================================================================================
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):
October 1, 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)
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<PAGE>
ITEM 5. OTHER EVENTS.
Supplemental Consolidated Financial Statements
Subsequent to September 30, 1998, the Company acquired Response Marketing
Group, LLC ("RMG") and National Sales Services, Inc. ("NRS") in pooling of
interests transactions. The accompanying supplemental consolidated financial
statements have been retroactively restated to reflect the combined supplemental
financial position and combined supplemental results of operations and cash
flows of the Company, RMG and NRS for all periods presented, giving effect to
the acquisitions of RMG and NRS as if they had occurred at the beginning of the
earliest period presented. Generally accepted accounting principles prohibit
giving effect to a consummated business combination accounted for by the pooling
of interests method in financial statements that do not include the date of
consummation of the business combination. The accompanying supplemental
consolidated financial statements do not extend through the dates of
consummation of the RMG and NRS business combinations; however, they will become
the historical consolidated financial statements of the Company after financial
statements covering the dates of consummation of these business combinations are
issued.
<PAGE>
INDEX TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Page
----
SNYDER COMMUNICATIONS, INC.
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Supplemental Condensed Consolidated Balance Sheet as of September 30, 1998 (Unaudited)
and December 31, 1997 ................................................................................ 1
Unaudited Supplemental Condensed Consolidated Statement of Income for the nine months
ended September 30, 1998 and 1997 .................................................................... 2
Unaudited Supplemental Condensed Consolidated Statement of Cash Flows for the nine months
ended September 30, 1998 and 1997 .................................................................... 3
Unaudited Supplemental Condensed Consolidated Statement of Equity and Comprehensive Income for
the nine months ended September 30, 1998.............................................................. 5
Notes to Unaudited Supplemental Condensed Consolidated Financial Statements............................... 6
Supplemental Report of Independent Public Accountants..................................................... 12
Supplemental Consolidated Balance Sheet as of December 31, 1997 and 1996.................................. 13
Supplemental Consolidated Statement of Income, including unaudited pro forma data, for the
years ended December 31, 1997, 1996 and 1995.......................................................... 14
Supplemental Consolidated Statement of Equity and Comprehensive Income for the years
ended December 31, 1997, 1996 and 1995................................................................ 15
Supplemental Consolidated Statement of Cash Flows for the years ended December 31, 1997,
1996 and 1995......................................................................................... 17
Notes to Supplemental Consolidated Financial Statements................................................... 19
BRANN HOLDINGS LIMITED
Report of Independent Accountants......................................................................... 46
AMERICAN LIST CORPORATION
Report of Independent Certified Public Accountants........................................................ 47
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Supplemental Report of Independent Public Accountants..................................................... 48
Schedule II - Valuation and Qualifying Accounts for the Years Ended
December 31, 1997, 1996 and 1995...................................................................... 49
</TABLE>
<PAGE>
SNYDER COMMUNICATIONS, INC.
SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1998 1997
---- ----
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents............................................................... $100,134 $ 86,771
Marketable securities.............................................................. 861 2,348
Accounts receivable, net of allowance for doubtful accounts of $7,867 and
$7,689 at September 30, 1998 and December 31, 1997, respectively................ 111,310 95,737
Receivables from pass through costs................................................ 85,272 74,964
Related party receivables.......................................................... 2,097 3,335
Unbilled services.................................................................. 30,413 20,026
Other current assets............................................................... 34,316 27,962
----------- ----------
Total current assets.......................................................... 364,403 311,143
----------- ----------
Property and equipment, net............................................................. 68,021 44,558
Goodwill and other intangible assets, net............................................... 127,812 68,943
Deferred tax asset...................................................................... 53,583 4,784
Deposits and other assets............................................................... 10,212 10,166
----------- ----------
Total assets.................................................................. $624,031 $439,594
========== ==========
LIABILITIES AND EQUITY
Current liabilities:
Lines of credit.................................................................... $ 2,393 $ 32,050
Current maturities of long-term debt............................................... 4,227 2,457
Accrued payroll.................................................................... 29,735 24,770
Accounts payable................................................................... 117,466 100,208
Accrued expenses................................................................... 103,689 96,162
Client advances.................................................................... 6,183 12,259
Unearned revenue................................................................... 20,859 28,811
----------- ----------
Total current liabilities..................................................... 284,552 296,717
----------- ----------
Related party borrowings................................................................ 6,357 6,861
Long-term obligations under capital leases.............................................. 1,622 1,848
Long-term debt, net of current maturities............................................... 13,773 4,603
Other liabilities....................................................................... 3,085 6,997
Commitments and contingencies
Redeemable ESOP stock, 147 shares outstanding as of September 30, 1998 and
December 31, 1997, respectively...................................................... 4,925 5,278
Equity:
Preferred stock, $.001 par value per share, 5,000 shares authorized, none issued and
outstanding at September 30, 1998 and December 31, 1997, respectively................ -- --
Common stock, $.001 par value per share, 120,000 shares authorized, 70,051 and
66,168 shares issued and outstanding at September 30, 1998 and December 31,
1997, respectively................................................................... 70 66
Additional paid-in capital.............................................................. 330,498 179,105
Treasury stock, at cost, 1,819 and 2,647 shares at September 30, 1998 and December 31,
1997, respectively................................................................... (16,907) (42,705)
Accumulated other comprehensive income.................................................. 2,537 650
Retained deficit........................................................................ (6,481) (19,826)
----------- ----------
Total equity.................................................................. 309,717 117,290
----------- ----------
Total liabilities and equity.................................................. $624,031 $439,594
=========== ==========
</TABLE>
The accompanying notes are an integral
part of this supplemental condensed consolidated balance sheet.
1
<PAGE>
SNYDER COMMUNICATIONS, INC.
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF INCOME
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
-------------------
1998 1997
---- ----
(in thousands except
per share data)
<S> <C> <C>
Revenues ................................................................. $576,256 $427,364
Operating expenses:
Cost of services...................................................... 391,428 298,565
Selling, general and administrative expenses.......................... 104,749 84,862
Compensation to stockholders.......................................... 1,225 17,017
ESOP expense.......................................................... -- 3,412
Recapitalization costs................................................ -- 1,889
Acquisition and related costs......................................... 43,378 33,207
----------- ------------
Income (loss) from operations.............................................. 35,476 (11,588)
Interest income (expense), net............................................. 199 (620)
----------- ------------
Income (loss) from continuing operations before income taxes............... 35,675 (12,208)
Income tax provision....................................................... (18,367) (7,902)
----------- ------------
Income (loss) from continuing operations................................... 17,308 (20,110)
Loss from discontinued operations.......................................... -- (1,481)
----------- ------------
Net income (loss)..................................................... $17,308 $(21,591)
=========== ============
Historical net income (loss) per share:
Basic net income (loss) per share
Income (loss) from continuing operations.............................. $ 0.26 $ (0.33)
========== ==========
Net income (loss)..................................................... $ 0.26 $ (0.35)
========== ==========
Diluted net income (loss) per share
Income (loss) from continuing operations.............................. $ 0.25 $ (0.33)
========== ==========
Net income (loss)..................................................... $ 0.25 $ (0.35)
========== ==========
Pro forma net income (loss) per share (Note 6):
Basic net income (loss) per share
Income (loss) from continuing operations.............................. $ 0.22 $ (0.37)
========== ==========
Net income (loss)..................................................... $ 0.22 $ (0.38)
========== ==========
Diluted net income (loss) per share
Income (loss) from continuing operations.............................. $ 0.22 $ (0.37)
========== ==========
Net income (loss)..................................................... $ 0.22 $ (0.38)
========== ==========
</TABLE>
The accompanying notes are an integral part of
this supplemental condensed consolidated statement of income.
2
<PAGE>
SNYDER COMMUNICATIONS, INC.
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the
Nine Months
Ended September 30,
-------------------
1998 1997
---- ----
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................................... $17,308 $(21,591)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization.................................................... 15,642 11,607
Noncash charge from accelerated vesting of acquired subsidiary options/stock
grants ........................................................................ 2,020 9,097
Noncash ESOP expense............................................................. -- 3,490
Loss on disposal of assets....................................................... 146 2,940
Deferred taxes................................................................... (54) (1,038)
Other noncash.................................................................... 126 (14)
Changes in assets and liabilities:
Accounts receivable, net......................................................... 4,216 (18,089)
Related party receivables........................................................ 1,424 455
Receivables from pass through costs.............................................. (10,308) (13,899)
Unbilled services................................................................ (9,452) (2,393)
Deposits and other assets........................................................ (1,494) 1,197
Other current assets............................................................. (7,783) (612)
Accrued payroll, accounts payable and accrued expenses........................... 21,298 49,808
Unearned revenue................................................................. (6,849) (1,446)
Client advances.................................................................. (10,575) 2,000
Impact from differing fiscal year ends........................................... -- (2,761)
---------- ---------
Net cash provided by operating activities...................................... 15,665 18,751
---------- ---------
Cash flows from investing activities:
Purchase of subsidiaries, net of cash acquired....................................... (10,207) (16,373)
Purchase of property and equipment................................................... (29,040) (13,828)
Proceeds from sale of equipment...................................................... 786 83
Net sales of marketable securities................................................... 1,537 4,086
Purchase of intangible assets........................................................ (713) (4,626)
Note and advances to stockholders.................................................... 918 (108)
Impact from differing fiscal year ends............................................... 20 (446)
---------- ---------
Net cash used in investing activities.......................................... (36,699) (31,212)
---------- ---------
Cash flows from financing activities:
Repayment of long-term notes payable to limited partners and others.................. (1,071) (11,472)
Distributions and dividends.......................................................... (2,445) (9,094)
Acquisition of treasury stock........................................................ (2,097) (2,110)
Net proceeds from long-term debt..................................................... 1,017 6,571
Redemption of mandatorily redeemable preferred stock................................. -- (6,305)
Redemption/issuance of stock in connection with recapitalization of acquired
subsidiary......................................................................... -- (16,770)
Net borrowings (repayments) on lines of credit....................................... (29,687) (2,427)
Payments on capital lease obligations................................................ (1,405) (1,045)
Proceeds from exercise of options.................................................... 17,037 18,149
Proceeds from issuance of common stock............................................... 52,103 43,317
Impact from differing fiscal year ends............................................... -- 3,704
---------- ---------
Net cash provided by financing activities...................................... 33,452 22,518
---------- ---------
Effect of exchange rate changes...................................................... 945 583
---------- ---------
Net increase in cash and equivalents................................................. 13,363 10,640
Cash and equivalents, beginning of period............................................ 86,771 74,575
---------- ---------
Cash and equivalents, end of period.................................................. $100,134 $85,215
---------- ---------
Supplemental disclosure of cash flow information:
Cash paid for interest including dividends on mandatorily redeemable preferred stock. $ 1,444 $ 1,975
Cash paid for income taxes........................................................... 10,826 5,546
Supplemental disclosure of noncash activities:
Equipment purchased under capital leases............................................. 937 778
Distribution of nonoperating assets by a subsidiary.................................. 974 --
Issuance of shares of common stock for purchase of subsidiaries...................... 52,568 --
3
<PAGE>
SNYDER COMMUNICATIONS, INC.
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
(unaudited)
For the
Nine Months
Ended September 30,
-------------------
1998 1997
---- ----
(in thousands)
Issuance of common stock related to stock appreciation rights........................ $ 3,484 $ --
Issuance of note for purchase of subsidiary.......................................... 1,350 --
Redemption of common stock in exchange for a note payable............................ -- 457
Issuance of notes payable for purchases of treasury stock............................ -- 215
Issuance of common stock and warrants for subsidiary debt financing.................. 440 --
Acquisition of property for common stock and assumption of debt...................... 1,538 --
</TABLE>
The accompanying notes are an integral part of
this supplemental condensed consolidated statement of cash flows.
4
<PAGE>
SNYDER COMMUNICATIONS, INC.
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF
EQUITY AND COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(unaudited)
<TABLE>
<CAPTION>
Common Accumulated
Common Stock Additional Other
Stock Par Paid-in Retained Treasury Comprehensive Comprehensive
Shares Value Capital (Deficit) Stock Income Total Income
------ ----- ------- --------- ----- ------ ----- ------
(in thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997, as
previously restated for
poolings....................... 66,168,000 $ 66 $179,105 $(19,826) $(42,705) $ 650 $117,290 $ --
Distributions and dividends... -- -- -- (4,317) -- -- (4,317) --
Net proceeds from secondary
stock offering............... 500,000 1 17,328 -- -- -- 17,329 --
Exercise of stock options and
subsidiary stock appreciation
rights....................... 1,012,000 1 29,862 -- 20 -- 29,883 --
Issuance of shares for
purchase of subsidiaries and
property..................... 1,268,000 1 52,455 -- -- -- 52,456 --
Issuance of common stock
and warrants................. 39,000 -- 440 -- -- -- 440 --
Reissuance of treasury stock by
subsidiaries prior to Merger
with SNC .................. 1,064,000 1 6,873 -- 27,900 -- 34,774 --
Foreign currency translation
adjustment................... -- -- -- -- -- 1,940 1,940 1,940
Unrealized loss on marketable
securities................... -- -- -- -- -- (53) (53) (53)
Purchases and retirement of
treasury stock............... -- -- 87 -- (2,122) -- (2,035) --
Reclassification of redeemable
ESOP stock................... -- -- -- 354 -- -- 354 --
Tax benefit from taxable merger
transaction.................. -- -- 44,348 -- -- -- 44,348 --
Net income.................... -- -- -- 17,308 -- -- 17,308 17,308
---------
Comprehensive income.......... -- -- -- -- -- -- -- $ 19,195
---------- ------ -------- -------- -------- -------- -------- =========
Balance, September 30, 1998....... 70,051,000 $ 70 $330,498 $ (6,481) $(16,907) $2,537 $309,717
========== ====== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of
this supplemental condensed consolidated statement of equity and
comprehensive income.
5
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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") 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 "SNC" or "Snyder Communications").
Through November 1998, SNC issued 14,848,059 shares in pooling of interests
transactions completed during 1998 (the "1998 Mergers"). The transactions
include the acquisitions of Health Products Research, Inc. ("HPR"), Publimed
Promotions S.A. ("Publimed"), Clinical Communications Group, Inc. ("Clinical"),
MKM Marketinginstitut GmbH ("MKM"), Blau Marketing Technologies, Inc., ("Blau"),
Arnold Communications, Inc. ("Arnold"), Response Marketing Group, LLC ("RMG")
and National Sales Services, Inc. ("NRS"). HPR, Publimed, Clinical, and MKM
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. Clinical, located in the U.S.,
provides a complete range of healthcare educational and marketing services for
the pharmaceutical industry. MKM markets medical products for pharmaceutical
companies in Germany 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. RMG operates in the
U.S., and it develops programs using database and analytical services that are
designed to maximize the effectiveness of its clients' direct marketing
programs. NRS provides field-marketing services to its clients throughout the
U.S.
The accompanying supplemental 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 supplemental condensed consolidated balance sheet for all
periods presented gives effect to the conversion of the 1998 Mergers common
stock to 14,848,059 shares of SNC common stock. Certain amounts previously
presented have been reclassified to conform to the September 30, 1998
presentation.
6
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Snyder Communications provides fully integrated outsourced marketing
solutions. The Company identifies high value consumer 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; interactive 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, Germany, Ireland, the
Netherlands, and Hungary.
The accompanying unaudited supplemental 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 supplemental 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 September 30, 1998 and for the nine months ended September 30,
1998 and 1997. Operating results for the nine-month period ended September 30,
1998 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998. The unaudited supplemental condensed consolidated
financial statements should be read in conjunction with the supplemental
consolidated financial statements and footnotes thereto included elsewhere in
this Form 8-K.
2. Business Combinations
The following details revenues and net income (loss) for each of the nine
months ended September 30, 1998 and 1997 of SNC and all entities acquired by SNC
through pooling of interests combinations ("Pooled Entities") through the dates
of their respective mergers. The SNC amounts include the financial results of
the original operations of SNC for the entire period and the financial results
of the Pooled Entities for the period subsequent to the dates of their
respective mergers.
Nine Months
Ended September 30,
-------------------
1998 1997
---- ----
(in thousands)
Revenues:
SNC..................... $452,206 $146,039
Pooled Entities......... 124,050 281,325
--------- ---------
$576,256 $427,364
========= =========
Net Income (Loss):
SNC..................... $ 23,536 $ 3,866
Pooled Entities......... (6,228) (25,457)
--------- ---------
$ 17,308 $(21,591)
========= =========
During the nine months ended September 30, 1998, SNC recorded $14.8 million
of nonrecurring acquisition and related costs, and the Pooled Entities recorded
$29.8 million in nonrecurring costs, which consisted of $28.6 million of
7
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
acquisition and related costs and $1.2 million of compensation to stockholders.
Pro forma net income for SNC and the Pooled Entities adjusted to exclude the
nonrecurring costs and assuming that all of the Pooled Entities had been taxed
similarly to C corporations was approximately $34.7 million and $15.1 million,
respectively, for the nine months ended September 30, 1998. Combined basic and
diluted net income per share from continuing operations for the same periods,
excluding nonrecurring costs, was $0.74 and $0.71, respectively.
During the nine months ended September 30, 1997, SNC recorded $14.3 million
of nonrecurring acquisition and related costs, and the Pooled Entities recorded
$42.7 million in nonrecurring costs which consisted of $18.9 million of
acquisition and related costs, $17.0 million of compensation to stockholders,
$3.4 million of ESOP expense, $1.9 million of recapitalization costs and the
$1.5 million loss from discontinued operations. Pro forma net income for SNC and
the Pooled Entities adjusted to exclude nonrecurring costs and assuming that all
of the Pooled Entities had been taxed similarly to C corporations was
approximately $13.8 million and $10.8 million, respectively, for the nine months
ended September 30, 1997. Combined basic and diluted net income per share from
continuing operations, excluding nonrecurring costs for the same period, was
$0.40 and $0.39, respectively.
During the nine months ended September 30, 1998, SNC completed purchase
business combinations, including CLI Pharma (March 25, 1998) and HealthCare
Promotions ("HCP") (February 13, 1998), for total consideration paid of
approximately $52.6 million (1,268,000 shares of SNC common stock and $5.0
million in cash). Based upon a preliminary allocation of purchase consideration,
these purchase business combinations have resulted in additional goodwill of
approximately $50.0 million.
The following table presents pro forma financial information as if the
Company's 1997 purchase of Halliday Jones Sales Ltd. and 1998 purchases of HCP
and CLI Pharma 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>
Nine Months
Ended September 30,
-------------------
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Pro Forma Revenues............................................... $587,024 $473,385
Pro Forma Income (Loss) from Continuing Operations............... 15,588 (19,708)
Pro Forma Net Income (Loss)...................................... 15,588 (20,592)
Pro Forma Basic Net Income (Loss) Per Share...................... 0.23 (0.33)
Pro Forma Diluted Net Income (Loss) Per Share.................... 0.22 (0.33)
</TABLE>
During the nine months ended September 30, 1998, the Company recorded $44.6
million in nonrecurring costs, consisting of $43.4 million of acquisition and
related costs and $1.2 million of compensation to stockholders. Pro forma net
income adjusted to exclude these nonrecurring costs was approximately $50.3
million for the nine months ended September 30, 1998. Pro forma basic and
diluted net income per share, excluding nonrecurring costs, was $0.75 and $0.72
respectively, for the same period.
During the nine months ended September 30, 1997, the Company recorded $57.0
million in nonrecurring costs, consisting of $33.2 million of acquisition and
related costs, $17.0 million of compensation to stockholders, $3.4 million of
ESOP expense, $1.9 million of recapitalization costs and the $1.5 million loss
from discontinued operations. Pro forma net income adjusted to exclude
nonrecurring costs, was $28.0 million for the nine months ended September 30,
8
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1997. Pro forma basic and diluted net income per share, excluding nonrecurring
costs, was $0.46 and $0.45, respectively, for the same period.
3. Receivables From Pass Through Costs:
Receivables from pass through costs relate to services purchased from third
parties, on behalf of clients, for which no revenue is recorded.
4. Acquisition and Related Costs:
During the nine months ended September 30, 1998, SNC recorded $43.4 million
in nonrecurring 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 and restricted stock grants,
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 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 54 management and administrative
personnel at the acquired subsidiaries. As of September 30, 1998, 18 employees
had terminated employment with the Company, and $2.0 million had been charged
against the total liability.
5. Income Taxes:
The Company's effective tax rate for the nine months ended September 30,
1998 and 1997 differs from the federal statutory rate due primarily to the
nondeductibility of certain nonrecurring acquisition costs, state income taxes,
the different tax status of certain of the Pooled Entities prior to their merger
with SNC and different statutory rates for the Company's international
operations.
6. Pro Forma Income (Loss) Data:
The pro forma 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 pro forma income tax rate on the
Company's recurring operations reflects the combined federal and state income
taxes of approximately 38.00 percent and 43.15 percent for the nine months ended
September 30, 1998 and 1997. The pro forma income tax rates in the table below
differ from the pro forma income tax rates on the Company's recurring operations
due to the nondeductibility of certain of the acquisition and related costs.
9
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The table below presents this pro forma calculation of net income (loss)
(in thousands):
<TABLE>
<CAPTION>
For The Nine Months
Ended September 30,
(unaudited)
Pro forma net income (loss) data: 1998 1997
---- ----
<S> <C> <C>
Historical income (loss) from continuing operations before income taxes........ $35,675 $(12,208)
Pro forma provisions for income taxes.......................................... (20,604) (10,292)
---------- ----------
Pro forma income (loss) from continuing operations............................. 15,071 (22,500)
---------- ----------
Loss from discontinued operations, less applicable pro forma income taxes...... -- (884)
---------- ----------
Pro forma net income (loss).................................................... $15,071 $(23,384)
========== ==========
</TABLE>
7. Public Offering of Common Stock:
On May 27, 1998 the Company completed the public offering of 7,068,006
shares of its common stock, par value $0.001 per share (the "Common Stock") at
an offering price of $42.00 per share. The offering included 500,064 newly
issued shares of Common Stock sold by the Company and 6,567,942 previously
outstanding shares of Common Stock sold by selling stockholders. The Company
received net proceeds of $17.3 million from the offering (after deducting the
estimated costs associated with the offering). The Company did not receive any
proceeds from the sale of shares of Common Stock in the offering by the selling
stockholders.
8. Accumulated Other Comprehensive Income:
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," ("SFAS No.130"), during the first quarter of
1998. SFAS No.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 $2,526,000 and $587,000 as of September 30, 1998 and
December 31, 1997, respectively. The cumulative unrealized gain on marketable
securities was $11,000 and $63,000 as of September 30, 1998 and December 31,
1997, respectively.
9. Tax Benefit from Taxable Merger Transaction:
SNC 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 September 30, 1998 with the
offsetting credit made to additional paid-in capital.
10
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Net Income (Loss) 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 (loss)
used to compute basic earnings per share was used to compute diluted earnings
per share.
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
-------------------
1998 1997
---- ----
(in thousands)
<S> <C> <C>
Weighted average shares outstanding for the period used in
computation of basic net income (loss) per share............................... 67,269 60,888
Diluted impact of stock options and other dilutive securities..................... 2,589 --
------- -------
Shares used in computation of diluted net income (loss) per share................. 69,858 60,888
</TABLE>
For the nine months ended September 30, 1998 and 1997, there existed
weighted average common stock equivalents of 684,553 and 1,811,323 respectively,
which are not included in the calculation of diluted net income (loss) per share
because they were antidilutive for the periods.
11
<PAGE>
SUPPLEMENTAL REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Snyder Communications, Inc.:
We have audited the accompanying supplemental consolidated balance sheet of
Snyder Communications, Inc. and subsidiaries (the "Company") as of December 31,
1997 and 1996, and the related supplemental consolidated statements of income,
equity and comprehensive income and cash flows for each of the years in the
three year period ended December 31, 1997. These supplemental consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these supplemental consolidated
financial statements based on our audits. We did not audit the 1996 and 1995
financial statements of American List Corporation or Brann Holdings Limited
included in the supplemental 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 13 percent
and 16 percent of the related consolidated totals in 1996 and 1995,
respectively. These statements were audited by other auditors whose reports 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 supplemental consolidated 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 on our audits and the reports of the other auditors,
the supplemental 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, 1997 and 1996, 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.
November 25, 1998
12
<PAGE>
SNYDER COMMUNICATIONS, INC.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET
(NOTE 1)
(in thousands)
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents................................................................. $ 86,771 $ 74,575
Marketable securities................................................................ 2,348 9,987
Accounts receivable, net of allowance for doubtful accounts of $7,689 and $2,512
at December 31, 1997 and 1996, respectively....................................... 95,737 62,452
Receivables from pass through costs.................................................. 74,964 64,483
Related party receivables............................................................ 3,335 1,827
Unbilled services.................................................................... 20,026 14,325
Other current assets................................................................. 27,962 15,905
---------- ----------
Total current assets............................................................ 311,143 243,554
---------- ----------
Property and equipment, net............................................................... 44,558 35,437
Goodwill and other intangible assets, net................................................. 68,943 23,432
Deferred tax asset........................................................................ 4,784 --
Deposits and other assets................................................................. 10,166 9,812
---------- ----------
Total assets.................................................................... $439,594 $312,235
========== ==========
LIABILITIES AND EQUITY
Current liabilities:
Lines of credit...................................................................... $ 32,050 $ 10,611
Current maturities of long-term debt................................................. 2,457 7,036
Accrued payroll...................................................................... 24,770 8,860
Accounts payable..................................................................... 100,208 84,168
Accrued expenses..................................................................... 96,162 56,787
Client advances...................................................................... 12,259 10,213
Unearned revenue..................................................................... 28,811 22,050
---------- ----------
Total current liabilities....................................................... 296,717 199,725
---------- ----------
Related party borrowings.................................................................. 6,861 12,847
Mandatorily redeemable preferred stock, held by related parties........................... -- 8,452
Long-term obligations under capital leases................................................ 1,848 2,453
Long-term debt, net of current maturities................................................. 4,603 14,882
Other liabilities (including deferred income taxes of $2,803 and $285 at December 31,
1997 and 1996, respectively)........................................................... 6,997 4,532
Commitments and contingencies
Redeemable ESOP stock, 147 and 72 shares outstanding at December 31, 1997 and
1996, respectively..................................................................... 5,278 2,452
Equity:
Preferred stock, $.001 par value per share, 5,000 shares authorized, none issued and
outstanding at December 31, 1997 and 1996, respectively................................ -- --
Common stock, $.001 par value per share, 120,000 shares authorized, 66,168 and
62,050 shares issued and outstanding at December 31, 1997 and 1996, respectively....... 66 62
Additional paid-in capital................................................................ 179,105 58,159
Treasury stock, at cost, 2,647 and 1,420 shares at December 31, 1997 and 1996,
respectively........................................................................... (42,705) (9,543)
Accumulated other comprehensive income.................................................... 650 268
Unearned ESOP compensation................................................................ -- (1,566)
Retained (deficit) earnings............................................................... (19,826) 19,512
---------- ----------
Total equity.................................................................... 117,290 66,892
---------- ----------
Total liabilities and equity.................................................... $439,594 $312,235
========== ==========
</TABLE>
The accompanying notes are an integral part of this supplemental consolidated
balance sheet.
13
<PAGE>
SNYDER COMMUNICATIONS, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENT OF INCOME
(NOTE 1)
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1997 1996 1995
---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C>
Revenues ................................................................. $598,687 $484,541 $399,067
Operating expenses:
Cost of services...................................................... 423,009 335,966 256,684
Selling, general and administrative expenses.......................... 122,417 101,384 85,179
Compensation to stockholders.......................................... 27,901 17,279 17,234
ESOP expense.......................................................... 5,411 6,553 2,172
Recapitalization costs................................................ 1,889 -- --
Acquisition and related costs......................................... 39,430 -- --
----------- ----------- -----------
Income (loss) from operations.............................................. (21,370) 23,359 37,798
Interest expense, including amounts to related parties of $1,669, $2,734
and $1,788 in 1997, 1996, and 1995, respectively........................ (4,788) (6,074) (3,847)
Investment income.......................................................... 3,404 3,097 2,287
----------- ----------- -----------
Income (loss) from continuing operations before income taxes............... (22,754) 20,382 36,238
Income tax provision....................................................... (4,396) (5,895) (9,615)
----------- ----------- -----------
Income (loss) from continuing operations................................... (27,150) 14,487 26,623
Loss from discontinued operations.......................................... (1,507) (1,498) --
----------- ----------- -----------
Income (loss) before extraordinary item.................................... (28,657) 12,989 26,623
Extraordinary item, less applicable income taxes of $806................... -- (1,215) --
------------- ---------- -----------
Net income (loss)..................................................... $ (28,657) $ 11,774 $ 26,623
============= ========== ===========
Historical net income (loss) per share:
Basic net income (loss) per share
Income (loss) from continuing operations.............................. $ (0.44) $ 0.25 $ 0.46
============ ========== =========
Net income (loss)..................................................... $ (0.46) $ 0.20 $ 0.46
============ ========== =========
Diluted net income (loss) per share
Income (loss) from continuing operations.............................. $ (0.44) $ 0.25 $ 0.46
============ ========== =========
Net income (loss)..................................................... $ (0.46) $ 0.20 $ 0.46
============ ========== =========
Pro forma net income (loss) per share (unaudited) (Note 3):
Basic net income (loss) per share
Income (loss) from continuing operations.............................. $ (0.51) $ 0.14 $ 0.40
============ ========== =========
Net income (loss)..................................................... $ (0.52) $ 0.10 $ 0.40
============ ========== =========
Diluted net income (loss) per share
Income (loss) from continuing operations.............................. $ (0.51) $ 0.13 $ 0.40
============ ========== =========
Net income (loss)..................................................... $ (0.52) $ 0.10 $ 0.40
============ ========== =========
</TABLE>
The accompanying notes are an integral
part of this supplemental
consolidated statement of income.
14
<PAGE>
SNYDER COMMUNICATIONS, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENT OF EQUITY AND COMPREHENSIVE INCOME
(NOTE 1)
<TABLE>
<CAPTION>
Accumulated
Common Addit- Unearned Other
Common Stock ional Retained Limited ESOP Compre- Compre-
Stock Par Paid-in Earnings Partners' Compen- Treasury hensive hensive
Shares Value Capital (Deficit) Deficit sation 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 $7,600 $13,527 $(1,410) $ -- $ (420) $ 64 $ 19,375 $ --
Pooling of 1998 Mergers.... 13,617,000 14 6,295 6,999 -- (5,249) (1,920) (21) 6,118 --
---------- ----- ------- ------- ------- ------ ------- ----- -------- ------
Balance, December 31, 1994,
as restated for poolings... 28,107,000 28 13,895 20,526 (1,410) (5,249) (2,340) 43 25,493 --
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.. -- -- 1,221 -- 14 -- -- -- 1,235 --
Distributions and dividends -- -- -- (9,670) (3,853) -- -- -- (13,523) --
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.... -- -- -- -- -- -- -- 365 365 365
Purchases and retirements
of treasury stock........ (302,000) -- (517) -- -- -- (1,245) -- (1,762) --
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................. -- -- -- 22,823 3,800 -- -- -- 26,623 26,623
Impact from differing fiscal
year-ends (Note 1)......... -- -- -- (156) -- -- -- -- (156) --
--------
Comprehensive income....... -- -- -- -- -- -- -- -- -- $27,089
---------- ----- ------- ------- ------- ------ ------- ----- -------- ========
Balance, December 31, 1995... 30,431,000 30 15,774 28,373 (1,449) (4,324) (3,585) 509 35,328
Distributions and
dividends................ -- -- -- (25,530) (8,612) -- -- -- (34,142) --
Net proceeds from
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... -- -- -- -- -- -- -- (130) (130) (130)
Unrealized loss on
marketable securities.... -- -- -- -- -- -- -- (111) (111) (111)
Purchases and retirements
of treasury stock........ (1,674,000) (1) (2,768) (34) -- -- (6,433) -- (9,236) --
15
<PAGE>
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................. -- -- -- 9,612 2,162 -- -- -- 11,774 11,774
--------
Comprehensive income....... -- -- -- -- -- -- -- -- -- $11,533
---------- ----- ------- ------- ------- ------ ------- ----- -------- ========
Balance, December 31, 1996... 62,050,000 62 58,159 19,512 -- (1,566) (9,543) 268 66,892 --
Distributions and
dividends................ -- -- -- (7,927) -- -- -- -- (7,927) --
Net proceeds from stock
issuances................ 1,850,000 2 43,246 -- -- -- -- -- 43,248 --
Exercise of stock options.. 1,789,000 2 39,179 -- -- -- -- -- 39,181 --
Issuance of shares for
purchase of subsidiaries. 644,000 1 13,320 -- -- -- -- -- 13,321 --
Foreign currency
translation adjustment... -- -- -- -- -- -- -- 360 360 360
Unrealized gain on
marketable securities.... -- -- -- -- -- -- -- 22 22 22
Purchases and retirements
of treasury stock........ (634,000) (1) (4,223) -- -- -- 3,010 -- (1,214) --
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) --
Effect of recapitalization
of acquired subsidiaries. 364,000 -- 20,827 (1,249) -- -- (37,120) -- (17,542) --
Capital contribution -
acquired subsidiary...... -- -- 5,503 -- -- -- -- -- 5,503 --
Net loss................... -- -- -- (28,657) -- -- -- -- (28,657) (28,657)
Impact from differing
fiscal year-ends
(Note 1)................. -- -- -- (1,505) -- -- -- -- (1,505)
Comprehensive income ---------
(loss)................... -- -- -- -- -- -- -- -- -- $(28,275)
---------- ----- -------- -------- ------- ------ -------- ----- --------- =========
Balance, December 31, 1997... 66,168,000 $ 66 $179,105 $(19,826) $ -- $ -- $(42,705) $ 650 $ 117,290
========== ===== ======== ======== ======= ====== ======== ===== =========
</TABLE>
The accompanying notes are an integral part of this
supplemental consolidated statement of equity
and comprehensive income.
16
<PAGE>
SNYDER COMMUNICATIONS, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS
(NOTE 1)
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................................... $(28,657) $11,774 $26,623
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization....................................... 15,350 13,732 11,917
Loss on repayment of subordinated debt.............................. -- 2,021 --
Noncash charge from accelerated vesting of acquired subsidiary options 9,097 -- --
Noncash ESOP expense................................................ 4,851 5,282 --
Deferred taxes...................................................... (11,420) (3,168) (58)
Loss on disposal of assets.......................................... 3,380 865 187
Net realized (gain) loss on sale of marketable securities........... 36 2 (25)
Other noncash amounts............................................... 986 1,812 32
Changes in assets and liabilities:
Accounts receivable, net............................................ (34,595) (6,303) 17,150
Receivables from pass through costs................................. (10,480) (28,740) (22,653)
Related party receivables........................................... 308 (494) (30)
Unbilled services................................................... (5,601) (5,392) 515
Deposits and other assets........................................... (2) (138) (5,105)
Other current assets................................................ 3,552 (1,418) (3,700)
Accrued payroll, accounts payable and accrued expenses.............. 63,829 38,774 12,226
Unearned revenue.................................................... 6,865 5,202 2,058
Less impact from differing year ends................................ (2,761) -- (157)
--------- --------- --------
Net cash provided by operating activities......................... 14,738 33,811 38,980
--------- --------- --------
Cash flows from investing activities:
Purchase of subsidiaries, net of cash acquired.......................... (22,066) -- (5,659)
Purchase of property and equipment...................................... (19,430) (12,476) (10,826)
Proceeds from sale of equipment......................................... 220 246 169
Net (purchases) sales of marketable securities.......................... 8,081 1,893 (2,873)
Purchase of intangible assets........................................... (5,088) (2,845) (3,395)
Note and net advances to stockholders................................... 1,467 30 (2,630)
Less impact from differing year ends.................................... (446) -- --
--------- --------- --------
Net cash used in investing activities............................. (37,262) (13,152) (25,214)
--------- --------- --------
Cash flows from financing activities:
Repayment of long-term notes payable to limited partners and others..... (31,090) (3,483) (4,984)
Proceeds from issuance of subordinated debentures due to related parties 425 294 10,673
Repayment of subordinated debentures due to related parties............. -- (6,900) --
Net proceeds from sale of partnership interest.......................... -- -- 1,235
Debt issuance costs..................................................... -- (25) (604)
Distributions and dividends............................................. (9,544) (30,866) (12,470)
Acquisition of treasury stock........................................... (1,213) (6,641) (1,547)
Net increase in short term borrowings................................... -- 500 2,500
Proceeds from long-term debt............................................ 6,294 1,773 1,450
Proceeds from mandatorily redeemable preferred stock.................... -- 3,238 --
Redemption of mandatorily redeemable preferred stock.................... (8,330) -- --
Net borrowings (repayments) on lines of credit.......................... 19,297 (4,806) 8,135
Payments on capital lease obligations................................... (2,103) (1,148) (1,168)
Proceeds from exercise of options....................................... 25,128 425 --
Proceeds from stock issuances........................................... 43,248 60,233 166
Redemption/issuance of stock in connection with recapitalization of
acquired subsidiary..................................................... (16,769) -- --
Loans provided by related parties....................................... 10,000 -- --
Payment of related party loans.......................................... (10,000) -- --
Capital contribution - acquired subsidiary.............................. 5,503 -- --
Impact from effect of differing year ends............................... 3,704 -- --
--------- --------- --------
Net cash provided by financing activities......................... 34,550 12,594 3,386
--------- --------- --------
Effect of exchange rate changes......................................... 170 1,180 (295)
--------- --------- --------
Net increase in cash and equivalents.................................... 12,196 34,433 16,857
Cash and equivalents, beginning of period............................... 74,575 40,142 23,285
--------- --------- --------
Cash and equivalents, end of period..................................... $ 86,771 $ 74,575 $40,142
========= ========= ========
17
<PAGE>
Supplemental disclosure of cash flow information:
Cash paid for interest including dividends on mandatorily redeemable
preferred stock......................................................... $ 2,496 $ 4,060 $ 2,673
Cash paid for income taxes.............................................. 7,456 8,226 7,611
Supplemental disclosure of noncash activities:
Equipment purchased under capital leases................................ 817 3,610 543
Distribution of note receivable from stockholder to SMS Stockholders.... -- 2,725 437
Issuance of shares of common stock for purchase of subsidiaries......... 13,320 -- 215
Issuance of note for purchase of treasury stock......................... 215 2,595 --
Redemption of common stock in exchange for note payable................. 457 -- --
</TABLE>
The accompanying notes are an integral
part of this supplemental
consolidated statement of cash flows.
18
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Basis of Presentation and Business:
Organization
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") 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 supplemental 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 supplemental consolidated financial statements as
of and for the years ended December 31, 1997 and 1996, include the consolidated
accounts of Snyder Communications, Inc., SMS and the Partnership (the
consolidated entity will be referred to herein as "SNC" 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 nine months of
1998, SNC acquired several companies in transactions that were accounted for as
poolings of interests for financial reporting purposes. The accompanying
supplemental 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.
Business
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
19
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
publications; sponsored information displays in proprietary locations; marketing
program consultants; creative services; interactive 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, Germany, Ireland, the
Netherlands and Hungary.
The Company characterizes its service offerings into three types:
healthcare services, direct services and creative services. The Company provides
complete marketing solutions for its clients by integrating these three types of
services into sales and marketing programs.
The healthcare 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. Healthcare services consist primarily
of pharmaceutical detailing and sales force training, but also include
educational communications as well as establishing marketing plans, targeting
specific markets and evaluating sales performance. During 1997 and the first
eleven months of 1998, the Company issued 4,035,182 and 7,340,236 shares,
respectively, in poolings of interests transactions with companies that provide
healthcare 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"), Publimed Promotions
S.A. ("Publimed"), Clinical Communications Group, Inc. ("Clinical") and MKM
Marketinginstitut GmbH ("MKM"). During 1997, the Company also acquired Halliday
Jones Sales Ltd. ("HJ") in a purchase transaction. MMD, RDL, HJ, PharmFlex,
Publimed and MKM 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; Publimed in France; and MKM in Germany. GEM and Clinical provide a
complete range of healthcare educational and marketing services with specialties
in educational research, 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 direct services offered by the Company are marketing and sales programs
designed to directly reach certain, sometimes targeted, consumer groups. The
programs offered within direct services focus on stimulating and creating brand
awareness as well as acquiring and retaining customers. The specific services
offered within direct services include strategic planning and design,
WallBoard(R) and other information displays, proprietary sampling programs and
publications, face-to-face field sales, teleservices, database mailings,
interactive services, and return-on-investment evaluation. During 1997 and the
first eleven months of 1998, the Company issued 10,414,888 and 4,728,652 shares,
respectively, in poolings of interests transactions with companies that provide
direct services. These transactions include the acquisitions of Brann Holdings
Limited ("Brann"), Blau Marketing Technologies, Inc. ("Blau"), Response
Marketing Group, LLC ("RMG"), Bounty Group Holdings Limited ("Bounty"), Sampling
Corporation of America ("SCA"), American List Corporation ("American List") and
National Sales Services, Inc. ("NRS"). 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 direct marketing and selling. Blau's
operations are conducted throughout the U.S. and consist primarily of strategic
consulting and design; program creation and implementation; consumer database
management; response tracking and analysis; and production management. RMG's
operations are also conducted throughout the U.S. and consist primarily of
database and analytical services; strategic consulting and design; and marketing
campaign management. Brann, Blau, and RMG all provide a broad range of services
and full-scale direct marketing and selling programs. The programs offered by
Bounty, SCA, American List and NRS are more focused and consist primarily of
20
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
product sampling at Bounty and SCA, data mining at American List and field
marketing at NRS. Bounty provides targeted product sampling and proprietary
publications to expectant mothers, new mothers and parents of toddlers in the
U.K. and Ireland. SCA distributes product samples and proprietary publications
on behalf of consumer packaged goods manufacturers in the U.S. through primary
and secondary schools, daycare centers, colleges and immigrant organizations.
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. NRS provides marketing and merchandising services for
its clients throughout the U.S., and its services include reporting and data
analysis, consulting, distribution and in-store merchandising.
The creative services offered by the Company were established with the
acquisition of Arnold Communications, Inc. ("Arnold") and are designed to create
the right kind of advertising for clients. The specific services offered within
creative services include advertising, creative design, public relations, media
placement and interactive services. During the first eleven months of 1998, the
Company issued 2,779,171 shares in a pooling of interests transaction with
Arnold.
Basis of Presentation
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 supplemental 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
supplemental 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 supplemental 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 supplemental
consolidated balance sheets for all periods presented give effect to the
conversion of the shares of the Pooled Entities' common stock into 29,298,129
shares of SNC common stock. The accompanying supplemental consolidated financial
statements include the financial information of SNC's combinations with Health
Products Research, Inc., Publimed Promotions, S.A., Clinical Communications
Group, Inc., MKM Marketinginstitut GmbH, Blau Marketing Technologies, Inc.,
Response Marketing Group, LLC, National Sales Services, Inc., and Arnold
Communications, Inc. (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, 1997, 1996, and 1995 of SNC and the Pooled Entities through
the dates of their respective Acquisitions.
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
Revenues:
SNC..................... $220,907 $ 82,840 $ 42,892
Pooled Entities......... 377,780 401,701 356,175
--------- --------- ---------
$598,687 $484,541 $399,067
========= ========= =========
21
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net Income (Loss):
SNC.................. $ (14,435) $ 6,977 $ 3,433
Pooled Entities...... (14,222) 4,797 23,190
---------- ----------- ----------
$ (28,657) $ 11,774 $ 26,623
========== =========== ==========
Unaudited Pro Forma Information
During the year ended December 31, 1997, SNC and the Pooled Entities
recorded $76.1 million of nonrecurring costs, consisting of acquisition and
related costs, ESOP expense, recapitalization costs, compensation to
stockholders and discontinued operations. Consolidated net income for SNC and
the Pooled Entities adjusted to exclude nonrecurring acquisition and related
costs, ESOP expense, recapitalization costs, compensation to stockholders, and
discontinued operations for SNC was $29.3 million for the year ended December
31, 1997.
During the year ended December 31, 1996, SNC and the Pooled Entities
recorded $26.5 million of nonrecurring costs, consisting of ESOP expense,
compensation to stockholders, discontinued operations and extraordinary loss.
Consolidated net income for SNC and the Pooled Entities adjusted to exclude ESOP
expense, compensation to stockholders, discontinued operations and an
extraordinary loss was $24.3 million for the year ended December 31, 1996.
During the year ended December 31, 1995, SNC and the Pooled Entities
recorded $19.4 million of nonrecurring costs, consisting of ESOP expense and
compensation to stockholders. Consolidated net income for SNC and the Pooled
Entities adjusted to exclude ESOP expense and compensation to stockholders was
$35.6 million for the year ended December 31, 1995.
The 1997 purchase business combination transactions consummated by the
Company and the Pooled Entities 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 SNC common stock 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,
------------------------
1997 1996
---- ----
(unaudited)
(in thousands,
except per share data)
<S> <C> <C>
Pro Forma Revenues...................................................... $609,209 $500,058
Pro Forma (Loss) Income from Continuing Operations...................... (31,325) 7,639
Pro Forma Net (Loss) Income............................................. (32,225) 5,529
Pro Forma Basic Net (Loss) Income Per Share............................. (0.52) 0.10
Pro Forma Diluted Net (Loss) Income Per Share........................... (0.52) 0.08
</TABLE>
The pro forma loss from continuing operations and the pro forma net loss
for the year ended December 31, 1997, include $74.6 million in nonrecurring
acquisition and related costs, ESOP expense, recapitalization costs and
compensation to stockholders that were recorded in conjunction with the
consummation of the Company's mergers with the Pooled Entities. Pro forma income
from continuing operations and pro forma net income adjusted to exclude
22
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
nonrecurring acquisition and related costs, ESOP expense, recapitalization costs
and compensation to stockholders was $29.3 million and $28.4 million,
respectively. Pro forma basic and diluted net income per share for the same
period was $0.46 and $0.45, respectively.
The pro forma income from continuing operations and the pro forma net
income for the year ended December 31, 1996, include $23.8 million of
nonrecurring ESOP expense and compensation to stockholders that were recorded by
Pooled Entities prior to their acquisitions by the Company. Pro forma income
from continuing operations and pro forma net income adjusted to exclude
nonrecurring ESOP expense and compensation to stockholders, was $24.0 million
and $21.9 million, respectively. Pro forma basic and diluted net income per
share for the same period was $0.38 and $0.37, respectively.
The Company's other purchase business combinations are immaterial to the
supplemental 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 11 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 11 percent, 10 percent and 6
percent of the Company's total revenues for the years ended December 31, 1997,
1996 and 1995, 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.
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
23
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Receivables From Pass Through Costs
Receivables from pass through costs relate to services purchased from third
parties, on behalf of clients, for which no revenue is recorded.
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
Healthcare Services--On pharmaceutical detailing contracts, the Company
recognizes revenue and associated costs when services have been performed by
account executives. On educational marketing programs the Company recognizes
revenues and associated costs as services are performed on behalf of clients.
Unbilled services represent revenues earned on contracts but billed in a
subsequent accounting period.
Direct 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 contracts 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. Revenues from
WallBoard(R) information displays and sampling programs are recognized over the
24
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
contract term as program services are rendered. Unearned revenue is recorded for
billings prior to the earning of such revenue. 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.
Creative Services--The Company provides advertising, creative design,
public relations, media placement, and interactive services to its clients.
Revenue is recognized as services are rendered. Certain of the contracts include
media, 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.
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 supplemental 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 supplemental 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, SNC is treated as a C corporation for
federal and state income tax purposes. At the date of the Reorganization, SNC
recognized a net deferred tax asset and an associated tax benefit equal to the
25
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 SNC 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 SNC, certain of the U.S. based Pooled
Entities were taxed as S corporations. Accordingly, no provision for federal or
state income taxes, except in certain states which do not recognize S
Corporations, has been made for these entities through the date of their mergers
with SNC in the accompanying supplemental consolidated financial statements.
The Pooled Entities with operations in the U.K., France and Germany pay
taxes in their respective countries, on a corporate level similar to a C
corporation in the United States.
Pro Forma Income (Loss) 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 (loss) 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 SNC. The pro
forma income tax rate on the Company's recurring operations reflects the
combined federal and state income taxes of approximately 43.56, 45.09, and 36.10
percent, for the years ended December 31, 1997, 1996 and 1995, respectively. The
pro forma income tax rates in the table below differ from the pro forma income
tax rates on the Company's recurring operations due to the nondeductibility of
certain of the acquisition and related costs. 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 (loss)
(in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Pro forma net income (loss) data (unaudited):
Historical income (loss) from continuing operations before
income taxes............................................... $(22,754) $ 20,382 $ 36,238
Pro forma provision for income taxes.......................... (8,584) (12,556) (13,074)
---------- -------- --------
Pro forma income (loss) from continuing operations............ (31,338) 7,826 23,164
Discontinued operations, less applicable pro forma income
taxes of $607 and $603 for 1997 and 1996, respectively..... (900) (895) --
Extraordinary item, less applicable income taxes of $806...... --- (1,215) --
---------- -------- --------
Pro forma net income (loss)................................... $(32,238) $ 5,716 $ 23,164
========== ======== ========
</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.
26
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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 supplemental 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, 1997 and 1996 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
27
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 supplemental consolidated financial statements have
been restated to conform to the SFAS No. 130 requirements. The cumulative
foreign currency translation adjustment was $587,000 and $226,000 as of December
31, 1997 and 1996, respectively. The cumulative gain on marketable securities
was $63,000 and $42,000 as of December 31, 1997 and 1996, respectively.
During June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS No. 131"). The Company will disclose
the information required for operating groups in its December 31, 1998
consolidated financial statements.
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, 1997
Held to maturity, maturing in less than one year:
State and municipal bonds......................... $ 664 $ -- $ -- $ 664
======== ======== ======== ========
Available for sale:
Equity securities................................. $ 915 $ 60 $ -- $ 975
Government income securities...................... 483 4 -- 487
Municipal tax-exempt bonds........................ 223 -- (1) 222
-------- -------- -------- --------
$1,621 $ 64 $ (1) $ 1,684
======== ======== ======== ========
December 31, 1996
Held to maturity, maturing in less than one year:
State and municipal bonds......................... $5,571 $ -- $ -- $ 5,571
Certificates of deposit........................... 462 -- -- 462
-------- -------- -------- --------
$6,033 $ -- $ -- $ 6,033
======== ======== ======== ========
Available for sale:
Equity securities................................. $1,018 $ 42 $ (12) $ 1,048
Government income securities...................... 457 -- (2) 455
Municipal tax-exempt bonds........................ 2,424 16 (1) 2,439
Mutual funds...................................... 13 -- (1) 12
-------- -------- -------- --------
$3,912 $ 58 $ (16) $ 3,954
======== ======== ======== ========
</TABLE>
28
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As a result of changes in market value of the available-for-sale security
portfolio, a cumulative valuation adjustment of $63, $42 and $153 is recorded as
a separate component of equity at December 31, 1997, 1996 and 1995,
respectively.
5. Property and Equipment:
Property and equipment consists of the following (in thousands):
December 31,
1997 1996
Buildings and leasehold improvements............. $26,824 $22,787
Computers and equipment.......................... 43,438 34,882
Furniture and fixtures........................... 13,418 11,115
-------- --------
83,680 68,784
Accumulated depreciation......................... 39,122 33,347
-------- --------
$44,558 $35,437
======== ========
6. Goodwill and Other Intangible Assets:
Goodwill and other intangible assets consist of the following (in
thousands):
December 31,
1997 1996
Goodwill . $ 60,080 $ 17,806
Unamortized costs of lists......................... 4,459 5,121
License agreements................................. 7,669 4,451
Customer lists and covenant not to compete......... 12,669 9,294
---------- ---------
84,877 36,672
Accumulated amortization........................... (15,934) (13,240)
---------- ---------
$ 68,943 $ 23,432
========== =========
Goodwill arose from management buy-outs and purchase acquisitions at
certain of the acquirees prior to their respective mergers with SNC 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 SNC'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.
29
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Amortization expense of goodwill and other intangible assets totaled $4.2
million, $4.3 million and $4.4 million in 1997, 1996, and 1995, respectively.
7. Debt:
As of October 31, 1998, the Company has $25.3 million of debt outstanding.
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 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 $1.6 million and $1.9 million at December
31, 1997 and 1996, respectively. Of these amounts, $0.4 million and $0.4 million
have been classified as current at December 31, 1997 and 1996, respectively, and
the remaining balance has been classified as a long-term borrowing in the
accompanying supplemental 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, $0.6 million and $2.3 million are
classified as current at December 31, 1997 and 1996, respectively and the
remaining balance is classified as a long-term borrowing in the accompanying
supplemental consolidated balance sheet.
The Company had promissory notes in the amount of $1.2 million and $1.7
million as of December 31, 1997 and 1996, respectively which were issued in
conjunction with certain 1997 and 1996 purchase business combinations. The notes
were recorded at their present value, with effective rates ranging from 6% to
9%. Of this amount, $0.3 million and $0.4 million is classified as current as of
December 31, 1997 and 1996, respectively with the remaining balance classified
30
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
as a long-term borrowing in the accompanying supplemental consolidated balance
sheet.
The Company had a loan payable to a commercial bank in Germany in the
amount of $0.6 million as of December 31, 1996. The loan had an interest rate of
6.9% at December 31, 1996. In July 1997, the full amount of the loan outstanding
was repaid.
Related Party Borrowings--Subordinated Debentures
On October 28, 1996 SNC 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 nonrecurring 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.
As of December 31, 1997, one of the Company's U.S. subsidiaries held two
subordinated debentures payable to its sole shareholder. The total principal
amount outstanding under these debentures as of December 31, 1997 was $1.5
million. The outstanding amount under the debentures had a fixed interest rate
of 7.0%. The total amount outstanding under the debentures plus accrued interest
was converted to the subsidiary's common stock prior to the subsidiary's merger
with the Company.
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
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 1996 and 1995 of common stock
from certain former employees by a subsidiary of the Company prior to its merger
with SNC, 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.
31
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
In accordance with the provisions of its formation agreement and prior to
its merger with SNC, a subsidiary issued promissory notes to its founder and an
Investor in the principal amounts of $6.7 million and $10.0 million,
respectively. The notes were unsecured, with interest at the prime rate plus 2.0
percent and were payable no later than August 1, 1998. The notes were repaid on
November 25, 1997, together with accrued interest of $0.5 million. In addition,
the subsidiary issued a promissory note payable to the founder of the subsidiary
in the amount of $0.4 million. The note may be prepaid at any time prior to
maturity, January 1, 2004. Interest is payable annually at 6 percent, commencing
January 1, 1999. This note was repaid during 1998.
During 1997, a subsidiary of the Company borrowed $1.0 million from one of
its partners. The note arose from the buyout of the partners' one-third interest
in the subsidiary. The note has a fixed interest rate of 9.5%. The note has
fixed monthly payments and matures in June 2001. At December 31, 1997, $0.9
million remained outstanding on the note payable. Of this amount $0.3 million is
classified as current as of December 31, 1997.
Related Party Borrowings--Line of Credit
As of December 31, 1997, a subsidiary of the Company maintained a line of
credit agreement with a lending group affiliated with one of the subsidiary's
owners totaling $3.2 million. No amounts were outstanding under this line of
credit at December 31, 1997. In March 1998, the line of credit was replaced with
a new credit facility.
Future minimum payments as of December 31, 1997 on all long-term
borrowings, excluding capital leases, are as follows (in thousands):
1998 $2,457
1999 2,283
2000 2,708
2001 1,371
2002 4,601
Thereafter 501
--------
Total 13,921
Less--current portion (2,457)
--------
Total $11,464
========
32
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Lines of Credit
SNC 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 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 $2.6 million and $1.1 million outstanding
on these lines of credit as of December 31, 1997 and 1996, 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.
One of the Company's U.S. subsidiaries has a line of credit agreement with
a bank which bears interest at the bank's base rate (prime rate) plus 0.5% and
is secured by all the assets of the subsidiary. The borrowing base under the
line of credit is limited to the lesser of $1,500,000 or the sum of 75% of the
subsidiary's qualified accounts receivable plus $680,000. As of December 31,
1997, $1,500,000 was outstanding under the line of credit agreement.
33
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In November 1997, one of the Company's U.S. subsidiaries entered into a
credit agreement which provides a secured reducing revolving loan through
December 31, 2003. At December 31, 1997, there was $20.0 million in borrowings
outstanding under the credit agreement at an interest rate of 7.5 percent. The
Company was not in compliance at December 31, 1997 with certain financial
covenants and administrative requirements. Accordingly, the outstanding balance
has been reflected as a current liability as of December 31, 1997. All
outstanding amounts were paid off on September 1, 1998.
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 (pound)0.90 were issued for (pound)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 rates ranging from 6% to 8%.
A portion of the shares were redeemable at (pound)1.00 per share, including
the (pound)0.10 premium per share by the holders or earlier at the option of the
acquiree on December 31 of the years 1998 through 2001.
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 (pound)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
September 30, 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
(pound).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 $0.6 million, $0.6 million, and $0.4
million in 1997, 1996, and 1995, 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.
34
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On September 30, 1996 SNC 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 SNC and 4,931,838 previously outstanding shares of common stock
sold by selling stockholders. SNC received net proceeds of approximately $59.2
million from the offering, net of offering costs. SNC 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 SNC, the provisions of this stock repurchase
plan were terminated.
10. Income Taxes:
The Company's income tax provision includes the following components (in
thousands):
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current.................U.S.--Federal $6,946 $5,647 $5,417
U.S.--State and City 3,530 1,299 1,266
Foreign 4,858 2,217 4,129
--------- --------- ---------
15,334 9,163 10,812
--------- --------- ---------
Deferred................U.S.--Federal (8,493) (1,953) (101)
U.S.--State and City (1,990) (469) (32)
Foreign (455) (846) (249)
--------- --------- ---------
(10,938) (3,268) (382)
Tax effect of equity transaction............................ -- -- (815)
--------- --------- ---------
Income tax provision........................................ $4,396 $5,895 $9,615
--------- --------- ---------
</TABLE>
35
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Taxes at statutory U.S. Federal income tax rate........... 35.00% 35.00% 35.00%
Income taxed directly to owners........................... 21.54 (17.51) (13.01)
State and city income taxes, net of Federal tax benefit... (8.49) 4.14 3.68
Tax effect of Reorganization.............................. (1.31) (3.16) 0.00
Foreign tax rate differential............................. 4.23 1.67 0.28
Dividends on mandatorily redeemable preferred stock....... (0.74) 0.90 0.33
Goodwill amortization..................................... (1.21) 0.66 0.29
Acquisition costs and other permanent differences......... (66.42) 4.89 0.18
Other (1.93) 2.35 (0.22)
-------- ------- ------
Effective tax rate........................................ (19.33)% 28.94% 26.53%
======== ======= ======
</TABLE>
Deferred income taxes are recorded based upon differences between the
financial statement and tax bases of assets and liabilities. As of December 31,
1997 and 1996 temporary differences that give rise to the deferred tax assets
and liabilities consist of the following (in thousands):
December 31,
------------
1997 1996
---- ----
Reserve for doubtful accounts................ $ 2,466 $ 419
Accrued expenses............................. 8,961 1,657
Tax losses of a non U.S. subsidiary.......... 6,533 2,352
Tax benefit of capital losses................ 1,202 1,202
Other, net................................... 586 --
-------- --------
Gross deferred tax assets.................... 19,748 5,630
-------- --------
Prepaid pension costs........................ (74) (84)
Performance revenues......................... (2,660) --
Other, net................................... (69) (201)
-------- --------
Gross deferred tax liabilities............... (2,803) (285)
Valuation allowance.......................... (3,167) (3,167)
-------- --------
Net deferred tax asset....................... $13,778 $ 2,178
======== ========
Two of the Company's subsidiaries have capital and operating loss tax
carryforwards which can be realized only if these subsidiaries generate taxable
capital gains or operating income, respectively. At December 31, 1997 and 1996,
management determined that a valuation allowance against the deferred tax asset
associated with these tax losses was required for one of these subsidiaries.
11. Acquisition and Related 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 Acquisitions. These costs consist primarily
of investment banking fees, other professional service fees, certain U.K. excise
and transfer taxes, as well as a noncash 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
36
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
12. Compensation to Stockholders:
Prior to the Reorganization, SNC'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. 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 1997 or 1996, nor is any such compensation expected to be paid in
the future. This nonrecurring compensation is included in compensation to
stockholders on the supplemental consolidated statement of income for the year
ended December 31, 1995.
Prior to their merger with SNC, 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 supplemental
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 supplemental 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 supplemental
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 $5.4 million, $6.5 million, and $2.2 million for 1997,
1996, and 1995, respectively. The status of ESOP shares as of December 31 is as
follows:
37
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1997 1996
---- ----
Allocated shares...................... 570,590 337,411
Shares released for allocation........ 140,781 233,179
Unreleased shares..................... -- 140,781
-------- ----------
Total ESOP shares..................... 711,371 711,371
-------- ----------
Fair value of unreleased shares....... $ -- $4,784,000
======== ==========
Former employees who had terminated employment with the subsidiary prior to
its merger with SNC may, at their option, require SNC to repurchase their vested
SNC 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 supplemental 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, SNC adopted the 1996 Stock Incentive Plan (the Stock
Option Plan"). The Stock Option Plan authorizes SNC to grant incentive stock
options, nonqualified 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 SNC as the conditions for their exercise were not probable. In conjunction
with the March 1997 acquisition by SNC, 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 SNC options was
based on the final common stock exchange rates used in the acquisition, with the
SNC 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.
38
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
------------------
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Beginning of year................................. 5,164 970 1,027
Granted...................................... 5,749 4,626 321
Exercised.................................... (1,790) (66) (336)
Forfeited.................................... (2,160) (281) (42)
Expired...................................... -- (85) --
---------- ------------ ----------
End of year....................................... 6,963 5,164 970
========== ============ ==========
Exercisable at end of year........................ 11,281 863
========== ============
</TABLE>
<TABLE>
<CAPTION>
Weighted Average
Exercise Price
--------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Beginning of year................................. $14.95 $ 4.88 $ 3.29
Granted...................................... 24.11 17.05 6.98
Exercised.................................... 14.10 13.73 2.21
Forfeited.................................... 20.24 15.65 1.47
Expired...................................... -- 15.79 --
End of year....................................... 22.58 14.95 4.88
Exercisable at end of year........................ 17.03 11.07 --
</TABLE>
The weighted average option fair value on the grant date was $10.00 for
options issued during the year ended December 31, 1997.
The following table presents information related to options outstanding at
December 31, 1997.
<TABLE>
<CAPTION>
Weighted
Average
Contractual
Company Options Number of Exercise Life in
Issued By Options Price Years
--------- ------- ----- -----
(in thousands)
<S> <C> <C> <C>
SNC prior to initial public offering........ 1,615 $17.00 8.68
SNC subsequent to initial public offering... 4,689 $19.38 - $33.94 9.45
Pooled Entities............................. 659 $.01 - $29.59 8.19
---------
6,963
=========
</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 1997 and 1996: risk-free interest rate of 5.7
percent and 6.2 percent, expected dividend yield of zero, expected life of 5
years, and expected volatility of 48 percent and 50 percent.
39
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
If the Company had recorded compensation expense using the fair value based
method prescribed by SFAS No. 123, the Company's 1997 and 1996 pro forma net
income (loss) and 1997 and 1996 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>
1997 1996
---- ----
(in thousands except per share data)
<S> <C> <C>
Pro forma net income (loss):
As reported................................................... $(28,657) $11,774
As adjusted................................................... (42,062) 4,879
Pro forma basic net income (loss) per share:
As reported................................................... (0.46) 0.20
As adjusted................................................... (0.68) 0.08
Pro forma diluted net income (loss) per share:
As reported................................................... (0.46) 0.20
As adjusted................................................... (0.68) 0.08
</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 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 supplemental consolidated 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.
Significant
Assumptions
As of December 31,
------------------
1997 1996 1995
---- ---- ----
% % %
---- ---- ----
Discount rate........................................ 6.75 8.0 8.0
Expected long-term rate of return on plan assets..... 7.75 9.0 9.0
Rate of increase in compensation..................... 5.25 6.0 6.0
40
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost....................................................... $1,360 $1,109 $ 726
Interest cost on projected benefit obligation...................... 1,065 875 710
Actual return on plan assets....................................... (2,899) (1,078) (1,704)
Net amortization of unrecognized net loss and deferral of actual
return on plan assets........................................... 1,638 125 915
------- ------- ------
Net periodic pension cost.......................................... $1,164 $1,031 $ 647
======== ======== ======
</TABLE>
Funded Status
The funded status is determined using the assumptions as of the end of the
year and is reflected as follows (in thousands).
<TABLE>
<CAPTION>
As of December 31,
------------------
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated and fully vested.............................................. $14,351 $11,501
--------- ---------
Accumulated benefit obligation............................................ 14,351 11,501
Effect of projected future compensation levels............................ 3,151 2,430
--------- ---------
Projected benefit obligation.............................................. 17,502 13,931
Plan assets at fair value................................................. 17,321 13,777
--------- ---------
Plan assets less than projected benefit obligation........................ (181) (154)
Unrecognized loss......................................................... 428 411
--------- ---------
Prepaid pension cost...................................................... $ 247 $ 257
========= =========
</TABLE>
The Company and certain of its subsidiaries maintain defined contribution
benefit plans. Pension and profit sharing costs related to these plans amounted
to approximately $1.2 million, $1.0 million and $0.7 million for 1997, 1996, and
1995, 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 $0.4 million, $1.2 million and $0.3 million of deferred
compensation expense, including interest charges in 1997, 1996, and 1995,
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.
41
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Weighted average shares outstanding for the period used in
computation of basic net income per share................... 61,917 57,669 57,349
Diluted impact of stock options and other dilutive securities.. -- 798 91
------- ------- -------
Shares used in computation of diluted net income per share..... 61,917 58,467 57,440
======= ======= =======
</TABLE>
For the years ended December 31, 1997 and 1996, there existed weighted
average common stock equivalents of 1,807,903 and 12,437, 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
accompanying supplemental consolidated statement of income under "discontinued
operations" and represent a net loss of $0.02 and $0.03 per diluted share for
1997 and 1996. 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.
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>
Years Ending December 31, Capital Leases Operating Leases
- ------------------------- --------------- ----------------
<S> <C> <C>
1998 ................................................................ $ 2,041 $28,590
1999 ................................................................ 1,564 23,297
2000 ................................................................ 413 18,862
2001 ................................................................ 103 15,042
2002 ................................................................ 7 13,447
Thereafter........................................................... -- 35,854
--------- ---------
Total minimum lease payments......................................... 4,128 $135,092
Less--Amount representing interest.................................... (370) =========
---------
Total obligation under capital leases................................ 3,758
Less--Current portion................................................. (1,910)
---------
Long-term portion.................................................... $1,848
=========
</TABLE>
Property and equipment, net, on the consolidated balance sheet includes
$3.8 million and $4.3 million for equipment purchased under capital leases as of
December 31, 1997 and 1996, respectively.
42
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Rental expense for all operating leases was approximately $24.3 million,
$21.6 million and $18.0 million for the years ended December 31, 1997, 1996, and
1995, 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 30, 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 $2.2 million 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 $1.3 million. 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 and legal counsel, 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:
SNC's headquarters office space is leased from a third party, in which one
of the nonemployee directors of the Company has a minority ownership interest.
Rent paid under this lease was $2.4 million, $1.1 million, and $0.8 million in
1997, 1996 and 1995, respectively.
During 1995, SNC advanced $2.7 million to a stockholder of SMS as evidenced
by a promissory note. The note was noninterest bearing and secured by SMS stock.
This note was distributed to the SMS stockholders, pro rata, on June 30, 1996.
SNC produces a WallBoard(R) for which a publication beneficially owned by
certain nonemployee 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 nonemployee 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, Germany, Ireland, the Netherlands and Hungary.
Financial information for the Company's operations in the U.K., France, Germany,
43
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Ireland, the Netherlands and Hungary are classified as international and consist
primarily of operations in the U.K. (in thousands).
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues
United States............................... $413,650 $338,507 $270,077
International............................... 185,037 146,034 128,990
-------- -------- --------
Total revenues......................... $598,687 $484,541 $399,067
======== ======== ========
Income (loss) from operations
United States............................... $(25,257) $20,017 $26,823
International............................... 3,887 3,342 10,975
-------- -------- --------
Total income (loss) from operations.... $(21,370) $23,359 $37,798
======== ======== ========
Identifiable assets
United States............................... $306,449 $230,680
International............................... 133,145 81,555
-------- --------
Total identifiable assets.............. $439,594 $312,235
======== ========
</TABLE>
22. Selected Quarterly Financial Data (unaudited, in thousands, except per share
data):
The following table summarizes financial data by quarter for the Company
for 1997 and 1996, 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>
1997 Quarter Ended
------------------
March 31 June 30 September 30 December 31 Total
-------- ------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C>
Revenues ........................................... $132,489 $145,020 $149,854 $171,324 $598,687
Gross profit......................................... 39,243 44,933 44,622 46,880 175,678
Income (loss) from continuing operations............. (9,685) 8,876 (19,302) (7,039) (27,150)
Income (loss) from continuing operations per share
(diluted)......................................... (0.16) 0.14 (0.31) (0.11) (0.44)
Net income (loss).................................... (10,243) 8,252 (19,601) (7,065) (28,657)
Net income (loss) per share (diluted) (a)........... (0.17) 0.13 (0.32) (0.11) (0.46)
Pro forma net income (loss) from continuing
operations........................................ (10,949) 7,027 (18,579) (8,837) (31,338)
Pro forma net income (loss) from continuing
operations per share (diluted).................... (0.18) 0.11 (0.30) (0.14) (0.51)
Pro forma net income (loss).......................... (11,282) 6,655 (18,758) (8,853) (32,238)
Pro forma net income (loss) per share (diluted) (a).. (0.19) 0.11 (0.31) (0.14) (0.52)
Pro forma net income from continuing operations,
excluding nonrecurring acquisition and related
costs, ESOP expense, recapitalization costs
and compensation to stockholders.................. 7,003 9,026 8,598 4,656 29,283
Pro forma net income from continuing operations,
excluding nonrecurring acquisition and related
costs, ESOP expense, recapitalization costs
and compensation to stockholders per
share (diluted)................................... 0.11 0.14 0.14 0.07 0.46
44
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1997 Quarter Ended
------------------
March 31 June 30 September 30 December 31 Total
-------- ------- ------------ ----------- -----
Revenues ............................................ $107,285 $116,892 $125,226 $135,138 $484,541
Gross profit......................................... 33,307 36,625 38,799 39,844 148,575
Income (loss) from continuing operations............. 4,254 5,430 5,440 (637) 14,487
Income (loss) from continuing operations per
share (diluted)................................... 0.07 0.09 0.10 (0.01) 0.25
Net income (loss).................................... 4,254 5,241 4,733 (2,454) 11,774
Net income (loss) per share (diluted)................ 0.07 0.09 0.08 (0.04) 0.20
Pro forma net income from continuing
operations........................................ 2,558 3,156 1,816 296 7,826
Pro forma net income from continuing
operations per share (diluted).................... 0.04 0.06 0.03 0.00 0.13
Pro forma net income (loss).......................... 2,558 3,043 1,394 (1,279) 5,716
Pro forma net income (loss) per share
(diluted) (a)..................................... 0.04 0.05 0.02 (0.02) 0.10
Pro forma net income from continuing operations,
excluding nonrecurring acquisition and
related costs, ESOP expense, recapitalization
costs and compensation to stockholders............ 6,015 6,610 5,996 5,657 24,278
Pro forma net income from continuing operations,
excluding nonrecurring acquisition costs, ESOP
expense, recapitalization costs and compensation
to stockholders per share (diluted)............... 0.11 0.12 0.10 0.09 0.42
</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.
23. Subsequent Events (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 was 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 was accounted for as a purchase
business combination.
45
<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
46
<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
47
<PAGE>
SUPPLEMENTAL REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Snyder Communications, Inc.:
We have audited in accordance with generally accepted auditing standards, the
supplemental consolidated financial statements of Snyder Communications, Inc.
included in this Form 8-K filing and have issued our report thereon dated
November 25, 1998. Our audits were made for the purpose of forming an opinion on
the basic financial statements taken as a whole. Schedule II - Valuation and
Qualifying Accounts included in this Form 8-K is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and in our
opinion, based on our audits and the reports of other auditors, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
November 25, 1998
48
<PAGE>
SNYDER COMMUNICATIONS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(in thousands)
<TABLE>
<CAPTION>
Deductions from
Reserve for Purpose
Balance at Additions Charged for which Reserve Translation Balance at End
Beginning of Year to Cost and Expense was Created Adjustment of Year
----------------- ------------------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C>
1995 581 1,689 508 (5) 1,757
1996 1,757 1,177 482 60 2,512
1997 2,512 6,369 1,220 28 7,689
</TABLE>
49
<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.
Date: November 27, 1998 By: /S/ MICHELE D. SNYDER
-------------------------------------
Name: Michele D. Snyder
Title: Vice Chairman, President and Chief
Operating Officer
Date: November 27, 1998 By: /S/ A. CLAYTON PERFALL
-------------------------------------
Name: A. Clayton Perfall
Title: Chief Financial Officer
50
