<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q/A
Amendment No. 1
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1999
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 20817
6903 Rockledge Drive (Zip Code)
15th Floor
Bethesda, Maryland
(Address of principal
executive office)
(301) 468-1010
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
___ ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $0.001 Par Value, 75,049,282 shares outstanding as of April 26,
1999
<PAGE>
SNYDER COMMUNICATIONS, INC.
FORM 10-Q/A
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-Q/A amends and restates in their entirety
the following items of Snyder Communications, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999:
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet as of March 31,
1999 and December 31, 1998 3
Condensed Consolidated Statement of Income for the
three months ended March 31, 1999 and 1998 4
Condensed Consolidated Statement of Equity and
Comprehensive Income for the three
months ended March 31, 1999 5
Condensed Consolidated Statement of Cash Flows for
the three months ended March 31, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
(in thousands)
<S> <C> <C>
Assets
Current assets:
Cash and equivalents $ 56,404 $ 47,931
Marketable securities - 612
Accounts receivable, net of allowance for doubtful accounts of $6,393
and $7,031 at March 31, 1999 and December 31, 1998, respectively 94,759 78,901
Receivables from pass through costs 97,675 86,015
Unbilled services 10,295 19,708
Receivables from related parties 190 190
Net assets of discontinued operations - current 33,594 24,447
Deferred tax asset 12,341 13,671
Other current assets 17,651 11,560
--------- ---------
Total current assets 322,909 283,035
Property and equipment, net 71,329 70,367
Goodwill and other intangible assets,net 140,025 72,288
Net assets of discontinued operations - non-current 112,211 95,280
Deferred tax asset 86,401 86,637
Deposits and other assets 5,493 5,645
--------- ---------
Total assets $738,368 $613,252
========= =========
Liabilities and Equity
Current liabilities:
Lines of credit $ 1,500 $ 1,825
Current maturities of long-term debt 1,063 1,085
Accrued payroll 15,507 13,423
Accounts payable 116,235 114,541
Accrued expenses 94,314 80,547
Client advances 4,783 11,753
Unearned revenue 18,974 14,535
--------- ---------
Total current liabilities 252,376 237,709
--------- ---------
Related party borrowings, net of current maturities 8,628 8,924
Long-term obligations under capital leases 1,570 1,743
Long-term debt, net of current maturities 1,440 1,616
Other liabilities 3,637 2,922
--------- ---------
Total liabilities 267,651 252,914
--------- ---------
Commitments and contingencies:
Redeemable ESOP stock, 88 and 90 shares outstanding as of March 31, 1999
and December 31, 1998, respectively 2,425 2,960
Equity:
Preferred stock, $.001 par value, 5,000 shares authorized, none issued
and outstanding at March 31, 1999 and December 31, 1998, respectively - -
Common stock, $.001 par value, 400,000 shares authorized,
74,986 and 71,480 shares issued and oustanding at
March 31, 1999 and December 31, 1998, respectively 75 71
Additional paid-in capital 470,117 375,114
Accumulated other comprehensive income (loss) (1,714) 1,829
Retained deficit (186) (19,636)
--------- ---------
Total equity 468,292 357,378
--------- ---------
Total liabilities and equity $738,368 $613,252
========= =========
</TABLE>
The accompanying notes are an integral part of this condensed consolidated
balance sheet.
3
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
---------------
1999 1998
------------------ ------------------
(in thousands, except per share data)
<S> <C> <C>
Net revenues $138,081 $109,584
Operating expenses:
Cost of services 90,930 71,497
Selling, general, and administrative 24,168 23,975
expenses
Compensation to stockholders - 192
Acquisition and related costs 709 22,597
------------------ -----------------
Income (loss) from operations 22,274 (8,677)
Interest expense (286) (441)
Investment Income 670 898
------------------ -----------------
Income (loss) from continuing operations
before income taxes 22,658 (8,220)
Income tax provision (benefit) 8,832 (3,644)
------------------ -----------------
Income (loss) from continuing operations 13,826 (4,576)
Income (loss) from discontinued operations,
net of income taxes 5,089 (4,052)
------------------ -----------------
Net income (loss) $ 18,915 $ (8,628)
================== =================
Historical net income (loss) per share:
Basic net income (loss) per share
Continuing operations $ 0.19 $ (0.07)
Discontinued operations 0.07 (0.06)
------------------ -----------------
Basic net income (loss) per share $ 0.26 $ (0.13)
================== =================
Diluted net income (loss) per share
Continuing operations $ 0.19 $ (0.07)
Discontinued operations 0.07 (0.06)
------------------ -----------------
Diluted net income (loss) per share $ 0.26 $ (0.13)
================== =================
Pro forma net income (loss) per share
(Note 7):
Basic net income (loss) per share
Continuing operations $ 0.19 $ (0.10)
Discontinued operations 0.07 (0.06)
------------------ -----------------
Basic net income (loss) per share $ 0.26 $ (0.16)
================== =================
Diluted net income (loss) per share
Continuing operations $ 0.19 $ (0.10)
Discontinued operations 0.07 (0.06)
------------------ -----------------
Diluted net income (loss) per share $ 0.26 $ (0.16)
================== =================
</TABLE>
The accompanying notes are an integral part of this condensed consolidated
statement of income.
4
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON COMMON STOCK PAR ADDITIONAL RETAINED EARNINGS
STOCK SHARES VALUE PAID-IN CAPTIAL (DEFICIT)
-------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Balance, December 31, 1998 71,480,000 $71 $375,114 $(19,636)
Exercise of stock options and 437,000 1 12,721 -
subsidiary stock appreciation rights
Issuance of shares for purchase of 3,069,000 3 82,282 -
subsidiaries and property
Foreign currency translation adjustment - - - -
Unrealized loss on marketable securities - - - -
Reclassification of redeemable ESOP - - - 535
stock
Net income - - - 18,915
-------------------------------------------------------------------------------
Comprehensive income - - - -
-------------------------------------------------------------------------------
Balance, March 31, 1999 74,986,000 $75 $470,117 $ (186)
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED OTHER TOTAL COMPREHENSIVE
COMPHREHENSIVE INCOME (LOSS) INCOME
----------------------------------------- --------------------
<S> <C> <C> <C>
Balance, December 31, 1998 $ 1,829 $357,378 $ -
Exercise of stock options and - 12,722 -
subsidiary stock appreciation rights
Issuance of shares for purchase of - 82,285 -
subsidiaries and property
Foreign currency translation adjustment (3,532) (3,532) (3,532)
Unrealized loss on marketable securities (11) (11) (11)
Reclassification of redeemable ESOP - 535 -
stock
Net income - 18,915 18,915
----------------------------------------- --------------------
Comprehensive income - - $15,372
----------------------------------------- ====================
Balance, March 31, 1999 $(1,714) $468,292
=========================================
</TABLE>
The accompanying notes are an integral part of this condensed consolidated
statement of equity and comprehensive income.
5
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1999 1998
--------- ----------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 18,915 $ (8,628)
Income (loss) from discontinued operations, net of income taxes 5,089 (4,052)
---------- ----------
Income (loss) from continuing operations $ 13,826 $ (4,576)
Adjustments to reconcile income (loss) from continuing operations
to cash provided by (used in) operating activities:
Depreciation and amortization 5,272 3,660
Deferred taxes 2,406 (9,131)
(Gain) loss on disposal of assets 41 122
Other (11) 30
Changes in assets and liabilities:
Accounts receivable (13,676) (8,600)
Accounts receivable, related party - (510)
Receivables from pass through costs (7,744) (6,756)
Unbilled services 12,329 6,461
Deposits and other noncurrent assets 201 (315)
Other current assets (747) 109
Accrued payroll, accounts payable and accrued expenses (903) 22,206
Unearned revenue 3,907 (2,647)
Client advances (6,971) (7,611)
---------- ----------
Net cash provided by (used in) operating activities 7,930 (7,558)
---------- ----------
Cash flows from investing activities:
Purchase of subsidiaries, net of cash acquired 1,553 (5,157)
Purchases of property and equipment (5,486) (9,349)
Net sales of marketable securities 612 118
Purchase of intangibles (577) (199)
Note and net advances to stockholders - 276
---------- ----------
Net cash used in investing activities (3,898) (14,311)
---------- ----------
Cash flows from financing activities:
Repayments on long term notes payable to limited partners and others (77) 1,545
Proceeds from issuance of subordinated debentures to related parties - (425)
Distributions and dividends - (2,683)
Purchase and retirement of treasury stock - (2,096)
Proceed (repayments) of long term debt 517 4,846
Net repayments of line of credit (325) (5,795)
Payments on capital lease obligations (570) (717)
Proceeds from exercise of options 10,940 7,172
Proceeds from issuance of common stock - 6,952
---------- ----------
Net cash provided by financing activities 10,485 8,799
---------- ----------
Investments and advances (to) from discontinued operations (5,754) (5,780)
Effect of exchange rate changes (290) 253
Net decrease in cash and equivalents 8,473 (18,597)
Cash and equivalents, beginning of period 47,931 71,789
---------- ----------
Cash and equivalents, end of period $ 56,404 $ 53,192
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 360 $ 700
Cash paid for income taxes 4,260 2,338
Supplemental disclosure of noncash activities:
Equipment purchased under capital leases - 201
Issuance of shares of common stock for purchase of subsidiaries 82,285 50,717
Issuance of common stock related to stock appreciation rights - 3,703
Tax benefit from the exercise of stock options 1,781 1,829
Issuance of notes for purchse of subisidiary - 1,350
Tax benefit from taxable merger transactions - 44,348
</TABLE>
The accompanying notes are an integral part of this condensed consolidated
statement of cash flows.
6
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(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") 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 "Snyder Communications", or the "Company").
Since completing the initial public offering in September 1996, the Company has
expanded by building and initiating new programs or services and by acquiring
businesses that offer complementary services.
Snyder Communications provides outsourced marketing solutions and operates in
three main areas: an international advertising, direct marketing and
communications agency ("SNC"); a healthcare marketing services group
("Healthcare"), which the Company plans to spin-off as discussed below; and an
Internet professional services business ("circle.com"). SNC provides
advertising and direct marketing services to clients worldwide. Healthcare is a
leading provider of marketing and sales services for the pharmaceutical and life
sciences industries. Circle.com creates Internet-based customer relationship
management solutions for its clients.
On May 6, 1999, the Board of Directors of Snyder Communications authorized,
subject to stockholder approval, the issuance of two new series of common stock,
the circle.com common stock (the "circle.com Stock") and the SNC common stock
(the "SNC Stock"). If stockholder approval occurs, each share of the Company's
outstanding common stock will be exchanged for one share of SNC Stock and .25 of
a share of the circle.com Stock. The circle.com Stock will serve as a tracking
stock to separately reflect the performance of circle.com. The shares of
circle.com Stock will initially represent 80% of the equity value attributed to
circle.com. The remaining equity value attributed to circle.com will remain
with SNC as its retained interest in circle.com. The SNC Stock will serve as a
tracking stock to separately reflect the performance of SNC and a retained
interest in circle.com. The Company expects to issue the circle.com Stock and
SNC Stock to existing stockholders in the second half of 1999. The historic
results of both circle.com and SNC are included in the accompanying condensed
consolidated financial statements. Although the Company will allocate certain
assets, liabilities, revenues, expenses and cash flows to circle.com and SNC,
the allocation will not change the legal title to any assets or responsibility
for any liabilities and will not affect the rights of creditors. Holders of the
circle.com Stock and SNC Stock will be common stockholders of the Company and
will be subject to all the risks associated with an investment in Snyder
Communications and all of its businesses, assets and liabilities. Material
financial events, which may occur at Snyder Communications, may adversely affect
circle.com's and SNC's results of operations or financial position.
On June 22, 1999, the Board of Directors of Snyder Communications approved a
spin-off (the "Distribution") of Healthcare to existing shareholders. The
Company intends to consummate the Distribution during the second half of 1999
through a dividend of .5 shares of common stock of Snyder Healthcare Services,
Inc. for each share of Snyder Communications common stock. Accordingly, the
accompanying financial statements have been restated to reflect Healthcare as
discontinued operations for all periods in accordance with generally accepted
accounting principles ("GAAP"). The accompanying notes, except Note 2, relate
only to the continuing operations of the Company.
During the first quarter of 1999, the Company issued 3,053,772 shares of its
common stock in conjunction with the
7
<PAGE>
acquisitions of PromoTech Research Associates ("PromoTech") and Media
Syndication Global ("MSG"). PromoTech Research Associates is a pharmaceutical
marketing communications firm that distributes product samples and educational
materials to pharmaceutical sales representatives and physicians. PromoTech, as
part of Healthcare, is included in the Company's discontinued operations. Media
Syndication Global is a marketing and media services company that provides
broad-reaching alternative media solutions. These acquisitions were originally
accounted for as pooling of interest transactions. However, as a result of the
June 1999 decision by the Company to distribute Healthcare to its existing
shareholders, the accompanying financial statements have been restated to
reflect the acquisitions of PromoTech and MSG as purchases in accordance with
GAAP.
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 GAAP have been
condensed or omitted. The Company believes that the disclosures made are
adequate to make the information presented not misleading. The condensed
consolidated financial statements reflect all adjustments (consisting of only
normal recurring adjustments) which, in the opinion of management, are necessary
to present fairly the financial position, results of operations and cash flows
of the Company as of March 31, 1999 and for the three months ended March 31,
1999 and 1998. Certain amounts previously presented have been reclassified to
conform to March 31, 1999 presentation. Operating results for the three month
period ended March 31, 1999 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1999. The unaudited condensed
consolidated financial statements should be read in conjunction with the
financial statements and footnotes thereto included in the Company's
Registration Statement on Form S-4, as filed with the Securities and Exchange
Commission on the same date as this Form 10-Q/A, Amendment No. 1, for the
quarterly period ended March 31, 1999.
2. DISCONTINUED OPERATIONS:
As discussed above, on June 22, 1999, the Board of Directors of Snyder
Communications approved the spin-off of Healthcare to existing shareholders.
The Company intends to complete the Distribution during the second half of 1999
through a dividend of .5 shares of common stock of Snyder Healthcare Services,
Inc. for each share of Snyder Communications common stock. Accordingly, the
accompanying financial statements have been restated to reflect Healthcare as
discontinued operations for all periods in accordance with GAAP. The operating
results of Healthcare, which are presented as net income (loss) from
discontinued operations, net of tax, in the accompanying condensed consolidated
statement of income, are summarized below:
<TABLE>
<CAPTION>
For the three months
Ended March 31,
1999 1998
-----------------------------------
(in thousands except per share data)
<S> <C> <C>
Revenues $86,939 $ 67,356
Operating expenses:
Cost of services 66,856 49,163
Selling, general and administrative expenses 10,346 8,415
Non-recurring comp., ESOP and recap. costs - 236
---------- ----------
Earnings before interest, taxes and one time costs (EBIT) 9,737 9,542
Acquisition costs & non-recurring charges 1,576 11,356
---------- ----------
Income from operations 8,161 (1,814)
Interest expense (41) (525)
Interest/dividend/investment income 278 242
---------- ----------
8,398 (2,097)
Income tax (provision) benefit (3,309) (1,955)
---------- ----------
Net income (loss) $ 5,089 $(4,052)
========== ==========
Basic Earnings (loss) Per Share of Snyder Stock 0.07 (0.06)
Diluted Earnings (loss) Per Share of Snyder Stock 0.07 (0.06)
</TABLE>
The net assets of discontinued operations presented in the accompanying
condensed consolidated balance sheet represent the net assets of Healthcare, the
components of which are summarized below:
8
<PAGE>
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------- ------------
Assets
<S> <C> <C>
Cash and cash equivalents $ 24,288 $ 25,664
Net Accounts Receivable 50,700 43,521
Other Current Assets 35,713 26,264
------------- ------------
Current Assets 110,701 95,449
------------- ------------
Net Property and Equipment 11,754 10,028
Net Goodwill & Other Intangibles 97,335 80,728
Other Non-current Assets 4,461 7,439
------------- ------------
Total Assets $224,251 $193,644
============= ============
Liabilities and Equity
Accounts Payable and Accrued Expenses $ 59,670 $ 60,393
Other Current Liabilities 17,437 10,609
------------- ------------
Current Liabilities: 77,107 71,002
------------- ------------
Other Long Term Liabilities 1,339 2,915
------------- ------------
Total Liabilities $ 78,446 $ 73,917
============= ============
Net Assets $145,805 $119,727
============= ============
</TABLE>
3. SEGMENT INFORMATION:
As discussed in Note 1, the continuing operations of the company consist of an
international advertising, direct marketing and communications organization
("SNC"), and an Internet professional services business ("circle.com"). The
Company evaluates the performance of its two groups based on earnings before
interest and taxes (EBIT) from the combined subsidiaries in each operating
group, excluding nonrecurring acquisition and related costs, and compensation to
stockholders. All activity between the operating groups has been eliminated with
respect to revenue and EBIT.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1999 1998
--------- ---------
(in thousands)
<S> <C> <C>
Revenues:
SNC $ 132,955 $ 107,841
circle.com 5,126 1,743
---------- ---------
Total $ 138,081 $ 109,584
========= =========
EBIT:
SNC $ 24,168 $ 14,440
circle.com (1,185) (328)
--------- ---------
Total $ 22,983 $ 14,112
========= =========
Reconciliation of EBIT to Income (Loss) from Continuing Operations:
Total EBIT for operating groups $ 22,983 $ 14,112
Compensation to stockholders - (192)
Acquisition and related costs (709) (22,597)
------- --------
Income (loss) from continuing
operations $ 22,274 $ (8,677)
========= ========
March 31, December 31,
1999 1998
------- --------
(in thousands)
Total Assets:
SNC $576,917 $478,483
circle.com 15,646 15,042
-------- --------
Total $592,563 $493,525
======== ========
</TABLE>
9
<PAGE>
4. BUSINESS COMBINATIONS:
The following details revenues and net income (loss) for the three months ended
March 31, 1998 of the continuing operations of the Company and all entities
acquired through pooling of interests combinations ("Pooled Entities") through
the dates of their respective mergers. The "Snyder" amounts include the
financial results of the original operations of the Company for the entire
period and the financial results of the Pooled Entities for the period
subsequent to the dates of their respective mergers.
For the Three Months
Ended March 31,
1999 1998
------ ------
(in thousands)
Revenues:
Snyder Continuing Operations $ 138,081 $ 63,025
Pooled Entities Continuing Operations -- 46,559
--------- --------
$ 138,081 $ 109,584
========= =========
Net income (loss):
Snyder Continuing Operations $ 13,826 $ (2,326)
Pooled Entities Continuing Operations -- (2,250)
-------- ---------
$ 13,826 $ (4,576)
========== =========
During the three months ended March 31, 1998, Snyder and the Pooled Entities
recorded $6.9 million and $15.7 million, respectively, in nonrecurring
acquisition and related costs. Additionally for the three months ended March 31,
1998, the Pooled Entities recorded $0.2 million of nonrecurring compensation to
stockholders. Excluding the nonrecurring costs and assuming that all of the
Pooled Entities had been taxed similarly to C corporations, Snyder would have
recorded approximately $4.2 million in income from continuing operations for the
three months ended March 31, 1998 and the Pooled Entities would have recorded
approximately $5.1 million in net income for the same period for a combined
basic and diluted net income excluding nonrecurring costs per share of $0.14 and
$0.13, respectively.
5. ACQUISITION AND RELATED COSTS:
During the three months ended March 31, 1999, the Company recorded $0.7 million
in nonrecurring acquisition and related costs. These costs represent a charge
for costs necessary to consolidate and integrate certain of the Company's
acquired operations in the U.S. The Company is integrating acquired subsidiaries
that provide similar services within the same geographic regions. Under the
Company's plan initiated in the fourth quarter of 1998, two locations have been
consolidated into one, and the efforts will not have a significant impact on the
Company's workforce. The Company expects these integration activities to be
substantially complete by the third quarter of 1999. The charge recorded in the
first quarter of 1999 consists of $0.7 million of fees incurred for consulting
services and other costs related to these integration activities. In 1998, the
Company recorded approximately $2.6 million of costs to consolidate and
integrate certain of the Company's operations, including costs associated with
the planned termination of 42 employees. As of March 31, 1999, no employees had
terminated employment with the Company and $1.3 million had been charged against
the total liability of $3.3 million.
During the three months ended March 31, 1998, the Company recorded $22.6 million
in nonrecurring acquisition and related costs. These costs are related to the
consummation of pooling of interests transactions in the first quarter of 1998
and consist primarily of investment banking fees, other professional service
fees and other contractual payments.
10
<PAGE>
6. INCOME TAXES:
The Company's effective tax rate for the three months ended March 31, 1999 and
1998 differs from the federal statutory rate due primarily to the
nondeductibility of certain nonrecurring acquisition costs, state income taxes,
the different tax status of certain of the Pooled Entities prior to their merger
with Snyder Communications and different statutory rates for the Company's
international operations.
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 on the
Company's recurring operations reflects the combined federal, state, and foreign
income taxes of approximately 38.0 percent and 36.0 percent for the three
months ended March 31, 1999 and 1998, respectively. The pro forma income tax
rates in the table below differ from the pro forma income tax rates on the
Company's recurring operations due to the nondeductibility of certain of the
acquisition and related costs. The Company's March 31, 1999 and 1998 tax
provisions exceed the Company's statutory rate due to the recognition of certain
acquisition and related costs which are not deductible for income tax purposes.
The table below presents this pro forma calculation of net income (loss):
For the Three Months
Ended March 31,
1999 1998
------ -------
Pro forma net income (loss) data: (in thousands)
Historical income (loss) before income taxes $ 22,658 $ (8,220)
Pro forma provision (benefit) for income
taxes 8,832 (1,648)
-------- --------
Pro forma net income (loss) $ 13,826 $ (6,572)
======== ========
8. DEBT - LINE OF CREDIT:
In April 1999, the Company entered into a $25 million, one-year unsecured
revolving credit facility (the "Credit Facility") with a bank (the "Lending
Bank"). Availability under the Credit Facility is subject to the Company's
compliance with various financial ratios, operating covenants and other
customary conditions. Interest on amounts borrowed under the Credit Facility is
based on either the London Interbank Offered Rate, the Lending Bank's base rate
of interest or the federal funds rate. On April 28, 1999, there were no
outstanding borrowings under the Credit Facility.
9. ACCUMULATED OTHER COMPREHENSIVE INCOME:
Accumulated other comprehensive income includes the cumulative amounts for
foreign currency translation adjustments and unrealized gains and losses on
marketable securities. The cumulative foreign currency translation adjustment
was ($1,713,494) and $1,817,696 as of March 31, 1999 and December 31, 1998,
respectively. The cumulative gain on marketable securities was $10,849 as of
December 31, 1998.
11
<PAGE>
10. 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.
For the Three Months
Ended March 31,
1999 1998
---- ----
(in thousands)
Weighted average shares outstanding
for the period used in computation
of basic net income per share 71,889 67,747
Dilutive impact of stock options 1,814 --
------ -------
Shares used in computation of diluted
net income per share 73,703 67,747
====== ======
For the three months ended March 31, 1999 and 1998, weighted average common
stock equivalents of 40,700 and 2,558,409, respectively, are not included in the
calculation of diluted net income per share because they were antidilutive for
the period.
11. SUBSEQUENT EVENTS:
As discussed in Note 1, on June 22, 1999, the Board of Directors of Snyder
Communications approved the Distribution, expected to occur in the second half
of 1999. As a result, the Company's financial statements have been restated to
reflect Healthcare as discontinued operations for all periods in accordance with
GAAP. In addition, the Company's financial statements have been restated to
reflect the acquisitions of PromoTech and MSG as purchases because they were
originally accounted for as pooling of interest transactions.
Also discussed in Note 1, on May 6, 1999, the Board of Directors of Snyder
Communications authorized, subject to stockholder approval, the issuance of the
circle.com Stock and the SNC Stock. The Company expects to issue these two new
series of common stock to existing stockholders in the second half of 1999.
12
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's results of operations and of its
liquidity and capital resources is based upon the Company's condensed
consolidated financial statements. The entities with which the Company has
entered into mergers accounted for as poolings of interests for financial
reporting purposes will be collectively referred to as the "Pooled Entities" and
their mergers will be referred to herein as the "Acquisitions". The condensed
consolidated financial statements have been retroactively restated to reflect
the combined financial position and the 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/A.
Overview
Since completing its initial public offering in September 1996, the Company has
significantly expanded the range of direct marketing and advertising services it
is able to offer its clients. This expansion has been accomplished 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 its
existing operations. The Company expects that the synergies created by its
acquisitions will increase its opportunities and strengthen its client
relationships. The Company strives to integrate its service capabilities
within, as well as across, its networks. The Company develops and delivers
messages to both broad and targeted audiences through a broad range of
communication channels.
The service offerings of acquired companies have been combined with those
previously offered by the Company to create three operating areas: an
international advertising, direct marketing and communications agency ("SNC"); a
healthcare marketing services group ("Healthcare"), which the Company plans to
spin-off as discussed below; and an Internet professional services business
("circle.com"). SNC is an international advertising, direct marketing and
communications organization that provides advertising and direct marketing
services to clients worldwide. The advertising services offered by SNC include
advertising in various media, such as television, radio, newspaper and
magazines, and public relations and strategic media planning and buying, all
within the Arnold Communications network. SNC also provides direct marketing
services, including database marketing, direct mail, cooperative product
sampling and field sales and marketing within its BrannWorldwide and Bounty/SCA
Worldwide networks. Healthcare is a leading provider of marketing and sales
services for the pharmaceutical and life sciences industries. Healthcare offers
services designed to establish and monitor strategic marketing plans, provide
face-to-face interaction with physicians, and conduct educational research and
communications services. circle.com is a leading Internet professional services
provider that creates Internet-based customer relationship management solutions
for its clients. circle.com's services include Internet-based strategic
consulting, end-user research, online media planning and creative design, which
it refers to as "front-end services," as well as systems engineering, e-commerce
architectures, automated marketing systems and performance diagnostics, which it
refers to as "back-end services."
On June 22, 1999, the Board of Directors of Snyder Communications approved a
distribution (the "Distribution") of Healthcare to existing shareholders. SNC
intends to consummate the Distribution during the second half of 1999 through a
dividend of .5 shares of common stock of Snyder Healthcare Services, Inc. for
each share of Snyder Communications common stock. Accordingly, the Company's
financial statements have been restated to reflect Healthcare as discontinued
operations for all periods in accordance with generally accepted accounting
principles ("GAAP"). The discussion of results of operations contained in this
document separately addresses the Company's continuing operations and
discontinued operations.
On May 6, 1999, the Board of Directors of Snyder Communications authorized,
subject to shareholder approval, the issuance of a two new series of common
stock, the circle.com common stock (the "circle.com Stock") and SNC common stock
(the "SNC Stock"). Each share of the Company's outstanding common stock will be
exchanged for one share of SNC Stock and .25 of a share of circle.com Stock and
the SNC Stock. The circle.com Stock will serve
13
<PAGE>
as a tracking stock to separately reflect the performance of circle.com. The
shares of circle.com Stock will initially represent 80% of the equity value
attributed to circle.com. The remaining equity value attributed to circle.com
will remain with SNC as its retained interest in circle.com. The SNC Stock will
serve as a tracking stock to separately reflect the performance of SNC and a
retained interest in circle.com. The Company expects to issue the circle.com
Stock and SNC Stock to existing shareholders in the second half of 1999. The
historic results of both circle.com and SNC are included in the accompanying
condensed consolidated financial statements. Although the Company will allocate
certain assets, liabilities, revenues, expenses, and cash flows to circle.com
and SNC, the allocation will not change the legal title to any assets or
responsibility for any liabilities and will not affect the rights of creditors.
Holders of the circle.com Stock and SNC Stock will be common stockholders of the
Company and will be subject to all the risks associated with an investment in
Snyder Communications and all of its businesses, assets and liabilities.
Material financial events, which may occur at Snyder Communications, may
adversely affect circle.com's and SNC's results of operations or financial
position.
The Company increased the scope of services and the geographic presence of SNC
with the completion of strategic acquisitions. During the first quarter of
1999, the Company issued 2,470,341 shares to acquire Media Syndication Global
("MSG"), which was originally accounted for as a pooling of interest
transaction. As a result of the June 1999 decision by the Company to distribute
Healthcare to its existing shareholders, the Company's financial statements have
been restated to reflect the acquisition of MSG as a purchase in accordance with
GAAP. Throughout 1997 and 1998, the Company issued approximately 19.6 million
shares in pooling of interests transactions with companies that provide
advertising, direct marketing and communications services and that are now part
of SNC.
The Company created Healthcare in January 1997 in a merger transaction with a
U.S. provider of pharmaceutical sales and marketing services. During the first
quarter of 1999, the Company issued 583,431 shares to acquire PromoTech Research
Associates ("Promotech"). As a result of the June 1999 decision by the Company
to distribute Healthcare to its existing shareholders, the Company's financial
statements have been restated to reflect the acquisition of PromoTech as a
purchase in accordance with GAAP. In addition, the Company's financial
statements have been restated to reflect Healthcare as discontinued operations.
Throughout 1997 and 1998, the Company issued approximately 11.4 million shares
in pooling of interests transactions with companies that provide healthcare
services and consummated three purchase transactions for approximately $67.4
million in stock and cash.
Results of Operations Continuing Operations
In SNC, net revenues from direct marketing and advertising services may be based
on a specific unit of performance, a fixed project amount or an annual retainer.
In circle.com, net revenues from Internet professional services are generally
based on a fixed project amount or the time and materials utilized. Net
revenues are recognized when services are completed in accordance with the terms
of the contracts.
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 administrative functions, such as finance, accounting and human
resources, as well as personnel costs of senior management not specifically
associated with client services. Snyder Communications' overhead and
administrative shared services are allocated among SNC and circle.com based upon
estimated usage.
Compensation to stockholders consists of 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.
Acquisition and related costs consist primarily of investment banking fees,
other professional service fees, certain tax payments and other contractual
payments resulting from the consummation of the Company's pooling of interests
transactions, as well as the costs of integrating certain of the Company's
acquired operations.
14
<PAGE>
The following sets forth, for the periods indicated, certain components of the
Company's continuing operations 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 excluding nonrecurring costs
represents net income 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 and acquisition and related
costs. Compensation to stockholders and acquisition and related costs are
considered to be nonrecurring by the Company, because the Company's current
operations will not result in any compensation to stockholders or acquisition
and related costs in future periods.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1999 1998
---------------------------- ----------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Net revenues $138,081 100.0% $109,584 100.0%
Cost of services 90,930 65.9 71,497 65.2
Selling, general, and administrative expenses 24,168 17.5 23,975 21.9
Compensation to stockholders - - 192 0.2
Acquisition and related costs 709 0.5 22,597 20.6
-------------------------------------------------------------
Income (loss) from continuing operations $ 22,274 16.1 $ (8,677) (7.9)
Interest expense (286) (0.2) (441) (0.4)
Interest income 670 0.5 898 0.8
Income tax provision (benefit) 8,832 6.4 (3,644) (3.3)
-------------------------------------------------------------
Net income (loss) - continuing operations $ 13,826 10.0% $ (4,576) (4.2)
=============================================================
Pro forma net income (loss) - continuing operations $ 13,826 10.0% $ (6,572) (6.0)
=============================================================
Pro forma net income excluding non-recurring costs $ 14,367 10.4% $ 9,279 8.5
=============================================================
</TABLE>
Revenues. Revenues increased $28.5 million, or 26.0%, to $138.1 million in the
first quarter of 1999 from $109.6 million in the first quarter of 1998. The
increase in revenues for the quarter ended March 31, 1999 was due primarily to
increased services for customers within the BrannWorldwide network to whom we
provide full-sale direct marketing and sales solutions.
Cost of Services. Cost of services increased $19.4 million, or 27.2%, to $90.9
million in the first quarter of 1999 from $71.5 million in the first quarter of
1998. Cost of services as a percentage of revenues remained constant at 65.9 %
in the first quarter of 1999 compared with 65.2% in the first quarter of 1998.
In the first quarter of 1999, cost of services as a percentage of revenues was
favorably impacted by a fee of $3.8 million, net of related expenses, that was
received for termination of certain services under an existing contract.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $0.2 million, or 0.8%, to $24.2 million in the
first quarter of 1999 from $24.0 million in the first quarter of 1998. Selling,
general and administrative expenses as a percentage of revenues decreased to
17.5% in the first quarter of 1999 from 21.9 % in the first quarter of 1998.
Overhead costs have been closely monitored and contained in all areas of the
Company.
Compensation to Stockholders. No compensation to stockholders was recorded in
the three months ended March 31, 1999. Compensation to stockholders was $0.2
million in the three months ended March 31, 1998. 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.
Acquisition and Related Costs. The Company recorded $0.7 million in acquisition
and related costs during the three months ended March 31, 1999. These costs
relate to the consolidation and integration of certain of the Company's acquired
operations. The Company recorded $22.6 million in acquisition and related costs
during the three months ended March 31, 1998, and these costs were related to
the consummation of pooling of interests transactions during the three months
ended March 31, 1998. The Company completed three pooling of interests
transactions valued at approximately $206 million during the three months ended
March 31, 1998.
15
<PAGE>
Interest Expense. The Company recorded interest expense of $0.3 million and
$0.4 million in the three months ended March 31, 1999 and 1998, respectively.
The decrease in interest expense is due to the pay down of long-term debt.
Investment Income. The Company recorded $0.7 and $0.9 million of investment
income in the three months ended March 31, 1998 and 1999, respectively.
Investment income varies based on the amount of cash available to invest during
the period.
Income Tax Provision. The Company recorded a tax provision of $8.8 million in
the three months ended March 31, 1999. The Company's effective tax rate on its
recurring continuing operations is approximately 38.0% for the three months
ended March 31, 1999. The actual tax provision recorded differs from the
effective rate due to the nondeductibility of certain of the nonrecurring costs
recorded during the period as well as the tax status of certain of the acquired
companies prior to their mergers with the Company.
Income (Loss) from Continuing Operations. Income (loss) from continuing
operations increased $18.4 million to $13.8 million in the first quarter of 1999
from a loss of $4.6 million in the first quarter of 1998 due primarily to the
Company's overall growth and the decrease in nonrecurring acquisition and
related costs, as well as the close monitoring and containment of overhead
costs.
Pro forma net income excluding nonrecurring costs increased $5.1 million, or
54.8%, to $14.4 million in the first quarter of 1999 from $9.3 million in the
first quarter of 1998. Pro forma diluted net income excluding nonrecurring costs
per share increased $0.06, or 46.2%, to $0.19 in the first quarter of 1999 from
$0.13 in the first quarter of 1998. The increase in pro forma net income
excluding nonrecurring costs is due primarily to the growth in revenues and the
reduced overhead costs, offset by the slight decrease in gross margins.
Results of Operations Discontinued Operations
As previously discussed, the Company plans to distribute Healthcare to existing
shareholders during the second half of 1999. Accordingly, the Company's
financial statements reflect Healthcare as discontinued operations for all
periods presented. Healthcare reported net income of $5.1 million in the first
quarter of 1999 and a net loss of $4.1 million in the first quarter of 1998.
Net income from the discontinued Healthcare operations increased due to a
combination of the overall growth within Healthcare and the decrease in
nonrecurring acquisition and related costs. See Note 2 to the Company's
Condensed Consolidated Financial Statements for a summary of Healthcare's
results of operations.
Liquidity and Capital Resources
At March 31, 1999, the Company had $56.4 million in cash and equivalents. Cash
and equivalents increased $8.5 million during the three months ended March 31,
1999, due to the $7.9 million provided by operating activities and the $10.5
million provided by financing activities, offset by the $0.3 million effect of
changes in the exchange rate, the $3.9 million used in investing activities and
the $5.8 million used by discontinued operations. The $10.5 million cash
provided by financing activities consists primarily of the proceeds received
from the exercise of stock options. The $3.9 million in cash used in investing
activities consists primarily of capital expenditures offset by net cash
acquired as a result of the purchase of MSG. The $5.8 million in cash used by
discontinued operations is primarily driven by $5.6 million used in operating
activities at Healthcare.
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 the cash provided by operations, and available financing 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. The Company has identified certain
16
<PAGE>
systems within its Direct Services and Healthcare Services groups that are not
yet compliant with the Year 2000. Modifications have already begun on all of
these systems. The Company expects to incur no more than $3.0 million in capital
expenditures on system upgrades which are designed in part to address specific
Year 2000 requirements. Approximately $2.4 million was incurred through March
31, 1999. The Company began testing its systems for compliance with the Year
2000 in 1997 and expects testing to be completed on its current systems by the
middle of 1999. Although the Company believes that it will achieve Year 2000
compliance for its systems prior to January 1, 2000 without incurring
significant additional costs, there can be no assurance that such compliance
will be achieved or that it will be achieved without additional significant
costs. If Year 2000 compliance cannot be confirmed subsequent to making the
necessary modifications, the Company intends to seek other compliant systems for
itself or to develop other contingency arrangements. 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. To date, changes in the British pound
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.
17
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
4.1 Pursuant to Regulation S-K Item 601 (b) (iii), the Company by this
filing agrees, upon request, to furnish to the Securities and Exchange
Commission a copy of other instruments defining the rights of holders of
long-term debt of the Company
27.1 Financial Data Schedule
(b) Reports on Form 8-K
(1) Current Report on Form 8-K, Item 5, filed on March 2, 1999
(2) Current Report on Form 8-K, Item 5, filed on March 19, 1999,
including financial statements as of and for the three years
ended December 31, 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: June 28, 1999 /s/ Michele D. Snyder
------------------------------
Michele D. Snyder
Vice Chairman,President
and Chief Operating
Officer
(Duly Authorized Officer)
Date: June 28, 1999 /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 THREE MONTHS ENDED MARCH 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 56,404
<SECURITIES> 0
<RECEIVABLES> 101,152
<ALLOWANCES> 6,393
<INVENTORY> 0
<CURRENT-ASSETS> 322,909
<PP&E> 123,051
<DEPRECIATION> 51,722
<TOTAL-ASSETS> 738,368
<CURRENT-LIABILITIES> 252,376
<BONDS> 0
0
0
<COMMON> 75
<OTHER-SE> 468,217
<TOTAL-LIABILITY-AND-EQUITY> 738,368
<SALES> 138,081
<TOTAL-REVENUES> 138,081
<CGS> 90,930
<TOTAL-COSTS> 90,930
<OTHER-EXPENSES> 24,877
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (384)
<INCOME-PRETAX> 22,658
<INCOME-TAX> 8,832
<INCOME-CONTINUING> 13,826
<DISCONTINUED> 5,089
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,915
<EPS-BASIC> .26
<EPS-DILUTED> .26
</TABLE>
