<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM 10-Q
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
/ / Transition report pursuant to Section 13
or 15(d) of the Securities Exchange Act
of 1934 for the transition period from
_______ to _______.
-----------------------
Commission File Number: 0-21571
TMP WORLDWIDE INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3906555
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1633 BROADWAY, 33RD FLOOR, NEW YORK, NEW YORK 10019
(Address of principal executive offices) (Zip Code)
(212) 977-4200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding On August 9, 1999
----- -----------------------------
<S> <C>
Common Stock 35,291,190
Class B Common Stock 2,381,000
</TABLE>
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets--
June 30, 1999 and December 31, 1998...................................... 2
Consolidated Condensed Statements of Income--
Three Months and Six Months Ended June 30, 1999 and 1998................. 3
Consolidated Condensed Statements of Comprehensive Income --
Three and Six Months Ended June 30, 1999 and 1998........................ 4
Consolidated Condensed Statement of Stockholders' Equity--
Six Months Ended June 30, 1999........................................... 5
Consolidated Condensed Statements of Cash Flows--
Six Months Ended June 30, 1999 and 1998.................................. 6
Notes to Consolidated Condensed Financial Statements.............................. 7-17
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................ 18-26
Item 3. Quantitative and Qualitative Disclosures about Market Risk..................... 26
PART II OTHER INFORMATION
Item 2. (c) Changes In Securities and Use of Proceeds.................................. 27
Item 4. Submission of Matters to a Vote of Security-Holders........................ 28
Item 6. Exhibits and Reports on Form 8-K........................................... 28
Signatures................................................................. 29
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 38,390 $ 38,826
Accounts receivable, net..................................................... 352,285 310,699
Work-in-process.............................................................. 19,833 18,309
Prepaid and other............................................................ 26,806 26,427
-------- --------
Total current assets................................................... 437,314 394,261
Property and equipment, net..................................................... 65,871 61,584
Deferred income taxes........................................................... 8,173 6,599
Intangibles, net................................................................ 226,418 200,374
Other assets.................................................................... 10,265 10,882
-------- ----------
$748,041 $673,700
-------- ----------
-------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................. $288,077 $259,841
Accrued expenses and other liabilities....................................... 81,652 92,545
Accrued restructuring costs.................................................. 12,657 16,170
Deferred revenue............................................................. 25,020 13,933
Deferred income taxes........................................................ 6,802 6,438
Current portion of long term debt............................................ 10,384 13,067
--------- ---------
Total current liabilities.............................................. 424,592 401,994
Long term debt, less current portion ........................................... 133,026 119,593
Other liabilities............................................................... 6,611 7,871
-------- ---------
Total liabilities...................................................... 564,229 529,458
------- --------
Minority interests.............................................................. --- 509
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--34,627,686 and 33,680,777
shares, respectively................................................... 35 34
Class B common stock, $.001 par value, authorized 39,000,000 shares;
issued and outstanding--2,381,000 and 2,381,000 shares,
respectively....................................................... 2 2
Additional paid-in capital................................................ 211,290 183,148
Other comprehensive loss.................................................. (2,774) (3,016)
Accumulated deficit............................................................. (24,741) (36,435)
-------- ---------
Total stockholders' equity.......................................... 183,812 143,733
-------- ---------
$748,041 $673,700
-------- ---------
-------- ---------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- --------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net commissions and fees ................... $157,045 $134,566 $295,321 $252,003
-------- -------- -------- --------
Operating expenses:
Salaries and related costs............... 88,751 76,945 168,555 142,719
Office and general expenses.............. 44,252 37,324 85,485 75,251
Merger and integration costs............. 3,346 2,487 8,033 2,487
Amortization of intangibles.............. 2,622 2,738 5,256 4,981
CEO special bonus........................ ---- 375 ---- 750
-------- -------- -------- --------
Total operating expenses ............ 138,971 119,869 267,329 226,188
-------- -------- -------- --------
Operating income............................ 18,074 14,697 27,992 25,815
-------- -------- -------- --------
Other income (expense):
Interest expense, net.................... (1,834) (2,425) (4,564) (4,891)
Other, net............................... (16) (238) (59) (335)
-------- -------- -------- --------
Total other expense, net............. (1,850) (2,663) (4,623) (5,226)
-------- -------- -------- --------
Income before provision for income taxes,
minority interests and equity in
losses of affiliates................. 16,224 12,034 23,369 20,589
Provision for income taxes.................. 7,419 5,255 10,475 8,671
-------- -------- -------- --------
Income before minority interests
and equity in losses of affiliates... 8,805 6,779 12,894 11,918
Minority interests.......................... 8 (17) 107 (1)
Equity in losses of affiliates.............. (100) (87) (200) (174)
-------- -------- -------- --------
Net income applicable to common and
Class B common stockholders.......... $ 8,697 $ 6,709 $ 12,587 $ 11,745
-------- -------- -------- --------
-------- -------- -------- --------
Net income per common and Class B common share:
Basic................................ $ 0.24 $ 0.19 $ 0.34 $ 0.33
-------- -------- -------- --------
-------- -------- -------- --------
Diluted.............................. $ 0.23 $ 0.18 $ 0.33 $ 0.32
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average shares outstanding:
Basic................................ 36,644 35,846 36,540 35,821
-------- -------- -------- --------
-------- -------- -------- --------
Diluted.............................. 38,352 36,923 38,217 36,815
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
1999 1998
---------- ---------
<S> <C> <C>
Net income............................................................... $12,587 $11,745
Foreign currency translation adjustment.................................. 242 829
---------- ---------
Comprehensive income..................................................... $12,829 $12,574
---------- ---------
---------- ---------
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1999 1998
---------- ---------
<S> <C> <C>
Net income............................................................... $8,697 $6,709
Foreign currency translation adjustment.................................. (1,854) 1,121
---------- ---------
Comprehensive income..................................................... $6,843 $7,830
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Class B
Common Stock, Common Stock,
$.001 Par Value $.001 Par Value Additional Other
-------------------------- -------------------------- Paid-in Comprehensive
Shares Amount Shares Amount Capital Loss
---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 . 33,680,777 $ 34 2,381,000 $ 2 $ 183,148 $ (3,016)
Issuance of common stock
in connection with the
exercise of options .... 572,317 1 -- -- 7,163 --
Issuance of common stock
in connection with
acquisitions ........... 173,761 -- -- -- 9,380 --
Issuance of common
stock for matching
contribution to 401(k)
plan ................... 21,477 -- -- -- 902 --
Issuance of common stock
for employee stay
bonuses ................ 159,923 -- -- -- 5,133 --
Issuance of common stock
for purchase of minority
interest ............... 19,431 -- -- -- 1,210 --
Issuance of compensatory
stock options .......... -- -- -- -- 89 --
Tax benefit from the
exercise of stock
options ................ -- -- -- -- 4,265 --
Foreign currency
translation adjustment . -- -- -- -- -- 242
Net income ............... -- -- -- -- -- --
Dividends declared by
pooled companies ....... -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- -------------
Balance, June 30, 1999 ... 34,627,686 $ 35 2,381,000 $ 2 $ 211,290 $ (2,774)
---------- ---------- ---------- ---------- ---------- -------------
---------- ---------- ---------- ---------- ---------- -------------
</TABLE>
<TABLE>
<CAPTION>
Total
Accumulated Stockholders'
Deficit Equity
----------- -------------
<S> <C> <C>
Balance, January 1, 1999 .......... $ (36,435) $ 143,733
Issuance of common stock
in connection with the
exercise of options ............. -- 7,164
Issuance of common stock
in connection with
acquisitions .................... -- 9,380
Issuance of common
stock for matching
contribution to 401(k)
plan ............................ -- 902
Issuance of common stock
for employee stay
bonuses ......................... -- 5,133
Issuance of common stock
for purchase of minority
interest ........................ -- 1,210
Issuance of compensatory
stock options ................... -- 89
Tax benefit from the
exercise of stock
options ......................... -- 4,265
Foreign currency
translation adjustment .......... -- 242
Net income ........................ 12,587 12,587
Dividends declared by
pooled companies ................ (893) (893)
--------- ---------
Balance, June 30, 1999 ............ $ (24,741) $ 183,812
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................................... $ 12,587 $ 11,745
--------- ---------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization of property and equipment ..................... 9,143 8,318
Amortization of intangibles and deferred costs .............................. 5,256 4,981
Amortization of deferred compensation in connection with employee
stay bonuses ............................................................. 1,929 1,063
Provision for doubtful accounts ............................................. 2,470 2,378
Common stock issued for matching contribution to 401k plan .................. 902 627
CEO special bonus ........................................................... -- 750
Minority interests .......................................................... 107 1
Provision for deferred income taxes ......................................... (1,210) 280
Other ....................................................................... 59 335
Tax benefit from the exercise of employee stock options ..................... 4,265 181
Effect of companies accounted for as poolings of interests included in
both the current period and the previous year ............................ -- (2,651)
Changes in assets and liabilities, net of effects of purchases of businesses:
Increase in accounts receivable, net ....................................... (39,195) (26,159)
Increase in work-in-process ................................................ (1,524) (4,712)
Decrease (increase) in prepaid and other ................................... 223 (6,736)
Increase in other assets ................................................... (645) (6,404)
Increase in accounts payable, accrued expenses and other
liabilities .............................................................. 17,587 31,952
--------- ---------
Total adjustments ........................................................ (633) 4,204
--------- ---------
Net cash provided by operating activities ................................ 11,954 15,949
--------- ---------
Cash flows from investing activities:
Capital expenditures ........................................................ (12,224) (12,425)
Payments for purchases of businesses, net of cash acquired .................. (17,522) (9,787)
--------- ---------
Net cash used in investing activities ..................................... (29,746) (22,212)
--------- ---------
Cash flows from financing activities:
Payments on capitalized leases .............................................. (1,950) (1,817)
Borrowings under line of credit and proceeds from issuance of debt .......... 585,887 472,522
Repayments under line of credit and principal payments on debt .............. (573,187) (463,422)
Cash received from the exercise of employee stock options ................... 7,163 453
Dividends paid by pooled entities ........................................... (893) (4,354)
--------- ---------
Net cash provided by financing activities ................................. 17,020 3,382
--------- ---------
Effect of exchange rate changes on cash ............................................ 336 (1,068)
--------- ---------
Net decrease in cash and cash equivalents .......................................... (436) (3,949)
Cash and cash equivalents, beginning of period ..................................... 38,826 28,613
--------- ---------
Cash and cash equivalents, end of period ........................................... $ 38,390 $ 24,664
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
NOTE 1-BASIS OF PRESENTATION
The consolidated condensed interim financial statements included herein
have been prepared by TMP Worldwide Inc. ("TMP" or the "Company"), without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments which, in the opinion of management, are necessary for fair
presentation of the information contained herein. It is suggested that these
consolidated condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998 and its supplemental
consolidated financial statements included in the Company's Current Report on
Form 8-K dated June 10, 1999. The Company follows the same accounting policies
in preparation of interim reports.
Results of operations for the interim periods may not be indicative of
annual results.
During the period April 1, 1999 through June 30, 1999, the Company
consummated mergers with the following companies (the "Second Quarter 1999
Pooled Companies"), in transactions which provided for the exchange of all of
the outstanding stock of each entity for a total of 900,240 shares of TMP common
stock and these transactions have been accounted for as poolings of interests
(the "Second Quarter 1999 Mergers").
<TABLE>
<CAPTION>
Nature Region Acquisition Number of Tmp
Entity of Operations of Operations Date Shares Issued
- ---------------------------- ------------------------- ------------------ -------------- -------------
<S> <C> <C> <C> <C>
Interquest Pty. Limited Temporary contracting and
("Interquest") Search & selection Pacific Rim April 30, 1999 176,695
LIDA Advertising, Inc.
("LIDA") Yellow page advertising North America May 19, 1999 112,606
Maes & Lunau ("M&L") Search & selection Continental Europe May 20, 1999 110,000
IN2, Inc. ("IN2") Internet North America May 28, 1999 289,031
Lemming & LeVan, Inc.
("L&L") Search & selection North America May 28, 1999 122,908
Yellow Pages Unlimited, Inc.
("YPU") Yellow page advertising North America May 28, 1999 89,000
</TABLE>
The Company's consolidated financial statements have been retroactively
restated as of June 30, 1998 and for the three and six months ended June 30,
1998 to reflect the consummation of the Second Quarter 1999 Mergers as well as
the mergers with TASA Holdings AG ("TASA") on August 31, 1998, Stackig,
Inc.("Stackig") on September 30, 1998, Recruitment Solutions, Inc. ("Recruitment
Solutions") on October 2, 1998, SunQuest L.L.C., d.b.a. the SMART Group ("The
SMART Group") on November 2, 1998, The Consulting Group (International) Limited
("TCG") on December 2, 1998 and Morgan & Banks Limited ("M&B") on January 28,
1999, which have been accounted for using the pooling of interests method and,
as a result, the balance sheets, income statements and cash flows are presented
as if the combining companies had been consolidated for all periods presented
and the consolidated statements of stockholders' equity reflect the accounts of
TMP as if the additional common stock issued in connection with the mergers had
been issued for all periods presented.
7
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share amounts)
(unaudited)
NOTE 1-BASIS OF PRESENTATION (CONTINUED)
Amounts charged to clients for Temporary Contracting services include the
amounts payable to the temporary contractor. The details for such amounts are
(in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 1998
-------- -------
<S> <C> <C>
Temporary Contracting Revenue............................................ $130,490 $98,169
Temporary Contracting Costs.............................................. 107,006 84,194
-------- -------
Temporary Contracting - net.............................................. $ 23,484 $13,975
-------- -------
-------- -------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
1999 1998
-------- --------
<S> <C> <C>
Temporary Contracting Revenue............................................ $69,842 $51,655
Temporary Contracting Costs.............................................. 56,397 40,857
-------- --------
Temporary Contracting - net.............................................. $13,445 $10,798
-------- --------
-------- --------
</TABLE>
Basic earnings per share assumes no dilution, and is computed by dividing
income available to common and Class B common shareholders by the weighted
average number of common and Class B common shares outstanding during each
period. Diluted earnings per share reflect, in periods in which they have a
dilutive effect, the effects of common shares issuable upon exercise of stock
options and warrants, and contingent shares. A reconciliation of shares used in
calculating basic and diluted earnings per common and Class B common share
follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 1998
-------- -------
<S> <C> <C>
Basic .................................................................. 36,540 35,821
Effect of assumed conversion of stock options............................ 1,677 994
-------- -------
Diluted.................................................................. 38,217 36,815
-------- -------
-------- -------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
1999 1998
-------- --------
<S> <C> <C>
Basic .................................................................. 36,644 35,846
Effect of assumed conversion of options.................................. 1,708 1,077
-------- --------
Diluted.................................................................. 38,352 36,923
-------- --------
-------- --------
</TABLE>
NOTE 2-NATURE OF BUSINESS AND CREDIT RISK
The Company operates in five business segments: recruitment advertising,
yellow page advertising, Internet, search & selection and temporary
contracting. The Company earns commission income for selling and placing
recruitment and yellow page advertising to a large number of customers in many
different industries, fees for executive and mid-level search & selection
services, fees for advertisements placed on its Internet Websites and other
Internet related recruitment and advertising services and fees in connection
with providing temporary contracting services. The Company operates principally
throughout North America, the Pacific Rim, the United Kingdom and Continental
Europe.
8
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share amounts)
(unaudited)
NOTE 3 - BUSINESS ACQUISITIONS
ACQUISITIONS ACCOUNTED FOR USING THE POOLING OF INTERESTS METHOD
During the period April 1, 1999 through June 30, 1999, the Company
completed the following acquisitions which provided for the exchange of all the
outstanding stock of each entity for shares of TMP common stock and are being
accounted for as poolings of interests:
<TABLE>
<CAPTION>
NATURE OF REGION OF NUMBER OF TMP
ENTITY OPERATIONS OPERATIONS ACQUISITION DATE SHARES ISSUED
------ ---------- ---------- ---------------- --------------
<S> <C> <C> <C> <C>
Interquest....... Temporary contracting
and search & selection Pacific Rim April 30, 1999 176,695
LIDA............. Yellow page advertising North America May 19, 1999 112,606
M&L.............. Search & selection Continental Europe May 20, 1999 110,000
IN2.............. Internet North America May 28, 1999 289,031
L&L.............. Search & selection North America May 28, 1999 122,908
YPU.............. Yellow page advertising North America May 28, 1999 89,000
</TABLE>
Net commissions & fees, net income applicable to common and Class B common
stockholders and net income per common and Class B common share of the combining
companies, after giving retroactive effect to the pooling of interests
transactions, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1998
------------- -------------
<S> <C> <C>
NET COMMISSIONS & FEES
TMP, as previously reported on Form 10-Q/A........................................ $ 86,278 $166,671
TASA.............................................................................. 11,879 21,503
Stackig........................................................................... 2,969 5,938
Recruitment Solutions............................................................. 21 23
The SMART Group................................................................... 484 927
TCG............................................................................... 1,434 3,198
M & B............................................................................. 27,295 45,698
Interquest........................................................................ 1,082 2,210
LIDA.............................................................................. 876 1,279
M & L............................................................................. 846 1,692
IN2............................................................................... 281 622
L & L............................................................................. 789 1,578
YPU............................................................................... 332 664
-------- --------
TMP, as restated.................................................................. $134,566 $252,003
-------- --------
-------- --------
</TABLE>
9
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share amounts)
(unaudited)
NOTE 3 - BUSINESS ACQUISITIONS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1998
------------- -------------
<S> <C> <C>
NET INCOME (LOSS) APPLICABLE TO COMMON AND CLASS B COMMON STOCKHOLDERS
TMP, as previously reported on Form 10-Q/A....................................... $3,062 $5,535
TASA............................................................................. 157 243
Stackig.......................................................................... 190 376
Recruitment Solutions............................................................ (84) (200)
The SMART Group.................................................................. 94 128
TCG.............................................................................. 79 505
M & B............................................................................ 2,296 3,681
Interquest....................................................................... 187 445
LIDA............................................................................. 136 (216)
M & L............................................................................ 446 891
IN2.............................................................................. 117 299
L & L............................................................................ (117) (234)
YPU.............................................................................. 146 292
------ -------
TMP, as restated................................................................. $6,709 $11,745
------ -------
------ -------
NET INCOME PER COMMON AND CLASS B COMMON SHARE
As previously reported on Form 10-Q/A:
Basic.......................................................................... $0.13 $0.22
Diluted........................................................................ $0.12 $0.21
Restated:
Basic.......................................................................... $0.19 $0.33
Diluted........................................................................ $0.18 $0.32
</TABLE>
MERGER COSTS INCURRED WITH POOLING OF INTERESTS TRANSACTIONS
In connection with pooling of interests transactions completed during 1998
and the first six months of 1999, the Company expensed merger and integration
costs of $3,346 and $8,033 for the three and six months ended June 30, 1999,
respectively. The merger and integration costs for the six months ended June 30,
1999, consist of (1) $2,280 of non-cash employee stay bonuses, which included
(a) $1,929 for the amortization of prepaid compensation of $5,986 which is being
expensed over the eighteen months from April 1, 1998 to September 30, 1999, and
will be paid with TMP shares set aside for certain JSK and TCG key personnel,
who must remain employees of the Company for a full year in order to earn such
shares and (b) $351 which is related to an option grant to employees of a pooled
company and which represents the difference between the option exercise price
and the stock price on the day the options were granted, (2) $4,628 of
transaction related costs, including legal, accounting, printing and advisory
fees and the costs incurred for the subsequent registration of shares issued in
the acquisitions and (3) $1,125 of office and staff integration costs.
During both the three and six months ended June 30, 1998, the Company
expensed merger and integration costs of $2,487 which were related to the
pooling of interests transaction with JSK.
ACQUISITIONS ACCOUNTED FOR USING THE PURCHASE METHOD
In addition to the pooling of interests transactions discussed above, in
the six month period ended June 30, 1999, the Company completed twelve
acquisitions using the purchase method of accounting: four search & selection
companies, six recruitment advertising companies, one Internet company and one
yellow page advertising company.
10
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share amounts)
(unaudited)
NOTE 3 - BUSINESS ACQUISITIONS (CONTINUED)
The purchase price of these acquisitions was approximately $35.3 million,
including 173,761 shares of TMP common stock. 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 six month periods ended June 30, 1999 and 1998 and the year ended
December 31, 1998 assume that the acquisitions in 1999 and 1998 occurred as of
the beginning of the period.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
---------------------- -------------
1999 1998 1998
-------- -------- --------
<S> <C> <C> <C>
Net commissions and fees......................... $301,402 $267,117 $732,012
Net income applicable to common and Class B common
stockholders..................................... $13,194 $ 11,785 $13,597
Net income per common and Class B
common share:
Basic......................................... $0.36 $0.33 $0.37
Diluted....................................... $0.34 $0.32 $0.36
</TABLE>
The pro forma results of operations are not necessarily indicative of what
actually would have occurred if the acquisitions had been completed at the
beginning of each of the periods presented, nor are the results of operations
necessarily indicative of the results that will be attained in the future.
ACCRUED RESTRUCTURING COSTS
In connection with the acquisitions made in 1997 and accounted for using
the purchase method, the Company developed plans to restructure the operations
of the acquired companies. Such plans involve the closure of certain offices of
the acquired companies and the termination of certain management and employees.
The objective of the plans is to create a single brand in the related markets in
which the Company operates. The preliminary plans were finalized in July 1998.
These costs and liabilities include:
<TABLE>
<CAPTION>
BALANCE BALANCE
12/31/98 ADDITIONS PAYMENTS 6/30/99
-------- --------- -------- -------
<S> <C> <C> <C> <C>
Assumed obligations on closed leased facilities................... $9,228 $--- $(979) $8,249
Consolidation of acquired facilities.............................. 2,745 --- (1,446) 1,299
Contracted lease payments exceeding current market costs.......... 707 --- (69) 638
Severance, relocation and other employee costs.................... 1,737 --- (995) 742
Pension obligations............................................... 1,753 --- (24) 1,729
-------- --------- -------- -------
Total............................................................. $16,170 $--- $(3,513) $12,657
-------- --------- -------- -------
-------- --------- -------- -------
</TABLE>
Accrued liabilities for surplus property in the amount of $8,249 as of
June 30, 1999 relate to 18 leased office locations of the acquired companies
that were either unutilized prior to the acquisition date or were closed by June
30, 1999 in connection with the restructuring plans. The amount is based on the
present value of minimum future lease obligations, net of sublease revenue on
existing subleases.
Other costs associated with the closure of existing offices of acquired
companies in the amount of $1,299 as of June 30, 1999, relate to the termination
costs of contracts relating to billing systems, external reporting systems and
other contractual agreements with third parties.
Above market lease costs in the amount of $638 as of June 30, 1999 relate
to the present value of contractual lease payments in excess of current market
lease rates.
11
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share amounts)
(unaudited)
NOTE 3 - BUSINESS ACQUISITIONS (CONTINUED)
Estimated severance payments, employee relocation expenses and other
employee costs in the amount of $742 as of June 30, 1999 relate to estimated
severance for terminated employees at closed locations, costs associated with
employees to be transferred to continuing offices and other related costs.
Employee groups affected include sales, service, administrative and management
personnel at duplicate locations as well as duplicate corporate headquarters'
management and administrative personnel. As of June 30, 1999 the accrual related
to approximately 38 employees including senior management, sales, service and
administrative personnel.
Pension obligations in the amount of $1,729 were assumed in connection
with the acquisition of Austin Knight.
The Company continues to evaluate and assess the impact of duplicate
responsibilities and office locations. Additional future costs incurred,
resulting from revised plan actions occurring after June 30, 1999, in excess of
the amounts previously recorded as goodwill will be charged to operations in the
period in which they occur.
NOTE 4-SEGMENT AND GEOGRAPHIC DATA
The Company is engaged in five lines of business: recruitment advertising,
yellow page advertising, Internet, search and selection and temporary
contracting. Operations are conducted in several geographic regions: North
America, the Pacific Rim (primarily in Australia, New Zealand and Japan) the
United Kingdom and Continental Europe. The following is a summary of the
Company's operations by business segment and by geographic segment, for the six
months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
RECRUITMENT YELLOW PAGE SEARCH & TEMPORARY
INFORMATION BY BUSINESS SEGMENT ADVERTISING ADVERTISING INTERNET SELECTION CONTRACTING TOTAL
- ------------------------------- ----------- ----------- -------- --------- ----------- -----
FOR THE SIX MONTHS ENDED
JUNE 30, 1999
- -------------
<S> <C> <C> <C> <C> <C> <C>
Net commissions and fees
Traditional sources .................. $ 85,804 $ 49,731 $ -- $ 89,739 $ 23,484 $ 248,758
Internet ............................. 5,647 1,652 36,229 2,418 617 46,563
--------- --------- --------- --------- --------- ---------
Net commissions and fees .................. 91,451 51,383 36,229 92,157 24,101 295,321
--------- --------- --------- --------- --------- ---------
Operating expenses:
Salaries & related costs and
office & general expenses ............ 75,869 32,229 -- 82,989 18,172 209,259
Internet expenses .................... 4,943 1,489 35,844 2,061 444 44,781
Merger and integration costs ......... 198 30 -- 7,202 603 8,033
Amortization of intangibles .......... 3,235 1,306 121 526 68 5,256
--------- --------- --------- --------- --------- ---------
Total expenses ............................. 84,245 35,054 35,965 92,778 19,287 267,329
--------- --------- --------- --------- --------- ---------
Operating income (loss):
Traditional sources .................. 6,502 16,166 -- (978) 4,641 26,331
Internet ............................. 704 163 264 357 173 1,661
--------- --------- --------- --------- --------- ---------
Operating income (loss) .................... $ 7,206 $ 16,329 $ 264 $ (621) $ 4,814 27,992
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Other expense:
Interest expense, net ................ * * * * * (4,564)
Other, net ........................... * * * * * (59)
---------
Income before provision for income
taxes, minority interests and equity
in losses of affiliates .................... * * * * * $ 23,369
---------
---------
</TABLE>
* Not allocated
12
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share amounts)
(unaudited)
NOTE 4-SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
RECRUITMENT YELLOW PAGE SEARCH & TEMPORARY
INFORMATION BY BUSINESS SEGMENT ADVERTISING ADVERTISING INTERNET SELECTION CONTRACTING TOTAL
- ------------------------------- ----------- ----------- -------- --------- ----------- -----
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
- -------------
<S> <C> <C> <C> <C> <C> <C>
Net commissions and fees:
Traditional sources .................... $ 86,672 $ 49,302 $ -- $ 83,020 $ 13,975 $ 232,969
Internet ............................... 3,162 1,263 14,609 -- -- 19,034
--------- --------- --------- --------- --------- ---------
Net commissions and fees .................. 89,834 50,565 14,609 83,020 13,975 252,003
--------- --------- --------- --------- --------- ---------
Operating expenses:
Salaries & related costs, office
& general expenses and CEO
special bonus .......................... 75,052 36,057 -- 76,354 12,108 199,571
Internet expenses ...................... 3,768 755 14,626 -- -- 19,149
Merger costs ........................... -- -- -- 2,487 -- 2,487
Amortization of intangibles ............ 2,956 1,284 110 566 65 4,981
--------- --------- --------- --------- --------- ---------
Total expenses ............................. 81,776 38,096 14,736 79,407 12,173 226,188
--------- --------- --------- --------- --------- ---------
Operating income (loss):
Traditional sources .................... 8,664 11,961 -- 3,613 1,802 26,040
Internet ............................... (606) 508 (127) -- -- (225)
--------- --------- --------- --------- --------- ---------
Operating income (loss) .................... $ 8,058 $ 12,469 $ (127) $ 3,613 $ 1,802 25,815
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Other expense:
Interest expense, net......... * * * * * (4,891)
Other, net.................... * * * * * (335)
---------
Income before provision for income
taxes, minority interests and equity
in losses of affiliates............. * * * * * $ 20,589
---------
---------
</TABLE>
* Not allocated
13
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share amounts)
(unaudited)
NOTE 4-SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
RECRUITMENT YELLOW PAGE SEARCH & TEMPORARY
INFORMATION BY BUSINESS SEGMENT ADVERTISING ADVERTISING INTERNET SELECTION CONTRACTING TOTAL
- ------------------------------- ----------- ----------- -------- --------- ----------- -----
FOR THE THREE MONTHS ENDED
JUNE 30, 1999
- -------------
<S> <C> <C> <C> <C> <C> <C>
Net commissions and fees:
Traditional sources .................... $ 43,261 $ 26,561 $ -- $ 47,753 $ 13,445 $ 131,020
Internet ............................... 4,219 971 18,737 1,973 125 26,025
--------- --------- --------- --------- --------- ---------
Net commissions and fees ................... 47,480 27,532 18,737 49,726 13,570 157,045
--------- --------- --------- --------- --------- ---------
Operating expenses:
Salaries & related costs and
office & general expenses ............. 37,534 15,410 -- 45,330 10,007 108,281
Internet expenses ...................... 4,162 1,359 17,090 1,822 289 24,722
Merger and integration costs ........... 119 30 -- 2,594 603 3,346
Amortization of intangibles ............ 1,542 670 63 305 42 2,622
--------- --------- --------- --------- --------- ---------
Total expenses ............................. 43,357 17,469 17,153 50,051 10,941 138,971
--------- --------- --------- --------- --------- ---------
Operating income (loss):
Traditional sources .................... 4,066 10,451 -- (476) 2,793 16,834
Internet ............................... 57 (388) 1,584 151 (164) 1,240
--------- --------- --------- --------- --------- ---------
Operating income (loss) .................... $ 4,123 $ 10,063 $ 1,584 $ (325) $ 2,629 18,074
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Other expense:
Interest expense, net .................. * * * * * (1,834)
Other, net ............................. * * * * * (16)
---------
Income before provision for income
taxes, minority interests and equity
in losses of affiliates .................... * * * * * $ 16,224
---------
---------
</TABLE>
*Not allocated
14
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share amounts)
(unaudited)
NOTE 4-SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
RECRUITMENT YELLOW PAGE SEARCH & TEMPORARY
INFORMATION BY BUSINESS SEGMENT ADVERTISING ADVERTISING INTERNET SELECTION CONTRACTING TOTAL
- ------------------------------- ----------- ----------- -------- --------- ----------- -----
FOR THE THREE MONTHS ENDED
JUNE 30, 1998
- -------------
<S> <C> <C> <C> <C> <C> <C>
Net commissions and fees
Traditional sources .................. $ 43,194 $ 26,560 $ -- $ 43,022 $ 10,798 $ 123,574
Internet ............................. 2,815 948 7,229 -- -- 10,992
--------- --------- --------- --------- --------- ---------
Net commissions and fees ................... 46,009 27,508 7,229 43,022 10,798 134,566
--------- --------- --------- --------- --------- ---------
Operating expenses:
Salaries & related costs,
office & general expenses and
CEO special bonus .................... 36,414 17,495 -- 40,521 9,867 104,297
Internet expenses .................... 3,438 622 6,287 -- -- 10,347
Merger costs ......................... -- -- -- 2,487 -- 2,487
Amortization of intangibles .......... 1,431 755 52 460 40 2,738
--------- --------- --------- --------- --------- ---------
Total expenses ............................. 41,283 18,872 6,339 43,468 9,907 119,869
--------- --------- --------- --------- --------- ---------
Operating income (loss):
Traditional sources .................. 5,349 8,310 -- (446) 891 14,104
Internet ............................. (623) 326 890 -- -- 593
--------- --------- --------- --------- --------- ---------
Operating income (loss) .................... $ 4,726 $ 8,636 $ 890 $ (446) $ 891 14,697
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Other expense:
Interest expense, net ................ * * * * * (2,425)
Other, net ........................... * * * * * (238)
---------
Income before provision for income
taxes, minority interests and equity
in losses of affiliates .................... * * * * * $ 12,034
---------
---------
</TABLE>
* Not allocated
15
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share amounts)
(unaudited)
NOTE 4-SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
UNITED CONTINENTAL
INFORMATION BY GEOGRAPHIC REGION NORTH AMERICA PACIFIC RIM KINGDOM EUROPE TOTAL
- -------------------------------- -------------- ----------- ------- ----------- -----
FOR THE SIX MONTHS ENDED:
JUNE 30, 1999
- -------------
<S> <C> <C> <C> <C> <C>
June 30, 1999
- -------------
Net commissions and fees ........... $142,245 $ 72,576 $ 40,281 $ 40,219 $295,321
Income before income taxes,
minority interests and equity
in losses of affiliates .......... $ 4,302 $ 9,215 $ 2,690 $ 7,162 $ 23,369
June 30, 1998
- -------------
Net commissions and fees ........... $127,019 $ 55,089 $ 43,699 $ 26,196 $252,003
Income before income taxes,
minority interests and equity
in losses of affiliates .......... $ 3,538 $ 7,312 $ 5,472 $ 4,267 $ 20,589
For the Three Months Ended:
- --------------------------
June 30, 1999
- -------------
Net commissions and fees ........... $ 76,968 $ 38,950 $ 20,299 $ 20,828 $157,045
Income before income taxes,
minority interests and equity
in losses of affiliates .......... $ 7,385 $ 5,159 $ 967 $ 2,713 $ 16,224
June 30, 1998
- -------------
Net commissions and fees ........... $ 66,306 $ 29,622 $ 23,612 $ 15,026 $134,566
Income before income taxes,
minority interests and equity
in losses of affiliates .......... $ 4,738 $ 4,163 $ 1,861 $ 1,272 $ 12,034
</TABLE>
16
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share amounts)
(unaudited)
NOTE 5 - LAI WORLDWIDE ACQUISITION
On March 11, 1999 the Company and LAI Worldwide ("LAI") announced that they
had entered into an agreement by which the Company will acquire all of the
outstanding shares of LAI in exchange for TMP common stock in accordance with
the terms of the agreement. The transaction is expected to be accounted for as a
pooling of interests.
The acquisition is anticipated to close in the third quarter of 1999. It is
estimated that costs associated with the merger, including a non-cash charge of
$2.7 million to reflect the accelerated vesting of equity incentives due LAI
employees, will be approximately $6.0 million.
Under the terms of the agreement, each share of LAI stock will be exchanged
for 0.1321 shares of the Company's common stock, assuming that the average share
price of the Company's common stock for the 20 days ending on the 2nd day prior
to closing is between $42.00 and $64.00 per share. Should such 20-day average
share price fall below $42.00 per share, unless the Company elects to terminate
the acquisition, the exchange ratio will be adjusted to that obtained by
dividing $5.55 by the Company's 20-day average stock price measured prior to
closing. Should such 20-day average share price exceed $64.00 per share, the
exchange ratio will be adjusted to that obtained by dividing $8.45 by the
Company's 20-day average stock price measured prior to closing, but not below
that which would provide LAI shareholders with a fraction of a share of the
Company's common stock equal to $5.55. Based on the exchange ratio of 0.1321,
the Company expects to issue approximately 1.2 million shares, including the
effect of options. The agreement is subject to customary closing conditions,
including approval by the shareholders of LAI.
17
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q CONCERNING THE COMPANY'S
OUTLOOK OR FUTURE ECONOMIC PERFORMANCE, ANTICIPATED PROFITABILITY, GROSS
BILLINGS, NET COMMISSIONS AND FEES, EXPENSES OR OTHER FINANCIAL ITEMS; AND
STATEMENTS CONCERNING ASSUMPTIONS MADE OR EXCEPTIONS TO ANY FUTURE EVENTS,
CONDITIONS, PERFORMANCE OR OTHER MATTERS ARE "FORWARD-LOOKING STATEMENTS" AS
THAT TERM IS DEFINED UNDER THE FEDERAL SECURITIES LAWS. IN ADDITION, WHEN USED
HEREIN, THE WORDS "ESTIMATE", "PROJECT", "BELIEVE", "ANTICIPATE", AND OTHER
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS WHICH
REFLECT OUR CURRENT VIEWS AS TO FUTURE EVENTS. FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO RISKS, UNCERTAINTIES, AND OTHER FACTORS WHICH WOULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE STATED IN SUCH STATEMENTS. SUCH RISKS,
AND UNCERTAINTIES AND FACTORS INCLUDE, BUT ARE NOT LIMITED TO, (I) THE UNCERTAIN
ACCEPTANCE OF THE INTERNET AND THE COMPANY'S INTERNET CONTENT, (II) THAT THE
COMPANY HAS GROWN RAPIDLY AND THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL
CONTINUE TO BE ABLE TO GROW PROFITABLY OR MANAGE ITS GROWTH, (III) RISKS
ASSOCIATED WITH ACQUISITIONS, (IV) COMPETITION, (V) THE COMPANY'S QUARTERLY
OPERATING RESULTS HAVE FLUCTUATED IN THE PAST AND ARE EXPECTED TO FLUCTUATE IN
THE FUTURE, (VI) THE COMPANY'S BUSINESS EXPERIENCES SEASONALITY, (VII) THE LOSS
OF SERVICES OF CERTAIN KEY INDIVIDUALS COULD HAVE A MATERIAL ADVERSE EFFECT ON
THE COMPANY'S BUSINESS, FINANCIAL CONDITION OR OPERATING RESULTS, (VIII) THE
CONTROL OF THE COMPANY BY ANDREW J. MCKELVEY, (IX) CERTAIN TRANSACTIONS WITH
AFFILIATED PARTIES AND (X) THE OTHER RISKS DETAILED IN OUR FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION, INCLUDING OUR ANNUAL REPORT ON FORM 10-K FOR
THE YEAR ENDED DECEMBER 31, 1998.
OVERVIEW
TMP Worldwide Inc. ("TMP" or the "Company") is a marketing services,
communications, search and selection, and technology company. TMP 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, search and selection services and temporary contracting services. The
Company is one of the world's largest recruitment advertising agencies, the
world's largest yellow page advertising agency and a leader in the use of the
Internet for recruiting.
A substantial part of our growth has been achieved through acquisitions. For the
period January 1, 1996 through June 30, 1999, we completed 38 acquisitions,
which were accounted for under the purchase method, and 13 mergers, which were
accounted for as poolings of interests. Of such mergers, the seven completed
prior to April 1, 1999 are Johnson, Smith & Knisely Inc. ("JSK"), TASA Holding
AG ("TASA"), Stackig, Inc. ("Stackig"), Recruitment Solutions Inc., Sunquest
L.L.C. d.b.a. The SMART Group, and The Consulting Group (International) Limited
("TCG"), in 1998 (the "1998 Mergers"), and Morgan & Banks Limited ("M&B") in
January 1999 (the "M&B Merger"). In connection with these transactions we issued
approximately 8.7 million shares of our common stock in exchange for all of the
outstanding common stock of the seven merged companies. In addition, from April
1, 1999 through June 30, 1999, we completed mergers with the six companies
listed below (the "Second Quarter 1999 Pooled Companies"), which have been
accounted for as poolings of interests (the "Second Quarter 1999 Mergers"). In
connection with these transactions we issued a total of 900,240 shares of TMP
common stock in exchange for all of the outstanding stock of the Second Quarter
1999 Pooled Companies.
18
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
NATURE OF REGION OF ACQUISITION NUMBER OF TMP
ENTITY OPERATIONS OPERATIONS DATE SHARES ISSUED
------ ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Interquest, Pty. Limited Temporary contracting
("Interquest") and Search & selection Pacific Rim April 30, 1999 176,695
LIDA Advertising, Inc. Yellow page advertising
("LIDA") North America May 19, 1999 112,606
Maes & Lunau ("M&L") Search & selection Continental Europe May 20, 1999 110,000
IN2, Inc. ("IN2") Internet North America May 28, 1999 289,031
Lemming & LeVan, Inc. ("L&L") Search & selection North America May 28, 1999 122,908
Yellow Pages Unlimited, Inc. Yellow page advertising North America May 28, 1999 89,000
("YPU")
</TABLE>
Accordingly, the consolidated condensed financial statements included
herein for the 1998 periods have been retroactively restated to reflect the
Second Quarter 1999 Mergers, the mergers in 1998 completed after July 1, 1998
(the results of JSK were included in the Company's consolidated condensed
financial statements filed in its Quarterly Report on Form 10-Q/A for the period
ended June 30, 1998) and the M&B merger, and as a result, the financial
position, results of operations and cash flows are presented as if the combining
companies had been consolidated for all periods presented. In addition, for the
period of January 1, 1999 through June 30, 1999, we completed 12 acquisitions,
which were accounted for using the purchase method, with estimated annual gross
billings of approximately $42.3 million. Given the significant number of
acquisitions in each of the periods presented, the results of operations from
period to period may not necessarily be comparable.
Gross billings refer to billings for advertising placed in telephone
directories, newspapers, new media and other media, and associated fees for
related services, fees earned for search & selection and related services, and
net commissions and fees from temporary contracting services. While gross
billings are not included in our consolidated financial statements because they
include a substantial amount of funds which are collected from our clients but
passed through to publishers for advertisements, the trends in gross billings
directly impact the total net commissions and fees earned. For recruitment and
yellow page advertising, we earn 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 us for the
advertising purchased by clients and we in turn bill our clients for this
amount. Generally, the payment terms with yellow page clients require payment to
us 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, we have not experienced substantial problems with
unpaid accounts.
For recruitment advertising placements in the U.S., publisher commissions
average approximately 15% of recruitment advertising gross billings. We also
earn fees from related services such as campaign development and design,
retention and referral programs, brochures and other collateral services,
research and other creative and administrative services. Outside of the U.S.,
where, collectively, we derive the majority of our recruitment advertising net
commissions and fees, our commission rates for recruitment advertising vary,
ranging from approximately 10% in Australia to 15% in Canada and the United
Kingdom. During the six months ended June 30, 1999, we acquired six recruitment
advertising firms, five with operations in Continental Europe and one with
operations in Canada.
We design and execute yellow page advertising programs, receiving an
effective commission rate from directory publishers of approximately 20% of
yellow page gross billings. In general, publishers consider orders renewed
unless actively canceled. In addition to base commissions, certain yellow page
publishers pay increased commissions for volume placement by advertising
agencies. We typically recognize this additional commission, if any, in the
fourth quarter when it is certain that such commission has been earned. The
amounts reported in the fourth quarters of 1998, 1997 and 1996 were $0.9
million, $2.0 million and $3.5 million, respectively.
19
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Through our search & selection services, we identify and screen candidates
for hiring by clients based on criteria established by such clients. We entered
this business in 1998 by acquiring, JSK, the 12th largest executive search firm
in the U.S. according to Kennedy Publications, an official ranking service for
the search industry, and TASA, an international executive search firm, both of
which were accounted for as poolings of interests, and five regional European
firms, including TCG, whose acquisition was accounted for as a pooling of
interests. During the first six months of 1999 we merged with M&B, the largest
search & selection firm in Australia, Lemming & LeVan, in Atlanta, Georgia and
Maes & Lunua in the Netherlands in pooling of interests transactions and
acquired four search & selection firms, two with operations in Continental
Europe, one with operations in the United Kingdom and one with operations in
eastern Europe.
In addition, we expanded our temporary contracting business in Australia by
merging with, in a pooling of interests transaction, Interquest in April 1999.
Fees related to our Internet business are derived from recruitment
advertisement and related services placed on the Internet, primarily TMP's own
Website, Monster.com, employment searches sourced through the Internet, Internet
related advertising services provided to our yellow page advertising clients and
providing interactive advertising services as well as technologies that allow
advertisers to measure sales, repeat traffic and other key brand and e-commerce
metrics back to client marketing departments, giving the advertisers the ability
to greatly reduce costs, while driving the most qualified users to their
Websites.
Based on our consolidated results for the six months ended June 30, 1999
and 1998, 51.8%, and 49.6%, respectively, of our consolidated net commissions
and fees were attributable to clients outside North America.
<TABLE>
<CAPTION>
Results of Operations
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- ---------------------------
1999 1998 1999 1998
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Gross Billings:
- ---------------
Recruitment advertising..................... $192,227 $202,586 $387,524 $409,204
Yellow page advertising..................... 134,143 131,722 251,197 243,771
Search & selection.......................... 48,159 43,433 90,826 83,431
Temporary contracting, net.................. 13,445 10,798 23,484 13,975
Internet(1)................................. 29,454 12,223 52,545 21,154
-------- -------- -------- --------
Total ..................................... $417,428 $400,762 $805,576 $771,535
-------- -------- -------- --------
-------- -------- -------- --------
Net Commissions and Fees:
- -------------------------
Recruitment advertising..................... $ 43,261 $ 43,194 $ 85,804 $ 86,672
Yellow page advertising..................... 26,561 26,560 49,731 49,302
Search & selection.......................... 47,753 43,022 89,739 83,020
Temporary contracting, net.................. 13,445 10,798 23,484 13,975
Internet(1)................................. 26,025 10,992 46,563 19,034
-------- -------- -------- --------
Total ...................................... $ 157,045 $ 134,566 $295,321 $252,003
-------- -------- -------- --------
-------- -------- -------- --------
Commissions and Fees as a Percentage of Gross Billings:
- -------------------------------------------------------
Recruitment advertising..................... 22.5% 21.3% 22.1% 21.2%
Yellow page advertising..................... 19.8% 20.2% 19.8% 20.2%
Search & selection.......................... 99.2% 99.1% 98.8% 99.5%
Temporary contracting, net.................. 100.0% 100.0% 100.0% 100.0%
Internet(1)................................. 88.4% 89.9% 88.6% 90.0%
Total ..................................... 37.6% 33.6% 36.7% 32.7%
</TABLE>
20
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- ---------------------------
1999 1998 1999 1998
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
EBITDA(2)................................... $ 25,795 $ 22,713 $ 43,954 $ 39,669
Cash provided by operating activities ...... $ 22,929 $ 18,904 $ 11,954 $ 15,949
Cash used in investing activities........... $(12,168) $ (16,043) $(29,746) $(22,212)
Cash provided by (used in) financing activities $ 869 $ (5,188) $ 17,020 $ 3,382
Effect of exchange rate changes on cash..... $ (389) $ (1,099) $ 336 $ (1,068)
</TABLE>
- --------------
(1) Represents fees earned in connection with yellow page, recruitment and
other advertisements placed on the Internet and employment searches
sourced through 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 expenditure
and working capital requirements and is one of the measures which
determines the Company's ability to borrow under its credit facility.
EBITDA should not be considered in isolation or as a substitute for
operating income, cash flows from operating activities and other income
or cash flow statement data prepared in accordance with generally
accepted accounting principles or as a measure of the Company's
profitability or liquidity. EBITDA for the indicated periods is
calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- ---------------------------
1999 1998 1999 1998
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Net income.................................. $ 8,697 $ 6,709 $ 12,587 $ 11,745
Interest expense, net....................... 1,834 2,425 4,564 4,891
Income tax expense.......................... 7,419 5,255 10,475 8,671
Depreciation and amortization............... 7,845 8,324 16,328 14,362
------- ------- -------- --------
EBITDA $25,795 $22,713 $ 43,954 $ 39,669
------- ------- -------- --------
------- ------- -------- --------
</TABLE>
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998
- -----------------------------------------------------------------------------
Gross billings for the six months ended June 30, 1999 were $805.6 million,
a net increase of $34.1 million or 4.4% from $771.5 million for the six months
ended June 30, 1998. Net commissions and fees for the six months ended June 30,
1999 were $295.3 million, an increase of $43.3 million or 17.2% from $252.0
million in the first six months of 1998. Recruitment net commissions and fees
were $85.8 million for the six months ended June 30, 1999 compared with $86.7
million for the six months ended June 30, 1998, a decrease of $0.9 million or
1.0% due primarily to decreased client spending on newspaper advertising in the
United States and the United Kingdom and a loss of business in Australia
substantially offset in Continental Europe by growth and acquisitions. Yellow
page net commissions and fees were $49.7 million for the six months ended June
30, 1999, an increase of $0.4 million or 0.9% from $49.3 million in the first
six months of 1998 primarily due to increased billings and acquisitions
substantially offset by lower commission rates paid by the publishers. Search &
selection net commissions and fees were $89.7 million up $6.7 million or 8.1%
from $83.0 million for the comparable six months of 1998, due primarily to
acquisitions in Continental Europe. Internet net commissions and fees for the
six months ended June 30, 1999 were $46.6 million, an increase of 144.6% or
$27.6 million as compared with $19.0 million for the six months ended June 30,
1998. This increase in Internet net commissions and fees is due to: (i) an
increasing acceptance of our Internet services and products from existing
clients, new clients and Internet users, (ii) the benefits of TMP's marketing
campaign (iii) increases in the services and content available on our Websites,
(iv) expansion into certain European markets and (v) price increases on certain
products. Temporary contracting net commissions and fees were $23.5 million, up
$9.5 million or 68.0% from $14.0 million for the period ended June 30, 1998.
TMP's temporary contracting operations are primarily conducted in Australia and
the increase reflects an increase in the number of contractors placed due to a
greater need for information technology personnel and executives, which have
marks-ups
21
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
higher than for general and support staff.
Operating expenses for the six months ended June 30, 1999 were $267.3
million compared with $226.2 million for the same period in 1998. The increase
of $41.1 million or 18.2% is primarily due to acquisitions, higher operating and
marketing costs to support our expanding Internet operations and $5.5 million
more in merger and integration costs related to mergers accounted for as
poolings of interests. Salaries and related costs for the six months ended June
30, 1999 were $168.6 million or 57.1% of net commissions and fees, compared with
$142.7 million or 56.6% of net commissions and fees for the same period in 1998.
The increase of $25.9 million or 18.1% is primarily due to increased Internet
operations and acquisitions in search & selection. Office and general expenses
for the six months ended June 30, 1999 were $85.5 million or 28.9% of net
commissions and fees, compared with $75.3 million or 29.9% of net commissions
and fees for the same period in 1998. The increase of $10.2 million or 13.6% is
primarily due to acquisitions and higher marketing costs for our Internet
operations, partially offset by reductions in expenses for the yellow page
advertising and recruitment advertising businesses, due to improved
efficiencies. Included in the increase for Internet was $6.4 million more in
marketing costs for Monster.com. Merger and integration costs for the six months
ended June 30, 1999 were $8.0 million compared with $2.5 million for the same
period in 1998, an increase of $5.5 million or 223.0%, due to (1) $1.2 million
more for non-cash employee stay bonuses paid with TMP shares and options to
certain merged company key personnel, (2) $3.2 million more of transaction
related costs, including legal, accounting, printing and advisory fees and the
costs incurred for the subsequent registration of shares issued in the
transactions and (3) $1.1 million of office and staff integration costs.
As a result of the above, operating income for the six months ended June
30, 1999 increased $2.2 million or 8.4% to $28.0 million from $25.8 million for
the comparable period last year.
Net interest expense for the six months ended June 30, 1999 was $4.6
million, a decrease of $.3 million or 6.7% from $4.9 million for the same period
in 1998, reflecting lower interest rates and borrowing costs resulting from the
amended and restated financing agreement entered into by the Company on November
5, 1998, partially offset by increased borrowings.
Taxes on income for the six months ended June 30, 1999 were $10.5 million
on a $23.4 million pretax profit for an effective tax rate of 44.8% compared
with $8.7 million on a $20.6 million profit for an effective tax rate of 42.1%
for the same period last year. The higher effective tax rate is due to merger
costs from pooling of interests transactions which include non-recurring legal,
accounting and investment banking fees and other transaction fees that are not
tax deductible.
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, 1999 increased $0.9
million to $12.6 million from $11.7 million for the six months ended June 30,
1998. On a diluted per share basis, net income available to common and Class B
common stockholders for the six months ended June 30, 1999 was $.33, an increase
of $.01 or 3% over the $.32 for the comparable 1998 period.
22
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS ENDED
- -------------------------------------------------------------------
JUNE 30, 1998
- -------------
Gross billings for the three months ended June 30, 1999 were $417.4
million, a net increase of $16.6 million or 4.2% from $400.8 million for the
three months ended June 30, 1998. Net commissions and fees for the three months
ended June 30, 1999 were $157.0 million, an increase of $22.4 million or 16.7%
from $134.6 million in the first three months of 1998. Recruitment advertising
net commissions and fees were $43.3 million for the three months ended June 30,
1999 compared with $43.2 million for the three months ended June 30, 1998, an
increase of $0.1 million or 0.2%. This increase was primarily due to
acquisitions and lower discounts to clients substantially offset by net
decreases in client spending. Yellow page advertising net commissions and fees
were $26.6 million for both the three months ended June 30, 1999 and 1998
reflecting the effect of acquisitions and increased billings offset by reduced
commission rates paid by the publishers. Search & selection net commissions and
fees increased $4.8 million or 11.0% to $47.8 million for the three months ended
June 30, 1999 from $43.0 million for the three months ended June 30, 1998 due to
acquisitions. Internet net commissions and fees increased 136.8% or $15.0
million to $26.0 million for the three months ended June 30, 1999 from $11.0
million for the three months ended June 30, 1998. This increase reflects (i) an
increasing acceptance of the Company's Internet products from existing and new
clients and Internet users, (ii) the benefits of media advertising, (iii)
increases in services and content available on our Websites, (iv) expansion in
European markets and (v) price increases on certain products. Temporary
contracting net commissions and fees was $13.4 million, up $2.6 million or 24.5%
from $10.8 million for the three months ended June 30, 1998. Temporary
contracting operations for TMP are primarily conducted in Australia and the
increase reflects an increase in the number of contractors placed due to a
greater need for information technology personnel and an increase in the
executive temporary contracting business, which has a mark-up higher than for
general and support staff.
Operating expenses for the three months ended June 30, 1999 were $139.0
million, compared with $119.9 million for the same period in 1998. The increase
of $19.1 million or 15.9% is primarily due to search & selection mergers and
acquisitions, higher merger and integration costs and higher operating and
marketing costs to support our expanding Internet operations partially offset by
lower expenses in yellow pages. Salaries and related costs for the three months
ended June 30, 1999 were $88.8 million or 56.5% of net commissions and fees,
compared with $76.9 million or 57.2% of net commissions and fees for the same
period in 1998. The increase of $11.9 million or 15.3% is primarily due to
increased Internet operations and acquisitions. Office and general expenses for
the three months ended June 30, 1999 were $44.3 million or 28.2% of net
commissions and fees, compared with $37.3 million or 27.7% of net commissions
and fees for the same period in 1998. The increase of $7.0 million or 18.6% is
primarily due to higher marketing costs for our Internet operations partially
offset by reductions in yellow page and recruitment advertising expenses due to
improved efficiencies. Included in the increase for Internet was $5.0 million
more in marketing costs for Monster.com. Merger and integration costs for the
three months ended June 30, 1999 were $3.3 million compared with $2.5 million
for the same period in 1998, an increase of $0.8 million or 34.5%, due to $1.1
million of office and staff integration costs for combining offices and
severance for redundant employees, partially offset by $0.3 million less for
transaction related costs, including legal, accounting, printing and advisory
fees.
As a result of the above, operating income for the three months ended June
30, 1999 increased $3.4 million or 23.0% to $18.1 million from $14.7 million for
the comparable period last year.
Net interest expense for the three months ended June 30, 1999 was $1.8
million, a decrease of $0.6 million or 24.4% from $2.4 million for the same
period in 1998, reflecting lower interest rates and borrowing costs resulting
from the amended and restated financing agreement entered into by the Company on
November 5, 1998.
Taxes on income for the three months ended June 30, 1999 were $7.4 million
on a pretax profit of $16.2 million, for an effective tax rate of 45.7%. This
compares with a provision for income taxes of $5.3 million for the same period
last year on a pretax profit of $12.0 million, for an effective tax rate of
43.7%. The increase of $2.1 million is the result of higher pretax profits. The
higher effective tax rate reflects the effect of merger costs from pooling of
interests transactions, for non-recurring legal, accounting and investment
banking fees, which are not tax deductible.
23
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
As a result of all of the above, net income available to common and
Class B common stockholders for the three months ended June 30, 1999 was $8.7
million, an increase of $2.0 million or 29.6% over the $6.7 million for the
three months ended June 30, 1998. Per diluted share, earnings for the three
months ended June 30, 1999 was $.23 an increase of $.05 or 27.8% over the $.18
for the three months ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided by operating activities for the six months ended June 30,
1999 was $12.0 million compared with $15.9 million provided by operating
activities for the six months ended June 30, 1998, a decline of $3.9 million
primarily due to the use of funds of $27.4 million from the effects of increases
in accounts receivable and decreases in accounts payable and accrued expenses
for the 1999 period over the 1998 period, offset primarily by $4.1 million in
tax benefits from the exercise of employee stock options, a $15.9 million
decline in the use of cash for work in process, prepaid and other assets for the
1999 period. EBITDA was $44.0 million for the six months ended June 30, 1999, an
increase of $4.3 million or 10.8% from $39.7 million for the six months ended
June 30, 1998. The increase reflects, for the 1999 period, a $2.2 million
increase in operating profits and $2.0 million more in depreciation and
amortization costs. As a percentage of net commissions and fees, EBITDA
decreased to 14.9% for the six months ended June 30, 1999 as compared with 15.7%
for the six months ended June 30, 1998. The lower percent reflects the increase
in merger and integration costs, which were 2.7% and 1.0% of net commissions and
fees for the 1999 and 1998 periods, respectively.
The Company's investing activities for the six months ended June 30, 1999
used cash of $29.7 million compared with $22.2 million for the six months ended
June 30, 1998. The $7.5 million increase was primarily due to payments for
acquisitions of businesses. We estimate that our expenditures for computer
equipment and software, furniture and fixtures and leasehold improvements will
be approximately $25.0 million for 1999.
The Company's financing activities include borrowings and repayments under
its bank financing agreements, issuance of and payments against installment
notes used principally to finance acquisitions and equipment. The Company's
financing activities for the six months ended June 30, 1999 provided net cash of
$17.0 million compared with $3.4 million for the six months ended June 30, 1998.
The increase of $13.6 million resulted primarily from a $3.6 million increase in
net borrowings against credit facilities, $6.7 million increase in cash received
from the exercise of employee stock options and a $3.5 million decline in
dividends paid by pooled companies, partially offset by a $0.1 million increase
in payments for capitalized leases.
At June 30, 1999, the Company had a $185.0 million committed line of credit
from its primary lender pursuant to a revolving credit agreement expiring June
30, 2001. Of such line, at June 30, 1999, approximately $29.9 million was unused
and accounts receivable as defined in the agreement is sufficient to allow draw
down of the entire amount. In addition, we have lines of credit aggregating
$20.7 million for its operations in Australia, New Zealand, France, Belgium,
Germany and the Netherlands of which approximately $9.6 million was unused at
June 30, 1999.
Cash and cash equivalents at June 30, 1999 equaled $38.4 million an
increase of $13.7 million from $24.7 million at June 30, 1998.
Management believes that the aggregate lines of credit available to the
Company, plus funds provided by operations will be adequate to support its
short-term cash requirements for acquisitions, capital expenditures, repayment
of debt and maintenance of working capital. The Company anticipates that future
cash flows from operations plus funds available under existing line of credit
facilities will be adequate to support its long term cash requirements as
presently contemplated. However, if the Company determines that conditions are
favorable, it would consider additional corporate finance or capital
transactions.
24
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
is effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance over accounting for computer software developed
or obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. The Company does not expect the adoption
of this standard to have a material effect on our capitalization policy.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" ("SFAS No. 133"), which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. SFAS No.
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. The Company does not expect the adoption of this statement to have a
significant impact on the Company's results of operations, financial position or
cash flows.
YEAR 2000 ISSUE
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with such Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
STATE OF READINESS
We have developed a comprehensive plan to deal with the Year 2000 issue.
The plan is an evolving document as we continue to acquire and integrate
companies throughout 1999. The plan is intended to achieve three basic
objectives: to ensure that core systems will operate reliably through the year
2000 and beyond; to ensure that each business unit follows a consistent approach
and adheres to project deadlines; and to track the status of all Year 2000
efforts.
Our Year 2000 task force has conducted an inventory of and has developed
testing procedures for all software and other systems that it believes might be
affected by Year 2000 issues. Since third parties developed and currently
support many of the systems used, a significant part of this effort will be to
ensure that these third-party systems are Year 2000 ready. Our plan is to
confirm this readiness by obtaining representations by these third parties that
their products' are year 2000 ready and through specific testing of these
systems. Our plan is to substantially complete this process prior to the end of
the third quarter of 1999. Until such testing is completed and such vendors and
providers are contacted, we will not be able to completely evaluate whether our
systems will need to be revised or replaced.
COSTS
We expect to incur approximately $3.0 million, globally, during 1999 in
connection with identifying, evaluating and addressing Year 2000 readiness
issues. Most of these costs relate to time spent by employees and consultants in
making our systems Year 2000 ready. Such costs, are not expected to have a
material adverse effect on the Company's business, results of operations and
financial condition.
25
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RISKS
We are not currently aware of any Year 2000 readiness problems relating to
our systems that would have a material adverse effect on our business, results
of operations and financial condition, without taking into account our efforts
to avoid or fix such problems. There can be no assurance that we will not
discover Year 2000 readiness problems in our systems that will require
substantial revision. In addition, there can be no assurance that third-party
software, hardware or services incorporated into our material systems will not
need to be revised or replaced, all of which could be time-consuming and
expensive. Our failure to fix or replace our internally developed proprietary
software or third-party software, hardware or services on a timely basis could
result in lost revenues, increased operating costs, the loss of customers and
other business interruptions, any of which could have a material adverse effect
on our business, results of operations and financial condition. Moreover, the
failure to adequately address Year 2000 readiness issues in our internally
developed proprietary software could result in claims of mismanagement,
misrepresentation or breach of contract and related litigation, which could be
costly and time-consuming to defend.
We are heavily dependent on a significant number of third-party vendors to
provide both network services and equipment. A significant Year 2000-related
disruption of the network, services or equipment that third-party vendors
provide to us could cause our members and visitors to consider seeking alternate
providers or cause an unmanageable burden on our technical support, which in
turn could materially and adversely affect our business, financial condition and
results of operations.
In addition, we cannot assure you that governmental agencies, utility
companies, internet access companies, third-party service providers and others
outside of our control will be Year 2000 ready. The failure by such entities to
be Year 2000 ready could result in a systemic failure beyond our control, such
as a prolonged internet, telecommunications or electrical failure, which could
also prevent us from delivering our services to our customers, decrease the use
of the internet or prevent users from accessing our Websites which could have a
material adverse effect on our business, results of operations and financial
condition.
CONTINGENCY PLAN
We are currently developing contingency plans for those systems which we
consider at risk of not being Year 2000 ready at least three months before
year-end. The results of our Year 2000 simulation testing and the responses
received from third -party vendors and service providers will be taken into
account in determining the nature and extent to which our contingency plans will
be implemented.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company's primary Market risks include fluctuations in interest rates,
variability in interest rate spread relationships (i.e., prime to LIBOR spreads)
and exchange rate variability. Substantially all of the Company's debt relates
to a five-year financing agreement with an outstanding principal balance of
approximately $155.1 million as of June 30, 1999. Interest on the outstanding
balance is charged based on a variable interest rate related to the higher of
the prime rate, Federal Funds rate less 1/2 of 1% or LIBOR plus a margin
specified in the agreement, and is thus subject to market risk in the form of
fluctuations in interest rates. The Company does not trade in derivative
financial instruments.
The Company also conducts operations in various foreign countries,
including Australia, Belgium, Canada, France, Germany, Japan, the Netherlands,
New Zealand, Singapore, Spain, and the United Kingdom. For the period ended June
30, 1999 approximately 64.7% of our net commissions and fees were earned outside
the United States and collected in local currency. In addition, we generally pay
operating expenses in the corresponding local currency and will be subject to
increased risk for exchange rate fluctuations between such local currencies and
the dollar. We do not conduct any significant hedging activities.
26
<PAGE>
TMP WORLDWIDE INC.
PART II OTHER INFORMATION
ITEM 2(C). CHANGES IN SECURITIES AND USE OF PROCEEDS
(i) On April 9, 1999, we issued 17,711 shares of our common stock in a
private placement transaction in exchange for all the outstanding stock
of Ross Advertising, an Ontario, Canada corporation.
(ii) On April 30, 1999, we issued 176,695 shares of our common stock in a
private placement transaction in exchange for all of the outstanding
stock of InterQuest Pty. Limited, an Australian corporation.
(iii) On May 19, 1999, we issued 112,606 shares of our commons stock in a
private placement transaction in exchange for all the outstanding stock
of LIDA Advertising, Inc., a Missouri corporation.
(iv) On May 20, 1999, we issued 110,000 shares of our common stock in a
private placement transaction in exchange for all of the assets of Maes
& Lunau, a Netherlands corporation.
(v) On May 26, 1999, we acquired substantially all of the assets of Theaker
Monro Newman, a corporation organized under the laws of the United
Kingdom. In connection with this acquisition, we issued 6,834 shares of
our common stock in a private placement transaction.
(vi) On May 28, 1999, we issued 289,031 shares of our common stock in a
private placement transaction in exchange for all of the outstanding
stock of In2, Inc., a New York corporation.
(vii) On May 28, 1999, we issued an aggregate 122,908 shares of our common
stock in a private placement transaction in exchange for all of the
outstanding stock of Lemming/LeVan, Inc., a Georgia corporation, and
Lemming/LeVan,Inc., a New York corporation.
(viii) On May 28, 1999, we issued 89,000 shares of our common stock in a
private placement transaction in exchange for all of the outstanding
stock of Yellow Pages Unlimited, Inc., an Indiana corporation.
(ix) On May 4, 1999 we acquired the minority interest in Morgan & Banks (Hong
Kong) Limited and M&B Search Pty. Ltd. in exchange for 19,431 shares of
our common stock in a private placement transaction.
(x) On May 6, 1999 we issued 140,600 shares of our common stock pursuant to
stock bonus agreements entered into in connections with the merger with
of Johnson, Smith and Knisely, Inc.
(xi) On May 26, 1999 we issued 8,700 shares of our common stock pursuant to
stock bonus agreements entered into in connection with the merger with
Lemming & LeVan, Inc.
The shares issued in the transactions described in (i) through (xi) above were
not registered under the Securities Act of 1933, as amended, pursuant to the
exemption contained in Section 4(2) of the Act.
27
<PAGE>
TMP WORLDWIDE INC.
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
(a) The Annual Meeting of Stockholders was held on June 28,1999.
(b) The following directors were reelected at the Annual Meeting of Stockholders
and received the vote indicated:
<TABLE>
<CAPTION>
FOR WITHHELD
--- --------
<S> <C> <C>
Andrew J. McKelvey 48,180,882 300,031
George Eisele 48,180,375 300,598
John Gaulding 48,180,566 300,347
Michael Kaufman 48,233,436 247,477
John Swann 48,179,159 301,754
James J. Treacy 48,180,389 300,524
</TABLE>
(c) The adoption of the Company's 1999 Long Term Incentive Plan was approved
by the vote indicated:
For: 40,993,975
Against: 7,464,367
Broker non-votes: 0
Abstain: 22,571
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as a part of this report:
27 Financial Data Schedule
(b)(i) The Company's Current Report on Form 8-K, dated June 10,
1999, which includes the supplemental consolidated financial
statements relating to the restatement of the Company's
consolidated financial statements as of December 31, 1998 and
1997 and for each of the three years in the period ended
December 31, 1998 and the supplemental consolidated condensed
financial statements as of March 31, 1999 and for the three
months in the periods ended March 31, 1999 and 1998 to reflect
the mergers with InterQuest Pty. Limited on April 30, 1999,
LIDA Advertising, Inc. on May 19, 1999, Maes & Lunua on May
20, 1999, Lemming/LeVan, Inc. on May 28, 1999, IN2, Inc. on
May 28, 1999 and Yellow Pages Unlimited, Inc. on May 28, 1999
which have been accounted of as poolings-of-interests. In
addition, the Company's historical consolidated financial
statements included therein reflect the merger with Morgan &
Banks Limited as of January 28, 1999, which was accounted for
as a pooling of interests.
(ii) The Company's Current Report on Form 8-K, dated April 21,
1999, relating to the restatement of the Company's
consolidated financial statements as of December 31, 1998 and
1997 and for each of the three years in the period ended
December 31, 1998 to reflect the acquisition of Morgan & Banks
Limited on January 28, 1999, which was accounted for as a
pooling of interests.
All other items of this report are inapplicable.
28
<PAGE>
TMP WORLDWIDE INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TMP WORLDWIDE INC.
------------------------------------
(Registrant)
Date: August 13, 1999 /s/ BART CATALANE
------------------------------------
BART CATALANE
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001020416
<NAME> TMP WORLDWIDE
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 38,390
<SECURITIES> 0
<RECEIVABLES> 368,755
<ALLOWANCES> 16,470
<INVENTORY> 0
<CURRENT-ASSETS> 437,314
<PP&E> 134,612
<DEPRECIATION> 68,741
<TOTAL-ASSETS> 748,041
<CURRENT-LIABILITIES> 424,592
<BONDS> 133,026
0
0
<COMMON> 37
<OTHER-SE> 183,775
<TOTAL-LIABILITY-AND-EQUITY> 748,041
<SALES> 295,321
<TOTAL-REVENUES> 295,321
<CGS> 0
<TOTAL-COSTS> 264,859
<OTHER-EXPENSES> 59
<LOSS-PROVISION> 2,470
<INTEREST-EXPENSE> 4,564
<INCOME-PRETAX> 23,369
<INCOME-TAX> 10,475
<INCOME-CONTINUING> 12,587
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<PAGE>
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<NAME> TMP WORLDWIDE
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0
0
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