<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, 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
6903 Rockledge Drive
15th Floor
Bethesda, Maryland 20817
(Address of principal (Zip Code)
executive office)
(301) 468-1010
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $0.001 Par Value, 73,487,125 shares outstanding as of August 10,
1999
<PAGE>
SNYDER COMMUNICATIONS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of June 30,
1999 and December 31, 1998 3
Condensed Consolidated Statements of Income for the
three months and the six months ended June 30, 1999
and 1998 4
Condensed Consolidated Statement of Equity and
Comprehensive Income for the six months ended
June 30, 1999 5
Condensed Consolidated Statements of Cash Flows for
the six months ended June 30, 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 15
PART II. OTHER INFORMATION
Item 2. Changes in Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 24
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and equivalents $ 48,592 $ 47,931
Marketable securities - 612
Accounts receivable, net of allowance for doubtful accounts
of $6,472 and $7,031 at June 30, 1999 and December 31,
1998, respectively 100,874 78,901
Receivables from pass through costs 98,752 86,015
Receivables from related parties 192 190
Unbilled services 15,145 19,708
Current portion of deferred tax asset 9,957 13,671
Other assets 28,120 11,560
Net assets of discontinued operations - current 44,977 24,447
---------- ----------
Total current assets 346,609 283,035
---------- ----------
Property and equipment, net 74,397 70,367
Goodwill and other intangible assets, net 198,474 72,288
Deferred tax asset 86,696 86,637
Deposits and other assets 6,148 5,645
Net assets of discontinued operations - non-current 113,794 95,280
---------- ----------
Total assets $ 826,118 $ 613,252
========== ==========
Liabilities and Equity
Current Liabilities:
Lines of credit $ 24,101 $ 1,825
Current maturities of long-term debt 1,007 1,085
Accrued payroll 20,009 13,423
Accounts payable 122,776 114,541
Accrued expenses 90,011 80,547
Client advances 4,899 11,753
Unearned revenue 16,130 14,535
---------- ----------
Total current liabilities 278,933 237,709
---------- ----------
Related party borrowings 8,172 8,924
Long-term obiligations under capital leases 1,491 1,743
Long-term debt, net of current maturities 1,616 1,616
Other liabilities 3,954 2,922
---------- ----------
Total liabilities 294,166 252,914
---------- ----------
Commitments and contingencies:
Redeemable ESOP stock, 93 and 88 shares outstanding as of
June 30, 1999 and December 31, 1998, respectively 2,954 2,960
Equity:
Preferred stock, $.001 par value, 5,000 shares authorized, none
issued and outstanding at June 30, 1999 and December 31,
1998, respectively - -
Common stock, $.001 par value, 400,000 and 400,000 shares authorized,
76,522 and 71,480 shares issued and outstanding at
June 30, 1999 and December 31, 1998, respectively 77 71
Additional paid in capital 511,256 375,114
Accumulated other comprehensive (loss) income (2,871) 1,829
Retained earnings (deficit) 20,536 (19,636)
---------- ----------
Total equity 528,998 357,378
---------- ----------
Total liabilities and equity $ 826,118 $ 613,252
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated balance sheets.
3
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net revenues $161,345 $118,605 $299,426 $228,189
Operating expenses:
Cost of services 109,807 77,995 200,736 149,492
Selling, general, and administrative
expenses 26,966 24,033 51,134 48,008
Compensation to stockholders - 191 - 382
Acquisition and related costs 672 - 1,382 22,597
-------- -------- -------- --------
Income from operations 23,900 16,386 46,174 7,710
Interest expense (409) (573) (696) (1,014)
Investment income 568 716 1,237 1,614
-------- -------- -------- --------
Income from continuing operations before income taxes 24,059 16,529 46,715 8,310
Income tax provision 10,354 5,406 19,188 1,762
-------- -------- -------- --------
Income from continuing operations 13,705 11,123 27,527 6,548
Income from discontinued operations,
net of income taxes 7,548 6,670 12,639 2,618
-------- -------- -------- --------
Net income $ 21,253 $ 17,793 $ 40,166 $ 9,166
======== ======== ======== ========
Historical net income per share:
Basic net income per share
Continuing operations $ 0.18 $ 0.16 $ 0.38 $ 0.09
Discontinued operations 0.10 0.10 0.17 0.04
-------- -------- -------- --------
Basic net income per share $ 0.28 $ 0.26 $ 0.55 $ 0.13
======== ======== ======== ========
Diluted net income per share
Continuing operations $ 0.18 $ 0.15 $ 0.37 $ 0.09
Discontinued operations 0.10 0.10 0.17 0.04
-------- -------- -------- --------
Diluted net income per share $ 0.28 $ 0.25 $ 0.54 $ 0.13
======== ======== ======== ========
Pro forma net income per share
(Note 7):
Basic net income per share
Continuing operations $ 0.18 $ 0.15 $ 0.38 $ 0.06
Discontinued operations 0.10 0.10 0.17 0.04
-------- -------- -------- --------
Basic net income per share $ 0.28 $ 0.25 $ 0.55 $ 0.10
======== ======== ======== ========
Diluted net income per share
Continuing operations $ 0.18 $ 0.15 $ 0.37 $ 0.06
Discontinued operations 0.10 0.09 0.17 0.04
-------- -------- -------- --------
Diluted net income per share $ 0.28 $ 0.24 $ 0.54 $ 0.10
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated statements of income.
4
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON COMMON STOCK PAR ADDITIONAL RETAINED EARNINGS
STOCK SHARES VALUE PAID IN CAPITAL (DEFICIT)
------------------------------------------------------------------
(in thousands, except share data)
<S> <C> <C> <C> <C>
Balance, December 31, 1998 71,480,000 $ 71 $ 375,114 $ (19,636)
Exercise of stock options 587,000 2 16,139 -
Issuance of shares for purchase of
subsidiaries and property 4,455,000 4 120,003 -
Foreign currency translation adjustment - - -
Unrealized loss on marketable securities - - - -
Reclassification of redeemable ESOP - - - -
stock - - - 6
Net income - - - 40,166
------------------------------------------------------------------
Comprehensive income - - - -
------------------------------------------------------------------
Balance, June 30, 1999 76,522,000 $ 77 $ 511,256 $ 20,536
==================================================================
</TABLE>
<TABLE>
<CAPTION>
ACCUMLATED OTHER TOTAL COMPREHENSIVE
COMPREHENSIVE INCOME (LOSS) INCOME
------------------------------------------- -----------------------
<S> <C> <C> <C>
Balance, December 31, 1998 $ 1,829 $ 357,378 $ -
Exercise of stock options - 16,141 -
Issuance of shares for purchase of
subsidiaries and property - 120,007 -
Foreign currency translation adjustment (4,689) (4,689) (4,689)
Unrealized loss on marketable securities (11) (11) (11)
Reclassification of redeemable ESOP
stock - 6 -
Net income - 40,166 40,166
------------------------------------------- ----------------------
Comprehensive income - - $ 35,466
------------------------------------------- ======================
Balance, June 30, 1999 $ (2,871) $ 528,998
===========================================
</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 STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Cash flows from operating activities of continuing operations:
Net income $ 27,527 $ 6,548
Adjustments to reconcile net income from continuing operations
to net cash provided by (used in) operating activities of
continuing operations:
Depreciation and amortization 12,921 8,033
Non-cash charge from accelerated vesting of acquired
subsidiary options - 59
Deferred taxes 3,687 (11,717)
Loss on disposal of assets 401 147
Changes in assets and liabilities:
Accounts receivable, net (7,912) (15,422)
Receivables from pass through costs (12,737) (8,700)
Accounts receivable, related party (116) 621
Unbilled services 7,479 5,601
Deposits and other noncurrent assets (497) 77
Other current assets (10,059) 527
Accounts payable and other accrued liabilities 6,981 24,920
Client advances (6,855) (13,592)
Unearned revenue 928 (1,353)
-------- --------
Net cash provided by (used in) operating activities
of continuing operations 21,748 (4,251)
-------- --------
Cash flows from investing activities of continuing operations:
Purchase of subsidiaries, net of cash acquired (29,254) (6,179)
Purchase of property and equipment (14,051) (21,242)
Proceeds from sale of equipment - 7
Net sales of marketable securities 612 339
Purchase of intangibles (3,661) (431)
Note and net advances to stockholders - 917
-------- --------
Net cash used in investing activities of
continuing operations (46,354) (26,589)
Cash flows from financing activities of continuing operations:
Repayment of related party borrowings (70) (909)
Distributions and dividends - (3,854)
Net proceeds from long term debt 449 6,669
Net borrowings (repayments) of lines of credit 22,276 (7,230)
Payments on capital lease obligations (877) (991)
Proceeds from exercise of options 13,707 11,414
Proceeds from issuance of common stock - 24,351
Purchase and retirement of treasury stock - (2,096)
-------- --------
Net cash provided by financing activities of
continuing operations 35,485 27,354
-------- --------
Effect of exchange rate changes 1,009 83
Net increase (decrease) in cash and equivalents of
continuing operations 11,888 (3,403)
Investments and advances to discontinued operations (11,227) (14,080)
Cash and equivalents, beginning of period 47,931 71,789
-------- --------
Cash and equivalents, end of period $ 48,592 $ 54,306
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 810 $ 481
Cash paid for income taxes 5,025 5,106
Supplemental disclosure of noncash activities:
Equipment purchased under capital leases - 937
Issuance of shares of common stock for
purchase of subsidiaries 120,948 50,605
Issuance of common stock related to stock appreciation rights - 3,484
Tax benefit from exercise of stock options 2,434 4,594
Issuance of notes for purchase of subsidiary - 1,350
Tax benefit from taxable merger transactions - 44,348
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated statements of cash flows.
6
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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. The Company,
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, Ventiv
Health, Inc. ("Ventiv"), 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. Ventiv is a
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
7
<PAGE>
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 Ventiv to existing shareholders. The Company
intends to consummate the Distribution during the second half of 1999 through a
dividend of one share of Ventiv common stock for every three shares of Snyder
Communications common stock. Accordingly, the accompanying financial statements
have been restated to reflect Ventiv as discontinued operations for all periods.
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 acquisitions of PromoTech Research
Associates ("PromoTech") and MSG. PromoTech is a pharmaceutical marketing
communications firm that distributes product samples and educational materials
to pharmaceutical sales representatives and physicians. PromoTech, as part of
Ventiv, is included in the Company's discontinued operations. MSG is a marketing
and media services company that provides broad-reaching alternative media
solutions. These acquisitions were originally accounted for as poolings of
interests transactions in the first quarter of 1999. However, as a result of the
June 1999 decision by the Company to distribute Ventiv to its existing
shareholders, the financial statements for the first quarter of 1999 have been
previously restated to reflect the acquisitions of PromoTech and MSG as
purchases in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations".
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 June 30, 1999 and for the six months ended June 30, 1999
and 1998. Certain amounts previously presented have been reclassified to conform
to June 30, 1999 presentation. Operating results for the six month period ended
June 30, 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 amended, filed with the Securities and Exchange Commission on August 10,
1999.
2. DISCONTINUED OPERATIONS:
As discussed above, on June 22, 1999, the Board of Directors of Snyder
Communications approved the spin-off of Ventiv to existing shareholders. The
Company intends to complete the Distribution during the second half of 1999
through a dividend of one share of Ventiv common stock for every three shares of
Snyder Communications common stock. Following the distribution, Ventiv will
become an independent, publicly traded corporation. Accordingly, the
accompanying financial statements have been restated to reflect Ventiv as
discontinued operations for all periods in accordance with GAAP. The operating
results of Ventiv, which are presented as income from discontinued operations,
net of income taxes, in the accompanying condensed consolidated statements of
income, are summarized below:
8
<PAGE>
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
------- ------- -------- --------
(in thousands except per share data)
<S> <C> <C> <C> <C>
Revenues $94,320 $83,957 $181,259 $151,313
Operating expenses:
Cost of services 70,171 60,514 137,028 109,677
Selling, general and administrative expenses 11,239 11,514 21,585 19,929
Non-recurring compensation, ESOP and
recapitalization costs - 279 - 515
------- ------- -------- --------
Earnings before interest, taxes and one time cost 12,910 11,650 22,646 21,192
Acquisition costs & non-recurring charges 118 - 1,694 11,356
------- ------- -------- --------
Income from operations 12,792 11,650 20,952 9,836
Interest expense (82) (553) (123) (1,078)
Interest/dividend/investment income 95 413 373 655
------- ------- -------- --------
12,805 11,510 21,202 9,413
Income tax provision 5,257 4,840 8,563 6,795
------- ------- -------- --------
Net income $ 7,548 $ 6,670 $ 12,639 $ 2,618
======= ======= ======== ========
Basic earnings per share of Snyder
Communications Stock 0.10 0.10 0.17 0.04
Diluted earnings per share of Snyder
Communications Stock 0.10 0.10 0.17 0.04
</TABLE>
The net assets of discontinued operations presented in the accompanying
condensed consolidated balance sheet represent the net assets of Ventiv, the
components of which are summarized below:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- --------
Assets (in thousands)
<S> <C> <C>
Cash and equivalents $ 21,347 $ 25,664
Net accounts receivables 55,812 43,521
Other current assets 35,869 26,264
-------- --------
Currents Assets 113,028 95,449
-------- --------
Net property and equipment 13,455 10,028
Net goodwill & other intangibles 96,103 80,728
Other non-current assets 5,509 7,439
-------- --------
Total Assets $228,095 $193,644
======== ========
Liabilities
Accounts payable and accrued expenses $ 55,674 $ 60,393
Other current liabilities 12,377 10,609
-------- --------
Current liabilities 68,051 71,002
-------- --------
Other long-term liabilities 1,273 2,915
-------- --------
Total liabilities $ 69,324 $ 73,917
======== ========
Net Assets $158,771 $119,727
======== ========
</TABLE>
During the six months ended June 30, 1999, Ventiv recorded $1.7 million in
nonrecurring acquisition and related costs. This amount is for additional cost
incurred to consolidate and integrate certain of Ventiv's acquired operations in
the U.S. and U.K. under Ventiv's plan initiated in 1998. Ventiv recorded
approximately $10.7 million related to this plan in 1998. The charge recorded in
1999 consists of $1.3 million in severence and related costs associated with the
termination of 23 employees, and $0.4 million in consulting services and other
costs related to these integration activities. As of June 30, 1999, 149
employees had terminated employment with Ventiv and $9.1 million had been
charged against the total liability of $12.4 million.
9
<PAGE>
The following table summarizes the activity in the Ventiv integration activities
liability account:
<TABLE>
<CAPTION>
Beginning Deductions for Balance at End
Balance Additions Amounts Paid of Period
--------- --------- ------------ --------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1998............ $ -- 10,654 (2,683) $7,971
Six Months Ended June 30, 1999.......... $ 7,971 1,696 (6,439) $3,228
</TABLE>
During the six months ended June 30,1998, Ventiv recorded $11.4 million in
nonrecurring acquisition and related costs. These costs are primarily related
to the consummation of pooling of interests transactions in the first quarter of
1998 and consist of investment banking fees, other professional service fees and
other contractual payments. In addition, this amount includes a charge of
approximately $4.4 million for costs necessary to consolidate and integrate
certain of Ventiv's acquired operations in the U.S. and the U.K.
3. SEGMENT INFORMATION:
As discussed in Note 1, the continuing operations of the Company consist of SNC,
an international direct marketing, advertising and communications organization,
and circle.com, an Internet professional services business. 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.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Revenues:
SNC $154,431 $115,518 $287,388 $223,359
circle.com 6,998 3,087 12,347 4,830
Elimination of intersegment
revenues (84) -- (309) --
-------- -------- -------- --------
Total $161,345 $118,605 $299,426 $228,189
======== ======== ======== ========
EBIT:
SNC $ 25,185 $ 16,130 $ 49,354 $ 30,570
circle.com (613) 447 (1,798) 119
-------- -------- -------- --------
Total $ 24,572 $ 16,577 $ 47,556 $ 30,689
======== ======== ======== ========
Reconciliation of EBIT to Income from Continuing Operations:
Total EBIT for operating groups $ 24,572 $ 16,577 $ 47,556 $ 30,689
Compensation to stockholders - (191) - (382)
Acquisition and related costs (672) - (1,382) (22,597)
-------- -------- -------- --------
Income from continuing $ 23,900 $ 16,386 $ 46,174 $ 7,710
operations ======== ======== ======== ========
June 30, December 31,
1999 1998
-------- --------
(in thousands)
Total Assets:
SNC $618,601 $480,613
circle.com 59,408 15,042
Discontinued
operations,net 158,771 119,727
Elimination of SNC's
interest in circle (10,662) (2,130)
-------- --------
Total $826,118 $613,252
======== ========
</TABLE>
10
<PAGE>
4. BUSINESS COMBINATIONS:
The following details revenues and net income (loss) for the three months and
six months ended June 30, 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.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Revenues:
Snyder - Continuing Operations $161,345 $134,935 $299,426 $197,960
Pooled Entities - Continuing Operations -- (16,330) -- 30,229
-------- -------- -------- --------
$161,345 $118,605 $299,426 $228,189
======== ======== ======== ========
Net income (loss):
Snyder - Continuing Operations $ 13,705 $ 16,900 $ 27,527 $ 14,574
Pooled Entities - Continuing Operations -- (5,777) -- (8,026)
-------- -------- -------- --------
$ 13,705 $ 11,123 $ 27,527 $ 6,548
======== ======== ======== ========
</TABLE>
During the six months ended June 30, 1998, Snyder and the Pooled Entities
recorded $6.9 million and $15.7 million, respectively, in nonrecurring
acquisition and related costs. Additionally, for the six months ended June 30,
1998, the Pooled Entities recorded $0.4 million of nonrecurring compensation to
stockholders.
During 1998, the Company completed several purchase business combinations for
total consideration paid of approximately $5.7 million (152,411 shares of Snyder
common stock and $636,000 in cash). Based upon an allocation of purchase
consideration, these purchase business combinations have resulted in goodwill of
approximately $6.6 million.
During 1999, the Company completed several purchase business combinations
including MSG (March 30, 1999), Broadwell Marketing Group ("Broadwell") (May 21,
1999), Natural Intelligence, Inc. ("Natural Intelligence") (June 24, 1999) and
Tsunami Consulting Group, Inc. ("Tsunami") (June 25, 1999). MSG was acquired
for total consideration paid of approximately $66.4 million and consisted of
2,470,341 shares of Snyder common stock and resulted in $65.2 million of
additional goodwill. Broadwell was acquired for total consideration paid of
approximately $20.6 million and consisted of 411,909 shares of Snyder common
stock and $9.2 million in cash and resulted in $20.0 million of additional
goodwill. Natural Intelligence was acquired for total consideration paid of
approximately $7.4 million and consisted of 157,918 shares of Snyder common
stock and $2.8 million in cash and resulted in $7.7 million of additional
goodwill. Tsunami was acquired for total consideration of approximately $29.0
million and consisted of 686,583 shares of Snyder common stock and $9.5 million
in cash and resulted in $31.4 million of additional goodwill.
The following table presents pro forma financial information as if the 1998 and
1999 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
as a C corporation.
11
<PAGE>
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
------------------------
1999 1998
-------- -------
(unaudited)
(In thousands, except per share data)
<S> <C> <C>
Pro forma revenues............................. $322,356 $258,997
Pro forma net income (loss).................... $ 28,010 $ 2,428
Pro forma net income (loss) per share-basic ... $ 0.37 $ 0.03
Pro forma net income (loss) per share-diluted.. $ 0.36 $ 0.03
</TABLE>
The Company's other purchase business combinations are immaterial to the
consolidated financial statements.
5. ACQUISITION AND RELATED COSTS:
During the six months ended June 30, 1999, the Company recorded $1.4 million in
nonrecurring acquisition and related costs. This amount is for the costs
incurred to consolidate and integrate certain of the Company's acquired
operations in the U.S. under the Company's plan initiated in the fourth quarter
of 1998. The charge recorded in the six months ended June 30, 1999 consists of
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. The integration activities
recorded in 1998 were recorded in accordance with Emerging Issues Task Force No.
94-3 "Liability Recognition for Costs to Exit an Activity (including certain
costs incurred in a restructuring)" ("EITF 94-3"). Additional expenses for the
Company's integration activities recorded in 1999 represent additional costs
incurred that did not qualify for accrual at December 31, 1998 in accordance
with EITF 94-3. The Company expects these integration activities to be
substantially completed by the third quarter of 1999. As of June 30, 1999, 36
employees had terminated employment with the Company and $2.5 million had been
charged against the total liability of $4.0 million.
During the six months ended June 30, 1998, the Company recorded $22.6 million in
nonrecurring acquisition and related costs. These costs are primarily related to
the consummation of pooling of interests transactions in the first half of 1998
and consist primarily of investment banking fees, other professional service
fees and other contractual payments.
The following table summarizes the activity in the integration activities
liability account:
<TABLE>
<CAPTION>
<S>
Beginning Deductions for Balance at End
Balance Additions Amounts Paid of Period
----------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1998...... $ -- 2,625 (305) $2,320
Six Months Ended June 30, 1999.... $ 2,320 1,383 (2,197) $1,506
</TABLE>
6. INCOME TAXES:
The Company's effective tax rate for the six months ended June 30, 1999 and 1998
differs from the federal statutory rate due primarily to the nondeductibility of
certain nonrecurring acquisition costs and state income taxes. Additionally, the
1998 rate also differs from 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.
12
<PAGE>
7. PRO FORMA INCOME DATA:
The pro forma net income per share amounts include a provision for federal and
state income taxes as if the Company had been a taxable C corporation for all
periods presented. The pro forma income tax rate on the Company's recurring
operations reflects the combined federal, state, and foreign income taxes of
approximately 40.0% and 36.0% for the six months ended June 30, 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
June 30, 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:
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
--------- --------- -------- ---------
Pro forma net income data: (in thousands)
<S> <C> <C> <C> <C>
Historical income before income taxes $24,059 $16,529 $46,715 $8,310
Pro forma provision for income taxes 10,354 5,808 19,188 4,161
------- ------- ------- ------
Pro forma net income $13,705 $10,721 $27,527 $4,149
======= ======= ======= ======
</TABLE>
8. DEBT - LINE OF CREDIT:
In April 1999, the Company entered into a $25 million, one-year unsecured
revolving credit facility (the "$25 Million Credit Facility") with a bank (the
"Lending Bank"). Availability under the $25 Million 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 $25
Million 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 June 30,
1999, there was $ 23 million in outstanding borrowings under the Credit
Facility. In August 1999, the Company entered into a $50 million, 60-day
unsecured credit facility with terms the same as the $25 Million Credit
Facility. As a result, under the terms of the $25 Million Credit Facility, the
Company will repay all borrowings during the third quarter of 1999 and the $25
Million Credit Facility will terminate.
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 $(2.9) million and $1.8 million as of June 30, 1999 and December 31, 1998,
respectively. The cumulative gain on marketable securities was $10,849 as of
December 31, 1998.
13
<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.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
-------- -------- ------ --------
(in thousands)
<S> <C> <C> <C> <C>
Weighted average shares outstanding
for the period used in computation
of basic net income per share 75,367 69,233 73,637 68,494
Dilutive impact of stock options 838 2,766 1,295 2,572
------ ------ ------ ------
Shares used in computation of diluted
net income per share 76,205 71,999 74,932 71,066
====== ====== ====== ======
</TABLE>
For the six months ended June 30, 1999 and 1998, weighted average common stock
equivalents of 258,421 and 531,090, respectively, are not included in the
calculation of diluted net income per share because they were antidilutive for
the period.
14
<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.
Overview
Since completing our initial public offering in September 1996, we have
significantly expanded the range of marketing services we are able to offer our
clients. This expansion has been accomplished by creating and initiating new
programs or service offerings and by acquiring businesses that offer
complementary services. Our strategy has been to grow our existing business and
to integrate services of our acquired companies with those of our existing
operations. The service offerings of acquired companies have been combined with
those previously offered by us to create SNC, circle.com, and Ventiv Health,
Inc. ("Ventiv"). SNC consists of Brann Worldwide, Bounty SCA Worldwide and
Arnold Worldwide networks. Brann Worldwide provides direct marketing and sales
services for its clients, such as direct mail advertising. Bounty SCA Worldwide
distributes product samples and other advertising materials for its clients.
Arnold Worldwide operates SNC's advertising and public relations operations.
Circle.com provides Internet professional services. We strive to integrate our
service capabilities within, as well as across, our networks. Ventiv's services
are designed to develop, execute and monitor strategic marketing plans for
pharmaceutical and other life sciences products and to conduct educational
research and communication services for the medical community. As discussed
below, we plan to distribute Ventiv stock to our shareholders.
On May 6, 1999, the Board of Directors of Snyder Communications authorized,
subject to shareholder approval, the issuance of two new series of common stock,
the circle.com Stock and the SNC Stock . Each share of Snyder Communications'
outstanding common stock will be exchanged for one share of SNC Stock and .25 of
a share of 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.
We expect 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 we 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 the SNC Stock will be
common stockholders of Snyder Communications and will be subject to all the
risks associated with an
15
<PAGE>
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
distribution (the "Distribution") of Ventiv to existing shareholders. Snyder
Communications intends to consummate the Distribution during the second half of
1999 through a dividend of one share of Ventiv common stock for every three
shares of Snyder Communications common stock. Accordingly, Snyder
Communications' financial statements have been restated to reflect Ventiv 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 Snyder Communications'
continuing operations and discontinued operations.
Snyder Communications has increased the scope of services and the geographic
presence of SNC and circle.com with the completion of strategic acquisitions.
During the first half of 1999 we completed several purchase business
combinations including MSG, Broadwell, Natural Intelligence, and Tsunami for
approximately 3.7 million shares of Snyder Communications common stock and $21.5
million cash. These purchases have resulted in $124.3 million goodwill. During
the first half of 1999, we issued approximately 584,000 shares to acquire
PromoTech which is part of Ventiv. Our financial statements have been restated
to reflect Ventiv as discontinued operations. We plan to focus on internal
growth for the foreseeable future as the primary means of expanding our
business, although we will consider attractive acquisition opportunities as they
arise.
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.
16
<PAGE>
The following sets forth, for the periods indicated, certain items of our
continuing operations and the percentages of revenue represented by these items.
Pro forma net income includes a provision for income taxes as if all of our
operations had been taxed as a C corporation for all periods presented. We
consider compensation to stockholders and acquisition and related costs to be
nonrecurring, because our current operations will not result in any compensation
to stockholders or acquisition and related costs in future periods.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
------------------- ---------------------- ------------------ ---------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $161,345 100.0% $118,605 100.0% $299,426 100.0% $228,189 100.0%
Cost of services 109,807 68.1 77,995 65.8 200,736 67.0 149,492 65.5
Selling, general, and
administrative expenses 26,966 16.7 24,033 20.3 51,134 17.1 48,008 21.0
Compensation to stockholders - - 191 0.2 - - 382 0.2
Acquisition and related costs 672 0.4 - - 1,382 0.5 22,597 9.9
-------- ----- -------- ----- -------- ----- -------- -----
Income from continuing
operations 23,900 14.8 16,386 13.7 46,174 15.4 7,710 3.4
Interest expense (409) (0.3) (573) (0.5) (696) (0.2) (1,014) (0.4)
Investment income 568 0.4 716 0.6 1,237 0.4 1,614 0.7
Income tax provision 10,354 6.4 5,406 4.6 19,188 6.4 1,762 0.8
-------- ----- -------- ----- -------- ----- -------- -----
Net income -
continuing operations $ 13,705 8.5% $ 11,123 9.2% $ 27,527 9.2% $ 6,548 2.9%
======== ===== ======== ===== ======== ===== ======== =====
Pro forma net income
- continuing operations $ 13,705 8.5% $ 10,721 9.0% $ 27,527 9.2% $ 4,149 1.8%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Revenues. Our revenues increased $42.7 million, or 36.0%, to $161.3 million in
the second quarter of 1999 from $118.6 million in the same period in 1998.
Revenues of Brann Worldwide increased $12.8 million, or 19.3%, for the three
months ended June 30, 1999 as compared to the same period in 1998 due to
increased levels of service provided to both new and existing clients in the US
and UK which was offset by a decrease in revenue from the sale of long distance
telephone service. This net $12.8 million increase accounted for 29.9% of the
total increase in revenues for the three months ended June 30, 1999. Revenues
of Bounty SCA Worldwide increased $23.8 million, or 119.7%, for the three
months ended June 30, 1999, as compared to the same period in 1998. This change
was a result of increased distribution of product samples and other advertising
materials and the purchase of MSG in March 1999, which accounted for $15.6
million of the increase. Bounty SCA's increase in revenues accounted for 55.7%
of the total increase in revenues for the three months ended June 30, 1999.
Revenues of Arnold Worldwide increased $2.3 million, or 7.7%, for the second
quarter of 1999 as compared to the same period in 1998 due to an increase in
advertising services provided to existing and new clients. This increase
accounted for 5.4% of the total increase in revenues for the three months ended
June 30, 1999. Revenues of circle.com increased $3.9 million, or 126.5%, for
the second quarter of 1999 as compared to the same period in 1998 as a result of
increases in service provided to both new and existing clients and from purchase
transactions completed during the second half of 1998.
Cost of services. Our cost of services increased $31.8 million, or 40.8%, to
$109.8 million in the second quarter of 1999 from $78.0 million in the same
quarter of 1998. Cost of services as a percentage of revenues increased to 68.1%
for the three months ended June 30, 1999 from 65.8% for the same period in 1998.
The dollar fluctuation in cost of services at our various operating units
17
<PAGE>
corresponds to the revenue changes discussed above. Cost of services within the
Brann Worldwide network increased $10.1 million, or 22.9%, in the second quarter
of 1999 and accounted for 31.8% of the total increase in cost of services. This
increase in cost of services is consistent with the revenues change discussed
above. Brann's cost of services as a percentage of revenues increased to 68.6%
for the second quarter of 1999 from 66.7% for the same period in 1998. Cost of
services within the Bounty SCA Worldwide network increased $17.1 million, or
156.7%, for the three months ended June 30, 1999 due, in part, to the purchase
of MSG in March, 1999 which accounted for $11.6 million of the increase. Bounty
SCA's increase in cost of services accounted for 53.8% of the total increase in
cost of services. As a percentage of revenues, Bounty SCA's cost of services for
the three months ended June 30, 1999 increased to 64.0% from 54.8% for the
corresponding period in 1998 primarily as a result of the purchase of MSG. MSG
has a higher cost of services as a percentage of revenues than Bounty SCA's
other businesses. Cost of services within the Arnold Worldwide network increased
$1.6 million, or 7.5% for the three months ended June 30, 1999 and accounted for
5.0% of the total increase in cost of services. Arnold's cost of services as a
percentage of revenues remained relatively constant between the second quarter
of 1999 and the same period in 1998 at 71.9% and 72.0%, respectively. Cost of
services within circle.com increased for the three months ended June 30, 1999
compared to June 30, 1998 due to an increase in service provided to new and
existing clients and from purchase transactions during the second half of 1998.
Selling, General and Administrative Expenses. Our selling, general and
administrative expenses increased $3.0 million, or 12.5%, to $27.0 million in
the second quarter of 1999 from $24.0 million in the first quarter of 1998. The
increase in selling, general an administrative expenses is consistent with our
overall growth. Selling, general and administrative expenses as a percentage of
revenues decreased to 16.7% for the three months ended June 30, 1999 from 20.3%
for the same period in 1998 due primarily to the revenue growth and the lower
proportional increase in selling, general and administrative expenses necessary
to support the growth.
Compensation to Stockholders. No compensation to stockholders was recorded in
the second quarter of 1999. Compensation to stockholders was $0.2 million in
the second quarter 1998. Compensation to stockholders reflects compensation
paid to certain stockholders of acquired companies prior to their respective
mergers with us that is in excess of the compensation provided for in their
employment contracts with us. No compensation to stockholders is recorded
subsequent to an acquisition by us.
Acquisition and Related Costs. We recorded $0.7 million in acquisition and
related costs during the second quarter of 1999. These costs were related to
the consolidation and integration of certain of our acquired operations. No
acquisition and related costs was recorded in the second quarter of 1998.
Interest Expense. Our interest expense decreased $0.2 million, or 50.0%, to
$0.4 million in the second quarter of 1999 from $0.6 million in the second
quarter of 1998. The decline was attributable primarily to the repayment of
debt of companies that were acquired by us in 1998 through pooling of interests
combinations. If we increase our borrowing levels to acquire companies,
repurchase our stock or for other purposes, interest expense will increase in
future periods.
Investment Income. We recorded investment income of $0.6 million and $0.7
million in the three months ended June 30, 1999 and 1998, respectively. The
amount recorded in investment income is directly related to the amount of cash
and equivalents available for investment during the period.
18
<PAGE>
Income Tax Provision. We recorded a tax provision of $10.4 million in the three
months ended June 30, 1999. Our effective tax rate on our recurring operations
is approximately 41.7% for the three months ended June 30, 1999. The actual tax
provision recorded differs from the effective rate primarily due to the
nondeductibility of certain of the nonrecurring costs recorded during the
period.
Income from Continuing Operations. Our income from continuing operations
increased $2.6 million to $13.7 million in the second quarter of 1999 from $11.1
million in the second quarter of 1998, due primarily to our overall growth,
improved operating margins and containment of costs. In the second half of
1999, we expect to incur approximately $23.0 million of expenses related to the
recapitalization proposal and the healthcare services spin-off. These expenses
will have an impact on our income from continuing operations for the year ended
December 31, 1999. In addition, our intention to focus on internal growth for
SNC, circle.com and Ventiv as the primary means of growth is a shift from our
past acquisition growth pattern. To facilitate our growth, we intend to invest
over $20 million into our business in the next 12 to 18 months to promote our
brands, further enhance the skills of our employees, further our business
development efforts, and to make further investment in technology. We expect
that this additional investment to expand our business will cause an increase in
our expenses over that period.
Pro Forma Net Income from Continuing Operations. Our pro forma net income from
continuing operations shows the effect on net income assuming all of our
operations were taxed as C corporations for the three months ended June 30, 1999
and 1998, respectively. In the second quarter of 1999, all of our continuing
operations were taxed as a C corporation, so net income and pro forma net income
from continuing operations are the same. The income tax provision in the first
half of 1998 includes benefits from the S corporation status of certain entities
prior to our acquisition of them. Pro forma net income from continuing
operations increased $3.0 million to $13.7 million in the second quarter of 1999
from $10.7 million in the second quarter of 1998. This increase is due
primarily to our overall growth in revenues and containment of costs.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Revenues. Our revenues increased $71.2 million, or 31.2%, to $299.4 million in
the first half of 1999 from $228.2 million in the same period in 1998. Revenues
of Brann Worldwide increased $31.1 million, or 24.3%, for the six months ended
June 30, 1999 as compared to the same period in 1998 due to increased levels of
service provided to both new and existing clients in the U.S. and U.K. This
increase accounted for 43.7% of the total increase in revenues for the six
months ended June 30, 1999. Revenues of Bounty SCA Worldwide increased $28.3
million, or 77.7%, for the six months ended June 30, 1999 as compared to the
same period in 1998 as a result of increased sampling program activities and the
purchase of MSG in March 1999, which accounted for $15.6 million of the
increase. Bounty SCA's increase in revenues accounted for 39.7% of the total
increase in revenues for the six months ended June 30, 1999. Revenues of Arnold
Worldwide increased $4.6 million, or 7.8%, for the first half of 1999 as
compared to the same period in 1998 due to an increase in creative and
advertising services provided to existing and new clients. This increase
accounted for 6.5% of the total increase in revenues for the six months ended
June 30, 1999. Revenues of circle.com increased $7.5 million, or 156%, for the
first half of 1999 as compared to the same period in 1998 as a result of
increases in service provided to both new and existing clients and from purchase
transactions completed during 1998.
Cost of services. Our cost of services increased $51.2 million, or 34.2%, to
$200.7 million in the first half of 1999 from $149.5 million in the first half
of 1998. Cost of services as a percentage of revenues increased to 67.0% for the
19
<PAGE>
six months ended June 30, 1999 from 65.5% for the same period
in 1998. The dollar fluctuation in cost of services at our various operating
units corresponds to the revenue changes discussed above. Cost of services
within the Brann Worldwide network increased $21.1 million, or 24.5%, in the
first half of 1999 and accounted for 41.2% of the total increase in cost of
services. As a percentage of revenues, Brann's cost of services remained
constant between the first half of 1999 and the same period in 1998 at 67.3% for
both periods. Brann's cost of services as a percentage of revenues was favorably
impacted in 1999 by a fee of $3.8 million, net of related expenses that was
received for termination of certain services under an existing contract. Cost of
services within the Bounty SCA Worldwide network increased $21.4 million, or
108.7%, for the six months ended June 30, 1999 due, in part, to the purchase of
MSG in March 1999 which accounted for $11.6 million of the increase. Bounty
SCA's increase in cost of services accounted for 41.8% of the total increase in
cost of services. As a percentage of revenues, Bounty SCA's cost of services for
the six months ended June 30, 1999 increased to 63.5% from 54% for the
corresponding period in 1998 primarily as a result of the purchase of MSG. MSG
has a higher cost of services as a percentage of revenues than Bounty SCA's
other businesses. Cost of services within the Arnold Worldwide network increased
$3.3 million, or 8%, for the six months ended June 30, 1999 and accounted for
6.5% of the total increase in cost of services. Arnold's cost of services as a
percentage of revenues remained relatively constant between the first half of
1999 and the same period in 1998 at 69.3% and 69.1%, respectively. Cost of
services within circle.com increased for the six months ended June 30, 1999
compared to June 30, 1998 due to an increase in services provided to new and
existing clients and from purchase transactions in 1998.
Selling, General and Administrative Expenses. Our selling, general and
administrative expenses increased $3.1 million, or 6.5%, to $51.1 million in the
first half of 1999 from $48.0 million in the first half of 1998 as a result of
the growth in revenues discussed above. Selling, general and administrative
expenses as a percentage of revenues decreased to 17.1% for the six months ended
June 30, 1999 from 21.0% for the same period in 1998 as a result of the close
monitoring and containment of these expenses as our revenues have increased and
the lower proportional increase in selling, general and administrative expenses
necessary to support the growth.
Compensation to Stockholders. No compensation to stockholders was recorded in
the six months ended June 30, 1999. Compensation to stockholders was $0.4
million in the six months ended June 30, 1998. Compensation to stockholders
reflects compensation paid to certain stockholders of acquired companies prior
to their respective mergers with us that is in excess of the compensation
provided for in their employment contracts with us. The amount by which the
historical compensation paid to these stockholders exceeds the amount provided
for in their respective employment contracts with us has been classified as
compensation to stockholders. No compensation to stockholders is recorded
subsequent to an acquisition by us.
Acquisition and Related Costs. We recorded $1.4 million in acquisition and
related costs during the six months ended June 30, 1999 related to the
consolidation and integration of certain of our acquired operations. We
recorded $22.6 million in acquisition and related costs during the six months
ended June 30, 1998, and these costs were related to the consummation of pooling
of interests transactions during the six months ended June 30, 1998. We
completed three pooling of interests transactions valued at approximately $206
million during the six months ended June 30, 1998.
Interest Expense. Our interest expense decreased $0.3 million, or 30.0%, to
$0.7 million in the first half of 1999 from $1.0 million in the first half of
1998. The decline was attributable primarily to the repayment of debt of
companies that were acquired by us in 1998 through pooling of interests
combinations.
20
<PAGE>
Investment Income. We recorded $1.2 million of investment income in the first
half of 1999 and $1.6 million of investment income in the first half of 1998.
Investment income varies based on the amount of cash and equivalents available
for investment during the periods.
Income Tax Provision. We recorded a tax provision of $19.2 million in the six
months ended June 30, 1999. Our effective tax rate on our recurring operations
is approximately 40.1% for the six months ended June 30, 1999. The actual tax
provision recorded differs from the effective rate primarily due to the
nondeductibility of certain of the nonrecurring costs recorded during the
period.
Income from Continuing Operations. Our income from continuing operations
increased $21.0 million to $27.5 million in the first half of 1999 from $6.5
million in the first half of 1998, due primarily to our overall growth, improved
operating margins and a significant decrease in nonrecurring acquisition and
related costs, as well as the close monitoring and containment of overhead
costs. In the second half of 1999, we expect to incur approximately $23.0
million of expenses related to the recapitalization proposal and the healthcare
services spin-off. These expenses will have an impact on our income from
continuing operations for the year ended December 31, 1999. In addition, our
intention to focus on internal growth for SNC, circle.com and Ventiv as the
primary means of growth is a shift from our past acquisition growth pattern. To
facilitate our growth, we intend to invest over $20 million into our business in
the next 12 to 18 months to promote our brands, further enhance the skills of
our employees, further our business development efforts, and to make further
investment in technology. We expect that this additional investment to expand
our business will cause an increase in our expenses over that period.
Pro Forma Net Income from Continuing Operations. Pro forma net income from
continuing operations shows the effect on net income assuming all of our
operations were taxed as C corporations for the six months ended June 30, 1999
and 1998, respectively. In the first half of 1999, all of our continuing
operations were taxed as a C corporation, so net income and pro forma net income
from continuing operations are the same. The income tax provision in the first
half of 1998 includes benefits from the S corporation status of certain entities
prior to our acquisition of them. Pro forma net income from operations
increased $23.4 million to $27.5 million in the first half of 1999 from $4.1
million in the first half of 1998. The increase in pro forma net income is due
primarily to our overall growth and the decrease in nonrecurring acquisition and
related costs.
Results of Operations - Discontinued Operations
In June 1999, our board of directors approved the spin-off of our healthcare
services group through a distribution to existing stockholders. Therefore, the
results of operations of Ventiv have been classified as discontinued operations.
Ventiv reported net income of $12.6 million and $2.6 million in the first half
of 1999 and 1998, respectively. Net income from the discontinued healthcare
operations increased due to the overall growth within healthcare services, an
incentive compensation payment received from a client and a one time $2.0
million reduction in the estimated amount of employee related social charges to
be paid as a result of the integration of our French sales force, and the
decrease in nonrecurring acquisition and related costs. See Note 2 to our
Condensed Consolidated Financial Statements for a summary of Ventiv's results of
operations.
21
<PAGE>
Liquidity and Capital Resources
At June 30, 1999, we had $48.6 million in cash and equivalents. Cash and
equivalents increased $0.7 million during the six months ended June 30, 1999 due
to the $21.7 million provided by operating activities, the $35.5 million
provided by financing activities, the $1.0 million effect of changes in the
exchange rate, offset by the $46.4 million used in investing activities and the
$11.2 million used by discontinued operations. The $35.5 million in cash
provided by financing activities consists primarily of additional borrowings for
acquisitions and the proceeds received from the exercise of stock options. The
$46.4 million in cash used in investing activities consists primarily in cash
used for business acquisitions and capital expenditures. The $11.2 million in
cash used by discontinued operations is primarily driven by $10.8 million used
in operating activities at Ventiv, which we intend to spin-off to our
stockholders.
We believe that our cash and equivalents, as well as the cash provided by
operations, and available financing will be sufficient to fund our current
operations, planned capital expenditures and anticipated growth of our existing
business over the next 12 months and beyond.
In April 1999, the Company entered into a $25 million, one-year unsecured credit
facility (the "$25 Million Credit Facility"). In August 1999, the Company
entered into a $50 Million, 60-day unsecured credit facility which will be
replaced by a revolving credit facility of up to $200 million as discussed
below. Under the terms of the $25 Million Credit Facility, the Company is
required to repay the $25 million of outstanding borrowings under that facility
during the third quarter of 1999 and the $25 Million Credit Facility will then
terminate.
If we acquire additional businesses in transactions that include cash payment as
part of the purchase price, both in the short-term and the long-term, we will
first use excess cash available from operations and then pursue additional debt
or equity financing as sources of cash necessary to complete the acquisitions.
During the third quarter of 1999, we expect to close on a revolving credit
facility of up to $200 million with a term of four years for acquisitions and
general corporate purposes, as well as the repurchase of up to $200 million of
Snyder Communications common stock that the board of directors has previously
approved. Of the approved share buyback, $100 million is authorized only for
the repurchase of shares to be reissued in specifically identified purchase
business combinations. In July and August of 1999 through August 6, 1999, we
repurchased 2,460,000 shares of our common stock for a total of $45.7 million
and returned those shares to our corporate portfolio. In addition to borrowing
under the line of credit, once available, we could pursue other debt or equity
transactions to finance our acquisitions, depending on market conditions.
However, there can be no assurance that we will be successful in raising the
cash required to complete all acquisition opportunities which we may seek in the
future.
We have completed an assessment of our current systems and equipment and have
nearly completed making modifications necessary to address the issues presented
by the year 2000. Remediation and testing is complete at circle.com and at all
but one of SNC's operating subsidiaries. This subsidiary accounted for
approximately 7.2% of SNC's revenue in 1998. We expect to complete the
remaining year 2000 compliance work in November 1999. We believe that we are
year 2000 compliant with respect to all operations other than this SNC
subsidiary, which we believe will be year 2000 compliant by year end. We expect
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 $2.6 million was incurred through June 30, 1999. Although, we
believe that we will achieve year 2000 compliance for our 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 achieved
at the remaining subsidiary by January 1, 2000, we will implement our
contingency plan which has already been tested at the subsidiary.
22
<PAGE>
We are subject to the impact of foreign currency fluctuations, specifically that
of the British pound. To date, changes in the British pound exchange rate have
not had a material impact on our liquidity or results of operations. We
continually evaluate our exposure to exchange rate risk but do not currently
hedge such risk.
We do not expect the introduction of the Euro to have a material impact on our
operations or cash flows. We will continue to evaluate the impact of the
introduction of the Euro as we continue to expand the services offered and the
European locations in which we operate.
Part II. OTHER INFORMATION
Item 2. Changes in Securities.
(c) During the three months ended March 31, 1999 and June 30, 1999, the
Company issued 3,114,514 and 1,278,435 shares, respectively, of its
common stock in connection with the acquisitions of privately held
companies. All of the entities acquired became wholly owned
subsidiaries of the Company. The shares were restricted and contained
a legend against transfer. The issuance of shares was effected without
registration in reliance upon the exemption provided by Section 4(2)
of the Securities Act of 1933, as amended.
Item 4. Submission of Matter to a Vote of Security Holders
Matters as specified in the Company's Proxy Statement dated March 31,
1999, 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,
1999. 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 2000 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 63,277,965 163,279
Michele D. Snyder 63,237,995 203,249
A. Clayton Perfall 63,278,965 162,279
Mortimer B. Zuckerman 63,278,810 162,434
Fred Drasner 63,279,810 161,434
Philip Guarascio 63,279,810 161,434
Mark E. Jennings 63,278,965 162,279
</TABLE>
23
<PAGE>
Proposal 2. To consider and act upon a proposal to adopt an Employee
Stock Purchase Plan with such terms as are set forth in the Company's
Proxy Statement relating to the 1999 Annual Meeting of Stockholders.
<TABLE>
<CAPTION>
Total Votes
Total Votes FOR AGAINST or WITHHELD ABSTENTIONS
--------------- ------------------- -----------
<S> <C> <C> <C>
Adopt the Employee
Stock Purchase Plan 62,775,118 633,625 32,500
</TABLE>
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
No reports on Form 8-K were filed during the quarter ended June 30,
1999.
24
<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 16, 1999 /s/ Michele D. Snyder
-------------------------------
Michele D. Snyder
Vice Chairman, President and
Chief Operating Officer
(Duly Authorized Officer)
Date: August 16, 1999 /s/ A. Clayton Perfall
-------------------------------
A. Clayton Perfall
Chief Financial Officer
(Principal Financial Officer)
25
<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, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 48,592
<SECURITIES> 0
<RECEIVABLES> 107,346
<ALLOWANCES> 6,472
<INVENTORY> 0
<CURRENT-ASSETS> 346,609
<PP&E> 129,470
<DEPRECIATION> 55,073
<TOTAL-ASSETS> 826,118
<CURRENT-LIABILITIES> 278,933
<BONDS> 0
0
0
<COMMON> 77
<OTHER-SE> 528,998
<TOTAL-LIABILITY-AND-EQUITY> 826,118
<SALES> 299,426
<TOTAL-REVENUES> 299,426
<CGS> 200,736
<TOTAL-COSTS> 200,736
<OTHER-EXPENSES> 52,516
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (696)
<INCOME-PRETAX> 46,715
<INCOME-TAX> 19,188
<INCOME-CONTINUING> 27,527
<DISCONTINUED> 12,639
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,166
<EPS-BASIC> .55
<EPS-DILUTED> .54
</TABLE>
