XML 31 R19.htm IDEA: XBRL DOCUMENT v3.20.2
Supplemental Information
 6 Months Ended
Jun. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Supplemental Information Supplemental Information
Accruals and Other Liabilities
At June 30, 2020 and December 31, 2019, Accruals and other liabilities included accrued media of $172,691 and $216,931, respectively; and also included amounts due to noncontrolling interest holders for their share of profits. See Note 8 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding noncontrolling interest holders’ share of profits.
Impairment and Other Losses
The Company recognized a charge of $19,000 for the six months ended June 30, 2020 consisting of a goodwill impairment of $13,382 and an impairment of right-of-use lease assets and losses of $5,619.
Given the impact of the COVID-19 pandemic, the Company performed interim goodwill impairment tests in 2020. The company recognized a goodwill impairment of $13,382 for the six months ended June 30, 2020. Additionally, the interim test resulted in the fair value of one reporting unit, with goodwill of approximately $130,000, exceeding its carrying value by a minimal percentage. If the duration of the COVID-19 pandemic is longer and the operational impact is greater than estimated, the Company could recognize an impairment of goodwill in the future. The Company used an income approach to measure its goodwill for impairment. This methodology incorporates the use of the discounted cash flow method. The income approach requires the exercise of significant judgment and inputs, including judgment about the amount and timing of expected future cash flows, assumed terminal value and appropriate discount rates.
See Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding the impairment of right-of-use lease assets and losses.
During the first quarter of 2020, the Company reassessed its estimate of the useful life of a trademark in the amount of $14,600, acquired as a result of a business combination. The Company revised the useful life to 5 years from indefinite lived.
Income Taxes
Our tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in interim periods.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted into law and the new legislation contains several key tax provisions, including the five-year net operating loss carryback, an adjusted business interest limitation, and payroll tax deferral. The Company is required to recognize the effect of tax law changes in the period of enactment, which required the Company to reassess the net realizability of its deferred tax assets and liabilities. The Company has assessed the applicability of the CARES Act and determined there is no impact.
The Company had an income tax benefit for the three months ended June 30, 2020 of $7,923 (on a pre-tax loss of $4,617 resulting in an effective tax rate of 171.6%) compared to income tax expense of $2,088 (on pre-tax income of $9,215 resulting in an effective tax rate of 22.7%) for the three months ended June 30, 2019.
The effective tax rate of 171.6% in the three months ended June 30, 2020 as compared to 22.7% in the same period in 2019 was primarily attributable to the impact of applying the estimated annual effective tax rate to the pre-tax loss in the current period.
The Company had income tax expense for the six months ended June 30, 2020 of $5,577 (on pre-tax income of $10,677 resulting in an effective tax rate of 52.2%) compared to an expense of $2,835 (on pre-tax income of $10,195 resulting in an effective tax rate of 27.8%) for the six months ended June 30, 2019.
The effective tax rate of 52.2% in the six months ended June 30, 2020 as compared to 27.8% in same period in 2019 was primarily attributable to an increase in base erosion and anti-abuse tax (“BEAT”) in 2020.
Payroll Taxes
In accordance with the payroll tax deferral provision under the CARES Act, the Company is deferring the employer portion of the social security payroll tax of 6.2%. The Company anticipates the deferral through December 31, 2020 to be approximately $16,000 which is payable in equal installments on December 31, 2021 and 2022.

Revision of Previously Issued Financial Statements for Immaterial Misstatements
During the quarter ended June 30, 2020, the Company identified certain errors related to prior periods that were not material to any of the Company’s prior period financial statements; however, the cumulative effect of these errors could be considered material to our current year financial statements. As such, the Company revised the prior period financial statements, as presented below, and will similarly revise previously presented historical financial statements for these immaterial errors in future filings.
The adjustments by year and financial statement area are as follows:
•
Calendar Years 2019 through 2017 - The Company identified an understatement of its deferred tax assets and the related impact on goodwill impairment charges recognized in previous years. This resulted in correcting adjustments to increase deferred tax assets and reduce deferred tax expense by $217 in 2019, $1,988 in 2018 and $294 in 2017 and to recognize an incremental goodwill impairment charge and reduction of goodwill by $780 in 2019, $7,147 in 2018 and $1,056 in 2017. These amounts were recorded to reflect required adjustments in connection with the impairment of tax deductible goodwill.
•
Calendar Year 2018 - The Company recorded a correcting adjustment of $1,115 to reduce revenue and accounts receivable that was incorrectly recognized in 2018 in connection with the adoption of ASC 606.
•
Calendar Year 2016 - The Company recorded a correcting adjustment to increase tax expense and reduce deferred tax assets by $3,587 for previously unidentified deemed dividends treated as U.S. taxable income in connection with certain U.S. controlled foreign corporation assets which were pledged as security for a U.S. loan.
The following table presents the impact of the revisions on the Consolidated Statements of Operations for the periods presented:
 
For the Twelve Months Ended December 31,
 
2019
 
2018
 
2017
 
As Reported
 
Adjustment
 
As Revised
 
As Reported
 
Adjustment
 
As Revised
 
As Reported
 
Adjustment
 
As Revised
Revenue
$
1,415,803

 
$
—

 
$
1,415,803

 
$
1,476,203

 
$
(1,115
)
 
$
1,475,088

 
$
1,513,779

 
$
—

 
$
1,513,779

Impairment and other losses
7,819

 
780

 
8,599

 
80,057

 
7,147

 
87,204

 
4,415

 
1,056

 
5,471

Total operating expenses
1,335,563

 
780

 
1,336,343

 
1,466,507

 
7,147

 
1,473,654

 
1,381,820

 
1,056

 
1,382,876

Income (loss) before income taxes and equity in earnings of non-consolidated affiliates
21,647

 
(780
)
 
20,867

 
(80,407
)
 
(8,262
)
 
(88,669
)
 
87,078

 
(1,056
)
 
86,022

Income tax expense (benefit)
10,533

 
(217
)
 
10,316

 
31,603

 
(1,988
)
 
29,615

 
(168,064
)
 
(294
)
 
(168,358
)



 


 


 


 


 


 


 


 


Net income (loss) attributable to MDC Partners Inc. common shareholders
$
(16,994
)
 
$
(563
)
 
$
(17,557
)
 
$
(132,088
)
 
$
(6,274
)
 
$
(138,362
)
 
$
205,594

 
$
(762
)
 
$
204,832




 


 


 


 


 


 


 


 


Weighted Average Number of Common Shares Outstanding:


 


 


 


 


 


 


 


 


Basic
69,132,100

 
—

 
69,132,100

 
57,218,994

 
—

 
57,218,994

 
55,255,797

 
—

 
55,255,797

Diluted
69,132,100

 
—

 
69,132,100

 
57,218,994

 
—

 
57,218,994

 
55,481,786

 
—

 
55,481,786




 


 


 


 


 


 


 


 


Income (loss) Per Common Share:


 


 


 


 


 


 


 


 


Basic
$
(0.25
)
 
$
—

 
$
(0.25
)
 
$
(2.31
)
 
$
(0.11
)
 
$
(2.42
)
 
$
3.72

 
$
(0.01
)
 
$
3.71

Diluted
$
(0.25
)
 
$
—

 
$
(0.25
)
 
$
(2.31
)
 
$
(0.11
)
 
$
(2.42
)
 
$
3.71

 
$
(0.01
)
 
$
3.70


The following table presents the impact of the revisions on the Consolidated Balance Sheets for the periods presented:

 
December 31, 2019
 
December 31, 2018
 
As Reported

Adjustment

As Revised

As Reported

Adjustment

As Revised
Accounts receivable
$
450,403

 
$
(1,115
)
 
$
449,288

 
$
395,200

 
$
(1,115
)
 
$
394,085

Goodwill
740,674

 
(8,983
)
 
731,691

 
740,955

 
(8,203
)
 
732,752

Deferred tax assets
85,988

 
(1,088
)
 
84,900

 
92,741

 
(1,305
)
 
91,436

Total Assets
$
1,839,492

 
$
(11,186
)
 
$
1,828,306

 
$
1,611,573

 
$
(10,623
)
 
$
1,600,950

Accumulated deficit
(469,593
)
 
(11,186
)
 
(480,779
)
 
(464,903
)
 
(10,623
)
 
(475,526
)
Total Shareholders' Deficit
(179,389
)
 
(11,186
)
 
(190,575
)
 
(246,967
)
 
(10,623
)
 
(257,590
)
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders' Deficit
$
1,839,492

 
$
(11,186
)
 
$
1,828,306

 
$
1,611,573

 
$
(10,623
)
 
$
1,600,950