<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
MARCH 31, 1998
SNYDER COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1-12145 52-1983617
(STATE OR OTHER JURISDICTION (COMMISSION (I.R.S. EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
TWO DEMOCRACY CENTER, 6903 ROCKLEDGE DRIVE
15TH FLOOR, BETHESDA, MARYLAND 20817
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(301) 468-1010
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
================================================================================
<PAGE>
ITEM 5. OTHER EVENTS
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company as of and for each of the years in the five year period ended December
31, 1997, and for the three months ended March 31, 1997 and March 31, 1998,
after giving effect to all transactions accounted for as poolings of interests
(the "Acquisitions"). The table gives effect to all of the Acquisitions, as if
they had occurred at the beginning of the earliest period presented. The table
also sets forth unaudited pro forma income statement data for each of the
years in the five year period ended December 31, 1997, and for the three
months ended March 31, 1997 and March 31, 1998, which give pro forma effect to
federal, state and city income taxes as if all operations of the Company were
subject to such taxes for all periods presented. The income statement data for
each of the years in the three year period ended December 31, 1997 and the
balance sheet data as of December 31, 1996 and December 31, 1997 are derived
from the audited consolidated financial statements of the Company. All other
income statement and balance sheet data presented are derived from unaudited
consolidated financial statements of the Company and in the opinion of the
management of the Company include all adjustments, consisting of normal and
recurring adjustments, which are necessary to present fairly the combined
results of operations and financial position of the Company for each period
presented. The following summary consolidated selected financial data should
be read in conjunction with the consolidated financial statements and notes
thereto included elsewhere in this Form 8-K.
Table on following page
1
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- ----------------------
1993 1994 1995 1996 1997 1997 1998
----------- ----------- -------- -------- -------- ---------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:(1)
Revenues................ $149,348 $235,356 $334,090 $428,897 $520,040 $ 118,583 $ 146,853
Operating Expenses:
Cost of services....... 101,428 151,644 215,059 297,942 363,006 82,906 97,493
Selling, general and
administrative
expenses.............. 32,825 56,598 70,758 89,041 107,427 24,285 29,369
Compensation to
stockholders.......... 2,389 5,276 9,439 7,363 13,623 1,427 --
ESOP expense........... 30 2,203 2,172 6,553 5,411 1,245 --
Acquisition and related
costs(2).............. -- -- -- -- 39,431 16,181 33,953
-------- -------- -------- -------- -------- ---------- ----------
Income (loss) from
operations............. 12,676 19,635 36,662 27,998 (8,858) (7,461) (13,962)
Interest income
(expense), net......... (615) (1,513) (1,654) (2,400) (391) (249) 738
-------- -------- -------- -------- -------- ---------- ----------
Income (loss) from
continuing operations
before income taxes.... 12,061 18,122 35,008 25,598 (9,249) (7,710) (13,224)
Income tax (provision)
benefit................ (4,663) (6,730) (9,892) (5,994) (6,246) (2,288) 2,346
-------- -------- -------- -------- -------- ---------- ----------
Income (loss) from
continuing operations.. 7,398 11,392 25,116 19,604 (15,495) (9,998) (10,878)
Loss from discontinued
operations(3).......... -- -- -- (1,498) (1,507) (558) --
-------- -------- -------- -------- -------- ---------- ----------
Income (loss) before
extraordinary item..... 7,398 11,392 25,116 18,106 (17,002) (10,556) (10,878)
Extraordinary item, less
applicable income taxes
of $806(4) ............ -- -- -- (1,215) -- -- --
-------- -------- -------- -------- -------- ---------- ----------
Net income (loss)..... $ 7,398 $ 11,392 $ 25,116 $ 16,891 $(17,002) $ (10,556) $ (10,878)
======== ======== ======== ======== ======== ========== ==========
Historical net income
(loss) per share:
Basic net income (loss)
per share
Income (loss) from
continuing
operations........... $ 0.15 $ 0.23 $ 0.48 $ 0.37 $ (0.27) $ (0.18) $ (0.18)
======== ======== ======== ======== ======== ========== ==========
Net income (loss) per
share................ $ 0.15 $ 0.23 $ 0.48 $ 0.32 $ (0.30) $ (0.19) $ (0.18)
======== ======== ======== ======== ======== ========== ==========
Diluted net income
(loss) per share
Income (loss) from
continuing
operations........... $ 0.15 $ 0.23 $ 0.48 $ 0.37 $ (0.27) $ (0.18) $ (0.18)
======== ======== ======== ======== ======== ========== ==========
Net income (loss) per
share................ $ 0.15 $ 0.23 $ 0.48 $ 0.32 $ (0.30) $ (0.19) $ (0.18)
======== ======== ======== ======== ======== ========== ==========
Unaudited:
Pro forma net income
(loss) from continuing
operations(5)......... $ 7,390 $ 10,846 $ 21,220 $ 14,291 $(18,900) $ (10,556) $ (12,432)
======== ======== ======== ======== ======== ========== ==========
Pro forma diluted net
income (loss) per
share from continuing
operations............ $ 0.15 $ 0.22 $ 0.41 $ 0.27 $ (0.33) $ (0.19) $ (0.21)
======== ======== ======== ======== ======== ========== ==========
Pro forma net income
(loss)(5)............. $ 7,390 $ 10,846 $ 21,220 $ 12,181 $(19,800) $ (10,863) $ (12,432)
======== ======== ======== ======== ======== ========== ==========
Pro forma diluted net
income (loss) per
share(6).............. $ 0.15 $ 0.22 $ 0.41 $ 0.23 $ (0.35) $ (0.20) $ (0.21)
======== ======== ======== ======== ======== ========== ==========
Pro forma net income
from continuing
operations, excluding
non-recurring
items(5)(7)........... $ 8,872 $ 15,322 $ 28,256 $ 22,061 $ 28,838 $ 6,519 $ 12,852
======== ======== ======== ======== ======== ========== ==========
Pro forma diluted net
income per share from
continuing operations,
excluding non-
recurring
items(6)(7)........... $ 0.19 $ 0.31 $ 0.54 $ 0.42 $ 0.50 $ 0.11 $ 0.21
======== ======== ======== ======== ======== ========== ==========
Shares used in
computing per share
amounts:(6)
Basic................. 47,783 49,324 52,030 52,487 56,624 55,413 60,135
Diluted............... 47,783 49,324 52,121 53,041 58,056 56,820 62,166
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------- AS OF MARCH 31,
1993 1994 1995 1996 1997 1998
----------- ----------- -------- -------- -------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:(1)
Total assets........... $117,300 $157,269 $209,913 $295,990 $410,702 $524,679
Long-term debt(8)...... 14,708 30,758 36,826 36,707 10,439 9,410
Redeemable ESOP
stock(9).............. -- -- 269 2,452 5,278 6,891
Total equity........... 20,569 20,398 33,170 70,275 144,582 241,846
</TABLE>
Footnotes on following page
2
<PAGE>
(1) Prior to the consummation on September 24, 1996 of the reorganization (the
"Reorganization") in which the Company acquired all of the limited
partnership interests in Snyder Communications, L.P. (the "Partnership") and
all of the issued and outstanding stock of the corporate general partner,
Snyder Marketing Services, Inc. ("SMS"), the operations of the Company were
conducted through the Partnership. The Partnership was owned 63.85% by SMS
and 36.15% by the limited partners. The Reorganization resulted in the
stockholders of SMS exchanging 100% of their SMS stock for the Company's
Common Stock simultaneously with the limited partners exchanging their
limited partner interests in the Partnership for the Company's Common Stock.
After the Reorganization, the Company owned 100% of the stock of SMS and,
directly and indirectly through its ownership of SMS, 100% of the interest
of the Partnership. Because of the continuity of ownership, the
Reorganization was accounted for by combining the assets, liabilities, and
operations of SMS, the Partnership and the Company at their historical cost
basis. Accordingly, for the periods prior to the Reorganization, the income
statement and balance sheet data include a combination of the accounts of
SMS and the Partnership. Prior to its acquisition by the Company, American
List Corporation ("American List") had a fiscal year that ended in February.
The accompanying balance sheet data as of December 31, 1993, 1994, 1995 and
1996 reflect the combination of American List's accounts as of the following
February month-end while the income statement data for each of the four
years ended December 31, 1996 reflect the combination of American List's
operations for the twelve months that end in the February following the
respective income statement date.
(2) The $39.4 million of acquisition and related costs includes $34.1 million
in costs directly related to the consummation of the Company's Acquisitions.
These costs include primarily investment banking fees, other professional
service fees, certain United Kingdom excise and transfer taxes, as well as a
non-cash charge of $9.1 million related to the accelerated vesting of
options held by Brann employees. The remaining $5.3 million consists of the
write-off of deferred license fees and the accrual of a liability expected
to resolve outstanding litigation. Both the write-off of the deferred fees
and the accrual of the liability were recorded due to changes in fact which
resulted from the Company's Acquisitions.
The Company recorded $34.0 million in acquisition and related costs during
the first quarter of 1998 primarily related to the Acquisitions consummated
during the first quarter of 1998. These costs consist of investment banking
fees, other professional service fees, the expense associated with stock
appreciation rights, tax payments and other contractual payments. In
addition, this amount includes approximately $4.7 million for the costs of
consolidating existing Company facilities and acquired operations, including
the external costs and liabilities to close redundant Company facilities and
severance and relocation costs related to the Company's employees.
(3) Represents the net losses of Bob Woolf Associates, Inc., which was spun
off to stockholders of record of one of the Company's 1998 acquisitions on
October 31, 1997. These losses represent $0.03 and $0.03 per diluted share
for 1996 and 1997, respectively.
(4) An extraordinary item of $1.2 million ($0.02 per diluted share) was
recorded in conjunction with the early redemption of subordinated debentures
which were due to related parties. The extraordinary item is net of a $0.8
million tax benefit and consists of prepayment penalties and the write-off
of unamortized discount and debt issuance costs.
(5) Prior to the Reorganization, the Company's principal operations were not
subject to federal or state corporate income taxes. Similarly, prior to
their respective acquisitions, certain of the U.S.-based acquirees were not
subject to federal (except for one Massachusetts incorporated acquiree) or
state income taxes. In addition, the Company's international subsidiaries
are subject to different statutory income tax rates. Pro forma data are
calculated as if the Company had been taxed similarly to a C corporation for
all periods presented.
(6) The shares used in computing the per share amounts assume that the
Reorganization and the Acquisitions had occurred at the beginning of each of
the periods presented and reflect the issuance of additional shares as a
result of the Company's public offerings, the impact of stock options, and
certain share repurchases.
(7) Represents income from continuing operations adjusted to reflect (a) a
provision for income taxes as if the Company had been taxed similarly to a C
corporation for all periods presented, (b) the elimination of compensation
to stockholders for amounts paid to managers of acquired companies prior to
their merger with the Company which was in excess of amounts they will
receive pursuant to employment contracts, (c) the elimination of the impact
of nonrecurring acquisition and related costs, and (d) the elimination of
ESOP related expenses incurred by the ESOP of an acquired company which will
not be incurred in the future.
(8) Includes mandatorily redeemable preferred stock of $4.6 million, $4.6
million and $8.5 million at December 31, 1994, 1995 and 1996, respectively.
The preferred stock did not carry voting rights unless dividends were in
arrears, which did not occur, and was not convertible into common stock.
Accordingly, the preferred stock was classified as long-term debt. This
preferred stock was redeemed during 1997.
(9) Represents the balance necessary to satisfy the repurchase obligation
associated with the Company's shares held by the ESOP of an acquired company
which have been allocated to former employees of the acquired company whose
employment had terminated prior to its merger with the Company.
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's results of operations and of its
liquidity and capital resources is based upon the Company's consolidated
financial statements. The entities with which the Company has entered into
mergers accounted for as poolings of interests for financial reporting
purposes will be collectively referred to as the "Pooled Entities" and their
mergers will be referred to herein as the "Acquisitions". The consolidated
financial statements have been retroactively restated to reflect the combined
financial position and combined results of operations and cash flows of the
Pooled Entities for all periods presented, giving effect to the Acquisitions
as if they had occurred at the beginning of the earliest period presented. The
following discussion should be read in conjunction with the Selected
Consolidated Financial Data and the Consolidated Financial Statements of the
Company and related notes thereto included elsewhere in this Form 8-K.
OVERVIEW
Since completing its initial public offering in September 1996, the Company
has significantly expanded the range of marketing and sales services it is
able to offer its clients. This expansion has been accomplished both by
building and initiating new programs or service offerings and by acquiring
businesses that offer complementary services. The Company's strategy is to
facilitate the growth of its acquirees with improved sales and marketing
resources and to integrate the sales and marketing efforts of its acquirees
with those of the existing operating groups within the Company. The Company
expects that the synergies created by its acquisitions will increase its
opportunities and strengthen its customer relationships. The existing
similarities among services and customers within the different operating
groups facilitate the integration of the Company's service offerings. The
service offerings of acquired companies have been combined with those
previously offered by the Company to create four service groups: Medical
Services; Media and Sampling Services; Communications Services; and Data
Delivery Services. The Company provides complete marketing solutions for its
clients by integrating these four types of services into sales and marketing
programs. Throughout 1997 and the first quarter of 1998, the Company has
completed acquisitions accounted for both as poolings of interests and as
purchases. Those acquisitions which are either significant to the Company's
financial results or which may provide significant future growth opportunities
are discussed below.
The Company established its Medical Services group in January 1997 in a
merger transaction with a U.S. provider of pharmaceutical sales and marketing
services. During 1997 and the first quarter of 1998, the Company issued
4,035,182 and 2,314,263 shares, respectively, in pooling of interests
transactions with companies that provide medical services. These transactions
include the acquisitions of MMD, Inc. ("MMD"), GEM Communications, Inc.
("GEM"), Rapid Deployment Group Limited ("RDL"), PharmFlex, Inc.
("PharmFlex"), Health Products Research, Inc. ("HPR") and Publimed Promotions,
S.A. ("Publimed"). The Company also acquired Halliday Jones Sales Ltd. ("HJ")
for approximately $19.4 million of cash and common stock in a purchase
transaction in 1997, Healthcare Promotions, LLC ("HCP") for approximately
$22.0 million of common stock and CLI Pharma S.A. ("CLI Pharma") for
approximately $25.0 million of common stock in purchase transactions in the
first quarter of 1998. MMD, RDL, HJ, PharmFlex, HCP, Publimed and CLI Pharma
all market medical products for pharmaceutical companies utilizing field
sales. As a result of the acquisitions of MMD, PharmFlex and HCP, the Medical
Services group combines the services of over 2,360 account executives and
managers in the U.S., and provides outsourced pharmaceutical sales and
marketing services to some of the world's premier pharmaceutical companies.
Together, HJ and RDL retain the services of over 730 account executives and
managers, and provide outsourced pharmaceutical sales and marketing services
to many leading pharmaceutical manufacturers. HJ and RDL operate primarily in
the U.K., but also in Ireland and Hungary. Publimed and CLI Pharma both
provide pharmaceutical sales and marketing services in France and utilize over
860 account executives and managers. GEM operates in the U.S. and provides
communications and marketing services to the pharmaceutical industry,
primarily educational marketing programs aimed at doctors, pharmacists and
nurses. HPR provides strategic and tactical sales force market planning and
evaluation services, including sales marketing resource allocation, sales
force planning and the integration and evaluation of sales and marketing
promotions to many leading pharmaceutical and medical device manufacturers.
4
<PAGE>
The Company expanded the reach of its Media and Sampling Services group
through complementary acquisitions. During 1997 and the first quarter of 1998,
the Company issued 3,032,414 and 30,344 shares, respectively, in pooling of
interests transactions with companies that provide media and sampling
services. These transactions include the acquisitions of Bounty Group Holdings
("Bounty") and Sampling Corporation of America ("SCA"). Bounty is a U.K.-based
provider of targeted product sampling services and proprietary health-oriented
publications to expectant mothers, new mothers and parents of toddlers in the
U.K. and Ireland. SCA is a U.S. provider of targeted product sampling programs
for packaged goods manufacturers with distribution channels that include over
180,000 locations and consist of primary and secondary schools,
daycare/preschool centers, colleges and immigrant organizations.
The Company increased the scope of services provided by the Communications
Services group with the completion of strategic acquisitions. During 1997 and
the first quarter of 1998, the Company issued 2,350,152 and 5,275,961 shares,
respectively, in pooling of interests transactions with companies that provide
communications services. These transactions include the acquisitions of Brann
Holdings Limited ("Brann"), Blau Marketing Technologies, Inc. ("Blau") and
Arnold Communications, Inc. ("Arnold"). Brann is a leading provider of
complete marketing solutions in the U.K., and offers a full range of creative,
telemarketing and database services to over 70 companies, government agencies
and charitable organizations. Blau and Arnold provide marketing communications
services in the U.S. Blau provides direct marketing services, including
strategic consulting, creative services, program design and implementation,
consumer database management, response tracking and analysis and production
management to large national and international corporations in the financial
services, technology, retail, telecommunications and utilities industries.
Arnold is a full-service marketing communications firm that provides creative
services, direct marketing, new media marketing, database management services
and full-service public relations to a roster of recognized national and
international corporations.
The Company expanded its data delivery service capabilities and established
its Data Delivery Services group in 1997 through its acquisition of American
List Corporation ("American List"). The Company issued 5,032,322 shares in a
pooling of interests transaction with American List. American List develops,
maintains and markets some of the largest and most comprehensive databases of
high school, college and pre-school through junior high school students in the
U.S.
RESULTS OF OPERATIONS
In the Medical Services group, revenues and associated costs on
pharmaceutical detailing contracts are generally recognized when services have
been performed by account executives. In the Media and Sampling Services
group, revenues are recognized as services are rendered in accordance with the
terms of the contracts. In the Communications Services group, net revenues are
recognized when services are completed in accordance with the terms of the
contracts. On certain contracts, revenues from field sales and teleservices
are based on both the number of accepted customers and the type of services
sold. Revenues related to such sales are recognized on the date that the
application for service is accepted by the Company's clients. In the Data
Delivery Services group, revenues are recognized upon shipment of lists to
customers for a one-time usage.
Cost of services consists of all costs specifically associated with client
programs, such as salary, commissions and benefits paid to personnel,
including senior management associated with specific service groups,
inventory, payments to third-party vendors and systems and other support
facilities specifically associated with client programs.
Selling, general and administrative expenses consist primarily of costs
associated with the Company's centralized staff functions, such as finance,
accounting and human resources and personnel costs of senior management not
specifically associated with any single service group.
5
<PAGE>
Compensation to stockholders consists of excess compensation paid to certain
stockholders of the Partnership prior to the Reorganization and excess
compensation paid to certain stockholders of acquired companies prior to their
respective mergers with the Company. The amount by which the historical
compensation of these stockholders exceeds that provided in their employment
contracts with the Company has been classified as compensation to
stockholders.
ESOP expense is the compensation expense recorded when shares are committed
to be released to ESOP participants. The amount of the expense is based on the
current market price of the shares and will vary based upon the amount of debt
repaid by the ESOP during the period.
Acquisition and related costs consist primarily of investment banking fees,
other professional service fees, certain tax payments and other contractual
payments resulting from the consummation of the Company's pooling of interests
transactions.
The following sets forth, for the periods indicated, certain components of
the Company's income statement data, including such data as a percentage of
revenues. Pro forma net income includes a provision for income taxes as if all
operations of the Company had been taxed similarly to a C corporation for all
periods presented. Pro forma net income from continuing operations, excluding
non-recurring items represents income from continuing operations adjusted to
reflect a provision for income taxes as if the Company had been taxed
similarly to a C corporation for all periods presented and the elimination of
compensation to stockholders, ESOP expense and acquisition and related costs.
Compensation to stockholders, ESOP expense and acquisition and related costs
are considered to be nonrecurring by the Company, because the Company's
current operations will not result in any compensation to stockholders, ESOP
expense or acquisition and related costs in future periods.
6
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------- ---------------------------------
1995 1996 1997 1997 1998
--------------- --------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $334,090 100.0% $428,897 100.0% $520,040 100.0% $118,583 100.0% $146,853 100.0%
Operating expenses:
Cost of services...... 215,059 64.4 297,942 69.5 363,006 69.8 82,906 69.9 97,493 66.4
Selling, general and
administrative
expenses............. 70,758 21.2 89,041 20.8 107,427 20.7 24,285 20.5 29,369 20.0
Compensation to
stockholders......... 9,439 2.8 7,363 1.7 13,623 2.6 1,427 1.2 -- --
ESOP Expense.......... 2,172 0.6 6,553 1.5 5,411 1.0 1,245 1.0 -- --
Acquisition and
related costs........ -- -- -- -- 39,431 11.8 16,181 13.6 33,953 23.1
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income (loss) from
operations............. 36,662 11.0 27,998 6.5 (8,858) (1.7) (7,461) (6.3) (13,962) (9.5)
Interest income
(expense), net......... (1,654) (0.5) (2,400) (0.5) (391) 0.1 (249) (0.2) 738 0.5
Income tax (provision)
benefit................ (9,892) (3.0) (5,994) (1.4) (6,246) (1.2) (2,288) (1.9) 2,346 1.6
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income (loss) before
discontinued operations
and extraordinary
item................... 25,116 7.5 19,604 4.6 15,495 3.0 (9,998) (8.4)% (10,878) (7.4)
Loss from discontinued
operations............. -- -- (1,498) (0.4) (1,507) (0.3) (558) (0.5) -- --
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Extraordinary item...... -- -- (1,215) (0.3) -- -- -- -- --
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Net income (loss)..... $ 25,116 7.5% $ 16,891 3.9% $(17,002) (3.3)% $(10,556) (8.9)% $(10,878) (7.4)%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
Pro forma net income
(loss) from
continuing options... $ 21,220 6.4% $ 14,291 3.3% $(18,900) (3.6)% $(10,556) (8.9)% $(12,432) (8.5)%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
Pro forma net income
(loss)............... $ 21,220 6.4% $ 12,181 2.8% $(19,800) (3.8)% $(10,863) (9.2)% $(12,432) (8.5)%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
Pro forma net income
from continuing
operations, excluding
non-recurring items.. $ 28,256 8.5% $ 22,061 5.1% $ 28,838 5.1% $ 6,519 5.5% $ 12,852 8.8%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Revenues. Revenues increased $28.3 million, or 23.9%, from $118.6 million in
the three months ended March 31, 1997 to $146.9 million in the three months
ended March 31, 1998. The increase in revenues was due primarily to increased
sales volumes in the Medical Services and Communications Services groups. The
Medical Services and Communications Services groups experienced growth in the
services provided to both new and existing customers, and this accounted for
approximately $16.6 million and $10.9 million, respectively, of the increase
in revenues.
Cost of Services. Cost of services increased $14.6 million, or 17.6%, from
$82.9 million in the three months ended March 31, 1997 to $97.5 million in the
three months ended March 31, 1998. Cost of services as a percentage of
revenues decreased from 69.9% in the three months ended March 31, 1997 to
66.4% in the three months ended March 31, 1998. The Company's management and
client support personnel were able to support increased client services during
the three months ended March 31, 1998, resulting in a decrease in cost of
services as a percentage of revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $5.1 million, or 21.0%, from $24.3 million
in the three months ended March 31, 1997 to $29.4 million in the three months
ended March 31, 1998. Selling, general and administrative expenses as a
percentage of revenues decreased from 20.5% in the three months ended March
31, 1997 to 20.0% in the three months ended March 31, 1998, reflecting a
moderately increased corporate overhead expense being spread over a larger
base of revenues.
7
<PAGE>
Compensation to Stockholders. No compensation to stockholders was recorded
in the three months ended March 31, 1998. Compensation to stockholders was
$1.4 million in the three months ended March 31, 1997 and reflects
compensation paid to certain stockholders of acquired companies prior to their
respective mergers with the Company that is in excess of the compensation
provided for in their employment contracts with the Company. No compensation
to stockholders is recorded subsequent to an acquisition by the Company.
ESOP Expense. No ESOP expense was recorded in the three months ended March
31, 1998. ESOP expense was $1.2 million in the three months ended March 31,
1997. During 1997, all obligations of the ESOP were settled, and the Company
does not expect to incur any ESOP expense in 1998 or any future periods. The
employees of one of the acquired companies that previously participated in the
ESOP will now participate in the Company's stock incentive plan.
Acquisition and Related Costs. The Company recorded $16.2 million and $34.0
million in acquisition and related costs during the three months ended March
31, 1997 and 1998, respectively. The $16.2 million in acquisition costs
recorded during the three months ended March 31, 1997 were costs directly
related to the consummation of the Company's pooling of interests transactions
completed during the three months ended March 31, 1997 and included
approximately $9.1 million from the accelerated vesting of options held by
employees at one of the acquirees in the U.K. The $34.0 million in acquisition
and related costs recorded during the three months ended March 31, 1998
includes $29.3 million in costs directly related to the consummation of the
Company's pooling of interests transactions completed during the three months
ended March 31, 1998 and $4.7 million for the consolidation of certain
acquired operations in the U.S. and the U.K. The charge consists of $2.3
million to consolidate and terminate lease obligations and to write off
leasehold improvements at the office facilities of three acquired subsidiaries
and $2.4 million in severance and related costs to terminate employment of
certain management and administrative personnel at three acquired
subsidiaries. In total, 66 employees will be terminated in the restructuring,
ten of whom were laid off during the three months ended March 31, 1998.
Interest Income (Expense), net. The Company recorded net interest expense of
$0.2 million in the three months ended March 31, 1997 and net interest income
of $0.7 million in the three months ended March 31, 1998. The net interest
expense recorded during the three months ended March 31, 1997 consists
primarily of interest on debt at acquired companies prior to their acquisition
by the Company. The Company generally repays the debt of its acquirees. The
net interest income recorded during the three months ended March 31, 1998
corresponds to the increase in funds available for investment. The Company's
average cash balance in the first quarter of 1998 was greater than in the
first quarter of 1997 due primarily to public stock offerings and stock option
exercises.
Income Tax (Provision) Benefit. The Company recorded a $2.3 million tax
provision in the three months ended March 31, 1997 and a $2.3 million tax
benefit in the three months ended March 31, 1998. A tax provision was recorded
on the loss from continuing operations in the three months ended March 31,
1997 because of the nondeductibility of certain of the acquisition costs
recorded in the period. A tax benefit was recorded on the loss from continuing
operations in the three months ended March 31, 1998 due to the deductibility
of the costs incurred during the period. The Company's effective tax rate for
the three months ended March 31, 1997 and 1998 differs from the Federal
statutory rate due primarily to the nondeductibility of certain nonrecurring
acquisition costs, state income taxes, the tax status of certain of the Pooled
Entities prior to their mergers with the Company and different statutory rates
for the Company's international operations.
Discontinued Operations. The loss from discontinued operations of $0.6
million in the three months ended March 31, 1997 consists of the loss from the
sports management operations which were spun off from one of the Company's
1998 acquirees in October 1997.
Pro Forma Net Income (Loss). The pro forma net loss increased $1.6 million,
or 14.8%, from $10.8 million in the three months ended March 31, 1997 to $12.4
million in the three months ended March 31, 1998 due primarily to the increase
in acquisition and related costs offset by the Company's overall growth and
8
<PAGE>
improved gross margins. Pro forma income from continuing operations and
excluding nonrecurring costs increased $6.4 million, or 98.5%, from $6.5
million in the three months ended March 31, 1997 to $12.9 million in the three
months ended March 31, 1998. Pro forma diluted net income per share from
continuing operations and excluding nonrecurring costs increased $0.10, or
91.0%, from $0.11 for the three months ended March 31, 1997 to $0.21 for the
three months ended March 31, 1998. The increase in pro forma income from
continuing operations and excluding nonrecurring costs is due primarily to the
growth in revenues and the improved gross margins.
1997 Compared to 1996
Revenues. Revenues increased $91.1 million, or 21.2%, from $428.9 million in
1996 to $520.0 million in 1997. The increase in revenues was due principally
to increased sales volumes in the Medical Services, Media and Sampling
Services and Communications Services groups. The Medical Services and
Communications Services groups experienced growth in the services provided to
both new and existing customers, and this accounted for approximately $44.0
million and $27.7 million, respectively, of the increase in revenues. Revenues
in the Media and Sampling Services group increased primarily due to additional
sampling programs offered in 1997.
Cost of Services. Cost of services increased $65.1 million, or 21.9%, from
$297.9 million in 1996 to $363.0 million in 1997. Cost of services, as a
percentage of revenues, was 69.5% in 1996 and 69.8% in 1997. The increase in
cost of services is consistent with the Company's growth and the increase in
services provided.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $18.4 million, or 20.7%, from $89.0 million
in 1996 to $107.4 million in 1997. Selling, general and administrative
expenses, as a percentage of revenues, was 20.8% in 1996 and 20.7% in 1997.
The increase in selling, general and administrative expenses is consistent
with the Company's growth and expanded operations.
Compensation to Stockholders. Compensation to stockholders increased $6.2
million, or 83.8%, from $7.4 million in 1996 to $13.6 million in 1997. Certain
stockholders of the acquired companies received annual compensation in their
role as managers in excess of amounts which they will receive pursuant to
employment agreements they have entered into with the Company. The amount by
which the historical compensation paid to these managers exceeds the amount
provided for in their respective employment contracts with the Company has
been classified as compensation to stockholders. No compensation to
stockholders is recorded subsequent to an acquisition by the Company.
ESOP Expense. ESOP expense decreased $1.2 million or 18.2% , from $6.6
million in 1996 to $5.4 million in 1997. ESOP expense represents the fair
value of shares released to ESOP participants during the period. During 1997,
all outstanding debt of the ESOP was repaid, and the Company will not record
ESOP expense in future periods.
Acquisition Costs. The Company recorded $39.4 million in nonrecurring
acquisition and related costs during 1997. Of the $39.4 million, $34.1 million
are costs directly related to the consummation of the Company's Acquisitions.
These costs include primarily investment banking fees, other professional
service fees, certain U.K. excise and transfer taxes, as well as a non-cash
charge of approximately $9.1 million related to the accelerated vesting of the
options held by Brann employees. The remaining $5.3 million consists of the
write-off of deferred license fees and the accrual of a liability expected to
resolve outstanding litigation. Both the write-off of the deferred fees and
the accrual of the liability were recorded due to changes in fact which
resulted from the Company's Acquisitions.
Interest Income (Expense), Net. The Company recorded net interest expense of
$2.4 million in 1996 and $0.4 million in 1997. Net interest expense in 1996
consists primarily of the interest expense on the debt incurred by Brann in
connection with its purchase of Brann Limited at the end of January 1994 and
on the debt incurred by Bounty in connection with its purchase of Bounty
Limited at the end of August 1995. Net interest expense of
9
<PAGE>
$0.4 million in 1997 consists primarily of the interest income earned on the
proceeds from the Company's equity offerings offset by interest expense paid
on Brann, Bounty, RDL and Blau debt. The Company generally repays the debt of
its acquirees, so the debt of Brann and Bounty was outstanding for only a
portion of 1997. The RDL debt was issued during 1996 and was repaid late in
1997 at the time of its acquisition by the Company. Blau increased its
borrowings in 1997 to make leasehold improvements.
Income Tax (Provision) Benefit. The Company recorded a $6.2 million tax
provision in 1997, consisting of a $10.5 million provision for the income from
recurring operations and a $4.3 million benefit from the $39.4 million of
nonrecurring acquisition costs. The Company's effective tax rate for the year
ended December 31, 1997 differs from the Federal statutory rate due primarily
to the nondeductibility of certain of the acquisition costs and state income
taxes. Pro forma net income discussed below includes a provision for income
taxes as if all operations of the Company had been taxed as a C corporation
for the years ended December 31, 1996 and 1997.
Discontinued Operations. In October 1997, the Board of Directors of one of
the Company's 1998 acquirees approved the spin-off of its sports management
operations which were carried on by one of its wholly owned subsidiaries, Bob
Woolf Associates, Inc. ("BWA"). The acquiree purchased BWA in May 1996. The
spin-off was executed in the form of a dividend to the acquiree's stockholders
of record on October 31, 1997, whereby each stockholder received one share of
BWA for each share of the acquiree's common stock owned.
Pro Forma Net Income (Loss). Pro forma net income (loss) decreased $32.0
million, or 262%, from net income of $12.2 million in 1996 to a net loss of
$19.8 million in 1997, due primarily to the $39.4 million in nonrecurring
acquisition costs. Pro forma net income from continuing operations and
excluding nonrecurring costs increased $6.7 million, or 30%, from $22.1
million in 1996 to $28.8 million in 1997 due primarily to the overall growth
in revenues and containment of costs. The increases in cost of services and
selling, general and administrative expenses were consistent with the growth
in revenues.
1996 Compared to 1995
Revenues. Revenues increased $94.8 million, or 28.4%, from $334.1 million in
1995 to $428.9 million in 1996. The increase in revenues was principally due
to increased sales volumes in the Medical Services, Media and Sampling
Services and Communications Services groups. Approximately $20.9 million and
$61.1 million of the increase is attributable to the growth in the Medical
Services and Communications Services groups, respectively. The increase in
revenues and sales volumes in the Medical Services and Communications Services
groups corresponds with the increase during 1995 and 1996 in the number of
sales offices and the number of field, teleservices and account
representatives. Revenues in the Media and Sampling Services group increased
mainly due to Bounty's sampling programs which began in August 1995 when
Bounty acquired all of the outstanding common stock of Bounty Limited in a
purchase transaction.
Cost of Services. Cost of services increased $82.9 million, or 38.5%, from
$215.1 million in 1995 to $297.9 million in 1996. Cost of services as a
percentage of revenues increased from 64.4% to 69.5% due primarily to an
increase in personnel costs. Additional management and client support
personnel were employed to handle the continued growth and expanded operations
throughout the Company. The number of managers and ratio of managers to field,
teleservices and account representatives increased to further improve the
quality and oversight of the services provided. Additional recruiting costs
were incurred during 1996 to attract the additional management and client
support personnel.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $18.2 million, or 25.7%, from $70.8 million
in 1995 to $89.0 million in 1996. Selling, general and administrative expense
as a percentage of revenues decreased from 21.2% in 1995 to 20.8% in 1996,
reflecting the increased corporate overhead expense being spread over a larger
base of revenues.
Compensation to Stockholders. Compensation to stockholders decreased $2.0
million, or 21.3%, from $9.4 million in 1995 to $7.4 million in 1996.
Compensation to stockholders decreased approximately $4.4 million
10
<PAGE>
because less compensation was paid to SMS stockholders after the
Reorganization. Prior to the Reorganization, the Company's operations were
conducted by the Partnership. SMS, the general partner of the Partnership,
paid compensation to certain officers and employees of the Partnership for
services performed for SMS. The compensation from SMS was in addition to the
compensation that these individuals received from the Partnership. These
individuals were stockholders in both the Partnership and SMS. The decrease in
the compensation paid to SMS stockholders is offset by variations in the
compensation paid to stockholders of privately-held corporations prior to
their respective mergers with the Company which results in a net decrease of
$2.0 million.
Interest Income (Expense), Net. Net interest expense increased $0.7 million,
from $1.7 million in 1995 to $2.4 million in 1996. A $1.4 million increase in
interest expense was offset by a $0.7 increase in interest income. Interest
expense increased mainly due to the increase in interest expense on the debt
incurred by Bounty in connection with its purchase of Bounty Limited at the
end of August 1995. Bounty incurred interest expense for only four months in
1995, but for all twelve months in 1996. Interest income increased in 1996 due
to an increase in the balance of funds available for investment, primarily the
proceeds from the initial public offering in September 1996.
Income Tax (Provision) Benefit. The income tax provision of $6.0 million in
1996 reflects the actual income tax provisions of the previously separate
companies before their respective acquisitions by the Company. Not all of the
entities acquired were subject to income taxes prior to their respective
acquisitions by the Company. Pro forma net income discussed below includes a
provision for income taxes, as if all operations of the Company had been taxed
similarly to a C corporation in both 1995 and 1996. For the period from
January 1, 1996 until the Reorganization on September 24, 1996, the Company
had elected to be treated for federal and certain state income tax purposes as
an S corporation, and therefore, the stockholders of the Company were taxed on
their proportionate share of the Company's taxable income, and the Company did
not have an obligation to pay income taxes. Similarly, prior to their
respective acquisition, certain of the U.S.-based acquirees were also taxed as
S corporations prior to their respective mergers with the Company.
Extraordinary Item. In October 1996, the Company redeemed in full the
subordinated debentures and recorded an extraordinary loss of $1.2 million,
net of income taxes. The extraordinary loss consists of prepayment penalties
and the write-off of unamortized discount and debt issuance costs.
Pro Forma Net Income. Pro forma net income decreased $9.0 million, or 42.5%,
from $21.2 million in 1995 to $12.2 million in 1996 due primarily to the
increase in cost of services as a percentage of revenues.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had $62.5 million in cash and equivalents.
Cash and equivalents decreased $19.4 million during the three months ended
March 31, 1998, due to the $11.2 million used in operating activities, the
$7.7 million used in investing activities, the $0.4 million used in financing
activities and the $0.1 million effect of exchange rate changes. The Company's
operations used $11.2 million in cash during the three months ended March 31,
1998 due primarily to the $34.0 million in nonrecurring acquisition and
related costs. The $7.7 million of cash used in investing activities includes
$10.1 million for the purchase of property, equipment and intangibles offset
by the $2.4 million in cash received from the purchase of subsidiaries, the
sales of marketable securities and repayment of advances. The $0.4 million of
cash used in financing activities includes $2.2 million in cash paid for
dividends to stockholders of acquired companies prior to their respective
acquisitions by the Company, $2.1 million in payments for the acquisition of
treasury stock and $10.4 million in repayments of debt and other obligations
offset by $7.2 million in cash received from the exercise of options and $7.1
million from the issuance of common stock and debt.
The Company's recurring operations (excluding compensation to stockholders,
ESOP expense and acquisition and related costs) have provided positive cash
flows in the three months ended March 31, 1998 and in each of the three years
ended December 31, 1997.
11
<PAGE>
The Company experienced significant growth during 1997 and during the three
months ended March 31, 1998 and expects to continue to grow through both
internal expansion and complementary acquisitions. The Company believes that
its current balance of cash and equivalents will be sufficient to fund its
current operations and planned capital expenditures. To the extent that the
consideration paid for future acquisitions does not include securities of the
Company, acquisitions will initially be financed using excess cash and
equivalents, but depending on the amount necessary to complete an acquisition,
additional financing may be required. On April 24, 1998, the Company filed a
registration statement with respect to the sale of approximately 600,000
shares of common stock by the Company and approximately 7,650,000 shares of
common stock by selling stockholders.
The Company is undergoing an assessment of its current systems and equipment
and is in the process of making the modifications necessary to address the
issues presented by the Year 2000 issue. The Company expects to incur no more
than $3.0 million in capital expenditures in 1998 with respect to system
upgrades which are designed in part to address specific Year 2000
requirements. To the extent that additional acquisitions are consummated, the
Company will need to evaluate how the Year 2000 will impact its future
acquirees.
The Company is subject to the impact of foreign currency fluctuations,
specifically that of the British pound and French franc. To date, changes in
the British pound and French franc exchange rates have not had a material
impact on the Company's liquidity or results of operations. The Company
continually evaluates its exposure to exchange rate risk but does not
currently hedge such risk.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") during the three months ended
March 31, 1998. Comprehensive income includes net income and all other
nonowner changes in equity in a period. The Company's comprehensive loss of
$10.1 million for the three months ended March 31, 1998 consists of its net
loss, foreign currency translation adjustment and unrealized gain on
marketable securities.
12
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SNYDER COMMUNICATIONS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet as of December 31, 1997 and March 31,
1998 (Unaudited)......................................................... 14
Unaudited Condensed Consolidated Statement of Income for the three months
ended March 31, 1997 and 1998 ........................................... 15
Unaudited Condensed Consolidated Statement of Cash Flows for the three
months ended March 31, 1997 and 1998..................................... 16
Unaudited Condensed Consolidated Statement of Equity for the three months
ended March 31, 1998..................................................... 17
Notes to Unaudited Condensed Consolidated Financial Statements............ 18
Report of Independent Public Accountants.................................. 22
Consolidated Balance Sheet as of December 31, 1996 and 1997............... 23
Consolidated Statement of Income, including unaudited pro forma data, for
the years ended December 31, 1995, 1996 and 1997......................... 24
Consolidated Statement of Equity for the years ended December 31, 1995,
1996 and 1997............................................................ 25
Consolidated Statement of Cash Flows for the years ended December 31,
1995, 1996 and 1997...................................................... 26
Notes to Consolidated Financial Statements................................ 27
BRANN HOLDINGS LIMITED
Report of Independent Accountants......................................... 51
AMERICAN LIST CORPORATION
Report of Independent Certified Public Accountants........................ 52
</TABLE>
13
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents.................................. $ 81,915 $ 62,517
Marketable securities................................. 2,127 2,042
Accounts receivable, net of allowance for doubtful
accounts of $6,769 and $7,398 at December 31, 1997
and March 31, 1998, respectively..................... 157,743 198,901
Unbilled services..................................... 19,365 12,974
Other current assets.................................. 30,259 22,448
-------- --------
Total current assets................................ 291,409 298,882
-------- --------
Property and equipment, net............................. 42,202 50,738
Goodwill and other intangible assets, net............... 68,943 118,014
Deferred tax asset...................................... -- 49,944
Deposits and other assets............................... 8,148 7,101
-------- --------
Total assets........................................ $410,702 $524,679
======== ========
LIABILITIES AND EQUITY
Current liabilities:
Lines of credit....................................... $ 7,427 $ 2,523
Current maturities of long-term debt.................. 2,086 3,527
Accrued payroll....................................... 17,163 24,761
Accounts payable...................................... 97,404 119,763
Accrued expenses...................................... 85,511 88,923
Client advances....................................... 12,045 5,528
Unearned revenue...................................... 21,770 18,352
-------- --------
Total current liabilities........................... 243,406 263,377
-------- --------
Related party borrowings, net of current maturities..... 4,753 3,743
Long-term obligations under capital leases.............. 1,751 1,791
Long-term debt, net of current maturities............... 3,935 3,876
Other liabilities....................................... 6,997 3,155
Commitments and contingencies
Redeemable ESOP stock, 147 shares outstanding as of
December 31, 1997 and
March 31, 1998, respectively........................... 5,278 6,891
Equity:
Preferred stock, $.001 par value per share, 5,000 shares
authorized, none issued and outstanding at December 31,
1997 and March 31, 1998, respectively.................. -- --
Common stock, $.001 par value per share, 120,000 shares
authorized, 60,470 and 62,266 shares issued and
outstanding at December 31, 1997 and March 31, 1998,
respectively........................................... 60 62
Additional paid-in capital.............................. 152,086 266,293
Treasury stock, at cost, 1,059 and 1,096 shares at
December 31, 1997 and March 31, 1998, respectively..... (5,473) (7,575)
Accumulated other comprehensive income.................. 477 1,275
Retained deficit........................................ (2,568) (18,209)
-------- --------
Total equity........................................ 144,582 241,846
-------- --------
Total liabilities and equity........................ $410,702 $524,679
======== ========
</TABLE>
The accompanying notes are an integral part of this condensed consolidated
balance sheet.
14
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
1997 1998
---------- ----------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues............................................... $ 118,583 $ 146,853
Operating expenses:
Cost of services..................................... 82,906 97,493
Selling, general, and administrative expenses........ 24,285 29,369
Compensation to stockholders......................... 1,427 --
ESOP expense......................................... 1,245 --
Acquisition and related costs........................ 16,181 33,953
---------- ----------
Loss from operations................................... (7,461) (13,962)
Interest income (expense), net......................... (249) 738
---------- ----------
Loss from continuing operations before income taxes.... (7,710) (13,224)
Income tax (provision) benefit......................... (2,288) 2,346
---------- ----------
Loss from continuing operations........................ (9,998) (10,878)
Loss from discontinued operations...................... (558) --
---------- ----------
Net loss............................................. $ (10,556) $ (10,878)
========== ==========
Historical net loss per share:
Basic net loss per share
Loss from continuing operations...................... $ (0.18) $ (0.18)
========== ==========
Net loss............................................. $ (0.19) $ (0.18)
========== ==========
Diluted net loss per share
Loss from continuing operations...................... $ (0.18) $ (0.18)
========== ==========
Net loss............................................. $ (0.19) $ (0.18)
========== ==========
Pro forma net loss per share (Note 4):
Basic net loss per share
Loss from continuing operations...................... $ (0.19) $ (0.21)
========== ==========
Net loss............................................. $ (0.20) $ (0.21)
========== ==========
Diluted net loss per share
Loss from continuing operations...................... $ (0.19) $ (0.21)
========== ==========
Net loss............................................. $ (0.20) $ (0.21)
========== ==========
</TABLE>
The accompanying notes are an integral part of this condensed consolidated
financial statement.
15
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED MARCH 31,
------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(10,556) $(10,878)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................ 3,008 4,081
Noncash charge from accelerated vesting of Brann
Holdings options........................................ 9,097 --
Noncash ESOP expense..................................... 1,293 --
Loss on disposal of assets............................... 63 67
Other noncash amounts.................................... 1,372 (6,803)
Changes in assets and liabilities:
Accounts receivable, net................................. (10,211) (23,023)
Unbilled services........................................ (2,842) 7,326
Deposits and other assets................................ 886 274
Other current assets..................................... 202 1,466
Accrued payroll, accounts payable and accrued expenses... 5,903 29,709
Unearned revenue......................................... (3,062) (5,472)
Client advances.......................................... 667 (7,959)
Impact from differing fiscal year ends................... (2,761) --
-------- --------
Net cash used in operating activities.................. (6,941) (11,212)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of subsidiaries, net of cash acquired............ (4,398) 1,884
Purchase of property and equipment........................ (7,007) (9,424)
Proceeds from sale of equipment........................... 126 --
Net sales of marketable securities........................ 235 243
Purchase of intangible assets............................. (3,694) (702)
Note and net advances to stockholders..................... (134) 276
Impact from differing fiscal year ends.................... (446) --
-------- --------
Net cash used in investing activities.................. (15,318) (7,723)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term notes payable to limited partners
and others............................................... (1,830) --
Proceeds from issuance of subordinated debentures due to
related parties.......................................... 6,115 245
Distributions and dividends............................... (4,211) (2,175)
Acquisition of treasury stock............................. (1,590) (2,097)
Repayment of long-term debt............................... -- (5,617)
Redemption of mandatorily redeemable preferred stock...... (5,110) --
Net borrowings (repayments) on line of credit............. 577 (4,246)
Payments on capital lease obligations..................... (390) (518)
Proceeds from exercise of options......................... 5,957 7,172
Proceeds from issuance of common stock.................... 105 6,874
Impact from differing fiscal year ends.................... 3,704 --
-------- --------
Net cash provided by (used in) financing activities.... 3,327 (362)
Effect of exchange rate changes........................... 561 (101)
-------- --------
Net decrease in cash and equivalents...................... (18,371) (19,398)
Cash and equivalents, beginning of period................. 70,916 81,915
-------- --------
Cash and equivalents, end of period....................... $ 52,545 $62,517
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest including dividends on mandatorily
redeemable preferred stock............................... 229 280
Cash paid for income taxes................................ 215 2,171
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Equipment purchased under capital leases.................. 437 201
Distribution of non-operating assets by a subsidiary...... -- 947
Issuance of shares of common stock for purchase of
subsidiaries............................................. -- 50,496
Issuance of common stock related to stock appreciation
rights................................................... -- 3,484
</TABLE>
The accompanying notes are an integral part of this condensed consolidated
statement of cash flows.
16
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY FOR THE THREE MONTHS ENDED MARCH 31,
1998
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON ACCUMULATED
COMMON STOCK ADDITIONAL RETAINED OTHER
STOCK PAR PAID-IN EARNINGS TREASURY COMPREHENSIVE COMPREHENSIVE
SHARES VALUE CAPITAL (DEFICIT) STOCK INCOME TOTAL INCOME
---------- ------ ---------- --------- -------- ------------- -------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1997, as previously
restated for poolings.. 60,470,000 $60 $152,086 $ (2,568) $(5,473) $ 477 $144,582 $ --
Distributions and
dividends............. -- -- -- (3,149) -- -- (3,149) --
Exercise of stock
options and subsidiary
stock appreciation
rights................ 386,000 -- 12,517 -- 20 -- 12,537 --
Issuance of shares for
purchase of
subsidiaries.......... 1,211,000 2 50,383 -- -- -- 50,385 --
Reissuance of treasury
stock by subsidiary
prior to Merger with
SCI................... 199,000 -- 6,873 -- -- -- 6,873 --
Foreign currency
translation
adjustment............ -- -- -- -- -- 739 739 739
Unrealized gain on
marketable
securities............ -- -- -- -- -- 59 59 59
Purchases and
retirement of treasury
stock................. -- -- 86 -- (2,122) -- (2,036) --
Reclassification of
redeemable ESOP
stock................. -- -- -- (1,613) -- -- (1,613) --
Tax benefit from
taxable merger
transaction........... -- -- 44,348 -- -- -- 44,348 --
Net loss............... -- -- -- (10,879) -- -- (10,879) (10,879)
--------
Comprehensive loss..... -- -- -- -- -- -- -- $(10,081)
---------- --- -------- -------- ------- ------ -------- ========
Balance, March 31,
1998................... 62,266,000 $62 $266,293 $(18,209) $(7,575) $1,275 $241,846 --
========== === ======== ======== ======= ====== ========
</TABLE>
The accompanying notes are an integral part of this condensed consolidated
statement of equity.
17
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. ORGANIZATION, BASIS OF PRESENTATION AND BUSINESS:
On October 19, 1988, Collegiate Marketing and Communications, Inc., a
Delaware corporation (the "General Partner"), and a Delaware limited
partnership beneficially owned by Mortimer B. Zuckerman and Fred Drasner (the
"Original Limited Partner") entered into a partnership agreement (the
"Partnership Agreement") pursuant to the provisions of the Delaware Act, under
the name Collegiate Marketing and Communications, L.P. (the "Partnership"). On
September 1, 1989, the name of the Partnership was changed to Snyder
Communications, L.P., and the name of the General Partner was changed to
Snyder Communications, Inc. On May 18, 1995, the Partnership Agreement was
amended to admit several new limited partners into the Partnership. On June
25, 1996, the name of the General Partner was changed to Snyder Marketing
Services, Inc. ("SMS").
Snyder Communications, Inc., a Delaware corporation, was incorporated on
June 25, 1996, to continue the business operations of the Partnership. Snyder
Communications, Inc., in conjunction with all of the existing partners in the
Partnership, reorganized on September 24, 1996 (the "Reorganization"), upon
the effectiveness of the initial public offering of its common stock. After
consummation of the Reorganization, Snyder Communications, Inc. owned 100
percent of the stock of SMS and, directly and indirectly (through its
ownership of SMS), 100 percent of the interests in the Partnership (the
consolidated entity will be referred to herein as "SCI" or "Snyder
Communications").
During the first quarter of 1998, SCI issued 7,620,568 shares in pooling of
interests transactions (the "1998 Mergers"). The transactions include the
acquisitions of Health Products Research, Inc. ("HPR"), Publimed Promotions
S.A. ("Publimed"), Blau Marketing Technologies, Inc. ("Blau") and Arnold
Communications, Inc. ("Arnold"). HPR and Publimed both provide sales and
marketing services to the pharmaceutical industry. HPR operates primarily in
the U.S. and provides strategic and tactical sales force market planning and
evaluation services to leading pharmaceutical and medical device
manufacturers. Publimed markets medical products for pharmaceutical companies
in France utilizing field sales. Blau's operations are conducted throughout
the U.S. and consist primarily of strategic consulting, creative services,
program design and implementation, consumer database management, response
tracking and analysis, interactive services and production management.
Arnold's operations are also conducted throughout the U.S. , and they include
creative services, direct marketing, new media marketing, database management
services and full-service public relations for its clients.
The accompanying condensed consolidated financial statements have been
retroactively restated to reflect the combined financial position and combined
results of operations and cash flows of the 1998 Mergers, giving effect to
these acquisitions as if they had occurred at the beginning of the earliest
period presented (the combined entity will be referred to herein as the
"Company"). The condensed consolidated balance sheet for all periods presented
gives effect to the conversion of the 1998 Mergers common stock to 7,620,568
shares of SCI common stock. Certain amounts previously presented have been
reclassified to conform to the March 31, 1998 presentation.
Snyder Communications provides fully integrated outsourced marketing
solutions. The Company identifies high value market segments; designs and
implements marketing programs to reach them; initiates and closes sales on
behalf of its clients; and provides customer care, retention and loyalty
marketing services. The Company's resources include proprietary databases of
targeted customers and small businesses; database management services;
pharmaceutical detailing services; pharmaceutical consulting; medical
education communications; proprietary product sampling programs and
publications; sponsored information displays in proprietary locations;
marketing program consultants; creative services; field sales and marketing
representatives; customer service representatives; and direct mail and
fulfillment capabilities. The Company's operations are conducted throughout
the United States, the United Kingdom ("U.K."), France, Ireland and Hungary.
18
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The accompanying unaudited condensed consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. As a result, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted. The
Company believes that the disclosures made are adequate to make the
information presented not misleading. The condensed consolidated financial
statements reflect all adjustments (consisting of only normal recurring
adjustments) which, in the opinion of management, are necessary to present
fairly the financial position, results of operations and cash flows of the
Company as of March 31, 1998 and for the three months ended March 31, 1997 and
1998. Operating results for the three month period ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. The unaudited condensed consolidated financial
statements should be read in conjunction with the financial statements and
footnotes thereto included elsewhere in this Prospectus.
2. BUSINESS COMBINATIONS
The following details revenues and net income (loss) for each of the three
months ended March 31, 1997 and 1998 of SCI and all entities acquired by SCI
through pooling of interests combinations ("Pooled Entities") through the
dates of their respective mergers. The SCI amounts include the financial
results of the original operations of SCI for the entire period and the
financial results of the Pooled Entities for the period subsequent to the
dates of their respective mergers.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------
1997 1998
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
SCI................................................... $ 33,085 $107,049
Pooled Entities....................................... 85,498 39,804
--------- --------
$118,583 $146,853
========= ========
Net Income (Loss):
SCI................................................... $ (12,484) $ (1,428)
Pooled Entities....................................... 1,928 (9,450)
--------- --------
$ (10,556) $(10,878)
========= ========
</TABLE>
During the first quarter of 1998 SCI acquired CLI Pharma (March 25, 1998)
and HealthCare Promotions ("HCP") (February 13, 1998) in transactions which
have been accounted for as purchase business combinations. The total
consideration paid for first quarter 1998 purchase business combinations was
approximately $50.5 million consisting of 1,261,000 shares of SCI common stock
and $5 million in cash. Based upon a preliminary allocation of purchase
consideration, these purchase business combinations have resulted in
additional goodwill of approximately $48.8 million.
19
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table presents pro forma financial information as if the
Company's 1997 purchase of Halliday Jones Sales Ltd. and its 1998 purchase
business combinations had been consummated at the beginning of each of the
periods presented and all of the Company's operations had been taxed similarly
to a C corporation (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------
1997 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
Pro Forma Revenues....................................... $135,463 $157,644
Pro Forma Loss from Continuing Operations................ (9,807) (10,393)
Pro Forma Net Loss....................................... (10,365) (10,393)
Pro Forma Basic Net Loss Per Share....................... (0.18) (0.17)
Pro Forma Diluted Net Loss Per Share..................... (0.18) (0.17)
</TABLE>
3. ACQUISITION AND RELATED COSTS:
During the three months ended March 31, 1998, SCI recorded $34.0 million in
non-recurring acquisition and related costs. These costs are primarily related
to the consummation of the 1998 Mergers and consist of investment banking
fees, expenses associated with stock appreciation rights, other professional
service fees, tax payments and other contractual payments. In addition, this
amount includes a charge of approximately $4.7 million for costs necessary to
implement the Company's first quarter 1998 consolidation of certain U.S. and
U.K. operations. The charge consists of approximately $2.3 million to
consolidate and terminate lease obligations and write off leasehold
improvements at the office facilities of three acquired subsidiaries and $2.4
million in severance and related costs to terminate the employment of 66
management and administrative personnel at the acquired subsidiaries. As of
March 31, 1998, ten employees had terminated employment with the Company while
$0.5 million in severance and related costs had been charged against the
liability.
4. INCOME TAXES:
The Company's effective tax rate for the three months ended March 31, 1997
and 1998 differs from the federal statutory rate due primarily to the
nondeductibility of certain non-recurring acquisition costs, state income
taxes, the different tax status of certain of the Pooled Entities prior to
their merger with SCI and different statutory rates for the Company's
international operations.
5. PRO FORMA INCOME DATA:
The pro forma net loss per share amounts include a provision for federal and
state income taxes as if the Company had been a taxable C corporation for all
periods presented. The pro forma income tax rate reflects the combined federal
and state income taxes of approximately 41.5 percent and 38.0 percent for the
three months ended March 31, 1997 and 1998. These tax provisions exceed the
Company's statutory rate due to the recognition of certain acquisition and
related costs which are not deductible for income tax purposes.
20
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The table below presents this pro forma calculation of net loss (in
thousands):
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31,
------------------
1997 1998
-------- --------
<S> <C> <C>
Pro forma net loss data (unaudited):
Historical loss from continuing operations before income
taxes.................................................... $ (7,710) $(13,224)
Pro forma benefit (provisions) for income taxes........... (2,846) 792
-------- --------
Pro forma loss from continuing operations................. (10,556) (12,432)
Loss from discontinued operations, less applicable pro
forma income taxes....................................... (307) --
-------- --------
Pro forma net loss........................................ $(10,863) $(12,432)
======== ========
</TABLE>
6. NEW ACCOUNTING PRONOUNCEMENTS:
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," ("SFAS 130"), during the first quarter of
1998. SFAS 130 requires companies to report as comprehensive income all
changes in equity during a period, except those resulting from investments and
distributions to owners, in financial statements for the period in which they
are recognized. Included within accumulated other comprehensive income are the
cumulative amounts for foreign currency translation adjustments and unrealized
gains and losses on marketable securities. The cumulative foreign currency
translation adjustment was $1,152,000 and $413,000 as of March 31, 1998 and
December 31, 1997, respectively. The cumulative gain on marketable securities
was $123,000 and $64,000 as of March 31, 1998 and December 31, 1997,
respectively.
7. TAX BENEFIT FROM TAXABLE MERGER TRANSACTION:
SCI will receive a future tax benefit arising from the tax treatment of its
first quarter 1998 merger with Arnold Communications, Inc. In accordance with
generally accepted accounting principles, because the merger has been
accounted for as a pooling of interests, the net estimated future tax benefit
of approximately $44.4 million is reflected as a deferred tax asset in the
accompanying condensed consolidated balance sheet at March 31, 1998 with the
offsetting credit made to additional paid-in-capital.
8. NET INCOME PER SHARE:
A reconciliation of the shares used to compute basic and diluted earnings
per share follows. For each of the periods presented, the same net income used
to compute basic earnings per share was used to compute diluted earnings per
share.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1997 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Weighted average shares outstanding for the period
used in computation of basic net income per
share............................................. 55,413 60,135
Diluted impact of stock options.................... -- --
---------- ----------
Shares used in computation of diluted net income
per share......................................... 55,413 60,135
</TABLE>
For the three months ended March 31, 1997 and 1998, there existed weighted
average common stock equivalents of 1,407,095 and 2,030,944, respectively,
which are not included in the calculation of diluted net income per share
because they were antidilutive for the periods.
21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Snyder Communications, Inc.:
We have audited the accompanying consolidated balance sheet of Snyder
Communications, Inc. and subsidiaries (the "Company") as of December 31, 1996
and 1997, and the related consolidated statements of income, equity, and cash
flows for each of the years in the three year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the
1995 and 1996 financial statements of American List Corporation or Brann
Holdings Limited included in the consolidated financial statements of the
Company, which statements reflect total assets constituting 17 percent of the
related consolidated total as of December 31, 1996, and revenues constituting
19 percent and 15 percent of the related consolidated totals in 1995 and 1996,
respectively. These statements were audited by other auditors whose reports
thereon have been furnished to us, and our opinion expressed herein, insofar
as it relates to the amounts included for American List Corporation or Brann
Holdings Limited, is based solely upon the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes 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 and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Snyder Communications, Inc. and
subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Washington, D.C.
April 15, 1998
22
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEET
(NOTE 1)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and equivalents..................................... $ 70,916 $ 81,915
Marketable securities.................................... 6,985 2,127
Accounts receivable, net of allowance for doubtful
accounts of $2,432 and $6,769 at December 31, 1996 and
1997, respectively...................................... 122,145 157,743
Unbilled services........................................ 13,720 19,365
Other current assets..................................... 15,518 30,259
-------- --------
Total current assets................................... 229,284 291,409
-------- --------
Property and equipment, net................................ 33,920 42,202
Goodwill and other intangible assets, net.................. 23,432 68,943
Deposits and other assets.................................. 9,354 8,148
-------- --------
Total assets........................................... $295,990 $410,702
======== ========
LIABILITIES AND EQUITY
----------------------
Current liabilities:
Lines of credit.......................................... $ 6,772 $ 7,427
Current maturities of long-term debt..................... 6,920 2,086
Accrued payroll.......................................... 7,461 17,163
Accounts payable......................................... 80,529 97,404
Accrued expenses......................................... 54,305 85,511
Client advances.......................................... 8,152 12,045
Unearned revenue......................................... 17,885 21,770
-------- --------
Total current liabilities.............................. 182,024 243,406
-------- --------
Related party borrowings, net of current maturities........ 11,697 4,753
Mandatorily redeemable preferred stock, held by related
parties................................................... 8,452 --
Long-term obligations under capital leases................. 2,413 1,751
Long-term debt, net of current maturities.................. 14,145 3,935
Other liabilities (including deferred income taxes of $283
and $762 at December 31, 1996 and 1997, respectively)..... 4,532 6,997
Commitments and contingencies
Redeemable ESOP stock, 72 and 147 shares outstanding at
December 31, 1996 and 1997, respectively.................. 2,452 5,278
Equity:
Preferred stock, $.001 par value per share, 5,000 shares
authorized, none issued and outstanding at December 31,
1996 and 1997............................................. -- --
Common stock, $.001 par value per share, 120,000 shares
authorized, 56,868 and 60,470 shares issued and
outstanding at December 31, 1996 and 1997, respectively... 57 60
Additional paid-in capital................................. 58,005 152,086
Treasury stock, at cost, 1,146 and 1,059 shares at December
31, 1996 and 1997, respectively........................... (9,432) (5,473)
Accumulated other comprehensive income..................... 176 477
Unearned ESOP compensation................................. (1,566) --
Retained earnings (deficit)................................ 23,035 (2,568)
-------- --------
Total equity........................................... 70,275 144,582
-------- --------
Total liabilities and equity........................... $295,990 $410,702
======== ========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
23
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF INCOME
(NOTE 1)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
------------ ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues............................ $ 334,090 $ 428,897 $ 520,040
Operating expenses:
Cost of services.................. 215,059 297,942 363,006
Selling, general and
administrative expenses.......... 70,758 89,041 107,427
Compensation to stockholders...... 9,439 7,363 13,623
ESOP expense...................... 2,172 6,553 5,411
Acquisition and related costs..... -- -- 39,431
------------ ------------ -------------
Income (loss) from operations....... 36,662 27,998 (8,858)
Interest expense, including amounts
to related parties of $1,785,
$2,728 and $1,099 in 1995, 1996,
and 1997, respectively............. (3,616) (5,047) (3,474)
Investment income................... 1,962 2,647 3,083
------------ ------------ -------------
Income (loss) from continuing
operations before income taxes..... 35,008 25,598 (9,249)
Income tax provision................ (9,892) (5,994) (6,246)
------------ ------------ -------------
Income (loss) from continuing
operations......................... 25,116 19,604 (15,495)
Loss from discontinued operations... -- (1,498) (1,507)
------------ ------------ -------------
Income (loss) before extraordinary
item............................... 25,116 18,106 (17,002)
Extraordinary item, less applicable
income taxes of $806............... -- (1,215) --
------------ ------------ -------------
Net income (loss)................. $ 25,116 $ 16,891 $ (17,002)
============ ============ =============
Historical net income (loss) per
share:
Basic net income (loss) per share
Income (loss) from continuing
operations....................... $ .48 $ .37 $ (.27)
============ ============ =============
Net income (loss)................. $ .48 $ .32 $ (.30)
============ ============ =============
Diluted net income (loss) per share
Income (loss) from continuing
operations....................... $ .48 $ .37 $ (.27)
============ ============ =============
Net income (loss)................. $ .48 $ .32 $ (.30)
============ ============ =============
Pro forma net income (loss) per
share (unaudited) (Note 3):
Basic net income (loss) per share
Income (loss) from continuing
operations....................... $ .41 $ .27 $ (.33)
============ ============ =============
Net income (loss)................. $ .41 $ .23 $ (.35)
============ ============ =============
Diluted net income (loss) per share
Income (loss) from continuing
operations....................... $ .41 $ .27 $ (.33)
============ ============ =============
Net income (loss)................. $ .41 $ .23 $ (.35)
============ ============ =============
</TABLE>
The accompanying notes are an integral part of this consolidated statement of
income.
24
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF EQUITY
(NOTE 1)
<TABLE>
<CAPTION>
COMMON ACCUMULATED
COMMON STOCK ADDITIONAL RETAINED LIMITED UNEARNED OTHER
STOCK PAR PAID-IN EARNINGS PARTNERS' ESOP TREASURY COMPREHENSIVE COMPREHENSIVE
SHARES VALUE CAPITAL (DEFICIT) DEFICIT COMPENSATION STOCK INCOME TOTAL INCOME
---------- ------ ---------- --------- --------- ------------ -------- ------------- -------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1994, as
previously
restated for
poolings........ 14,490,000 $14 $ 7,619 $ 13,527 $(1,410) $ -- $ (438) $ 63 $ 19,375 $ --
Pooling of 1998
Mergers........ 8,161,000 9 6,122 4,353 -- (5,249) (1,903) 66 3,398 --
---------- --- -------- -------- ------- ------- ------- ---- -------- --------
Balance, December
31, 1994, as
restated for
poolings........ 22,651,000 23 13,741 17,880 (1,410) (5,249) (2,341) 129 22,773 --
Pooling of
Bounty Group
Holdings
Ltd. .......... 1,327,000 1 171 (5,008) -- -- -- -- (4,836) --
Proceeds from
sale of
Partnership
interest, net
of income taxes
of $815,000.... -- -- 1,221 -- 14 -- -- -- 1,235 --
Distributions
and dividends.. -- -- -- (7,809) (3,853) -- -- -- (11,662) --
Issuance of
common stock... 819,000 1 226 -- -- -- -- -- 227 --
Exercise of
stock options.. 480,000 -- 827 -- -- -- -- -- 827 --
Foreign currency
translation
adjustment..... -- -- -- -- -- -- -- 101 101 101
Unrealized gain
on marketable
securities..... -- -- -- -- -- -- -- 306 306 306
Purchases and
retirements of
treasury
stock.......... (28,000) -- (517) -- -- -- (1,133) -- (1,650) --
ESOP
obligation..... -- -- -- -- -- (1,729) -- -- (1,729) --
Release of ESOP
shares......... -- -- (54) (142) -- 2,654 -- -- 2,458 --
Reclassification
to redeemable
ESOP stock..... -- -- 5 -- -- -- -- -- 5 --
Net income...... -- -- -- 21,316 3,800 -- -- -- 25,116 25,116
--------
Comprehensive
income......... -- -- -- -- -- -- -- -- -- $ 25,523
---------- --- -------- -------- ------- ------- ------- ---- -------- ========
Balance, December
31, 1995........ 25,249,000 25 15,620 26,237 (1,449) (4,324) (3,474) 536 33,171 --
Distributions
and dividends.. -- -- -- (24,988) (8,612) -- -- -- (33,600) --
Net proceeds
from secondary
stock offering
and other stock
issuances...... 4,271,000 4 59,364 -- -- -- -- -- 59,368 --
Reorganization.. 28,959,000 29 (15,558) 7,630 7,899 -- -- -- -- --
Exercise of
stock options.. 63,000 -- 1,005 -- -- -- -- -- 1,005 --
Foreign currency
translation
adjustment..... -- -- -- -- -- -- -- (205) (205) (205)
Unrealized loss
on marketable
securities..... -- -- -- -- -- -- -- (155) (155) (155)
Purchases and
retirements of
treasury
stock.......... (1,674,000) (1) (2,768) (34) -- -- (6,433) -- (9,236) --
Reissuance of
treasury
stock.......... -- -- 96 -- -- -- 475 -- 571 --
Release of ESOP
shares......... -- -- 2,429 (539) -- 2,758 -- -- 4,648 --
Reclassification
to redeemable
ESOP stock..... -- -- (2,183) -- -- -- -- -- (2,183) --
Net income...... -- -- -- 14,729 2,162 -- -- -- 16,891 16,891
--------
Comprehensive
income......... -- -- -- -- -- -- -- -- -- $ 16,531
---------- --- -------- -------- ------- ------- ------- ---- -------- ========
Balance, December
31, 1996........ 56,868,000 57 58,005 23,035 -- (1,566) (9,432) 176 70,275
Distributions
and dividends.. -- -- -- (7,096) -- -- -- -- (7,096) --
Net proceeds
from secondary
stock
offering....... 1,850,000 2 42,711 -- -- -- -- -- 42,713 --
Exercise of
stock options.. 1,789,000 2 39,179 -- -- -- -- -- 39,181 --
Issuance of
shares for
purchase of
subsidiaries... 492,000 -- 13,320 -- -- -- -- -- 13,320 --
Foreign currency
translation
adjustment..... -- -- -- -- -- -- -- 265 265 265
Unrealized gain
on marketable
securities..... -- -- -- -- -- -- -- 36 36 36
Purchases and
retirements of
treasury
stock.......... (634,000) (1) (4,223) -- -- -- 3,011 -- (1,213) --
Reissuance of
treasury
stock.......... 105,000 -- 3,949 -- -- -- 948 -- 4,897 --
Release of ESOP
shares......... -- -- 1,971 -- -- 1,566 -- -- 3,537 --
Reclassification
to redeemable
ESOP stock..... -- -- (2,826) -- -- -- -- -- (2,826) --
Net loss........ -- -- -- (17,002) -- -- -- -- (17,002) (17,002)
--------
Comprehensive
income (loss).. -- -- -- -- -- -- -- -- -- $(16,701)
========
Impact from
differing
fiscal year-
ends (Note 1).. -- -- -- (1,505) -- -- -- -- (1,505)
---------- --- -------- -------- ------- ------- ------- ---- --------
Balance, December
31, 1997........ 60,470,000 $60 $152,086 $ (2,568) $ -- $ -- $(5,473) $477 $144,582
========== === ======== ======== ======= ======= ======= ==== ========
</TABLE>
The accompanying notes are an integral part of this consolidated statement of
equity.
25
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(NOTE 1)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $ 25,116 $ 16,891 $ (17,002)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization............ 11,438 12,961 14,655
Loss on repayment of subordinated debt... -- 2,021 --
Noncash charge from accelerated vesting
of Brann Holdings options............... -- -- 9,097
Noncash ESOP expense..................... -- 5,282 4,851
Deferred taxes........................... (96) (3,168) (7,423)
Loss on disposal of assets............... 139 820 3,357
Other noncash amounts.................... 32 2,052 946
Changes in assets and liabilities:
Accounts receivable, net................. (11,212) (37,307) (36,788)
Unbilled services........................ 196 (4,868) (5,545)
Deposits and other assets................ (4,776) (495) 141
Other current assets..................... (1,165) (1,569) 1,663
Accrued payroll, accounts payable and
accrued expenses........................ 10,917 38,493 52,430
Unearned revenue......................... 1,088 8,084 5,837
Impact from differing year ends.......... -- -- (2,761)
---------- ---------- ----------
Net cash provided by operating
activities............................ 31,677 39,197 23,458
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of subsidiaries.................. (5,637) -- (22,066)
Purchase of property and equipment........ (9,611) (12,217) (17,771)
Proceeds from sale of equipment........... 168 245 219
Net (purchases) sales of marketable
securities............................... (570) 2,021 5,300
Purchase of intangible assets............. (3,395) (2,845) (5,088)
Note and net advances to stockholders..... (2,765) 30 1,467
Impact from differing year ends........... -- -- (446)
---------- ---------- ----------
Net cash used in investing activities.. (21,810) (12,766) (38,385)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term notes payable to
limited partners and others.............. (4,984) (3,483) (31,090)
Proceeds from issuance of subordinated
debentures due to related parties........ 9,531 294 --
Repayment of subordinated debentures due
to related parties....................... -- (6,900) --
Net proceeds from sale of partnership
interest................................. 1,235 -- --
Debt issuance costs....................... (604) (25) --
Distributions and dividends............... (10,609) (30,325) (9,547)
Acquisition of treasury stock............. (1,435) (6,641) (1,213)
Net increase in short term borrowings..... 2,500 500 --
Repayment of long-term debt............... 915 1,592 7,101
Proceeds from mandatorily redeemable
preferred stock.......................... -- 3,238 --
Redemption of mandatorily redeemable
preferred stock.......................... -- -- (8,330)
Net borrowings (repayments) on line of
credit................................... 5,601 (6,620) (621)
Payments on capital lease obligations..... (1,123) (1,079) (2,052)
Proceeds from exercise of options......... -- 425 25,128
Proceeds from public offerings............ 166 60,233 42,713
Impact from differing year ends........... -- -- 3,704
---------- ---------- ----------
Net cash provided by financing
activities............................ 1,193 11,209 25,793
Effect of exchange rate changes........... (295) 1,180 133
---------- ---------- ----------
Net increase in cash and equivalents...... 10,765 38,820 10,999
Cash and equivalents, beginning of
period................................... 21,331 32,096 70,916
---------- ---------- ----------
Cash and equivalents, end of period....... $ 32,096 $ 70,916 $ 81,915
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest including dividends
on mandatorily redeemable preferred
stock.................................... 2,485 3,872 1,425
Cash paid for income taxes................ 7,573 8,225 6,470
SUPPLEMENTAL DISCLOSURE OF NONCASH
ACTIVITIES:
Equipment purchased under capital leases.. 526 3,558 293
Distribution of note receivable from
stockholder to SMS Stockholders.......... 437 2,725 --
Issuance of shares of common stock for
purchase of subsidiaries................. 215 -- 13,320
Issuance of note for purchase of treasury
stock.................................... -- 2,595 --
</TABLE>
The accompanying notes are an integral part of this consolidated statement of
cash flows.
26
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION, BASIS OF PRESENTATION AND BUSINESS:
On October 19, 1988, Collegiate Marketing and Communications, Inc., a
Delaware corporation (the "General Partner"), and a Delaware limited
partnership beneficially owned by Mortimer B. Zuckerman and Fred Drasner (the
"Original Limited Partner") entered into a partnership agreement (the
"Partnership Agreement") pursuant to the provisions of the Delaware Act, under
the name Collegiate Marketing and Communications, L.P. (the "Partnership"). On
September 1, 1989, the name of the Partnership was changed to Snyder
Communications, L.P., and the name of the General Partner was changed to
Snyder Communications, Inc. On May 18, 1995, the Partnership Agreement was
amended to admit several new limited partners into the Partnership. On June
25, 1996, the name of the General Partner was changed to Snyder Marketing
Services, Inc. ("SMS").
Snyder Communications, Inc., a Delaware corporation, was incorporated on
June 25, 1996, to continue the business operations of the Partnership. Snyder
Communications, Inc., in conjunction with all of the existing partners in the
Partnership, reorganized on September 24, 1996 (the "Reorganization"), upon
the effectiveness of the initial public offering of its common stock.
Prior to the Reorganization, SMS owned 63.85 percent of the Partnership and
the limited partners owned the remaining 36.15 percent. The Reorganization
resulted in the stockholders of SMS exchanging 100 percent of their SMS stock
for stock of Snyder Communications, Inc., simultaneously with the limited
partners exchanging their limited partnership interests in the Partnership for
common stock of Snyder Communications, Inc. After consummation of the
Reorganization, Snyder Communications, Inc. owned 100 percent of the stock of
SMS and, directly and indirectly (through its ownership of SMS), 100 percent
of the interests in the Partnership. In connection with the Reorganization,
29,458,400 shares of common stock were issued to the stockholders of Snyder
Communications, Inc.
Because of the continuity of ownership, the Reorganization was accounted for
by combining the assets, liabilities and operations of SMS, the Partnership
and Snyder Communications, Inc., at their historical cost basis. Accordingly,
the accompanying consolidated financial statements as of and for the year
ended December 31, 1995, include a combination of the accounts of SMS and the
Partnership after elimination of all significant intercompany transactions.
The accompanying consolidated financial statements as of and for the years
ended December 31, 1996 and 1997, include the consolidated accounts of Snyder
Communications, Inc., SMS and the Partnership (the consolidated entity will be
referred to herein as "SCI" or "Snyder Communications") after elimination of
all significant intercompany transactions. Certain amounts previously
presented have been reclassified to conform to the December 31, 1997
presentation. Throughout 1997 and the first quarter of 1998, SCI acquired
several companies in transactions that were accounted for as poolings of
interests for financial reporting purposes. The accompanying consolidated
financial statements have been retroactively restated to reflect the poolings
of interests transactions. During 1997, the Company (as defined herein) also
made several acquisitions that have been accounted for as purchase business
combinations.
Snyder Communications provides fully integrated outsourced marketing
solutions. The Company identifies high value market segments; designs and
implements marketing programs to reach them; initiates and closes sales on
behalf of its clients; and provides customer care, retention and loyalty
marketing services. The Company's resources include proprietary databases of
targeted customers and small businesses; database management services;
pharmaceutical detailing services; pharmaceutical consulting; medical
educational communications; proprietary product sampling programs and
publications; sponsored information displays in proprietary locations;
marketing program consultants; creative services; field sales and marketing
representatives; customer service representatives; and direct mail and
fulfillment capabilities. The Company's operations are conducted throughout
the United States, the United Kingdom ("U.K."), France, Ireland and Hungary.
The Company characterizes its service offerings into four types: medical
services, media and sampling services, communication services and data
delivery services. The Company provides complete marketing solutions for its
clients by integrating these four types of services into sales and marketing
programs.
27
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The medical services offered by the Company are designed to establish and
monitor marketing plans as well as to provide face-to-face interaction with
physicians and other healthcare providers. Medical services consist primarily
of pharmaceutical detailing, but also include establishing marketing plans,
targeting specific markets and evaluating sales performance. During 1997 and
the first quarter of 1998, the Company issued 4,035,182 and 2,314,263 shares,
respectively, in poolings of interests transactions with companies that
provide medical services. These transactions include the acquisitions of MMD,
Inc. ("MMD"), GEM Communications, Inc. ("GEM"), Rapid Deployment Group Limited
("RDL"), PharmFlex, Health Products Research, Inc. ("HPR"), and Publimed
Promotions S.A. ("Publimed"). During 1997, the Company also acquired Halliday
Jones Sales Ltd. ("HJ") in a purchase transaction. MMD, RDL, HJ, PharmFlex and
Publimed all market medical products for pharmaceutical companies utilizing
field sales. MMD and PharmFlex operate throughout the U.S. RDL operates
primarily in the U.K., but also in Hungary; HJ in the U.K., but also Ireland;
and Publimed in France. GEM provides a complete range of healthcare
communications services with specialties in educational marketing and
publishing for the pharmaceutical industry. HPR provides strategic and
tactical sales force market planning and evaluation services to leading
pharmaceutical and medical device manufacturers. HPR's services include sales
and marketing resource allocation, sales force planning and the integration
and evaluation of sales and marketing promotions.
The media and sampling services offered by the Company are designed to
stimulate and create brand awareness for clients' products. Media and sampling
services consist of WallBoard(R) and other information displays, and
proprietary sample packs and publications which reach potentially high-value
market segments at the time that the targeted customers are most likely to use
the products. During 1997 and the first quarter of 1998, the Company issued
3,032,414 and 30,344 shares, respectively, in poolings of interests
transactions with companies that provide media and sampling services. These
transactions include the acquisitions of Bounty Group Holdings Limited
("Bounty") and Sampling Corporation of America ("SCA"). Bounty provides
targeted product sampling and proprietary health-oriented publications to
expectant mothers, new mothers and parents of toddlers in the U.K. and
Ireland. SCA designs advertising programs and distributes product samples and
proprietary publications on behalf of consumer packaged goods manufacturers
through primary and secondary schools, daycare centers, colleges and immigrant
organizations.
The communications services offered by the Company are designed to establish
brand awareness for clients' products and to provide targeted customer
acquisition and customer care and retention for clients' customers.
Communication services include strategic planning and creative services,
establishment of brand awareness for clients' products, teleservices, face-to-
face field sales, database mailings and return-on-investment evaluation.
During 1997 and the first quarter of 1998, the Company issued 2,350,152 and
5,275,961 shares, respectively, in poolings of interests transactions with
companies that provide communications services. These transactions include the
acquisitions of Brann Holdings Limited ("Brann"), Blau Marketing Technologies,
Inc. ("Blau"), and Arnold Communications, Inc. ("Arnold"). Brann's operations
are conducted throughout the U.K. and consist primarily of planning, creating
and delivering direct response marketing communications; marketing systems
design and consultancy; print production services; and telephone and response
management services for companies involved in marketing, advertising and
direct selling. Blau's operations are conducted throughout the U.S. and
consist primarily of strategic consulting, creative services, program design
and implementation, consumer database management, response tracking and
analysis, interactive services and production management. Arnold's operations
are also conducted throughout the U.S., and they include creative services,
direct marketing, new media marketing, database management services and full-
service public relations for its clients.
The data delivery services offered by the Company are designed to assist
clients in targeting the right customers for their products and services. The
Company develops and maintains demographic marketing databases that include
data on consumers and small businesses. During 1997, the Company issued
5,032,322
28
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
shares in a pooling of interests transaction with American List Corporation
("American List"). American List develops, maintains and markets databases of
high school, college and pre-school through junior high school students in the
U.S. Prior to its merger with the Company, American List utilized a February
28 fiscal year end. Concurrent with its merger with the Company, American List
changed its fiscal year end to December 31.
The companies with whom Snyder has entered into mergers accounted for as
poolings of interests for financial reporting purposes will be collectively
referred to as the "Pooled Entities" and their mergers will be referred to
herein as the "Acquisitions." The accompanying consolidated financial
statements have been retroactively restated to reflect the combined financial
position and combined results of operations and cash flows of the Pooled
Entities for all periods presented, giving effect to the Acquisitions as if
they had occurred at the beginning of the earliest period presented (the
combined entity will be referred to herein as the "Company"). The accompanying
consolidated balance sheet as of December 31, 1996 reflects the combination of
the accounts of American List as of February 28, 1997, while the related
consolidated statements of income, equity and cash flows for each of the two
years in the period ended December 31, 1996 reflect the combination of the
American List statements of income, equity and cash flows for the two years in
the period ended February 28, 1997. The consolidated balance sheets for all
periods presented give effect to the conversion of the shares of the Pooled
Entities' common stock into 22,070,638 shares of SCI common stock. The
accompanying financial statements include the financial information of SCI's
combinations with Arnold Communications, Inc., Health Products Research, Inc.,
Blau Marketing Technologies, Inc., and Publimed Promotions, S.A. (the "1998
Mergers") which are accounted for as poolings of interests.
The following details revenues and net income (loss) for each of the years
ended December 31, 1995, 1996, and 1997 of SCI and the Pooled Entities through
the dates of their respective Acquisitions.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1995 1996 1997
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
SCI........................................... $ 42,892 $ 82,840 $ 220,907
Pooled Entities............................... 291,198 346,057 299,133
-------- -------- ---------
$334,090 $428,897 $ 520,040
======== ======== =========
Net Income (Loss):
SCI........................................... $ 3,972 $ 6,977 $ (14,396)
Pooled Entities............................... 21,144 9,914 (2,606)
-------- -------- ---------
$ 25,116 $ 16,891 $ (17,002)
======== ======== =========
</TABLE>
During the year ended December 31, 1997, SCI recorded $39.4 million in non-
recurring acquisition and related costs in conjunction with the consummation
of its mergers with the Pooled Entities (see Note 11). Excluding the non-
recurring acquisition and related costs, SCI would have recorded $20.7 million
in net income for the year ended December 31, 1997.
The Company's 1997 purchase business combination transactions resulted in
the recognition of additional amounts of goodwill and other intangible assets
of approximately $42.4 million.
The total consideration paid in connection with the acquisition of HJ,
including the repayment of assumed debt immediately following the closing, was
$19.4 million, consisting of 425,478 shares of SCI common stock
29
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and $7.4 million in cash. The following table presents pro forma financial
information as if the Company's 1997 purchase business combination of HJ had
been consummated at the beginning of each of the periods presented and all of
the Company's operations had been taxed as a C corporation (in thousands).
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1996 1997
------------ ------------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Pro Forma Revenues.............................. $ 444,415 $ 530,562
Pro Forma Income (Loss) from Continuing
Operations..................................... 14,102 (18,886)
Pro Forma Net Income (Loss)..................... 11,389 (20,393)
Pro Forma Basic Net Income (Loss) Per Share..... 0.22 (0.36)
Pro Forma Diluted Net Income (Loss) Per Share... 0.21 (0.36)
</TABLE>
The pro forma loss from continuing operations and the pro forma net loss for
the year ended December 31, 1997, include $39.4 million in non-recurring
acquisition and related costs that were recorded in conjunction with the
consummation of the Company's mergers with the Pooled Entities. Excluding the
non-recurring acquisition and related costs, the Company would have recorded
pro forma income from continuing operations and pro forma net income of $14.7
million and $16.6 million, respectively.
The Company's other purchase business combinations are immaterial to the
consolidated financial statements.
There are important risks associated with the Company's business and
financial results. These risks include: (i) the Company's reliance on
significant clients, one of which constituted 12 percent of its 1997 revenues
(see Note 2); (ii) the Company's ability to sustain and manage future growth;
(iii) the Company's ability to manage and successfully integrate the
businesses it has acquired and may acquire in the future; (iv) the Company's
ability to successfully manage its international operations; (v) the potential
adverse effects of fluctuations in foreign exchange rates; (vi) the Company's
dependence on industry trends toward outsourcing of marketing services; (vii)
the risks associated with the Company's reliance on technology and the risk of
business interruption resulting from a temporary or permanent loss of such
technology; (viii) the entrance of new competitors with greater resources than
the Company; (ix) the Company's ability to recruit and retain qualified
personnel; and (x) the dependence of the Company's success on its executive
officers and other key employees, in particular, its Chairman of the Board of
Directors and Chief Executive Officer.
2. SIGNIFICANT CLIENTS:
The Company had one client which represented 7 percent, 12 percent and 12
percent of the Company's total revenues for the years ended December 31, 1995,
1996 and 1997, respectively. The Company's principal contract with this client
extended through December 1997. In December 1997 the Company elected not to
renew its contract with this client, and instead has entered into a contract
with a new client to provide services similar to those previously provided to
this customer. There can be no assurance, however, that the contract with the
new client will generate revenues or profitability which are greater than or
equal to those generated by this one client.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Equivalents
Cash and equivalents are comprised principally of amounts in operating
accounts, money market investments, and other short-term instruments, stated
at cost, which approximates market value, with original maturities of three
months or less.
30
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Marketable Securities
The Company's investments are classified into two categories. Those
securities classified as "available-for-sale" are reported at market value.
Debt securities consisting of state municipal bonds, certificates of deposit,
and U.S. Treasury bills are classified as "held-to-maturity" and are reported
at amortized cost. Cost is determined using the specific identification
method. Unrealized gains and losses from securities "available-for-sale" are
reported as a separate component of equity.
Debt Issuance Costs
Debt issuance costs are charged to expense as additional interest expense
over the life of the related debt using the effective interest method.
Property and Equipment
Property and equipment is stated at cost. The Company depreciates furniture,
fixtures and office and telephone equipment on a straight-line basis over
three to ten years; computer equipment over two to four years and buildings
over fifty years. Leasehold improvements are amortized on a straight-line
basis over the shorter of the term of the lease or the estimated useful lives
of the improvements.
When assets are retired or sold, the cost and related accumulated
depreciation and amortization are removed from the accounts, and any gain or
loss is reflected in income.
Revenue Recognition
MEDICAL SERVICES--On pharmaceutical detailing contracts, the Company
recognizes revenue and associated costs when services have been performed by
account executives. Unbilled services represent revenues earned on contracts
but billed in a subsequent accounting period.
MEDIA AND SAMPLING SERVICES--Media and Sampling services revenues are
recognized over the contract term as program services are rendered. Unearned
revenue is recorded for billings prior to the earning of such revenue.
COMMUNICATION SERVICES--The Company performs marketing and sales
communications services on behalf of its clients, including field sales,
teleservices, database management, creative design, direct response marketing
and print production. Revenues are recognized as services are rendered in
accordance with the terms of the contracts. Certain of these contract provide
for payments based on accepted customers and the type of service purchased by
the customer. Revenues related to these sales are recognized on the date the
application for service is accepted by the Company's clients. At this point,
the Company has no further performance obligation related to the submitted
customer and is contractually entitled to payment. Certain of the contracts
include postage and other pass-through costs incurred by the Company on behalf
of its clients. For these contracts, the Company records as revenue the net
billings to its clients. Certain other contracts of the Company have provided
the client with the right to seek a return of previously paid commissions if
the customers submitted by the Company do not meet certain defined
characteristics and performance standards. These relate to the client's
ability to successfully provide service to the customer, the bad debt
experience of the customer base submitted by the Company, the achievement of
targeted customer goals and certain minimum usage and life measures of the
customer base. At the point of revenue recognition, an allowance is recorded
by the Company based on an estimate for these returned commissions. The
allowance is estimated based on the Company's historical experience and
periodically reviewed by the Company and adjusted when necessary.
31
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DATA DELIVERY SERVICES--Revenues from the sale of lists are recognized upon
the shipment to customers of lists on computerized labels, magnetic tape or
computer diskettes for a one-time usage. Additional billings are made by the
Company for additional usage by the customers.
Goodwill and Other Intangible Assets
Goodwill equal to the fair value of consideration paid in excess of the fair
value of net assets purchased has been recorded in conjunction with several of
the Company's purchase business combinations and is being amortized on a
straight-line basis over periods of fifteen to thirty years.
The cost of customer lists which were acquired in conjunction with certain
of the Company's purchase business combinations are amortized on a straight
line basis over seven years. The covenant not to compete and the marketing
rights are amortized over the term of the related agreements, which are four
and ten to fifteen years, respectively.
Costs of purchased lists are amortized on a straight-line basis over their
estimated useful lives, generally one to five years. The Company determines
the useful lives of its lists based upon the estimated period of time such
lists are marketable. The Company periodically reviews the marketability of
its lists and, accordingly, their respective estimated useful lives.
The costs of licenses to use, reproduce, distribute lists, and market
pharmaceutical products are amortized on a straight-line basis over the term
of the related license agreement.
When conditions or events occur which management believes might indicate
that the goodwill or any other intangible asset is impaired, an analysis of
estimated future undiscounted cash flows is undertaken to determine if any
write down in the carrying value of the asset is required.
Income Taxes
The accompanying consolidated financial statements reflect no provision for
federal or state income taxes related to income earned by the Partnership
prior to the Reorganization since each of the partners of the Partnership
reflected their share of the Partnership's net income on their respective tax
returns. Prior to January 1, 1996, SMS was taxed as a C corporation, and
accordingly, a provision for taxes of SMS is reflected in the accompanying
consolidated statement of income for the year ended December 31, 1995. During
this period, SMS accounted for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
No. 109"). Effective January 1, 1996, SMS elected to be taxed as an S
corporation under the Internal Revenue Code. In lieu of corporate taxes, the
stockholders of an S corporation are taxed on their proportionate share of the
Company's taxable income.
Effective with the Reorganization, SCI is treated as a C corporation for
federal and state income tax purposes. At the date of the Reorganization, SCI
recognized a net deferred tax asset and an associated tax benefit equal to the
cumulative net deductible temporary differences existing at that date. The
income tax provision recorded for the year ended December 31, 1996 includes a
provision for income taxes for SCI for the period from September 24, 1996, the
date of the Reorganization, through December 31, 1996, offset by the net
deductible temporary differences existing at the date of the Reorganization.
Prior to their combination with SCI, certain of the U.S. based Pooled
Entities were taxed as S corporations. Accordingly, no provision for federal
or, in the case of all the U.S. based acquirees except one which was
incorporated in Massachusetts, state income taxes has been made for these
entities through the date of their mergers with SCI in the accompanying
consolidated financial statements.
32
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Pooled Entities with operations in the U.K. and France pay taxes in
their respective countries, on a corporate level similar to a C corporation in
the United States.
Pro Forma Income Data (Unaudited)
The unaudited pro forma net income (loss) and net income (loss) per share
amounts include a provision for federal and state income taxes as if the
Company had been a taxable C corporation for all periods presented. The shares
used in computing pro forma net income per share assume that the
Reorganization and the Acquisitions had occurred at the beginning of each of
the periods presented, reflect the issuance of additional shares as a result
of issuances of stock, the exercise of stock options, and the repurchase of
outstanding shares by certain subsidiaries of the Company prior to their
mergers with SCI. The pro forma income tax rate reflects the combined federal
and state income taxes of approximately 39.4, 44.2 and 104 percent, for the
years ended December 31, 1995, 1996 and 1997, respectively. The Company's
December 31, 1997 tax provision exceeds its statutory rate due to the
recognition of certain acquisition and related costs which are not deductible
for income tax purposes.
The table below presents this pro forma calculation of net income (in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Pro forma net income (loss) data (unaudited):
Historical income (loss) from continuing
operations before income taxes.................. $35,008 $25,598 $ (9,249)
Pro forma provision for income taxes............. 13,788 11,307 9,651
------- ------- --------
Pro forma income (loss) from continuing
operations...................................... 21,220 14,291 (18,900)
Discontinued operations, less applicable pro
forma income taxes of $603 and $607 for 1996 and
1997, respectively.............................. -- (895) (900)
Extraordinary item, less applicable income taxes
of $806......................................... -- (1,215) --
------- ------- --------
Pro forma net income (loss)...................... $21,220 $12,181 $(19,800)
======= ======= ========
</TABLE>
Accounting for Stock Options
The Company accounts for its stock-based compensation plan using the
intrinsic value based method in accordance with the provisions of APB Opinion
No. 25, "Accounting for Stock Issued to Employees." Pro forma disclosure of
net income and earnings per share, calculated as if the Company accounted for
its stock-based compensation plan using the fair value based method in
accordance with the provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), is
included in Note 14.
Foreign Currency Translations
Assets and liabilities of the Company's international subsidiaries are
translated using the exchange rate in effect at the balance sheet date.
Revenue and expense accounts for these subsidiaries are translated using the
average exchange rate during the period. Foreign currency translation
adjustments are disclosed as a separate component of equity.
Estimates and Assumptions
The preparation of financial statements in conformity with 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
33
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
revenues and expenses during the reporting period. Actual results could differ
from those estimates. The Company's most significant estimates relate to
certain of its contracts to provide outsourced marketing services. The terms
of these contracts provide that the Company's clients may seek a return of
previously paid commissions if certain defined characteristics or performance
standards are not met. The Company has recorded an allowance in the
accompanying consolidated financial statements in an amount which it considers
sufficient to satisfy any claims which might be made pursuant to these
provisions.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosures of the fair value of certain financial instruments. For
purposes of this disclosure, the fair value of a financial instrument is the
amount at which the instrument could be exchanged in a current transaction
between willing parties. Cash and equivalents, accounts receivable, unbilled
services, and accounts payable approximate fair value because of the
relatively short maturity of these instruments. As a result of the related
party nature of the majority of the Company's outstanding December 31, 1996
and 1997 borrowings, and the fact that these borrowings were secured by the
previously independent Pooled Entities who had capital structures which are
different than the Company's, it is impracticable to estimate the fair value
of the debt outstanding at these dates.
Concentration of Credit Risk
Concentration of credit risk is limited to cash and equivalents, marketable
securities, accounts receivable, and unbilled services and is subject to the
financial conditions of a major client as described in Note 2. The Company
places its investments in highly rated financial institutions, U.S. Treasury
bills, investment grade short-term debt instruments and state and local
municipalities, while limiting the amount of credit exposure to any one
entity. The Company's receivables are concentrated with customers in the
telecommunications, pharmaceutical and consumer packaged goods industries. The
Company does not require collateral or other security to support clients'
receivables.
New Accounting Pronouncements
During 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS No. 128") and has applied its provisions
to all years presented in these financial statements. SFAS No. 128 requires
primary earnings per share ("EPS") to be replaced with basic EPS. Basic EPS is
computed by dividing reported earnings available to common stockholders by the
weighted average number of shares outstanding without consideration of common
stock equivalents or other potentially dilutive securities. Fully diluted EPS,
now called diluted EPS is also reported. Diluted EPS gives effect to common
stock equivalents and other potentially dilutive securities outstanding during
the period.
During June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
establishes standards for the reporting and display of comprehensive income
and its components in a full set of general purpose financial statements. The
Company adopted SFAS No. 130 during the first quarter of 1998. Included within
accumulated other comprehensive income are the cumulative amounts for foreign
currency translation adjustments and unrealized gains and losses on marketable
securities. The accompanying consolidated financial statements have been
restated to conform to the SFAS No. 130 requirements. The cumulative foreign
currency translation adjustment was $148,000 and $413,000 as of December 31,
1996 and 1997, respectively. The cumulative gain on marketable securities was
$28,000 and $64,000 as of December 31, 1996 and 1997, respectively.
34
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. MARKETABLE SECURITIES
The amortized cost, unrealized gains and losses, and market values of the
Company's held-to-maturity and available-for-sale securities are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
December 31, 1996
Held to maturity, maturing in less than
one year:
State and municipal bonds............. $5,571 $-- $ -- $5,571
Certificates of deposit............... 189 -- -- 189
------ ---- ----- ------
$5,760 $-- $ -- $5,760
====== ==== ===== ======
Available for sale:
Equity securities..................... $ 740 $ 31 $ (1) $ 770
Government income securities.......... 457 -- (2) 455
------ ---- ----- ------
$1,197 $ 31 $ (3) $1,225
====== ==== ===== ======
December 31, 1997
Held to maturity, maturing in less than
one year:
State and municipal bonds............. $ 665 $-- $ -- $ 665
Available for sale:
Equity securities..................... $ 915 $ 60 $ -- $ 975
Government income securities.......... 483 4 -- 487
------ ---- ----- ------
$1,398 $ 64 $ -- $1,462
====== ==== ===== ======
</TABLE>
As a result of changes in market value of the available-for-sale security
portfolio, a cumulative valuation adjustment of $183, $28 and $64 is recorded
as a separate component of equity at December 31, 1995, 1996 and 1997,
respectively.
5. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
-------- --------
<S> <C> <C>
Buildings and leasehold improvements.................. $ 22,396 $ 25,729
Computer and equipment................................ 32,458 40,475
Furniture and fixtures................................ 10,434 12,683
-------- --------
65,288 78,887
Accumulated depreciation.............................. (31,368) (36,685)
-------- --------
$ 33,920 $ 42,202
======== ========
</TABLE>
35
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. GOODWILL AND OTHER INTANGIBLE ASSETS:
Goodwill and other intangible assets consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
-------- --------
<S> <C> <C>
Goodwill.............................................. $ 17,806 $ 60,080
Unamortized costs of lists............................ 5,121 4,459
License agreements.................................... 4,451 7,669
Customer lists and covenant not to compete............ 9,294 12,669
-------- --------
36,672 84,877
Accumulated amortization.............................. (13,240) (15,934)
-------- --------
$ 23,432 $ 68,943
======== ========
</TABLE>
Goodwill arose from management buy-outs and purchase acquisitions at certain
of the acquirees prior to their respective mergers with SCI and the Company's
1997 purchase business combinations.
Effective July 1, 1994, one acquiree entered into an exclusive licensing
agreement, whereby it obtained a ten-year license to use, reproduce and
distribute a defined segment of the licensor's lists and to use its sources
and customer list to compile and market its own lists. As consideration for
the granting of the license, it is obligated to pay a total of $4.2 million.
The license fee is payable in three annual installments of $0.6 million which
began July 1994; three annual installments of $0.5 million which began July
1997; three annual installments of $0.3 million beginning July 2000; and a
final installment of $0.1 million in July 2003 (see Note 7). The Company
recorded the cost and related obligation for the license, net of imputed
interest at 7.25%, which approximated $3.3 million. The net cost of the
license was amortized on a straight-line basis over the ten-year term of the
license agreement. In conjunction with SCI's acquisitions in July 1997 and the
Company's current competitive strategy, management determined that the
intangible asset associated with the license fee had been impaired and
accordingly, an impairment loss was recorded in the Company's third quarter
1997 income statement as an acquisition related cost.
Amortization expense of goodwill and other intangible assets totaled $4.4
million, $4.3 million and $4.2 million in 1995, 1996, and 1997, respectively.
7. DEBT:
Long-Term Borrowings
In the U.K., the Company had a loan payable to a commercial bank in the
amount of $7.2 million as of December 31, 1996. The loan had an interest rate
of 7.6275 percent per annum until January 28, 1999, at which date the interest
rate was to change to the bank's base rate plus 1.75 percent. The loan was
payable in annual installments of $0.9 million, until March 1, 2004, when the
entire unpaid amount was due in full. The loan was secured by certain of the
Company's assets in the U.K. and the book value of the loan approximated its
fair value as of December 31, 1996. In April 1997, the full amount of the loan
outstanding was repaid. At December 31, 1997, the Company has a loan payable
to a commercial bank in the U.K. of $0.4 million. The loan has an interest
rate of 2.25 percent above the bank's base rate, which equated to an interest
rate of 7.25 percent at December 31, 1997. The loan is due in full in December
2006.
The Company had a loan payable to a commercial bank in the U.K. in the
amount of $4.1 million as of December 31, 1996. The loan had an interest rate
of 2.75 percent above the bank's base rate, which equated to
36
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
an interest rate of 8.75 percent at December 31, 1996. The loan was secured by
certain of the Company's assets in the U.K. In September 1997, the full amount
of the loan outstanding was repaid.
The Company is obligated under a license agreement to make future payments
(see Note 6). This net obligation is $1.9 million and $1.6 million at December
31, 1996 and 1997, respectively. Of these amounts, $0.4 million and $0.4
million have been classified as current at December 31, 1996 and 1997,
respectively, and the remaining balance has been classified as a long-term
borrowing in the accompanying consolidated balance sheet.
The Company had a loan payable to a commercial bank in the U.K. in the
amount of $0.4 million as of December 31, 1996. The loan had an interest rate
of 1.25 percent above the bank's base rate. Of this amount, $0.04 million was
classified as current as of December 31, 1996. On December 31, 1997, the full
amount of the loan outstanding was repaid.
The Company had a loan payable to a commercial bank in the U.S. in the
amount of $4.4 million as of December 31, 1996. The loan had an interest rate
of the bank's prime rate plus .25% (8.25% as of December 31, 1996). During
1997, the Company refinanced this loan payable with a financial institution.
The balance of this loan payable at December 31, 1997 was $2.1 million. The
loan had an interest rate of the 30 day commercial paper rate plus 2.7%, or
8.55% as of December 31, 1997. Of these amounts, $2.3 million and $0.6 million
are classified as current at December 31, 1996 and 1997, respectively and the
remaining balance is classified as a long-term borrowing in the accompanying
consolidated balance sheet.
The Company had promissory notes in the amount of $1.7 million and $1.2
million as of December 31, 1996 and 1997, respectively which were issued in
conjunction with certain 1996 and 1997 purchase business combinations. The
notes were recorded at their present value, with effective rates ranging from
6% to 9%. Of this amount, $0.4 million and $0.3 million is classified as
current as of December 31, 1996 and 1997, respectively with the remaining
balance classified as a long-term borrowing in the accompanying consolidated
balance sheet.
Related Party Borrowings--Subordinated Debentures
On October 28, 1996 SCI used approximately $7.0 million of cash to redeem in
full the subordinated debentures (the "Debentures") due to related parties.
The Debentures were originally issued on May 18, 1995, with a face amount of
$6.0 million. Cash proceeds of $5.0 million were received upon issuance of the
Debentures. The difference between the cash proceeds received and the face
amount of the Debentures was accounted for as an original issue discount. The
Debentures had a stated interest rate of 12.25 percent (effective interest
rate to maturity of approximately 17 percent) and an original maturity date of
December 31, 2001. The $7.0 million payment consisted of the face amount of
the Debentures, a prepayment penalty and accrued interest. A non-recurring
charge of $1.2 million ($0.02 per diluted share), net of a $0.8 million tax
benefit, was recorded at December 31, 1996 as an extraordinary loss related to
this early debt extinguishment. The extraordinary item consists of prepayment
penalties and the write-off of unamortized discount and debt issuance costs.
Related Party Borrowings--Stockholder Loans
A subsidiary of the Company borrowed approximately $10.4 million from
certain of its stockholders to fund, in part, its August 1995 management buy-
out. The borrowings had a blended stated interest rate of 8.31 percent with
maturities beginning in 1996 and extending through 2008. At December 31, 1996,
$10.5 million remained outstanding under these borrowings. In July 1997, the
full amount outstanding under these borrowings was repaid.
During 1994, a subsidiary of the Company borrowed approximately $0.4 million
from its principal shareholder. The borrowings had interest rates equivalent
to the U.K. bank rate applied quarterly with a maturity on December
37
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
31, 2004. At December 31, 1996, $0.1 million remained outstanding under these
borrowings. In October 1997, the full amount outstanding under these
borrowings was repaid.
In conjunction with the repurchase during 1995 and 1996 of common stock from
certain former employees by a subsidiary of the Company prior to its merger
with SCI, the subsidiary incurred borrowings at interest rates ranging from
5.73 to 5.91 percent with maturities from 1997 to 1999. At December 31, 1997,
the Company had $1.6 million outstanding under these borrowings. Of this
amount, $0.5 million is classified as current as of December 31, 1997.
Related Party Borrowings--Notes Payable
Concurrent with the formation of the Partnership, the Original Limited
Partner loaned the Partnership $0.4 million as evidenced by a promissory note.
On May 10, 1989, the Partnership entered into another promissory note
agreement with the Original Limited Partner to repay the principal amount of
advances previously made by the Original Limited Partner to the Partnership.
Effective January 1, 1993, all prior notes payable and the related accrued
interest to the Original Limited Partner were combined into one note totaling
$3.3 million. This note bore interest of 8% per annum. This note was paid in
full in May 1995 with a portion of the proceeds from the Debentures.
In conjunction with an October 1997 purchase business combination, the
Company issued a $3.7 million note payable to the former owner of the acquired
company. Interest is payable on the note quarterly at the rate of 7% per
annum. The note may be repaid at any time after the third anniversary of the
issuance and matures on September 30, 2002.
Future minimum payments as of December 31, 1997 on all long-term borrowings,
excluding capital leases, are as follows (in thousands):
<TABLE>
<S> <C>
1998................................. $ 1,995
1999................................. 2,035
2000................................. 1,209
2001................................. 1,224
2002................................. 4,176
Thereafter........................... 135
-------
Total................................ 10,774
Less--current portion................ 2,086
-------
Total.............................. $ 8,688
=======
</TABLE>
Lines of Credit
SCI obtained a $2.5 million line of credit in September 1996. The line of
credit has a variable rate of interest with borrowings payable on an
amortizing basis to September 1999, the date the line expires. At December 31,
1996, approximately $0.9 million was outstanding and the interest rate was
6.75%. The weighted average interest for the period ended December 31, 1996
was 6.71%. There were no amounts outstanding on this line at December 31,
1997.
One of the Company's U.S. subsidiaries has a $2.0 million revolving line of
credit agreement with a bank. The line of credit has a variable interest rate
based on the bank's prime rate (8.25% as of December 31, 1996). The
outstanding balance on this line was $0.5 million at December 31, 1996 and the
effective interest rate was 8.0% for the year ended December 31, 1996.
Borrowings pursuant to the line of credit are collateralized by
38
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
substantially all of the assets of the subsidiary. In February 1997, the
outstanding balance of $0.5 million was repaid, and no amounts were
outstanding on this line at December 31, 1997.
Two of the Company's U.K. subsidiaries maintain lines of credit for general
business expenditures. These lines bear interest at the commercial bank's base
rate plus 1.25 to 2.75 percent. There was $1.0 million outstanding under these
lines of credit at December 31, 1996, and no amounts were outstanding on these
lines at December 31, 1997.
Another U.S. subsidiary maintained a $4.0 million line of credit that was
due on demand. The line of credit bore interest at the bank's prime rate plus
.5%. The subsidiary has $3.0 million outstanding on this line of credit as of
December 31, 1996. During 1997, the subsidiary obtained a new line of credit
with a financial institution. The line of credit bears interest at the 30 day
commercial paper rate plus 2.7%. There were no borrowings outstanding as of
December 31, 1997. Borrowings pursuant to the line of credit are
collateralized by substantially all of its assets. The weighted average
interest rates of the borrowings were 8.75% and 8.55% as of December 31, 1996
and 1997.
One of the Company's French subsidiaries maintains various lines of credit
with varying borrowing limits from approximately $0.07 million to $0.7
million. The aggregate borrowing limit of all of the lines of credits combined
is approximately $4.1 million. These lines of credit have expiration dates
ranging from August 1998 to August 2004 and interest rates on borrowings
ranging from 6.7% to 11.16%. The weighted average of the stated interest rates
is 8.02% as of December 31, 1997. The subsidiary has $1.1 million and $2.6
million outstanding on these lines of credit as of December 31, 1996 and 1997,
respectively.
One of the Company's U.S. subsidiaries has a revolving line-of-credit
agreement with a bank, which is renewed annually. The revolving credit
agreement provides for advances up to the lesser of $10.0 million or 50% of
accounts receivable, as defined. Among other things, the agreement requires
the subsidiary to meet certain restrictive covenants concerning net worth and
debt service coverage. As of December 31, 1997, the subsidiary was in default
of certain financial reporting and maximum employee lending covenants.
Advances under the revolving credit agreement are secured by all assets of the
subsidiary. This line is guaranteed by an officer of the subsidiary. Interest
is charged at the bank's prime rate or LIBOR plus 1%. As of December 31, 1997,
no amounts were outstanding under the revolving credit agreement.
8. MANDATORILY REDEEMABLE PREFERRED STOCK:
The preferred shares were redeemed in full subsequent to December 31, 1996,
in conjunction with the Acquisitions.
On January 25, 1994, in connection with the management buy-out at one of the
Company's acquirees in the U.K., fixed cumulative mandatorily redeemable
preferred shares with a par value of (Pounds)0.90 were issued for
(Pounds)1.00. All of the 3,067,000 authorized shares were issued yielding
proceeds of $4.6 million less associated issue costs of $0.1 million. A fixed
cumulative dividend was payable at the following rates:
<TABLE>
<S> <C>
1995..................................... 6%
1996..................................... 7%
1997..................................... 8%
Thereafter............................... 8%
</TABLE>
The shares were redeemable at (Pounds)1.00 per share, including the
(Pounds)0.10 premium per share on the following dates by the holders or
earlier at the option of the acquiree.
<TABLE>
<CAPTION>
NUMBER
-------
<S> <C>
December 31, 1998.................... 517,000
December 31, 1999.................... 850,000
December 31, 2000.................... 850,000
December 31, 2001.................... 850,000
</TABLE>
39
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In October 1996, a subsidiary of the Company in the U.K. issued 750,000
shares of fixed cumulative mandatorily redeemable preferred shares with a par
value of (Pounds)1.0 per share. A fixed cumulative dividend was payable on
these preferred shares at 8% through December 1997 increasing to 10%
thereafter. The shares were mandatorily redeemable in five equal annual
installments beginning March 31, 2003.
In September 1996, a subsidiary of the Company in the U.K. issued 1,333,333
shares of fixed cumulative mandatorily redeemable preferred shares for $2.1
million. A fixed cumulative dividend was payable on these preferred shares at
(Pounds).09 per annum per share. The shares were mandatorily redeemable in
three equal installments commencing on December 31, 2000.
The preferred shares were mandatorily redeemable on specific dates, did not
carry voting rights unless dividends were in arrears, which did not occur, and
were not convertible into common equity. Accordingly, the preferred shares are
classified as long-term debt obligations and the dividends, as well as the
amortization of associated issue costs and discounts, are charged as a
component of interest expense in the accompanying consolidated financial
statements. Dividends included in interest expense were $0.4 million, $0.6
million, and $0.2 million in 1995, 1996, and 1997, respectively.
9. CAPITAL STOCK:
On September 24, 1997 the Company completed the public offering of 8,776,334
shares of its common stock, par value $0.001 per share at an offering price of
$25.8125 per share. The offering included 1,850,000 newly issued shares of
common stock sold by the Company and 6,926,334 previously outstanding shares
of common stock sold by selling stockholders. The Company received net
proceeds of approximately $42.7 million from the offering, net of offering
costs. The Company did not receive any proceeds from the sale of shares of
common stock in the offering by the selling stockholders.
On September 30, 1996 SCI completed an initial public offering of 8,970,000
shares of its common stock, par value $0.001 per share at an offering price of
$17.00 per share. The offering included 4,038,162 newly issued shares of
common stock sold by SCI and 4,931,838 previously outstanding shares of common
stock sold by selling stockholders. SCI received net proceeds of approximately
$59.2 million from the offering, net of offering costs. SCI did not receive
any proceeds from the sale of shares of common stock in the offering by the
selling stockholders.
In May 1994, the Board of Directors of one of the Company's acquirees
approved a stock repurchase plan that pertained to any stockholder terminating
employment with the acquiree. Under such plan, shares were required to be
repurchased by the acquiree. The shares were valued based on a certain
percentage of gross income over a three-year period, less outstanding bank and
stockholder debt. Payment terms for repurchased stock varied based on total
aggregate shares purchased over specified periods and ranged from 1 to 10
years. In conjunction with its merger with SCI, the provisions of this stock
repurchase plan were terminated.
40
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES:
The Company's income tax provision includes the following components (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C> <C>
Current................... U.S.--Federal $ 5,417 $ 5,647 $ 6,637
U.S.--State and City 1,257 1,297 2,853
Foreign 4,129 2,218 4,179
-------- -------- --------
10,803 9,162 13,669
-------- -------- --------
Deferred.................. U.S.--Federal (101) (1,954) (5,173)
U.S.--State and City (32) (469) (1,408)
Foreign 37 (745) (842)
-------- -------- --------
(96) (3,168) (7,423)
Tax effect of equity transaction............... (815) -- --
-------- -------- --------
Income tax provision........................... $ 9,892 $ 5,994 $ 6,246
======== ======== ========
</TABLE>
The provision for taxes on income before extraordinary item differs from the
amount computed by applying the U.S. federal income tax rate as a result of the
following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Taxes at statutory U.S. Federal income tax
rate......................................... 35.00% 35.00% 35.00%
Income taxed directly to owners............... (11.04) (19.50) 35.64
State and city income taxes, net of Federal
tax benefit.................................. 3.42 3.71 (19.89)
Tax effect of Reorganization.................. -- (2.52) --
Foreign tax rate differential................. 0.46 0.39 13.54
Dividends on mandatorily redeemable preferred
stock........................................ 0.35 0.71 (1.82)
Goodwill amortization......................... 0.30 0.52 (2.99)
Acquisition costs and other permanent
differences.................................. (0.23) 5.11 (127.02)
------- ------- --------
Effective tax rate............................ 28.26% 23.42% (67.54)%
======= ======= ========
</TABLE>
41
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes are recorded based upon differences between the
financial statement and tax bases of assets and liabilities. As of December
31, 1996 and 1997 temporary differences that give rise to the deferred tax
assets and liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
Reserve for doubtful accounts.............................. $ 419 $ 2,242
Accrued expenses........................................... 1,657 7,355
Tax losses of a non U.S. subsidiary........................ 1,965 1,964
Tax benefit of capital losses.............................. 1,202 1,202
Other, net................................................. -- 586
------- -------
Gross deferred tax assets.................................. 5,243 13,349
Prepaid pension costs...................................... (84) (74)
Performance revenues....................................... -- (619)
Other, net................................................. (199) (69)
------- -------
Gross deferred tax liabilities............................. (283) (762)
Valuation allowance........................................ (3,166) (3,166)
------- -------
Net deferred tax asset..................................... $ 1,794 $ 9,421
======= =======
</TABLE>
Two of the Company's subsidiaries have certain tax capital and operating
losses which can be realized only if these subsidiaries generate taxable
capital gains or operating income, respectively. At December 31, 1996 and
1997, management determined that a valuation allowance against the deferred
tax asset associated with these tax losses was required.
11. ACQUISITION AND RELATED COSTS:
The Company recorded $39.4 million in non-recurring acquisition and related
costs during 1997. Of the $39.4 million, $34.1 million are costs directly
related to the consummation of the Acquisitions. These costs consist primarily
of investment banking fees, other professional service fees, certain U.K.
excise and transfer taxes, as well as a non-cash charge of approximately $9.1
million related to the accelerated vesting of the options held by employees of
one of the Company's acquirees. The remaining $5.3 million consists of the
write-off of deferred license fees and the accrual of a liability expected to
resolve outstanding litigation. Both the write-off of the deferred fees and
the accrual of the liability were recorded due to changes in fact that
resulted from the Acquisitions.
The Company will record approximately $34.0 million in non-recurring
acquisition and related costs during the first quarter of 1998. These costs
are primarily related to the consummation of the 1998 Mergers and consist of
investment banking fees, the expense associated with stock appreciation
rights, other professional service fees, tax payments and other contractual
payments. In addition, this amount includes approximately $4.7 million for the
costs of consolidating existing Company facilities and acquired operations,
including the external costs and liabilities to close redundant Company
facilities and severance and relocation costs related to the Company's
employees.
12. COMPENSATION TO STOCKHOLDERS:
Prior to the Reorganization, SCI's operations were conducted by the
Partnership. SMS, the general partner of the Partnership, paid compensation to
certain officers and employees of the Partnership for services performed for
SMS. The compensation from SMS was in addition to the compensation that these
individuals received from
42
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the Partnership. Following consummation of the Reorganization, these
individuals are not performing any comparable duties or responsibilities for
SMS. No such compensation was paid by SMS to these individuals in 1996 or
1997, nor is any such compensation expected to be paid in the future. This
non-recurring compensation is included in compensation to stockholders on the
consolidated statement of income for the year ended December 31, 1995.
Prior to their merger with SCI, certain stockholders of the acquired
companies received annual compensation in their roles as managers in excess of
amounts that they will receive pursuant to employment agreements they have
entered into with the Company. The amount by which the historical compensation
paid to these managers exceeds that provided in their employment contracts has
been classified as compensation to stockholders in the accompanying
consolidated statement of income.
13. EMPLOYEE STOCK OWNERSHIP PLAN:
One of the Company's U.S. subsidiaries sponsors a leveraged employee stock
ownership plan (ESOP) which covers primarily all of its employees who work one
thousand hours or more per plan year. Contributions to the ESOP were made at
the discretion of the subsidiary's Board of Directors and were equal to the
ESOP's debt service less dividends received by the ESOP. In December 1994, the
ESOP acquired 534,800 shares from the former chairman of the subsidiary in
exchange for $0.4 million in cash and a promissory note of $6.0 million. The
note was guaranteed by the subsidiary, secured by the ESOP stock and bore
interest, which was payable monthly at 2.7% over the 30 day commercial paper
rate. Principal payments were due in five annual installments of $1.2 million
commencing January 1, 1996. As of December 31, 1997, the subsidiary had repaid
the entire amount. In January 1995, the ESOP acquired an additional 176,571
shares at a cost of $1.9 million. Of this amount, $1.7 million was financed
through a promissory note with the remaining $0.1 million paid in cash. This
promissory note was guaranteed by the subsidiary and its former chairman and
was due in 84 monthly installments commencing January 1996 with interest at
2.7% over the 30 day commercial paper rate. As of December 31, 1997, the
subsidiary had repaid this borrowing.
All dividends and contributions received by the ESOP are used to pay debt
service. As the debt is repaid, shares are released and allocated to active
employees, based on the proportion of debt service paid in the year. The ESOP
is accounted for in accordance with Statement of Position No. 93-6 "Employees'
Accounting for Employee Stock Ownership Plans". Accordingly, the debt of the
ESOP is recorded as debt in the accompanying consolidated balance sheet and
the shares that have not been allocated to participants are reported as
unearned ESOP compensation in the equity section on the consolidated balance
sheet. As shares are committed to be released, the Company records
compensation expense equal to the current market price of the shares committed
to be released, and the shares become outstanding for earnings-per-share (EPS)
computations. Dividends on allocated ESOP shares are recorded as a reduction
of retained earnings; dividends on unallocated ESOP shares are recorded as a
reduction of debt and accrued interest. ESOP compensation expense was $2.2
million, $6.5 million, and $5.4 million for 1995, 1996, and 1997,
respectively. The status of ESOP shares as of December 31 is as follows:
<TABLE>
<CAPTION>
1996 1997
---------- --------
<S> <C> <C>
Allocated shares..................................... 337,411 570,590
Shares released for allocation....................... 233,179 140,781
Unreleased shares.................................... 140,781 --
---------- --------
Total ESOP shares.................................... 711,371 711,371
---------- --------
Fair value of unreleased shares at December 31,...... $4,784,000 $ --
========== ========
</TABLE>
43
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Former employees who had terminated employment with the subsidiary prior to
its merger with SCI may, at their option, require SCI to repurchase their
vested SCI shares held by the ESOP for fair value. The balance necessary to
satisfy this repurchase obligation has been classified as Redeemable ESOP
stock in the accompanying consolidated balance sheet with a like amount shown
as a reduction of paid-in-capital for each year.
14. STOCK INCENTIVE PLAN:
In September 1996, SCI adopted the 1996 Stock Incentive Plan (the Stock
Option Plan"). The Stock Option Plan authorizes SCI to grant incentive stock
options, non-qualified stock options, restricted stock awards and stock
appreciation rights ("SARs"). Subject to adjustment, the aggregate number of
shares of common stock which may be issued under the Stock Option Plan upon
exercise of options, SARs or in the form of restricted stock may not exceed
17.5% of the number of shares of common stock outstanding.
In conjunction with the management buy-out at one of the Company's acquirees
in January 1994, the acquiree adopted a stock option plan. Granted options
were exercisable upon a sale or flotation of the acquiree as defined in the
terms of the plan. No compensation expense was recognized in the financial
statements for the acquiree's options for any of the periods prior to its
merger with SCI as the conditions for their exercise were not probable. In
conjunction with the March 1997 acquisition by SCI, all of the outstanding
options of the acquiree were exchanged for options of the common stock of the
Company under the Stock Option Plan. The exchange of the acquiree's options
for SCI options was based on the final common stock exchange rates used in the
acquisition, with the SCI options possessing identical terms to the acquiree's
options at the date of conversion. The Company recognized a charge to first
quarter 1997 income of approximately $9.1 million related to the accelerated
vesting of these options.
The exercise price of options granted under the Stock Option Plan may not be
less than 100 percent (110 percent in the case of an optionee who is a 10
percent stockholder) of the fair market value per share of common stock on the
date of the option grant. The vesting and other provisions of the options are
determined by the Company's Board of Directors. All options granted as of
December 31, 1997 vest on or before the fourth anniversary of the date of
grant and expire on or before the tenth anniversary of the date of grant.
A summary of the activity within the Stock Option Plan, for the three years
ended December 31, 1997, after giving retroactive effect to the conversion of
the Pooled Entities options, is as follows:
<TABLE>
<CAPTION>
SHARES OUTSTANDING
--------------------
1995 1996 1997
----- ----- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning of year...................................... 1,027 970 5,157
Granted.............................................. 321 4,619 5,705
Exercised............................................ (336) (66) (1,790)
Forfeited............................................ (42) (281) (2,160)
Expired.............................................. -- (85) --
----- ----- ------
End of year............................................ 970 5,157 6,912
===== ===== ======
Exercisable at end of year............................. 863 1,281
===== ======
</TABLE>
44
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE
-------------------
1995 1996 1997
----- ------ ------
<S> <C> <C> <C>
Beginning of year....................................... $3.29 $ 4.88 $14.97
Granted............................................... 6.98 17.07 24.11
Exercised............................................. 2.21 13.73 14.10
Forfeited............................................. 1.47 15.65 20.24
Expired............................................... -- 15.79 --
End of year............................................. 4.88 14.97 22.59
Exercisable at end of year.............................. 11.07 17.03
</TABLE>
The weighted average option fair value on the grant date was $9.97 for
options issued during the year ended December 31, 1997.
The following table presents information related to the 6.9 million options
outstanding at December 31, 1997.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
COMPANY OPTIONS NUMBER OF CONTRACTUAL
ISSUED BY OPTIONS EXERCISE PRICE LIFE IN YEARS
- ---------------- -------------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
SCI prior to initial public
offering......................... 1,615 $ 17.00 8.68
SCI subsequent to initial public
offering......................... 4,689 $19.38-$33.94 9.45
Pooled Entities................... 608 $ 1.31-$29.59 8.41
-----
6,912
=====
</TABLE>
The fair value of each option grant is estimated on the date of grant using
a Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1996 and 1997: risk-free interest rate of 6.2
percent and 5.7 percent, expected dividend yield of zero, expected life of 5
years, and expected volatility of 50 percent and 48 percent.
If the Company had recorded compensation expense using the fair value based
method prescribed by SFAS No. 123, the Company's 1996 and 1997 pro forma net
income (loss) and 1996 and 1997 pro forma net income (loss) per share amounts,
which reflect a pro forma adjustment for income taxes, would have been reduced
to the following as adjusted amounts.
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Pro forma net income (loss):
As reported.............................................. $12,181 $(19,800)
As adjusted.............................................. 5,286 (33,205)
Pro forma basic net income (loss) per share:
As reported.............................................. .23 (.35)
As adjusted.............................................. .10 (.59)
Pro forma diluted net income (loss) per share:
As reported.............................................. .23 (.35)
As adjusted.............................................. .10 (.59)
</TABLE>
15. PENSION AND PROFIT-SHARING PLANS:
One of the Company's subsidiaries in the U.K. operates a retirement benefit
plan, which is a funded defined benefit plan available to all employees. The
assets of the plan are held separately from those of the subsidiary
45
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and are invested in managed funds principally comprised of equity securities.
Plan benefits are based on years of service and compensation levels at the
time of retirement. The funding of the plan is determined following
consultation with actuaries using the projected unit credit method.
For purposes of these financial statements, the actuarial value of the
plan's liabilities has been estimated using the available actuarial valuations
and the plan's asset values reflect the actual market value of those assets at
each balance sheet date based on records maintained by the plan's trustees.
The most recent actuarial update of the plan's liabilities was performed as of
December 31, 1997. The significant assumptions used and the funded status of
the plan are set out in the tables below.
<TABLE>
<CAPTION>
SIGNIFICANT ASSUMPTIONS
AS OF DECEMBER 31,
--------------------------
1995 1996 1997
------- ------- --------
% % %
------- ------- --------
<S> <C> <C> <C>
Discount rate................................ 8.0 8.0 6.75
Expected long-term rate of return on plan as-
sets........................................ 9.0 9.0 7.75
Rate of increase in compensation............. 6.0 6.0 5.25
</TABLE>
Net Periodic Pension Cost
Net periodic pension cost is determined using the assumptions as of the
beginning of the year and is comprised of the following (in thousands).
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Service cost................................. $ 726 $ 1,109 $ 1,360
Interest cost on projected benefit
obligation.................................. 710 875 1,065
Actual return on plan assets................. (1,704) (1,078) (2,899)
Net amortization of unrecognized net loss and
deferral of actual return on plan assets.... 915 125 1,638
-------- -------- --------
Net periodic pension cost.................... $ 647 $ 1,031 $ 1,164
======== ======== ========
</TABLE>
Funded Status
The funded status is determined using the assumption as of the end of the
year and is reflected as follows (in thousands).
<TABLE>
<CAPTION>
AS OF DECEMBER
31,
----------------
1996 1997
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated and fully vested............................... $11,501 $14,351
------- -------
Accumulated benefit obligation............................. 11,501 14,351
Effect of projected future compensation levels............. 2,430 3,151
------- -------
Projected benefit obligation............................... 13,931 17,502
Plan assets at fair value.................................. 13,777 17,321
------- -------
Plan assets less than projected benefit obligation......... (154) (181)
Unrecognized loss.......................................... 411 428
------- -------
Prepaid pension cost....................................... $ 257 $ 247
======= =======
</TABLE>
46
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company and certain of its subsidiaries maintain defined contribution
benefit plans. Pension and profit sharing costs related to these plans
amounted to approximately $0.6 million, $0.8 million and $0.9 million for
1995, 1996, and 1997, respectively.
The Company and certain of its subsidiaries maintain deferred compensation
plans for certain key executives. The related expense for these agreements, on
a present value basis, is being recognized as earned. The Company recognized
approximately $0.3 million, $1.2 million and $0.4 million of deferred
compensation expense, including interest charges in 1995, 1996, and 1997,
respectively.
16. NET INCOME PER SHARE
A reconciliation of the shares used to compute basic and diluted earnings
per share follows. For each of the years presented, the same net income used
to compute basic earnings per share was used to compute diluted earnings per
share.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Weighted average shares outstanding for the
period used in computation of basic net income
per share...................................... 52,030 52,487 56,624
Diluted impact of stock options................. 91 554 --
Shares used in computation of diluted net income
per share...................................... 52,121 53,041 56,624
</TABLE>
For the years ended December 31, 1996 and 1997, there existed weighted
average common stock equivalents of 12,437 and 1,432,136, respectively, which
are not included in the calculation of diluted net income per share because
they were antidilutive for the period.
17. DISCONTINUED OPERATIONS
On October 24, 1997, the Board of Directors of one of the Company's 1998
acquirees approved the spin-off of its sports management operations, which
were carried on by Bob Woolf Associates, Inc. ("BWA"), a wholly owned
subsidiary. The acquiree purchased BWA in May 1996. The spin-off was executed
in the form of a dividend to the acquiree's stockholders of record on October
31, 1997, whereby each stockholder received one share of BWA for each share of
the acquiree's common stock held.
The net losses of BWA prior to October 31, 1997, are included in the
consolidated statement of income under "discontinued operations" and represent
a net loss of $0.03 per diluted share for 1996 and 1997. Revenues from BWA
were approximately $0.3 million for the period from May 1, 1996 (date of BWA
acquisition) to December 31, 1996, and approximately $2.0 million for the ten
months ended October 31, 1997.
47
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. LEASES:
The Company leases certain facilities, office equipment and other assets.
The following is a schedule of future minimum lease payments for capital
leases and for operating leases (with initial or remaining terms in excess of
one year at December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEARS ENDING DECEMBER 31, LEASES LEASES
------------------------- ------- ---------
<S> <C> <C>
1998................................................... $ 1,993 $ 25,872
1999................................................... 1,522 21,184
2000................................................... 375 16,981
2001................................................... 74 14,236
2002................................................... -- 12,895
Thereafter............................................. -- 33,734
------- --------
Total minimum lease payments........................... 3,964 $124,902
========
Less--Amount representing interest..................... (337)
-------
Total obligation under capital leases.................. 3,627
Less--Current portion.................................. (1,876)
-------
Long-term portion...................................... $ 1,751
=======
</TABLE>
Property and equipment, net, on the consolidated balance sheet includes $4.2
million and $3.7 million for equipment purchased under capital leases as of
December 31, 1996 and 1997, respectively.
Rental expense for all operating leases was approximately $17.5 million,
$20.9 million and $23.1 million for the years ended December 31, 1995, 1996,
and 1997, respectively.
19. COMMITMENTS AND CONTINGENCIES:
The Company has entered into employment agreements with certain key
executives and consulting agreements with certain former executives that call
for guaranteed minimum salaries and bonuses for varying terms.
An officer of one of the acquired Companies was terminated in February 1997,
and the matter is subject to ongoing litigation. Due to changes in fact that
resulted from the acquisition, the Company recorded a liability in the quarter
ended September 1997 equal to the expected cost to resolve the matter.
One of the Company's U.S. subsidiaries issued irrevocable letters of credit,
automatically renewable on an annual basis for $2,200 to a landlord as a
security deposit for a lease. This subsidiary also has standby letters of
credit with a bank, secured by compensating balance arrangements, totaling
$1,267. The standby letters of credit renew annually and interest is charged
at a rate of 1.25% per year.
The Company is subject to lawsuits, investigations and claims arising out of
the conduct of its business, including those related to commercial
transactions, contracts, government regulation and employment matters. Certain
claims, suits and complaints have been filed or are pending against the
Company. In the opinion of management, all matters are without merit or are of
such kind, or involve such amounts, as would not have a material effect on the
financial position or results of operations of the Company if disposed of
unfavorably.
20. RELATED PARTIES:
SCI's headquarters office space is leased from a third party, in which one
of the non-employee directors of the Company has a minority ownership
interest. Rent paid under this lease was $0.8 million, $1.1 million, and $2.4
million in 1995, 1996 and 1997, respectively.
48
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1995, SCI advanced $2.7 million to a stockholder of SMS as evidenced
by a promissory note. The note was non-interest bearing and secured by SMS
stock. This note was distributed to the SMS stockholders, pro rata, on June
30, 1996.
SCI produces a WallBoard(R) for which a publication beneficially owned by
certain non-employee directors of the Company is one of the sponsors. Revenues
earned under this program were $2.0 million in 1997.
In December 1997, the Company entered into a software license agreement with
a company in which certain non-employee directors of the Company are directors
and in which they own a minority interest. The Company will pay approximately
$2.5 million for the license and related equipment.
21. GEOGRAPHICAL DATA:
After giving effect to the Acquisitions, the Company has operations in the
United States, the U.K., France, Ireland and Hungary. Financial information
for the Company's operations in the U.K., France, Ireland, and Hungary are
classified as international and consist primarily of operations in the U.K (in
thousands).
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Revenues
United States................................ $206,815 $286,681 $ 350,715
International................................ 127,275 142,216 169,325
-------- -------- ---------
Total revenues............................. $334,090 $428,897 $ 520,040
======== ======== =========
Income (loss) from operations
United States................................ $ 25,199 $ 24,344 $ (11,186)
International................................ 11,463 3,654 2,328
-------- -------- ---------
Total income (loss) from operations........ $ 36,662 $ 27,998 $ (8,858)
======== ======== =========
Identifiable assets
United States................................ $215,535 $ 281,256
International................................ 80,455 129,446
-------- ---------
Total identifiable assets.................. $295,990 $ 410,702
======== =========
</TABLE>
49
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes financial data by quarter for the Company for
1996 and 1997, giving effect to the Acquisitions as if they had occurred at
the beginning of the earliest period presented (Unaudited, in thousands,
except per share data).
<TABLE>
<CAPTION>
1996 QUARTER ENDED
-------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL
-------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 93,942 $102,254 $110,042 $122,659 $428,897
Gross profit............ 27,934 31,471 33,593 37,957 130,955
Income from continuing
operations............. 4,105 5,624 5,870 4,005 19,604
Income from continuing
operations per share
(diluted).............. 0.08 0.11 0.11 0.07 0.37
Net income.............. 4,105 5,435 5,163 2,188 16,891
Net income per share
(diluted).............. 0.08 0.10 0.10 0.04 0.32
Pro forma net income
from continuing
operations............. 3,270 4,082 2,938 4,001 14,291
Pro forma net income
from continuing
operations per share
(diluted).............. 0.06 0.08 0.06 0.07 0.27
Pro forma net income.... 3,270 3,969 2,516 2,426 12,181
Pro forma net income per
share (diluted)........ 0.06 0.08 0.05 0.04 0.23
<CAPTION>
1997 QUARTER ENDED
-------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL
-------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues................ $118,584 $129,164 $128,858 $143,434 $520,040
Gross profit............ 35,677 40,594 38,934 41,829 157,034
Income (loss) from
continuing operations.. (9,997) 8,678 (7,564) (6,612) (15,495)
Income (loss) from
continuing operations
per share (diluted).... (0.18) 0.15 (0.13) (0.11) (0.27)
Net income (loss)....... (10,555) 8,054 (7,863) (6,638) (17,002)
Net income (loss) per
share (diluted)........ (0.19) 0.14 (0.14) (0.11) (0.30)
Pro forma net income
(loss) from continuing
Operations............. (10,556) 7,449 (8,042) (7,751) (18,900)
Pro forma net income
(loss) from continuing
Operations per share
(diluted).............. (0.19) 0.13 (0.14) (0.13) (0.33)
Pro forma net income
(loss)................. (10,862) 7,092 (8,277) (7,753) (19,800)
Pro forma net income
(loss) per share
(diluted) (a).......... (0.20) 0.12 (0.15) (0.13) (0.35)
</TABLE>
The pro forma amounts include a provision for federal and state income taxes
as if the Company had been a taxable C corporation for all periods presented.
(a) The sum of these amounts does not equal the annual amount because the
quarterly calculations are based on varying numbers of shares outstanding.
22. SUBSEQUENT EVENT (UNAUDITED):
In February 1998, the Company acquired Healthcare Promotions, LLC, a
provider of pharmaceutical marketing and sales force training services, in the
United States. The transaction was valued at $22.0 million and will be
accounted for as a purchase business combination.
In March 1998, the Company acquired CLI Pharma S.A., a provider of
outsourced pharmaceutical sales and sales force recruitment services in
France. The transaction was valued at $25.0 million and will be accounted for
as a purchase business combination.
50
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Brann Holdings Limited:
We have audited the consolidated balance sheets of Brann Holdings Limited
(the Company) and its subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1996
(not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United Kingdom, which do not differ in any material respect
from generally accepted auditing standards in the United States. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes 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 consolidated financial statements audited by us present
fairly, in all material respects, the financial position of the Company and
its subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles in the United States.
Price Waterhouse
Chartered Accountants and Registered
Auditors
Bristol, England
May 30, 1997
51
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
American List Corporation
We have audited the consolidated balance sheet of American List Corporation
and Subsidiaries as of February 28, 1997, and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
years in the two-year period then ended (not presented separately herein).
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated 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 consolidated financial position of American List
Corporation and Subsidiaries as of February 28, 1997, and the consolidated
results of their operations and their consolidated cash flows for each of the
years in the two-year period then ended in conformity with generally accepted
accounting principles.
Grant Thornton LLP
Melville, New York
April 11, 1997
52
<PAGE>
ITEM 7. EXHIBITS.
<TABLE>
<S> <C>
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Grant Thornton LLP.
23.3 Consent of Price Waterhouse, Chartered Accountants and Registered
Auditors.
</TABLE>
53
<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED HEREUNTO DULY AUTHORIZED.
Snyder Communications, Inc.
/s/ Daniel M. Snyder
Date: May 4, 1998 By: _________________________________
Name: Daniel M. Snyder
Title: Chairman and
Chief Executive Officer
/s/ Michele D. Snyder
Date: May 4, 1998 By: _________________________________
Name: Michele D. Snyder
Title: Vice Chairman, President
and Chief Operating Officer
/s/ A. Clayton Perfall
Date: May 4, 1998 By: _________________________________
Name: A. Clayton Perfall
Title: Chief Financial Officer
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 8-K into the Company's previously filed
Registration Statements File Nos. 333-13079, 333-33829 and 333-50929.
/s/ ARTHUR ANDERSEN LLP
Washington, D.C.
May 1, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated April 11, 1997 accompanying the consolidated
financial statements of American List Corporation, appearing in the Form 8-K
of Snyder Communications, Inc. (the consolidated financial statements of
American List Corporation are not presented separately therein). We hereby
consent to the incorporation by reference of said report in the Registration
Statements of Snyder Communications, Inc. on Form S-8 (Registration Nos. 333-
13079 and 333-33829) and Form S-3 (Registration No. 333-50929).
/s/ GRANT THORNTON LLP
Melville, New York
April 30, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (Registration No. 333-50929) and on Forms S-8
(Nos. 333-13079 and 333-33829) of Snyder Communications, Inc. of our report on
the financial statements of Brann Holdings Limited appearing on page 51 of
this Form 8-K.
/s/ Price Waterhouse
Price Waterhouse
Chartered Accountants
and Registered Auditors
Bristol, England
May 1, 1998
