<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 September 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
15/th/ Floor
Bethesda, Maryland 20817
--------------------- ----------
(Address of principal (Zip Code)
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, 49,272,366 shares outstanding as of November 6,
1997.
<PAGE>
SNYDER COMMUNICATIONS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet-- December 31, 1996 and September 30, 1997 3
Condensed Consolidated Statement of Operations--Three months ended
September 30, 1996 and 1997; Nine months ended September 30, 1996 and 1997 4
Condensed Consolidated Statement of Cash Flows--Nine months ended
September 30, 1996 and 1997 5
Notes to Condensed Consolidated Financial Statements--September 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 13
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 59,499,048 $ 66,696,379
Marketable securities 6,297,412 2,515,775
Accounts receivable, net of allowance for
doubtful accounts of $988,211 and $1,298,717 at
December 31, 1996 and September 30, 1997, respectively 31,216,002 45,862,233
Unbilled services 3,823,609 4,140,004
Other current assets 6,061,317 14,457,433
--------------- ---------------
Total current assets 106,897,388 133,671,824
--------------- ---------------
Property and equipment, net 23,645,603 28,688,298
Goodwill and other intangibles 16,048,688 39,566,222
Deposits and other assets 2,669,409 670,668
--------------- ---------------
Total assets $149,261,088 $202,597,012
=============== ===============
LIABILITIES AND EQUITY
Current liabilities:
Lines of credit $ 2,495,845 $ -
Current maturities of long-term debt 3,346,690 390,224
Accrued payroll 6,577,632 6,442,644
Accounts payable 16,979,286 15,896,677
Accrued expenses 20,645,972 37,940,387
Unearned revenue 5,676,707 7,417,863
Distribution payable 1,087,734 -
--------------- ---------------
Total current liabilities 56,809,866 68,087,795
--------------- ---------------
Deferred income taxes 180,888 619,857
Related party borrowings, net of current maturities 10,177,101 -
Mandatorily redeemable preferred stock, held by
related parties 6,305,584 -
Long-term obligations under capital leases 2,053,702 1,380,083
Long-term debt, net of current maturities 10,259,559 1,167,492
--------------- ---------------
Total liabilities 85,786,700 71,255,227
--------------- ---------------
Equity:
Preferred stock, $.001 par value, 5,000,000 shares authorized, none
issued and outstanding at December 31, 1996 and September 30, 1997 - -
Common stock, $.001 par value, 120,000,000 shares authorized,
45,695,529 and 48,911,858 shares issued and oustanding at
December 31, 1996 and September 30, 1997, respectively 45,696 48,912
Additional paid-in capital 50,583,558 133,270,380
Unrealized gain on marketable securities 3,747 30,798
Treasury stock, at cost, 62,700 shares outstanding at December 31, 1996
and none outstanding at September 30, 1997 (1,325,815) -
Retained earnings (deficit) 14,323,106 (2,198,551)
Cumulative foreign currency translation adjustment (155,904) 190,246
--------------- ---------------
Total equity 63,474,388 131,341,785
--------------- ---------------
Total liabilities and equity $149,261,088 $202,597,012
=============== ===============
</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 NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------- --------------------------------
1996 1997 1996 1997
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues $60,864,591 $ 71,847,123 $167,206,237 $ 204,476,693
Operating expenses:
Cost of services 41,220,694 47,270,575 114,524,676 134,132,845
Selling, general and administrative expenses 12,446,069 13,570,625 33,881,379 41,606,021
Compensation to stockholders 626,578 - 1,870,231 -
Acquisition and related costs - 17,025,918 - 33,207,052
------------- ------------- ------------- --------------
54,293,341 77,867,118 150,276,286 208,945,918
------------- ------------- ------------- --------------
Income (loss) from operations 6,571,250 (6,019,995) 16,929,951 (4,469,225)
Interest expense (885,167) (319,207) (2,720,866) (1,468,897)
Interest income 232,503 276,809 622,540 1,342,273
------------- ------------- ------------- --------------
Income (loss) before taxes 5,918,586 (6,062,393) 14,831,625 (4,595,849)
Income tax provision 437,699 1,297,438 2,460,516 7,031,361
------------- ------------- ------------- --------------
Net income (loss) $ 5,480,887 $(7,359,831) $ 12,371,109 $(11,627,210)
============= ============= ============= ==============
Pro forma income data (unaudited):
Historical income before taxes as reported $ 5,918,586 $ 14,831,625
Pro forma provision for income taxes (2,507,705) (6,284,160)
------------- -------------
Pro forma net income $ 3,410,881 $ 8,547,465
============= =============
Net income (loss) per share:
Net income (loss) as reported $ 0.14 $(0.16) $ 0.36 $(0.25)
Pro forma adjustment (0.06) - (0.15) -
------------- ------------- ------------- --------------
Net income (loss) per share $ 0.08 $(0.16) $ 0.21 $(0.25)
============= ============= ============= ==============
Shares used in computing net income per share 41,604,228 46,430,026 41,359,430 45,830,323
============= ============= ============= ==============
</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 NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------------
1996 1997
---------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 12,371,109 $ (11,627,210)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 3,248,105 6,714,331
Noncash expense from accelerated vesting of Brann
Holdings, Ltd. options - 9,096,899
Loss on disposal of assets 147,004 2,838,289
Deferred taxes (2,002,047) (727,883)
Changes in assets and liabilities:
Accounts receivable (653,022) (13,257,714)
Deposits and other assets (2,056,073) (1,156,836)
Accrued payroll, accounts payable and accrued expenses 10,484,573 15,681,455
Unearned revenue 6,272,409 923,107
Unbilled services (2,083,325) (316,396)
Less impact from effect of differing year ends - (2,760,568)
--------------- -------------
Net cash provided by operating activities 25,728,733 5,407,474
--------------- -------------
Cash flows from investing activities:
Purchase of property and equipment (3,204,806) (10,737,602)
Purchase of lists (832,357) (445,251)
Acquisitions, net of cash acquired - (15,677,925)
Purchase of marketable securities, net 606,022 4,170,088
Note and net advances to stockholders (45,426) -
Less impact from effect of differing year ends - (446,167)
--------------- -------------
Net cash used in investing activities (3,476,567) (23,136,857)
--------------- -------------
Cash flows from financing activities:
Redemption of mandatorily redeemable preferred stock - (6,305,584)
Repayment of notes payable (744,837) (12,048,533)
Repayment of related party borrowings - (11,472,301)
Proceeds from issuance of subordinated debentures due to
related parties 3,355,618 -
Distributions and dividends (22,335,689) (5,840,757)
Net borrowings from line of credit (390,196) (2,495,845)
Payments on capital lease obligations (1,984,624) (1,041,153)
Acquisition of common stock (2,768,009) (1,325,815)
Proceeds from common stock issuances 59,647,453 42,713,092
Proceeds from exercise of options 9,394 17,998,343
Impact from effect of differing year ends - 3,704,306
--------------- -------------
Net cash provided by financing activities 34,789,110 23,885,753
--------------- -------------
Effect of exchange rate changes 756,969 1,040,961
Net increase in cash and equivalents 57,798,245 7,197,331
Cash and equivalents, beginning of period 14,341,442 59,499,048
--------------- -------------
Cash and equivalents, end of period $ 72,139,687 $ 66,696,379
=============== =============
Supplemental disclosure of cash flow information:
Cash paid for interest including dividends on mandatorily
redeemable preferred stock $ 3,462,120 $ 1,269,278
Cash paid for income taxes $ 2,195,391 $ 5,247,727
Supplemental disclosure of noncash activities:
Equipment purchased during the period under
capital leases $ 2,811,570 256,983
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
SEPTEMBER 30, 1997
(UNAUDITED)
1. 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, all of
the issued and outstanding capital stock of MMD was converted into 1,354,500
shares of SCI common stock. On March 27, 1997, SCI acquired Brann Holdings
Limited ("Brann") in a share exchange transaction in which Brann became a wholly
owned subsidiary of SCI. In this transaction, all of the issued and outstanding
shares of 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. On July
11, 1997, SCI completed the acquisition of American List Corporation ("American
List") in a merger transaction in which American List became a wholly owned
subsidiary of SCI. In this transaction, SCI 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, SCI acquired Bounty Group Holdings Limited ("Bounty") in a
merger transaction in which Bounty became a wholly owned subsidiary of SCI. In
this transaction, SCI issued 1,483,240 shares of common stock in exchange for
all of the issued and outstanding stock of Bounty. On July 14, 1997, SCI
acquired Sampling Corporation of America ("SCA") in a merger transaction in
which SCA became a wholly owned subsidiary of SCI. In this transaction, SCI
issued 1,549,172 shares of common stock in exchange for all of the issued and
outstanding stock of SCA. The MMD, Brann, American List, Bounty, and SCA mergers
have been accounted for as pooling of interests transactions for financial
reporting purposes, and collectively, will be referred to herein as the
"Mergers."
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 Mergers 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 accompanying condensed consolidated balance sheet as of December
31, 1996 reflects the combination of the accounts of American List as of
February 28, 1997, while the related condensed consolidated statement of
operations for the three and nine month periods ended September 30, 1996 and the
statement of cash flows for the nine months ended September 30, 1996 reflect the
combination of the American List statements of operations and cash flows for the
respective three and nine month periods ended November 30, 1996. The condensed
consolidated balance sheet for all periods presented gives effect to the
conversion of the shares of the Mergers common stock to 11,769,386 shares of SCI
common stock. Certain amounts previously presented have been reclassified to
conform to the September 30, 1997 presentation.
6
<PAGE>
The following details revenues and net income (loss) for the nine months ended
September 30, 1997 of the Company and the previously separate entities of MMD,
Brann, American List, Bounty and SCA (the "Pooled Entities") through the dates
of their respective mergers. The Company 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. All of the acquisition and related costs are included in
the Company's net loss for the nine months ended September 30, 1997.
For the nine months
ended September 30, 1997
-------------------------
Revenues:
The Company $155,945,359
Pooled Entities 48,531,334
------------
$204,476,693
============
Net income (loss):
The Company $(15,055,547)
Pooled Entities 3,428,337
------------
$(11,627,210)
============
On August 28, 1997, SCI acquired 100% of Halliday Jones Sales Limited
("Halliday Jones") in a purchase transaction in which Halliday Jones became a
wholly owned subsidiary of SCI. The total consideration paid in connection with
the acquisition of Halliday Jones, including the repayment of assumed debt
immediately following the closing, was $19.4 million, consisting of 425,478
shares of SCI common stock and $7.4 million in cash. The acquisition of
Halliday Jones was accounted for as a purchase for financial reporting purposes
and did not have a material impact on the Company's financial condition or
results of operations during the nine months ended September 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 condensed
consolidated financial statements reflect all adjustments (consisting of only
normal recurring accruals except as discussed in note 2) which, in the opinion
of management, are necessary to present fairly the financial position, results
of operations and cash flows of the Company as of September 30, 1996 and 1997
and for the periods then ended. Operating results for the nine month period
ended September 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-1 (Registration No. 333-33691) as filed with
the Securities and Exchange Commission.
2. ACQUISITION AND RELATED COSTS:
The Company recorded $17.0 million and $33.2 million in nonrecurring
acquisition and related costs during the three months and the nine months ended
September 30, 1997, respectively. Of the $33.2 million, $27.9 million 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. The remaining $5.3 million consists of the write-off
of deferred license fees and the accrual of a liability expected to resolve
outstanding litigation. Both the write-off of the deferred fees and the accrual
of the liability were recorded due to changes in fact which resulted from the
Company's Mergers.
3. PUBLIC OFFERING OF COMMON STOCK:
On September 24, 1997 the Company completed the public offering of 8,776,334
shares of its common stock, par value $0.001 per share (the "Common Stock") at
an offering price of $25.8125 per share. The offering included 1,850,000 newly
issued shares of Common Stock sold by the Company and 6,926,334 previously
outstanding shares of Common Stock sold by selling stockholders. The Company
received net proceeds of $42.7 million from the offering (after deducting the
estimated costs associated with the offering). The Company did not receive any
proceeds from the sale of shares of Common Stock in the offering by the selling
stockholders.
7
<PAGE>
4. INCOME TAXES:
The Company's effective tax rate for the nine months ended September 30, 1997
differs from the Federal statutory rate due primarily to the nondeductibility of
nonrecurring acquisition costs, state income taxes, different tax rates in the
United Kingdom, and the S Corporation status of SCA prior to the date of its
merger with SCI.
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 and SCA also operated as S corporations until the
dates of their respective mergers with SCI. 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 three months and the nine months ended
September 30, 1996.
6. NEW ACCOUNTING PRONOUNCEMENTS:
In February 1997, the Financial Accounting Standards Board issued Statement
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 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 nine
months ended September 30, 1997 because the Company's common stock equivalents
were anti dilutive for the nine months ended September 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 beginning after December 15, 1997
and will be implemented by the Company in its December 31, 1998 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.
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 is based upon the Company's condensed consolidated
financial statements which have been retroactively restated to give effect to
the acquisitions of MMD, Brann, American List, SCA and Bounty. The following
discussion 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 the
strategic acquisitions of MMD, Brann, American List, Bounty, SCA and Halliday
Jones during the nine months ended September 30, 1997. The Company's strategy
for the operations of its acquirees is to integrate the sales effort and
corporate services provided. The Company expects the synergies created will
increase its opportunities and strengthen its 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 the
operations of its acquirees in the future.
The Company acquired MMD in January 1997 in a merger transaction, which was
accounted for as a pooling of interests for 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 transaction, which
was accounted for as a pooling of interests for 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 mandatorily redeemable
preference 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 completed the acquisition of American List Corporation ("American
List") in July 1997 in a merger transaction, which was accounted for as a
pooling of interests for financial reporting purposes. In the acquisition, the
Company issued 5,032,322 shares of common stock in exchange for all of the
outstanding shares of capital stock of American List. The total consideration
paid in connection with the acquisition was valued at approximately $134.6
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.
The Company acquired Sampling Corporation of America ("SCA") in July 1997 in a
merger transaction, which was accounted for as a pooling of interests for
financial reporting purposes. In the acquisition, the Company issued 1,549,172
shares of common stock in exchange for all of the outstanding shares of capital
stock of SCA. The total consideration paid in connection with the acquisition
was valued at approximately $38.6 million. SCA is a U.S. provider of targeted
product sampling programs for packaged goods manufacturers, with distribution
channels that include over 150,000 separate locations reaching primary and
secondary schools, daycare/preschool centers, colleges and immigrant
organizations.
9
<PAGE>
The Company acquired Bounty Group Holdings Limited ("Bounty") in July 1997 in a
merger transaction, which was accounted for as a pooling of interests for
financial reporting purposes. In the acquisition, the Company issued 1,483,240
shares of common stock in exchange for all of the issued share capital of
Bounty, in addition to redeeming 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. 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 August 1997, the Company acquired 100% of Halliday Jones Sales Limited
("Halliday Jones"). In this transaction the Company paid $19.4 million,
consisting of $7.4 million in cash and 425,478 shares of the Company's common
stock. The acquisition was accounted for as a purchase for financial reporting
purposes. Halliday Jones is a U.K.-based provider of medical detailing and
sales force training services.
Results of Operations
The following sets forth, for the periods indicated, certain income statement
data.
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- ----------------------
1996 1997 1996 1997
--------- --------- --------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Revenues $60,865 $71,847 $167,206 $204,477
======= ======= ======== ========
Cost of services $41,221 $47,271 $114,525 $134,133
======= ======= ======== ========
Selling, general and administrative
expenses combined with compensation
to stockholders $13,073 $13,571 $ 35,752 $ 41,606
======= ======= ======== ========
Acquisition and related costs -- $17,026 -- $ 33,207
======= ========
Net income (loss), including income
tax provision for all periods $ 3,411 $(7,360) $ 8,547 $(11,627)
======= ======= ======== ========
Net income (loss), including income
tax provision per share $ 0.08 $ (0.16) $ 0.21 $ (0.25)
======= ======= ======== ========
Net income, excluding nonrecurring
acquisition and related costs $ 3,411 $ 6,907 $ 8,547 $ 17,464
======= ======= ======== ========
Net income, excluding nonrecurring
acquisition and related costs per share $ 0.08 $ 0.15 $ 0.21 $ 0.37
======= ======= ======== ========
</TABLE>
Revenues increased $10.9 million, or 17.9%, from $60.9 million in the third
quarter of 1996 to $71.8 million in the third quarter of 1997. For the nine
months ended September 30, 1997, revenues of $204.5 million were 22.3% greater
than the same period in 1996. The increase in revenues for the quarter ended
September 30, 1997 and for the nine months ended September 30, 1997 was due
principally to increased sales volumes in the Medical Services group and the
Media & Sampling Services group. Increased revenues in the Medical Services
group resulted primarily from the commencement of services under new contracts
in the latter half of 1996 and throughout 1997. Revenues in the Media &
Sampling Services group increased mainly due to the growth of existing products
and programs.
10
<PAGE>
Cost of services increased $6.1 million from $41.2 million in the third quarter
of 1996 to $47.3 million in the third quarter of 1997. Cost of services as a
percentage of revenues decreased from 67.7% in the third quarter of 1996 to
65.8% in the third quarter of 1997, and from 68.5% for nine months ended
September 30, 1996 to 65.6% for the nine months ended September 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.
Selling, general and administrative expenses combined with compensation to
stockholders increased $0.5 million from $13.1 million in the third quarter of
1996 to $13.6 million in the third quarter of 1997. For the nine months ended
September 30, 1997, selling, general and administrative expenses combined with
compensation to stockholders was $41.6 million, an increase of $5.9 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 nine months ended September 30, 1997 than in the nine months ended September
30, 1996. Selling, general and administrative expenses as a percentage of
revenue decreased from 21.5% in the third quarter of 1996 to 18.9% in the third
quarter of 1997, and from 21.4% for the nine months ended September 30, 1996 to
20.3% for the nine months ended September 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 $17.0 million and $33.2 million in nonrecurring
acquisition and related costs during the three months and the nine months ended
September 30, 1997, respectively. Of the $33.2 million, $27.9 million 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. The remaining $5.3 million consists of the write-off
of deferred license fees and the accrual of a liability expected to resolve
outstanding litigation of one of the acquired companies. Both the write-off
of the deferred fees and the accrual of the liability were recorded by the
Company as a result of its Mergers.
Interest expense decreased $0.6 million to $0.3 million in the second quarter
of 1997 from $0.9 million in the third quarter of 1996. For the nine months
ended September 30, 1997, interest expense was $1.5 million, a $1.2 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 initial public offering, as well as from
the redemption of the mandatorily redeemable preferred shares at Brann and
Bounty in conjunction with their respective acquisitions.
Interest income was $0.3 million in the third quarter of 1997 and $1.3 million
for the nine months ended September 30, 1997 as compared to $0.6 million for the
nine months ended September 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.
In the third quarter of 1997, the Company recorded a $1.3 million tax provision
consisting of a $4.1 million provision for the $11.0 million in income from
recurring operations and interest and a benefit of $2.8 million related to the
$17.0 million of nonrecurring acquisition costs. For the nine months ended
September 30, 1997, the Company recorded a $7.0 million tax provision consisting
of an $11.1 million provision for the $28.6 million in income from recurring
operations and interest and a benefit of $4.1 million related primarily to the
$33.2 million of nonrecurring acquisition costs. The Company's effective tax
rate for the nine months and quarter ended September 30, 1997 differs from the
Federal statutory rate due primarily to the nondeductibility of certain of the
acquisition costs and state income taxes.
The Company recorded a net loss of $7.4 million for the third quarter of 1997
due to the $17.0 million in nonrecurring acquisition costs during the quarter.
Without the nonrecurring acquisition costs, the Company would have recorded net
income of $6.9 million or $0.15 per share for the quarter ended September 30,
1997. The nonrecurring acquisition costs of $33.2 million also resulted in a
net loss of $11.6 million for the nine months ended September 30, 1997. Without
the nonrecurring acquisition costs, the Company would have recorded net income
of $17.5 million or $0.37 per share for the nine months ended September 30,
1997.
11
<PAGE>
Liquidity and Capital Resources
At September 30, 1997, the Company had $66.7 million in cash and equivalents.
Cash and equivalents increased $7.2 million during the nine months ended
September 30, 1997. Operating activities provided $5.4 million in cash.
Investing activities used $23.1 million in cash due principally to the purchase
of property and equipment as well as cash paid for acquisitions accounted for as
purchase transactions. Financing activities provided $23.9 million in cash due
primarily to the proceeds received from the public offering of common stock and
the exercise of options, offset by the repayment of outstanding indebtedness and
the payment of dividends and distributions to stockholders of the Pooled
Entities prior to their mergers with SCI.
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.
The Company is subject to the impact of foreign currency fluctuations,
specifically that of the British pound. To date, changes in the British pound
exchange rate 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
In February 1997, the Financial Accounting Standards Board issued Statement
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 nine months ended September 30, 1997 because the Company's common stock
equivalents were anti dilutive for the quarter ended September 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 beginning after December 15, 1997
and will be implemented by the Company in its December 31, 1998 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.
(A) On July 13, 1997, the Company acquired Bounty, a privately held United
Kingdom company, in a merger transaction in which Bounty became a
wholly owned subsidiary of the Company. In this transaction, the
Company issued 1,483,240 shares in exchange for all of the issued and
outstanding shares of capital stock of Bounty. 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.
12
<PAGE>
On July 14, 1997, the Company acquired SCA, a privately held United
States company, in a merger transaction in which SCA became a wholly
owned subsidiary of the Company. In this transaction, the Company
issued 1,549,172 shares in exchange for all of the issued and
outstanding shares of capital stock of SCA. 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 August 28, 1997, the Company acquired Halliday Jones, a privately
held United Kingdom company, in a purchase transaction in which
Halliday Jones became a wholly owned subsidiary of the Company. In this
transaction, the Company issued 425,478 shares and paid $7.4 million in
cash for all of the issued and outstanding shares of capital stock of
Halliday Jones and the repayment of its outstanding debt. 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 schedule is filed as an exhibit to this report.
27 Financial Data Schedule
(b) Reports on Form 8-K
(1) Current Report on Form 8-K, filed on September 18, 1997
(2) Current Report on Form 8-K, filed on September 12, 1997
(3) Current Report on Form 8-K, filed on Agust 25, 1997
(4) Current Report on Form 8-K, filed on July 28, 1997
(5) Current Report on Form 8-K, filed on July 25, 1997
13
<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: November 13, 1997 By: /s/ Michele D. Snyder
----------------------- -----------------------------
Michele D. Snyder
Vice Chairman, President and
Chief Operating Officer
(Duly Authorized Officer)
Date: November 13, 1997 /s/ A. Clayton Perfall
----------------------- -----------------------------
A. Clayton Perfall
Chief Financial Officer
(Principal Financial Officer)
14
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<PERIOD-START> JAN-01-1997
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