<PAGE>
Filed Pursuant to Rule 424(b(1)
Registration No. 333-31657
PROSPECTUS
4,000,000 SHARES
[LOGO]
COMMON STOCK
--------------
OF THE 4,000,000 SHARES OF COMMON STOCK OFFERED HEREBY, 2,400,000 SHARES ARE
BEING OFFERED BY TMP WORLDWIDE INC. ("TMP" OR THE "COMPANY") AND 1,600,000
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 EXCEPT THAT ANDREW J. MCKELVEY, THE COMPANY'S
CHAIRMAN OF THE BOARD AND CEO, AND CERTAIN OTHER SELLING
STOCKHOLDERS WILL REPAY THEIR NET INDEBTEDNESS TO THE
COMPANY FROM THEIR PROCEEDS. SEE "PRINCIPAL AND SELLING
STOCKHOLDERS." THE COMPANY'S COMMON STOCK IS QUOTED ON
THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "TMPW."
ON SEPTEMBER 16, 1997, THE LAST REPORTED SALE
PRICE OF THE COMMON STOCK ON THE NASDAQ
NATIONAL MARKET WAS $24 3/4 PER SHARE.
SEE "PRICE RANGE OF COMMON STOCK."
AFTER GIVING EFFECT TO THIS OFFERING (ASSUMING THE OVER-ALLOTMENT OPTION IS NOT
EXERCISED), THE COMPANY WILL HAVE OUTSTANDING 12,401,642 SHARES OF COMMON
STOCK WITH ONE VOTE PER SHARE (REPRESENTING 8.4% OF THE COMBINED VOTING
POWER OF THE COMPANY) AND 13,587,541 SHARES OF CLASS B COMMON STOCK
WITH TEN VOTES PER SHARE (REPRESENTING 91.6% 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 $23 A SHARE
-----------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
PER SHARE..................... $23.00 $1.15 $21.85 $21.85
TOTAL(3)...................... $92,000,000 $4,600,000 $52,440,000 $34,960,000
</TABLE>
- ------------
(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 $800,000.
(3) CERTAIN SELLING STOCKHOLDERS HAVE GRANTED THE UNDERWRITERS AN OPTION,
EXERCISABLE WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN
AGGREGATE OF 600,000 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 UNDERWRITERS EXERCISE SUCH OPTION
IN FULL, THE TOTAL PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS
AND PROCEEDS TO SELLING STOCKHOLDERS WILL BE $105,800,000, $5,290,000 AND
$48,070,000, RESPECTIVELY. SEE "UNDERWRITERS."
------------------------
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY DAVIS POLK & WARDWELL, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT
DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT SEPTEMBER 22, 1997 AT THE OFFICE
OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT THEREFOR
IN IMMEDIATELY AVAILABLE FUNDS.
-------------------
MORGAN STANLEY DEAN WITTER
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
MONTGOMERY SECURITIES
LADENBURG THALMANN & CO. INC.
SEPTEMBER 16, 1997
<PAGE>
[Photo Page]
<PAGE>
The contents of the Company's Web sites and other Web sites referred to
herein are not part of this Prospectus.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained in this Prospectus,
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company, any Selling Stockholder or any
Underwriter. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the Common Stock offered
hereby to any person in any jurisdiction in which it is unlawful to make such an
offer or solicitation to such person. Neither the delivery of the Prospectus nor
any sale made hereby shall under any circumstance imply that the information
herein is correct as of any date subsequent to the date hereof.
------------------------
IN THIS PROSPECTUS, REFERENCES TO "DOLLAR" AND "$" 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
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary............................. 4
Risk Factors................................... 10
Use of Proceeds................................ 15
Dividend Policy................................ 16
Price Range of Common Stock.................... 16
Capitalization................................. 17
Selected Consolidated Financial Information.... 18
Pro Forma Condensed Consolidated Financial
Information.................................. 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 25
<CAPTION>
PAGE
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<S> <C>
Business....................................... 37
Management..................................... 50
Certain Transactions........................... 56
Principal and Selling Stockholders............. 59
Description of Capital Stock................... 61
Shares Eligible for Future Sale................ 64
Underwriters................................... 65
Legal Matters.................................. 66
Experts........................................ 66
Available Information.......................... 67
Index to Financial Statements.................. F-1
</TABLE>
------------------------
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
<PAGE>
PROSPECTUS SUMMARY
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 ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT
OPTION TO PURCHASE FROM CERTAIN SELLING STOCKHOLDERS UP TO 600,000 ADDITIONAL
SHARES OF COMMON STOCK WILL NOT BE EXERCISED. 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. PRO FORMA NET INCOME FOR THE YEAR ENDED DECEMBER 31, 1996 IS NET
INCOME AFTER ADJUSTING FOR (I) A NON-CASH, NONRECURRING CHARGE OF $52.0 MILLION
THAT REFLECTS THE VALUE OF SHARES ISSUED IN CONNECTION WITH THE ACQUISITIONS OF
MINORITY INTERESTS IN PREDECESSORS OF THE COMPANY AND (II) A NON-CASH,
NONRECURRING CHARGE OF $2.6 MILLION THAT REFLECTS THE VALUE OF STOCK ISSUED UPON
THE EXERCISE OF A WARRANT IN CONNECTION WITH THE COMPANY'S INITIAL PUBLIC
OFFERING (COLLECTIVELY, THE "NONRECURRING CHARGES"). SEE "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--THE
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995" AND
NOTES 1 AND 7 TO THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS.
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 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. The Company's growth strategy is to
continue to 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. For the year
ended December 31, 1996, the Company's gross billings were $749.5 million,
commissions and fees were $162.6 million, pro forma net income and EBITDA, as
adjusted for the Nonrecurring Charges, were $2.4 million and $26.2 million,
respectively.
In August 1997, the Company acquired all of the outstanding stock of Austin
Knight Limited and subsidiaries ("Austin Knight") for approximately $47.2
million net of approximately $11.5 million of cash acquired relating to the sale
in July 1997 of real property by 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 United
Kingdom and the fifth largest 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. On a pro forma basis, giving effect
to the elimination of the Nonrecurring Charges, the Austin
4
<PAGE>
Knight acquisition, the other acquisitions included in the Company's pro forma
condensed consolidated financial information, the Company's initial public
offering and this offering, for the year ended December 31, 1996, the Company's
gross billings would have been $1.2 billion, commissions and fees would have
been $252.9 million, net income would have been $5.4 million and EBITDA would
have been $35.5 million. See "Risk Factors--Risks Associated with Acquisitions"
and "Pro Forma Condensed Consolidated Financial Information."
TMP is the world's largest yellow page advertising agency, generating
approximately $435 million in yellow page gross billings for the year ended
December 31, 1996. TMP is also one of the world's largest recruitment
advertising agencies, generating approximately $308 million in recruitment
advertising 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 yellow
page gross billings. A substantial part of the Company's growth in each of its
targeted markets has been achieved through acquisitions. From January 1, 1993
through December 31, 1996, TMP completed 39 acquisitions which have estimated
annual gross billings of $400 million. In 1997, through August 26, the Company
completed eight acquisitions with estimated annual gross billings of $310
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 sites which can be
accessed via the Internet on a global basis by individuals seeking employment.
The Company has several career sites, including The Monster Board-Registered
Trademark-, Online Career Center-SM-, Be the Boss-SM- and MedSearch-SM-, which
collectively contain approximately 90,000 job listings and career opportunities.
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 key word
searches.
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 $1.5 billion
market in the U.S. for the year ended December 31, 1996. The national yellow
page market has grown each year since 1981. During the period of 1990 through
1996, the market grew at a compound annual growth rate of approximately 4.8%.
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 yellow
page sales, marketing and customer service staff of approximately 680 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 enabled it to maintain a yellow page client
retention rate, year to year, in excess of 90%.
RECRUITMENT ADVERTISING. For the year ended December 31, 1996, 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 1996, the U.S. market grew at a compound annual growth rate of
approximately 10.4%. The Company receives commissions generally equal to 15% of
recruitment advertising gross billings. The
5
<PAGE>
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 20% of recruitment advertising gross
billings.
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 internationally "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 sites, including The Monster Board-Registered Trademark-, Online Career
Center-SM-, Be the Boss-SM- and MedSearch-SM- which provide continuously
available databases of career opportunities. Users of these sites 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 sites.
Dealer Locator, which is marketed to 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."
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").
McKelvey Enterprises, Inc. was formed in 1967 by Mr. McKelvey. 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. Following the Mergers, Telephone Marketing
Programs Incorporated changed its name to TMP Worldwide Inc. All historical
financial data contained herein for periods ended prior to December 9, 1996
reflects the historical financial data of Old TMP, WCI, McKelvey Enterprises,
Inc. and the other entities. 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.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company................................ 2,400,000 shares
The Selling Stockholders................... 1,600,000 shares
Total.................................. 4,000,000 shares
Common Stock to be outstanding after this
offering................................... 26,581,643 shares(1)
Use of proceeds.............................. Repayment of indebtedness (including debt
incurred to fund the acquisition of Austin
Knight). See "Use of Proceeds."
Nasdaq National Market Symbol................ TMPW
</TABLE>
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(1) Includes 592,460 shares of Common Stock pursuant to accounting under the
treasury stock method for outstanding stock options.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------------------ ---------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA, NUMBER OF EMPLOYEES AND OFFICES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA PRO FORMA
COMBINED COMBINED
AS ADJUSTED AS ADJUSTED
1992(1) 1993 1994 1995 1996 1996(2) 1996 1997 1997(2)
--------- --------- --------- --------- --------- ----------- --------- --------- -----------
STATEMENT OF OPERATIONS
DATA:
Commissions and fees..... $ 59,729 $ 73,791 $ 86,165 $ 123,907 $ 162,631 $ 252,940 $ 70,663 $ 100,619 $ 135,399
Salaries and related
costs.................. 32,093 37,747 45,758 58,329 80,291 128,251 35,561 50,484 70,101
Office and general
expenses............... 23,620 29,824 30,316 43,432 60,101 94,359 26,337 36,285 46,518
Amortization of
intangibles............ 1,800 2,471 3,264 3,237 4,440 6,986 2,013 2,849 3,820
Special
compensation(3)........ -- -- -- -- 52,019 -- -- --
Restructuring charges.... 14,095 1,318 -- -- -- -- --
Total operating
expenses............... 71,608 71,360 79,338 104,998 196,851 229,596 63,911 89,618 120,439
Operating income
(loss)................. (11,879) 2,431 6,827 18,909 (34,220) 23,344 6,752 11,001 14,960
Interest expense,
net(4)................. (3,869) (7,652) (9,178) (10,894) (14,265) (10,904) (5,833) (4,048) (4,608)
Other income (expense),
net.................... 180 (386) (146) 150 (164) (255) 450 3 (68)
Income (loss) before
provision (benefit) for
income taxes, minority
interests and equity in
earnings (losses) of
affiliates............. (15,568) (5,607) (2,497) 8,165 (48,649) 12,185 1,369 6,956 10,284
Provision (benefit) for
income taxes........... (5,579) (1,322) (333) 4,222 3,270 6,682 930 3,306 4,969
Net income (loss)
applicable to common
and Class B common
stockholders........... (10,537) (4,836) (2,677) 3,019 (52,449) 5,261 124 3,295 4,960
Net income (loss) per
common and Class B
common share........... $(.61) $(.27) $(.14) $.15 $.19 $.01 $.14 $.19
Weighted average number
of common, Class B
common and common
equivalent shares
outstanding............ 17,389 17,772 19,226 19,516 26,980 19,638 24,037 26,437
PRO FORMA INCOME DATA(5):
Pro forma net income
applicable to common
and Class B common
stockholders........... $ 2,173
Pro forma net income per
common and Class B
common share........... $.11
Weighted average number
of common, Class B
common and common
equivalent shares
outstanding............ 19,732
OTHER DATA:
Gross Billings:
Yellow page
advertising.......... $ 299,089 $ 336,714 $ 363,656 $ 429,176 $ 434,728 $ 440,378 $ 214,510 $ 210,377 $ 212,851
Recruitment
advertising.......... -- 8,338 54,872 166,508 308,147 720,092 119,492 240,622 389,709
Internet(6)............ -- -- -- 392 6,659 6,659 2,315 8,555 8,555
--------- --------- --------- --------- --------- ----------- --------- --------- -----------
Total Gross Billings..... $ 299,089 $ 345,052 $ 418,528 $ 596,076 $ 749,534 $1,167,129 $ 336,317 $ 459,554 $ 611,115
--------- --------- --------- --------- --------- ----------- --------- --------- -----------
--------- --------- --------- --------- --------- ----------- --------- --------- -----------
Number of employees...... 870 970 1,200 1,400 2,000 2,750 1,700 2,250 2,800
Number of offices........ 30 30 40 50 78 95 50 93 117
</TABLE>
8
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<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------
PRO FORMA
COMBINED
ACTUAL AS ADJUSTED (2)
--------- -----------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Current assets...................................................................... $ 228,549 $ 274,931
Current liabilities................................................................. 219,680 265,796
Total assets........................................................................ 374,048 457,266
Long-term liabilities............................................................... 116,088 101,550
Minority interests.................................................................. 435 435
Total stockholders' equity.......................................................... 37,845 89,485
</TABLE>
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(1) Operating results for the year ended December 31, 1992 include a
nonrecurring 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) The pro forma combined as adjusted financial information gives effect to (i)
the acquisitions as described in the "Pro Forma Condensed Consolidated
Financial Information," (ii) borrowings under the Company's financing
agreement to finance the acquisitions, as if these transactions had occurred
on January 1 for purposes of the statement of operations data and as if the
acquisition of Austin Knight had occurred on June 30, 1997 with respect to
the balance sheet data, (iii) (a) the sale of 2,400,000 shares of Common
Stock by the Company hereby at the public offering price of $23.00 per share
and the application of the net proceeds as described in "Use of Proceeds,"
(b) the sale in December 1996 of 4,147,408 shares of Common Stock by the
Company at an initial public offering price of $14.00 per share and the
application of the net proceeds of $50.8 million to repay debt (including
debt used to finance certain of the acquisitions), and redeem preferred
stock and (c) the application of the cash received from the Principal
Stockholder and certain other Selling Stockholders in repayment of their net
indebtedness to the Company of approximately $12.2 million with a portion of
the proceeds from their sale in this offering of Common Stock, as if the
offerings had occurred on January 1 for purposes of the statement of
operations data, and as if this offering had occurred on June 30, 1997 with
respect to the balance sheet data and (iv) the elimination of the
Nonrecurring Charges. See "Use of Proceeds," "Capitalization" and "Pro Forma
Condensed Consolidated Financial Information."
(3) Special compensation consists of a non-cash, nonrecurring charge of
approximately $52.0 million for special management compensation resulting
from the issuance of approximately 3.6 million shares of Common Stock of the
Company (in connection with its initial public offering) to stockholders of
predecessor companies of the Company 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 of the Company and, accordingly, such stockholders
were not considered to have made substantive investments for their minority
shares. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--The year ended December 31, 1996 compared to the year
ended December 31, 1995" and Note 1 to the Company's Consolidated Financial
Statements.
(4) Interest expense for 1996 includes a $2.6 million non-cash, nonrecurring
charge to reflect the exercise of a warrant issued in connection with the
Company's financing agreement. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--The year ended December 31,
1996 compared to the year ended December 31, 1995" and Note 7 to the
Company's Consolidated Financial Statements.
(5) Reflects the pro forma elimination of nonrecurring charges incurred in 1996
for special management compensation of approximately $52.0 million and
interest expense of $2.6 million. See notes (3) and (4) above, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--The year ended December 31, 1996 compared to the year ended
December 31, 1995" and Notes 1 and 7 to the Company's Consolidated Financial
Statements.
(6) Represents fees earned in connection with yellow page, recruitment and other
advertisements placed on the Internet.
9
<PAGE>
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 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 incremental 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."
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 the Company
will be successful in integrating the operations of Austin Knight, motivating
its key personnel, or retaining Austin Knight's clients. In addition, there can
be no assurance that financing for acquisitions will be available on terms
acceptable to the Company, or that the Company will be able to identify or
consummate new acquisitions, or manage and integrate 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.
As the Company grows in size, whether through acquisitions or otherwise, it
may become subject to various antitrust and similar regulatory requirements
administered by various authorities in which considerations of size and/or
market share are relevant. Such regulations are often quite complex and are
subject to frequent amendment. While no filings were required with any such
regulatory authorities in the U.K. in connection with the acquisition of Austin
Knight, regulatory authorities, such as the U.K.'s Monopolies & Mergers
Commission, may make investigations into the nature and consequences of the
Company's acquisition of Austin Knight, including whether such acquisition is
contrary to the public interest and, if necessary, order an appropriate remedy
(including a divestiture). Although no assurance can be given, the Company does
not believe that any remedy (including any divestiture) material to the
Company's business or operations would be ordered in the event of any such
investigation.
UNCERTAIN VIABILITY OF TRADITIONAL MEDIA
The Company derives a substantial portion of its commissions and fees from
placing advertising in yellow page directories. This segment constituted
approximately 43% of total commissions and fees for the six months ended June
30, 1997. 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
10
<PAGE>
trade publications. This segment constituted approximately 49% of total
commissions and fees for the three months ended June 30, 1997. 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.
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. 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. Although the Company
generated Internet revenue of $8.2 million for the first six months of 1997,
there can be no assurance that the Company will continue to generate substantial
Internet-based revenue in the future. 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.
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
either to 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 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.
11
<PAGE>
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 the 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 AND CYCLICALITY 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
additional commissions, if earned, from yellow page publishers for achieving a
specified volume of advertising, which commissions are typically reported in the
fourth quarter. The Company's quarterly commissions and fees earned from
recruitment advertising are typically highest in the first quarter and lowest in
the fourth quarter. On a pro forma basis, giving effect to the acquisition of
Austin Knight, for the year ended December 31, 1996, the Company's commissions
and fees from recruitment advertising would have been approximately 59% of the
Company's total commissions and fees. Recruitment advertising commissions and
fees tend to be more cyclical than yellow page commissions and fees, and,
therefore, to the extent that a significant percentage of the Company's
commissions and fees are derived from recruitment advertising, the Company's
operating results may be subject to increased cyclicality. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results."
TECHNOLOGICAL RISKS
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. The Company's Internet access is provided by BBN Planet and
IQuest Internet, Internet co-location sites. Any disruption in the Internet
access provided by BBN Planet, IQuest Internet or in the Internet generally
could affect the Company's 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 CEO. The loss of the services of one or more key employees could have
a material adverse effect on the Company's business, 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.
12
<PAGE>
CONTROL BY PRINCIPAL STOCKHOLDER
Following completion of this offering, Andrew J. McKelvey will continue to
beneficially own all of the outstanding Class B Common Stock, which will
represent 91.6% 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 and the application of the net proceeds
hereof, the Company will have outstanding indebtedness of approximately $114
million, including approximately $88 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 June 30, 1997, these advances, net of payables,
totaled approximately $12.2 million. To the extent that these advances are not
repaid, the Company could be materially adversely affected. The advances are
unsecured and the Company bears the risk of repayment. Messrs. McKelvey,
Hosokawa and Collison intend to repay the net advances made to them from the
proceeds of their sale of Common Stock in this offering. 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
The Company's Board of Directors has 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 91.6% of the combined voting power of all 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, Belgium, Canada, France, Japan, the Netherlands, New Zealand and the
United Kingdom. Giving effect to the recent
13
<PAGE>
acquisition of Austin Knight, approximately 43% of the Company's commissions and
fees, on a pro forma basis, for the year ended December 31, 1996 would have been
earned outside of the U.S. and collected in local currency. In addition, the
Company generally pays operating expenses with the corresponding local currency
and 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.
POSSIBLE VOLATILITY OF STOCK PRICE
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.
Further, there can be no assurance that 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 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 90
days after the
14
<PAGE>
date of this Prospectus. See "Underwriters." After the expiration of this 90 day
period, 13,587,541 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"). In addition, commencing December 9,
1997, approximately 3,600,000 shares of Common Stock will be eligible for sale
in the public market without registration, subject to certain volume and other
limitations, pursuant to Rule 144. 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."
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."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,400,000 shares of
Common Stock offered by the Company hereby at the public offering price of
$23.00 per share are estimated to be $51.6 million, 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
1,600,000 shares of Common Stock offered by the Selling Stockholders hereby
except that Andrew J. McKelvey and certain other Selling Stockholders will repay
their net indebtedness to the Company, approximately $12.2 million, from their
proceeds. See 'Certain Transactions.'
TMP intends to use the net proceeds from this offering, including proceeds
received from the Principal Stockholder and certain other Selling Stockholders
in repayment of their net indebtedness to the Company, to repay a portion of its
outstanding indebtedness, which aggregated approximately $122.1 million at June
30, 1997 and which aggregated approximately $178.2 million at August 26, 1997
giving effect to the acquisition of Austin Knight. The indebtedness to be repaid
will consist of approximately $64.0 million of borrowings outstanding under the
Company's financing agreement (including approximately $46.0 million (not
including $1.2 million payable to certain selling shareholders of Austin Knight
in the form of notes) relating to the acquisition of Austin Knight, net of
approximately $11.5 million of cash acquired relating to the sale in July 1997
of real property by Austin Knight, which will be immediately used to repay
debt). See "Pro Forma Condensed Consolidated Financial Information." The
interest rate of the financing agreement is determined pursuant to a formula
whereby the interest rate (A) with respect to U.S. borrowings is, at the
Company's option, either (i) the prime rate less 1% or (ii) LIBOR plus 1 1/2%,
(B) with respect to United Kingdom borrowings is the U.K. base rate, plus 1.75%,
(C) with respect to Canadian borrowings is the Canadian dollar prime rate and
(D) with respect to the overadvance bridge loan is LIBOR plus 1.5% except for
such portion of the overadvance bridge loan in excess of certain receivables
contemplated to be assigned to the Company's lender with respect to which the
rate is LIBOR plus 2.25%. The financing agreement bore interest at 7.28% per
annum as of June 30, 1997 and it is expected that the acquisition of Austin
Knight will not increase this rate. The financing agreement expires on June 27,
2001, subject to automatic renewals for one year periods, thereafter. 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, 1997.
15
<PAGE>
DIVIDEND POLICY
TMP has never declared or paid any cash dividends on its Common Stock. 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."
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on the Nasdaq National Market under the symbol
"TMPW." The Common Stock was initially offered to the public on December 12,
1996 at $14.00 per share. The following table sets forth for the periods
indicated the high and low reported sale prices per share for the Common Stock
as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 HIGH LOW
- ----------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Fourth Quarter (Commencing December 12, 1996).......................... $ 14 1/4 $ 12 1/2
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 HIGH LOW
- ----------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First Quarter.......................................................... $ 22 $ 12 7/8
Second Quarter......................................................... $ 24 1/4 $ 17
Third Quarter (Through September 16, 1997)............................. $ 25 5/8 $ 20
</TABLE>
The number of stockholders of record of Common Stock on September 16, 1997
was 74. On September 16, 1997, the last reported sale price of the Common Stock
as reported by the Nasdaq National Market was $24.75.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997, (i) on an historical basis, (ii) on a pro forma basis giving effect to
the acquisitions that are discussed in the "Pro Forma Condensed Consolidated
Financial Information" and (iii) on a pro forma basis, as adjusted to give
effect to (a) the sale by the Company of the 2,400,000 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) reclassification to
Common Stock from Class B Common Stock of 1,200,000 shares sold by the Principal
Stockholder and (c) the repayment by the Company's Principal Stockholder and
certain other Selling Stockholders of their net indebtedness to the Company and
the application of such proceeds as described in "Use of Proceeds." 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 "Pro Forma Condensed Consolidated Financial Information."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------------------
PRO FORMA
PRO FORMA COMBINED
ACTUAL COMBINED AS ADJUSTED
--------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt............................ $ 6,046 $ 13,223 $ 13,223
--------- ----------- -----------
--------- ----------- -----------
Long-term debt, less current portion......................... $ 116,088 $ 165,355 $ 101,550
--------- ----------- -----------
Minority interests........................................... 435 435 435
--------- ----------- -----------
Stockholders' equity:
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 8,797,342, pro forma combined
8,797,342 and pro forma combined as adjusted
12,397,342............................................... 9 9 12
Class B Common Stock, $.001 par value.
Authorized--39,000,000 shares; issued and
outstanding--actual and pro forma combined 14,787,541 and
pro forma combined as adjusted 13,587,541................ 15 15 14
Additional paid-in capital................................. 110,166 110,166 161,804
Foreign currency translation adjustment.................... 271 271 271
Deficit.................................................... (72,616) (72,616) (72,616)
--------- ----------- -----------
Total stockholders' equity............................... 37,845 37,845 89,485
--------- ----------- -----------
Total capitalization................................. $ 154,368 $ 203,635 $ 191,470
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial information with respect to
the Company's financial position as of December 31, 1995 and 1996 and its
results of operations for each of the years ended December 31, 1994, 1995 and
1996 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, 1992 and 1993
and the six months ended June 30, 1996 and 1997 and with respect to the
Company's financial position as of December 31, 1992, 1993 and 1994 and as of
June 30, 1996 and 1997 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 six
months ended June 30, 1997 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>
YEAR ENDED DECEMBER 31,
------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA, NUMBER OF
EMPLOYEES AND OFFICES)
1992(1) 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Commissions and fees.................................................. $ 59,729 $ 73,791 $ 86,165 $123,907 $162,631
Operating expenses:
Salaries and related costs.......................................... 32,093 37,747 45,758 58,329 80,291
Office and general.................................................. 23,620 29,824 30,316 43,432 60,101
Amortization of intangibles......................................... 1,800 2,471 3,264 3,237 4,440
Special compensation(2)............................................. -- -- -- -- 52,019
Restructuring charges............................................... 14,095 1,318 -- -- --
Total operating expenses.............................................. 71,608 71,360 79,338 104,998 196,851
Operating income (loss)............................................... (11,879) 2,431 6,827 18,909 (34,220)
Other income (expense):
Interest expense, net(3)............................................ (3,869) (7,652) (9,178) (10,894) (14,265)
Other, net.......................................................... 180 (386) (146) 150 (164)
Income (loss) before provision (benefit) for income taxes, minority
interests and equity in earnings (losses) of affiliates............. (15,568) (5,607) (2,497) 8,165 (48,649)
Provision (benefit) for income taxes................................ (5,579) (1,322) (333) 4,222 3,270
Net income (loss) applicable to common and Class B common
stockholders........................................................ (10,537) (4,836) (2,677) 3,019 (52,449)
Net income (loss) per common and Class B common share................. $(.61) $(.27) $(.14) $.15
Weighted average number of common, Class B common and common
equivalent shares outstanding....................................... 17,389 17,772 19,226 19,516
PRO FORMA INCOME DATA(4):
Pro forma net income applicable to common and Class B common
stockholders........................................................ $ 2,173
Pro forma net income per common and Class B common share.............. $.11
Weighted average number of common, Class B common and common
equivalent shares outstanding....................................... 19,732
OTHER DATA:
Gross Billings:
Yellow page advertising............................................. $299,089 $336,714 $363,656 $429,176 $434,728
Recruitment advertising............................................. -- 8,338 54,872 166,508 308,147
Internet (5)........................................................ -- -- -- 392 6,659
-------- -------- -------- -------- --------
Total Gross Billings.................................................. $299,089 $345,052 $418,528 $596,076 $749,534
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Number of employees................................................... 870 970 1,200 1,400 2,000
Number of offices..................................................... 30 30 40 50 78
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1996 1997
-------- --------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Commissions and fees.................................................. $ 70,663 $100,619
Operating expenses:
Salaries and related costs.......................................... 35,561 50,484
Office and general.................................................. 26,337 36,285
Amortization of intangibles......................................... 2,013 2,849
Special compensation(2)............................................. -- --
Restructuring charges............................................... -- --
Total operating expenses.............................................. 63,911 89,618
Operating income (loss)............................................... 6,752 11,001
Other income (expense):
Interest expense, net(3)............................................ (5,833) (4,048)
Other, net.......................................................... 450 3
Income (loss) before provision (benefit) for income taxes, minority
interests and equity in earnings (losses) of affiliates............. 1,369 6,956
Provision (benefit) for income taxes................................ 930 3,306
Net income (loss) applicable to common and Class B common
stockholders........................................................ 124 3,295
Net income (loss) per common and Class B common share................. $.01 $.14
Weighted average number of common, Class B common and common
equivalent shares outstanding....................................... 19,638 24,037
PRO FORMA INCOME DATA(4):
Pro forma net income applicable to common and Class B common
stockholders........................................................
Pro forma net income per common and Class B common share..............
Weighted average number of common, Class B common and common
equivalent shares outstanding.......................................
OTHER DATA:
Gross Billings:
Yellow page advertising............................................. $214,510 $210,377
Recruitment advertising............................................. 119,492 240,622
Internet (5)........................................................ 2,315 8,555
-------- --------
Total Gross Billings.................................................. $336,317 $459,554
-------- --------
-------- --------
Number of employees................................................... 1,700 2,250
Number of offices..................................................... 50 93
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
(IN THOUSANDS)
1992(1) 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets........................................................ $105,400 $122,168 $134,313 $180,516 $212,650
Current liabilities................................................... 115,224 135,033 146,124 186,247 224,577
Total assets.......................................................... 142,087 168,424 198,965 258,094 331,753
Long-term liabilities................................................. 38,112 49,694 72,008 88,070 70,799
Minority interests.................................................... 3,361 3,121 3,153 3,105 3,082
Redeemable preferred stock............................................ 2,000 2,000 2,000 2,000 2,000
Total stockholders' equity (deficit).................................. (16,610) (21,424) (24,320) (21,328) 31,295
<CAPTION>
JUNE 30,
------------------
1996 1997
-------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets........................................................ $190,270 $228,549
Current liabilities................................................... 204,126 219,680
Total assets.......................................................... 277,299 374,048
Long-term liabilities................................................. 88,204 116,088
Minority interests.................................................... 3,174 435
Redeemable preferred stock............................................ 2,000 --
Total stockholders' equity (deficit).................................. (27,432) 37,845
</TABLE>
- ------------------------
(1) Operating results for the year ended December 31, 1992, include a
nonrecurring 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 a non-cash, nonrecurring charge of
approximately $52.0 million for special management compensation resulting
from the issuance of approximately 3.6 million shares of Common Stock of the
Company (in connection with its initial public offering) to stockholders of
predecessor companies of the Company 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 of the Company and, accordingly, such stockholders
were not considered to have made substantive investments for their minority
shares. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--The year ended December 31, 1996 compared to the year
ended December 31, 1995" and Note 1 to the Company's Consolidated Financial
Statements.
(3) Interest expense for 1996 includes a $2.6 million non-cash, nonrecurring
charge to reflect the exercise of a warrant issued in connection with the
Company's financing agreement. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--The year ended December 31,
1996 compared to the year ended December 31, 1995" and Note 7 to the
Company's Consolidated Financial Statements.
(4) Reflects the pro forma elimination of nonrecurring charges incurred in 1996
for special management compensation of approximately $52.0 million and
interest expense of $2.6 million. See notes (2) and (3) above, "Management's
Discussion and Analysis of Financial Condition and Results of Operations
--The year ended December 31, 1996 compared to the year ended December 31,
1995" and Notes 1 and 7 to the Company's Consolidated Financial Statements.
(5) Represents fees earned in connection with yellow page, recruitment and other
advertisements placed on the Internet.
19
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The Pro Forma Condensed Consolidated Financial Information (A) reflects
financial information with respect to the Company's (i) acquisition in August
1997 of all the outstanding stock of Austin Knight for a purchase price of
approximately $47.2 million, which includes $1.2 million payable to certain
selling shareholders of Austin Knight in the form of notes and is net of
approximately $11.5 million of cash acquired relating to the sale in July 1997
of real property by Austin Knight, (ii) acquisitions in 1997 (the "1997
Acquisitions") of seven companies, other than Austin Knight, for an aggregate
purchase price of approximately $17.9 million which includes the issuance of
48,935 shares of Common Stock, and (iii) acquisitions during 1996 of eleven
companies, including Neville Jeffress Australia Pty Limited ("Neville
Jeffress"), for an aggregate purchase price of approximately $25.1 million (the
"1996 Acquisitions"), (B) is adjusted for (i) the sale of 2,400,000 shares of
Common Stock offered hereby at the public offering price of $23.00 per share and
the application of the net proceeds therefrom as described in "Use of Proceeds",
and (ii) the receipt of cash from the Principal Stockholder and certain other
Selling Stockholders in repayment of their net indebtedness to the Company which
was approximately $12.2 million at June 30, 1997 with proceeds from their sale
of Common Stock in this offering and (C) for the statement of operations for the
year ended December 31, 1996 only, is further adjusted for the initial public
offering of 4,147,408 shares of Common Stock and the application of the $50.8
million net proceeds therefrom to reduce debt, including debt incurred to
finance the 1996 Acquisitions, as if such offering occurred on January 1, 1996.
The acquisitions are being accounted for under the purchase method of
accounting.
The financial statements of the foreign companies acquired and included in
the Pro Forma Condensed Consolidated Financial Information were translated at
the following exchange rates: with respect to Austin Knight and other United
Kingdom companies, British Pounds Sterling were translated to U.S. dollars at
the rate of 1.573, 1.634 and 1.665, respectively, with respect to the 1996
statement of operations, the 1997 statement of operations and the 1997 balance
sheet, Canadian dollars were translated to U.S. dollars at the rate of .734 and
.733, respectively, with respect to the 1996 statement of operations and the
1997 statement of operations, Dutch Guilders were translated to U.S. dollars at
the rate of .5907 and .5352, respectively, with respect to the 1996 statement of
operations and the 1997 statement of operations, Belgian Francs were translated
into U.S. dollars at the rate of .0322 and Australian dollars were translated
into U.S. dollars at the rate of .786 with respect to the 1996 statement of
operations.
The Pro Forma Condensed Consolidated Financial Information (i) gives effect
to the acquisition of Austin Knight, the 1997 Acquisitions and the 1996
Acquisitions, (ii) is based upon estimated allocations of the purchase prices
and (iii) includes all adjustments described in the notes hereto.
The Pro Forma Condensed Consolidated Statements of Operations were prepared
as if the above acquisitions, the Company's initial public offering (with
respect to the statement of operations for the year ended December 31, 1996
only) and this offering occurred as of January 1 for the periods presented. The
Pro Forma Condensed Consolidated Balance Sheet was prepared as if the
acquisition of Austin Knight, which closed during August 1997, and this offering
occurred on June 30, 1997. 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, 1996 and the six months ended June 30, 1997 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 eliminates
duplication of overhead, particularly in the United Kingdom, Australia and
Canada. 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.
20
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP
WORLDWIDE AUSTIN
INC. KNIGHT(2) ADJUSTMENTS
--------- --------------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............. $ 1,264 $ 606 $ --
Accounts receivable,
net..................... 203,509 45,411 --
Work-in-process........... 17,665 365 --
Prepaid and other......... 6,111 -- --
--------- ------- -----------
Total current assets.... 228,549 46,382 --
Receivable from Principal
Stockholder, net........... 11,611 -- --
Property and equipment,
net........................ 31,568 28,099 (23,172)(a)
Deferred income taxes....... 9,046 -- --
Intangibles, net............ 90,095 504 43,570(b)
Other assets................ 3,179 -- --
--------- ------- -----------
$ 374,048 $74,985 $ 20,398
--------- ------- -----------
--------- ------- -----------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......... $ 174,532 $29,737 $ --
Accrued expenses and other
current liabilities..... 28,682 6,202 3,000(b)
Deferred income taxes..... 10,420 -- --
Current portion of
long-term debt.......... 6,046 6,705 472(c)
--------- ------- -----------
Total current
liabilities........... 219,680 42,644 3,472
Long-term debt, less current
portion.................... 116,088 7,641 41,626(a,c)
Minority interests.......... 435 -- --
Stockholders' equity:
Common stock.............. 9 -- --
Class B common stock...... 15 -- --
Additional paid-in
capital................. 110,166 --
Foreign currency
translation
adjustment.............. 271 -- --
Deficit................... (72,616) -- --
Equity of Austin Knight... -- 24,700 (24,700)(d)
--------- ------- -----------
Total stockholders'
equity................ 37,845 24,700 (24,700)
--------- ------- -----------
$ 374,048 $74,985 $ 20,398
--------- ------- -----------
--------- ------- -----------
<CAPTION>
PRO FORMA
COMBINED
PRO FORMA OFFERING AS
COMBINED ADJUSTMENTS ADJUSTED(3)
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............. $ 1,870 $ -- $ 1,870
Accounts receivable,
net..................... 248,920 -- 248,920
Work-in-process........... 18,030 -- 18,030
Prepaid and other......... 6,111 -- 6,111
----------- ----------- -----------
Total current assets.... 274,931 -- 274,931
Receivable from Principal
Stockholder, net........... 11,611 (11,611)(e) --
Property and equipment,
net........................ 36,495 -- 36,495
Deferred income taxes....... 9,046 -- 9,046
Intangibles, net............ 134,169 -- 134,169
Other assets................ 3,179 (554)(e) 2,625
----------- ----------- -----------
$ 469,431 $(12,165) $457,266
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......... $ 204,269 $ -- $204,269
Accrued expenses and other
current liabilities..... 37,884 -- 37,884
Deferred income taxes..... 10,420 -- 10,420
Current portion of
long-term debt.......... 13,223 -- 13,223
----------- ----------- -----------
Total current
liabilities........... 265,796 -- 265,796
Long-term debt, less current
portion.................... 165,355 (63,805)(e,f) 101,550
Minority interests.......... 435 -- 435
Stockholders' equity:
Common stock.............. 9 3(f,g) 12
Class B common stock...... 15 (1)(f,g) 14
Additional paid-in
capital................. 110,166 51,638(f) 161,804
Foreign currency
translation
adjustment.............. 271 -- 271
Deficit................... (72,616) -- (72,616)
Equity of Austin Knight... -- -- --
----------- ----------- -----------
Total stockholders'
equity................ 37,845 51,640 89,485
----------- ----------- -----------
$ 469,431 $(12,165) $457,266
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See footnotes on following pages.
21
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP 1997 AUSTIN
WORLDWIDE INC. ACQUISITIONS(1) KNIGHT(2) ADJUSTMENTS
-------------- --------------- -------------- -----------
<S> <C> <C> <C> <C>
Commissions and fees.............................. $100,619 $5,717 $29,063 $--
-------------- ------ ------- -----------
Operating expenses:
Salaries and related costs...................... 50,484 2,868 16,749 --
Office and general.............................. 36,285 1,939 8,012 282(h)
Amortization of intangibles..................... 2,849 -- -- 971(i)
-------------- ------ ------- -----------
Total operating expenses........................ 89,618 4,807 24,761 1,253
-------------- ------ ------- -----------
Operating income.................................. 11,001 910 4,302 (1,253)
Interest expense, net............................. (4,048) (87) (338) (2,291)(j,k)
Other income (expense), net....................... 3 (71) --_ --
-------------- ------ ------- -----------
Income before provision (benefit) for income
taxes, minority interests and equity in earnings
of affiliates................................... 6,956 752 3,964 (3,544)
Provision (benefit) for income taxes.............. 3,306 162 1,665 (1,026)(l)
Minority interests................................ 227 -- -- --
Equity in earnings of affiliates.................. (5) -- -- --
-------------- ------ ------- -----------
Net income........................................ 3,418 590 2,299 (2,518)
Preferred stock dividends......................... (123) -- -- --
-------------- ------ ------- -----------
Net income applicable to common and Class B common
stockholders.................................... $ 3,295 $ 590 $ 2,299 $(2,518)
-------------- ------ ------- -----------
-------------- ------ ------- -----------
Net income per common and Class B common share....
Weighted average number of common, Class B common
and common equivalent shares outstanding........
<CAPTION>
PRO FORMA
PRO FORMA OFFERING COMBINED
COMBINED ADJUSTMENTS AS ADJUSTED(3)
----------- ----------- --------------
<S> <C> <C> <C>
Commissions and fees.............................. $135,399 $-- $135,399
----------- ----------- --------------
Operating expenses:
Salaries and related costs...................... 70,101 -- 70,101
Office and general.............................. 46,518 -- 46,518
Amortization of intangibles..................... 3,820 -- 3,820
----------- ----------- --------------
Total operating expenses........................ 120,439 -- 120,439
----------- ----------- --------------
Operating income.................................. 14,960 -- 14,960
Interest expense, net............................. (6,764) 2,156(m) (4,608)
Other income (expense), net....................... (68) -- (68)
----------- ----------- --------------
Income before provision (benefit) for income
taxes, minority interests and equity in earnings
of affiliates................................... 8,128 2,156 10,284
Provision (benefit) for income taxes.............. 4,107 862(n) 4,969
Minority interests................................ 227 -- 227
Equity in earnings of affiliates.................. (5) -- (5)
----------- ----------- --------------
Net income........................................ 3,789 1,294 5,083
Preferred stock dividends......................... (123) -- (123)
----------- ----------- --------------
Net income applicable to common and Class B common
stockholders.................................... $ 3,666 $1,294 $ 4,960
----------- ----------- --------------
----------- ----------- --------------
Net income per common and Class B common share.... $ .15 $ .19
----------- --------------
----------- --------------
Weighted average number of common, Class B common
and common equivalent shares outstanding........ 24,037 26,437
----------- --------------
----------- --------------
</TABLE>
- ------------------------
(1) The Pro Forma Condensed Consolidated Statement of Operations for the six
months ended June 30, 1997 reflects the results of operations of seven
companies that were acquired during the period January 1, 1997 through June
30, 1997 for the portion of 1997 prior to acquisition.
(2) The Pro Forma Condensed Consolidated Balance Sheet includes the accounts of
Austin Knight as of June 30, 1997 as if it was acquired on June 30, 1997 and
the Pro Forma Condensed Consolidated Statement of Operations for the six
months ended June 30, 1997 includes the results of operations of Austin
Knight for the six months ended June 30, 1997.
(3) Adjusted to give effect to (i) the sale by the Company of 2,400 shares of
Common Stock at the public offering price of $23.00 per share and (ii) the
repayment by the Principal Stockholder and certain other Selling
Stockholders of their approximately $12.2 million net indebtedness to the
Company and the application of the net proceeds from these transactions as
described in "Use of Proceeds" as if the offering and the repayment occurred
on June 30, 1997 with respect to the Pro Forma Condensed Consolidated
Balance Sheet and on January 1, 1997 with respect to the Pro Forma Condensed
Consolidated Statement of Operations.
See footnotes on following page.
22
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
(a) To eliminate $23,172 of real estate not being acquired and $5,110 of related
debt not being assumed, in connection with the acquisition of Austin Knight.
(b) To record intangible assets of $44,074 for the excess of cost of $50,208,
including $3,000 for additional acquisition costs, over the net book value
of $6,134 of Austin Knight and write off $504 of goodwill included in the
Austin Knight balance sheet.
(c) To reflect $47,208 of additional borrowings under the Company's financing
agreement and seller financed notes issued in connection with the
acquisition of Austin Knight.
(d) To eliminate $24,700 for the equity acquired with the acquisition of Austin
Knight.
(e) To record the receipt of $12,165 in cash from the Principal Stockholder and
certain other Selling Stockholders in repayment of their net indebtedness,
with proceeds from a portion of their sale hereby of 1,224 shares of Common
Stock, and the use of such cash to repay a portion of the Company's
borrowings used to finance the acquisition of Austin Knight.
(f) To reflect the use of the estimated net proceeds from the issuance of 2,400
shares of Common Stock in this offering as follows, see "Use of Proceeds":
<TABLE>
<S> <C>
Repayment of the balance borrowings used to finance the acquisition of Austin Knight............................. $ 33,843
Repayment of other borrowings outstanding under the Company's financing agreement................................ 17,797
---------
Estimated net proceeds........................................................................................... $ 51,640
---------
---------
</TABLE>
(g) To reclassify Class B Common Stock to Common Stock to reflect conversion by
the Principal Stockholder of 1,200 shares sold by him as part of this
offering.
(h) To record estimated occupancy costs related to Austin Knight in lieu of real
estate not being acquired as if such acquisition occurred on January 1,
1997.
(i) To record amortization of intangibles arising from the acquisition of Austin
Knight as if such acquisition occurred on January 1, 1997 and the
acquisitions completed between January 1 and June 30, 1997 for the portion
of 1997 prior to acquisition. Such amortization expense is based on a 30
year life and is computed as follows:
<TABLE>
<S> <C>
Intangibles of $44,074 arising from the acquisition of Austin Knight, amortized for six months..................... $ 735
Intangibles of $17,081 arising from the acquisitions completed between January 1 and June 30, 1997, amortized for
the period prior to acquisition................................................................................... 236
---------
$ 971
---------
---------
</TABLE>
(j) To record interest expense on borrowings under the Company's financing
agreement and seller financed notes issued in connection with the
acquisition of Austin Knight, as if such acquisitions occurred on January 1,
1997 and the acquisitions completed between January 1 and June 30, 1997 for
the portion of 1997 prior to acquisition. Interest on such acquisition debt
is determined as follows:
<TABLE>
<S> <C>
Debt of $47,208 arising from the acquisition of Austin Knight at 9.2% for six months.............................. $ 2,172
Debt of $16,812 arising from the acquisitions completed between January 1 and June 30, 1997 at 8.5% for the period
prior to acquisition............................................................................................. 351
---------
$ 2,523
---------
---------
</TABLE>
(k) To eliminate $232 of interest expense for debt of Austin Knight, repaid in
July 1997 in connection with the sale of real estate.
(l) To record the tax benefit on interest expense of $2,523 on borrowings for
the acquisition of Austin Knight, and acquisitions completed between January
1 and June 30, 1997 for the portion of 1997 prior to acquisition, at an
estimated tax rate of 40% and the net tax benefit on the $50 of net
additional costs related to the acquisition of Austin Knight (see Notes (i)
and (l) above) at 34%.
(m) Reflects the use of proceeds from this offering, including cash received
from the Principal Stockholder and certain other Selling Stockholders, as
described in "Use of Proceeds" and the reduction of interest expense
resulting from the reduction of debt less the interest income of $522 on the
indebtedness of the Principal Stockholder, as if such indebtedness was
repaid on January 1, 1997.
(n) Reflects the tax expense at 40% resulting from the net interest expense
savings of $2,156 resulting from the reduction of debt through the use of
proceeds. See Note (m) above.
23
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP
WORLDWIDE 1996 1997 AUSTIN
INC. ACQUISITIONS(1) ACQUISITIONS(2) KNIGHT(3)
--------- --------------- --------------- -----------
<S> <C> <C> <C> <C>
Commissions and fees.................... $162,631 $19,913 $22,787 $47,609
--------- --------------- --------------- -----------
Operating expenses:
Salaries and related costs............ 80,291 9,745 10,327 27,888
Office and general.................... 60,101 8,840 10,364 14,510
Amortization of intangibles........... 4,440 -- -- --
Special compensation.................. 52,019 -- -- --
--------- --------------- --------------- -----------
Total operating expenses.............. 196,851 18,585 20,691 42,398
--------- --------------- --------------- -----------
Operating income (loss)................. (34,220) 1,328 2,096 5,211
Interest expense, net................... (14,265) (104) (69) (615)
Other income (expense), net............. (164) 43 (134) --
--------- --------------- --------------- -----------
Income (loss) before provision (benefit)
for income taxes, minority interests
and equity in earnings of
affiliates............................ (48,649) 1,267 1,893 4,596
Provision (benefit) for income taxes.... 3,270 504 403 1,854
Minority interests...................... 434 (1) -- --
Equity in earnings of affiliates........ 114 -- -- --
--------- --------------- --------------- -----------
Net income (loss)....................... (52,239) 764 1,490 2,742
Preferred stock dividends............... (210) -- -- --
--------- --------------- --------------- -----------
Net income (loss) applicable to common
and Class B common stockholders....... $(52,449) $ 764 $ 1,490 $ 2,742
--------- --------------- --------------- -----------
--------- --------------- --------------- -----------
Net income per common and Class B common
share.................................
Weighted average number of common, Class
B common and common equivalent shares
outstanding...........................
<CAPTION>
PRO FORMA
PRO FORMA OFFERING COMBINED
ADJUSTMENTS COMBINED(4) ADJUSTMENTS AS ADJUSTED(5)
----------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Commissions and fees.................... $ -- $ 252,940 $-- $252,940
----------- ------------- ----------- --------------
Operating expenses:
Salaries and related costs............ -- 128,251 -- 128,251
Office and general.................... 544(a) 94,359 -- 94,359
Amortization of intangibles........... 2,546(b,c) 6,986 -- 6,986
Special compensation.................. (52,019)(d) -- -- --
----------- ------------- ----------- --------------
Total operating expenses.............. (48,929) 229,596 -- 229,596
----------- ------------- ----------- --------------
Operating income (loss)................. 48,929 23,344 -- 23,344
Interest expense, net................... (1,274)(e,f,g,h) (16,327 ) 5,423(l) (10,904)
Other income (expense), net............. -- (255 ) -- (255)
----------- ------------- ----------- --------------
Income (loss) before provision (benefit)
for income taxes, minority interests
and equity in earnings of
affiliates............................ 47,655 6,762 5,423 12,185
Provision (benefit) for income taxes.... (1,518)(i) 4,513 2,169(m) 6,682
Minority interests...................... (182)(j) 251 -- 251
Equity in earnings of affiliates........ -- 114 -- 114
----------- ------------- ----------- --------------
Net income (loss)....................... 49,355 2,112 3,254 5,366
Preferred stock dividends............... 105(k) (105 ) -- (105)
----------- ------------- ----------- --------------
Net income (loss) applicable to common
and Class B common stockholders....... $ 49,460 $ 2,007 $3,254 $ 5,261
----------- ------------- ----------- --------------
----------- ------------- ----------- --------------
Net income per common and Class B common
share................................. $ .08 $ .19
------------- --------------
------------- --------------
Weighted average number of common, Class
B common and common equivalent shares
outstanding........................... 24,580 26,980
------------- --------------
------------- --------------
</TABLE>
- ----------------------------------------
(1) Reflects the results of operations of the 1996 Acquisitions for the portion
of 1996 prior to acquisition.
(2) Reflects the results of operations of the 1997 Acquisitions as if they were
acquired on January 1, 1996.
(3) Reflects the acquisition of Austin Knight and includes the results of
operations of Austin Knight for the year ended December 31, 1996.
(4) Reflects the acquisition of Austin Knight, the 1996 Acquisitions and the
1997 Acquisitions, the application of the net proceeds of $50.8 million
received by the Company from its initial public offering as if such offering
occurred on January 1, 1996, and the amortization of goodwill resulting from
the exchange of Company stock in connection with the purchase of certain
minority interests.
(5) Adjusted to give effect to (i) the sale by the Company of 2,400 shares of
Common Stock at the public offering price of $23.00 per share and (ii) the
repayment by the Principal Stockholder and certain other Selling
Stockholders of their $11.9 million net indebtedness to the Company, and the
application of the net proceeds from these transactions as described in "Use
of Proceeds," as if the offering and repayment occurred on January 1, 1996.
(a) To record estimated occupancy costs related to Austin Knight in lieu of real
estate not being acquired.
(b) To record amortization on $84,678 of intangibles arising from the
acquisition of Austin Knight, the 1996 Acquisitions, including Neville
Jeffress, for the period prior to acquisition and the 1997 Acquisitions,
over a period of 30 years.
(c) Reflects amortization over a 30 year period for the $1,620 in goodwill
resulting from the purchase of certain minority interests for Company stock
in connection with the initial public offering.
(d) To eliminate the nonrecurring, non-cash special compensation charge.
(e) To record interest on borrowings under the Company's financing agreement and
seller financed notes issued in connection with the 1996 Acquisitions for
the period prior to acquisition and the acquisition of Austin Knight and the
1997 Acquisitions. Interest on acquisition debt is determined as follows:
<TABLE>
<S> <C>
Debt of $47,208 arising from the acquisition of Austin Knight at 9.2% for twelve months............... $ 4,344
Debt of $24,491 arising from the 1996 Acquisitions for various periods at 8.5%........................ 2,082
Debt of $16,812 arising from the 1997 Acquisitions at 8.5% for twelve months.......................... 1,429
---------
$ 7,855
---------
---------
</TABLE>
(f) To eliminate the nonrecurring, non-cash special interest charge of $2,603.
(g) Reflects the reduction of interest expense of $3,528 resulting from the
reduction of borrowings through the use of proceeds received from the sale
of 4,147.4 shares of common stock at $14.00 per share (the initial public
offering) as if such transaction occurred on January 1, 1996.
(h) To eliminate $450 of interest for debt of Austin Knight not being assumed.
(i) To record the tax benefit on $35 of amortization expense for certain
intangibles and $4,324 of interest expense on borrowings in connection with
the acquisition of Austin Knight, the 1996 Acquisitions, and the 1997
Acquisitions, net of interest savings from the use of proceeds (see note
(g)) at an estimated tax rate of 40% and the net tax benefit on the $94 of
additional net costs related to the acquisition of Austin Knight (see notes
(a) and (h)) at 34% net of the tax expense at 40% on the adjustment for
minority interest (see note (j)).
(j) Reflects the elimination of the earnings attributable to the minority
interest of a subsidiary in the amount of $300 less the call premium of $118
payable on the redemption of the subsidiary's preferred stock.
(k) Reflects the elimination of the preferred stock dividend of $210 less the
call premium on the redemption of $105.
(l) Reflects the net interest expense savings from the use of proceeds from this
offering as described in "Use of Proceeds."
(m) Reflects the tax expense at 40% resulting from the net interest expense
savings of $5,423 resulting from the reduction of debt through the use of
proceeds.
24
<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 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. For the year ended December 31, 1996, the Company's gross billings
were $749.5 million, commissions and fees were $162.6 million, pro forma net
income and EBITDA, as adjusted for the Nonrecurring Charges, were $2.4 million
and $26.2 million, respectively.
A substantial part of the Company's growth has been achieved through
acquisitions. For the period January 1, 1994 through August 26, 1997, the
Company has completed 44 acquisitions with estimated annual gross billings of
approximately $661 million. Given the significant number of acquisitions in each
of the previous 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. In addition, the Company
earns fees for the placement of advertisements on the Internet, primarily on its
career Web sites. 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 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 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 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 including the acquisition
of Austin Knight. The Company also earns fees for value-added services in
connection with recruitment advertising placed outside the U.S.
25
<PAGE>
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.
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 Advertising, Inc. 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, the Company completed thirteen acquisitions, all of which are in
recruitment advertising, for an aggregate purchase price of $25.4 million.
Included in these acquisitions was Neville Jeffress Australia Pty Limited
("Neville Jeffress"), a large recruitment advertising agency in Australia.
In 1997, through August 26, the Company completed eight acquisitions, seven
of which are in recruitment advertising and one of which is in yellow page
advertising, for an aggregate purchase price of approximately $65 million. See
"Pro Forma Condensed Consolidated Financial Information."
Primarily as a result of these acquisitions, the Company's commissions and
fees increased from $86.2 million in 1994 to $162.6 million in 1996. Assuming
that all of the acquisitions completed from January 1, 1996 through August 26,
1997 had been completed on January 1, 1996, the Company's commissions and fees,
on a pro forma basis, would have been approximately $252.9 million for the year
ended December 31, 1996. These acquisitions were funded primarily with debt
resulting in an increase in net interest expense from approximately $9.2 million
in 1994 to $14.3 million in 1996 and $19.2 million (excluding proceeds received
from the Company's initial public offering and this offering) on a pro forma
basis for 1996 for acquisitions completed in 1996 and in 1997, through August
26. 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 1994
primarily due to headcount increases as a result of acquisitions and hiring to
support its Internet business and gross billings growth. Salaries and related
costs increased $34.5 million from $45.8 million for the year ended December 31,
1994 to $80.3 million for the year ended December 31, 1996, a 75.3% increase,
supporting a 79.1% 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 $29.8 million from $30.3 million for
the year ended December 31, 1994 to $60.1 million for the year ended December
31, 1996, a 98.3% increase, primarily due to increased costs needed to support
the increased billings, the Internet business and the expansion of recruitment
offices 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
26
<PAGE>
amortization was $3.3 million, $3.2 million and $4.4 million for the years ended
December 31, 1994, 1995 and 1996, respectively.
Net interest expense includes interest on loans and advances made by the
Company's lenders and certain vendors, on capitalized lease obligations and on
net amounts payable to the holders of seller financed notes. In addition, 1996
interest expense includes a nonrecurring charge of approximately $2.6 million to
reflect, upon exercise of the warrant issued in connection with the Company's
financing agreement, the difference between $14.00 per share (the initial public
offering price of the Company's Common Stock) multiplied by the number of shares
subject to such warrant and the value recorded for the warrant when it was
originally issued.
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 and cash flow information for the Company.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- ----------------------
1994 1995 1996 1996 1997
--------- --------- --------- ----------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
GROSS BILLINGS:
Yellow page advertising................ $ 363,656 $ 429,176 $ 434,728 $ 214,510 $ 210,377
Recruitment advertising................ 54,872 166,508 308,147 119,492 240,622
Internet(1)............................ -- 392 6,659 2,315 8,555
--------- --------- --------- ----------- ---------
Total.................................. $ 418,528 $ 596,076 $ 749,534 $ 336,317 $ 459,554
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
COMMISSIONS AND FEES:
Yellow page advertising................ $ 74,463 $ 87,456 $ 94,545 $ 43,380 $ 42,750
Recruitment advertising................ 11,702 36,059 61,427 24,968 49,661
Internet(1)............................ -- 392 6,659 2,315 8,208
--------- --------- --------- ----------- ---------
Total.................................. $ 86,165 $ 123,907 $ 162,631 $ 70,663 $ 100,619
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
COMMISSIONS AND FEES AS A
PERCENTAGE OF GROSS
BILLINGS:
Yellow page advertising................ 20.5% 20.4% 21.7% 20.2% 20.3%
Recruitment advertising................ 21.3% 21.7% 19.9% 20.9% 20.6%
Internet(1)............................ -- 100.0% 100.0% 100.0% 95.9%
Total.................................. 20.6% 20.8% 21.7% 21.0% 21.9%
EBITDA(2)................................ $ 12,582 $ 24,978 $ 26,201 $ 11,030 $ 17,155
Cash provided by (used in) operating
activities............................... $ (10,928) $ 6,706 $ 8,151 $ 18,524 $ (4,913)
Cash used in investing activities........ $ (12,202) $ (13,778) $ (28,988) $ (7,168) $ (23,792)
Cash provided by (used in) financing
activities............................... $ 22,959 $ 7,432 $ 19,016 $ (9,953) $ 29,071
</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
27
<PAGE>
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 (after excluding for 1996 the non-cash, nonrecurring special
compensation charge of $52,019 and the non-cash, nonrecurring interest
charge of $2,603):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------- ------------------------
EBITDA CALCULATION 1994 1995 1996 1996 1997
- -------------------------------------------- --------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Net income (loss)........................... $ (2,467) $ 3,229 $ 2,383 $ 229 $ 3,418
Interest, net............................. 9,178 10,894 11,662 5,833 4,048
Income tax expense (benefit).............. (333) 4,222 3,270 930 3,306
Depreciation and amortization............. 6,204 6,633 8,886 4,038 6,383
--------- ------------- --------- ------------- ---------
EBITDA...................................... $ 12,582 $ 24,978 $ 26,201 $ 11,030 $ 17,155
--------- ------------- --------- ------------- ---------
--------- ------------- --------- ------------- ---------
</TABLE>
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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
Commissions and fees.............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Salaries and related costs........................ 53.1% 47.1% 49.4% 50.3% 50.2%
Office and general expenses....................... 35.2% 35.1% 36.9% 37.3% 36.1%
Amortization of intangibles....................... 3.8% 2.5% 2.7% 2.8% 2.8%
Special compensation(1)........................... -- -- 32.0% -- --
Operating income (loss)........................... 7.9% 15.3% (21.0)% 9.6% 10.9%
Interest expense, net(2).......................... (10.7)% (8.8)% (8.8)% (8.3)% (4.0)%
Other, net........................................ (0.1)% 0.1% (0.1)% 0.6% --
Income (loss) before provision (benefit) for
income taxes, minority interests and equity in
earnings (losses) of affiliates................. (2.9)% 6.6% (29.9)% 1.9% 6.9%
Provision (benefit) for income taxes.............. (0.4)% 3.4% 2.0% 1.3% 3.3%
Minority interests................................ 0.4% 0.4% 0.3% 0.3% 0.2%
Equity in earnings (losses) of affiliates......... -- (0.2)% 0.1% -- --
Net income (loss)................................. (2.9)% 2.6% (32.1)% 0.3% 3.4%
Preferred stock dividends......................... (0.2)% (0.2)% (0.1)% (0.1)% (0.1)%
Net income (loss) applicable to common and Class B
common stockholders............................. (3.1)% 2.4% (32.2)% 0.2% 3.3%
Pro forma adjustments............................. -- -- 33.5% -- --
Pro forma net income applicable to common and
Class B common stockholders..................... -- -- 1.3% -- --
EBITDA(3)......................................... 14.6% 20.2% 16.1% 15.6% 17.0%
Net cash provided by (used in) operating
activities...................................... (12.7)% 5.4% 5.0% 26.2% (4.9)%
Net cash used in investing activities............. (14.2)% (11.1)% (17.8)% (10.1)% (23.6)%
Net cash provided by (used in) financing
activities...................................... 26.6% 6.0% 11.7% (14.1)% 28.9%
</TABLE>
(FOOTNOTES APPEAR ON FOLLOWING PAGE)
28
<PAGE>
- ------------------------
(1) Special compensation consists of a non-cash, nonrecurring charge of
approximately $52.0 million for special management compensation resulting
from the issuance of approximately 3.6 million shares of Common Stock of the
Company (in connection with its initial public offering) to stockholders of
predecessor companies of the Company 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 of the Company and, accordingly, such stockholders
were not considered to have made substantive investments for their minority
shares. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--The year ended December 31, 1996 compared to the year
ended December 31, 1995" and Note 1 to the Company's Consolidated Financial
Statements.
(2) Interest expense for 1996 includes an approximate $2.6 million non-cash,
nonrecurring charge to reflect the exercise of a warrant issued in
connection with the Company's financing agreement. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--The year ended December 31, 1996 compared to the year ended
December 31, 1995" and Note 7 to the Company's Consolidated Financial
Statements.
(3) 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 SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
1996
Gross billings for the six months ended June 30, 1997 were $459.6 million, a
net increase of $123.3 million or 36.6% from $336.3 million for the six months
ended June 30, 1996. Commissions and fees for the six months ended June 30, 1997
were $100.6 million, an increase of $29.9 million or 42.4% from $70.7 million in
the first six months of 1996. Yellow page commissions and fees were $42.8
million for the six months ended June 30, 1997 compared with $43.4 million for
the six months ended June 30, 1996, a decline of 1.5% or $.6 million reflecting
client resignations and shifts in the timing of yellow page directory printing
schedules. Recruitment commissions and fees were $49.7 million for the six
months ended June 30, 1997 compared with $25.0 million for the six months ended
June 30, 1996, an increase of $24.7 million or 98.9%. This increase was
primarily due to acquisitions. In addition, increases in client spending and new
clients slightly outpaced the effects of reductions in spending by certain
clients and client losses. Internet commissions and fees increased 254.6% to
$8.2 million for the six months ended June 30, 1997 from $2.3 million for the
six months ended June 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 six months ended June 30, 1997 were $89.6
million, compared with $63.9 million for the same period in 1996. The increase
of $25.7 million or 40.2% reflects acquisition activity, including $.8 million
for higher amortization of intangibles related to acquisitions, and growth in
client service expenditures to support the increased revenue base. Operating
expenses as a percentage of commissions and fees were 89.1% for the six months
ended June 30, 1997 as compared to 90.4% in the prior year period.
As a result of the above, operating income for the six months ended June 30,
1997 increased $4.2 million or 62.9% to $11.0 million from $6.8 million for the
comparable period last year.
29
<PAGE>
Net interest expense for the six months ended June 30, 1997 was $4.0
million, a decrease of $1.8 million or 30.6%, reflecting a net reduction in debt
resulting from the use of the proceeds from the Company's initial public
offering, which closed in December 1996, partially offset by borrowings for
acquisitions, and interest earned on loans to the Company's Principal
Stockholder.
Taxes on income for the six months ended June 30, 1997 were $3.3 million
compared with $.9 million for the same period last year, an increase of $2.4
million or 255.5% 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 47.5% for the
six month period ended June 30, 1997 compared with an effective tax rate of
67.9% for the prior year period.
Minority interests in consolidated earnings for the six months ended June
30, 1997 of $.2 million were unchanged from the prior year period and preferred
dividends for the six months ended June 30, 1997 of $123 thousand were $18
thousand over the $105 thousand for the six months ended June 30, 1996. For
1997, the charges and the redemption premiums on the underlying instruments paid
in the first quarter and resulting lower minority interest charge in the second
quarter were approximately equal to the charges and dividends paid in the first
and second quarters of 1996.
As a result of all of the above, net income available to common and Class B
common stockholders for the six months ended June 30, 1997 was $3.3 million, an
increase of $3.2 million over the $124 thousand for the six months ended June
30, 1996.
THE YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Gross billings for the year ended December 31, 1996 were $749.5 million, a
$153.5 million or 25.7% increase compared to the year ended December 31, 1995.
More than half of this growth was attributable to acquisitions.
Commissions and fees increased from $123.9 million in 1995 to $162.6 million
in 1996 or 31.3%. This increase was due to an increase, as compared to the prior
year, of $25.4 million or 70.4% in commissions and fees derived from recruitment
advertising, $7.1 million or 8.1% in commissions and fees derived from yellow
page advertising and a $6.3 million increase in fees derived from Internet
business. A substantial portion of the increase in commissions and fees derived
from recruitment advertising was due to acquisitions, including $11.2 million
from Neville Jeffress, acquired July 1996, 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. In addition, the Company reported
commissions for volume placements from yellow page publishers of $4.1 million
for the year ended December 31, 1996 compared with $4.2 million for the year
ended December 31, 1995. Fees derived from Internet business were generated
primarily from career related advertisements placed on the Company's Web sites,
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 $22.0 million to $80.3 million in 1996.
As a percent of commissions and fees, salaries and related costs increased from
47.1% in 1995 to 49.4% in 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.
Internet staffing increased by $2.8 million to $3.0 million, which is 45.1% of
Internet business commissions and fees in 1996.
Office and general expenses increased $16.7 million to $60.1 million in
1996. As a percent of commissions and fees, office and general expenses
increased from 35.1% in 1995 to 36.9% in 1996. This increase was primarily due
to increased advertising of approximately $1.9 million, primarily related to the
30
<PAGE>
Company's promotion of The Monster Board-Registered Trademark-, 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 $4.4 million in 1996 compared to $3.2
million in 1995 due to the Company's continued growth through acquisitions. As a
percentage of commissions and fees, amortization of intangibles was 2.7% in 1996
and 2.5% in 1995.
Special compensation of $52.0 million consists of a non-cash, nonrecurring
charge (upon the completion of the Company's initial public offering) that
reflects the value of shares issued in connection with the acquisition of the
minority interests in predecessors of the Company because the stockholders had
received such shares for nominal or no consideration and, accordingly, were not
considered to have made a substantive investment for their shares. The value of
such shares was based on the per share initial public offering price of $14.00
for the Company's Common Stock.
After adjusting for the special compensation charge, operating income
declined $1.1 million from $18.9 million in 1995 to $17.8 million in 1996. The
decline was primarily due to increased advertising expenses of $2.5 million for
the Company's Internet business. Excluding the fees earned and direct operating
expenses related to the Company's promotion of its Internet business (net
charges of $0.4 million for 1995 and $1.9 million for 1996) operating income
increased approximately $0.4 million to $19.7 million for the year ended
December 31, 1996 but, as a percent of commissions and fees, declined from 15.6%
for 1995 to 12.1% for 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.
Net interest expense increased $3.4 million to $14.3 million for 1996 as
compared to 1995. This increase in interest expense is due primarily to (i) a
$2.6 million non-cash, nonrecurring charge (upon completion of the Company's
initial public offering) to reflect, upon exercise of a warrant issued in
connection with the Company's financing agreement, the value of the stock issued
at the Company's per share initial public offering price of $14.00 and the value
recorded for the warrant when it was originally issued, (ii) higher debt
balances for working capital needs and (iii) acquisition financing, partially
offset by lower borrowing costs and the repayment of a portion of the Company's
debt with the net cash proceeds of its initial public offering. The Company's
effective interest rate was 11.0% for 1996 compared with 11.1% for 1995.
Taxes on income decreased $0.9 million from $4.2 million for 1995 to $3.3
million for 1996 primarily due to lower pre-tax income. The effective tax rate
for 1996 on income before income taxes, after pro forma adjustments for special
compensation of $52.0 million and $2.6 million in interest expense described
above, of 54.7% was higher than the U.S. Federal statutory rate of 34.0%
primarily due to nondeductible expenses of approximately $1.7 million and
approximately $.5 million in interest imputed on a receivable from the Company's
Principal Stockholder.
During 1996, the Company received one-time fees of $150,000, $175,000 and
$220,000 for a research study, executive search services and for assisting in
the procurement of bank financing, respectively. The research study fee was
recorded as a reduction of office and general expenses, the executive search fee
was accounted for as commissions and fees and the loan procurement fee was
accounted for as other income in the Company's Statement of Operations for the
year ended December 31, 1996.
On a pro forma basis, after adjusting for the special compensation charge
and the special interest charge, as a result of the above, the net income
applicable to common and Class B common stockholders was $2.2 million for 1996
compared with $3.0 million for 1995.
THE YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
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.
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<PAGE>
Commissions and fees increased from $86.2 million in 1994 to $123.9 million
in 1995 or 43.8%. 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 approximately 35%. 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.
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.
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 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 and
for recruitment advertisements are at their highest levels, respectively. 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 and
1996 by funds provided by operating activities. In addition, in December 1996,
the Company completed the initial public offering of an aggregate of 4,147,408
shares of Common Stock at a purchase price of $14.00 per share in an
underwritten public offering managed by Morgan Stanley & Co. Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation and Ladenburg Thalmann & Co.
Inc. In addition, certain stockholders sold an aggregate of 652,592 shares of
Common Stock in such offering. The net proceeds to the Company from the offering
of $50.8 million were used to repay debt and to redeem preferred stock.
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<PAGE>
Net cash provided by (used in) operating activities for the years ended
December 31, 1994, 1995 and 1996 and the six month periods ended June 30, 1996
and 1997 was ($10.9 million), $6.7 million, $8.2 million, $18.5 million and
$(4.9) million, respectively. 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. The increase in cash from operating activities for 1996 over 1995 was
primarily due to improved accounts receivable collection, partially offset by
greater payments of accounts payable and accrued liabilities. The decrease of
$23.4 million from June 30, 1996 to June 30, 1997 was primarily due to
accelerated payments to yellow page vendors in the 1997 period as the Company
used the increased cash available to it under its credit facilities after
repaying debt with proceeds from its initial public offering.
Net cash used in investing activities for the years ended December 31, 1994,
1995 and 1996 and the six month periods ended June 30, 1996 and 1997 was $12.2
million, $13.8 million, $29.0 million, $7.2 million and $23.8 million,
respectively. Payments for purchases of business acquisitions, net of cash of
the acquired businesses, were $6.3 million in 1994, $11.3 million in 1995, $23.8
million in 1996 and $4.0 million and $11.4 million during the first six months
of 1996 and 1997, respectively. Capital expenditures, primarily for computer
equipment and furniture and fixtures, were $4.9 million, $5.0 million, $6.9
million, $3.4 million and $12.4 million in the years ended December 31, 1994,
1995 and 1996 and the first six months of 1996 and 1997, respectively. The 1997
amount also included expenditures for transportation equipment which replaced
the transportation equipment sold during 1996 for $6.1 million. During 1997, the
Company expects to spend approximately $17.0 million in total capital
expenditures, including expenditures deemed necessary as a result of the
acquisition of Austin Knight.
EBITDA for the six months ended June 30, 1997 was $17.2 million or 17.0% of
commissions and fees compared with $11.0 million or 15.6% of commissions and
fees for the six months ended June 30, 1996. The increase reflects improved
operating results as office and general expenses declined as a percent of
commissions and fees. EBITDA increased from $25.0 million in 1995 to $26.2
million for 1996. Excluding fees earned and direct operating expenses related to
the Company's introduction of its Internet business, EBITDA increased $2.3
million to $27.6 million or 9.3% for 1996 compared to 1995. However, as a
percent of commissions and fees, EBITDA declined to 17.7% for 1996 as compared
to 20.5% for 1995 due to a higher percentage of costs related to Neville
Jeffress and severance and temporary help expenses related to consolidation of
the recruitment advertising acquisitions. EBITDA increased $12.4 million to
$25.0 million or 98.5% for 1995 as compared to 1994. As a percent of commissions
and fees, EBITDA increased to 20.2% for 1995 from 14.6% for 1994, primarily due
to increased staffing efficiencies and utilization levels.
The Company's financing activities include borrowings and repayments under
its financing agreements and issuance and repayments of installment notes,
principally to finance acquisitions, equipment leases and loans to stockholders
and, in the fourth quarter of 1996, the Company completed its initial public
offering of 4,147,408 shares of Common Stock for net proceeds to the Company of
$50.8 million. The Company's financing activities provided net cash of $23.0
million, $7.4 million and $19.0 million in 1994, 1995 and 1996, respectively,
and $29.1 million for the six months ended June 30, 1997. The Company's
financing agreement with BNY Financial Corporation provides for borrowings under
a revolving credit facility. The financing agreement with BNY Financial
Corporation terminates on June 27, 2001. Such facility has been used to finance
the Company's acquisitions and for working capital requirements. As of June 30,
1997, there was $94.7 million of debt outstanding under such facility and
approximately $15.3 million available under such facility. Giving effect to the
acquisition of Austin Knight, the Company's total indebtedness at August 26,
1997, was approximately $178.2 million. The Company will repay, out of its net
proceeds from this offering, approximately $64.0 million of borrowings
outstanding under the Company's financing agreement (including approximately
$46.0 million relating to the acquisition of Austin Knight). The interest rate
under the financing agreement is determined pursuant to a formula whereby the
interest rate (A) with respect to U.S. borrowings is, at the Company's option,
either
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<PAGE>
(i) the prime rate less 1% or (ii) LIBOR plus 1 1/2%, (B) with respect to United
Kingdom borrowings is the U.K. base rate, plus 1.75%, (C) with respect to
Canadian borrowings is the Canadian dollar prime rate and (D) with respect to
the overadvance bridge loan is LIBOR plus 1.5% except for such portion of the
overadvance bridge loan in excess of certain receivables contemplated to be
assigned to the Company's lender with respect to which the rate is LIBOR plus
2.25%. The financing agreement bore interest at 7.28% per annum at June 30, 1997
and it is expected that the acquisition of Austin Knight will not increase this
rate. 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 contains criteria on the
maintenance of certain financial statement amounts and ratios. The Company is
currently negotiating an amendment to its financing agreement with BNY Financial
Corporation which will increase the total available to the Company for borrowing
to $175 million, although there can be no assurance that such amendment will be
obtained. In addition, in early 1997, the Company established a credit facility
for its Australian operations of approximately $3.9 million.
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, and are generally payable over five years.
At June 30, 1997, the Company held a promissory note from its Principal
Stockholder in the amount of $18.8 million and in turn has payables to him of
$7.2 million. Such promissory note bears 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's prime rate
in effect on such dates. The note provides 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 Principal Stockholder and certain other Selling
Stockholders will repay their net indebtedness to the Company from their
proceeds from this offering.
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 facilities and seller financed notes. The Company believes
that its anticipated cash flow from operations, as well as the availability of
funds under its existing financing agreements 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.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS No. 128"), "EARNINGS PER
SHARE". SFAS No. 128 specifies the computation, presentation and disclosure
requirements for earnings per share. SFAS No. 128 is effective for periods
ending after December 15, 1997. The adoption of this statement is not expected
to have a material effect on the Company's consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards. Results of operations and financial position will be
unaffected by implementation of these new standards.
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
REPORTING COMPREHENSIVE INCOME, establishes standards for reporting and display
of comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130
34
<PAGE>
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
Statement of Accounting Standards No. 131 ("SFAS No. 131"), DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which supersedes SFAS
No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS ENTERPRISE, establishes
standards for the way that public enterprises report information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued to
the public. It also establishes standards for disclosures regarding products and
services, geographic areas and major customers. SFAS No. 131 defines operating
segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Due to the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, they may have
on future financial statement disclosures.
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 principles. 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 factor.
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<PAGE>
UNAUDITED QUARTERLY RESULTS
(IN MILLIONS)
<TABLE>
<CAPTION>
1995
-----------------------------------------------------
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 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
-----------------------------------------------------
SEPTEMBER DECEMBER
MARCH 31, JUNE 30, 30,(1) 31,(1)
----------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Commissions and fees:
Yellow page
advertising.......... $20.4 $23.0 $27.8 $23.3
Recruitment
advertising.......... 12.7 12.2 18.5 18.0
Internet............... .9 1.5 1.9 2.4
----- ----- ----- -----
Total commissions and
fees................. $34.0 $36.7 $48.2 $43.7
----- ----- ----- -----
----- ----- ----- -----
Pro forma operating
income............... $ 3.7 $ 3.1 $ 3.9 $ 7.1
Pro forma income before
provision for income
taxes, minority
interest and equity
in earnings (losses)
of affiliates........ $ 1.0 $ 0.4 $ 0.7 $ 3.9
Pro forma net income
(loss)............... $(0.1) $ 0.3 $(0.1) $ 2.3
</TABLE>
<TABLE>
<CAPTION>
1997
-----------------------------------------------------
MARCH 31, JUNE 30,
----------- ----------
<S> <C> <C> <C> <C>
Commissions and fees:
Yellow page
advertising.......... $19.7 $23.0
Recruitment
advertising.......... 22.5 27.2
Internet............... 3.8 4.4
----- -----
Total commissions and
fees................. $46.0 $54.6
----- -----
----- -----
Operating income......... $ 5.0 $ 6.0
Income before provision
for income taxes,
minority interest and
equity in earnings
(losses) of
affiliates........... $ 3.2 $ 3.8
Net income............... $ 1.5 $ 1.9
</TABLE>
- ------------------------
(1) Excludes special compensation of $0.7 million and $51.3 million in the
quarters ended September 30, 1996 and December 31, 1996, respectively, and
interest of $2.6 million for the quarter ended December 31, 1996. See Notes
1 and 7 to the Company's Consolidated Financial Statements.
36
<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 one of the world's largest recruitment advertising
agencies. In 1995, the Company began marketing Internet-based services as
extensions of its core businesses 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. The Company's growth strategy is to continue to 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. For the year ended December 31, 1996, the
Company's gross billings were $749.5 million, commissions and fees were $162.6
million, pro forma net income and EBITDA, as adjusted for the Nonrecurring
Charges, were $2.4 million, and $26.2 million, respectively.
In August 1997, the Company acquired all of the outstanding stock of Austin
Knight for approximately $47.2 million net of approximately $11.5 million of
cash acquired relating to the sale in July 1997 of real property by 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 United Kingdom and the fifth largest
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 agency in the U.K. On a pro forma basis,
giving effect to the Nonrecurring Charges, the Austin Knight acquisition, the
other acquisitions included in the Company's pro forma condensed consolidated
financial information, the Company's initial public offering and this offering
for the year ended December 31, 1996, the Company's gross billings would have
been $1.2 billion, commissions and fees would have been $252.9 million, net
income would have been $5.4 million and EBITDA would have been $35.5 million.
See "Risk Factors--Risks Associated with Acquisitions" and "Pro Forma Condensed
Consolidated Financial Information."
TMP is the world's largest yellow page advertising agency, generating
approximately $435 million in yellow page gross billings for the year ended
December 31, 1996. TMP is also one of the world's largest recruitment
advertising agencies, generating approximately $308 million in recruitment
advertising 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 yellow
page gross billings. A substantial part of the Company's growth has been
achieved through acquisitions. From January 1, 1993 through December 31, 1996,
TMP completed 39 acquisitions which have estimated annual gross billings of $400
million. In 1997, through August 26, the Company has completed eight
acquisitions with estimated annual gross billings of $310 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 sites which can be
accessed via the Internet on a global basis by individuals seeking employment.
The Company has several career sites, including The Monster
Board-Registered Trademark-, Online Career Center-SM-, Be the Boss-SM- and
MedSearch-SM-, which collectively contain approximately 90,000 job listings and
career opportunities. 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 key word
searches.
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<PAGE>
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 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, 1996, total spending on yellow page
advertisements in the U.S. was $10.8 billion. Of this amount, approximately $9.3
billion was spent by local accounts and approximately $1.5 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 1996,
the market grew at a compound average rate of approximately 4.8%.
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 1996, the U.S.
market grew at a compound annual growth rate of approximately 10.4%. Classified
readership by job seekers has remained constant over the last ten years and 85%
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 internationally "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, 1996, 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 is an increasingly significant global medium for
communications, content and commerce. International Data Corporation ("IDC")
estimates that the number of Web users was approximately 16 million at the end
of 1995 and will grow to approximately 163 million by 2000. Growth in Internet
usage has been fueled by a number of factors, including the availability of a
growing number of useful products and services, the large and growing installed
base of personal computers in the workplace and home, advances in the
performance and speed of personal computers and modems, improvements in network
infrastructure, easier and cheaper access to the Internet and increased
awareness of the Internet among businesses and consumers.
38
<PAGE>
The increasing functionality, accessibility and overall usage of the
Internet and online services have made them an attractive commercial medium.
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 timely, personalized
content in a manner not possible through traditional media. Internet content can
be continuously updated, distributed to a large number of consumers on a
real-time basis, and accessed by users at any time. Industry publications
believe that the historical and projected adoption of online/Internet services
represents a faster rate of penetration than occurred with traditional media,
such as radio, broadcast television and cable television.
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 through August 26, 1997, the Company completed 44 acquisitions, with
estimated annual gross billings of $661 million, including the acquisition of
Austin Knight. Austin Knight is the largest recruitment advertising agency in
the United Kingdom and the fifth largest in the U.S. The Company intends to
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 1997, has added 150
new clients with estimated annual gross billings of approximately $54.6 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 designing
products to meet the needs of its client base. The Company also continues to
look for potential acquisitions to complement this strategy. Since 1995, TMP has
acquired the business of 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 to organically growing its Web sites, the Company is
concentrating on entering into strategic alliances which will drive additional
traffic to The Monster Board-Registered Trademark-. As of August 26, 1997, The
Monster Board-Registered Trademark- had 26 strategic alliances which were
responsible for 23% of its visits in July 1997. In addition, during this time,
the Company created Dealer Locator, a product for yellow page clients, and
modified Dealer Locator technology to create CertifiedDoctor, a Web site for The
American Board of Medical Specialties, which provides 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 new media and traditional advertising
mediums, by tailoring its services to specific geographic markets, and by
continually adding incremental value-added features to its
39
<PAGE>
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 Monster HR Community targets human resource
professionals (entry level through experienced executives) and provides job
opportunities and a comprehensive forum for information.
TMP'S YELLOW PAGE BUSINESS
TMP entered the yellow page business in 1967 and has grown to become the
largest yellow page advertising agency in the world based on yellow page gross
billings. For the year ended December 31, 1996, the Company had worldwide yellow
page gross billings of approximately $435 million. With approximately 30% of the
U.S. national yellow page market, TMP is approximately three times larger than
its nearest competitor, based on yellow page gross billings. The Company's
growth in yellow pages has been driven in part by acquisitions. Since January 1,
1993, TMP has completed six 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 achieve a client retention rate, year to
year, in excess of 90%.
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.
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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 1996 Midas yellow page
program.
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
Bridgestone/Firestone Inc. Mail Boxes 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. 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.
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. Currently, the Company has sold eight Dealer Locator
products and has received commitments for three others. 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 believes its pre-existing relationships with yellow page clients
are 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 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 has adapted Dealer Locator technology to create for The America Board of
Medical Specialities the CertifiedDoctor Web Site (HTTP://
WWW.CERTIFIEDDOCTOR.ORG). CertifiedDoctor allows consumers to search for board
certified physicians by specialty and geographic area and also provides doctors'
educational information.
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. Through August 26, 1997, the Company has acquired
38 recruitment advertising agencies. For the year ended December 31, 1996, TMP
had recruitment advertising gross billings of $308 million. In addition to its
offices in the United States, the Company has 24 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.
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.
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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 result in aggregate commissions and fees equal to approximately 20% of
recruitment advertising gross billings.
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>
<S> <C> <C>
Charles Schwab & Co. Inc. Genentech Inc. Pizza Hut Inc.
Cigna Corp. Good Guys Inc. Price Waterhouse LLP
Compaq Computer Corp. Hewitt Associates Sun Microsystems Inc.
Darden Restaurants Inc. International Business Sybase Inc.
Dean Witter Reynolds, Inc. Machines Corp. Target Stores Inc.
Federated Department Stores Motorola Inc. TGI Friday's Inc.
Inc. Nike Vencor, Inc.
Gateway 2000 Office Max Inc.
</TABLE>
The Company is leveraging its size and service offerings to attract new and
larger clients. No account represents more than 5% of the Company's recruitment
advertising commissions and fees.
INTERNET-BASED SOLUTIONS FOR RECRUITMENT ADVERTISING 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 price points. Second, drive user
traffic to its Web sites to maximize the value of the medium to TMP's customers.
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 sites 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 features. Collectively, TMP's career
sites contain approximately 90,000 job and other career opportunities. 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 since print media need not be
purchased. 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
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May 1995. For the quarter ended June 30, 1997, recruitment advertising and
yellow page Internet products generated revenue of $4.4 million compared to $1.5
million in the prior year period.
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. As of July 31, 1997, The Monster
Board-Registered Trademark- listed approximately 20,000 jobs offered by over
2,000 employers, and clients of The Monster Board-Registered Trademark- include
Nike, Blockbuster Entertainment Inc., BBN Planet, CompuServe, Deloitte & Touche,
and USA TODAY. According to Nielsen Media Research Internet Profiles Corporation
("I/AUDIT"), The Monster Board-Registered Trademark- averaged approximately
37,000 visits daily (the gross number of occasions on which a user looked up a
site) in July 1997 with the average length of each visit exceeding ten minutes.
For the entire month, The Monster Board-Registered Trademark- had in excess of 1
million visits. 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 and discipline. 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- employs agent technology
which allows enhanced user interaction, personalization and passive, independent
data searches which the user can customize. The Monster
Board-Registered Trademark- currently contains approximately 200,000 resumes.
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. According to I/AUDIT, in July 1997, OCC averaged approximately
22,000 visits daily with the average length of each visit exceeding eight
minutes. During July 1997, OCC had approximately 680,000 visits. 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 70,000 jobs for a broad client
base including Allied Signal, Andersen Consulting, Bank America Corp., Eli Lilly
and Co., Levi Strauss & Co. and Smith Barney. OCC is designed for users who
prefer Web sites which are more direct and have 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. Similar to The Monster Board-Registered Trademark-, OCC also
employs agent technology. 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 Blue Cross/Blue Shield of Massachusetts, Baxter Healthcare Corp.,
Henry Ford Health System, Mayo Clinics & Hospitals and Vencor, Inc.
MedSearch-SM- offers detailed employer profiles, resume postings, 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, discipline or by key word.
Be the Boss-SM- (HTTP://WWW.BETHEBOSS.COM) 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, Mail
Boxes Etc., ServiceMaster, Subway and 7-Eleven. In addition, Be the Boss-SM-
provides extensive resources to the prospective franchisee including sound clips
and
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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.
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 size 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 communities including:
MONSTER ENTRY LEVEL. A segment of The Monster
Board-Registered Trademark- targeted to the college and entry-level job
seekers. Monster Entry Level 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.
MONSTER HR. Monster HR 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.
MONSTER CAREERS. 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.
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. As of August 26, 1997, the
Company had 26 strategic alliances. In September 1997, the Company formed a
strategic alliance with America Online. Pursuant to this alliance The Monster
Board-Registered Trademark- and OCC will have an advertising position on America
Online's Employment Classifieds Area. The Company's strategic alliances center
on The Monster Board-Registered Trademark- and include:
USA TODAY. TMP and USA Today have introduced on USA Today Online, a
general interest news site on the Internet, a classifieds area featuring
employment, real estate and automotive listings. This alliance gives to USA
Today Online's daily viewers the chance to search one of the most extensive
classified advertisement databases available on the Web.
NBC. With the launch of NBC's Interactive Neighborhood, NBC is providing
its affiliates with a premium content package that includes business,
weather and leisure activities. The Monster Board-Registered Trademark- is
the exclusive provider of career information as part of this premium
package. The relationship gives The Monster Board-Registered Trademark- an
opportunity to provide its services through the Web sites of 215 NBC
affiliates and 11 NBC owned and operated stations.
MCI. MCI Telecommunications, Inc. entered into an agreement with TMP to
open an exclusive online classifieds area featuring employment listings and
career related information from The Monster Board-Registered Trademark-.
This site can be accessed from all MCI web sites.
ADVERTISING AGE. The Ad Age Group is a strong marketing partner with the
following leading publications: Advertising Age, Advertising Age
International, Business Marketing and Creativity, as
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well as Ad Age's Web site, AdAge.com (HTTP://WWW.ADAGE.COM). In January
1997, TMP created a co-branded career service known as The Advertising
Age/The Monster Board-Registered Trademark- Job Bank. This alliance permits
the Company to expand its jobs database, while targeting advertising into
market niches.
COMCAST. As a large cable provider and a partner in the @Home broadband
initiative, Comcast is a valuable partner in interactive media. The recent
launch of InYourTown.com, a site developed by Comcast, gives The Monster
Board-Registered Trademark- the opportunity to be the default career center
in key cities and secures a strong local presence while leveraging the
Comcast brand and user base. As interactive media evolves to broadband and
interactive television, Comcast offers the ability to migrate Web
capabilities to the new platforms.
USWEST. The USWest local initiative, DiveIn, is a significant player in
the race to provide local content. The site leverages USWest's and
Continental Cable's user base and brands to provide information in strong
USWest and Continental Cable markets. The Monster
Board-Registered Trademark- is the default career center for each of these
sites providing a strong local presence and local and regional traffic.
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 site for Gartner Group's Web site
WWW.GARTNER.COM. This alliance serves to continue to reinforce The Monster
Board's brand name while driving volume to The Monster
Board-Registered Trademark-'s jobs database.
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-.
In addition, the Monster Board-Registered Trademark- maintains other
strategic alliances. Collectively, its alliances were responsible for
approximately 23% of The Monster Board-Registered Trademark-'s visitors in July
1997.
The Monster Board-Registered Trademark- utilizes Digital Equipment
Corporation's Alpha 8400's 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 two 100 megabit/second
feeds. 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.
The Monster Board-Registered Trademark- continues to leverage new technology
innovations to provide increased service and efficiencies to job sectors and
clients.
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 1997 to date, the Company
won 150 new clients with estimated annual gross billings of approximately $54.6
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. 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
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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 285 of the Fortune 500 companies. No one
client accounts for more than 5% of the Company's annual commissions and fees.
The Company has 50 sales, marketing and customer service offices located in the
United States and 24 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.
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 three 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
and JWT Specialized Communications, a subsidiary of the WPP Group USA, 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
approximately $106,000 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.
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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 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
48
<PAGE>
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.
Further, there can be no assurance that 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. 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.
Monster Cable, Inc. ("Monster Cable"), which manufactures and sells audio
cables and related products, has asserted that the Company's operation of its
Internet-based employment search service under the trademark The Monster
Board-Registered Trademark-, and use of the domain name Monster.com, infringes
and dilutes Monster Cable's trademark rights. Monster Cable has also made an
initial submission to Network Solutions, Inc. ("NSI"), the entity which
registers domain names ending with the ".com" suffix, asking that the Company's
domain name be suspended pending resolution of the dispute. The Company has
categorically rejected Monster Cable's demands. The Company does not know if
Monster Cable will continue to press its demands. If it does so, TMP will
explore all available remedies, defenses and courses of action, including
litigation. Trademark counsel for the Company believes that Monster Cable's
claims are not well founded and that Monster Cable is highly unlikely to succeed
either in preventing use of the trademark The Monster
Board-Registered Trademark- or impairing the Company's use of the domain name
Monster.com.
EMPLOYEES
At June 30, 1997, the Company employed 2,250 people, of whom 1,473 were
client services personnel, 164 were sales and marketing personnel and 308 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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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY PERSONNEL
The following table sets forth the names, ages and positions of the
executive officers, directors and key personnel 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, CEO and Director
Thomas G. Collison............................... 58 Vice Chairman and Secretary
David A. Hosokawa................................ 54 Vice Chairman
Paul M. Camara................................... 49 Executive Vice President--Creative/Sales/Marketing
V. Miller Newton................................. 37 Executive Vice President and Chief Operating Officer of
The Monster Board-Registered Trademark-
Jeffrey C. Taylor................................ 36 Executive Vice President--Interactive
James J. Treacy.................................. 39 Executive Vice President--Finance and Strategy
Roxane Previty................................... 38 Chief Financial Officer
Bernice M. Hazell................................ 42 Senior Vice President--Client Service
Myron F. Olesnyckyj.............................. 36 Vice President--General Counsel
George R. Eisele................................. 61 Executive Vice President of TMP Worldwide Direct and
Director
John R. Gaulding (1)(2).......................... 52 Director
Jean-Louis Pallu................................. 57 Director
John Swann (1)(2)................................ 61 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 CEO 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.
V. MILLER NEWTON joined the Company in June 1986 as Director of New Business
Development. From 1991 through April 1996, he was appointed to various executive
positions with increasing responsibility including Group Vice President from
January 1993 through March 1996 and Senior Vice President--Sales and Marketing
from April 1996 through March 1997. In April 1997, he assumed his current
position. Mr. Newton attended the University of South Florida.
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
50
<PAGE>
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, 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.
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.
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.
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 and Swann.
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<PAGE>
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 the Company's initial public offering in December 1996, Mr.
Gaulding, a non-employee director, received a director's fee of $20,000 per
quarter plus reimbursement of expenses in connection with his duties as a
director. Prior to the initial public offering, Messrs. Swann, Pallu and Mr.
Graeme K. Howard, Jr., a former director of the Company, were provided with
reimbursement of expenses incurred in connection with their respective duties as
a director. As of the Company's initial public offering, Messrs. Gaulding, Swann
and Pallu each 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.
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 Internal Revenue Code of 1986, as
amended (the "Code"). Pursuant to the Directors' Plan, each of Messrs. Gaulding,
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 $14.00 per share initial public offering
price in the cases of Messrs. Swann and Pallu). 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.
Mr. Howard was granted options to purchase 125,000 shares of Common Stock at
a per share exercise price of $14.00. 50,000 of such options vested December 19,
1996. In addition, pursuant to an Employment Agreement dated as of February 1,
1997, Mr. Howard was named as a Vice Chairman of the Company and was to receive
$100,000 per annum plus expenses. Mr. Howard resigned as a director effective as
of April 8, 1997. The Employment Agreement was terminated on April 8, 1997 in
connection with Mr. Howard's resignation from the Company. 62,500 of Mr. Howards
stock options were canceled and the Company agreed that an additional 12,500 of
Mr. Howard's stock options would vest on June 1, 1997, and that such options,
along with the 50,000 stock options previously vested, will expire on December
9, 2006. To date, Mr. Howard exercised 35,500 of his options.
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<PAGE>
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 years indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------
AWARDS
ANNUAL COMPENSATION ------------------------------
---------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
YEAR SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
--------- --------- --------- ------------- ------------- ---------------
NAME AND PRINCIPAL POSITION
- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Andrew J. McKelvey,............................ 1996 $ 696,416 $ 210,000 $ 2,730(1) -- --
Chairman of the Board and CEO 1995 558,731 710,000 2,730(1) -- --
David A. Hosokawa,............................. 1996 308,077 147,312 2,730(1) 11,250 --
Vice Chairman 1995 299,066 129,000 2,730(1) -- --
James J. Treacy,............................... 1996 199,231 154,954 2,730(1) -- --
Executive Vice President--Finance and 1995 180,000 197,500 2,730(1) -- --
Strategy
Jeffrey C. Taylor,............................. 1996 195,025 75,000 170,000(2) 11,250 --
Executive Vice President--Interactive 1995 201,089 6,250 50,000(3) -- --
Thomas G. Collison,............................ 1996 212,573 40,000 2,730(1) -- --
Vice Chairman and Secretary 1995 205,418 62,000 2,730(1) -- --
</TABLE>
- ------------------------
(1) Represents matching contributions made to the Company's 401(k) Plan paid in
shares of Common Stock.
(2) $150,000 of such compensation includes payments made to Mr. Taylor in
connection with the sale by a corporation of which Mr. Taylor was a
principal of certain assets to the Company and $20,000 of such compensation
represents the fair market value of 142,740 shares of Common Stock of the
Company issued as compensation by the Company to Mr. Taylor in January 1996.
(3) Consists of payments made to Mr. Taylor in connection with the sale by a
corporation of which Mr. Taylor was a principal of certain assets to the
Company.
STOCK OPTIONS
In January 1996, the Company's Board of Directors adopted the 1996 Stock
Option Plan (the "Stock Option Plan"), which, as amended, provides for the
issuance of incentive stock options within the meaning of Section 422 of the
Code, and non-qualified stock options, to purchase an aggregate of up to
1,800,000 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
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<PAGE>
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 150,000 shares.
The following table sets forth certain summary information concerning
individual grants of stock options made during the year ended December 31, 1996
to each of the Company's executive officers named in the Summary Compensation
Table.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR OPTION
UNDERLYING OPTIONS GRANTED EXERCISE OR TERM(2)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ------------------------
NAME GRANTED 1996(1) PER SHARE DATE 5% 10%
- --------------------------------------------------- ----------- --------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Andrew J. McKelvey................................. 0 -- -- -- -- --
David A. Hosokawa.................................. 11,250 2.1% $ 6.65 1/03/06 $ 158,850 $ 297,225
James J. Treacy.................................... 0 -- -- -- -- --
Jeffrey C. Taylor.................................. 11,250 2.1% $ 6.65 1/03/06 $ 158,850 $ 297,225
Thomas G. Collison................................. 0 -- -- -- -- --
</TABLE>
- ------------------------
(1) Based on 546,640 options granted in 1996.
(2) These amounts represent assumed rates of appreciation in the price of the
Company's Common Stock during the term of the option in accordance with
rates specified in applicable federal securities regulations. Actual gains,
if any, or stock option exercises, will depend on the future price of the
Common Stock and overall stock market conditions. The Company's stock price,
as reported by the Nasdaq National Market on December 31, 1996, was $12.75
per share.
On January 6, 1997, options to purchase 0, 124,459, 66,666, 26,125 and
13,334 shares of Common Stock were granted to Messrs. McKelvey, Hosokawa,
Treacy, Taylor and Collison, respectively, at a per share exercise price of
$12.875. Generally, 5/6 of the options vest on September 30, 1997 and the
remaining 1/6 of the options vest on December 31, 1997. The options are
exercisable commencing January 6, 1999.
The following table sets forth at December 31, 1996 the number of securities
underlying unexercised options and the value of unexercised options held by each
of the executive officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT YEAR END OPTIONS AT YEAR END(1)
------------------------------ --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Andrew J. McKelvey........................................ -- -- -- --
David A. Hosokawa......................................... 2,813 8,437 $ 17,159 $ 51,466
James J. Treacy........................................... -- -- -- --
Jeffrey C. Taylor......................................... 2,813 8,437 $ 17,159 $ 51,466
Thomas G. Collison........................................ -- -- -- --
</TABLE>
- ------------------------
(1) Computed based upon the difference between the Stock Option exercise price
and the closing price of the Company's Common Stock on December 31, 1996
($12.75).
54
<PAGE>
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. Mr. McKelvey has waived his bonus
through August 15, 1997. 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
55
<PAGE>
event of his disability or death he or his estate shall be paid his base salary
and certain other benefits for a 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 which included Messrs. McKelvey and Eisele. See "Certain
Transactions."
CERTAIN TRANSACTIONS
The Company has made advances to Messrs. McKelvey, Hosokawa and Collison.
The total gross amounts advanced to Messrs. McKelvey, Hosokawa and Collison 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 December 31, 1996, Messrs. McKelvey, Hosokawa and Collison were
indebted to the Company in the net amounts of $11,413,174, $149,184 and
$132,130, respectively. The advances to Messrs. Hosokawa and Collison do not
bear interest. Mr. McKelvey has converted all of his indebtedness to the
Company, including but not limited to the indebtedness incurred in connection
with Mr. McKelvey's acquisition of a yacht from the Company at the yacht's book
value, to a promissory note in principal amount of $18,850,000. Such promissory
note bears interest at the prime rate established by The Bank of New York and
shall be adjusted December 31, 1997 and each December 31st thereafter to the
Bank of New York's prime rate in effect on such dates. The note provides for
annual payments of all accrued but unpaid interest commencing December 31, 1997.
The principal amount is payable in equal annual installments of one-sixtieth of
the initial principal amount commencing December 31, 1997, with all unpaid
principal due December 31, 2006. The Company has payables of $7,200,000 due to
Mr. McKelvey. $2,475,000 of such amount bears interest at 6.5% annually and the
remainder bears interest, annually, at the prime rate established by The Bank of
New York. Mr. McKelvey, Mr. Hosokawa and Mr. Collison will repay their net
indebtedness to the Company from the proceeds of their sale of Common Stock in
this offering.
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 leased an aircraft. The aircraft was
leased by EPI Aviation, Inc. from an unaffiliated third party pursuant to a
lease agreement dated October 27, 1995. The lease provided 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, which option was exercised in June
1997 for approximately $6.1 million.
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<PAGE>
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 and Eisele had 17.8%, 5.8%, 5.4% and 0.2%
interests, respectively, in the McKelvey Enterprises, Inc. Profit Sharing Plan.
Proceeds of the Company's initial public offering in 1996 were 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 $46,200 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 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 $9,756 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 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. For the six months ended June 30, 1997, Cala Services Inc. paid $135,000
for management services. No amounts were received prior to 1997. During June
1997 TMP Worldwide Ltd., a Canadian yellow page advertising subsidiary of the
Company, entered into a management agreement with Dir-Ad Services, Inc., a
yellow page advertising company owned by Mr. Swann. Pursuant to this agreement
TMP Worldwide Ltd. provides management services in exchange for a percentage of
the billing of Dir-Ad Services Inc. which is agreed to from time to time. The
agreement has no stated term and is terminable by either party on 30 days'
notice. To date, no amounts have been paid under such arrangement.
For the six months ended June 30, 1997, Mr. Gaulding received $28,750 for
consulting services.
57
<PAGE>
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. Jeffrey C. 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, in connection with the reorganization of the Company,
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.
58
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of July 10, 1997, 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/CLASS B COMMON SHARES OF COMMON STOCK/CLASS B COMMON
STOCK BENEFICIALLY OWNED BEFORE THE STOCK BENEFICIALLY OWNED AFTER THE
OFFERING(1) OFFERING(1)
--------------------------------------- ---------------------------------------
PERCENT OF NUMBER OF PERCENT OF
PERCENT OF CLASS B SHARES PERCENT OF CLASS B
NAME AND ADDRESS OF BENEFICIAL COMMON COMMON BEING COMMON COMMON
OWNER NUMBER STOCK STOCK SOLD NUMBER STOCK STOCK
- ------------------------------- --------- ------------- ------------- ----------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Andrew J. McKelvey(2).......... 14,789,641(2) * 100% 1,200,000 13,589,641 * 100%
Thomas G. Collison............. 137,484 1.6% -- 13,025 124,459 1.0% --
David A. Hosokawa(3)........... 444,971 5.0% -- 78,147 366,824 3.0% --
Jeffrey C. Taylor(3)........... 138,416 1.6% -- 10,420 127,996 1.0% --
James J. Treacy(4)............. 338,367 3.8% -- 35,462 302,905 2.4% --
George R. Eisele............... 109,056 1.2% -- 25,007 84,049 * --
John R. Gaulding(5)............ 18,438 * -- -- 18,438 * --
Jean-Louis Pallu(6)............ 5,625 * -- -- 5,625 * --
John Swann(6).................. 5,625 * -- -- 5,625 * --
Alfred M. Cady III............. 752,656 8.6% -- 98,029 654,627 5.3% --
Paul M. Camara................. 138,564 1.6% -- 10,420 128,144 1.0% --
Gerda L. Carlson............... 59,840 * -- 2,605 57,235 * --
Daniel Collins................. 38,586 * -- 2,605 35,981 * --
Joe M. Glick................... 41,400 * -- 1,042 40,358 * --
Bernice M. Hazell.............. 81,000 * -- 10,420 70,580 * --
Lance Johnson.................. 71,000 * -- 10,420 60,580 * --
Harold L. Levy................. 65,000 * -- 10,420 54,580 * --
Ronald Plotkin................. 300,380 3.4% -- 23,444 276,936 2.2% --
Roxane Previty................. 18,126 * -- 1,823 16,303 * --
Nancy Rooney................... 20,000 * -- 2,605 17,395 * --
J. Christopher Stimac.......... 118,021 1.3% -- 15,629 102,392 * --
Michael Torrey................. 29,586 * -- 7,815 21,771 * --
Lance Willis................... 105,614 1.2% -- 10,420 95,194 * --
John Yocom..................... 71,280 * -- 667 70,613 * --
Jennifer Dersh and Steven
Dersh........................ 3,251 * -- 900 2,351 * --
Crawford Charitrust............ 2,101 * -- 2,101 0 --
Chatelain Family Trust......... 525 * -- 525 0 * --
Robert M. Kanne and Ethel B.
Kanne Trust.................. 207,792 2.4% -- 26,049 181,743 1.5% --
Provident Investment
Counsel(7)................... 700,696 8.0% -- -- 700,696 5.7% --
All directors and executive
officers as a group (14
persons)(8).................. 16,229,530 16.4% 100% 1,384,724 14,844,806 10.1% 100%
</TABLE>
- ------------------------
* 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. Andrew J. McKelvey
is the sole stockholder of the Class B Common Stock. Prior to this offering,
Mr. McKelvey beneficially owned shares of Common Stock and Class B Common
Stock which represented 94.4% of the combined voting power of the Company.
No other stockholder of the Company had in excess of 1% of the combined
voting power of the Company. After giving effect to this offering, but not
the over-allotment option, Mr. McKelvey will have 91.6% of the combined
voting power of the Company. No other stockholder of the Company will have
in excess of 1% of the combined
59
<PAGE>
voting power of the Company. Certain Selling Stockholders have granted to
the Underwriters an option, exercisable within 30 days of the date hereof,
to purchase shares of Common Stock as follows: Mr. McKelvey (400,000
shares), Thomas G. Collison (6,570 shares), David A. Hosokawa (39,422
shares), Jeffrey C. Taylor (5,256 shares), James J. Treacy (17,888 shares),
George R. Eisele (12,615 shares), Alfred M. Cady (49,450 shares), Paul M.
Camara (5,256 shares), Gerda L. Carlson (1,314 shares), Daniel Collins
(1,314 shares), Joe M. Glick (526 shares), Bernice M. Hazell (5,256 shares),
Lance Johnson (5,256 shares), Harold L. Levy (5,256 shares), Ronald Plotkin
(11,827 shares), Roxane Previty (920 shares), Nancy Rooney (1,314 shares),
J. Christopher Stimac (7,885 shares), Michael Torrey (3,942 shares), Lance
Willis (5,256 shares), John Yocom (336 shares) and Robert M. Kanne and Ethel
B. Kanne Trust (13,141 shares). If the over-allotment option is exercised in
full, Mr. McKelvey will own 13,189,641 shares of Class B Common Stock (100%
of the Class B Stock and 91.4% of the combined voting power of the Company),
Mr. Hosokawa will own 327,402 shares of Common Stock, Mr. Treacy will own
285,017 shares of Common Stock, Mr. Taylor will own 122,740 shares of Common
Stock, Mr. Cady will own 605,177 shares of Common Stock, Mr. Camara will own
122,888 shares of Common Stock, Mr. Plotkin will own 265,109 shares of
Common Stock and Robert M. Kanne and Ethel B. Kanne Trust will own 168,602
shares of Common Stock. No other stockholder will own more than 1% of the
Company's Common Stock.
(2) Includes 14,787,541 shares of Class B Common Stock which are convertible,
on a share for share basis, into Common Stock. Each share of Class B Common
Stock has ten votes per share. Also includes 2,000 shares of Common Stock
owned by Mr. McKelvey's wife and 100 shares of Common Stock owned by Mr.
McKelvey's daughter. Mr. McKelvey disclaims beneficial ownership of the
shares owned by his wife. Mr. McKelvey's address is c/o TMP Worldwide Inc.,
1633 Broadway, New York, NY 10019.
(3) Includes 2,813 shares of Common Stock, subject to options, which are
exercisable within 60 days of the date hereof.
(4) Includes 300 shares of Common Stock owned by Mr. Treacy's daughters.
(5) Includes 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) Based on information set forth in Schedule 13G dated July 10, 1997, filed
by the beneficial owner. The 13G states that such beneficial owner shares
voting power and has sole dispositive power with respect to such shares. The
address of such beneficial owner is 300 North Lake Avenue, Pasadena, CA
91101.
(8) Does not include an aggregate of 316,309 shares subject to the exercise of
outstanding stock options, none of which are exercisable within 60 days of
the date hereof.
60
<PAGE>
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 Underwriters' over-allotment option is not exercised), the Company
will have outstanding 12,401,642 shares of Common Stock with one vote per share
(representing 8.4% of the combined voting power of the Company) and 13,587,541
shares of Class B Common Stock with ten votes per share (representing 91.6% of
the combined voting power of the Company). No shares of Preferred Stock or 10.5%
Cumulative 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 shares of Class B Common
Stock represent less than 15% of the combined voting power of issued and
61
<PAGE>
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.
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 45,182
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. 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
62
<PAGE>
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 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.
63
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 25,989,183 shares of
Common Stock outstanding. Of those shares, the 4,000,000 shares sold in this
offering will be, and an additional 4,885,324 shares are, 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 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, lend 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
90 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 16,523,936 shares of Common Stock. Of such shares
of Common Stock, 13,587,541 shares of Common Stock held by Andrew J. McKelvey
are eligible for sale in the public market, subject to certain volume and other
limitations pursuant to Rule 144 under the Securities Act and an aggregate of
approximately 3,600,000 additional shares of Common Stock will be eligible for
sale pursuant to such Rule commencing December 9, 1997. 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 one year (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 two 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 Company has filed registration statements under the Securities Act
registering 900,000 of the 1,800,000 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. The Company intends to file an
amendment to the registration statement regarding the Stock Option Plan to
register the additional 900,000 shares. Shares registered under such
registration statements are available for sale in the open market unless such
shares are subject to vesting restrictions with the Company or the contractual
restrictions described above.
64
<PAGE>
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 4,000,000 shares of Common
Stock and the Underwriters named below (the "Underwriters"), for whom Morgan
Stanley & Co. Incorporated, Goldman, Sachs & Co., BT Alex. Brown Incorporated,
Montgomery Securities and Ladenburg Thalmann & Co. Inc. are serving as
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>
Morgan Stanley & Co. Incorporated............................................. 640,000
Goldman, Sachs & Co........................................................... 640,000
BT Alex. Brown Incorporated................................................... 640,000
Montgomery Securities......................................................... 640,000
Ladenburg Thalmann & Co. Inc.................................................. 640,000
William Blair & Company, L.L.C................................................ 100,000
Chatsworth Securities LLC..................................................... 50,000
Cowen & Company............................................................... 50,000
A.G. Edwards & Sons, Inc...................................................... 100,000
EVEREN Securities, Inc........................................................ 100,000
Janney Montgomery Scott Inc................................................... 50,000
Edward D. Jones & Co., L.P.................................................... 50,000
PaineWebber Incorporated...................................................... 100,000
Robertson, Stephens & Company LLC............................................. 100,000
Smith Barney Inc.............................................................. 100,000
------------
Total....................................................................... 4,000,000
------------
------------
</TABLE>
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 (other than those covered by
the over-allotment option described below) if any such shares are taken.
The Underwriters propose to offer part of the shares of Common Stock offered
hereby directly to the public at the price set forth on the cover page hereof
and part to certain dealers at a price that represents a concession not in
excess of $.69 a share below this price. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $.10 a share to other
Underwriters or to certain dealers.
Certain selling stockholders have granted to the Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase up to
600,000 additional shares of Common Stock at the price set forth on the cover
page hereof, less underwriting discounts and commissions. The 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.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock for
their
65
<PAGE>
own account. In addition, to cover over-allotments or to stabilize the price of
the Common Stock, the Underwriters may bid for, and purchase, shares of Common
Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Common Stock in the offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
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.
The Company, all of the Company's executive officers and directors and 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, lend 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
90 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.
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 included in this Prospectus and in the Registration Statement have
been audited by BDO Seidman, LLP, independent certified public accountants, 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, and the consolidated
financial statements of Austin Knight Limited and Subsidiaries included in this
Prospectus and in the Registration Statement have been audited by KPMG,
independent chartered accountants, 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. Darby & Darby
P.C., special trademark counsel to the Company, has reviewed statements
concerning trademark matters contained in "Business--Legal Proceedings" and such
statements have been included upon the authority of such firm as experts in
trademark law.
66
<PAGE>
AVAILABLE INFORMATION
TMP is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by TMP may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
at Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may
be obtained from the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. In addition, material filed by TMP can be inspected at the offices of the
NASDAQ National Market at 1735 K Street, N.W., Washington, D.C. 20006-1506. The
Commission maintains a Web site at http://www.sec.gov containing reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission, including TMP.
TMP has filed with the Commission a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedule filed as a
part thereof, as permitted by the rules and regulations of the Commission. For
further information with respect to TMP and the Common Stock, reference is
hereby made to such Registration Statement, including the exhibits and schedule
filed as a part thereof. Statements contained in this Prospectus as to the
contents of any contract or other documents referred to herein are not
necessarily complete and where such contract or other document is an exhibit to
the Registration Statement, each such statement is qualified in all respects by
the provisions of such exhibit, to which reference is hereby made for a full
statement of the provisions thereof. The Registration Statement, including the
exhibits filed as a part thereof, may be inspected without charge at the public
reference facilities maintained by the Commission as set forth in the preceding
paragraph. Copies of these documents may be obtained at prescribed rates from
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549.
67
<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, 1995 and 1996 and
June 30, 1997 (unaudited)............................................................................ F-3
Statements of operations for the years ended December 31, 1994, 1995
and 1996 and for the six months ended June 30, 1996 and 1997 (unaudited)............................. F-4
Statements of stockholders' equity (deficit) for the years ended December 31, 1994, 1995
and 1996 and for the six months ended June 30, 1997 (unaudited)...................................... F-5
Statements of cash flows for the years ended December 31, 1994, 1995 and 1996 and
for the six months ended June 30, 1996 and 1997 (unaudited).......................................... F-6
Notes to consolidated financial statements............................................................. F-7
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN US GAAP AND UK GAAP........................................... F-25
REPORT OF INDEPENDENT AUDITORS........................................................................... F-28
CONSOLIDATED FINANCIAL STATEMENTS:
Profit and loss accounts for the years ended September 30, 1995 and 1996............................... F-29
Balance sheets as at September 30, 1995 and 1996....................................................... F-30
Cash flow statements for the years ended September 30, 1995 and 1996................................... F-31
Statements of movements in shareholders' funds for the years ended September 30, 1995 and 1996......... F-32
Statements of total recognized gains and losses for the years ended September 30, 1995 and 1996........ F-32
Notes to the accounts for the years ended September 30, 1995 and 1996.................................. F-33
Profit and loss accounts for the nine months ended June 30, 1996 and 1997 (unaudited).................. F-49
Balance sheet as at June 30, 1997 (unaudited).......................................................... F-50
Cash flow statements for the nine months ended June 30, 1996 and 1997 (unaudited)...................... F-51
Statements of movements in shareholders' funds for the nine months ended June 30, 1997 (unaudited)..... F-52
Notes to the accounts for the nine months ended June 30, 1996 and 1997 (unaudited)..................... F-53
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT............................................................................. F-57
CONSOLIDATED FINANCIAL STATEMENTS:
Statements of profit and loss for the years ended June 30, 1995 and 1996............................... F-58
Statements of cash flows for the years ended June 30, 1995 and 1996.................................... F-59
Summary of accounting policies......................................................................... F-60
Notes to consolidated financial statements............................................................. F-64
</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, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the three years in the period ended December 31,
1996. 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, 1995 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
BDO SEIDMAN, LLP
New York, New York
March 10, 1997
F-2
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
---------- ---------- JUNE 30,
1997
----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 2,719 $ 898 $ 1,264
Accounts receivable, net................................................... 155,720 191,728 203,509
Work-in-process............................................................ 13,220 14,542 17,665
Assets held for sale....................................................... 5,735 -- --
Prepaid and other.......................................................... 3,122 5,482 6,111
---------- ---------- ----------
Total current assets................................................... 180,516 212,650 228,549
Receivable from Principal Stockholder, net................................... 6,530 11,413 11,611
Property and equipment, net.................................................. 11,937 20,562 31,568
Deferred income taxes........................................................ 9,474 9,325 9,046
Intangibles, net............................................................. 46,837 73,975 90,095
Other assets................................................................. 2,800 3,828 3,179
---------- ---------- ----------
$ 258,094 $ 331,753 $ 374,048
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................................... $ 151,680 $ 182,129 $ 174,532
Accrued expenses and other current liabilities............................. 13,336 23,463 28,682
Deferred income taxes...................................................... 9,422 9,818 10,420
Current portion of long-term debt.......................................... 11,809 9,167 6,046
---------- ---------- ----------
Total current liabilities.............................................. 186,247 224,577 219,680
Long-term debt, less current portion......................................... 88,070 70,799 116,088
---------- ---------- ----------
Total liabilities...................................................... 274,317 295,376 335,768
---------- ---------- ----------
Minority interests........................................................... 3,105 3,082 435
---------- ---------- ----------
Redeemable preferred stock................................................... 2,000 2,000 --
---------- ---------- ----------
Commitments and contingencies................................................
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--4,276,869, 8,605,436 and 8,797,342 shares, respectively..... 4 8 9
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................................................. 655 106,803 110,166
Foreign currency translation adjustment.................................... (25) 380 271
Deficit.................................................................... (21,977) (75,911) (72,616)
---------- ---------- ----------
Total stockholders' equity (deficit)................................... (21,328) 31,295 37,845
---------- ---------- ----------
$ 258,094 $ 331,753 $ 374,048
---------- ---------- ----------
---------- ---------- ----------
</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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Commissions and fees.......................... $ 86,165 $ 123,907 $ 162,631 $ 70,663 $ 100,619
----------- ----------- ----------- ----------- -----------
Operating expenses:
Salaries and related costs.................. 45,758 58,329 80,291 35,561 50,484
Office and general.......................... 30,316 43,432 60,101 26,337 36,285
Amortization of intangibles................. 3,264 3,237 4,440 2,013 2,849
Special compensation........................ -- -- 52,019 -- --
----------- ----------- ----------- ----------- -----------
Total operating expenses.................. 79,338 104,998 196,851 63,911 89,618
----------- ----------- ----------- ----------- -----------
Operating income (loss)................... 6,827 18,909 (34,220) 6,752 11,001
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest expense............................ (9,434) (11,249) (14,598) (6,035) (4,995)
Interest income............................. 256 355 333 202 947
Other, net.................................. (146) 150 (164) 450 3
----------- ----------- ----------- ----------- -----------
(9,324) (10,744) (14,429) (5,383) (4,045)
----------- ----------- ----------- ----------- -----------
Income (loss) before provision (benefit) for
income taxes, minority interests and equity
in earnings (losses) of affiliates.......... (2,497) 8,165 (48,649) 1,369 6,956
Provision (benefit) for income taxes.......... (333) 4,222 3,270 930 3,306
----------- ----------- ----------- ----------- -----------
Income (loss) before minority interests and
equity in earnings (losses) of affiliates... (2,164) 3,943 (51,919) 439 3,650
Minority interests............................ 336 435 434 226 227
Equity in earnings (losses) of affiliates..... 33 (279) 114 16 (5)
----------- ----------- ----------- ----------- -----------
Net income (loss)............................. (2,467) 3,229 (52,239) 229 3,418
Preferred stock dividends..................... (210) (210) (210) (105) (123)
----------- ----------- ----------- ----------- -----------
Net income (loss) applicable to common and
Class B common stockholders................. $ (2,677) $ 3,019 $ (52,449) $ 124 $ 3,295
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per common and Class B
common share................................ $ (.14) $ .15 $ .01 $ .14
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of common,
Class B common and common equivalent shares
outstanding................................. 19,226,051 19,516,228 19,638,176 24,036,572
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Pro forma:
Historical net loss applicable to common
and Class B common stockholders .......... $ (52,449)
Pro forma adjustment for special
compensation.............................. 52,019
Pro forma adjustment for interest........... 2,603
-----------
Pro forma net income applicable to
common and Class B common stockholders.... $ 2,173
-----------
-----------
Pro forma net income per common and Class B
common share.............................. $ .11
-----------
-----------
Weighted average common, Class B common and
common equivalent shares outstanding...... 19,732,333
-----------
-----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK, $.001 COMMON STOCK, FOREIGN
PAR VALUE $.001 PAR VALUE ADDITIONAL CURRENCY
---------------------- ---------------------- PAID-IN TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT
--------- ----------- --------- ----------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994........ 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..... -- -- -- -- 1,172 -- --
Issuance of common stock for
purchase of minority interest
in subsidiary................. 159,231 -- -- -- 1,055 -- --
Issuance of common stock as
compensation.................. 142,740 -- -- -- 20 -- --
Repurchase and cancellation of
common stock.................. (481,284) -- -- -- (675) -- (1,485)
Issuance of common stock for
purchase of minority interest
in subsidiary................. 46,350 -- -- -- 672 -- --
Issuance of common stock........ 4,147,408 4 -- -- 50,779 -- --
Issuance of common stock in
connection with the exercise
of options.................... 85,354 -- -- -- 347 -- --
Issuance of common stock in
connection with exercise of
warrant....................... 228,768 -- -- -- 2,603 -- --
Foreign currency translation
adjustment.................... -- -- -- -- -- 405 --
Dividends on preferred stock.... -- -- -- -- -- -- (210)
Special compensation............ -- -- -- -- 50,175 -- --
Net loss........................ -- -- -- -- -- -- (52,239)
--------- --- --------- --- ------------- ----- ---------
BALANCE, December 31, 1996...... 8,605,436 8 14,787,541 15 106,803 380 (75,911)
Issuance of common stock in
connection with the exercise
of options (unaudited)........ 37,575 -- -- -- 489 -- --
Capital contribution from
Principal Stockholder
(unaudited)................... 275
Issuance of common stock for
purchase of an equity interest
in a subsidiary (unaudited)... 61,848 1 -- -- 999 -- --
Issuance of common stock in
connection with an acquisition
(unaudited)................... 48,935 -- -- -- 1,045 -- --
Issuance of common stock for
matching contribution to 401k
Plan (unaudited).............. 43,548 -- -- -- 555 -- --
Foreign currency translation
adjustment (unaudited)........ -- -- -- -- -- (109) --
Dividend and redemption premium
on preferred stock
(unaudited)................... -- -- -- -- -- -- (123)
Net income (unaudited).......... -- -- -- -- -- -- 3,418
--------- --- --------- --- ------------- ----- ---------
BALANCE, June 30, 1997.......... 8,797,342 $ 9 14,787,541 $ 15 $ 110,166 $ 271 $ (72,616)
--------- --- --------- --- ------------- ----- ---------
--------- --- --------- --- ------------- ----- ---------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
---------------
<S> <C>
BALANCE, January 1, 1994........ $ (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..... 1,172
Issuance of common stock for
purchase of minority interest
in subsidiary................. 1,055
Issuance of common stock as
compensation.................. 20
Repurchase and cancellation of
common stock.................. (2,160)
Issuance of common stock for
purchase of minority interest
in subsidiary................. 672
Issuance of common stock........ 50,783
Issuance of common stock in
connection with the exercise
of options.................... 347
Issuance of common stock in
connection with exercise of
warrant....................... 2,603
Foreign currency translation
adjustment.................... 405
Dividends on preferred stock.... (210)
Special compensation............ 50,175
Net loss........................ (52,239)
---------------
BALANCE, December 31, 1996...... 31,295
Issuance of common stock in
connection with the exercise
of options (unaudited)........ 489
Capital contribution from
Principal Stockholder
(unaudited)................... 275
Issuance of common stock for
purchase of an equity interest
in a subsidiary (unaudited)... 1,000
Issuance of common stock in
connection with an acquisition
(unaudited)................... 1,045
Issuance of common stock for
matching contribution to 401k
Plan (unaudited).............. 555
Foreign currency translation
adjustment (unaudited)........ (109)
Dividend and redemption premium
on preferred stock
(unaudited)................... (123)
Net income (unaudited).......... 3,418
---------------
BALANCE, June 30, 1997.......... $ 37,845
---------------
---------------
</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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (2,467) $ 3,229 $ (52,239) $ 229 $ 3,418
--------- --------- --------- --------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization of property and
equipment............................................. 2,940 3,396 4,446 2,025 3,534
Amortization of intangibles............................. 3,264 3,237 4,440 2,013 2,849
Provision for doubtful accounts......................... 793 2,850 3,131 1,993 1,507
Special compensation.................................... -- -- 52,019 -- --
Interest charges for shares issued upon exercise of
warrant............................................... -- -- 2,603 -- --
Minority interests...................................... 336 435 434 226 227
Provision (benefit) for deferred income taxes........... (987) 3,005 1,573 1,078 912
Other................................................... 154 522 100 162 (3)
Changes in assets and liabilities, net of effects from
purchase of businesses:
(Increase) decrease in accounts receivable, net..... (11,630) (30,256) (5,048) (6,496) 2,732
Increase in work-in-process......................... (1,269) (1,510) (36) (1,063) (2,566)
(Increase) decrease in prepaid and other............ 1,820 (425) (909) 43 (12)
(Increase) decrease in other assets................. (70) 430 (161) (326) 87
Increase (decrease) in accounts payable and accrued
expenses and other current liabilities............ (3,812) 21,793 (2,202) 18,640 (17,598)
--------- --------- --------- --------- ---------
Total adjustments....................................... (8,461) 3,477 60,390 18,295 (8,331)
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities..... (10,928) 6,706 8,151 18,524 (4,913)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances/payments to Principal Stockholder................ (9,207) (613) (12,878) (3,733) (656)
Repayments from Principal Stockholder..................... 5,487 2,271 7,994 1,127 695
Capital expenditures...................................... (4,946) (4,954) (6,857) (3,429) (12,385)
Payments for purchases of businesses, net of cash
acquired................................................ (6,327) (11,324) (23,755) (4,037) (11,375)
Proceeds from sale of assets.............................. 1,949 7 6,115 3,347 --
Advances to and investments in affiliates................. 842 835 393 (443) (71)
--------- --------- --------- --------- ---------
Net cash used in investing activities..................... (12,202) (13,778) (28,988) (7,168) (23,792)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capitalized leases............................ (739) (1,064) (2,386) (434) (1,450)
Capital contribution from Principal Stockholder........... -- -- -- -- 275
Borrowings under line of credit and proceeds from issuance
of long-term debt....................................... 410,883 540,333 471,092 305,758 320,094
Repayments under line of credit and principal payments on
long-term debt.......................................... (386,671) (531,144) (497,646) (315,015) (284,567)
Distribution to minority interests........................ (304) (483) (457) (157) (25)
Net proceeds from stock issuance.......................... -- -- 50,783 -- --
Repurchase of common stock................................ -- -- (2,160) -- --
Redemption of minority interest (including premium)....... -- -- -- -- (3,133)
Redemption of preferred stock (including premium)......... -- -- -- -- (2,105)
Dividends on preferred stock.............................. (210) (210) (210) (105) (18)
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities....... 22,959 7,432 19,016 (9,953) 29,071
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents...... (171) 360 (1,821) 1,403 366
Cash and cash equivalents, beginning of period............ 2,530 2,359 2,719 2,719 898
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of period.................. $ 2,359 $ 2,719 $ 898 $ 4,122 $ 1,264
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE SIX MONTHS ENDED JUNE 30, 1996 AND
SUBSEQUENT TO DECEMBER 31, 1996 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 $52.0 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 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 SIX MONTHS ENDED JUNE 30, 1996 AND
SUBSEQUENT TO DECEMBER 31, 1996 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. No material impairment losses have been incurred through June 30, 1997.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The financial position and results of operations of the Company's foreign
subsidiaries 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'
F-8
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE SIX MONTHS ENDED JUNE 30, 1996 AND
SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
equity (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.
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. Amounts reported in the three months ended December 31, 1994, 1995 and
1996 for commissions on volume placements were $2.1 million, $4.2 million and
$3.5 million, respectively. 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.
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, Europe and the Pacific Rim. 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 and
accounts payable approximate fair value because of the immediate or short-term
maturity of these financial instruments. The carrying amount reported for long-
F-9
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE SIX MONTHS ENDED JUNE 30, 1996 AND
SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 value of the net receivable from the
Principal Stockholder cannot be determined.
STOCK-BASED COMPENSATION
The Company accounts for its stock option awards under the intrinsic value
based method of accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Under the intrinsic value based
method, compensation cost is the excess, if any, of the quoted market price of
the stock at grant date or other measurement date over the amount an employee
must pay to acquire the stock. The Company makes pro forma disclosures of net
income and earnings per share as if the fair value based method of accounting
had been applied as required by Statement of Financial Accounting Standards
("SFAS") 123, "Accounting for Stock-Based Compensation."
EARNINGS PER SHARE OF COMMON AND CLASS B COMMON STOCK
(A) HISTORICAL
Historical net income (loss) per common and Class B common share for 1994
and 1995 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 information for 1996 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.
(C) SUPPLEMENTAL
Supplemental net income per common and Class B common share for the year
ended December 31, 1996 was $.23. For this calculation, the weighted average
number of common and Class B common shares includes the number of shares, the
sale of which, 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
F-10
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE SIX MONTHS ENDED JUNE 30, 1996 AND
SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
(D) RECENT ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per
Share". SFAS No. 128 specifies the computation, presentation and disclosure
requirements for earnings per share. SFAS No. 128 is effective for periods
ending after December 15, 1997. The adoption of this statement is not expected
to have a material effect on the consolidated financial statements.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of the Company's management, the consolidated balance sheet
as of June 30, 1997, the consolidated statements of operations and cash flows
for the six months ended June 30, 1996 and 1997, and the consolidated statement
of stockholders' equity for the six months ended June 30, 1997 contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the information set forth therein. The results of operations for
the six months ended June 30, 1997 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.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards. Results of operations and financial position will be
unaffected by implementation of these new standards.
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
REPORTING COMPREHENSIVE INCOME, establishes standards for reporting and display
of comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
Statement of Accounting Standards No. 131 ("SFAS No. 131"), DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which supersedes SFAS
No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS ENTERPRISE, establishes
standards for the way that public enterprises report information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued to
the public. It also establishes standards for disclosures regarding products and
services, geographic areas and major customers. SFAS No. 131 defines operating
segments as components of an enterprise about which separate financial
information is available
F-11
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE SIX MONTHS ENDED JUNE 30, 1996 AND
SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
that is evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Due to the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, they may have
on future financial statement disclosures.
NOTE 3 -- ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1995 1996 1997
---------- ---------- -------------
<S> <C> <C> <C>
Trade..................................................................... $ 146,002 $ 185,594 $ 196,583
Earned commissions (A).................................................... 13,583 13,166 14,258
---------- ---------- -------------
159,585 198,760 210,841
Less: Allowance for doubtful accounts..................................... 3,865 7,032 7,332
---------- ---------- -------------
Accounts receivable, net................................................ $ 155,720 $ 191,728 $ 203,509
---------- ---------- -------------
---------- ---------- -------------
</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, 1995 and 1996 and June 30,
1997 are recorded as accounts receivable of $75,161, $70,594 and $77,153,
respectively, and the related advertising costs are recorded as accounts
payable of $61,578, $57,428 and $62,895, respectively.
NOTE 4 -- PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- --------------
<S> <C> <C> <C>
Buildings and improvements.................................................. $ 881 $ 944 $ 922
Furniture and equipment..................................................... 25,028 41,656 48,912
Leasehold improvements...................................................... 3,027 3,728 4,188
Transportation equipment.................................................... 226 301 6,308
--------- --------- -------
29,162 46,629 60,330
Less: Accumulated depreciation and amortization............................. 17,225 26,067 28,762
--------- --------- -------
Property and equipment, net............................................... $ 11,937 $ 20,562 $ 31,568
--------- --------- -------
--------- --------- -------
</TABLE>
Furniture and equipment includes equipment under capital leases at December
31, 1995 and 1996 and June 30, 1997 with a cost of $3,637, $6,074, and $8,941,
respectively, and accumulated amortization of $2,063, $2,531 and $2,854,
respectively.
F-12
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE SIX MONTHS ENDED JUNE 30, 1996 AND
SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 4 -- PROPERTY AND EQUIPMENT, NET (CONTINUED)
Assets held for sale of $5,735 at December 31, 1995 represent 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 year ended December 31, 1996, and the balance of
which was purchased by the Principal Stockholder at net book value upon the
closing of the initial public offering.
In June 1997, the Company acquired certain transportation equipment for $5.7
million and simultaneously entered into a $7.5 million financing agreement to
fund the purchase and provide additional operating cash. (See Note 8.)
NOTE 5 -- BUSINESS ACQUISITIONS
The Company has acquired 43 businesses (primarily recruitment advertising
businesses) between January 1, 1994 and June 30, 1997, 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 $12,230,
$26,709 and $25,358 during 1994, 1995 and 1996, respectively, and $16,806 during
the six months ended June 30, 1997. In addition, during the six months ended
June 30, 1997, the Company issued 48,935 shares of common stock valued at $1,045
in connection with an acquisition. 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, 1995 and 1996 and the six months ended June 30,
1996 and 1997 assume the acquisitions in 1995 and 1996 and the six months ended
June 30, 1997 occurred as of the beginning of the year of acquisition and the
beginning of the preceding year.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------- ---------------------
<S> <C> <C> <C> <C>
1995 1996 1996 1997
---------- ---------- --------- ----------
Commissions and fees.................................. $ 157,550 $ 205,331 $ 97,555 $ 106,336
Pro forma net income (loss)........................... 3,216 2,399 (189) 3,589
Pro forma net income (loss) per common and Class B
common share........................................ $ .19 $ .12* $ (.01) $ .15
</TABLE>
- ------------------------
* Excludes special compensation and interest charges in the amounts of $52,019
and $2,603, respectively.
In addition, in August 1997 the Company acquired 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, in July 1997, of real property by Austin Knight. Austin Knight had
commissions and fees of approximately $47,600 for the year ended September 30,
1996. This acquisition, will be accounted for using the purchase method of
accounting. The excess of the acquisition costs, including $3,000 for additional
acquisition costs, over the fair value of net assets acquired is approximately
$44,100 and will be amortized on a straight-line basis over 30 years. In order
to fund this acquisition, the Company has secured additional financing in the
form of an Overadvance Bridge Loan from its primary financial institution. (See
Note 7.) In addition, $1,200 of the purchase price is payable to certain selling
F-13
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE SIX MONTHS ENDED JUNE 30, 1996 AND
SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5 -- BUSINESS ACQUISITIONS (CONTINUED)
shareholders in the form of notes. The notes bear interest at 6.75% annually and
are payable in quarterly installments over a 5 year period beginning in December
1997.
NOTE 6 -- INTANGIBLES, NET
Intangibles, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30, AMORTIZATION
1995 1996 1997 PERIOD
--------- --------- ----------- ------------
<S> <C> <C> <C> <C>
(YEARS)
Client lists, net of accumulated amortization of
$2,935, $3,715 and $4,109, respectively........ $ 7,567 $ 8,913 $ 8,919 5 to 30
Covenants not to compete, net of accumulated
amortization of $1,314, $1,713 and $1,912,
respectively................................... 1,764 1,336 1,397 3 to 6
Excess of cost of investments over fair value of
net assets acquired, net of accumulated
amortization of $4,377, $6,428 and $8,553,
respectively................................... 36,485 62,947 79,141 10 to 30
Other, net of accumulated amortization of $1,447,
$1,709 and $1,840, respectively................ 1,021 779 638 4 to 10
--------- --------- -----------
$ 46,837 $ 73,975 $ 90,095
--------- --------- -----------
--------- --------- -----------
</TABLE>
NOTE 7 -- FINANCING AGREEMENT
The Company obtains its primary financing from a financial institution under
a five-year financing agreement as amended and restated on June 27, 1996, and as
further amended, 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, as amended, provides for borrowings of up
to $100,000 at an interest rate of either: (a) prime rate less 1%; or (b) LIBOR,
plus 1 1/2%, 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 fixed termination fee of $1,000 for the
life of the Agreement.
At June 30, 1997, the prime rate and one month LIBOR were 8.50% and 5.72%,
respectively, and borrowings outstanding were at a weighted average interest
rate of 7.28%.
In August 1997, the Company and its primary financing institution amended
its financing agreement to provide for funds to be used for the acquisition of
Austin Knight. Initially the interest rate on the loan is at LIBOR plus 1.5%.
The Company intends to repay the indebtedness in full with the proceeds from the
sale of stock in this offering.
F-14
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE SIX MONTHS ENDED JUNE 30, 1996 AND
SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 7 -- FINANCING AGREEMENT (CONTINUED)
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 was
independently appraised at $600, which amount was being amortized over the
remaining term of the original financing agreement of 30 months from October
1993 until December 1996, when the warrant was exercised. At that time, the
unamortized balance was expensed. In addition, in December 1996, there was 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.
NOTE 8--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- ----------
<S> <C> <C> <C>
Borrowings under financing agreement (see Note 7)............................... $ 77,536 $ 59,495 $ 94,704
Borrowings under financing agreements, interest payable at rates varying from 5%
to 9.2%, and collateralized by assets in certain foreign countries............ 2,200 3,776 6,068
Acquisition notes payable in annual and monthly installments through 1997 with
interest at 8.5%.............................................................. 7,026 3,374 --
Other acquisition notes payable, noninterest bearing, interest imputed at 6.7%
to 8.0%, in varying installments through 2001................................. 8,277 7,153 7,277
Capitalized lease obligations, payable with interest from 9% to 15%, in varying
installments through 2001..................................................... 1,571 4,058 5,675
Term note payable in sixty consecutive monthly installments through June 2002
with interest at 8.43% for the first 36 months. Thereafter the interest rate
will be based on two year U.S. Treasury notes................................. -- -- 7,500
Notes payable, in varying monthly installments maturing through 2001, with
interest at rates ranging from 7.5% to 8.5%................................... 3,269 2,110 910
--------- --------- ----------
99,879 79,966 122,134
Less: Current portion........................................................... 11,809 9,167 6,046
--------- --------- ----------
$ 88,070 $ 70,799 $ 116,088
--------- --------- ----------
--------- --------- ----------
</TABLE>
The noncurrent portion of long-term debt matures as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
1998.............................................................................. $ 5,081 $ 2,646*
1999.............................................................................. 2,339 4,262
2000.............................................................................. 1,325 5,780
2001.............................................................................. 62,004 92,966
Thereafter........................................................................ 50 10,434
------------ ----------
$ 70,799 $ 116,088
------------ ----------
------------ ----------
</TABLE>
- ------------------------
* Representing principal payments due for the period July 1, 1998 through
December 31, 1998.
F-15
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE SIX MONTHS ENDED JUNE 30, 1996 AND
SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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 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 were redeemed in January 1997 for $3,133, which included a
redemption premium of $118.
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. These shares were redeemed in January 1997 for $2,105, which included a
redemption premium of $105.
NOTE 11--STOCKHOLDERS' EQUITY
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 (amended to 1,800,000
on June 25, 1997) 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 (amended to 150,000 on June 25, 1997).
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. As of March 31, 1997, 7,776 of such options were cancelled, 2,961 options
were exercised and, of the outstanding options, 69,255 options were exercisable.
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 1,203,737
shares of Company common stock were granted to officers and employees of the
Company, subject to stockholder approval.
In January 1996, the Company also adopted a stock option plan for
nonemployee directors (the "Directors' Plan"), pursuant to which options to
acquire a maximum aggregate of 180,000 shares of common stock may be granted to
nonemployee directors. Options granted under the Directors' Plan do
F-16
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE SIX MONTHS ENDED JUNE 30, 1996 AND
SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 11--STOCKHOLDERS' EQUITY (CONTINUED)
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 nonemployee director. Half of these options vested on the date of the grant
and the balance vests in two 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. In December 1996, 11,250 of
the options granted to a former director in September 1996 were cancelled and
options to purchase 125,000 shares of common stock were granted at an exercise
price of $14.00 (the initial public offering price). Of the total, 50,000 of
such options vested on the closing of the initial public offering. In April
1997, in connection with this former director's resignation, the Company agreed
that an additional 12,500 of such stock options would vest on June 1, 1997, and
that such options, along with the 50,000 stock options previously vested, will
expire on December 9, 2006. At June 30, 1997, 122,454 of the outstanding options
were exercisable.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related Interpretations in
accounting for its employee stock options. Under APB 25, because the exercise
price of the Company's employee stock option equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of SFAS 123. The
weighted average fair value of options granted during 1996 was $5.93. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions; risk-free
interest rates of 6.11%; volatility factor of the expected market price of the
Company's common stock of 25%; and a weighted average expected life of the
option of 8 years.
F-17
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE SIX MONTHS ENDED JUNE 30, 1996 AND
SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 11--STOCKHOLDERS' EQUITY (CONTINUED)
Under the accounting provisions of SFAS 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1996(1)
---------
<S> <C>
Net income:
As reported............................................................................................ $ 2,173
Pro forma.............................................................................................. 1,560
Net income per common and Class B common share:
As reported............................................................................................ $ .11
Pro forma.............................................................................................. .08
</TABLE>
- ------------------------
(1) Based on pro forma net income which excludes special compensation of $52,019
and nonrecurring interest charges of $2,603.
A summary of the status of the Company's two fixed stock option plans as of
December 31, 1996 and changes during the year then ended is presented below:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------
<S> <C> <C>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- -----------------
Outstanding at beginning of year..................................................... -- $ --
Granted.............................................................................. 466,640 9.15
Exercised............................................................................ -- --
Forfeited/cancelled.................................................................. (18,306) 11.17
---------
Outstanding at end of year........................................................... 448,334 9.07
---------
---------
Options exercisable at year-end...................................................... 66,875 $ 13.38
Weighted average fair value of options granted during the year....................... $ 5.93
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996.
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING --------------------------------
- --------------------------------------------------------------------- WEIGHTED
NUMBER WEIGHTED AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING AT REMAINING WEIGHTED AVERAGE EXERCISABLE AT EXERCISE
PRICE DECEMBER 31, 1996 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1996 PRICE
- ------------- ----------------- ---------------- ----------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
$ 6.65 289,584 9.0 (years) $ 6.65 -- $ --
6.65 11,250 9.0 6.65 5,625 6.65
14.00 22,500 9.7 14.00 11,250 14.00
14.00 125,000 9.9 14.00 50,000 14.00
------- ------
448,334 66,875
------- ------
------- ------
</TABLE>
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
F-18
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE SIX MONTHS ENDED JUNE 30, 1996 AND
SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 11--STOCKHOLDERS' EQUITY (CONTINUED)
offering price of $14.00, the number of shares issued were 85,354. Such options
were exercised upon the closing of the public offering.
NOTE 12 -- PROVISION (BENEFIT) FOR INCOME TAXES
The components of income (loss) before the provision (benefit) for income
taxes, minority interests and equity in earnings (losses) of affiliates are as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------
Domestic............................................... $ (2,661) $ 6,955 $ (50,323) $ (70) $ 3,143
Foreign................................................ 164 1,210 1,674 1,439 3,813
---------- ---------- ---------- ---------- ---------
Total income (loss) before provision (benefit) for
income taxes, minority interests and equity in
earnings (losses) of affiliates.................... $ (2,497) $ 8,165 $ (48,649) $ 1,369 $ 6,956
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
</TABLE>
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
Current tax provision (benefit):
U.S. Federal.............................................. $ 194 $ 87 $ 66 $ (505) $ --
State and local........................................... 298 320 922 (126) 200
Foreign................................................... 162 810 709 483 2,194
--------- --------- --------- --------- ---------
Total current....................................... 654 1,217 1,697 (148) 2,394
--------- --------- --------- --------- ---------
Deferred tax provision (benefit):
U.S. Federal.............................................. (787) 2,051 1,740 835 899
State and local........................................... (200) 535 (321) 191 13
Foreign................................................... -- 419 154 52 --
--------- --------- --------- --------- ---------
Total deferred...................................... (987) 3,005 1,573 1,078 912
--------- --------- --------- --------- ---------
Total provision (benefit)........................... $ (333) $ 4,222 $ 3,270 $ 930 $ 3,306
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
F-19
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE SIX MONTHS ENDED JUNE 30, 1996 AND
SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12 -- 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, JUNE 30,
-------------------- ---------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
Current deferred tax assets (liabilities):
Earned commissions.............................................................. $ (5,433) $ (5,266) $ (5,703)
Allowance for doubtful accounts................................................. 1,462 2,813 2,933
Work-in-process................................................................. (5,316) (5,817) (7,066)
Accrued expenses and other liabilities.......................................... (135) (1,548) (584)
--------- --------- ---------
Total current deferred tax liability........................................ (9,422) (9,818) (10,420)
--------- --------- ---------
Noncurrent deferred tax assets (liabilities):
Property and equipment.......................................................... 1,237 (801) (775)
Intangibles..................................................................... (76) (453) (571)
Tax loss carryforwards.......................................................... 8,313 10,579 10,392
--------- --------- ---------
Total noncurrent deferred tax asset......................................... 9,474 9,325 9,046
--------- --------- ---------
Net deferred tax asset (liability).......................................... $ 52 $ (493) $ (1,374)
--------- --------- ---------
--------- --------- ---------
</TABLE>
At December 31, 1996, the Company has net operating loss carryforwards for
U.S. Federal tax purposes of approximately $21,800 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.
The provision (benefit) for income taxes differs from the amount computed
using the Federal statutory income tax rate as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- ---------- --------- ---------
Provision (benefit) at Federal statutory rate............. $ (849) $ 2,776 $ (16,541) $ 465 $ 2,324
State income taxes, net of Federal income tax effect...... (35) 514 216 62 361
Nondeductible expenses.................................... 342 419 685 251 534
Nondeductible special charge.............................. -- -- 18,571 -- --
Interest imputed on receivable from Principal
Stockholder............................................. 146 198 216 50 --
Losses for which no tax benefits are available............ 4 503 45 270 --
Foreign income taxes at other than the Federal
statutory rate.......................................... (19) 149 26 38 274
Other..................................................... 78 (337) 52 (206) (187)
--------- --------- ---------- --------- ---------
Income tax provision (benefit)............................ $ (333) $ 4,222 $ 3,270 $ 930 $ 3,306
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
</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
F-20
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE SIX MONTHS ENDED JUNE 30, 1996 AND
SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12 -- PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED)
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, 1996, the cumulative amount
of reinvested earnings was not material.
NOTE 13--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, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------- -----------
<S> <C> <C>
1997................................................................................... $ 1,531 $ 8,465
1998................................................................................... 1,291 7,902
1999................................................................................... 1,114 7,471
2000................................................................................... 672 6,951
2001................................................................................... -- 4,455
Thereafter............................................................................. -- 3,267
------ -----------
4,608 $ 38,511
-----------
-----------
Less: Amount representing interest..................................................... 550
------
Present value of minimum lease payments................................................ 4,058
Less: Current portion.................................................................. 1,252
------
$ 2,806
------
------
</TABLE>
Rent and related expenses under operating leases amounted to approximately
$6,470, $7,735 and $10,856 for the years ended December 31, 1994, 1995 and 1996,
respectively, and $4,392 and $6,091 for the six months ended June 30, 1996 and
1997, 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 two to five years in length, with one
for a term of fifteen years and two providing aggregate annual lifetime payments
of approximately $135.
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
F-21
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE SIX MONTHS ENDED JUNE 30, 1996 AND
SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
The above agreements provide for the following aggregate annual payments:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
1997............................................................................ $ 5,052
1998............................................................................ 4,621
1999............................................................................ 4,144
2000............................................................................ 4,212
2001............................................................................ 4,002
Thereafter...................................................................... 2,099
------------
$ 24,130
------------
------------
</TABLE>
(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 $368, $584 and $600 for
the years ended December 31, 1994, 1995 and 1996, respectively, and $321 and
$338 for the six months ended June 30, 1996 and 1997, 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, 1994, 1995
and 1996 and the six months ended June 30, 1997. 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.
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.
(E) OTHER
(i) The Company is contingently liable on a note of the Principal
Stockholder in the amount of approximately $1,600.
(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, 1996 is
approximately $4,700 based on the formula.
F-22
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE SIX MONTHS ENDED JUNE 30, 1996 AND
SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--RELATED PARTY TRANSACTIONS
(A) The Company has advances receivable from certain of its stockholders
aggregating $500, $832, and $728 at December 31, 1995 and 1996 and June 30,
1997, respectively.
(B) The Company has net advances receivable from its Principal Stockholder
of $6,530, $11,413 and $11,611 at December 31, 1995 and 1996 and June 30, 1997,
respectively. Prior to January 1, 1997, such amounts were noninterest-bearing.
As of January 1, 1997, interest is being charged on the unpaid balance at the
prime rate. These advances are expected to be paid in full, promptly upon
closing of this offering.
(C) 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.
(D) The Company charged management and other fees to affiliates for
services provided of approximately $670, $873, $602, $183 and $150 for the years
ended December 31, 1994, 1995 and 1996 and the six months ended June 30, 1996
and 1997, respectively.
(E) In January 1994, the Company acquired a 50% interest in an agency
selling real estate advertising. Pursuant to agreements with this agency, the
Company provided the agency with office and administrative services which
amounted to $685, $725, $875, $320 and $380 in the years ended December 31,
1994, 1995 and 1996 and the six months ended June 30, 1996 and 1997,
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, provided 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 was exercised in February 1997 and 61,848 shares of
common stock were issued to these stockholders pursuant to the above agreement.
Simultaneously, the Company transferred to such stockholders 50% of its interest
in the agency, thus retaining a 25% interest and terminated its obligation to
provide office and administrative services beginning in October, 1997.
(F) 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.
(G) 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 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 15--GEOGRAPHIC AND OTHER INFORMATION
The Company is engaged in one line of business, the placing of advertising
in various media. Its operations are conducted in several geographic regions:
North America, the Pacific Rim (Australia, New
F-23
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
(INFORMATION RELATED TO THE SIX MONTHS ENDED JUNE 30, 1996 AND
SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 15--GEOGRAPHIC AND OTHER INFORMATION (CONTINUED)
Zealand, and Japan) and Europe. The following is a summary of the Company's
operations by geographic segment, as of and for the year ended December 31, 1996
and the six months ended June 30, 1997. Geographic segments were not material
for 1994 and 1995.
<TABLE>
<CAPTION>
NORTH AMERICA PACIFIC RIM EUROPE TOTAL
-------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
- --------------------------------------------------------------
Commissions and fees.......................................... $ 144,853 $ 11,757 $ 6,021 $ 162,631
Income (loss) before taxes, minority interests and equity in
earnings of affiliates...................................... (49,159)* (381) 891 (48,649)*
Identifiable assets........................................... 266,336 39,244 26,173 331,753
<CAPTION>
JUNE 30, 1997
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Commissions and fees.......................................... $ 73,960 $ 10,824 $ 15,835 $ 100,619
Income before taxes, minority interests and equity in earnings
of affiliates............................................... 3,143 1,058 2,755 6,956
Identifiable assets........................................... 279,440 38,816 55,792 374,048
</TABLE>
- ------------------------
* Includes non-cash, nonrecurring special compensation and interest expense of
$52,019 and $2,603, respectively.
During the three months ended December 31, 1996, the Company received
one-time fees of $150, $175, and $220 for a research study, executive search
services and for assisting in the procurement of bank financing, respectively.
The research study fee was recorded as a reduction of office and general
expenses, the executive search fee was accounted for as Commissions and Fees and
the loan procurement fee was accounted for as Other Income in the accompanying
Statement of Operations for the year ended December 31, 1996.
NOTE 16 -- SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes amounted to the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
Interest..................................................... $ 8,809 $ 10,601 $ 11,389 $ 5,064 $ 5,405
Income taxes................................................. 239 589 936 492 737
</TABLE>
In conjunction with business acquisitions, the Company used cash as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
---------- --------- --------- --------- ---------
Fair value of assets acquired, excluding cash.............. $ 16,537 $ 37,260 $ 52,731 $ 7,488 $ 18,157
Less: Liabilities assumed and created upon acquisition..... 10,210 25,936 28,976 3,451 6,782
---------- --------- --------- --------- ---------
Net cash paid.............................................. $ 6,327 $ 11,324 $ 23,755 $ 4,037 $ 11,375
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
</TABLE>
F-24
<PAGE>
SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN US GAAP AND UK GAAP
Austin Knight Limited and subsidiaries' (the "Group") consolidated financial
statements have been prepared in accordance with UK GAAP which differs in
certain significant respects from US GAAP. This summary should not be taken as a
complete list of all differences between UK GAAP and US GAAP. No attempt has
been made to identify all disclosures, presentations or classifications that
would affect the manner in which transactions or events are presented in the
financial statements or notes thereto. Further, no attempt has been made to
identify future differences between UK GAAP and US GAAP as the result of
prescribed changes in accounting standards. The identified significant
differences as they relate to the Group are summarized in the following
paragraphs.
GOODWILL AND OTHER INTANGIBLES
Goodwill represents the amounts paid for subsidiary companies and acquired
businesses in excess of their net asset value. Under UK GAAP, for acquisitions
made on or before 30 September 1992, the net book value of goodwill at that date
is amortised in equal monthly instalments over a maximum period of 10 years. For
acquisitions after that date, goodwill is written off in full, directly to
reserves, in the year of purchase. Under US GAAP, goodwill is capitalized and
amortized through the statement of income over a period representing the
estimated useful life, not exceeding 40 years.
TANGIBLE FIXED ASSETS
Under UK GAAP, no depreciation is charged on freehold buildings with an
estimated useful life of more than 50 years, as it is the Group's policy to
maintain its properties in good condition so prolonging their useful lives and
the Directors consider that the lives of these properties and their residual
values are such that any depreciation involved would not be material. Cost of
repairs and maintenance are charged against revenue in the year in which they
are incurred. Provision for depreciation on freehold investment properties is
made when the Directors consider there has been a permanent reduction in their
realisable values. Under US GAAP, all tangible fixed assets are carried at
historical cost less accumulated depreciation.
SALES OF PROPERTY (REAL ESTATE)
Under UK GAAP, the general concepts of prudence and accruals apply when
accounting for sales of property. Additionally, US GAAP dictates a prescriptive
methodology in this area. US GAAP makes a distinction between retail land sales
and other sales of real estate. Separate guidance is provided for companies in
the real estate industry, which are frequently involved in highly complex
transactions.
LEASES
While US GAAP is similar in concept to UK GAAP, its detailed requirements
are more extensive and differences exist. Leases classified as finance leases
under UK GAAP are likely to be classified as capital leases under US GAAP.
Certain operating leases under UK GAAP, however, may also be classified as
capital leases under US GAAP.
DEFERRED TAXATION
Under UK GAAP, provision is made for deferred taxation under the liability
method unless there is reasonable certainty that such deferred taxation will not
become payable or receivable in the foreseeable future. Under US GAAP, deferred
taxation is provided on all temporary differences which will result in taxable
or tax deductible amounts in future years subject to a valuation allowance to
reduce deferred tax assets if it is more likely than not that the related tax
benefit will not be realized.
F-25
<PAGE>
DIVIDENDS
Under UK GAAP, dividends are provided for in the year to which they relate.
These dividends are deducted from current year earnings. US GAAP recognizes
dividends as a reduction of retained earnings in the accounting period in which
they are formally declared.
PENSIONS
Under UK GAAP, contributions to pension funds are assessed in accordance
with advice from actuaries and charged to the income statement so as to spread
the pension cost over the expected service lives of the relevant employees.
Pension accounting under US GAAP is more prescriptive than that under UK GAAP,
where a more judgmental approach is taken. Under US GAAP, a liability is
recognized when plan assets are less than employees' accumulated benefits.
Accordingly, there may be differences in the actuarial assumptions and methods
of valuation of the plan assets compared with those that would be made under US
GAAP.
ACQUISITION ACCOUNTING
Prior to the introduction of Financial Reporting Standard No. 7, "Fair
Values in Acquisition Accounting" ("FRS7"), certain costs of restructuring were
provided for as part of the purchase accounting adjustments on an acquisition
under UK GAAP. FRS7, introduced for the year ended December 31, 1995, requires
that the fair value balance sheet of the acquired company not include provisions
for integration and reorganization costs set up by the acquiring company. The
FRS contained no requirement to restate prior year figures.
Under US GAAP, such costs would generally be included in the statement of
income when incurred. Certain integration and reorganization costs meeting
specific criteria, however, may be considered liabilities assumed and included
in the allocation of the acquisition cost.
ESOT ADJUSTMENT
Under UK GAAP, shares acquired by the ESOT are included in the balance sheet
as an asset. Under US GAAP they are treated as a reduction in shareholders'
equity.
REVALUATION OF PROPERTIES
Under UK GAAP, properties may be restated on the basis of appraised values
in financial statements prepared in all other respects in accordance with the
historic cost convention. Increases in value are credited directly to the
revaluation reserve. When revalued properties are sold the gain or loss on sale
is calculated based on revalued carrying amounts. Under US GAAP, such
revaluations are not reflected in the financial statements, and the gain or loss
on sale is calculated based on depreciated historical cost.
CURRENT ASSETS AND LIABILITIES
Current assets under UK GAAP, include certain amounts which fall due after
more than one year. Under US GAAP, such assets would be reclassified as
non-current assets. Borrowings under UK GAAP are classified according to the
maturity of the financial instrument, while under US GAAP, certain borrowings
would be classified according to the maturity of the available back-up facility.
Provisions for liabilities and charges under UK GAAP include certain amounts due
within one year which would be reclassified as current liabilities under US
GAAP.
ADVERTISING COSTS
Under UK GAAP, advertising costs may be recognized in the period in which
the related benefit is expected to arise and may, accordingly, be carried as a
prepayment in the balance sheet. Under US GAAP,
F-26
<PAGE>
advertising costs are primarily expensed in the periods in which those costs are
incurred. In certain limited circumstances, however, advertising costs may be
deferred.
CASH FLOWS
Under UK GAAP, the Group complies with Financial Reporting Standard No. 1
(revised), "Cash flow statements" ("FRS1"). Its objectives and principles are
similar to US GAAP as set out in Statement of Financial Accounting Standards No.
92, "Statement of Cash Flows" (SFAS No. 95"). The principal difference between
the standards is in respect of classification. Under FRS1, the Group presents
its cash flows for (a) operating activities, (b) returns on investments and
servicing of finance, (c) taxation, (d) capital expenditure and financial
investment, (e) acquisitions and disposals, (f) equity dividends paid, (g)
management of liquid resources and (h) financing, SFAS No. 95 requires only
three categories of cash flow activity: (a) operating activities, (b) investing
activities and (c) financing activities.
Under FRS1, cash includes deposits and overdrafts repayable on demand while
movements on short-term investments are included in management of liquid
resources. SFAS No. 95 defines cash and cash equivalents as also including
short-term highly liquid investments.
Cash flows arising from taxation and returns on investments and servicing of
finance under FRS1 would be included as operating activities under SFAS No. 95.
Cash flows relating to capital expenditure and financial investment and
acquisitions and disposals would be included as investing activities under SFAS
No. 95. Equity dividend payments would be included as a financing activity under
SFAS No. 95.
Management has not quantified the effect of the differences between UK GAAP
and US GAAP on the net profit or stockholders' funds of the Group. Accordingly,
there can be no assurances that such net profit or stockholders' funds
determined in accordance with UK GAAP would not be significantly different if
they had been determined under US GAAP.
F-27
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Members of Austin Knight Limited
We have audited the accompanying consolidated balance sheets of Austin
Knight Limited and its subsidiaries as at 30 September 1995 and 1996 and the
related consolidated profit and loss accounts, cash flow statements, statements
of movements in shareholders' funds and statements of total recognised gains and
losses for each of the years in the two year period ended 30 September 1996.
These consolidated financial statements are the responsibility of the directors
of Austin Knight Limited. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United Kingdom which do not differ in any material respects from
generally accepted auditing standards in the United States of America. These
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 Austin
Knight Limited and its subsidiaries at 30 September 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
two year period ended 30 September 1996, in conformity with generally accepted
accounting principles in the United Kingdom.
KPMG
Chartered Accountants
Registered Auditors
London, England
4 February 1997
F-28
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
YEAR ENDED 30
SEPTEMBER
----------------------
<S> <C> <C> <C>
1995 1996
NOTE L'000 L'000
----- ---------- ----------
TURNOVER............................................................... 2 123,118 134,444
Cost of Sales.......................................................... (110,403) (120,196)
---------- ----------
GROSS PROFIT........................................................... 12,715 14,248
Administrative expenses................................................ (9,796) (11,206)
Other operating income................................................. 378 473
---------- ----------
OPERATING PROFIT....................................................... 3 3,297 3,515
Exceptional Item....................................................... 6 -- (95)
Interest............................................................... 7 (539) (407)
---------- ----------
PROFIT on ordinary activities before taxation.......................... 2,758 3,013
TAXATION............................................................... 8 (1,098) (1,210)
---------- ----------
PROFIT for the financial year.......................................... 1,660 1,803
DIVIDENDS.............................................................. 9 (408) (445)
---------- ----------
RETAINED PROFIT for the financial year................................. 18 1,252 1,358
---------- ----------
---------- ----------
</TABLE>
There are no discontinued operations contained within the above results.
Details of the results of the acquisitions made during the year are shown in
note 3.
The notes on pages F-33 to F-48 form part of these financial statements.
F-29
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
--------------------
<S> <C> <C> <C>
1995 1996
NOTE L'000 L'000
--------- --------- ---------
FIXED ASSETS
Intangible assets...................................................... 10 498 419
Tangible assets........................................................ 11 16,131 16,923
Investments............................................................ 12 112 112
--------- ---------
16,741 17,454
--------- ---------
CURRENT ASSETS
Work-in-process........................................................ 270 193
Debtors................................................................ 13 24,547 24,444
Cash at bank and in hand............................................... 24 1,006 1,596
--------- ---------
25,823 26,233
CREDITORS: Amounts falling due within one year......................... 14 (24,490) (24,668)
--------- ---------
NET CURRENT ASSETS/(LIABILITIES)....................................... 1,333 1,565
--------- ---------
TOTAL ASSETS LESS CURRENT LIABILITIES.................................. 18,074 19,019
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR................ 15 (4,495) (4,857)
PROVISION FOR LIABILITIES AND CHARGES.................................. 16 (308) (214)
--------- ---------
NET ASSETS............................................................. 13,271 13,948
--------- ---------
--------- ---------
CAPITAL AND RESERVES
Called up share capital................................................ 17 1,237 1,237
Share Premium Account.................................................. 18 87 87
Revaluation reserve.................................................... 18 5,396 5,396
Profit and loss account................................................ 18 6,551 7,228
--------- ---------
13,271 13,948
--------- ---------
--------- ---------
</TABLE>
The notes on pages F-33 to F-48 form part of these financial statements.
F-30
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED
30 SEPTEMBER,
--------------------
<S> <C> <C> <C>
1995 1996
NOTE L'000 L'000
--------- --------- ---------
NET CASH INFLOW FROM OPERATING ACTIVITIES.............................................. 21 2,906 6,184
--------- ---------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid.......................................................................... (561) (433)
Interest received...................................................................... 34 50
Interest element of finance lease rental payments...................................... (24) (27)
Dividends paid......................................................................... (328) (416)
--------- ---------
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE.................. (879) (826)
--------- ---------
TAXATION
ACT paid............................................................................... (60) (102)
UK corporation tax paid................................................................ (537) (668)
Overseas and other taxes paid.......................................................... (277) (581)
--------- ---------
TAX PAID............................................................................... (874) (1,351)
--------- ---------
INVESTING ACTIVITIES
Purchase of own shares................................................................. (118) --
Sale of shares under option............................................................ 11 --
Purchase of intangible assets.......................................................... 22 -- (78)
Purchase of subsidiaries............................................................... 23 (51) (632)
Purchase of tangible fixed assets...................................................... (1,024) (1,740)
Less: Inception of finance leases...................................................... 63 1,024
Proceeds from sales of fixed assets.................................................... 146 112
--------- ---------
NET CASH OUTFLOW FROM INVESTING ACTIVITIES............................................. (973) (1,314)
--------- ---------
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING............................................. 180 2,693
FINANCING
Additional loan repayable over 5 years................................................. -- 641
Issue of ordinary share capital........................................................ 118 --
--------- ---------
298 3,334
--------- ---------
--------- ---------
FINANCING
Repayment of loans..................................................................... 767 767
Capital element of finance lease.......................................................
Net rental payments.................................................................... 105 149
--------- ---------
NET CASH OUTFLOW FROM FINANCING........................................................ 872 916
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS....................................... 24 (574) 2,418
--------- ---------
298 3,334
--------- ---------
--------- ---------
</TABLE>
The notes on pages F-33 to F-48 form part of these financial statements.
F-31
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
YEAR ENDED
30 SEPTEMBER,
--------------------
<S> <C> <C>
1995 1996
L'000 L'000
--------- ---------
Profit for the financial year.................................................................. 1,660 1,803
Dividends...................................................................................... (408) (445)
--------- ---------
1,252 1,358
Goodwill written off........................................................................... (51) (710)
Exchange adjustments........................................................................... 72 29
--------- ---------
1,273 677
New share capital subscribed................................................................... 118 --
Opening Shareholders' Funds.................................................................... 11,741 13,271
Prior year adjustments......................................................................... 139 --
--------- ---------
Closing Shareholders' Funds.................................................................... 13,271 13,948
--------- ---------
--------- ---------
</TABLE>
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
<TABLE>
<CAPTION>
YEAR ENDED
30 SEPTEMBER,
--------------------
<S> <C> <C>
1995 1996
L'000 L'000
--------- ---------
Profit for the financial year.................................................................... 1,660 1,803
Exchange adjustments............................................................................. 72 29
--------- ---------
Total recognised gains for the financial year.................................................... 1,732 1,832
Prior year adjustment............................................................................ 139 --
--------- ---------
Total gains recognised since the last Annual Report.............................................. 1,871 1,832
--------- ---------
--------- ---------
</TABLE>
The notes on pages F-33 to F-48 form part of these financial statements.
F-32
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
1. ACCOUNTING POLICIES
A. BASIS OF PREPARATION
The accounts have been prepared under the historical cost accounting rules
as modified by the revaluation of freehold property and in accordance with
applicable accounting standards.
B. TURNOVER AND RECOGNITION OF REVENUE
Turnover represents amounts receivable from clients, exclusive of sales
related taxes, in respect of charges for advertising placed, production work and
fees. Revenue in respect of advertising and production is recognized when the
work is completed. Fees are recognised over the period of the relevant
assignment.
C. CONSOLIDATION
The consolidated accounts of the Group incorporate the accounts of the
Company and its subsidiaries, together with the accounts of the Austin Knight
Limited Employees Trust.
In accordance with the Companies Act of 1985 S230, a separate profit and
loss account dealing with the results of Austin Knight Limited is not presented.
The amount of the consolidated profit for the financial year dealt with in the
accounts of the Company is L1,128,000 (1995 L1,149,000).
D. FOREIGN CURRENCIES
Exchange differences on transactions during the year are charged or credited
to the profit and loss account. The trading results and cash flow of overseas
subsidiaries are translated at the average exchange rate for the year. Assets
and liabilities are translated at exchange rates ruling at the year-end. On
consolidation, differences on exchange arising from the retranslation of the
opening net investment and from the translation of the profits or losses at
average rates are taken directly to reserves.
E. GOODWILL
Goodwill represents the amounts paid for subsidiary companies and acquired
businesses in excess of their net asset value. For acquisitions made on or
before 30 September 1992, the net book value of goodwill at that date is
amortised in equal monthly installments over a maximum period of 10 years. For
acquisitions after that date, goodwill is written off in full, directly to
reserves in the year of purchase.
F. DEPRECIATION
Tangible fixed assets are stated at historical cost or valuation less
accumulated depreciation. Depreciation is provided to write off the cost of
tangible fixed assets by equal monthly installments at the following rates:
FREEHOLD PROPERTY--Provision for depreciation on freehold buildings with an
estimated useful life of more than 50 years is not considered necessary since it
is the Company's policy to maintain its properties in good condition which
prolongs their useful lives and the Directors consider that the lives of these
properties and their residual values are such that any depreciation involved
would not be material. Costs of repairs and maintenance are charged against
revenue in the year in which they are incurred.
F-33
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
1. ACCOUNTING POLICIES (CONTINUED)
INVESTMENT PROPERTIES--Provision for depreciation on freehold investment
properties is made when the Directors consider there has been a permanent
reduction in their realisable values.
FURNITURE AND EQUIPMENT--10% to 25% per annum according to the estimated
life of assets.
MOTOR VEHICLES--20% per annum.
G. WORK-IN-PROGRESS
Work-in-progress is valued at the lower of cost or net realisable value.
H. DEFERRED TAXATION
Provision is made for deferred taxation using the liability method in
respect of all material timing differences, to the extent that it is probable
that the liability or asset will crystallise in the foreseeable future.
I. LEASES
Leases are accounted for as finance leases where the Group enters into a
lease which entails taking substantially all the risks and rewards of ownership
of an asset. All other leases are accounted for as operating leases.
Assets acquired under finance leases are capitalised in the balance sheet
and are depreciated over their estimated useful lives. The capital element of
future rentals is treated as a liability and the interest element is charged to
the profit and loss account over the period of the leases in proportion to the
balance outstanding. Rentals payable under operating leases are charged to the
profit and loss account as incurred.
J. PENSIONS
Contributions are paid to the Group's pension schemes to secure and enhance
the benefits for personnel under the schemes in accordance with the
recommendations of independent actuaries.
Contributions are charged to the profit and loss account so as to spread the
cost of the provisions over the employees' working lives in accordance with
Statement of Standard Accounting Practice 24. Pension scheme surpluses or
deficits are amortised over the expected remaining service lives of employees.
2. TURNOVER
The turnover of the Group arose in the following geographical markets:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
United Kingdom.......................................................... 76,908 82,473
United States........................................................... 27,566 33,942
Rest of world........................................................... 18,644 18,029
--------- ---------
123,118 134,444
--------- ---------
--------- ---------
</TABLE>
F-34
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
3. OPERATING PROFIT
The operating profit is stated after including:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Depreciation of tangible fixed assets........................................ 995 665
Amortisation of intangibles.................................................. 70 68
Hire of plant and equipment.................................................. 629 724
Other rents payable.......................................................... 1,235 1,478
Directors' emoluments (Note 4):
Management remuneration--Salaries and benefits............................. 268 274
--Performance payments.............................. 27 29
Fees....................................................................... 36 36
Compensation for loss of office............................................ 25 --
Pension contributions...................................................... 26 27
Auditors' remuneration--in respect of audit.................................. 104 119
Auditors' remuneration--in respect of other work............................. 45 36
Rent receivable.............................................................. 363 473
</TABLE>
Operating profit also includes the following amounts relating to
acquisitions made during the year ended 30 September 1996:
<TABLE>
<CAPTION>
L'000
---------
<S> <C>
Turnover............................................................................... 655
Cost of sales.......................................................................... (487)
---
Gross profit........................................................................... 168
Administrative expenses................................................................ (137)
---
Operating profit arising from acquisitions............................................. 31
---
---
</TABLE>
4. DIRECTORS' EMOLUMENTS
The details of Directors' emoluments are set out in Note 26, Remuneration
Committee Report.
5. STAFF COSTS
Staff costs, which include Directors' emoluments, were:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Wages and salaries......................................................... 11,963 13,548
Social security costs...................................................... 971 1,253
Pension costs.............................................................. 525 611
--------- ---------
13,459 15,412
--------- ---------
--------- ---------
</TABLE>
The average number of employees including Directors during the year was 514
(1995:476).
F-35
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
6. EXCEPTIONAL ITEM
This comprises solely the provisions necessary to reduce the Group's
investment properties to their estimated net realisable values.
7. INTEREST
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--- -----
<S> <C> <C>
INTEREST PAYABLE
On bank loan repayable over more than five years................................ 393 342
On overdrafts and other loans repayable wholly within five years................ 156 105
Finance leases.................................................................. 24 20
INTEREST RECEIVABLE............................................................. (34) (60)
--- ---
539 407
--- ---
--- ---
</TABLE>
8. TAXATION
The taxation on the profit on ordinary activities for the year was as
follows:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
United Kingdom corporation tax at 33%........................................ 746 804
Overseas taxation............................................................ 410 494
Deferred taxation--charge/(credit)
UK......................................................................... 42 (235)
Overseas................................................................... (49) 110
Adjustments to prior years--charge/(credit).................................. (51) 37
--------- ---------
1,098 1,210
--------- ---------
--------- ---------
</TABLE>
9. DIVIDENDS
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Interim dividend of 2.75p per 25p share (1995: 2.60p per 25p share) 128 136
Final dividend of 6.25p per 25p share (1995: 5.65p per 25p share) 280 309
--------- ---------
408 445
--------- ---------
--------- ---------
</TABLE>
F-36
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
10. INTANGIBLE FIXED ASSETS--GOODWILL
<TABLE>
<CAPTION>
L'000
---------
<S> <C>
COST
At 1 October 1995..................................................................... 2,823
Exchange adjustments.................................................................. (18)
Addition on Acquisition of Business--see Note 22...................................... 78
Addition on Acquisition of Subsidiaries--see Note 23.................................. 632
---------
AT 30 September 1996.................................................................. 3,515
---------
AMORTISATION
At 1 October 1995..................................................................... 2,325
Charge for year....................................................................... 68
Written off to reserves............................................................... 710
Exchange adjustments.................................................................. (7)
---------
At 30 September 1996.................................................................. 3,096
---------
NET BOOK VALUES
At 30 September 1996.................................................................. 419
---------
---------
At 30 September 1995.................................................................. 498
---------
---------
</TABLE>
11. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FREEHOLD FURNITURE/
PROPERTY EQUIPMENT MOTOR VEHICLES TOTAL
L'000 L'000 L'000 L'000
----------- ----------- ----------------- ---------
<S> <C> <C> <C> <C>
COST OR VALUATION
At 1 October 1995................................................ 14,472 5,447 513 20,432
Exchange adjustments............................................. -- 40 5 45
Additions........................................................ -- 1,719 26 1,745
Acquisitions..................................................... -- 61 -- 61
Disposals........................................................ -- (793) (92) (885)
----------- ----- --- ---------
At 30 September 1996............................................. 14,472 6,474 452 21,398
----------- ----- --- ---------
DEPRECIATION
At 1 October 1995................................................ -- 4,094 207 4,301
Exchange adjustments............................................. -- 25 1 26
Disposals........................................................ -- (616) (36) (652)
Acquisitions..................................................... -- 40 -- 40
Charge for the year.............................................. 95 585 80 760
----------- ----- --- ---------
At 30 September 1996............................................. 95 4,128 252 4,475
----------- ----- --- ---------
NET BOOK VALUES
At 30 September 1996............................................. 14,377 2,346 200 16,923
----------- ----- --- ---------
----------- ----- --- ---------
At 30 September 1995............................................. 14,472 1,353 306 16,131
----------- ----- --- ---------
----------- ----- --- ---------
</TABLE>
F-37
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
11. TANGIBLE FIXED ASSETS (CONTINUED)
Included in freehold property are investment properties of L627,000 shown at
written down value (1995: L722,000). The remaining property was revalued to
L13.75 million in 1992 based upon a Directors' valuation having regard to
professional advice. Its historical cost is L8,385,000.
The net book value of tangible fixed assets includes an amount of L933,000
(1995:L127,000) in respect of assets held under finance leases and hire purchase
obligations. The depreciation to these assets in the year is L203,000 (1995:
L47,000).
12. INVESTMENTS
PRINCIPAL TRADING SUBSIDIARIES
<TABLE>
<CAPTION>
PERCENTAGE OF
COUNTRY OF INCORPORATION ORDINARY SHARE
AND OPERATION CAPITAL HELD
-------------------------------------- -----------------
<S> <C> <C>
Austin Knight Incorporated............ United States of America 100
Austin Knight Canada Incorporated..... Canada 100
Austin Knight Proprietary Limited..... Australia 100
Austin Knight Consulting Proprietary Australia
Limited............................. 100
Austin Knight France SA............... France 100
Austin Knight BV...................... Netherlands 100*
Carre Turenne SA...................... France 100**
Alliance Resource Humaines SA......... France 100***
Austin Knight International BV........ Netherlands 100
Austin Knight Investments Ltd......... Great Britain 100
</TABLE>
- ------------------------
* Held by subsidiary, Austin Knight International BV
** Held by subsidiary, Austin Knight Investments Limited
*** Held by subsidiary, Austin Knight France SA
The principal activities of the trading subsidiaries are recruitment and
legal advertising and human resource consultancy.
The results of all the above companies are included in the consolidated
results for the Group using the acquisition method of accounting.
Austin Knight Limited has given guarantees on behalf of certain subsidiary
companies. The contingent liability at 30 September 1996 under these guarantees
amounted to L512,000 (1995: L630,000) at the year-end rates of exchange.
F-38
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
12. INVESTMENTS (CONTINUED)
OWN SHARES HELD
The Group includes 152,250 of its own shares which are held by the Austin
Knight Limited Employees Trust as an investment. They have been included at the
cost to the Trust.
The Austin Knight Limited Employees Trust exists for the benefit of the UK
employees and to incentivise the Directors and senior employees of the Group.
The Trust receives and holds shares in the Company either by means of a gift or
a purchase made at the then fair value price. It receives and invests the
dividends due on those shares and earns interest on its accumulated cash
balances. Periodically, options over the shares which it holds are granted to
individuals at the discretion of the Trustees based on recommendations by the
Board.
<TABLE>
<CAPTION>
L'000
---------
<S> <C> <C>
Shares at cost 1 October 1995 and at 30 September 1996..................... 112
</TABLE>
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
SUMMARY OF INVESTMENTS
Own shares held............................................................ 112 112
--------- ---------
Net book value............................................................. 112 112
--------- ---------
--------- ---------
</TABLE>
13. DEBTORS
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Trade debtors.............................................................. 23,104 23,016
Other debtors.............................................................. 624 698
Prepayments and accrued income............................................. 819 730
--------- ---------
24,547 24,444
--------- ---------
--------- ---------
</TABLE>
14. CREDITORS--AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Bank loans and overdrafts.................................................. 2,884 1,171
Trade creditors............................................................ 17,061 18,608
Obligations under finance leases and hire purchase contracts............... 99 333
Dividend payable........................................................... 280 309
Other creditors including taxation and social security..................... 2,231 2,140
Accruals and deferred income............................................... 1,935 2,107
--------- ---------
24,490 24,668
--------- ---------
--------- ---------
</TABLE>
F-39
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
14. CREDITORS--AMOUNTS FALLING DUE WITHIN ONE YEAR (CONTINUED)
Details of the security given for the bank loan and overdrafts are shown in
Note 15.
Other creditors including taxation and social security comprise:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Corporation tax.............................................................. 1,070 917
Social security and other taxes.............................................. 289 937
Other creditors.............................................................. 872 286
--------- ---------
2,231 2,140
--------- ---------
--------- ---------
</TABLE>
15. CREDITORS--AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Bank loans................................................................... 4,409 4,138
Finance lease and hire purchase obligations.................................. 58 700
Other creditors.............................................................. 28 19
--------- ---------
4,495 4,857
--------- ---------
--------- ---------
</TABLE>
The bank loans and overdrafts are secured by fixed and floating charges on
the freehold property and trade debtors of Austin Knight Limited and its UK and
French subsidiaries. The loans bear interest based upon LIBOR and its French
equivalent and are scheduled for repayment as follows:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Between one and two years.................................................... 767 891
Between two and five years................................................... 2,300 2,671
More than five years......................................................... 1,342 576
--------- ---------
4,409 4,138
--------- ---------
--------- ---------
Bank loan included in creditors due within one year.......................... 767 891
--------- ---------
</TABLE>
The finance lease and hire purchase obligations fall due as follows:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
----- -----
<S> <C> <C>
Between one and two years...................................................... 49 302
Between two and five years..................................................... 9 398
--
---
58 700
--
--
---
---
</TABLE>
All other creditors falling due after more than one year are payable within
five years.
F-40
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
16. PROVISIONS FOR LIABILITIES AND CHARGES
The amounts provided for deferred taxation and other liabilities and charges
are as follows:
<TABLE>
<CAPTION>
DEFERRED
TAX OTHER
L'000 L'000
--------- ---------------
<S> <C> <C>
Provision at 1 October 1995............................................. 127 181
(Credit)/charge for the year in the profit and loss account
UK.................................................................. (235) --
Overseas............................................................ 110 33
Transfers........................................................... (2) --
--- ---
Provision at 30 September 1996.......................................... -- 214
--- ---
--- ---
</TABLE>
The amount of deferred taxation not provided is L221,000 and arises solely
on capital allowances.
The other provisions relate to pensions and other employee benefits.
17. CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
AUTHORISED
8,000,000 shares of 25p each (1995: 8,000,000 shares of 25p each)............ 2,000 2,000
--------- ---------
--------- ---------
ALLOTTED AND FULLY PAID
4,948,000 ordinary shares of 25p each (1995: 4,948,000 ordinary shares of 25p
each)...................................................................... 1,237 1,237
--------- ---------
--------- ---------
</TABLE>
18. RESERVES
<TABLE>
<CAPTION>
PROFIT AND LOSS REVALUATION SHARE
ACCOUNT RESERVE PREMIUM
L'000 L'000 L'000
--------------- ------------- -------------
<S> <C> <C> <C>
At 1 October 1995......................................................... 6,551 5,396 87
Goodwill written off...................................................... (710) -- --
Profit retained........................................................... 1,358 -- --
Exchange adjustments...................................................... 29 -- --
--
----- -----
At 30 September 1996...................................................... 7,228 5,396 87
--
--
----- -----
----- -----
</TABLE>
19. CAPITAL COMMITMENTS
Capital expenditure authorised and contracted for by the Board of Directors
at 30 September 1996, for which no provision has been made in these accounts,
was L73,000 (1995: L107,000).
F-41
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
20. LEASE COMMITMENTS
The Group had the following annual commitments under operating leases:
<TABLE>
<CAPTION>
LAND AND BUILDINGS
OTHER
------------------------ -----------
<S> <C> <C> <C>
1995 1996 1995
L'000 L'000 L'000
--- --- ---
ON LEASES EXPIRING
Within 1 year....................................................................... 274 115 220
Within 2--5 years................................................................... 423 467 295
After 5 years....................................................................... 773 914 --
<CAPTION>
<S> <C>
1996
L'000
---
ON LEASES EXPIRING
Within 1 year....................................................................... 296
Within 2--5 years................................................................... 485
After 5 years....................................................................... --
</TABLE>
21. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Operating profit............................................................ 3,297 3,515
Depreciation................................................................ 995 665
Amortisation of intangible fixed assets..................................... 70 68
Loss on disposal of fixed assets............................................ 27 122
Decrease/(increase) in work-in-progress..................................... (94) 82
Decrease/(increase) in debtors.............................................. (2,935) 424
Increase in creditors....................................................... 1,546 1,308
--------- ---------
Net cash inflow from operating activities................................... 2,906 6,184
--------- ---------
--------- ---------
</TABLE>
22. PURCHASE OF INTANGIBLE ASSETS
This relates to the goodwill arising on the acquisition of Dawson
Advertising, a UK business in March 1996.
23. PURCHASE OF SUBSIDIARY UNDERTAKINGS
1. During the year, further payments of L101,700 were made under the terms
of the agreement for the purchase of Carre Turenne SA. These payments are
determined by the level of sales and profits earned from that Company's clients
since it joined the Group.
F-42
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
23. PURCHASE OF SUBSIDIARY UNDERTAKINGS (CONTINUED)
2. In July 1996, the Company acquired, through its subsidiary, Austin Knight
France SA, the entire issued share capital of Alliance Resources Humaines SA, a
company registered in France. The consideration paid and assets acquired were as
follows:
<TABLE>
<CAPTION>
L'000
---------
<S> <C>
Total Paid............................................................................ 666
Cash Acquired......................................................................... (159)
---------
Net Payment........................................................................... 507
---------
Fixed Assets.......................................................................... 21
Debtors............................................................................... 409
Creditors............................................................................. (453)
---------
(23)
Goodwill.............................................................................. 530
---------
507
---------
---------
GOODWILL SUMMARY L,000
---------
Arising on the acquisition of Carre Turenne........................................... 102
Arising on the acquisition of Alliance RH............................................. 530
---------
632
---------
---------
</TABLE>
F-43
<PAGE>
AUSTIN KNIGHT LIMITED AND SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
24. CASH AND CASH EQUIVALENTS
Analysis of the balances as shown in the balance sheet and changes during
the current year:
<TABLE>
<CAPTION>
CHANGE
1995 1996 IN YEAR
L'000 L'000 L'000
--------- --------- ---------
<S> <C> <C> <C>
Analysis of Balances
Cash at bank and in hand...................................... 1,006 1,596 590
Bank loan and overdrafts...................................... (2,884) (1,171) 1,713
Less: Amounts repayable after three months.................... 767 891 124
--------- --------- ---------
(1,111) 1,316 2,427
--------- --------- ---------
--------- --------- ---------
L'000
---------
Analysis of Changes
Balance 1 October 1995........................................ (1,111)
Net cash inflow before the effect of exchange rate changes.... 2,418
Effect of exchange rate changes............................... 9
---------
Balance 30 September 1996..................................... 1,316
---------
---------
</TABLE>
<TABLE>
<CAPTION>
SHARE LOANS AND FINANCE
CAPITAL LEASE OBLIGATIONS
L'000 L'000
----------- -------------------
<S> <C> <C>
Analysis of changes in financing during the year
Balance 1 October 1995....................................... 1,324 5,332
Additional loan raised....................................... -- 641
Repayment of loan............................................ -- (767)
Finance lease repayments..................................... -- (149)
Finance lease inceptions (non-cash transaction).............. -- 1,024
Effect of exchange rate changes.............................. -- (19)
----- -----
Balance 30 September 1996.................................... 1,324 6,062
----- -----
----- -----
</TABLE>
25. PENSION SCHEMES
The two principal schemes of the Group are operated in the United Kingdom,
one a defined contribution scheme, the other a defined benefit scheme. The
defined contribution scheme is operated on the Group's behalf by an independent,
recognised pension provider. It is currently being wound up and the accrued
benefits transferred to other schemes not administered by the Group or the
individuals concerned.
The defined benefit scheme is trustee administered and the fund is
maintained by fund managers independently of the Group's finances. The funding
and accounting policies are identical and consist of providing for the
liabilities in respect of an individual in a systematic manner over the
individual's working lifetime.
F-44
<PAGE>
AUSTIN KNIGHT LIMITED AND SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
25. PENSION SCHEMES (CONTINUED)
The pension cost has been assessed in accordance with the advice of an
independent actuary and has been based on a valuation carried out as at 1 April
1996. The market value of the scheme's assets as at 1 April 1996 was
approximately L10.2 million and the level of funding approximately 100%.
The actuarial valuation at 1 April 1996 was carried out on the attained age
valuation method and the main actuarial assumptions adopted were:
<TABLE>
<S> <C>
Nominal return on investments....... 8.5% p.a.
Rate of salary increases............ 6.0% p.a.
Rate of pension increases........... 2.5% p.a. (for benefits related to service
prior to 1 April 1996).
4.0% p.a. (for service after 1 April 1996).
Rate of dividend increases.......... 4.0% p.a.
</TABLE>
26. REMUNERATION COMMITTEE REPORT
INTRODUCTION
This report of the Remuneration Committee, on behalf of the Board, sets out
Austin Knight Limited's policy on Executive Directors' remuneration and provides
details of the remuneration earned by the Directors in the 1995/96 financial
year. It also details their interests in the Company's shares.
The remuneration arrangements for all Executive Directors are determined by
the Remuneration Committee, which is also responsible for the operation of the
Executive Share Option Scheme.
The Company has considered the provisions of the Code of Best Practice of
the Greenbury Study Group on Directors' Remuneration. It complies with Section A
of the best practice provisions annexed to the Listing Rules of the London Stock
Exchange and the Remuneration Committee has given full consideration to the
provisions of Section B in framing its remuneration policy.
GENERAL POLICY ON EXECUTIVE REMUNERATION
The Remuneration Committee, when setting objectives on pay and benefits,
aims to ensure that remuneration packages offered are competitive and designed
to attract, retain and motivate executive directors and senior management of the
highest quality.
The main components of the remuneration package are set out below.
BASE SALARIES
Basic salaries are determined by the Remuneration Committee taking into
account the performance of the individual and information from independent
sources on the rates of salaries in the competitive market.
F-45
<PAGE>
AUSTIN KNIGHT LIMITED AND SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
26. REMUNERATION COMMITTEE REPORT (CONTINUED)
ANNUAL BONUS
The annual bonus scheme for Executive Directors is based on the profit
performance of the Group and its earnings per share.
SHARE OPTION SCHEME
Executive Directors, as members of senior management, are eligible share
options granted by the Austin Knight Limited Employees Trust. Periodically,
options are granted by the Trust at the discretion of the trustees based on
recommendations by the Board.
PENSION
Executive Directors are eligible to join the August Knight Pension and Life
Assurance Scheme. Pension contributions are paid to the Company's pension scheme
which is open to all senior employees and most other staff with more than two
years' service. The scheme provides a pension of one-sixtieth of final
pensionable salary for each year of pensionable service. It also provides the
usual pension related benefits including a lump sum of four times salary in the
event of death in service. Only base salary is pensionable.
CONTRACTS OF SERVICE
Details of individual Directors' contract terms are given in the table of
Directors' emoluments below.
DIRECTORS' EMOLUMENTS
Details of Directors' emoluments in 1996, with the comparison for the
previous year, are as follows:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
----- -----
<S> <C> <C>
Fees............................................................................ 36 36
Salaries and other benefits..................................................... 268 274
Performance payments............................................................ 27 29
Pension contributions........................................................... 26 27
--- ---
TOTAL........................................................................... 357 366
--- ---
--- ---
</TABLE>
F-46
<PAGE>
AUSTIN KNIGHT LIMITED AND SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
26. REMUNERATION COMMITTEE REPORT (CONTINUED)
The emoluments of individual Directors are set out below:
<TABLE>
<CAPTION>
CONTRACT
BASE PAYMENTS NOTICE
SALARY/ FOR PENSION PERIOD/
FEES BENEFITS PERFORMANCE CONTRIBUTIONS TOTAL EXPIRY DATE
--------- ----------- ------------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
K.G. Fordham................... 1996 50,000 14,028 -- -- 64,028 6 months
1995 50,000 13,539 -- -- 63,539
--------- --------- ----------- ------ ------ --------- ------------
J.R. Ratcliffe................. 1996 115,000 21,363 20,125 17,250 173,738 12 months
1995 105,060 21,424 20,000 15,750 162,234
--------- --------- ----------- ------ ------ --------- ------------
J.B. Gowshall.................. 1996 35,750 5,223 -- 5,363 46,336 Retired
1995 66,560 10,268 7,500 9,975 94,303 31.3.96
--------- --------- ----------- ------ ------ --------- ------------
R.A. Campbell.................. 1996 12,000 -- -- -- 12,000 30.11.97
1995 12,000 -- -- -- 12,000
--------- --------- ----------- ------ ------ --------- ------------
D.T. French.................... 1996 12,000 -- -- -- 12,000 30.11.98
1995 12,000 -- -- -- 12,000
--------- --------- ----------- ------ ------ --------- ------------
T.C. Mallott................... 1996 12,000 1,327 -- -- 13,327 30.11.97
1995 12,000 834 -- -- 12,834
--------- --------- ----------- ------ ------ --------- ------------
S.J. Cooney.................... 1996 27,000 4,670 8,750 4,050 44,470 6 months
1995 -- -- -- -- --
--------- --------- ----------- ------ ------ --------- ------------
--------- --------- ----------- ------ ------ --------- ------------
1996 263,750 46,611 28,875 26,663 365,899
1995 257,620 46,065 27,500 25,725 356,910
--------- --------- ----------- ------ ------ --------- ------------
--------- --------- ----------- ------ ------ --------- ------------
</TABLE>
In addition to the above payments, K.G. Fordham and T.C. Mallott receive a
pension from the Company's pension scheme in accordance with the terms of that
scheme. J.B. Gowshall has been retained as a consultant to the Company until 31
March 1997 for a fee of L10,000. He also receives a pension from the Company's
pension scheme.
Executive Directors may hold other non-executive directorships with the
prior written consent of the Board.
F-47
<PAGE>
AUSTIN KNIGHT LIMITED AND SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
26. REMUNERATION COMMITTEE REPORT (CONTINUED)
The Director's interests in the 25p ordinary shares of the Company at 30
September 1996 and 1995 or date of appointment were as follows:
<TABLE>
<CAPTION>
BENEFICIAL NON-BENEFICIAL
---------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
1995 No. 1996 No. 1995 1996
of Share of Share No. of No. of
shares Options shares Options shares shares
--------- ----------- --------- ----------- --------- ---------
K.G. Fordham...................................... 468,224 -- 468,224 -- 704,320 704,320
J.R. Ratcliffe.................................... 88,200 25,000 88,200 35,000 -- --
J.B. Gowshall..................................... 3,000 12,000 -- -- -- --
D.T. French....................................... -- -- 8,000 -- 64,000 56,000
T.C. Mallott...................................... 92,032 -- 92,032 -- -- --
S.J. Cooney....................................... -- 2,000* -- 2,000 -- --
R.A. Campbell..................................... -- -- -- -- -- --
Trustee of the Austin Knight
Limited Employees Trust........................... -- -- -- -- 152,250 152,250
</TABLE>
- ------------------------
* Date of appointment.
On 1 September 1994, J.R. Ratcliffe was granted options over 25,000 ordinary
shares of 25p each at 95p per ordinary share exercisable between 1 September
1995 and 1 September 2001. On 28 November 1995, J.R. Ratcliffe and S.J. Cooney
were granted options on a further 10,000 and 2,000 ordinary shares,
respectively, at L1.30p per ordinary share , exercisable between 28 November
1998 and 28 November 2002. None of the Directors have any interests in the
shares of the other Group companies. No other Director has any rights to
subscribe for shares in the Company or any other Group company.
The trustee of the Austin Knight Limited Employees Trust is Austin Knight
Trustees Limited, a corporate Trustee, the Directors of which are K.G. Fordham,
R.A. Campbell and D.T. French.
F-48
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
NINE MONTHS ENDED 30
JUNE
----------------------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
1996 1997
NOTE L'000 L'000
----- ---------- ----------
<S> <C> <C> <C>
TURNOVER............................................................... 1 100,585 105,158
Cost of Sales.......................................................... (90,262) (93,297)
---------- ----------
GROSS PROFIT........................................................... 10,323 11,861
Administrative expenses................................................ (8,160) (9,291)
Other operating income................................................. 229 --
---------- ----------
OPERATING PROFIT....................................................... 2 2,392 2,570
Interest expense....................................................... 4 (340) (298)
---------- ----------
PROFIT on ordinary activities before taxation.......................... 2,052 2,272
TAXATION............................................................... 5 (839) (1,007)
---------- ----------
PROFIT for the financial period........................................ 1,213 1,265
DIVIDENDS.............................................................. (334) --
---------- ----------
RETAINED PROFIT for the financial period............................... 879 1,265
---------- ----------
---------- ----------
</TABLE>
The notes on pages F-53 to F-56 form part of these financial statements.
F-49
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS AT 30 JUNE
1997
-----------------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
NOTE L'000
--------- -----------------
<S> <C> <C>
FIXED ASSETS
Intangible assets.............................................................. 6 303
Tangible assets................................................................ 16,876
Investments.................................................................... 163
-------
17,342
-------
CURRENT ASSETS
Work-in-progress............................................................... 219
Debtors........................................................................ 27,274
Cash at bank and in hand....................................................... 364
-------
27,857
CREDITORS: Amounts falling due within one year................................. (25,614)
-------
NET CURRENT ASSETS/(LIABILITIES)............................................... 2,243
-------
TOTAL ASSETS LESS CURRENT LIABILITIES.......................................... 19,585
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR........................ 7 (4,465)
PROVISION FOR LIABILITIES AND CHARGES.......................................... 8 (123)
-------
NET ASSETS..................................................................... 14,997
-------
-------
CAPITAL AND RESERVES
Called up share capital........................................................ 1,251
Share Premium Account.......................................................... 195
Revaluation reserve............................................................ 5,396
Profit and loss account........................................................ 8,155
-------
14,997
-------
-------
</TABLE>
The notes on pages F-53 to F-56 form part of these financial statements.
F-50
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS*
<TABLE>
<CAPTION>
NINE MONTHS ENDED
30 JUNE,
--------------------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
1996 1997
--------- ---------
NOTE L'000 L'000
--------- --------- ---------
<S> <C> <C> <C>
NET CASH INFLOW (OUTFLOW) FROM OPERATING ACTIVITIES..................................... 9 4,719 (1,506)
--------- ---------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid........................................................................... (373) (327)
Interest received....................................................................... 50 44
Interest element of finance lease rental payments....................................... (17) (15)
--------- ---------
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE................... (340) (298)
--------- ---------
TAXATION
ACT paid................................................................................ (102) (111)
UK corporation tax paid................................................................. (668) (763)
Overseas and other taxes paid........................................................... (666) (210)
--------- ---------
TAX PAID................................................................................ (1,436) (1,084)
--------- ---------
CAPITAL EXPENDITURES
Purchase of own shares.................................................................. -- (122)
Sale of shares under option............................................................. -- 71
Purchase of intangible assets........................................................... (78) --
Purchase of tangible fixed assets....................................................... (1,450) (1,434)
Less: Inception of finance leases....................................................... 798 686
Proceeds from sales of fixed assets..................................................... 84 682
--------- ---------
NET CASH OUTFLOW FROM INVESTING ACTIVITIES.............................................. (646) (117)
--------- ---------
Dividends paid.......................................................................... (280) (309)
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING.............................................. 2,017 (3,314)
FINANCING
Issue of ordinary share capital......................................................... -- 122
--------- ---------
2,017 (3,192)
--------- ---------
--------- ---------
FINANCING
Repayment of loans...................................................................... 575 657
Net rental payments..................................................................... 91 202
--------- ---------
NET CASH OUTFLOW FROM FINANCING......................................................... 666 859
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS........................................ 10 1,351 (4,051)
--------- ---------
2,017 (3,192)
--------- ---------
--------- ---------
</TABLE>
* Due to changes in Accounting Standards in the United Kingdom the information
on this page is presented in a format different than that presented elsewhere
in this document.
The notes on pages F-53 to F-56 form part of these financial statements.
F-51
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
(UNAUDITED)
30 JUNE, 1997
-------------------
<S> <C>
L'000
Opening Shareholders' Funds................................................................... 13,948
------
Profit for the financial period............................................................... 1,265
Exchange adjustments.......................................................................... (338)
------
Total recognised gains for the financial period............................................... 927
New share capital subscribed.................................................................. 122
------
Closing Shareholders' Funds................................................................... 14,997
------
------
</TABLE>
The notes on pages F-53 to F-56 form part of these financial statements.
F-52
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS
FOR THE NINE MONTHS ENDED 30 JUNE 1996 AND 1997
(UNAUDITED)
1. TURNOVER
The turnover at the Group arose in the following geographical markets:
<TABLE>
<CAPTION>
1996 1997
L'000 L'000
--------- ---------
<S> <C> <C>
United Kingdom.............................................................................. 61,631 64,191
United States............................................................................... 25,196 28,258
Rest of world............................................................................... 13,758 12,709
--------- ---------
100,585 105,158
--------- ---------
--------- ---------
</TABLE>
2. OPERATING PROFIT
The operating profit is stated after including:
<TABLE>
<CAPTION>
1996 1997
L'000 L'000
--------- ---------
<S> <C> <C>
Depreciation of tangible fixed assets........................................ 501 741
Amortisation of intangibles.................................................. 51 50
Hire of plant and equipment.................................................. 531 600
Other rents payable.......................................................... 842 857
Directors' emoluments
Management remuneration--Salaries and benefits............................. 223 203
--Performance payments.............................. 19 --
Fees....................................................................... 27 35
Pension contributions...................................................... 20 20
Auditors' remuneration--in respect of audit.................................. 89 98
Auditors' remuneration--in respect to other work............................. 27 65
Rent receivable.............................................................. 283 291
</TABLE>
3. STAFF COSTS
Staff costs, which include Directors' emoluments, were:
<TABLE>
<CAPTION>
1996 1997
L'000 L'000
--------- ---------
<S> <C> <C>
Wages and salaries......................................................... 9,975 11,118
Social security costs...................................................... 1,102 1,245
Pension costs.............................................................. 441 652
--------- ---------
11,518 13,015
--------- ---------
--------- ---------
</TABLE>
The average number of employees including Directors during the nine months
ended June 30, 1996 and 1997 were 510 and 531, respectively.
F-53
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE NINE MONTHS ENDED 30 JUNE 1996 AND 1997
(UNAUDITED)
4. INTEREST
<TABLE>
<CAPTION>
1996 1997
L'000 L'000
----- -----
<S> <C> <C>
INTEREST PAYABLE
On bank loan repayable over more than five years............................... 285 250
On overdrafts and other loans repayable wholly within five years............... 88 77
Finance leases................................................................. 17 15
INTEREST RECEIVABLE............................................................ (50) (44)
--- ---
340 298
--- ---
--- ---
</TABLE>
5. TAXATION
The taxation on the profit on ordinary activities for the period was as
follows:
<TABLE>
<CAPTION>
1996 1997
L'000 L'000
--------- ---------
<S> <C> <C>
United Kingdom corporation tax at 33%........................................ 505 311
Overseas taxation............................................................ 334 607
Adjustments to prior years--charge........................................... -- 89
--------- ---------
839 1,007
--------- ---------
--------- ---------
</TABLE>
6. INTANGIBLE FIXED ASSETS--GOODWILL
<TABLE>
<CAPTION>
L'000
---------
<S> <C>
COST
At 1 October 1996..................................................................... 3,515
Exchange adjustments.................................................................. (126)
---------
AT 30 June 1997....................................................................... 3,389
---------
AMORTISATION
At 1 October 1996..................................................................... 3,096
Charge for period..................................................................... 50
Written off to reserves............................................................... --
Exchange adjustments.................................................................. (60)
---------
At 30 June 1997....................................................................... 3,086
---------
NET BOOK VALUE
At 30 June 1997....................................................................... 303
---------
---------
</TABLE>
F-54
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE NINE MONTHS ENDED 30 JUNE 1996 AND 1997
(UNAUDITED)
7. CREDITORS--AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1997
L'000
---------
<S> <C>
Bank loans............................................................................ 3,402
Finance lease and hire purchase obligations........................................... 1,063
---------
4,465
---------
---------
</TABLE>
8. PROVISIONS FOR LIABILITIES AND CHARGES
The amounts provided for deferred taxation and other liabilities and charges
are as follows:
<TABLE>
<CAPTION>
L'000
-----
<S> <C>
Provision at 1 October 1996............................................................ 214
Credit for the period in the profit and loss account
Overseas........................................................................... (91)
---
Provision at 30 June 1997.............................................................. 123
---
---
</TABLE>
The amount of deferred taxation not provided is L221,000 and arises solely
on capital allowances.
The other provisions relate to pensions and other employee benefits.
9. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1996 1997
L'000 L'000
--------- ---------
<S> <C> <C>
Operating profit........................................................... 2,392 2,570
Depreciation............................................................... 501 741
Amortisation of intangible fixed assets.................................... 51 50
Loss on disposal of fixed assets........................................... 92 (13)
Decrease/(increase) in work-in-progress.................................... 71 (31)
Increase in debtors........................................................ (1,525) (3,735)
Increase/(decrease) in creditors........................................... 3,137 (1,088)
--------- ---------
Net cash inflow (outflow) from operating activities........................ 4,719 (1,506)
--------- ---------
--------- ---------
</TABLE>
F-55
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE NINE MONTHS ENDED 30 JUNE 1996 AND 1997
(UNAUDITED)
10. RECONCILIATION OF MOVEMENT TO NET DEBT
<TABLE>
<CAPTION>
30 SEPTEMBER OTHER
-------------------- CHANGE EXCHANGE NON CASH
1996 1997 IN PERIOD MOVEMENTS CASHFLOWS MOVEMENTS
--------- --------- ------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
L000 L000 L000 L000 L000 L000
Cash at bank and in hand................... 1,596 364 (1,232) (18) (1,214) --
Overdrafts................................. (280) (3,158) (2,878) (41) (2,837) --
1,316 (2,794) (4,110) (59) (4,051) --
--
--------- --------- ------ ------ ---
Bank loans under 1 year.................... (891) (869) 22 22 -- --
Bank loans over 1 year..................... (4,138) (3,402) 736 79 657 --
Finance leases under 1 year................ (333) (504) (171) (16) -- (155)
Finance leases over 1 year................. (700) (1,063) (363) (34) 202 (531)
--
--------- --------- ------ ------ ---
(4,746) (8,632) (3,886) (8) (3,192) (686)
--
--
--------- --------- ------ ------ ---
--------- --------- ------ ------ ---
</TABLE>
F-56
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Members of
Neville Jeffress Australia Pty Limited
SCOPE
We have audited the accompanying consolidated statements of profit and loss
and cash flows of Neville Jeffress Australia Pty Limited (the "Company") for the
years ended June 30, 1995 and 1996 (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 results of operations of the Company and its subsidiaries and
their cash flows for the years ended June 30, 1995 and 1996 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-57
<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............................................. 5 65,246 888,459
--------- ---------
Net income..................................................... 853,493 1,437,699
Outside equity interest in net income.......................... 2 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-58
<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.................................... 7 118,096 --
Cash paid for purchase of entity.................................................. (544,604) (4,265)
Net cash inflow/(outflow) on acquisition of controlled entity..................... 7 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-59
<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 June 30, 1997 the
exchange rate of Australian dollars to US dollars was .7538.
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 1 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-60
<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 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-61
<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-62
<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. Goodwill is written off to the profit and
loss account on acquisition.
F-63
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN AUSTRALIAN DOLLARS)
1 INVESTMENTS
<TABLE>
<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-64
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
1 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>
2 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>
F-65
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
3 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>
4 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>
F-66
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
5 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>
6 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>
F-67
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
7 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-68
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
7 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>
F-69
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
8 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-70
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
8 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-71
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
8 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-72
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
8 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.
9 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.
10 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-73
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN AUSTRALIAN DOLLARS)
11 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>
12 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-74
<PAGE>
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