<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K / A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
March 25, 1998
SNYDER COMMUNICATIONS, INC.
---------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 1-12145 52-1983617
-------- ------- ----------
(State or other jurisdiction (Commission File Number (I.R.S. Employer
of incorporation) Identification No.)
Two Democracy Center, 6903 Rockledge Drive
15th Floor, Bethesda, Maryland 20817
--------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(301) 468-1010
--------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
--------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
ARNOLD COMMUNICATIONS, INC.
Financial Statements
as of December 31, 1996 and 1997
Together with Auditors' Report
<PAGE>
Report of Independent Public Accountants
To the Stockholders of
Arnold Communications, Inc.:
We have audited the accompanying balance sheets of Arnold Communications, Inc.
(a Massachusetts corporation) as of December 31, 1996 and 1997, and the related
statements of income, stockholders' equity and cash flows for the years then
ended. 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of Arnold Communications, Inc. as
of December 31, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
As discussed in Note 1, on March 25, 1998, Snyder Communications, Inc. acquired
all of the outstanding common stock of Arnold Communications, Inc., which became
a wholly owned subsidiary of Snyder Communications, Inc.
/s/ Arthur Andersen
Boston, Massachusetts
April 9, 1998
1
<PAGE>
ARNOLD COMMUNICATIONS, INC.
Balance Sheets--December 31, 1996 and 1997
<TABLE>
<CAPTION>
ASSETS
1996 1997
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,082,397 $ 6,947,831
Accounts receivable, net of allowance for doubtful accounts of approximately 56,337,428 76,113,901
$118,000 and $297,000 in 1996 and 1997, respectively
Work-in-process 8,152,438 9,706,433
Prepaid expenses 1,141,424 560,515
----------- ------------
Total current assets 68,713,687 93,328,680
----------- ------------
Property and Equipment, Net 2,700,857 3,284,059
----------- ------------
Other Assets:
Restricted cash 670,435 1,266,545
Goodwill, net 1,804,077 1,665,651
Other intangible assets, net 2,208,191 3,650,226
Cash surrender value of officers life insurance policies 1,522,009 1,681,480
Notes receivable from employee 417,419 -
Other assets 33,482 -
----------- ------------
6,655,613 8,263,902
----------- ------------
Total assets $78,070,157 $104,876,641
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of promissory notes issued in conjunction with acquisitions $ 426,275 $ 278,060
Current portion of other long-term obligations 2,145,608 1,629,893
Accounts payable 54,860,335 77,679,390
Accrued expenses 1,504,387 4,496,277
Customer deposits 9,171,412 11,838,671
----------- ------------
Total current liabilities 68,108,017 95,922,291
----------- ------------
Net Liabilities of Discontinued Operations (Note 3) 1,702,700 -
Long-Term Obligations:
Promissory notes issued in conjunction with acquisitions, net of current portion 1,195,289 914,883
Other long-term obligations, net of current portion 4,735,908 4,557,563
----------- ------------
Total long-term obligations, net of current portion 5,931,197 5,472,446
----------- ------------
Commitments and Contingencies (Note 13)
Stockholders' Equity:
Common stock, no par value
Authorized--300,000 shares
Issued--75,963 shares 2,082,309 2,772,683
Retained earnings 3,076,035 2,951,516
Treasury stock, at cost--11,082 shares and 8,362 shares in 1996 and 1997, (2,830,101) (2,242,295)
respectively ----------- ------------
2,328,243 3,481,904
----------- ------------
$78,070,157 $104,876,641
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
ARNOLD COMMUNICATIONS, INC.
Statements of Income
for the Years Ended December 31, 1996 and 1997
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Revenues $71,630,180 $87,770,251
Costs and Expenses:
Cost of services 55,725,673 70,303,781
General and administrative expenses 10,652,132 14,281,876
----------- -----------
Income from operations 5,252,375 3,184,594
Interest Income 628,483 919,371
Interest Expense (733,583) (560,871)
----------- -----------
Income from continuing operations before provision for state income taxes 5,147,275 3,543,094
Provision for State Income Taxes 160,000 200,000
----------- -----------
Income from continuing operations 4,987,275 3,343,094
Loss from Discontinued Operations (1,497,716) (1,507,208)
----------- -----------
Net income $ 3,489,559 $ 1,835,886
=========== ===========
Historical Net Income per Share (Note 6):
Basic net income per share
Income from continuing operations $ 75.90 $ 49.36
=========== ===========
Loss from discontinued operations $ (22.79) $ (22.26)
=========== ===========
Net income $ 53.11 $ 27.11
=========== ===========
Diluted net income per share
Income from continuing operations $ 75.04 $ 48.63
=========== ===========
Loss from discontinued operations $ (22.54) $ (21.92)
=========== ===========
Net income $ 52.51 $ 26.71
=========== ===========
Pro Forma Net Income per Share (Unaudited) (Note 4):
Basic net income per share
Income from continuing operations $ 47.00 $ 31.39
=========== ===========
Loss from discontinued operations $ (13.68) $ (13.35)
=========== ===========
Net income $ 33.32 $ 18.04
=========== ===========
Diluted net income per share
Income from continuing operations $ 46.47 $ 30.93
=========== ===========
Loss from discontinued operations $ (13.52) $ (13.15)
=========== ===========
Net income $ 32.95 $ 17.77
=========== ===========
Weighted average common shares outstanding 65,706 67,723
=========== ===========
Weighted average common shares assuming dilution 66,461 68,745
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
ARNOLD COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK RETAINED TREASURY STOCK TOTAL
NUMBER NO EARNINGS NUMBER STOCKHOLDERS'
OF SHARES PAR VALUE OF SHARES AMOUNT EQUITY
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 75,963 $1,986,822 $ 489,476 5,077 $ (709,467) $ 1,766,831
Repurchase of common stock - - - 7,867 (2,595,444) (2,595,444)
Sale of common stock - 95,487 - (1,862) 474,810 570,297
Dividend distributions - - (903,000) - - (903,000)
Net income - - 3,489,559 - - 3,489,559
--------- ---------- ----------- ------ ----------- -----------
Balance, December 31, 1996 75,963 2,082,309 3,076,035 11,082 (2,830,101) 2,328,243
Repurchase of common stock - - - 812 (358,770) (358,770)
Stock option exercise - 2,210 - (55) 14,740 16,950
Issuance of common stock for acquisition - 688,164 - (3,477) 931,836 1,620,000
of North Castle Communications, Inc.
Distribution of net assets of Bob Woolf - - (45,337) - - (45,337)
Associates
Dividend distributions - - (1,915,068) - - (1,915,068)
Net income - - 1,835,886 - - 1,835,886
--------- ---------- ----------- ------ ----------- -----------
Balance, December 31, 1997 75,963 $2,772,683 $ 2,951,516 8,362 $(2,242,295) $ 3,481,904
========= ========== =========== ====== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
ARNOLD COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 3,489,559 $ 1,835,886
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization 2,269,998 2,558,352
Accrued interest on acquisition-related obligations 309,746 117,915
Changes in assets and liabilities, net of effects from acquisitions
Accounts receivable (25,023,975) (19,359,054)
Work-in-process (2,582,153) (1,553,995)
Prepaid expenses (152,197) 580,909
Accounts payable 23,445,740 21,919,055
Accrued expenses 564,213 2,991,890
Customer deposits 5,145,772 2,667,259
Other long-term liabilities (450,053) (209,869)
Net liabilities of discontinued operations 1,702,700 (1,702,700)
------------ ------------
Net cash provided by operating activities 8,719,350 9,845,648
------------ ------------
Cash Flows from Investing Activities:
Purchase of property and equipment (581,242) (840,952)
Increase in restricted cash (170,435) (596,110)
Increase in cash surrender value of life insurance policies (389,335) (159,471)
Decrease in other assets 41,527 33,482
Increase in other intangible assets - (18,159)
Cash paid in North Castle Communications, Inc. acquisition - (249,562)
------------ ------------
Net cash used in investing activities (1,099,485) (1,830,772)
------------ ------------
Cash Flows from Financing Activities:
Payment of line of credit (5,000,000) -
Payments on acquisition promissory notes (428,407) (479,300)
Proceeds from other long-term obligations 100,006 125,000
Payments on other long-term obligations (1,504,475) (1,492,917)
Dividend distributions to stockholders (903,000) (1,960,405)
Proceeds from issuance of common stock 570,297 -
Payments for repurchase of common stock - (358,770)
Proceeds from exercise of stock option - 16,950
------------ ------------
Net cash used in financing activities (7,165,579) (4,149,442)
------------ ------------
Net Increase in Cash and Cash Equivalents 454,286 3,865,434
Cash and Cash Equivalents, beginning of year 2,628,111 3,082,397
------------ ------------
Cash and Cash Equivalents, end of year $ 3,082,397 $ 6,947,831
============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for
Interest $ 491,280 $ 442,956
============ ============
Income taxes $ 92,112 $ 191,204
============ ============
Supplemental Disclosure of Noncash Investing and Financing Activities:
Purchase of equipment under capital lease $ 366,761 $ 816,490
============ ============
Issuance of note payable to acquire common stock $ 2,595,433 $ -
============ ============
Supplemental Disclosure of Noncash Investing Activity:
In connection with the acquisition of North Castle Communications, Inc.,
The following noncash transactions occurred
Fair value of assets acquired $ 2,769,562
Liabilities assumed (900,000)
Issuance of common stock (1,620,000)
------------
Cash paid, net of cash acquired $ 249,562
============
</TABLE>
5
<PAGE>
ARNOLD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) Operations and Organization of Business
Arnold Communications, Inc. (the Company), a Massachusetts corporation, is
an advertising agency with offices located in Massachusetts, California,
New York, Washington, D.C., Maryland, Michigan, Minnesota, Texas, Virginia,
Wisconsin, Pennsylvania, Ontario and British Columbia.
On March 25, 1998, Snyder Communications, Inc. (Snyder) acquired all of the
outstanding common stock of the Company, and the Company became a wholly
owned subsidiary of Snyder (the Merger). In exchange for the voting shares
of common stock of the Company, Snyder issued 2,779,171 shares of its
common stock with an aggregate price of approximately $113,241,000. Certain
of the Company's stockholders holding nonvoting shares of common stock
elected to not participate in the Merger and received approximately
$2,092,000 in cash in exchange for their stock. The Merger was accounted
for as a pooling of interests for accounting and financial reporting
purposes. In connection with the Merger, the Company's stock appreciation
rights were redeemed for shares of Snyder common stock (see Note 10 (e)).
The Company's outstanding stock options as of the date of the Merger were
exchanged for stock options in Snyder with identical terms to the Company's
outstanding stock options (see Note 10(f)).
(2) Acquisitions
The Company completed a total of seven acquisitions. Each of the
acquisitions has been accounted for as a purchase in accordance with
Accounting Principles Board (APB) Opinion No. 16. A description of each of
the acquisitions is as follows:
(a) Lawner Reingold Britton and Partners, Inc. (LRB)
On August 13, 1992, the Company purchased certain assets of LRB for a
purchase price of $1,400,000 plus the assumption of a lease, which
included rent in excess of the then-current market rate. The purchase
price consisted of $300,000 in cash paid at the closing, a $1,100,000
non-interest-bearing note payable to LRB and the assumption of
approximately $3,231,000, on a present value basis, of lease liability
incurred in conjunction with the above market rent on the LRB office
lease. In addition, the Company paid an additional $200,000 to LRB in
1996, as the Company's gross revenues exceeded certain levels, as
defined in the acquisition agreement during 1993.
(b) Cabot Communications, Inc. (Cabot)
On June 9, 1992, the Company purchased substantially all of the assets
and assumed certain liabilities of Cabot for a purchase price of
$1,000,000 and the assumption of a lease with certain space that had
been abandoned. The purchase price consisted of $617,000 in cash paid
at the closing, a $383,000 note payable and approximately $858,000, on
a present value basis, of assumed lease liability for space that was
abandoned. The assumed lease expired in June 1995.
6
<PAGE>
(c) Finnegan & Agee, Inc. (F&A)
On January 1, 1993, the Company purchased substantially all of the
assets and assumed certain liabilities of F&A for a purchase price of
$1,209,000.
(d) Hawley Martin Partners, Inc. (HM)
Effective June 30, 1993, the Company purchased all outstanding shares
of HM at a purchase price of approximately $786,000, consisting of
$524,000 paid at closing and a $262,000 interest-bearing note, paid in
July 1994. The Company also made noncompete payments to the former
owner of HM of $280,000 in 1994 and $560,000 in 1995.
(e) DDB Needham Worldwide, Inc. (DDB)
On July 1, 1993, the Company purchased certain assets of DDB for a
$180,000 interest-bearing note, payable in four annual installments of
$45,000, commencing in July 1993. In addition, the agreement calls for
additional payments based on a certain percentage of the division's
net income, if any, for each year through June 30, 1998. No amounts
were due under this provision for 1996 and 1997.
(f) Bob Woolf Associates, Inc. (BWA)
In May 1996, the Company purchased certain assets of BWA, a sports
management firm. The acquisition required a minimum purchase price of
$3,250,000 to be paid over six years assuming collection of the
installment accounts receivable acquired from Woolf. The assets
acquired consisted of $3,500,000 of accounts receivable and intangible
assets. The Company recorded the present value of the installment
accounts receivables, discounted at 6.83% over the term of the
receivables, at the time of the acquisition. In October 1997, the
Company distributed the BWA business to the Company's stockholders
(see Note 3).
(g) North Castle Communications, Inc. (NCCI)
In January 1997, the Company acquired all of the outstanding shares of
NCCI, an advertising agency, for a purchase price of $1,870,000,
payable by a $250,000 cash payment upon signing and the issuance of
3,477.28 shares of the Company's common stock. The Company also
entered into an employment agreement with the sole stockholder of the
acquired company.
7
<PAGE>
(h) Houston Herstek Favat, Inc. (Houston)
On January 13, 1998, the Company purchased all outstanding shares of
capital stock of Houston for a purchase price of approximately
$2,177,000. The purchase price is payable in cash of approximately
$638,000 at closing, the issuance of 210.9 shares of the Company's
nonvoting common stock, and the issuance of approximately $1,427,000
in notes payable to former shareholders of Houston. The acquisition
agreement provides for a contingent purchase price based on 40% of the
revenues of Houston clients in excess of $6,000,000 in 1998, such
amount not to exceed $300,000.
(3) Discontinued Operations
On October 24, 1997, the Board of Directors approved the disposition of the
sports management operations of the Company (acquired in May 1996), which
were carried on by BWA, as a wholly owned subsidiary. The disposition was
executed in the form of a dividend to the Company's stockholders of record
on October 31, 1997, whereby each stockholder received one share of BWA for
each share of the Company's common stock previously held. The book value of
BWA as of October 31, 1997 was $45,337, which represents the amount of the
dividend distribution.
The net losses of BWA prior to October 31, 1997 are included in the
accompanying statements of income as discontinued operations. Revenues from
BWA from May 1, 1996 through December 31, 1996 were approximately $275,000
and were approximately $2,037,000 for the ten months ended October 31,
1997.
The components of net liabilities of discontinued operations included in
the accompanying balance sheet at December 31, 1996 follows:
<TABLE>
<CAPTION>
AMOUNT
<S> <C>
Installment accounts receivable $ 2,274,455
Property and equipment 15,179
Accrued expenses (311,879)
Capital lease obligations (98,002)
Notes payable (2,487,987)
Amounts due to Arnold (1,094,466)
-----------
$(1,702,700)
===========
</TABLE>
8
<PAGE>
(4) Pro Forma Income Data (Unaudited)
The unaudited pro forma net income and net income 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
40% for all periods presented.
The table below presents this pro forma calculation of net income:
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Pro forma net income data (unaudited)
Historical income from continuing operations before $5,147,275 $3,543,094
income taxes
Pro forma provision for income taxes 2,059,000 1,417,000
---------- ----------
Pro forma income from continuing operations 3,088,275 2,126,094
Loss from discontinued operations, less applicable (898,716) (904,208)
---------- ----------
pro forma income tax benefit of $599,000 and
$603,000 for 1996 and 1997, respectively
Pro forma net income $2,189,559 $1,221,886
========== ==========
</TABLE>
(5) Summary of Significant Accounting Policies
The accompanying financial statements reflect the application of certain
accounting policies as described below and elsewhere in the notes to
financial statements.
(a) Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less at the time of acquisition to be cash
equivalents. Cash and cash equivalents primarily include overnight
repurchase agreements with a bank and highly liquid municipal bond
investments.
(b) Work-in-Process
The Company capitalizes costs for materials and services incurred in
the production of advertising projects that have not been billed to
the customer.
9
<PAGE>
(c) Depreciation and Amortization
The Company provides for depreciation and amortization using primarily
the declining-balance and straight-line methods by charges to
operations in amounts that allocate the cost of the property and
equipment over their estimated useful lives as follows:
ASSET CLASSIFICATION ESTIMATED USEFUL
LIFE
Computers and other equipment 35 years
Furniture and fixtures 57 years
Leasehold improvements Lesser of lease or
useful life
(d) Property and Equipment
Property and equipment are stated at cost, less accumulated deprecation
and amortization, and consist of the following:
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Computers and other equipment $ 3,956,694 $ 3,382,826
Furniture and fixtures 1,593,883 1,662,816
Leasehold improvements 1,549,739 1,930,797
----------- -----------
7,100,316 6,976,439
Accumulated depreciation and amortization (4,399,459) (3,692,380)
----------- -----------
$ 2,700,857 $ 3,284,059
=========== ===========
</TABLE>
(e) Goodwill and Other Intangible Assets
Other intangible assets include the purchase price paid in excess of
the identified tangible assets for the acquisitions, as discussed in
Note 2. These intangible assets primarily consist of customer lists.
Goodwill and other intangible assets are being amortized on a
straight-line basis over their estimated useful lives ranging from 12
to 20 years.
Also included in other intangible assets are amounts paid in
consideration for noncompete agreements. These costs are being
amortized on a straight-line basis over the terms of the noncompete
agreements of up to four and a half years.
10
<PAGE>
(f) Long-Lived Assets
The Company assesses the realizability of intangible assets in
accordance with Statement of Financial Accounting Standards (SFAS) No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets To Be Disposed Of. SFAS No. 121 requires, among other
things, that an entity review its long-lived assets and certain
related intangibles for impairment whenever changes in circumstances
indicate that the carrying amount of an asset may not be fully
recoverable. As a result of its review, the Company does not believe
that any impairment currently exists related to its long-lived assets.
(g) Revenue Recognition
The Company recognizes revenue as follows:
MEDIA PRODUCTION AND COLLATERAL DESIGN--As production jobs are
billed, in accordance with the terms of the contract.
DIRECT MARKETING, DESIGN AND SERVICE FEES--On a monthly basis, as
the fees are earned.
COMMISSIONS ON MEDIA SPACE--In the period in which the advertising
space is utilized.
(h) Management's Estimates
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.
(i) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk, requires disclosure of any significant
off-balance-sheet and credit risk concentrations. Financial
instruments that potentially subject the Company to concentration of
credit risk are principally cash equivalents. The Company places its
cash equivalents in highly rated financial instruments. One customer
accounted for 14% and 12% of revenues for the years ended December 31,
1996 and 1997, respectively. No other single customer accounted for
greater than 10% of revenues in 1996 and 1997.
11
<PAGE>
(j) Reclassification
Certain balances have been reclassified to conform with the current-
year presentation.
(6) Earnings per Share
During the year, the Company adopted SFAS No. 128, Earnings per Share. As a
result, all previous reported earnings per share have been restated. Basic
earnings per share was computed by dividing net income by the weighted
average number of common shares outstanding during the periods. Diluted
earnings per share was computed using the weighted average number of common
and common equivalent shares outstanding during the periods in accordance
with the treasury stock method.
A reconciliation of the shares used to compute basic and diluted earnings
per share follows:
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Basic weighted average shares outstanding 65,706 67,723
Weighted average common equivalent shares 755 1,022
--------- ---------
Diluted weighted average shares outstanding 66,461 68,745
========= =========
</TABLE>
(7) Revolving Line of Credit
The Company has a revolving line-of-credit agreement with a bank, which
expires in June 1998. The revolving credit agreement provides for advances
up to $10,000,000. Among other things, the agreement requires the Company
to meet certain restrictive covenants concerning net worth and debt service
coverage. As of December 31, 1997, the Company was in default of certain
financial reporting covenants for which the bank has not issued a waiver.
In addition, in connection with the Merger as discussed in Note 1, the
Company is also out of compliance with certain restrictive covenants. These
restrictive covenants require the Company to obtain bank approval for
significant changes in ownership. No approval has been received by the
Company. Advances under the revolving credit agreement are secured by all
assets of the Company. Interest is charged at the bank's prime rate (8.5%
at December 31, 1997) or LIBOR plus 1%. As of December 31, 1997, no amounts
were outstanding under the revolving credit agreement.
12
<PAGE>
(8) Promissory Notes Issued in Conjunction with Acquisitions
The Company issued promissory notes in conjunction with certain
acquisitions as discussed in Note 2. The notes were recorded at their
present value with effective interest rates ranging from 6% to 9%.
Future payments of these promissory notes are as follows:
<TABLE>
<CAPTION>
AMOUNT
<S> <C>
Year Ending
1998 $ 285,144
1999 285,144
2000 285,144
2001 285,144
2002 285,144
Thereafter -
----------
1,425,720
Less--Amount representing interest 232,777
----------
$1,192,943
==========
</TABLE>
(9) Other Long-Term Obligations
Other long-term obligations consist of the following as of December 31,
1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Notes payable to former stockholders $2,146,648 $1,604,022
Deferred compensation 1,583,817 1,789,062
Acquired lease obligations 976,869 250,055
Noncompete obligations 923,778 889,528
Obligations under capital leases, bearing interest from 8.0% to 15.8%, 713,390 1,013,153
payable in total monthly installments of principal and interest of
$73,325, maturing at various dates through November 2001
Deferred rent 467,105 641,636
Note payable to a stockholder 69,909 -
---------- ----------
6,881,516 6,187,456
Less--Current portion 2,145,608 1,629,893
---------- ----------
$4,735,908 $4,557,563
========== ==========
</TABLE>
13
<PAGE>
(a) Notes Payable to Former Stockholders
In 1995, the Company purchased 363.9 shares of its common stock from
two former employees in accordance with stock repurchase agreements
for $112,347. The Company paid $24,385 in cash and issued two notes.
Both notes were paid in full as of December 31, 1997.
During 1996, the Company purchased 7,867.3 shares of its common stock
from two former stockholders in accordance with stock repurchase
agreements for $2,595,444. The Company paid $486,245 and issued two
notes. One note for $1,374,038 bears interest at 5.73% and is due in
January 2001. The other note for $735,161 bears interest at 5.9% and
is due in May 1999.
(b) Deferred Compensation
The Company has several employment agreements, as discussed in Note
13(c), that provide for deferred compensation payments of various
amounts and terms through 2021. The majority of the payments are
contingent on the employees working the terms of their employment
agreements. The related expense for these agreements, on a present
value basis, is being recognized as earned. The Company recognized
approximately $362,000 and $409,000 of deferred compensation expense,
including interest charges related to these agreements in 1996 and
1997, respectively. The approximate annual payments required for these
deferred compensation agreements, assuming that all employees complete
the term of their employment agreements, are as follows:
<TABLE>
<CAPTION>
AMOUNT
<S> <C>
Year Ending
1998-2003 $ -
2004 999,000
2005 350,000
2006 2,500,000
Thereafter 3,800,000
----------
$7,649,000
==========
</TABLE>
The Company intends to fund these future payments through life
insurance policies, the cash surrender value of which totaled
approximately $1,195,000 and $1,249,000 at December 31, 1996 and 1997,
respectively, and are included in the accompanying balance sheets as
cash surrender value of officers life insurance policies.
14
<PAGE>
(c) Acquired Lease Obligations
In connection with certain acquisitions discussed in Note 2, the
Company assumed certain facility leases (i) requiring payments in
excess of the market rent at the dates of each acquisition or (ii)
which represented excess space; accordingly, the present value of
these amounts, discounted at 9%, has been recognized as a liability as
of the dates of each acquisition.
(d) Noncompete Obligations
Certain current and former executives of the Company have agreements
that provide for payments in consideration for not competing with the
Company for various periods once their employment terminates. The
present value of these payments, at interest rates of 8% to 9%, has
been recognized as an asset (see Note 5(e)) and a liability in the
accompanying balance sheets.
(e) Deferred Rent
The Company has a 10-year lease agreement for certain office space
expiring in 1999. The lease provides for base monthly rental payments
of $61,875 for the first five years and $67,700 for the second five
years of the lease term, plus the Company's pro rata share of the
building's operating expenses. The lease also provides for 22 months
to be rent-free. The Company has recorded rent expense based on the
straight-line amortization of the total expected lease payments and,
therefore, has accrued rent in the accompanying balance sheets equal
to the difference between rent expense recognized and actual cash
payments. In conjunction with a previous acquisition, the Company
abandoned a portion of this office space and entered into a new lease
for the former LRB space. Future expenses associated with the
abandoned lease, net of anticipated sublease revenues, have been
accounted for as an acquired lease obligation as discussed in Note
9(c).
(f) Note Payable to a Stockholder
In June 1995, the Company purchased 1,390.2 shares of common stock
from a stockholder in accordance with a stock repurchase agreement for
$374,644. The Company paid $234,827 in cash and issued a note payable
for $139,817. This note bears interest at a rate of 5.91%. As of
December 31, 1997, this note payable was paid in full.
15
<PAGE>
(g) Future Payments
Future payments of other long-term obligations are as follows:
<TABLE>
<CAPTION>
AMOUNT
Year Ending--
<S> <C>
1998 $ 1,764,620
1999 1,258,276
2000 659,185
2001 495,860
2002 189,674
Thereafter 8,105,500
-----------
12,473,115
Less--Amount representing interest and future compensation 6,285,659
-----------
$ 6,187,456
===========
</TABLE>
(10) Stockholders' Equity
(a) Common Stock
The Company's common stock consists of 200,000 shares of no par value
voting common stock and 100,000 shares of no par value nonvoting
common stock. At December 31, 1997, the Company had voting and
nonvoting common stock issued of 70,721 shares and 5,242 shares,
respectively. The Company had voting and nonvoting treasury stock of
10,617 and 465, respectively.
(b) Common Stock Buyback Agreement
In May 1994, the Board of Directors approved a stock repurchase plan
that pertained to any stockholder terminating employment with the
Company. Under such plan, shares were required to be repurchased by
the Company. The shares were valued based on a certain percentage of
gross income over a three-year period, less outstanding bank and
stockholder debt, as defined. Payment terms for repurchased stock may
vary based on total aggregate shares purchased over certain specified
periods and ranged from 1 to 10 years. In connection with the Merger
with Snyder, the provisions of this stock repurchase plan were
terminated.
16
<PAGE>
(c) Dividend Distributions
In the event that individual stockholders are allocated taxable
income, a distribution will be made to them by the Company in an
amount sufficient to pay the taxes related to this allocated income.
In 1996 and 1997, the Company distributed dividends totaling
approximately $903,000 and $1,915,000, respectively.
(d) Stock Purchase Rights
Several of the employment agreements discussed in Note 13(c) provide
the related executives with first right of refusal to purchase shares
being presented to the Company under the Common Stock Buyback
Agreement, as discussed above, at the then current fair value.
(e) Stock Appreciation Rights
Officers of certain divisions of the Company have stock appreciation
rights, payable in the event that the Company is sold, the respective
division is sold or the employee is terminated for reasons other than
cause. In the event of voluntary termination, an employee forfeits all
stock appreciation rights. In connection with the Merger with Snyder,
these stock appreciation rights became vested and exercisable and were
redeemed for an aggregate amount of approximately $3,484,000 payable
in the form of shares of Snyder common stock, which the Company
recorded as a compensation charge in its 1998 financial statements.
(f) Stock Option Plan
In June 1995, the Company adopted the Arnold Communications, Inc.
Incentive Stock Plan (the Plan). The Plan enables options to be
granted to purchase shares of common stock at the fair market value on
the date of the grant and at not less than 100% of fair market value
on the date of grant for optionees who are 10% stockholders. Vesting
terms are set at the discretion of the Board of Directors. Options
expire after 10 years. The Company has reserved 10,000 common shares
for issuance under the Plan.
17
<PAGE>
Activity under the Option Plan is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE WEIGHTED
SHARES AVERAGE
OPTION PRICE
<S> <C> <C> <C>
Outstanding, December 31, 1995 994 $ 186 $ 186
Granted 1,070 306 306
----- ------------- -------
Outstanding, December 31, 1996 2,064 186--306 247
Exercised (55) 306 306
----- ------------- -------
Outstanding, December 31, 1997 2,009 $ 186--306 $ 247
===== ============= =======
Exercisable, December 31, 1997 1,213 $ 186--306 $ 287
===== ============ =======
</TABLE>
In connection with the Merger with Snyder, all outstanding options to
purchase common stock of the Company were exchanged for options to
purchase common stock of Snyder with identical terms to the Company's
outstanding stock options.
(g) Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-
Based Compensation, which requires the measurement of the fair value
of stock options or warrants to be included in the statement of income
or disclosed in the notes to the financial statements. The Company has
determined that it will continue to account for stock-based
compensation for employees under Accounting Principles Board Opinion
No. 25 and elect the disclosure-only alternative under SFAS No. 123.
The Company has computed the pro forma disclosure required under SFAS
No. 123 for its stock compensation plan during the years ended
December 31, 1996 and 1997 using the Black-Scholes option pricing
model under the fair value method prescribed by SFAS No. 123. The
assumptions used for the year ended December 31, 1996 are as follows:
dividend yield of zero; expected volatility of 65%; risk-free interest
rate of 6.18%; and an expected term of five years. Assumptions for
1997 have been omitted, as the Company did not grant options in 1997.
The estimated weighted average fair value of options granted in 1996
was $184.78. At December 31, 1997, the weighted average remaining
contractual life of options outstanding was 7.51 years.
18
<PAGE>
For the purposes of pro forma disclosure, the estimated fair value of
options is amortized over the vesting period. Had compensation costs
for options been determined based on the fair value at the grant dates
as prescribed by SFAS No. 123, the effect (exclusive of the pro forma
income tax effects described in Note 4) would have been as follows:
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Net income
As reported-- $ 3,489,559 $ 1,835,886
Pro forma 3,290,881 1,824,684
Net income per share--
As reported, diluted $ 52.51 $ 26.71
Pro forma, diluted 49.52 26.54
</TABLE>
(11) Income Taxes
The Company has elected to be treated as a Subchapter S corporation for
federal and state income tax purposes. Under this election, for federal
income taxes and certain state income taxes, the taxable income of the
Company is reported by the stockholders of the Company on their personal
income tax returns. Accordingly, no provision for federal income taxes has
been made in the accompanying statements of income.
As required by SFAS No. 109, Accounting for Income Taxes, the Company
utilizes the liability method of accounting for certain state income taxes
as discussed below.
The Commonwealth of Massachusetts imposes Massachusetts income taxes on S
corporations with revenues in excess of $6 million. Certain other states in
which the Company does business may not recognize the pass-through nature
of S corporations. During 1996 and 1997, the Company recorded approximately
$160,000 and $200,000, respectively, of income tax expense for certain
states, including Massachusetts.
(12) 401(k) and Profit Sharing Plan
The Company has a deferred compensation and profit sharing plan. The plan
covers all employees with one year or more of service. Eligible employees
are permitted to contribute up to 10% of gross compensation. The Company
will match 20% of the first 5% of employee compensation. The employer
contribution is contingent on available profits. In addition to these
employer matching contributions, the Company reserves the right to make
discretionary contributions based on the Company's profitability.
Contributions of approximately $184,000 and $280,000 were made by the
Company in 1996 and 1997, respectively.
19
<PAGE>
(13) Commitments and Contingencies
(a) Letters of Credit
The Company has letters of credit to a bank and a landlord. The bank
letters of credit are secured by compensating balances totaling
approximately $1,267,000 as collateral. The letters of credit to a
bank are renewable annually and interest is charged at a rate of 1.25%
per year. These amounts have been recorded as restricted cash in the
accompanying balance sheet. The letter of credit to a landlord is
automatically renewable on an annual basis for $2,200,000 as a
security deposit for a lease.
(b) Leases
The Company leases certain facilities and equipment under operating
and capital leases. Minimum annual lease payments for all facility
leases and equipment leases at December 31, 1997, exclusive of the
acquired lease obligations discussed in Note 9(c) and capital leases,
are as follows:
<TABLE>
<CAPTION>
AMOUNT
<S> <C>
Year Ending
1998 $ 9,687,000
1999 9,343,000
2000 8,748,000
2001 7,815,000
2002 7,214,000
Thereafter 8,560,000
------------
$ 51,367,000
============
</TABLE>
The accompanying statements of income for the years ended December 31,
1996 and 1997 include approximately $6,572,000 and $6,785,000 of rent
expense, respectively.
(c) Employment and Consulting Agreements
The Company has entered into employment and consulting agreements with
numerous key executives and former executives that call for guaranteed
minimum salaries and bonuses for varying terms through 2001. The cost
of these agreements is expensed as services are rendered.
20
<PAGE>
Certain of the agreements provide for deferred compensation to be paid
to the executives, as discussed in Note 9(b). Annual payments required
under these employment and consulting agreements, exclusive of the
deferred compensation payments, are as follows:
<TABLE>
<CAPTION>
AMOUNT
<S> <C>
Year Ending
1998 $ 2,569,000
1999 702,000
2000 450,000
2001 450,000
2002 450,000
Thereafter -
------------
$ 4,621,000
============
</TABLE>
Numerous of the above agreements provide for bonus payments if certain
levels of profitability are achieved by the Company or certain of its
divisions.
(d) Litigation
From time to time, the Company is involved in other disputes and/or
litigation encountered in its normal course of business. The Company
does not believe that the ultimate impact of the resolution of such
other outstanding matters will have a material effect on the Company's
financial condition or results of operations.
21
<PAGE>
(B) Pro forma financial information.
The Registrant's consolidated financial statements, which have been
retroactively restated to reflect the combined financial position and
combined results of operations and cash flows of the Registrant and Arnold,
on pages 23 - 50 of the Current Report on Form 8-K dated March 31, 1998 and
filed with the Securities and Exchange Commission on May 5, 1998 are
incorporated herein by reference in response to this item.
(C) Exhibits.
*2.1 Agreement and Plan of Merger by and among Snyder Communications,
Inc., Snyder AR Acquisition, LLC, Arnold Communications, Inc. and the
Stockholders of Arnold Communications, Inc.
23.1 Consent of Arthur Andersen LLP.
*99.1 Press Release issued on March 26, 1998.
- --------------------
*Previously filed.
<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
Date: May 15, 1998 By: /s/ A. CLAYTON PERFALL
--------------------- --------------------------
A. Clayton Perfall
Chief Financial Officer
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 8-K into the Company's previously filed
Registration Statements File Nos. 333-13079, 333-33829 and 333-50929.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 14, 1998
