<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 June 30, 1997
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)
Delaware 52-1983617
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation or
organization)
Two Democracy Center
6903 Rockledge Drive
15th Floor 20817
Bethesda, Maryland (Zip Code)
(Address of principal
executive office)
(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--46,110,080 shares outstanding as of August 8,
1997.
<PAGE>
SNYDER COMMUNICATIONS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet--December 31, 1996 and June 30, 1997. 3
Condensed Consolidated Statement of Operations--Three months ended June 30, 1996
and 1997; Six months ended June 30, 1996 and 1997. 4
Condensed Consolidated Statement of Cash Flows--Six months ended June 30, 1996
and 1997. 5
Notes to Condensed Consolidated Financial Statements--June 30, 1997. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
PART II. OTHER INFORMATION
Item 2. Changes in Securities 12
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Snyder Communications, Inc.
Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
---------------- ----------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and equivalents $ 53,475,047 $ 31,308,162
Accounts receivable, net of allowance for
doubtful accounts of $779,863 and $1,067,461 at
December 31, 1996 and June 30, 1997, respectively 20,353,637 31,839,874
Unbilled services 3,823,608 3,324,821
Inventory 763,284 695,970
Deferred tax asset 1,323,921 2,457,286
Prepaid expenses and other assets 2,073,625 2,396,199
---------------- ----------------
Total current assets 81,813,122 72,022,312
Property and equipment, net 17,315,877 21,665,010
Goodwill 3,386,861 8,692,367
Deposits and other assets 2,077,682 659,542
---------------- ----------------
Total assets $ 104,593,542 $ 103,039,231
================ ================
Liabilities and Equity
Current liabilities:
Lines of credit $ 2,294,522 $ 619,183
Current obligations under capital leases 1,108,954 1,026,698
Accounts payable and accrued expenses 27,862,386 32,583,809
Accrued payroll 5,175,719 2,570,887
Unearned revenue 4,641,998 4,664,081
---------------- ----------------
Total current liabilities 41,083,579 41,464,658
Deferred income taxes 170,817 2,763,120
Deferred rent 88,718 89,811
Brann Holdings Limited mandatorily redeemable
preferred stock, held by related parties 5,110,241 -
Long-term debt and obligations under capital leases 8,043,172 1,134,194
---------------- ----------------
Total liabilities 54,496,527 45,451,783
Equity:
Preferred stock, $.001 par value, 5,000,000 shares authorized, none
issued and outstanding at December 31, 1996 and June 30, 1997 - -
Common stock, $.001 par value, 120,000,000 shares authorized,
37,226,214 and 37,932,644 shares issued and oustanding at
December 31, 1996 and June 30, 1997, respectively 37,226 37,933
Additional paid-in capital 46,006,027 62,591,290
Retained earnings (deficit) 3,759,015 (5,269,056)
Cumulative foreign currency translation adjustment 294,747 227,281
---------------- ----------------
Total equity 50,097,015 57,587,448
---------------- ----------------
Total liabilities and equity $ 104,593,542 $ 103,039,231
================ ================
</TABLE>
The accompanying notes are an integral part of this
condensed consolidated balance sheet.
3
<PAGE>
Snyder Communications, Inc.
Condensed Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------------- ---------------------------------
1996 1997 1996 1997
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 44,249,431 $ 54,479,966 $ 84,755,353 $ 103,533,084
Operating expenses:
Cost of services 33,389,867 38,737,353 63,680,597 73,786,222
Selling, general and administrative expenses 8,096,622 10,074,603 15,019,472 19,275,682
Compensation to stockholders 449,174 -- 906,153 --
Acquisition costs -- -- -- 16,181,134
------------ ------------ ------------- -------------
41,935,663 48,811,956 79,606,222 109,243,038
------------ ------------ ------------- -------------
Income (loss) from operations 2,313,768 5,668,010 5,149,131 (5,709,954)
Interest expense (540,614) (108,378) (1,050,404) (409,151)
Interest income 36,544 344,889 110,837 882,372
------------ ------------ ------------- -------------
Income (loss) before taxes 1,809,698 5,904,521 4,209,564 (5,236,733)
Income tax provision 58,031 2,449,786 86,337 3,791,338
------------ ------------ ------------- -------------
Net income (loss) $ 1,751,667 $ 3,454,735 $ 4,123,227 $ (9,028,071)
============ ============ ============= =============
Pro forma income data (unaudited):
Historical income before taxes as reported $ 1,809,698 $ 4,209,564
Pro forma provision for income taxes (805,678) (1,874,098)
------------ -------------
Pro forma net income $ 1,004,020 $ 2,335,466
============ =============
Net income (loss) per share:
Net income (loss) as reported $ 0.05 $ 0.09 $ 0.13 $ (0.24)
Pro forma adjustment (0.02) -- (0.06) --
------------ ------------ ------------- -------------
Net income (loss) per share $ 0.03 $ 0.09 $ 0.07 $ (0.24)
============ ============ ============= =============
Shares used in computing net income per share 33,163,052 38,676,410 33,163,052 37,543,890
============ ============ ============= =============
</TABLE>
The accompanying notes are an integral part of this
condensed consolidated financial statement.
4
<PAGE>
Snyder Communications, Inc.
(See Note 1)
Condensed Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30, 1997
-----------------------------
1996 1997
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,123,227 $ (9,028,071)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 563,367 2,981,051
Noncash expense from accelerated vesting of Brann
Holdings, Ltd. options -- 9,096,899
Loss on disposal of assets -- 396,749
Other non-cash expenses (401,207) 181,912
Changes in assets and liabilities:
Accounts receivable (3,184,467) (11,255,024)
Deposits and other assets (2,133,989) 954,548
Prepaid expenses and other assets (417,156) (322,574)
Accrued payroll, accounts payable and accrued expenses 7,199,162 3,268,442
Unearned revenue 961,664 22,083
Unbilled services (2,370,780) 498,787
----------- ------------
Net cash provided by (used in) operating activities 4,756,977 (2,882,624)
----------- ------------
Cash flows from investing activities:
Purchases of property and equipment (1,512,112) (7,832,673)
Purchase of Good Neighbor -- (4,148,790)
Note and net advances to stockholders 45,426 --
----------- ------------
Net cash used in investing activities (1,466,686) (11,981,463)
----------- ------------
Cash flows from financing activities:
Redemption of Brann Holdings,
Ltd. mandatorily redeemable preferred stock -- (5,110,241)
Repayment of note payable (144,837) (6,316,777)
Distributions and dividends (7,504,376) (1,087,734)
Net borrowings from line of credit (996,521) (1,675,339)
Payments on capital lease obligations -- (674,456)
Proceeds from exercise of options -- 7,257,858
----------- ------------
Net cash used in financing activities (8,645,734) (7,606,689)
----------- ------------
Effect of exchange rate changes (386,984) 303,891
Net decrease in cash and equivalents (5,742,427) (22,166,885)
Cash and equivalents, beginning of period 9,033,620 53,475,047
----------- ------------
Cash and equivalents, end of period $ 3,291,193 $ 31,308,162
=========== ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 823,158 $ 331,836
Cash paid for income taxes $ 56,410 $ 1,680,575
Supplemental disclosure of noncash activities:
Equipment purchased during the period under
capital leases $ 641,893 --
Distribution of note receivable from stockholder
to SMS stockholders $ 2,725,000 --
</TABLE>
The accompanying notes are an integral part of this condensed
consolidated financial statement.
5
<PAGE>
Snyder Communications, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 1997
(Unaudited)
1. Recent Acquisitions:
The accompanying condensed consolidated financial statements include the
combined financial position and combined results of operations and cash flows of
Snyder Communications, Inc., MMD Inc. (acquired in January 1997), and Brann
Holdings Limited (acquired in March 1997). See Note 2 for additional information
regarding organization and basis of presentation. Subsequent to June 30, 1997,
the Company acquired American List Corporation, Bounty Group Holdings Limited
and Sampling Corporation of America in transactions that had been accounted for
as pooling of interests for accounting and financial reporting purposes. These
acquisitions subsequent to June 30, 1997 are discussed in further detail in
Note 7.
The following unaudited pro forma financial data of the Company assumes the
business combinations with American List, Bounty, and SCA had occurred at the
beginning of each of the periods presented.
Pro forma financial data:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1996 1997 1996 1997
------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Revenues $55,427,711 $69,578,463 $106,340,926 $ 132,629,570
Operating Expenses:
Cost of Services 38,609,128 45,610,708 73,302,856 86,862,270
Selling, general and administrative 11,655,189 14,464,940 21,768,051 28,035,396
Compensation to stockholders 449,174 -- 906,153 --
Acquisition costs -- -- -- 16,181,134
------------- --------------- ---------------- ---------------
Income from operations 4,714,220 9,502,815 10,363,866 1,550,770
Interest expense (956,913) (457,172) (1,839,458) (1,149,690)
Interest income 166,583 439,650 370,655 1,065,464
------------- --------------- ---------------- ---------------
Income before taxes 3,923,890 9,485,293 8,895,063 1,466,544
Pro forma provision for income taxes (a) 1,663,729 3,813,088 3,768,838 6,341,275
------------- --------------- ---------------- ---------------
Pro forma net income $2,260,161 $ 5,672,205 $ 5,126,225 $ (4,874,731)
============= =============== ================ ===============
Pro forma net income per share $ 0.05 $ 0.12 $ 0.12 $ (0.11)
============= =============== ================ ===============
Pro forma net income excluding non recurring
acquisition costs $2,260,161 $ 5,672,205 $ 5,126,225 $ 10,557,403
============= =============== ================ ===============
Proforma net income per share excluding non
recurring acquisition costs $ 0.05 $ 0.12 $ 0.12 $ 0.23
============= =============== ================ ===============
(a) Calculated as if all operations of the Company are taxable as a C corporation.
</TABLE>
2. Organization and Basis of Presentation:
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. ("SCI"), 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, SCI owns 100 percent of the stock of SMS and
directly and indirectly (through its ownership of SMS), 100 percent of the
interests in the Partnership. Because of the continuity of ownership, the
Reorganization was accounted for by combining the assets, liabilities and
operations of SMS, the Partnership, and SCI at their historical cost basis.
On January 6, 1997, SCI acquired MMD, Inc. ("MMD") in a merger transaction
in which MMD became a wholly owned subsidiary of SCI. In this transaction, 966
shares of outstanding MMD common stock were converted into 1,354,500 shares of
SCI common stock. In addition, on March 27, 1997, SCI acquired Brann Holdings
Limited ("Brann") in a merger transaction in which Brann became a wholly owned
subsidiary of SCI. In this transaction, 339,000 shares of outstanding Brann
common stock were converted into 2,350,152 shares of SCI common stock, while
63,850 Brann options, which were fully vested and immediately exercisable, were
converted into 389,730 SCI options with similar terms. Collectively, the MMD and
Brann business combinations will be referred to herein as the "Mergers". The
Mergers have been accounted for as pooling of interests for accounting and
financial reporting purposes. 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 SCI, MMD and Brann
for all periods presented, giving effect to the Mergers 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 sheets
for all periods presented give effect to the conversion of the shares of MMD and
Brann common stock to 3,704,652 shares of SCI common stock. Certain amounts
previously presented have been reclassified to conform to the June 30, 1997
presentation.
The following details revenues and net income (loss) for the six months
ended June 30, 1997 of the Company and the previously separate entities of MMD
and Brann (the "Pooled Entities") through the dates of their respective mergers.
<TABLE>
<CAPTION>
For the six months
ended June 30, 1997
-------------------
<S> <C>
Revenues:
The Company $ 87,564,859
Pooled Entities 15,968,225
------------
$ 103,533,084
============
Net income (loss):
The Company $ (9,029,412)
Pooled Entities 1,341
------------
$ (9,028,071)
============
</TABLE>
6
<PAGE>
On January 17, 1997 the Company acquired Good Neighbor Direct, Inc. ("Good
Neighbor") for approximately $4,150,000 in cash. The acquisition of Good
Neighbor was accounted for as a purchase for accounting and financial reporting
purposes. The acquisition of Good Neighbor did not have a material impact on the
Company's results of operations or financial condition during the six months
ended June 30, 1997.
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 accruals accept as
discussed in note 3) 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 June 30, 1996 and 1997 and for the periods then ended.
Operating results for the six month period ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. The unaudited condensed consolidated financial statements
should be read in conjunction with the financial statements and footnotes
thereto included in the Company's Registration Statement on Form S-4
(Registration No. 333-29469) as filed with the Securities and Exchange
Commission.
3. Acquisition Costs:
The Company recorded approximately $16.2 million in nonrecurring acquisition
costs during the six months ended June 30, 1997. The acquisition costs are costs
directly related to the consummation of the Company's Mergers. These costs
include primarily investment banking fees, other professional service fees,
certain United Kingdom excise and transfer taxes, as well as a non-cash charge
of approximately $9.1 million related to the accelerated vesting of the options
held by Brann employees.
4. Income Taxes:
The Company's effective tax rate for the six months ended June 30, 1997
differs from the Federal statutory rate due primarily to the nondeductibility of
nonrecurring acquisition costs, state income taxes, and different tax rates in
the United Kingdom.
5. Pro Forma Income Data:
Prior to the Reorganization, no provision for Federal or state income taxes
related to income earned by the Partnership was recorded because each of the
partners of the Partnership reflected their share of the Partnership's net
income on their respective tax returns. Also, for the period from January 1,
1996 until the Reorganization, SMS had elected to be treated for Federal and
certain State income tax purposes as an S corporation. Effective with the
Reorganization, SCI has been treated as a C corporation for Federal and State
income tax purposes. MMD also operated as an S corporation from 1994 until the
date of its merger in January 1997. The pro forma income data in the Condensed
Consolidated Statement of Operations includes a provision for Federal and state
income taxes as if all operations of the Company had been taxed similar to a C
corporation for the six months ended June 30, 1996.
6. New Accounting Pronouncements:
During February 1997, the Financial Accounting Standards Board Issued
Statements of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings Per
Share". This statement is effective for years ending after December 15, 1997 and
will be implemented by the Company in its December 31, 1997 financial
statements. SFAS 128 requires primary earnings per share ("EPS") to be replaced
with basic EPS. Primary EPS is computed by dividing reported earnings available
to common stockholders by the weighted average number of shares outstanding
without consideration of common stock equivalents or other potentially dilutive
securities. Fully diluted EPS, now called diluted EPS is still included. The
Company adopted its current stock option plan in September 1996, and prior to
that time there was limited stock option activity. Therefore, management does
not expect the effect of this pronouncement to materially impact the computation
of basic EPS for 1996. However, in 1997 and future years, when the Company's
options are outstanding for the entire year, management has estimated that the
Company's reported EPS will be higher under SFAS 128 than under the old EPS
standard. SFAS 128 will not materially impact
7
<PAGE>
the Company's EPS reported for the six months ended June 30, 1997 because the
Company's common stock equivalents were anti dilutive for the six months ended
June 30, 1997.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). This statement is effective for years ending after December 15, 1997 and
will be implemented by the Company in its December 31, 1997 financial
statements. SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. Management is currently evaluating the impact of SFAS 130.
7. Subsequent Events:
On July 11, 1997, the Company completed the acquisition of American List
Corporation ("American List"), which 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 this acquisition, the Company issued
5,032,322 shares of common stock in exchange for all of the issued and
outstanding stock of American List. On July 13, 1997, the Company acquired
Bounty Group Holdings Limited ("Bounty"), a UK based product sampling and
fulfillment company. In this acquisition, the Company issued 1,483,240 shares of
common stock in exchange for all of the issued and outstanding stock of Bounty
and redeemed all of Bounty's outstanding long-term debt, including mandatorily
redeemable preference shares for approximately $11.7 million in cash. In
addition, on July 14, 1997, the Company acquired Sampling Corporation of America
("SCA"), a leading provider of targeted sampling programs for the Fortune 500.
In this acquisition, the Company issued 1,549,172 shares of common stock in
exchange for all of the issued and outstanding stock of SCA. These acquisitions
have been accounted for as pooling of interests for accounting and financial
reporting purposes. The Company anticipates that it will record approximately
$16.8 million in nonrecurring acquisition costs during the quarter ended
September 30, 1997 related to the consummation of these acquisitions.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the Condensed
Consolidated Financial Statements of the Company and the accompanying notes
thereto included elsewhere in this Quarterly Report on Form 10-Q.
This Management's Discussion and Analysis of Financial Condition and Results
of Operations contains certain "forward-looking statements" (within the meaning
of the Private Securities Litigation Reform Act of 1995). Such statements
involve known and unknown risks, uncertainties and other factors that may cause
actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements.
Overview
The Company has experienced significant growth through both the expansion of
its existing services and client relationships as well as the addition of new
services and the development of new relationships. The Company completed three
strategic acquisitions during the six months ended June 30, 1997 and completed
three additional strategic acquisitions subsequent to June 30, 1997 which are
discussed further in "Recent Acquisitions". The Company's strategy for the
operations of its acquirees is to integrate the sales effort and certain
corporate services provided. The Company expects the synergies created will
increase its opportunities and strengthen customer relationships. Historically,
the Company has not attempted to integrate the infrastructures of its acquirees
and does not expect to incur material costs to integrate its acquirees'
operations in the future.
The Company acquired MMD in January 1997 in a merger transaction, which was
accounted for as a pooling of interests for accounting and financial reporting
purposes. In the acquisition, the Company issued 1,354,500 shares of common
stock for all of the issued and outstanding shares of capital stock of MMD. The
total consideration paid in connection with the acquisition was valued at
approximately $35.4 million. MMD provides outsourced medical sales and marketing
services and has over 1,200 detailing representatives conducting sales and
marketing programs for some of the world's premier pharmaceutical companies.
The Company acquired Brann in March 1997 in a share exchange, which was
accounted for as a pooling of interests for accounting and financial reporting
purposes. In the acquisition, the Company issued 2,350,152 shares of common
stock and 389,730 options to purchase shares of common stock in exchange for all
of the issued and outstanding ordinary shares and options to purchase ordinary
shares of Brann, respectively. In addition, all of Brann's outstanding
redeemable shares, valued at approximately $5.0 million, including accrued
dividends through March 21, 1997, were redeemed for cash. The total
consideration paid in connection with the acquisition was valued at
approximately $77.8 million. Brann is a leading provider of integrated targeted
marketing services in the United Kingdom, and it offers a full range of
creative, telemarketing and database services to over 70 large companies,
government agencies and charitable organizations.
The Company purchased Good Neighbor in January 1997 for approximately $4.2
million in cash. Good Neighbor provides marketing services through information
centers located in over 7,000 retail outlets.
Results of Operations
Revenues increased $10.3 million, or 23.3%, from $44.2 million in the second
quarter of 1996 to $54.5 million in the second quarter of 1997. For the six
months ended June 30, 1997 revenues of $103.5 million were 22.2% greater than
the same period in 1996. The increase in revenues for the quarter ended June 30,
1997 and for the six months ended June 30, 1997 was due principally to increased
sales volumes in the Direct Services, Medical Services and Media and Sampling
Services groups. Revenues increased in the Direct Services group primarily as a
result of to increased sales related to AT&T consumer contract. Increased
revenues in the Medical Services group resulted primarily from the commencement
of services under a new contract, as well as two contracts which were fully
operational during the six months
9
<PAGE>
ended June 30, 1997, but for which services began in March 1996 for one and in
July 1996 for the other. Revenues in the Media and Sampling Services group
increased due to the growth of existing products and programs as well as through
the generation of revenues from the Good Neighbor information centers which were
acquired in January 1997.
Cost of services increased $5.3 million from $33.4 million in the second
quarter of 1996 to $38.7 million in the second quarter of 1997. Cost of services
as a percentage of revenues decreased from 75.5% in the second quarter of 1996
to 71.1% in second quarter of 1997, and from 75.1% for six months ended June 30,
1996 to 71.3% for the six months ended June 30, 1997. Cost of services as a
percentage of revenues decreased because the additional management and client
support personnel employed in 1996 were able to support increased client
services in 1997. Also, the recognition of deferred revenue in the first quarter
of 1997 in accordance with the terms of a completed contract contributed to the
decrease in cost of services as a percentage of revenues for the six months
ended June 30, 1997.
Selling, general and administrative expenses combined with compensation to
stockholders increased $1.6 million from $8.5 million in the second quarter of
1996 to $10.1 million in the second quarter of 1997. For the six months ended
June 30, 1997, selling, general and administrative expenses combined with
compensation to stockholders was $19.3 million, an increase of $3.4 million from
the same period in 1996. The increase in selling, general and administrative
expenses is due primarily to additional personnel expenses. During 1996, the
Company established human resources and information systems departments and
expanded its finance department. The increase in corporate personnel occurred
throughout 1996, and therefore, there are more corporate personnel employed in
the six months ended June 30, 1997 than in the six months ended June 30, 1996.
Selling, general and administrative expenses combined with compensation to
stockholders as a percentage of revenue decreased from 19.3% in the second
quarter of 1996 to 18.5% in the second quarter of 1997, and from 18.8% for the
six months ended June 30, 1996 to 18.6% for the six months ended June 30, 1997.
Selling, general and administrative expenses combined with compensation to
stockholders decreased as a percentage of revenues because the additional
corporate personnel employed during 1996 were able to support increased
operations during 1997.
The Company recorded $16.2 million in nonrecurring acquisition costs during
the six months ended June 30, 1997. These costs are directly related to the
acquisitions of MMD in January 1997 and Brann in March 1997. They include
primarily banking fees, other professional service fees, certain United Kingdom
excise and transfer taxes, as well as a noncash charge of approximately $9.1
million related to the accelerated vesting of options held by Brann employees.
Interest expense decreased $0.4 million to $0.1 million in the second
quarter of 1997 from $0.5 million in the second quarter of 1996. For the six
months ended June 30, 1997, interest expense was $0.4 million, a $0.6 million
decrease from the same period in 1996. Interest expense decreased primarily due
to the repayment in full of the subordinated debentures due to related parties
in October 1996 with proceeds from the offering.
Interest income was $0.3 million in the second quarter of 1997 and $0.9
million for the six months ended June 30, 1997 as compared to $0.1 million for
the six months ended June 30, 1996. Interest income increased due to the balance
of funds available for investment, primarily the proceeds from the initial
public offering in September 1996.
The Company recorded a $2.4 million tax provision and net income of $3.5
million or $ 0.09 per share in the second quarter of 1997. For the six months
ended June 30, 1997, the Company recorded a $3.8 million tax provision
consisting of a $4.5 million provision for the $10.9 million in income from
recurring operations and interest and a benefit of $0.7 million related to the
$16.2 million of nonrecurring acquisition costs. The Company's effective tax
rate for the six months and quarter ended June 30, 1997 differs from the Federal
statutory rate due primarily to the nondeductibility of certain of the
acquisition costs and state income taxes. The nonrecurring acquisition costs of
$16.2 million also resulted in a net loss of $ 9.0 million for the six months
ended June 30, 1997. Without the nonrecurring acquisition costs, the Company
would have recorded net income of $6.4 million or $0.17 per share for the six
months ended June 30, 1997.
10
<PAGE>
Liquidity and Capital Resources
At June 30, 1997, the Company had $31.3 million in cash and equivalents.
Cash and equivalents decreased $22.2 million during the six months ended June
30, 1997. Operating activities used $2.9 million in cash due primarily to the
net loss recorded from the nonrecurring acquisition costs. Investing activities
used $12.0 million in cash due to the $7.8 million used for purchases of
personal property and equipment and the $4.2 million purchase of Good Neighbor.
Financing activities used $7.6 million in cash due to the $13.8 million used to
repay debt and other obligations and the $1.1 million used to pay dividends and
distributions to stockholders of the Pooled Entities prior to their mergers with
SCI, offset by the $7.3 million in proceeds from the exercise of stock options.
The Company expects to continue to grow through both internal expansion and
complementary acquisitions. The Company believes that its cash and equivalents
as well as cash provided by operations will be sufficient to fund its current
operations and planned capital expenditures. Acquisitions will initially be
financed using the Company's excess cash and equivalents, but depending on the
amount necessary to complete an acquisition, additional funding may be required.
Recent Acquisitions
In July 1997, the Company acquired American List in a merger transaction
which was accounted for as a pooling of interests for accounting and financial
reporting purposes. In the acquisition, the Company issued 5,032,322 shares of
common stock for all of the issued and outstanding shares of capital stock of
American List. The total consideration paid in connection with the acquisition
was valued at approximately $132.1 million. 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 United
States.
In July 1997, the Company acquired SCA and Bounty, both of which provide
targeted product sampling services, in separate transactions each of which was
accounted for as a pooling of interests for accounting and financial reporting
purposes. SCA is a U.S. provider of custom and cooperative targeted product
sampling programs for Fortune 500 packaged goods manufacturers with a
distribution channel that includes over 150,000 separate locations reaching
primary and secondary schools, daycare/preschool centers, colleges and immigrant
organizations. In the acquisition, the Company issued 1,549,172 shares of common
stock for all of the issued and outstanding shares of capital stock of SCA. The
total consideration paid in connection with the acquisition was valued at
approximately $38.6 million. 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. In the
acquisition, the Company issued 1,483,240 shares of common stock for all of the
issued and outstanding shares of capital stock of Bounty and redeemed all of
Bounty's outstanding long-term debt, including mandatorily redeemable preference
shares for approximately $11.7 million in cash. The total consideration paid in
connection with the acquisition was valued at approximately $50.6 million. The
Company expects to record approximately $16.8 million in nonrecurring
acquisition costs during the quarter ended September 30, 1997 directly related
to the consummation of the American List, SCA and Bounty acquisitions.
New Accounting Pronouncements
During February 1997, the Financial Accounting Standards Board Issued
Statements of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings Per
Share". This statement is effective for years ending after December 15, 1997 and
will be implemented by the Company in its December 31, 1997 financial
statements. SFAS 128 requires primary earnings per share ("EPS") to be replaced
with basic EPS. Primary EPS is computed by dividing reported earnings available
to common stockholders by the weighted average number of shares outstanding
without consideration of common stock equivalents or other potentially dilutive
securities. Fully diluted EPS, now called diluted EPS is still included. The
Company adopted its current stock option plan in September 1996, and prior to
that time there was limited stock option activity. Therefore, management does
not expect the effect of this pronouncement to materially impact the computation
of basic EPS for 1996. However, in 1997 and future years, when the Company's
options are outstanding for the entire year, management has estimated that the
Company's reported EPS will be higher under SFAS 128 than under the old EPS
standard. SFAS 128 will not materially impact the Company's EPS reported for the
six months ended June 30, 1997 because the Company's common stock equivalents
were anti dilutive for the quarter ended June 30, 1997.
11
<PAGE>
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). This statement is effective for years ending after December 15, 1997 and
will be implemented by the Company in its December 31, 1997 financial
statements. SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. Management is currently evaluating the impact of SFAS 130.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable
PART II. OTHER INFORMATION
Item 2. Changes in Securities.
(c) On January 6, 1997, the Company acquired MMD, a privately held
company, in a merger transaction in which MMD became a wholly owned
subsidiary of the Company. In this transaction, the 966 shares of
outstanding MMD common stock were converted into 1,354,500 shares of
the Company's common stock. 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.
On March 27, 1997, the Company acquired Brann, a privately held
United Kingdom company, in a share exchange in which Brann became a
wholly owned subsidiary of the Company. In this transaction, the
Company issued (i) 2,350,152 shares of the Company's common stock in
exchange for the 339,000 outstanding ordinary shares of Brann and
(ii) fully vested and immediately exercisable options to purchase
389,730 shares of the Company's common stock (the "Brann Options"),
of which 337,236 were at an exercise price of $0.27 per share and
52,494 were at an exercise price of $2.67 per share, in exchange for
fully vested and immediately exercisable options to purchase 63,850
ordinary shares of Brann. The shares and options were restricted and
contained a legend against transfer. The issuance of the shares and
options was effected without registration in reliance upon the
exemption available under Section 4(2) of the Securities Act. The
holders of the Brann Options exercised such options in full to
purchase 389,730 shares of the Company's common stock. 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.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following document is filed as an exhibit to this report.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
(1) Current Report on Form 8-K, filed on July 25, 1997.
(2) Current Report on Form 8-K, filed on July 28, 1997.
12
<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: August 14, 1997 By: /s/ Michele D. Snyder
-------------------------- --------------------------
Michele D. Snyder
Vice Chairman, President
Chief Operating Officer
(Duly Authorized Officer)
Date: August 14, 1997 By: /s/ A. Clayton Perfall
-------------------------- --------------------------
A. Clayton Perfall
Chief Financial Officer
(Principal Financial Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 31,308,162
<SECURITIES> 0
<RECEIVABLES> 32,375,623
<ALLOWANCES> 1,067,461
<INVENTORY> 695,970
<CURRENT-ASSETS> 72,022,312
<PP&E> 21,665,010
<DEPRECIATION> 2,981,051
<TOTAL-ASSETS> 103,039,231
<CURRENT-LIABILITIES> 41,464,658
<BONDS> 0
0
0
<COMMON> 37,933
<OTHER-SE> 57,549,515
<TOTAL-LIABILITY-AND-EQUITY> 103,039,231
<SALES> 103,533,084
<TOTAL-REVENUES> 103,533,084
<CGS> 73,786,222
<TOTAL-COSTS> 73,786,222
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 409,151
<INCOME-PRETAX> (5,236,733)
<INCOME-TAX> 3,791,338
<INCOME-CONTINUING> (9,028,071)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,028,071)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
