<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM 10-Q
/X/ Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1997
/ / Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 for the
transition period from _______ to _______.
-----------------------
Commission File Number: 0-21571
TMP WORLDWIDE INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3906555
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1633 Broadway, 33rd Floor, New York, New York 10019
(Address of principal executive offices) (Zip Code)
(212) 977-4200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's class
of common stock, as of the latest practicable date.
Class Outstanding on November 10, 1997
----- --------------------------------
Common Stock............................. 12,495,130
Class B Common Stock......................... 13,587,541
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C> <C>
Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets--
September 30, 1997 and December 31, 1996................................. 2
Consolidated Condensed Statements of Income--
Three Month and Nine Month Periods Ended September 30, 1997 and 1996..... 3
Consolidated Condensed Statement of Stockholders' Equity--
Nine Months Ended September 30, 1997..................................... 4
Consolidated Condensed Statements of Cash Flows--
Nine Months Ended September 30, 1997 and 1996............................ 5
Notes to Consolidated Condensed Financial Statements....................... 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................ 9-13
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................................... 14
Signatures................................................................. 15
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
September 30, December 31,
1997 1996
---- ----
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................................................... $ 2,513 $ 898
Accounts receivable, net.................................................... 262,423 191,728
Work-in-process............................................................. 16,270 14,542
Prepaid and other........................................................... 8,403 5,482
---------- ---------
Total current assets............................................................ 289,609 212,650
Receivable from Principal Stockholder........................................... --- 11,413
Property and equipment, net..................................................... 35,378 20,562
Deferred income taxes........................................................... 9,046 9,325
Intangibles, net................................................................ 142,587 73,975
Other assets.................................................................... 5,272 3,828
--------- ---------
$481,892 $331,753
========= =========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable........................................................... $220,161 $182,129
Accrued expenses and other liabilities..................................... 45,403 23,463
Deferred income taxes...................................................... 15,127 9,818
Current portion of long term debt.......................................... 6,350 9,167
--------- ---------
Total current liabilities....................................................... 287,041 224,577
Long term debt, less current portion............................................ 100,542 70,799
------- ---------
Total liabilities............................................................... 387,583 295,376
-------- --------
Minority interests.............................................................. 608 3,082
-------- --------
Redeemable preferred stock...................................................... --- 2,000
-------- --------
Stockholders' equity:
Preferred stock, $.001 par value, authorized 1,000,000 shares;
issued and outstanding - none ...................................... --- ---
Common stock, $.001 par value, authorized 200,000,000 shares;
issued and outstanding--12,401,642, and 8,605,436
shares respectively.................................................... 12 8
Class B common stock, $.001 par value, authorized 39,000,000 shares
issued and outstanding--13,587,541 and 14,787,541 shares
respectively........................................................... 14 15
Additional paid-in capital................................................. 161,447 106,803
Foreign currency translation adjustment.................................... 716 380
Accumulated deficit........................................................ (68,488) (75,911)
--------- ---------
Total stockholders' equity...................................................... 93,701 31,295
--------- ---------
$481,892 $331,753
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
-------- ---------- -------- ------
<S> <C> <C> <C> <C>
Commissions and fees ....................... $66,724 $48,207 $167,343 $ 118,870
------- ------- -------- --------
Operating expenses:
Salaries and related costs............... 33,096 25,349 83,580 60,910
Office and general expenses.............. 21,798 17,740 58,083 44,077
Amortization of intangibles.............. 1,529 1,160 4,378 3,173
Special compensation..................... --- 672 --- 672
------- ------- -------- --------
Total ............................... 56,423 44,921 146,041 108,832
------- ------- -------- --------
Operating income............................ 10,301 3,286 21,302 10,038
------- ------- -------- --------
Other income (expense):
Interest (expense) net................... (2,386) (2,767) (6,434) (8,600)
Other, net............................... (53) (482) (50) (32)
-------- -------- --------- --------
Total other income (expense), net.... (2,439) (3,249) (6,484) (8,632)
-------- -------- -------- --------
Income before provision for income taxes,
minority interests and equity in
earnings of affiliates............... 7,862 37 14,818 1,406
Provision for income taxes.................. 3,690 725 6,996 1,655
------- ------- -------- --------
Income (loss) before minority interests
and equity earnings of affiliates.... 4,172 (688) 7,822 (249)
Minority interests.......................... 29 117 256 343
Equity in earnings (losses) of affiliates... (15) 37 (20) 53
------- ------- --------- --------
Net income (loss)........................... 4,128 (768) 7,546 (539)
Preferred stock dividend and
redemption premium................... 0 (53) (123) (158)
------- ------- -------- --------
Net income (loss) applicable to common and
Class B common stockholders.......... $ 4,128 $(821) $7,423 $ (697)
======= ======= ======== ========
Net income per common
and Class B common share............. $.17 $.31
======= ========
Pro forma:
Historical net loss.................. $(821) $(697)
Pro forma adjustment for ............
special compensation.............. 672 672
------- --------
Pro forma net loss .................. $(149) $(25)
======= ========
Pro forma net loss per common........
and Class B common share......... $(01) $.00
======= ========
Weighted average common, Class B
common and common equivalent
shares outstanding................... 24,533 19,421 24,110 19,276
======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Class B Foreign
Common stock, common stock, Additional currency Total
$.001 par value $.001 par value paid-in translation Accumulated stockholders'
Shares Amount Shares Amount capital adjustment deficit equity
------ ------ ------ ------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 8,605,436 $ 8 14,787,541 $15 $106,803 $ 380 $(75,911) $31,295
Issuance of common stock
in connection with the
exercise of options... 41,776 ---- ---- ---- 539 ---- ---- 539
Capital contribution from
Principal Stockholder.. ---- ---- ---- ---- 275 ---- ---- 275
Issuance of common stock
for purchases of interest
in subsidiaries......... 110,882 1 ---- ---- 2,046 ---- ---- 2,047
Issuance of common stock
for Company match to
401K plan............. 43,548 ---- ---- ---- 555 ---- ---- 555
Foreign currency Translation
adjustment............ ---- ---- ---- ---- ---- 336 ---- 336
Dividend on preferred stock
and redemption premium. ---- ---- ---- ---- ---- ---- (123) (123)
Sale of common stock 2,400,000 2 ---- ---- 51,229 ---- ---- 51,231
Conversion of Class B
common stock into
common stock by Principal
Stockholder 1,200,000 1 (1,200,000) (1) ---- ---- ---- ----
Net Income.............. ---- ---- ---- ---- ---- ---- 7,546 7,546
---------- ----- ---------- ---- -------- ----- -------- -------
Balance, September 30,
1997.................. 12,401,642 $ 12 13,587,541 $ 14 $161,447 $ 716 $(68,488) $93,701
========== ===== ========== ==== ======== ===== ======== =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION> Nine Months Ended September 30,
-------------------------------
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................................... $ 7,546 $ (539)
-------- ----------
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization of property and equipment.................. 5,541 2,747
Amortization of intangibles.............................................. 4,378 3,173
Provision for doubtful accounts.......................................... 2,327 3,123
Special compensation..................................................... -- 672
Minority interests....................................................... 256 343
Provision (benefit) for deferred income taxes............................ 5,309 (514)
Other.................................................................... (53) 114
Changes in assets and liabilities, net of effects of purchases of businesses:
Increase in accounts receivable, net.................................... (10,773) (18,352)
Increase in work-in-process............................................. (806) (288)
Increase in prepaid and other........................................... (3,218) (397)
Increase in other assets................................................ (1,515) (4,174)
Increase in accounts payable and accrued liabilities................... 5,813 28,176
-------- ----------
Total adjustments..................................................... 7,259 14,623
-------- ----------
Net cash provided by operating activities............................. 14,805 14,084
-------- ----------
Cash flows from investing activities:
Payments pursuant to notes to Principal Stockholder...................... (3,064) (4,537)
Repayments from Principal Stockholder.................................... 14,903 1,577
Capital expenditures..................................................... (13,140) (4,259)
Payments for purchases of businesses, net of cash acquired............... (56,769) (16,611)
Proceeds from sale of assets............................................. ---- 3,347
Advances to and investments in affiliates................................ (71) (528)
-------- ----------
Net cash used in investing activities.................................. (58,141) (21,011)
-------- ----------
Cash flows from financing activities:
Payments on capitalized leases........................................... (2,170) (615)
Capital contribution from Principal Stockholder.......................... 275 ---
Borrowings under line of credit and proceeds from issuance of debt....... 463,034 471,292
Repayments under line of credit and principal payments on debt........... (462,138) (459,780)
Distributions to minority interest....................................... (25) (234)
Net proceeds from stock issuance......................................... 51,231 ---
Redemption of minority interest (including premium) ..................... (3,133) ---
Redemption of preferred stock (including premium)........................ (2,105) ---
Dividends on preferred stock............................................. (18) (158)
-------- ----------
Net cash provided by financing activities.............................. 44,951 10,505
-------- ----------
Net increase in cash and cash equivalents....................................... 1,615 3,578
Cash and cash equivalents, beginning of period.................................. 898 2,719
-------- ----------
Cash and cash equivalents, end of period........................................ $ 2,513 $ 6,297
======== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
NOTE 1-BASIS OF PRESENTATION
The consolidated condensed interim financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments which, in the opinion of management, are necessary for fair
presentation of the information contained therein. It is suggested that these
consolidated condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended December 31, 1996. The Company follows the same
accounting policies in preparation of interim reports.
Results of operations for the interim periods are not indicative of
annual results.
Primary earnings per share are based upon the weighted average number of
common, Class B common and common share equivalents outstanding during each
period.
NOTE 2-BUSINESS ACQUISITIONS
The Company acquired seven recruitment advertising businesses, including
Austin Knight Limited and Subsidiaries, and one yellow page business during the
nine month period ended September 30, 1997. During the year ended December 31,
1996, the Company acquired thirteen recruitment advertising companies. The total
value of cash paid, promissory notes issued, and common stock issued for these
acquisitions was approximately $74,279 and $25,358 for the 1997 and 1996 periods
respectively.
The acquisition of all of the outstanding stock of Austin Knight Limited
and subsidiaries ("Austin Knight") for approximately $47,200, net of
approximately $11,500 of cash acquired relating to the sale of real property by
Austin Knight, was completed in August 1997, For the year ended September 30,
1996, Austin Knight had annual gross billings of approximately $213,800 and
commissions and fees of approximately $47,600.
The summarized unaudited pro forma results of operations set forth below
for the nine months ended September 30, 1997 and 1996 assume that the
acquisitions completed in 1996 and the first nine months of 1997 occurred as of
the beginning of each of these periods and include expenses for amortization of
intangible assets acquired and interest on funds borrowed in connection with
such acquisitions, except for the acquisition of Austin Knight which was funded
by a portion of the proceeds from the common stock offering completed on
September 16, 1997.
Nine Months Ended September 30,
-------------------------------
1997 1996
---- ----
Commission and fees......................... $209,382 $189,442
Pro forma net income (loss) ................ 7,835 (451)
Pro forma net income (loss) per common
and Class B common share................. $.33 $(.03)
6
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
NOTE 3-SUPPLEMENTAL NET INCOME
Supplemental net income per common share and Class B common share for
the nine months ended September 30, 1997 was $.33 compared with a historical
income of $.31. For this calculation, the weighted average number of common and
Class B common shares includes the number of shares whose sale in the follow-on
offering completed on September 16,1997 at a price of $23.00 per share would
provide the proceeds to retire the $4,240 of revolving credit borrowings as well
as the net $47,200 borrowed to acquire Austin Knight from the beginning of the
period (or the date the debt was incurred) to the respective retirement date. In
addition, net income applicable to common and Class B common stockholders was
adjusted to exclude the related interest expense.
Supplemental net income per common share and Class B common share for
the nine months ended September 30, 1996 was $.08 compared with a historical
loss of $(.00). For this calculation, the weighted average number of common and
Class B common shares includes the number of shares (i) whose sale at the
initial public offering price of $14.00 per share would provide the proceeds
needed to retire $41,600 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 (ii)
whose sale in the follow-on offering price at $23.00 per share would provide the
proceeds to retire the $4,240 of borrowings as well as the net $47,200 borrowed
to acquire Austin Knight, from the beginning of the period (or the date the debt
was incurred) to the respective retirement date. In addition, net income
applicable to common and Class B common stockholders was adjusted to exclude the
related minority interest costs, preferred dividends and interest expense of the
items retired.
NOTE 4-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. These shares were redeemed on January 31, 1997 for a total of
$2,105, which included a redemption premium of $105.
NOTE 5-STOCK OPTIONS
On January 6, 1997 options to purchase, at an exercise price of $12.88,
the market price on the date of grant, an aggregate of approximately 1.2 million
shares of Company common stock were granted to officers and employees of the
Company.
NOTE 6-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. These
shares were redeemed on January 31, 1997 for $3,133, which included a redemption
premium of $118.
NOTE 7-LITIGATION SETTLED
In November 1996, an action was commenced against Old TMP, WCI and the
Principal Stockholder by a former employee alleging, among other things that the
defendants breached purported contractual and fiduciary obligations pursuant to
which the former employee was entitled to an ownership interest in the Company's
recruitment advertising business. In June 1997, this matter was settled for
$275, which was paid by the Principal Stockholder under an indemnity agreement
with the Company.
7
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
NOTE 8 - COMPLETION OF FOLLOW-ON OFFERING
In September 1997, the Company sold 2,400,000 shares of Common Stock to
the public at an offering price of $23.00 per share. The net proceeds to the
Company were approximately $51,200 after deducting the underwriting discounts
and commissions, and offering expenses payable by the Company. In addition,
1,600,000 shares of Common Stock of the Company were sold by certain
stockholders including the Principal Stockholder (the "Selling Stockholders").
Certain Selling Stockholders, including the Principal Stockholder, have repaid
their net indebtedness to the Company, approximately $12,400, from their
proceeds. The Company used the net proceeds received from the offering,
including proceeds received from certain Selling Stockholders, to repay a
portion of its outstanding indebtedness, including the amount borrowed from its
primary lending facility for the acquisition of Austin Knight.
8
<PAGE>
TMP WORLDWIDE INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Statements in this Quarterly Report on Form 10-Q concerning the
Company's outlook or future economic performance; anticipated profitability,
gross billings, commissions and fees, expenses or other financial items; and
statements concerning assumptions made or exceptions to any future events,
conditions, performance or other matter are "forward looking statements" as that
term is defined under the Federal Securities Laws. Forward-looking statements
are subject to risks, uncertainties, and other factors which would cause actual
results to differ materially from those stated in such statements. Such risks,
and uncertainties and factors include, but are not limited to, (i) the uncertain
acceptance of the Internet and the Company's Internet content, (ii) that 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 expected to fluctuate in
the future, (vi) the Company's business experiences seasonality, (vii) the loss
of services of certain key individuals could have a material adverse effect on
the Company's business, financial condition or operating results and (viii) the
control of the Company by Andrew J. McKelvey.
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 one of the world's largest recruitment advertising
agencies. In 1995, the Company began marketing Internet-based services as
extensions of its core business and has become a leading 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 285 of the Fortune 500
companies. A substantial part of the Company's growth has been achieved through
acquisitions. Given the significant number of acquisitions, the results of
operations from period to period are not comparable.
Gross billings refer to billings for advertisements 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. In addition, the Company
earns fees for the placement of advertisements on the Internet, primarily its
career Web sites.
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 addition to base commissions
certain yellow page publishers pay increased commissions for targeted increases
in volume placed by advertising agencies. The Company typically recognizes this
additional commission, if any, in the fourth quarter when it is certain that the
additional commission has been earned. For recruitment advertising placed in the
U.S., publisher commissions average 15% of recruitment gross billings. The
Company also earns fees for value-added services such as design, research and
other creative and administrative services resulting in aggregate commissions
and fees equal to approximately 20% 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 where, collectively the Company derives approximately 58% of its
recruitment commissions and fees on a pro forma basis, which includes the
acquisition of Austin Knight.
In 1996, the Company completed thirteen acquisitions, all of which are
in recruitment advertising, for an aggregate purchase price of $23.8 million,
net of cash acquired. Included in these acquisitions was Neville Jeffress
Australia Pty Limited ("Neville Jeffress"), a large recruitment advertising
agency in Australia.
For the first nine months of 1997, the Company completed eight
acquisitions, seven of which are in recruitment advertising and one of which is
yellow page advertising, for an aggregate purchase price of
9
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview (Continued)
approximately $60.0 million, net of cash acquired, including, in August 1997,
the acquisition of Austin Knight Limited and subsidiaries ("Austin Knight"). For
the year ended September 30, 1996, Austin Knight had annual gross billings of
approximately $214.0 million. Austin Knight is the largest recruitment
advertising agency in the U.K. and the fifth largest recruitment advertising
agency in the U.S. With the acquisition of Austin Knight, the Company has
strengthened its position as the third largest recruitment advertising agency in
the U.S. and has become the largest recruitment advertising agency in the U.K.
Results of Operations
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30
----------------------------- ----------------------------
1997 1996 1997 1996
-------- ---------- -------- ------
(dollars in thousands)
<S> <C> <C> <C> <C>
Gross Billings:
Yellow page advertising................... $139,533 $137,079 $349,910 $351,589
Recruitment advertising................... 153,909 97,334 394,531 216,826
Internet(1)............................... 4,993 2,098 13,548 4,413
---------- ---------- ---------- ----------
Total ...................................... $298,435 $236,511 $757,989 $572,828
======== ======== ======== ========
Commissions and Fees:
Yellow page advertising................... $ 28,625 $ 27,799 $ 71,375 $ 71,179
Recruitment advertising................... 33,385 18,424 83,046 43,278
Internet(1)............................... 4,714 1,984 12,922 4,413
--------- ---------- ---------- ----------
Total ...................................... $ 66,724 $ 48,207 $167,343 $ 118,870
======== ======== ======== =========
Commissions and Fees as a Percentage of
Gross Billings:
Yellow page advertising................... 20.5% 20.3% 20.4% 20.2%
Recruitment advertising................... 21.7% 18.9% 21.4% 20.0%
Internet(1)............................... 94.4% 94.6% 95.4% 100.0%
Total ..................................... 22.3% 20.4% 22.1% 20.8%
EBITDA(2)................................... $13,740 $ 4,606 $30,895 $15,636
Cash provided by (used in) operating
activities $19,718 $(4,440) $14,805 $14,084
Cash used in investing activities........... $(34,349) $(13,843) $(58,141) $(21,011)
Cash provided by financing activities....... $15,880 $ 20,458 $44,951 $10,505
- ---------------
</TABLE>
(1) Represents fees earned in connection with yellow page, recruitment and other
advertisements placed on the Internet, primarily on the Company's own Web
sites.
(2) Earnings before interest, income taxes, depreciation and amortization
("EBITDA"). EBITDA is presented to provide additional information about the
Company's ability to meet its future debt service, capital expenditure 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>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30
----------------------------- ----------------------------
1997 1996 1997 1996
-------- ---------- -------- ------
(dollars in thousands)
<S> <C> <C> <C> <C>
Net income.................................. $ 4,128 $ (768) $ 7,546 $ (539)
Interest expense, net....................... 2,386 2,767 6,434 8,600
Income tax expense.......................... 3,690 725 6,996 1,655
Depreciation and amortization............... 3,536 1,882 9,919 5,920
------ ----- ------ ------
EBITDA $13,740 $4,606 $30,895 $15,636
======== ====== ======= =======
</TABLE>
10
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Three months ended September 30, 1997 compared to the three months ended
September 30, 1996
Gross billings for the three months ended September 30, 1997 were
$298.4 million, a net increase of $61.9 million or 26.2% from $236.5 million for
the three months ended September 30, 1996. Commissions and fees for the three
months ended September 30, 1997 were $66.7 million, an increase of $18.5 million
or 38.4% from $48.2 million in the comparable three months of 1996. Yellow page
commissions and fees were $28.6 million for the three months ended September 30,
1997 an increase of $.8 million or 3% from $27.8 million in the comparable three
months of 1996. Recruitment commissions and fees were $33.4 million for the
three months ended September 30, 1997 compared with $18.4 million for the three
months ended September 30, 1996, an increase of $15.0 million or 81.2%. This
increase was primarily due to acquisitions and approximately $2.6 million was
due to net increases in client spending and new clients. Internet commissions
and fees increased 137.6% to $4.7 million for the three months ended September
30, 1997 from $2.0 million for the three months ended September 30, 1996. For
September 1997, web traffic as measured by Nielsen IPRO, for the Company's two
major career web sites (The Monster Board(R) and Online Career Centersm), was
2.1 million visits compared with 1.3 million visits for March 1997 (the first
month for which comparable statistics are available). In addition, Meter
Metrix/PC Meter's September ratings reported that The Monster Board(R) is the
Worldwide Web's top ranked career site. The increases in Internet revenue and
visits reflect an increasing acceptance of the Company's Internet services and
products from existing and new clients and Internet users, and the benefits of
"co-branding" marketing efforts with other Internet content providers.
Operating expenses for the three months ended September 30, 1997 were
$56.4 million, compared with $44.9 million for the same period in 1996. The
increase of $11.5 million or 25.6% reflects acquisition activity, including a
$.4 million increase for amortization of intangibles related to acquisitions,
growth in client service expenditures to support the increased revenue base and
increased spending for sales staff and marketing and product identity efforts
for The Monster Board(R) and Online Career Centersm. These factors were
partially offset by increases in efficiencies of scale as operating expenses as
a percentage of commissions and fees declined 8.6 percentage points to 84.6% for
the three months ended September 30, 1997 as compared to 93.2% in the prior year
period. In addition, the 1996 period includes a charge of $672,000 in special
compensation, which is a non-cash, non-recurring charge that reflects the value
of shares issued in connection with the acquisition of a minority interest in a
subsidiary because the stockholder had received his shares in such subsidiary
for no consideration and, accordingly, was not considered to have made a
substantive investment for his shares.
As a result of the above, operating income for the three months ended
September 30, 1997 increased $7.0 million or 213.5% to $10.3 million from $3.3
million for the comparable period last year.
Net interest expense for the three months ended September 30, 1997 was
$2.4 million, a decrease of $.4 million or 13.8%, reflecting a net reduction in
debt resulting from the use of the proceeds of the Company's initial and
secondary public offerings, which closed December 1996 and September 1997,
respectively, and income on loans to the Company's Principal Stockholder, which
began accruing interest effective January 1, 1997, partially offset by
borrowings for acquisitions.
Taxes on income for the three months ended September 30, 1997 were $3.7
million on a $7.9 million pretax profit compared with a tax expense of $.7
million on a $37,000 pretax profit for the same period last year. The effective
tax rate for the three month period ended September 30, 1997 was 46.9% down
significantly from the 1,960% effective rate for the comparable period in 1996.
The 1997 rate reflects the Company's ability to file a consolidated Federal Tax
return with certain U.S. companies as a result of the Mergers which occurred on
December 9, 1996, whereas the 1996 amounts reflect the Company's inability to
file a consolidated Federal Tax return with such entities. Consequently, for
1996, tax benefits on certain pretax losses were not recognizable.
Minority interests in consolidated earnings for the three months ended
September 30, 1997 was $29,000 decrease of $88,000 from the $117,000 for the
three months ended September 30, 1996. In addition, there was no preferred
dividend payment for the three months ended September 30, 1997 compared with
$53,000 for the three months ended September 30, 1996. Both improvements reflect
the redemptions in January, 1997 by the Company of the underlying preferred
stock.
11
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
As a result of all of the above, net income available to common and
Class B common stockholders for the three months ended September 30, 1997
increased $4.9 million to $4.1 million from a loss of $(.8) million for the
three months ended September 30, 1996.
Nine months ended September 30, 1997 compared to the nine months ended September
30, 1996
Gross billings for the nine months ended September 30, 1997 were $758.0
million a net increase of $185.2 million or 32.3% from $572.8 million for the
nine months ended September 30, 1996. Commissions and fees for the nine months
ended September 30, 1997 were $167.3 million, an increase of $48.4 million or
40.8% from $118.9 million in the comparable period in 1996. Yellow page
commissions and fees were $71.4 million for the nine months ended September 30,
1997 compared with $71.2 million for the nine months ended September 30, 1996.
Recruitment commissions and fees were $83.0 million for the nine months ended
September 30, 1997 compared with $43.4 million for the nine months ended
September 30, 1996, an increase of $39.6 million or 91.4%. This increase was
primarily due to acquisitions and approximately $7.5 million in net increases in
client spending and new clients net of the effects of client losses. Internet
commissions and fees increased $8.6 million or 200.6% to $12.9 million for the
nine months ended September 30, 1997 from $4.3 million for the nine months ended
September 30, 1996, reflecting an increasing acceptance of the Company's
Internet products from existing and new clients, and the benefits of
"co-branding" marketing efforts with other Internet content providers.
Operating expenses for the nine months ended September 30, 1997 were
$146.0 million, compared with $108.8 million for the same period in 1996. The
increase of $37.2 million or 34.2% reflects acquisition activity, including $1.2
million for higher amortization of intangibles related to acquisitions, growth
in client service expenditures to support the increased revenue base sales staff
and marketing and product identity efforts for The Monster Board(R) and Online
Career Centersm. Operating expenses as a percentage of commissions and fees were
87.3% for the nine months ended September 30, 1997 as compared to 91.6% in the
prior year period. In addition, the 1996 period includes a charge of $672,000 in
special compensation, which is a non-cash, non-recurring charge that reflects
the value of shares issued in connection with the acquisition of a minority
interest in a subsidiary because the stockholder had received his shares in such
subsidiary for no consideration and, accordingly, was not considered to have
made a substantive investment for his shares.
As a result of the above, operating income for the nine months ended
September 30, 1997 increased $11.3 million or 112.2% to $21.3 million from $10.0
million for the comparable period last year.
Net interest expense for the nine months ended September 30, 1997 was
$6.4 million, a decrease of $2.2 million or 25.2%, reflecting a net reduction in
debt resulting from the use of the proceeds from the Company's initial and
secondary public offerings, which closed December 1996 and September 1997,
respectively, and interest earned on loans to the Company's Principal
Stockholder, partially offset by borrowings for acquisitions.
Taxes on income for the nine months ended September 30, 1997 were $7.0
million compared with $1.7 million for the same period last year an increase of
$5.3 million or 322.7% as a result of higher pretax profits in the 1997 period
and, during 1996, the inability of the Company to offset profits of certain
subsidiaries with losses of others because they were not then part of the same
consolidated tax return as evidenced by an effective tax rate of 47.2% for the
nine month period ended September 30, 1997 compared with an effective tax rate
of 117.9% for the same 1996 period.
Minority interest in consolidated earnings for the nine months ended
September 30, 1997 was $256,000 down $87,000 from the $343,000 for the prior
year period and preferred dividends for the nine months ended September 30, 1997
of $123,000 were $35,000 below the $158,000 for the nine months ended September
30, 1996. The lower 1997 amounts have resulted from the redemptions of the
underlying instruments in the first quarter of 1997.
As a result of all of the above, net income available to common and
Class B common stockholders for the
12
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
nine months ended September 30, 1997 was $7.4 million, as compared to a pro
forma loss, after adding back the $672,000 Special Compensation, of $(25,000)
for the nine months ended September 30, 1996.
Liquidity and Capital Resources
Net cash provided by operating activities for the nine months ended
September 30, 1997 was $14.8 million compared with $14.1 million provided by
operating activities for the nine months ended September 30, 1996. Funds
provided by the increases in net income and non-cash charges to earnings and
increased collections of accounts receivable were substantially offset by higher
payments of accounts payable. These higher payments were made to yellow page
vendors in the first quarter of 1997 in order to eliminate high rate interest on
past due balances. These payments were made possible by the use of funds from
the initial public offering in December 1996. EBITDA was $30.9 million for the
nine months ended September 30, 1997 an increase of $15.3 million or 97.6% from
$15.6 million for the nine months ended September 30, 1996 and as a percentage
of commissions and fees, EBITDA was 18.5% for the nine months ended September
30, 1997, an improvement of 5.2 percentage points when compared with 13.2% for
the nine months ended September 30, 1996. The increase in EBITDA resulted from a
higher operating profit and higher non-cash charges, such as deferred income tax
expense and depreciation and amortization in 1997.
The Company's investing activities for the nine months ended September
30, 1997 used cash of $58.1 million compared with $21.0 million for the nine
months ended September 30, 1996. The $37.1 million increase was primarily due to
$40.1 million more in acquisitions, and includes the $47.2 million for the
acquisition of Austin Knight Ltd., and $8.8 million more for capital
expenditures when compared with payments made for the same period in 1996
partially offset by net loan repayments in September of 1997 of $12.1 million
from the Principal Stockholder with funds from his sale of shares in the
Company's secondary public offering.
The Company's financing activities include borrowings and repayments
under its bank financing agreements, issuance of and payments against
installment notes used principally to finance acquisitions and equipment and,
prior to 1997, loans to the Principal and certain other stockholders. The
Company's financing activities for the nine months ended September 30, 1997
provided net cash of $45.0 million, compared with $10.5 million for the nine
months ended September 30, 1996. The change of $34.5 million was primarily due
to the receipt of the net proceeds from the Company's sale of 2,400,000 shares
of Common Stock to the public at an offering price of $23.00. The Company used
the net proceeds received from the offering as well as the proceeds received
from certain selling stockholders to repay a portion of its outstanding
indebtedness, including the amount borrowed from its primary lending facility
for the acquisition of Austin Knight.
At September 30, 1997, the Company had $131 million in committed lines
of credit, with $100 million from its primary lending facility pursuant to a
revolving credit agreement expiring June 30, 2001. The Company is in the process
of securing an additional $75 million commitment from the primary lender,
however, there can be no assurance that such commitment will be given. Of the
committed lines, $13.1 million was unused at September 30, 1997.
Cash and cash equivalents at September 30, 1997 equaled $2.5 million,
an increase of $1.6 million from $.9 million at December 31, 1996.
Management believes that the aggregate lines of credit available to the Company,
plus funds provided by operations will be adequate to support its short-term
cash requirements for acquisitions, capital expenditures, repayment of debt and
maintenance of working capital. The Company anticipates that future cash flows
from operations plus funds available under existing line of credit facilities
will be adequate to support the long term cash requirements as presently
contemplated.
13
<PAGE>
TMP WORLDWIDE INC.
PART II OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) The following exhibits are filed as a part of this report:
11.1 Statement re: Computation of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K. The Company filed a report on Form 8-K
dated August 26, 1997, reporting an acquisition of assets
under Item 2 thereof. The acquisition related to the Company's
purchase of all of the capital stock of Austin Knight Limited
("AK"). Certain financial statements of AK were incorporated
by reference into the 8-K.
All other items of this report are inapplicable.
14
<PAGE>
TMP WORLDWIDE INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TMP WORLDWIDE INC.
-----------------------
(Registrant)
Date: November 13, 1997 /s/ Thomas G. Collison
-----------------------
Thomas G. Collison
Vice Chairman
(Principal Financial Officer)
Date: November 13, 1997 /s/ Roxane Previty
-----------------------
Roxane Previty
Chief Financial Officer
(Principal Accounting Officer)
15
<PAGE>
TMP WORLDWIDE INC.
EXHIBIT 11.1
STATEMENT re: COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30
----------------------------- ----------------------------
1997 1996 1997 1996
-------- ---------- -------- ------
<S> <C> <C> <C> <C>
Net income (loss)........................... $4,128 $ (768) $ 7,546 $ (539)
Preferred stock dividend and redemption
premium.............................. --- (53) (123) (158)
Net Income (loss) applicable to common and
Class B common stockholders.......... $4,128 $(821) $7,423 $ (697)
====== ======= ====== ======
Net income per common and Class B
common shares........................ $ .17 $ .31
====== ======
Pre forma:
Historical net loss................... $(821) $ (697)
Pro forma adjustment for
special compensation............ 672 672
------- ------
Pro forma net loss.................. $ (149) $ (25)
======= ======
Pro forma net loss per common and
Class B common share.......... $(.01) $ .00
======= ======
Weighted average number of common,
Class B common and common
equivalent shares outstanding
(including effect of options
granted within one year of
the offering)........................ 24,533 19,421 24,110 19,276
------ ------ ------ ------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,513
<SECURITIES> 0
<RECEIVABLES> 270,925
<ALLOWANCES> 8,502
<INVENTORY> 0
<CURRENT-ASSETS> 289,609
<PP&E> 66,012
<DEPRECIATION> 30,634
<TOTAL-ASSETS> 481,892
<CURRENT-LIABILITIES> 287,041
<BONDS> 100,542
<COMMON> 26
0
0
<OTHER-SE> 93,675
<TOTAL-LIABILITY-AND-EQUITY> 481,892
<SALES> 0
<TOTAL-REVENUES> 167,343
<CGS> 0
<TOTAL-COSTS> 143,715
<OTHER-EXPENSES> (50)
<LOSS-PROVISION> 2,327
<INTEREST-EXPENSE> 6,434
<INCOME-PRETAX> 14,818
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,546
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,546
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
