<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 June 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, 15/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.
Outstanding at
Class August 4, 2000
----- --------------
Snyder Communications, Inc. - SNC Common Stock, par value $0.001 72,341,799
Snyder Communications, Inc. - Circle.com Common Stock, par value 22,742,878
$0.001
<PAGE>
SNYDER COMMUNICATIONS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C>
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 the corresponding SNC and Circle.com condensed combined
financial statements. Holders of SNC common stock and Circle.com common stock are
stockholders of Snyder Communications, Inc. and are subject to all risks associated with an
investment in Snyder Communications, Inc. 1
Condensed Consolidated Balance Sheets as of June 30, 2000 (unaudited) and December 31, 1999
Condensed Consolidated Statements of Income for the three and six months ended June 30, 2000
and 1999 (unaudited) 2
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and
1999 (unaudited) 3
Condensed Consolidated Statement of Stockholders' Equity and Comprehensive Income for the six
months ended June 30, 2000 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
SNC - Condensed Combined Financial Statements
The condensed combined financial statements of SNC comprise the combined financial position,
results of operations and cash flows of the businesses that comprise Snyder Communications
Inc.'s direct marketing and advertising agency. Accordingly, the SNC condensed combined
financial statements are supplemental financial statements and should be read in conjunction
with the Snyder Communications, Inc. condensed consolidated financial statements and the
Circle.com condensed combined financial statements.
Condensed Combined Balance Sheets as of June 30, 2000 (unaudited) and December 31, 1999 10
Condensed Combined Statements of Income for the three and six months ended June 30, 2000 and
1999 (unaudited) 11
Condensed Combined Statements of Cash Flows for the six months ended June 30, 2000 and 1999
(unaudited) 12
Condensed Combined Statement of Changes in Group Equity for the six months ended June 30, 2000
(unaudited) 14
Notes to Condensed Combined Financial Statements 15
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 and the SNC condensed combined financial statements.
Condensed Combined Balance Sheets as of June 30, 2000 (unaudited) and December 31, 1999 18
Condensed Combined Statements of Operations for the three and six months ended June 30, 2000
and 1999 (unaudited) 19
Condensed Combined Statements of Cash Flows for the six months ended June 30, 2000 and 1999
(unaudited) 20
Condensed Combined Statement of Changes in Group Equity for the six months ended June 30, 2000
(unaudited) 21
Notes to Condensed Combined Financial Statements 22
</TABLE>
<PAGE>
SNYDER COMMUNICATIONS, INC.
FORM 10-Q
INDEX (continued)
<TABLE>
<S> <C>
Item 2. Management's Discussion and Analysis
Snyder Communications, Inc. Management's Discussion and Analysis of Financial Condition and
Results of Operations 24
SNC Management's Discussion and Analysis of Financial Condition and Results of Operations 29
Circle.com Management's Discussion and Analysis of Financial Condition and Results of
Operations 34
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 38
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
2000 December 31,
(unaudited) 1999
----------- ------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents.............................................................................. $ 74,895 $ 89,545
Marketable securities............................................................................. 5 9
Accounts receivable, net of allowance for doubtful accounts of $ 8,424 and $7,524 at June 30,
2000 and December 31, 1999, respectively....................................................... 107,678 101,466
Receivables from pass-through costs............................................................... 153,897 114,750
Related party receivables......................................................................... 238 636
Unbilled services................................................................................. 25,704 18,867
Current portion of deferred tax asset............................................................. 11,349 10,865
Other current assets.............................................................................. 30,308 22,450
--------- ---------
Total current assets.............................................................................. 404,074 358,588
--------- ---------
Property and equipment, net......................................................................... 94,287 85,241
Goodwill and other intangible assets, net........................................................... 230,706 240,903
Deferred tax asset.................................................................................. 89,472 92,312
Deposits and other assets........................................................................... 7,229 9,419
--------- ---------
Total assets.................................................................................... $ 825,768 $ 786,463
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit................................................................................... $ - $ 970
Current maturities of long-term debt.............................................................. 442 551
Accrued payroll................................................................................... 26,223 17,140
Accounts payable.................................................................................. 184,969 165,702
Accrued expenses.................................................................................. 96,453 105,556
Client advances................................................................................... 10,799 11,208
Unearned revenue.................................................................................. 19,945 19,176
--------- ---------
Total current liabilities...................................................................... 338,831 320,303
--------- ---------
Related party borrowings............................................................................ 7,078 8,731
Long-term obligations under capital leases.......................................................... 700 1,202
Long-term debt, net of current maturities........................................................... 183,456 181,031
Other liabilities................................................................................... 3,893 3,678
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.001 par value per share, 5,000 shares authorized, none issued and outstanding
at June 30, 2000 or December 31, 1999.......................................................... - -
Common Stock
SNC, $.001 par value per share, 320,000 shares authorized, 75,639 and 75,791 shares issued
and outstanding at June 30, 2000 and December 31, 1999, respectively.......................... 76 76
Circle.com, $.001 par value per share, 80,000 shares authorized, 23,753 and 23,660 shares
issued and outstanding at June 30, 2000 and December 31, 1999, respectively.................... 24 24
Additional paid-in capital........................................................................ 536,058 530,638
Deferred compensation............................................................................. (1,920) (2,220)
Treasury stock, at cost, 3,607 SNC shares and 1,010 Circle.com shares at June 30, 2000 and 4,659
SNC shares and 1,045 Circle.com shares at December 31, 1999.................................... (67,626) (81,974)
Accumulated other comprehensive income (loss)..................................................... (7,005) (2,434)
Retained deficit.................................................................................. (167,797) (172,592)
--------- ---------
Total stockholders' equity................................................................... 291,810 271,518
--------- ---------
Total liabilities and stockholders' equity................................................... $ 825,768 $ 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 Six Months
Ended June 30, Ended June 30,
-------------- --------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(in thousands, except per share amount)
<S> <C> <C> <C> <C>
Net revenues............................................................. $ 176,959 $ 161,345 $ 350,892 $ 299,426
Operating expenses:
Cost of services....................................................... 122,335 109,806 243,473 200,736
Selling, general and administrative expenses........................... 40,955 26,966 82,266 51,134
Merger-related costs................................................... 325 - 4,313 -
Acquisition and related costs.......................................... - 673 - 1,382
----------- ----------- ----------- -----------
Income (loss) from operations............................................ 13,344 23,900 20,840 46,174
Interest expense......................................................... (4,256) (409) (8,452) (696)
Investment income........................................................ 1,116 568 2,143 1,237
----------- ----------- ----------- -----------
Income (loss) from continuing operations before income taxes............. 10,204 24,059 14,531 46,715
Income tax provision..................................................... 5,117 10,356 9,491 19,188
----------- ----------- ----------- -----------
Income (loss) from continuing operations................................. 5,087 13,703 5,040 27,527
Income (loss) from discontinued operations (net of income taxes)......... - 7,549 - 12,639
----------- ----------- ----------- -----------
Net income (loss).................................................. $ 5,087 $ 21,252 $ 5,040 $ 40,166
=========== =========== =========== ===========
SNC (see note 2):
Basic net income (loss) per share:
Continuing operations................................................ $ 0.13 $ 0.20 $ 0.20 $ 0.40
Discontinued operations.............................................. - 0.10 - 0.17
----------- ----------- ----------- -----------
Total basic net income (loss) per share................................ $ 0.13 $ 0.30 $ 0.20 $ 0.57
=========== =========== =========== ===========
Diluted net income (loss) per share:
Continuing operations................................................ $ 0.13 $ 0.20 $ 0.19 $ 0.39
Discontinued operations.............................................. - 0.10 - 0.17
----------- ----------- ----------- -----------
Total diluted net income (loss) per share.............................. $ 0.13 $ 0.30 $ 0.19 $ 0.56
=========== =========== =========== ===========
Shares used in computing basic net income per share.................... 71,870 75,312 71,602 73,610
Shares used in computing diluted net income per share.................. 74,223 75,911 73,921 75,347
Circle.com (see note 2):
Basic and diluted net loss per share................................... $ (0.19) $ (0.06) $ (0.40) $ (0.10)
=========== =========== =========== ===========
Shares used in computing net loss per share............................ 22,571 18,992 22,520 18,485
=========== =========== =========== ===========
</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 Six Months Ended
June 30,
------------------------------------
2000 1999
--------------- --------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities of continuing
operations:
Income (loss) from continuing operations..................... $ 5,040 $ 27,527
Adjustments to reconcile net income (loss) from
continuing operations to net cash provided by (used
in) operating activities of continuing
operations:
Depreciation and amortization............................. 19,937 12,921
Noncash expense for restricted stock and option 300 -
vesting.................................................
Deferred taxes............................................ 2,356 3,687
Loss on disposal of assets................................ 586 401
Other noncash amounts..................................... (150) -
Changes in assets and liabilities:
Accounts receivable, net.................................. (6,348) (7,912)
Receivables from pass-through costs....................... (39,147) (12,737)
Related party receivables................................. 534 (116)
Unbilled services......................................... (6,837) 7,479
Deposits and other assets................................. 2,190 (497)
Other current assets...................................... (7,858) (10,059)
Accrued payroll, accounts payable and 27,874 6,981
accrued expenses........................................
Client advances........................................... (409) (6,855)
Unearned revenue.......................................... 769 928
--------------- --------------
Net cash provided by (used in) operating
activities of continuing operations..................... (1,163) 21,748
--------------- --------------
Cash flows from investing activities of continuing
operations:
Purchase of property and equipment........................... (22,280) (14,051)
Net sales of marketable securities........................... - 612
Purchase of subsidiaries and intangible assets............... (5,418) (32,915)
--------------- --------------
Net cash provided by (used in) investing activities of
continuing operations....................................... $ (27,698) $ (46,354)
--------------- --------------
</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 Six Months Ended
June 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........................... 53 -
Net borrowings (repayments) on lines of credit and other debt.................... 1,561 22,725
Payments on capital lease obligations............................................ (756) (877)
Proceeds from exercise of options and employee stock purchase plan............... 14,865 13,707
Other............................................................................ 72 -
-------------- --------------
Net cash provided by financing activities of continuing operations............. 14,595 35,485
-------------- --------------
Effect of exchange rate changes.................................................. (384) 1,009
Net increase (decrease) in cash and equivalents of continuing operations......... (14,650) 11,888
Investments and advances (to) from discontinued operations....................... - (11,227)
Cash and equivalents, beginning of period........................................ 89,545 47,931
-------------- --------------
Cash and equivalents, end of period.............................................. $ 74,895 $ 48,592
============== ==============
Disclosure of supplemental cash flow information:
Cash paid for interest preferred stock........................................... 5,077 810
Cash paid for income taxes....................................................... 4,031 5,025
Disclosure of noncash activities:
Issuance of shares of common stock for purchase of subsidiaries.................. 1,674 120,948
Tax benefit from exercise of stock options....................................... 3,311 2,434
</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 SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
SNC SNC Circle.com
Common Common Circle.com Common Additional Retained
Stock Stock Common Stock Stock Par Paid-In Earnings
Shares Par Value Shares Value Capital (Deficit)
-------------------------------------------------------------------------------
(in thousands, except share data)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999..................... 75,791,000 $ 76 23,660,000 $ 24 $530,638 $(172,592)
Issuance of shares for purchase of
subsidiaries (unaudited)..................... - - 121,000 - 1,674
Foreign currency translation adjustment
(unaudited)................................. - - - - - -
Unrealized gain on marketable securities
(unaudited)................................. - - - - -
Other (unaudited)............................. (152,000) - (28,000) - 3,746 (245)
Net income (unaudited)........................ - - - - - 5,040
------------------------------------------------------------------------------
Balance, June 30, 2000 (unaudited)............. 75,639,000 $ 76 23,753,000 $ 24 $536,058 $(167,797)
==============================================================================
<CAPTION>
Accumulated
Other
Deferred Treasury Comprehensive Comprehensive
Compensation Stock Income (Loss) Total Income (Loss)
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999..................... $(2,220) $(81,974) $(2,434) $271,518 $ -
Issuance of shares for purchase of
subsidiaries (unaudited)..................... - - - 1,674 -
Foreign currency translation adjustment
(unaudited)................................. - - (4,575) (4,575) (4,575)
Unrealized gain on marketable securities
(unaudited)................................. - - 4 4 4
Other (unaudited)............................. 300 14,348 - 18,149 -
Net income (unaudited)........................ - - - 5,040 5,040
----------------------------------------------------------
Balance, June 30, 2000 (unaudited)............. $(1,920) $(67,626) $(7,005) $291,810 $ 469
==========================================================
</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" or the "Company"), was founded in 1988. The Company 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 the Company approved a plan to
effect the distribution (the "Distribution") of the Company's 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 the Company. 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, the Company completed a recapitalization (the
"Recapitalization") in which the existing Snyder Communications, Inc. 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 the Company's Internet professional services business
unit, which it refers to as "Circle.com," and the SNC common stock separately
tracks the performance of the remaining businesses of the Company, which it
refers to as its "SNC" business unit, and a retained interest in Circle.com.
Each share of existing common stock of the Company 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.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared by Snyder Communications, Inc. 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. The Company believes that the
disclosures made are adequate to make the information presented not misleading.
The condensed consolidated financial statements reflect all adjustments
(consisting of only normal recurring adjustments) which, in the opinion of
management, are necessary to present fairly the financial position, results of
operations and cash flows of the Company as of June 30, 2000 and for the six
months ended June 30, 2000 and 1999. Operating results for the six month period
ended June 30, 2000 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2000. The unaudited condensed
consolidated financial statements should be read in conjunction with the
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999, as filed with
the Securities and Exchange Commission on March 30, 2000.
6
<PAGE>
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 Six Months Ended
Ended June 30, June 30,
------------------------ ----------------------------
2000 1999 2000 1999
--------- --------- ----------- -----------
(in thousands) (in thousands)
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
SNC income (loss) from continuing operations.......... $10,274 $15,223 $15,869 $29,918
Loss related to retained interest in Circle.com....... (859) (304) (1,794) (478)
------- ------- ------- -------
Income (loss) from continuing operations attributed to
SNC shareholders.................................... 9,415 14,919 14,075 29,440
------- ------- ------- -------
SNC income (loss) from discontinued operations........ - 7,549 - 12,639
------- ------- ------- -------
Net income (loss) attributed to SNC shareholders...... $ 9,415 $22,468 $14,075 $42,079
======= ======= ======= =======
</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 Six Months Ended
Ended June 30, June 30,
------------------------ ----------------------------
2000 1999 2000 1999
--------- --------- ----------- -----------
(in thousands) (in thousands)
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Circle.com net loss................................... $(5,187) $(1,520) $(10,829) $(2,391)
Loss attributable to SNC's retained interest.......... 859 304 1,794 478
------- ------- -------- -------
Net income (loss) attributable to Circle.com
shareholders......................................... $(4,328) $(1,216) $ (9,035) $(1,913)
------- ------- -------- -------
</TABLE>
3. PENDING ACQUISITION OF SNC COMMON STOCK BY HAVAS ADVERTISING:
On February 20, 2000, Havas Advertising, HAS Acquisition Corp. and Snyder
Communications, Inc. entered into an Agreement and Plan of Merger (the "Merger
Agreement"), pursuant to which HAS Acquisition Corp. will be merged with and
into Snyder Communications, with Snyder Communications surviving as a subsidiary
of Havas Advertising (the "Merger"). Under the terms of the Merger Agreement,
holders of SNC common stock will receive American Depositary Shares of Havas
Advertising ("Havas Advertising ADSs"), the number of which will be based on a
formula which values the SNC common stock at $29.50 per share, and which will
value the Havas Advertising ADSs (one ADS to be equal to a fraction of a share
of Havas Advertising stock) based on an average closing sale price of the Havas
Advertising stock on the Premier Marche of the Bourse de Paris for the 20 days
ending on the date immediately prior to the Merger, subject to a minimum and
maximum amount. The Circle.com common stock will remain outstanding. The
consummation of the Merger is subject to certain conditions, including approval
by the stockholders of each of Snyder Communications and Havas Advertising and
receipt of all required regulatory approvals. The items included in the notes
to the condensed consolidated financial statements do not address any impact
that the Merger could have on the financial condition or results of operations
of Snyder Communications.
4. BUSINESS COMBINATIONS:
During 1999, the Company completed several purchase business combinations
including Media Syndication Global ("MSG") (March 30, 1999), Broadwell
Marketing Group ("Broadwell") (May 21,
7
<PAGE>
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. The Company did not complete any purchase business combinations during
the six months ended June 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.
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
June 30, 1999 June 30, 1999
------------------ -------------------
(unaudited) (unaudited)
(in thousands) (in thousands)
<S> <C> <C>
Pro forma revenues......................................... $167,352 $326,996
Pro forma net income....................................... $ 20,435 $ 40,501
Pro forma SNC basic net income per share................... $ 0.29 $ 0.58
Pro forma SNC diluted net income per share................. $ 0.29 $ 0.56
Pro forma Circle.com basic and diluted net loss per share.. $ (0.07) $ (0.12)
</TABLE>
8
<PAGE>
5. 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. The SNC common stock and Circle.com common stock is
intended to separately track the performance of SNC and Circle.com respectively,
and each is reported as an operating segment. The Company 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 Six Months
Ended March 31, Ended June 30,
--------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Circle.com $ 17,720 $ 6,998 $ 34,397 $ 12,347
SNC 159,526 154,432 316,822 287,388
Elimination of intersegment revenues (287) (85) (327) (309)
-------- -------- -------- --------
Total $176,959 $161,345 $350,892 $299,426
======== ======== ======== ========
EBIT:
Circle.com $ (5,497) $ (613) $(11,897) $ (1,798)
SNC 19,166 25,186 37,050 49,354
-------- -------- -------- --------
Total $ 13,669 $ 24,573 $ 25,153 $ 47,556
======== ======== ======== ========
Total Assets:
Circle.com $115,520
SNC 741,698
Other unallocated amounts (31,450)
--------
Total $825,768
========
Reconciliation of EBIT to income (loss)
from operations:
Total EBIT for operating groups $ 13,669 $ 24,573 $ 25,153 $ 47,556
Merger-related costs 325 - 4,313 -
Acquisition related costs - 673 - 1,382
-------- -------- -------- --------
Income (loss) from operations
(continuing operations) $ 13,344 $ 23,900 $ 20,840 $ 46,174
======== ======== ======== ========
</TABLE>
9
<PAGE>
SNC
(SNC represents the business that comprise Snyder Communications, Inc.'s
direct marketing and advertising agency
CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
2000 December 31,
(unaudited) 1999
---------------- -----------------
(in thousands)
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents........................................................... $ 73,107 $ 87,521
Accounts receivable, net of allowance for doubtful accounts of $7,246 and
$6,666 at June 30, 2000 and December 31, 1999, respectively.................. 95,303 89,484
Receivables from pass-through costs............................................ 152,633 113,628
Related party receivables, including Circle.com of $26,439 and $7,613 at
June 30, 2000 and December 31, 1999, respectively............................ 26,541 8,249
Unbilled services.............................................................. 23,599 17,785
Current portion of deferred tax asset.......................................... 10,677 10,679
Other current assets........................................................... 29,505 22,001
------------ -------------
Total current assets......................................................... 411,365 349,347
------------ -------------
Property and equipment, net......................................................... 82,859 77,284
Goodwill and other intangible assets, net........................................... 151,745 157,061
Deferred tax asset.................................................................. 89,080 91,876
Deposits and other assets........................................................... 6,649 8,105
------------ -------------
Total assets............................................................... 741,698 $ 683,673
============ =============
LIABILITIES AND INVESTMENTS AND ADVANCES
FROM SNYDER COMMUNICATIONS
Current liabilities:
Lines of credit................................................................. $ - $ 970
Current maturities of long-term debt............................................ 442 551
Accrued payroll................................................................. 22,599 14,538
Accounts payable................................................................ 183,218 162,568
Accrued expenses................................................................ 95,760 97,016
Client advances................................................................. 10,483 9,843
Unearned revenue................................................................ 19,396 17,969
------------ -------------
Total current liabilities................................................... 331,898 303,455
------------ -------------
Related party borrowings............................................................. 7,078 8,731
Long-term obligations under capital leases........................................... 484 801
Long-term debt, net of current maturities............................................ 160,107 157,682
Other liabilities.................................................................... 3,893 3,678
Commitments and contingencies
Investments and advances from Snyder Communications.................................. 238,238 209,326
------------ -------------
Total liabilities and investments and advances from Snyder Communications... $ 741,698 $ 683,673
============ =============
</TABLE>
See accompanying notes to condensed combined financial statements.
10
<PAGE>
SNC
(SNC represents the businesses that comprise Snyder Communications, Inc.'s
direct marketing and advertising agency.)
CONDENSED COMBINED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
----------- ----------- ----------- ------------
(in thousands)
<S> <C> <C> <C> <C>
Net revenues....................................... $159,526 $154,432 $316,822 $287,388
Operating expenses:
Cost of services............................... 110,120 105,060 219,209 192,183
Selling, general and administrative expenses... 30,240 24,186 60,563 45,851
Merger-related costs........................... 325 - 4,313 -
Acquisition related costs...................... - 673 - 1,382
---------- --------- --------- ----------
Income (loss) from operations...................... 18,841 24,513 32,737 47,972
Interest expense................................... (3,699) (409) (7,414) (696)
Investment income.................................. 1,628 568 2,916 1,237
---------- --------- --------- ----------
Income (loss) from continuing operations
before income taxes............................ 16,770 24,672 28,239 48,513
Income tax provision............................... 6,496 9,449 12,370 18,595
---------- --------- --------- ----------
Income (loss) from continuing operations........... 10,274 15,223 15,869 29,918
Income (loss) from discontinued operations
(net of income taxes).......................... - 7,549 - 12,639
---------- --------- --------- ----------
Net income (loss).............................. $ 10,274 $ 22,772 $ 15,869 $ 42,557
========== ========= ========= ==========
</TABLE>
See accompanying notes to condensed combined financial statements.
11
<PAGE>
SNC
(SNC represents the businesses that comprise Synder Communications, Inc.'s
direct marketing and advertising agency.)
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-----------------------------------------
2000 1999
---------------- ------------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities of continuing
operations:
Income (loss) from continuing operations.................... $ 15,869 $ 29,918
Adjustments to reconcile net income (loss) from
continuing operations to net cash provided by (used
in) operating activities of continuing operations:
Depreciation and amortization............................ 13,698 11,791
Noncash expense for restricted stock vesting............. 100 -
Deferred taxes........................................... 2,798 3,677
(Gain) loss on disposal of assets........................ 610 401
Other noncash amounts.................................... (150) -
Changes in assets and liabilities:
Accounts receivable, net................................. (5,819) (6,829)
Receivables from pass-through costs...................... (39,005) (13,160)
Related party receivables................................ 534 (116)
Unbilled services........................................ (5,814) 7,896
Deposits and other assets................................ 1,456 (107)
Other current assets..................................... (7,504) (10,039)
Accrued payroll, accounts payable and accrued
expenses................................................ 30,837 9,126
Client advances.......................................... 640 (6,711)
Unearned revenue......................................... 1,427 928
-------- --------
Net cash provided by operating activities
of continuing operations................................ $ 9,677 $ 26,775
-------- --------
Cash flows from investing activities of continuing
operations:
Purchase of property and equipment.......................... (17,278) (12,318)
Purchase of subsidiaries and other intangibles.............. (1,944) (21,765)
Net sales of marketable securities.......................... - 612
-------- --------
Net cash used in investing activities of continuing
operations................................................ $(19,222) $(33,471)
======== ========
</TABLE>
See accompanying notes to condensed combined financial statements.
12
<PAGE>
SNC
(SNC represents the businesses that comprise Synder Communications, Inc.'s
direct marketing and advertising agency.)
CONDENSED COMBINED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
<TABLE>
<CAPTION>
For the Six Months ended June 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)
Net borrowings (repayments) on lines of credit and other debt....... 1,561 10,433
Payments on capital lease obligations............................... (631) (877)
Other............................................................... 72 -
Loan to Circle.com under intra-group line of credit................. (18,826) -
Proceeds from exercise of stock options and employee stock purchase
plan............................................................... 14,704 5,901
--------- --------
Net cash provided by (used in) financing activities of continuing
operations......................................................... (4,320) 15,387
--------- --------
Effect of exchange rate changes..................................... (549) 1,004
--------- --------
Net increase (decrease) in cash and equivalents of.................. (14,414) 9,695
continuing operations..............................................
Investments and advances (to) from discontinued operations.......... - (11,227)
Cash and equivalents, beginning of period........................... 87,521 47,931
--------- --------
Cash and equivalents, end of period................................. $ 73,107 $ 46,399
========= ========
Disclosure of supplemental cash flow information:
Cash paid for interest including dividends on mandatorily.......... 5,012 810
redeemable preferred stock.......................................
Cash paid for income taxes......................................... 4,023 5,025
Disclosure of noncash activities:
Issuance of shares of common stock for purchase of subsidiaries.... - 96,863
Tax benefit from exercise of stock options......................... 3,311 2,434
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE>
SNC
(SNC represents the businesses that comprise Synder Communications, Inc.'s
direct marketing and advertising agency.)
CONDENSED COMBINED STATEMENTS OF CHANGES IN GROUP EQUITY
(in thousands)
<TABLE>
<CAPTION>
Retained Other
Earnings Comprehensive
Other (Deficit) Income(Loss) Total
---------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1999............................ $315,129 $(103,372) $(2,431) $209,326
Net income (unaudited)................................ - 15,869 - 15,869
Capital contribution (unaudited)...................... 17,980 - - 17,980
Foreign currency translation adjustment (unaudited)... - - (4,692) (4,692)
Other (unaudited)..................................... - (245) - (245)
----------------------------------------------------
Balance at June 30, 2000 (unaudited).................... $333,109 $ (87,748) $(7,123) $238,238
====================================================
</TABLE>
See accompanying notes to condensed combined financial statements.
14
<PAGE>
SNC
(SNC represents the businesses that comprise Snyder Communications, Inc.'s
direct marketing and advertising agency.)
Notes to Condensed Combined Financial Statements
(unaudited)
1. Organization, Basis of Presentation and Business:
Organization
Snyder Communications, Inc. ("Snyder Communications" or the
"Company"), a Delaware corporation, completed an initial public offering of its
common stock on September 24, 1996. Snyder Communications provides direct
marketing, advertising and communication services and Internet professional
services to its clients.
On October 22, 1999 Snyder Communications completed a recapitalization
(the "Recapitalization") in which the existing Snyder Communications, Inc.
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 tracks 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.
SNC is a business unit of Snyder Communications which consists of the
assets and operations of the direct marketing, advertising and communications
part of Snyder Communications' business. SNC also included Snyder
Communications' discontinued healthcare marketing 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 Snyder Communications
common stock. Accordingly, the operating results of the healthcare services
business are presented as discontinued operations for the period prior to the
spin-off.
The condensed combined financial statements of SNC should be read in
conjunction with the condensed consolidated financial statements of Snyder
Communications and the condensed combined financial statements of Circle.com.
Basis of Presentation
The accompanying unaudited condensed combined financial statements
have been prepared by Snyder Communications, Inc. 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. The Company 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 SNC as of June 30, 2000 and for the six months ended June 30, 2000
and 1999. Operating results for the six month period ended June 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 the Company's Annual Report on Form 10-K for the
15
<PAGE>
SNC
(SNC represents the businesses that comprise Snyder Communications, Inc.'s
direct marketing and advertising agency.)
Notes to Condensed Combined Financial Statements
(unaudited)
fiscal year ended December 31, 1999, as filed with the Securities and Exchange
Commission on March 30, 2000.
SNC recorded $19,750 and $85,000 of expense associated with services
purchased from Circle.com during the three months ended June 30, 2000 and June
30, 1999, respectively. SNC recorded $59,980 and $309,000 of expenses associated
with services purchased during the six months ended June 30, 2000 and June 30,
1999 respectively.
SNC recorded $266,970 of revenue for services provided to Circle.com
for the three months ended June 30, 2000. SNC did not provide services for
revenue to Circle.com in the three months ended March 31, 2000 or for the six
months ended June 30, 1999.
SNC recorded $105,000 and $80,000 of interest expense to related
parties for the three months ended June 30, 2000 and June 30, 1999,
respectively. SNC recorded $213,000 and $164,000 of interest expense to related
parties for the six months ended June 30, 2000 and June 30, 1999, respectively.
SNC recorded $528,107 of interest income on its intra-group revolving
credit facility with Circle.com for the three months ended June 30, 2000 and
$798,814 for the six months ended June 30, 2000. SNC did not earn interest
income related to Circle.com during the six months ended June 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 from SNC.
2. Pending Acquisition of SNC Common Stock by Havas Advertising:
On February 20, 2000, Havas Advertising, HAS Acquisition Corp. and
Snyder Communications, Inc. entered into an Agreement and Plan of Merger (the
"Merger Agreement"), pursuant to which HAS Acquisition Corp. will be merged with
and into Snyder Communications, with Snyder Communications surviving as a
subsidiary of Havas Advertising (the "Merger"). Under the terms of the Merger
Agreement, holders of SNC common stock will receive American Depositary Shares
of Havas Advertising ("Havas Advertising ADSs"), the number of which will be
based on a formula which values the SNC common stock at $29.50 per share, and
which will value the Havas Advertising ADSs (one ADS to be equal to a fraction
of a share of Havas Advertising stock) based on an average closing sale price of
the Havas Advertising stock on the Premier Marche of the Bourse de Paris for the
20 days ending on the date immediately prior to the Merger, subject to a minimum
and maximum amount. The Circle.com common stock will remain outstanding. The
consummation of the Merger is subject to certain conditions, including approval
by the stockholders of each of Snyder Communications and Havas Advertising and
receipt of all required regulatory approvals. The items included in the notes to
the condensed combined financial statements do not address any impact that the
Merger could have on the financial condition or results of operations of Snyder
Communications or SNC.
3. Business Combinations:
During 1999, SNC completed several purchase business combinations
including Media Syndication Global ("MSG") (March 30, 1999) and Broadwell
Marketing Group ("Broadwell") (May 21, 1999) for total consideration paid of
$87.0 million (2,882,250 shares of Snyder Communications common
16
<PAGE>
SNC
(SNC represents the businesses that comprise Snyder Communications, Inc.'s
direct marketing and advertising agency.)
Notes to Condensed Combined Financial Statements
(unaudited)
stock and $9.2 million in cash). These purchase business combinations have
resulted in additional goodwill of approximately $85.2 million. The Company did
not complete any purchase business combinations during the six months ended June
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.
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, 1999 June 30, 1999
--------------------------- -------------------------
(unaudited) (unaudited)
(in thousands) (in thousands)
<S> <C> <C>
Pro forma revenues............................ $155,590 $305,673
Pro forma net income.......................... $ 22,488 $ 44,100
</TABLE>
17
<PAGE>
CIRCLE.COM
(Circle.com represents the businesses that comprise Snyder Communications,
Inc.'s
Internet professional services business.)
CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
2000 December 31,
(unaudited) 1999
----------------- --------------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................................ $ 1,788 $ 2,024
Marketable securities........................................................... 5 9
Accounts receivable, net of allowance for doubtful accounts of $1,178 and
$858 at June 30, 2000 and December 31, 1999, respectively............... 12,375 11,877
Receivables from pass-through costs............................................. 1,264 1,122
Related party receivable........................................................ 136 105
Unbilled services............................................................... 2,105 1,082
Current portion of deferred tax asset........................................... 672 186
Income tax receivable........................................................... 5,011 2,572
Other current assets............................................................ 803 449
-------- --------
Total current assets......................................................... 24,159 19,426
-------- --------
Property and equipment, net....................................................... 11,428 7,957
Goodwill, net..................................................................... 78,961 83,842
Deferred tax asset................................................................ 392 436
Deposits and other assets......................................................... 580 1,314
-------- --------
Total assets................................................................. $115,520 $112,975
======== ========
LIABILITIES AND INVESTMENTS AND ADVANCES FROM SNYDER COMMUNICATIONS
Current liabilities:
Accrued payroll................................................................. $ 3,624 $ 2,602
Accounts payable................................................................ 1,751 3,134
Accrued expenses................................................................ 5,704 11,112
Client advances................................................................. 316 1,365
Unearned revenue................................................................ 549 1,207
Payable to SNC.................................................................. 26,439 7,613
-------- --------
Total current liabilities.................................................... 38,383 27,033
-------- --------
Long term debt.................................................................... 23,349 23,349
Long term obligations under capital leases........................................ 216 401
Commitments and contingencies
Investments and advances from Snyder Communications............................... 53,572 62,192
-------- --------
Total liabilities and investments and advances from Snyder
Communications............................................................. $115,520 $112,975
======== ========
</TABLE>
See accompanying notes to condensed combined financial statements.
18
<PAGE>
CIRCLE.COM
(Circle.com represents the businesses that comprise Snyder Communications,
Inc.'s Internet professional services business.)
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
2000 1999 2000 1999
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Net revenues................................ $ 17,720 $ 6,998 $ 34,397 $ 12,347
Operating expenses:
Professional services................... 10,082 3,906 20,071 7,128
Office and general...................... 13,135 3,705 26,223 7,017
-------- -------- -------- --------
Income (loss) from operations............... (5,497) (613) (11,897) (1,798)
Interest expense, net....................... (1,069) - (1,811) -
-------- -------- -------- --------
Income (loss) before income taxes........... (6,566) (613) (13,708) (1,798)
Income tax provision (benefit).............. (1,379) 907 (2,879) 593
-------- -------- -------- --------
Net loss................................ $ (5,187) $ (1,520) $(10,829) $ (2,391)
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed combined financial statements.
19
<PAGE>
CIRCLE.COM
(Circle.com represents the businesses that comprise Snyder Communications,
Inc.'s Internet professional services business.)
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
2000 1999
------------ ------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................................... $(10,829) $ (2,391)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................................. 6,239 1,130
Deferred taxes and other...................................... (466) 10
Non-cash expense for restricted stock......................... 200 -
Changes in assets and liabilities:
Accounts receivable, net...................................... (529) (1,083)
Receivables from pass-through costs........................... (142) 423
Unbilled services............................................. (1,023) (417)
Taxes receivable.............................................. (2,439) -
Other current assets.......................................... (354) (20)
Deposits and other assets..................................... 734 (390)
Accrued payroll, accounts payable and accrued expenses........ (524) (2,145)
Client advances............................................... (1,049) (144)
Unearned revenue.............................................. (658) -
-------- --------
Net cash provided by (used in) operating activities....... $(10,840) $ (5,027)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment................................ $ (5,003) $ (1,784)
Purchase of subsidiaries and other intangibles.................... (3,473) (11,099)
-------- --------
Net cash used in investing activities..................... $ (8,476) $(12,883)
-------- --------
Cash flows from financing activities:
Investment and advances from Snyder Communications, net........... $ - $ 7,806
Borrowing from SNC intra-company line of credit................... 18,826 -
Borrowing from bank line of credit................................ - 12,292
Proceeds from the exercise of stock options....................... 161 -
Repayment of loans to employees for purchase of stock............. 53 -
Payments on capital lease obligations............................. (125) -
-------- --------
Net cash provided by (used in) financing activities....... $ 18,915 $ 20,098
-------- --------
Effect of exchange rate changes...................................... 165 5
Net increase (decrease) in cash and equivalents...................... (236) 2,193
Cash and equivalents, beginning of period............................ 2,024 -
-------- --------
Cash and equivalents, end of period.................................. $ 1,788 $ 2,193
======== ========
Disclosure of noncash activities:
Business acquired with Snyder Communications common stock........ 1,674 25,085
</TABLE>
See accompanying notes to condensed combined financial statements.
20
<PAGE>
CIRCLE.COM
(Circle.com represents the businesses that comprise Snyder Communications,
Inc.'s Internet professional services 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)...................... - (10,829) - (10,829)
Foreign currency translation adjustment
(unaudited)............................ - - 125 125
Restricted stock vesting (unaudited)...... 200 - - 200
Capital contribution (unaudited).......... 1,835 - - 1,835
Unrealized gain on marketable securities
(unaudited)............................ - - (4) (4)
Repayment of loan to employees for
purchase of stock (unaudited).......... 53 - - 53
-------------------------------------------------------
Balance at June 30, 2000 (unaudited)......... $79,045 $(25,591) $118 $ 53,572
========================================================
</TABLE>
See accompanying notes to condensed combined financial statements.
21
<PAGE>
CIRCLE.COM
(Circle.com represents the business 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, 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.
On October 22, 1999 Snyder Communications completed a recapitalization (the
"Recapitalization") in which the existing Snyder Communications, Inc. 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 tracks 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.
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.
The condensed combined financial statements of Circle.com should be read in
conjunction with the condensed consolidated financial statements of Snyder
Communications and the condensed combined financial statements of SNC.
Basis of Presentation
The accompanying unaudited condensed combined financial statements have
been prepared by Snyder Communications, Inc. 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. The Company 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 June 30, 2000 and for the six months ended June
30, 2000 and 1999. Operating results for the six month period ended June 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 the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999, as filed with the Securities and Exchange
Commission on March 30, 2000.
Circle.com recorded $19,750 and $85,000 of revenue for services provided to
SNC for the three months ending June 30, 2000 and June 30, 1999, respectively.
Circle.com recorded $59,980 and $309,000 of revenue for services provided to SNC
for the six months ended June 30, 2000 and June 30, 1999 respectively.
Circle.com recorded $266,970 of expenses associated with services purchased
from SNC for the three months ended June 30, 2000. Circle.com did not purchase
services from SNC during the three months ended March 31, 2000 or for the six
months ended June 30, 1999.
Circle.com recorded $528,107 of interest expense on its intra-group revolving
credit loan from SNC for the three months ended June 30, 2000 and $798,814 for
the six months ended June 30, 2000. Circle.com did not incur
22
<PAGE>
CIRCLE.COM
(Circle.com represent the business that comprise Snyder Communications, Inc.'s
Internet professional service business.)
Notes to Condensed Combined Financial Statements
(unaudited)
interest expense related to SNC during the six months ended June 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. Pending Acquisition of SNC Common Stock by Havas Advertising:
On February 20, 2000, Havas Advertising, HAS Acquisition Corp. and Snyder
Communications, Inc. entered into an Agreement and Plan of Merger (the "Merger
Agreement"), pursuant to which HAS Acquisition Corp. will be merged with and
into Snyder Communications, with Snyder Communications surviving as a subsidiary
of Havas Advertising (the "Merger"). Under the terms of the Merger Agreement,
holders of SNC common stock will receive American Depositary Shares of Havas
Advertising ("Havas Advertising ADSs"), the number of which will be based on a
formula which values the SNC common stock at $29.50 per share, and which will
value the Havas Advertising ADSs (one ADS to be equal to a fraction of a share
of Havas Advertising stock) based on an average closing sale price of the Havas
Advertising stock on the Premier Marche of the Bourse de Paris for the 20 days
ending on the date immediately prior to the Merger, subject to a minimum and
maximum amount. The Circle.com common stock will remain outstanding. The
consummation of the Merger is subject to certain conditions, including approval
by the stockholders of each of Snyder Communications and Havas Advertising and
receipt of all required regulatory approvals. The items included in the notes
to the condensed combined financial statements do not address any impact that
the Merger could have on the financial condition or results of operations of
Snyder Communications or Circle.com.
3. 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 six months ended June 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 Six Months
--------------------
Ended June 30, Ended June 30,
--------------------
1999 1999
----------------------- --------------------
(in thousands) (in thousands)
(unaudited) (unaudited)
Pro forma revenues........... $11,847 $21,632
Pro forma net loss........... $(2,032) $(3,568)
23
<PAGE>
SYNDER COMMUNICATIONS, INC.- 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" or the "Company") is based upon the Company's condensed
consolidated financial statements. The following discussion should be read in
conjunction with the condensed consolidated financial statements of the Company
and the related notes thereto included elsewhere in this Quarterly Report on
Form 10-Q.
On February 20, 2000, Havas Advertising, HAS Acquisition Corp. and Snyder
Communications, Inc. entered into an Agreement and Plan of Merger, pursuant to
which HAS Acquisition Corp. will be merged with and into Snyder Communications,
with Snyder Communications surviving as a subsidiary of Havas Advertising (the
"Merger"). The consummation of the Merger is subject to certain conditions,
including approval by the stockholders of each of Snyder Communications and
Havas Advertising and receipt of all required regulatory approvals. Under the
terms of the Merger Agreement, holders of the SNC common stock will receive
American Depositary Shares of Havas Advertising ("Havas ADSs"), the number of
which will be based on a formula which values the SNC common stock at $29.50 per
share, and which will value the Havas ADSs based on the average closing sale
price of the Havas Advertising stock on the premier Marche of the Bourse de
Paris for the 20 days ending on the date immediately prior to the Merger,
subject to a minimum and maximum amount. The Circle.com common stock will
remain outstanding. The items included in this Quarterly Report on Form 10-Q
discuss the business, results of operations, and financial condition of Snyder
Communications without regard to the impact that the Merger could have on the
Company.
Private Securities Litigation Reform Act of 1995 -- A Caution Concerning
Forward-Looking Statements
Any statement made in this Form 10-Q that deals with information that is
not historical, such as statements concerning our anticipated financial results,
are forward-looking statements. We wish to caution readers not to place undo
reliance on any of these forward-looking statements, which speak only as of the
date made. Forward-looking statements are subject to the occurrence of many
events outside our control and to various risk factors that could cause results
to differ materially from those expressed in our periodic reports and
registration statements filed with the Securities and Exchange Commission, our
press releases or other public communications.
Overview
Since completing our initial public offering in September 1996, we have
significantly expanded the range of marketing services we are able to offer our
clients. This expansion has been accomplished by creating and initiating new
programs or service offerings and by acquiring businesses that offer
complementary services. Our strategy has been to grow our existing business and
to integrate services of our acquired companies with those of our existing
operations. The service offerings of acquired companies have been combined with
those previously offered by us to create SNC 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 our Internet
professional services agency network. We strive to integrate our service
capabilities within, as well as across, our networks. The SNC stock separately
tracks the performances of SNC and a retained interest in Circle.com. The
Circle.com stock separately tracks the performance of Circle.com less the
retained interest.
Results of Operations
In SNC, net revenues from direct marketing and advertising services may be
based on a specific unit of performance, a fixed project amount or an annual
retainer. In Circle.com, net revenues from Internet professional services are
generally based on a fixed project amount or the time and materials utilized.
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.
24
<PAGE>
SNYDER COMMUNICATIONS, INC.- MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 consist of investment banking fees, legal,
accounting and other costs related to the planned acquisition of the SNC common
stock by Havas Advertising. Acquisition and related costs recorded in 1999
consist of costs to integrate acquired companies pursuant to a plan initiated in
the fourth quarter of 1998.
The following sets forth, for the periods indicated, certain components of
our income statement data, including such data as a percentage of revenues.
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
----------------------------------------------------------------------------------------------
2000 1999 2000 1999
----------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenues $176,959 100.0% $161,345 100.0% $350,892 100.0% $299,426 100.0%
Operating expenses:
Cost of services 122,335 69.1 109,806 68.1 243,473 69.5 200,736 67.0
Selling, general and
administrative expenses 40,955 23.1 26,966 16.7 82,266 23.4 51,134 17.1
Merger and related costs 325 0.3 - - 4,313 1.2 - -
Acquisition and related costs - - 673 0.4 - - 1,382 0.5
---------------- ---------------- ---------------- ----------------
Income (loss) from operations 13,344 7.5 23,900 14.8 20,840 5.9 46,174 15.4
Interest expense (4,256) (2.4) (409) (0.3) (8,452) (2.4) (696) (0.2)
Interest income 1,116 0.6 568 0.4 2,143 0.6 1,237 0.4
Income tax provision 5,117 2.8 10,356 6.4 9,491 2.7 19,188 6.4
---------------- ---------------- ---------------- ----------------
Income (loss) from
continuing operations 5,087 2.9 13,703 8.5 5,040 1.4 27,527 9.2
Income (loss) from
discontinued operations
(net of income taxes) - - 7,549 4.7 - - 12,639 4.2
---------------- ---------------- ---------------- ----------------
Net income (loss) $ 5,087 2.9% $ 21,252 13.2% $ 5,040 1.4% $ 40,166 13.4%
================ ================ ================ ================
</TABLE>
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Revenues. Snyder Communications' revenues increased $15.7 million, or 9.7%,
to $177.0 million in the second quarter of 2000 from $161.3 million in the
second quarter of 1999. Revenues at Arnold Communications increased $6.3
million, or 19.7%, 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 $3.9 million, or 5.3%, during the period
as a result of services provided to new and existing clients and the acquisition
of Broadwell Marketing Group, which was purchased in May of 1999. Revenues at
Bounty SCA Worldwide decreased $5.1 million, or 10.3%, during the period
primarily as a result of a decrease in revenue from sampling-related programs in
the U.S. Revenues at Circle.com increased $10.7 million, or 152.9%, in the
second quarter of 2000 compared to the second quarter of 1999 as a result of
increases in services provided to both new and existing clients and from
purchase transactions completed in 1999.
Cost of services. Snyder Communications' cost of services increased $12.5
million, or 11.4%, to $122.3 million in the second quarter of 2000 from $109.8
million in the second quarter of 1999. Cost of services as a percentage of
revenue increased to 69.1% in the second quarter of 2000 from 68.1% in the
second 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 $3.5 million, or 15.1%, during the
period resulting in cost of services as a percentage of revenues of 69.1% in the
second quarter of 2000 compared to 71.9% in the same
25
<PAGE>
SNYDER COMMUNICATIONS, INC.- MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
period of 1999. Cost of services within the Brann Worldwide network increased
$5.1 million, or 9.5%, during the period resulting in cost of services as a
percentage of revenue of 76.0% in the second quarter of 2000 compared to 73.0%
in the second quarter of 1999. Bounty SCA Worldwide's cost of services decreased
$3.5 million, or 12.2%, resulting in cost of services as a percentage of
revenues of 56.9% in the second quarter of 2000 compared to 58.1% in the second
quarter of 1999. Circle.com's cost of services increased $7.7 million, or 158.8%
in the second quarter of 2000 compared to the second quarter of 1999.
Selling, general and administrative expenses. Snyder Communications'
selling, general and administrative expenses increased $14.0 million, or 51.9%,
to $41.0 million in the second quarter of 2000 compared to $27.0 million the
same period of 1999 as a result of increases in each of Snyder Communications'
four networks. This increase is partially caused by expenses, including goodwill
amortization, at entities which were purchased by Circle.com late in June 1999
and later, and by the purchase of Broadwell Marketing Group by SNC in May 1999.
Selling, general and administrative expenses as a percent of revenue increased
to 23.1% in the second quarter of 2000 compared to 16.7% in the second quarter
of 1999 as a result of the increased costs.
Merger and related costs. Merger and related costs consist of expenses
incurred as a result of the planned acquisition of the SNC common stock by Havas
Advertising. The $0.3 million consists primarily of accounting fees. No such
costs were recorded in 1999.
Acquisition and related costs. The $0.7 million of acquisition and related
costs recorded in the second quarter of 1999 consist of costs to integrate
acquired companies pursuant to a plan initiated in the fourth quarter of 1998.
No such costs were recorded in 2000.
Interest expense. Interest expense increased $3.9 million, to $4.3 million
in the second quarter of 2000 from $0.4 million in the second quarter of 1999.
The increase in interest expense is attributable to borrowings under the $195
million unsecured revolving credit facility.
Interest income. Interest income increased $0.5 million, to $1.1 million in
the second quarter of 2000 from $0.6 million in the second 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.
Income tax provision. Snyder Communications recorded a tax provision of
$5.1 million in the second quarter of 2000 and $10.4 million in the second
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, income from continuing operations decreased to $5.1 million in
the second quarter of 2000 from $13.7 million in the second quarter of 1999.
Income (loss) from discontinued operations (net of income taxes). The $7.5
million income from discontinued operations in the second quarter of 1999
represents the results of the Company's healthcare services group, which was
spun off to the Snyder Communications stockholders on September 27, 1999.
Net income (loss). Snyder Communications' net income decreased to $5.1
million in the second quarter of 2000 from $21.3 million in the second quarter
of 1999 as a result of the spin-off of the healthcare services group and the
other factors discussed above.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Revenues. Snyder Communications' revenues increased $51.5 million, or
17.2%, to $350.9 million in the first half of 2000 from $299.4 million in the
first half of 1999. Revenues at Arnold Communications increased $13.0 million,
or 20.5%, 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 $3.8 million, or 2.6%, during the period. Brann
Worldwide experienced a reduction in revenue from the sale of long distance
telephone service,
26
<PAGE>
SNYDER COMMUNICATIONS, INC.- MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
which 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. Revenues at Bounty SCA Worldwide increased $12.6 million, or 16.6%,
during the period. Increases in revenues which resulted from the purchase of
Media Syndication Global on March 30, 1999 were partially offset by a decrease
in revenue from sampling-related programs in the U.S. during the first six
months of 2000. Revenues at Circle.com increased $22.1 million, or 179.7%,
during the period as a result of increases in services provided to both new and
existing clients and from purchase transactions completed in 1999.
Cost of services. Snyder Communications' cost of services increased $42.8
million, or 21.3%, to $243.5 million in the first half of 2000 from $200.7
million in the first half of 1999. Cost of services as a percentage of revenue
increased to 69.5% in the first half of 2000 from 67.0% in the first half 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 $8.6 million, or 19.4%, during the period resulting in
cost of services as a percentage of revenues of 69.1% in the first half of 2000
compared to 69.7% in the same period of 1999. Cost of services within the Brann
Worldwide network increased $9.3 million, or 8.8%, during the period resulting
in cost of services as a percentage of revenue of 75.5% in the first half of
2000 compared to 71.2% in the first half of 1999. The increased costs resulting
from the increased level of services provided in the Brann Worldwide network
described above was not fully offset by the reduction of variable costs related
to the reduced revenue from the sale of long distance telephone service. Bounty
SCA Worldwide's cost of services increased $9.1 million, or 21.6%, resulting in
cost of services as a percentage of revenues of 58.3% in the first half of 2000
compared to 56.0% in the first half 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 $15.7
million, or 177.5% in the second quarter of 2000 compared to the second quarter
of 1999.
Selling, general and administrative expenses. Snyder Communications'
selling, general and administrative expenses increased $31.2 million, or 61.1%,
to $82.3 million in the first half of 2000 compared to $51.1 million the same
period of 1999 as a result of increases in each of Snyder Communications' four
networks. This increase is largely 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. Selling, general and
administrative expenses as a percent of revenue increased to 23.4% in the first
half of 2000 compared to 17.1% in the first half of 1999 as a result of the
increased costs.
Merger and related costs. Merger and related costs consist of expenses
incurred as a result of the planned acquisition of the SNC common stock by Havas
Advertising. The $4.3 million recorded in the first half of 2000 consists
primarily of investment banking , legal and accounting fees. No such costs were
recorded in 1999.
Acquisition and related costs. The $1.4 million of acquisition and related
costs recorded in the first half of 1999 consist of costs to integrate acquired
companies pursuant to a plan initiated in the fourth quarter of 1998. No such
costs were recorded in 2000.
Interest expense. Interest expense increased $7.8 million, to $8.5 million
in the first half of 2000 from $0.7 million in the first half of 1999. The
increase in interest expense is attributable to borrowings under the $195
million unsecured revolving credit facility.
Interest income. Interest income increased $0.9 million, to $2.1 million in
the first half of 2000 from $1.2 million in the first half 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.
Income tax provision. Snyder Communications recorded a tax provision of
$9.5 million in the first half of 2000 and $19.2 million in the first half 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.
27
<PAGE>
SNYDER COMMUNICATIONS, INC.- MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Income (loss) from continuing operations. As a result of all the factors
discussed above, income from continuing operations decreased to $5.0 million in
the first half of 2000 from $27.5 million in the first half of 1999.
Income (loss) from discontinued operations (net of income taxes). The $12.6
million income from discontinued operations in the first half of 1999 represents
the results of the Company's healthcare services group, which was spun off to
the Snyder Communications stockholders on September 27, 1999.
Net income (loss). Snyder Communications' net income decreased to $5.0
million in the first half of 2000 from $40.2 million in the first half of 1999
as a result of the spin-off of the healthcare services group and the other
factors discussed above.
Liquidity and Capital Resources
At June 30, 2000, we had $74.9 million in cash and equivalents. Cash and
equivalents decreased $14.7 million during the six months ended June 30, 2000,
due to the $1.2 million used in operating activities, the $27.7 million net cash
used in investing activities, the $0.4 million effect of changes in the exchange
rate, offset by the $14.6 million provided by financing activities. The $14.6
million of cash provided by financing activities consists primarily of proceeds
received from the exercise of employee stock options and sales of stock under
the Company's employee stock purchase plan. The $27.7 million in cash used in
investing activities consists primarily of cash used for capital expenditures
and earn-out payments related to previously acquired businesses.
We believe that our cash and equivalents, as well as the cash provided by
operations and available financing, will be sufficient to fund our current
operations, planned capital expenditures and anticipated growth of our existing
business over the next 12 months and beyond. We currently do not have any
significant contractual purchasing obligations other than existing facility and
equipment operating leases.
At June 30, 2000, there was $182.5 million in outstanding borrowings under the
Company's $195 million credit facility at a weighted average interest rate of
8.557%. Availability under this credit facility is subject to our compliance
with various financial ratios, operating covenants and other customary
conditions. During the second quarter of 2000, the credit facility was amended
to waive compliance with two of the financial ratios which the Company did not
meet at the end of the first quarter of 2000, and to modify these financial
ratios for the quarter ending June 30, 2000. The Company has satisfied all
covenant requirements at June 30, 2000. We expect that the Company will be in
compliance with the financial covenants in the future. The revised financial
covenants are summarized as follows:
. Our consolidated debt may not be more than 3.0 times trailing four quarter
earnings before interest, taxes, depreciation and amortization (EBITDA), as
defined in the agreement, for the quarter ended June 30, 2000, and for each
fiscal quarter ending thereafter, 2.5 times. The Company did not satisfy this
covenant for the fiscal quarter ending March 31, 2000 and obtained a waiver.
. Our consolidated trailing four quarter EBITDA may not be less than 3.5 times
our consolidated interest expense.
. Our consolidated net worth must exceed $225 million, adjusted prospectively
from the original date of the agreement, to include 50% of our net income and
100% of the proceeds of any future equity issuance.
. Our consolidated trailing four quarter EBITDA must be greater than $65
million for the fiscal quarter ending June 30, 2000 and for each fiscal quarter
ending thereafter, $80 million. The Company did not satisfy this covenant for
the fiscal quarter ending March 31, 2000 and obtained a waiver.
We are subject to the impact of foreign currency fluctuations, specifically
that of the British pound. To date, changes in the British pound exchange rate
have not had a material impact on our liquidity or results of operations. We
continually evaluate our exposure to exchange rate risk but do not currently
hedge such risk.
Given the extent of our services currently provided in continental Europe
and the nature of those services, we do not expect the introduction of the Euro
to have a material impact on our operations or cash flows. We will continue to
evaluate the impact of the introduction of the Euro as we continue to expand the
services offered and the European locations in which we operate.
28
<PAGE>
SNC -- MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of SNC's results of operations and of its
liquidity and capital resources is based upon SNC's condensed combined financial
statements. The following discussion should be read in conjunction with the
condensed combined financial statements of SNC and the related notes thereto
included elsewhere in this Quarterly Report on Form 10-Q.
On February 20, 2000, Havas Advertising, HAS Acquisition Corp. and Snyder
Communications, Inc. entered into an Agreement and Plan of Merger, pursuant to
which HAS Acquisition Corp. will be merged with and into Snyder Communications,
with Snyder Communications surviving as a subsidiary of Havas Advertising (the
"Merger"). The consummation of the Merger is subject to certain conditions,
including approval by the stockholders of each of Snyder Communications and
Havas Advertising and receipt of all required regulatory approvals. The items
included in this Quarterly Report on Form 10-Q discuss the business, results of
operations, and financial condition of Snyder Communications without regard to
the impact that the Merger could have on Snyder Communications, SNC, or
Circle.com.
Overview
SNC provides direct marketing and advertising services in the United
States, the United Kingdom and continental Europe. 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 distributes product samples and other
advertising materials for its clients. Arnold Communications operates SNC's
advertising and public relations operations. During 1999, 1998 and 1997, SNC
completed acquisitions accounted for as both pooling of interests and as
purchases. SNC believes the complementary services it is able to offer to its
customers as a result of its acquisitions have increased its opportunities and
strengthened its client relationships.
The Management's Discussion and Analysis of Financial Condition and Results
of Operations of SNC should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Snyder Communications and Circle.com.
Results of Operations
In SNC, net revenues from direct marketing and advertising services may be
based on a specific unit of performance, a fixed project amount or an annual
retainer.
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. A portion of Snyder
Communications' overhead and administrative shared services are allocated to SNC
based upon estimated usage.
Merger and related costs consist of investment banking fees, legal,
accounting, and other costs related to the planned acquisition of the SNC common
stock by Havas Advertising. Acquisition and related costs recorded in 1999
consist of costs to integrate acquired companies pursuant to a plan initiated in
the fourth quarter of 1998.
The following sets forth, for the periods indicated, certain components of
SNC's income statement data, including such data as the percentage of revenues.
29
<PAGE>
SNC -- MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
---------------------------------------------------------------------------------
2000 1999 2000 1999
---------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenues $159,526 100.0% $154,432 100.0% $316,822 100.0% $287,388 100.0%
Operating expenses:
Cost of services 110,120 69.0 105,060 68.0 219,209 69.2 192,183 66.9
Selling, general and administrative
expenses 30,240 19.0 24,186 15.7 60,563 19.1 45,851 15.9
Merger and related costs 325 0.2 - - 4,313 1.4 - -
Acquisition and related costs - - 673 0.4 - - 1,382 0.5
---------------- ---------------- ---------------- ----------------
Income (loss) from operations 18,841 11.8 24,513 15.9 32,737 10.3 47,972 16.7
Interest expense (3,699) (2.3) (409) (0.3) (7,414) (2.3) (696) (0.2)
Interest income 1,628 1.0 568 0.4 2,916 0.9 1,237 0.4
Income tax provision 6,496 4.1 9,449 6.1 12,370 3.9 18,595 6.5
---------------- ---------------- ---------------- ----------------
Income (loss) from continuing operations 10,274 6.4 15,223 9.9 15,869 5.0 29,918 10.4
Income (loss) from discontinued operations
(net of income taxes) - - 7,549 4.9 - - 12,639 4.4
---------------- ---------------- ---------------- ----------------
Net income (loss) $ 10,274 6.4% $ 22,772 14.8% $ 15,869 5.0% $ 42,557 14.8%
================ ================ ================ ================
</TABLE>
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Revenues. SNC's revenues increased $5.1 million, or 3.3%, to $159.5
million in the second quarter of 2000 from $154.4 million in the second quarter
of 1999. Revenues at Arnold Communications increased $6.3 million, or 19.7%,
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 $3.9 million, or 5.3%, during the period as a result of
services provided to new and existing clients and the acquisition of Broadwell
Marketing Group, which was purchased in May of 1999. Revenues at Bounty SCA
Worldwide decreased $5.1 million, or 10.3%, during the period primarily as a
result of a decrease in revenue from sampling-related programs in the U.S.
Cost of services. SNC's cost of services increased $5.0 million, or 4.8%,
to $110.1 million in the second quarter of 2000 from $105.1 million in the
second quarter of 1999. Cost of services as a percentage of revenue increased
to 69.0% in the second quarter of 2000 from 68.0% in the second 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 $3.5 million, or 15.1%, during the period resulting in
cost of services as a percentage of revenues of 69.1% in the second quarter of
2000 compared to 71.9% in the same period of 1999. Cost of services within the
Brann Worldwide network increased $5.1 million, or 9.5%, during the period
resulting in cost of services as a percentage of revenue of 76.0% in the second
quarter of 2000 compared to 73.0% in the second quarter of 1999. Bounty SCA
Worldwide's cost of services decreased $3.5 million, or 12.2%, resulting in cost
of services as a percentage of revenues of 56.9% in the second quarter of 2000
compared to 58.1% in the second quarter of 1999.
Selling, general and administrative expenses. SNC's selling, general and
administrative expenses increased $6.0 million, or 24.8%, to $30.2 million in
the second quarter of 2000 compared to $24.2 million the same period of 1999 as
a result of increases in each of SNC's three networks. Selling, general and
administrative expenses as a percent of revenue increased to 19.0% in the second
quarter of 2000 compared to 15.7% in the second quarter of 1999 as a result of
the increased costs.
Merger and related costs. Merger and related costs consist of expenses
incurred as a result of the planned acquisition of the SNC common stock by Havas
Advertising. The $0.3 million consists primarily of accounting fees. No such
costs were recorded in 1999.
30
<PAGE>
SNC -- MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Acquisition and related costs. The $0.7 million of acquisition and related
costs recorded in the second quarter of 1999 consist of costs to integrate
acquired companies pursuant to a plan initiated in the fourth quarter of 1998.
No such costs were recorded in 2000.
Interest expense. Interest expense increased $3.3 million, to $3.7 million
in the second quarter of 2000 from $0.4 million in the second quarter of 1999.
The increase in interest expense is attributable to borrowings under the $195
million unsecured revolving credit facility.
Interest income. Interest income increased $1.0 million, to $1.6 million
in the second quarter of 2000 from $0.6 million in the second quarter of 1999.
Approximately $0.5 million of the increase in interest income relates to amounts
advanced to Circle.com by SNC on a revolving credit basis following the October
22, 1999 recapitalization. See Circle.com's "Liquidity and Capital Resources."
Otherwise, interest income varies based on the amount of cash and equivalents
available for investment during the periods and on prevailing short-term
interest rates.
Income tax provision. SNC recorded a tax provision of $6.5 million in the
second quarter of 2000, reflecting an effective tax rate on recurring operations
of approximately 38%. SNC recorded a $9.4 million tax provision in the second
quarter of 1999, reflecting an effective tax rate on recurring operations of
approximately 37%. The actual tax provision recorded differs from the federal
statutory rate partly 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, income from continuing operations decreased to $10.3 million in
the second quarter of 2000 from $15.2 million in the second quarter of 1999, a
32.2% decrease.
Income (loss) from discontinued operations (net of income taxes). The $7.5
million income from discontinued operations in the second quarter of 1999
represents the results of SNC's healthcare services group, which was spun off to
the Snyder Communications stockholders on September 27, 1999.
Net income (loss). SNC's net income decreased to $10.3 million in the
second quarter of 2000 from $22.8 million in the second quarter of 1999 as a
result of the spin-off of the healthcare services group and the other factors
discussed above.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Revenues. SNC's revenues increased $29.4 million, or 10.2%, to $316.8
million in the first half of 2000 from $287.4 million in the first half of 1999.
Revenues at Arnold Communications increased $13.0 million, or 20.5%, 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 $3.8 million, or 2.6%, during the period. Brann Worldwide experienced
a reduction in revenue from the sale of long distance telephone service, which
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. Revenues at Bounty SCA Worldwide increased $12.6 million, or 16.6%,
during the period. Increases in revenues which resulted from the purchase of
Media Syndication Global on March 30, 1999 were partially offset by a decrease
in revenue from sampling-related programs in the U.S. during the first six
months of 2000.
Cost of services. SNC's cost of services increased $27.0 million, or
14.0%, to $219.2 million in the first half of 2000 from $192.2 million in the
first half of 1999. Cost of services as a percentage of revenue increased to
69.2% in the first half of 2000 from 66.9% in the first half 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 $8.6 million, or 19.4%, during the period resulting in cost of
services as a percentage of revenues of 69.1% in the first half of 2000 compared
to 69.7% in the same period of 1999. Cost of services within the Brann
Worldwide network increased $9.3 million, or 8.8%, during the period resulting
in cost of services as a percentage of revenue of 75.5% in the first half of
2000 compared to 71.2% in the first half of 1999. The increased costs resulting
from the increased level of services provided in the Brann Worldwide network
described above was not
31
<PAGE>
SNC -- MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
fully offset by the reduction of variable costs related to the reduced revenue
from the sale of long distance telephone service. Bounty SCA Worldwide's cost of
services increased $9.1 million, or 21.6%, resulting in cost of services as a
percentage of revenues of 58.3% in the first half of 2000 compared to 56.0% in
the first half 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.
Selling, general and administrative expenses. SNC's selling, general and
administrative expenses increased $14.7 million, or 32.0%, to $60.6 million in
the first half of 2000 compared to $45.9 million the same period of 1999 as a
result of increases in each of SNC's three networks, largely attributable to the
purchases of Media Syndication Global and Broadwell Marketing Group in March
1999 and May 1999, respectively. Selling, general and administrative expenses
as a percent of revenue increased to 19.1% in the first half of 2000 compared to
15.9% in the first half of 1999 as a result of the increased costs.
Merger and related costs. Merger and related costs consist of expenses
incurred as a result of the planned acquisition of the SNC common stock by Havas
Advertising. The $4.3 million recorded in the first half of 2000 consists
primarily of investment banking , legal and accounting fees. No such costs were
recorded in 1999.
Acquisition and related costs. The $1.4 million of acquisition and related
costs recorded in the first half of 1999 consist of costs to integrate acquired
companies pursuant to a plan initiated in the fourth quarter of 1998. No such
costs were recorded in 2000.
Interest expense. Interest expense increased $6.7 million, to $7.4 million
in the first half of 2000 from $0.7 million in the first half of 1999. The
increase in interest expense is attributable to borrowings under the $195
million unsecured revolving credit facility.
Interest income. Interest income increased $1.7 million, to $2.9 million
in the first half of 2000 from $1.2 million in the first half of 1999.
Approximately $0.8 million of the increase in interest income relates to amounts
advanced to Circle.com by SNC on a revolving credit basis following the October
22, 1999 recapitalization. See Circle.com's "Liquidity and Capital Resources."
Otherwise, interest income varies based on the amount of cash and equivalents
available for investment during the periods and on prevailing short-term
interest rates.
Income tax provision. SNC recorded a tax provision of $12.4 million in the
first half of 2000, reflecting an effective tax rate on recurring operations of
approximately 38%. SNC recorded a $18.6 million tax provision in the second
quarter of 1999, reflecting an effective tax rate on recurring operations of
approximately 37%. The actual tax provision recorded differs from the federal
statutory rate partly 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, income from continuing operations decreased to $15.9 million in
the first half of 2000 from $29.9 million in the first half of 1999, a 46.8%
decrease.
Income (loss) from discontinued operations (net of income taxes). The
$12.6 million income from discontinued operations in the first half of 1999
represents the results of SNC's healthcare services group, which was spun off to
the Snyder Communications stockholders on September 27, 1999.
Net income (loss). SNC's net income decreased to $15.9 million in the
first half of 2000 from $42.6 million in the first half of 1999 as a result of
the spin-off of the healthcare services group and the other factors discussed
above.
Liquidity and Capital Resources
At June 30, 2000, SNC had $73.1 million in cash and equivalents. Cash and
equivalents decreased $14.4 million during the six months ended June 30, 2000,
due to the $19.2 million used in investing activities, the $4.3 million cash
used in financing activities, the $0.6 million effect of changes in the exchange
rate, offset by the $9.7
32
<PAGE>
SNC -- MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
million provided by operating activities. The net cash used in financing
activities consists primarily of $18.8 million of advances made to Circle.com
under the inter-group revolving credit facility, offset by $14.7 million of cash
inflow from the exercise of employee stock options and the sale of stock under
the Company's employee stock purchase plan. The $19.2 million in cash used in
investing activities consists primarily of cash used for capital expenditures
and earn-out payments related to previously acquired businesses.
SNC 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, the needs of circle.com, planned capital expenditures and
anticipated growth of its existing business over the next 12 months and beyond.
We currently do not have any significant contractual purchasing obligations
other than existing facility and equipment operating leases.
On June 30, 2000, there was $182.5 million in outstanding borrowings under
the credit facility at a weighted average interest rate of 8.557% and $159.2
million of that debt was attributed to SNC.
SNC is subject to the impact of foreign currency fluctuations, specifically
that of the British pound. To date, changes in the British pound exchange rate
have not had a material impact on SNC's liquidity or results of operation. SNC
continually evaluates its exposure to exchange rate risk but does not currently
hedge such risk.
Given the extent of its services currently provided in continental Europe
and the nature of those services, we do not expect the introduction of the Euro
to have a material impact on SNC's operations or cash flows. SNC will continue
to evaluate the impact of the introduction of the Euro as it continues to expand
the services offered and the European locations in which it operates.
33
<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 February 20, 2000, Havas Advertising, HAS Acquisition Corp. and Snyder
Communications, Inc. entered into an Agreement and Plan of Merger, pursuant to
which HAS Acquisition Corp. will be merged with and into Snyder Communications,
with Snyder Communications surviving as a subsidiary of Havas Advertising (the
"Merger"). The consummation of the Merger is subject to certain conditions,
including approval by the stockholders of each of Snyder Communications and
Havas Advertising and receipt of all required regulatory approvals. The
Circle.com common stock of Snyder Communications will remain outstanding
following the Merger. The items included in this Quarterly Report on Form 10-Q
discuss the business, results of operations, and financial condition of Snyder
Communications without regard to the impact that the Merger could have on Snyder
Communications, SNC, or Circle.com.
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 and SNC.
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 our 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.
34
<PAGE>
CIRCLE.COM-MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenues $17,720 100.0% $ 6,998 100.0% $ 34,397 100.0% $12,347 100.0%
Operating expenses:
Professional Services 10,082 56.9 3,906 55.9 20,071 58.4 7,128 57.7
Office and general 13,135 74.1 3,705 52.9 26,223 76.2 7,017 56.9
expenses
---------------------- --------------------- ---------------------- ----------------------
Income (loss) from (5,497) (31.0) (613) (8.8) (11,897) (34.6) (1,798) (14.6)
operations
Interest expense (1,085) (6.1) - - (1,836) (5.3) - -
Interest income 16 - - - 25 - - -
---------------------- --------------------- ---------------------- ----------------------
Income (loss) before (6,566) (37.1) (613) (8.8) (13,708) (39.9) (1,798) (14.6)
income taxes
Income tax provision (1,379) (7.8) 907 12.9 (2,879) (8.4) 593 4.8
(benefit)
---------------------- --------------------- ---------------------- ----------------------
Net income (loss) $(5,187) (29.3)% $(1,520) (21.7)% $(10,829) (31.5)% $(2,391) (19.4)%
====================== ===================== ====================== ======================
Goodwill Amortization $ 2,389 $ 312 $ 4,797 $ 711
</TABLE>
Three months ended June 30, 2000 Compared to Three months ended June 30, 1999
Revenues. Circle.com's revenues increased $10.7 million, or 152.9%, to
$17.7 million in the second quarter of 2000 from $7.0 million in the second
quarter of 1999. $6.5 million, or 60.7%, of the $10.7 million increase is from
entities which Circle.com purchased late in June of 1999 and later during 1999.
The remaining $4.2 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. as more companies recognize that the Internet is an increasingly important
marketing tool and an effective way to reach customers.
Professional services expense. Circle.com's professional services expense
increased $6.2 million, or 159.0%, to $10.1 million in the second quarter of
2000 compared to $3.9 million in the second quarter 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 increased slightly
to 56.9% in the second quarter of 2000 compared to 55.8% in the second quarter
of 1999.
Office and general expenses. Office and general expense increased $9.4
million, or 254.1%, to $13.1 million in the second quarter of 2000 from $3.7
million in the second quarter of 1999. The increase in office and general
expense is consistent with the increased levels of revenue, and includes $2.1
million of additional goodwill amortization in the second quarter of 2000
compared to 1999. In addition, the second quarter of 2000 includes increased
costs related to having a publicly traded security following the October 22,
1999 recapitalization.
Interest expense, net. Interest expense, net was $1.1 million in the second
quarter of 2000. The 2000 interest expense is related to the external debt
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. There was no interest expense recorded in
the second quarter of 1999. See "Liquidity and Capital Resources."
Income tax provision. Circle.com recorded a tax benefit of $1.4 million in
the second quarter of 2000. Circle.com's effective tax rate on recurring
operations is approximately 21% for the second 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. Circle.com recorded a tax provision of $0.9 million
in the second quarter of 1999.
35
<PAGE>
CIRCLE.COM-MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net loss. As a result of all the factors discussed above, Circle.com's net
loss increased to $5.2 million in the second quarter of 2000 from $1.5 million
in the second quarter of 1999.
Six months ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Revenues. Circle.com's revenues increased $22.1 million, or 179.7%, to
$34.4 million in the first half of 2000 from $12.3 million in the first half of
1999. $12.9 million, or 58.4%, of the $22.1 million increase is from entities
which Circle.com purchased late in June of 1999 and later during 1999. The
remaining $9.2 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.
as more companies recognize that the Internet is an increasingly important
marketing tool and an effective way to reach customers.
Professional services expense. Circle.com's professional services expense
increased $13.0 million, or 183.1%, to $20.1 million in the first half of 2000
compared to $7.1 million in the first half 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 increased slightly
to 58.4% in the first half of 2000 compared to 57.7% in the first half of 1999.
Office and general expenses. Office and general expense increased $19.2
million, or 274.3%, to $26.2 million in the first half of 2000 from $7.0 million
in the first half of 1999. The increase in office and general expense is
consistent with the increased levels of revenue, and includes $4.1 million of
additional goodwill amortization in the first half of 2000 compared to 1999. In
addition, the first half of 2000 includes increased costs related to having a
publicly traded security following the October 22, 1999 recapitalization.
Interest expense, net. Interest expense, net was $1.8 million in the first
half of 2000. The 2000 interest expense is related to the external debt
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. There was no interest expense recorded in
the first half of 1999. See "Liquidity and Capital Resources."
Income tax provision. Circle.com recorded a tax benefit of $2.9 million in
the first half of 2000. Circle.com's effective tax rate on recurring operations
is approximately 21% for the first half 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. Circle.com recorded a tax provision of $0.6 million in the
first half of 1999.
Net loss. As a result of all the factors discussed above, Circle.com's net
loss increased to $10.8 million in the first half of 2000 from $2.4 million in
the first half of 1999.
Liquidity and Capital Resources
At June 20, 2000, Circle.com had $1.8 million in cash and equivalents. Cash
and equivalents decreased $0.2 million during the six months ended June 30, 2000
due to the $10.8 million used in operating activities, the $8.5 million used in
investing activities, offset by the $18.9 million provided by financing
activities and a $0.2 million effect of changes in exchange rates. The $18.9
million cash provided by financing activities consists primarily of proceeds
received from SNC on an inter-group revolving credit basis, discussed below. The
$8.5 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 $25.6 million from its
inception through June 30, 2000. Circle.com recorded a net loss of $5.2 million
in the second quarter of 2000. Circle.com has relied on investments
36
<PAGE>
CIRCLE.COM-MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
and advances from SNC in order to build its business, acquire Internet services
companies, and to fund its operating and net losses.
SNC loaned $26.4 million to Circle.com between October 22, 1999 (the
recapitalization date) and June 30, 2000 on an intra-group revolving credit
basis. The $26.4 million 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 can borrow the funds on a revolving credit basis, currently using
rates applicable under its existing $195 million credit facility. The interest
rate in effect on the $26.4 million outstanding under the intra-group revolving
loan at June 30, 2000 was approximately 8.65%. The $26.4 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.
We believe that cash on hand as of June 30, 2000 will not be sufficient to
fund the operations of Circle.com through the end of 2000. We currently expect
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 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 to Circle.com at the October
22, 1999 Recapitalization date, 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 has
continued to be allocated to Circle.com. As a result, with respect to interest
and debt allocation to Circle.com, the historical financial statements will not
be comparable to future periods.
We anticipate that Snyder Communications will be in a position to fund the
needs of Circle.com in the future and we 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,
specifically that of 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.
37
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Amendment and Waiver to the Company's $195 million Credit
Agreement, dated as of June 7, 2000, among the Registrant,
certain subsidiaries and affiliates of the Registrant, the
lenders name therein, Bank of America, N.A., The First National
Bank of Chicago and Bank of America Securities LLC.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
38
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SNYDER COMMUNICATIONS, INC.
(Registrant)
Date: August 9, 2000 /s/ Michele D. Snyder
-------------- -----------------------------
Michele D. Snyder
Vice Chairman, President and
Chief Operating Officer
(Duly Authorized Officer)
Date: August 9, 2000 /s/ A. Clayton Perfall
-------------- -----------------------------
A. Clayton Perfall
Chief Financial Officer
(Principal Financial Officer)
39
