Unless otherwise indicated, references to the "Company" mean MDC Partners Inc. and its subsidiaries, and references to a fiscal year means the Company's year commencing on January 1 of that year and ending December 31 of that year (e.g., fiscal 2012 means the period beginning January 1, 2012, and ending December 31, 2012).

The Company reports its financial results in accordance with generally accepted accounting principles ("GAAP") of the United States of America ("US GAAP"). However, the Company has included certain non-US GAAP financial measures and ratios, which it believes provide useful information to both management and readers of this report in measuring the financial performance and financial condition of the Company. One such term is "organic revenue", which means growth in revenues from sources other than acquisitions or foreign exchange impacts. These measures do not have a standardized meaning prescribed by US GAAP and, therefore, may not be comparable to similarly titled measures presented by other publicly traded companies, nor should they be construed as an alternative to other titled measures determined in accordance with US GAAP.

The Company's objective is to create shareholder value by building market-leading subsidiaries and affiliates that deliver innovative, value-added marketing communications and strategic consulting to their clients. Management believes that shareholder value is maximized with an operating philosophy of "Perpetual Partnership" with proven committed industry leaders in marketing communications.

MDC manages the business by monitoring several financial and non-financial performance indicators. The key indicators that we review focus on the areas of revenues and operating expenses and capital expenditures. Revenue growth is analyzed by reviewing the components and mix of the growth, including: growth by major geographic location; existing growth by major reportable segment (organic); growth from currency changes; and growth from acquisitions.

MDC conducts its businesses through the Marketing Communications Group. Within the Marketing Communications Group, there are two reportable operating segments:
Strategic Marketing Services and Performance Marketing Services. In addition, MDC has a "Corporate Group" which provides certain accounting, administrative, financial, human resource and legal functions.

Marketing Communications Businesses

Through its operating "partners", MDC provides advertising, consulting, customer relationship management, and specialized communication services to clients throughout the world.

The operating companies earn revenue from agency arrangements in the form of retainer fees or commissions; from short-term project arrangements in the form of fixed fees or per diem fees for services; and from incentives or bonuses. Additional information about revenue recognition appears in Note 2 of the notes to the consolidated financial statements.

MDC measures operating expenses in two distinct cost categories: cost of services sold, and office and general expenses. Cost of services sold is primarily comprised of employee compensation related costs and direct costs related primarily to providing services. Office and general expenses are primarily comprised of rent and occupancy costs and administrative service costs including related employee compensation costs. Also included in operating expenses is depreciation and amortization.

Because we are a service business, we monitor these costs on a percentage of revenue basis. Cost of services sold tend to fluctuate in conjunction with changes in revenues, whereas office and general expenses and depreciation and amortization, which are not directly related to servicing clients, tend to decrease as a percentage of revenue as revenues increase because a significant portion of these expenses are relatively fixed in nature.

We measure capital expenditures as either maintenance or investment related. Maintenance capital expenditures are primarily composed of general upkeep of our office facilities and equipment that are required to continue to operate our businesses. Investment capital expenditures include expansion costs, the build out of

new capabilities, technology or call centers, or other growth initiatives not related to the day to day upkeep of the existing operations. Growth capital expenditures are measured and approved based on the expected return of the invested capital.

Certain Factors Affecting Our Business

Overall Factors Affecting our Business and Results of Operations. The most significant factors include national, regional and local economic conditions, our clients' profitability, mergers and acquisitions of our clients, changes in top management of our clients and our ability to retain and attract key employees. New business wins and client losses occur due to a variety of factors. The two most significant factors are; clients' desire to change marketing communication firms, and the creative product our firms are offering. A client may choose to change marketing communication firms for a number of reasons, such as a change in top management and the new management wants to retain an agency that it may have previously worked with. In addition, if the client is merged or acquired by another company, the marketing communication firm is often changed. Further, global clients are trending to consolidate the use of numerous marketing communication firms to just one or two. Another factor in a client changing firms is the agency's campaign or work product is not providing results and they feel a change is in order to generate additional revenues.

Clients will generally reduce or increase their spending or outsourcing needs based on their current business trends and profitability. These types of changes impact the Performance Marketing Services Group more than the Strategic Marketing Services Group due to the Performance Marketing Services Group having clients who require project-based work as opposed to the Strategic Marketing Services Group who primarily have retainer-based relationships.

Acquisitions and Dispositions. Our strategy includes acquiring ownership stakes in well-managed businesses with strong reputations in the industry. We engaged in a number of acquisition and disposal transactions during the 2010 to 2012 period, which affected revenues, expenses, operating income and net income. Additional information regarding material acquisitions is provided in Note 4 "Acquisitions" and information on dispositions is provided in Note 10 "Discontinued Operations" in the notes to the consolidated financial statements.

Foreign Exchange Fluctuations. Our financial results and competitive position are affected by fluctuations in the exchange rate between the US dollar and non-US dollars, primarily the Canadian dollar. See also "Quantitative and Qualitative Disclosures About Market Risk - Foreign Exchange."

Seasonality. Historically, with some exceptions, we generate the highest quarterly revenues during the fourth quarter in each year. The fourth quarter has historically been the period in the year in which the highest volumes of media placements and retail related consumer marketing occur.

Fourth Quarter Results. Revenues for the fourth quarter of 2012 increased to $294.6 million, compared to 2011 fourth quarter revenues of $254.1 million. The increase consisted of organic growth of $30.1 million, acquisition revenue of $9.2 million and $1.2 million due to foreign currency fluctuations. The Strategic Marketing Services segment had revenue growth of $35.3 million in 2012, of which $29.1 million was organic and $5.5 million was acquisition related. The Performance Marketing Services segment had increased revenue of $5.3 million in 2012 of which $1.0 million was organic and $3.7 million was acquisition related. Operating results for the fourth quarter of 2012 resulted in a loss of $7.1 million compared to a loss of $3.8 million in 2011. The decrease in operating profits was primarily related to an increase in estimated deferred acquisition consideration adjustments of $21.1 million offset in part by an increase in revenue. Loss from continuing operations for the fourth quarter of 2012 was $22.1 million compared to $54.7 million in 2011. Interest expense was higher in 2012 by $1.3 million, however income tax expense was lower by $37.3 million and equity in earnings of affiliates was income in 2012 of $0.2 million compared to nil in 2011. Interest expense increased due to the additional outstanding debt in 2012, relating to higher outstanding borrowing under the WF Credit Agreement and the 11% Notes issued in December 2012. Income tax expense was lower due to the additional valuation allowance reserves and non-deductible stock-based compensation in 2011 compared to what was needed in 2012.

The Company completed several key acquisitions and transactions in 2012. These acquisitions included the acquisition of Doner Partners LLC ("Doner"). The Company acquired a 30% voting interest and a convertible preferred interest that allows the Company to increase ordinary voting ownership to 70% at MDC's option, at no additional cost to the Company. Doner is a full service integrated creative agency. In addition, the Company acquired a 70% interest in TargetCast LLC ("TargetCast"), a full service integrated media agency.

The total aggregate purchase price for these 2012 transactions was $82.8 million, which included closing cash payments equal to $18.5 million and $8.0 million of working capital payments, plus additional estimated contingent purchase payments in future years of approximately $59.5 million. See Note 4 of the notes to the consolidated financial statements included herein for additional information on these and other acquisitions.

On December 10, 2012, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold an additional $80 million aggregate principal amount of 11% Notes due 2016. The additional notes were issued under the Indenture governing the 11% Notes and treated as a single series with the original 11% Notes. The additional notes were sold in a private placement in reliance on exceptions from registration under the Securities Act of 1933, as amended. The Company received net proceeds before expenses of $83.2 million, which included an original issue premium of $4.8 million, less underwriter fees of $1.6 million. The Company used the net proceeds of the offering to repay the outstanding balance under the Company's revolving credit agreement described elsewhere herein, and for general corporate purposes.

Year Ended December 31, 2011

The Company completed several key acquisitions in 2011. These acquisitions included the acquisition of a 70% interest in Concentric Partners, LLC ("Concentric"), a 65% interest in Laird + Partners, New York LLC ("Laird"), a 100% interest in RJ Palmer Partners LLC ("RJ Palmer"), a 75% interest in Trade X Partners LLC ("Trade X") and a 60% interest in Anomaly Partners, LLC ("Anomaly").

The total aggregate purchase price for these 2011 transactions was $76.8 million, which included closing cash payments equal to $40 million plus additional estimated contingent purchase payments in future years of approximately $36.8 million. See Note 4 of the notes to the consolidated financial statements included herein for additional information on these and other acquisitions.

On April 19, 2011, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold an additional $55 million aggregate principal amount of 11% Notes due 2016. The additional notes were issued under the Indenture governing the 11% Notes and treated as a single series with the original 11% Notes. The additional notes were sold in a private placement in reliance on exceptions from registration under the Securities Act of 1933, as amended. The Company received net proceeds before expenses of $59.6 million, which included an original issue premium of $6.1 million, and underwriter fees of $1.5 million. The Company used the net proceeds of the offering to repay the outstanding balance under the Company's WF Credit Agreement described elsewhere herein, and for general corporate purposes.

Year Ended December 31, 2010

The Company completed several key acquisitions in 2010. These acquisitions included the acquisition of 60% of the equity interests in The Arsenal LLC ("Team"); 75% of the equity interests in Integrated Media Solutions, LLC; 51% of the equity interests in Allison & Partners LLC; 70% of the equity interests in Sloane & Company LLC; 60% of the equity interests of Relevent Partners LLC; 80% of the total outstanding equity interests in each of Kenna Communications LP and Capital C Partners LP; and 51% of the equity interests in 72andSunny Partners LLC.

The total aggregate purchase price for these 2010 transactions was $182.1 million, which included closing cash payments equal to $92.4 million and additional estimated contingent purchase payments in future years of approximately $89.7 million. See Note 4 of the notes to the consolidated financial statements included herein for additional information on these and other acquisitions.

On May 14, 2010, the Company and its wholly-owned subsidiaries (as guarantors) issued and sold an additional $65 million aggregate principal amount of 11% Notes due 2016. The additional notes were issued under the Indenture governing the 11% notes and treated as a single series with the original 11% notes. The additional notes were sold in a private placement in reliance on exemptions from registration under the Securities Act of 1933, as amended. The Company used the net proceeds of the offering to repay the outstanding balance under the Company's revolving WF Credit Agreement, and for acquisitions and other general corporate purposes.

Results of Operations for the Years Ended December 31, 2012, 2011 and 2010:

[[Image Removed]]   [[Image Removed]]           [[Image Removed]]           [[Image Removed]]      [[Image Removed]]
                                                   For the Year Ended December 31, 2012
                       Strategic Marketing        Performance Marketing          Corporate                Total
                            Services                    Services
Revenue             $         721,228           $         349,483           $             -        $      1,070,711
Cost of services              480,820                     258,301                         -                 739,121
sold
Office and                    190,242                      73,995                    38,847                 303,084
general expenses
Depreciation and               27,455                      17,617                     1,342                  46,414
amortization
Operating profit               22,711                        (430 )                 (40,189 )               (17,908 )
(loss)
Other income
(expense):
Other income, net                                                                                               117
Foreign exchange                                                                                               (976 )
loss
Interest expense
and finance                                                                                                 (46,312 )
charges, net
Loss from
continuing
operations before                                                                                           (65,079 )
income taxes,
equity in
affiliates
Income tax                                                                                                    9,553
expense
Loss from
continuing
operations before                                                                                           (74,632 )
equity in
affiliates
Equity in
earnings of                                                                                                     633
affiliates
Loss from
continuing                                                                                                  (73,999 )
operations
Loss from
discontinued
operations
attributable to                                                                                              (5,428 )
MDC Partners
Inc., net of
taxes
Net loss                                                                                                    (79,427 )
Net income
attributable to                (4,538 )                    (1,474 )                       -                  (6,012 )
noncontrolling
interests
Net loss
attributable to                                                                                    $        (85,439 )
MDC Partners Inc.
Stock-based         $           9,186           $           8,227           $        14,784        $         32,197
compensation

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                                                   For the Year Ended December 31, 2011
                       Strategic Marketing        Performance Marketing          Corporate                Total
                            Services                    Services
Revenue             $         608,022           $         332,381           $             -        $       940,403
Cost of services              425,316                     244,674                         -                669,990
sold
Office and                    137,824                      45,258                    35,432                218,514
general expenses
Depreciation and               22,378                      17,016                       826                 40,220
amortization
Operating Profit               22,504                      25,433                   (36,258 )               11,679
(Loss)
Other Income
(Expense):
Other income, net                                                                                              116
Foreign exchange                                                                                            (1,677 )
loss
Interest expense
and finance                                                                                                (41,716 )
charges, net
Loss from
continuing
operations before                                                                                          (31,598 )
income taxes,
equity in
affiliates
Income tax                                                                                                  41,735
expense
Loss from
continuing
operations before                                                                                          (73,333 )
equity in
affiliates
Equity in
earnings of                                                                                                    213
affiliates
Loss from
continuing                                                                                                 (73,120 )
operations
Loss from
discontinued
operations
attributable to                                                                                             (3,167 )
MDC Partners
Inc., net of
taxes
Net loss                                                                                                   (76,287 )
Net income
attributable to                (6,414 )                    (1,973 )                       -                 (8,387 )
noncontrolling
interests
Net loss
attributable to                                                                                    $       (84,674 )
MDC Partners Inc.
Stock-based         $           5,149           $           3,695           $        14,813        $        23,657
compensation

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                                                   For the Year Ended December 31, 2010
                       Strategic Marketing        Performance Marketing          Corporate                Total
                            Services                    Services
Revenue             $         438,941           $         249,885           $             -        $       688,826
Cost of services              288,916                     183,202                         -                472,118
sold
Office and                     90,495                      38,230                    22,291                151,016
general expenses
Depreciation and               17,917                      15,873                       368                 34,158
amortization
Operating Profit               41,613                      12,580                   (22,659 )               31,534
(Loss)
Other Income
(Expense):
Other expense,                                                                                                 381
net
Foreign exchange                                                                                                69
gain
Interest expense
and finance                                                                                                (33,192 )
charges, net
Loss from
continuing
operations before                                                                                           (1,208 )
income taxes,
equity in
affiliates
Income tax                                                                                                    (165 )
recovery
Loss from
continuing
operations before                                                                                           (1,043 )
equity
in affiliates
Equity in
earnings of                                                                                                    866
affiliates
Loss from
continuing                                                                                                    (177 )
operations
Loss from
discontinued
operations
attributable to                                                                                             (4,885 )
MDC Partners
Inc., net of
taxes
Net loss                                                                                                    (5,062 )
Net income
attributable to                (7,211 )                    (3,167 )                       -                (10,378 )
noncontrolling
interests
Net loss
attributable to                                                                                    $       (15,440 )
MDC Partners Inc.
Stock-based         $           7,282           $           1,992           $         7,233        $        16,507
compensation

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Revenue was $1.07 billion for the year ended 2012, representing an increase of $130.3 million, or 13.9%, compared to revenue of $940.4 million for the year ended 2011. This increase relates primarily to acquisition growth of $54.2 million and an increase in organic revenue of $78.6 million. A strengthening of the US Dollar, primarily versus the Canadian dollar during the year ended December 31, 2012, resulted in a decrease of $2.5 million.

Operating loss for the year ended 2012 was $17.9 million, compared to operating profits of $11.7 million in 2011. Operating profit decreased by $25.9 million in the Performance Marketing Services segment, and was offset by an increase of $0.2 million in the Strategic Marketing Services segment. Corporate operating expenses increased by $3.9 million in 2012.

Loss from continuing operations was a loss of $74.0 million in 2012, compared to a loss of $73.1 million in 2011. This increase in loss of $0.9 million was primarily attributable to a decrease in operating profits of $29.6 million and an increase in deferred acquisition consideration of $40.4 million, and an increase in net interest expense equal to $4.6 million, offset by the decrease in tax expense of $32.2 million. The increase in net interest expense was primarily due to higher outstanding borrowing under the WF Credit Agreement and the Company's outstanding 11% notes. These amounts were impacted by a decrease in foreign exchange losses of $0.7 million in 2012 and an increase in equity in earnings of non-consolidated affiliates of $0.4 million.

Marketing Communications Group

Revenues attributable to the Marketing Communications Group, which consists of
two reportable segments - Strategic Marketing Services and Performance Marketing
Services, were $1.07 billion in the aggregate in 2012, compared to $940.4
million in 2011, representing a year-over-year increase of 13.9%.

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

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                                                 Revenue
                                     $000's                    %
Year ended December 31, 2011   $        940,403
Acquisition                              54,198                5.8 %
Organic                                  78,648                8.4 %
Foreign exchange impact                  (2,538 )             (0.3 )%
Year ended December 31, 2012   $      1,070,711               13.9 %

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

[[Image Removed]]   [[Image Removed]]      [[Image Removed]]
                            2012                   2011
US                            81 %                   80 %
Canada                        14 %                   16 %
Europe and other               5 %                    4 %

The operating profit of the Marketing Communications Group decreased by approximately 53.5% to $22.3 million in 2012, from $47.9 million in 2011. The decrease in operating profit of $25.6 million was primarily due to an increase in estimated deferred acquisition consideration adjustments of $40.4 million, an increase in non-cash stock based compensation of $8.6 million and increased depreciation and amortization of $5.7 million, all due to acquisitions. These amounts were offset by $29.1 million of increased operating profits driven by the increase in revenue following the Company's strategic investment spending in 2011. Operating margins decreased to 2.1% for 2012, compared to 5.1% for 2011. This decrease in operating margin was primarily related to an increase in office and general expenses as a percentage of revenue from 19.5% in 2011, to 24.7% in 2012. This increase was primarily due to estimated deferred acquisition consideration adjustments as a percentage of revenue which increased to 5.0% in 2012 compared to 1.3% in 2011. In addition, total staff

costs increased as a percentage of revenue from 55.2% in 2011, to 59.4% in 2012. Offsetting these increases was a decrease in reimbursed client related direct costs (excluding staff costs) as a percentage of revenue from 22.7% in 2011, to 16.8% in 2012.

. . .