<PAGE>
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2000
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
(State or other jurisdiction of incorporation or organization)
52-1983617
(IRS Employer Identification No.)
Two Democracy Center, 6903 Rockledge Drive, 14/th/ Floor, Bethesda, Maryland
20817
(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.
<TABLE>
<CAPTION>
Outstanding at
Class November 3, 2000
----- ----------------
<S> <C>
Snyder Communications, Inc. - Circle.com Common Stock, par value $0.001 22,618,203
Snyder Communications, Inc. - SNC Common Stock, par value $0.001 73,481,790
(All of the shares of SNC Common Stock are owned by Havas Advertising)
</TABLE>
<PAGE>
SNYDER COMMUNICATIONS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Snyder Communications, Inc. - Condensed Consolidated Financial Statements
The condensed consolidated financial statements of Snyder Communications, Inc. include all of
the accounts and operating results of its two business units, SNC and Circle.com. Holders of
Circle.com common stock are stockholders of Snyder Communications, Inc. and are subject to
all risks associated with an investment in Snyder Communications, Inc.
Condensed Consolidated Balance Sheets as of September 30, 2000 (unaudited) and December 31,
1999 1
Condensed Consolidated Statements of Income for the three and nine months ended September 30,
2000 and 1999 (unaudited) 2
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2000
and 1999 (unaudited) 3
Condensed Consolidated Statement of Stockholders' Equity and Comprehensive Income for the nine
months ended September 30, 2000 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Circle.com - Condensed Combined Financial Statements
The condensed combined financial statements of Circle.com comprise the combined financial
position, results of operations and cash flows of the businesses that comprise Snyder
Communications, Inc.'s Internet professional services business. Accordingly, the Circle.com
condensed combined financial statements are supplemental financial statements and should be
read in conjunction with the Snyder Communications, Inc. condensed consolidated financial
statements.
Condensed Combined Balance Sheets as of September 30, 2000 (unaudited) and December 31, 1999 11
Condensed Combined Statements of Operations for the three and nine months ended September 30,
2000 and 1999 (unaudited) 12
Condensed Combined Statements of Cash Flows for the nine months ended September 30, 2000 and
1999 (unaudited) 13
Condensed Combined Statement of Changes in Group Equity for the nine months ended September
30, 2000 (unaudited) 14
Notes to Condensed Combined Financial Statements 15
Item 2. Management's Discussion and Analysis
Snyder Communications, Inc. Management's Discussion and Analysis of Financial Condition and
Results of Operations 17
Circle.com Management's Discussion and Analysis of Financial Condition and Results of
Operations 23
PART II. OTHER INFORMATION
Item 4. Submission of Matter to a vote of Security Holders 27
Item 6. Exhibits and Reports on Form 8-K 27
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
2000 December 31,
(unaudited) 1999
------------- ------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents.......................................................... $ 101,688 $ 89,554
Accounts receivable, net of allowance for doubtful accounts of $11,179
and $7,524 at September 30, 2000 and December 31, 1999, respectively....... 106,743 101,466
Receivables from pass-through costs........................................... 147,331 114,750
Related party receivables..................................................... 42 636
Unbilled services............................................................. 31,541 18,867
Current portion of deferred tax asset......................................... 12,785 10,865
Other current assets.......................................................... 28,879 22,450
--------- ---------
Total current assets.......................................................... 429,009 358,588
--------- ---------
Property and equipment, net..................................................... 93,695 85,241
Goodwill and other intangible assets, net....................................... 212,608 240,903
Deferred tax asset.............................................................. 96,673 92,312
Deposits and other assets....................................................... 5,561 9,419
--------- ---------
Total assets................................................................ $ 837,546 $ 786,463
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit............................................................... $ - $ 970
Current maturities of long-term debt.......................................... 442 551
Accrued payroll............................................................... 28,759 17,140
Accounts payable.............................................................. 192,392 165,702
Accrued expenses.............................................................. 109,688 105,556
Client advances............................................................... 11,798 11,208
Unearned revenue.............................................................. 20,005 19,176
--------- ---------
Total current liabilities.................................................. 363,084 320,303
--------- ---------
Related party borrowings........................................................ 246,925 8,731
Long-term obligations under capital leases...................................... 470 1,202
Long-term debt, net of current maturities....................................... 703 181,031
Other liabilities............................................................... 4,061 3,678
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.001 par value per share, 5,000 shares authorized, none
issued and outstanding at September 30, 2000 or December 31, 1999............ - -
Common Stock
SNC, $.001 par value per share, 320,000 shares authorized, 73,487 and
75,791 shares issued and outstanding at September 30, 2000 and
December 31, 1999, respectively........................................... 73 76
Circle.com, $.001 par value per share, 80,000 shares authorized, 23,754
and 23,660 shares issued and outstanding at September 30, 2000 and
December 31, 1999, respectively........................................... 24 24
Additional paid-in capital.................................................... 515,299 530,638
Deferred compensation......................................................... (1,310) (2,220)
Treasury stock, at cost, 1,010 Circle.com shares at September 30, 2000 and
4,659 SNC shares and 1,045 Circle.com shares at December 31, 1999............ (18,516) (81,974)
Accumulated other comprehensive income (loss)................................. (7,817) (2,434)
Retained deficit.............................................................. (265,450) (172,592)
--------- ---------
Total stockholders' equity............................................... 222,303 271,518
--------- ---------
Total liabilities and stockholders' equity............................... $ 837,546 $ 786,463
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------ ----------------------
2000 1999 2000 1999
--------- -------- -------- --------
(in thousands, except per share amount)
<S> <C> <C> <C> <C>
Net revenues........................................................ $ 181,218 $165,977 $532,110 $465,403
Operating expenses:
Cost of services.................................................. 129,619 120,309 373,092 321,045
Selling, general and administrative expenses...................... 66,432 34,171 148,698 85,305
Merger and related costs.......................................... 85,506 14,432 89,819 15,814
--------- -------- -------- --------
Income (loss) from operations....................................... (100,339) (2,935) (79,499) 43,239
Interest expense.................................................... (4,361) (1,534) (12,813) (2,230)
Investment income................................................... 1,334 772 3,477 2,009
Loss on disposition................................................. (12,376) - (12,376) -
--------- -------- -------- --------
Income (loss) from continuing operations before income taxes........ (115,742) (3,697) (101,211) 43,018
Income tax provision (benefit)...................................... (18,090) 4,935 (8,598) 24,123
--------- -------- -------- --------
Income (loss) from continuing operations............................ (97,652) (8,632) (92,613) 18,895
Income (loss) from discontinued operations (net of income taxes).... - (24,201) - (11,562)
--------- -------- -------- --------
Net income (loss)............................................. $ (97,652) $(32,833) $(92,613) $ 7,333
========= ======== ======== ========
SNC (see note 2):
Basic net income (loss) per share:
Continuing operations........................................... $ (1.28) $ (0.09) $ (1.09) $ 0.31
Discontinued operations......................................... - (0.33) - (0.16)
--------- -------- -------- --------
Total basic net income (loss) per share........................... $ (1.28) $ (0.42) $ (1.09) $ 0.15
========= ======== ======== ========
Diluted net income (loss) per share:
Continuing operations........................................... $ (1.28) $ (0.09) $ (1.09) $ 0.31
Discontinued operations......................................... - (0.33) - (0.16)
--------- -------- -------- --------
Total diluted net income (loss) per share......................... $ (1.28) $ (0.42) $ (1.09) $ 0.15
========= ======== ======== ========
Shares used in computing basic net income per share............... 72,600 73,129 71,937 73,448
Shares used in computing diluted net income per share............. 72,600 73,129 71,937 75,072
Circle.com (see note 2):
Basic and diluted net loss per share.............................. $ (0.22) $ (0.11) $ (0.62) $ (0.21)
========= ======== ======== ========
Shares used in computing net loss per share....................... 22,585 20,536 22,542 19,176
========= ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
----------------------------
2000 1999
-------- --------
(in thousands)
<S> <C> <C>
Cash flows from operating activities of continuing operations:
Income (loss) from continuing operations..................... $(92,613) $ 18,895
Adjustments to reconcile net income (loss) from continuing
operations to net cash provided by (used in) operating
activities of continuing operations:
Depreciation and amortization............................. 37,718 20,505
Noncash expense for stock issuances....................... - 14,275
Noncash expense for restricted stock and option vesting... 910 -
Deferred taxes............................................ (6,281) (584)
Loss on disposal of assets................................ 11,830 1,116
Other noncash amounts..................................... (151) (11)
Changes in assets and liabilities:
Accounts receivable, net.................................. (5,277) (20,814)
Receivables from pass-through costs....................... (32,581) (44,429)
Related party receivables................................. 594 -
Unbilled services......................................... (12,674) 8,218
Deposits and other assets................................. 3,858 (2,763)
Other current assets...................................... (6,429) (7,387)
Accrued payroll, accounts payable and accrued expenses.... 57,435 45,773
Client advances........................................... 590 (4,324)
Unearned revenue.......................................... 829 (934)
-------- --------
Net cash provided by (used in) operating activities
of continuing operations................................ (42,242) 27,536
-------- --------
Cash flows from investing activities of continuing operations:
Purchase of property and equipment........................... (33,288) (21,363)
Net sales of marketable securities........................... - 612
Purchase of subsidiaries and intangible assets............... (5,804) (36,088)
-------- --------
Net cash provided by (used in) investing activities of
continuing operations....................................... (39,092) (56,839)
-------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
----------------------------------------
2000 1999
---------------- -------------
(in thousands)
<S> <C> <C>
Cash flows from financing activities of continuing operations:
Repayment of long-term notes payable to related parties.......................... $ (1,200) $ (70)
Repayments of loans to employees for purchase of stock........................... 70 -
Proceeds from related party loan................................................. 240,000 -
Net borrowings (repayments) on lines of credit and other debt.................... (181,024) 44,482
Payments on capital lease obligations............................................ (1,083) (1,221)
Proceeds from exercise of options and employee stock purchase plan............... 37,401 17,663
Other............................................................................ 72 -
---------------- ---------------
Net cash provided by financing activities of continuing operations............. 94,236 60,854
---------------- ---------------
Effect of exchange rate changes.................................................. (768) (514)
Net increase (decrease) in cash and equivalents of continuing operations......... 12,134 31,037
Investments and advances (to) from discontinued operations....................... - (38,296)
Cash and equivalents, beginning of period........................................ 89,554 47,931
---------------- ---------------
Cash and equivalents, end of period.............................................. $ 101,688 $ 40,672
================ ===============
Disclosure of supplemental cash flow information:
Cash paid for interest........................................................... 13,200 1,518
Cash paid for income taxes....................................................... 5,724 20,336
Disclosure of noncash activities:
Issuance of shares of common stock for purchase of subsidiaries.................. 1,674 122,737
Tax benefit from exercise of stock options....................................... 8,898 2,434
Treasury stock acquired through the assumption of debt........................... - 100,767
Distribution of Ventiv to stockholders........................................... - 119,929
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE
INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
SNC SNC Circle.com
Common Common Circle.com Common Additional
Stock Stock Common Stock Par Paid-In
Shares Par Value Stock Shares Value Capital
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999............................ 75,791,000 $ 76 23,660,000 $ 24 $ 530,638
Issuance of shares for purchase of subsidiaries
(unaudited)......................................... - - 121,000 - 1,674
Foreign currency translation adjustment
(unaudited)......................................... - - - - -
Retirement of Treasury stock......................... (2,152,000) (2) (29,399)
Unrealized loss on marketable securities
(unaudited)......................................... - - - - -
Other (unaudited).................................... (152,000) (1) (27,000) - 12,386
Net income (loss) (unaudited)........................ - - - - -
------------------------------------------------------------------------
Balance, September 30, 2000 (unaudited)............... 73,487,000 $ 73 23,754,000 $ 24 $ 515,299
========================================================================
<CAPTION>
Accumulated
Retained Other
Earnings Deferred Treasury Comprehensive
(Deficit) Compensation Stock Income (Loss)
-----------------------------------------------------------------
(in thousands, except share data)
<S> <C> <C> <C> <C>
Balance, December 31, 1999............................ $ (172,592) $ (2,220) $ (81,974) $ (2,434)
Issuance of shares for purchase of subsidiaries
(unaudited)......................................... - - - -
Foreign currency translation adjustment
(unaudited)......................................... - - - (5,376)
Retirement of Treasury stock......................... 29,401 -
Unrealized loss on marketable securities
(unaudited)......................................... - - - (7)
Other (unaudited).................................... (245) 910 34,057 -
Net income (loss) (unaudited)........................ (92,613) - - -
-----------------------------------------------------------------
Balance, September 30, 2000 (unaudited)............... $ (265,450) $ (1,310) $ (18,516) $ (7,817)
=================================================================
<CAPTION>
Comprehensive
Total Income (Loss)
-----------------------------
<S> <C> <C>
Balance, December 31, 1999............................ $ 271,518 $
Issuance of shares for purchase of subsidiaries
(unaudited)......................................... 1,674 -
Foreign currency translation adjustment
(unaudited)......................................... (5,376) (5,376)
Retirement of Treasury stock......................... - -
Unrealized loss on marketable securities
(unaudited)......................................... (7) (7)
Other (unaudited)................................. 47,107 -
Net income (loss) (unaudited)........................ (92,613) (92,613)
-----------------------------
Balance, September 30, 2000 (unaudited)............... $ 222,303 $ (97,996)
=============================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
SNYDER COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION, BASIS OF PRESENTATION AND BUSINESS:
Organization
Snyder Communications, Inc., a Delaware corporation ("Snyder
Communications"), was founded in 1988. Snyder Communications completed an
initial public offering of its common stock on September 24, 1996. Snyder
Communications provides direct marketing, advertising and communications
services and Internet professional services to its clients.
On June 22, 1999, the Board of Directors of Snyder Communications
approved a plan to effect the distribution (the "Distribution") of Snyder
Communications' discontinued healthcare services business which was spun off to
Snyder Communications' stockholders on September 27, 1999 through a special
dividend of one share of common stock of a newly formed subsidiary, Ventiv
Health, Inc., for every three shares of existing common stock of Snyder
Communications. Accordingly, the operating results of the healthcare services
business are presented as discontinued operations for the period prior to the
spin-off.
On October 22, 1999, Snyder Communications completed a
recapitalization (the "Recapitalization") in which the existing Snyder
Communications common stock was replaced by two new series of common stock: the
"Circle.com common stock" and the "SNC common stock." The Circle.com common
stock separately tracks the performance of Snyder Communications' Internet
professional services business unit, which it refers to as "Circle.com," and
the SNC common stock separately tracked the performance of the remaining
businesses of Snyder Communications which it refers to as its "SNC" business
unit, and a retained interest in Circle.com. Each share of existing common stock
of Snyder Communications was converted at the time of the Recapitalization into
one share of SNC common stock and .25 of a share of Circle.com common stock.
On September 26, 2000, Havas Advertising, an international
communications and advertising company organized under the laws of France,
acquired all of the issued and outstanding shares of Snyder Communications SNC
common stock through the merger of one of its subsidiaries into Snyder
Communications (the "Merger"). In the Merger, each share of existing SNC common
stock was exchanged for 1.371 Havas Advertising American Depository Shares. As a
result, Snyder Communications has become a subsidiary of Havas Advertising. The
Snyder Communications Circle.com common stock was not affected by the Merger.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared by Snyder Communications, pursuant to the interim rules and
regulations of the Securities and Exchange Commission ("SEC"). As a result,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
("GAAP") have been condensed or omitted. Snyder Communications 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 Snyder Communications as of September 30, 2000 and
for the nine months ended September 30, 2000 and 1999. Operating results for the
nine month period ended September 30, 2000 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2000. The unaudited
condensed consolidated
6
<PAGE>
financial statements should be read in conjunction with the financial statements
and footnotes thereto included in Snyder Communications' Annual Report on Form
10-K for the fiscal year ended December 31, 1999, as filed with the SEC on March
30, 2000.
Havas Advertising will account for the acquisition of Snyder Communications as a
purchase in its U.S. GAAP financial statements. Because Havas Advertising
acquired less than 95% of the voting interest in Snyder Communications as a
result of the Merger, push-down accounting is not reflected in the Snyder
Communications financial statements.
2. EARNINGS PER SHARE:
SNC Net Income Per Share. The following table summarizes the information
required to calculate earnings per share for the SNC common stock for all
periods presented:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(in thousands) (in thousands)
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
SNC income (loss) from continuing operations.......... $(91,650) $ (5,898) $(75,781) $ 24,018
Loss related to retained interest in Circle.com....... (994) (547) (2,787) (1,025)
----------- ----------- ----------- -----------
Income (loss) from continuing operations attributed
to SNC shareholders.................................. (92,644) (6,445) (78,568) 22,993
----------- ----------- ----------- -----------
SNC income (loss) from discontinued operations........ - (24,201) - (11,562)
----------- ----------- ----------- -----------
Net income (loss) attributed to SNC shareholders...... $(92,644) $(30,646) $(78,568) $ 11,431
=========== =========== =========== ===========
</TABLE>
Circle.com Net Loss Per Share. The following table summarizes the information
required to calculate earnings per share for the Circle.com common stock for all
periods presented:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months Ended
Ended September 30, September 30,
------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ---------- -------------
(in thousands) (in thousands)
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Circle.com net loss................................... $(6,002) $(2,735) $(16,831) $(5,125)
Loss attributable to SNC's retained interest.......... (994) (547) (2,787) (1,025)
----------- ----------- ---------- -------------
Net income (loss) attributable to Circle.com
shareholders......................................... $(5,008) $(2,188) $(14,044) $(4,100)
=========== =========== ========== =============
</TABLE>
3. BUSINESS COMBINATIONS:
During 1999, Snyder Communications completed several purchase business
combinations including Media Syndication Global ("MSG") (March 30, 1999),
Broadwell Marketing Group ("Broadwell") (May 21, 1999), Natural Intelligence,
Inc. ("Natural Intelligence") (June 24, 1999), Tsunami Consulting Group, Inc.
("Tsunami") (June 25, 1999), Interactive Bureau (October 29, 1999) and
NetMarquee (December 2, 1999) for total consideration paid of approximately
$155.8 million (2,882,250 shares of Snyder common stock, 4,555,217 shares of
Circle.com common stock, and $31.3 million of cash). These purchase business
combinations have resulted in additional goodwill of $158.7 million. Snyder
Communications did not complete any purchase business combinations during the
nine months ended September 30, 2000.
The following table presents pro forma financial information as if the 1999
purchase business combinations had been consummated at the beginning of the
period presented.
7
<PAGE>
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
September 30, 1999 September 30, 1999
-------------------------------------------
(unaudited) (unaudited)
<S> <C> <C>
Pro forma revenues (in thousands) ..................................... $ 169,605 $ 496,601
Pro forma net income (in thousands)..................................... $ (32,138) $ 8,363
Pro forma SNC basic net income per share ............................. $ (.41) $ .19
Pro forma SNC diluted net income per share ........................... $ (.41) $ .18
Pro forma Circle.com basic and diluted net loss per share ............ $ (.11) $ (.23)
</TABLE>
4. SEGMENT INFORMATION:
SNC develops and delivers messages to both broad and targeted audiences
through a broad range of communication channels. Circle.com provides Internet
professional services. SNC and Circle.com are reported as operating segments.
Snyder Communications evaluates the performance of its two groups based on
earnings before interest and taxes (EBIT) of the combined subsidiaries in each
operating group, excluding nonrecurring costs.
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Circle.com $ 17,164 $ 10,208 $ 51,561 $ 22,555
SNC 164,245 156,001 481,067 443,389
Elimination of intersegment revenues (191) (232) (518) (541)
---------- ---------- ---------- ----------
Total $ 181,218 $165,977 $532,110 $465,403
========== ========== ========== ==========
EBIT:
Circle.com $ (6,394) $ (4,806) $(18,291) $ (6,604)
SNC (8,702) 16,303 28,348 65,657
---------- ---------- ---------- ----------
Total $ (15,096) $ 11,497 $ 10,057 $ 59,053
========== ========== ========== ==========
Total Assets:
Circle.com $114,619
SNC 776,569
Other unallocated amounts (53,642)
----------
Total $837,546
==========
Reconciliation of EBIT to income (loss)
from operations:
Total EBIT for operating groups $ (15,096) $ 11,497 $ 10,057 $ 59,053
SNC Merger-related costs (85,243) (14,432) (89,556) (15,814)
---------- ---------- ---------- ----------
Income (loss) from operations
(continuing operations) $(100,339) $ (2,935) $(79,499) $ 43,239
========== ========== ========== ==========
</TABLE>
5. DEBT:
On September 27, 2000, Snyder Communications repaid the amount due of
$182.5 million under its $195 million unsecured credit facility, using the
proceeds from a $240 million intercompany loan from a Havas Advertising
subsidiary, and then terminated the credit facility. The $240 million
intercompany loan is interest bearing and has no set amortization schedule or
maturity date. Interest on the intercompany loan is
8
<PAGE>
charged by Havas Advertising to Snyder Communications at the rate at which Havas
Advertising can borrow the funds on a revolving credit basis, currently using
rates applicable under its existing $400 million credit facility. The interest
rate in effect on the $240 million intercompany loan at September 30, 2000 was
approximately 7.27%.
6. MERGER AND RELATED COSTS:
The $89.8 million of merger and related costs recorded in the first nine
months of 2000 consists of expenses incurred by Snyder Communications as a
result of the Merger. Included in the $89.8 million are payments made to certain
holders of options to purchase SNC common stock pursuant to the terms of the
Merger in exchange for the forfeiture of their options, financial advisory fees,
legal and accounting fees, bonuses and tax reimbursements paid to certain
employees at the time of the Merger, and other expenses which were a direct
result of the Merger. In addition, this amount includes a charge of
approximately $10.7 million of costs necessary to consolidate certain operations
within the SNC agencies as they are integrated with the Havas Advertising
agencies. The company expects these integration activities to be substantially
complete by the end of the first quarter of 2001. The charge consists of
approximately $2.6 million to consolidate and terminate lease obligations, $7.2
million related to the loss on the disposition of non-strategic property and
equipment assets, and $0.9 million of other costs related to the integration
activities. As of September 30, 2000, $7.3 million of the $10.7 million costs
had been paid, resulting in a remaining liability balance of $3.4 million to be
paid for the integration costs.
Snyder Communications recorded $15.8 million of merger related costs during
the nine months ended September 30, 1999, which included a $14.3 million non-
cash charge related to a stock payment made to the former owners of an acquired
subsidiary which was not provided for in the purchase agreement and which was
not part of the purchase price for accounting purposes, and a $1.5 million
charge for consulting and related costs necessary to consolidate and integrate
certain of SNC's acquired operations in the U.S. under the integration plan,
initiated in the fourth quarter of 1998, as disclosed in Snyder Communications'
1998 Annual Report on Form 10-K.
7. CAPITAL STOCK
As a result of the Merger, the SNC common stock is 100% held by Havas
Advertising. Snyder Communications retired all shares of SNC common stock held
in treasury immediately prior to the completion of the Merger. The Snyder
Communications Circle.com stock was not affected by the Merger.
8. EMPLOYEE BENEFITS
During 1999, Snyder Communications established an employee stock purchase
plan (the "ESPP") pursuant to which the Company made available for sale to its
employees shares of both SNC and Circle.com common stock at a price equal to 85%
of the lower of the market value on the first or last day of each quarter.
Purchases under the ESPP were suspended effective April 1, 2000, and on
September 1, 2000 the ESPP was terminated.
9. STOCK INCENTIVE PLAN
Pursuant to the terms of the Merger, holders of options to purchase
3,302,985 shares of SNC common stock (which had been awarded under Snyder
Communications' Second Amended and Restated Stock Incentive Plan) received $43.4
million in exchange for the forfeiture of their options immediately following
the completion of the Merger. Also pursuant to the terms of the Merger, the
6,940,227 remaining options to purchase shares of SNC common stock were
converted into options to purchase Havas Advertising American Depository Shares.
Therefore, at September 30, 2000, there were no outstanding
9
<PAGE>
options to purchase shares of SNC common stock. Options to purchase shares of
Circle.com common stock were not affected by the completion of the Merger.
10. LOSS ON DISPOSITION
In the third quarter of 2000, Snyder Communications disposed of a
telemarketing business based in Brussels, Belgium and recorded a $12.4 million
loss, which includes $8.2 million of goodwill, as a result of the disposition.
10
<PAGE>
CIRCLE.COM
(Circle.com represents the businesses that comprise Snyder Communications,
Inc.'s Internet professional services business.)
CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
2000 December 31,
(unaudited) 1999
----------------- --------------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................................ $ 812 $ 2,033
Accounts receivable, net of allowance for doubtful accounts of $2,161 and
$858 at September 30, 2000 and December 31, 1999, respectively.......... 16,064 11,877
Receivables from pass-through costs............................................. 2,515 1,122
Related party receivable........................................................ 146 105
Unbilled services............................................................... 2,254 1,082
Current portion of deferred tax asset........................................... 732 186
Income tax receivable........................................................... 1,291 2,572
Other current assets............................................................ 884 449
----------------- --------------------
Total current assets......................................................... 24,698 19,426
----------------- --------------------
Property and equipment, net....................................................... 12,215 7,957
Goodwill, net..................................................................... 76,573 83,842
Deferred tax asset................................................................ 427 436
Deposits and other assets......................................................... 706 1,314
----------------- --------------------
Total assets................................................................. $114,619 $112,975
================= ====================
LIABILITIES AND INVESTMENTS AND ADVANCES FROM SNYDER
COMMUNICATIONS
Current liabilities:
Accrued payroll................................................................. $ 4,097 $ 2,602
Accounts payable................................................................ 2,767 3,134
Accrued expenses................................................................ 5,569 11,112
Client advances................................................................. 1,358 1,365
Unearned revenue................................................................ 620 1,207
Payable to SNC.................................................................. 52,351 7,613
----------------- --------------------
Total current liabilities.................................................... 66,762 27,033
----------------- --------------------
Long term debt.................................................................... - 23,349
Long term obligations under capital leases........................................ 126 401
Commitments and contingencies
Investments and advances from Snyder Communications............................... 47,731 62,192
----------------- --------------------
Total liabilities and investments and advances from Snyder $114,619 $112,975
Communications.............................................................
================= ====================
</TABLE>
See accompanying notes to condensed combined financial statements.
11
<PAGE>
CIRCLE.COM
(Circle.com represents the businesses that comprise Snyder Communications,
Inc.'s Internet professional services business.)
CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Net revenues................................................. $17,164 $10,208 $ 51,561 $22,555
Operating expenses:
Professional services...................................... 10,317 6,256 30,388 13,384
Office and general......................................... 13,241 8,758 39,464 15,775
----------- ---------- ----------- ----------
Income (loss) from operations................................ (6,394) (4,806) (18,291) (6,604)
Interest expense, net........................................ (1,203) (229) (3,014) (229)
----------- ---------- ----------- ----------
Income (loss) before income taxes............................ (7,597) (5,035) (21,305) (6,833)
Income tax provision (benefit)............................... (1,595) (2,300) (4,474) (1,708)
----------- ---------- ----------- ----------
Net loss................................................... $(6,002) $(2,735) $(16,831) $(5,125)
=========== ========== =========== ==========
</TABLE>
See accompanying notes to condensed combined financial statements.
12
<PAGE>
CIRCLE.COM
(Circle.com represents the businesses that comprise Snyder Communications,
Inc.'s Internet professional service business.)
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
-----------------------------
2000 1999
-------- -------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss..................................................... $(16,831) $(5,125)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.............................. 9,392 2,656
Deferred taxes and other................................... (558) 35
Non-cash expense for restricted stock...................... 563 -
Changes in assets and liabilities:
Accounts receivable, net................................... (4,228) (5,092)
Receivables from pass-through costs........................ (1,393) (808)
Unbilled services.......................................... (1,172) (604)
Taxes receivable........................................... 1,281 -
Other current assets....................................... (435) (1,592)
Deposits and other assets.................................. 608 (616)
Accrued payroll, accounts payable and accrued expenses..... 893 2,494
Client advances............................................ (7) (354)
Unearned revenue........................................... (587) -
-------- -------
Net cash provided by (used in) operating activities...... (12,474) (9,006)
-------- -------
Cash flows from investing activities:
Purchase of property and equipment........................... (6,631) (4,331)
Purchase of subsidiaries and other intangibles............... (3,473) (257)
-------- -------
Net cash used in investing activities.................... $(10,104) $(4,588)
-------- -------
Cash flows from financing activities:
Investment and advances from Snyder Communications, net...... - 15,248
Borrowing from SNC intra-company line of credit.............. 44,738 -
Repayment of bank line of credit............................ (23,349) -
Proceeds from the exercise of stock options.................. 161 -
Repayment of loans to employees for purchase of stock........ 70 -
Payments on capital lease obligations........................ (275) -
-------- -------
Net cash provided by (used in) financing activities..... 21,345 15,248
-------- -------
Effect of exchange rate changes................................ 12 6
Net increase (decrease) in cash and equivalents................ (1,221) 1,660
Cash and equivalents, beginning of period...................... 2,033 -
-------- -------
Cash and equivalents, end of period............................ $ 812 $ 1,660
======== =======
Disclosure of noncash activities:
Business acquired with Snyder Communications common stock... 1,674 25,085
Debt incurred for purchase of subsidiary.................... - 12,292
</TABLE>
See accompanying notes to condensed combined financial statements.
13
<PAGE>
CIRCLE.COM
(Circle.com represents the businesses that comprise Snyder Communications,
Inc.'s Internet professional service business.)
CONDENSED COMBINED STATEMENTS OF CHANGES IN GROUP EQUITY
(in thousands)
<TABLE>
<CAPTION>
Other
Retained Comprehensive
Other Earnings Income (Loss) Total
---------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1999................. $76,957 $(14,762) $ (3) $ 62,192
Net loss (unaudited)....................... - (16,831) - (16,831)
Foreign currency translation adjustment
(unaudited)............................... - - (100) (100)
Restricted stock vesting (unaudited)....... 563 - - 563
Capital contribution (unaudited)........... 1,844 - - 1,844
Unrealized gain on marketable securities
(unaudited)............................... - - (7) (7)
Repayment of loan to employees for
purchase of stock (unaudited)............. 70 - - 70
--------------------------------------------------------
Balance at September 30, 2000 (unaudited).... $79,434 $(31,593) $(110) $ 47,731
========================================================
</TABLE>
See accompanying notes to condensed combined financial statements.
14
<PAGE>
CIRCLE.COM
(Circle.com represents the businesses that comprise Snyder Communications,
Inc.'s Internet professional service business.)
Notes to Condensed Combined Financial Statements
(unaudited)
1. Organization, Basis of Presentation and Business:
Organization
Snyder Communications Inc. ("Snyder Communications"), a Delaware
corporation, provides direct marketing, advertising and communications services
and Internet professional services. Circle.com is a business unit of Snyder
Communications which consists of the assets and operations of the Internet
professional services part of Snyder Communications' business.
Snyder Communications completed an initial public offering of its common
stock on September 24, 1996. On October 22, 1999 Snyder Communications completed
a recapitalization (the "Recapitalization") in which the existing Snyder
Communications common stock was replaced by two new series of common stock: the
"Circle.com common stock" and the "SNC common stock." The Circle.com common
stock separately tracks the performance of Snyder Communications' Internet
professional services business unit, which Snyder Communications calls
"Circle.com", and the SNC common stock separately tracked the performance of the
remaining Snyder Communications businesses, which Snyder Communications calls
its "SNC" business unit, and a retained interest in Circle.com. Each share of
existing Snyder Communications common stock was converted at the time of the
Recapitalization into one share of SNC common stock and .25 of a share of
Circle.com common stock. On September 26, 2000, Havas Advertising, an
international communications and advertising company organized under the laws of
France, acquired all of the issued and outstanding shares of SNC common stock
through the merger of one of its subsidiaries into Snyder Communications (the
"Merger"). In the Merger, each share of existing SNC common stock was exchanged
for 1.371 Havas Advertising American Depository shares. As a result, Snyder
Communications has become a subsidiary of Havas Advertising. The Circle.com
common stock was not affected by the Merger.
The condensed combined financial statements of Circle.com should be read in
conjunction with the condensed consolidated financial statements of Snyder
Communications.
Basis of Presentation
The accompanying unaudited condensed combined financial statements have
been prepared by Snyder Communications pursuant to the interim rules and
regulations of the Securities and Exchange Commission ("SEC"). As a result,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
("GAAP") have been condensed or omitted. Snyder Communications believes that the
disclosures made are adequate to make the information presented not misleading.
The condensed combined 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 Circle.com as of September 30, 2000 and for the nine months ended
September 30, 2000 and 1999. Operating results for the nine month period ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2000. The unaudited condensed combined
financial statements should be read in conjunction with the financial statements
and footnotes thereto included in Snyder Communications' Annual Report on Form
10-K for the fiscal year ended December 31, 1999, as filed with the SEC on March
30, 2000.
Circle.com recorded $25,100 and $232,297 of revenue for services provided
to SNC for the three months ending September 30, 2000 and September 30, 1999,
respectively. Circle.com recorded $85,080 and $541,297 of revenue for services
provided to SNC for the nine months ended September 30, 2000 and September 30,
1999, respectively.
Circle.com recorded $166,051 of expenses associated with services purchased
from SNC for the three months ended September 30, 2000 and $433,021 for the nine
months ended September 30, 2000. Circle.com did not purchase services from SNC
during the three months ended September 30, 1999 or for the nine months ended
September 30, 1999.
15
<PAGE>
CIRCLE.COM
(Circle.com represents the businesses that comprise Snyder Communications,
Inc.'s Internet professional service business.)
Notes to Condensed Combined Financial Statements
(unaudited)
Circle.com recorded $673,329 of interest expense on its intra-group
revolving credit loan from SNC for the three months ended September 30, 2000 and
$1,472,143 for the nine months ended September 30, 2000. Circle.com did not
incur interest expense related to SNC during the nine months ended September 30,
1999 because all advances to Circle.com prior to the October 22, 1999
Recapitalization were considered a capital contribution to Circle.com by Snyder
Communications and not a loan by SNC.
2. Business Combinations:
During 1999, Snyder Communications completed purchase business combinations
including Tsunami Consulting Group, Inc., Natural Intelligence, Inc.,
Interactive Bureau and NetMarquee for total consideration paid of approximately
$68.8 million (19,412 shares of Snyder Communications common stock, 4,555,217
shares of Circle.com common stock and $22.1 million in cash). These purchase
business combinations have resulted in additional goodwill of approximately
$73.5 million. Each of these acquired businesses constitute a part of
Circle.com's business. Circle.com did not complete any purchase business
combinations during the nine months ended September 30, 2000.
The following table presents pro forma financial information as if the 1999
purchases had been consummated at the beginning of the period presented and all
of Circle.com's operations had been taxed as a C corporation.
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1999 1999
-------------------- -------------------
(in thousands) (in thousands)
(unaudited) (unaudited)
Pro forma revenues............... $13,837 $35,469
Pro forma net loss............... $(3,072) $(6,641)
3. Long Term Debt:
On September 27, 2000, Snyder Communications repaid the amount due of
$182.5 million under its $195 million unsecured credit facility, using the
proceeds from a $240 million intercompany loan from a Havas Advertising
subsidiary, and then terminated the credit facility. Of the $182.5 million which
was repaid under the credit facility, $23.3 million had been allocated to
Circle.com. As a result, the $23.3 million external debt under the Snyder
Communications credit facility which had been attributable to Circle.com has
been refinanced by increasing the $29.1 million intra-group revolving loan from
SNC to Circle.com by $23.3 million to $52.4 million. The $52.4 million intra-
group revolving loan from SNC is interest bearing and has no set amortization
schedule or maturity date. Interest on the intra-group revolving loan is charged
by SNC to Circle.com at the rate at which Snyder Communications could borrow the
funds on a revolving credit basis. The interest rate in effect on the $52.4
million outstanding under the intra-group revolving loan at September 30, 2000
was approximately 8.5%
16
<PAGE>
SNYDER COMMUNICATIONS--MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and of the liquidity
and capital resources of Snyder Communications, Inc. ("Snyder Communications")
is based upon Snyder Communications' condensed consolidated financial
statements. The following discussion should be read in conjunction with the
condensed consolidated financial statements of Snyder Communications and the
related notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
On September 26, 2000, Havas Advertising, an international communications
and advertising company organized under the laws of France, acquired all of the
issued and outstanding shares of Snyder Communications SNC common stock through
the merger of one of its subsidiaries into Snyder Communications (the "Merger").
In the Merger, each share of existing SNC common stock was exchanged for 1.371
Havas Advertising American Depository Shares. Snyder Communications has become
a subsidiary of Havas Advertising. The Snyder Communications Circle.com common
stock was not affected by the Merger.
Private Securities Litigation Reform Act of 1995 -- A Caution Concerning
Forward-Looking Statements
Statements included in this discussion relating, but not limited, to future
revenues, operating expenses, capital requirements, growth rates, cash flows,
operational performance, sources and uses of funds and acquisitions are forward-
looking statements that involve certain risks and uncertainties. Factors that
may cause actual results, performance, achievements or investments expressed or
implied by such forward-looking statements include, among other things, the
availability of financing, technological, regulatory or other developments in
Snyder Communications' business, changes in the competitive climate in which
Snyder Communications operates and the emergence of future opportunities and
other factors more fully described under the caption "Risk Factors" in Snyder
Communications' Proxy Statement and Prospectus filed with the Securities and
Exchange Commission on October 7, 1999 and which section is incorporated herein
by reference.
Overview
Since 1996, Snyder Communications expanded the range of marketing services
that it is able to offer its clients by creating and initiating new programs or
service offerings and by acquiring businesses that offer complementary services.
Snyder Communications' strategy has been to grow its existing business and to
integrate services of its acquired companies with those of existing operations.
The service offerings of acquired companies have been combined with those
previously offered by Snyder Communications to create SNC and Circle.com. SNC
consists of the Brann Worldwide, Bounty SCA Worldwide and Arnold Communications
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
Communications operates SNC's advertising and public relations operations.
Circle.com is Snyder Communications' Internet professional services agency
network. Snyder Communications strives to integrate its service capabilities
within, as well as across, its networks.
Results of Operations
SNC's 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. Circle.com's net revenues from Internet professional services are
generally based on a fixed project amount or the time and materials utilized.
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, human
resources and information technology, as well as personnel costs of senior
management not specifically associated with client services. Snyder
Communications' overhead and administrative shared services are allocated
between SNC and Circle.com based upon estimated usage.
Merger and related costs recorded in 2000 consist of costs related to the
Merger. Merger and related costs recorded in 1999 consist of costs to integrate
acquired companies pursuant to an integration plan initiated in the fourth
quarter of 1998, as disclosed in Snyder Communications' 1998 Annual Report on
Form 10-K.
17
<PAGE>
SNYDER COMMUNICATIONS--MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following sets forth, for the periods indicated, certain components of
Snyder Communications' income statement data, including such data as a
percentage of revenues.
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------------------------------------------------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenues $181,218 100.0% $165,977 100.0% $532,110 100.0% $465,403 100.0%
Operating expenses:
Cost of services 129,619 71.5 120,309 72.5 373,092 70.1 321,045 69.0
Selling, general and
administrative expenses 66,432 36.7 34,171 20.6 148,698 27.9 85,305 18.3
Merger and related costs 85,506 47.2 14,432 8.7 89,819 16.9 15,814 3.4
------------------ ------------------ ------------------ -----------------
Income (loss) from
operations (100,339) (55.4) (2,935) (1.8) (79,499) (14.9) 43,239 9.3
Interest expense (4,361) (2.4) (1,534) (0.9) (12,813) (2.4) (2,230) (0.5)
Interest income 1,334 0.7 772 0.5 3,477 0.7 2,009 0.4
Loss on disposition (12,376) (6.8) - - (12,376) (2.3) - -
Income tax provision
(benefit) (18,090) (10.0) 4,935 3.0 (8,598) (1.6) 24,123 5.2
------------------ ------------------ ------------------ -----------------
Income (loss) from
continuing operations (97,652) (53.9) (8,632) (5.2) (92,613) (17.3) 18,895 4.0
Income (loss) from
discontinued operations
(net of income taxes) - - (24,201) (14.6) - - (11,562) (2.5)
------------------ ------------------ ------------------ -----------------
Net income (loss) $(97,652) (53.9)% $(32,833) (19.8)% $(92,613) (17.3)% $ 7,333 1.5%
================== ================== ================== =================
</TABLE>
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999
Revenues. Snyder Communications' revenues increased $15.2 million, or 9.2%,
to $181.2 million in the third quarter of 2000 from $166.0 million in the third
quarter of 1999. Revenues at Arnold Communications increased $2.6 million, or
7.2%, during the period as a result of increased creative and advertising
services provided to new and existing clients, primarily in the U.S. Revenues
at Brann Worldwide increased $4.7 million, or 6.7%, during the period. Brann
Worldwide experienced a reduction in revenue from its U.S. telemarketing
operations, which it completed plans to discontinue during the period. This
reduction was offset by an increase in other services provided to new and
existing clients. Revenues at Bounty SCA Worldwide increased $0.9 million, or
1.9% during the period. Revenues at Circle.com increased $7.0 million, or 68.6%,
in the third quarter of 2000 compared to the third quarter of 1999 as a result
of increases in services provided to both new and existing clients and revenue
contributed by purchase transactions completed in 1999.
Cost of services. Snyder Communications' cost of services increased $9.3
million, or 7.7%, to $129.6 million in the third quarter of 2000 from $120.3
million in the third quarter of 1999. Cost of services as a percentage of
revenue decreased to 71.5% in the third quarter of 2000 from 72.5% in the third
quarter of 1999. The reasons for the dollar fluctuations in cost of services
generally correspond to the revenue changes discussed above. Cost of services
at Arnold Communications increased $1.0 million, or 4.2%, during the period
resulting in cost of services as a percentage of revenues of 68.7% in the third
quarter of 2000 compared to 70.7% in the same period of 1999. Cost of services
within the Brann Worldwide network increased $4.0 million, or 7.3%, during the
period resulting in cost of services as a percentage of revenue of 76.9% in the
third quarter of 2000 compared to 76.4% in the third quarter of 1999. Bounty
SCA Worldwide's cost of services increased $0.5 million, or 1.6%, resulting in
cost of services as a percentage of revenues of 67.5% in the third quarter of
2000 compared to 66.3% in the third quarter of 1999. Circle.com's cost of
services increased $3.8 million, or 45.8%, to $12.1 million in the third quarter
of 2000 from $8.3 million in the third quarter of 1999.
Selling, general and administrative expenses. Snyder Communications'
selling, general and administrative expenses increased $32.2 million, or 94.2%,
to $66.4 million in the third quarter of 2000 compared to $34.2 million the same
period of 1999 as a result of selling, general and administrative expense
increases in each of Snyder Communications' four networks. The expense increase
includes a charge related to certain pending legal matters for which Snyder
Communications, based on the advice of outside legal counsel, believes it is
adequately
18
<PAGE>
SNYDER COMMUNICATIONS--MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
reserved, and the one-time recognition of bad debt expense related to several
clients which have recently experienced financial difficulty. In addition, the
expenses in the quarter ended September 30, 2000 include costs related to
several smaller office moves, consolidations and closures, termination of
certain senior management personnel, policy changes, and projects undertaken or
redirected. As a result of the foregoing, selling, general and administrative
expenses as a percent of revenue increased to 36.7% in the third quarter of 2000
compared to 20.6% in the third quarter of 1999.
Merger and related costs. The $85.5 million of merger and related costs
recorded in the three months ended September 30, 2000 consists of expenses
incurred by Snyder Communications as a result of the Merger. Included in the
$85.5 million are payments made to certain holders of options to purchase SNC
common stock pursuant to the terms of the Merger in exchange for the forfeiture
of their options, financial advisory fees, legal and accounting fees, bonuses
and tax reimbursements paid to certain employees at the time of the Merger, and
other expenses which were a direct result of the Merger. In addition, this
amount includes a charge of approximately $10.7 million of costs necessary to
consolidate certain operations within the SNC networks as they are integrated
with the Havas Advertising agencies. Snyder Communications expects these
integration activities to be substantially complete by the end of the first
quarter of 2001. The charge consists of approximately $2.6 million to
consolidate and terminate lease obligations, $7.2 million related to the loss on
the disposition of non-strategic property and equipment assets, and $0.9 million
of other costs related to the integration activities. As of September 30, 2000,
$7.3 million of the $10.7 million costs had been paid, resulting in a remaining
liability balance of $3.4 million to be paid for the integration costs.
Snyder Communications recorded $14.4 million of merger related costs during
the three months ended September 30, 1999, which consists primarily of a $14.3
million non-cash charge related to a stock payment made to the former owners of
an acquired subsidiary which was not provided for in the purchase agreement and
which was not part of the purchase price for accounting purposes.
Interest expense. Interest expense increased $2.9 million, to $4.4 million
in the third quarter of 2000 from $1.5 million in the third quarter of 1999. The
increase in interest expense is attributable to increased borrowings under the
$195 million unsecured revolving credit facility that was terminated in
September 2000 after completion of the Merger. See "--Liquidity and Capital
Resources."
Interest income. Interest income increased $0.5 million, to $1.3 million in
the third quarter of 2000 from $0.8 million in the third quarter of 1999.
Interest income varies based on the amount of cash and equivalents available for
investment during the periods and on prevailing short-term interest rates.
Loss on disposition. In the third quarter of 2000, Snyder Communications
disposed of a telemarketing business based in Brussels, Belgium and recorded a
$12.4 million loss, which includes $8.2 million of goodwill, as a result of the
disposition.
Income tax provision. Snyder Communications recorded a tax benefit of $18.1
million in the third quarter of 2000 and a tax expense of $4.9 million in the
third quarter of 1999. The actual tax provision recorded differs from the
federal statutory rate primarily due to the non-deductibility of certain
goodwill amortization and certain other costs and state income taxes recorded
during the periods.
Income (loss) from continuing operations. As a result of all the factors
discussed above, loss from continuing operations increased to $(97.7) million in
the third quarter of 2000 from a loss of $(8.6) million in the third quarter of
1999.
Income (loss) from discontinued operations (net of income taxes). In 1999,
Snyder Communications spun off its healthcare services group, Ventiv Health,
Inc. ("Ventiv"), through a distribution to existing stockholders on September
27, 1999. Therefore, the results of operations of Ventiv have been classified as
discontinued operations. Ventiv reported a net loss of $10.9 million for the
three months ended September 30, 1999. In addition to the results of Ventiv,
$13.3 million of costs, net of taxes, related to the Ventiv spin-off which were
incurred by Snyder Communications are reflected in the results from discontinued
operations for the three months ended September 30, 1999. These expenses consist
primarily of financial advisory fees, other professional service fees, and
printing fees. There were no discontinued operations during the three months
ended September 30, 2000.
Net income (loss). As a result of the factors discussed above, Snyder
Communications' net loss increased to $(97.7) million in the third quarter of
2000 from $(32.8) million in the third quarter of 1999.
19
<PAGE>
SNYDER COMMUNICATIONS--MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
Revenues. Snyder Communications' revenues increased $66.7 million, or
14.3%, to $532.1 million in the first nine months of 2000 from $465.4 million in
the same period of 1999. Revenues at Arnold Communications increased $15.6
million, or 15.7%, during the period as a result of increased creative and
advertising services provided to new and existing clients, primarily in the U.S.
Revenues at Brann Worldwide increased $8.6 million, or 3.9%, during the period.
Brann Worldwide experienced a reduction in revenue from its U.S. telemarketing
operations which it completed plans to discontinue during the period. This
reduction was offset by an increase in other services provided to new and
existing clients and by revenues from Broadwell Marketing Group, which was
purchased in May of 1999. Excluding the telemarketing operations that are being
disposed of, revenues at Brann Worldwide increased $28.9 million, or 16.1%
during the period. Revenues at Bounty SCA Worldwide increased $13.5 million, or
10.8%, during the period, due to an increase in revenues resulting from the
purchase of Media Syndication Global on March 30, 1999. This increase was
partially offset by a decrease in revenue from sampling-related programs during
the first nine months of 2000. Revenues at Circle.com increased $29.0 million,
or 128.3%, during the period as a result of increases in services provided to
both new and existing clients and revenue contributed by purchase transactions
completed in 1999.
Cost of services. Snyder Communications' cost of services increased $52.0
million, or 16.2%, to $373.1 million in the first nine months of 2000 from
$321.1 million in the same period of 1999. Cost of services as a percentage of
revenue increased to 70.1% in the first nine months of 2000 from 69.0% in the
same period of 1999. The reasons for the dollar fluctuations in cost of
services generally correspond to the revenue changes discussed above. Cost of
services at Arnold Communications increased $9.7 million, or 13.9%, during the
period resulting in cost of services as a percentage of revenues of 69.0% in the
first nine months of 2000 compared to 70.1% in the same period of 1999. Cost of
services within the Brann Worldwide network increased $13.2 million, or 8.3%,
during the period resulting in cost of services as a percentage of revenue of
76.0% in the first nine months of 2000 compared to 72.9% in the same period of
1999. The increase in cost of services as a percentage of revenues at Brann
Worldwide is primarily a result of the increased costs from the increased level
of services provided in the Brann Worldwide network described above not being
fully offset by the reduction of variable costs related to the reduced revenue
from the U.S. telemarketing business. Bounty SCA Worldwide's cost of services
increased $9.7 million, or 12.9%, resulting in cost of services as a percentage
of revenues of 61.2% in the first nine months of 2000 compared to 60.1% in the
same period of 1999. The increase in cost of services as a percentage of
revenues at Bounty SCA Worldwide is primarily a result of the purchase of Media
Syndication Global, which has a lower gross margin than Bounty SCA Worldwide's
other businesses. Circle.com's cost of services increased $19.4 million, or
113.0%, to $36.6 million in the third quarter of 2000 from $17.2 million in the
third quarter of 1999.
Selling, general and administrative expenses. Snyder Communications'
selling, general and administrative expenses increased $63.4 million, or 74.3%,
to $148.7 million in the first nine months of 2000 compared to $85.3 million the
same period of 1999 as a result of selling, general and administrative expense
increases in each of Snyder Communications' four networks. This increase is
partly caused by expenses, including goodwill amortization, at entities which
were purchased by Circle.com late in June 1999 and later, and by the purchases
of Media Syndication Global and Broadwell Marketing Group in March 1999 and May
1999, respectively. The expense increase includes a charge, related to certain
pending legal matters for which Snyder Communications, based on the advice of
outside legal counsel, believes it is adequately reserved, and the one-time
recognition of bad debt expense related to several clients which have recently
experienced financial difficulty. In addition, the expenses in the quarter ended
September 30, 2000 include costs related to several smaller office moves,
consolidations and closures, termination of certain senior management personnel,
policy changes, and projects undertaken or redirected. As a result of the
foregoing, selling, general and administrative expenses as a percent of revenue
increased to 27.9% in the first nine months of 2000 compared to 18.3% in the
same period of 1999.
Merger and related costs. The $89.8 million of merger and related costs
recorded in the nine months ended September 30, 2000 consists of expenses
incurred by Snyder Communications as a result of the Merger. Included in the
$89.8 million are payments made to certain holders of options to purchase SNC
common stock pursuant to the terms of the Merger in exchange for the forfeiture
of their options, financial advisory fees, legal and accounting fees, bonuses
and tax reimbursements paid to certain employees at the time of the Merger, and
other expenses which were a direct result of the Merger. In addition, this
amount includes a charge of approximately $10.7 million of costs necessary to
consolidate certain operations within the SNC networks as they are integrated
with the Havas Advertising agencies. Snyder Communications expects these
integration activities to be
20
<PAGE>
SNYDER COMMUNICATIONS--MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
substantially complete by the end of the first quarter of 2001. The charge
consists of approximately $2.6 million to consolidate and terminate lease
obligations, $7.2 million related to the loss on the disposition of non-
strategic property and equipment assets, and $0.9 million of fees and other
costs related to the integration activities. As of September 30, 2000, $7.3
million of the $10.7 million costs had been paid, resulting in a remaining
liability balance of $3.4 million to be paid for the integration costs.
Snyder Communications recorded $15.8 million of merger related costs during
the nine months ended September 30, 1999, which included a $14.3 million non-
cash charge related to a stock payment made to the former owners of an acquired
subsidiary which was not provided for in the purchase agreement and which was
not part of the purchase price for accounting purposes, and a $1.5 million
charge for consulting and related costs necessary to consolidate and integrate
certain of SNC's acquired operations in the U.S. under the integration plan,
initiated in the fourth quarter of 1998, as disclosed in Snyder Communications'
1998 Annual Report on Form 10-K.
Interest expense. Interest expense increased $10.6 million, to $12.8
million in the first nine months of 2000 from $2.2 million in the same period of
1999. The increase in interest expense is attributable to increased borrowings
under the $195 million unsecured revolving credit facility that was terminated
in September 2000 after completion of the Merger. See "--Liquidity and
Capital Resources."
Interest income. Interest income increased $1.5 million, to $3.5 million in
the first nine months of 2000 from $2.0 million in the same period of 1999.
Interest income varies based on the amount of cash and equivalents available for
investment during the periods and on prevailing short-term interest rates.
Loss on disposition. In the third quarter of 2000, Snyder Communications
disposed of a telemarketing business based in Brussels, Belgium and recorded a
$12.4 million loss, which includes $8.2 million of goodwill, as a result of the
disposition.
Income tax provision. Snyder Communications recorded a tax benefit of $8.6
million in the first nine months of 2000 and a tax expense of $24.1 million in
the same period of 1999. The actual tax provision recorded differs from the
federal statutory rate primarily due to the non-deductibility of certain
goodwill amortization and certain other costs and state income taxes recorded
during the periods.
Income (loss) from continuing operations. As a result of all the factors
discussed above, loss from continuing operations increased to $(92.6) million in
the first nine months of 2000 from income of $18.9 million in the same period of
1999.
Income (loss) from discontinued operations (net of income taxes). In 1999,
Snyder Communications spun off its healthcare services group, Ventiv Health,
Inc. ("Ventiv"), through a distribution to existing stockholders on September
27, 1999. Therefore, the results of operations of Ventiv have been classified as
discontinued operations. Ventiv reported net income of $1.8 million for the nine
months ended September 30, 1999. In addition to the results of Ventiv, $13.3
million of costs related to the Ventiv spin-off which were incurred by Snyder
Communications are reflected in the results from discontinued operations for the
nine months ended September 30, 1999. There were no discontinued operations
during the nine months ended September 30, 2000.
Net income (loss). As a result of the factors discussed above, Snyder
Communications' net loss increased to $(92.6) million in the first nine months
of 2000 from net income of $7.3 million in the same period of 1999.
Liquidity and Capital Resources
On September 30, 2000, Snyder Communications had $101.7 million in cash and
equivalents. Cash and equivalents increased $12.1 million during the nine months
ended September 30, 2000 due to $94.3 million provided by financing activities,
offset by the $42.2 million used in operating activities, the $39.1 million net
cash used in investing activities, and the $0.8 million effect of changes in
exchange rates during the period. The $94.3 million provided by financing
activities consists primarily of borrowings from a subsidiary of Havas
Advertising, net of the repayment of credit agreement debt, proceeds received
from the exercise of employee stock options and sales of stock under Snyder
Communications' employee stock purchase plan. The $39.1 million in cash used in
investing activities consists primarily of cash used for capital expenditures
and earn-out payments related to previously acquired businesses.
Snyder Communications 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, planned capital expenditures and anticipated growth
of the existing business over the next 12 months and beyond. Snyder
Communications currently
21
<PAGE>
SNYDER COMMUNICATIONS--MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
does not have any significant contractual purchasing obligations other than
existing facility and equipment operating leases.
Following the Merger in September 2000, Snyder Communications repaid the
$182.5 million due under its unsecured credit facility, using the proceeds from
a $240 million intercompany loan from a subsidiary of Havas Advertising, and
then terminated the credit facility. The $240 million intercompany loan is
interest bearing and has no set amortization schedule or maturity date. Interest
on the intercompany loan is charged by Havas Advertising to Snyder
Communications at the rate at which Havas Advertising can borrow the funds on a
revolving credit basis, currently using rates applicable under Havas
Advertising's existing $400 million credit facility which expires on May 18,
2001. The interest rate in effect on the $240 million intercompany loan at
September 30, 2000 was approximately 7.27%. Havas Advertising has informed
Snyder Communications that it intends to refinance the $400 million credit line
with other external financing sources. However, there can be no assurance that
Havas Advertising will be able to complete this financing.
SNC loaned $52.4 million to Circle.com between October 22, 1999 (the
Recapitalization date) and September 30, 2000 on an intra-group revolving credit
basis, including $23.3 million in connection with the refinancing of the $23.3
million of external debt of Snyder Communications which had been allocated to
Circle.com and was repaid in September 2000 using the proceeds from a $240
million intercompany loan from a Havas Advertising subsidiary to Snyder
Communications. The $52.4 million intra-group revolving loan is interest bearing
and has no set amortization schedule or maturity date. Interest is charged by
SNC to Circle.com on the intra-group revolving credit loan at the rate at which
Snyder Communications could borrow the funds on a revolving credit basis. The
interest rate in effect on the $52.4 million outstanding under the intra-group
revolving loan at September 30, 2000 was approximately 8.5%. The $52.4 million
of borrowings under the intra-group revolving credit loan are unsecured and
Circle.com is not required to meet any financial or other covenants with regard
to the loan. If determined to be in the best interest of the SNC and Circle.com
stockholders, the Snyder Communications board of directors could decide that
some or all of the intra-group revolving credit loan should prospectively be
accounted for as a long-term loan or as a capital contribution increasing SNC's
retained interest in Circle.com.
Snyder Communications anticipates that it will be in a position to fund the
needs of Circle.com in the short-term and it will monitor and evaluate market
conditions to assess the possibility of other sources of debt or equity
financing as the need arises. However, there can be no assurance that Circle.com
will be able to obtain third party debt or equity financing, or that Snyder
Communications will continue to be in a position to provide additional funding
to Circle.com in the longer-term.
Snyder Communications is subjected to the impact of foreign currency
fluctuations, particularly with respect to the British pound. To date, changes
in the British pound exchange rate have not had a material impact on Snyder
Communications' liquidity or results of operations. Snyder Communications
continually evaluates its exposure to exchange rate risk but does not currently
hedge such risk.
Given the extent of services currently provided in continental Europe and
the nature of those services, Snyder Communications does not expect the euro to
have a material impact on its operations or cash flows. Snyder Communications
will continue to evaluate the impact of the euro as it continues to expand the
services offered and the European locations in which it operates.
22
<PAGE>
CIRCLE.COM--MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of Circle.com's results of operations and of its
liquidity and capital resources is based upon Circle.com's condensed combined
financial statements. The following discussion should be read in conjunction
with the condensed combined financial statements of Circle.com and the related
notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
On September 26, 2000, Havas Advertising acquired all of the issued and
outstanding shares of Snyder Communications SNC common stock through the Merger.
In the Merger, each share of existing SNC common stock was exchanged for 1.371
Havas Advertising American Depository Shares. As a result, Snyder Communications
has become a subsidiary of Havas Advertising. The Snyder Communications
Circle.com common stock was not affected by the Merger.
Overview
Circle.com is engaged in the Internet professional services business.
Circle.com's services include strategic e-commerce consulting, online marketing
plan development, online brand development, customer research, electronic
customer relationship (e-CRM) planning, user interface design, creative design,
and online media planning, which it refers to as "front-end services," as well
as architecture design, systems integration, implementation and ongoing
performance analysis, which it refers to as "back-end services." Until May 1999,
the operations of Circle.com were contained within the Brann Worldwide and
Arnold Communications networks of Snyder Communications. In May 1999, these
operations were coordinated under the name Circle.com and placed under the
responsibility of a single management team.
The Management's Discussion and Analysis of Financial Condition and Results
of Operations of Circle.com should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Snyder Communications.
Results of Operations
Net revenues from Internet professional services are generally based on
either a fixed project amount or the time and materials utilized.
Professional services expenses consist primarily of compensation and
benefits of Circle.com employees engaged in the delivery of professional
services.
Office and general expenses include costs associated with administrative
functions, such as finance, human resources and information technology, as well
as amortization of intangibles and office facilities costs. A portion of Snyder
Communications' overhead and administrative shared services have been allocated
to Circle.com based upon estimated usage.
The following sets forth, for the periods indicated, certain components of
Circle.com's income statement data, including such data as the percentage of
revenues.
23
<PAGE>
CIRCLE.COM--MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-----------------------------------------------------------------------------------------------
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenues $17,164 100.0% $10,208 100.0% $ 51,561 100.0% $22,555 100.0%
Operating expenses:
Professional Services 10,317 60.1 6,256 61.3 30,388 58.9 13,384 59.3
Office and general
expenses 13,241 77.1 8,758 85.8 39,464 76.5 15,775 70.0
------------------- ------------------- -------------------- --------------------
Income (loss) from
operations (6,394) (37.2) (4,806) (47.1) (18,291) (35.4) (6,604) (29.3)
Interest expense (1,220) (7.1) (233) (2.2) (3,056) (5.9) (233) (1.0)
Interest income 17 - 4 - 42 - 4 -
------------------- ------------------- -------------------- --------------------
Income (loss) before
income taxes (7,597) (44.3) (5,035) (49.3) (21,305) (41.3) (6,833) (30.3)
Income tax provision
(benefit) (1,595) ( 9.3) (2,300) (22.5) (4,474) ( 8.7) (1,708) (7.6)
------------------- ------------------- -------------------- --------------------
Net income (loss) (6,002) (35.0)% (2,735) (26.8)% (16,831) (32.6)% (5,125) (22.7)%
=================== =================== ==================== ====================
Goodwill Amortization $ 2,389 $ 1,268 $ 7,186 $ 1,979
</TABLE>
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999
Revenues. Circle.com's revenues increased $7.0 million, or 68.6%, to $17.2
million in the third quarter of 2000 from $10.2 million in the third quarter of
1999. Of this $7.0 million increase, $3.8 million, or 54.3%, is a result of
revenue contributed by entities which Circle.com purchased in the fourth quarter
of 1999. The remaining $3.2 million of the increase is attributable to
additional levels of service provided to both new and existing clients in both
the U.S. and the U.K.
Professional services expense. Circle.com's professional services expense
increased $4.0 million, or 63.5%, to $10.3 million in the third quarter of 2000
compared to $6.3 million in the third quarter of 1999. The increase in
professional service expenses is consistent with the increase in revenue.
Professional services expense as a percentage of net revenues decreased slightly
to 60.1% in the third quarter of 2000 compared to 61.3% in the third quarter of
1999.
Office and general expenses. Office and general expense increased $4.4
million, or 50%, to $13.2 million in the third quarter of 2000 from $8.8 million
in the third quarter of 1999. The increase in office and general expense is
consistent with the increased levels of revenue, and includes $1.1 million of
additional goodwill amortization in the third quarter of 2000 compared to 1999
from entities purchased in the fourth quarter of 1999. In addition, the third
quarter of 2000 includes increased office and general costs related to having a
publicly traded security following the October 22, 1999 Recapitalization.
Interest expense, net. Interest expense, net increased $1.0 million, to
$1.2 million in the third quarter of 2000 from $0.2 million in the third quarter
of 1999. This increase in interest expense is attributable to increases in the
external debt which was attributed to Circle.com by Snyder Communications for
certain acquisitions and for amounts advanced to Circle.com by SNC on a
revolving credit basis following the October 22, 1999 Recapitalization. See
"--Liquidity and Capital Resources."
Income tax provision. Circle.com recorded a tax benefit of $1.6 million in
the third quarter of 2000 and a tax benefit of $2.3 million in the third quarter
of 1999. Circle.com's effective tax rate is approximately 21% for the third
quarter of 2000. The actual tax provision recorded differs from the federal
statutory rate primarily due to the non-deductibility of certain goodwill
amortization and state income taxes recorded during the period.
Net loss. As a result of all the factors discussed above, Circle.com's net
loss increased to $6.0 million in the third quarter of 2000 from $2.7 million in
the third quarter of 1999.
24
<PAGE>
CIRCLE.COM--MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
Revenues. Circle.com's revenues increased $29.0 million, or 128.3%, to
$51.6 million in the first nine months of 2000 from $22.6 million in the same
period of 1999. Of this $29.0 million increase, $15.5 million, or 53.4%, is a
result of revenue contributed by entities which Circle.com purchased late in
June of 1999 and later during 1999. The remaining $13.5 million of the increase
is attributable to additional levels of service provided to both new and
existing clients in both the U.S. and the U.K.
Professional services expense. Circle.com's professional services expense
increased $17.0 million, or 126.9%, to $30.4 million in the first nine months of
2000 compared to $13.4 million in the same period of 1999. The dollar increase
in professional service expenses is consistent with the increase in revenue.
Professional services expense as a percentage of net revenues decreased slightly
to 58.9% in the first nine months of 2000 compared to 59.3% in the same period
of 1999.
Office and general expenses. Office and general expense increased $23.7
million, or 150.0%, to $39.5 million in the first nine months of 2000 from $15.8
million in the same period of 1999. The increase in office and general expense
is consistent with the increased levels of revenue, and includes $5.2 million of
additional goodwill amortization in the first nine months of 2000 compared to
1999 from entities purchased late in June 1999 and later. In addition, the first
nine months of 2000 includes increased office and general costs related to
having a publicly traded security following the October 22, 1999
Recapitalization.
Interest expense, net. Interest expense, net increased $2.8 million, to
$3.0 million in the first nine months of 2000 from $0.2 million in the same
period in 1999. This increase in interest expense is attributable to increases
in the external debt which was attributed to Circle.com by Snyder Communications
for certain acquisitions and for amounts advanced to Circle.com by SNC on a
revolving credit basis following the October 22, 1999 Recapitalization. See
"--Liquidity and Capital Resources."
Income tax provision. Circle.com recorded a tax benefit of $4.5 million in
the first nine months of 2000 and a tax benefit of $1.7 million in the first
nine months of 1999. Circle.com's effective tax rate is approximately 21% for
the first nine months of 2000. The actual tax provision recorded differs from
the federal statutory rate primarily due to the non-deductibility of certain
goodwill amortization and state income taxes recorded during the period.
Net loss. As a result of all the factors discussed above, Circle.com's net
loss increased to $16.8 million in the first nine months of 2000 from $5.1
million in the first nine months of 1999.
Liquidity and Capital Resources
At September 30, 2000, Circle.com had $0.8 million in cash and equivalents.
Cash and equivalents decreased $1.2 million during the nine months ended
September 30, 2000 due to the $12.5 million used in operating activities, and
the $10.1 million used in investing activities, offset by the $21.4 million
provided by financing activities during the period. The $21.4 million cash
provided by financing activities consists primarily of proceeds received from
SNC on an intra-group revolving credit basis, discussed below. The $10.1 million
cash used in investing activities consists primarily of cash used for capital
expenditures and to earn-out payments related to a previously acquired business.
Circle.com has incurred cumulative losses of $31.6 million from its
inception through September 30, 2000. Circle.com recorded a net loss of $6.0
million in the third quarter of 2000. Circle.com has relied on investments and
advances from SNC in order to build its business, acquire Internet services
companies, and to fund its operating and net losses.
Cash on hand as of September 30, 2000 will not be sufficient to fund the
operations of Circle.com through the end of 2000. Snyder Communications
currently expects that Circle.com will require additional cash to fund its
growth and operating losses over the next year and beyond. Accordingly,
Circle.com will need to obtain additional funding from SNC, borrow money from a
third party, or Snyder Communications may need to issue more shares of
Circle.com common stock. If Snyder Communications issues additional shares of
Circle.com stock in order to fund Circle.com's operating losses, the result
could be a dilution of the interests of existing Circle.com stockholders and
25
<PAGE>
CIRCLE.COM--MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SNC's retained interest. Circle.com does not have any borrowing arrangement in
place with a third party and, therefore, relies on Snyder Communications as its
source of cash. Other than the $12.3 million of external debt allocated at the
October 22, 1999 Recapitalization the funding provided to Circle.com by Snyder
Communications prior to the issuance of the Circle.com common stock is
considered an investment in Circle.com by Snyder Communications. Following the
issuance of the Circle.com common stock, all further cash provided to Circle.com
by Snyder Communications has been considered an interest-bearing loan from SNC,
and external borrowing for the purpose of acquisitions by Circle.com was
allocated to Circle.com. As a result, with respect to interest and debt
allocation to Circle.com, the historical financial statements are not comparable
to current periods. Following the merger of Snyder Communications with Havas
Advertising in September 2000, Snyder Communications repaid the outstanding
balance under its revolving credit facility, using the proceeds from an
intercompany loan from Havas Advertising, and then terminated the credit
facility. As a result, the $23.3 million external debt under the Snyder
Communications credit facility which had previously been attributable to
Circle.com has been refinanced by increasing the intra-group revolving loan from
SNC to Circle.com.
SNC loaned $52.4 million to Circle.com between October 22, 1999 (the
Recapitalization date) and September 30, 2000 on an intra-group revolving credit
basis, including $23.3 million in connection with the refinancing of the $23.3
million external debt of Snyder Communications which had been allocated to
Circle.com and was repaid in September 2000 using the proceeds from a $240
million intercompany loan from a Havas Advertising subsidiary to Snyder
Communications. The $52.4 million intra-group revolving loan is interest bearing
and has no set amortization schedule or maturity date. Interest is charged by
SNC to Circle.com on the intra-group revolving credit loan at the rate at which
Snyder Communications could borrow the funds on a revolving credit basis. The
interest rate in effect on the $52.4 million outstanding under the intra-group
revolving loan at September 30, 2000 was approximately 8.5%. The $52.4 million
of borrowings under the intra-group revolving credit loan are unsecured and
Circle.com is not required to meet any financial or other covenants with regard
to the loan. If determined to be in the best interest of the SNC and Circle.com
stockholders, the Snyder Communications board of directors could decide that
some or all of the intra-group revolving credit loan should prospectively be
accounted for as a long-term loan or as a capital contribution increasing SNC's
retained interest in Circle.com.
Snyder Communications anticipates that it will be in a position to fund the
needs of Circle.com in the short-term and it will monitor and evaluate market
conditions to assess the possibility of other sources of debt or equity
financing as the need arises. However, there can be no assurance that Circle.com
will be able to obtain third party debt or equity financing, or that Snyder
Communications will continue to be in a position to provide additional funding
to Circle.com in the longer-term.
Circle.com is subject to the impact of foreign currency fluctuations,
particularly with respect to the British pound. To date, changes in the British
pound exchange rates have not had a material impact on Circle.com's liquidity or
results of operations. Circle.com continually evaluates its exposure to exchange
rate risk but does not currently hedge such risk.
26
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matter to a vote of Security Holders
On September 25, 2000, Snyder Communications held a special meeting of
stockholders for the consideration and approval of the following
proposal which was described in Snyder Communications' Proxy Statement
dated August 24, 2000, a copy of which has previously been filed with
the Securities and Exchange Commission:
Proposal: To approve and adopt the Amended and Restated Agreement and
Plan of Merger, dated as of August 3, 2000 and effective February 20,
2000, among Snyder Communications, Inc., HAS Acquisition Corp. and Havas
Advertising, providing for the merger of HAS Acquisition Corp. with and
into Snyder Communications, Inc., and to approve the Merger.
<TABLE>
<CAPTION>
Total Votes Against
Total Votes For or Withheld Abstentions
-----------------------------------------------------
<S> <C> <C> <C>
Adopt the Amended and Restated
Agreement and Plan of Merger
and approve the Merger 61,677,102 72,015 148,140
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SNYDER COMMUNICATIONS, INC.
(Registrant)
Date: November 14, 2000 /s/ David B. Pauken
----------------- --------------
David B. Pauken
Chief Accounting Officer
(Principal Financial Officer)
28
