11. Segment Information

The Company determines an operating segment if a component (1) engages in business activities from which it earns revenues and incurs expenses, (2) has discrete financial information and that is (3) regularly reviewed by the Chief Operating Decision Maker (“CODM”) to make decisions regarding resource allocation for the segment and assess its performance. During June of 2016, the Company entered into a Separation and Release Agreement with its former Chief Operating Officer in connection with a limited restructuring of the Company’s corporate department. This change to the Company’s management structure was designed to provide the CODM greater visibility into the operating performance of individual Partner Firms and has resulted in a corresponding change in the level at which the CODM reviews of the operating results of such Partner Firms. As a result, in the third quarter of 2016, the Company reassessed its determination of operating segments and concluded that each Partner Firm represents an operating segment. The Company assessed the average long-term gross margins expected for each Partner Firm together with the qualitative characteristics set forth in ASC 280-10-50 and aggregated the Partner Firms that meet the aggregation criteria into one Reportable segment and combined and disclosed those Partner Firms that do not meet the aggregation criteria as an “all other” segment. The Company also reports the Corporate Group.

•

The Reportable segment is comprised of the Company's integrated advertising and media specialist agencies as well as public relations firms. These firms provide a comprehensive array of marketing and communications services for clients both domestically and globally. Firms within this segment include Allison + Partners, Anomaly, CPB, Doner, F&B, Hunter PR, KBS, MDC Media Partners, and 72andSunny, among others. These firms share similar characteristics related to the nature of their services as well as the type of clients and the methods used to provide their services. In addition, the class of customer is also common among the Partner Firms in this Reportable segment. This results in the firms having similar economics of their business.

•

All Other segment comprises the Company's specialist marketing offerings such as direct marketing, sales promotion, market research, strategic communications, database and customer relationship management, data analytics and insights, corporate identity, design and branding, and product and service innovation. Firms within this segment include Gale Partners, Kingsdale, Relevent, Team, Redscout and Y Media Labs.

•

The Corporate Group consists of corporate office expenses incurred in connection with the strategic resources provided to the Partner Firms, as well as certain other centrally managed expenses that are not fully allocated to the Reportable segments. These office and general expenses include (1) salaries and related expenses for corporate office employees including employees dedicated to supporting the Partner Firms, (2) occupancy expense relating to properties occupied by all corporate office employees, (3) other office and general expenses including professional fees for the financial statement audits and other public company costs, and (4) certain other professional fees managed by the corporate office. Additional expenses managed by the corporate office that are directly related to the Partner Firms are allocated to the Reportable segment.

Prior year results have been recast to reflect the new segment reporting.

Three Months Ended September 30, 2016

(thousands of United States dollars)



	Reportable Segment			All Other			Corporate			Total
Revenue	$	289,988		$	59,266		$	—		$	349,254

Cost of services sold	193,677			41,982			—			235,659

Office and general expenses	65,407			11,204			6,692			83,303

Depreciation and amortization	10,070			983			359			11,412

Goodwill impairment	—			29,631			—			29,631

Operating profit (loss)	20,834			(24,534		)	(7,051		)	(10,751		)

Other Income (Expense):
Other expense, net										(6,008		)
Interest expense and finance charges, net										(16,322		)

Loss from continuing operations before income taxes and equity in earnings of non-consolidated affiliates										(33,081		)
Income tax benefit										(540		)

Loss from continuing operations before equity in earnings of non-consolidated affiliates										(32,541		)
Equity in earnings of non-consolidated affiliates										70

Net loss										(32,471		)

Net income attributable to the noncontrolling interests	(962		)	(97		)	—			(1,059		)
Net loss attributable to MDC Partners Inc.										$	(33,530	)

Stock-based compensation	$	3,337		$	1,286		$	605		$	5,228

Supplemental Segment Information:

Capital expenditures	$	5,938		$	337		$	—		$	6,275

Three Months Ended September 30, 2015

(thousands of United States dollars)



	Reportable Segment			All Other			Corporate			Total
Revenue	$	271,882		$	56,533		$	—		$	328,415

Cost of services sold	173,944			38,981			—			212,925

Office and general expenses	50,425			8,897			19,464			78,786

Depreciation and amortization	8,095			4,654			337			13,086

Operating profit (loss)	39,418			4,001			(19,801		)	23,618

Other Income (Expense):
Other expense, net										(15,623		)
Interest expense and finance charges, net										(14,524		)

Loss from continuing operations before income taxes and equity in earnings of non-consolidated affiliates										(6,529		)
Income tax benefit										(1,191		)

Loss from continuing operations before equity in earnings of non-consolidated affiliates										(5,338		)
Equity in earnings of non-consolidated affiliates										172

Loss from continuing operations										(5,166		)

Loss from discontinued operations attributable to MDC Partners Inc., net of taxes										(1,316		)

Net loss										(6,482		)

Net income attributable to the noncontrolling interests	(1,366		)	(756		)	—			(2,122		)
Net loss attributable to MDC Partners Inc.										$	(8,604	)

Stock-based compensation	$	1,857		$	803		$	606		$	3,266

Supplemental Segment Information:

Capital expenditures	$	7,650		$	501		$	10		$	8,161

Nine Months Ended September 30, 2016

(thousands of United States dollars)



	Reportable Segment			All Other			Corporate			Total
Revenue	$	822,762		$	172,581		$	—		$	995,343

Cost of services sold	558,854			117,086			—			675,940

Office and general expenses	171,310			30,814			31,716			233,840

Depreciation and amortization	24,462			8,340			1,266			34,068

Goodwill impairment	—			29,631			—			29,631

Operating profit (loss)	68,136			(13,290		)	(32,982		)	21,864

Other Income (Expense):
Other income, net										9,530
Interest expense and finance charges, net										(48,690		)
Loss on redemption of notes										(33,298		)

Loss from continuing operations before income taxes and equity in earnings of non-consolidated affiliates										(50,594		)
Income tax expense										1,893

Loss from continuing operations before equity in earnings of non-consolidated affiliates										(52,487		)
Equity in earnings of non-consolidated affiliates										9

Net loss										(52,478		)

Net income attributable to the noncontrolling interests	(2,604		)	(568		)	—			(3,172		)
Net loss attributable to MDC Partners Inc.										$	(55,650	)

Stock-based compensation	$	11,067		$	2,317		$	2,059		$	15,443

Supplemental Segment Information:

Capital expenditures	$	17,440		$	2,251		$	32		$	19,723

Goodwill and intangibles	$	751,511		$	209,947		$	—		$	961,458

Total Assets	$	1,214,533		$	292,081		$	135,698		$	1,642,312

Nine Months Ended September 30, 2015

(thousands of United States dollars)



	Reportable Segment			All Other			Corporate			Total
Revenue	$	804,399		$	162,844		$	—		$	967,243

Cost of services sold	535,278			113,108			—			648,386

Office and general expenses	137,403			19,493			49,273			206,169

Depreciation and amortization	24,486			13,671			1,236			39,393

Operating profit (loss)	107,232			16,572			(50,509		)	73,295

Other Income (Expense):
Other expense, net										(29,315		)
Interest expense and finance charges, net										(42,684		)

Income from continuing operations before income taxes and equity in earnings of non-consolidated affiliates										1,296
Income tax benefit										(566		)

Income from continuing operations before equity in earnings of non-consolidated affiliates										1,862
Equity in earnings of non-consolidated affiliates										627

Income from continuing operations										2,489

Loss from discontinued operations attributable to MDC Partners Inc., net of taxes										(6,281		)

Net loss										(3,792		)

Net income attributable to the noncontrolling interests	(6,010		)	(1,333		)	—			(7,343		)
Net loss attributable to MDC Partners Inc.										$	(11,135	)

Stock-based compensation	$	7,763		$	3,260		$	2,002		$	13,025

Supplemental Segment Information:

Capital expenditures	$	16,084		$	1,308		$	273		$	17,665

Goodwill and intangibles	$	695,839		$	248,863		$	—		$	944,702

Total Assets	$	1,155,558		$	324,242		$	124,146		$	1,603,946

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



	United States		Canada		Other		Total
Revenue
Three Months Ended September 30,
2016	$	274,506	$	30,233	$	44,515	$	349,254
2015	$	270,512	$	29,559	$	28,344	$	328,415
Nine Months Ended September 30,
2016	$	799,696	$	92,253	$	103,394	$	995,343
2015	$	793,904	$	94,817	$	78,522	$	967,243