<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From ______ to ______
Commission file number 1-12145
SNYDER COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 52-1983617
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation or
organization)
Two Democracy Center
6903 Rockledge Drive
15th Floor
Bethesda, Maryland 20817
(Address of principal (Zip Code)
executive office)
</TABLE>
(301) 468-1010
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $0.001 Par Value, 61,340,659 shares outstanding as of May 8, 1998.
<PAGE>
SNYDER COMMUNICATIONS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
<S> <C>
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet as of
December 31, 1997 and March 31, 1998 3
Condensed Consolidated Statement of Income for
the three months ended March 31, 1997 and 1998 4
Condensed Consolidated Statement of Cash Flows for
the three months ended March 31, 1997 and 1998 5
Condensed Consolidated Statement of Equity for the
three months ended March 31, 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
PART II. OTHER INFORMATION
Item 2. Changes in Securities 17
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents.................................. $ 81,915 $ 62,517
Marketable securities................................. 2,127 2,042
Accounts receivable, net of allowance for doubtful
accounts of $6,769 and $7,398 at December 31, 1997
and March 31, 1998, respectively..................... 157,743 198,901
Unbilled services..................................... 19,365 12,974
Other current assets.................................. 30,259 22,448
-------- --------
Total current assets................................ 291,409 298,882
-------- --------
Property and equipment, net............................. 42,202 50,738
Goodwill and other intangible assets, net............... 68,943 118,014
Deferred tax asset...................................... -- 49,944
Deposits and other assets............................... 8,148 7,101
-------- --------
Total assets........................................ $410,702 $524,679
======== ========
LIABILITIES AND EQUITY
Current liabilities:
Lines of credit....................................... $ 7,427 $ 2,523
Current maturities of long-term debt.................. 2,086 3,527
Accrued payroll....................................... 17,163 24,761
Accounts payable...................................... 97,404 119,763
Accrued expenses...................................... 85,511 88,923
Client advances....................................... 12,045 5,528
Unearned revenue...................................... 21,770 18,352
-------- --------
Total current liabilities........................... 243,406 263,377
-------- --------
Related party borrowings, net of current maturities..... 4,753 3,743
Long-term obligations under capital leases.............. 1,751 1,791
Long-term debt, net of current maturities............... 3,935 3,876
Other liabilities....................................... 6,997 3,155
Commitments and contingencies
Redeemable ESOP stock, 147 shares outstanding as of
December 31, 1997 and March 31, 1998, respectively..... 5,278 6,891
Equity:
Preferred stock, $.001 par value per share, 5,000 shares
authorized, none issued and outstanding at December 31,
1997 and March 31, 1998, respectively.................. -- --
Common stock, $.001 par value per share, 120,000 shares
authorized, 60,470 and 62,266 shares issued and
outstanding at December 31, 1997 and March 31, 1998,
respectively........................................... 60 62
Additional paid-in capital.............................. 152,086 266,293
Treasury stock, at cost, 1,059 and 1,096 shares at
December 31, 1997 and March 31, 1998, respectively..... (5,473) (7,575)
Accumulated other comprehensive income.................. 477 1,275
Retained deficit........................................ (2,568) (18,209)
-------- --------
Total equity........................................ 144,582 241,846
-------- --------
Total liabilities and equity........................ $410,702 $524,679
======== ========
</TABLE>
The accompanying notes are an integral part of this condensed consolidated
balance sheet.
3
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
1997 1998
---------- ----------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues............................................... $ 118,583 $ 146,853
Operating expenses:
Cost of services..................................... 82,906 97,493
Selling, general, and administrative expenses........ 24,285 29,369
Compensation to stockholders......................... 1,427 --
ESOP expense......................................... 1,245 --
Acquisition and related costs........................ 16,181 33,953
---------- ----------
Loss from operations................................... (7,461) (13,962)
Interest income (expense), net......................... (249) 738
---------- ----------
Loss from continuing operations before income taxes.... (7,710) (13,224)
Income tax (provision) benefit......................... (2,288) 2,346
---------- ----------
Loss from continuing operations........................ (9,998) (10,878)
Loss from discontinued operations...................... (558) --
---------- ----------
Net loss............................................. $ (10,556) $ (10,878)
========== ==========
Historical net loss per share:
Basic net loss per share
Loss from continuing operations...................... $ (0.18) $ (0.18)
========== ==========
Net loss............................................. $ (0.19) $ (0.18)
========== ==========
Diluted net loss per share
Loss from continuing operations...................... $ (0.18) $ (0.18)
========== ==========
Net loss............................................. $ (0.19) $ (0.18)
========== ==========
Pro forma net loss per share (Note 4):
Basic net loss per share
Loss from continuing operations...................... $ (0.19) $ (0.21)
========== ==========
Net loss............................................. $ (0.20) $ (0.21)
========== ==========
Diluted net loss per share
Loss from continuing operations...................... $ (0.19) $ (0.21)
========== ==========
Net loss............................................. $ (0.20) $ (0.21)
========== ==========
</TABLE>
The accompanying notes are an integral part of this condensed consolidated
financial statement.
4
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED MARCH 31,
------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(10,556) $(10,878)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................ 3,008 4,081
Noncash charge from accelerated vesting of Brann
Holdings options........................................ 9,097 --
Noncash ESOP expense..................................... 1,293 --
Loss on disposal of assets............................... 63 67
Other noncash amounts.................................... 1,372 (6,803)
Changes in assets and liabilities:
Accounts receivable, net................................. (10,211) (23,023)
Unbilled services........................................ (2,842) 7,326
Deposits and other assets................................ 886 274
Other current assets..................................... 202 1,466
Accrued payroll, accounts payable and accrued expenses... 5,903 29,709
Unearned revenue......................................... (3,062) (5,472)
Client advances.......................................... 667 (7,959)
Impact from differing fiscal year ends................... (2,761) --
-------- --------
Net cash used in operating activities.................. (6,941) (11,212)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of subsidiaries, net of cash acquired............ (4,398) 1,884
Purchase of property and equipment........................ (7,007) (9,424)
Proceeds from sale of equipment........................... 126 --
Net sales of marketable securities........................ 235 243
Purchase of intangible assets............................. (3,694) (702)
Note and net advances to stockholders..................... (134) 276
Impact from differing fiscal year ends.................... (446) --
-------- --------
Net cash used in investing activities.................. (15,318) (7,723)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term notes payable to limited partners
and others............................................... (1,830) --
Proceeds from issuance of subordinated debentures due to
related parties.......................................... 6,115 245
Distributions and dividends............................... (4,211) (2,175)
Acquisition of treasury stock............................. (1,590) (2,097)
Repayment of long-term debt............................... -- (5,617)
Redemption of mandatorily redeemable preferred stock...... (5,110) --
Net borrowings (repayments) on line of credit............. 577 (4,246)
Payments on capital lease obligations..................... (390) (518)
Proceeds from exercise of options......................... 5,957 7,172
Proceeds from issuance of common stock.................... 105 6,874
Impact from differing fiscal year ends.................... 3,704 --
-------- --------
Net cash provided by (used in) financing activities.... 3,327 (362)
Effect of exchange rate changes........................... 561 (101)
-------- --------
Net decrease in cash and equivalents...................... (18,371) (19,398)
Cash and equivalents, beginning of period................. 70,916 81,915
-------- --------
Cash and equivalents, end of period....................... $ 52,545 $62,517
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest including dividends on mandatorily
redeemable preferred stock............................... 229 280
Cash paid for income taxes................................ 215 2,171
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Equipment purchased under capital leases.................. 437 201
Distribution of non-operating assets by a subsidiary...... -- 947
Issuance of shares of common stock for purchase of
subsidiaries............................................. -- 50,496
Issuance of common stock related to stock appreciation
rights................................................... -- 3,484
</TABLE>
The accompanying notes are an integral part of this condensed consolidated
statement of cash flows.
5
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON ACCUMULATED
COMMON STOCK ADDITIONAL RETAINED OTHER
STOCK PAR PAID-IN EARNINGS TREASURY COMPREHENSIVE COMPREHENSIVE
SHARES VALUE CAPITAL (DEFICIT) STOCK INCOME TOTAL INCOME
---------- ------ ---------- --------- -------- ------------- -------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1997, as previously
restated for poolings.. 60,470,000 $60 $152,086 $ (2,568) $(5,473) $ 477 $144,582 $ --
Distributions and
dividends............. -- -- -- (3,149) -- -- (3,149) --
Exercise of stock
options and subsidiary
stock appreciation
rights................ 386,000 -- 12,517 -- 20 -- 12,537 --
Issuance of shares for
purchase of
subsidiaries.......... 1,211,000 2 50,383 -- -- -- 50,385 --
Reissuance of treasury
stock by subsidiary
prior to Merger with
SCI................... 199,000 -- 6,873 -- -- -- 6,873 --
Foreign currency
translation
adjustment............ -- -- -- -- -- 739 739 739
Unrealized gain on
marketable
securities............ -- -- -- -- -- 59 59 59
Purchases and
retirement of treasury
stock................. -- -- 86 -- (2,122) -- (2,036) --
Reclassification of
redeemable ESOP
stock................. -- -- -- (1,613) -- -- (1,613) --
Tax benefit from
taxable merger
transaction........... -- -- 44,348 -- -- -- 44,348 --
Net loss............... -- -- -- (10,879) -- -- (10,879) (10,879)
--------
Comprehensive loss..... -- -- -- -- -- -- -- $(10,081)
---------- --- -------- -------- ------- ------ -------- ========
Balance, March 31,
1998................... 62,266,000 $62 $266,293 $(18,209) $(7,575) $1,275 $241,846 --
========== === ======== ======== ======= ====== ========
</TABLE>
The accompanying notes are an integral part of this condensed consolidated
statement of equity.
6
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. ORGANIZATION, BASIS OF PRESENTATION AND BUSINESS:
On October 19, 1988, Collegiate Marketing and Communications, Inc., a
Delaware corporation (the "General Partner"), and a Delaware limited
partnership beneficially owned by Mortimer B. Zuckerman and Fred Drasner (the
"Original Limited Partner") entered into a partnership agreement (the
"Partnership Agreement") pursuant to the provisions of the Delaware Act, under
the name Collegiate Marketing and Communications, L.P. (the "Partnership"). On
September 1, 1989, the name of the Partnership was changed to Snyder
Communications, L.P., and the name of the General Partner was changed to
Snyder Communications, Inc. On May 18, 1995, the Partnership Agreement was
amended to admit several new limited partners into the Partnership. On June
25, 1996, the name of the General Partner was changed to Snyder Marketing
Services, Inc. ("SMS").
Snyder Communications, Inc., a Delaware corporation, was incorporated on
June 25, 1996, to continue the business operations of the Partnership. Snyder
Communications, Inc., in conjunction with all of the existing partners in the
Partnership, reorganized on September 24, 1996 (the "Reorganization"), upon
the effectiveness of the initial public offering of its common stock. After
consummation of the Reorganization, Snyder Communications, Inc. owned 100
percent of the stock of SMS and, directly and indirectly (through its
ownership of SMS), 100 percent of the interests in the Partnership (the
consolidated entity will be referred to herein as "SCI" or "Snyder
Communications").
During the first quarter of 1998, SCI issued 7,620,568 shares in pooling of
interests transactions (the "1998 Mergers"). The transactions include the
acquisitions of Health Products Research, Inc. ("HPR"), Publimed Promotions
S.A. ("Publimed"), Blau Marketing Technologies, Inc. ("Blau") and Arnold
Communications, Inc. ("Arnold"). HPR and Publimed both provide sales and
marketing services to the pharmaceutical industry. HPR operates primarily in
the U.S. and provides strategic and tactical sales force market planning and
evaluation services to leading pharmaceutical and medical device
manufacturers. Publimed markets medical products for pharmaceutical companies
in France utilizing field sales. Blau's operations are conducted throughout
the U.S. and consist primarily of strategic consulting, creative services,
program design and implementation, consumer database management, response
tracking and analysis, interactive services and production management.
Arnold's operations are also conducted throughout the U.S. , and they include
creative services, direct marketing, new media marketing, database management
services and full-service public relations for its clients.
The accompanying condensed consolidated financial statements have been
retroactively restated to reflect the combined financial position and combined
results of operations and cash flows of the 1998 Mergers, giving effect to
these acquisitions as if they had occurred at the beginning of the earliest
period presented (the combined entity will be referred to herein as the
"Company"). The condensed consolidated balance sheet for all periods presented
gives effect to the conversion of the 1998 Mergers common stock to 7,620,568
shares of SCI common stock. Certain amounts previously presented have been
reclassified to conform to the March 31, 1998 presentation.
Snyder Communications provides fully integrated outsourced marketing
solutions. The Company identifies high value market segments; designs and
implements marketing programs to reach them; initiates and closes sales on
behalf of its clients; and provides customer care, retention and loyalty
marketing services. The Company's resources include proprietary databases of
targeted customers and small businesses; database management services;
pharmaceutical detailing services; pharmaceutical consulting; medical
education communications; proprietary product sampling programs and
publications; sponsored information displays in proprietary locations;
marketing program consultants; creative services; field sales and marketing
representatives; customer service representatives; and direct mail and
fulfillment capabilities. The Company's operations are conducted throughout
the United States, the United Kingdom ("U.K."), France, Ireland and Hungary.
7
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The accompanying unaudited condensed consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. As a result, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted. The
Company believes that the disclosures made are adequate to make the
information presented not misleading. The condensed consolidated financial
statements reflect all adjustments (consisting of only normal recurring
adjustments) which, in the opinion of management, are necessary to present
fairly the financial position, results of operations and cash flows of the
Company as of March 31, 1998 and for the three months ended March 31, 1997 and
1998. Operating results for the three month period ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. The unaudited condensed consolidated financial
statements should be read in conjunction with the financial statements and
footnotes thereto included in the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on May 5, 1998.
2. BUSINESS COMBINATIONS
The following details revenues and net income (loss) for each of the three
months ended March 31, 1997 and 1998 of SCI and all entities acquired by SCI
through pooling of interests combinations ("Pooled Entities") through the
dates of their respective mergers. The SCI amounts include the financial
results of the original operations of SCI for the entire period and the
financial results of the Pooled Entities for the period subsequent to the
dates of their respective mergers.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------
1997 1998
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
SCI................................................... $ 33,085 $107,049
Pooled Entities....................................... 85,498 39,804
--------- --------
$118,583 $146,853
========= ========
Net Income (Loss):
SCI................................................... $ (12,484) $ (1,428)
Pooled Entities....................................... 1,928 (9,450)
--------- --------
$ (10,556) $(10,878)
========= ========
</TABLE>
During the three months ended March 31, 1997, SCI recorded $16.2 million in
non-recurring acquisition and related costs, and the Pooled Entities recorded
$3.2 million in non-recurring costs which consisted of $1.4 million in
compensation to stockholders, $1.2 million in ESOP expense and $0.6 million loss
from discontinued operations. Excluding the non-recurring costs and assuming
that all of the Pooled Entities had been taxed similarly to C corporations, SCI
would have recorded approximately $3.1 million in net income for the three
months ended March 31, 1997 and the Pooled Entities would have recorded
approximately $3.4 million in net income for the same period for a combined net
income per share from continuing operations and excluding non-recurring costs of
$0.11.
During the three months ended March 31, 1998, SCI and the Pooled Entities
recorded $16.9 million and $17.0 million, respectively, in non-recurring
acquisition and related costs. Excluding the non-recurring acquisition and
related costs and assuming that all of the Pooled Entities had been taxed
similarly to C corporations, SCI and the Pooled Entities would have recorded
approximately $11.7 million and $1.2 million, respectively in net income for the
three months ended March 31, 1998 for a combined net income per share from
continuing operations and excluding non-recurring costs of $0.21.
During the first quarter of 1998 SCI acquired CLI Pharma (March 25, 1998)
and HealthCare Promotions ("HCP") (February 13, 1998) in transactions which
have been accounted for as purchase business combinations. The total
consideration paid for first quarter 1998 purchase business combinations was
approximately $50.5 million consisting of 1,261,000 shares of SCI common stock
and $5 million in cash. Based upon a preliminary allocation of purchase
consideration, these purchase business combinations have resulted in
additional goodwill of approximately $48.8 million.
8
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table presents pro forma financial information as if the
Company's 1997 purchase of Halliday Jones Sales Ltd. and its 1998 purchase
business combinations had been consummated at the beginning of each of the
periods presented and all of the Company's operations had been taxed similarly
to a C corporation (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------
1997 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
Pro Forma Revenues....................................... $135,463 $157,644
Pro Forma Loss from Continuing Operations................ (9,807) (10,393)
Pro Forma Net Loss....................................... (10,365) (10,393)
Pro Forma Basic Net Loss Per Share....................... (0.18) (0.17)
Pro Forma Diluted Net Loss Per Share..................... (0.18) (0.17)
</TABLE>
During the three months ended March 31, 1997, the Company recorded $18.9
million in non-recurring costs, consisting of $16.2 million in acquisition and
related costs, $1.4 million in compensation to stockholders and $1.3 million in
ESOP expense. Excluding these non-recurring costs, the Company would have
recorded $6.7 million in pro forma net income for the three months ended
March 31, 1997 and pro forma basic and diluted net income per share of $0.12 and
0.11, respectively, for the period.
During the three months ended March 31, 1998, the Company recorded $34.0
million in non-recurring acquisition and related costs. Excluding the
non-recurring acquisition and related costs, the Company would have recorded
$13.3 million in pro forma net income for the three months ended March 31,
1998 and pro forma basic and diluted net income per share of $0.21 for the
period.
3. ACQUISITION AND RELATED COSTS:
During the three months ended March 31, 1998, SCI recorded $34.0 million in
non-recurring acquisition and related costs. These costs are primarily related
to the consummation of the 1998 Mergers and consist of investment banking
fees, expenses associated with stock appreciation rights, other professional
service fees, tax payments and other contractual payments. In addition, this
amount includes a charge of approximately $4.7 million for costs necessary to
implement the Company's first quarter 1998 consolidation of certain U.S. and
U.K. operations. The charge consists of approximately $2.3 million to
consolidate and terminate lease obligations and write off leasehold
improvements at the office facilities of three acquired subsidiaries and $2.4
million in severance and related costs to terminate the employment of 66
management and administrative personnel at the acquired subsidiaries. As of
March 31, 1998, ten employees had terminated employment with the Company while
$0.5 million in severance and related costs had been charged against the
liability.
4. INCOME TAXES:
The Company's effective tax rate for the three months ended March 31, 1997
and 1998 differs from the federal statutory rate due primarily to the
nondeductibility of certain non-recurring acquisition costs, state income
taxes, the different tax status of certain of the Pooled Entities prior to
their merger with SCI and different statutory rates for the Company's
international operations.
5. PRO FORMA INCOME DATA:
The pro forma net loss per share amounts include a provision for federal and
state income taxes as if the Company had been a taxable C corporation for all
periods presented. The pro forma income tax rate reflects the combined federal
and state income taxes of approximately 41.5 percent and 38.0 percent for the
three months ended March 31, 1997 and 1998. These tax provisions exceed the
Company's statutory rate due to the recognition of certain acquisition and
related costs which are not deductible for income tax purposes.
9
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The table below presents this pro forma calculation of net loss (in
thousands):
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31,
------------------
1997 1998
-------- --------
<S> <C> <C>
Pro forma net loss data (unaudited):
Historical loss from continuing operations before income
taxes.................................................... $ (7,710) $(13,224)
Pro forma benefit (provision) for income taxes............ (2,846) 792
-------- --------
Pro forma loss from continuing operations................. (10,556) (12,432)
Loss from discontinued operations, less applicable pro
forma income taxes....................................... (307) --
-------- --------
Pro forma net loss........................................ $(10,863) $(12,432)
======== ========
</TABLE>
6. NEW ACCOUNTING PRONOUNCEMENTS:
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," ("SFAS 130"), during the first quarter of
1998. SFAS 130 requires companies to report as comprehensive income all
changes in equity during a period, except those resulting from investments and
distributions to owners, in financial statements for the period in which they
are recognized. Included within accumulated other comprehensive income are the
cumulative amounts for foreign currency translation adjustments and unrealized
gains and losses on marketable securities. The cumulative foreign currency
translation adjustment was $413,000 and $1,152,000 as of December 31, 1997 and
March 31, 1998, respectively. The cumulative gain on marketable securities
was $64,000 and $123,000 as of December 31, 1997 and March 31, 1998,
respectively.
7. TAX BENEFIT FROM TAXABLE MERGER TRANSACTION:
SCI will receive a future tax benefit arising from the tax treatment of its
first quarter 1998 merger with Arnold Communications, Inc. In accordance with
generally accepted accounting principles, because the merger has been
accounted for as a pooling of interests, the net estimated future tax benefit
of approximately $44.4 million is reflected as a deferred tax asset in the
accompanying condensed consolidated balance sheet at March 31, 1998 with the
offsetting credit made to additional paid-in-capital.
8. NET INCOME PER SHARE:
A reconciliation of the shares used to compute basic and diluted earnings
per share follows. For each of the periods presented, the same net income used
to compute basic earnings per share was used to compute diluted earnings per
share.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1997 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Weighted average shares outstanding for the period
used in computation of basic net income per
share............................................. 55,413 60,135
Diluted impact of stock options.................... -- --
---------- ----------
Shares used in computation of diluted net income
per share......................................... 55,413 60,135
</TABLE>
For the three months ended March 31, 1997 and 1998, there existed weighted
average common stock equivalents of 1,407,095 and 2,030,944, respectively,
which are not included in the calculation of diluted net income per share
because they were antidilutive for the periods.
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the Company's results of operations and of its
liquidity and capital resources is based upon the Company's condensed
consolidated financial statements. The entities with which the Company has
entered into mergers accounted for as poolings of interests for financial
reporting purposes will be collectively referred to as the "Pooled Entities" and
their mergers will be referred to herein as the "Acquisitions". The consolidated
financial statements have been retroactively restated to reflect the combined
financial position and combined results of operations and cash flows of the
Pooled Entities for all periods presented, giving effect to the Acquisitions as
if they had occurred at the beginning of the earliest period presented. The
following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements of the Company and related notes thereto
included elsewhere in this Quarterly Report on Form 10-Q.
OVERVIEW
Since completing its initial public offering in September 1996, the Company
has significantly expanded the range of marketing and sales services it is
able to offer its clients. This expansion has been accomplished both by
building and initiating new programs or service offerings and by acquiring
businesses that offer complementary services. The Company's strategy is to
facilitate the growth of its acquirees with improved sales and marketing
resources and to integrate the sales and marketing efforts of its acquirees
with those of the existing operating groups within the Company. The Company
expects that the synergies created by its acquisitions will increase its
opportunities and strengthen its customer relationships. The existing
similarities among services and customers within the different operating
groups facilitate the integration of the Company's service offerings. The
service offerings of acquired companies have been combined with those
previously offered by the Company to create four service groups: Medical
Services; Media and Sampling Services; Communications Services; and Data
Delivery Services. The Company provides complete marketing solutions for its
clients by integrating these four types of services into sales and marketing
programs. Throughout 1997 and the first quarter of 1998, the Company has
completed acquisitions accounted for both as poolings of interests and as
purchases. Those acquisitions which are either significant to the Company's
financial results or which may provide significant future growth opportunities
are discussed below.
The Company established its Medical Services group in January 1997 in a
merger transaction with a U.S. provider of pharmaceutical sales and marketing
services. During 1997 and the first quarter of 1998, the Company issued
4,035,182 and 2,314,263 shares, respectively, in pooling of interests
transactions with companies that provide medical services. These transactions
include the acquisitions of MMD, Inc. ("MMD"), GEM Communications, Inc.
("GEM"), Rapid Deployment Group Limited ("RDL"), PharmFlex, Inc.
("PharmFlex"), Health Products Research, Inc. ("HPR") and Publimed Promotions,
S.A. ("Publimed"). The Company also acquired Halliday Jones Sales Ltd. ("HJ")
for approximately $19.4 million of cash and common stock in a purchase
transaction in 1997, Healthcare Promotions, LLC ("HCP") for approximately
$22.0 million of common stock and CLI Pharma S.A. ("CLI Pharma") for
approximately $25.0 million of common stock in purchase transactions in the
first quarter of 1998. MMD, RDL, HJ, PharmFlex, HCP, Publimed and CLI Pharma
all market medical products for pharmaceutical companies utilizing field
sales. As a result of the acquisitions of MMD, PharmFlex and HCP, the Medical
Services group combines the services of over 2,360 account executives and
managers in the U.S., and provides outsourced pharmaceutical sales and
marketing services to some of the world's premier pharmaceutical companies.
Together, HJ and RDL retain the services of over 730 account executives and
managers, and provide outsourced pharmaceutical sales and marketing services
to many leading pharmaceutical manufacturers. HJ and RDL operate primarily in
the U.K., but also in Ireland and Hungary. Publimed and CLI Pharma both
provide pharmaceutical sales and marketing services in France and utilize over
860 account executives and managers. GEM operates in the U.S. and provides
communications and marketing services to the pharmaceutical industry,
primarily educational marketing programs aimed at doctors, pharmacists and
nurses. HPR provides strategic and tactical sales force market planning and
evaluation services, including sales marketing resource allocation, sales
force planning and the integration and evaluation of sales and marketing
promotions to many leading pharmaceutical and medical device manufacturers.
11
<PAGE>
The Company expanded the reach of its Media and Sampling Services group
through complementary acquisitions. During 1997 and the first quarter of 1998,
the Company issued 3,032,414 and 30,344 shares, respectively, in pooling of
interests transactions with companies that provide media and sampling
services. These transactions include the acquisitions of Bounty Group Holdings
("Bounty") and Sampling Corporation of America ("SCA"). Bounty is a U.K.-based
provider of targeted product sampling services and proprietary health-oriented
publications to expectant mothers, new mothers and parents of toddlers in the
U.K. and Ireland. SCA is a U.S. provider of targeted product sampling programs
for packaged goods manufacturers with distribution channels that include over
180,000 locations and consist of primary and secondary schools,
daycare/preschool centers, colleges and immigrant organizations.
The Company increased the scope of services provided by the Communications
Services group with the completion of strategic acquisitions. During 1997 and
the first quarter of 1998, the Company issued 2,350,152 and 5,275,961 shares,
respectively, in pooling of interests transactions with companies that provide
communications services. These transactions include the acquisitions of Brann
Holdings Limited ("Brann"), Blau Marketing Technologies, Inc. ("Blau") and
Arnold Communications, Inc. ("Arnold"). Brann is a leading provider of
complete marketing solutions in the U.K., and offers a full range of creative,
telemarketing and database services to over 70 companies, government agencies
and charitable organizations. Blau and Arnold provide marketing communications
services in the U.S. Blau provides direct marketing services, including
strategic consulting, creative services, program design and implementation,
consumer database management, response tracking and analysis and production
management to large national and international corporations in the financial
services, technology, retail, telecommunications and utilities industries.
Arnold is a full-service marketing communications firm that provides creative
services, direct marketing, new media marketing, database management services
and full-service public relations to a roster of recognized national and
international corporations.
The Company expanded its data delivery service capabilities and established
its Data Delivery Services group in 1997 through its acquisition of American
List Corporation ("American List"). The Company issued 5,032,322 shares in a
pooling of interests transaction with American List. American List develops,
maintains and markets some of the largest and most comprehensive databases of
high school, college and pre-school through junior high school students in the
U.S.
RESULTS OF OPERATIONS
In the Medical Services group, revenues and associated costs on
pharmaceutical detailing contracts are generally recognized when services have
been performed by account executives. In the Media and Sampling Services
group, revenues are recognized as services are rendered in accordance with the
terms of the contracts. In the Communications Services group, net revenues are
recognized when services are completed in accordance with the terms of the
contracts. On certain contracts, revenues from field sales and teleservices
are based on both the number of accepted customers and the type of services
sold. Revenues related to such sales are recognized on the date that the
application for service is accepted by the Company's clients. In the Data
Delivery Services group, revenues are recognized upon shipment of lists to
customers for a one-time usage.
Cost of services consists of all costs specifically associated with client
programs, such as salary, commissions and benefits paid to personnel,
including senior management associated with specific service groups,
inventory, payments to third-party vendors and systems and other support
facilities specifically associated with client programs.
Selling, general and administrative expenses consist primarily of costs
associated with the Company's centralized staff functions, such as finance,
accounting and human resources and personnel costs of senior management not
specifically associated with any single service group.
12
<PAGE>
Compensation to stockholders consists of excess compensation paid to certain
stockholders of the Partnership prior to the Reorganization and excess
compensation paid to certain stockholders of acquired companies prior to their
respective mergers with the Company. The amount by which the historical
compensation of these stockholders exceeds that provided in their employment
contracts with the Company has been classified as compensation to
stockholders.
ESOP expense is the compensation expense recorded when shares are committed
to be released to ESOP participants. The amount of the expense is based on the
current market price of the shares and will vary based upon the amount of debt
repaid by the ESOP during the period.
Acquisition and related costs consist primarily of investment banking fees,
other professional service fees, certain tax payments and other contractual
payments resulting from the consummation of the Company's pooling of interests
transactions.
The following sets forth, for the periods indicated, certain components of
the Company's income statement data, including such data as a percentage of
revenues. Pro forma net income includes a provision for income taxes as if all
operations of the Company had been taxed similarly to a C corporation for all
periods presented. Pro forma net income from continuing operations, excluding
non-recurring items represents income from continuing operations adjusted to
reflect a provision for income taxes as if the Company had been taxed
similarly to a C corporation for all periods presented and the elimination of
compensation to stockholders, ESOP expense and acquisition and related costs.
Compensation to stockholders, ESOP expense and acquisition and related costs
are considered to be nonrecurring by the Company, because the Company's
current operations will not result in any compensation to stockholders, ESOP
expense or acquisition and related costs in future periods.
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1997 1998
---------------- ----------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Net revenues........................................... $118,583 100.0% $146,853 100.0%
Operating expenses:
Cost of services..................................... 82,906 69.9 97,493 66.4
Selling, general and administrative expenses......... 24,285 20.5 29,369 20.0
Compensation to stockholders......................... 1,427 1.2 -- --
ESOP Expense......................................... 1,245 1.0 -- --
Acquisition and related costs........................ 16,181 13.6 33,953 23.1
-------- ----- -------- -----
Income (loss) from operations.......................... (7,461) (6.3) (13,962) (9.5)
Interest income (expense), net......................... (249) (0.2) 738 0.5
Income tax (provision) benefit......................... (2,288) (1.9) 2,346 1.6
-------- ----- -------- -----
Income (loss)before discontinued operations and
extraordinary item.................................... (9,998) (8.4)% (10,878) (7.4)%
Loss from discontinued operations...................... (558) (0.5) -- --
-------- ----- -------- -----
Extraordinary item..................................... -- -- -- --
-------- ----- -------- -----
Net income (loss).................................... $(10,556) (8.9)% $(10,878) (7.4)%
======== ===== ======== =====
Pro forma net income (loss) from continuing options.. $(10,556) (8.9)% $(12,432) (8.5)%
======== ===== ======== =====
Pro forma net income (loss).......................... $(10,863) (9.2)% $(12,432) (8.5)%
======== ===== ======== =====
Pro forma net income from continuing operations,
excluding non-recurring items....................... $ 6,519 5.5% $ 12,852 8.8%
======== ===== ======== =====
</TABLE>
Three Months Ended March 31, 1998 Compared to Three Months Ended
March 31, 1997
Revenues. Revenues increased $28.3 million, or 23.9%, from $118.6 million in
the three months ended March 31, 1997 to $146.9 million in the three months
ended March 31, 1998. The increase in revenues was due primarily to increased
sales volumes in the Medical Services and Communications Services groups. The
Medical Services and Communications Services groups experienced growth in the
services provided to both new and existing customers, and this accounted for
approximately $16.6 million and $10.9 million, respectively, of the increase
in revenues.
Cost of Services. Cost of services increased $14.6 million, or 17.6%, from
$82.9 million in the three months ended March 31, 1997 to $97.5 million in the
three months ended March 31, 1998. Cost of services as a percentage of
revenues decreased from 69.9% in the three months ended March 31, 1997 to
66.4% in the three months ended March 31, 1998. The Company's management and
client support personnel were able to support increased client services during
the three months ended March 31, 1998, resulting in a decrease in cost of
services as a percentage of revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $5.1 million, or 21.0%, from $24.3 million
in the three months ended March 31, 1997 to $29.4 million in the three months
ended March 31, 1998. Selling, general and administrative expenses as a
percentage of revenues decreased from 20.5% in the three months ended March
31, 1997 to 20.0% in the three months ended March 31, 1998, reflecting a
moderately increased corporate overhead expense being spread over a larger
base of revenues.
13
<PAGE>
Compensation to Stockholders. No compensation to stockholders was recorded
in the three months ended March 31, 1998. Compensation to stockholders was
$1.4 million in the three months ended March 31, 1997 and reflects
compensation paid to certain stockholders of acquired companies prior to their
respective mergers with the Company that is in excess of the compensation
provided for in their employment contracts with the Company. No compensation
to stockholders is recorded subsequent to an acquisition by the Company.
ESOP Expense. No ESOP expense was recorded in the three months ended March
31, 1998. ESOP expense was $1.2 million in the three months ended March 31,
1997. During 1997, all obligations of the ESOP were settled, and the Company
does not expect to incur any ESOP expense in 1998 or any future periods. The
employees of one of the acquired companies that previously participated in the
ESOP will now participate in the Company's stock incentive plan.
Acquisition and Related Costs. The Company recorded $16.2 million and $34.0
million in acquisition and related costs during the three months ended March
31, 1997 and 1998, respectively. The $16.2 million in acquisition costs
recorded during the three months ended March 31, 1997 were costs directly
related to the consummation of the Company's pooling of interests transactions
completed during the three months ended March 31, 1997 and included
approximately $9.1 million from the accelerated vesting of options held by
employees at one of the acquirees in the U.K. The $34.0 million in acquisition
and related costs recorded during the three months ended March 31, 1998
includes $29.3 million in costs directly related to the consummation of the
Company's pooling of interests transactions completed during the three months
ended March 31, 1998 and $4.7 million for the consolidation of certain
acquired operations in the U.S. and the U.K. The charge consists of $2.3
million to consolidate and terminate lease obligations and to write off
leasehold improvements at the office facilities of three acquired subsidiaries
and $2.4 million in severance and related costs to terminate employment of
certain management and administrative personnel at three acquired
subsidiaries. In total, 66 employees will be terminated in the restructuring,
ten of whom were laid off during the three months ended March 31, 1998.
Interest Income (Expense), net. The Company recorded net interest expense of
$0.2 million in the three months ended March 31, 1997 and net interest income
of $0.7 million in the three months ended March 31, 1998. The net interest
expense recorded during the three months ended March 31, 1997 consists
primarily of interest on debt at acquired companies prior to their acquisition
by the Company. The Company generally repays the debt of its acquirees. The
net interest income recorded during the three months ended March 31, 1998
is consistent with the increase in funds available for investment. The Company's
average cash balance in the first quarter of 1998 was greater than in the
first quarter of 1997 due primarily to public stock offerings and stock option
exercises.
Income Tax (Provision) Benefit. The Company recorded a $2.3 million tax
provision in the three months ended March 31, 1997 and a $2.3 million tax
benefit in the three months ended March 31, 1998. A tax provision was recorded
on the loss from continuing operations in the three months ended March 31,
1997 because of the nondeductibility of certain of the acquisition costs
recorded in the period. A tax benefit was recorded on the loss from continuing
operations in the three months ended March 31, 1998 due to the deductibility
of the costs incurred during the period. The Company's effective tax rate for
the three months ended March 31, 1997 and 1998 differs from the Federal
statutory rate due primarily to the nondeductibility of certain nonrecurring
acquisition costs, state income taxes, the tax status of certain of the Pooled
Entities prior to their mergers with the Company and different statutory rates
for the Company's international operations.
Discontinued Operations. The loss from discontinued operations of $0.6
million in the three months ended March 31, 1997 consists of the loss from the
sports management operations which were spun off from one of the Company's
1998 acquirees in October 1997.
Pro Forma Net Income (Loss). The pro forma net loss increased $1.6 million,
or 14.8%, from $10.8 million in the three months ended March 31, 1997 to $12.4
million in the three months ended March 31, 1998 due primarily to the increase
in acquisition and related costs offset by the Company's overall growth and
14
<PAGE>
improved gross margins. Pro forma income from continuing operations and
excluding nonrecurring costs increased $6.4 million, or 98.5%, from $6.5
million in the three months ended March 31, 1997 to $12.9 million in the three
months ended March 31, 1998. Pro forma diluted net income per share from
continuing operations and excluding nonrecurring costs increased $0.10, or
91.0%, from $0.11 for the three months ended March 31, 1997 to $0.21 for the
three months ended March 31, 1998. The increase in pro forma income from
continuing operations and excluding nonrecurring costs is due primarily to the
growth in revenues and the improved gross margins.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had $62.5 million in cash and equivalents.
Cash and equivalents decreased $19.4 million during the three months ended
March 31, 1998, due to the $11.2 million used in operating activities, the
$7.7 million used in investing activities, the $0.4 million used in financing
activities and the $0.1 million effect of exchange rate changes. The Company's
operations used $11.2 million in cash during the three months ended March 31,
1998 due primarily to the $34.0 million in nonrecurring acquisition and
related costs. The $7.7 million of cash used in investing activities includes
$10.1 million for the purchase of property, equipment and intangibles offset
by the $2.4 million in cash received from the purchase of subsidiaries, the
sales of marketable securities and repayment of advances. The $0.4 million of
cash used in financing activities includes $2.2 million in cash paid for
dividends to stockholders of acquired companies prior to their respective
acquisitions by the Company, $2.1 million in payments for the acquisition of
treasury stock and $10.4 million in repayments of debt and other obligations
offset by $7.2 million in cash received from the exercise of options and $7.1
million from the issuance of common stock and debt.
The Company's recurring operations (excluding compensation to stockholders,
ESOP expense and acquisition and related costs) have provided positive cash
flows in the three months ended March 31, 1998 and in each of the three years
ended December 31, 1997.
15
<PAGE>
The Company experienced significant growth during 1997 and during the three
months ended March 31, 1998 and expects to continue to grow through both
internal expansion and complementary acquisitions. The Company believes that
its current balance of cash and equivalents will be sufficient to fund its
current operations and planned capital expenditures. To the extent that the
consideration paid for future acquisitions does not include securities of the
Company, acquisitions will initially be financed using excess cash and
equivalents, but depending on the amount necessary to complete an acquisition,
additional financing may be required. On April 24, 1998, the Company filed a
registration statement with respect to the sale of approximately 600,000
shares of common stock by the Company and approximately 7,650,000 shares of
common stock by selling stockholders.
The Company is undergoing an assessment of its current systems and equipment
and is in the process of making the modifications necessary to address the
issues presented by the Year 2000 issue. The Company expects to incur no more
than $3.0 million in capital expenditures in 1998 with respect to system
upgrades which are designed in part to address specific Year 2000
requirements. To the extent that additional acquisitions are consummated, the
Company will need to evaluate how the Year 2000 will impact its future
acquirees.
The Company is subject to the impact of foreign currency fluctuations,
specifically that of the British pound and French franc. To date, changes in
the British pound and French franc exchange rates have not had a material
impact on the Company's liquidity or results of operations. The Company
continually evaluates its exposure to exchange rate risk but does not
currently hedge such risk.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") during the three months ended
March 31, 1998. Comprehensive income includes net income and all other
nonowner changes in equity in a period. The Company's comprehensive loss of
$10.1 million for the three months ended March 31, 1998 consists of its net
loss, foreign currency translation adjustment and unrealized gain on
marketable securities.
16
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable
PART II. OTHER INFORMATION
Item 2. Changes in Securities.
(c) In January, February and March 1998, the Company issued 2,496,790,
1,934,093 and 4,400,714 shares of its common stock in connection with
the acquisitions of privately held companies. All of the entities
acquired became wholly owned subsidiaries of the Company. The shares
were restricted and contained a legend against transfer. The issuance
of the shares was effected without registration in reliance upon the
exemption available under Section 4 (2) of the Securities Act.
In addition, the Company issued options to purchase 510,862 shares of
common stock in January 1998 in connection with the consummation of an
acquisition. These options were exchanged for options to purchase
stock in the acquired company. Such options are exercisable at
exercise prices ranging from $1.31 to $15.58 and have expiration dates
ranging from September 1998 to July 2006. The issuance of the options
was effected without registration in reliance upon the exemption
available under Section 4(2) of the Securities Act.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Certificate of Incorporation of the Company (as amended through
May 6, 1998)
(b) Reports on Form 8-K
(1) Current Report on Form 8-K, filed on January 21, 1998. Item 5.
Other Events.
(2) Current Report on Form 8-K, filed on February 17, 1998. Item 5.
Other Events.
(3) Current Report on Form 8-K, filed on March 30, 1998. Item 5.
Other Events.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SNYDER COMMUNICATIONS, INC.
(Registrant)
Date: May 15, 1998 By: /s/ MICHELE D. SNYDER
---------------------------------
Michele D. Snyder
Vice Chairman, President and
Chief Operating Officer
(Duly Authorized Officer)
Date: May 15, 1998 /s/ A. CLAYTON PERFALL
---------------------------------
Chief Financial Officer
(Principal Financial Officer)
18
<PAGE>
CERTIFICATE OF INCORPORATION
OF
SNYDER COMMUNICATIONS, INC.
ARTICLE I
NAME
----
The name of the corporation is: Snyder Communications, Inc. (the
"Corporation").
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
--------------------------------------
The address of the Corporation's registered office in the State of Delaware
is 1013 Centre Road, in the City of Wilmington, County of New Castle. The name
of its registered agent at such address is Corporation Service Company.
ARTICLE III
PURPOSE
-------
The purpose or purposes for which the Corporation is organized are to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware as from time to time
amended.
ARTICLE IV
CAPITAL STOCK
-------------
The Corporation shall have the authority to issue a total of 125,000,000
shares of capital stock, each with a par value of $ 0.001, consisting of
120,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock.
<PAGE>
ARTICLE V
COMMON STOCK
------------
Except as required by law, all shares of Common Stock shall be identical in
all respects and shall entitle the holders thereof to the same rights and
privileges, subject to the same qualifications, limitations and restrictions.
Except as required by law, the holders of shares of Common Stock shall be
entitled to one vote per share of Common Stock on all matters on which
stockholders of the Corporation have the right to vote.
ARTICLE VI
PREFERRED STOCK
---------------
Section A. Preferred Stock. The Corporation is authorized to issue
---------------
shares of Preferred Stock from time to time in one or more series as may from
time to time be determined by the Board of Directors of the Corporation (the
"Board"), each of such series to be distinctly designated. The voting powers,
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations or restrictions thereof, if any, of each such
series may differ from those of any and all other series of Preferred Stock at
any time outstanding, and the Board is hereby expressly granted authority to fix
or alter, by resolution or resolutions, the designation, number, voting powers,
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations and restrictions, of each such series,
including, but without limiting the generality of the foregoing, the following:
1. The distinctive designation of, and the number of shares of
Preferred Stock that shall constitute, such series, which number (except where
otherwise provided by the Board in the resolution establishing such series) may
be increased (but not above the total number of shares of
-2-
<PAGE>
Preferred Stock) or decreased (but not below the number of shares of such series
then outstanding) from time to time by like action of the Board.
2. The rights in respect of dividends, if any, of such series of
Preferred Stock, the extent of the preference or relation, if any, of such
dividends to the dividends payable on any other class or classes or any other
series of the same or other class or classes of capital stock of the
Corporation, and whether such dividends shall be cumulative or noncumulative.
3. The right, if any, of the holders of such series of Preferred
Stock to convert the same into, or exchange the same for, shares of any other
class or classes or of any other series of the same or any other class or
classes of capital stock of the Corporation, and the terms and conditions of
such conversion or exchange.
4. Whether or not shares of such series of Preferred Stock shall be
subject to redemption, and the redemption price or prices and the times at
which, and the terms and conditions on which, shares of such series of Preferred
Stock may be redeemed.
5. The rights, if any, of the holders of such series of Preferred
Stock upon the voluntary or involuntary liquidation, dissolution or winding-up
of the Corporation or in the event of any merger or consolidation of or sale of
assets by the Corporation.
6. The terms of any sinking fund or redemption or purchase account,
if any, to be provided for shares of such series of the Preferred Stock.
-3-
<PAGE>
7. The voting powers, if any, of the holders of any series of
Preferred Stock generally or with respect to any particular matter, which may be
less than, equal to or greater than one vote per share, and which may, without
limiting the generality of the foregoing, include the right, voting as a series
by itself or together with the holders of any other series of Preferred Stock or
all series of Preferred Stock as a class, to elect one or more directors of the
Corporation generally or under such specific circumstances and on such
conditions as shall be provided in the resolution or resolutions of the Board
adopted pursuant hereto, including, without limitation, in the event there shall
have been a default in the payment of dividends on or redemption of any one or
more series of Preferred Stock.
Section B. Rights of Preferred Stock.
-------------------------
1. After the provisions with respect to preferential dividends on any
series of Preferred Stock (fixed in accordance with the provisions of Section
(A) of this Article VI), if any, shall have been satisfied and after the
Corporation shall have complied with all the requirements, if any, with respect
to redemption of, or the setting aside of sums as sinking funds or redemption or
purchase accounts with respect to, any series of Preferred Stock (fixed in
accordance with the provisions of Section (A) of this Article VI), and subject
further to any other conditions that may be fixed in accordance with the
provisions of Section (A) of this Article VI, then and not otherwise the holders
of Common Stock shall be entitled to receive such dividends as may be declared
from time to time by the Board.
-4-
<PAGE>
2. In the event of the voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, after distribution in full of the
preferential amounts, if any (fixed in accordance with the provisions of Section
(A) of this Article VI), to be distributed to the holders of Preferred Stock by
reason thereof, the holders of Common Stock shall, subject to the additional
rights, if any (fixed in accordance with the provisions of Section (A) of this
Article VI), of the holders of any outstanding shares of Preferred Stock, be
entitled to receive all of the remaining assets of the Corporation, tangible or
intangible, of whatever kind available for distribution to stockholders ratably
in proportion to the number of shares of Common Stock held by them respectively.
3. Except as may otherwise be required by law, and subject to the
provisions of such resolution or resolutions as may be adopted by the Board
pursuant to Section (A) of this Article VI granting the holders of one or more
series of Preferred Stock exclusive voting powers with respect to any matter,
each holder of Common Stock may have one vote in respect to each share of Common
Stock held on all matters voted upon by the stockholders.
4. The number of authorized shares of Preferred Stock and each class
of Common Stock may, without a class or series vote, be increased or decreased
from time to time by the affirmative vote of the holders of shares having a
majority of the total number of votes which may be cast in the election of
directors of the Corporation by all stockholders entitled to vote in such an
election, voting together as a single class.
-5-
<PAGE>
ARTICLE VII
SOLE INCORPORATOR
-----------------
The name and mailing address of the incorporator is as follows:
Name Mailing Address
---- ---------------
Daniel J. Ramos 2300 N Street, N.W.
Washington, D.C. 20037
The powers of the incorporator are to terminate upon the filing of the
Certificate of Incorporation.
ARTICLE VIII
BOARD OF DIRECTORS
------------------
Section A. Initial Directors. The name and mailing address of the person who is
-----------------
to serve as the initial director until the first annual meeting of stockholders
or until his successor is elected and qualified are as follows:
Name Mailing Address
---- ---------------
Daniel M. Snyder 6903 Rockledge Drive; 15th Floor
Bethesda, Maryland 20817
Section B. Powers of the Board of Directors. The business of the Corporation
---------------------------------
shall be managed by a board of directors. The board of directors shall have the
power, unless and to the extent that the board may from time to time by
resolution relinquish or modify the power, without the assent or vote of the
stockholders, to make, alter, amend, change, add to, or repeal the Bylaws of the
Corporation.
Section C. Vacancies. Except as otherwise provided for or fixed pursuant to
---------
the provisions of Article VI hereof relating to the rights of the holders of any
series of Preferred
-6-
<PAGE>
Stock to elect additional directors, newly created directorships resulting from
any increase in the authorized number of directors and any vacancies on the
Board resulting from death, resignation, disqualification, removal or other
cause shall be filled as set forth in the Bylaws of the Corporation.
Section D. Directors Elected by Holders of Preferred Stock. During any period
-----------------------------------------------
when the holders of any series of Preferred Stock have the right to elect
additional directors as provided for or fixed pursuant to the provisions of
Article VI hereof, then upon commencement and for the duration of the period
during which such right continues (i) the then otherwise total authorized number
of directors of the Corporation shall automatically be increased by such
specified number of directors, and the holders of such Preferred Stock shall be
entitled to elect the additional directors so provided for or fixed pursuant to
such provisions, and (ii) each such additional director shall serve until such
director's successor shall have been duly elected and qualified, or until such
director's right to hold such office terminates pursuant to such provisions,
whichever occurs earlier. Except as otherwise provided by the Board in the
resolution or resolutions establishing such series, whenever the holders of any
series of Preferred Stock having such right to elect additional directors are
divested of such right pursuant to the provisions of such stock, the terms of
office of all such additional directors elected by the holders of such stock, or
elected to fill any vacancies resulting from death, resignation,
disqualification or removal of such additional directors, shall forthwith
terminate and the total and authorized number of directors of the Corporation
shall be reduced accordingly. Notwithstanding the foregoing, whenever, pursuant
to the provisions of Article VI hereof, the holders of any one or
-7-
<PAGE>
more series of Preferred Stock shall have the right, voting separately as a
series or together with holders of other such series, to elect directors at an
annual or special meeting of stockholders, the election, term of office, filling
of vacancies and other features of such directorships shall be governed by the
terms of the Certificate of Incorporation.
Section E. Number of Directors Constituting the Board. The number of directors
------------------------------------------
that shall constitute the full Board, other than any directors elected by the
holders of any series of Preferred Stock as provided for or fixed pursuant to
the provisions of Article VI hereof, shall be fixed by the Bylaws of the
Corporation.
Section F. Election of Directors. The directors of the Corporation shall not
---------------------
required to be elected by written ballots unless the Bylaws of the Corporation
so provide.
ARTICLE IX
RESTRICTION ON BUSINESS COMBINATIONS
------------------------------------
The Corporation will be governed by Del. Code Ann. tit. 8, (S) 203 (1991).
ARTICLE X
DURATION OF CORPORATE EXISTENCE
-------------------------------
The Corporation is to have perpetual existence.
ARTICLE XI
DIRECTOR LIABILITY
------------------
No director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that this Article XI shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty
-8-
<PAGE>
to the Corporation or its stockholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under section 174 of Title 8 of the Delaware Code (the Delaware General
Corporation Law); or (iv) for any transaction from which the director derived an
improper personal benefit. In the event that the Delaware General Corporation
Law or any successor thereto is amended with respect to the permissible limits
of directors' liability, this Article XI shall be deemed to provide the fullest
limitation on liability permitted under such amended statute. Any repeal or
modification of this Article XI by the stockholders of the Corporation only
shall be applied prospectively, to the extent that such repeal or modification
would, if applied retrospectively, adversely affect any limitation on the
personal liability of a director of the Corporation existing immediately prior
to such repeal or modification.
ARTICLE XII
RESERVATION OF RIGHTS
---------------------
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute.
-9-
<PAGE>
THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose
of forming a corporation pursuant to the General Corporation Law of the State of
Delaware, does make this certificate, hereby declaring and certifying that the
facts herein stated are true, and accordingly has hereunto set his hand this
24th day of June, 1996.
By: /s/ Daniel J. Ramos
---------------------
-10-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
SNYDER COMMUNICATIONS, INC, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That by means of a written consent in lieu of a meeting of the
Board of Directors of Snyder Communications, Inc. resolutions were duly adopted
setting forth a proposed amendment to the Certificate of Incorporation of said
corporation, declaring said amendment to be advisable and resolving to submit
said amendment to the stockholders of said corporation at the annual meeting of
said corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of the Corporation be
amended by changing the Article thereof numbered IV so that, as amended, said
article shall be and read as follows:
CAPITAL STOCK
The Corporation shall have the authority to issue a total of 405,000,000
shares of capital stock, each with a par value of $0.001, consisting of
400,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock.
SECOND: That, thereafter,the annual meeting of the stockholders of said
corporation was duly held, upon notice in accordance with Section 222 of the
General Corporation Law of the State of Delaware at which meeting the necessary
number of shares as required by statute voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced under
or by reason of such amendment.
IN WITNESS WHEREOF, Snyder Communications, Inc. has caused this
certificate to be signed by Daniel M. Snyder, its Chairman of the Board of
Directors and Chief Executive Officer and David B. Pauken, its Secretary this
6th day of May, 1998.
By: /s/ Daniel M. Snyder
----------------------------------
Daniel M. Snyder
Chairman of the Board of Directors
and Chief Executive Officer
ATTEST: /s/ David B. Pauken
-------------------------------
David B. Pauken, Secretary
-1-
