MDC Q1 Preview: Freeman Off the Books; Goodwill "Unimpaired"; Nadal Does a Curious Art Deal
MDC Partners, the corporate owner of Crispin Porter + Bogusky and Kirshenbaum Bond + Partners, scheduled its Q1 2009 earnings call for April 28. It also restated some of its earnings to "reflect discontinued operations during the fourth quarter of 2008."
If you're thinking that restatement accounts for MDC's uncoupling from Cliff Freeman & Partners, which took place during that period, think again. No writedown took place.
Interestingly, MDC already took charges on Freeman back in 2007 and 2006. MDC's 2008 annual report notes:
Included in 2007 is an impairment charge of $0.2 million relating to the Company's investment in Cliff Freeman.MDC chief Miles Nadal said previously that he had about $800,000 invested in Freeman, which was bought back.Included in 2006 is an impairment charge of $0.8 million relating to the Company's investment in Cliff Freeman.
The report also contains some clues as to what's happening with MDC's massive "goodwill" item on its balance sheet. Goodwill is an intangible asset that often declines rapidly in a recession. Other advertising companies have taken massive goodwill writedowns, but MDC has not. Currently, about half of MDC's assets consist of goodwill. MDC stayed on a buying spree in 2008, the type of activity that generally adds to goodwill. (Goodwill is often described as the difference between the book value of an acquired company and what the buyer actually paid for it; although MDC values it as a measure of the "talent" inside its agencies.) Here's what MDC bought last year:
Cash used in acquisitions during 2008 was $35.8 million of which $19.1 million was paid in the acquisition of equity interests in Crispin Porter & Bogusky, Texture Media, Clifford PR, Core Strategy Group, DMG Inc., Skinny NY, Source Marketing, Allard Johnson, Zig and Accent Marketing. In addition, the Company paid $16.7 million as contingent deferred payments from prior acquisitions.The only thing coming off the books was Clifford/Bratskeir:
In December 2008, MDC sold certain assets of Clifford/Bratskeir Public Relations LLC to HL Group Partners, LLC. MDC is in negotiations to sell the remaining assets of Clifford/Bratskeir Public Relations LLC. This entity has been treated as a discontinued operation.MDC does admit in its risks section that goodwill writedowns are a possibility:
... future events could cause us to conclude that the asset values associated with a given operation may become impaired. Any resulting impairment loss could materially adversely affect our results of operations and financial condition.MDC tested its goodwill for impairments in October 2008 and in January 2009, the company reported, but calculated that nothing was amiss.
Lastly, MDC filed a curious note about an art collection that is "shared" by Nadal and MDC. Nadal, an entity named "Nadal Management Inc.," and MDC have agreed to a deal with a two year deadline in which "collectible artwork" will be sold. See if you can decipher what this is about, because I sure can't:
... the parties agree that ... you shall have arranged for the purchase and/or transfer of collectible artwork shared by the Company and you based upon then-current appraised fair market values which the Company, NMI and you have mutually agreed upon (net of the amount mutually agreed upon as representing the commission that would otherwise be payable upon sale of the artwork).