<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 March 31, 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.
<TABLE>
<CAPTION>
Outstanding at
Class May 4, 2000
- ----- -----------
<S> <C>
Snyder Communications, Inc. - SNC Common Stock, par value $0.001 71,836,683
Snyder Communications, Inc. - Circle.com Common Stock, par value $0.001 22,556,546
</TABLE>
<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
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.
Condensed Consolidated Balance Sheets as of March 31, 2000 (unaudited) and December 31, 1999 1
Condensed Consolidated Statements of Income for the three months ended March 31, 2000 and 1999
(unaudited) 2
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and
1999 (unaudited) 3
Condensed Consolidated Statement of Stockholders' Equity and Comprehensive Income for the
three months ended March 31, 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 March 31, 2000 (unaudited) and December 31, 1999 9
Condensed Combined Statements of Income for the three months ended March 31, 2000 and 1999
(unaudited) 10
Condensed Combined Statements of Cash Flows for the three months ended March 31, 2000 and 1999
(unaudited) 11
Condensed Combined Statement of Changes in Group Equity for the three months ended March 31,
2000 (unaudited) 13
Notes to Condensed Combined Financial Statements 14
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 March 31, 2000 (unaudited) and December 31, 1999 16
Condensed Combined Statements of Operations for the three months ended March 31, 2000 and 1999
(unaudited) 17
Condensed Combined Statements of Cash Flows for the three months ended March 31, 2000 and 1999
(unaudited) 18
Condensed Combined Statement of Changes in Group Equity for the three months ended March 31,
2000 (unaudited) 19
Notes to Condensed Combined Financial Statements 20
</TABLE>
<PAGE>
SNYDER COMMUNICATIONS, INC.
FORM 10-Q
INDEX (continued)
<TABLE>
<CAPTION>
Item 2. Management's Discussion and Analysis
<S> <C>
Snyder Communications, Inc. Management's Discussion and Analysis of Financial Condition and 22
Results of Operations
SNC Management's Discussion and Analysis of Financial Condition and Results of Operations 26
Circle.com Management's Discussion and Analysis of Financial Condition and Results of
Operations 30
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 33
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
2000 December 31,
(unaudited) 1999
----------- ------------
(in thousands)
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents.................................................................... $ 56,192 $ 89,545
Marketable securities................................................................... 13 9
Accounts receivable, net of allowance for doubtful accounts of $7,752 and $7,524 at
March 31, 2000 and December 31, 1999, respectively................................... 104,137 101,466
Receivables from pass-through costs..................................................... 156,212 114,750
Related party receivables............................................................... 949 636
Unbilled services....................................................................... 17,169 18,867
Current portion of deferred tax asset................................................... 10,997 10,865
Other current assets.................................................................... 26,415 22,450
--------- ---------
Total current assets.................................................................... 372,084 358,588
--------- ---------
Property and equipment, net............................................................... 89,652 85,241
Goodwill and other intangible assets, net................................................. 237,154 240,903
Deferred tax asset........................................................................ 90,947 92,312
Deposits and other assets................................................................. 7,998 9,419
--------- ---------
Total assets......................................................................... $ 797,835 $ 786,463
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit......................................................................... $ 730 $ 970
Current maturities of long-term debt.................................................... 441 551
Accrued payroll......................................................................... 21,927 17,140
Accounts payable........................................................................ 163,410 165,702
Accrued expenses........................................................................ 105,189 105,556
Client advances......................................................................... 10,889 11,208
Unearned revenue........................................................................ 16,174 19,176
--------- ---------
Total current liabilities............................................................ 318,760 320,303
--------- ---------
Related party borrowings.................................................................. 7,405 8,731
Long-term obligations under capital leases................................................ 873 1,202
Long-term debt, net of current maturities................................................. 186,068 181,031
Other liabilities......................................................................... 3,760 3,678
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.001 par value per share, 5,000 shares authorized, none issued and
outstanding at March 31, 2000 or December 31, 1999................................... -- --
Common Stock
SNC, $.001 par value per share, 320,000 shares authorized, 75,696 and 75,791 shares
issued and outstanding at March 31, 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 March 31, 2000 and December 31, 1999, respectively.. 24 24
Additional paid-in capital.............................................................. 530,293 530,638
Deferred compensation................................................................... (2,070) (2,220)
Treasury stock, at cost, 3,822 SNC shares and 1,029 Circle.com shares at March 31, 2000
and 4,659 SNC shares and 1,045 Circle.com shares at December 31, 1999................ (70,797) (81,974)
Accumulated other comprehensive income (loss)........................................... (3,662) (2,434)
Retained deficit........................................................................ (172,895) (172,592)
--------- ---------
Total stockholders' equity......................................................... 280,969 271,518
--------- ---------
Total liabilities and stockholders' equity......................................... $ 797,835 $ 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 Ended
March 31,
---------
2000 1999
-------- --------
(in thousands, except
Per share amounts)
<S> <C> <C>
Net revenues............................................................... $173,933 $138,082
Operating expenses:
Cost of services...................................................... 121,138 90,941
Selling, general and administrative expenses.......................... 41,311 24,157
Non-recurring costs................................................... 3,988 710
-------- --------
Income (loss) from operations.............................................. 7,496 22,274
Interest expense, including amounts to related parties of $108 and $84
for the three months ended March 31, 2000 and 1999, respectively........ (4,195) (287)
Investment income.......................................................... 1,026 669
-------- --------
Income (loss) from continuing operations before income taxes............... 4,327 22,656
Income tax provision....................................................... 4,374 8,832
-------- --------
Income (loss) from continuing operations................................... (47) 13,824
Income (loss) from discontinued operations (net of income taxes)........... - 5,090
-------- --------
Net income (loss)................................................ $ (47) $ 18,914
======== ========
SNC:
Basic net income (loss) per share:
Continuing operations.............................................. $ 0.07 $ 0.20
Discontinued operations............................................ - 0.07
-------- --------
Total basic net income (loss) per share............................... $ 0.07 $ 0.27
======== ========
Diluted net income (loss) per share:
Continuing operations.............................................. $ 0.06 $ 0.20
Discontinued operations............................................ - 0.07
-------- --------
Total diluted net income (loss) per share............................. $ 0.06 $ 0.27
======== ========
Shares used in computing basic net income per share........................ 71,334 71,889
Shares used in computing diluted net income per share...................... 73,621 73,430
Circle.com:
Basic and diluted net loss per share.................................. $ (0.21) $ (0.04)
======== ========
Shares used in computing net loss per share................................. 22,468 17,972
</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 Three Months Ended
March 31,
-------------------------------
2000 1999
---------- ----------
(in thousands)
<S> <C> <C>
Cash flows from operating activities of continuing
operations:
Income (loss) from continuing operations................. $ (47) $ 13,824
Adjustments to reconcile net income (loss) from
continuing operations to net cash provided by
(used in) operating activities of continuing
operations:
Depreciation and amortization........................ 9,606 5,144
Noncash expense for restricted stock and option
vesting............................................ 150 -
Deferred taxes....................................... (1,408) 2,406
Loss on disposal of assets........................... 261 41
Other noncash amounts................................ (150) (11)
Changes in assets and liabilities:
Accounts receivable, net............................. (2,671) (13,676)
Receivables from pass-through costs.................. (41,462) (7,744)
Related party receivables............................ (313) -
Unbilled services.................................... 1,698 12,329
Deposits and other assets............................ 1,421 201
Other current assets................................. (3,965) (747)
Accrued payroll, accounts payable and
accrued expenses................................... 7,007 (901)
Client advances...................................... (319) (6,971)
Unearned revenue..................................... (3,002) 3,907
---------- ----------
Net cash provided by (used in) operating
activities of continuing operations................ (33,194) 7,802
---------- ----------
Cash flows from investing activities of continuing
operations:
Purchase of property and equipment....................... (10,124) (5,358)
Net sales of marketable securities....................... - 612
Purchase of subsidiaries and intangible assets........... (4,905) 976
---------- ----------
Net cash used in investing activities of continuing
operations............................................. (15,029) (3,770)
---------- ----------
</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 Three Months Ended
March 31,
--------------------------
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) (77)
Repayments of loans to employees for purchase of stock......................... 28 -
Net borrowings (repayments) on lines of credit and other debt.................. 4,769 192
Payments on capital lease obligations.......................................... (399) (570)
Proceeds from exercise of options and employee stock purchase plan............. 11,772 10,940
-------- --------
Net cash provided by financing activities of continuing operations........... 14,970 10,485
-------- --------
Effect of exchange rate changes................................................ (100) (290)
Net increase (decrease) in cash and equivalents of continuing operations....... (33,353) 14,227
Investments and advances (to) from discontinued operations..................... - (5,754)
Cash and equivalents, beginning of period...................................... 89,545 47,931
-------- --------
Cash and equivalents, end of period............................................ $ 56,192 $ 56,404
======== ========
Disclosure of supplemental cash flow information:
Cash paid for interest including dividends on mandatorily redeemable
preferred stock............................................................. 3,570 360
Cash paid for income taxes..................................................... 3,298 4,260
Disclosure of noncash activities:
Issuance of shares of common stock for purchase of subsidiaries................ 1,674 82,285
Tax benefit from exercise of stock options..................................... 2,641 1,781
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
SNYDER COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
SNC SNC Circle.com Circle.com
Common Common Common Common Additional Retained
Stock Stock 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.... - - 121,000 - 1,674 -
Foreign currency translation adjustment............ - - - - - -
Unrealized gain on marketable securities........... - - - - - -
Other.............................................. (95,000) - (28,000) - (2,019) (256)
Net loss........................................... - - - - - (47)
-------------------------------------------------------------------------
Balance March 31, 2000 ............................... 75,696,000 $ 76 23,753,000 $ 24 $ 530,293 $(172,895)
=========================================================================
<CAPTION>
Accumulated
Other
Deferred Treasury Comprehensive Comprehensive
Compensation Stock Income (Loss) Total Income (Loss)
---------------------------------------------------------------------
(in thousands, except share data)
<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.... - - - 1,674 -
Foreign currency translation adjustment............ - - (1,232) (1,232) (1,232)
Unrealized gain on marketable securities........... - - 4 4 4
Other.............................................. 150 11,177 - 9,052 -
Net loss........................................... - - - (47) (47)
---------------------------------------------------------------------
Balance March 31, 2000 ............................... $ (2,070) $ (70,797) $ (3,662) $ 280,969 $ (1,275)
=====================================================================
</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 March 31, 2000 and for the three
months ended March 31, 2000 and 1999. Operating results for the three month
period ended March 31, 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 (Loss) 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
Ended March 31,
----------------------
2000 1999
-------- --------
(in thousands)
(unaudited)
<S> <C> <C>
SNC income (loss) from continuing operations............. $5,595 $14,695
Loss related to retained interest in Circle.com.......... (935) (174)
-------- --------
Income (loss) from continuing operations attributed to
SNC shareholders........................................ 4,660 14,521
-------- --------
SNC income (loss) from discontinued operations........... - 5,090
-------- --------
Net income (loss) attributed to SNC shareholders......... $4,660 $19,611
======== ========
</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
Ended March 31,
----------------------
2000 1999
-------- --------
(in thousands)
(unaudited)
<S> <C> <C>
Circle.com net loss....................................... $(5,642) $ (871)
Income attributable to SNC's retained interest............ 935 174
-------- --------
Net income (loss) attributable to Circle.com
shareholders............................................. $(4,707) $ (697)
======== ========
</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 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, 1999), Natural Intelligence, Inc.
("Natural Intelligence") (June 24, 1999), Tsunami Consulting Group,
7
<PAGE>
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 three months
ended March 31, 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 and all of the Company's operations had been taxed as a C
corporation.
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31, 1999
------------------
(unaudited)
(in thousands)
<S> <C>
Pro forma revenues.................................. $159,644
Pro forma net income................................ $ 20,066
</TABLE>
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
Ended March 31,
------------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues:
Circle.com $ 16,677 $ 5,349
SNC 157,296 132,957
Elimination of intersegment revenues (40) (224)
-------- --------
Total $173,933 $138,082
-------- --------
EBIT:
Circle.com $ (6,400) $ (1,185)
SNC 17,884 24,169
-------- --------
Total $ 11,484 $ 22,984
-------- --------
Total Assets:
Circle.com $115,356
SNC 706,617
Other unallocated amounts (24,138)
--------
Total $797,835
--------
Reconciliation of EBIT to income (loss)
from operations:
Total EBIT for operating groups $ 11,484 $ 22,984
Non-recurring costs 3,988 710
-------- --------
Income (loss) from operations (continuing
operations) $ 7,496 $ 22,274
-------- --------
</TABLE>
8
<PAGE>
SNC
(SNC represents the businesses that comprise Snyder Communications, Inc.'s
direct marketing and advertising agency).
CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
2000 December 31,
(unaudited) 1999
------------- -------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents.................................................................. $ 55,383 $ 87,521
Accounts receivable, net of allowance for doubtful accounts........................... 91,018 89,484
of $6,742 and $6,666 at March 31, 2000 and December 31, 1999, respectively
Receivables from pass-through costs................................................... 154,851 113,628
Related party receivables, including Circle.com of $20,237 and $7,613 at March 31,
2000 and December 31, 1999, respectively............................................. 21,186 8,249
Unbilled services..................................................................... 15,759 17,785
Current portion of deferred tax asset................................................. 10,664 10,679
Other current assets.................................................................. 25,272 22,001
---------- -------------
Total current assets............................................................... 374,133 349,347
---------- -------------
Property and equipment, net............................................................... 79,367 77,284
Goodwill and other intangible assets, net................................................. 155,639 157,061
Deferred tax asset........................................................................ 90,484 91,876
Deposits and other assets................................................................. 6,994 8,105
---------- -------------
Total assets....................................................................... $706,617 $683,673
========== =============
LIABILITIES AND INVESTMENTS AND ADVANCES
FROM SNYDER COMMUNICATIONS
Current liabilities:
Lines of credit....................................................................... $ 730 $ 970
Current maturities of long-term debt.................................................. 441 551
Accrued payroll....................................................................... 19,264 14,538
Accounts payable...................................................................... 160,394 162,568
Accrued expenses...................................................................... 103,230 97,016
Client advances....................................................................... 10,260 9,843
Unearned revenue...................................................................... 15,172 17,969
---------- -------------
Total current liabilities.......................................................... $309,491 $303,455
========== =============
Related party borrowings.................................................................. 7,405 8,731
Long-term obligations under capital leases................................................ 630 801
Long-term debt, net of current maturities................................................. 162,719 157,682
Other liabilities......................................................................... 3,760 3,678
Commitments and contingencies
Investments and advances from Snyder Communications....................................... 222,612 209,326
---------- -------------
Total liabilities and investments and advances from Snyder Communications.......... $706,617 $683,673
========== =============
</TABLE>
See accompanying notes to condensed combined financial statements.
9
<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 Months Ended
----------------------------------------
March 31,
----------
2000 1999
------------ -----------
(in thousands)
<S> <C> <C>
Net revenues......................................................................... $157,296 $132,957
Operating expenses:
Cost of services................................................................ 109,089 87,122
Selling, general and administrative expenses.................................... 30,323 21,666
Non-recurring costs............................................................. 3,988 710
------------ -----------
Income (loss) from operations........................................................ 13,896 23,459
Interest expense, including amounts to related parties of $108 and $84 for the
three months ended March 31, 2000 and 1999, respectively........................... (3,715) (287)
Investment income, including amounts from Circle.com of $271 and $0 for the three
months ended March 31, 2000 and 1999, respectively................................. 1,288 669
------------ -----------
Income (loss) from continuing operations before income taxes......................... 11,469 23,841
Income tax provision................................................................. 5,874 9,146
------------ -----------
Income (loss) from continuing operations............................................. 5,595 14,695
Income (loss) from discontinued operations (net of income taxes)..................... - 5,090
----------- -------------
Net income (loss).................................................................. $ 5,595 $ 19,785
=========== =============
</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 CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
------------------------------------
2000 1999
------------- ------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities of continuing
operations:
Income (loss) from continuing operations..................... 5,595 14,695
Adjustments to reconcile net income (loss) from
continuing operations to net cash provided by
operating activities of continuing operations:
Depreciation and amortization............................. 6,622 4,604
Noncash expense for restricted stock vesting.............. 50 --
Deferred taxes............................................ (1,234) 2,400
Gain/loss on disposal of assets........................... 261 41
Other noncash amounts..................................... (150) (11)
Changes in assets and liabilities:
Accounts receivable, net.................................. (1,534) (13,401)
Receivables from pass-through costs....................... (41,223) (8,178)
Related party receivables................................. (12,937)
Unbilled services......................................... 2,026 12,506
Deposits and other assets................................. 1,111 194
Other current assets...................................... (3,271) (686)
Accrued payroll, accounts payable and accrued expenses.... 8,676 71
Client advances........................................... 417 (6,971)
Unearned revenue.......................................... (2,797) 3,866
--------- --------
Net cash (used in) provided by operating activities
of continuing operations................................ (38,388) 9,130
--------- --------
Cash flows from investing activities of continuing
operations:
Purchase of property and equipment........................... (7,220) (4,280)
Purchase of subsidiaries and other intangibles............... (1,432) 976
Net sales of marketable securities........................... -- 612
--------- --------
Net cash used in investing activities of continuing
operations................................................... (8,652) (2,692)
--------- --------
</TABLE>
See accompanying notes to condensed combined financial statements.
11
<PAGE>
SNC
(SNC represents the businesses that comprise Snyder Communications, Inc.'s
direct marketing and advertising agency.)
CONDENSED COMBINED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
-------------------------------------------
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) (77)
Net borrowings (repayments) on lines of credit and other debt.............. 4,769 192
Payments on capital lease obligations...................................... (338) (570)
Proceeds from exercise of stock options and employee stock
purchase plan.......................................................... 11,772 8,554
----------- ------------
Net cash provided by financing activities of continuing....................
operations............................................................. 15,003 8,099
----------- -----------
Effect of exchange rate changes............................................ (101) (310)
----------- -----------
Net increase (decrease) in cash and equivalents of
continuing operations..................................................... (32,138) 14,227
Investments and advances (to) from discontinued operations................. -- (5,754)
Cash and equivalents, beginning of period.................................. 87,521 47,931
---------- ----------
Cash and equivalents, end of period........................................ $ 55,383 $56,404
========== =========
Disclosure of supplemental cash flow information:
Cash paid for interest including dividends on mandatorily
redeemable preferred stock............................................. 3,565 360
Cash paid for income taxes............................................... 3,290 4,260
Disclosure of noncash activities:
Issuance of shares of common stock for purchase of
subsidiaries........................................................... -- 82,285
Tax benefit from exercise of stock options............................... 2,641 1,781
</TABLE>
See accompanying notes to condensed combined financial statements.
12
<PAGE>
SNC
(SNC represents the businesses that comprise Snyder Communications, Inc.'s
direct marketing and advertising agency.)
CONDENSED COMBINED STATEMENT OF CHANGES IN GROUP EQUITY
(unaudited)
(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.................................. - 5,595 - 5,595
Capital contribution........................ 9,180 - - 9,180
Foreign currency translation adjustment..... - - (1,233) (1,233)
Other....................................... - (256) - (256)
-----------------------------------------------------------------
Balance at March 31, 2000........................ $324,309 $ (98,033) $ (3,664) $ 222,612
=================================================================
</TABLE>
See accompanying notes to condensed combined financial statements.
13
<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 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 March 31, 2000 and for the three months ended March 31,
2000 and 1999. Operating results for the three month period ended March 31, 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
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)
on Form 10-K for the fiscal year ended December 31, 1999, as filed with the
Securities and Exchange Commission on March 30, 2000.
SNC recorded $40,230 and $224,000 of expense associated with services
purchased from Circle.com during the three months ending March 31, 2000 and
March 31, 1999, respectively.
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 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 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 three months ended March 31, 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 SNC's operations had been taxed as a C corporation.
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1999
--------------------------
(unaudited)
(in thousands)
<S> <C>
Pro forma revenues...................................... $150,083
Pro forma net income.................................... $ 21,612
</TABLE>
15
<PAGE>
CIRCLE.COM
(Circle.com represents the businesses that comprise Synder
Communications, Inc.'s
Internet professional services business.)
CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
2000 December 31,
(unaudited) 1999
------------- --------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................................ $ 809 $ 2,024
Marketable securities........................................................... 13 9
Accounts receivable, net of allowance for doubtful accounts of $1,085 and
$858 at March 31, 2000 and December 31, 1999, respectively................... 13,119 11,982
Receivables from pass-through costs............................................. 1,361 1,122
Unbilled services............................................................... 1,410 1,082
Current portion of deferred tax asset........................................... 333 186
Income tax receivable........................................................... 3,901 2,572
Other current assets............................................................ 1,143 449
------------- --------------
Total current assets..................................................... 22,089 19,426
------------- --------------
Property and equipment, net.......................................................... 10,285 7,957
Goodwill, net........................................................................ 81,515 83,842
Deferred tax asset................................................................... 463 436
Deposits and other assets............................................................ 1,004 1,314
------------- --------------
Total assets............................................................. $115,356 $112,975
============= ==============
LIABILITIES AND INVESTMENTS AND ADVANCES FROM SNYDER COMMUNICATIONS
Current liabilities:
Accrued payroll................................................................. $ 2,663 $ 2,602
Accounts payable................................................................ 3,016 3,134
Accrued expenses................................................................ 5,860 11,112
Client advances................................................................. 629 1,365
Unearned revenue................................................................ 1,002 1,207
Payable to SNC.................................................................. 20,237 7,613
------------- --------------
Total current liabilities................................................ 33,407 27,033
------------- --------------
Long term debt....................................................................... 23,349 23,349
Long term obligations under capital leases........................................... 243 401
Commitments and contingencies
Investments and advances from Snyder Communications.................................. 58,357 62,192
------------- --------------
Total liabilities and investments and advances from Snyder
Communications.......................................................... $115,356 $112,975
============= ==============
</TABLE>
See accompanying notes to condensed combined financial statements.
16
<PAGE>
CIRCLE.COM
(Circle.com represents the businesses that comprise Synder
Communications, Inc.'s
Internet professional services business.)
CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
---------------------------------------
2000 1999
------------ ------------
(in thousands)
<S> <C> <C>
Net revenues................................................ $ 16,677 $ 5,349
Operating expenses:
Professional services.................................. 9,989 3,222
Office and general..................................... 13,088 3,312
------------ ------------
Income (loss) from operations............................... (6,400) (1,185)
Interest expense, net, including amounts to SNC of $270
for the three months ended March 31, 2000................. (742) -
------------ ------------
Income (loss) before income taxes........................... (7,142) (1,185)
Income tax provision (benefit).............................. (1,500) (314)
------------ ------------
Net loss............................................... $ (5,642) $ (871)
============ ============
</TABLE>
See accompanying notes to condensed combined financial statements.
17
<PAGE>
CIRCLE.COM
(Circle.com represents the businesses that comprise Synder
Communications, Inc.'s
Internet professional services business.)
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
---------------------------------------
2000 1999
------------ ------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................................... $ (5,642) $ (871)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................................ 2,984 540
Deferred taxes............................................... (174) 6
Non-cash expense for restricted stock........................ 100 -
Changes in assets and liabilities:
Accounts receivable, net..................................... (1,137) (275)
Receivables from pass-through costs.......................... (239) 434
Payable to SNC............................................... 12,624 -
Unbilled services............................................ (328) (177)
Taxes receivable............................................. (1,329) -
Other current assets......................................... (694) (54)
Deposits and other assets.................................... 310 -
Accrued payroll, accounts payable and accrued expenses....... (340) (1,080)
Client advances.............................................. (736) -
Unearned revenue............................................. (205) 41
------------ ------------
Net cash provided by (used in) operating activities...... 5,194 (1,436)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment................................ (2,904) (1,078)
Purchase of subsidiaries and other intangibles.................... (3,473) -
------------ ------------
Net cash used in investing activities.................... (6,377) (1,078)
------------ ------------
Cash flows from financing activities:
Investment and advances from Snyder Communications, net........... - 2,494
Repayment of loans to employees for purchase of stock............. 28 -
Payments on capital lease obligations............................. (61) -
------------ ------------
Net cash provided by (used in) financing activities...... (33) 2,494
------------ ------------
Effect of exchange rate changes....................................... 1 20
Net increase (decrease) in cash and equivalents....................... (1,215) -
Cash and equivalents, beginning of period............................. 2,024 -
------------ ------------
Cash and equivalents, end of period................................... $ 809 $ -
============ ============
Disclosure of noncash activities:
Business acquired with Snyder Communications common stock......... $ 1,674 $ -
</TABLE>
See accompanying notes to condensed combined financial statements.
18
<PAGE>
CIRCLE.COM
(Circle.com represents the businesses that comprise Synder
Communications, Inc.'s
Internet professional services business.)
CONDENSED COMBINED STATEMENTS OF CHANGES IN GROUP EQUITY
(unaudited)
(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...................................... - (5,642) - (5,642)
Foreign currency translation adjustment....... - - 1 1
Restricted stock vesting...................... 100 - - 100
Capital contribution.......................... 1,674 - - 1,674
Unrealized gain on marketable securities...... - - 4 4
Repayment of loan to employees for
purchase of stock........................... 28 - - 28
--------------------------------------------------
Balance at March 31, 2000.......................... $78,759 $(20,404) $ 2 $58,357
==================================================
</TABLE>
See accompanying notes to condensed combined financial statements.
19
<PAGE>
CIRCLE.COM
(Circle.com represents the businesses that comprise Synder
Communications, Inc.'s
Internet professional services 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 March 31, 2000 and for the three months ended
March 31, 2000 and 1999. Operating results for the three month period ended
March 31, 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 $40,200 and $224,000 of revenue for services provided
to SNC for the three months ending March 31, 2000 and March 31, 1999,
respectively.
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 Stockcommon stock will receive American Depositary Shares
of Havas Advertising ("Havas Advertising ADSs"), the
20
<PAGE>
CIRCLE.COM
(Circle.com represents the businesses that comprise Synder
Communications, Inc.'s
Internet professional services business.)
Notes to Condensed Combined Financial Statements
(unaudited)
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 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 three months ended March 31, 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.
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
1999
-------------------------------
(in thousands)
(unaudited)
<S> <C>
Pro forma revenues................... $ 9,785
Pro forma net loss................... $ (1,536)
</TABLE>
21
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
-------------
SNYDER COMMUNICATIONS, INC.-MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and of 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. 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 Condensed 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.
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.
22
<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.
Non-recurring costs in the first quarter of 2000 consist of costs related
to the planned acquisition of the SNC common stock by Havas Advertising.
Nonrecurring costs recorded in the first quarter of 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
March 31,
------------------------------------------------------
2000 1999
------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Net Revenues $173,933 100.0% $138,082 100.0%
Operating expenses:
Cost of services 121,138 69.6 90,941 65.9
Selling, general and administrative expenses 41,311 23.8 24,157 17.5
Non-recurring costs 3,988 2.3 710 .5
--------------------- ---------------------
Income (loss) from operations 7,496 4.3 22,274 16.1
--------------------- ---------------------
Interest expense (4,195) (2.4) (287) (.2)
Interest income 1,026 .6 669 .5
Income tax provision 4,374 2.5 8,832 6.4
--------------------- ---------------------
Income (loss) from continuing operations (47) - 13,824 10.0
--------------------- ---------------------
Income (loss) from discontinued operations (net of
income taxes) - - 5,090 3.7
--------------------- ---------------------
Net income (loss) $ (47) -% $ 18,914 13.7%
===================== =====================
</TABLE>
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Revenues. Snyder Communications' revenues increased $35.8 million, or
25.9%, to $173.9 million in the first quarter of 2000 from $138.1 million in the
first quarter of 1999. Revenues at Arnold Communications increased $6.7 million,
or 21.3%, during the period as a result of increased creative and advertising
services provided to new and existing clients, primarily in the U.S. This
increase accounted for 18.7% of the total increase in revenues for the three
months ended March 31, 2000. Revenues at Brann Worldwide were unchanged during
the three months ended March 31, 2000 compared to the same period of 1999. 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 the second quarter of 1999. Revenues at Bounty SCA Worldwide
increased $17.7 million, or 66.8%,
23
<PAGE>
SNYDER COMMUNICATIONS, INC.-MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
during the period primarily as a result of the purchase of Media Syndication
Global on March 30, 1999. The Bounty SCA Worldwide increase accounted for 49.4%
of the total increase in revenue for the three months ended March 31, 2000.
Revenues of Circle.com increased $11.4 million, or 215.1%, in the first quarter
of 2000 compared to the first quarter of 1999 as a result of increases in
services provided to both new and existing clients and from purchase
transactions completed in 1999. The Circle.com increase accounted for 31.8% of
the total increase in revenue for the three months ended March 31, 2000.
Cost of services. Snyder Communications' cost of services increased $30.2
million, or 33.2%, to $121.1 million in the first quarter of 2000 from $90.9
million in the first quarter of 1999. Cost of services as a percentage of
revenue increased to 69.6% in the first quarter of 2000 from 65.9% in the first
quarter of 1999. The dollar fluctuations in cost of services at Arnold
Communications, Bounty SCA Worldwide, and Circle.com correspond to the revenue
changes discussed above. Cost of services within the Brann Worldwide network
increased $4.2 million, or 8.0%, during the period. 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.
As a result, cost of services as a percentage of revenue for Brann Worldwide
increased to 75.1% in the first quarter of 2000 compared to 69.5% in the first
quarter of 1999. Bounty SCA Worldwide's cost of services as a percentage of
revenues increased to 59.8% in the first quarter of 2000 from 51.9% in the first
quarter of 1999 primarily as a result of the purchase of MSG, which has a lower
gross margin than Bounty SCA Worldwide's other businesses. Arnold
Communications' cost of services as a percentage of revenues increased to 69.1%
in the first quarter of 2000 from 67.5% for the same period in 1999.
Selling, general and administrative expenses. Snyder Communications'
selling, general and administrative expenses increased $17.1 million, or 70.7%,
to $41.3 million in the first quarter of 2000 compared to $24.2 million in the
same period of 1999. $8.0 million, or 46.8%, of the $17.1 million increase
results from expenses of entities which were acquired in 1999 within both the
SNC and Circle.com business units. The remaining increase results from
additional costs necessary to support the growth of the company.
Non-recurring costs. Non-recurring costs in the first quarter of 2000
consist of costs related to the planned acquisition of the SNC common stock by
Havas Advertising. The $4.0 million consists primarily of investment banking ,
legal and accounting fees. The $0.7 million of non-recurring costs recorded in
the first quarter of 1999 consist of costs to integrate acquired companies
pursuant to a plan initiated in the fourth quarter of 1998.
Interest expense. Interest expense increased $3.9 million, to $4.2 million
in the first quarter of 2000 from $0.3 million in the first quarter of 1999.
The increase in interest expense is attributable to borrowings under the $195
million unsecured revolving credit facility for the re-purchase of Snyder
Communications' stock and for acquisitions in 1999.
Interest income. Interest income increased $0.3 million, or 42.9%, to $1.0
million in the first quarter of 2000 from $0.7 million in the first 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
$4.4 million in the first quarter of 2000 and $8.8 million in the first quarter
of 1999. The actual tax provision recorded in the periods differs from the
effective rate primarily due to the non-deductibility of certain goodwill
amortization and non-recurring costs recorded during the periods.
Income (loss) from continuing operations. As a result of all the factors
discussed above, income from continuing operations decreased to a $47,000 loss
in the first quarter of 2000 from $13.8 million income in the first quarter of
1999.
Income (loss) from discontinued operations (net of income taxes). The $5.1
million income from discontinued operations in the first quarter of 1999
represents the results of Snyder Communications' healthcare services group,
which was spun off to the Snyder Communications stockholders on September 27,
1999.
24
<PAGE>
SNYDER COMMUNICATIONS, INC.-MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net income (loss). Snyder Communications' net income decreased to a
$47,000 loss in the first quarter of 2000 from $18.9 million income in the first
quarter 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 March 31, 2000, we had $56.2 million in cash and equivalents. Cash and
equivalents decreased $33.4 million during the three months ended March 31,
2000, due to the $33.2 million used in operating activities, the $15.0 million
net cash used in investing activities, the $0.1 million effect of changes in the
exchange rate, offset by the $15.0 million provided by financing activities. The
$15.0 million in cash provided by financing activities consists primarily of
proceeds received from the exercise of stock options and borrowing under the
Company's line of credit. The $15.0 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 March 31, 2000, there was $185 million in outstanding borrowings under
the Company's $195 million credit facility at a weighted average interest rate
of 7.767%.
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.
25
<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 the Snyder Communications, SNC, or
Circle.com.
Overview
SNC provides direct marketing and advertising services throughout 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. Throughout 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.
Non-recurring costs in the first quarter of 2000 consist of costs related
to the planned acquisition of the SNC common stock by Havas Advertising.
Nonrecurring costs recorded in the first quarter of 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.
26
<PAGE>
SNC MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
------------------------------------------------------
2000 1999
------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Net Revenues $157,296 100.0% $132,957 100.0%
Operating expenses:
Cost of services 109,089 69.4 87,122 65.5
Selling, general and administrative expenses 30,323 19.3 21,666 16.3
Non-recurring costs 3,988 2.5 710 .5
--------------------- ---------------------
Income (loss) from operations 13,896 8.8 23,459 17.7
--------------------- ---------------------
Interest expense (3,715) (2.4) (287) (.2)
Interest income 1,288 .8 669 .5
Income tax provision 5,874 3.7 9,146 6.9
--------------------- ---------------------
Income (loss) from continuing operations 5,595 3.5 14,695 11.1
--------------------- ---------------------
Income (loss) from discontinued operations
(net of income taxes) - - 5,090 3.8
--------------------- ---------------------
Net income (loss) $ 5,595 3.5% $ 19,785 14.9%
===================== =====================
</TABLE>
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Revenues. SNC's revenues increased $24.3 million, or 18.3%, to $157.3
million in the first quarter of 2000 from $133.0 million in the first quarter of
1999. Revenues at Arnold Communications increased $6.7 million, or 21.3%,
during the period as a result of increased creative and advertising services
provided to new and existing clients, primarily in the U.S. This increase
accounted for 27.6% of the total increase in revenues for the three months ended
March 31, 2000. Revenues at Brann Worldwide were unchanged during the three
months ended March 31, 2000 compared to the same period of 1999. 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 the second quarter of 1999. Revenues at Bounty SCA Worldwide
increased $17.7 million, or 66.8%, during the period primarily as a result of
the purchase of Media Syndication Global on March 30, 1999. The Bounty SCA
Worldwide increase accounted for 72.8% of the total increase in revenue for the
three months ended March 31, 2000.
Cost of services. SNC's cost of services increased $22.0 million, or
25.3%, to $109.1 million in the first quarter of 2000 from $87.1 million in the
first quarter of 1999. Cost of services as a percentage of revenue increased to
69.4% in the first quarter of 2000 from 65.5% in the first quarter of 1999. The
dollar fluctuations in cost of services at Arnold Communications and Bounty SCA
Worldwide correspond to the revenue changes discussed above. Cost of services
within the Brann Worldwide network increased $4.2 million, or 8.0%, during the
period. 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. As a result, cost of services as a percentage
of revenue for Brann Worldwide increased to 75.1% in the first quarter of 2000
compared to 69.5% in the first quarter of 1999. Bounty SCA Worldwide's cost of
services as a percentage of revenues increased to 59.8% in the first quarter of
2000 from 51.9%
27
<PAGE>
SNC MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
in the first quarter of 1999 primarily as a result of the purchase of MSG, which
has a lower gross margin than Bounty SCA Worldwide's other businesses. Arnold
Communications' cost of services as a percentage of revenues increased to 69.1%
in the first quarter of 2000 from 67.5% for the same period in 1999.
Selling, general and administrative expenses. SNC's selling, general and
administrative expenses increased $8.6 million, or 39.6%, to $30.3 million in
the first quarter of 2000 compared to $21.7 million the same period of 1999.
$3.7 million, or 42.5%, of the $8.7 million increase results from expenses of
entities which were acquired in 1999, including MSG. The remaining increase
results from additional costs necessary to support the growth of the company.
Non-recurring costs. Non-recurring costs in the first quarter of 2000
consist of costs related to the planned acquisition of the SNC common stock by
Havas Advertising. The $4.0 million consists primarily of investment banking ,
legal and accounting fees. The $0.7 million of non-recurring costs recorded in
the first quarter of 1999 consist of costs to integrate acquired companies
pursuant to a plan initiated in the fourth quarter of 1998.
Interest expense. Interest expense increased $3.4 million, to $3.7 million
in the first quarter of 2000 from $0.3 million in the first 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 $0.6 million, or 85.7%, to $1.3
million in the first quarter of 2000 from $0.7 million in the first quarter of
1999. Approximately $0.3 million of the increase in interest income relates to
amounts advanced to Circle.com by SNC following the October 22, 1999
recapitalization. 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 $5.9 million in the
first quarter of 2000. SNC recorded a $9.1 million tax provision in the first
quarter of 1999. SNC's effective tax rate on recurring operations is
approximately 38.0% for the both first quarter of 2000 and 1999. The actual tax
provision recorded differs from the effective rate partly due to the non-
deductibility of certain goodwill amortization and non-recurring costs recorded
during the periods.
Income (loss) from continuing operations. As a result of all the factors
discussed above, income from continuing operations decreased to $5.6 million in
the first quarter of 2000 from $14.7 million in the first quarter of 1999, a
61.9% decrease.
Income (loss) from discontinued operations (net of income taxes). The $5.1
million income from discontinued operations in the first 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 $5.6 million in the first
quarter of 2000 from $19.8 million in the first quarter 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 March 31, 2000, SNC had $55.4 million in cash and equivalents. Cash and
equivalents decreased $32.1 million during the three months ended March 31,
2000, due to the $38.4 million used in operating activities, the $8.7 million
cash used in investing activities, the $0.1 million effect of changes in the
exchange rate, offset by the $15.0 million provided by financing activities of
continuing operations. The cash provided by financing activities consists
primarily of proceeds from the exercise of stock options and borrowing under the
Company's line of credit. The $8.7 million in cash used in investing activities
consists primarily of cash used for capital expenditures and earn-out payments
related to previously acquired businesses.
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, planned capital expenditures and anticipated growth of its
28
<PAGE>
SNC-MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 March 31, 2000, there was $185 million in outstanding borrowings under
the credit facility at a weighted average interest rate of 7.767% and $161.7
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.
29
<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 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 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.
30
<PAGE>
CIRCLE.COM-MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
------------------------------------------------------
2000 1999
------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Net Revenues $16,677 100.0% $ 5,349 100.0%
Operating expenses:
Professional services 9,989 59.9 3,222 60.2
Office and general expenses 13,088 78.5 3,312 61.9
--------------------- ---------------------
Income (loss) from operations (6,400) (38.4) (1,185) (22.1)
--------------------- ---------------------
Interest expense (750) (4.4) - -
Interest income 8 - - -
--------------------- ---------------------
Income (loss) before income taxes (7,142) (42.8) (1,185) (22.1)
--------------------- ---------------------
Income tax provision (benefit) (1,500) (9.0) (314) (5.9)
--------------------- ---------------------
Net loss $(5,642) (33.8)% $ (871) (16.2)%
===================== =====================
</TABLE>
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Revenues. Circle.com's revenues increased $11.4 million, or 215.1%, to
$16.7 million in the first quarter of 2000 from $5.3 million in the first
quarter of 1999. $6.4 million, or 56.1%, of the $11.4 million increase is from
entities which Circle.com purchased following the first quarter of 1999. The
remaining $5.0 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 $6.8 million, or 212.5%, to $10.0 million in the first quarter of 2000
compared to $3.2 million in the first quarter of 1999. The dollar increase in
professional service expenses is consistent with the purchase transactions and
increase in personnel at Circle.com necessary to support the increased level of
business in the first quarter of 2000. Professional services expense as a
percentage of net revenues decreased slightly to 59.9% in the first quarter of
2000 compared to 60.2% in the first quarter of 1999.
Office and general expenses. Office and general expense increased $9.8
million, or 297.0%, to $13.1 million in the first quarter of 2000 from $3.3
million in the first quarter of 1999. The increase in office and general
expense is consistent with the purchase transactions and the expansion of our
infrastructure to support increased levels of revenue, and includes $2.0 million
of additional goodwill amortization in the first quarter of 2000 compared to
1999. In addition, the first 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 $0.7 million in the first
quarter of 2000. The 2000 interest expense is related to the debt attributed to
Circle.com by Snyder Communications for certain acquisitions and for amounts
advanced to Circle.com by SNC following the October 22, 1999 recapitalization.
There was no interest expense recorded in the first quarter of 1999.
31
<PAGE>
CIRCLE.COM-MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Income tax provision. Circle.com recorded a tax benefit of $1.5 million in
the first quarter of 2000. Circle.com's effective tax rate on recurring
operations is approximately 21.0% for the first quarter of 2000. The actual tax
provision recorded differs from the effective rate primarily due to the non-
deductibility of certain goodwill amortization recorded during the period.
Circle.com recorded a tax benefit of $0.3 million in the first quarter of 1999.
Net loss. As a result of all the factors discussed above, Circle.com's net
loss increased to $5.6 million in the first quarter of 2000 from $0.9 million in
the first quarter of 1999.
Liquidity and Capital Resources
Circle.com has incurred cumulative losses of $20.4 million from its
inception through March 31, 2000. Circle.com recorded a net loss of $5.6
million in the first quarter of 2000. Circle.com has relied on investments and
advances from SNC in order to build its business, acquire Internet services
companies, and to fund its operating and net losses.
SNC invested $79.4 million in Circle.com cumulatively through the October
22, 1999 Recapitalization date. In addition to the $79.4 million investment, SNC
also loaned $20.2 million to Circle.com between October 22, 1999 and March 31,
2000. The $20.2 million loan is interest bearing. Until May 1999, the operations
of Circle.com were contained within the Brann Worldwide and Arnold
Communications networks, and the operations which became Circle.com did not have
separately identified cash. As March 31, 2000, Circle.com had $0.8 million of
cash.
We believe that cash on hand as of March 31, 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, 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.
32
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
(1) Current Report on Form 8-K, Item 5, filed on March 6, 2000,
reporting that the Company, Havas Advertising, and HAS Acquisition
Corp. had entered into an agreement and Plan of Merger on February
20, 2000.
33
<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: May 15, 2000 /s/ Michele D. Snyder
------------- ----------------------------------
Michele D. Snyder
Vice Chairman, President and
Chief Operating Officer
(Duly Authorized Officer)
Date: May 15, 2000 /s/ A. Clayton Perfall
------------- ----------------------------------
A. Clayton Perfall
Chief Financial Officer
(Principal Financial Officer)
34
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 56,192
<SECURITIES> 13
<RECEIVABLES> 111,889
<ALLOWANCES> 7,752
<INVENTORY> 0
<CURRENT-ASSETS> 372,084
<PP&E> 155,401
<DEPRECIATION> 65,749
<TOTAL-ASSETS> 797,835
<CURRENT-LIABILITIES> 318,760
<BONDS> 194,346
0
0
<COMMON> 100
<OTHER-SE> 280,869
<TOTAL-LIABILITY-AND-EQUITY> 797,835
<SALES> 0
<TOTAL-REVENUES> 173,933
<CGS> 121,138
<TOTAL-COSTS> 166,437
<OTHER-EXPENSES> (1,026)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,195
<INCOME-PRETAX> 4,327
<INCOME-TAX> 4,374
<INCOME-CONTINUING> (47)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (47)
<EPS-BASIC> 0.07
<EPS-DILUTED> 0.06
</TABLE>
