<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, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From ________________ to _________________
Commission file number 1-12145
SNYDER COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 52-1983617
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation or
organization)
Two Democracy Center
6903 Rockledge Drive
15th Floor
Bethesda, Maryland
(Address of principal 20817
executive office) (Zip Code)
</TABLE>
(301) 468-1010
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $0.001 Par Value, 62,205,564 shares outstanding as of August 7,
1998.
<PAGE>
SNYDER COMMUNICATIONS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet as of June 30, 1998 and December 31, 1997 3
Condensed Consolidated Statement of Income for the three months and the six
months ended June 30, 1998 and 1997 4
Condensed Consolidated Statement of Cash Flows for the six months ended
June 30, 1998 and 1997 5
Condensed Consolidated Statement of Equity for the six months ended June 30, 1998 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
PART II. OTHER INFORMATION
Item 2. Changes in Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------------- --------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 71,903 $ 81,915
Marketable securities 1,006 2,127
Accounts receivable, net of allowance for doubtful accounts of $6,732 and
$6,769 at June 30, 1998 and December 31, 1997, respectively 114,637 82,779
Receivables from pass through costs (Note 3) 85,921 74,964
Unbilled services 15,286 19,365
Other current assets 29,571 30,259
--------- --------
Total current assets 318,324 291,409
--------- --------
Property and equipment, net 58,984 42,202
Goodwill and other intangible assets,net 120,619 68,943
Defered tax asset 49,417 -
Deposits and other assets 6,988 8,148
--------- --------
Total assets $554,332 $410,702
========= ========
LIABILITIES AND EQUITY
Current liabilities:
Lines of credit $ 965 $ 7,427
Current maturities of long-term debt 2,062 2,086
Accrued payroll 27,320 17,163
Accounts payable 121,568 97,404
Accrued expenses 85,150 85,511
Client advances (Note 4) 663 12,045
Unearned revenue 19,129 21,770
--------- --------
Total current liabilities 256,857 243,406
--------- --------
Related party borrowings, net of current maturities 3,721 4,753
Long-term obligations under capital leases 2,011 1,751
Long-term debt, net of current maturities 1,826 3,935
Other liabilities 3,053 6,997
Commitments and contingencies
Redeemable ESOP stock, 147 shares outstanding as of December 31, 1997
and June 30, 1998, respectively 6,468 5,278
Equity:
Preferred stock, $.001 par value, 5,000 shares authorized, none
issued and outstanding at June 30, 1998 and December 31, 1997, respectively -- --
Common stock, $.001 par value, 120,000 shares authorized,
63,019 and 60,470 shares issued and oustanding at
June 30, 1998 and December 31, 1997, respectively 63 60
Additional paid in capital 290,629 152,086
Treasury stock, at cost, 1,096 and 1,059 shares at June 30, 1998 and
December 31, 1997, respectively (7,575) (5,473)
Accumulated other comprehensive income 866 477
Retained deficit (3,587) (2,568)
--------- --------
Total equity 280,396 144,582
--------- --------
Total liabilities and equity $554,332 $410,702
========= ========
</TABLE>
The accompanying notes are an integral part of this condensed consolidated
balance sheet.
3
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
(in thousands except per share data)
<S> <C> <C> <C> <C>
Net revenues $167,566 $129,164 $314,419 $247,748
Operating expenses:
Cost of services 111,407 88,570 208,900 171,476
Selling, general, and administrative expenses 32,203 25,891 61,572 50,176
Compensation to stockholders -- 822 -- 2,249
ESOP expense -- 1,252 -- 2,497
Acquisition and related costs -- -- 33,953 16,181
-------- -------- -------- --------
Income from operations 23,956 12,629 9,994 5,169
Interest income (expense), net 718 (123) 1,456 (372)
Income from continuing operations before income taxes 24,674 12,506 11,450 4,797
Income tax provision 9,376 3,829 7,030 6,118
-------- -------- -------- --------
Income (loss) from continuing operations 15,298 8,677 4,420 (1,321)
Loss from discontinued operations -- (623) -- (1,181)
-------- -------- -------- --------
Net income (loss) $15,298 $8,054 $4,420 $(2,502)
======== ======== ======== ========
Historical net income (loss) per share:
Basic net income (loss) per share
Income (loss) from continuing operations $0.25 $0.16 $0.07 $(0.02)
======== ======== ======== ========
Net income (loss) $0.25 $0.15 $0.07 $(0.05)
======== ======== ======== ========
Diluted net income (loss) per share
Income (loss) from continuing operations $0.24 $0.15 $0.07 $(0.02)
======== ======== ======== ========
Net income (loss) $0.24 $0.14 $0.07 $(0.05)
======== ======== ======== ========
Pro forma net income (loss) per share (Note 7):
Basic net income (loss) per share
Income (loss) from continuing operations $0.25 $0.13 0.05 $(0.06)
======== ======== ======== ========
Net income (loss) $0.25 $0.13 0.05 $(0.07)
======== ======== ======== ========
Diluted net income (loss) per share
Income (loss) from continuing operations $0.24 $0.13 $0.05 $(0.06)
======== ======== ======== ========
Net income (loss) $0.24 $0.12 $0.05 $(0.07)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this condensed consolidated
financial statement.
4
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the
Six Months
Ended June 30,
-------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss).......................................................................... $ 4,420 $ (2,502)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization.............................................................. 9,432 6,357
Noncash charge from accelerated vesting of Brann
Holdings options.......................................................................... -- 9,097
Noncash ESOP expense....................................................................... -- 2,503
Loss on disposal of assets................................................................. 50 476
Other noncash amounts...................................................................... (11,153) (301)
Changes in assets and liabilities:
Accounts receivable, net................................................................... (12,168) (14,801)
Bought out media receivable................................................................ (10,958) (12,007)
Unbilled services.......................................................................... 5,014 (1,200)
Deposits and other assets.................................................................. (256) 748
Other current assets....................................................................... (4,236) (1,402)
Accrued payroll, accounts payable and accrued expenses..................................... 35,597 24,373
Unearned revenue........................................................................... (5,497) (1,275)
Client advances............................................................................ (12,824) 1,334
Impact from differing fiscal year ends..................................................... -- (2,761)
-------- --------
Net cash provided by (used in) operating activities...................................... (2,579) 8,639
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of subsidiaries, net of cash acquired............................................. (3,502) (4,398)
Purchase of property and equipment......................................................... (21,702) (10,242)
Proceeds from sale of equipment............................................................ 787 82
Net sales of marketable securities......................................................... 1,178 479
Purchase of intangible assets.............................................................. (637) (4,666)
Note and net advances to stockholders...................................................... 917 (190)
Impact from differing fiscal year ends..................................................... -- (446)
-------- --------
Net cash used in investing activities.................................................... (22,959) (19,381)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (repayments) on issuance of subordinated debentures due to
related parties............................................................................ (240) --
Distributions and dividends................................................................ (2,379) (8,579)
Acquisition of treasury stock.............................................................. (2,097) (1,755)
Net repayments of long-term debt........................................................... (8,030) (2,907)
Redemption of mandatorily redeemable preferred stock....................................... -- (5,248)
Net repayments on line of credit........................................................... (6,491) (347)
Payments on capital lease obligations...................................................... (986) (694)
Proceeds from exercise of options.......................................................... 11,414 7,265
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C>
Proceeds from issuance of common stock..................................................... 24,203 133
Impact from differing fiscal year ends..................................................... -- 3,704
-------- --------
Net cash provided by (used in) financing activities...................................... 15,394 (8,428)
Effect of exchange rate changes............................................................ 132 626
--- ---
Net decrease in cash and equivalents....................................................... (10,012) (18,544)
Cash and equivalents, beginning of period.................................................. 81,915 70,916
-------- --------
Cash and equivalents, end of period........................................................ $ 71,903 $ 52,372
======== ========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
<S> <C> <C>
Cash paid for interest including dividends on mandatorily
redeemable preferred stock................................................................ 481 1,415
Cash paid for income taxes................................................................. 6,786 3,071
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Equipment purchased under capital leases................................................... 928 437
Distribution of non-operating assets by a subsidiary....................................... 947 --
Issuance of shares of common stock for purchase of
subsidiaries.............................................................................. 50,496 --
Issuance of common stock related to stock appreciation
rights.................................................................................... 3,484 --
Issuance of notes payable for purchase of treasury stock................................... -- 215
</TABLE>
The accompanying notes are an integral part of this condensed consolidated
statement of cash flows.
6
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON ACCUMULATED
COMMON STOCK ADDITIONAL RETAINED OTHER
STOCK PAR PAID-IN EARNINGS TREASURY COMPREHENSIVE COMPREHENSIVE
SHARES VALUE CAPITAL (DEFICIT) STOCK INCOME TOTAL INCOME
------ ----- ---------- --------- -------- ------------- ----- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1997, as previously
restated for poolings........ 60,470,000 $60 $152,086 $(2,568) $(5,473) $477 $144,582 $ --
Distributions and
dividends................... -- -- -- (4,249) -- -- (4,249) --
Net proceeds from secondary
stock offering........... 500,000 1 17,328 -- -- -- 17,329 --
Exercise of stock
options and subsidiary
stock appreciation
rights...................... 639,000 -- 19,524 -- 20 -- 19,544 --
Issuance of shares for
purchase of
subsidiaries................ 1,211,000 2 50,383 -- -- -- 50,385 --
Reissuance of treasury
stock by subsidiary
prior to Merger with
SNC......................... 199,000 -- 6,873 -- -- -- 6,873 --
Foreign currency
translation
adjustment.................. -- -- -- -- -- 442 442 442
Unrealized loss on
marketable
securities.................. -- -- -- -- -- (53) (53) (53)
Purchases and
retirement of treasury
stock....................... -- -- 87 -- (2,122) -- (2,035) --
Reclassification of
redeemable ESOP
stock....................... -- -- -- (1,190) -- -- (1,190) --
Tax benefit from
taxable merger
transaction................. -- -- 44,348 -- -- -- 44,348 --
Net income................... -- -- -- 4,420 -- -- 4,420 4,420
------
Comprehensive income....... -- -- -- -- -- -- -- $4,809
== == == == == == == ======
Balance, June 30, 1998....... 63,019,000 $63 $290,629 $(3,587) $(7,575) $866 $280,396 --
========== === ======== ======== ======== ==== ======== ======
</TABLE>
The accompanying notes are an integral part of this condensed consolidated
statement of equity.
7
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
1. ORGANIZATION, BASIS OF PRESENTATION AND BUSINESS:
On October 19, 1988, Collegiate Marketing and Communications, Inc., a Delaware
corporation (the "General Partner"), and a Delaware limited partnership
beneficially owned by Mortimer B. Zuckerman and Fred Drasner (the "Original
Limited Partner") entered into a partnership agreement (the "Partnership
Agreement") pursuant to the provisions of the Delaware Act, under the name
Collegiate Marketing and Communications, L.P. (the "Partnership"). On September
1, 1989, the name of the Partnership was changed to Snyder Communications, L.P.,
and the name of the General Partner was changed to Snyder Communications, Inc.
On May 18, 1995, the Partnership Agreement was amended to admit several new
limited partners into the Partnership. On June 25, 1996, the name of the General
Partner was changed to Snyder Marketing Services, Inc. ("SMS").
Snyder Communications, Inc., a Delaware corporation, was incorporated on June
25, 1996, to continue the business operations of the Partnership. Snyder
Communications, Inc., in conjunction with all of the existing partners in the
Partnership, reorganized on September 24, 1996 (the "Reorganization"), upon the
effectiveness of the initial public offering of its common stock. After
consummation of the Reorganization, Snyder Communications, Inc. owned 100
percent of the stock of SMS and, directly and indirectly (through its ownership
of SMS), 100 percent of the interests in the Partnership (the consolidated
entity will be referred to herein as "SNC" or "Snyder Communications").
During the first quarter of 1998, SNC issued 7,620,568 shares in pooling of
interests transactions (the "1998 Mergers"). The transactions included the
acquisitions of Health Products Research, Inc. ("HPR"), Publimed Promotions S.A.
("Publimed"), Blau Marketing Technologies, Inc. ("Blau") and Arnold
Communications, Inc. ("Arnold"). HPR and Publimed both provide sales and
marketing services to the pharmaceutical industry. HPR operates primarily in the
U.S. and provides strategic and tactical sales force market planning and
evaluation services to leading pharmaceutical and medical device manufacturers.
Publimed markets medical products for pharmaceutical companies in France
utilizing field sales. Blau's operations are conducted throughout the U.S. and
consist primarily of strategic consulting, creative services, program design and
implementation, consumer database management, response tracking and analysis,
interactive services and production management. Arnold's operations are also
conducted throughout the U.S. , and they include creative services, direct
marketing, new media marketing, database management services and full-service
public relations.
The accompanying condensed consolidated financial statements have been
retroactively restated to reflect the combined financial position and combined
results of operations and cash flows of the 1998 Mergers, giving effect to these
acquisitions as if they had occurred at the beginning of the earliest period
presented (the combined entity will be referred to herein as the "Company"). The
condensed consolidated balance sheet for all periods presented gives effect to
the conversion of the common stock of the entities acquired in the 1998 Mergers
to 7,620,568 shares of SNC common stock. Certain amounts previously presented
have been reclassified to conform to the June 30, 1998 presentation.
Snyder Communications provides fully integrated outsourced marketing solutions.
The Company identifies high value market segments; designs and implements
marketing programs to reach them; initiates and closes sales on behalf of its
clients; and provides customer care, retention and loyalty marketing services.
The Company's resources include proprietary databases of targeted customers and
small businesses; database management services; pharmaceutical detailing
services; pharmaceutical consulting; medical education communications;
proprietary product sampling programs and publications; sponsored information
displays in proprietary locations; marketing program consultants; creative
services; field sales and marketing representatives; customer service
representatives; and direct mail and fulfillment capabilities. The Company's
operations are conducted throughout the United States, the United Kingdom
("U.K."), France, Ireland and Hungary.
8
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The accompanying unaudited condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. As a result, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The Company believes that
the disclosures made are adequate to make the information presented not
misleading. The condensed consolidated financial statements reflect all
adjustments (consisting of only normal recurring adjustments) which, in the
opinion of management, are necessary to present fairly the financial position,
results of operations and cash flows of the Company as of June 30, 1998 and for
the six months ended June 30, 1998 and 1997. Operating results for the six month
period ended June 30, 1998 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1998. The unaudited condensed
consolidated financial statements should be read in conjunction with the
financial statements and footnotes thereto included in the Company's
Registration Statement on Form S-3 (Registration No. 333-50929) as filed with
the Securities and Exchange Commission.
2. BUSINESS COMBINATIONS
The following details revenues and net income (loss) for each of the six months
ended June 30, 1998 and 1997 of SNC and all entities acquired by SNC through
pooling of interests combinations ("Pooled Entities") through the dates of their
respective mergers. The SNC amounts include the financial results of the
original operations of SNC for the entire period and the financial results of
the Pooled Entities for the period subsequent to the dates of their respective
mergers.
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Revenues:
SNC $274,615 $ 87,565
Pooled Entities 39,804 160,183
-------- --------
$314,419 $247,748
======== ========
Net income (loss):
SNC $ 13,870 $ (9,029)
Pooled Entities
(9,450) 6,527
-------- --------
$ 4,420 $ (2,502)
======== ========
</TABLE>
During the six months ended June 30, 1998, SNC and the Pooled Entities recorded
$16.9 million and $17.0 million, respectively, in non-recurring acquisition and
related costs. Excluding the non-recurring acquisition and related costs and
assuming that all of the Pooled Entities had been taxed similarly to C
corporations, SNC and the Pooled Entities would have recorded approximately
$27.0 million and $1.2 million, respectively, in net income for the six months
ended June 30, 1998 for a combined basic and diluted net income per share from
continuing operations and excluding non-recurring costs of $0.46 and $0.45,
respectively.
During the six months ended June 30, 1997, SNC recorded $16.2 million in non-
recurring acquisition and related costs, and the Pooled Entities recorded $5.4
million in non-recurring costs which consisted of $2.2 million in compensation
to stockholders, $2.5 million in ESOP expense and $0.7 million loss from
discontinued operations. Excluding the non-recurring costs and assuming that all
of the Pooled Entities had been taxed similarly to C corporations, SNC would
have recorded approximately $6.4 million in net income for the six months ended
June 30, 1997 and the Pooled Entities would have recorded approximately $8.7
million in net income for the same period for a combined basic and diluted net
income per share from continuing operations and excluding non- recurring costs
of $0.27
9
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the first half of 1998 SNC acquired CLI Pharma S.A. (March 25, 1998) and
HealthCare Promotions, LLC ("HCP") (February 13, 1998) in transactions which
have been accounted for as purchase business combinations. The total
consideration paid for 1998 purchase business combinations was approximately
$60.9 million consisting of 1,261,000 shares of SNC common stock and $10.4
million in cash. Based upon a preliminary allocation of purchase consideration,
these purchase business combinations have resulted in additional goodwill of
approximately $54.8 million.
The following table presents pro forma financial information as if the Company's
1997 purchase of Halliday Jones Sales Ltd. and its 1998 purchase business
combinations had been consummated at the beginning of each of the periods
presented and all of the Company's operations had been taxed similarly to a C
corporation:
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1998 1997
------ ------
(in thousands)
<S> <C> <C>
Pro forma revenues $325,210 $279,977
Pro forma income from continuing operations 4,905 (825)
Pro forma net income (loss) 4,905 (356)
Pro forma basic net income (loss) per share 0.08 (0.01)
Pro forma diluted net income (loss) per share 0.08 (0.01)
</TABLE>
During the six months ended June 30, 1998, the Company recorded $34.0 million in
non-recurring acquisition and related costs. Excluding the non-recurring
acquisition and related costs, the Company would have recorded $30.2 million in
pro forma net income for the six months ended June 30, 1998 and pro forma basic
and diluted net income per share of $0.50 and $0.48, respectively, for the
period.
During the six months ended June 30, 1997, the Company recorded $21.6 million in
non-recurring costs, consisting of $16.2 million in acquisition and related
costs, $2.2 million in compensation to stockholders, and $2.5 million in ESOP
expense and $0.7 million loss from discontinued operations. Excluding these non-
recurring costs, the Company would have recorded $14.6 million in pro forma net
income for the six months ended June 30, 1997 and pro forma basic and diluted
net income per share of $0.26 and $0.25, respectively, for the period.
3. RECEIVABLES FROM PASS THROUGH COSTS:
Receivables from pass through costs relate to services purchased from third
parties, on behalf of clients, for which no revenue is recorded.
4. CLIENT ADVANCES:
Client advances decreased to $0.7 million at June 30, 1998 from $12.0 million at
December 31, 1997 due primarily to clients within the Communications Services
group who remitted funds at year end prior to the completion of services to
ensure full utilization of their 1997 budgets.
5. ACQUISITION AND RELATED COSTS:
During the six months ended June 30, 1998, SNC recorded $34.0 million in non-
recurring acquisition and related costs. These costs are primarily related to
the consummation of the 1998 Mergers and consist of investment banking fees,
expenses associated with stock appreciation rights, other professional service
fees, tax payments and other contractual payments. In addition, this amount
includes a charge of approximately $4.7 million for costs necessary to
consolidate certain of the Company's U.S. and U.K. operations. The charge
consists of approximately $2.3 million to consolidate and terminate lease
obligations and write off leasehold improvements at the office facilities of
three acquired subsidiaries and $2.4 million in severance and related costs to
terminate the employment of 66 management and administrative personnel at the
acquired subsidiaries. As of June 30, 1998, ten employees had terminated
employment with the Company while $1.6 million in severance and related costs
had been charged against the liability.
6. INCOME TAXES:
The Company's effective tax rate for the six months ended June 30, 1998 and 1997
differs from the federal statutory rate due primarily to the nondeductibility of
certain non-recurring acquisition costs, state income taxes, the different tax
status of certain of the Pooled Entities prior to their merger with SNC and
different statutory rates for the Company's international operations.
10
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. PRO FORMA INCOME DATA:
The pro forma net income (loss) per share amounts include a provision for
federal and state income taxes as if the Company had been a taxable C
corporation for all periods presented. The pro forma income tax rate reflects
the combined federal and state income taxes of approximately 38.0 percent and
40.4 percent for the three months ended June 30, 1998 and 1997, respectively,
and 38.0 percent and 41.3 percent for the six months ended June 30, 1998 and
1997, respectively. The pro forma provision for income taxes for the three
months ended June 30, 1998 is equal to the actual income tax provision for the
period because all operations of the Company were taxable as a C corporation for
the three months ended June 30, 1998. The tax provisions calculated below exceed
the Company's statutory rate due to the recognition of certain acquisition and
related costs which are not deductible for income tax purposes.
The table below presents this pro forma calculation of net income (loss):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
------- ------- ------- -------
Pro forma net income (loss) data: (in thousands)
<S> <C> <C> <C> <C>
Historical income from continuing operations before
income taxes $24,674 $12,506 $11,450 $4,797
Pro forma provision for income taxes 9,376 5,058 8,584 7,904
------- ------- ------- -------
Pro forma income (loss) from continuing operations 15,298 7,448 2,866 (3,107)
Loss from discontinued operations, less applicable pro
forma income taxes -- (372) -- (705)
------- ------- ------- -------
Pro forma net income (loss) $15,298 $ 7,076 $ 2,866 $(3,812)
======= ======= ======= =======
</TABLE>
8. PUBLIC OFFERING OF COMMON STOCK:
On May 27, 1998 the Company completed the public offering of 7,068,006 shares of
its common stock, par value $0.001 per share (the "Common Stock") at an offering
price of $42.00 per share. The offering included 500,064 newly issued shares of
Common Stock sold by the Company and 6,567,942 previously outstanding shares of
Common Stock sold by selling stockholders. The Company received net proceeds of
$17.3 million from the offering (after deducting the estimated costs associated
with the offering). The Company did not receive any proceeds from the sale of
shares of Common Stock in the offering by the selling stockholders.
9. ACCUMULATED OTHER COMPREHENSIVE INCOME:
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," ("SFAS 130"), during the first quarter of
1998. SFAS 130 requires companies to report as comprehensive income all changes
in equity during a period, except those resulting from investments and
distributions to owners, in financial statements for the period in which they
are recognized. Included within accumulated other comprehensive income are the
cumulative amounts for foreign currency translation adjustments and unrealized
gains and losses on marketable securities. The cumulative foreign currency
translation adjustment was $855,000 and $413,000 as of June 30, 1998 and
December 31, 1997, respectively. The cumulative gain on marketable securities
was $11,000 and $64,000 as of June 30, 1998 and December 31, 1997, respectively.
10. TAX BENEFIT FROM TAXABLE MERGER TRANSACTION:
SNC will receive a future tax benefit arising from the tax treatment of its
first quarter 1998 merger with Arnold Communications, Inc. In accordance with
generally accepted accounting principles, because the merger has been accounted
for as a pooling of interests, the net estimated future tax benefit of
approximately $44.4 million is reflected as a deferred tax asset in the
accompanying condensed consolidated balance sheet at June 30, 1998 with the
offsetting credit made to additional paid in capital.
11
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. NET INCOME PER SHARE:
A reconciliation of the shares used to compute basic and diluted earnings per
share follows. For each of the periods presented, the same net income used to
compute basic earnings per share was used to compute diluted earnings per share.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
--------- ----- ------ -------
(in thousands)
<S> <C> <C> <C> <C>
Weighted average shares outstanding for the period
used in computation of basic net income per
share. 61,589 55,473 60,881 55,443
Diluted impact of stock options 2,401 1,491 2,218 --
--------- ----- ------ -------
Shares used in computation of diluted net income
per share. 63,990 56,964 63,099 55,443
</TABLE>
For the six months ended June 30, 1997, weighted average common stock
equivalents of 1,449,000 are not included in the calculation of diluted net
income per share because they were antidilutive for the period.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's results of operations and of its
liquidity and capital resources is based upon the Company's condensed
consolidated financial statements. The entities with which the Company has
entered into mergers accounted for as poolings of interests for financial
reporting purposes will be collectively referred to as the "Pooled Entities" and
their mergers will be referred to herein as the "Acquisitions". The consolidated
financial statements have been retroactively restated to reflect the combined
financial position and combined results of operations and cash flows of the
Pooled Entities for all periods presented, giving effect to the Acquisitions as
if they had occurred at the beginning of the earliest period presented. The
following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements of the Company and related notes thereto
included elsewhere in this Quarterly Report on Form 10-Q.
OVERVIEW
Since completing its initial public offering in September 1996, the Company
has significantly expanded the range of marketing and sales services it is
able to offer its clients. This expansion has been accomplished both by
building and initiating new programs or service offerings and by acquiring
businesses that offer complementary services. The Company's strategy is to
facilitate the growth of its acquirees with improved sales and marketing
resources and to integrate the sales and marketing efforts of its acquirees
with those of the existing operating groups within the Company. The Company
expects that the synergies created by its acquisitions will increase its
opportunities and strengthen its customer relationships. The existing
similarities among services and customers within the different operating
groups enable the Company to integrate its service offerings without incurring
material costs to integrate its infrastructure. The Company does not expect to
incur material integration costs in the future. The service offerings of
acquired companies have been combined with those previously offered by the
Company to create four service groups: Medical Services; Media and Sampling
Services; Communications Services; and Data Delivery Services. The Company
provides complete marketing solutions for its clients by integrating these
four types of services into sales and marketing programs. Throughout 1997 and
the first half of 1998, the Company has completed acquisitions accounted for
both as poolings of interests and as purchases. Those acquisitions which are
either significant to the Company's financial results or which may provide
significant future growth opportunities are discussed below.
The Company established its Medical Services group in January 1997 in a
merger transaction with a U.S. provider of pharmaceutical sales and marketing
services. During 1997 and the first quarter of 1998, the Company issued
4,035,182 and 2,314,263 shares, respectively, in poolings of interests
transactions with companies that provide medical services. These transactions
include the acquisitions of MMD, Inc. ("MMD"), GEM Communications, Inc.
("GEM"), Rapid Deployment Group Limited ("RDL"), PharmFlex, Inc.
("PharmFlex"), Health Products Research, Inc. ("HPR") and Publimed Promotions,
S.A. ("Publimed"). The Company also acquired Halliday Jones Sales Ltd. ("HJ")
for approximately $19.4 million of cash and common stock in a purchase
transaction in 1997, Healthcare Promotions, LLC ("HCP") for approximately
$22.0 million of common stock and CLI Pharma S.A. ("CLI Pharma") for
approximately $25.0 million of common stock in purchase transactions in the
first quarter of 1998. MMD, RDL, HJ, PharmFlex, HCP, Publimed and CLI Pharma
all market medical products for pharmaceutical companies utilizing field
sales. MMD, PharmFlex and HCP combine the services of over 2,360 account
executives and managers in the U.S., and provide outsourced pharmaceutical
sales and marketing services to some of the world's premier pharmaceutical
companies. Together HJ and RDL retain the services of over 730 account
executives and managers, and provide outsourced pharmaceutical sales and
marketing services to many leading pharmaceutical manufacturers. HJ and RDL
operate primarily in the U.K., but also in Ireland and Hungary. Publimed and
CLI Pharma both provide pharmaceutical sales and marketing services in France,
and utilize over 860 account executives and managers. GEM operates in the
U.S., and provides communications and marketing services to the pharmaceutical
industry, primarily educational marketing programs aimed at doctors,
pharmacists and nurses. HPR provides strategic and tactical sales force market
planning and evaluation services, including sales marketing resource
allocation, sales force planning and the integration and evaluation of sales
and marketing promotions to many leading pharmaceutical and medical device
manufacturers.
The Company expanded the reach of its Media and Sampling Services group
through complementary acquisitions. During 1997 and the first quarter of 1998,
the Company issued 3,032,414 and 30,344 shares, respectively, in poolings of
interests transactions with companies that provide media and sampling
services. These transactions include the acquisitions of Bounty Group Holdings
Limited ("Bounty") and Sampling Corporation of America ("SCA"). Bounty is a
U.K.-based provider of targeted product sampling services and proprietary
health-oriented publications to expectant mothers, new mothers and parents of
toddlers in the U.K. and Ireland. SCA is a U.S. provider of targeted product
sampling programs for packaged goods manufacturers with distribution channels
that include over 180,000 locations and consist of primary and secondary
schools, daycare/preschool centers, colleges and immigrant organizations.
13
<PAGE>
. The Company increased the scope of services provided by the Communications
Services group with the completion of strategic acquisitions. During 1997 and
the first quarter of 1998, the Company issued 2,350,152 and 5,275,961 shares,
respectively, in poolings of interests transactions with companies that
provide communications services. These transactions include the acquisitions
of Brann Holdings Limited ("Brann"), Blau Marketing Technologies, Inc.
("Blau") and Arnold Communications, Inc. ("Arnold"). Brann is a leading
provider of complete marketing solutions in the U.K., and offers a full range
of creative, telemarketing and database services to over 70 companies,
government agencies and charitable organizations. Blau and Arnold are leading
providers of marketing communications services in the U.S. Blau provides
direct marketing services, including strategic consulting, creative services,
program design and implementation, consumer database management, response
tracking and analysis and production management to large national and
international corporations in the financial services, technology, retail,
telecommunications and utilities industries. Arnold is a full-service
marketing communications firm that provides creative services, direct
marketing, new media marketing, database management services and full-service
public relations to a roster of recognized national and international
corporations.
. The Company expanded its data delivery service capabilities and established
its Data Delivery Services group in 1997 through its acquisition of American
List Corporation ("American List"). The Company issued 5,032,322 shares in a
pooling of interests transaction with American List. American List develops,
maintains and markets some of the largest and most comprehensive databases of
high school, college and pre-school through junior high school students in the
U.S.
RESULTS OF OPERATIONS
In the Medical Services group, revenues and associated costs on pharmaceutical
detailing contracts are recognized when services have been performed by account
executives. In the Media and Sampling Services group, the Company is paid by
sponsors of its WallBoard(R) information displays and sample packs in
installments, generally quarterly or semiannually, over the term of the contract
under which services are rendered, which is generally one year or less. In the
Communications Services group, net revenues are recognized when services are
completed in accordance with the terms of the contracts. On certain contracts,
revenues from field sales and teleservices are based on both the number of
accepted customers and the type of services sold. The Company typically receives
a fixed dollar amount per customer. Revenues related to such sales are
recognized on the date that the application for service is accepted by the
Company's clients. In the Data Delivery Services group, revenues are recognized
upon shipment of lists to customers for a one-time usage.
Cost of services consists of all costs specifically associated with client
programs, such as salary, commissions and benefits paid to personnel, including
senior management associated with specific service groups, inventory, payments
to third-party vendors and systems and other support facilities specifically
associated with client programs.
Selling, general and administrative expenses consist primarily of costs
associated with the Company's centralized staff functions, such as finance,
accounting and human resources and personnel costs of senior management not
specifically associated with any single service group.
Compensation to stockholders consists of excess compensation paid to certain
stockholders of the Partnership prior to the Reorganization and excess
compensation paid to certain stockholders of acquired companies prior to their
respective mergers with the Company. The amount by which the historical
compensation of these stockholders exceeds that provided in their employment
contracts with the Company has been classified as compensation to stockholders.
ESOP expense is the compensation expense recorded when shares are committed to
be released to ESOP participants. The amount of the expense is based on the
current market price of the shares and will vary based upon the amount of debt
repaid by the ESOP during the period.
Acquisition and related costs consist primarily of investment banking fees,
other professional service fees, certain tax payments and other contractual
payments resulting from the consummation of the Company's poolings of interests
transactions.
The following sets forth, for the periods indicated, certain components of the
Company's income statement data, including such data as a percentage of
revenues. Pro forma net income includes a provision for income taxes as if all
operations of the Company had been taxed as a C corporation for all periods
presented. Pro forma net income from continuing operations, excluding non-
recurring items represents income from continuing operations adjusted to reflect
a provision for income taxes as if the Company had been taxed similarly to a C
corporation for all periods presented and the elimination of compensation to
stockholders, ESOP expense and acquisition and related costs. Compensation to
stockholders, ESOP expense and acquisition and related costs are considered to
be nonrecurring by the
14
<PAGE>
Company, because the Company's current operations will not result in any
compensation to stockholders, ESOP expense or acquisition and related costs in
future periods.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
---------------------------------------- -----------------------------------
Ended June 30, Ended June 30,
---------------------------------------- -----------------------------------
1998 1997 1998 1997
----------------- ----------------- ---------------- -----------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues ........................ $167,566 100.0% $129,164 100.0% $314,419 100.0% $247,748 100.0%
Operating expenses:
Cost of services .................... 111,407 66.5 88,570 68.6 208,900 66.4 171,476 69.2
Selling, general and administra-
tive expenses ..................... 32,203 19.2 25,891 20.0 61,572 19.6 50,176 20.3
Compensation to stockholders ....... -- -- 822 0.6 -- -- 2,249 0.9
ESOP Expense......................... -- -- 1,252 1.0 -- -- 2,497 1.0
Acquisition and related costs ...... -- -- -- -- 33,953 10.8 16,181 6.5
-------- ----- -------- ----- -------- ----- -------- -----
Income loss from operations ......... 23,956 14.3 12,629 9.8 9,994 3.2 5,169 2.1
Interest income (expense), net ...... 718 0.4 (123) (0.1) 1,456 0.5 (372) (0.1)
Income tax provision ................ 9,376 5.6 3,829 3.0 7,030 2.2 6,118 2.5
-------- ----- -------- ----- -------- ----- -------- -----
Income (loss) before discontinued
operations ......................... 15,298 9.1 8,677 6.7 4,420 1.5 (1,321) (0.5)
Loss from discontinued operations..... -- -- (623) (0.5) -- -- (1,181) (0.5)
-------- ----- -------- ----- -------- ----- -------- -----
Net income (loss) ................... $ 15,298 9.1% $ 8,054 4.2% $ 4,420 1.5% $ (2,502) (1.0)%
======== ===== ======== ===== ======== ===== ======== =====
Pro forma net income (loss) from
continuing
options.............................. $ 15,298 9.1% $ 7,448 5.8% $ 2,866 0.9% $ (3,107) (1.3)%
======== ===== ======== ===== ======== ===== ======== =====
Pro forma net income (loss) ......... $ 15,298 9.1% $ 7,076 5.5% $ 2,866 0.9% $ (3,812) (1.5)%
======== ===== ======== ===== ======== ===== ======== =====
Pro forma net income from continuing
operations, excluding non-recurring
items .............................. $ 15,298 9.1% $ 8,573 6.6% $ 28,150 9.0% $ 15,099 6.1%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
Revenues Revenues increased $38.4 million, or 29.7%, to $167.6 million in
the second quarter of 1998 from $129.2 million in the second quarter of 1997.
For the six months ended June 30, 1998, revenues of $314.4 million were 26.9%
greater than the same period in 1997. The increase in revenues for the quarter
ended June 30, 1998 and the six months ended June 30, 1998 was due primarily to
increased sales volumes in the Medical Services and Communications Services
groups. The Medical Services and Communications Services groups experienced
growth in the services provided to both new and existing customers. Revenues in
the Medical Services group increased $27.8 million and $44.4 million for the
three months and the six months ended June 30, 1998, respectively. The increase
in revenues in the Communications Services group accounted for 23.5% and 29.9%
of the total increase in revenues for the three months and the six months ended
June 30, 1998, respectively.
Cost of Services. Cost of services increased $22.8 million, or 25.7%, to
$111.4 million in the second quarter of 1998 from $88.6 million in the second
quarter of 1997. Cost of services as a percentage of revenues decreased to 66.5%
in the second quarter of 1998 from 68.6% in the second quarter of 1997, and to
66.4% for the six months ended June 30, 1998 from 69.2% for the six months ended
June 30, 1997. The Company's management and client support personnel were able
to support increased client services during the three months and the six months
ended June 30, 1998, resulting in a decrease in cost of services as a percentage
of revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $6.3 million, or 24.3%, to $32.2 million in
the second quarter of 1998 from $25.9 million in the second quarter of 1997.
Selling, general and administrative expenses as a percentage of revenues
decreased to 19.2% in the second quarter of 1998 from 20.0% in the second
quarter of 1997, and to 19.6% for the six months ended June 30, 1998 from 20.3%
for the six months ended June 30, 1997. A moderately increased corporate
overhead expense was spread over a larger base of revenues during the three
months and the six months ended June 30, 1998, resulting in a decrease in
selling, general and administrative expenses as a percentage of revenues.
Compensation to Stockholders. No compensation to stockholders was recorded
in the three months or the six months ended June 30, 1998. Compensation to
stockholders was $0.8 million and $2.2 million in the three months and the six
months ended June 30, 1997, respectively. Compensation to stockholders reflects
compensation paid to certain stockholders of acquired companies prior to their
respective mergers with the Company that is in excess of the compensation
provided for in their employment contracts with the Company. No compensation to
stockholders is recorded subsequent to an acquisition by the Company.
ESOP Expense. No ESOP expense was recorded in the three months or the six
months ended June 30, 1998. ESOP expense was $1.3 million and $2.5 million in
the three months and the six months ended June 30, 1997. During 1997, all
obligations of the ESOP were
15
<PAGE>
settled, and the Company does not expect to incur any ESOP expense in 1998 or
any future periods. The employees of one of the acquired companies that
previously participated in the ESOP will now participate in the Company's stock
incentive plan.
Acquisition and Related Costs. The Company recorded $34.0 million and $16.2
million in acquisition and related costs during the six months ended June 30,
1998 and 1997, respectively. The $34.0 million in acquisition and related costs
recorded during the six months ended June 30, 1998 includes $29.3 million in
costs directly related to the consummation of the Company's pooling of interests
transactions completed during the three months ended March 31, 1998 and $4.7
million for the consolidation of certain acquired operations in the U.S. and the
U.K. The charge consists of $2.3 million to consolidate and terminate lease
obligations and to write off leasehold improvements at the office facilities of
three acquired subsidiaries and $2.4 million in severance and related costs to
terminate employment of certain management and administrative personnel at three
acquired subsidiaries. In total, 66 employees will be terminated in the
restructuring, four of whom were laid off during the six months ended June 30,
1998. The Company did not complete any acquisitions during the second quarter of
1998, and no acquisition and related costs were recorded during the second
quarter of 1998. The $16.2 million in acquisition costs recorded during the six
months ended June 30, 1997 were costs directly related to the consummation of
the Company's pooling of interests transactions completed during the three
months ended March 31, 1997 and included approximately $9.1 million from the
accelerated vesting of options held by employees at one of the acquirees in the
U.K. The Company did not complete any acquisitions during the second quarter of
1997, and no acquisition and related costs were recorded during the second
quarter of 1997.
Interest Income (Expense), net. The Company recorded net interest income of
$0.7 million and $1.5 million in the three months and the six months ended June
30, 1998 and net interest expense of $0.1 million and $0.4 million in the three
months and the six months ended June 30, 1997. The net interest income recorded
during the three months and the six months ended June 30, 1998 corresponds to
the increase in funds available for investment. The Company's average cash
balance in the three months and the six months ended June 30, 1998 was greater
than in the three months and the six months ended June 30, 1997 due primarily to
public stock offerings and stock option exercises. The net interest expense
recorded during the three months and the six months ended June 30, 1997 consists
primarily of interest on debt at acquired companies prior to their acquisition
by the Company. The Company generally repays the debt of its acquirees.
Income Tax Provision. The Company recorded a $9.4 million tax provision in
the second quarter of 1998 and a $3.8 million tax provision in the second
quarter of 1997. The tax provision for the second quarter of 1997 reflects a
lower rate than the tax provision for the second quarter of 1998, because the
second quarter of 1997 results have been restated for subsequent pooling of
interests transactions and not all of the entities acquired were taxed as
C corporations prior to their acquisition by the Company. The Company recorded a
$7.0 million tax provision for the six months ended June 30, 1998 and a $6.1
million tax provision for the six months ended June 30, 1997. The Company's
effective tax rate for the six months ended June 30, 1998 and 1997 differs from
the Federal statutory rate due primarily to the nondeductibility of certain
nonrecurring acquisition costs, state income taxes, the tax status of certain of
the Pooled Entities prior to their mergers with the Company and different
statutory rates for the Company's international operations.
Discontinued Operations. The loss from discontinued operations of $0.4
million and $0.7 million in the three months and the six months ended June 30,
1997 consists of the loss from the sports management operations which were spun
off from one of the Company's 1998 acquirees in October 1997.
Pro Forma Net Income (Loss). Pro forma net income increased $8.2 million, or
115%, to $15.3 million in the second quarter of 1998 from $7.1 million in the
second quarter of 1997 due primarily to the Company's overall growth and
improved gross margins. Pro forma net income increased to $2.9 million in the
six months ended June 30, 1998 from a loss of $3.8 million in the six months
ended June 30, 1997 due primarily to the growth in revenues and improved margins
offset by the increase in acquisition and related costs. Pro forma income from
continuing operations and excluding nonrecurring costs increased $6.7 million,
or 77.9%, to $15.3 million in the second quarter of 1998 from $8.6 million in
the second quarter of 1997, and to $28.2 million in the six months ended June
30, 1998 from $15.1 million in the six months ended June 30, 1997. Pro forma
diluted net income per share from continuing operations and excluding
nonrecurring costs increased $0.09, or 60.0%, to $0.24 in the second quarter of
1998 from $0.15 in the second quarter of 1997, and to $0.45 in the six months
ended June 30, 1998 from $0.27 in the six months ended June 30, 1997. The
increase in pro forma income from continuing operations and excluding
nonrecurring costs is due primarily to the growth in revenues and the improved
gross margins.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had $71.9 million in cash and equivalents. Cash
and equivalents decreased $10.0 million during the six months ended June 30,
1998, due to the $2.5 million used in operating activities and the $22.9 million
used in investing activities offset by the $15.4 million provided by financing
activities.
The Company's recurring operations (excluding compensation to stockholders,
ESOP expense and acquisition and related costs) have provided positive cash
flows in the six months ended June 30, 1998.
The cash used in investing activities consists primarily of the purchases of
property and equipment. The cash used in financing activities consists primarily
of proceeds from the issuance of common stock and the exercise of common stock
options offset by the repayment of debt, dividends and distributions to
shareholders of acquirees prior to their acquisition by the Company, and the
acquisition of treasury stock.
16
<PAGE>
The Company experienced significant growth during 1997 and during the six
months ended June 30, 1998 and expects to continue to grow through both internal
expansion and complementary acquisitions. The Company believes that its cash and
equivalents, as well as the cash provided by operations, will be sufficient to
fund its current operations and planned capital expenditures. To the extent that
the consideration paid for future acquisitions does not include securities of
the Company, acquisitions will initially be financed using excess cash and
equivalents, but depending on the amount necessary to complete an acquisition,
additional financing may be required.
The Company is undergoing an assessment of its current systems and equipment
and is in the process of making the modifications necessary to address the
issues presented by the Year 2000 issue. The Company expects to incur no more
than $3.0 million in capital expenditures in 1998 with respect to system
upgrades which are designed in part to address specific Year 2000 requirements.
To the extent that additional acquisitions are consummated, the Company will
need to evaluate how the Year 2000 will impact its future acquirees.
The Company is subject to the impact of foreign currency fluctuations,
specifically that of the British pound and French franc. To date, changes in the
British pound and French franc exchange rates have not had a material impact on
the Company's liquidity or results of operations. The Company continually
evaluates its exposure to exchange rate risk but does not currently hedge such
risk.
Given the extent of the Company's services currently provided in continental
Europe and the nature of those services, the Company does not expect the
introduction of the EURO to have a material impact on its operations or cash
flows. The Company will continue to evaluate the impact of the introduction of
the EURO as it continues to expand the services offered and the European
locations in which it operates.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") during the three months ended
March 31, 1998. Comprehensive income includes net income and all other nonowner
changes in equity in a period. The Company's comprehensive income of $4.8
million for the six months ended June 30, 1998 consists of its net income,
foreign currency translation adjustment and unrealized gain on marketable
securities.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). This Statement is effective for all fiscal
quarters beginning after June 15, 1999. SFAS 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS 133
is not expected to have a material impact on the Company's Financial
Statements. If there is a change in the Company's financial policies regarding
the use of derivative instruments or hedging activities, the Company will need
to evaluate the impact of SFAS 133.
17
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable
PART II. OTHER INFORMATION
Item 2. Changes in Securities.
(c) During the three months ended June 30, 1998, the Company issued 74,294
shares of Common Stock, $.001 par value, to former shareholders of Blau
Marketing Technologies, Inc. ("Blau") upon the exercise of options received by
such shareholders in the merger between the Company and Blau. The options were
exercised for an aggregate price of $414,309, at exercise prices ranging
between $1.31 and $29.59 per share. The shares were issued without registration
in reliance upon the exemption provided by Section 4(2) of the Securities Act of
1933, as amended.
Item 4. Submission of Matters to a Vote of Security Holders.
Matters as specified in the Company's Proxy Statement dated April 6, 1998, a
copy of which has previously been filed with the Securities and Exchange
Commission, were considered and approved by the Company's stockholders at the
Annual Meeting of Stockholders held on May 6, 1998. The results of such matters
are as follows.
Proposal 1: To elect seven directors of the Company, each to serve for a one-
year term expiring at the Company's 1999 Annual Meeting of Stockholders, and
until his or her respective successor is elected and qualified or until his or
her earlier resignation or removal.
<TABLE>
<CAPTION>
Total Votes
Total Votes For Against or Withheld
--------------- -------------------
<S> <C> <C>
Daniel M. Snyder 44,303,631 158,591
Michele D. Snyder 44,303,631 158,591
A. Clayton Perfall 44,303,631 158,591
Mortimer B. Zuckerman 44,303,631 158,591
Fred Drasner 44,303,631 158,591
Philip Guarascio 44,303,631 158,591
Mark E. Jennings 44,303,631 158,591
</TABLE>
Proposal 2: To amend the Certificate of Incorporation to increase the
authorized shares of Common Stock.
<TABLE>
<CAPTION>
Total Votes Number of
Total Votes For Against or Withheld Abstentions
--------------- ------------------- -----------
<S> <C> <C> <C>
Amend the Certificate of Incorporation 36,469,107 7,970,866 22,249
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
(1) Current Report on Form 8-K, filed on April 3, 1998
(2) Current Report on Form 8-K, filed on May 5, 1998
(3) Current Report on Form 8-K, filed on May 20, 1998
(4) Current Report on Form 8-K, filed on May 21, 1998
18
<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, 1998 /s/ Michele D. Snyder
-----------------------
Michele D. Snyder
Vice Chairman, President and
Chief Operating Officer
(Duly Authorized Officer)
Date: August 14, 1998 /s/ A. Clayton Perfall
------------------------
A. Clayton Perfall
Chief Financial Officer
(Principal Financial Officer)
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the interim
financial statements as of and for the six months ended June 30, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 71,903
<SECURITIES> 1,006
<RECEIVABLES> 121,368
<ALLOWANCES> 6,732
<INVENTORY> 0
<CURRENT-ASSETS> 318,24
<PP&E> 100,544
<DEPRECIATION> 41,559
<TOTAL-ASSETS> 554,332
<CURRENT-LIABILITIES> 256,857
<BONDS> 0
0
0
<COMMON> 63
<OTHER-SE> 280,333
<TOTAL-LIABILITY-AND-EQUITY> 554,332
<SALES> 314,419
<TOTAL-REVENUES> 314,419
<CGS> 208,900
<TOTAL-COSTS> 208,900
<OTHER-EXPENSES> 61,572
<LOSS-PROVISION> (37)
<INTEREST-EXPENSE> 650
<INCOME-PRETAX> 11,449
<INCOME-TAX> 7,030
<INCOME-CONTINUING> 4,419
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,419
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
