense):
|
||||||||||||||||||||
Other
expense
|
(2,038
|
)
|
-
|
—
|
(2,038
|
)
|
||||||||||||||
Interest
expense
|
(22,098
|
)
|
(116
|
)
|
(2,317
|
)
|
4(b)(iii)
|
(24,531
|
)
|
|||||||||||
Interest
income
|
344
|
-
|
—
|
344
|
||||||||||||||||
(23,792
|
)
|
(116
|
)
|
(2,317
|
)
|
(26,225
|
)
|
|||||||||||||
Income
(loss) from continuing operations before income taxes, equity in
affiliates
|
(3,548
|
)
|
6,423
|
(4,917
|
)
|
(2,042
|
)
|
|||||||||||||
Income
tax expense
|
(8,536
|
)
|
-
|
—
|
4(b)(iv)
|
(8,536
|
)
|
|||||||||||||
Income
(loss) from continuing operations before equity in
affiliates
|
(12,084
|
)
|
6,423
|
(4,917
|
)
|
(10,578
|
)
|
|||||||||||||
Equity
in earnings (loss) of non-consolidated affiliates
|
(8
|
)
|
(70
|
)
|
70
|
4(b)(v)
|
(8
|
)
|
||||||||||||
Income
(loss) from continuing operations
|
(12,092
|
)
|
6,353
|
(4,847
|
)
|
(10,586
|
)
|
|||||||||||||
Loss
from discontinued operations attributable to MDC Partners Inc., net of
taxes
|
(876
|
)
|
—
|
—
|
(876
|
)
|
||||||||||||||
Net
income (loss)
|
(12,968
|
)
|
6,353
|
(4,847
|
)
|
(11,462
|
)
|
|||||||||||||
Net
income attributable to the noncontrolling interests
|
(5,356
|
)
|
—
|
—
|
(5,356
|
)
|
||||||||||||||
Net
income (loss) attributable to MDC Partners Inc.
|
$
|
(18,324
|
)
|
$
|
6,353
|
$
|
(4,847
|
)
|
$
|
(16,818
|
)
|
|||||||||
Income
(loss) Per Common Share:
|
||||||||||||||||||||
Basic
and Diluted:
|
||||||||||||||||||||
Net
income (loss) from continuing operations attributable to MDC Partners Inc.
common shareholders
|
$
|
(0.64
|
)
|
$
|
|
$
|
(0.58
|
)
|
||||||||||||
Loss
from discontinued operations attributable to MDC Partners Inc. common
shareholders
|
(0.03
|
)
|
(0.03
|
)
|
||||||||||||||||
Net
income (loss) attributable to MDC Partners Inc. common
shareholders
|
$
|
(0.67
|
)
|
$
|
$
|
(0.61
|
)
|
|||||||||||||
Weighted
Average Number of Common Shares Outstanding:
|
||||||||||||||||||||
Basic
|
27,396,463
|
27,396,463
|
||||||||||||||||||
Diluted
|
27,396,463
|
27,396,463
|
The
accompanying notes are an integral part of the pro forma consolidated statement
of operations.
17
MDC
PARTNERS INC. AND SUBSIDIARIES
UNAUDITED
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(in
thousands, except share and per share amounts)
NINE
MONTHS ENDED SEPTEMBER 30, 2010
|
||||||||||||||||||
Historical MDC
Partners Inc.
|
Historical Capital C
Communications,
LP
|
Pro forma
Adjustments
|
Notes
|
Pro forma
Statements of
Operations
|
||||||||||||||
Revenue:
|
||||||||||||||||||
Services
|
$
|
484,401
|
$
|
36,783
|
$
|
—
|
$
|
521,184
|
||||||||||
Operating
Expenses:
|
||||||||||||||||||
Cost
of services sold
|
336,056
|
25,659
|
—
|
361,715
|
||||||||||||||
Office
and general expenses
|
118,690
|
6,012
|
549
|
4(c)(ii)
|
125,251
|
|||||||||||||
Depreciation
and amortization
|
23,196
|
814
|
1,603
|
4(c)(i)
|
25,613
|
|||||||||||||
477,942
|
32,485
|
2,152
|
512,579
|
|||||||||||||||
Operating
profit (loss)
|
6,459
|
4,298
|
(2,152
|
)
|
8,605
|
|||||||||||||
Other
Income (Expense):
|
||||||||||||||||||
Other
income (expense)
|
(423
|
)
|
-
|
—
|
(423
|
)
|
||||||||||||
Interest
expense
|
(24,340
|
)
|
(78
|
)
|
71
|
4(c)(iii)
|
(24,347
|
)
|
||||||||||
Interest
income
|
155
|
-
|
—
|
155
|
||||||||||||||
(24,608
|
)
|
(78
|
)
|
71
|
(24,615
|
)
|
||||||||||||
Income
(loss) from continuing operations before income taxes, equity in
affiliates
|
(18,149
|
)
|
4,220
|
(2,081
|
)
|
(16,010
|
)
|
|||||||||||
Income
tax expense
|
(1,208
|
)
|
-
|
—
|
4(c)(iv)
|
(1,208
|
)
|
|||||||||||
Income
(loss) from continuing operations before equity in
affiliates
|
(19,357
|
)
|
4,220
|
(2,081
|
)
|
(17,218
|
)
|
|||||||||||
Equity
in earnings (loss) of non-consolidated affiliates
|
(1,639
|
)
|
—
|
—
|
(1,639
|
)
|
||||||||||||
Income
(loss) from continuing operations
|
(20,996
|
)
|
4,220
|
(2,081
|
)
|
(18,857
|
)
|
|||||||||||
Loss
from discontinued operations attributable to MDC Partners Inc., net of
taxes
|
(1,410
|
)
|
—
|
—
|
(1,410
|
)
|
||||||||||||
Net
income (loss)
|
(22,406
|
)
|
4,220
|
(2,081
|
)
|
(20,267
|
)
|
|||||||||||
Net
income attributable to the noncontrolling interests
|
(4,503
|
)
|
—
|
—
|
(4,503
|
)
|
||||||||||||
Net
income (loss) attributable to MDC Partners Inc.
|
$
|
(26,909
|
)
|
$
|
4,220
|
$
|
(2,081
|
)
|
$
|
(24,770
|
)
|
|||||||
Income
(loss) Per Common Share:
|
||||||||||||||||||
Basic
and Diluted:
|
||||||||||||||||||
Net
income (loss) from continuing operations attributable to MDC Partners Inc.
common shareholders
|
$
|
(0.91
|
)
|
$
|
|
|
|
$
|
(0.83
|
)
|
||||||||
Loss
from discontinued operations attributable to MDC Partners Inc. common
shareholders
|
(0.05
|
)
|
(0.05
|
)
|
||||||||||||||
Net
income (loss) attributable to MDC Partners Inc. common
shareholders
|
$
|
(0.96
|
)
|
$
|
|
|
|
|
$
|
(0.88
|
)
|
|||||||
Weighted
Average Number of Common Shares Outstanding:
|
||||||||||||||||||
Basic
|
27,980,895
|
27,980,895
|
||||||||||||||||
Diluted
|
27,980,895
|
27,980,895
|
The
accompanying notes are an integral part of the pro forma consolidated statement
of operations.
18
MDC
PARTNERS INC. AND SUBSIDIARIES
UNAUDITED
PRO FORMA CONSOLIDATED BALANCE SHEET
(in
thousands)
AS
AT SEPTEMBER 30, 2010
|
|||||||||||||||||||
Historical MDC
Partners Inc.
|
Historical Capital C
Communications,
LP
|
Pro forma
Adjustments
|
Notes
|
Pro forma Balance Sheets
|
|||||||||||||||
Current
Assets:
|
|||||||||||||||||||
Cash
|
$
|
40,995
|
$
|
4,178
|
$
|
(30,071
|
)
|
3,4(a)(i)
|
$
|
15,102
|
|||||||||
Accounts
receivable
|
190,505
|
7,122
|
—
|
197,627
|
|||||||||||||||
Expenditures
billable to clients
|
34,239
|
4,810
|
—
|
39,049
|
|||||||||||||||
Other
current assets
|
12,365
|
588
|
—
|
12,953
|
|||||||||||||||
Total
Current Assets
|
278,104
|
16,698
|
(30,071
|
)
|
264,731
|
||||||||||||||
Fixed
assets
|
35,826
|
3,318
|
—
|
39,144
|
|||||||||||||||
Investment
in affiliates
|
1,014
|
—
|
—
|
1,014
|
|||||||||||||||
Goodwill
|
458,170
|
6,668
|
38,592
|
3,4(a)(ii)
|
503,430
|
||||||||||||||
Other
intangibles
|
57,135
|
231
|
10,186
|
3,4(a)(ii)
|
67,552
|
||||||||||||||
Deferred
tax asset
|
12,584
|
—
|
—
|
12,584
|
|||||||||||||||
Other
assets
|
19,337
|
-
|
—
|
19,337
|
|||||||||||||||
Total
Assets
|
$
|
862,170
|
$
|
26,915
|
$
|
18,707
|
$
|
907,792
|
|||||||||||
Current
Liabilities:
|
|||||||||||||||||||
Accounts
payable
|
$
|
97,478
|
$
|
2,776
|
$
|
—
|
$
|
100,254
|
|||||||||||
Accrual
and other liabilities
|
77,779
|
4,269
|
(2,101
|
)
|
3,4(a)(i)
|
79,947
|
|||||||||||||
Advance
billings
|
143,052
|
6,575
|
—
|
149,627
|
|||||||||||||||
Current
portion of long-term debt
|
1,385
|
114
|
—
|
1,499
|
|||||||||||||||
Deferred
acquisition consideration
|
28,823
|
—
|
4,555
|
3
|
33,378
|
||||||||||||||
Total
Current Liabilities
|
348,517
|
13,734
|
2,454
|
364,705
|
|||||||||||||||
Revolving
credit facility
|
-
|
1,731
|
(1,731
|
)
|
3,4
(a)(i)
|
-
|
|||||||||||||
Long-term
debt
|
284,756
|
139
|
—
|
284,895
|
|||||||||||||||
Deferred
acquisition consideration long-term
|
53,494
|
—
|
12,765
|
3
|
66,259
|
||||||||||||||
Other
liabilities
|
7,835
|
429
|
—
|
8,264
|
|||||||||||||||
Deferred
tax liabilities
|
8,986
|
—
|
3,229
|
3,4
(a) (ii)
|
12,215
|
||||||||||||||
Total
Liabilities
|
703,588
|
16,033
|
16,717
|
736,338
|
|||||||||||||||
Redeemable
Noncontrolling Interests
|
36,275
|
—
|
12,872
|
3
|
49,147
|
||||||||||||||
Shareholder’s
Equity
|
|||||||||||||||||||
Preferred
Shares
|
—
|
—
|
—
|
—
|
|||||||||||||||
Class
A Shares
|
226,232
|
—
|
—
|
226,232
|
|||||||||||||||
Class
B Shares
|
1
|
—
|
—
|
1
|
|||||||||||||||
Additional
paid in capital
|
-
|
—
|
—
|
-
|
|||||||||||||||
Charges
in excess of capital
|
(3,701
|
)
|
(3,701
|
)
|
|||||||||||||||
Accumulated
deficit
|
(158,069
|
)
|
10,882
|
(10,882
|
)
|
4(a)(iii)
|
(158,069
|
)
|
|||||||||||
Stock
subscription receivable
|
(217
|
)
|
—
|
—
|
(217
|
)
|
|||||||||||||
Accumulated
other comprehensive income
|
(5,263
|
)
|
—
|
—
|
(5,263
|
)
|
|||||||||||||
MDC
Partners Inc. Shareholder’s Equity
|
58,983
|
10,882
|
(10,882
|
)
|
58,983
|
||||||||||||||
Noncontrolling
interests
|
63,324
|
—
|
—
|
63,324
|
|||||||||||||||
Total
Shareholder’s Equity
|
122,307
|
10,882
|
(10,882
|
)
|
122,307
|
||||||||||||||
Total
Liabilities and Shareholder’s Equity
|
$
|
862,170
|
$
|
26,915
|
$
|
18,707
|
$
|
907,792
|
The
accompanying notes are an integral part of the pro forma consolidated balance
sheet.
19
NOTES
TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
1. Description of
transaction
Effective
November 30, 2010, the Company, through a wholly-owned subsidiary, purchased 80%
of the total outstanding equity interests in each of Kenna Communications LP, an
Ontario limited partnership (“Kenna”), and Capital C Partners LP, an Ontario
limited partnership (“Capital C”), for an aggregate cash closing payment of
$26,239 (CND $27,000) and additional deferred acquisition consideration, the
current estimated present value of which is $17,320. The closing payment was
made to Newport Partners Holdings LP (“Newport”), and the deferred contingent
payments are due to the management equity holders based on future financial
performance. Kenna and Capital C were formerly combined and operated by Capital
C Communications LP and owned 67.13% by Newport and the remainder by
management.
In
connection with the Kenna and Capital C acquisitions, the Company, Kenna,
Capital C and the other equity interest holders of Kenna and Capital C entered
into a new Limited Partnership Unit Purchase Agreements (the “LP
Agreements”).The LP Agreements set forth certain economic, governance and
liquidity rights with respect to Kenna and Capital C. Pursuant to the LP
Agreement, the Company will be allocated 100% of the profits of Kenna and
Capital C thru 2015, after which the allocation will be based on ownership
percentage, subject to certain priority returns, as defined. In accordance with
the LP Agreements, the remaining 20% of the outstanding equity interests are
subject to a call by the Company at a defined purchased price beginning in 2015.
The equity interests are subject to a mandatory put to the Company upon certain
employment termination events, including death.
2. Basis
of Presentation
The
accompanying unaudited pro forma consolidated financial statements as of
September 30, 2010 and for the nine months ended September 30, 2010 give effect
to the acquisition of Kenna and Capital C. The unaudited pro forma consolidated
balance sheet presents our financial position as if the acquisition of Kenna and
Capital had occurred on September 30, 2010. The unaudited pro forma consolidated
statements of operations presents our results as if the acquisition of Kenna and
Capital C had occurred on January 1, 2009. Both our fiscal year end and Kenna
and Capital C fiscal year end is December 31. The unaudited pro forma
consolidated balance sheet as of September 30, 2010 is based upon our historical
unaudited consolidated balance sheet as of September 30, 2010 and the historical
unaudited balance sheet of Kenna and Capital C as of September 30, 2010. The
unaudited pro forma consolidated statement of operations for the nine months
ended September 30, 2010 is based upon our historical unaudited consolidated
statement of operations for the nine months ended September 30, 2010 and
the historical unaudited statement of operations of Kenna and Capital C for the
nine months ended September 30, 2010. The unaudited pro forma
consolidated statement of operations for the year ended December 31, 2009 is
based upon our historical audited consolidated statement of operations for the
year ended December 31, 2009 and the historical audited statement of operations
of Kenna and Capital C for the year ended December 31, 2009.
The
unaudited pro forma consolidated financial statements include, in our opinion,
all material adjustments necessary to reflect this acquisition. The unaudited
pro forma consolidated financial statements do not purport to represent what the
Company’s actual results of operations including the acquisition of Kenna and
Capital C would have been, nor do they purport to predict or indicate our
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 our audited consolidated financial statements and the
related notes thereto and Kenna and Capital C audited financial statements and
the related notes thereto included herein. The statements have been prepared by
management in accordance, with generally accepted accounting principles of the
United States of America (“US GAAP”). The accounting policies used in the
preparation of the unaudited pro forma consolidated financial statements are
consistent with those used by the Company in the preparation of the consolidated
financial statements as of and for the year ended December 31, 2009. All amounts
have been stated in US dollars.
20
3. Accounting
for the Acquisition
The
acquisition is accounted for using the acquisition method of accounting. The
total estimated purchase price is composed of the following:
Cash
|
$
|
26,239
|
||
Estimated
present value of
|
||||
deferred
acquisition consideration
|
17,320
|
|||
$
|
43,559
|
Details
of the estimated fair values of assets acquired and liabilities assumed of Kenna
and Capital C based on information available at the date of preparation of these
unaudited pro forma financial statements are as follows:
Assets
acquired:
|
||||
Cash
|
$
|
346
|
||
Accounts
receivable
|
7,122
|
|||
Expenditures
billable to clients
|
4,810
|
|||
Other
current assets
|
588
|
|||
Fixed
assets
|
3,318
|
|||
Other
intangible assets
|
10,417
|
|||
Goodwill
|
45,260
|
|||
71,861
|
||||
Less
liabilities assumed:
|
||||
Accounts
payable
|
2,776
|
|||
Accruals
and other liabilities
|
2,168
|
|||
Advance
billings
|
6,575
|
|||
Long-term
debt
|
253
|
|||
Deferred
tax liabilities
|
3,229
|
|||
Other
liabilities
|
429
|
|||
Redeemable
Noncontrolling interests
|
12,872
|
|||
28,302
|
||||
Net
assets acquired
|
$
|
43,559
|
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. The
Company 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 the Company will ultimately make in finalizing the
allocation of the purchase price of Kenna and Capital C to the fair value of the
net assets acquired effective November 30, 2010 will depend on a number of
factors, including additional information available at such time, changes in
market values and changes in Kenna and Capital C operating results between the
date of these unaudited pro forma consolidated financial statements and the
effective date of the acquisition.
21
4. Pro
forma assumptions and adjustments
(a)
|
The unaudited pro forma
consolidated balance sheet as at September 30, 2010 incorporates the
following adjustments:
|
|
(i)
|
The funding for the acquisition,
which reduced the current cash balances in the amount of $26,239 and Kenna
and Capital C cash has been reduced to repay the outstanding revolver of
$1,731 and distributions of $2,101 to Newport, has been reflected in the
unaudited pro forma consolidated balance sheet as if it had occurred on
September 30, 2010.
|
|
(ii)
|
Intangible assets arising from
the acquisition have been recorded at their estimated fair values as part
of the allocation of the purchase price. Intangible assets acquired
include Kenna and Capital C’s customer contracts and relationships
including backlog of $10,007 and covenants not to compete of $410. The
estimated fair values are based on preliminary studies undertaken by
management. The estimated value allocated to goodwill 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. The goodwill is not tax deductible, accordingly a deferred tax
liability has been established for the tax effect of the identified
intangibles of $3,229.
|
(iii)
|
Kenna and Capital C’s partnership
equity has been eliminated to reflect the
acquisition.
|
(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 $1,937 for the year ended December 31,
2009 to reflect the amortization of other intangible assets arising from
the acquisition, over their estimated lives of five and eight years over
both straight line basis and in a manner represented by the pattern in
which the economic benefits are realized. Amortization for the next five
years is as follows year 1 $2,267, year 2 $2,071, year 3 $1,852, year 4
$1,739 and year 5 $52.
|
|
(ii)
|
Pro forma office and general
expenses have been increased by $663 for the year ended December 31, 2009
to reflect an increase of expenses representing the accretion of the
present value of the deferred acquisition
consideration.
|
(iii)
|
Pro forma interest expense has
been increased by $2,317 for the year ended December 31, 2009 to reflect
an increase of $2,405 representing the financing of the acquisition
assuming the Company issued $26,239 of its 11% senior notes on January 1,
2009, instead of on October 23, 2009, and a decrease of $88 representing
the interest expense on the existing revolver of Kenna and Capital C,
which was paid off at
closing.
|
(iv)
|
Pro
forma income tax expense has not been adjusted due to the existence of net
operating losses which have been fully
reserved.
|
|
(v)
|
Pro
forma equity in earnings (loss) of non-consolidated affiliates has been
decreased to reflect an investment that was not acquired as part of this
acquisition.
|
(c)
|
The unaudited pro forma
consolidated statement of operations for the nine months ended September
30, 2010 incorporates the following assumptions and
adjustments:
|
|
(i)
|
Pro forma depreciation and
amortization has been increased by $1,603 for the nine months ended
September 30, 2010 to reflect the amortization of other intangible assets
arising from the acquisition, over their estimated lives of five and eight
years over both 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 $549 for the three months ended September
30, 2010 to reflect an increase of expenses representing the accretion of
the present value of the deferred acquisition
consideration.
|
(iii)
|
Pro forma interest expense has
been decreased by $71 representing the interest expense on the existing
revolver of Kenna and Capital C, which was paid off at
closing.
|
(iv)
|
Pro forma income tax expense has
not been adjusted due to the existence of net operating losses which have
been fully reserved.
|
22
(c) Not applicable.
(d) Exhibits.
Exhibit No.
|
Description
|
|
23.1
|
Consent
of Independent Auditor.
|
23
Forward
Looking Information
This
Current Report on Form 8-K/A contains forward-looking statements. The Company’s
representatives may also make forward-looking statements orally from time to
time. Statements in this Current Report on Form 8-K/A that are not historical
facts, including statements about the Company’s beliefs and expectations, recent
business and economic trends, potential acquisitions, estimates of amounts for
deferred acquisition consideration and “put” option rights, constitute
forward-looking statements. These statements are based on current
plans, estimates and projections, and are subject to change based on a number of
factors, including those outlined in this section. Forward-looking
statements speak only as of the date they are made, and the Company undertakes
no obligation to update publicly any of them in light of new information or
future events, if any.
Forward-looking
statements involve inherent risks and uncertainties. A number of
important factors could cause actual results to differ materially from those
contained in any forward-looking statements. Such risk factors include, but are
not limited to:
|
·
|
risks
associated with severe effects of national and regional economic
downturn;
|
|
·
|
the Company’s
ability to attract new clients and retain existing
clients;
|
|
·
|
the financial
success of the Company’s
clients;
|
|
·
|
the Company’s
ability to retain and attract key
employees;
|
|
·
|
the Company’s
ability to remain in compliance with its debt agreements and the Company’s
ability to finance its contingent payment obligations when due and
payable, including but not limited to those relating to “put” option right
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 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 additional risk factors
outlined in more detail in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2009 under the caption “Risk Factors” and in the Company’s
other SEC filings.
24
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 hereunto
duly authorized.
MDC
PARTNERS INC.
|
|||
Date:
February 10, 2011
|
|||
By:
|
/s/ David C. Ross
|
||
Name:
David C. Ross
|
|||
Title:
Associate General Counsel and
Assistant
Secretary
|
25