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File Pursuant to Rule 424B(1)
Registration No. 333-12471
PROSPECTUS
4,800,000 SHARES
[LOGO]
COMMON STOCK
--------------
OF THE 4,800,000 SHARES OF COMMON STOCK OFFERED HEREBY, 3,840,000 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 960,000 SHARES ARE BEING OFFERED INITIALLY
OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS. SEE "UNDERWRITERS."
OF THE 4,800,000 SHARES OF COMMON STOCK OFFERED HEREBY, 4,147,408 SHARES ARE
BEING OFFERED BY TMP WORLDWIDE INC. ("TMP" OR THE "COMPANY") AND 652,592
SHARES ARE BEING OFFERED BY CERTAIN STOCKHOLDERS OF THE COMPANY (THE
"SELLING STOCKHOLDERS"). THE COMPANY WILL NOT RECEIVE ANY OF THE
PROCEEDS FROM THE SALE OF THE COMMON STOCK BY THE SELLING
STOCKHOLDERS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS." PRIOR
TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE
COMMON STOCK OF THE COMPANY. SEE "UNDERWRITERS" FOR A
DISCUSSION OF THE FACTORS CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
------------------------
THE COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE
NASDAQ NATIONAL MARKET UNDER THE SYMBOL "TMPW," SUBJECT TO OFFICIAL NOTICE OF
ISSUANCE.
------------------------
AFTER GIVING EFFECT TO THIS OFFERING (ASSUMING THE OVER-ALLOTMENT OPTION IS NOT
EXERCISED), THE COMPANY WILL HAVE OUTSTANDING 8,605,436 SHARES OF COMMON STOCK
WITH ONE VOTE PER SHARE (REPRESENTING 5.5% OF THE COMBINED VOTING POWER
OF THE COMPANY) AND 14,787,541 SHARES OF CLASS B COMMON STOCK WITH TEN
VOTES PER SHARE (REPRESENTING 94.5% OF THE COMBINED VOTING POWER OF
THE COMPANY). CLASS B COMMON STOCK IS CONVERTIBLE, ON A
SHARE-FOR-SHARE BASIS, INTO COMMON STOCK. OTHER THAN VOTING
AND CONVERSION RIGHTS, THE TERMS OF THE COMMON STOCK AND
CLASS B COMMON STOCK ARE SUBSTANTIALLY SIMILAR.
SEE "DESCRIPTION OF CAPITAL STOCK."
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF THIS PROSPECTUS FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------
PRICE $14 A SHARE
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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
------------------ ------------------ ------------------ ------------------
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PER SHARE..................... $14.00 $.98 $13.02 $13.02
TOTAL(3)...................... $67,200,000 $4,704,000 $53,999,252 $8,496,748
</TABLE>
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(1) THE COMPANY AND THE SELLING STOCKHOLDERS HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. SEE "UNDERWRITERS."
(2) BEFORE DEDUCTING ESTIMATED EXPENSES OF THE OFFERING PAYABLE BY THE COMPANY,
ESTIMATED AT $1,800,000.
(3) THE COMPANY HAS GRANTED THE U.S. UNDERWRITERS AN OPTION, EXERCISABLE WITHIN
30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF 720,000
ADDITIONAL SHARES OF COMMON STOCK AT THE PRICE TO PUBLIC, LESS UNDERWRITING
DISCOUNTS AND COMMISSIONS, FOR THE PURPOSE OF COVERING OVER-ALLOTMENTS, IF
ANY. IF THE U.S. UNDERWRITERS EXERCISE SUCH OPTION IN FULL, THE TOTAL PRICE
TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO COMPANY
WILL BE $77,280,000, $5,409,600 AND $63,373,652, RESPECTIVELY. SEE
"UNDERWRITERS."
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY DAVIS POLK & WARDWELL, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT
DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT DECEMBER 18, 1996 AT THE OFFICE
OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT THEREOF IN
SAME DAY FUNDS.
-------------------
MORGAN STANLEY & CO.
INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LADENBURG THALMANN & CO. INC.
DECEMBER 12, 1996
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[Photo Page]
2
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The contents of the Company's Web Sites and other Web Sites referred to
herein are not part of this Prospectus.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained in this Prospectus,
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company, any Selling Stockholder or any
Underwriter. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the Common Stock offered
hereby to any person in any jurisdiction in which it is unlawful to make such an
offer or solicitation to such person. Neither the delivery of the Prospectus nor
any sale made hereby shall under any circumstance imply that the information
herein is correct as of any date subsequent to the date hereof.
No action has been or will be taken in any jurisdiction by the Company, any
Selling Stockholder or any Underwriter that would permit a public offering of
the Common Stock or possession or distribution of this Prospectus in any
jurisdiction where action for that purpose is required, other than in the United
States. Persons into whose possession this Prospectus comes are required by the
Company, the Selling Stockholders and the Underwriters to inform themselves
about, and to observe any restrictions as to, the offering of the Common Stock
and the distribution of this Prospectus.
------------------------
UNTIL JANUARY 6, 1997 (25 DAYS AFTER THE DATE THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
IN THIS PROSPECTUS, REFERENCES TO "DOLLAR" AND "$" ARE TO UNITED STATES
DOLLARS, EXCEPT WHERE OTHERWISE INDICATED, AND THE TERMS "UNITED STATES" AND
"U.S." MEAN THE UNITED STATES OF AMERICA, ITS STATES, ITS TERRITORIES, ITS
POSSESSIONS, AND ALL AREAS SUBJECT TO ITS JURISDICTION.
------------------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary............................. 4
Risk Factors................................... 10
Use of Proceeds................................ 16
Dividend Policy................................ 16
Dilution....................................... 17
Capitalization................................. 19
Selected Consolidated Financial Information.... 20
Pro Forma Condensed Consolidated Financial
Information.................................. 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 28
Business....................................... 40
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Management..................................... 54
Certain Transactions........................... 59
Principal and Selling Stockholders............. 62
Description of Capital Stock................... 64
Certain United States Federal Tax Consequences
to Non-United States Holders of Common
Stock........................................ 68
Shares Eligible for Future Sale................ 71
Underwriters................................... 72
Legal Matters.................................. 75
Experts........................................ 75
Additional Information......................... 76
Index to Financial Statements.................. F-1
</TABLE>
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The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by an independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing interim unaudited financial information.
The Company has registered the following trademark: "The Monster
Board-Registered Trademark-". This Prospectus also includes product names and
other trade names and trademarks of the Company and of other organizations.
3
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PROSPECTUS SUMMARY
THE COMPANY IS THE SUCCESSOR TO THE BUSINESSES FORMERLY CONDUCTED BY TMP
WORLDWIDE INC. AND SUBSIDIARIES ("OLD TMP"), WORLDWIDE CLASSIFIED INC. AND
SUBSIDIARIES ("WCI") AND MCKELVEY ENTERPRISES, INC. AND SUBSIDIARIES, THE CHIEF
EXECUTIVE OFFICER OF WHICH WAS ANDREW J. MCKELVEY (THE "PRINCIPAL STOCKHOLDER").
ON DECEMBER 9, 1996, OLD TMP MERGED INTO MCKELVEY ENTERPRISES, INC. THEREAFTER,
WCI MERGED INTO MCKELVEY ENTERPRISES, INC. MCKELVEY ENTERPRISES, INC. THEN
MERGED INTO TELEPHONE MARKETING PROGRAMS INCORPORATED. SUCH MERGERS ARE
COLLECTIVELY REFERRED TO AS THE "MERGERS." IN ADDITION, MR. MCKELVEY SOLD OR
CONTRIBUTED HIS INTEREST IN FIVE OTHER ENTITIES TO THE COMPANY. PURSUANT TO THE
MERGERS, TELEPHONE MARKETING PROGRAMS INCORPORATED CHANGED ITS NAME TO TMP
WORLDWIDE INC. ALL HISTORICAL FINANCIAL DATA CONTAINED HEREIN REFLECTS THE
HISTORICAL FINANCIAL DATA OF OLD TMP, WCI, MCKELVEY ENTERPRISES, INC. AND THE
OTHER ENTITIES.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS (A) ASSUMES THAT THE U.S. UNDERWRITERS'
OVER-ALLOTMENT OPTION TO PURCHASE FROM THE COMPANY UP TO 720,000 ADDITIONAL
SHARES OF COMMON STOCK WILL NOT BE EXERCISED, (B) IS ADJUSTED TO REFLECT SHARES
OF THE COMPANY ISSUED IN CONNECTION WITH THE MERGERS AND (C) REFLECTS THE
CONSUMMATION OF THE MERGERS. AS USED IN THIS PROSPECTUS, "GROSS BILLINGS" REFER
TO BILLINGS FOR ADVERTISING PLACED IN TELEPHONE DIRECTORIES, NEWSPAPERS, NEW
MEDIA AND OTHER MEDIA, AND ASSOCIATED FEES FOR RELATED SERVICES. WHILE GROSS
BILLINGS ARE NOT INCLUDED IN THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS,
THE TRENDS IN GROSS BILLINGS DIRECTLY IMPACT THE COMMISSIONS AND FEES EARNED BY
THE COMPANY. THE COMPANY, WHICH OPERATES IN ONE BUSINESS SEGMENT, EARNS
COMMISSIONS BASED ON A PERCENTAGE OF THE MEDIA ADVERTISING PURCHASED AT A RATE
ESTABLISHED BY THE RELATED PUBLISHER, AND ASSOCIATED FEES FOR RELATED SERVICES.
IN ADDITION, THE COMPANY EARNS FEES FOR THE PLACEMENT OF ADVERTISEMENTS ON THE
INTERNET, INCLUDING ITS CAREER WEB SITES. GROSS BILLINGS WITH RESPECT TO
COMPANIES ACQUIRED BY THE COMPANY REFER TO THE COMPANY'S ESTIMATE OF THE
ACQUIRED COMPANIES' ANNUAL GROSS BILLINGS. EARNINGS BEFORE INTEREST, INCOME
TAXES, DEPRECIATION AND AMORTIZATION ("EBITDA") IS PRESENTED TO PROVIDE
ADDITIONAL INFORMATION ABOUT THE COMPANY'S ABILITY TO MEET ITS FUTURE DEBT
SERVICE, CAPITAL EXPENDITURES AND WORKING CAPITAL REQUIREMENTS AND IS ONE OF THE
MEASURES WHICH DETERMINES THE COMPANY'S ABILITY TO BORROW UNDER ITS CREDIT
FACILITY. EBITDA SHOULD NOT BE CONSIDERED IN ISOLATION OR AS A SUBSTITUTE FOR
OPERATING INCOME, CASH FLOWS FROM OPERATING ACTIVITIES AND OTHER INCOME OR CASH
FLOW STATEMENT DATA PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES OR AS A MEASURE OF THE COMPANY'S PROFITABILITY OR LIQUIDITY.
THE COMPANY
TMP Worldwide Inc. ("TMP" or the "Company") is a marketing services,
communications and technology company that provides comprehensive, individually
tailored advertising services including development of creative content, media
planning, production and placement of corporate advertising, market research,
direct marketing and other ancillary services and products. The Company is the
world's largest yellow page advertising agency and a large recruitment
advertising agency. In 1995, the Company began marketing Internet-based services
as extensions of its core business and has become a growing provider of Internet
content. The Company offers advertising programs to more than 17,000 clients,
including more than 70 of the Fortune 100 and more than 240 of the Fortune 500
companies. The Company's growth strategy is to continue to actively pursue
consolidation opportunities in its core advertising business and to leverage its
client base and its approximately 1,500 sales, marketing and customer service
personnel to expand its Internet-based business. Except for the acquisition of a
small recruitment advertising agency, the Company has no current plans for any
additional acquisitions. See "Pro Forma Condensed Consolidated Financial
Information." For the year ended December 31, 1995, the Company's gross billings
were $596.1 million, commissions and fees were $123.9 million, net income was
$3.2 million and EBITDA was $25.0 million.
TMP is the world's largest yellow page advertising agency, generating
approximately $425 million in gross billings for the year ended December 31,
1995. TMP is also a large recruitment advertising agency, generating
approximately $165 million in gross billings for the same period. With
approximately 30% of
4
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the national accounts segment of the U.S. yellow page advertising market, TMP is
approximately three times larger than its nearest competitor, based on gross
billings. A substantial part of the Company's growth has been achieved through
acquisitions. From January 1, 1993 through December 31, 1995, TMP completed 26
acquisitions which have estimated annual gross billings of $200 million. In
1996, through November 30, the Company completed ten acquisitions with estimated
annual gross billings of $180 million including the acquisition in July 1996 of
Neville Jeffress Australia Pty Limited ("Neville Jeffress"), a large recruitment
advertising agency in Australia, which has estimated annual gross billings of
$140 million. In December 1996, the Company completed the acquisition of two
small recruitment advertising agencies with estimated annual gross billings of
$5 million. The Company believes additional acquisition opportunities exist,
particularly in the recruitment advertising and Internet markets, and intends to
continue its strategy of making acquisitions which relate to its core business.
TMP has created innovative solutions to assist its clients in capitalizing
on the growing awareness and acceptance of the Internet. For its recruitment
advertising clients, TMP has developed interactive career hubs which can be
accessed by individuals seeking employment via the Internet on a global basis.
The Company has several career hubs, including The Monster Board-Registered
Trademark-, Online Career Center-SM-, Be the Boss-SM- and MedSearch-SM-, which
collectively contain over 35,000 job listings. In 1996, the Company began
marketing its Dealer Locator service to yellow page clients. Dealer Locator
provides clients with the ability to offer World Wide Web ("Web") pages for
their local offices, franchisees or dealers. Potential customers can then access
these pages on the Internet by zip code or other key word searches.
The Company's predecessor was formed in 1967 by Andrew J. McKelvey. The
Company was incorporated in Delaware in August 1996. Its executive offices are
located at 1633 Broadway, 33rd Floor, New York, New York 10019, and its
telephone number at that location is (212) 977-4200.
YELLOW PAGE ADVERTISING. TMP develops yellow page marketing programs for
national accounts, clients which sell products or services in multiple markets.
The national segment of the yellow page advertising market was a $1.4 billion
market in the U.S. for the year ended December 31, 1995. The national yellow
page market has grown each year since 1981. During the period of 1990 through
1995, the market grew at a compound average rate of approximately 4.5%. Yellow
page advertising is a complex process involving the creation of effective
imagery and message and the development of media plans which evaluate
approximately 7,000 yellow page directories of which TMP's larger accounts
utilize over 2,000. Coordinating the placement of advertisements in this number
of directories requires an extensive effort at the local level, and TMP's sales,
marketing and customer service staff of over 1,500 people provides an important
competitive advantage in marketing and executing yellow page advertising
programs. TMP earns commissions from yellow page advertising paid by directory
publishers which result in an effective commission rate to the Company of
approximately 20% of yellow page gross billings. See "Business-- TMP's Yellow
Page Business."
TMP takes a proactive approach to yellow page advertising by undertaking
original research on the efficacy of the medium, in many cases quantifying the
effectiveness of a given advertising campaign. The Company also has a rigorous
quality assurance program designed to ensure client satisfaction. The Company
believes that this program has resulted in an increase in TMP's yellow page
client retention rate from 90% in 1991 to 96% in 1995.
RECRUITMENT ADVERTISING. For the year ended December 31, 1995, total
spending on advertisements in North America in the recruitment classified
advertisement section of newspapers was approximately $4.5 billion. While the
recruitment advertising market has historically been cyclical, during the period
of 1990 through 1995, the U.S. market grew at a compound annual growth rate of
approximately 11.5%. The Company receives commissions generally equal to 15% of
recruitment advertising gross billings. The Company also earns fees from
value-added services such as design, research and other creative and
administrative services which resulted in aggregate commissions and fees equal
to approximately 21% of recruitment advertising gross billings.
5
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The services provided by recruitment advertising agencies can be complex and
range from the design and placement of classifed advertisements to the creation
of comprehensive image campaigns which "brand" a client as a quality employer.
Further, shortages of qualified employees in many industries, particularly in
the technology area, have increased the need for recruitment advertising
agencies to expand the breadth of their service offerings to effect national and
sometimes global recruitment campaigns. For these reasons, the Company believes
that over time, the proportion of overall recruitment advertising placed through
recruitment advertising agencies will grow. Given the scale of its recruitment
advertising operations and the scope of its service offerings, the Company
believes it is well positioned to participate in this market growth. See
"Business--TMP's Recruitment Advertising Business."
INTERNET SERVICES. The Company's Internet-based services complement its
traditional advertising businesses. In recruitment, the Company has several
career hubs, including The Monster Board-Registered Trademark-, Online Career
Center-SM-, Be the Boss-SM- and MedSearch-SM- which provide continuously
available databases of job opportunities. Users of these hubs can search for
employment opportunities by location, type of job and other criteria. Resumes
can be sent to prospective employers electronically and submitted on-line or via
mail. Users can also access other value-added services such as discussion forums
and on-line career advice. Based on its experience with its clients, TMP
believes that only 20% to 30% of open job positions are advertised using
traditional print media and that on-line solutions, which are significantly less
expensive than traditional recruitment methods, will significantly expand the
recruitment advertising market. More than 55 of the Fortune 100 companies are
utilizing the Company's career hubs.
Dealer Locator, which is marketed to both existing and potential yellow page
accounts, allows clients to offer Web pages for local offices, dealers or
franchise locations which are linked to the client's corporate Web site. These
pages are designed to generate additional customer flow while reinforcing brand
imagery contained in other advertising programs. Dealer Locator home pages will
typically include address, directions, hours of operation and potentially other
information such as sale items. Over time, the Company intends to increase the
utility of Dealer Locator through the introduction of additional interactive
functions.
TMP believes its pre-existing relationships with yellow page and recruitment
advertising clients and its sales, marketing and customer service staff of over
1,500 people provide an important competitive advantage in pursuing the market
for Internet clients. Further, the Company believes its innovative Internet
products will provide an opportunity to enhance its ability to market both
traditional advertising and Internet services to non-TMP clients. See
"Business--TMP's Yellow Page Business--Internet-based Solutions for Yellow Page
Advertising Clients" and "--TMP's Recruitment Advertising Business--
Internet-based Solutions for Recruitment Advertising Clients."
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THE OFFERING
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Common Stock offered by:
The Company................................ 4,147,408 shares
The Selling Stockholders................... 652,592 shares
Total.................................. 4,800,000 shares
Common Stock offered for sale in:
United States offering..................... 3,840,000 shares
International offering..................... 960,000 shares
Total.................................. 4,800,000 shares
Common Stock to be outstanding after this
offering................................... 23,550,915 shares(1)
Use of proceeds.............................. Repayment of certain indebtedness and to
redeem preferred stock. See "Use of
Proceeds."
Nasdaq National Market Symbol................ TMPW
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(1) Includes 157,938 shares of Common Stock pursuant to the treasury stock
method for outstanding stock options.
RISK FACTORS
An investment in the Common Stock involves certain risks associated with the
Company's business including the following: (i) the uncertain acceptance of the
Internet and the Company's Internet content, (ii) the Company has grown rapidly
and there can be no assurance that the Company will continue to be able to grow
profitably or manage its growth, (iii) risks associated with acquisitions, (iv)
competition, (v) the Company's quarterly operating results have fluctuated in
the past and are expect to fluctuate in the future, (vi) the Company's business
experiences seasonality, (vii) the loss of the services of certain key
individuals could have a material adverse effect on the Company's business,
financial condition or operating results, (viii) litigation involving a former
employee, (ix) the Company has entered into certain transactions with affiliated
parties, (x) following this offering, Andrew J. McKelvey will control the
Company and will be able, among other things, to elect all of the Company's
directors and (xi) purchasers of Common Stock in this offering will experience
immediate dilution in the net tangible book value of their Common Stock from the
initial public offering price.
For a fuller discussion of these and other risk factors affecting the
Company and its business, see "Risk Factors."
AFFILIATED PARTY TRANSACTIONS
From time to time, the Company has made advances to Messrs. Andrew J.
McKelvey, David A. Hosokawa, a Vice Chairman of the Company, and Thomas G.
Collison, a Vice Chairman of the Company. As of September 30, 1996, these
advances totaled approximately $9.7 million. These advances do not bear
interest; however, after the closing of this offering, Mr. McKelvey's advances
will bear interest at the prime rate. The Company and Mr. McKelvey and certain
other of the Company's affiliates and directors have also been parties to
certain other transactions with the Company. See "Risk Factors--Affiliated Party
Transactions" and "Certain Transactions."
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
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NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------------------------------------ ---------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA, NUMBER OF EMPLOYEES AND OFFICES)
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PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
1991 1992(1) 1993 1994 1995 1995(2) 1995 1996 1996(2)(3)
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STATEMENT OF OPERATIONS
DATA:
Commissions and fees..... $ 59,062 $ 59,729 $ 73,791 $ 86,165 $ 123,907 $ 161,597 $ 89,686 $ 118,870 $ 134,084
Salaries and related
costs.................. 27,799 32,093 37,747 45,758 58,329 77,837 43,230 60,910 69,088
Office and general
expenses............... 27,319 23,620 29,824 30,316 43,432 60,077 32,616 44,077 51,575
Amortization of
intangibles............ 1,688 1,800 2,471 3,264 3,237 4,290 2,284 3,173 3,650
Special
compensation(3)........ -- -- -- -- -- -- -- 672 --
Restructuring charges.... -- 14,095 1,318 -- -- -- -- -- --
Total operating
expenses............... 56,806 71,608 71,360 79,338 104,998 142,204 78,130 108,832 124,313
Operating income
(loss)................. 2,256 (11,879) 2,431 6,827 18,909 19,393 11,556 10,038 9,771
Interest expense, net.... (3,545) (3,869) (7,652) (9,178) (10,894) (10,172) (7,879) (8,600) (7,149)
Other income (expense),
net.................... (430) 180 (386) (146) 150 (3) 26 (32) (26)
Income (loss) before
provision (benefit) for
income taxes, minority
interests and equity in
earnings (losses) of
affiliates............. (1,719) (15,568) (5,607) (2,497) 8,165 9,218 3,703 1,406 2,596
Provision (benefit) for
income taxes........... 954 (5,579) (1,322) (333) 4,222 5,081 2,298 1,655 2,049
Net income (loss)
applicable to common
and Class B common
stockholders........... (2,889) (10,537) (4,836) (2,677) 3,019 3,512 715 (697) 78
Net income (loss) per
common and Class B
common share........... $(.17) $(.61) $(.27) $(.14) $.15 $.15 $.04 $.00
Weighted average number
of common, Class B
common and common
equivalent shares
outstanding............ 17,389 17,389 17,772 19,226 19,516 23,662 19,516 23,713
PRO FORMA INCOME DATA(4):
Pro forma net loss....... $ (25)
Pro forma net loss per
common and Class B
common share........... $.00
Pro forma average shares
outstanding............ 19,276
OTHER DATA:
Gross Billings:
Yellow page
advertising.......... $ 293,188 $ 299,089 $ 336,714 $ 363,656 $ 429,176 $ 429,176 $ 331,694 $ 351,589 $ 351,589
Recruitment
advertising.......... -- -- 8,338 54,872 166,508 393,105 121,465 216,826 305,003
Internet(5)............ -- -- -- -- 392 788 -- 4,413 4,413
--------- --------- --------- --------- --------- ----------- --------- --------- -----------
Total Gross Billings..... $ 293,188 $ 299,089 $ 345,052 $ 418,528 $ 596,076 $ 823,069 $ 453,159 $ 572,828 $ 661,005
--------- --------- --------- --------- --------- ----------- --------- --------- -----------
--------- --------- --------- --------- --------- ----------- --------- --------- -----------
Total operating expenses
as a percentage of
commissions and fees... 96.2% 119.9% 96.7% 92.1% 84.7% 88.0% 87.1% 91.6% 92.8%
Number of employees...... 825 870 970 1,200 1,400 1,800 1,400 2,000 2,000
Number of offices........ 30 30 30 40 50 65 50 65 70
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SEPTEMBER 30, 1996
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PRO FORMA
AS ADJUSTED
ACTUAL (2)(3)
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BALANCE SHEET DATA:
Current assets........................................................ $ 225,480 $ 230,884
Current liabilities................................................... 248,399 251,906
Total assets.......................................................... 335,447 350,865
Long-term liabilities................................................. 102,809 66,765
Minority interests.................................................... 3,214 239
Redeemable preferred stock............................................ 2,000 --
Redeemable common stock(6)............................................ 2,899 --
Total stockholders' equity (deficit).................................. (23,874) 31,955
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(1) Operating results for the year ended December 31, 1992 include a
non-recurring charge of approximately $14.1 million principally related to
the write-off of development costs of a computerized data base system.
Excluding this charge, operating income, net loss (net of the related tax
effect of $5.6 million) and operating expenses as a percentage of
commissions and fees would have been $2.2 million, $(1.9 million) and 96.3%.
(2) The pro forma as adjusted financial information gives effect to (i) the
acquisitions that are described in the "Pro Forma Condensed Consolidated
Financial Information" (collectively, the "Acquisitions"), (ii) borrowings
under the Company's financing agreement to finance the Acquisitions, as if
these transactions had occurred on January 1, 1995 for purposes of the
statement of operations data and as if they had occurred on September 30,
1996 with respect to the balance sheet data, (iii) the sale of 4,147,408
shares of Common Stock by the Company hereby at an initial public offering
price of $14.00 per share and the application of the net proceeds therefrom,
after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company to repay debt (including debt used
to finance the Acquisitions) as if the offering had occurred on January 1,
1995 for purposes of the statement of operations data, and as if this
offering had occurred on September 30, 1996 with respect to the balance
sheet data, and (iv) goodwill in the amount of approximately $1.6 million
and amortization thereon resulting from the issuance of 271,278 shares of
Common Stock of the Company, in connection with the Mergers, to the Old TMP
stockholders who had been previously issued shares of Old TMP in exchange
for their minority interests in certain operating subsidiaries in which they
were original owners and, accordingly, were considered to have made a
substantive investment, and is based on an initial public offering price of
$14.00 per share, less approximately $2.2 million previously recorded on
issuance of their Old TMP shares. See "Use of Proceeds," "Capitalization"
and "Pro Forma Condensed Consolidated Financial Information."
(3) Special compensation consists of the value of shares issued in connection
with the acquisition of a minority interest in a subsidiary in August 1996
because the stockholder had received his shares in the subsidiary for no
consideration and, accordingly, was not considered to have made a
substantive investment for the minority shares. This compensation has been
eliminated in the pro forma as adjusted financial information. The pro forma
as adjusted financial information does not reflect charges to fourth quarter
1996 earnings for (i) special management compensation in the amount of
approximately $50 million resulting from the issuance of 3,584,790 shares of
Common Stock of the Company, in connection with the Mergers, to the Old TMP,
WCI and MEI subsidiary stockholders in exchange for their shares in those
companies which they had received for nominal or no consideration, as
employees or as management of businesses financed substantially by the
Principal Stockholder and, accordingly, were not considered to have made
substantive investments for their minority shares, and is based on an
initial public offering price of $14.00 per share and (ii) additional
interest expense of approximately $2.6 million upon the exercise of a
warrant, issued in connection with the Company's financing agreement, to
reflect the difference between the value of the stock issued at the initial
public offering price of $14.00 per share and the valuation recorded for the
warrant when it was originally issued. The statement of operations for the
fourth quarter of 1996 will also include a pro forma presentation for net
income and earnings per share to exclude such non-recurring charges.
(4) Reflects the pro forma elimination of special compensation in the amount of
$672 incurred during the nine months ended September 30, 1996.
(5) Represents fees earned in connection with yellow page, recruitment and other
advertisements placed on the Internet.
(6) Upon the consummation of this offering, the put option related to certain
shares of Common Stock will be eliminated and such Common Stock will be
reclassified to stockholders' equity.
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RISK FACTORS
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY SHOULD CONSIDER
CAREFULLY THE INFORMATION SET FORTH BELOW AS WELL AS THE OTHER INFORMATION SET
FORTH IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL
INFORMATION, FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
THOSE STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS PROSPECTUS AND INCLUDE
STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY,
ITS DIRECTORS OR ITS OFFICERS WITH RESPECT TO (I) FUTURE GROSS BILLINGS LEVELS,
(II) FUTURE PERFORMANCE OF THE COMPANY'S INTERNET BUSINESS AND (III) FUTURE
PRODUCT OFFERINGS BY THE COMPANY. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD LOOKING STATEMENTS AS A RESULT
OF CERTAIN FACTORS, INCLUDING THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS
PROSPECTUS.
UNCERTAIN ACCEPTANCE OF THE INTERNET
Use of the Internet by consumers is at a very early stage of development,
and market acceptance of the Internet as a medium for information,
entertainment, commerce and advertising is subject to a high level of
uncertainty. The Company's clients have only limited experience with the
Internet as an advertising medium and such clients have not devoted a
significant portion of their advertising budgets to Internet-based advertising
in the past. In addition, a significant portion of the Company's potential
clients have no experience with the Internet as an advertising medium and have
not devoted any portion of their advertising budgets to Internet-based
advertising in the past. Further, the recently enacted Communications Decency
Act could slow the growth of the Internet and decrease the acceptance of the
Internet as an advertising medium. There can be no assurance that advertisers
will be persuaded to allocate or continue to allocate portions of their budgets
to Internet-based advertising. If Internet-based advertising is not widely
accepted by advertisers and advertising agencies, the Company's business,
financial condition and operating results, including its expected rate of
commissions and fees growth, would be materially adversely affected. See
"Business--Government Regulation."
UNCERTAIN ACCEPTANCE OF THE COMPANY'S INTERNET CONTENT
The Company's future growth depends in part upon its ability to deliver
original and compelling services in order to attract users valuable to the
Company's advertising clients. There can be no assurance that the Company's
content will be attractive to a sufficient number of Internet users to generate
material advertising revenues. There also can be no assurance that the Company
will be able to anticipate, monitor and successfully respond to rapidly changing
consumer tastes and preferences so as to attract a sufficient number of users to
its Web sites. Internet users can freely navigate and instantly switch among a
large number of Web sites, many of which offer original content, making it
difficult for the Company to distinguish its content and attract users. In
addition, many other Web sites offer very specific, highly targeted content that
could have greater appeal than the Company's sites to particular subsets of the
Company's target audience.
UNCERTAIN ABILITY TO MANAGE GROWTH
The Company's business has grown rapidly in recent periods. The growth of
the Company's business has placed a significant strain on the Company's
management and operations. The Company's expansion has resulted, and is expected
in the future to result, in substantial growth in the number of its employees
and in increased responsibility for both existing and new management personnel
and strain on the Company's existing operations, financial and management
information systems. The Company's success depends to a significant extent on
the ability of its executive officers and other members of senior management to
operate effectively both independently and as a group. If the Company is not
able to manage existing or anticipated growth, the Company's business, financial
condition and operating results would be materially adversely affected. See
"Management--Executive Officers and Directors."
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RISKS ASSOCIATED WITH ACQUISITIONS
The Company expects that it will continue to grow, in part, by acquiring
businesses. The success of this strategy depends upon several factors including
the continued availability of financing and the Company's ability to identify
and acquire businesses on a cost-effective basis, as well as its continued
ability to integrate acquired personnel, operations, products and technologies
into its organization effectively, to retain and motivate key personnel and to
retain the clients of acquired firms. There can be no assurance that financing
will be available on terms acceptable to the Company, or that the Company will
be able to identify or consummate new acquisitions, or manage its recent or
future expansions successfully, and any inability to do so would have a material
adverse effect on the Company's business, financial condition and operating
results. There also can be no assurance that the Company will be able to sustain
the rates of growth that it has experienced in the past.
LITIGATION
In November 1996, an action was commenced in the Supreme Court of the State
of New York against Old TMP, WCI and Andrew J. McKelvey by a former employee.
The complaint alleges, among other things, that the defendants breached
purported contractual obligations pursuant to which the former employee was
entitled to a 40% ownership interest in the Company's recruitment advertising
business, and breached fiduciary obligations to the former employee arising out
of the deprivation of his supposed 40% interest. The former employee seeks
damages in an unspecified amount and punitive damages in the amount of $10
million for each claim. The Company and Mr. McKelvey intend to vigorously
contest the complaint. There can be no assurance as to the outcome of the
litigation and, in the event of a decision adverse to the Company, the Company's
business, financial condition and operating results, and the Company's
stockholders, could be materially adversely affected. Mr. McKelvey has agreed to
indemnify the Company against any adverse judgment. There can be no assurance,
however, that Mr. McKelvey will have sufficient financial resources to satisfy
any indemnification claims.
UNCERTAIN VIABILITY OF TRADITIONAL MEDIA
The Company derives a substantial portion of its commissions and fees from
placing advertising in yellow page directories, constituting approximately 60%
of total commissions and fees for the nine months ended September 30, 1996. The
Company also derives a substantial portion of its commissions and fees from
designing and placing recruitment advertisements in traditional media such as
newspapers and trade publications, constituting approximately 37% of total
commissions and fees for the nine months ended September 30, 1996. There can be
no assurance that the commissions received by the Company in the future will be
equal to the commissions which it has historically received. To the extent that
new media, such as the Internet, cause yellow page directories and other forms
of traditional media to be less desirable forms of advertising media without at
least a proportionate fee increase generated from advertising on the Internet,
of which there can be no assurance, the Company's business, financial condition
and operating results will be materially adversely affected.
COMPETITION; LOW BARRIERS TO ENTRY
The markets for the Company's services are highly competitive and are
characterized by pressures to reduce prices, incorporate new capabilities and
technologies and accelerate job completion schedules.
The Company faces competition from a number of sources. These sources
include national and regional advertising agencies, specialized and integrated
marketing communication firms and traditional media companies. In addition, with
respect to new media, many advertising agencies and publications have started to
either internally develop or acquire new media capabilities. Some established
companies that provide integrated specialized services (such as advertising
services or Web site design) and are technologically proficient, especially in
the new media arena, are also competing with the Company. Many of the Company's
competitors or potential competitors have long operating histories, and some may
have greater financial, management, technological development, sales, marketing
and other resources than the
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Company. In addition, the Company's ability to maintain its existing clients and
generate new clients depends to a significant degree on the quality of its
services and its reputation among its clients and potential clients.
Although the Company believes that there are defensible barriers to entry
into its businesses, the Company has no significant proprietary technology that
would preclude or inhibit competitors from entering yellow page, recruitment or
on-line advertising markets. There can be no assurance that existing or future
competitors will not develop or offer services and products that provide
significant performance, price, creative or other advantages over those offered
by the Company, which could have a material adverse effect on the Company's
business, financial condition and operating results.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY OF BUSINESS
The Company's quarterly operating results have fluctuated in the past and
may fluctuate in the future as a result of a variety of factors, including the
timing of acquisitions, the timing of yellow page directory closings, the
largest number of which currently occur in the third quarter, and the receipt of
commissions earned from yellow page publishers for achieving a specified volume
of advertising, which commissions are typically reported in the fourth quarter.
In addition, in the fourth quarter of fiscal 1996, there will be: (i) a
non-recurring charge of approximately $50 million for special management
compensation resulting from the issuance of 3,584,790 shares of Common Stock of
the Company, in connection with the Mergers, to the Old TMP, WCI and MEI
subsidiary stockholders in exchange for their shares in those companies which
they had received for nominal or no consideration, as employees or as management
of businesses financed substantially by the Principal Stockholder and,
accordingly, were not considered to have made substantive investments for their
minority shares, and is based on an initial public offering price of $14.00 per
share, and (ii) additional interest expense of approximately $2.6 million upon
the exercise of a warrant, issued in connection with the Company's financing
agreement, to reflect the difference between the value of the stock issued at
the initial public offering price of $14.00 per share and the valuation recorded
for the warrant when it was originally issued. The statement of operations for
such quarter will also include a pro forma presentation for net income and
earnings per share to exclude such non-recurring charges. The Company also
experiences some seasonality in its business. The Company's commissions and fees
from recruitment advertising are also subject to fluctuation based upon general
economic conditions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Quarterly Results."
RISKS OF TECHNOLOGICAL CHANGE
The market for Internet products and services is characterized by rapid
technological developments, frequent new product introductions and evolving
industry standards. The emerging character of these products and services and
their rapid evolution will require that the Company continually improve the
performance, features and reliability of its Internet content, particularly in
response to competitive offerings. There can be no assurance that the Company
will be successful in responding quickly, cost effectively and sufficiently to
these developments. In addition, the widespread adoption of new Internet
technologies or standards could require substantial expenditures by the Company
to modify or adapt its Web sites and services and could affect the Company's
financial condition or operating results. In addition, new Internet services or
enhancements which are or may be offered by the Company may contain design flaws
or other defects that could require costly modifications or result in a loss of
client confidence, either of which could have a material adverse effect on the
Company's business, financial condition or operating results.
DEPENDENCE ON KEY PERSONNEL
The Company's continued success will depend to a significant extent upon its
senior management, including Andrew J. McKelvey, the Company's Chairman of the
Board and President. The loss of the services of one or more key employees could
have a material adverse effect on the Company's business,
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financial condition or operating results. In addition, if one or more key
employees join a competitor or form a competing company, the resulting loss of
existing or potential clients could have a material adverse effect of the
Company's business, financial condition or operating results. In the event of
the loss of any such employee, there can be no assurance that the Company would
be able to prevent the unauthorized disclosure or use of its procedures,
practices, new product development or client lists.
CONTROL BY PRINCIPAL STOCKHOLDER
Following completion of this offering, Andrew J. McKelvey will beneficially
own all of the outstanding Class B Common Stock, which will represent 94.5% of
the combined voting power of all classes of voting stock of the Company. As a
result, Mr. McKelvey will be able to direct the election of all of the members
of the Company's Board of Directors and exercise a controlling influence over
the business and affairs of the Company, including any determinations with
respect to mergers or other business combinations involving the Company, the
acquisition or disposition of assets of the Company, the incurrence of
indebtedness by the Company, the issuance of any additional Common Stock or
other equity securities and the payment of dividends with respect to the Common
Stock. Similarly, Mr. McKelvey will have the power to determine matters
submitted to a vote of the Company's stockholders without the consent of the
Company's other stockholders and will have the power to prevent a change of
control of the Company.
INDEBTEDNESS OF THE COMPANY
Upon consummation of this offering, the Company will have outstanding
indebtedness of approximately $82 million, including approximately $52 million
under its financing agreement with BNY Financial Corporation. In the past the
Company has violated certain financial covenants under a prior financing
agreement with BNY Financial Corporation; such violations were waived. To the
extent the Company violates its existing financial covenants and such violations
are not waived, the Company could be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
AFFILIATED PARTY TRANSACTIONS
From time to time, the Company has made advances to Messrs. McKelvey, David
A. Hosokawa, a Vice Chairman of the Company, and Thomas G. Collison, a Vice
Chairman of the Company. As of September 30, 1996, these advances totaled
approximately $9.7 million. To the extent that these advances are not repaid,
the Company could be materially adversely affected. These advances do not bear
interest; however, after the closing of this offering, Mr. McKelvey's advances
will bear interest at the prime rate. In addition, these advances are unsecured
and the Company bears the risk of repayment. The Company and Mr. McKelvey and
certain other of the Company's affiliates and directors have also been parties
to certain other transactions with the Company. See "Certain Transactions."
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION,
BYLAWS AND DELAWARE LAW
Upon completion of this offering, the Company's Board of Directors will have
the authority to issue up to 800,000 shares of undesignated preferred stock and
to determine the price, rights, preferences, privileges and restrictions,
including voting and conversion rights of such shares, without any further vote
or action by the Company's stockholders. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future. The issuance of
preferred stock could have the effect of making it more difficult for a third
party to acquire a majority of the outstanding voting stock of the Company. The
Company has no current plans to issue shares of preferred stock following this
offering. Further, certain provisions of the Company's Certificate of
Incorporation and Bylaws and of Delaware law could delay, prevent or make more
difficult a merger, tender offer or proxy contest involving the Company. Among
other things, these provisions specify advance notice requirements for
stockholder proposals and director nominations. In addition, upon consummation
of this offering, Mr. McKelvey will control 94.5% of the combined voting power
of all
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classes of voting stock of the Company. See "--Control by Principal Stockholder"
and "Description of Capital Stock."
FOREIGN OPERATIONS AND RELATED RISKS
The Company conducts operations in various foreign countries, including
Australia, Canada and the United Kingdom. The Company receives commissions and
fees in local currency and, consequently, the Company is at risk for exchange
rate fluctuations between such local currencies and the dollar. The Company does
not conduct any significant hedging activities. The Company is also subject to
taxation in foreign jurisdictions. In addition, transactions between the Company
and its foreign subsidiaries may be subject to U.S. and foreign withholding
taxes. Applicable tax rates in foreign jurisdictions differ from those of the
U.S., and are subject to periodic change. The extent, if any, to which the
Company will receive credit in the U.S. for taxes paid in foreign jurisdictions
will depend upon the application of limitations set forth in the Internal
Revenue Code, as well as the provisions of any tax treaties which may exist
between the U.S. and such foreign jurisdictions.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market in the Common
Stock will develop or continue after this offering. The initial public offering
price was determined through negotiations among the Company, the Selling
Stockholders and the Representatives of the Underwriters and may not be
indicative of the market price for the Common Stock after this offering. See
"Underwriters."
The stock market has, from time to time, experienced extreme price and
volume fluctuations. Factors such as announcements by the Company of variations
in its quarterly financial results and fluctuations in advertising commissions
and fees, including the percentage of the Company's commissions and fees derived
from Internet-based services and products could cause the market price of the
Common Stock to fluctuate significantly. Further, due to the volatility of the
stock market generally, the price of the Common Stock could fluctuate for
reasons unrelated to the operating performance of the Company.
GOVERNMENT REGULATION
As an advertising agency which creates and places print and Internet
advertisements, the Company is subject to Sections 5 and 12 of the Federal Trade
Commission Act (the "FTC Act") which regulate advertising in all media,
including the Internet, and require advertisers and advertising agencies to have
substantiation for advertising claims before disseminating advertisements. The
FTC Act prohibits the dissemination of false, deceptive, misleading, and unfair
advertising, and grants the Federal Trade Commission ("FTC") enforcement powers
to impose and seek civil penalties, consumer redress, injunctive relief and
other remedies upon advertisers and advertising agencies which disseminate
prohibited advertisements. Advertising agencies such as TMP are subject to
liability under the FTC Act if the agency actively participated in creating the
advertisement, and knew or had reason to know that the advertising was false or
deceptive.
In the event that any advertising created by TMP was found to be false,
deceptive or misleading, the FTC Act could potentially subject the Company to
liability. The fact that the FTC has recently brought several actions charging
deceptive advertising via the Internet, and is actively seeking new cases
involving advertising via the Internet, indicates that the FTC Act could pose a
somewhat higher risk of liability to the advertising distributed via the
Internet. The FTC has never brought any actions against the Company.
As a provider of Internet content, the Company is subject to the provisions
of the recently enacted Communications Decency Act (the "CDA"), which, among
other things, imposes criminal penalties on anyone that distributes certain
prohibited material over the Internet. Although the manner in which the CDA will
be interpreted and enforced and its effect on the Company's operations cannot
yet be fully determined, the CDA could subject the Company to substantial
liability. The CDA could also dampen the
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growth of the Internet generally and decrease the acceptance of the Internet as
an advertising medium, and could, therefore, have a material adverse effect on
the Company's business, financial condition or operating results. It is also
possible that new laws and regulations will be adopted covering issues such as
privacy, copyright infringement, subject matter and the pricing, characteristics
and quality of Internet products and services. Application to the Internet of
existing laws and regulations governing issues such as property ownership, libel
and personal privacy is also subject to substantial uncertainty.
There can be no assurance that the CDA or other current or new government
laws and regulations, or the application of existing laws and regulations will
not subject the Company to significant liabilities, significantly dampen growth
in Internet usage, prevent the Company from offering certain Internet content or
services or otherwise cause a material adverse effect on the Company's business,
financial condition or operating results.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market, or the
perception that such sales may occur, could adversely affect the prevailing
market price of the Common Stock and the ability of the Company to raise capital
through a public offering of its equity securities. The Company, all of the
Company's executive officers and directors and certain other stockholders of the
Company, including the Selling Stockholders, have agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters and subject to certain limited exceptions, they will not sell any
shares of Common Stock for a period of 180 days after the date of this
Prospectus. See "Underwriters." Following this 180 day period, approximately
14,787,541 shares of Common Stock held by Andrew J. McKelvey will be eligible
for sale in the public market without registration, subject to certain volume
and other limitations, pursuant to Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"). Certain of the Company's stockholders have the
right to cause the Company to include their shares in any future registration of
securities effected by the Company under the Securities Act. If the Company is
required to include in a Company-initiated registration shares held by such
holders pursuant to the exercise of their piggyback registration rights, such
sales may have an adverse effect on the Company's ability to raise needed
capital. See "Principal and Selling Stockholders" and "Shares Eligible for
Future Sale."
DILUTION
Investors in this offering will experience immediate and substantial
dilution in net tangible book value per share of their investment. See
"Dilution."
DIVIDEND POLICY
The Company currently intends to retain earnings, if any, to support its
growth strategy and does not anticipate paying dividends on its Common Stock and
Class B Common Stock in the foreseeable future. Payment of dividends on Common
Stock and Class B Common Stock is prohibited by the Company's financing
agreement. See "Dividend Policy."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,147,408 shares of
Common Stock offered by the Company hereby at an initial public offering price
of $14.00 per share are estimated to be $52,000,000, after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company. The Company will not receive any proceeds from the sale of the
652,592 shares of Common Stock offered by the Selling Stockholders hereby.
TMP intends to use the net proceeds from this offering to repay a portion of
its outstanding indebtedness, which aggregated approximately $118,000,000 at
November 30, 1996. The indebtedness to be repaid and other amounts to be paid
consists of approximately: $43,000,000 of borrowings outstanding under the
Company's financing agreement; notes in the aggregate amount of $3,600,000
payable to Rogers & Associates Advertising, Inc. constituting the balance
payable to that company of the purchase price of assets of that company
(collectively, the "Rogers Note"); $3,200,000 to redeem the preferred stock of a
subsidiary, YPMS Acquisition, Inc.; and $2,200,000 to redeem the 10.5%
Cumulative Preferred Stock. See Certain Transactions" and "Description of
Capital Stock--10.5% Cumulative Preferred Stock." The Rogers Note bears interest
at 8.5% per annum. The financing agreement currently bears interest at 7.9% per
annum. The interest rate of the financing agreement is determined pursuant to a
formula whereby the interest rate is, at the Company's option, either (i) the
prime rate or 1/2% over the federal funds rate, whichever is higher, less 1% to
plus 1% as determined in the financing agreement or (ii) LIBOR plus 1 1/2% to
3 1/2% as determined under the financing agreement. The financing agreement
expires on June 27, 2001, subject to automatic renewals for 1 year periods,
thereafter. Amounts repaid under the Company's financing agreement will be
available for reborrowing under the same terms and, as a result, following this
offering the Company will have approximately $48,000,000 available for borrowing
under this facility. After this offering, the Company may borrow under this
facility to repay certain vendor financing (approximately $10,500,000 at
November 30, 1996). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" for a
description of the Company's capital commitments for the year ending December
31, 1996. Pending such uses, the net proceeds will be invested in short-term,
investment grade, interest-bearing securities.
DIVIDEND POLICY
TMP has never declared or paid any cash dividends on its Common Stock. The
Company has paid dividends in the amount of $210,000 annually on its 10.5%
Cumulative Preferred Stock. The 10.5% Cumulative Preferred Stock will be
redeemed with a portion of the proceeds from this offering. The Company
currently anticipates that all future earnings will be retained by the Company
to support its growth strategy. Accordingly, TMP does not anticipate paying cash
dividends on the Common Stock for the foreseeable future. The payment of any
future dividends will be at the discretion of the Company's Board of Directors
and will depend upon, among other things, future earnings, operations, capital
requirements, the general financial condition of the Company, contractual
restrictions and general business conditions. The Company's financing agreement
prohibits the payment of dividends on common stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations-- Liquidity and
Capital Resources."
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DILUTION
The historical net tangible book deficit of the Common Stock and Class B
Common Stock at September 30, 1996 was approximately $89.8 million or $4.74 per
share of outstanding Common Stock and Class B Common Stock. Net tangible book
deficit per share represents total tangible assets of the Company less total
liabilities, Minority Interests, Redeemable Preferred Stock and Redeemable
Common Stock, divided by the number of shares of Common Stock and Class B Common
Stock outstanding plus 228,768 shares of Common Stock, issuable upon exercise of
the warrant granted to the BNY Financial Corporation and the 85,354 shares of
Common Stock issuable upon exercise of the options issued to the Kidd
Stockholders, less the number of shares associated with the Redeemable Common
Stock. The pro forma net tangible book deficit as adjusted for the Acquisitions
was approximately $94.9 million or $5.02 per share. See "Pro Forma Condensed
Consolidated Financial Information."
After including the Redeemable Common Stock which will no longer be subject
to repurchase upon consummation of this offering and after giving effect to the
receipt of the estimated net proceeds from the Company's sale of 4,147,408
shares of Common Stock at the initial public offering price of $14.00 per share
(after deducting the underwriting discounts and commissions and the estimated
offering expenses payable by the Company), the adjusted pro forma net tangible
book deficit of the Company will be approximately $40.7 million, or $1.74 per
share of outstanding Common Stock and Class B Common Stock, at September 30,
1996. This represents an immediate decrease in net pro forma tangible book
deficit of $3.28 per share to existing stockholders and an immediate dilution of
$15.74 per share to investors purchasing shares at the initial public offering
price. The following table illustrates dilution to new investors:
<TABLE>
<S> <C> <C>
Initial public offering price per share.................................... $ 14.00
Historical net tangible book deficit per share at September 30, 1996 before
the Acquisitions and before this offering................................ $ 4.74
Pro forma effect of the Acquisitions on historical net tangible book
deficit at September 30, 1996............................................ .28
---------
Pro forma historical net tangible book deficit at September 30, 1996,
before this offering..................................................... 5.02
Decrease in net tangible book deficit per share at September 30, 1996
attributable to new investors............................................ 3.28
---------
Adjusted net tangible book deficit per share at September 30, 1996 after
this offering............................................................ 1.74
---------
Dilution per share to new investors in this offering (1)................... $ 15.74
---------
---------
</TABLE>
(1) Goodwill in the amount of approximately $1.6 million resulting from the
issuance of 271,278 shares of common stock of the Company to Old TMP
stockholders who had been previously issued shares of Old TMP in exchange
for their minority interests in certain operating subsidiaries in which they
were original owners and, accordingly, were considered to have made a
substantive investment, and is based on an initial public offering price of
$14.00 per share less approximately $2.2 million previously recorded on
issuance of these shares, is offset by a corresponding decrease in
stockholders' deficit, resulting in no effect on the pro forma net tangible
book deficit.
The Company will not receive any of the proceeds from the sale of Common
Stock being offered by the Selling Stockholders hereby and, accordingly, such
proceeds will not affect the net tangible book deficit per share after this
offering.
The foregoing table assumes no exercise of outstanding employee options. At
September 30, 1996, 300,834 shares of Common Stock were subject to outstanding
options at an average exercise price of $6.65 per share. To the extent these
options are exercised and shares are issued, there will be further dilution to
new investors. See "Management--Stock Options."
17
<PAGE>
The following table sets forth at September 30, 1996 the number of shares of
Common Stock and Class B Common Stock purchased from the Company and the total
consideration and weighted average price per share paid by existing stockholders
of the Company and by new investors purchasing shares from the Company in this
offering, based upon an initial public offering price of $14.00 per share,
before deducting the underwriting discounts and commissions and estimated
offering expenses payable by the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 19,245,569 82.3% $ 19,246 .03% $ .001
New public investors.............. 4,147,408 17.7 58,063,712 99.97 $ 14.00
------------ ----- ------------- ---------
Total............................. 23,392,977 100.0% $ 58,082,958 100.00%
------------ ----- ------------- ---------
------------ ----- ------------- ---------
</TABLE>
The foregoing table assumes that the 228,768 shares of Common Stock issuable
upon exercise of the warrant granted to the BNY Financial Corporation and the
85,354 shares of Common Stock issuable upon exercise of the options issued to
the Kidd Stockholders were outstanding at September 30, 1996. See "Principal and
Selling Stockholders." The foregoing table assumes no exercise of outstanding
options. At September 30, 1996, 300,834 shares of Common Stock were subject to
outstanding employee options at an average exercise price of $6.65 per share. To
the extent these options are exercised and shares are issued, there will be
further dilution to new investors. See "Management--Stock Options."
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996, (i) on an historical basis, (ii) on a pro forma basis giving
effect to the Acquisitions and (iii) on a pro forma basis, as adjusted to give
effect to (a) the sale by the Company of the 4,147,408 shares of Common Stock
offered by the Company hereby and the application by the Company of the net
proceeds therefrom as described in "Use of Proceeds," (b) goodwill in the amount
of approximately $1.6 million resulting from the issuance of 271,278 shares of
common stock of the Company, in connection with the Mergers, to Old TMP
stockholders who had been previously issued shares of Old TMP in exchange for
their minority interests in certain operating subsidiaries in which they were
original owners and, accordingly, were considered to have made a substantive
investment, and is based on an initial public offering price of $14.00 per
share, less approximately $2.2 million previously recorded on issuance of these
shares, and (c) reclassification to stockholders' equity of Redeemable Common
Stock which, upon completion of this offering, will no longer be subject to
repurchase. The table set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the consolidated financial statements and notes thereto of the
Company included elsewhere in this Prospectus and "Unaudited Consolidated Pro
Forma Financial Data."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt............................ $ 11,022 $ 12,138 $ 8,973
--------- --------- -----------
--------- --------- -----------
Long-term debt, less current portion......................... $ 102,809 $ 109,908 $ 66,765
--------- --------- -----------
Minority interests(1)........................................ 3,214 3,241 239
--------- --------- -----------
Redeemable preferred stock(2)................................ 2,000 2,000 --
--------- --------- -----------
Redeemable common stock, 329,871 shares outstanding(3)....... 2,899 2,899 --
--------- --------- -----------
Stockholders' equity (deficit):
Preferred Stock, $.001 par value.
Authorized--800,000 shares; issued and
outstanding--none........................................ -- -- --
Common Stock, $.001 par value.
Authorized--200,000,000 shares; issued and
outstanding--actual 3,814,035, pro forma -- 3,814,035 and
8,605,436 pro forma as adjusted.......................... 4 4 8
Class B Common Stock, $.001 par value.
Authorized--39,000,000 shares; issued and outstanding--
14,787,541, actual, pro forma and pro forma as
adjusted................................................. 15 15 15
Additional paid-in capital................................. -- -- 56,314
Foreign currency translation adjustment.................... 266 266 266
Deficit.................................................... (24,159) (24,159) (24,648)
--------- --------- -----------
Total stockholders' equity (deficit)..................... (23,874) (23,874) 31,955
--------- --------- -----------
Total capitalization................................. $ 87,048 $ 94,174 $ 98,959
--------- --------- -----------
--------- --------- -----------
</TABLE>
(1) Includes the preferred stock of a subsidiary, YPMS Acquisition, Inc., which
the Company will redeem with a portion of the proceeds from this offering.
See "Use of Proceeds."
(2) Represents the 10.5% Cumulative Preferred Stock. The 10.5% Cumulative
Preferred Stock will be redeemed by the Company with a portion of the
proceeds from this offering. See "Use of Proceeds" and "Description of
Capital Stock -- 10.5% Cumulative Preferred Stock."
(3) The obligation to redeem these shares, based on a formula value, terminates
upon the effectiveness of this offering. These shares have been reclassified
as Common Stock in the pro forma, as adjusted column.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial information with respect to
the Company's financial position as of December 31, 1994 and 1995 and its
results of operations for each of the years ended December 31, 1993, 1994 and
1995 has been derived from the audited consolidated financial statements of the
Company. The selected consolidated financial information with respect to the
Company's results of operations for the years ended December 31, 1991 and 1992
and the nine months ended September 30, 1995 and 1996 and with respect to the
Company's financial position as of December 31, 1991, 1992 and 1993 and as of
September 30, 1995 and 1996 have been derived from the unaudited consolidated
financial statements of the Company which, in the opinion of management of the
Company, have been prepared on the same basis as the audited financial
statements and include all normal and recurring adjustments necessary for a fair
presentation of the information set forth therein. The results for the nine
months ended September 30, 1996 are not necessarily indicative of future
results. The selected consolidated financial information presented below should
be read in conjunction with the consolidated financial statements of the Company
and notes thereto, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus. The
Other Data presented below has not been audited.
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
------------------------------------------------ --------
(IN THOUSANDS, EXCEPT PER SHARE DATA, NUMBER OF EMPLOYEES
AND OFFICES)
1991 1992(1) 1993 1994 1995 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Commissions and fees.................................................. $ 59,062 $ 59,729 $ 73,791 $ 86,165 $123,907 $ 89,686
Operating expenses:
Salaries and related costs.......................................... 27,799 32,093 37,747 45,758 58,329 43,230
Office and general.................................................. 27,319 23,620 29,824 30,316 43,432 32,616
Amortization of intangibles......................................... 1,688 1,800 2,471 3,264 3,237 2,284
Special compensation(2)............................................. -- -- -- -- -- --
Restructuring charges............................................... -- 14,095 1,318 -- -- --
Total operating expenses.............................................. 56,806 71,608 71,360 79,338 104,998 78,130
Operating income (loss)............................................... 2,256 (11,879) 2,431 6,827 18,909 11,556
Other income (expense):
Interest expense, net............................................... (3,545) (3,869) (7,652) (9,178) (10,894) (7,879)
Other, net.......................................................... (430) 180 (386) (146) 150 26
Income (loss) before provision (benefit) for income taxes, minority
interests and equity in earnings (losses) of affiliates............. (1,719) (15,568) (5,607) (2,497) 8,165 3,703
Provision (benefit) for income taxes................................ 954 (5,579) (1,322) (333) 4,222 2,298
Net income (loss) applicable to common and Class B common
stockholders........................................................ (2,889) (10,537) (4,836) (2,677) 3,019 715
Net income (loss) per common and Class B common share................. $(.17) $(.61) $(.27) $(.14) $.15 $.04
Weighted average number of common, Class B common and common
equivalent shares outstanding....................................... 17,389 17,389 17,772 19,226 19,516 19,516
PRO FORMA INCOME DATA(3):
Pro forma net loss....................................................
Pro forma net loss per common and Class B common share................
Pro forma average shares outstanding..................................
OTHER DATA:
Gross Billings:
Yellow page advertising............................................. $293,188 $299,089 $336,714 $363,656 $429,176 $331,694
Recruitment advertising............................................. -- -- 8,338 54,872 166,508 121,465
Internet (4)........................................................ -- -- -- -- 392 --
-------- -------- -------- -------- -------- --------
Total Gross Billings.................................................. $293,188 $299,089 $345,052 $418,528 $596,076 $453,159
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Total operating expenses as a percentage of commissions and fees...... 96.2% 119.9% 96.7% 92.1% 84.7% 87.1%
Number of employees................................................... 825 870 970 1,200 1,400 1,400
Number of offices..................................................... 30 30 30 40 50 50
<CAPTION>
1996
--------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Commissions and fees.................................................. $118,870
Operating expenses:
Salaries and related costs.......................................... 60,910
Office and general.................................................. 44,077
Amortization of intangibles......................................... 3,173
Special compensation(2)............................................. 672
Restructuring charges............................................... --
Total operating expenses.............................................. 108,832
Operating income (loss)............................................... 10,038
Other income (expense):
Interest expense, net............................................... (8,600 )
Other, net.......................................................... (32 )
Income (loss) before provision (benefit) for income taxes, minority
interests and equity in earnings (losses) of affiliates............. 1,406
Provision (benefit) for income taxes................................ 1,655
Net income (loss) applicable to common and Class B common
stockholders........................................................ (697 )
Net income (loss) per common and Class B common share.................
Weighted average number of common, Class B common and common
equivalent shares outstanding.......................................
PRO FORMA INCOME DATA(3):
Pro forma net loss.................................................... $ (25 )
Pro forma net loss per common and Class B common share................ $.00
Pro forma average shares outstanding.................................. 19,276
OTHER DATA:
Gross Billings:
Yellow page advertising............................................. $351,589
Recruitment advertising............................................. 216,826
Internet (4)........................................................ 4,413
--------
Total Gross Billings.................................................. $572,828
--------
--------
Total operating expenses as a percentage of commissions and fees...... 91.6%
Number of employees................................................... 2,000
Number of offices..................................................... 65
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
------------------------------------------------ --------
(IN THOUSANDS)
1991 1992(1) 1993 1994 1995 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets........................................................ $ 91,503 $105,400 $122,168 $134,313 $180,516 $169,798
Current liabilities................................................... 108,524 115,224 135,033 146,124 186,247 178,801
Total assets.......................................................... 134,476 142,087 168,424 198,965 258,094 248,867
Long-term liabilities................................................. 26,255 38,112 49,694 72,008 88,070 88,219
Minority interests.................................................... 3,791 3,361 3,121 3,153 3,105 3,222
Redeemable preferred stock............................................ 2,000 2,000 2,000 2,000 2,000 2,000
Redeemable common stock(5)............................................ -- -- -- -- -- --
Total stockholders' deficit........................................... (6,094) (16,610) (21,424) (24,320) (21,328) (23,374)
<CAPTION>
1996
--------
<S> <C>
BALANCE SHEET DATA:
Current assets........................................................ $225,480
Current liabilities................................................... 248,399
Total assets.......................................................... 335,447
Long-term liabilities................................................. 102,809
Minority interests.................................................... 3,214
Redeemable preferred stock............................................ 2,000
Redeemable common stock(5)............................................ 2,899
Total stockholders' deficit........................................... (23,874 )
</TABLE>
- ------------------------
(1) Operating results for the year ended December 31, 1992, include a
non-recurring charge of approximately $14.1 million principally related to
the write-off of development costs of a computerized data base system.
Excluding this charge, operating income, net loss (net of the related tax
effect of $5.6 million) and operating expenses as a percentage of
commissions and fees would have been $2.2 million, $(1.9 million) and 96.3%,
respectively.
(2) Special compensation consists of the value of shares issued in connection
with the acquisition of a minority interest in a subsidiary in August 1996
because the stockholder had received his shares in the subsidiary for no
consideration and, accordingly, was not considered to have made a
substantive investment for the minority shares. In addition, in the fourth
quarter of fiscal 1996, there will be (i) a non-recurring charge of
approximately $50 million for special management compensation resulting from
the issuance of 3,584,790 shares of Common Stock of the Company, in
connection with the Mergers, to the Old TMP, WCI and MEI subsidiary
stockholders in exchange for their shares in those companies which they had
received for nominal or no consideration, as employees or as management of
businesses financed substantially by the Principal Stockholder and,
accordingly, were not considered to have made substantive investments for
their minority shares, and is based on an initial public offering price of
$14.00 per share and (ii) additional interest expense of approximately $2.6
million upon the exercise of a warrant, issued in connection with the
Company's financing agreement, to reflect the difference between the value
of the stock issued at the initial public offering price of $14.00 per share
and the valuation recorded for the warrant when it was originally issued.
The statement of operations for the fourth quarter of 1996 will also include
a pro forma presentation for net income and earnings per share to exclude
such non-recurring charges.
(3) Reflects the pro forma elimination of special compensation in the amount of
$672 incurred during the nine months ended September 30, 1996.
(4) Represents fees earned in connection with yellow page, recruitment and other
advertisements placed on the Internet.
(5) Upon consummation of this offering, the put option related to certain shares
of Common Stock will be eliminated and such Common Stock will be
reclassified to stockholders' equity.
21
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The Pro Forma Condensed Consolidated Financial Information reflects (A)
financial information with respect to the Company's (i) acquisitions in 1995 of
five companies for an aggregate purchase price of $8.9 million, (ii)
acquisitions in 1996, through November 30, of nine of the ten companies acquired
for an estimated aggregate purchase price of $19.2 million, and (iii) the
acquisition of one company and the probable acquisition of one company after
November 30, 1996 for an estimated aggregate purchase price of $5.5 million, and
(B) is adjusted for the sale of 4,147,408 shares of Common Stock offered hereby
at an initial public offering price of $14.00, and the application of the net
proceeds therefrom as described in "Use of Proceeds." The acquisitions completed
in 1995 and 1996, and those which are currently pending (collectively, the
"Acquisitions") have been and will be accounted for under the purchase method of
accounting. Acquisitions made prior to January 2, 1996, for purposes of the 1996
Pro Forma Condensed Consolidated Statement of Operations and the 1996 Pro Forma
Condensed Consolidated Balance Sheet are reflected in the Company's historical
financial statements. The acquisitions completed in 1995 and 1996, and those
which are currently pending, for which financial information is not reflected in
the "Pro Forma Condensed Consolidated Financial Information" are not material
either individually or in the aggregate.
The financial statements of the foreign companies acquired or deemed
probable and included in the Pro Forma Condensed Consolidated Financial
Information were translated at the following exchange rates: with respect to
Neville Jeffress, Australian dollars were converted to U.S. dollars at the rate
of .7494 and .7914, respectively, with respect to the 1995 statement of
operations and the 1996 statement of operations; Belgian francs were converted
to U.S. dollars at the rate of .0317, .0318 and .0320, respectively, with
respect to the 1995 statement of operations, the 1996 statement of operations
and the 1996 balance sheet; and British Pounds Sterling were converted to U.S.
dollars at the rate of 1.58, 1.57 and 1.57, respectively, with respect to the
1995 statement of operations, the 1996 statement of operations and the 1996
balance sheet.
The Pro Forma Condensed Consolidated Financial Information gives effect to
the Acquisitions, are based upon estimated allocations of the expected purchase
prices, and includes all adjustments described in the notes hereto.
The Pro Forma Condensed Consolidated Statements of Operations were prepared
as if the above transactions and this offering occurred as of January 1, 1995.
The Pro Forma Condensed Consolidated Balance Sheet was prepared as if the above
transactions and this offering occurred on September 30, 1996. The Pro Forma
Condensed Consolidated Financial Information should be read in conjunction with
the historical financial statements and notes thereto included elsewhere in this
Prospectus.
The Pro Forma Condensed Consolidated Statements of Operations for the year
ended December 31, 1995, and the nine months ended September 30, 1996 do not
include any potential cost savings. The Company believes that it may be able to
reduce salaries and related costs and office and general expenses as it
centralizes operations, particularly at Neville Jeffress, and consolidates these
acquisitions into TMP. There can be no assurance that the Company will be
successful in effecting any such cost savings.
The Pro Forma Condensed Consolidated Financial Information is unaudited and
is not necessarily indicative of the consolidated results which actually would
have occurred if the above transactions and this offering had been consummated
at the beginning of the periods presented, nor does it purport to present the
future financial position and results of operations for future periods.
22
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP
WORLDWIDE 1996 PENDING PRO FORMA
INC. ACQUISITION(1) ACQUISITIONS(2) ADJUSTMENTS COMBINED(3)
---------- -------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 6,297 $ $ 895 $ -- $ 7,192
Accounts receivable, net..................... 198,499 1,825 5,253 -- 205,577
Work-in-process.............................. 13,508 -- 107 -- 13,615
Asset held for sale.......................... 2,768 -- -- -- 2,768
Prepaid and other............................ 4,408 -- 92 -- 4,500
---------- ------- ------- ----------- ------------
Total current assets....................... 225,480 1,825 6,347 -- 233,652
Receivable from principal stockholder.......... 9,490 -- -- -- 9,490
Property and equipment, net.................... 17,738 277 521 (367)(a) 18,169
Deferred income taxes.......................... 9,949 -- -- -- 9,949
Intangibles, net............................... 65,878 -- -- 5,160(b) 71,038
Other assets................................... 6,912 -- 35 -- 6,947
---------- ------- ------- ----------- ------------
$ 335,447 $ 2,102 $ 6,903 $ 4,793 $ 349,245
---------- ------- ------- ----------- ------------
---------- ------- ------- ----------- ------------
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................. $ 201,908 $ 673 $ 4,184 $ -- $ 206,765
Accrued expenses and other liabilities....... 25,058 -- 630 -- 25,688
Deferred income taxes........................ 10,411 -- 69 -- 10,480
Current portion of long-term debt............ 11,022 -- 411 705(c) 12,138
---------- ------- ------- ----------- ------------
Total current liabilities.................. 248,399 673 5,294 705 255,071
Long-term debt, less current portion........... 102,809 756 6,343(c) 109,908
Minority interests............................. 3,214 -- 27(d) 3,241
Redeemable preferred stock..................... 2,000 -- -- -- 2,000
Redeemable common stock........................ 2,899 -- -- -- 2,899
Stockholders' equity (deficit):
Common stock................................. 4 -- -- -- 4
Class B common stock......................... 15 -- -- -- 15
Additional paid-in capital................... -- -- -- -- --
Foreign currency translation adjustment...... 266 -- -- -- 266
Deficit...................................... (24,159) -- -- -- (24,159)
Equity of recent and pending acquisitions.... -- 1,429 853 (2,282)(e) --
---------- ------- ------- ----------- ------------
Total stockholders' equity (deficit)....... (23,874) 1,429 853 (2,282) (23,874)
---------- ------- ------- ----------- ------------
$ 335,447 $ 2,102 $ 6,903 $ 4,793 $ 349,245
---------- ------- ------- ----------- ------------
---------- ------- ------- ----------- ------------
<CAPTION>
PRO FORMA
OFFERING AS
ADJUSTMENT ADJUSTED(4)
-------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ -- $ 7,192
Accounts receivable, net..................... -- 205,577
Work-in-process.............................. -- 13,615
Asset held for sale.......................... (2,768)(f) --
Prepaid and other............................ -- 4,500
-------------- -------------
Total current assets....................... (2,768) 230,884
Receivable from principal stockholder.......... 2,768(f) 12,258
Property and equipment, net.................... -- 18,169
Deferred income taxes.......................... -- 9,949
Intangibles, net............................... 1,620(g) 72,658
Other assets................................... -- 6,947
-------------- -------------
$ 1,620 $ 350,865
-------------- -------------
-------------- -------------
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................. $ -- $ 206,765
Accrued expenses and other liabilities....... -- 25,688
Deferred income taxes........................ -- 10,480
Current portion of long-term debt............ (3,165)(h) 8,973
-------------- -------------
Total current liabilities.................. (3,165) 251,906
Long-term debt, less current portion........... (43,143)(h) 66,765
Minority interests............................. (3,002)(h) 239
Redeemable preferred stock..................... (2,000)(h) --
Redeemable common stock........................ (2,899)(i) --
Stockholders' equity (deficit):
Common stock................................. 4(h) 8
Class B common stock......................... -- 15
Additional paid-in capital................... 56,314 )(i 56,314
Foreign currency translation adjustment...... -- 266
Deficit...................................... (489)(h) (24,648)
Equity of recent and pending acquisitions.... -- --
-------------- -------------
Total stockholders' equity (deficit)....... 55,829 31,955
-------------- -------------
$ 1,620 $ 350,865
-------------- -------------
-------------- -------------
</TABLE>
See footnotes on next page.
23
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP 1996 NEVILLE PENDING PRO FORMA
WORLDWIDE INC. ACQUISITIONS(1) JEFFRESS ACQUISITIONS(2) ADJUSTMENTS COMBINED(3)
-------------- --------------- -------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Commissions and fees........... $ 118,870 $ 2,512 $ 10,081 $ 3,959 $ (1,338)(j) $ 134,084
-------------- ------ ------- ------- ----------- ------------
Operating expenses:
Salaries and related costs... 60,910 1,130 5,841 1,207 69,088
Office and general........... 44,077 1,076 4,639 1,783 51,575
Amortization of intangibles.. 3,173 -- -- -- 436(k) 3,609
Special Compensation......... 672 -- -- -- (672)(l) --
-------------- ------ ------- ------- ----------- ------------
Total operating expenses 108,832 2,206 10,480 2,990 (236) 124,272
-------------- ------ ------- ------- ----------- ------------
Operating income (loss)........ 10,038 306 (399) 969 (1,102) 9,812
Interest (expense), net........ (8,600) (8) (64) (34) (1,088)(m) (9,794)
Other, net..................... (32) -- -- 6 -- (26)
-------------- ------ ------- ------- ----------- ------------
Income (loss) before provision
(benefit) for income taxes,
minority interests and equity
in earnings of affiliates.... 1,406 298 (463) 941 (2,190) (8)
Provision (benefit) for income
taxes........................ 1,655 112 (186) 380 (970) (n) 991
Minority interests............. 343 -- (1) -- -- 342
Equity in earnings of
affiliates................... 53 -- -- -- 53
-------------- ------ ------- ------- ----------- ------------
Net income (loss).............. (539) 186 (276) 561 (1,220) (1,288)
Preferred stock dividends...... (158) -- -- -- -- (158)
-------------- ------ ------- ------- ----------- ------------
Net income (loss) applicable to
common and Class B common
stockholders................. $ (697) $ 186 $ (276) $ 561 $ (1,220) $ (1,446)
-------------- ------ ------- ------- ----------- ------------
-------------- ------ ------- ------- ----------- ------------
Pro forma net income (loss) per
common and Class B common
share........................ $(.08)
------------
------------
Weighted average number of
common, Class B common and
common equivalent shares..... 19,276
------------
------------
<CAPTION>
PRO FORMA
OFFERING AS
ADJUSTMENTS ADJUSTED(4)
----------- -------------
<S> <C> <C>
Commissions and fees........... $ -- $ 134,084
----------- -------------
Operating expenses:
Salaries and related costs... -- 69,088
Office and general........... -- 51,575
Amortization of intangibles.. 41(o) 3,650
Special Compensation......... -- --
----------- -------------
Total operating expenses 41 124,313
----------- -------------
Operating income (loss)........ (41) 9,771
Interest (expense), net........ 2,645(p) (7,149)
Other, net..................... (26)
----------- -------------
Income (loss) before provision
(benefit) for income taxes,
minority interests and equity
in earnings of affiliates.... 2,604 2,596
Provision (benefit) for income
taxes........................ 1,058(q) 2,049
Minority interests............. 75(r) 417
Equity in earnings of
affiliates................... 53
----------- -------------
Net income (loss).............. 1,471 183
Preferred stock dividends...... 53(s) (105)
----------- -------------
Net income (loss) applicable to
common and Class B common
stockholders................. $ 1,524 $ 78
----------- -------------
----------- -------------
Pro forma net income (loss) per
common and Class B common
share........................ $.00
-------------
-------------
Weighted average number of
common, Class B common and
common equivalent shares..... 23,713
-------------
-------------
</TABLE>
- ------------------------
(1) Reflects the results of operations of four companies, other than Neville
Jeffress, that were acquired during the period January 1, 1996 through
September 30, 1996 for the portion of 1996 prior to acquisition, and the
results of operations for an acquisition completed after September 30, 1996
for the nine months ended September 30, 1996. The balance sheet 1996
acquisition column includes only the company acquired on November 14, 1996,
as if it was acquired on the balance sheet date. Acquisitions made prior to
January 2, 1996, for purposes of the 1996 Pro Forma Condensed Consolidated
Statement of Operations and the 1996 Pro Forma Condensed Consolidated
Balance Sheet are reflected in the Company's historical financial
statements.
(2) Gives effect for two companies, the acquisition of which the Company deemed
to be probable as of November 30, 1996, one of which closed in December
1996.
(3) Reflects the acquisitions of Neville Jeffress and other 1996 completed and
pending acquisitions.
(4) Adjusted to give effect to (i) the sale by the Company of 4,147 shares of
Common Stock at an initial public offering price of $14.00 per share and the
application of the net proceeds therefrom as described in "Use of Proceeds,"
and (ii) goodwill in the amount of approximately $1.6 million and
amortization thereon resulting from the issuance of 271 shares of Common
Stock of the Company, in connection with the Mergers, to Old TMP
stockholders who had been previously issued shares of Old TMP in exchange
for their minority interests in certain operating subsidiaries in which they
were original owners and, accordingly, were considered to have made a
substantive investment, and is based on an initial public offering price of
$14.00 per share less approximately $2.2 million previously recorded on
issuance of these shares, as if the transaction occurred on January 1, 1996
in the pro forma condensed consolidated statement of operations and as of
September 30, 1996 in the pro forma condensed consolidated balance sheet.
The pro forma as adjusted financial data for the nine months ended September
30, 1996 does not reflect charges to fourth quarter 1996 earnings for (i)
special compensation in the amount of approximately $50 million resulting
from the issuance of 3,585 shares of common stock of the Company, in
connection with the Mergers, to the Old TMP, WCI and MEI subsidiary
stockholders in exchange for their shares in those companies which they had
received for nominal or no consideration, as employees or as management of
businesses financed substantially by the Principal Stockholder and,
accordingly, were not considered to have made substantive investments for
their minority shares, and is based on an initial public offering price of
$14.00 per share and (ii) additional interest expense of approximately $2.6
million upon the exercise of a warrant issued in connection with a financing
agreement to reflect the difference between the value of the stock issued at
the initial public offering price of $14.00 per share and the valuation
recorded for the warrant when it was originally issued. The statement of
operations for the fourth quarter of 1996 will also include a pro forma
presentation for net income and earnings per share to exclude such
non-recurring charges.
24
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
(a) To eliminate $367 of property and equipment owned by a company included in
pending acquisitions, not expected to be acquired.
(b) To record $5,160 for the excess of cost of $7,048 over net book value of
$1,888 of businesses acquired.
(c) To reflect $7,048 of additional borrowings under the Company's financing
agreement and seller financed notes issued in connection with the
acquisition completed after September 30, 1996 and to fund the pending
acquisitions. The current portion of the seller financed notes is $705 and
the balance is $6,343.
(d) To record minority interest of $27 that will remain after consummation of a
pending acquisition.
(e) To eliminate $2,282 of net assets acquired in the acquisition completed
after September 30, 1996 and the pending acquisitions.
(f) Reflects the purchase of the asset held for sale by the Principal
Stockholder through an additional advance of $2,768 to such stockholder.
(g) To adjust for Goodwill in the amount of $1,620 resulting from the purchase
of certain minority interests for Company Stock.
(h) To reflect the use of the estimated net proceeds from the issuance of 4,147
shares of Common Stock in this offering as follows, see "Use of Proceeds":
<TABLE>
<S> <C>
Repayment of current portion of Rogers Note...................................................................... $ 3,165
Repayment of long term portion of Rogers Note.................................................................... 628
Repayment of borrowings outstanding under the Company's financing agreement...................................... 42,515
Redemption of preferred stock of subsidiary...................................................................... 3,002
Redemption of preferred stock.................................................................................... 2,000
Payment of redemption costs...................................................................................... 255
Payment of accelerated interest costs............................................................................ 234
---------
Estimated net proceeds........................................................................................... $ 51,799
---------
---------
</TABLE>
(i) To reclassify redeemable common stock to additional paid-in capital as it is
no longer subject to repurchase upon consummation of this offering.
(j) To eliminate clients not acquired from Neville Jeffress of $1,338 and the
40% tax reduction thereon of $535.
(k) To record amortization of intangibles arising from the acquisition of
Neville Jeffress, the acquisition completed after September 30, 1996, the
pending acquisitions and acquisitions completed after January 1 but before
September 30, 1996 for the portion of 1996 prior to acquisition. Such
amortization expense is based on a 30 year life and is computed as follows:
<TABLE>
<CAPTION>
Intangibles of $13,470 arising from the acquisition of Neville Jeffress, amortized for six months.................. $ 224
<S> <C>
Intangibles of $4,700 arising from pending acquisitions amortized for nine months.................................. 117
Intangibles of $1,037 arising from an acquisition completed during August, amortized for seven months.............. 20
Intangibles of $1,814 arising from an acquisition completed during April, amortized for four months................ 20
Intangibles of $1,236 arising from an acquisition completed during January, amortized for half of one month........ 7
Intangibles of $1,900 arising from an acquisition completed after September 30, 1996, amortized for nine months.... 48
---------
$ 436
---------
---------
</TABLE>
(l) To eliminate non-recurring special compensation charge.
(m) To record interest expense on borrowings under the Company's financing
agreement and seller financed notes issued in connection with the
acquisition of Neville Jeffress, other completed acquisitions and pending
acquisitions. Interest on acquisition notes payable is determined as
follows:
<TABLE>
<CAPTION>
Notes payable of $11,400 arising from the acquisition of Neville Jeffress at 8.5% for six months.................. $ 485
<S> <C>
Notes payable of $5,517 on pending acquisitions at 8.5% for nine months........................................... 352
Notes payable of $2,155 arising from the acquisition completed April 30, 1996 at 8.5% for four months............. 61
Note payable of $1,900 at 8.5% for the acquisition completed on November 6, 1996 for nine months.................. 121
Notes payable of $1,170 for acquisitions completed during August 1996 at 8.5% for seven months.................... 11
Note payable of $1,600 arising from the acquisition completed January 16, 1996 for one month...................... 58
---------
$ 1,088
---------
---------
</TABLE>
(n) To record the tax benefit on interest expense of $1,088 on borrowings for
the acquisition of Neville Jeffress, the acquisition completed after
September 30, 1996, other pending acquisitions and acquisitions completed
during the first nine months of 1996 for the portion of 1996 prior to
acquisition, at an estimated tax rate of 40%.
(o) Amortization during the nine months ended September 30, 1996 of $1,620 of
goodwill over its estimated useful life. See (g) above.
(p) Reflects the use of proceeds from this offering as described in "Use of
Proceeds" and the reduction of interest expense resulting from the reduction
of borrowings.
(q) Increase in tax expense resulting from the $2,645 interest expense savings
realized from the reduction of debt from the use of proceeds.
(r) Reflects the elimination of the earnings attributable to the minority
interest of a subsidiary, YPMS Acquisition Corp. Inc., of $225 during the
nine months ended September 30, 1996, less the call premium of $150 payable
on the redemption of the subsidiary's preferred stock.
(s) Reflects the elimination of the preferred stock dividend of $158 during the
nine months ended September 30, 1996 less the call premium payable on
redemption of $105.
25
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP
WORLDWIDE 1995 1996 NEVILLE PENDING PRO FORMA
INC. ACQUISITIONS(1) ACQUISITIONS(2) JEFFRESS ACQUISITIONS(3) ADJUSTMENTS COMBINED(4)
----------- -------------- -------------- --------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Commissions and
fees............... $ 123,907 $ 4,613 $ 8,508 $ 22,320 $ 2,249 $ -- $ 161,597
----------- -------------- -------------- --------- -------------- ------------- ------------
Operating expenses:
Salaries and
related costs.... 58,329 1,997 4,036 12,533 942 -- 77,837
Office and
general.......... 43,432 2,050 3,611 9,967 1,017 -- 60,077
Amortization of
intangibles...... 3,237 -- -- -- -- 999(a) 4,236
----------- -------------- -------------- --------- -------------- ------------- ------------
Total operating
expenses......... 104,998 4,047 7,647 22,500 1,959 999 142,150
----------- -------------- -------------- --------- -------------- ------------- ------------
Operating income
(loss)............. 18,909 566 861 (180) 290 (999) 19,447
Interest (expense),
net................ (10,894) 1 (112) (15) (6) (2,674) (b) (13,700)
Other income, net.... 150 (164) 1 -- 10 -- (3)
----------- -------------- -------------- --------- -------------- ------------- ------------
Income (loss) before
provision (benefit)
for income taxes,
minority interests
and equity in
earnings (losses)
of affiliates...... 8,165 403 750 (195) 294 (3,673) 5,744
Provision (benefit)
for income taxes... 4,222 65 171 285 126 (1,199)(c) 3,670
Minority interests... 435 -- -- (17) -- -- 418
Equity in earnings
(losses) of
affiliates......... (279) -- -- -- -- -- (279)
----------- -------------- -------------- --------- -------------- ------------- ------------
Net income (loss).... 3,229 338 579 (463) 168 (2,474) 1,377
Preferred
dividends.......... (210) -- -- -- -- -- (210)
----------- -------------- -------------- --------- -------------- ------------- ------------
Net income (loss)
applicable to
common and Class B
common
stockholders....... $ 3,019 $ 338 $ 579 $ (463) $ 168 $ (2,474) $ 1,167
----------- -------------- -------------- --------- -------------- ------------- ------------
----------- -------------- -------------- --------- -------------- ------------- ------------
Net income per common
and Class B common
share.............. $.06
------------
------------
Weighted average
number of common,
Class B common and
common equivalent
shares
outstanding........ 19,515
------------
------------
<CAPTION>
PRO FORMA
OFFERING AS
ADJUSTMENTS ADJUSTED(5)
------------- -------------
<S> <C> <C>
Commissions and
fees............... $ -- $ 161,597
------ -------------
Operating expenses:
Salaries and
related costs.... -- 77,837
Office and
general.......... -- 60,077
Amortization of
intangibles...... 54(d) 4,290
------ -------------
Total operating
expenses......... 54 142,204
------ -------------
Operating income
(loss)............. (54) 19,393
Interest (expense),
net................ 3,528(e) (10,172)
Other income, net.... -- (3)
------ -------------
Income (loss) before
provision (benefit)
for income taxes,
minority interests
and equity in
earnings (losses)
of affiliates...... 3,474 9,218
Provision (benefit)
for income taxes... 1,411(f) 5,081
Minority interests... (177)(g) 241
Equity in earnings
(losses) of
affiliates......... -- (279)
------ -------------
Net income (loss).... 2,240 3,617
Preferred
dividends.......... 105(h) (105)
------ -------------
Net income (loss)
applicable to
common and Class B
common
stockholders....... $ 2,345 $ 3,512
------ -------------
------ -------------
Net income per common
and Class B common
share.............. $.15
-------------
-------------
Weighted average
number of common,
Class B common and
common equivalent
shares
outstanding........ 23,662
-------------
-------------
</TABLE>
- ----------------------------------
(1) Reflects the results of operations of five companies acquired during 1995
for the portion of 1995 prior to acquisition.
(2) Reflects the results of operations of eight companies acquired during the
period January 1, 1996 through November 30, 1996 as if they were acquired on
January 1, 1995 but excludes the acquisition of Neville Jeffress.
(3) Reflects the results of operations of two companies, the acquisition of
which the Company deemed to be probable as of November 30, 1996, one of
which closed in December 1996.
(4) Reflects the acquisition of Neville Jeffress and the other completed and
pending acquisitions for 1995 and 1996.
(5) Adjusted for the sale by the Company of 4,147 shares of Common Stock at an
initial public offering price of $14.00 per share and the application of the
net proceeds therefrom as described in "Use of Proceeds," as if the
transaction occurred on January 1, 1995, and records amortization of
goodwill resulting from the exchange of Company stock, in connection with
the Mergers, with certain minority stockholders of Old TMP who were
considered to have made a substantive investment in their shares.
26
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
(a) To record amortization on $38,014 of intangibles arising from the
acquisition of Neville Jeffress, the 1995 acquisitions for the period prior
to acquisition, the 1996 acquisitions and the other pending acquisitions
over a period of 30 years.
(b) To record interest on borrowings under the Company's financing agreement and
seller financed notes issued in connection with the acquisition of Neville
Jeffress, the 1995 acquisitions for the period prior to acquisition, the
1996 acquisitions and the other pending acquisitions. Interest on
acquisition debt is determined as follows:
<TABLE>
<S> <C>
Borrowings of $18,368 arising from the acquisition of Neville Jeffress and other acquisitions completed during the
three months ended September 30, 1996 and other pending acquisitions at 8.5% for twelve months.................... $ 1,561
Borrowings of $4,023 arising from the acquisition completed April 30, 1996 at 8.5% for twelve months................ 342
Borrowings of $1,600 arising from the acquisition completed January 16, 1996 for twelve months...................... 136
Borrowings of $26,998 arising from acquisitions completed during 1995 at 8.5% for various months.................... 635
---------
$ 2,674
---------
---------
</TABLE>
(c) To record the tax benefit on $325 of amortization expense for certain
intangibles and $2,674 of interest expense on borrowings in connection with
the acquisition of Neville Jeffress, the 1995 acquisitions, the 1996
acquisitions and other pending acquisitions at an estimated tax rate of 40%.
(d) Reflects amortization over a 30 year period for the $1,620 in goodwill
resulting from the purchase of certain minority interests for Company stock.
(e) Reflects the use of proceeds from this offering as described in "Use of
Proceeds."
(f) Reflects the tax expense at 40% resulting from the savings of $3,528 of
interest resulting from the reduction of debt through the use of proceeds
and the net earnings of the $177 of deductible payments to minority
shareholders resulting from the redemption of the preferred stock of a
subsidiary.
(g) Reflects the elimination of the earnings attributable to the minority
interest of a subsidiary, YMPS Acquisition Corp., Inc. of $327 less the call
premium of $150 payable on the redemption of the subsidiary's preferred
stock.
(h) Reflects the elimination of the preferred stock dividend of $210 less the
call premium on redemption of $105.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO, THE CONSOLIDATED FINANCIAL STATEMENTS OF THE
COMPANY APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS, IN
ADDITION TO HISTORICAL INFORMATION, FORWARD LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THE FORWARD LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
TMP is a marketing services, communications and technology company that
provides comprehensive, individually tailored advertising services including
development of creative content, media planning, production and placement of
corporate advertising, market research, direct marketing and other ancillary
services and products. The Company is the world's largest yellow page
advertising agency and a large recruitment advertising agency. In 1995, the
Company began marketing Internet-based services as extensions of its core
business and has become a growing provider of Internet content. The Company
offers advertising programs to more than 17,000 clients, including more than 70
of the Fortune 100 and more than 240 of the Fortune 500 companies. For the year
ended December 31, 1995, the Company's gross billings were $596.1 million,
commissions and fees were $123.9 million, net income was $3.2 million and EBITDA
was $25.0 million.
A substantial part of the Company's growth has been achieved through
acquisitions. For the period January 1, 1993 through November 30, 1996, the
Company has completed 36 acquisitions with estimated annual gross billings of
approximately $380 million. Given the significant number of acquisitions in each
of the last three years, the results of operations from period to period are not
necessarily comparable.
Gross billings refer to billings for advertising placed in telephone
directories, newspapers, new media and other media, and associated fees for
related services. While gross billings are not included in the Company's
consolidated financial statements, the trends in gross billings directly impact
the commissions and fees earned by the Company. The Company earns commissions
based on a percentage of the media advertising purchased at a rate established
by the related publisher, and associated fees for related services. Publishers
typically bill the Company for the advertising purchased by the Company's
clients and the Company in turn bills its clients for this amount. Generally,
the payment terms with yellow page clients require payment to the Company prior
to the date payment is due to publishers. The payment terms with recruitment
advertising clients typically require payment when payment is due to publishers.
Historically, the Company has not experienced substantial problems with unpaid
accounts.
The Company designs and executes yellow page advertising programs, receiving
an effective commission rate from directory publishers of approximately 20% of
yellow page gross billings. In general, publishers consider orders renewed
unless actively canceled. In addition to base commissions, certain yellow pages
publishers pay increased commissions for volume placement by advertising
agencies. The Company typically recognizes this additional commission, if any,
in the fourth quarter when it is certain that such commission has been earned.
For recruitment advertising placements in the U.S., publisher commissions
average 15% of recruitment advertising gross billings. The Company also earns
fees from value-added services such as design, research and other creative and
administrative services resulting in aggregate commissions and fees equal to
approximately 21% of recruitment advertising gross billings. Outside of the
U.S., TMP's commission rates for recruitment advertising vary, ranging from
approximately 10% in Australia to 15% in Canada and the United Kingdom. Also,
outside the U.S., the Company earns fees for value-added services. The Company
also earns fees for the placement of advertisements on the Internet, including
its career Web sites.
28
<PAGE>
In 1993, the Company completed three acquisitions for an aggregate purchase
price of $8.7 million, including the purchase of the assets of US West Marketing
Resources Group, Inc., a yellow page advertising agency. Leveraging its strength
in yellow page advertising, the Company entered recruitment advertising in the
fourth quarter of 1993 with the purchases of the assets of Bentley, Barnes &
Lynn, Inc. and Unger & Associates, Inc. Bentley, Barnes & Lynn was one of the
largest recruitment advertising agencies in the midwest and developer of
Empower, a human resources public relations service, focusing on minority
recruitment issues.
In 1994, the Company completed nine acquisitions for an aggregate purchase
price of $12.2 million. Six of these acquisitions were in the business of
recruitment advertising and included Deutsch, Shea & Evans, Inc., an agency
based in New York, the second largest U.S. recruitment market. Two acquisitions
were yellow page advertising companies of which the largest was the yellow page
advertising agency business of GTE Directories Corporation, a Dallas-based
agency specializing in serving general agencies which do not have their own
yellow page placement capabilities. The Company also acquired a 50% interest in
a real estate advertising company which is accounted for on the equity method.
In 1995, the Company completed fourteen acquisitions for an aggregate
purchase price of $26.7 million. These acquisitions consisted of eleven
recruitment advertising agencies, Adion Information Services, Inc., creator of
The Monster Board-Registered Trademark-, and two small yellow page agencies. The
largest acquisitions included acquisitions of the assets of Rogers & Associates
Advertising, Inc., Adion, Inc. (an affiliate of Adion Information Services,
Inc.), and The Haughey Group, Inc. Rogers & Associates was based in Northern
California, the largest U.S. recruitment advertising market. Adion Inc. and The
Haughey Group, Inc. were based in Boston.
In 1996, through November 30, the Company has completed ten acquisitions,
all of which are in recruitment advertising, for an aggregate purchase price of
$19.4 million. These acquisitions have estimated annual gross billings of $180
million. The largest acquisition was the purchase of Neville Jeffress, which has
estimated annual gross billings of $140 million. The Company also purchased
London-based Optima Direct Limited. In December 1996, the Company completed the
acquisition of two small recruitment advertising companies with estimated annual
gross billings of $5 million.
Primarily as a result of these acquisitions, the Company's commissions and
fees increased from $73.8 million in 1993 to $123.9 million in 1995. Assuming
that all of the acquisitions completed from January 1, 1995 through November 30,
1996 had been completed on January 1, 1995, the Company's commissions and fees,
on a pro forma basis, would have been approximately $159.3 million for the year
ended December 31, 1995. These acquisitions were funded primarily with debt
resulting in an increase in interest expense from approximately $7.9 million in
1993 to $11.2 million in 1995 and $13.7 million on a pro forma basis for 1995
for acquisitions completed in 1995 and in 1996, through November 30. All of
these acquisitions were accounted for using the purchase method of accounting
and are included in the Company's consolidated financial statements from their
respective dates of acquisition. The Company is continuously monitoring the
marketplace for opportunities to expand its presence in both yellow page and
recruitment advertising which include Internet-related opportunities and intends
to continue its acquisition strategy to supplement its internal growth.
The Company's operating expenses have increased significantly since 1993
primarily due to headcount increases as a result of acquisitions and hiring to
support gross billings growth. Salaries and related costs increased $20.6
million from $37.7 million for the year ended December 31, 1993 to $58.3 million
for the year ended December 31, 1995, a 54.6% increase, supporting a 72.7% gross
billings increase over the same period. Salaries and related costs include total
payroll and associated benefits as well as payroll taxes, sales commissions,
recruitment and training costs.
Office and general expenses increased $13.6 million from $29.8 million for
the year ended December 31, 1993 to $43.4 million for the year ended December
31, 1995, a 45.6% increase, primarily due to increased costs needed to support
the increased billings and the expansion of recruitment offices
29
<PAGE>
through acquisitions in new U.S and foreign markets. This cost category includes
expenses for office operations, business promotion, market research,
advertising, professional fees and fees paid to the Company's primary lending
institution for its services in the processing and collection of payments for
accounts receivable. Amortization of intangibles includes amortization of
acquisition related charges, including the costs in excess of fair market value
of net assets acquired and capitalized costs for non-compete arrangements with
the principals of acquired companies. This acquisition related amortization was
$2.5 million, $3.3 million and $3.2 million for the years ended December 31,
1993, 1994 and 1995, respectively.
Net interest expense includes interest payments made to the Company's
primary lender, to certain vendors and to the holders of seller financed notes.
During the fourth quarter of fiscal 1996, there will be: (i) a non-recurring
charge of approximately $50.0 million for special management compensation
resulting from the issuance of 3,584,790 shares of Common Stock of the Company,
in connection with the Mergers, to the Old TMP, WCI and MEI subsidiary
stockholders in exchange for their shares in those companies which they had
received for nominal or no consideration, as employees or as management of
businesses financed substantially by the Principal Stockholder and, accordingly,
were not considered to have made substantive investments for their minority
shares, and is based on an initial public offering price of $14.00 per share and
(ii) additional interest expense of approximately $2.6 million upon the exercise
of a warrant, issued to BNY Financial Corporation in connection with the
Company's financing agreement, to reflect the difference between the value of
the stock issued at the initial public offering price of $14.00 per share and
the valuation recorded for the warrant when it was originally issued. The
warrant was exercisable for 228,768 shares, was issued in October 1993 and was
exercised upon the effectiveness of this offering. The statement of operations
for such quarter will also include a pro forma presentation for net income and
earnings per share to exclude such non-recurring charges.
30
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated gross billings,
commissions and fees and commissions and fees as a percentage of gross billings
for the Company's yellow page advertising, recruitment advertising and Internet
businesses and EBITDA for the Company.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ----------------------
1993 1994 1995 1995 1996
--------- --------- --------- ----------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
GROSS BILLINGS:
Yellow page advertising................ $ 336,714 $ 363,656 $ 429,176 $ 331,694 $ 351,589
Recruitment advertising................ 8,338 54,872 166,508 121,465 216,826
Internet(1)............................ -- -- 392 -- 4,413
--------- --------- --------- ----------- ---------
Total.................................. $ 345,052 $ 418,528 $ 596,076 $ 453,159 $ 572,828
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
COMMISSIONS AND FEES:
Yellow page advertising................ $ 72,106 $ 74,463 $ 87,456 $ 64,086 $ 71,179
Recruitment advertising................ 1,685 11,702 36,059 25,600 43,278
Internet(1)............................ -- -- 392 -- 4,413
--------- --------- --------- ----------- ---------
Total.................................. $ 73,791 $ 86,165 $ 123,907 $ 89,686 $ 118,870
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
COMMISSIONS AND FEES AS A
PERCENTAGE OF GROSS
BILLINGS:
Yellow page advertising................ 21.4% 20.5% 20.4% 19.3% 20.2%
Recruitment advertising................ 20.2% 21.3% 21.7% 21.1% 20.0%
Internet(1)............................ -- -- 100.0% -- 100.0%
Total.................................. 21.4% 20.6% 20.8% 19.8% 20.8%
EBITDA(2)................................ $ 6,332 $ 12,582 $ 24,978 $ 15,649 $ 15,636
Cash provided by (used in) operating
activities............................... $ (2,321) $ (10,928) $ 6,706 $ (4,101) $ 14,084
Cash used in investing activities........ $ (4,342) $ (12,202) $ (13,778) $ (10,833) $ (21,011)
Cash provided by financing activities.... $ 4,372 $ 22,959 $ 7,432 $ 14,247 $ 10,505
</TABLE>
- ------------------------
(1) Represents fees earned in connection with yellow page, recruitment and other
advertisements placed on the Internet.
(2) Earnings before interest, income taxes, depreciation and amortization.
EBITDA is presented to provide additional information about the Company's
ability to meet its future debt service, capital expenditures and working
capital requirements and is one of the measures which determines the
Company's ability to borrow under its credit facility. EBITDA should not be
considered in isolation or as a substitute for operating income, cash flows
from operating activities and other income or cash flow statement data
prepared in accordance with generally accepted accounting principles or as a
measure of the Company's profitability or liquidity. EBITDA for the
indicated periods is calculated as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
EBITDA CALCULATION 1993 1994 1995 1995 1996
- ------------------------------------------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net income (loss)..................................... $ (4,626) $ (2,467) $ 3,229 $ 873 $ (539)
Interest, net....................................... 7,652 9,178 10,894 7,879 8,600
Income tax expense (benefit)........................ (1,322) (333) 4,222 2,298 1,655
Depreciation and amortization....................... 4,628 6,204 6,633 4,599 5,920
--------- --------- --------- --------- ---------
EBITDA................................................ $ 6,332 $ 12,582 $ 24,978 $ 15,649 $ 15,636
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
31
<PAGE>
The following table sets forth, for the periods indicated, certain statement
of operations data and certain financial data expressed as a percentage of
commissions and fees.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
Commissions and fees.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Salaries and related costs.................................... 51.2% 53.1% 47.1% 48.2% 51.2%
Office and general expenses................................... 40.4% 35.2% 35.1% 36.4% 37.1%
Amortization of intangibles................................... 3.3% 3.8% 2.5% 2.5% 2.7%
Special compensation(1)....................................... -- -- -- -- 0.6%
Restructuring charges......................................... 1.8% -- -- -- --
Operating income.............................................. 3.3% 7.9% 15.3% 12.9% 8.4%
Interest expense, net......................................... (10.4% (10.7% (8.8% (8.8% (7.2%
Other, net.................................................... (0.5% (0.1% 0.1% -- --
Income (loss) before provision (benefit) for income taxes,
minority interests and equity in earnings of affiliates..... (7.6% (2.9% 6.6% 4.1% 1.2%
Provision (benefit) for income taxes.......................... (1.8% (0.4% 3.4% 2.6% 1.4%
Minority interests............................................ 0.5% 0.4% 0.4% 0.4% 0.3%
Equity in earnings (losses) of affiliates..................... -- -- (0.2% (0.2% --
Net income (loss)............................................. (6.3% (2.9% 2.6% 0.9% (0.5%
Preferred stock dividends..................................... (0.3% (0.2% (0.2% (0.1% (0.1%
Net income (loss) applicable to common and Class B common
stockholders................................................ (6.6% (3.1% 2.4% 0.8% (0.6%
Pro forma adjustment for special compensation................. -- -- -- -- 0.6%
Pro forma net loss applicable to common and Class B common
stockholders................................................ -- -- -- -- --
EBITDA(2)..................................................... 8.6% 14.6% 20.2% 17.4% 13.2%
Net cash provided by (used in) operating activities........... (3.1% (12.7% 5.4% (4.6% 11.8%
Net cash used in investing activities......................... (5.9% (14.2% (11.1% (12.1% (17.7%
Net cash provided by financing activities..................... 5.9% 26.6% 6.0% 15.9% 8.8%
</TABLE>
- ------------------------
(1) Special compensation consists of the value of shares issued in connection
with the acquisition of a minority interest in a subsidiary in August 1996
because the stockholder had received his shares in the subsidiary for no
consideration and, accordingly, was not considered to have made a
substantive investment for the minority shares.
(2) Earnings before interest, income taxes, depreciation and amortization.
EBITDA is presented to provide additional information about the Company's
ability to meet its future debt service, capital expenditures and working
capital requirements and is one of the measures which determines the
Company's ability to borrow under its credit facility. EBITDA should not be
considered in isolation or as a substitute for operating income, cash flows
from operating activities and other income or cash flow statement data
prepared in accordance with generally accepted accounting principles or as a
measure of the Company's profitability or liquidity.
32
<PAGE>
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
Gross billings for the nine months ended September 30, 1996 were $572.8
million, a $119.7 million or 26.4% increase compared to the nine months ended
September 30, 1995. More than half of this growth was attributable to
acquisitions.
Commissions and fees increased from $89.7 million for the nine months ended
September 30, 1995 to $118.9 million for the nine months ended September 30,
1996, or 32.5%. This increase was due to an increase of $17.7 million or 69.1%
in commissions and fees derived from recruitment advertising, $7.1 million or
11.1% in commissions and fees derived from yellow page advertising and $4.4
million in fees derived from Internet. A substantial portion of the increase in
commissions and fees derived from recruitment advertising was due to
acquisitions and the remainder was due to higher client spending and new
clients. The increase in commissions and fees derived from yellow page
advertising was due primarily to increased rates by the yellow page publishers
and higher client spending on new services. Fees derived from Internet were
generated from placements of internet advertising, as the Company's Internet
products gained initial customer acceptance both from the Company's existing
clients as well as new clients.
Salaries and related costs increased $17.7 million to $60.9 million for the
nine months ended September 30, 1996. As a percent of commissions and fees,
salaries and related costs increased from 48.2% for the nine months ended
September 30, 1995 to 51.2% for the nine months ended September 30, 1996. This
increase was primarily due to additional staff required to service increased
gross billings, a higher percentage for costs related to Neville Jeffress and
severance and temporary help expenses related to the consolidation of the
recruitment advertising acquisitions ($0.8 million). Also included in the $17.7
million increase is $1.9 million for Internet staffing, which is 43.9% of
Internet commissions and fees.
Office and general expenses increased $11.5 million to $44.1 million for the
nine months ended September 30, 1996. As a percent of commissions and fees,
office and general expenses increased from 36.4% for the period ended September
30, 1995 to 37.1% for the nine months ended September 1996. This increase was
primarily due to increased advertising of approximately $2.3 million, primarily
related to the Company's introduction of The Monster
Board-Registered Trademark-, increased bad debt charges ($0.5 million to
increase specific reserves to $1.0 million for a 1995 bankruptcy and a $0.3
million charge related to a client with liquidity problems), general expenses
related to higher gross billings, professional consulting fees for the
establishment of Internet services and airplane related travel costs.
Amortization of intangibles was $2.3 million for the nine months ended
September 30, 1995 compared to $3.2 million for the nine months ended September
30, 1996 due to the Company's continued growth through acquisitions. As a
percentage of commissions and fees, amortization of intangibles was 2.5% and
2.7% for the nine months ended September 30, 1995 and 1996, respectively.
Special compensation of $0.7 million consists of the value of shares issued
in connection with the acquisition of a minority interest in a subsidiary in
August 1996 because the stockholder had received his shares in the subsidiary
for no consideration and, accordingly, was not considered to have made a
substantive investment for the minority shares.
Operating income declined $1.5 million to $10.0 million for the nine months
ended September 30, 1996. The decline was primarily due to increased advertising
expenses of $1.5 million for the Company's Internet business. Excluding the fees
earned and direct operating expenses related to the Company's introduction of
its Internet business of $1.8 million for 1996 and $0.8 million for 1995, and
the 1996 $0.7 million special charge for compensation, (i) operating income
increased approximately $1.0 million to $12.5 million for the nine months ended
September 30, 1996. However, operating income as a percent of commissions and
fees declined from 12.9% for the nine months ended September 30, 1995 to 10.5%
for the nine months ended September 30, 1996. This decline in operating income
as a percent of commissions and fees was primarily due to costs in connection
with the consolidation of the recruitment advertising acquisitions and the
increased bad debt charge described above.
33
<PAGE>
Net interest expense increased $0.7 million to $8.6 million for the nine
months ended September 30, 1996 as compared to 1995. This increase in interest
expense is due primarily to higher debt balances for working capital needs and
acquisition financing partially offset by lower borrowing costs. The Company's
effective interest rate was 9.8% for the nine months ended September 30, 1996
compared with 11.1% for the nine months ended September 30, 1995.
Taxes on income decreased $0.6 million from $2.3 million for the nine months
ended September 30, 1995 to $1.7 million for the nine months ended September 30,
1996 primarily due to lower pre-tax income. The effective tax rate for the nine
months ended September 30, 1996 of 117.7% was higher than the U.S. Federal
statutory rate primarily due to nondeductible expenses of approximately $2.0
million and approximately $.8 million in losses for which there are no available
tax benefits.
On a pro forma basis, to adjust for the special charge for compensation, the
net loss applicable to common and Class B common stockholders was $25,000 for
the nine months ended September 30, 1996 compared with net income of $0.7
million for the nine months ended September 30, 1995, as a result of the above.
THE YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Gross billings for the year ended December 31, 1995 were $596.1 million, a
$177.5 million or 42.4% increase over the year ended December 31, 1994.
Approximately half of this increase was attributable to acquisitions.
Commissions and fees increased from $86.2 million in 1994 to $123.9 million
in 1995 or 43.7%. This increase was due to an increase of $24.4 million or
208.1% in commissions and fees derived from recruitment advertising and $13.0
million or 17.4% in commissions and fees derived from yellow page advertising.
The increase in commissions and fees derived from recruitment advertising was
substantially due to acquisitions and, to a lesser extent, new business and
higher client spending spurred by high demand for labor in the U.S. The increase
in commissions and fees derived from yellow page advertising was primarily due
to higher client spending and acquisitions. Commissions for volume placements
from yellow page publishers increased $2.1 million to $4.2 million in 1995
largely due to a new sales program for yellow page employees to increase yellow
page advertising volumes.
Salaries and related costs increased $12.6 million to $58.3 million in 1995.
As a percent of commissions and fees, salaries and related costs declined from
53.1% in 1994 to 47.1% in 1995 primarily due to increased staffing efficiencies
related to the leveraging of management and support services over a larger
client base.
Office and general expenses increased $13.1 million to $43.4 million in
1995. As a percent of commissions and fees, office and general expenses remained
consistent at 35.0%. Bad debt expenses increased $2.0 million in 1995 compared
to 1994 due to an increase in general reserves as a result of the Company's
expanding client base and a specific reserve of $0.5 million for a client
bankruptcy.
Amortization of intangibles was $3.2 million in 1995 compared to $3.3
million in 1994. As a percentage of commissions and fees, amortization of
intangibles was 2.6% in 1995 and 3.8% in 1994 as a result of higher commissions
and fees.
Operating income increased $12.1 million to $18.9 million in 1995. As a
percent of commissions and fees, operating income increased from 7.9% in 1994 to
15.3% in 1995 due to higher commissions and fees and improved staffing
efficiencies and utilization levels.
Net interest expense increased $1.7 million to $10.9 million in 1995. The
increase in net interest expense is due primarily to higher debt balances for
working capital needs and acquisition financing. The Company's effective
interest rate was 11.2% and 10.7% in 1994 and 1995, respectively.
34
<PAGE>
Taxes on income increased $4.6 million in 1995 to an expense of $4.2 million
from a recovery of $0.3 million in 1994, primarily due to pre-tax income. The
effective tax rate for 1995 of 51.7% was greater than the U.S. federal statutory
rate primarily due to nondeductible expenses of approximately $1.2 million and
losses for which there were no available tax benefits of $1.5 million.
Net income applicable to common and Class B common stockholders was $3.0
million for the year ended December 31, 1995 compared to a $2.7 million net loss
for the year ended December 31, 1994, as a result of the above.
THE YEAR ENDED DECEMBER 31, 1993 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Gross billings for the year ended December 31, 1994 were $418.5 million, a
$73.5 million increase from the year ended December 31, 1993. Acquisitions
accounted for a substantial portion of billings growth.
Commissions and fees increased from $73.8 million in 1993 to $86.2 million
in 1994 or 16.8%. This increase was due to an increase of $10.0 million in
commissions and fees derived from recruitment advertising and $2.4 million in
commissions and fees derived from yellow page advertising. The increase in
commissions and fees derived from recruitment advertising and yellow page
advertising was primarily due to acquisitions. The increase in commissions and
fees derived from yellow page advertising was also due to increased rates and
increased client spending.
Salaries and related costs increased $8.0 million to $45.8 million in 1994.
As a percent of commissions and fees, salaries and related costs increased from
51.2% in 1993 to 53.1% in 1994 due primarily to higher salaries related to
additional staffing levels associated with acquisitions.
Office and general expenses increased $.5 million to $30.3 million in 1994.
As a percent of commissions and fees, office and general expenses declined from
40.4% in 1993 to 35.2% in 1994, due to lower administrative costs and increased
operating efficiencies resulting from the integration of six acquisitions into
existing TMP locations. In 1993, operating expenses included a restructuring
charge of $1.3 million for compensation related to the centralization of certain
support functions.
Amortization of intangibles was $3.3 million in 1994, compared to $2.5
million in 1993. As a percentage of commissions and fees, amortization of
intangibles was 3.8% in 1994 compared to 3.3% in 1993.
Operating income increased from $2.4 million in 1993 to $6.8 million in 1994
due primarily to growth in commissions and fees and increased operating
efficiency partially offset by higher salaries and related costs and
amortization of intangibles.
Net interest expense increased $1.5 million to $9.2 million in 1994. The
increase in net interest expense is primarily due to higher debt balances for
working capital needs and acquisition financing. The Company's effective
interest rate was 13.3% and 11.2% in 1993 and 1994, respectively.
The income tax benefit decreased $1.0 million in 1994 from a recovery of
$1.3 million in 1993, due to a smaller pre-tax loss. The effective tax benefit
rates for 1994 and 1993 were lower than the U.S. federal statutory rate
primarily due to nondeductible expenses of approximately $1.4 million and $1.0
million, respectively, and for 1993 losses for which there are no available tax
benefits of $0.9 million.
Net loss applicable to common and Class B common stockholders was $4.8
million in 1993 and $2.7 million in 1994 as a result of the above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements have been to fund (i)
acquisitions, (ii) working capital, (iii) capital expenditures and (iv)
advertising and development of its Internet business. The Company's
35
<PAGE>
working capital requirements are generally higher in the quarters ending March
31 and June 30 during which payments to the major yellow page directory
publishers are at their highest levels. The Company has met its liquidity needs
over the last three years through funds provided by long-term borrowings, vendor
financing and supplemented in 1995 by funds provided by operating activities.
Net cash provided by (used in) operating activities for the years ended
December 31, 1993, 1994, 1995, and the nine months ended September 30, 1996 was
($2.3 million), ($10.9 million), $6.7 million and $14.1 million, respectively.
Cash used increased in 1994 as compared with 1993 primarily due to the
acceleration of payment of trade payables to publishers over the rate of
collection of receivables. The increase in cash from operating activities for
1995 over 1994 was primarily due to the $5.7 million improvement in net income
combined with a net increase of trade payables over trade receivables of $7.0
million. For the nine months ended September 30, 1996, cash provided by
operations increased $18.2 million over the comparable 1995 period primarily as
a result of a $10.5 million reduction in the increase in accounts receivable
combined with a $12.0 million rise in the increase of accounts payable and
accrued liabilities.
Days sales outstanding in 1994, 1995 and for the first nine months of 1996
were 66, 63 and 62, respectively, reflecting improvement in the Company's
collection procedures and client billing arrangements.
Net cash used in investing activities for the years ended December 31, 1993,
1994, 1995 and the nine months ended September 30, 1996 was $4.3 million, $12.2
million, $13.8 million and $21.0 million, respectively. Payments for purchases
of business acquisitions were $1.0 million in 1993, $6.3 million in 1994, $11.3
million in 1995, and $16.6 million for the nine months ending September 30,
1996. Capital expenditures, primarily for computer equipment and furniture and
fixtures, were $0.5 million, $4.9 million, $5.0 million and $4.3 million for the
years ended December 31, 1993, 1994, 1995, and the nine months ended September
30, 1996, respectively. The Company expects to spend approximately $7.0 million
in total capital expenditures for 1996. In May 1996, the Company sold certain
transportation equipment for $3.3 million in cash, $1.2 million after payment of
related debt.
EBITDA was unchanged at $15.6 million for the nine months ended September
30, 1996 compared to the nine months ended September 30, 1995. Excluding fees
earned and direct operating expenses related to the Company's introduction of
its Internet business, EBITDA increased $0.3 million to $17.1 million or 1.8%
for the nine months ended September 30, 1996 compared to the nine months ended
September 30, 1995. Further adjusting for items related to increased bad debt
charges for two client bankruptcies ($.5 million) and expenses associated with
the consolidation of the recruitment advertising acquisitions ($.8 million),
EBITDA increased $1.6 million to $18.4 million or 12.2% for the nine months
ended September 30, 1996 compared to the nine months ended September 30, 1995.
Excluding the Company's Internet business and the non-recurring bad debt charges
described above, EBITDA as a percent of commissions and fees remained consistent
at 19.8% for the nine months ended September 30, 1995 and 19.5% for the nine
months ended September 30, 1996. EBITDA increased $12.4 million to $25.0 million
or 98.5% in 1995 as compared to 1994. As a percent of commissions and fees,
EBITDA increased from 14.6% in 1994 to 20.2% in 1995 primarily due to increased
staffing efficiencies and utilization levels. EBITDA increased $6.3 million to
$12.6 million in 1994 compared to 1993. Adjusting for the non-recurring charge
of $1.3 million in 1993, EBITDA as a percent of commissions and fees increased
from 10.4% in 1993 to 14.6% in 1994.
The Company's financing activities include borrowings and repayments under
its financing agreement and issuance and repayments of installment notes
principally to finance acquisitions and loans to stockholders. The Company's
financing activities resulted in net cash provided by financing activities of
$10.5 million, $7.4 million, $23.0 million and $4.4 million in 1996, 1995, 1994
and 1993, respectively. In June and August 1996, the Company amended its
financing agreement with BNY Financial Corporation to provide for borrowings up
to $100 million under a revolving credit facility. Such facility has been used
to finance the Company's acquisitions and for working capital requirements. As
of September 30, 1996, there
36
<PAGE>
was $90.9 million outstanding under such facility. As of November 30, 1996,
there was approximately $95.0 million outstanding under such facility. The
Company believes it will be able to fund its short-term cash needs through funds
from operations and a refinancing of a portion of the Neville Jeffress
acquisition financing with a working capital facility in Australia. The Company
intends to use approximately $43.0 million of the net proceeds from this
offering to reduce indebtedness under the financing agreement. See "Use of
Proceeds." After giving effect to this offering and the use of the estimated net
proceeds thereof, as of November 30, 1996 pro forma amounts outstanding under
the financing agreement would have been approximately $52.0 million. The
financing agreement terminates on June 27, 2001 and currently bears interest at
7.9% per annum. The interest rate of the financing agreement is determined
pursuant to a formula whereby the interest rate is, at the Company's option,
either (i) the prime rate or 1/2% over the federal funds rate, whichever is
higher, less 1% to plus 1% as determined in the financing agreement or (ii)
LIBOR plus 1 1/2% to 3 1/2% as determined under the financing agreement. The
borrowings are secured by a lien on substantially all of the Company's assets.
In addition, the financing agreement contains certain covenants which restrict,
among other things, the ability of the Company to borrow, pay dividends, acquire
businesses, make future capital expenditures, guarantee debts of others and lend
funds to affiliated companies and contain criteria on the maintenance of certain
financial statement amounts and ratios. At December 31, 1995, the Company was in
violation of certain of the covenants and financial ratios under a prior
financing agreement, such violations were waived by BNY Financial Corporation.
The covenants and/or ratios which were violated consisted of (i) the limit on
capital expenditures, (ii) the ratio of current assets to current liabilities,
(iii) the limit of negative working capital, (iv) the limit of advances to
affiliates, (v) the permitted percentage of past due accounts payable, (vi) the
timely delivery of audited financial statements and (vii) the use of corporate
guarantees. To accommodate the Company's growth strategy, the financing
agreement, including the covenants and financial ratios, was amended in August
1996. As of September 30, 1996, the Company was in compliance with all of the
required covenants and ratios under the financing agreement.
Part of the Company's acquisition strategy is to pay, over time, a portion
of the purchase price of such acquisitions through seller financed notes.
Accordingly, such notes are included in long term debt and the current portion
of long term debt. These notes are generally payable over five years and totaled
$14.8 million at September 30, 1996. The Company will repay approximately $4.0
million of these notes with a portion of the proceeds of this offering.
The Company made net advances of $3.2 million, $3.7 million and $3.0 million
to its principal stockholder in 1993, 1994 and the nine months ended September
30, 1996 and received payments of $1.7 million from such stockholder in 1995. As
of September 30, 1996, the Company has a receivable from its principal
stockholder in the amount of $9.5 million. These advances do not currently bear
interest. Upon consummation of this offering, Andrew J. McKelvey will convert
all of his indebtedness to the Company to a promissory note. Such promissory
note will initially bear interest at the prime rate established by The Bank of
New York at the date of the note and shall be adjusted December 31, 1997 and
each December 31st thereafter to the Bank of New York prime rate in effect on
such dates. The Note will provide for annual payments of all accrued but unpaid
interest commencing December 31, 1997. The principal amount shall be payable in
equal annual installments of one-sixtieth of the initial principal amount
commencing December 31, 1997, with all unpaid principal due ten years from the
date of the note.
The Company has an obligation for annual dividend payments of 10.5% on its
$2.0 million of redeemable preferred stock. In addition, the Company has an
obligation for annual dividend payments, included in minority interests, of
10.0% on approximately $3.0 million of preferred shares of a subsidiary (YPMS
Acquisition, Inc.) held by an employee stock ownership trust. The Company
intends to use a portion of the net proceeds from this offering to redeem both
the redeemable preferred stock and the subsidiary's preferred stock. See "Use of
Proceeds."
The Company intends to continue its acquisition strategy and promotion of
its Internet activities through the use of operating profits, borrowings against
its long-term debt facility and seller financed
37
<PAGE>
notes. The Company believes that its anticipated cash flow from operations, as
well as the availability of funds under its existing financing agreement and the
net proceeds of this offering, will provide it with liquidity to meet its
current foreseeable cash needs for at least the next year.
QUARTERLY RESULTS
The following table presents unaudited interim operating results of the
Company. The Company believes that the following information includes all
adjustments (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair presentation, in accordance with generally
accepted accounting principals. The operating results for any interim period are
not necessarily indicative of results for any other period.
The Company's quarterly commissions and fees are affected by the timing of
yellow page directory closings which currently have a concentration in the third
quarter. Yellow page publishers may change the timing of directory publications
which may have an effect on the Company's quarterly results. The Company's
yellow page advertising results are also affected by commissions earned for
volume placements for the year, which are typically reported in the fourth
quarter. The Company's quarterly commissions and fees for recruitment
advertising are typically highest in the first quarter and lowest in the fourth
quarter; however, the cyclicality in the economy and the Company's clients'
employment needs have an overriding impact on the Company's quarterly results in
recruitment advertising. Moreover, the Company's recruitment advertising
acquisition activity has had more of an impact on the Company's recently
reported quarterly results than any other factors.
38
<PAGE>
UNAUDITED QUARTERLY RESULTS
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 QUARTERS
-----------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Commissions and fees:
Yellow page
advertising.......... $17.2 $17.7 $19.4 $20.2
Recruitment
advertising.......... 1.6 3.7 2.9 3.4
----- ----- ----- -----
Total commissions and
fees................. $18.8 $21.4 $22.3 $23.6
----- ----- ----- -----
----- ----- ----- -----
Operating income......... $ 0.9 $ 0.7 $ 0.9 $ 4.3
Income (loss) before
provision for income
taxes, minority
interest and equity
in earnings (losses)
of affiliates........ $(0.3) $(1.4) $(2.2) $ 1.4
Net income (loss)........ $(0.3) $(1.3) $(2.0) $ 1.1
</TABLE>
<TABLE>
<CAPTION>
1995 QUARTERS
-----------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Commissions and fees:
Yellow page
advertising.......... $19.0 $21.9 $23.2 $23.4
Recruitment
advertising.......... 7.4 9.2 9.0 10.4
Internet............... -- -- -- .4
----- ----- ----- -----
Total commissions and
fees................. $26.4 $31.1 $32.2 $34.2
----- ----- ----- -----
----- ----- ----- -----
Operating income......... $ 4.4 $ 4.4 $ 2.8 $ 7.3
Income (loss) before
provision for income
taxes, minority
interest and equity
in earnings (losses)
of affiliates........ $ 2.1 $ 1.6 $ -- $ 4.5
Net income (loss)........ $ 0.9 $ 0.7 $(0.7) $ 2.3
</TABLE>
<TABLE>
<CAPTION>
1996 QUARTERS
--------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30,
----------- ---------- -------------
<S> <C> <C> <C> <C>
Commissions and fees:
Yellow page
advertising.......... $20.4 $23.0 $27.8
Recruitment
advertising.......... 12.7 12.2 18.5
Internet............... .9 1.5 1.9
----- ----- -----
Total commissions and
fees................. $34.0 $36.7 $48.2
----- ----- -----
----- ----- -----
Operating income......... $ 3.7 $ 3.1 $ 3.2
Income before provision
for income taxes,
minority interest and
equity in earnings
(losses) of
affiliates........... $ 1.0 $ 0.4 $ --
Net income (loss)........ $(0.1) $ 0.3 $(0.7)
</TABLE>
39
<PAGE>
BUSINESS
The Company is a marketing services, communications and technology company
that provides comprehensive, individually tailored advertising services
including development of creative content, media planning, production and
placement of corporate advertising, market research, direct marketing and other
ancillary services and products. The Company is the world's largest yellow page
advertising agency and a large recruitment advertising agency. In 1995, the
Company began marketing Internet-based services as extensions of its core
businesses and has become a growing provider of Internet content. The Company
offers advertising programs to more than 17,000 clients, including more than 70
of the Fortune 100 and more than 240 of the Fortune 500 companies. The Company's
growth strategy is to continue to actively pursue consolidation opportunities in
its core advertising businesses and to leverage its client base and its
approximately 1,500 sales, marketing and customer service personnel to expand
its Internet-based businesses. Except for the acquisition of a small recruitment
advertising agency, the Company has no current plans for any additional
acquisitions. See "Pro Forma Condensed Consolidated Financial Information." For
the year ended December 31, 1995, the Company's gross billings were $596.1
million, commissions and fees were $123.9 million, net income was $3.2 million
and EBITDA was $25.0 million.
TMP is the world's largest yellow page advertising agency, generating
approximately $425 million in gross billings for the year ended December 31,
1995. TMP is also a large recruitment advertising agency, generating
approximately $165 million in gross billings for the same period. With
approximately 30% of the national accounts segment of the U.S. yellow page
advertising market, TMP is approximately three times larger than its nearest
competitor, based on gross billings. A substantial part of the Company's growth
has been achieved through acquisitions. From January 1, 1993 through December
31, 1995, TMP completed 26 acquisitions which have estimated annual gross
billings of $200 million. In 1996, through November 30, the Company completed
ten acquisitions with estimated annual gross billings of $180 million including
the acquisition in July 1996, of Neville Jeffress, a large recruitment
advertising agency in Australia, which has estimated annual gross billings of
$140 million. In December 1996, the Company completed the acquisition of two
small recruitment advertising agencies with estimated annual gross billings of
$5 million. The Company believes additional acquisition opportunities exist,
particularly in the recruitment advertising and Internet markets and intends to
continue its strategy of making acquisitions which relate to its core business.
TMP has created innovative solutions to assist its clients in capitalizing
on the growing awareness and acceptance of the Internet. For its recruitment
advertising clients, TMP has developed interactive career hubs which can be
accessed by individuals seeking employment via the Internet on a global basis.
The Company has several career hubs, including The Monster
Board-Registered Trademark-, Online Career Center-SM-, Be the Boss-SM- and
MedSearch-SM-, which collectively contain over 35,000 job listings. In 1996, the
Company began marketing its Dealer Locator service to yellow page clients.
Dealer Locator provides clients with the ability to create Web pages for their
local offices, franchisees or dealers. Potential customers can then access these
pages on the Internet by zip code or other key word searches.
INDUSTRY OVERVIEW
THE YELLOW PAGE ADVERTISING MARKET. Yellow page directories have been
published in the U.S. since at least the 1890s and, traditionally, have been
published almost exclusively by telephone utilities. In the early 1980's, due in
part to telephone deregulation, independent companies began publishing an
increasing number of directories. Currently, approximately 7,000 yellow page
directories are published annually by 200 publishers and, in the U.S., many
cities with populations in excess of 80,000 are served by multiple directories.
The percentage of adults who use the yellow pages has remained relatively
constant over the last ten years at over 56%, and such readers consult the
yellow pages approximately two times weekly. Accordingly, yellow page
directories continue to be a highly effective advertising medium. For example,
the
40
<PAGE>
Company believes that approximately 70% of Ryder's consumer truck rental
customers consulted yellow page directories prior to renting trucks.
For the year ended December 31, 1995, total spending on yellow page
advertisements in the U.S. was $9.9 billion. Of this amount, approximately $8.5
billion was spent by local accounts and approximately $1.4 billion was spent by
national accounts. "Local" and "national," as those terms are used in the yellow
page industry, refer to whether an advertisement is solicited by a yellow page
publisher's own sales staff or is placed by an advertising agency and meets
certain criteria specified by the publisher. Local accounts are typically
merchants who primarily conduct their business within the geographic area served
by the publisher's directories.
The national account market consists of companies which sell products or
services in multiple markets and is the market in which TMP competes. Most
national accounts use independent advertising agencies to design and implement
their yellow page advertising programs to create a consistent brand image and
compelling message, to develop an effective media plan and to execute the
placement of the advertising at the local level. Agencies which place national
yellow page advertising are paid commissions by yellow page publishers. The
market has grown each year since 1981. During the period of 1990 through 1995,
the market grew at a compound average rate of approximately 4.5%.
THE RECRUITMENT ADVERTISING MARKET. Recruitment advertising consists
primarily of creating and placing recruitment advertisements in the classified
advertising sections of newspapers. While the recruitment advertising market has
historically been cyclical, during the period of 1990 through 1995, the U.S.
market grew at a compound annual growth rate of approximately 11.5%. Classified
readership by job seekers has remained constant over the last ten years and 88%
of companies use newspapers to attract potential employees. The services
provided by recruitment advertising agencies can be complex and range from the
design and placement of classified advertisements to the creation of
comprehensive image campaigns which "brand" a client as a quality employer.
Further, shortages of qualified employees in many industries, particularly in
the technology area, have increased the need for recruitment advertising
agencies to expand the breadth of their service offerings to effect national and
sometimes global recruitment campaigns. For the year ended December 31, 1995,
total spending on advertisements in North America in the recruitment classified
advertisement section of newspapers was approximately $4.5 billion. Agencies
which place recruitment advertising are paid commissions generally equal to 15%
of recruitment advertising gross billings.
INTERNET. The Internet has rapidly grown from a network connecting a
limited number of government, research and educational institutions to a global
medium accessed by millions of users to communicate and exchange information.
Growth in the Internet has been fueled by an increasing usage of personal
computers at home and in the workplace, improvements in the performance and
speed of personal computers and modems, improvements in network infrastructure,
enhanced ease of access to the Internet provided by service providers,
consumer-oriented on-line services and long-distance telephone companies,
emergence of standards for Internet navigation and information access, declining
costs of Internet service due to increased competition among access providers
and increased awareness of the Internet among businesses and consumers. Growth
in Internet usage by non-technical users in particular has also been fueled by
the emergence of the Web which makes use of browser technology and simplifies
the retrieval and transmission of information.
As the Internet has become more accessible, functional and widely used by
consumers and businesses, its commercial potential has grown. The Internet is
emerging as a medium through which businesses can interactively inform, educate,
entertain and conduct business with millions of individuals. Thousands of
companies have created corporate Web sites that feature information about their
product offerings and advertise employment opportunities. Through the Web,
Internet content providers are able to deliver
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timely, personalized content in a manner not possible through traditional media.
Internet content can be continuously updated, and accessed by users at any time.
STRATEGY
Key elements of the Company's strategy are to:
CONTINUE TO GROW THE COMPANY'S RECRUITMENT AND YELLOW PAGE BUSINESSES. The
Company plans to continue to grow and enhance its recruitment and yellow page
advertising businesses through acquisitions and internal growth. From January 1,
1993 to November 30, 1996, the Company completed 36 acquisitions, with estimated
annual gross billings of $380 million. The Company intends to actively pursue
additional acquisitions and believes that the fragmented nature of the
recruitment advertising business provides the Company with the opportunity to be
a leader in the consolidation of this industry. The Company also intends to
selectively pursue acquisitions in the yellow page advertising business. In
addition to acquisitions, the Company intends to expand its billings base with
existing clients and by attracting new clients by leveraging its size, resources
and Internet product offerings. The Company has a dedicated new business sales
staff which focuses on adding new clients which to date in 1996, has added 122
new clients with estimated annual gross billings of approximately $45 million.
EXPAND SERVICES TO THE INTERNET BY CAPITALIZING ON TMP'S RECRUITMENT
ADVERTISING AND YELLOW PAGE ADVERTISING BUSINESSES. The Company believes the
Internet is a powerful communications medium which can be heavily utilized by
its yellow page and recruitment advertising clients in attracting more customers
and qualified prospective employees, respectively. TMP intends to capitalize on
this opportunity by rapidly expanding, marketing and implementing its Internet
service offerings. The Company believes it is at the forefront in acquiring and
designing products to meet the needs of its client base. Since 1995, TMP has
acquired three recruitment oriented Web site companies including Adion
Information Services Inc., the creator of The Monster
Board-Registered Trademark-, Online Career Center, L.P. and MedSearch America,
Inc. In addition, during this time, the Company created Dealer Locator, a
product for yellow page clients, and modified Dealer Locator technology to
create Physician Finder, a database designed to provide information regarding
board certified physicians. The Company is designing and developing additional
Internet products and intends to opportunistically acquire Internet content
providers related to its core businesses. TMP also believes that its more than
1,500 person sales, marketing and customer service staff, and extensive base of
existing clients, provide it with a significant competitive advantage in
identifying, implementing and selling new Internet products to yellow page and
recruitment advertisers.
DIFFERENTIATE INTERNET PRODUCT OFFERINGS. The Company believes it is
important to differentiate its Internet service offerings. TMP intends to do
this by leveraging its experience in yellow page and recruitment advertising to
design and develop the most effective and frequently accessed products, by
branding its products through the use of traditional advertising mediums, by
tailoring its services to specific geographic markets, and by continually adding
incremental value-added features to its services thereby increasing their
utility to the Company's client base. The Company has begun implementing this
strategy most notably with The Monster Board-Registered Trademark- which has
been tailored to individual countries around the world, focusing on local
customs and terminology. Customized versions of The Monster
Board-Registered Trademark- currently exist in the U.S., Canada, the United
Kingdom and Australia. The Monster Board-Registered Trademark- is also tailored
for specific user groups. For example, The Monster Board-Registered Trademark-'s
Roar community targets college students and entry level job seekers.
TMP'S YELLOW PAGE BUSINESS
TMP entered the yellow page business in 1967 and has grown to become the
largest yellow page advertising agency both in the world and in the U.S. based
on gross billings. For the year ended December 31, 1995, the Company had
worldwide yellow page gross billings of approximately $425 million.
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With approximately 30% of the U.S. national yellow page market, TMP is
approximately three times larger than its nearest competitor, based on gross
billings. The Company's growth in yellow pages has been driven in part by
acquisitions. Since January 1, 1993, TMP has completed five acquisitions and
intends to continue to pursue acquisitions as a part of its overall growth
strategy.
CREATING AND PLACING YELLOW PAGE ADVERTISEMENTS. There are currently
approximately 7,000 yellow page directories in the U.S. Each has a separate
closing date for accepting advertisements and one or more of these closings
occur on every working day of the year. The steps involved in placing an
advertisement are numerous and can take as long as nine months.
The first step in the process is the formulation of the advertising
program's creative elements including illustrations, advertising copy, slogans
and other elements which are designed to attract a potential customer's
attention. To assess the effectiveness of a proposed campaign, TMP generally
undertakes extensive research to determine which alternatives best reach the
client's target market. This research typically includes focus group testing and
the running of split-run advertisements. Focus group testing involves forming
groups of potential customers and gauging their reaction to a variety of
potential advertisements. Split-run testing measures the results of specific
campaigns by placing more than one version of an advertisement in various
editions of the same yellow page directory. By using multiple phone numbers and
various monitoring methods, the Company can then determine which advertisements
generate the most effective response.
After designing an advertising program, TMP creates a media plan which
cost-effectively reaches the client's customer base. The Company analyzes
targeted directories to determine circulation, rate of usage and demographic
profile. It then recommends advertisements ranging from a full page to as little
as a one line listing. For some of the Company's larger yellow page clients,
advertisements are placed in over 2,000 directories.
To ensure client satisfaction, TMP maintains an extensive quality control
program. Account teams have frequent in-person client contact as well as formal
annual creative reviews. The Company also solicits feedback through client
interviews, written surveys and other methods consisting of focus groups made up
of yellow page users and yellow page user pollings. The principal aims of this
program are client retention and sales growth. TMP believes that its focus on
customer service has enabled it to increase its client retention rate from 90%
in 1991 to 96% in 1995, and to increase billings to existing clients by 7% for
the year ended December 31, 1995, as compared to the year ended December 31,
1994.
In addition to traditional advertising, the Company offers selected yellow
page clients a variety of value-added services ranging from managing the
maintenance and installation of telephone lines for branch locations to the
staffing and operation of fulfillment centers which respond to toll-free calls
requesting product brochures and other information. While beyond the typical
scope of services provided by an advertising agency, these ancillary services
are designed to further integrate TMP into client processes for the mutual
benefit of both parties.
TMP earns commissions from yellow page advertising paid by directory
publishers, which results in an effective commission rate to the Company of
approximately 20% of yellow page gross billings.
CLIENTS. TMP has over 2,100 yellow page clients, virtually all of whom
determine the content of their advertising programs on a centralized basis.
Placement of the advertising, however, requires an extensive local selling and
quality control effort because many of TMP's clients are franchisors or
manufacturers who are dependent upon franchisees or independent dealers for
distribution. The participation of franchisees and dealers in the yellow page
program is discretionary and must be solicited at the local level. As an example
of the scale of this task, TMP visited approximately 80% of the over 1,800 Midas
shops owned by over 600 franchisees while executing the 1995 Midas yellow page
program.
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To implement this local effort, TMP has a yellow page sales, marketing and
customer service staff of approximately 680 people. The Company believes the
size and breadth of this staff, its local client relationships and its databases
of client branch locations, franchisees, and dealers provide it with a strong
competitive advantage in executing the yellow page programs of existing clients.
TMP believes these resources are critical in marketing its services to potential
new clients and in marketing and executing its new Internet-based service
offerings.
The following are some of TMP's larger yellow page accounts:
<TABLE>
<S> <C> <C>
Beneficial Management ITT Industries Inc. Sears, Roebuck & Co.
Corporation Kohler Co. ServiceMaster L.P.
Bridgestone/Firestone Inc. Mailboxes, Etc. Sharp Electronics Corp.
Columbia/HCA Healthcare Corp. MCI Telecommunications Siemens Rohm--AG
Culligan International Corporation Communications
Company Midas International Terminix International L.P.
Ford Motor Company Corporation United Van Lines, Inc.
Hallmark Cards, Inc. Pizza Hut Inc. York Heating and Air
H&R Block Tax Services Inc. PRIMESTAR Partners L.P. Conditioning
Ryder
</TABLE>
No account represents more than 5% of the Company's yellow page commissions
and fees.
INTERNET-BASED SOLUTIONS FOR YELLOW PAGE ADVERTISING CLIENTS. To complement
the broad reach and penetration of yellow page advertising, the Company has
recently begun to offer its clients an Internet-based solution called Dealer
Locator. In creating a Dealer Locator program, the Company typically creates a
home page for each franchise or dealer location and links it to the client's
corporate Web site. Internet users can then retrieve information on a specific
location such as directions to, or a map of, such location, hours of operation
and potentially other information such as sale items and other special offers.
Dealer Locator is designed to provide an additional source of customer flow to
TMP's clients while, through linkage to the corporate Web sites, reinforcing the
desired brand imagery. TMP charges clients who utilize the Dealer Locator
product an up-front fee for the development of each individual home page as well
as an annual maintenance fee thereafter.
The Company's strategy with respect to Internet yellow page products is
twofold. First, develop appropriate Internet products which are attractive to
yellow page clients. Second, work with yellow page clients to drive traffic to
the client's Web sites.
The Company believes its pre-existing relationships with yellow page clients
is a key competitive advantage in marketing Dealer Locator. The Company
maintains databases containing the address, telephone number and contact person
for each of its accounts and, in addition, the Company's sales and marketing
staff personally visits most of its accounts at least annually. The Company
believes that these databases and personal relationships when combined with
TMP's knowledge of its client's businesses will position TMP to capitalize on
its marketing Internet-based products.
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The Company began marketing Dealer Locator in June 1996. The following
illustrates the Dealer Locator program which the Company created for Midas
International Corporation:
[LOGO]
The Company believes that Internet services must be interactive in order to
maintain or expand their rate of usage. Dealer Locator was designed to be as
interactive as the user desires. For example, a user utilizing Dealer Locator
can retrieve pertinent information about the nearest Midas location or,
alternatively, the user can learn to diagnose certain car problems, learn about
the history of Midas or learn about Midas products. In addition, Midas' Dealer
Locator has an e-mail function which enables Midas to respond to customers'
questions and comments. The Company is researching other ways to make Dealer
Locator even more interactive.
The Company believes that the Dealer Locator concept is appropriate for many
of its yellow page clients. For example, the Company is adapting Dealer Locator
technology to create Physician Finder. Physician Finder will list the names and
addresses of, and other pertinent information pertaining to, board certified
physicians. The Company anticipates that Physician Finder will be on-line by the
beginning of 1997.
TMP'S RECRUITMENT ADVERTISING BUSINESS
TMP entered the recruitment advertising business in 1993 with the
acquisition of Bentley, Barnes & Lynn, Inc. and has grown both through
acquisitions and internally. To date, the Company has acquired 28 recruitment
advertising agencies. For the year ended December 31, 1995, TMP had recruitment
advertising gross billings of $166.5 million. In addition to its 45 offices in
the United States, the Company has 25 locations outside the United States. The
Company also maintains relationships with 24 agencies throughout the world,
further enhancing the Company's ability to reach qualified job candidates. As a
full service agency, TMP offers its clients comprehensive recruitment
advertising services including creation and placement of classified advertising,
development of employer image campaigns, creation of collateral materials such
as recruiting brochures and implementation of alternative recruitment programs
such as job fairs, employee referral programs and campus recruiting. The Company
specializes in designing recruitment advertising campaigns for clients in high
growth industries and in industries with high employee turnover rates. TMP
believes that the scope of its services and scale of its operations
differentiate it from its competitors. Further, the Company believes that as
employers find it more difficult to attract qualified employees, they will
increasingly seek out agencies that can implement national and, in some cases,
global recruitment strategies.
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CREATING AND PLACING THE ADVERTISEMENT. The Company's task in formulating
and implementing a global recruitment advertising program is to design the
creative elements of the campaign and to select the appropriate media and/or
other recruitment methods. This is done in the context of the client's staffing
parameters which generally include skill requirements, job location and
advertising budget. In addition, while executing a given campaign, TMP will
often undertake basic research with respect to demographic profiles of selected
geographic areas to assist the client in developing an appropriate overall
strategy.
The Company has historically found that the strongest recruitment
advertising campaigns "brand" the client's image, demonstrate the client's
unique selling points and stress the client's employee benefits and corporate
culture. Effectively differentiating one employer from another has become
particularly important in the technology and healthcare sectors where there is
an acute shortage of qualified job candidates. The success of the campaign may
depend on whether an organization is seen as sufficiently distinct from its
competitors.
After completing the design of an advertisement's creative elements, the
Company develops an appropriate media plan. Typically, a variety of media is
used, including newspapers, trade journals, the Internet, billboards, direct
mail, radio and television. If the Company recommends use of newspapers, it may
recommend certain newspapers or editions of a particular newspaper which are
targeted to a specific demographic segment of the population. TMP may also
recommend a variety of advertisement sizes and vary the frequency with which an
advertisement appears.
After an advertisement is placed, the Company conducts extensive customer
analysis to assure satisfaction, including monitoring the effectiveness of the
chosen media. As an example, for a transportation client, TMP analyzed
cost-per-response, cost-per-application and cost-per-hire data for over a dozen
media vehicles running in approximately 30 markets in an effort to determine the
return on investment of each media vehicle. TMP's recruitment advertising
division also maintains a quality assurance program for its larger clients which
provides services similar to those provided to the Company's yellow page
clients.
The Company receives commissions generally equal to 15% of recruitment
advertising gross billings. The Company also earns fees from value-added
services such as design, research and other creative and administrative services
which resulted in aggregate commissions and fees equal to approximately 21% of
recruitment advertising gross billings.
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CLIENTS. The Company has more than 2,500 recruitment advertising clients.
The Company believes that an important component of its growth in recruitment
advertising is working with clients in high growth industries and in industries
with high employee turnover rates. The following are some of TMP's larger
recruitment advertising clients:
<TABLE>
<CAPTION>
TECHNOLOGY FINANCE RETAIL
- ------------------------------------ ------------------------------ -------------------------------------------
<S> <C> <C>
Cisco Systems Inc. Bank America Corp. Good Guys Inc.
Compaq Computer Corp. Dean Witter Reynolds, Inc. Kohl's Corp.
Gateway 2000 Federated Department Stores Inc.
International Business Machines Nike Inc.
Corp. Office Max Inc.
Motorola Inc. Target Stores Inc.
Sun Microsystems Inc.
</TABLE>
<TABLE>
<CAPTION>
PHARMACEUTICALS RESTAURANTS TRANSPORTATION
- ------------------------------------ ------------------------------ -------------------------------------------
<S> <C> <C>
Abbott Laboratories Darden Restaurants Inc. J.B. Hunt Transport Services Inc.
Genentech Inc. Pizza Hut Inc.
</TABLE>
<TABLE>
<CAPTION>
HEALTHCARE CONSULTING
- ------------------------------------------------------------------ ----------------------------------------------
<S> <C>
Cigna Corp. Price Waterhouse LLP
Kaiser Permanente/Kaiser Foundation Health Plan Inc. System Software Associates Inc.
NovaCare Inc.
</TABLE>
The Company is leveraging its size and service offerings to attract new and
larger clients. For example, of the accounts shown above, 12 became clients as a
result of the Company's new business efforts. No account represents more than 5%
of the Company's recruitment advertising commissions and fees.
INTERNET-BASED SOLUTIONS FOR RECRUITMENT ADVERTISING CLIENTS. To complement
the broad reach and penetration of print recruitment advertising, the Company
offers its clients Internet-based solutions to meet their recruitment needs. The
Company has several career hubs including The Monster
Board-Registered Trademark-, Online Career Center-SM-, Be the Boss-SM- and
MedSearch-SM-. Each of these Web sites consists of a database of job and resume
listings and a variety of other value added features. Collectively, TMP's career
hubs contain more than 35,000 job postings. The Company intends to continue to
build and expand its portfolio of product offerings through both internal
development and acquisitions.
Based on its experience with its clients, the Company believes that only 20%
to 30% of open job positions are advertised using traditional print media. It is
the Company's belief that on-line solutions will significantly expand the
recruitment advertising market because of their global reach and continuous
availability. Furthermore, on-line advertising is extremely cost effective when
compared to other traditional recruitment methods. TMP intends to aggressively
pursue this market by leveraging its relationships with its existing clients and
by using its portfolio of on-line services to attract new accounts. TMP's
Internet recruitment services have been actively marketed since May 1995 and are
currently generating approximately $700,000 in monthly revenue, approximately
45% of which is from new clients.
The Company's strategy with respect to Internet recruitment products is
twofold. First, develop a portfolio of attractive product offerings and
differentiate them through functionality, target market and
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price points. Second, drive user traffic to its Web sites to maximize the value
of the medium to TMP's customers.
The Monster Board-Registered Trademark- (HTTP://WWW.MONSTER.COM), launched
in April 1994, was rated by COMMUNICATIONS WEEK (June 10, 1996 edition) as the
premier career oriented Web site in terms of its search and responding
capabilities. It was also one of the first 1,000 commercial Web sites out of the
more than 300,000 which currently exist. The Monster Board-Registered Trademark-
currently lists approximately 15,000 jobs offered by over 3,000 employers, and
clients of The Monster Board-Registered Trademark- include Nike, McDonald's, BBN
Planet, CompuServe, Deloitte & Touche, and USA TODAY. According to Nielson Media
Research Internet Profiles Corporation, The Monster Board-Registered Trademark-
received over 7.7 million hits (an entry into the log file on its server) in
June 1996, and is averaging approximately 15,000 visits daily with the average
length of each visit approaching nine and one-half minutes. Users of The Monster
Board-Registered Trademark- can search for employment opportunities three ways.
Monster Search-TM- utilizes intuitive scrollbar functionality to access the full
Monster Board-Registered Trademark- database according to location, discipline,
company and job title. Keyword Search allows a user to enter specific keywords
to match skills, job titles or other requirements and Monster NewsSearch employs
Verity-TM- technology to search over 40 Usenet Newsgroups on the Internet which
deliver over 50,000 additional job opportunities. Job seekers can post their
resume into the database free of charge, enabling them to easily transmit their
resume to prospective employers electronically. The Monster
Board-Registered Trademark- currently contains over 45,000 resumes and attracts
on average over 100 new resumes per day.
Online Career Center-SM- (HTTP://WWW.OCC.COM) ("OCC") is the Internet's
earliest career site, originating in late 1992 when a group of U.S. corporations
developed an employment database. Launched in April 1993, OCC is designed to
provide corporate recruiters and job-seekers with efficient and easy-to-use
search software. OCC enters into subscription based agreements with member
companies and functions as a central Internet recruitment and human resources
management service. OCC maintains a Member Services Department which assists
corporate users during business hours. As with The Monster
Board-Registered Trademark-, job seekers can place their resumes on-line. OCC
currently lists more than 20,000 jobs for a broad client base including Allied
Signal, Andersen Consulting, Eli Lilly and Co., Levi Strauss & Co., Smith Barney
and Viacom. OCC is designed for users who prefer Web sites which are more direct
with fewer ancillary features. Its value-added services include career
assistance, a self-help career information section for applicants, recruiter's
office, which provides resource information for corporate recruiters, on-campus,
a link to over 700 colleges and universities nationwide, and membership
opportunities for contractors, agencies and search firms. OCC's pricing
structure is membership-based rather than volume-based, consistent with its
"less frills" market positioning.
MedSearch-SM- (HTTP://WWW.MEDSEARCH.COM) is a leading Internet Web site for
the healthcare industry. Launched in May 1994, MedSearch-SM- attracts healthcare
professionals and many of North America's largest health care providers,
including Duke University Medical Center, Henry Ford Health System, Johns
Hopkins Hospital, Kaiser Permanente, Mayo Clinics & Hospitals and NovaCare.
MedSearch-SM- offers detailed employer profiles, resume postings, discussion
groups, career and industry information, and direct links to numerous healthcare
resources on the Internet. MedSearch-SM- provides access to job listings which
can be searched by location, category, title, employer and key word. Beyond the
core business functions of jobs, resumes and employer profiles, MedSearch-SM-
provides outplacement information and a physician locator.
Be the Boss-SM- (HTTP://WWW.BETHEBOSS.COM/BTB) focuses on the growing
franchising industry. Be the Boss-SM- users can search for current franchise
opportunities on-line and apply directly to franchisors using a
franchisor-customized questionnaire. Franchisor profiles allow users to learn
more about today's top franchise companies such as The Athlete's Foot, Subway
and 7-Eleven. In addition, Be the Boss-SM- provides extensive resources to the
prospective franchisee including sound clips and articles on franchising,
interactive financial worksheets and links to other entrepreneurs' resources on
the Web. Be the Boss-SM- also includes a comprehensive directory of franchises
worldwide.
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TMP has also developed private label applications of its interactive
recruitment products. For example, the Company adapted The Monster
Board-Registered Trademark- technology to create a database of jobs for Fidelity
Investments which resides, through a hyper-link, on the Fidelity home page. The
search features have the look and ease of use associated with The Monster
Board-Registered Trademark- while appearing to the user as a seamless part of
the Fidelity site. TMP intends to continue to market private label products as a
way to increase the scale of its databases.
To differentiate its on-line products, the Company has focused on segmenting
the user market place. For example, The Monster Board-Registered Trademark- is
TMP's premium general recruitment product and is therefore populated with a
variety of value-added features including:
ROAR. A segment of The Monster Board-Registered Trademark- targeted to
the college and entry-level job seekers. Roar offers young professionals the
opportunity to conduct an entry-level career search, access the latest
career and lifestyle trends, pose career-related questions, and enter into
on-line discussions with their peers.
HR1. HR1 is an interactive forum which provides Human Resources
professionals with the ability to catch up on the latest industry trends,
network with colleagues through on-line discussions, learn about pertinent
associations and educational offerings, and review current Human Resources
opportunities.
CEO EXCHANGE. CEO Exchange is an executive resource featuring
interviews with leading CEO's, on-line discussions, and strategies to
approach typical issues or dilemmas. CEO Exchange also offers an executive
level career search.
CAREER CENTER. This employment resource features interviewing and
resume tips, career fair listings, important career links and a career
counselor to respond to questions submitted by users.
In addition to market segmentation, the Company intends to differentiate its
products by tailoring them to specific geographic areas and by branding them
using both traditional advertising media and the Internet. To date, The Monster
Board-Registered Trademark- has been tailored to reflect the local customs and
terminology of the U.S., Canada, the United Kingdom and Australia. In March
1996, the Company began to execute a media plan aimed at branding The Monster
Board-Registered Trademark-.
To attract the maximum amount of volume to its Web sites, TMP intends to
continue to develop additional value-added content while developing strategic
alliances with other on-line content providers. The Company's current strategic
alliances center on The Monster Board-Registered Trademark- and include:
THE GARTNER GROUP. The Gartner Group is the leading provider of
independent research, analysis and advisory services to the information
technology industry. In August 1996, The Monster Board-Registered Trademark-
became the official career hub for Gartner Group's Web site @VANTAGE.COM.
Individuals who access this site can therefore directly access The Monster
Board-Registered Trademark- database through a hyper-link. The interface has
the same functionality and ease of use of The Monster
Board-Registered Trademark-. This arrangement was established on a
co-branded basis such that users will see the logos of both The Monster
Board-Registered Trademark- and the Gartner Group. This alliance serves to
continue to reinforce The Monster Board's brand equity while driving volume
to The Monster Board-Registered Trademark-'s jobs database.
AT&T BUSINESS NETWORK. AT&T Business Network is a comprehensive,
Web-based information and productivity resource designed for business
managers, professionals and entrepreneurs. In July 1996, TMP established a
co-branded career hub alliance with AT&T Business Network structured in a
similar fashion to the Gartner Group alliance. AT&T Business Network and
Industry.Net have merged to form Netts, Inc. and the Company anticipates
that its relationship will expand with this merger.
ZIFF DAVIS INTERACTIVE'S ZDNET. Ziff Davis is a leading publisher of
magazines for the computer industry. In August 1995, TMP entered into an
agreement with Ziff Davis Interactive to use The
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<PAGE>
Monster Board-Registered Trademark- as the official job site for the Ziff
Davis Interactive's ZDNet Web site. Unlike co-branded alliances, however,
this was structured as a private label application. Therefore, the site has
the functionality of The Monster Board-Registered Trademark-, while
appearing to be a seamless component of the host site. The strategic
alliance adds approximately 1,500 users to The Monster
Board-Registered Trademark-'s circulation each day.
RESTRAC, INC. Restrac, Inc. is the leading provider of software used to
automate the recruitment, selection, and placement of an organization's
workforce. Restrac, Inc.'s software is licensed by 450 organizations with
over 4,000 users. Imbedded in Restrac, Inc.'s software is an automatic
download feature whereby job postings can be fed directly into The Monster
Board-Registered Trademark-. Further, resumes posted on The Monster
Board-Registered Trademark- can be downloaded directly into Restrac, Inc.
This alliance significantly streamlines TMP's interface with its clients who
utilize Restrac, Inc.'s software, further enhancing the cost effectiveness
of The Monster Board-Registered Trademark-.
The Monster Board-Registered Trademark- utilizes Sun Microsystem's high-end
Sparc workstations (Sparc 1000's, Super Sparcs, Ultra Sparcs) to provide
commercial-grade Web service to an expanding Internet user-base. The Monster
Board-Registered Trademark- is currently co-located at BBN Planet and connected
to a 10 megabit/second feed. An Oracle-TM- database is incorporated to store
resumes and jobs. Oracle-TM- also allows The Monster Board-Registered Trademark-
to take advantage of agent technology, which allows enhanced user interaction,
personalization and passive, independent data searches which the user can
customize and view the next time they log on to the site. An Open Market-TM-
server is installed to ensure the speed and reliability of The Monster
Board-Registered Trademark- and to add the ability to handle encrypted credit
card transactions over the Web.
SALES AND MARKETING
TMP has over 1,500 employees focused on its sales, marketing and customer
service efforts worldwide. The Company has divided its sales, marketing and
customer service staff into two groups: (i) new business generation
(approximately 150 employees) and (ii) existing client relationships maintenance
and improvement (approximately 1,400 employees). In 1995, the Company acquired
73 new clients with estimated annual gross billings of approximately $30
million. Within each group, TMP maintains separate sales and marketing staffs
for its yellow page advertising business, recruitment advertising business and
Internet business. In addition to specializing by product, each group undertakes
a cross-selling effort of TMP's other products as appropriate. The Company's
Internet sales staff has targeted its yellow page and recruitment advertising
clients to capitalize on the interactivity and additional services that its
Internet products can cost effectively provide such clients. In addition to
pursuing cross-selling opportunities within TMP's existing client base, each
product sales force also designs targeted selling campaigns for non-TMP clients.
TMP's clients have a marketing manager who works closely with the client to
develop and design the appropriate marketing and advertising campaign. The
customer service representatives work closely with the marketing manager and the
client to implement the marketing and advertising campaign, evaluate the
effectiveness of the campaign and monitor client satisfaction levels.
The Company has more than 17,000 clients, including more than 70 of the
Fortune 100 companies and more than 240 of the Fortune 500 companies. No one
client accounts for more than 5% of the Company's annual commissions and fees.
The Company has 45 sales, marketing and customer service offices located in the
United States and 25 offices in the rest of the world. The Company also
maintains relationships with 24 international recruitment advertising agencies
throughout the world, further enhancing the Company's ability to reach qualified
job candidates.
COMPETITION
The markets for the Company's services and products are highly competitive
and are characterized by pressure to reduce prices, incorporate new capabilities
and technologies and accelerate job completion schedules.
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The Company faces competition from a number of sources. These sources
include national and regional advertising agencies, media companies, as well as
specialized and integrated marketing communication firms. Many advertising
agencies and media companies have started to either internally develop or
acquire new media capabilities. New boutiques that provide integrated or
specialized services (such as advertising services or Web site design) and are
technologically proficient, especially in the new media arena, are also
competing with the Company. Many of the Company's competitors or potential
competitors have long operating histories, and some have greater financial,
management, technological, development, sales, marketing and other resources
than the Company. In addition, the Company's ability to maintain its existing
clients and generate new clients depends to a significant degree on the quality
of its services, pricing and its reputation among its clients and potential
clients.
TMP believes that its five largest competitors in the recruitment
advertising segment are Bernard Hodes Advertising, Inc., a subsidiary of
Omnicom, Nationwide Advertising Service, Inc., controlled by the Gund Brothers,
Austin Knight, JWT Specialized Communications, a subsidiary of the WPP Group
USA, Inc., and Universal Communications, a subsidiary of The Interpublic Group
of Companies, Inc. The Company also competes with hundreds of Internet content
providers.
The principal factors on which the Company competes are service, creative
quality, price, technological and new media sophistication and intangible
factors such as the interpersonal skills of the individuals managing the client
account and an adaptive corporate culture. The Company believes that it competes
favorably with respect to each of these factors. See "Risk
Factors--Competition."
PROPERTIES
Substantially all offices of the Company are located in leased premises.
The Company's principal office is located at 1633 Broadway, New York, New
York, where it occupies approximately 44,000 square feet of space under a lease
expiring in June 2004. Monthly payments under the lease currently are $105,712
and escalate during the term of the lease.
The Company also has leases covering local offices throughout the United
States and in some foreign countries.
All leased space is considered to be adequate for the operation of TMP's
business, and no difficulties are foreseen in meeting any future space
requirements.
INTELLECTUAL PROPERTY
The Company's success and ability to compete is dependent in part on the
protection of its original content for the Internet and on the goodwill
associated with its trademarks, trade names, service marks and other proprietary
rights. The Company relies on copyright laws to protect the original content
that it develops for the Internet. In addition, the Company relies on federal
trademark laws to provide additional protection for the appearance of its
Internet sites. A substantial amount of uncertainty exists concerning the
application of copyright laws to the Internet, and there can be no assurance
that existing laws will provide adequate protection for the Company's original
content. In addition, because copyright laws do not prohibit independent
development of similar content, there can be no assurance that copyright laws
will provide any competitive advantage to the Company.
The Company has registered "The Monster Board-Registered Trademark-." The
Company also asserts common law protection on certain names and marks that it
has used in connection with its business activities.
The Company relies on trade secret and copyright laws to protect the
proprietary technologies that it has developed to manage and improve its
Internet sites and advertising services, but there can be no assurance that such
laws will provide sufficient protection to the Company, that others will not
develop technologies that are similar or superior to the Company's, or that
third parties will not copy or otherwise
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obtain and use the Company's technologies without authorization. The Company has
filed patent applications with respect to certain of its software systems,
methods and related technologies, but there can be no assurance that such
applications will be granted or that any future patents will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
a competitive advantage for the Company. In addition, the Company relies on
certain technology licensed from third parties, and may be required to license
additional technology in the future, for use in managing its Internet sites and
providing related services to users and advertising customers. The Company's
ability to generate fees from Internet commerce may also depend on data
encryption and authentication technologies that the Company may be required to
license from third parties. There can be no assurance that these third party
technology licenses will be available or will continue to be available to the
Company on acceptable commercial terms or at all. The inability to enter into
and maintain any of these technology licenses could have a material adverse
effect on the Company's business, financial condition and operating results.
Policing unauthorized use of the Company's proprietary technology and other
intellectual property rights could entail significant expense and could be
difficult or impossible, particularly given the global nature of the Internet
and the fact that the laws of other countries may afford the Company little or
no effective protection of its intellectual property. In addition, there can be
no assurance that third parties will not bring claims of copyright or trademark
infringement against the Company or claim that the Company's use of certain
technologies violates a patent. The Company anticipates an increase in patent
infringement claims involving Internet-related technologies as the number of
products and competitors in this market grows and as related patents are issued.
Further, there can be no assurance that third parties will not claim that the
Company has misappropriated their creative ideas or formats or otherwise
infringed upon their proprietary rights in connection with its Internet content.
Any claims of infringement, with or without merit, could be time consuming to
defend, result in costly litigation, divert management attention, require the
Company to enter into costly royalty or licensing arrangements or prevent the
Company from using important technologies or methods, any of which could have a
material adverse effect on the Company's business, financial condition or
operating results.
GOVERNMENT REGULATION
As an advertising agency which creates and places print and Internet
advertisements, the Company is subject to Sections 5 and 12 of the Federal Trade
Commission Act (the "FTC Act") which regulate advertising in all media,
including the Internet, and require advertisers and advertising agencies to have
substantiation for advertising claims before disseminating advertisements. The
FTC Act prohibits the dissemination of false, deceptive, misleading, and unfair
advertising, and grants the Federal Trade Commission ("FTC") enforcement powers
to impose and seek civil penalties, consumer redress, injunctive relief and
other remedies upon advertisers and advertising agencies which disseminate
prohibited advertisements. Advertising agencies such as TMP are subject to
liability under the FTC Act if the agency actively participated in creating the
advertisement, and knew or had reason to know that the advertising was false or
deceptive.
In the event that any advertising created by TMP was found to be false,
deceptive or misleading, the FTC Act could potentially subject the Company to
liability. The fact that the FTC has recently brought several actions charging
deceptive advertising via the Internet, and is actively seeking new cases
involving advertising via the Internet, indicates that the FTC Act could pose a
somewhat higher risk of liability to the advertising distributed via the
Internet. The FTC has never brought any actions against the Company.
As a provider of Internet content, the Company is subject to the provisions
of the recently enacted Communications Decency Act (the "CDA"), which, among
other things, imposes criminal penalties on anyone that distributes certain
prohibited material over the Internet. Although the manner in which the CDA will
be interpreted and enforced and its effect on the Company's operations cannot
yet be fully determined, the CDA could subject the Company to substantial
liability. The CDA could also dampen the growth of the Internet generally and
decrease the acceptance of the Internet as an advertising medium,
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and could, therefore, have a material adverse effect on the Company's business,
financial condition or operating results. It is also possible that new laws and
regulations will be adopted covering issues such as privacy, copyright
infringement, subject matter and the pricing, characteristics and quality of
Internet products and services. Application to the Internet of existing laws and
regulations governing issues such as property ownership, libel and personal
privacy is also subject to substantial uncertainty.
There can be no assurance that the CDA or other current or new government
laws and regulations, or the application of existing laws and regulations will
not subject the Company to significant liabilities, significantly dampen growth
in Internet usage, prevent the Company from offering certain Internet content or
services or otherwise cause a material adverse effect on the Company's business,
financial condition or operating results.
LEGAL PROCEEDINGS
The Company is involved in various legal proceedings that are incidental to
the conduct of its business. Except as set forth in "--Litigation," the Company
is not involved in any pending or threatened legal proceedings which the Company
believes could reasonably be expected to have a material adverse effect on the
Company's financial condition or results of operations.
LITIGATION
In November 1996, an action was commenced in the Supreme Court of the State
of New York against Old TMP, WCI and Andrew J. McKelvey by a former employee.
The complaint alleges, among other things, that the defendants breached
purported contractual obligations pursuant to which the former employee was
entitled to a 40% ownership interest in the Company's recruitment advertising
business, and breached fiduciary obligations to the former employee arising out
of the deprivation of his supposed 40% interest. The former employee seeks
damages in an unspecified amount and punitive damages in the amount of $10
million for each claim. The Company and Mr. McKelvey intend to vigorously
contest the complaint. There can be no assurance as to the outcome of the
litigation and, in the event of a decision adverse to the Company, the Company's
business, financial condition and operating results, and the Company's
stockholders, could be materially adversely affected. Mr. McKelvey has agreed to
indemnify the Company against any adverse judgment. There can be no assurance,
however, that Mr. McKelvey will have sufficient financial resources to satisfy
any indemnification claims.
EMPLOYEES
At October 31, 1996, the Company employed 2,205 people, of whom 1,448 were
client services personnel, 159 were sales and marketing personnel and 300 were
creative and graphics personnel. The remainder of the Company's personnel are
financial and administrative personnel. The Company's employees are not
represented by a labor union or a collective bargaining agreement. The Company
regards its employee relations as excellent.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of the
executive officers and directors of the Company. Their respective backgrounds
are described following the table.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------- ----------- ---------------------------------------------------------
<S> <C> <C>
Andrew J. McKelvey............................... 62 Chairman of the Board, President and Director
Thomas G. Collison............................... 57 Vice Chairman and Secretary
David A. Hosokawa................................ 53 Vice Chairman
Paul M. Camara................................... 49 Executive Vice President--Creative/Sales/Marketing
Jeffrey C. Taylor................................ 36 Executive Vice President--Interactive
James J. Treacy.................................. 38 Executive Vice President--Finance and Strategy
Roxane Previty................................... 37 Chief Financial Officer
Bernice M. Hazell................................ 42 Senior Vice President--Client Service
V. Miller Newton................................. 37 Senior Vice President--Sales and Marketing
Myron F. Olesnyckyj.............................. 35 Vice President--General Counsel
George R. Eisele................................. 60 Executive Vice President of TMP Worldwide Direct and
Director
John R. Gaulding (1)(2).......................... 51 Director
Graeme K. Howard, Jr. (1)........................ 64 Director
Jean-Louis Pallu................................. 56 Director
John Swann (1)(2)................................ 60 Director
</TABLE>
- ------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
ANDREW J. MCKELVEY founded the Company in 1967, and has served as Chairman
of the Board and President since that time. Mr. McKelvey has a B.A. from
Westminster College. Mr. McKelvey was a member of the Board of Directors of the
Yellow Pages Publishers Association and the Association of Directory Marketing
from 1994 through September 1996.
THOMAS G. COLLISON joined the Company in February 1977 as Controller.
Subsequently, he was named Vice President--Finance; Senior Vice President;
Executive Vice President and Chief Financial Officer and, in March 1996, Vice
Chairman. Mr. Collison received a B.S. from Fordham University.
DAVID A. HOSOKAWA joined the Company in November 1991 as Chief Executive
Officer and, prior thereto, was a consultant to the Company for four years. He
was named to his current position in April 1996. Mr. Hosokawa has a B.A. from
St. Olaf College.
PAUL M. CAMARA joined the Company in February 1970. Mr. Camara was elected
as a Vice President of the Company in 1978 and as a Senior Vice President in
1987. He was named to his current position in April 1996. Mr. Camara received a
B.A. from University of Massachusetts--Dartmouth.
JEFFREY C. TAYLOR joined the Company in November 1995. Mr. Taylor was
founder and president of Adion, Inc., a recruitment advertising firm, from May
1989 until its purchase by the Company in November 1995. Mr. Taylor founded The
Monster Board-Registered Trademark- in April 1994. He attended the University of
Massachusetts.
JAMES J. TREACY joined the Company in June 1994 as chief executive officer
of the recruitment division. In April 1996, Mr. Treacy was named to his current
position. Prior to joining the Company, Mr. Treacy was Senior Vice
President--Western Hemisphere Treasurer for the WPP Group USA, Inc. Prior
thereto,
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Mr. Treacy was a corporate officer of The Ogilvy Group Inc. Mr. Treacy received
a B.B.A. from Siena College and an M.B.A. from St. John's University.
ROXANE PREVITY joined the Company in November 1994. Ms. Previty was employed
by WPP Group USA, Inc. in various capacities from June 1987 until October 1994.
Ms. Previty holds a B.A. from Stanford University and an M.B.A. from Harvard
Business School.
BERNICE M. HAZELL joined the Company in 1975. Ms. Hazell has been named to
various managerial positions with increasing responsibility. She was named to
her present position in October 1991.
V. MILLER NEWTON joined the Company in June 1986 as Director of New Business
Development. From 1991 through March 1996, he was appointed to various executive
positions with increasing responsibility including Group Vice President from
January 1993 through March 1996. In April 1996, he assumed his current position.
Mr. Newton attended the University of South Florida.
MYRON F. OLESNYCKYJ joined the Company in June 1994. From September 1986
through May 1994, Mr. Olesnyckyj was associated with Fulbright & Jaworski L.L.P.
and predecessor firms. Mr. Olesnyckyj holds a B.S.F.S. from Georgetown
University's School of Foreign Service and a J.D. from the University of
Pennsylvania Law School.
GEORGE R. EISELE joined the Company in 1976, and has been Executive Vice
President of TMP Worldwide Direct, the Company's direct marketing division,
since 1989, and a director of the Company since September 1987.
JOHN R. GAULDING became a director in January 1996. Mr. Gaulding is a
private investor and business consultant in the fields of strategy and
organization. He was Chairman and Chief Executive Officer of National Insurance
Group, a publicly traded financial information services company, from April
through July 11, 1996, the date of such company's sale and Corporate Vice
President of ADP, Inc. For six years prior thereto, he was President and Chief
Executive Officer of ADP Claims Solutions Group. From 1985 to 1990, Mr. Gaulding
was President and Chief Executive Officer of Pacific Bell Directory, the yellow
page publishing unit of Pacific Telesis Group. Mr. Gaulding served as
Co-Chairman of the Yellow Pages Publishers Association from 1987 to 1990. He
holds a B.S. from the University of California at Los Angeles and an M.B.A. from
the University of Southern California.
GRAEME K. HOWARD, JR. became a director in September 1996. Mr. Howard is an
investment banker, lawyer and publisher. Mr. Howard is a partner of Howard,
Lawson & Co., an investment banking firm which he founded in 1972. He has been
the editor or publisher of GOING PUBLIC; THE IPO REPORTER; PRIVATE PLACEMENTS;
GROWTH CAPITAL; BUSINESS BORROWER; EUROPEAN TAXATION; AND THE TAXATION OF PATENT
ROYALTIES, DIVIDEND, INTEREST IN EUROPE. Mr. Howard is a member of the
Connecticut and Pennsylvania bars and practiced international business law in
Amsterdam and Philadelphia from 1960-1967. From 1967-1972 he was a partner in
the corporate finance department of a regional investment banking firm. Mr.
Howard was a member of the Board and the audit committee of Advanta Corp., a
NASDAQ listed credit card, leasing and consumer lender from 1986-1995. From
1994-1996, Mr. Howard was vice chairman of the Board of Datatec Industries Inc,
a network integrator. Since April 1996, Mr. Howard has been a financial advisor
to Datatec. Mr. Howard received a B.A. from Amherst College and a LLB from Yale
Law School.
JEAN-LOUIS PALLU became a director in September 1996. From 1992 until June
1996, Mr. Pallu was President of ODA, the yellow pages subsidiary of Havas, a
French advertising firm. Prior thereto, since 1974, he was employed by that firm
in various executive capacities. Mr. Pallu was graduated from Diplome de l'
Ecole des Hautes Etudes Commerciales with a concentration in business. He is a
Chevalier of the National Order of Merit.
JOHN SWANN became a director in September 1996. In 1995, Mr. Swann founded
Cactus Digital Imaging Systems, Ltd., Canada's largest supplier of
electronically produced large format color prints.
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All directors hold office until the next meeting of the stockholders of the
Company and until their successors are elected and qualified. Officers are
appointed to serve, at the discretion of the Board of Directors, until their
successors are appointed.
The Board of Directors has a Compensation Committee charged with
recommending to the Board the compensation for the Company's executives and
administering the Company's stock option and benefit plans. The Compensation
Committee is currently composed of Messrs. Gaulding and Swann.
The Board of Directors has an Audit Committee charged with recommending to
the Board the appointment of independent auditors of the Company, as well as
discussing and reviewing, with the independent auditors, the scope of the annual
audit and results thereof. The Audit Committee is currently composed of Messrs.
Gaulding, Swann, and Howard.
The Board of Directors has a Strategy Committee charged with recommending to
the Board strategic plans. The Strategy Committee is currently composed of
Messrs. Gaulding, Pallu and Swann.
DIRECTOR COMPENSATION
Prior to this offering, Mr. Gaulding, a non-employee director, received a
director's fee of $20,000 per quarter plus reimbursement of expenses incurred in
connection with his duties as a director. Prior to this offering, Messrs. Swann,
Pallu and Howard were provided with reimbursement of expenses incurred in
connection with their respective duties as a director. Upon completion of this
offering, Messrs. Gaulding, Swann and Pallu will receive $15,000 per year for
services rendered as directors, plus a per meeting fee of $5,000 for each
meeting of the board of directors or a committee of the board of directors
attended in person after the fifth such meeting attended in person, plus
reimbursement of expenses incurred in connection with their duties as directors.
Each current and future non-employee director is also eligible to receive stock
options under the Company's Stock Option Plan for Non-Employee Directors. Mr.
Howard was granted options to purchase 125,000 shares of Common Stock at a per
share exercise price equal to the initial public offering price. 50,000 of such
options vest the day after the closing of this offering; the remaining 75,000
options vest in equal installments of 25,000 each on June 1, 1997, June 1, 1998
and May 31, 1999. See "Management--Stock Options."
EXECUTIVE COMPENSATION
The following table sets forth information concerning all cash and non-cash
compensation awarded to, earned by or paid to the Company's chief executive
officer and each of the next four most highly compensated executive officers for
services rendered to the Company during the fiscal year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------
OTHER
ANNUAL
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- ------------------------------------------------------------ --------- --------- -----------
<S> <C> <C> <C>
Andrew J. McKelvey (1),..................................... $558,731 $ 710,000 $ 2,730(3)
Chairman of the Board and President
David A. Hosokawa,.......................................... 299,066 129,000 2,730(3)
Vice Chairman
James J. Treacy (2),........................................ 180,000 197,500 2,730(3)
Executive Vice President--Finance and Strategy
Thomas G. Collison,......................................... 205,418 62,000 2,730(3)
Vice Chairman and Secretary
Paul M. Camara,............................................. 223,566 37,000 2,730(3)
Executive Vice President--Creative/Sales/Marketing
</TABLE>
- ------------------------
(1) Mr. McKelvey has entered into an employment agreement with the Company
effective as of November 15, 1996. See "--Employment Agreements."
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(2) Mr. Treacy has entered into an employment agreement with the Company
effective as of November 18, 1996. See "-- Employment Agreements."
(3) Represents matching contributions made to the Company's 401k Plan.
STOCK OPTIONS
In January 1996, the Company's Board of Directors adopted the 1996 Employee
Stock Option Plan (the "Stock Option Plan"), which provides for the issuance of
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and non-qualified stock options,
to purchase an aggregate of up to 900,000 shares of the Common Stock of the
Company. The Stock Option Plan permits the grant of options to officers,
employees and consultants of the Company and its affiliates.
The Stock Option Plan is administered by the Compensation Committee. Each
option is evidenced by a written agreement in a form approved by the
Compensation Committee. No options granted under the Stock Option Plan are
transferable by the optionee other than by will or by the laws of descent and
distribution, and each option is exercisable, during the lifetime of the
optionee, only by the optionee.
Under the Stock Option Plan, the exercise price per share of an incentive
stock option must be at least equal to 100% of the fair market value of a share
of the Common Stock on the date of grant (110% of the fair market value in the
case of options granted to employees who hold more than ten percent of the
voting power of the Company's capital stock on the date of grant). The per share
exercise price of a non-qualified stock option must be not less than the par
value of a share of the Common Stock on the date of grant. The term of an
incentive or non-qualified stock option is not to exceed ten years (five years
in the case of an incentive stock option granted to a ten percent holder). The
Compensation Committee has the discretion to determine the period required for
full exercisability of stock options; however, in no event can the Compensation
Committee shorten such period to less than six months. Upon exercise of any
option granted under the Stock Option Plan, the exercise price may be paid in
cash, and/or such other form of payment as may be permitted under the applicable
option agreement, including, without limitation, previously owned shares of
Common Stock. The Stock Option Plan provides that the maximum option grant which
may be made to an executive officer in any calendar year is 45,000 shares.
On January 3, 1996, options to purchase an aggregate of 296,640 shares of
Common Stock were granted to 97 officers, employees and consultants of the
Company at a per share purchase price equal to $6.65, the fair market value of
the Common Stock on the date of grant as determined by the Board. Of the 296,640
options, 7,056 options which were not vested were subsequently canceled upon the
recipients' leaving the Company's employ. Mr. Hosokawa was granted incentive
stock options to purchase 11,250 shares of Common Stock at a per share exercise
price of $6.65 per share. On December 10, 1996, options to purchase 125,000
shares of Common Stock were granted to Mr. Howard at a per share exercise price
equal to the initial public offering price.
The Company has adopted a Stock Option Plan for Non-Employee Directors (the
"Directors' Plan"), pursuant to which options to acquire a maximum aggregate of
180,000 shares of Common Stock may be granted to non-employee directors. Options
granted under the Directors' Plan do not qualify as incentive stock options
within the meaning of Section 422 of the Code. Pursuant to the Directors' Plan,
each of Messrs. Gaulding, Howard, Pallu and Swann, its non-employee directors,
was granted an option to purchase 11,250 shares of Common Stock at a purchase
price per share equal to the fair market value of the Common Stock on the date
of such Director's election ($6.65 in the case of Mr. Gaulding and the per share
initial public offering price in the cases of Messrs. Swann, Pallu and Howard).
The options granted to Mr. Howard under the Directors' Plan were subsequently
canceled. The options have a ten-year term and become exercisable as determined
by the Committee. The options may be exercised by payment in cash, check or
shares of Common Stock.
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EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Andrew J.
McKelvey, effective as of November 15, 1996, for a term ending on November 14,
2001. The agreement provides for automatic renewal for successive one year terms
unless either party notifies the other to the contrary at least 90 days prior to
its expiration. The agreement also provides that Mr. McKelvey will serve as
Chairman of the Board and President of the Company and will be nominated for
election as a director during all periods of his employment. Under the
agreement, Mr. McKelvey is entitled to a base salary of $1,500,000 per year and
mandatory bonuses of $375,000 per quarter. Under the agreement, Mr. McKelvey may
terminate his employment upon 90 days' prior written notice for any reason. The
agreement also provides that in the event Mr. McKelvey's employment is
terminated by the Company prior to its expiration for reasons other than for
"cause," the Company shall pay Mr. McKelvey his base salary and mandatory
bonuses for the remaining term of the agreement at the times they would have
been payable had he remained employed. The agreement further provides that in
the event of Mr. McKelvey's voluntary resignation, termination of his employment
by the Company for cause or nonrenewal of the agreement, Mr. McKelvey shall not
be entitled to any severance, and in the event of his disability or death he or
his estate be paid his base salary and mandatory bonuses for a period of 180
days at the times they would have been payable had he remained employed. The
agreement also contains confidentiality provisions, whereby Mr. McKelvey agrees
not to disclose any confidential information regarding the Company and its
affiliates.
The Company has entered into an employment agreement with James J. Treacy,
effective as of November 18, 1996, for an indefinite term on an at-will basis.
The agreement provides that either party may terminate the agreement for any
reason. Pursuant to the agreement, Mr. Treacy will serve as Executive Vice
President - Finance and Strategy of the Company for a base salary of $200,000
and an annual minimum bonus of at least $35,000. The agreement provides that in
the event Mr. Treacy is terminated for "cause" or voluntarily resigns, he shall
not be entitled to any severance, and in the event Mr. Treacy is terminated by
reason of his death, disability or for other reasons, he or his estate shall be
entitled to his base salary and minimum annual bonus for a period of one year
after the effective date of his termination payable at the times they would have
been payable had he remained employed, less income earned by him from the
performance of any personal services during such period. The agreement contains
confidentiality provisions, whereby Mr. Treacy agrees not to disclose any
confidential information regarding the Company and its affiliates, as well as
nonsolicitation provisions which prohibit Mr. Treacy from soliciting any active
or prospective accounts of the Company or its affiliates for a period of one
year following termination.
The Company's subsidiary, TMP Interactive Inc., entered into an amended and
restated employment agreement with Jeffrey C. Taylor, effective as of September
11, 1996, for a term ending November 9, 1998. That agreement provides for
automatic renewal for successive one year terms unless either party notifies the
other to the contrary at least 60 days prior to its expiration. The agreement
provides that Mr. Taylor will serve as Chief Executive Officer of TMP
Interactive Inc. and provides Mr. Taylor with a base salary of $125,000 per year
and annual bonuses of at least $50,000 per year based on formulae mutually
agreed to by the parties. Under the agreement, Mr. Taylor may terminate his
employment upon written notice for certain material alterations in his
responsibilities, duties, and authorities or upon 60 days' prior written notice
for any reason. The agreement provides that in the event Mr. Taylor's employment
is terminated by TMP Interactive Inc. prior to its expiration for reasons other
than cause or is terminated by Mr. Taylor for certain material alterations in
his responsibilities, duties and authorities, TMP Interactive Inc. shall pay Mr.
Taylor his base salary and a minimum $50,000 annual bonus for the remaining term
of the agreement at the times they would have been payable had he remained
employed, less the consideration paid or earned by Mr. Taylor from other
employment during such period. The agreement also provides that in the event of
Mr. Taylor's voluntary resignation, termination of his employment by TMP
Interactive Inc. for "cause" or nonrenewal of the agreement, Mr. Taylor shall
not be entitled to any severance, and in the event of his disability or death he
or his estate shall be paid his base salary and certain other benefits for a
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period of 90 days at the times they would have been payable had he remained
employed. The agreement contains confidentiality provisions, whereby Mr. Taylor
agrees not to disclose any confidential information regarding TMP Interactive
Inc. and its affiliates, as well as noncompetition provisions. The
noncompetition covenants generally survive the termination or expiration of Mr.
Taylor's employment for two years, provided that in certain circumstances TMP
Interactive Inc. must pay Mr. Taylor one-half of his base salary and one-half of
his $50,000 minimum annual bonus for the duration of the noncompetition
obligation. Mr. Taylor's agreement also prohibits him from soliciting or
servicing customers or prospective customers of TMP Interactive Inc. and its
affiliates for a period of two years following the termination or expiration of
his employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On September 16, 1996, the Company's Board of Directors established a
Compensation Committee, which currently consists of Messrs. Gaulding and Swann
to recommend compensation for the Company's executives and to administer the
Company's stock option and other benefit plans. Prior to September 16, 1996, all
matters concerning executive officer compensation were addressed by the entire
Board of Directors. During 1995, Messrs. McKelvey and Eisele were directors and
executive officers of the Company. See "Certain Transactions."
CERTAIN TRANSACTIONS
The Company has made advances to Messrs. McKelvey, Hosokawa and Collison;
the largest aggregate amount of advances outstanding to such individuals at any
time during 1993 were $4,652,412, $123,659 and $119,840, respectively; at any
time during 1994 were $9,367,222, $123,659 and $141,930, respectively; at any
time during 1995 were $6,530,469, $105,031 and $141,230; and at any time during
1996 were $9,490,002, $113,317 and $136,680, respectively. The total gross
amounts advanced to Messrs. McKelvey, Hosokawa and Collison during such periods
were $4,515,870, $123,659 and $6,954 in 1993, respectively; $9,206,681, $5,100
and $44,839 in 1994, respectively; $612,509, $1,813 and $0 in 1995,
respectively; and $4,537,159, $10,503 and $0 in 1996, respectively. Mr. McKelvey
repaid $1,306,458 in 1993, $5,487,160 in 1994, $2,271,040 in 1995 and $1,577,157
in 1996, Mr. Hosokawa repaid $27,758 in 1994 and $0 in 1993, 1995 and 1996. Mr.
Collison repaid $23,791 in 1993, $6,614 in 1994, $4,550 in 1995 and $3,868 in
1996. At September 30, 1996, Messrs. McKelvey, Hosokawa and Collison were
indebted to the Company in the amounts of $9,490,002, $113,317 and $133,087,
respectively. These advances do not bear interest. The foregoing advances were
unsecured and are repayable on demand. The advances consisted primarily of
tuition loans and personal loans. These loans were deemed to be in the best
interests of the Company for purposes of facilitating the cash needs of key
executive officers of the Company. The advances were approved or ratified by the
entire Board, including disinterested directors, in accordance with applicable
law and in accordance with general Company policies. The foregoing advances were
provided by either McKelvey Enterprises, Inc. or Old TMP. Since 1993 until the
effectiveness of the Mergers, the Board of McKelvey Enterprises, Inc. consisted
of Messrs. McKelvey, Eisele and a non-employee director; since 1993 until
January 1996, the Board of Old TMP consisted of Messrs. Eisele, Hosokawa and
McKelvey; in January 1996, Mr. Gaulding joined that Board and in September 1996
that Board took its present form. The advances were made on an unsecured basis
in light of the creditworthiness of the individuals receiving such advances.
Upon consummation of this offering, Mr. McKelvey's indebtedness will be
converted to a promissory note, as described below. The Company has adopted a
policy that will be effective upon the consummation of this offering prohibiting
loans (other than travel advances in the ordinary course of business and tuition
loans in accordance with Company policy) to its executive officers, directors
and principal stockholders unless such loans are approved by the Compensation
Committee, which must determine that such loans are in the best interests of the
Company. Any loans made will bear interest at a rate and be on such terms as
determined by the Compensation Committee to be fair to the Company. The
Compensation Committee currently consists of Messrs. Gaulding and Swann, each of
whom is a non-
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employee director. In the event a member of the Compensation Committee has a
direct personal interest in a matter, that member's vote shall not be counted in
determining whether such matter is approved by the Compensation Committee. All
other transactions with affiliates other than loans and compensation matters
will be subject to approval by the Board which must determine that such
transactions are in the best interests of the Company.
On January 3, 1995, in connection with the acquisition of a yacht, the
Company and a subsidiary of the Company, Aeronautic Media, Inc. ("AMI") entered
into an agreement with Mr. McKelvey pursuant to which Mr. McKelvey agreed to be
solely responsible for the $1,690,000 loan used to finance the yacht. Mr.
McKelvey has agreed to purchase the yacht upon consummation of this offering at
the then net book value of such yacht, thereby increasing his indebtedness to
the Company in the amount of approximately $2,920,000, the net book value of the
yacht on October 31, 1996. Upon consummation of this offering, Mr. McKelvey will
convert all of his indebtedness to the Company, including but not limited to the
indebtedness incurred in connection with Mr. McKelvey's acquisition of the
yacht, to a promissory note. Such promissory note will initially bear interest
at the prime rate established by The Bank of New York at the date of the note
and shall be adjusted December 31, 1997 and each December 31st thereafter to the
Bank of New York prime rate in effect on such dates. The Note will provide for
annual payments of all accrued but unpaid interest commencing December 31, 1997.
The principal amount shall be payable in equal annual installments of
one-sixtieth of the initial principal amount commencing December 31, 1997, with
all unpaid principal due ten years from the date of the note.
On January 1, 1996, the Company purchased Mr. McKelvey's 100% interest in
Volando, Inc., the sole stockholder of Online Career Center Management, Inc.,
for $1,000, the same consideration paid by Mr. McKelvey in connection with the
initial issuance of those shares to him on December 20, 1994.
On January 1, 1996, Mr. McKelvey contributed to the Company his 100%
interest in EPI Aviation, Inc., which leases an aircraft. The aircraft is leased
by EPI Aviation, Inc. from an unaffiliated third party pursuant to a lease
agreement dated October 27, 1995. The lease provides for a term of 24 months and
a basic rent of $85,000 per month plus additional rent of $379.36 per flight
hour. In consideration of a payment of $350,000, EPI Aviation, Inc. also
acquired an option to purchase the aircraft no earlier than January 1, 1997 for
a purchase price of $6,060,000. EPI Aviation, Inc. has no cost basis in the
aircraft.
On July 16, 1996, Mr. McKelvey contributed to the Company his 100% interest
in General Directory Advertising Services, Inc., a yellow page advertising
agency. On August 15, 1996, the Company purchased Mr. McKelvey's 80.42% interest
in National Media Holding Company, Inc., the sole stockholder of a yellow page
advertising agency, for $280,000. On September 1, 1996, the Company purchased
Mr. McKelvey's 48.92% interest in Telephone Directory Advertising, Inc., a
yellow page advertising agency, for $837,000. The Company had originally sold
such stock to Mr. McKelvey on December 31, 1992 for $837,306.
On September 4, 1996, Mr. McKelvey sold his interest in S.M.E.T. Servizio
Marketing Elenchi Telefonici s.r.l. to the Company for $140,620. The Company had
originally sold such interest to Mr. McKelvey on June 5, 1990 for $140,620.
Messrs. McKelvey, Collison, Camara, Newton, Eisele and Ms. Hazell have
17.8%, 5.8%, 5.4%, 0.6%, 0.2% and 3.2% interests, respectively, in the McKelvey
Enterprises, Inc. Profit Sharing Plan. Proceeds of this offering will be used to
redeem all of the shares of the Company's preferred stock owned by such plan.
Messrs. McKelvey, Eisele, Camara and Collison have approximately 69.4%, 10%,
5% and 5% interests, respectively, in International Drive, L.P., the lessor of
the Company's 48,000 square foot office in Mt. Olive, New Jersey. This lease
runs through December 1998 and the Company's rent for this space is $44,000 per
month. Mr. McKelvey has an 80% interest in 12800 Riverside Drive Corporation,
the lessor of the Company's 15,802 square foot office in North Hollywood,
California. This lease runs through May 2013 and the Company's rent for this
space is $16,000 per month. Mr. McKelvey has a 49% interest in
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TMP Development Company Inc., the lessor of the Company's 5,000 square foot
office in Holliston, Massachusetts. This lease is month to month and the
Company's rent for this space is currently $6,875 per month. Mr. McKelvey has a
49% interest in TPH & AJM, a partnership, the lessor of the office occupied by
Telephone Directory Advertising, Inc., an entity in which the Company has 48.92%
interest. This lease runs through May 1999 and Telephone Directory Advertising,
Inc.'s rent for this space is currently $9,955 per month.
Messrs. Collison and Camara each have a 1% interest in Programmes Marketing
Annuaires, a yellow page advertising agency in France in which the Company has a
32% interest.
On March 17, 1996, Mr. Eisele exchanged his 10% interest in M.S.I. - Market
Support International, Inc., a subsidiary of the Company providing order
fulfillment services, for 70,056 shares of common stock of the Company.
On January 1, 1996, 3055078 Canada Inc. redeemed Mr. John Swann's ownership
interest for $510 (in Canadian Dollars), the same amount paid by Mr. Swann for
such shares in connection with their initial issuance on September 7, 1994. On
January 1, 1996, Cala H.R.C. Ltd., the Company's Canadian recruitment
advertising subsidiary, entered into a management agreement with Cala Services
Inc., a recruitment advertising company owned by Mr. Swann, pursuant to which
Cala H.R.C. Ltd. provides management services in exchange for a percentage of
the billings of Cala Services Inc. which is agreed to from time to time. The
agreement has no stated term but is terminable by either party on 30 days'
notice. To date, Cala Services Inc. has had no billings and Cala H.R.C. Ltd. has
not provided nor been compensated for any management services.
On November 10, 1995, two of the Company's subsidiaries acquired
substantially all of the assets of Adion, Inc. and Adion Information Services,
Inc. for purchase prices of $2,744,428 and $200,000, respectively, as well as
the assumption of substantially all of the liabilities of such companies,
exclusive of liabilities under or related to employee benefit plans, taxes, and
under laws, rules and regulations regarding health benefits. Mr. Taylor owned
approximately 28% of each of those two companies. In connection with these
acquisitions, the Company and two of its subsidiaries, HGI Acquisition Corp.,
the entity which acquired the assets of Adion, Inc., and TMP Interactive Inc.,
the entity which acquired the assets of Adion Information Services, Inc., also
entered into arrangements with Mr. Taylor personally which arrangements, as
amended, provided for payments of an aggregate of $453,333.37, $230,000 of which
was paid at the time of the acquisitions and a lump sum payment of $150,000
which was paid in March 1996. The balance of these payments was paid in 11
monthly installments of $6,666.67 commencing on December 10, 1995.
On December 9, 1996, Old TMP merged into McKelvey Enterprises, Inc.
Thereafter Worldwide Classified Inc. merged into McKelvey Enterprises, Inc.
McKelvey Enterprises, Inc. then merged into Telephone Marketing Programs
Incorporated and Telephone Marketing Programs Incorporated acquired the
remaining interest in TMP Interactive Inc., a subsidiary of the Company which
operates The Monster Board, not then owned by it. As a result of the foregoing,
Messrs. McKelvey, Hosokawa, Camara, Treacy, Eisele and Taylor received
14,787,540, 467,640, 138,564, 355,860, 151,056 and 142,740 shares of the
Company, respectively.
Other than the advances, the Company believes that all transactions with the
aforementioned directors and executive officers were made on terms no less
favorable to the Company than would have been obtained from unaffiliated third
parties and were approved or ratified by the entire Board, including
disinterested directors.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 10, 1996, by (i) those
persons known to the Company to be the beneficial owner of more than five
percent of the outstanding Common Stock, (ii) each of the Company's directors,
(iii) each of the persons named in the Summary Compensation Table, (iv) all
directors and executive officers of the Company as a group and (v) each Selling
Stockholder. Unless otherwise indicated below, the persons named below have sole
voting and investment power with respect to the number of shares set forth
opposite their names, subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK SHARES OF COMMON STOCK
BENEFICIALLY OWNED BEFORE BENEFICIALLY OWNED AFTER
THE OFFERING(1) NUMBER OF THE OFFERING(1)
------------------------- SHARES BEING -------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT SOLD NUMBER PERCENT
- ---------------------------------------------------- ------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Andrew J. McKelvey.................................. 14,787,541(2) 71.33% -- 14,787,541 59.45%
Paul M. Camara...................................... 138,564 * -- 138,564 *
Thomas G. Collison.................................. 144,720 * 7,236 137,484 *
David A. Hosokawa(3)................................ 470,453 2.27% 23,382 447,071 1.80%
James J. Treacy..................................... 355,860 1.72% 17,793 338,067 1.36%
George R. Eisele.................................... 151,056 * 42,000 109,056 *
Graeme K. Howard, Jr.(4)............................ 50,000 * -- 50,000 *
John R. Gaulding(5)................................. 8,438 * -- 8,438 *
Jean-Louis Pallu(6)................................. 5,625 * -- 5,625 *
John Swann(6)....................................... 5,625 * -- 5,625 *
Edward C. Albertson................................. 46,350 * 7,631 38,719 *
Mark O. Brown....................................... 56,700 * 6,700 50,000 *
Alfred M. Cady III.................................. 792,270 3.82% 39,614 752,656 3.03%
Gerda L. Carlson.................................... 69,840 * 10,000 59,840 *
Chatelain Family Trust(7)........................... 1,071 * 546 525 *
Daniel Collins...................................... 44,586 * 5,000 39,586 *
Crawford Charitrust(7).............................. 4,285 * 2,184 2,101 *
Jennifer Dersh and Steven Dersh(7).................. 4,285 * 1,034 3,251 *
Grech Family Limited Partnership.................... 82,890 * 30,000 52,890 *
Lance S. Johnson.................................... 81,000 * 10,000 71,000 *
1996 Robert M. Kanne and Ethel B. Kanne Charitable
Remainder Unitrust................................ 69,264 * 69,264 0 --
Kidd Family Trust(7)................................ 71,428 * 36,408 35,020 *
Harold L. Levy...................................... 81,000 * 16,000 65,000 *
Ronald Plotkin...................................... 340,380 1.64% 40,000 300,380 1.21%
Roxane Previty...................................... 19,080 * 954 18,126 *
Nancy Rooney........................................ 22,680 * 2,680 20,000 *
J. Christopher Stimac............................... 141,282 * 23,261 118,021 *
Jeffrey C. Taylor(3)................................ 145,553 * 7,137 138,416 *
Michael Torrey...................................... 44,586 * 15,000 29,586 *
Lance Willis........................................ 115,614 * 10,000 105,614 *
BNY Financial Corporation(8)........................ 228,768 1.10% 228,768 0 --
All directors and executive officers as a group (15
persons)(9)....................................... 16,369,141 78.65% 98,502 16,270,639 65.20%
</TABLE>
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- ------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power
and/or investment power with respect to those securities.
(2) Consists of Class B Common Stock which is convertible, on a share for share
basis, into Common Stock. See "Description of Common Stock--Common Stock and
Class B Common Stock."
(3) Includes 2,813 shares of Common Stock, subject to options, which are
exercisable within 60 days of the date hereof.
(4) Consists of 50,000 shares of Common Stock, subject to options, which are
exercisable within 60 days of the date hereof.
(5) Consists of 8,438 shares of Common Stock, subject to options, which are
exercisable within 60 days of the date hereof.
(6) Consists of 5,625 shares of Common Stock, subject to options, which are
exercisable within 60 days of the date hereof.
(7) Represents shares which were subject to an option to purchase the indicated
number of shares. The stockholder exercised such option upon the
effectiveness of this offering.
(8) Represents shares which were subject to a warrant to purchase the indicated
number of shares. BNY Financial Corporation exercised such warrant upon the
effectiveness of this offering.
(9) Does not include an aggregate of 122,815 shares subject to the exercise of
outstanding stock options, none of which are exercisable within 60 days of
the date hereof.
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DESCRIPTION OF CAPITAL STOCK
The Certificate of Incorporation of the Company provides the Company with
the authority to issue 200,000,000 shares of Common Stock, 39,000,000 shares of
Class B Common Stock, 200,000 shares of 10.5% Cumulative Preferred Stock and
800,000 shares of Preferred Stock. After giving effect to this offering
(assuming the U.S. Underwriters' over-allotment option is not exercised), the
Company will have outstanding 8,605,436 shares of Common Stock with one vote per
share (representing 5.5% of the combined voting power of the Company) and
14,787,541 shares of Class B Common Stock with ten votes per share (representing
94.5% of the combined voting power of the Company). The Company intends to use a
portion of the net proceeds of this offering to redeem all the outstanding
shares of 10.5% Cumulative Preferred Stock. No shares of Preferred Stock are
outstanding.
COMMON STOCK AND CLASS B COMMON STOCK
DIVIDENDS. Each share of Common Stock and Class B Common Stock is entitled
to dividends if, as and when dividends may be declared by the Board of Directors
of the Company and paid. Under the Delaware General Corporation Law, the Company
may declare and pay dividends only out of its surplus, or in case there shall be
no such surplus, out of its net profits for the fiscal year in which the
dividend is declared and/or the preceding year. No dividends may be declared,
however, if the capital of the Company has been diminished by depreciation,
losses or otherwise to an amount less than the aggregate amount of capital
represented by any issued and outstanding stock having a preference on
distribution. Dividends must be paid on both the Common Stock and the Class B
Common Stock at any time that dividends are paid on either. Any dividend so
declared and payable in cash, capital stock of the Company (other than Common
Stock or Class B Common Stock) or other property will be paid equally, share for
share, on the Class B Common Stock and Common Stock. Dividends and distributions
payable in shares of Class B Common Stock may be paid only on shares of Class B
Common Stock, and dividends and distributions payable in shares of Common Stock
may be paid only on shares of Common Stock. If a dividend or distribution
payable in Common Stock is made on the Common Stock, the Company must also make
a simultaneous dividend or distribution on the Class B Common Stock. Pursuant to
any such dividend or distribution, each share of Class B Common Stock will
receive a number of shares of Class B Common Stock equal to the number of shares
of Common Stock payable on each share of Common Stock.
VOTING RIGHTS. Each share of Common Stock is entitled to one vote and each
share of Class B Common Stock is entitled to ten votes on all matters. Except as
described below, the Common Stock and the Class B Common Stock vote together as
a single class on all matters presented for a vote of the stockholders,
including the election of directors. The holders of a majority of the
outstanding shares of Common Stock or Class B Common Stock, voting as separate
classes, must approve certain amendments affecting shares of such class.
Specifically, if there is any proposal to amend the Certificate of Incorporation
in a manner that would increase or decrease the number of authorized shares of
Common Stock or Class B Common Stock, increase or decrease the par value of the
shares of Common Stock or Class B Common Stock or alter or change the powers,
preferences, or special rights of the shares of Common Stock or Class B Common
Stock so as to affect them adversely, such an amendment must be approved by a
majority of the outstanding shares of the affected class, voting separately as a
class. In addition, any merger or consolidation in which each share of Common
Stock receives consideration that is not of the same type or is less than the
amount of the consideration to be received by each share of Class B Common
Stock, other than consideration payable in securities which provide each share
of Class B Common Stock with the number of votes that is no more than ten times
the number of votes provided each share of Common Stock, must be approved by a
majority of the outstanding shares of Common Stock, voting separately as a
class. Shares of Common Stock and Class B Common Stock do not have cumulative
voting rights.
TERMS OF CONVERSION. Each share of Class B Common Stock is convertible at
any time, at the option of and without cost to the stockholder, into one share
of Common Stock. If at any time (i) the outstanding
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shares of Class B Common Stock represent less than 15% of the combined voting
power of issued and outstanding shares of Common Stock and Class B Common Stock,
or (ii) the Board of Directors and the holder of a majority of the outstanding
shares of Class B Common Stock approve the conversion of all of the Class B
Common Stock into Common Stock, or (iii) the holder of a majority of the
outstanding shares of Class B Common Stock dies, then each outstanding share of
Class B Common Stock shall be converted automatically into one share of Common
Stock without any action by the holder. In the event of such a conversion,
certificates formerly representing outstanding shares of Class B Common Stock
will thereafter be deemed to represent an equal number of shares of Common
Stock.
LIQUIDATION RIGHTS. In the event of the liquidation, dissolution or winding
up of the Company, holders of the shares of Common Stock and Class B Common
Stock are entitled to share equally, share for share, in the assets available
for distribution.
OTHER. Additional shares of Class B Common Stock may only be issued upon
stock splits of, or stock dividends on, the existing Class B Common Stock. No
stockholder of the Company has preemptive or other rights to subscribe for
additional shares of the Company.
10.5% CUMULATIVE PREFERRED STOCK
DIVIDENDS. Each share of 10.5% Cumulative Preferred Stock (the "Cumulative
Preferred Stock") is entitled to receive a cumulative cash dividend at an annual
rate of $1.05 per share, payable on the first day of May of each year (or if
such date is not a regular business day, then the next business day thereafter),
commencing on May 1, 1996. Dividends on the issued and outstanding shares of
Cumulative Preferred Stock shall be preferred and cumulative and shall accrue
from day to day from the date on which such shares are originally issued by the
Corporation ("Original Issue Date"). Holders of Cumulative Preferred Stock
("Cumulative Preferred Holders") are not entitled to participate in any other or
additional earnings or profits of the Company. The Cumulative Preferred Stock
ranks superior in terms of dividend payments to other capital stock of the
Company.
VOTING RIGHTS. Except as may otherwise be required by the Delaware General
Corporation Law, the Cumulative Preferred Holders are not entitled to vote their
shares of Cumulative Preferred Stock on any matter submitted to a vote of the
shareholders of the Company or at any meeting of such shareholders.
REDEMPTION RIGHTS. At any time or from time to time after the Original
Issue Date, Cumulative Preferred Holders may give the Company notice of
intention to require the Company, subject to certain limitations, to redeem
("Put") all or any portion of their Cumulative Preferred Stock (collectively,
"Put Shares"). If a Cumulative Preferred Holder exercises a Put, and if the
Company does not have sufficient surplus to permit it to lawfully purchase all
of the Put Shares subject to any Put under the Delaware General Corporation Law,
the Company shall purchase the Put Shares as soon thereafter as it may lawfully
do so. Upon the Company's default in the redemption of the full amount of Put
Shares subject to an exercised Put, no distribution or dividends (other than
dividends payable in Common Stock or Class B Common Stock) may be made with
respect to other capital stock until such default shall be cured in full. The
Company, pursuant to a certain schedule, may redeem the entire amount or any
part of the shares of issued and outstanding Cumulative Preferred Stock, upon
not less than 60 days' written notice to the Cumulative Preferred Holders
thereof.
LIQUIDATION RIGHTS. In the event of a liquidation, dissolution or winding
up of the Company (hereinafter referred to as "liquidation"), each Cumulative
Preferred Holder is entitled to receive out of the assets of the Company or the
proceeds thereof, with priority over all subordinate capital stock, a
preferential payment in an amount equal to the par value for each share of
Cumulative Preferred Stock, plus an amount equal to all unpaid cumulative
dividends accrued thereon, but without interest. The Cumulative Preferred
Holders are not, however, entitled to participate in any further distribution of
the assets of the Company or otherwise by reason of owning Cumulative Preferred
Stock. Cumulative
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Preferred Stock may not be made subordinate to any other class of capital stock
of the Company unless at least two-thirds of the shares of the Cumulative
Preferred Stock then outstanding permit such action.
TRANSFER RIGHTS. Cumulative Preferred Holders must deliver written notice
("Notice of Transfer") to the principal business office of the Company to the
attention of its Secretary in connection with proposed transfers of Cumulative
Preferred Stock. The Notice of Transfer constitutes an offer to transfer all of
the offered shares to the Company for the same consideration proposed to be
received from a third party.
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more series as
determined by the Board of Directors. The Board of Directors is authorized to
issue the shares of Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, without further vote or action by
the stockholders. The issuance of such Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the voting and other
rights of the holders of Common Stock, including the loss of voting control to
others. The Company currently has no plan to issue any shares of such Preferred
Stock.
REGISTRATION RIGHTS
If the Company proposes to register any of its securities, either for its
own account or for the account of other stockholders, the Company is required,
with certain exceptions, to notify stockholders of the Company holding 2,099,851
shares of Common Stock in the aggregate and, subject to certain limitations,
to include in such registration all of the shares of Common Stock requested to
be included by such holders. Registration rights with respect to 2,054,669
shares of Common Stock terminate on December 31, 1996. The Company is generally
required to pay all the expenses of such registration other than underwriting
discounts and commissions.
DELAWARE ANTI-TAKEOVER LAW
Under Section 203 of the Delaware General Corporation Law (the "Delaware
Anti-Takeover Law"), certain "business combinations" between a Delaware
corporation whose stock generally is publicly traded or held of record by more
than 2,000 stockholders and any person acquiring 15% or more of the voting stock
of such Delaware corporation (an "interested stockholder") are prohibited for a
three-year period following the time that such stockholder became an interested
stockholder, unless (i) either the business combination or the transaction which
resulted in the stockholder becoming an "interested stockholder" was approved by
the board of directors of the corporation prior to the time the other party to
the business combination became an interested stockholder, (ii) upon
consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock owned
by directors who are also officers and stock held in employee stock plans in
which the employees do not have a right to determine confidentially whether to
tender or vote stock held by the plan), or (iii) the business combination was
approved by the board of directors of the corporation and authorized by 66 2/3%
of the voting stock which the interested stockholder did not own. The
corporation may opt out of the effect of this statement by (i) including a
provision to such effect in the corporation's original certificate of
incorporation, (ii) amendment to the corporation's bylaws made by the board of
directors within 90 days after the effective date of the statute or (iii)
amendment of the corporation's certificate of incorporation or bylaws approved
by holders of a majority of the shares entitled to vote; provided that such
amendment shall generally not take effect until 12 months after its adoption and
shall not effect any business
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combination with interested stockholders which are effected during such 12
months. The three-year prohibition does not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of certain extraordinary transactions involving the corporation and
a person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the corporation's directors. The term "business combination" is defined
generally to include mergers or consolidations between a Delaware corporation
and an interested stockholder, transactions with an interested stockholder
involving the assets or stock of the corporation or its majority-owned
subsidiaries and transactions which increase an interested stockholder's
percentage ownership of stock. The term "interested stockholder" is defined
generally as a stockholder who becomes the beneficial owner of 15% or more of a
Delaware corporation's voting stock. Section 203 could have the effect of
delaying, deferring or preventing a change in control of the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that directors of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of a director's duty of loyalty to the Company or
its stockholders, (ii) for acts of omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derives an improper personal benefit. Moreover, the provisions do not
apply to claims against a director for violations of certain laws, including
federal securities laws. If the Delaware General Corporation Law is amended to
authorize the further elimination or limitation of directors' liability, then
the liability of directors of the Company shall automatically be limited to the
fullest extent provided by law. The Company's Bylaws also contain provisions to
indemnify the directors and officers of the Company to the fullest extent
permitted by the Delaware General Corporation Law. In addition, the Company has
entered into indemnification agreements with its current directors. These
provisions and agreements may have the practical effect in certain cases of
eliminating the ability of stockholders to collect monetary damages from
directors. The Company believes that these contractual agreements and the
provisions in its Certificate of Incorporation and Bylaws are necessary to
attract and retain qualified persons as directors and officers.
TRANSFER AGENT
The Transfer Agent for the Common Stock is The Bank of New York.
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CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS OF COMMON STOCK
GENERAL
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a holder who is not a United States person (a "Non-U.S. Holder"), and
who acquires and owns such Common Stock as a capital asset within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"). For
this purpose, the term "Non-U.S. Holder" is defined as any person other than (i)
a citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in the United States or under the laws of the
United States or of any state, or (iii) an estate or trust whose income is
includible in gross income for United States federal income tax purposes,
regardless of its source. This discussion does not consider specific facts and
circumstances that may be relevant to a particular Non-U.S. Holder's tax
position, does not address all aspects of United States federal income and
estate taxes and does not deal with foreign, state and local tax consequences or
United States federal gift taxes that may be relevant to such Non-U.S. Holders
in light of their particular circumstances. Further, it does not discuss the
rules applicable to Non-U.S. Holders subject to special tax treatment under the
federal income tax laws (including, but not limited to, banks and insurance
companies, dealers in securities, and holders of securities held as part of a
"straddle," "hedge," or "conversion transaction"). Furthermore, this discussion
is based on current provisions of the Code, existing and proposed regulations
promulgated thereunder and administrative and judicial interpretations thereof,
all of which are subject to change, possibly on a retroactive basis. Each
prospective purchaser of Common Stock is advised to consult a tax advisor with
respect to current and possible future tax consequences of acquiring, holding,
and disposing of Common Stock.
Proposed United States Treasury Regulations were issued in April, 1996 (the
"Proposed Regulations") which, if adopted, would affect the United States
taxation of dividends paid to a Non-U.S. Holder on Common Stock. The Proposed
Regulations are generally proposed to be effective with respect to dividends
paid after December 31, 1997, subject to certain transition rules. The
discussion below is not intended to be a complete discussion of the provisions
of the Proposed Regulations, and prospective investors are urged to consult
their tax advisors with respect to the effect the Proposed Regulations would
have if adopted.
An individual may, among other ways, subject to certain exceptions, be
deemed to be a resident alien (as opposed to a nonresident alien) by virtue of
being present in the United States on at least 31 days in the calendar year and
for an aggregate of at least 183 days during a three-year period ending in the
current calendar year (counting, for such purposes, all of the days present in
the current year, one-third of the days present in the immediately preceding
year, and one-sixth of the days present in the second preceding year). Resident
aliens are subject to United States federal income tax as if they were United
States citizens.
DIVIDENDS
In general, dividends paid to a Non-U.S. Holder of Common Stock will be
subject to withholding of United States federal income tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty, unless the
dividends are effectively connected with the conduct of a trade or business of
the Non-U.S. Holder within the United States ("United States trade or business
income"). If the dividend is United States trade or business income, the
dividend would be subject to United States federal income tax on a net income
basis at applicable graduated individual or corporate rates and would be exempt
from the 30% withholding tax described above if such holder claims the exemption
from withholding by filing Form 4224 or any successor thereto. Any such
dividends that are United States trade or business income received by a foreign
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. Certain
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certification and disclosure requirements must be complied with in order to be
exempt from withholding under the United States trade or business income
exemption discussed above.
Under current United States Treasury regulations, dividends paid to a
stockholder at an address in a foreign country are presumed to be paid to a
resident of such country for purposes of the withholding discussed above (unless
the payor has knowledge to the contrary) and, under the current interpretation
of United States Treasury regulations, for purposes of determining the
applicability of a tax treaty rate, unless an applicable tax treaty requires
some other method for determining a stockholder's residence.
Under the Proposed Regulations, to obtain a reduced rate of withholding
under a treaty, a Non-U.S. Holder would generally be required to provide an
Internal Revenue Service Form W-8 and/or other
document certifying such Non-U.S. Holder's entitlement to benefits under a
treaty. The Proposed Regulations would also provide special rules to determine
whether, for purposes of determining the applicability of a tax treaty,
dividends paid to a Non-U.S. Holder that is an entity should be treated as paid
to the entity or those holding an interest in that entity.
A Non-U.S. Holder of Common Stock eligible for a reduced rate of United
States withholding tax pursuant to a tax treaty or whose dividends have
otherwise been subjected to withholding in an amount which exceeds such holder's
United States federal income tax liability, may obtain a refund or credit of any
excess amounts withheld by filing an appropriate claim for refund with the
United States Internal Revenue Service (the "Service").
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to United States federal
income tax with respect to gain recognized on a sale or other disposition of
Common Stock unless (i) the gain is effectively connected with the conduct of a
trade or business of such holder in the United States, (ii) in the case of a
Non-U.S. Holder who is a nonresident alien individual and who holds the Common
Stock as a capital asset, such holder is present in the United States for 183 or
more days in the taxable year of the sale or other disposition and certain other
conditions are met, (iii) the Non-U.S. Holder is subject to tax pursuant to
provisions of United States tax law that apply to certain expatriates, or (iv)
under certain circumstances if the Company is or has been during certain time
periods a "U.S. real property holding corporation" for United States federal
income tax purposes. The Company is not and does not anticipate becoming a "U.S.
real property holding corporation" for United States federal income tax
purposes.
If an individual Non-U.S. Holder falls under clause (i) above, such person
will be taxed on the net gain derived from the sale under regular graduated
United States federal income tax rates. If the individual falls under clause
(ii) above, such person will be subject to a flat 30% tax on such person's
United States source capital gains for the taxable year which may be offset by
United States source capital losses for such year (notwithstanding the fact that
he is not considered a resident of the United States). Thus, Non-U.S. Holders
who spend 183 days or more in the United States in the taxable year in which
they contemplate a sale of the Common Stock are urged to consult their tax
advisors as to the tax consequences of such sale.
If a Non-U.S. Holder that is a foreign corporation falls under clause (i)
above, it will be taxed on its gain on a net income basis at applicable
graduated corporate rates and, in addition, may be subject to the branch profits
tax equal to 30% of its "effectively connected earnings and profits" within the
meaning of the Code for the taxable year, as adjusted for certain items, unless
it qualifies for a lower rate under an applicable income tax treaty.
Periodically, legislation has been introduced in Congress pursuant to which
the gain from the sale of stock of a domestic corporation by a foreign
corporation or a non-resident alien individual would be considered to be
effectively connected income, if such person owns 10% or more (by vote or value)
of the domestic corporation at any time during the previous five years. It is
not known whether such or similar legislation will be enacted.
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FEDERAL ESTATE TAXES
Common Stock that is owned, or treated as owned, by a non-resident alien
individual (as specifically determined under residence rules for United States
federal estate tax purposes) at the time of death or that has been the subject
of certain lifetime transfers will be included in such holder's gross estate for
United States federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise.
UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The Company must report annually to the Service and to each Non-U.S. Holder
the amount of dividends paid to such holder and the amount, if any, tax withheld
with respect to such dividends. These information reporting requirements apply
regardless of whether withholding is required. Copies of the information returns
reporting such dividends and withholding may also be made available, under the
provisions of an applicable treaty or agreement, to the tax authorities in the
country in which such holder resides.
United States backup withholding tax (which generally is a withholding tax
imposed at the rate of thirty-one percent (31%) on certain payments to persons
that fail to furnish certain information under the United States information
reporting requirements) generally will not apply to dividends paid on Common
Stock to a Non-U.S. Holder at an address outside the United States. Except as
provided below, Non-U.S. Holders will not be subject to backup withholding with
respect to the payment of proceeds from the disposition of Common Stock effected
by the foreign office of a broker; except that if the broker is a United States
person or a "U.S. related person," information reporting (but not backup
withholding) is required with respect to the payment, unless the broker has
documentary evidence in its files that the owner is a Non-U.S. Holder (and the
broker has no actual knowledge to the contrary) and certain other requirements
are met or the holder otherwise establishes an exemption. For this purpose, a
"U.S. related person" is (i) a "controlled foreign corporation" for United
States federal income tax purposes, or (ii) a foreign person 50% or more of
whose gross income from all sources for the three-year period ending with the
close of its taxable year preceding the collection or payment of such proceeds
(or for such part of the period that the broker has been in existence) is
derived from activities that are effectively connected with the conduct of a
United States trade or business. The payment of the proceeds of a sale of shares
of Common Stock to or through a United States office of a broker is subject to
information reporting and backup withholding unless the owner certifies its
non-United States status under penalties of perjury or otherwise establishes an
exemption. Backup withholding is not an additional tax. Any amounts withheld
under the backup withholding rules from a payment to a Non-U.S. Holder will be
allowed as a refund or a credit against such Non-U.S. Holder's United States
federal income tax liability, provided that the required information is
furnished to the Service.
The Proposed Regulations would, if adopted, alter the foregoing rules in
certain respects. Among other things, the Proposed Regulations would provide
certain presumptions under which a Non-United States Holder would be subject to
backup withholding in the absence of the required certification.
THE FOREGOING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND IS NOT
BASED ON AN OPINION OF COUNSEL. ACCORDINGLY, EACH PROSPECTIVE PURCHASER IS URGED
TO CONSULT WITH HIS TAX ADVISOR WITH RESPECT TO THE UNITED STATES FEDERAL INCOME
TAX AND FEDERAL ESTATE TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND
DISPOSITION OF COMMON STOCK, INCLUDING THE APPLICATION AND EFFECT OF THE LAWS OF
ANY STATE, LOCAL, FOREIGN, OR OTHER TAXING JURISDICTION.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
market sales of shares or the availability of such shares for sale will have on
the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect prevailing market prices.
Upon completion of this offering, the Company will have 23,392,977 shares of
Common Stock outstanding. Of those shares, the 4,800,000 shares sold in the
offering will be freely tradeable without restriction (except as to affiliates
of the Company) or further registration under the Securities Act.
The Company, all of the Company's executive officers and directors and
certain other stockholders of the Company, including the Selling Stockholders,
have agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the Underwriters, they will not (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock (provided that such shares or securities are either now owned by
such stockholder or are hereafter acquired prior to or in connection with this
offering) (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise, for a period of 180 days after the date of this Prospectus,
other than (A) the sale to the Underwriters of the shares of Common Stock under
the Underwriting Agreement or (B) the issuance by the Company of shares of
Common Stock upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof of which the Underwriters have been
advised in writing. These individuals and entities collectively hold 16,189,699
shares of Common Stock. Of such shares of Common Stock, 14,787,541 shares of
Common Stock held by Andrew J. McKelvey will be eligible for sale in the public
market, subject to certain volume and other limitations, 181 days from the date
of this Prospectus pursuant to Rule 144 under the Securities Act. Certain of the
Company's stockholders have the right to include their shares in any future
registration of securities effected by the Company under the Securities Act. See
"Risk Factors--Shares Eligible for Future Sale" and "Description of Capital
Stock--Registration Rights."
In general, under Rule 144 of the Securities Act as currently in effect, a
person (or persons whose shares are aggregated) who has beneficially owned
restricted securities within the meaning of Rule 144 ("Restricted Shares") for
at least two years (including any period of ownership of immediately preceding
non-affiliated holders), would be entitled to sell within any three-month period
a number of shares that does not exceed the greater of one percent of the then
outstanding shares of Common Stock or the average weekly trading volume of the
Common Stock on the National Association of Securities Dealers Automated
Quotation System during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company. Any person (or persons whose shares are aggregated) who is not deemed
to have been an affiliate of the Company at any time during the three months
preceding a sale, and who has beneficially owned shares for at least three years
(including any period of ownership of preceding non-affiliated holders), would
be entitled to sell such shares under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, public information requirements or
notice requirements. An "affiliate" is a person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, such issuer. The Securities and Exchange Commission has
proposed to reduce the holding period requirements of Rule 144 to permit sales
in accordance with such rule after one year and two years, respectively, as
opposed to the two year and three year periods currently permitted, as described
above.
The Company intends to file registration statements under the Securities Act
registering the 1,900,000 shares of Common Stock reserved for issuance under the
Stock Option Plan and the 180,000 shares of Common Stock reserved for issuance
under the Directors' Plan shortly after the closing of this offering. See
"Management--Stock Options." These registration statements will become effective
automatically upon filing. Accordingly, shares registered under such
registration statements will be available for sale in the open market, unless
such shares are subject to vesting restrictions with the Company or the
contractual restrictions described above.
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UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date of this Prospectus (the "Underwriting Agreement"), the Company
and the Selling Stockholders have agreed to sell 4,800,000 shares of Common
Stock and the U.S. Underwriters named below, for whom Morgan Stanley & Co.
Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation and Ladenburg
Thalmann & Co. Inc. are serving as U.S. Representatives, have severally agreed
to purchase, and the International Underwriters named below, for whom Morgan
Stanley & Co. International Limited, Donaldson, Lufkin & Jenrette Securities
Corporation and Ladenburg Thalmann & Co. Inc. are serving as International
Representatives, have severally agreed to purchase, the respective number of
shares of Common Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.............................................. 935,000
Donaldson, Lufkin & Jenrette Securities Corporation............................ 935,000
Ladenburg Thalmann & Co. Inc................................................... 935,000
William Blair & Company, L.L.C................................................. 45,000
Alex. Brown & Sons Incorporated................................................ 90,000
The Chicago Corporation........................................................ 45,000
Dean Witter Reynolds Inc....................................................... 90,000
A.G. Edwards & Sons, Inc....................................................... 90,000
EVEREN Securities, Inc......................................................... 45,000
Furman Selz LLC................................................................ 45,000
Goldman, Sachs & Co............................................................ 90,000
Janney Montgomery Scott Inc.................................................... 45,000
Edward D. Jones & Co., L.P..................................................... 90,000
McDonald & Company Securities, Inc............................................. 45,000
Oppenheimer & Co., Inc......................................................... 90,000
PaineWebber Incorporated....................................................... 90,000
Rauscher Pierce Refsnes, Inc................................................... 45,000
Smith Barney Inc............................................................... 90,000
----------
Subtotal..................................................................... 3,840,000
International Underwriters:
Morgan Stanley & Co. International Limited..................................... 320,000
Donaldson, Lufkin & Jenrette Securities Corporation............................ 320,000
Ladenburg Thalmann & Co. Inc................................................... 320,000
----------
Subtotal..................................................................... 960,000
----------
Total........................................................................ 4,800,000
----------
----------
</TABLE>
The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The U.S. Representatives and the
International Representatives are collectively referred to as the
"Representatives." The Underwriting Agreement provides that the obligations of
the several Underwriters to pay for and accept delivery of the shares of Common
Stock offered hereby are subject to the approval of certain legal matters by
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all the shares of Common Stock offered hereby if any such shares are
taken.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each U.S. Underwriter has represented and agreed that, with
certain exceptions, (a) it is not purchasing any U.S.
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Shares (as defined below) being sold by it for the account of anyone other than
a United States or Canadian Person (as defined below) and (b) it has not offered
or sold, and will not offer or sell, directly or indirectly, any U.S. Shares or
distribute any prospectus relating to the U.S. Shares outside the United States
or Canada or to any one other than a United States or Canadian Person. Pursuant
to the Agreement Between U.S. Underwriters and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions, (a) it is not purchasing any International Shares (as defined below)
being sold by it for the account of any United States or Canadian Person and (b)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any International Shares or distribute any prospectus relating to the
International Shares within the United States or Canada or to any United States
or Canadian Person. With respect to any Underwriter that is a U.S. Underwriter
and an International Underwriter, the foregoing representations and agreements
(i) made by it in its capacity as a U.S. Underwriter shall apply only to shares
purchased by it in its capacity as a U.S. Underwriter, (ii) made by it in its
capacity as an International Underwriter shall apply only to shares purchased by
it in its capacity as an International Underwriter, and (iii) do not restrict
its ability to distribute any prospectus relating to the shares of Common Stock
to any person. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement Between
U.S. Underwriters and International Underwriters. As used herein, "United States
or Canadian Person" means any national or resident of the United States and
Canada or any corporation, pension, profit-sharing, or other trust or other
entity organized under the laws of the United States or Canada or any political
subdivision thereof (other than a branch located outside the United States and
Canada of any United States or Canadian Person) and includes any United States
or Canadian branch of a person who is otherwise not a United States or Canadian
Person. All shares of Common Stock to be purchased by the U.S. Underwriters and
the International Underwriters under the Underwriting Agreement are referred to
herein as the "U.S. Shares" and the "International Shares," respectively.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the U.S. Underwriters and International
Underwriters of any number of shares of Common Stock to be purchased pursuant to
the Underwriting Agreement as may be mutually agreed. The per share price of any
shares so sold shall be the Price to Public set forth on the cover page hereof,
in United States dollars, less an amount not greater than the per share amount
of the concession to dealers set forth below.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each U.S. Underwriter has represented that it has not offered or
sold, and has agreed not to offer or sell, any shares of Common Stock, directly
or indirectly, in any province or territory of Canada or to, or for the benefit
of, any resident of any province or territory of Canada in contravention of the
securities laws thereof and has represented that any offer of shares of Common
Stock in Canada will be made only pursuant to an exemption from the requirement
to file a prospectus in the province or territory of Canada in which such offer
is made. Each U.S. Underwriter has further agreed to send to any dealer who
purchases from it any shares of Common Stock a notice stating in substance that,
by purchasing such shares of Common Stock, such dealer represents and agrees
that it has not offered or sold, and will not offer or sell, directly or
indirectly, any such shares of Common Stock in any province or territory of
Canada or to, or for the benefit of, any resident of any province of territory
of Canada in contravention of the securities laws thereof and that any offer of
shares of Common Stock in Canada will be made only pursuant to an exemption from
the requirement to file a prospectus in the province or territory of Canada in
which such offer is made, and that such dealer will deliver to any other dealer
to whom it sells any of such shares of Common Stock a notice to the foregoing
effect.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each International Underwriter has represented and, during the
period of six months from the date hereof, agreed that (a) it has not offered or
sold and will not offer or sell any shares of Common Stock in the United Kingdom
except to persons whose ordinary activities involve them in acquiring, holding,
managing, or disposing of investments (as principal or agent) for the purposes
of their businesses or otherwise in circumstances which
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have not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulation (1995)
(the "Regulations"); (b) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations with respect
to anything done by it in relation to the shares of Common Stock offered hereby
in, from, or otherwise involving the United Kingdom; and (c) it has only issued
or passed on and will only issue or pass on to any person in the United Kingdom
any document received by it in connection with the issue of the shares of Common
Stock, if that person is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements)(Exemptions) Order 1996, or is a
person to whom such document may lawfully be issued or passed on.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each International Underwriter has represented and agreed that it
has not offered or sold, and agrees not to offer or sell, directly or
indirectly, in Japan or to or for the account of any resident thereof, any of
the shares of Common Stock acquired in connection with the distribution
contemplated hereby, except for offers or sales to Japanese International
Underwriters or dealers and except pursuant to any exemption from the
registration requirements of the Securities and Exchange Law or any other
relevant laws and regulations of Japan. Each International Underwriter further
agrees to send to any dealer who purchases from it any of the shares of Common
Stock a notice stating in substance that, by purchasing such shares, such dealer
represents and agrees that it has not offered or sold, and will not offer or
sell any of such shares, directly or indirectly in Japan or to or for the
account of any resident thereof except for offers or sales to Japanese
Underwriters or dealers and except pursuant to any exemption from the
registration requirements of the Securities and Exchange Law and any other
relevant laws and regulations of Japan. Each International Underwriter further
agrees to send to any dealer who purchases from it any of the shares of Common
Stock a notice stating in substance that, by purchasing such shares, such dealer
represents and agrees that it has not offered or sold, and will not offer or
sell any of such shares, directly or indirectly in Japan or to or for the
account of any resident thereof except for offers or sales to Japanese
Underwriters or dealers and except pursuant to any exemption from the
registration requirements of the Securities and Exchange Law of Japan, and that
such dealer will send to any other dealer to whom it sells any of such shares of
Common Stock a notice containing substantially the same statement as contained
in the foregoing.
The Underwriters propose to offer part of the shares of Common Stock offered
hereby directly to the public at the initial public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $0.58 a share below the initial public offering
price. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $0.10 a share to other Underwriters or to certain dealers.
The Company has granted to the U.S. Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to 720,000 additional
shares of Common Stock at the initial public offering price set forth on the
cover page hereof, less underwriting discounts and commissions. The U.S.
Underwriters may exercise such option to purchase solely for the purpose of
covering over-allotments, if any, made in connection with this offering.
The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend sales to discretionary accounts to exceed five
percent of the total number of shares of Common Stock offered by them.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to 340,000 shares offered hereby for
directors, officers, employees, business associates and related persons of the
Company. The number of shares of Common Stock available for sale to the general
public will be reduced to the extent such persons purchase such reserved shares.
Any reserved shares which are
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not so purchased will be offered by the Underwriters to the general public on
the same basis as the other shares offered hereby.
The Company, all of the Company's executive officers and directors and
certain other stockholders of the Company, including the Selling Stockholders,
have agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the Underwriters, they will not (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock (provided that such shares or securities are either now owned by
such stockholder or are hereafter acquired prior to or in connection with this
offering), or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise, for a period of 180 days after the date of this Prospectus,
other than (A) the sale to the Underwriters of the shares of Common Stock under
the Underwriting Agreement or (B) the issuance by the Company of shares of
Common Stock upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof of which the Underwriters have been
advised in writing.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the shares of
Common Stock of the Company. Consequently, the initial public offering price was
determined by negotiation among the Company, the Selling Stockholders and the
Representatives. Among the factors considered in determining the initial public
offering price were the Company's record of operations, the Company's current
financial condition and future prospects, the experience of its management, the
economics of the industry in general, the general condition of the equity
securities market and the market price of similar securities of companies
considered comparable to the Company. There can be no assurance that a regular
trading market for the shares of Common Stock will develop after the offering
or, if developed, that a public trading market can be sustained. There can also
be no assurance that the prices at which the Common Stock will sell in the
public market after the offering will not be lower than the price at which it
was issued by the Underwriters in the offering.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Fulbright & Jaworski
L.L.P., 666 Fifth Avenue, New York, New York 10103. Certain legal matters will
be passed upon for the Underwriters by Davis Polk & Wardwell.
EXPERTS
The consolidated financial statements and schedule of TMP Worldwide Inc. and
Subsidiaries and the financial statements of Rogers & Associates Advertising,
Inc. included in this Prospectus and in the Registration Statement have been
audited by BDO Seidman, LLP, independent certified public accountants, and the
consolidated financial statements of Neville Jeffress Australia Pty Limited and
Subsidiaries included in this Prospectus and in the Registration Statement have
been audited by BDO Nelson Parkhill, independent auditors, to the extent and for
the periods set forth in their reports appearing elsewhere in this Prospectus
and in the Registration Statement, and are included in reliance upon such
reports given upon the authority of such firms as experts in auditing and
accounting.
75
<PAGE>
ADDITIONAL INFORMATION
A Registration Statement on Form S-1 relating to the Common Stock offered
hereby has been filed by the Company with the Securities and Exchange Commission
(the "Commission"). This Prospectus, which is part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain items of which are
omitted as permitted by the rules and regulations of the Commission. Statements
contained in this Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. For further information with respect to the Company and the
Common Stock offered hereby, reference is hereby made to the Registration
Statement and to the financial statements, exhibits and schedules thereto. The
Registration Statement may be inspected without charge and may be obtained at
prescribed rates at the Public Reference Section of the Commission, maintained
by the Commission at its principal office located at 450 Fifth Street, N.W.,
Washington, D.C. 20549, the New York Regional Office located at 7 World Trade
Center, New York, New York 10048, and the Chicago Regional Office located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661.
The Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
76
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
TMP WORLDWIDE INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS....................................................... F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets as of December 31, 1994 and 1995 and
September 30, 1996 (unaudited)....................................................................... F-3
Statements of operations for the years ended December 31, 1993, 1994 and 1995
and for the nine months ended September 30, 1995 and 1996 (unaudited)................................ F-4
Statements of stockholders' deficit for the years ended December 31, 1993, 1994 and 1995
and for the nine months ended September 30, 1996 (unaudited)......................................... F-5
Statements of cash flows for the years ended December 31, 1993, 1994 and 1995 and
for the nine months ended September 30, 1995 and 1996 (unaudited).................................... F-6
Notes to consolidated financial statements............................................................. F-7
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT............................................................................. F-27
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets as of June 30, 1995 and 1996............................................................ F-28
Statements of profit and loss for the years ended June 30, 1995 and 1996............................... F-29
Statements of shareholders' equity for the years ended June 30, 1995 and 1996.......................... F-30
Statements of cash flows for the years ended June 30, 1995 and 1996.................................... F-31
Summary of accounting policies......................................................................... F-32
Notes to consolidated financial statements............................................................. F-36
ROGERS & ASSOCIATES ADVERTISING, INC.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS....................................................... F-51
FINANCIAL STATEMENTS:
Statements of operations for the year ended March 31, 1994 and the nine months
ended December 31, 1994.............................................................................. F-52
Statements of cash flows for the year ended March 31, 1994 and the nine months
ended December 31, 1994.............................................................................. F-53
Notes to financial statements.......................................................................... F-54
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of TMP
Worldwide Inc. and Subsidiaries as of December 31, 1994 and 1995, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TMP
Worldwide Inc. and Subsidiaries as of December 31, 1994 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
BDO SEIDMAN, LLP
New York, New York
March 15, 1996, except for
Note 7 which is as of August 29, 1996 and
Notes 1 and 2 which are as of December 9, 1996
F-2
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ---------- SEPTEMBER 30,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 2,359 $ 2,719 $ 6,297
Accounts receivable, net................................................ 117,938 155,720 198,499
Work-in-process......................................................... 11,710 13,220 13,508
Assets held for sale.................................................... -- 5,735 2,768
Prepaid and other....................................................... 2,306 3,122 4,408
---------- ---------- -------------
Total current assets................................................ 134,313 180,516 225,480
Receivable from principal stockholder..................................... 8,188 6,530 9,490
Property and equipment, net............................................... 15,392 11,937 17,738
Deferred income taxes..................................................... 10,962 9,474 9,949
Intangibles, net.......................................................... 25,263 46,837 65,878
Other assets.............................................................. 4,847 2,800 6,912
---------- ---------- -------------
$ 198,965 $ 258,094 $ 335,447
---------- ---------- -------------
---------- ---------- -------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable........................................................ $ 123,991 $ 151,680 $ 201,908
Accrued expenses and other liabilities.................................. 11,018 13,336 25,058
Deferred income taxes................................................... 7,905 9,422 10,411
Current portion of long-term debt....................................... 3,210 11,809 11,022
---------- ---------- -------------
Total current liabilities........................................... 146,124 186,247 248,399
Long-term debt, less current portion...................................... 72,008 88,070 102,809
---------- ---------- -------------
Total liabilities................................................... 218,132 274,317 351,208
---------- ---------- -------------
Minority interests........................................................ 3,153 3,105 3,214
---------- ---------- -------------
Redeemable preferred stock................................................ 2,000 2,000 2,000
---------- ---------- -------------
Redeemable common stock, 329,871 shares outstanding....................... -- -- 2,899
---------- ---------- -------------
Commitments and contingencies.............................................
Stockholders' deficit:
Preferred stock, $.001 par value, authorized 800,000 shares; issued and
outstanding--none..................................................... -- -- --
Common stock, $.001 par value, authorized 200,000,000 shares; issued and
outstanding--4,276,869, 4,276,869 and 3,814,035 shares,
respectively.......................................................... 4 4 4
Class B common stock, $.001 par value, authorized 39,000,000 shares;
issued and outstanding--14,787,541 shares............................. 15 15 15
Additional paid-in capital.............................................. 655 655 --
Foreign currency translation adjustment................................. 2 (25) 266
Deficit................................................................. (24,996) (21,977) (24,159)
---------- ---------- -------------
Total stockholders' deficit......................................... (24,320) (21,328) (23,874)
---------- ---------- -------------
$ 198,965 $ 258,094 $ 335,447
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Commissions and fees......................... $ 73,791 $ 86,165 $ 123,907 $ 89,686 $ 118,870
----------- ----------- ----------- ----------- ------------
Operating expenses:
Salaries and related costs................. 37,747 45,758 58,329 43,230 60,910
Office and general......................... 29,824 30,316 43,432 32,616 44,077
Amortization of intangibles................ 2,471 3,264 3,237 2,284 3,173
Special compensation....................... -- -- -- -- 672
Restructuring charges...................... 1,318 -- -- -- --
----------- ----------- ----------- ----------- ------------
Total operating expenses................. 71,360 79,338 104,998 78,130 108,832
----------- ----------- ----------- ----------- ------------
Operating income......................... 2,431 6,827 18,909 11,556 10,038
----------- ----------- ----------- ----------- ------------
Other income (expense):
Interest expense........................... (7,952) (9,434) (11,249) (8,113) (8,909)
Interest income............................ 300 256 355 234 309
Other, net................................. (386) (146) 150 26 (32)
----------- ----------- ----------- ----------- ------------
(8,038) (9,324) (10,744) (7,853) (8,632)
----------- ----------- ----------- ----------- ------------
Income (loss) before provision (benefit) for
income taxes, minority interests and equity
in earnings (losses) of affiliates......... (5,607) (2,497) 8,165 3,703 1,406
Provision (benefit) for income taxes......... (1,322) (333) 4,222 2,298 1,655
----------- ----------- ----------- ----------- ------------
Income (loss) before minority interests and
equity in earnings (losses) of
affiliates................................. (4,285) (2,164) 3,943 1,405 (249)
Minority interests........................... 351 336 435 321 343
Equity in earnings (losses) of affiliates.... 10 33 (279) (211) 53
----------- ----------- ----------- ----------- ------------
Net income (loss)............................ (4,626) (2,467) 3,229 873 (539)
Preferred stock dividends.................... (210) (210) (210) (158) (158)
----------- ----------- ----------- ----------- ------------
Net income (loss) applicable to common and
Class B common stockholders................ $ (4,836) $ (2,677) $ 3,019 $ 715 $ (697)
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Net income (loss) per common and Class B
common share............................... $ (.27) $ (.14) $ .15 $ .04
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of common,
Class B common and common equivalent shares
outstanding................................ 17,771,554 19,226,051 19,516,228 19,516,228
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Pro forma:
Historical net loss........................ $ (697)
Pro forma adjustment for special
compensation............................. 672
------------
Pro forma net loss......................... $ (25)
------------
------------
Pro forma net loss per common and Class B
common share............................. $ .00
------------
------------
Pro forma weighted average common, Class B
common and common equivalent shares
outstanding.............................. 19,276,322
------------
------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK, $.001 COMMON STOCK, FOREIGN
PAR VALUE $.001 PAR VALUE CURRENCY
---------------------- ---------------------- ADDITIONAL TRANSLATION
SHARES AMOUNT SHARES AMOUNT PAID-IN CAPITAL ADJUSTMENT DEFICIT
--------- ----------- --------- ----------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993.......... 2,439,609 $ 2 14,787,541 $ 15 $ -- $ (32) $ (16,595)
Issuance of warrant............... -- -- -- -- 600 -- --
Sale of common stock.............. 1,837,260 2 -- -- -- -- --
Repurchase of common stock........ -- -- -- -- -- -- (888)
Foreign currency translation
adjustment...................... -- -- -- -- -- 308 --
Dividends on preferred stock...... -- -- -- -- -- -- (210)
Net loss.......................... -- -- -- -- -- -- (4,626)
--------- --- --------- --- ------- ----- ---------
BALANCE, December 31, 1993........ 4,276,869 4 14,787,541 15 600 276 (22,319)
374,940 shares of common stock
given to employees by principal
stockholder as compensation..... -- -- -- -- 55 -- --
Foreign currency translation
adjustment...................... -- -- -- -- -- (274) --
Dividends on preferred stock...... -- -- -- -- -- -- (210)
Net loss.......................... -- -- -- -- -- -- (2,467)
--------- --- --------- --- ------- ----- ---------
BALANCE, December 31, 1994........ 4,276,869 4 14,787,541 15 655 2 (24,996)
Foreign currency translation
adjustment...................... -- -- -- -- -- (27) --
Dividends on preferred stock...... -- -- -- -- -- -- (210)
Net income........................ -- -- -- -- -- -- 3,229
--------- --- --------- --- ------- ----- ---------
BALANCE, December 31, 1995........ 4,276,869 4 14,787,541 15 655 (25) (21,977)
Stock repurchase agreements
(unaudited)..................... -- -- -- -- 1,172 -- --
Issuance of shares for purchase of
minority interest in subsidiary
(unaudited)..................... 159,231 -- -- -- 1,055 -- --
Reclassification of redeemable
common stock (unaudited)........ (283,521) -- -- -- (2,227) -- --
Issuance of shares as compensation
(unaudited)..................... 142,740 -- -- -- 20 -- --
Repurchase and cancellation of
common stock (unaudited)........ (481,284) -- -- -- (675) -- (1,485)
Issuance of shares for purchase of
minority interest in subsidiary
(unaudited)..................... 46,350 -- -- -- 672 -- --
Reclassification of redeemable
common stock (unaudited)........ (46,350) -- -- -- (672) -- --
Foreign currency translation
adjustment (unaudited).......... -- -- -- -- -- 291 --
Dividends on preferred stock
(unaudited)..................... -- -- -- -- -- -- (158)
Net loss (unaudited).............. -- -- -- -- -- -- (539)
--------- --- --------- --- ------- ----- ---------
BALANCE, September 30, 1996
(unaudited)..................... 3,814,035 $ 4 14,787,541 $ 15 $ -- $ 266 $ (24,159)
--------- --- --------- --- ------- ----- ---------
--------- --- --------- --- ------- ----- ---------
<CAPTION>
TOTAL
STOCKHOLDERS'
DEFICIT
-------------
<S> <C>
BALANCE, January 1, 1993.......... $ (16,610)
Issuance of warrant............... 600
Sale of common stock.............. 2
Repurchase of common stock........ (888)
Foreign currency translation
adjustment...................... 308
Dividends on preferred stock...... (210)
Net loss.......................... (4,626)
-------------
BALANCE, December 31, 1993........ (21,424)
374,940 shares of common stock
given to employees by principal
stockholder as compensation..... 55
Foreign currency translation
adjustment...................... (274)
Dividends on preferred stock...... (210)
Net loss.......................... (2,467)
-------------
BALANCE, December 31, 1994........ (24,320)
Foreign currency translation
adjustment...................... (27)
Dividends on preferred stock...... (210)
Net income........................ 3,229
-------------
BALANCE, December 31, 1995........ (21,328)
Stock repurchase agreements
(unaudited)..................... 1,172
Issuance of shares for purchase of
minority interest in subsidiary
(unaudited)..................... 1,055
Reclassification of redeemable
common stock (unaudited)........ (2,227)
Issuance of shares as compensation
(unaudited)..................... 20
Repurchase and cancellation of
common stock (unaudited)........ (2,160)
Issuance of shares for purchase of
minority interest in subsidiary
(unaudited)..................... 672
Reclassification of redeemable
common stock (unaudited)........ (672)
Foreign currency translation
adjustment (unaudited).......... 291
Dividends on preferred stock
(unaudited)..................... (158)
Net loss (unaudited).............. (539)
-------------
BALANCE, September 30, 1996
(unaudited)..................... $ (23,874)
-------------
-------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ -----------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
----------- ----------- ---------- ---------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................. $ (4,626) $ (2,467) $ 3,229 $ 873 $ (539)
----------- ----------- ---------- ---------- -----------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization of property and
equipment..................................... 2,157 2,940 3,396 2,315 2,747
Amortization of intangibles..................... 2,471 3,264 3,237 2,284 3,173
Provision for doubtful accounts................. 1,744 793 2,850 1,664 3,123
Minority interests.............................. 351 336 435 321 343
Provision (benefit) for deferred income taxes... (1,430) (987) 3,005 2,919 (514)
Other........................................... 446 154 522 (197) 114
Changes in assets and liabilities, net of
effects from purchase of businesses:
Increase in accounts receivable, net........ (10,367) (11,630) (30,256) (28,867) (18,352)
(Increase) decrease in work-in-process...... (1,486) (1,269) (1,510) 188 (288)
(Increase) decrease in prepaid and other.... (1,342) 1,820 (425) (1,376) (397)
(Increase) decrease in other assets......... (378) (70) 430 (436) (3,502)
Increase (decrease) in accounts payable and
accrued liabilities....................... 10,139 (3,812) 21,793 16,211 28,176
----------- ----------- ---------- ---------- -----------
Total adjustments............................... 2,305 (8,461) 3,477 (4,974) 14,623
----------- ----------- ---------- ---------- -----------
Net cash provided by (used in) operating
activities.................................... (2,321) (10,928) 6,706 (4,101) 14,084
----------- ----------- ---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to Principal Stockholder................. (4,515) (9,207) (613) (413) (4,537)
Repayments from Principal Stockholder............. 1,306 5,487 2,271 1,983 1,577
Capital expenditures.............................. (480) (4,946) (4,954) (4,156) (4,259)
Payments for purchases of businesses, net of cash
acquired........................................ (973) (6,327) (11,324) (8,632) (16,611)
Proceeds from sale of assets...................... -- 1,949 7 -- 3,347
Advances to and investments in affiliates......... 320 842 835 385 (528)
----------- ----------- ---------- ---------- -----------
Net cash used in investing activities............. (4,342) (12,202) (13,778) (10,833) (21,011)
----------- ----------- ---------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capitalized leases.................... (736) (739) (1,064) (650) (615)
Borrowings under line of credit and proceeds from
issuance of long-term debt...................... 302,466 410,883 540,333 374,430 471,292
Repayments under line of credit and principal
payments on long-term debt...................... (296,557) (386,671) (531,144) (359,124) (459,780)
Distribution to Minority Interests................ (591) (304) (483) (251) (234)
Dividends on preferred stock...................... (210) (210) (210) (158) (158)
----------- ----------- ---------- ---------- -----------
Net cash provided by financing activities......... 4,372 22,959 7,432 14,247 10,505
----------- ----------- ---------- ---------- -----------
Net increase (decrease) in cash and cash
equivalents..................................... (2,291) (171) 360 (687) 3,578
Cash and cash equivalents, beginning of period.... 4,821 2,530 2,359 2,359 2,719
----------- ----------- ---------- ---------- -----------
Cash and cash equivalents, end of period.......... $ 2,530 $ 2,359 $ 2,719 $ 1,672 $ 6,297
----------- ----------- ---------- ---------- -----------
----------- ----------- ---------- ---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
TMP Worldwide Inc. (the "Company") is the successor to businesses formerly
conducted by TMP Worldwide Inc. and subsidiaries ("Old TMP"), Worldwide
Classified Inc. and subsidiaries ("WCI"), McKelvey Enterprises, Inc. and
subsidiaries ("MEI") and certain other entities under the control of Andrew J.
McKelvey (the "Principal Stockholder"). Immediately prior to the reorganization
the Principal Stockholder owned 100% of the common stock of MEI (which owned
approximately 86% of the common stock of Old TMP) and approximately 33% of the
common stock of WCI. In addition to his approximately 33% ownership of WCI, the
Principal Stockholder has voting proxy on the remaining outstanding shares of
WCI.
WCI was organized in 1993 to sell recruitment advertising. On December
9,1996, Old TMP, which sells yellow page advertising, merged into MEI.
Thereafter, WCI merged into MEI, MEI then merged into Telephone Marketing
Programs Incorporated and MEI acquired the outstanding minority interest of a
subsidiary (the "Mergers"). Concurrent with the Mergers, Telephone Marketing
Programs Incorporated changed its name to TMP Worldwide Inc.
Due to the control of these companies by the Principal Stockholder, the
companies have been consolidated on a retroactive basis in a manner similar to a
pooling-of-interests, the interests previously owned by the Principal
Stockholder are carried at predecessor basis, and in December 1996 (i) goodwill
in the amount of approximately $1.6 million was recorded for the issuance of
271,278 shares of common stock of the Company to Old TMP stockholders who had
been previously issued shares of Old TMP in exchange for their minority
interests in certain operating subsidiaries in which they were original owners
and, accordingly, were considered to have made a substantive investment, and is
based on an initial public offering price of $14.00 per share, less
approximately $2.2 million previously recorded on the issuance of these shares,
and (ii) special compensation in the amount of approximately $50 million was
recorded for the issuance of 3,584,790 shares of common stock of the Company to
the Old TMP, WCI and the MEI subsidiary stockholders in exchange for their
shares in those companies which they had received for nominal or no
consideration, as employees or as management of businesses financed
substantially by the Principal Stockholder and, accordingly, were not considered
to have made substantive investments for their minority shares, and is based on
an initial public offering price of $14.00 per share. The minority stockholders
of Old TMP had received compensation in lieu of their share of earnings of the
Old TMP in exchange for waiving their rights to such earnings, and WCI and the
MEI subsidiary had cumulative losses. Accordingly, no amounts were attributable
to these minority interests in the accompanying consolidated financial
statements.
The accompanying consolidated financial statements reflect the shares of the
Company that were outstanding after the Mergers.
In addition, in 1996, the Principal Stockholder sold or contributed to the
Company his majority interests, and in one case a 49% interest, in five
companies primarily engaged in yellow page and Internet-based advertising. Due
to the element of common control of these companies, all of these transactions
have been accounted for in a manner similar to a pooling-of-interests and each
of the five companies has been included in the accompanying consolidated
financial statements from their respective dates of acquisition by the Principal
Stockholder.
F-7
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all of its wholly-owned and majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Investments in unconsolidated affiliates are accounted for using the equity
method when the Company owns at least 20% but no more than 50% of such
affiliates. Under the equity method, the Company records its proportionate share
of profits and losses based on its percentage interest in earnings of companies
50% or less owned.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
primarily using the straight-line method over the following estimated useful
lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements............................................................. 32
Furniture and equipment................................................................ 5-7
Transportation equipment............................................................... 5-18
</TABLE>
Leasehold improvements are amortized over their estimated useful lives or
the lives of the related leases, whichever is shorter.
INTANGIBLES
Intangibles represent acquisition costs in excess of the fair value of net
tangible assets of businesses purchased and consist primarily of the value of
ongoing client relationships and goodwill. These costs are being amortized over
periods ranging from three to thirty years on a straight-line basis. Intangibles
are evaluated for impairment when events or changes in circumstances indicate
that the carrying amounts of the assets may not be recoverable through the
estimated undiscounted future cash flows resulting from the use of these assets.
When any such impairment exists, the related assets will be written down to fair
value. This policy is in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which is effective for fiscal years beginning after December 15, 1995. Adoption
of this pronouncement did not have a material impact on the financial
statements.
F-8
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The financial position and results of operations of the Company's foreign
subsidiaries (which are not material) are determined using local currency as the
functional currency. Assets and liabilities of these subsidiaries are translated
at the exchange rate in effect at each year-end. Income statement accounts are
translated at the average rate of exchange prevailing during the year.
Translation adjustments arising from the use of differing exchange rates from
period to period are included in the cumulative translation adjustment account
in stockholders' deficit. Gains and losses resulting from foreign currency
transactions are included in other income (expense).
REVENUE RECOGNITION AND WORK IN PROCESS
Substantially all revenues are derived from commissions for advertisements
placed in telephone directories, newspapers and other media, plus associated
fees for related services. In addition, the Company earns fees for the placement
of advertisements on the Internet, including its career Web sites. Commissions
and fees are generally recognized upon placement date for newspapers and other
media and on publication close date for yellow page advertisements.
Direct operating costs incurred that relate to future revenue, principally
for yellow page advertisements, are deferred (recorded as work-in-process in the
accompanying consolidated balance sheets) and are subsequently charged to
expense when the directories are closed for publication and the related
commission is recognized as income.
INCOME TAXES
The provision (benefit) for income taxes is computed on the pretax income
(loss) based on the current tax law. Deferred income taxes are recognized for
the tax consequences in future years of differences between the tax basis of
assets and liabilities and their financial reporting amounts at each year-end
based on enacted tax laws and statutory tax rates.
NATURE OF BUSINESS AND CREDIT RISK
The Company operates in one business segment and primarily earns commission
income for selling and placing yellow page and recruitment advertising to a
large number of customers in many different industries, principally throughout
North America. Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable. The Company
performs continuing credit evaluations of its customers and does not require
collateral. For the most part, the Company has not experienced significant
losses related to receivables from individual customers or groups of customers
in any particular industry or geographic area.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable, miscellaneous receivables, accounts
payable and accrued expenses and other liabilities
F-9
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
approximate fair value because of the immediate or short-term maturity of these
financial instruments. The carrying amount reported for long-term debt
approximates fair value because, in general, the interest on the underlying
instruments fluctuates with market rates. The carrying amounts for minority
interests and redeemable preferred stock approximate fair value based on
appraisals in prior periods. The fair values of the receivable from the
Principal Stockholder and redeemable common stock cannot be determined.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation". The Company has determined that it will continue to account for
employee stock-based compensation under Accounting Principles Board No. 25 and
elect the disclosure-only alternative under SFAS No. 123. The Company will be
required to disclose the pro forma net income or loss and per share amounts in
the notes to consolidated financial statements using the fair value based method
beginning in 1996. The Company has not determined the impact of these pro forma
adjustments.
EARNINGS PER SHARE OF COMMON AND CLASS B COMMON STOCK
(A) HISTORICAL
Historical net income (loss) per common and Class B common share is computed
using the weighted average number of common, Class B common and common
equivalent shares outstanding, after reflecting the issuance of shares pursuant
to the Mergers. Common equivalent shares from stock options and warrants are
excluded from the computation if their effect is antidilutive, except that,
pursuant to the Securities and Exchange Staff Accounting Bulletins, common and
common equivalent shares issued at prices below the public offering price during
the twelve months immediately preceding the initial filing date have been
included in the calculation as if they were outstanding for all periods
presented using the treasury stock method and the initial public offering price
of $14.00.
(B) PRO FORMA
Pro forma net income per share is computed using pro forma net income and
the weighted average number of common, Class B common and common equivalent
shares outstanding, after reflecting the issuance of shares pursuant to the
Mergers. Common equivalent shares from stock options and warrants are excluded
from the computation if their effect is antidilutive, except that, pursuant to
the Securities and Exchange Staff Accounting Bulletins, common and common
equivalent shares issued at prices below the public offering price during the
twelve months immediately preceding the initial filing date have been included
in the calculation as if they were outstanding for all periods presented using
the treasury stock method and the initial public offering price of $14.00.
F-10
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(C) SUPPLEMENTAL
Supplemental net income per common and Class B common share for the year
ended December 31, 1995 was $.24. For this calculation, the weighted average
number of common and Class B common shares includes the number of shares whose
sale at the initial public offering price of $14.00 per share would provide the
proceeds needed to retire $43,000 of borrowings outstanding under the Company's
financing agreement; notes payable totaling $3,800; $3,200 to redeem the
preferred stock of a subsidiary and $2,200 to redeem the Preferred Stock of the
Company, and the net income applicable to Common and Class B stockholders was
adjusted to exclude the related financing and interest expenses of the debt.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of the Company's management, the consolidated balance sheet
as of September 30, 1996, the consolidated statements of operations and cash
flows for the nine months ended September 30, 1995 and 1996, and the
consolidated statement of stockholders' deficit for the nine months ended
September 30, 1996 contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the information set forth therein. The
results of operations for the nine months ended September 30, 1996 are not
necessarily indicative of the results for any other period.
STATEMENTS OF CASH FLOWS
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments and other short-term investments
with an initial maturity of three months or less to be cash equivalents. The
Company has determined that the effect of foreign exchange rate changes on cash
flows is not material.
NOTE 3 -- ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1994 1995 1996
---------- ---------- -------------
<S> <C> <C> <C>
Trade..................................................................... $ 108,056 $ 146,002 $ 185,849
Earned commissions (A).................................................... 11,900 13,583 17,563
---------- ---------- -------------
119,956 159,585 203,412
Less: Allowance for doubtful accounts..................................... 2,018 3,865 4,913
---------- ---------- -------------
Accounts receivable, net................................................ $ 117,938 $ 155,720 $ 198,499
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
- ------------------------
(A) Earned commissions receivable represent commissions on advertisements that
have not been published, and relate to yellow page advertisements only. Upon
publication of the related yellow page directories, the earned commissions
plus the related advertising cost at December 31, 1994 and 1995 and
September 30, 1996 are recorded as accounts receivable of $63,049, $75,161
and $97,317,
F-11
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 3 -- ACCOUNTS RECEIVABLE, NET (CONTINUED)
respectively, and the related advertising costs are recorded as accounts
payable of $51,149, $61,578 and $79,754, respectively.
NOTE 4 -- PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- --------------
<S> <C> <C> <C>
Buildings and improvements.................................................. $ 969 $ 881 $ 884
Furniture and equipment..................................................... 22,080 25,028 37,506
Leasehold improvements...................................................... 2,524 3,027 3,202
Transportation equipment (see below)........................................ 5,643 226 453
--------- --------- -------
31,216 29,162 42,045
Less: Accumulated depreciation and amortization............................. 15,824 17,225 24,307
--------- --------- -------
Property and equipment, net............................................... $ 15,392 $ 11,937 $ 17,738
--------- --------- -------
--------- --------- -------
</TABLE>
Furniture and equipment includes equipment under capital leases at December
31, 1994 and 1995 and September 30, 1996 with a cost of $3,001, $3,637, and
$7,375, respectively, and accumulated amortization of $1,578, $2,063 and $2,960,
respectively.
Assets held for sale of $5,735 and $2,768 at December 31, 1995 and September
30, 1996, respectively, represents certain transportation equipment, part of
which was sold during May 1996 to a third party for a $314 gain which is
included in Other, net in the consolidated statement of operations for the nine
months ended September 30, 1996, and the balance of which will be purchased by
the Principal Stockholder at net book value upon the closing of this offering.
NOTE 5 -- BUSINESS ACQUISITIONS
The Company has acquired 35 businesses (primarily recruitment advertising
businesses) between January 1, 1993 and September 30, 1996 including, on July 2,
1996, all of the outstanding shares of Neville Jeffress Australia Pty Limited
("Neville Jeffress"). Neville Jeffress had commissions and fees of approximately
$24,000 for the year ended June 30, 1996. The total amount of cash paid and
promissory notes issued for these acquisitions was approximately $8,743, $12,230
and $26,709 during 1993, 1994 and 1995, respectively, and $17,509 during the
nine months ended September 30, 1996. These acquisitions have been accounted for
under the purchase method. Accordingly, operations of these businesses have been
included in the consolidated financial statements from their acquisition dates.
The summarized unaudited pro forma results of operations set forth below for
the years ended December 31, 1994 and 1995 and the nine months ended September
30, 1995 and 1996 assume the
F-12
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5 -- BUSINESS ACQUISITIONS (CONTINUED)
acquisitions in 1994 and 1995 and the nine months ended September 30, 1996
occurred as of the beginning of the year of acquisition and the beginning of the
preceeding year.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- ---------------------
<S> <C> <C> <C> <C>
1994 1995 1995 1996
---------- ---------- --------- ----------
Commissions and fees.......................... $ 100,353 $ 157,550 $ 98,034 $ 120,061
Net income (loss) applicable to common and
Class B common stockholders................. (3,287) 3,676 191
Net income (loss) per common and
Class B common share........................ (.17) .19 .01
Pro forma net income, reflecting adjustment
for special compensation.................... -- -- -- 381
Pro forma net income per common and Class B
common share................................ -- -- -- .02
</TABLE>
In addition, for the period October 1 through November 30, 1996, the Company
has also acquired one and entered into agreements to acquire or is probable of
acquiring a majority interest in three other unrelated companies, primarily
engaged in recruitment advertising, which had aggregate annual commissions and
fees of approximately $7,000. The aggregate purchase price for these
acquisitions is expected to be approximately $8,000.
These acquisitions will be accounted for using the purchase method of
accounting. The excess of the acquisition costs over the fair value of net
tangible assets acquired, which is expected to be approximately $7,200, will be
amortized on a straight-line basis over 30 years.
F-13
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 6 -- INTANGIBLES, NET
Intangibles, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30, AMORTIZATION
1994 1995 1996 PERIOD
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
(YEARS)
Client lists, net of accumulated amortization of $2,388,
$2,935 and $3,558, respectively........................ $ 5,796 $ 7,567 $ 9,129 5 to 30
Covenants not to compete, net of accumulated
amortization of $1,076, $1,314 and $1,594,
respectively........................................... 844 1,764 1,370 3 to 6
Excess of cost of investments over fair value of net
assets acquired, net of accumulated amortization of
$3,153, $4,377 and $6,194, respectively................ 17,388 36,485 54,452 10 to 30
Other, net of accumulated amortization of $1,053, $1,447
and $1,577, respectively............................... 1,235 1,021 927 4 to 10
------------ ------------ -------------
$ 25,263 $ 46,837 $ 65,878
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
F-14
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 7 -- FINANCING AGREEMENT
The Company obtains its financing from a financial institution under a
five-year financing agreement as amended and restated on June 27, 1996, and as
further amended on August 29, 1996, with automatic one-year extensions unless
terminated by either party at least 90 days prior to expiration of the initial
term or any renewal term (the "Agreement"). The Agreement provides for
borrowings of up to $100,000 at an interest rate of either: (a) prime rate or
1/2% over the Federal Funds Rate, whichever is higher, less 1% to plus 1% as
determined under the Agreement; or (b) LIBOR, plus 1 1/2% to 3 1/2% as
determined under the Agreement; at the borrower's option. Borrowings under the
Agreement are based on 90% of eligible accounts receivable, which are amounts
billed under 120 days old and amounts to be billed on an installment basis under
360 days old from first installment billing, as defined. Substantially all
assets of the Company are pledged as collateral for borrowings under the
Agreement. The Agreement contains certain covenants which restrict, among other
things, the ability of the Company to borrow, pay dividends, acquire businesses,
guarantee debts of others and lend funds to affiliated companies and contains
criteria on the maintenance of certain financial statement amounts and ratios,
all as defined in the Agreement. In addition, the Agreement also provides for a
0.50% fee on any unused portion of the commitment and a termination fee of
$3,000 through June 30, 1997 which is reduced annually thereafter. However, in
the event of an initial public offering, the termination fee is fixed at $1,000
for the life of the Agreement. At December 31, 1995, the Company was in
violation of certain of the covenants and financial ratios under a prior
agreement, which violations were waived by the lender.
At September 30, 1996, the prime rate, Federal Funds Rate and one month
LIBOR were 8.25%, 6.38% and 5.44%, respectively, and borrowings outstanding were
at a weighted average interest rate of 7.98%.
In October 1993, the Company issued a warrant to the lender to purchase one
percent of the issued and outstanding common stock of the Company (as defined in
the agreement) for an exercise price of $.01 per share. The warrant is
exercisable in whole or in part only upon the closing of an initial public
offering of the Company's common stock and expires on December 31, 2000 (the
"Expiration Date"). The warrant was independently appraised at $600, which
amount is being amortized over the remaining term of the original financing
agreement of 30 months from October 1993. In the event that the warrant does not
become exercisable prior to the Expiration Date, the financial institution has a
right to surrender the unexercised warrant to the Company at any time thereafter
for $500. If the value of the shares covered by this warrant at the initial
public offering price is less than $1,000, then the Company is obligated to make
up the deficiency. In addition, in the quarter in which this offering is
completed, there will be an additional interest charge of approximately $2.6
million upon the exercise of such warrant to reflect the difference between the
value of the stock issued (228,768 shares) at the initial public offering price
of $14.00 per share and the original amount recorded.
F-15
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 8--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Borrowings under financing agreement (see Note 7)............................ $ 66,541 $ 77,536 $ 90,885
Borrowings under financing agreement, interest payable at the Canadian Prime
Rate (which approximated 7.0% at December 31, 1995), expiring June 2001 and
collateralized by the assets of a subsidiary in the amount of approximately
$4,000 at September 30, 1996............................................... 275 2,200 1,641
Acquisition notes payable in annual and monthly installments through 1997
with interest at 8.5%...................................................... -- 7,026 3,793
Other acquisition notes payable, noninterest bearing, interest imputed at
6.7% to 8.0%, in varying installments through 2000......................... 2,822 8,277 11,055
Capitalized lease obligations, payable with interest from 9% to 15%, in
varying installments through 2000.......................................... 1,869 1,571 3,868
Notes payable, in varying monthly installments maturing through 2001, with
interest at rates ranging from 7.5% to 8.5%................................ 3,711 3,269 2,589
--------- --------- -------------
75,218 99,879 113,831
Less: Current portion........................................................ 3,210 11,809 11,022
--------- --------- -------------
$ 72,008 $ 88,070 $ 102,809
--------- --------- -------------
--------- --------- -------------
</TABLE>
The noncurrent portion of long-term debt matures as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
1997........................................................................... $ 5,755 $ 2,823*
1998........................................................................... 1,179 3,333
1999........................................................................... 1,010 2,672
2000........................................................................... 340 1,405
Thereafter..................................................................... 79,786 92,576
------------ -------------
$ 88,070 $ 102,809
------------ -------------
------------ -------------
</TABLE>
* Represents principal payments due for the period October 1, 1997 through
December 31, 1997.
NOTE 9--MINORITY INTEREST
In connection with an acquisition in 1990, a subsidiary of the Company
issued 88,425 shares of nonvoting convertible 10% cumulative preferred stock in
exchange for 88,425 shares (58%) of the outstanding common stock of the acquired
company held by the acquired company's employee stock ownership trust. The
preferred stock is callable by this subsidiary at $36.00 per share plus accrued
dividends and is subject to a put option on the shares of the subsidiary's
common stock exercisable by participants in the plan upon distribution and a put
option by the plan or participants. The redemption price with respect to the put
is the greater of $36.00 plus a call premium of $1.80 per share and any unpaid
F-16
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 9--MINORITY INTEREST (CONTINUED)
dividends on the preferred stock or the fair market value of the subsidiary's
common stock, into which the preferred stock may be converted. The conversion
rate is equal to the number of shares of the subsidiary's common stock which
have a fair market value equal to the number of shares of preferred stock. The
respective fair market values would be determined by an independent appraiser.
The book value of these shares of approximately $3,000, which approximates the
redemption price, is included in minority interest in the consolidated balance
sheets. These shares are expected to be redeemed upon the completion of this
offering.
NOTE 10--REDEEMABLE PREFERRED STOCK
During 1991, the Company sold 200,000 shares of 10.5% nonvoting cumulative
preferred stock ($10.00 par value) to the Company's profit sharing plan for
$2,000. The preferred stock is puttable by the holders and redeemable in an
amount equal to the par value plus a call premium of $.525 per share and any
unpaid cumulative dividends. There are certain restrictions, as defined,
regarding the maximum amount of shares which can be put to the Company in any
year. These shares are expected to be redeemed upon the completion of this
offering.
NOTE 11--STOCKHOLDERS' DEFICIT
STOCK INCENTIVE PLANS
In January 1996, the Company's Board of Directors (the "Board") adopted the
1996 Employee Stock Option Plan (the "Stock Option Plan"), which provides for
the issuance of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified stock
options, to purchase an aggregate of up to 900,000 shares of the common stock of
the Company. The Stock Option Plan permits the granting of options to officers,
employees and consultants of the Company, its subsidiaries and affiliates.
Under the Stock Option Plan, the exercise price of an incentive stock option
must be at least equal to 100% of the fair market value of the common stock on
the date of grant (110% of the fair market value in the case of options granted
to employees who hold more than ten percent of the voting power of the Company's
capital stock on the date of grant). The exercise price of a nonqualified stock
option must be not less than the par value of a share of the common stock on the
date of grant. The term of an incentive or nonqualified stock option is not to
exceed ten years (five years in the case of an incentive stock option granted to
a ten percent holder). The Stock Option Plan provides that the maximum option
grant which may be made to an executive officer in any calendar year is 45,000
shares.
On January 3, 1996, options to purchase an aggregate of 296,640 shares of
common stock were granted to officers, employees and consultants of the Company
at a purchase price equal to $6.65 per share, the fair market value of the
common stock on the date of grant as determined by the Board. Such options vest
at the rate of 25% of the original grant commencing one year after the date of
grant. During the nine months ended September 30, 1996, 7,056 options were
cancelled. At September 30, 1996, none of the outstanding options were
exercisable.
F-17
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 11--STOCKHOLDERS' DEFICIT (CONTINUED)
In January 1996, the Company also adopted a stock option plan for
non-employee directors (the "Directors' Plan"), pursuant to which options to
acquire a maximum aggregate of 180,000 shares of common stock may be granted to
non-employee directors. Options granted under the Directors' Plan do not qualify
as incentive stock options within the meaning of Section 422 of the Code. The
Directors' Plan provides for an automatic grant to each of the Company's
nonemployee directors of an option to purchase 11,250 shares of common stock on
the date of such director's initial election or appointment to the Board. The
options will have an exercise price of 100% of the fair market value of the
common stock on the date of grant, have a ten-year term and become exercisable
in accordance with a vesting schedule determined by the Board of Directors.
Options to purchase 11,250 shares of common stock at a purchase price per
share equal to $6.65 per share, the fair market value of the common stock on the
date of grant as determined by the Board, were granted on January 24, 1996 to
one non-employee director. Half of these options vested on the date of the grant
and the balance vests in 2 equal annual installments commencing one year after
the date of grant. In September 1996, options to purchase an aggregate of 33,750
of common stock were granted to three directors under this plan at an exercise
price per share equal to the initial public offering price per share, the fair
value on the date of grant as determined by the Board. Vesting is on terms
similar to that of the previous director's grant. At September 30, 1996, 22,500
options are exercisable.
STOCK OPTIONS
In connection with an acquisition in 1995, the Company issued options to
acquire shares of the Company's common stock in exchange for a $400 obligation
of the Company incurred in connection with this acquisition. That obligation was
amended in September 1996 in consideration of the termination of a put option.
The number of shares to be acquired is determined by formula. Based on the
initial public offering price of $14.00, the number of shares issued were
85,354. The option holders have given notice to exercise their options on the
closing of the public offering.
NOTE 12--RESTRUCTURING CHARGE
During 1993, the Company recorded a charge of $1,318 for the restructuring
of its operations which consisted primarily of accruals for severance pay and
related items. As of December 31, 1995 such accruals were fully utilized.
F-18
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13 -- PROVISION (BENEFIT) FOR INCOME TAXES
The components of income (loss) before the provision (benefit) for income
taxes, minority interests and equity in earnings of affiliates are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
---------- --------- --------- --------- ---------
Domestic..................................................... $ (5,548) $ (2,661) $ 6,955 $ 2,473 $ (944)
Foreign...................................................... (59) 164 1,210 1,230 2,350
---------- --------- --------- --------- ---------
Total income (loss) before provision (benefit) for income
taxes, minority interests and equity in earnings of
affiliates............................................... $ (5,607) $ (2,497) $ 8,165 $ 3,703 $ 1,406
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
</TABLE>
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
Current tax provision (benefit):
U.S. Federal................................................. $ 64 $ 194 $ 87 $ (1,333) $ 1,051
State and local.............................................. 16 298 320 222 263
Foreign...................................................... 28 162 810 490 855
--------- --------- --------- --------- ---------
Total current.......................................... 108 654 1,217 (621) 2,169
--------- --------- --------- --------- ---------
Deferred tax provision (benefit):
U.S. Federal................................................. (543) (787) 2,051 2,754 (410)
State and local.............................................. (887) (200) 535 114 (127)
Foreign...................................................... -- -- 419 51 23
--------- --------- --------- --------- ---------
Total deferred......................................... (1,430) (987) 3,005 2,919 (514)
--------- --------- --------- --------- ---------
Total provision (benefit).............................. $ (1,322) $ (333) $ 4,222 $ 2,298 $ 1,655
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
F-19
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13 -- PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to the Company's
deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C> <C>
SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
Current deferred tax assets (liabilities):
Earned commissions......................................................... $ (4,760) $ (5,433) $ (7,025)
Allowance for doubtful accounts............................................ 832 1,462 1,965
Work-in-process............................................................ (4,684) (5,316) (5,403)
Accrued expenses and other liabilities..................................... 707 (135) 52
--------- --------- -------------
Total current deferred tax liability................................... (7,905) (9,422) (10,411)
--------- --------- -------------
Noncurrent deferred tax assets (liabilities):
Property and equipment..................................................... 2,056 1,237 140
Intangibles................................................................ 38 (76) (681)
Tax loss carryforwards..................................................... 8,868 8,313 10,490
--------- --------- -------------
Total noncurrent deferred tax asset.................................... 10,962 9,474 9,949
--------- --------- -------------
Net deferred tax asset (liability)..................................... $ 3,057 $ 52 $ (462)
--------- --------- -------------
--------- --------- -------------
</TABLE>
At December 31, 1995, the Company has net operating loss carryforwards for
U.S. federal tax purposes of approximately $21,300 which expire through 2009.
The Company has concluded that, based on expected future results and the future
reversals of existing taxable temporary differences, it is more likely than not
that the deferred tax assets will be realized.
F-20
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13 -- PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes differs from the amount computed
using the federal statutory income tax rate as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
Provision (benefit) at federal statutory rate................. $ (1,906) $ (849) $ 2,776 $ 1,259 $ 479
State income taxes, net of federal income tax effect.......... (159) (35) 514 222 90
Nondeductible expenses........................................ 231 342 419 330 437
Non-deductible special compensation charge.................... -- -- -- -- 228
Interest imputed on receivable from principal stockholder..... 127 146 198 42 102
Losses for which no tax benefits are available................ 313 4 503 310 282
Foreign income taxes at other than the federal
statutory rate.............................................. 47 (19) 149 123 79
Other......................................................... 25 78 (337) 12 (42)
--------- --------- --------- --------- ---------
Income tax provision (benefit)................................ $ (1,322) $ (333) $ 4,222 $ 2,298 $ 1,655
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Provision has not been made for U.S. or additional foreign taxes on
undistributed earnings of foreign subsidiaries. Those earnings have been and
will continue to be reinvested. These earnings could become subject to
additional tax if they were remitted as dividends, if foreign earnings were
loaned to the Company or a U.S. affiliate, or if the Company should sell its
stock in the foreign subsidiaries. It is not practicable to determine the amount
of additional tax, if any, that might be payable on the foreign earnings;
however, the Company believes that foreign tax credits would substantially
offset any U.S. tax. At December 31, 1995, the cumulative amount of reinvested
earnings was not material.
F-21
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases its facilities and certain equipment under operating
leases and certain equipment under capital leases. Future minimum lease
commitments under both noncancellable operating leases and capital leases at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------- -----------
<S> <C> <C>
1996................................................................................... $ 673 $ 6,189
1997................................................................................... 507 5,171
1998................................................................................... 283 4,740
1999................................................................................... 171 4,510
2000................................................................................... 102 3,789
Thereafter............................................................................. -- 6,867
------ -----------
1,736 $ 31,266
-----------
-----------
Less: Amount representing interest..................................................... 229
------
Present value of minimum lease payments................................................ 1,507
Less: Current portion.................................................................. 531
------
$ 976
------
------
</TABLE>
Rent and related expenses under operating leases amounted to approximately
$6,035, $6,470 and $7,735 for the years ended December 31, 1993, 1994 and 1995,
respectively, and $5,535 and $7,582 for the nine months ended September 30, 1995
and 1996, respectively.
(B) CONSULTING, EMPLOYMENT AND NONCOMPETE AGREEMENTS
The Company has entered into various consulting, employment and noncompete
agreements with certain management personnel and former owners of acquired
businesses. These agreements are generally three to five years in length, with
one for a term of fifteen years and two providing aggregate annual lifetime
payments of approximately $135, and provide for the following total payments:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
-------------
<S> <C>
1996............................................................................ $ 1,483
1997............................................................................ 1,220
1998............................................................................ 833
1999............................................................................ 536
2000............................................................................ 472
Thereafter...................................................................... 1,414
------
$ 5,958
------
------
</TABLE>
F-22
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--COMMITMENTS AND CONTINGENCIES (CONTINUED)
(C) EMPLOYEE BENEFIT PLANS
The Company has a 401(k) profit sharing plan covering all eligible
employees. Employer matching contributions, which are a maximum of 2% of payroll
of participating employees, amounted to approximately $392, $368 and $584 for
the years ended December 31, 1993, 1994 and 1995, respectively, and $413 and
$392 for the nine months ended September 30, 1995 and 1996, respectively.
In addition, the Company has a defined contribution profit sharing plan
covering all eligible employees. Contributions, which are at the discretion of
the Board of Directors, were not made in the years ended December 31, 1993, 1994
and 1995 and the nine months ended September 30, 1996. The Board does not
anticipate any contributions will be made in the future.
(D) LITIGATION
The Company is subject to various claims, suits and complaints arising in
the ordinary course of business. Although the outcome of these legal matters
cannot be determined, it is the opinion of management that the final resolution
of these matters will not have a material adverse effect on the Company's
financial condition, operations or liquidity.
(E) OTHER
(i) The Company is contingently liable on a note of the Principal
Stockholder in the amount of approximately $1,600. In addition, a corporate
asset is pledged as collateral for the repayment of this note.
(ii) The majority stockholder of an unconsolidated equity investee has
an agreement which requires the Company to purchase his interest, based on a
formula value, upon death. The value of his shares at December 31, 1995 is
approximately $4,000 based on the formula.
NOTE 15--RELATED PARTY TRANSACTIONS
(A) The Company has loaned three affiliates, in which the Principal
Stockholder of the Company is an equity owner, a total of $1,346, $258 and $658
at December 31, 1994 and 1995 and September 30, 1996, respectively.
(B) The Company has receivables from certain of its stockholders
aggregating $235, $500, and $311 at December 31, 1994 and 1995 and September 30,
1996, respectively.
(C) Receivables from its Principal Stockholder of $8,188, $6,530 and $9,490
at December 31, 1994 and 1995 and September 30, 1996, respectively, consist
primarily of noninterest-bearing advances. These advances are expected to be
paid in full promptly upon the completion of this offering.
(D) During the nine months ended September 30, 1996, the Company entered
into an agreement with one of its stockholders which requires the Company to
repurchase such stockholders' common stock of the Company in the event that the
Company does not close an initial public offering of its common stock
F-23
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 15--RELATED PARTY TRANSACTIONS (CONTINUED)
during 1996. The purchase price for the shares is $1,172, to be paid in the form
of a note providing for 60 equal monthly payments beginning in February 1997.
This obligation is included in redeemable common stock at September 30, 1996. In
addition, in connection with the purchase of the minority interest in a
subsidiary, the Company issued 159,231 shares of Common Stock valued at $1,055.
These stockholders entered into agreements with the Company which provide that
upon death or termination of employment such shareholder is required to sell and
the Company is required to purchase the shares at a formula price, as defined in
the agreement. Such requirement to repurchase these shares expires upon an
initial public offering of the Company's common stock. Accordingly these shares
are included in redeemable common stock.
(E) In August 1996, the Company entered into an agreement whereby it
acquired the minority interest of a subsidiary for 46,350 shares of Common
Stock. Such shares, valued at $672, were recorded as special compensation
because the stockholder had received his shares in the subsidiary for no
consideration and accordingly, was not considered to have made a substantive
investment for his shares. The agreement also provides that upon death or
termination of employment the stockholder is required to sell and the Company is
required to purchase the shares. Such requirement to repurchase these shares
expires upon an initial public offering of the Company's common stock.
Accordingly these shares are included in redeemable common stock.
(F) The Company charged management and other fees to affiliates for
services provided of approximately $550, $670, $873, $583, and $557 for the
years ended December 31, 1993, 1994, 1995 and the nine months ended September
30, 1995 and 1996, respectively.
(G) In January 1994, the Company acquired a 50% interest in an agency
selling real estate advertising for $150,000. In connection with this
acquisition, the Company agreed to provide the agency with certain office and
administrative services which amounted to $685, $725, $547, and $657 in the
years ended December 31, 1994 and 1995 and the nine months ended September 30,
1995 and 1996, respectively, in exchange for 50% of the agency's profits, as
defined in the agreement. The Company also entered into three-year employment
and consulting agreements with the two other stockholders of the agency and
granted them the right to convert their agency shares into Company shares after
an initial public offering. That conversion right, as amended, provides that
those two stockholders may convert 25% of the agency's stock into unregistered
common stock of the Company with a total value of $1,000 as of the effective
date of conversion. The conversion cannot be exercised prior to January 2, 1997.
(H) In 1994, the Principal Stockholder gave 374,940 shares of common stock
as compensation to certain employees. These shares were recorded at fair market
value of $55 on the date they were given, as determined by the Company. In 1996
the Company issued 142,740 shares of common stock as compensation to one
employee. These shares were valued at fair market value of $20 on the date they
were issued, as determined by the Company.
(I) The Company leases three offices from entities in which the Principal
Stockholder and other stockholders have between a 49% and 90% ownership
interest. Annual rent expense under these leases, which expire on various dates
through the year 2013, amounts to approximately $803. In addition an
F-24
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 15--RELATED PARTY TRANSACTIONS (CONTINUED)
investee of the Company leases an office, at an annual rental of approximately
$119, from a partnership in which the Principal Stockholder holds a 49%
interest.
NOTE 16 -- SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes amounted to the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
Interest....................................................... $ 7,731 $ 8,809 $ 10,601 $ 5,337 $ 5,770
Income taxes................................................... 119 239 589 287 739
</TABLE>
In conjunction with business acquisitions, the Company used cash as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
Fair value of assets acquired, excluding cash............... $ 3,417 $ 16,537 $ 37,260 $ 30,883 $ 50,537
Less: Liabilities assumed and created upon acquisition...... 2,444 10,210 25,936 22,251 33,926
--------- --------- --------- --------- ---------
Net cash paid............................................... $ 973 $ 6,327 $ 11,324 $ 8,632 $ 16,611
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
NOTE 17--SUBSEQUENT EVENTS
(a) The Company plans to complete an underwritten Offering of 4,147,408
shares of its common stock.
(b) In November 1996, an action was commenced against Old TMP, WCI and the
Principal Stockholder by a former employee. The complaint alleges, among other
things, that the defendants breached purported contractual obligations pursuant
to which the former employee was entitled to a 40% ownership interest in the
Company's recruitment advertising business, and breached fiduciary obligations
to the former employee arising out of the deprivation of his supposed 40%
interest. The former employee seeks damages in an unspecified amount and
punitive damages in the amount of $10 million for each claim. The Company and
the Principal Stockholder intend to vigorously contest the complaint. There can
be no assurance as to the outcome of the litigation and, in the event of a
decision adverse to the Company, the Company's business, financial condition and
operating results, and the Company's stockholders could be materially adversely
affected. The Principal Stockholder has agreed to indemnify the Company against
any adverse judgment. There can be no assurance, however, that the Principal
Stockholder will have sufficient financial resources to satisfy any
indemnification claims.
F-25
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 17--SUBSEQUENT EVENTS (CONTINUED)
(c) Effective November 15, 1996, the Company entered into an employment
agreement with its Principal Stockholder for a term ending on November 14, 2001.
The agreement provides for automatic renewal for successive one year terms
unless either party notifies the other to the contrary at least 90 days prior to
its expiration. Under the agreement, the Principal Stockholder is entitled to a
base salary of $1,500 per year and mandatory bonuses of $375 per quarter. The
agreement also provides that the Company will pay the Principal Stockholder his
base salary and mandatory bonuses for the remaining term of the agreement in the
event he is terminated for reasons other than cause.
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Members of
Neville Jeffress Australia Pty Limited
SCOPE
We have audited the accompanying consolidated balance sheets of Neville
Jeffress Australia Pty Limited (the "Company") as of 30 June 1996 and 30 June
1995, and the related consolidated statements of profit and loss, shareholder's
equity and cash flows for each of the years then ended (the "audit periods").
These special purpose financial statements, which have been prepared in
accordance with accounting principles generally accepted in Australia, are the
responsibility of the Company's management.
Our responsibility is to conduct independent audits of the financial
statements for the audit periods in order to express an opinion on them based on
our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
Our audit opinion expressed in this report has been formed on the above
basis.
OPINION
In our opinion, the consolidated financial statements of Neville Jeffress
Australia Pty Limited for the audit periods present fairly, in all material
respects, the financial position of the Company and its subsidiaries at 30 June
1996 and 30 June 1995, and the results of their operations and their cash flows
for each of the years then ended in conformity with accounting principles
generally accepted in Australia, as described in the financial statements.
Dated at Sydney, Australia, this 8th day of November 1996.
BDO NELSON PARKHILL
Chartered Accountants
F-27
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
NOTES $ $
----- ----------- -----------
<S> <C> <C> <C>
ASSETS
FIXED ASSETS
Intangible fixed assets......................................................... 1 -- --
Tangible fixed assets: 2
Land and buildings............................................................ 1,658,176 1,706,544
Other fixed assets............................................................ 2,960,241 3,006,192
----------- -----------
Total tangible fixed assets..................................................... 4,618,417 4,712,736
----------- -----------
TOTAL FIXED ASSETS.............................................................. 4,618,417 4,712,736
----------- -----------
OTHER NON-CURRENT ASSETS
Investments..................................................................... 3 549,692 554,457
Future income tax benefit....................................................... 1,443,829 1,462,121
----------- -----------
TOTAL NON-CURRENT ASSETS........................................................ 1,993,521 2,016,578
----------- -----------
CURRENT ASSETS
Inventories..................................................................... 4 178,923 252,946
Cash at bank.................................................................... 1,674,722 1,211,020
Accounts receivable:
Trade debtors................................................................. 26,024,689 24,407,514
Receivables from related entities............................................. 2,355,276 3,619,043
Short-term deposits........................................................... 7,602,468 10,400,791
Other debtors and prepayments................................................. 752,428 799,918
----------- -----------
TOTAL CURRENT ASSETS............................................................ 38,588,506 40,691,232
----------- -----------
TOTAL ASSETS.................................................................... 45,200,444 47,420,546
----------- -----------
----------- -----------
EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY............................................................ 3,842,695 5,215,284
----------- -----------
OUTSIDE SHAREHOLDERS' INTEREST.................................................. 5 147,667 210,531
----------- -----------
PROVISIONS: 6
Employee entitlements........................................................... 1,701,448 1,879,280
Deferred taxation............................................................... 86,951 9,393
----------- -----------
1,788,399 1,888,673
----------- -----------
LONG-TERM LIABILITIES
Bank loans...................................................................... 600,000 500,000
Lease liability................................................................. 7 438,678 391,905
Amounts due to related entities................................................. 242,489 --
Other creditors and borrowings.................................................. 38,619 4,425
----------- -----------
1,319,786 896,330
----------- -----------
CURRENT LIABILITIES
Bank loan....................................................................... 3,202,076 2,793,147
Secured loans................................................................... 2,940,000 3,350,000
Unsecured loans................................................................. 1,708,966 41,667
Lease liability................................................................. 7 337,684 292,022
Trade creditors................................................................. 27,185,095 26,884,609
Amounts due to related entities................................................. 228,206 2,574,287
Taxation liabilities............................................................ 910,640 1,055,354
Other liabilities and accrued expenses.......................................... 1,589,230 2,218,642
----------- -----------
38,101,897 39,209,728
----------- -----------
TOTAL EQUITY AND LIABILITIES.................................................... 45,200,444 47,420,546
----------- -----------
----------- -----------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-28
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PROFIT AND LOSS
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
NOTES $ $
----- --------- ---------
Commissions and fees........................................... 21,663,259 32,060,026
<S> <C> <C> <C>
--------- ---------
Operating expenses:
Wages and salaries........................................... 10,449,141 17,216,840
Depreciation of fixed assets................................. 577,807 1,169,472
Abnormal bad debt provision.................................. 2,144,331 --
Other operating expenses..................................... 7,684,587 11,373,602
--------- ---------
Total operating expenses....................................... 20,855,866 29,759,914
--------- ---------
Operating profit............................................... 807,393 2,300,112
--------- ---------
Dividend received.............................................. -- 116,170
Interest income................................................ 440,856 334,306
Interest expense............................................... 329,510 424,430
--------- ---------
Net financial income......................................... 111,346 26,046
--------- ---------
Income before income tax expense............................... 918,739 2,326,158
Income tax expense............................................. 8 65,246 888,459
--------- ---------
Net income..................................................... 853,493 1,437,699
Outside equity interest in net income.......................... 5 22,669 62,864
--------- ---------
Net income attributable to members of Neville Jeffress
Australia Pty Limited........................................ 830,824 1,374,835
--------- ---------
--------- ---------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-29
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
FOREIGN
SHARE CAPITAL CAPITAL CURRENCY ASSET
PAR VALUE $1 RETAINED PROFITS TRANSLATION REVALUATION OTHER
-------------------- EARNINGS RESERVE RESERVE RESERVE RESERVES
SHARES $ $ $ $ $ $
--------- --------- --------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, 1 July 1994................ 1,220,000 1,220,000 1,685,935 106,621 (6,607) (7,085) 19,759
Net income attributable to
members........................... -- -- 830,824 -- -- --
Adjustment relating to adoption of
new accounting standard........... -- -- (53,900) -- -- -- --
Transfers between reserves.......... -- -- 19,759 -- -- -- (19,759)
Gain on translation of foreign
controlled entities............... -- -- -- -- 47,148 -- --
--------- --------- --------- ----------- ----------- ------ -----------
Balance, 30 June 1995............... 1,220,000 1,220,000 2,482,618 106,621 40,541 (7,085) --
Net income attributable to
members........................... -- -- 1,374,835 -- -- -- --
Loss on translation of foreign
controlled entities............... -- -- -- -- (2,246) -- --
--------- --------- --------- ----------- ----------- ------ -----------
Balance, 30 June 1996............... 1,220,000 1,220,000 3,857,453 106,621 38,295 (7,085) --
--------- --------- --------- ----------- ----------- ------ -----------
--------- --------- --------- ----------- ----------- ------ -----------
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
$
-------------
<S> <C>
Balance, 1 July 1994................ 3,018,623
Net income attributable to
members........................... 830,824
Adjustment relating to adoption of
new accounting standard........... (53,900)
Transfers between reserves.......... --
Gain on translation of foreign
controlled entities............... 47,148
-------------
Balance, 30 June 1995............... 3,842,695
Net income attributable to
members........................... 1,374,835
Loss on translation of foreign
controlled entities............... (2,246)
-------------
Balance, 30 June 1996............... 5,215,284
-------------
-------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-30
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
NOTES $ $
----- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income attributable to members................................................ 830,824 1,374,835
Add/(deduct) non-cash items:
Depreciation & amortisation....................................................... 577,807 1,169,472
Bad debts write-off............................................................... 1,876,858 --
Profit on sale of property, plant and equipment................................... (12,966) (2,323)
Loss on disposal of controlled entity............................................. 15,289 --
Amortisation of goodwill on acquisition........................................... 56,848 --
Change due to application of new accounting standard.............................. (53,900) --
Increase in outside shareholders' interest........................................ 22,669 62,864
Gain/(loss) on translation of foreign controlled entities......................... 47,148 (2,246)
Other............................................................................. (58,224) (77,558)
Changes in assets and liabilities :
(Increase)/decrease in trade debtors.............................................. (3,960,773) 1,617,175
(Increase)/decrease in inventories................................................ 161,251 (74,023)
(Increase)/decrease in other current assets and prepayments....................... 322,746 (47,490)
(Increase)/decrease in future income tax benefit.................................. (153,113) (18,292)
Increase/ (decrease) in trade creditors........................................... 1,662,980 (300,486)
Increase/ (decrease) in other creditors and accruals.............................. (1,943,907) 595,217
Increase/ (decrease) in tax provision............................................. 142,095 144,714
Increase in employee entitlements................................................. 375,088 177,832
----------- -----------
Net cash flows from/(used in) operating activities................................ (91,280) 4,619,691
----------- -----------
CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES
Cash (into)/out of short-term deposit............................................. (5,248,849) (2,798,323)
Acquisition of property, plant and equipment...................................... (980,956) (1,375,265)
Proceeds from sale of property, plant and equipment............................... 78,836 113,297
Net cash flow on disposal of controlled entity.................................... 11 118,096 --
Cash paid for purchase of entity.................................................. (544,604) (4,265)
Net cash inflow/(outflow) on acquisition of controlled entity..................... 11 1,490,459 --
----------- -----------
Net cash from/(used in) investing activities...................................... (5,087,018) (4,064,556)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Finance lease repayments, net..................................................... 118,857 (92,435)
Repayments of borrowings
-external parties............................................................... -- (1,257,299)
Proceeds of borrowings
-external parties............................................................... 2,231,376 --
-related entities............................................................... 650,491 839,826
----------- -----------
Net cash from/(used in) financing activities...................................... 3,000,724 (509,908)
----------- -----------
NET INCREASE/(DECREASE) IN CASH HELD.............................................. (2,177,574) 45,227
Cash at beginning of the reporting period......................................... 50,220 (2,127,354)
----------- -----------
CASH AT END OF REPORTING PERIOD................................................... (2,127,354) (2,082,127)
----------- -----------
----------- -----------
RECONCILIATION OF CASH
Cash balances comprise:
Cash at bank...................................................................... 1,674,722 1,211,020
Bank loan......................................................................... (3,802,076) (3,293,147)
----------- -----------
(2,127,354) (2,082,127)
----------- -----------
----------- -----------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-31
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
BASIS OF ACCOUNTING
These consolidated financial statements are a special purpose financial
report prepared in order to meet the requirements of a registration statement to
be submitted to the Securities and Exchange Commission.
These consolidated financial statements have been prepared in Australian
dollars in accordance with accounting principles generally accepted in
Australia. These include applicable Accounting Standards and other mandatory
professional reporting requirements with the exception of AASB 1024:
Consolidated Accounts (see Principles of Consolidation). At October 31, 1996 the
exchange rate of Australian dollars to US dollars was .7914.
The accounts have also been prepared on an accrual basis. They are based on
historical costs and do not take into account changing money values or, except
where specifically stated, current valuations of non-current assets.
The accounting policies adopted have been consistently applied throughout
the periods presented.
Generally accepted accounting principles in Australia ("Australian GAAP") as
utilized by the Company differs in certain respects from generally accepted
accounting principles in the United States ("US GAAP"). With respect to the
Company's financial statements, these differences primarily relate to accounting
for business combinations. Under US GAAP, goodwill arising on acquisitions is
capitalized and amortized over its economic life while under Australian GAAP as
utilized by the Company, this goodwill is charged to operations in the year of
the acquisition. In addition, subsequent utilization of acquired net operating
losses is recorded as a reduction of income tax expense under Australian GAAP
while under US GAAP, it is recorded as an adjustment to assets purchased.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements comprise the fully consolidated
financial information for Neville Jeffress Australia Pty Limited and its group
companies in which the company has majority control, with the exception of the
following companies:
Media Monitors Australia Pty Limited;
National Advertising Services Pty Limited; and
Neville Jeffress Newsagencies Pty Limited.
These companies were not included at the effective date of the acquisition
of Neville Jeffress Australia Pty Limited and subsidiaries by TMP Worldwide Inc
("TMP"). Accordingly they do not form part of the group being acquired by TMP.
The consolidated financial statements comprise the financial statements of
those companies as set out in Note 3 to the consolidated financial statements.
The consolidated financial statements include the information contained in
the financial statements of Neville Jeffress Australia Pty Limited and each of
the entities in the group being acquired by TMP as from the date the company
obtains control until such time as control ceases.
F-32
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
The accounts of subsidiaries are prepared for the same reporting period as
the company, using consistent accounting policies. Adjustments are made to bring
into line any dissimilar accounting policies which may exist.
All intercompany balances and transactions, between entities consolidated,
including unrealised profits and losses, have been eliminated in consolidation.
INVESTMENTS
The company's interest in subsidiaries not forming part of the group of
companies acquired by TMP was not consolidated (see Principles of Consolidation
above), and has been included with associated entities at cost, and only
dividend income received is taken into earnings. Associated entities are those
in which the company holds a significant shareholding of the issued ordinary
capital and participates in commercial and policy decision making.
INVENTORIES
Inventories, including work-in-progress, are valued at the lower of cost and
net realisable value.
RECOVERABLE AMOUNTS
Assets are not revalued to an amount above their recoverable amount and,
where carrying values exceed this recoverable amount, assets are written down.
In determining the recoverable amount, the expected net cash flows have not been
discounted to their present value.
PROPERTY, PLANT AND EQUIPMENT
COST AND VALUATION
Property, plant and equipment are valued at cost or at independent
valuation. Decrements arising from revaluation have been debited to the profit
and loss account. Acquisitions since the last revaluation have been brought to
account at cost.
Where assets have been revalued, the potential effect of the capital gains
tax on disposal has not been taken into account in the determination of the
revalued carrying amount where it is expected that a liability for capital gains
tax will arise.
Any gain or loss on the disposal of revalued assets is determined as the
difference between the carrying value of the asset at the time of disposal and
the proceeds from disposal, and is included in the results of the group in the
year of disposal.
DEPRECIATION AND AMORTISATION
Buildings, plant and equipment are depreciated on a straight-line basis so
as to write-off the cost or valuation of each asset over its anticipated useful
life.
Major depreciation periods are:
Freehold buildings - 40 years
Plant and equipment - 3 to 15 years
F-33
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
INCOME TAX
Tax-effect accounting is applied using the liability method whereby income
tax is regarded as an expense and is calculated on the accounting profit after
allowing for permanent differences. To the extent timing differences occur
between the time items are recognised in the accounts and when items are taken
into account in determining taxable income, the net related taxation benefit or
liability, calculated at current rates, is disclosed as a future income tax
benefit or a provision for deferred income tax. The net future income tax
benefit relating to tax losses and timing differences is not carried forward as
an asset unless the benefit is virtually certain of being realised.
Where the earnings of overseas subsidiaries are subject to taxation under
the Controlled Foreign Companies rules, this tax has been provided for in the
accounts.
FOREIGN CURRENCIES
TRANSLATION OF FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currencies of entities within the group are
converted to local currency at the rate of exchange ruling at the date of the
transaction.
Amounts payable to and by the entities within the group that are outstanding
at the balance date and are denominated in foreign currencies have been
converted to local currency using rates of exchange ruling at the balance sheet
date.
TRANSLATION OF ACCOUNTS OF OVERSEAS OPERATIONS
All overseas operations are deemed self-sustaining as each is financially
and operationally independent of Neville Jeffress Australia Pty Limited. The
accounts of overseas operations are translated using the current rate method and
any exchange differences are taken directly to the foreign currency translation
reserve.
LEASES
Finance leases, which effectively transfer to the group substantially all of
the risks and benefits incidental to ownership of the leased item, are
capitalised at the present value of the minimum lease payments, disclosed as
leased property, plant and equipment, and amortised over the period the group is
expected to benefit from the use of the leased assets.
Operating lease payments, where the lessor effectively retains substantially
all of the risks and benefits of ownership of the leased items, are included in
the determination of the operating profit in equal instalments over the lease
term.
EMPLOYEE ENTITLEMENTS
Provision is made for employee entitlement benefits accumulated as a result
of employees rendering services up to the reporting date. These benefits include
wages and salaries, annual leave, and long service leave.
Liabilities arising in respect of wages and salaries, annual leave, and any
other employee entitlements expected to be settled within twelve months of the
reporting date are measured at their nominal amounts. All other employee
entitlement liabilities are measured at the present value of the estimated
future cash outflows to be made in respect of services provided by employees up
to the reporting date. In determining
F-34
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
the present value of future cash outflows, the interest rates attaching to
government guaranteed securities which have terms to maturities approximating
the terms of the related liability are used.
Employee entitlement expenses and revenues arising in respect of the
following categories:
- wages and salaries, non-monetary benefits, annual leave, long service
leave, sick leave and other leave entitlements; and
- other types of employee entitlements,
are charged against profits on a net basis in their respective categories.
Contributions are made by the group to employee defined contribution
superannuation funds. These contributions are charged as expenses when incurred.
REVENUE RECOGNITION
Substantially all revenues are derived from commissions for advertisements
placed in newspapers, plus associated fees for related services. Commissions and
fees are generally recognized upon placement date.
CASH FLOW DEFINITIONS
For the purpose of the Consolidated Statements of Cash Flows, the group
considers cash to include cash on hand and in banks and investments in money
market instruments readily convertible to cash within two working days, net of
outstanding bank overdraft.
GOODWILL
Goodwill represents the excess of the purchase consideration over the fair
value of identifiable net assets acquired at the time of acquisition of a
business or share in a subsidiary. It is written off to the profit and loss
account on acquisition.
F-35
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN AUSTRALIAN DOLLARS)
1 INTANGIBLES
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
$ $
---------- ----------
<S> <C> <C>
Goodwill.................................................................................. 125,456 125,456
Provision for amortisation................................................................ (125,456) (125,456)
---------- ----------
-- --
---------- ----------
---------- ----------
</TABLE>
2 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
LAND AND OTHER FIXED
BUILDINGS ASSETS TOTAL
$ $ $
---------- ----------- -----------
<S> <C> <C> <C>
Movements in tangible fixed assets are:
1 July 1994
Cost...................................................................... 1,824,870 3,941,228 5,766,098
Accumulated depreciation.................................................. 144,172 2,243,710 2,387,882
---------- ----------- -----------
Book value................................................................ 1,680,698 1,697,518 3,378,216
---------- ----------- -----------
---------- ----------- -----------
Movements in year ended 30 June 1995
Acquisition of controlled entities
Cost...................................................................... -- 1,266,993 1,266,993
Accumulated depreciation.................................................. -- (364,071) (364,071)
Acquisitions.............................................................. -- 980,956 980,956
Depreciation.............................................................. (22,522) (555,285) (577,807)
Disposals................................................................. -- (119,004) (119,004)
Accumulated depreciation on disposals..................................... -- 53,134 53,134
---------- ----------- -----------
(22,522) 1,262,723 1,240,201
---------- ----------- -----------
Cost...................................................................... 1,824,870 6,070,173 7,895,043
Accumulated depreciation.................................................. 166,694 3,109,932 3,276,626
---------- ----------- -----------
Book value................................................................ 1,658,176 2,960,241 4,618,417
---------- ----------- -----------
---------- ----------- -----------
Movements in year ended 30 June 1996
Acquisitions.............................................................. 71,705 1,303,560 1,375,265
Depreciation.............................................................. (23,337) (1,146,135) (1,169,472)
Disposals................................................................. -- (661,333) (661,333)
Accumulated depreciation on disposals..................................... -- 549,859 549,859
---------- ----------- -----------
48,368 45,951 94,319
---------- ----------- -----------
</TABLE>
F-36
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
2 TANGIBLE FIXED ASSETS (CONTINUED)
<TABLE>
<CAPTION>
LAND AND OTHER FIXED
BUILDINGS ASSETS TOTAL
$ $ $
---------- ----------- -----------
<S> <C> <C> <C>
30 June 1996
Cost...................................................................... 1,896,575 6,712,400 8,608,975
Accumulated depreciation.................................................. 190,031 3,706,208 3,896,239
---------- ----------- -----------
Book value................................................................ 1,706,544 3,006,192 4,712,736
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
Land and buildings were collateralized in favour of certain bank loans.
These loans were retired subsequent to the balance sheet date.
Included in other fixed assets are assets subject to finance lease which are
collateralized in favour of the finance lease creditor.
F-37
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
3 INVESTMENTS
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
$ $
--------- ---------
<S> <C> <C>
INVESTMENTS COMPRISE:
(i) Investments in subsidiaries not consolidated in these financial statements:
Shares at cost
National Advertising Services Pty Limited................................................. 112,024 112,024
Media Monitors Australia Pty Limited...................................................... 432,580 432,580
Neville Jeffress Newsagencies Pty Limited................................................. 4,853 4,853
--------- ---------
549,457 549,457
--------- ---------
(ii) Associated entities
Shares at cost
Mitchell Armstrong's Consortium Pty Limited............................................... -- 5,000
Print Production Trust.................................................................... 235 --
--------- ---------
235 5,000
--------- ---------
549,692 554,457
--------- ---------
--------- ---------
<CAPTION>
BENEFICIAL INTEREST
--------------------
% %
--------- ---------
<S> <C> <C>
Investments in subsidiaries not consolidated in these financial statements
Neville Jeffress Newsagencies Pty Limited and its controlled entity:
The Cremorne Newsagency................................................................. 100 100
National Advertising Services Pty Limited................................................. 100 100
Media Monitors Australia Pty Limited and its controlled entities:
Media Monitors NSW Pty Limited.......................................................... 45 45
Media Monitors Victoria Pty Limited..................................................... 45 45
Media Monitors ACT Pty Limited.......................................................... 45 45
Media Monitors Queensland Pty Limited................................................... 45 45
News Bank Pty Limited................................................................... 45 45
News Monitor Pty Limited................................................................ 45 45
</TABLE>
F-38
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
3 INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
--------- ---------
BENEFICIAL INTEREST
--------------------
% %
<S> <C> <C>
Associates
Mitchell Armstrong's Consortium Pty Limited............................................... -- 50
Print Production Trust.................................................................... 45 --
Investments in subsidiaries consolidated in these financial statements
Neville Jeffress--Perth Pty Limited....................................................... 100 100
Neville Jeffress--Darwin Pty Limited...................................................... 100 100
Neville Jeffress--Queensland Pty Limited and its controlled entity:
Neville Jeffress--Queensland Pty Limited................................................ 91 91
Neville Jeffress Brisbane Pty Limited................................................... 91 91
Neville Jeffress--Adelaide Pty Limited.................................................... 100 100
Neville Jeffress--Canberra Pty Limited.................................................... 100 100
Neville Jeffress NSW Pty Limited and its controlled entities:
Neville Jeffress NSW Pty Limited........................................................ 100 100
Neville Jeffress Sydney Pty Limited..................................................... 100 100
Neville Jeffress Pty Limited............................................................ 100 100
Neville Jeffress Parramatta Pty Limited................................................... 100 100
Neville Jeffress Financial Pty Limited.................................................... 90 90
Neville Jeffress Advertising (Tasmania) Pty Limited....................................... 100 100
Neville Jeffress Caldwell Limited......................................................... 70 70
Neville Jeffress Victoria Pty Limited..................................................... 100 100
Neville Jeffress New Zealand Ltd.......................................................... 90 90
Armstrong's Australia Pty Limited and its controlled entities:
Armstrong's Australia Pty Limited....................................................... 100 100
Armstrong's--Victoria Pty Limited....................................................... 100 100
Armstrong's--NSW Pty Limited............................................................ 100 100
Armstrong's--Queensland Pty Limited..................................................... 100 100
Armstrong's--W.A. Pty Limited........................................................... 100 100
</TABLE>
4 INVENTORIES
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
$ $
--------- ---------
<S> <C> <C>
Work-in-progress............................................................................ 178,923 252,946
--------- ---------
--------- ---------
</TABLE>
F-39
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
5 OUTSIDE SHAREHOLDERS' INTEREST
<TABLE>
<CAPTION>
SHARE RETAINED
CAPITAL RESERVES INCOME TOTAL
$ $ $ $
--------- ------------- --------- ---------
<S> <C> <C> <C> <C>
MOVEMENTS IN OUTSIDE SHAREHOLDERS' INTERESTS ARE:
Balance, 1 July 1994................................................... 65,377 -- 23,854 89,231
Acquisition of controlled entities..................................... 35,767 -- -- 35,767
Net income attributable to outside shareholders........................ -- -- 22,669 22,669
--
--------- --------- ---------
Balance, 30 June 1995.................................................. 101,144 -- 46,523 147,667
Net income attributable to outside shareholders........................ -- -- 62,864 62,864
--
--------- --------- ---------
Balance, 30 June 1996.................................................. 101,144 -- 109,387 210,531
--
--
--------- --------- ---------
--------- --------- ---------
</TABLE>
6 PROVISIONS
<TABLE>
<CAPTION>
$
----------
<S> <C>
Employee Entitlements
Balance, 1 July 1994............................................................................. 724,757
Charged to profit and loss....................................................................... 417,768
Acquisition of controlled entities............................................................... 505,023
Adjustment to reserves on introduction of new accounting standard................................ 53,900
----------
Balance, 30 June 1995............................................................................ 1,701,448
Charged to profit and loss....................................................................... 177,832
----------
Balance, 30 June 1996............................................................................ 1,879,280
----------
----------
Deferred Taxation
Balance, 1 July 1994............................................................................. 66,738
Charged to profit and loss....................................................................... 20,213
----------
Balance, 30 June 1995............................................................................ 86,951
Charged to profit and loss....................................................................... (77,558)
----------
Balance, 30 June 1996............................................................................ 9,393
----------
----------
</TABLE>
F-40
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
7 LEASE LIABILITY
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
$ $
---------- ----------
<S> <C> <C>
Not later than one year................................................................... 408,423 362,747
Later than one year and not later than two years.......................................... 296,357 222,687
Later than two years and not later than five years........................................ 188,383 204,602
Later than five years..................................................................... -- --
---------- ----------
Minimum lease payments.................................................................... 893,163 790,036
Future finance charges.................................................................... (116,801) (106,109)
---------- ----------
776,362 683,927
---------- ----------
---------- ----------
Current lease liability................................................................... 337,684 292,022
Non-current lease liability............................................................... 438,678 391,905
---------- ----------
776,362 683,927
---------- ----------
---------- ----------
</TABLE>
8 INCOME TAX
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
$ $
----------- -----------
<S> <C> <C>
The prima facie tax, using tax rates applicable in the country of operation, on income
before income tax differs from the income tax provided in the accounts and is calculated
as follows:
Prima facie tax on income before income tax............................................... 303,184 837,415
Tax effect of permanent differences....................................................... (18,762) 48,404
Future income tax benefit not previously brought to account............................... (175,944) --
Income tax underprovided in previous year................................................. 61,616 2,640
Net gain from change in income tax rate from 33% to 36%................................... (104,848) --
----------- -----------
Income tax attributable to operating profit............................................... 65,246 888,459
----------- -----------
----------- -----------
Income tax provided comprises:
Provision attributable to future years:
Future income tax benefit............................................................... (855,206) 18,292
Provision for deferred income tax....................................................... 20,213 (77,558)
Underprovision of previous year........................................................... 61,616 2,640
Provision attributable to current period.................................................. 838,623 945,085
----------- -----------
65,246 888,459
----------- -----------
----------- -----------
The amount of future income tax benefit carried forward as an asset in the consolidated
financial statements which is attributable to tax losses is :........................... 252,967 282,382
----------- -----------
----------- -----------
</TABLE>
F-41
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
9 EXPENDITURE COMMITMENTS
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
$ $
------------ ------------
<S> <C> <C>
Lease commitments
Operating lease commitments not provided for in the accounts:
Not later than one year............................................................... 737,161 885,764
Later than one year and not later than two years...................................... 276,252 630,687
Later than two years and not later than five years.................................... 68,007 1,439,434
Later than five years................................................................. -- --
------------ ------------
1,081,420 2,955,885
------------ ------------
------------ ------------
</TABLE>
10 EMPLOYEE ENTITLEMENTS AND SUPERANNUATION COMMITMENTS
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
$ $
---------- ----------
<S> <C> <C>
Employee Entitlements:
The aggregate employee entitlement liability is comprised of:
Accrued wages, salaries and oncosts................................................... 14,710 (80,846)
Provisions (current).................................................................. 1,269,914 1,394,083
Provisions (non-current).............................................................. 431,534 485,197
---------- ----------
1,716,158 1,798,434
---------- ----------
---------- ----------
</TABLE>
F-42
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
11 CONSOLIDATED STATEMENTS OF CASH FLOWS
(a) The company acquired a controlling interest in the following entities:
Year Ended 30 June 1996: None
Year Ended 30 June 1995:
(i) 95.93% in Armstrong's Australia Pty Limited
(ii) 90% of Neville Jeffress New Zealand Ltd.
(iii) 100% of Neville Jeffress Victoria Pty Limited
<TABLE>
<CAPTION>
30 JUNE
1995
$
-----------
<S> <C>
The acquisition details are:
Cash consideration................................................................................... 2,204,677
Outside equity interest.............................................................................. 35,767
Share of reserves attributable to investment......................................................... 75,463
-----------
2,315,907
-----------
-----------
DETAILS OF NET ASSETS ACQUIRED
Assets
Cash at bank....................................................................................... 3,695,136
Trade debtors...................................................................................... 7,268,424
Inventory.......................................................................................... 137,399
Other debtors and prepayments...................................................................... 568,990
Plant and equipment--at cost....................................................................... 1,266,993
Accumulated depreciation........................................................................... (364,071)
Other assets....................................................................................... 624,854
Liabilities
Trade creditors.................................................................................... (7,688,646)
Taxation........................................................................................... (123,768)
Other.............................................................................................. (3,126,252)
-----------
Fair value of net tangible assets.................................................................... 2,259,059
Goodwill arising on acquisition...................................................................... 56,848
-----------
2,315,907
-----------
-----------
NET CASH EFFECT
Cash consideration................................................................................... (2,204,677)
Cash at bank included in net assets acquired......................................................... 3,695,136
-----------
Cash inflow on purchase of controlled entities as reflected in consolidated accounts................. 1,490,459
-----------
-----------
</TABLE>
F-43
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
11 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(b) The Company disposed of its controlling interest in the following entities:
Year Ended 30 June 1996: None
Year Ended 30 June 1995: 100% of Group Communications Pty Limited as
follows:
<TABLE>
<CAPTION>
30 JUNE
1995
$
----------
<S> <C>
Proceeds on sale:
Cash............................................................................ 118,096
Other........................................................................... --
----------
118,096
----------
----------
DETAILS OF NET ASSETS DISPOSED
Assets
Cash at bank.................................................................... --
Trade debtors................................................................... 133,385
Liabilities
Bank overdraft.................................................................. --
----------
Fair value of net tangible assets................................................. 133,385
Loss on disposal.................................................................. (15,289)
----------
118,096
----------
----------
NET CASH EFFECT
Cash proceeds..................................................................... 118,096
Cash at bank included in net assets disposed...................................... --
Bank overdraft included in net assets disposed.................................... --
----------
Cash proceeds from disposal of controlled entities as reflected in consolidated
accounts......................................................................... 118,096
----------
----------
</TABLE>
(C) FINANCING ACTIVITIES
COMMONWEALTH BANK FACILITY
Neville Jeffress Australia Pty Limited has an overdraft facility with the
Commonwealth Bank of Australia. The facility is also with Neville Jeffress
Sydney Pty Limited, Neville Jeffress Canberra Pty Limited, Neville Jeffress
Queensland Pty Limited, Neville Jeffress Adelaide Pty Limited, Neville Jeffress
Darwin Pty Limited and Armstrong's Australia Pty Limited. The conditions of the
facility provide for an aggregate overdraft limit across all of the
aforementioned companies of $100,000. At 30 June 1996, this facility was not in
use.
F-44
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
11 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FINANCE FACILITIES IN PLACE AT 30 JUNE 1996
BILLS DISCOUNT FACILITY
Neville Jeffress Queensland Pty Limited had a Bills Discount Facility of
$600,000 with the Commonwealth Bank of Australia, which was subject to annual
review and which was due to expire on 1 December 1999. At 30 June 1996, this
facility was fully utilized.
AGC FACILITY
Neville Jeffress Sydney Pty Limited had a business loan facility of
$3,250,000 with Australian Guarantee Corporation Limited ("AGC"). At 30 June
1996, $3,250,000 (1995: $2,740,000) of the facility was in use. The AGC facility
is subject to annual review.
Armstrong's Australia Pty Limited had a similar facility with AGC to draw up
to $1,000,000. Drawings were secured by the debtors of Armstrong's NSW Pty
Limited and Armstrong's Victoria Pty Limited. At 30 June 1996, this facility was
not in use.
(D) RESTRUCTURE OF FINANCE ACTIVITIES
On 2 July 1996, following the change in ownership of the equity in Neville
Jeffress Australia Pty Limited, the group's financing facilities were
restructured. This restructure involved the exclusion of all Media Monitors
Australia Pty Limited facilities from any linkage to Neville Jeffress Australia
Pty Limited, the retirement of the AGC facility by Neville Jeffress-Sydney Pty
Limited and Armstrong's Australia Pty Limited, and retirement of the Neville
Jeffress Queensland Pty Limited bills discount facility with the Commonwealth
Bank of Australia.
F-45
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
12 RELATED PARTY TRANSACTIONS
REMUNERATION OF DIRECTORS
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
$ $
---------- ----------
<S> <C> <C>
Amounts received or due and receivable by the directors of the economic entity from
corporations of which they are directors or related bodies corporate or entities
controlled by the chief entity........................................................ 2,973,832 3,038,882
---------- ----------
---------- ----------
The directors have availed themselves of ASC Class Order 95/741 in the disclosure of
directors' remunerations and benefits
Amounts received or due and receivable by directors of Neville Jeffress Australia Pty
Limited from that company and related bodies corporate................................ 506,580 460,569
The number of directors of Neville Jeffress Australia Pty Limited whose remuneration
(including superannuation contributions) falls within the following bands:
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
$20,000-$29,000........................................................................ 1 2
$60,000-$69,000........................................................................ 2 --
$70,000-$79,000........................................................................ -- 1
$150,000-$159,000....................................................................... 1 1
$200,000-$209,000....................................................................... -- 1
$210,000-$219,000....................................................................... 1 --
</TABLE>
In the opinion of the directors, remuneration paid to directors is
considered reasonable.
OTHER RELATED PARTY TRANSACTIONS
(a) The directors of Neville Jeffress Australia Pty Limited during the 1996
financial year were:
<TABLE>
<S> <C>
N Jeffress B M Robertson
P G Bush P A Allen
C D Cameron
</TABLE>
(b) Related party transactions which occurred during the financial year
included:
(i) Transactions with related parties of the Neville Jeffress Australia
Group
During the year, the company traded with other companies in the Neville
Jeffress Group at normal commercial rates.
Interest has been paid/(received) on intercompany loans between subsidiaries
of Neville Jeffress Australia Pty Limited under normal commercial terms and
conditions.
F-46
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
12 RELATED PARTY TRANSACTIONS (CONTINUED)
Interest received on a loan from Neville Jeffress Australia Pty Limited to
Neville Jeffress Holdings Pty Limited under normal commercial terms and
conditions amounted to $304,196 (1995: $104,582).
Loans receivable under normal commercial terms and conditions at:
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
$ $
------------ ------------
<S> <C> <C>
Current
Neville Jeffress Holdings Pty Limited........................... 2,355,276 2,012,022
Controlled entities of Neville Jeffress Australia Pty Limited... -- --
Other related parties........................................... -- 1,607,021
Non-Current
Neville Jeffress Holdings Pty Limited........................... -- --
Controlled entities of Neville Jeffress Australia Pty Limited... -- --
Other related parties........................................... -- --
------------ ------------
2,355,276 3,619,043
------------ ------------
------------ ------------
</TABLE>
Loans payable under normal commercial terms and conditions at:
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
$ $
------------ ------------
<S> <C> <C>
Current
Neville Jeffress Holdings Pty Limited........................... -- --
Controlled entities of Neville Jeffress Australia Pty Limited... -- --
Other related parties........................................... 228,206 2,574,287
Non-Current
Neville Jeffress Holdings Pty Limited........................... -- --
Controlled entities of Neville Jeffress Australia Pty Limited... -- --
Other related parties........................................... 242,489 --
------------ ------------
470,695 2,574,287
------------ ------------
------------ ------------
</TABLE>
Franchise fees have been received by Neville Jeffress Australia Pty Limited
from subsidiaries under normal commercial terms and conditions, amounting to
$1,611,337 (1995: $1,648,759)
Neville Jeffress Australia Pty Limited provided management, accounting and
computer services to subsidiaries under normal commercial terms and conditions.
Subsidiaries of Neville Jeffress Australia Pty Limited have paid rent on
buildings they occupied that are owned by a company controlled by N. Jeffress
under normal commercial terms and conditions amounting to $702,930 (1995:
$516,142)
F-47
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
12 RELATED PARTY TRANSACTIONS (CONTINUED)
Armstrong's Victoria Pty Limited provided management and accounting services
to Armstrong's NSW Pty Limited and Armstrong's Queensland Pty Limited under
normal terms and conditions.
The premises occupied by Neville Jeffress - Parramatta Pty Limited were
rented from The Neville Jeffress Advertising Staff Superannuation Fund under
normal commercial terms and conditions.
(ii) Transactions with the directors of Neville Jeffress Australia Pty
Limited and the economic entity
Accounting and taxation services were provided by C.D. Cameron to other
group companies under normal terms and conditions.
Consulting fees were paid to J Griffin Pty Ltd, of which Mr. J Griffin is a
director, at normal commercial rates. J Griffin Pty Ltd has loaned funds to the
company at 9% interest per annum, compounded quarterly and repayable at call. At
30 June 1996, the balance of the loan outstanding was $45,887 (1995: $26,877).
Mr. J. Griffin is a director of Neville Jeffress Perth Pty Limited.
The company has borrowed funds from N. Jeffress, a director. At 30 June
1996, the balance of this unsecured loan amounted to Nil (1995: $170,381).
(iii) Transactions with director-related entities
Travel services were provided by Barrenjoey Travel Pty Limited under normal
commercial terms and conditions. Directors associated with Barrenjoey Travel are
N. Jeffress and C.D. Cameron.
Mrs. L. Griffin, a director-related party, has loaned funds to the company
at 9% interest per annum, compounded quarterly and repayable at call. At 30 June
1996, the balance of the loan outstanding was $26,780 (1995: 24,493).
Media billings revenue under normal commercial terms and conditions
aggregated $1,963. These transactions were undertaken with respect to Bernie
Finance and Leasing of which Mr. B.D. Lewis is a director. Mr. B.D. Lewis is a
director of Neville Jeffress Adelaide Pty Limited.
(c) At 30 June 1996, Neville Jeffress Holdings Pty Limited was the ultimate
controlling entity. (On 2 July 1996, Neville Jeffress Holdings Pty Limited
disposed of its 91% interest in Neville Jeffress Australia Pty Limited. As a
result, at the reporting date, TMP Australia Pty Limited is the ultimate
Australian holding company and its ultimate controlling entity is McKelvey
Enterprises Inc., a company incorporated in the USA).
(d) Interests in the shares of entities within the economic entity held by
directors of the company and their director-related entities as of 30 June 1996.
Mr. N. Jeffress had an indirect interest in 91% of the shares of Neville
Jeffress Australia Pty Limited through his controlling interest in Neville
Jeffress Holdings Pty Limited.
Messrs. C.D. Cameron and P.G. Bush had an indirect interest in the shares of
Neville Jeffress Australia Pty Limited through their interest in Petzow Holdings
Pty Limited which owned 9% of the shares of Neville Jeffress Australia Pty
Limited.
There were no movements in directors' shareholdings in the twelve months
ended 30 June 1996. However, the indirect interests of Messsrs N. Jeffress, P.
G. Bush and C. D. Cameron in Neville Jeffress
F-48
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
12 RELATED PARTY TRANSACTIONS (CONTINUED)
Australia Pty Limited were disposed of on 2 July 1996, with the sale of 100%
ownership to TMP Australia Pty Limited as detailed above.
13 CONTINGENT LIABILITIES
Neville Jeffress Australia Pty Limited has agreed to support the valuation
of The Neville Jeffress Advertising Staff Superannuation Fund investment
property at 12 Palmer Street, North Parramatta, of which Neville
Jeffress--Parramatta Pty Limited is the sole tenant. Based on a company
valuation at 30 June 1996, a contingent liability of $111,000 exists.
A liability may exist in relation to the contract of employment of a senior
executive of the Company. Notice has been served on the company under the
contract and the company is proceeding to establish its contractual liability.
The maximum exposure of the liability is estimated at $500,000.
14 SUBSEQUENT EVENTS
All of the issued share capital of the company was acquired by a subsidiary
of McKelvey Enterprises, Inc. with effect from 1 July 1996. In accordance with
the terms of the purchase of shares agreement, the following transactions
occurred:
(1) NJA disposed of its investments in:
-- Media Monitors Australia Pty Limited and its controlled entities;
-- National Advertising Services Pty Limited; and
-- Neville Jeffress Newsagencies Pty Limited.
(2) Certain controlled entities of NJA, which owned certain properties,
disposed of those properties.
(3) The company declared and paid to its previous shareholders a
dividend amounting to $4,714,183.
(4) The company acquired the minority interests in certain controlled
entities.
The financial effect of the above transactions in the year to 30 June 1996
would have been to:
-- Increase net income attributable to members by $332,020; and
-- Increase the dividends paid by $4,714,183; and
-- Decrease the consolidated net assets by $4,599,820.
The Australian Competition and Consumer Commission handed down its decision
on 26 July 1996, confirming that the Media Accreditation System, in place since
1978 and under which the company derives the majority of its income, is to be
revoked, effective 3 February 1997. Sections of the media with which the company
deals, have already indicated a continuance of similar conditions under a
revised system. The directors foresee a continuance of operations in the
deregulated environment, although its is difficult to fully predict the impact
of the ACCC decision.
F-49
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN AUSTRALIAN DOLLARS)
15 SEGMENT INFORMATION
(a)Industry Segments
The group operates in only one segment of business, namely the
advertising industry.
(b) Geographical Segments
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
$ $
------------ ------------
<S> <C> <C>
SEGMENT Commissions and Fees
Australia 21,243,271 31,040,003
United Kingdom 409,548 629,285
New Zealand 10,440 390,738
------------ ------------
21,663,259 32,060,026
------------ ------------
------------ ------------
<CAPTION>
SEGMENT Total Assets
<S> <C> <C>
Australia 44,095,416 45,931,219
United Kingdom 878,820 1,018,818
New Zealand 226,208 470,509
------------ ------------
45,200,444 47,420,546
------------ ------------
------------ ------------
<CAPTION>
Income Before
SEGMENT Income Tax Expense
<S> <C> <C>
Australia 1,178,883 2,344,871
United Kingdom (56,225) 30,508
New Zealand (203,919) (49,221)
------------ ------------
918,739 2,326,158
------------ ------------
------------ ------------
</TABLE>
16 FOREIGN CURRENCIES
Net Australian dollar equivalents of assets/(liabilities) outstanding in
foreign currencies not effectively hedged:
<TABLE>
<S> <C> <C>
New Zealand dollars 173,439 111,942
English pound (91,868) (51,330)
</TABLE>
F-50
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
We have audited the statements of operations and cash flows of Rogers &
Associates Advertising, Inc. for the year ended March 31, 1994 and the nine
months ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows for the year
ended March 31, 1994 and the nine months ended December 31, 1994 of Rogers &
Associates Advertising, Inc., in conformity with generally accepted accounting
principles.
BDO SEIDMAN, LLP
San Francisco, California
July 25, 1996
F-51
<PAGE>
ROGERS & ASSOCIATES ADVERTISING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
MARCH 31, 1994 DECEMBER 31, 1994
--------------- -----------------
<S> <C> <C>
Commissions and fees.......................................................... $ 5,128,820 $ 6,576,309
--------------- -----------------
Operating expenses:
Salaries and related costs.................................................. 2,573,656 2,276,553
Office and general.......................................................... 1,935,314 2,044,810
--------------- -----------------
Total operating expenses................................................ 4,508,970 4,321,363
--------------- -----------------
Operating income........................................................ 619,850 2,254,946
Other income (expense):
Finance charges and interest income......................................... 49,000 63,992
Interest expense............................................................ (3,154) (885)
Other, net.................................................................. 48,022 (12,110)
--------------- -----------------
Income before provision for income taxes...................................... 713,718 2,305,943
Provision for income taxes.................................................... 2,374 3,227
--------------- -----------------
Net income.................................................................... $ 711,344 $ 2,302,716
--------------- -----------------
--------------- -----------------
</TABLE>
See accompanying notes to financial statements.
F-52
<PAGE>
ROGERS & ASSOCIATES ADVERTISING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
MARCH 31, 1994 DECEMBER 31, 1994
-------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................. $ 711,344 $ 2,302,716
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation.............................................................. 107,067 91,573
Allowance for doubtful accounts........................................... 10,000 22,880
Gain on sale of marketable securities..................................... -- (2,275)
Loss on disposition of furniture and equipment............................ -- 14,385
Changes in assets and liabilities:
Increase in accounts receivable......................................... (1,547,267) (1,590,437)
(Increase) decrease in other receivables................................ 21,694 (27,296)
Increase in prepaid expenses............................................ (2,172) (68,800)
(Increase) decrease in deposits......................................... (7,728) 2,356
Increase in accounts payable............................................ 918,375 568,890
Increase (decrease) in accrued expenses................................. (33,889) 54,670
Increase (decrease) in deferred revenue................................. (35,189) 330,222
Increase (decrease) in income taxes payable............................. (35,198) 1,627
-------------- ------------------
Net cash provided by operating activities............................. 107,037 1,700,511
-------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................................... (174,436) (145,298)
Proceeds from sale of marketable securities................................. -- 13,875
Purchase of marketable securities........................................... -- (15,475)
Notes receivable--shareholders.............................................. (38,003) (154,460)
Notes receivable--employees................................................. (32,894) 6,809
-------------- ------------------
Net cash used in investing activities................................. (245,333) (294,549)
-------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on line of credit.................................................. (20,000) (300,000)
Distributions to shareholders............................................... (151,923) (300,000)
Bank overdraft.............................................................. 139,701 (139,701)
-------------- ------------------
Net cash used in financing activities................................. (32,222) (739,701)
-------------- ------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......................... (170,518) 666,261
CASH AND CASH EQUIVALENTS, beginning of period................................ 170,518 --
-------------- ------------------
CASH AND CASH EQUIVALENTS, end of period...................................... $ -- $ 666,261
-------------- ------------------
-------------- ------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest.................................................................. $ 3,154 $ 885
Income taxes.............................................................. 2,857 800
</TABLE>
See accompanying notes to financial statements.
F-53
<PAGE>
ROGERS & ASSOCIATES ADVERTISING, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INCOME TAXES
Rogers & Associates Advertising, Inc. (the "Company") has elected S
Corporation status for both federal and California income tax reporting
purposes. Under S Corporation status, income and expense flow directly to the
Company's shareholders and the Company generally has no federal income tax
liability for federal income tax reporting purposes. Under current California
laws, S Corporations are treated the same as for federal purposes, but are
liable for a nominal income tax rate at the corporation level.
Pursuant to Internal Revenue Code Section 7519, S Corporations that maintain
fiscal year-ends are required to make deposits with the Internal Revenue
Service. These deposits represent deferred tax, calculated based on personal
income tax rates, on revenue earned during the deferral period that will be
passed through to the Company's shareholders.
REVENUE RECOGNITION
Revenues are derived from commissions for advertisements placed in
newspapers and other media, plus associated fees for related services.
Commissions and fees are recognized upon placement date of the related
advertisement.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid instruments with original maturities of three months or less to be
cash equivalents.
NATURE OF BUSINESS
The Company was incorporated in the State of California in March 1981. The
Company provides recruitment and other advertising services through branch
offices in California, Texas, Florida and Illinois.
NOTE 2 -- COMMITMENTS
The Company leases all of its branch facilities under long-term operating
leases which expire at various times through November 1999. The lease agreement
calls for the Company to pay for insurance and property taxes associated with
some of the facilities. Rent expense for the year ended March 31, 1994
F-54
<PAGE>
ROGERS & ASSOCIATES ADVERTISING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- COMMITMENTS (CONTINUED)
and the nine months ended December 31, 1994 was $363,368 and $258,278. The
future minimum lease payments required under noncancelable operating leases as
of December 31, 1994 are as follows:
<TABLE>
<S> <C>
1995............................................................... $ 275,396
1996............................................................... 247,983
1997............................................................... 222,775
1998............................................................... 223,879
1999............................................................... 112,229
---------
$1,082,262
---------
---------
</TABLE>
NOTE 3 -- EMPLOYEE BENEFIT PLANS
The Company maintains a profit sharing plan under Section 401(k) of the
Internal Revenue Code ("IRC"). Under the plan, employees may elect to defer up
to fifteen percent of their salary, subject to Internal Revenue Service limits.
In addition, the plan allows for the Company to make discretionary contributions
based upon participants' salaries. The Company made approximately $12,700 and
$13,500 in contributions to the plan for the year ended March 31, 1994 and the
nine months ended December 31, 1994, respectively. In addition, the Company
maintains an employee benefit plan pursuant to Section 125 of the IRC, whereby
employees may elect to withhold pre-tax dollars to pay for certain health
insurance and/or other employee benefits.
NOTE 4 -- CREDIT RISK AND ECONOMIC DEPENDENCE
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable. The Company
performs continuing credit evaluations of its customers and does not require
collateral. The Company has not experienced significant losses related to
receivables from individual customers or groups of customers in any particular
industry or geographic area.
A material part of the Company's business is performed for one customer.
Revenue earned from this customer represents approximately 20% of the Company's
total revenue and $460,880 of the Company's accounts receivable balance as of
December 31, 1994.
At December 31, 1994, the Company has deposits with a financial institution
in excess of $100,000, the federally-insured limit.
NOTE 5 -- SUBSEQUENT EVENT
On January 3, 1995, the Company sold substantially all of its assets for
$10,755,000 plus accounts payable and new equity (estimated at approximately
$3,000,000) to be paid over a period of three years.
Prior to December 31, 1994, the Company received $300,000 related to an
option payment received from the purchaser, which will be recorded as revenue in
1995.
F-55
<PAGE>
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