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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: September 30, 1999
TMP WORLDWIDE INC.
(Exact name of Registrant as specified in its charter)
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<TABLE>
<S> <C> <C>
DELAWARE 0-21571 13-3906555
(State of Incorporation) (Commission File No.) (I.R.S. Employer Identification
No.)
</TABLE>
<TABLE>
<S> <C>
1633 BROADWAY, NEW YORK, NEW YORK 10019
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: 212-977-4200
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ITEM 5. OTHER EVENTS.
During the period July 1, 1999 through August 31, 1999, TMP Worldwide Inc.
and Subsidiaries (the "Company" or "TMP") consummated mergers with the following
companies (the "Third Quarter 1999 Pooled Companies"), in transactions which
provided for the exchange of all of the outstanding stock of each entity for a
total of 2,153,457 shares of TMP common stock and which were accounted for as
poolings of interests (the "Third Quarter 1999 Mergers").
<TABLE>
<CAPTION>
NATURE OF REGION OF NUMBER OF TMP
ENTITY OPERATIONS OPERATIONS ACQUISITION DATE SHARES ISSUED
- ---------------------------- -------------------------- ----------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Cameron-Newell Advertising, Recruitment advertising North America August 2, 1999 420,000
Inc.("CNA")
Brook Street Bureau (QLD) Temporary contracting and Pacific Rim August 3, 1999 130,900
Pty Ltd ("Brook St.") search & selection
LAI Worldwide, Inc. ("LAI") Search & selection North America August 26, 1999 1,059,821
Fox Advertising Inc. ("Fox") Yellow page advertising North America August 30, 1999 129,640
Lampen Group Limited Temporary contracting and Pacific Rim & August 31, 1999 413,096
("Lampen") search & selection United Kingdom
</TABLE>
The Company's consolidated financial statements have been retroactively
restated as of June 30, 1999 and December 31, 1998 and 1997, for the six months
ended June 30, 1999 and 1998 and for each of the three years in the period ended
December 31, 1998, to reflect the consummation of the Third Quarter 1999
Mergers. The supplemental consolidated financial statements included herein give
retroactive effect to the Third Quarter 1999 Mergers, which have been accounted
for using the pooling of interests method. As a result, the financial position,
results of operations and statements of cash flows are presented as if the Third
Quarter 1999 Pooled Companies had been consolidated for all periods presented.
The supplemental consolidated statements of stockholders' equity reflect the
accounts of TMP as if the common stock issued in connection with the Third
Quarter 1999 Mergers had been issued for all periods presented. As required by
generally accepted accounting principles, the supplemental consolidated
financial statements will become the historical financial statements of the
Company upon issuance of the financial statements for the period that includes
the consummation of the Third Quarter 1999 Mergers.
In the supplemental consolidated balance sheets, the balance sheets of TMP
as of June 30, 1999 and December 31, 1998 and 1997 have been combined with those
of the Third Quarter 1999 Pooled Companies as of June 30, 1999 and December 31,
1998 and 1997 except for the following: CNA, for which the balance sheet as of
July 31, 1997 is combined with that of TMP as of December 31, 1997; Brook St.,
for which the balance sheets as of June 30, 1999 and 1998, are combined with
those of TMP as of December 31, 1998 and 1997, respectively; and LAI, for which
the balance sheets as of February 28, 1999 and 1998 are combined with those of
TMP as of December 31, 1998 and 1997, respectively.
The supplemental consolidated statements of operations combine the results
of TMP for the six months ended June 30, 1999 and 1998 and each year in the
three year period ended December 31, 1998 with those of the Third Quarter Pooled
Companies for the same periods except for the following: (a) CNA, for which the
statement of operations for the years ended July 31, 1997 and 1996 are included
in the Supplemental Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996, respectively; (b) Brook St., for which the
statements of operations for the six months ended December 31, 1998 and each
year in the three year fiscal period ended June 30, 1999 are included in the
Supplemental
2
<PAGE>
ITEM 5. OTHER EVENTS. (CONTINUED)
Consolidated Statements of Operations for the six month period ended June 30,
1998 and each of the three years in the period ended December 31, 1998,
respectively; and (c) LAI, for which the statements of operations for the six
months ended August 31, 1998 and each year in the three year fiscal period ended
February 28, 1999 are included in the Supplemental Consolidated Statements of
Operations for the six month period ended June 30, 1998 and each of the three
years ended December 31, 1998, respectively. Consequently, the results of CNA
for the period August 1, 1997 through December 31, 1997 are not included in the
supplemental consolidated statements of operations. The effects on consolidated
commissions and fees, net income and diluted earnings per share would have been
an increase of $4.0 million, $0.9 million and $0.02, respectively. Furthermore,
the results of Brook St. for the six months ended June 30, 1999 and the results
of LAI for the two months ended February 28, 1999 are included in the
Supplemental Consolidated Statements of Operations for the year ended December
31, 1998 and the six months ended June 30, 1999 and the effects on both periods
on (a) commissions & fees was approximately $11.1 million, (b) net income was a
loss of approximately $3.8 million and (c) diluted earnings per share per share
was $(0.10).
The supplemental consolidated financial statements, including the notes
thereto, should be read in conjunction with TMP's historical consolidated
financial statements included in its 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and Results
of Operations which follows is reflective of the supplemental consolidated
financial statements referred to above.
Statements in this Current Report on Form 8-K concerning our business
outlook or future economic performance, anticipated profitability, gross
billings, commissions and fees, expenses or other financial items and statements
concerning assumptions made or exceptions as to any future events, conditions,
performance or other matters are "forward-looking statements" as that term is
defined under the federal securities laws. Forward-looking statements are
subject to risks, uncertainties and other factors which would cause actual
results to differ materially from those stated in such statements. Such risks,
uncertainties and factors include, but are not limited to, (i) the uncertain
acceptance of the Internet and our Internet content, (ii) that we have grown
rapidly and there can be no assurance that we will continue to be able to grow
profitably or manage our growth, (iii) risks associated with acquisitions, (iv)
competition, (v) our quarterly operating results have fluctuated in the past and
are expected to fluctuate in the future, (vi) our business experiences
seasonality, (vii) the loss of services of certain key individuals could have a
material adverse effect on our business, financial condition or operating
results, (viii) we have entered into certain transactions with affiliated
parties and (ix) that we are controlled by one stockholder, Andrew J. McKelvey.
OVERVIEW
A substantial part of our growth has been achieved through acquisitions. For
the period January 1, 1996 through June 30, 1999, we completed 53 acquisitions
which were accounted for under the purchase method and 13 mergers which were
accounted for as poolings of interests. Of the pooling of interests 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 mergers, we issued approximately 8.7 million shares of our common stock in
exchange for all of the outstanding common stock of these seven companies. In
addition, from April 1, 1999 through June 30,
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
OVERVIEW (CONTINUED)
1999, we completed pooling of interests mergers (the "Second Quarter 1999
Mergers"), with six companies, Interquest, Pty. Limited ("Interquest"), LIDA
Advertising Inc. ("LIDA"), Maes & Lunau ("M&L"), IN2, Inc. ("IN2"), Lemming &
LeVan, Inc. ("L&L"), and Yellow Pages Unlimited, Inc. ("YPU"), (the "Second
Quarter 1999 Pooled Companies"). In connection with the Second Quarter 1999
Mergers we issued a total of approximately 0.9 million shares of TMP common
stock in exchange for all of the outstanding stock of the Second Quarter 1999
Pooled Companies.
Furthermore, from July 1, 1999 through August 31, 1999, we completed mergers
with the five companies listed below (the "Third Quarter 1999 Pooled
Companies"), which provided for the exchange of all of the outstanding stock of
such companies for a total of 2,153,457 shares of TMP common stock and which
were accounted for as poolings of interests (the "Third Quarter 1999 Mergers").
<TABLE>
<CAPTION>
NATURE OF REGION OF NUMBER OF TMP
ENTITY OPERATIONS OPERATIONS ACQUISITION DATE SHARES ISSUED
- ---------------------------- -------------------------- ----------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Cameron-Newell Advertising, Recruitment advertising North America August 2, 1999 420,000
Inc.("CNA")
Brook Street Bureau (QLD) Temporary contracting and Pacific Rim August 3, 1999 130,900
Pty Ltd ("Brook St.") search & selection
LAI Worldwide, Inc. ("LAI") Search & selection North America August 26, 1999 1,059,821
Fox Advertising Inc. ("Fox") Yellow page advertising North America August 30, 1999 129,640
Lampen Group Limited Temporary contracting and Pacific Rim & August 31, 1999 413,096
("Lampen") search & selection United Kingdom
</TABLE>
Accordingly, the supplemental consolidated financial statements in our
Current Report on Form 8-K filed on June 10, 1999, which reflect the
consummation of the Second Quarter 1999 Mergers, are being retroactively
restated to reflect the Third Quarter 1999 Mergers and, as a result, the
financial position, results of operations and statements of cash flows are
presented as if the Third Quarter 1999 Pooled Companies had been consolidated
for all periods presented. In addition, for the period of January 1, 1996
through June 30, 1999, we completed 53 acquisitions, which were accounted for
using the purchase method, with estimated annual gross billings of approximately
$603 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
fees from temporary contracting services. Gross billings are not included in our
consolidated financial statements, because they include a substantial amount of
funds that are collected from our clients but passed through to publishers for
advertisements. However, the trends in gross billings directly impact the
Company's total 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.
4
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
OVERVIEW (CONTINUED)
For recruitment advertising placements in the U.S., publisher commissions
average 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 commissions and fees, our commission
rates for recruitment advertising vary, ranging from approximately 10% in
Australia to 15% in Canada and the United Kingdom.
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 pages
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, $2.2 million and $3.5 million, respectively.
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, 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. In
the first quarter of 1999 we merged with M&B, the largest search & selection
firm in Australia, in a pooling of interests transaction and acquired two
European search & selection firms (one with operations in eastern Europe and one
in Belgium). In the second quarter of 1999, in pooling of interests
transactions, we merged with three companies with search & selection operations,
M&L in the Netherlands, L&L in the United States and Interquest in Australia. In
the third quarter of 1999, in a pooling of interests transaction, we merged with
LAI, the 5th largest executive search firm in the U.S. (according to
Hunt-Scanlon Publishing, Inc., a publication that follows the executive search
industry). In addition, we expanded our temporary contracting services in
Australia, New Zealand and the United Kingdom with the additions of Brook St.
and Lampen, which also have selection operations in those regions.
Commissions & fees related to our Internet business are derived from (a)
recruitment advertisement and related services placed on the Internet, primarily
TMP's own Website, Monster.com, (b) employment searches and temporary
contracting services sourced through the Internet, (c) Internet related
advertising services provided to our yellow page clients and (d) interactive
advertising services and technologies that allow advertisers to measure sales,
repeat traffic and other key brand and e-commerce metrics back to individual
marketing units, such as banners. These advertising services and technologies
allow the advertisers to greatly reduce costs, while driving only the most
qualified users to their websites.
Recruitment advertising commissions and fees increased from $76.6 million in
1996 to $177.8 million in 1998, while yellow page advertising commissions and
fees increased from $100.9 million in 1996 to $106.5 million in 1998. Both
recruitment and yellow page advertising commissions and fees increased as a
result of acquisitions which are included in the financial statements using the
purchase method of accounting from their respective dates of acquisition made
from January 1, 1996 through December 31, 1998. Search & selection commissions
and fees grew from $170.4 million in 1996 to $256.1 million in 1998 primarily as
a result of increased demand for these services by new and existing clients.
Temporary contracting commissions and fees increased from $29.2 million in 1996
to $47.0 million in 1998 reflecting a greater demand for executive and
information technology temporary contract personnel. Internet commissions and
fees increased from $6.9 million in 1996 to $50.2 million in 1998 reflecting an
increase in the acceptance of our Internet products from existing and new
clients and increased sales and marketing activities. We are continuously
monitoring the marketplace for opportunities to expand our presence in
recruitment advertising, yellow page advertising, search & selection, temporary
contracting and on the
5
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
OVERVIEW (CONTINUED)
Internet, and intend to continue our acquisition strategy to supplement our
internal growth and the expansion of our businesses.
Based on our consolidated results for the years ended December 31, 1998,
1997 and 1996, 45%, 43%, and 40%, respectively, of our consolidated commissions
and fees were attributable to clients outside the U.S.
Our total operating expenses have increased significantly since 1996
primarily as a result of acquisitions and added expenses to support gross
billings growth for our Internet and recruitment businesses and marketing for
our Internet business.
Salaries and related costs increased $147.7 million to $374.9 million for
the year ended December 31, 1998 from $227.2 million for the year ended December
31, 1996, a 65.0% increase, supporting a $678.5 million or a 64.5% increase in
gross billings over the same period. When measured as a percent of gross
billings, salaries and related costs for the year ended December 31, 1998 were
21.7%, up slightly from 21.6% for the comparable 1996 period. Salaries and
related costs include total payroll and associated benefits as well as payroll
taxes, sales commissions, recruitment fees and training costs.
Office and general expenses increased $73.5 million to $185.3 million for
the year ended December 31, 1998 from $111.8 million for the year ended December
31, 1996, a 65.7% increase. This increase is due primarily to increased costs
needed to support the increased gross billings, the expansion of recruitment and
search & selection offices through acquisitions in the U.S. and foreign markets,
and expansion of our infrastructure and marketing costs to promote the growth of
our Internet business. When measured as a percent of gross billings, office and
general costs for the year ended December 31, 1998 were 10.7%, a slight increase
from 10.6% for the comparable 1996 period. This cost category includes expenses
for office operations, business promotion, market research, advertising,
professional fees and fees paid to our primary lending institution for its
services in the processing and collection of payments for accounts receivable.
Merger & integration costs are expensed for business combinations accounted
for under the pooling of interests method of accounting. In general, these costs
are comprised of transaction costs (such as advisory, legal and accounting fees,
printing costs and costs incurred for the subsequent registration of shares in
connection with the transactions), stay bonuses, costs to eliminate redundant
facilities and personnel, costs to integrate operations of the pooled entities
and acceleration of benefits and separation pay in accordance with pre-existing
contractual change in control provisions.
For the year ended December 31, 1998, the Company expensed merger &
integration costs of $22.4 million in connection with the 1998 Mergers and the
M&B Merger. These costs consist of (1) $11.9 million of non-cash employee stay
bonuses, (2) $1.5 million of stay bonuses paid as cash to key personnel of the
1998 Pooled Companies and (3) $9.0 million of transaction related costs,
including legal, accounting and advisory fees and the costs incurred for the
subsequent registration of shares issued in the mergers.
For the six months ended June 30, 1999, in connection with the 1998 Mergers,
the M&B Merger, the Second Quarter 1999 Mergers, and the merger with LAI, the
Company expensed merger & integration costs of $11.5 million. The merger and
integration costs for the six months ended June 30, 1999, consist of (1) $2.3
million of non-cash employee stay bonuses, (2) $4.7 million of transaction
related costs, including legal, accounting, printing and advisory fees and the
costs incurred for the subsequent registration of shares issued in the mergers,
(3) $2.1 million in separation costs for the Chief Operating Officer of LAI,
who, in accordance with the terms of his employment agreement, chose to resign
from LAI, (4) $1.1 million of office and staff integration costs, (5)
approximately $0.8 million for investment banking and legal fees incurred by LAI
and (6) approximately $0.5 million in licensing fees for software made redundant
by the merger with LAI. The merger and integration costs expensed for the six
months ended June 30, 1998 of
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
OVERVIEW (CONTINUED)
$2.5 million are related to the pooling of interest transaction with JSK and are
comprised of $1.1 million for non-cash employee stay bonuses and $1.4 million of
transaction related costs.
The Company currently estimates that the merger & integration costs that
will be expensed in the third quarter of 1999 will total between $30 million and
$35 million. These costs are primarily associated with the Third Quarter 1999
Mergers and their integration with other TMP operations, most of which have been
added to TMP as a result of recent mergers and acquisitions. These costs are
comprised of transaction costs (such as advisory, legal and accounting fees,
printing costs and costs incurred for the subsequent registration of shares in
connection with the transactions), costs to eliminate redundant facilities and
personnel, costs to integrate TMP's existing search & selection operations with
those of LAI and M&B, separation pay in accordance with pre-existing contractual
change in control provisions and non-cash items totaling between $20 million and
$25 million. These non-cash items are primarily comprised of charges associated
with the accelerated vesting of employee stock and stock option grants and the
write-offs of software and leasehold improvements. Furthermore, the Company
anticipates that there will be additional future period merger & integration
costs in connection with the Third Quarter 1999 Mergers. These costs are
primarily related to severance and will be recorded when the associated
integration plans are finalized.
Amortization of intangibles includes amortization of acquisition related
charges, including the costs in excess of fair market value of net assets of
business acquisitions accounted for under the purchase method and capitalized
costs for non-compete arrangements with the principals of acquired companies.
This acquisition related amortization was $10.2 million, $6.9 million and $4.7
million for the years ended December 31, 1998, 1997 and 1996, respectively and
$5.6 million and $5.4 million for the six months ended June 30, 1999 and 1998,
respectively.
The special CEO bonus for the years ended December 31, 1998 and 1997 of $1.3
million and $1.5 million reflects non-cash charges, recorded in compliance with
Staff Accounting Bulletin No. 79 ("SAB 79"), for a bonus mandated by the
Principal Stockholder's employment contract, even though such bonus was
irrevocably waived. The contractual obligation to pay such bonus was eliminated
as of November 1998. The special compensation for the year ended December 31,
1996, reflects a non-cash, non-recurring charge of approximately $52.0 million
resulting from the issuance of approximately 3.6 million shares of our common
stock to stockholders of our predecessor companies in exchange for their shares
in those companies. This charge was incurred because these stockholders had
received such shares for nominal or no consideration as employees or as
management of such companies and, accordingly, were not considered to have made
substantive investments for their shares.
Net interest expense includes interest: (i) on loans made by our primary
lender under our financing agreement with such lender, (ii) to certain vendors,
(iii) on capitalized lease obligations, (iv) on net amounts payable to the
holders of seller financed notes and (v) on a term loan related to the purchase
of certain transportation equipment. In addition, 1996 net interest expense
includes a non-recurring charge of approximately $2.6 million to reflect, upon
exercise of the warrant issued in connection with our financing agreement, the
difference between the value of the stock issued at the initial public offering
price of $14.00 per share and the value recorded for the warrant when it was
originally issued.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
The following table sets forth our gross billings, commissions & fees,
commissions & fees as a percentage of gross billings, EBITDA and cash flow
information.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
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<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
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<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Gross billings:
Recruitment advertising...................... $ 369,979 $ 642,872 $ 849,563 $ 435,446 $ 416,841
Yellow page advertising...................... 466,230 497,848 520,129 249,612 257,112
Search & selection........................... 179,866 220,826 257,334 132,359 125,747
Internet(1).................................. 6,939 20,553 56,666 21,154 52,295
Temporary contracting(2)..................... 29,210 41,285 46,989 19,207 29,443
------------ ------------ ------------ ---------- ----------
Total billings............................... $ 1,052,224 $ 1,423,384 $ 1,730,681 $ 857,778 $ 881,438
------------ ------------ ------------ ---------- ----------
------------ ------------ ------------ ---------- ----------
Commissions & fees:
Recruitment advertising...................... $ 76,601 $ 134,291 $ 177,774 $ 91,552 $ 91,904
Yellow page advertising...................... 100,883 103,941 106,455 50,410 50,982
Search & selection........................... 170,424 219,514 256,140 131,824 124,443
Internet(1).................................. 6,939 19,470 50,158 19,034 46,313
Temporary contracting(2)..................... 29,210 41,285 46,989 19,207 29,443
------------ ------------ ------------ ---------- ----------
Total commissions & fees..................... $ 384,057 $ 518,501 $ 637,516 $ 312,027 343,085
------------ ------------ ------------ ---------- ----------
------------ ------------ ------------ ---------- ----------
Commissions & fees as a percentage of gross
billings:
Recruitment advertising...................... 20.7% 20.9% 20.9% 21.0% 22.0%
Yellow page advertising...................... 21.6% 20.9% 20.5% 20.2% 19.8%
Search & selection........................... 94.8% 99.4% 99.5% 99.6% 99.0%
Internet(1).................................. 100.0% 94.7% 88.5% 90.0% 88.6%
Temporary contracting........................ 100.0% 100.0% 100.0% 100.0% 100.0%
Total commissions & fees..................... 36.5% 36.4% 36.8% 36.4% 38.9%
EBITDA(3).................................... $ 1,144 $ 80,487 $ 71,808 $ 48,473 $ 20,798
Cash provided by operating activities........ $ 32,138 $ 40,624 $ 56,229 $ 9,012 $ 9,219
Cash used in investing activities............ $ (46,019) $ (89,368) $ (65,870) $ (73,147) $ (33,429)
Cash provided by financing activities........ $ 17,062 $ 75,161 $ 27,672 $ 44,501 $ 11,555
Effect of exchange rate changes on cash...... $ (159) $ (260) $ (17) $ (1,164) $ 408
</TABLE>
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(1) Represents fees earned in connection with recruitment, yellow page and other
advertisements placed on the Internet and employment searches and temporary
contracting services sourced through the Internet.
(2) Amounts for temporary contracting are reported after the costs paid to the
temporary contractor.
(3) Earnings before interest, income taxes, depreciation and amortization.
EBITDA is presented to provide additional information about our ability to
meet our future debt service, capital expenditures and working capital
requirements and is one of the measures which determines our ability to
borrow under our credit facility. EBITDA should not be considered in
isolation or as a substitute for
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
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 our profitability or liquidity.
EBITDA for the indicated periods is calculated as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
---------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income (loss)......................................... $ (38,123) $ 30,605 $ 13,925 $ 16,241 $ (2,404)
Interest expense, net..................................... 14,450 8,629 9,903 4,694 4,267
Income tax expense........................................ 10,753 19,980 13,899 11,619 319
Depreciation and amortization............................. 14,064 21,273 34,081 15,919 18,616
---------- --------- --------- --------- ---------
EBITDA.................................................... $ 1,144 $ 80,487 $ 71,808 $ 48,473 $ 20,798
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
</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 $881.4 million, a
net increase of $23.6 million or 2.8% from $857.8 million for the six months
ended June 30, 1998. Total commissions and fees for the six months ended June
30, 1999 were $343.1 million, an increase of $31.1 million or 10.0% from $312.0
million in the comparable six months of 1998. Recruitment commissions and fees
were $91.9 million for the six months ended June 30, 1999 compared with $91.6
million for the six months ended June 30, 1998, an increase of $0.3 million or
0.4%. This increase was primarily due to a reduction in discounts given to
clients and an increase in creative and collateral business (such as: campaign
development, referral & retention programs, multi-media presentations, brochures
and posters) for existing clients, growth from new and existing clients in
Continental Europe and acquisitions, offset by a decline in client spending,
reflecting a decline in print media advertising in the United States and the
United Kingdom. Yellow page commissions and fees were $51.0 million for the six
months ended June 30, 1999, an increase of $0.6 million or 1.1% from $50.4
million for the comparable six months in 1998. This increase was due to
increases in client spending, new clients and acquisitions. Search & selection
commissions and fees were $124.4 million a decrease of $7.4 million or 5.6% from
$131.8 million for the comparable six months of 1998, due primarily to a
decrease in commissions and fees at LAI, partially offset by increases in
commissions and fees from acquisitions in Continental Europe. Internet
commissions and fees for the six months ended June 30, 1999 were $46.3 million,
an increase of 143.3% or $27.3 million as compared with $19.0 million for the
six months ended June 30, 1998. The increase in Internet commissions and fees
from the June 1998 period to the June 1999 period, is due to: (i) an increasing
acceptance of our Internet services and products from existing clients, new
clients and Internet users, (ii) price increases on certain products, (iii)
increases in the services and content available on our Websites, (iv) expansion
into certain European markets and (v) the benefits of strategic alliances with
other Internet service and content providers. Temporary contracting commissions
and fees were $29.4 million, up $10.2 million or 53.3% from $19.2 million for
the period ended June 30, 1998. The increase reflects a greater number of
contractors placed due to increased marketing efforts and greater needs for
information technology personnel and executives, which generate fees that are
higher than for general and support staff.
Total operating expenses for the six months ended June 30, 1999 were $340.6
million, compared with $278.9 million for the same period in 1998. The increase
of $61.7 million or 22.1% is primarily due to (a) $35.0 million in higher
operating costs to support expanding Internet operations and marketing efforts
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
by LAIcompass, (b) $9.0 million in merger & integration costs related to
acquisitions accounted for as pooling of interests, (c) $9.5 million for search
& selection, (d) $6.9 million for temporary contracting, reflecting growth, (e)
$2.1 million for recruitment advertising and (f) $2.8 million in restructuring
expenses for the closings of LAI's offices in Hong Kong and London, England
partially offset by a $3.6 million reduction for yellow page advertising.
Salaries and related costs for the six months ended June 30, 1999 were
$208.8 million or 60.9% of total commissions and fees, compared with $182.4
million or 58.4% of total commissions and fees for the same period in 1998. The
increase of $26.4 million or 14.5% is primarily due to added Internet staffing
and compensation and acquisitions.
Office and general expenses for the six months ended June 30, 1999 were
$111.8 million or 32.6% of total commissions and fees compared with $88.0
million or 28.2% of total commissions and fees for the same period in 1998. The
increase of $23.8 million or 27.1% is primarily due to higher marketing costs
for our Internet operations, including the marketing of LAIcompass' search and
selection related Internet services by LAIcompass, partially offset by
reductions in infrastructure costs related to recruitment advertising,
reflecting increased economies of scale.
Merger & integration costs for the six months ended June 30, 1999 were $11.5
million, the majority of which were related to the M&B Merger, but also included
$3.4 million for the merger with LAI, and $1.9 million for the amortization of
employee stay bonuses payable in shares of TMP common stock in connection with
certain of the mergers consummated in 1998 and accounted for as poolings of
interests. The merger & integration costs expensed for the six months ended June
30, 1998 of $2.5 million are related to the pooling of interests transaction
with JSK and are comprised of $1.1 million for non-cash employee stay bonuses
and $1.4 million of transaction related costs. The after tax effect of these
charges on diluted earnings per share is $(0.21) and $(0.05) for the six months
ended June 30, 1999 and 1998, respectively.
Restructuring charges for the six months ended June 30, 1999 were $2.8
million or, on an after tax basis, $(0.04) per diluted share. These charges
relate to LAI's plan to close its international offices in Hong Kong and London,
England, and include $0.5 million for the write-off of leasehold improvements
and fixed assets, $1.3 million for severance benefits payable to 24 employees
and $1.0 million for consolidation of facilities related to the restructuring.
As a result of the above, operating income for the six months ended June 30,
1999 was $2.5 million, a decrease of $30.6 million or 92.4% from $33.1 million
for the comparable period last year.
Net interest expense for the six months ended June 30, 1999 was $4.3
million, a decrease of $0.4 million or 9.1%, from $4.7 million for the
comparable 1998 period. This decrease reflects lower interest rates and
borrowing costs resulting from the 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 $0.3 million on
a $1.8 million pre-tax loss, resulting in an effective tax rate of (18.0)%
compared with a tax expense of $11.6 million on a $28.0 million pre-tax profit,
resulting in an effective tax rate of 41.4%, for the same period last year. The
$11.3 million decrease in taxes for the six months ended June 30, 1999 as
compared with the 1998 period, reflects the $29.8 million decline in pretax
results from the 1998 period to the 1999 period and the inability to record a
tax benefit on a significant portion of the 1999 merger costs, because such
items are not deductible for tax.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Minority interests in consolidated earnings for the six months ended June
30, 1999 were $107 thousand compared with a loss of $1 thousand for the six
months ended June 30, 1998. Equity in losses of affiliates, which reflects
losses associated with the real estate advertising company in which the Company
holds a minority interest, was a loss of $0.2 million for the six months ended
June 30, 1999 and 1998.
As a result of all of the above, the net loss available to common and Class
B common stockholders for the six months ended June 30, 1999 was $2.4 million, a
decrease of $18.6 million from the net income of $16.2 million for the six
months ended June 30, 1998. On a diluted per share basis, the net income (loss)
available to common and Class B common stockholders for the six months ended
June 30, 1999 was $(0.06), a decrease of $0.48 or 114.3% from $0.42 for the
comparable 1998 period.
THE YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
Gross billings for the year ended December 31, 1998 were $1,730.7 million, a
$307.3 million or 21.6% increase when compared to gross billings of $1,423.4
million for the year ended December 31, 1997. This increase in gross billings
resulted primarily from acquisitions in recruitment advertising and growth in
our temporary contracting and Internet businesses.
Total commissions and fees for the year ended December 31, 1998 were $637.5
million, an increase of $119.0 million or 23.0% from $518.5 million for the year
ended December 31, 1997. Recruitment advertising commissions and fees were
$177.8 million for the year ended December 31, 1998 compared with $134.3 million
for the year ended December 31, 1997, an increase of $43.5 million or 32.4%.
This increase was primarily due to acquisitions, which contributed approximately
$25.1 million, and approximately $21.4 million from increased client spending
and new clients partially offset by client losses and a decrease in foreign
currency translation rates, which had a negative effect of approximately $3.0
million. Yellow page commissions & fees were $106.5 million for the year ended
December 31, 1998 compared with $103.9 million for the year ended December 31,
1997, an increase of 2.4% or $2.6 million due primarily to acquisitions. Search
& selection commissions & fees were $256.1 million compared with $219.5 million
for the year ended December 31, 1997, an increase of $36.6 million or 16.7%, due
primarily to acquisitions and increased business from existing clients and new
clients. Internet commissions & fees for the year ended December 31, 1998 were
$50.2 million, an increase of 157.6% or $30.7 million from $19.5 million for the
year ended December 31, 1997. The increase in Internet commissions & fees is due
to (i) an increasing acceptance of our Internet services and products from
existing clients and Internet users, (ii) the benefits of TMP's marketing
campaign, (iii) increases in the service and content available on our Websites,
(iv) expansion into certain European markets and (v) price increases on certain
products. Temporary contracting commissions & fees increased to $47.0 million
from $41.3 million, an increase of $5.7 million or 13.8%. This increase is
primarily due to a greater number of temporary contract workers placed during
1998 as compared with the prior period, and reflects growth in the executive
temporary contracting business, and to a lesser extent growth for clerical and
support staff.
Total operating expenses for the year ended December 31, 1998 were $597.6
million, compared with $459.8 million for 1997. The increase of $137.8 million
or 30.0% is due primarily to acquisitions and internal growth, together with the
addition of $22.4 million for merger & integration costs related to pooling of
interests transactions and $3.5 million in restructuring charges for the closing
of LAI's London, England and Hong Kong offices.
Salaries and related costs for the year ended December 31, 1998 were $374.9
million or 58.8% of total commissions and fees, compared with $304.0 million or
58.6% of total commissions & fees for the same period in 1997, representing an
increase of $70.9 million or 23.3%. This increase reflects acquisitions in
search & selection and recruitment advertising and from Internet operations.
11
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Office and general expenses increased $37.9 million to $185.3 million for
the year ended December 31, 1998, as compared with $147.4 million for the prior
period primarily due to acquisitions and added marketing and other expenses to
grow our Internet businesses. As a percent of total commissions and fees, office
and general expenses increased to 29.1% for the year ended December 31, 1998
from 28.4% for the year ended December 31, 1997.
Restructuring charges for the year ended December 31, 1998 were $3.5 million
or, on an after tax basis, $(0.05) per diluted share and relate to LAI's plan to
close its international offices in London, England and Hong Kong. These charges
include $1.1 million for severance, and $2.4 million for the write-off of
leasehold improvements and other costs to close these facilities.
In connection with the 1998 Mergers and the M&B Merger, we expensed merger &
integration costs of $22.4 million for the year ended December 31, 1998,
consisting of (1) $11.9 million of non-cash employee stay bonuses, which
included (a) $3.6 million for the amortization for TMP shares set aside for key
personnel of JSK and TCG, who must remain employees for a full year in order to
earn such shares and (b) $8.3 million for TMP shares to key personnel of TASA
and Stackig as employee stay bonuses, (2) $1.5 million of stay bonuses paid as
cash to key personnel of one of the companies merged in 1998 and (3) $9.0
million of transaction related costs, including fees for legal, accounting and
advisory services and the costs incurred for the subsequent registration of
shares issued in the acquisitions. The after tax effect of this charge is $16.7
million or $(0.43) per diluted share. (See Notes 1 and 5 to the Company's
Supplemental Consolidated Financial Statements included elsewhere herein.)
Amortization of intangibles was $10.2 million for the year ended December
31, 1998 compared to $6.9 million for the year ended December 31, 1997. The
increase is due to our continued growth through acquisitions. As a percentage of
total commissions and fees, amortization of intangibles was 1.6% and 1.3% for
the year ended December 31, 1998 and 1997, respectively.
As a result of all of the above, operating income decreased $18.8 million to
$39.9 million for the year ended December 31, 1998 as compared with operating
income of $58.7 million for the year ended December 31, 1997 and, as a percent
of total commissions and fees, operating income decreased to 6.3% from 11.3%.
Net interest expense increased $1.3 million to $9.9 million for the year
ended December 31, 1998 as compared to $8.6 million for the year ended December
31, 1997, reflecting a net increase in debt as a result of acquisitions and
capital expenditures. In addition, the Company's effective interest rate was
10.8% for the year ended December 31, 1998 compared with 10.4% for the year
ended December 31, 1997.
Taxes on income decreased $6.1 million to $13.9 million for the year ended
December 31, 1998 from $20.0 million for the year ended December 31, 1997
primarily due to lower pre-tax income. The effective tax rate for the year ended
December 31, 1998 was 49.2% compared with 39.2% for the year ended December 31,
1997. The higher effective rate in 1998 reflects the inability to deduct for
tax, certain costs associated with the 1998 Mergers and the M&B Merger.
For the year ended December 31, 1998, equity in losses of affiliates was
$396,000, reflecting losses at our minority owned real estate advertising
affiliate, as compared with a $33,000 loss for the same period in 1997. Minority
interests in consolidated earnings for the year ended December 31, 1998 were
$28,000 compared with $296,000 for the year ended December 31, 1997.
As a result of all of the above, the net income applicable to common and
Class B common stockholders was $13.9 million for the year ended December 31,
1998, or $0.36 per diluted share, compared with net income of $30.5 million, or
$0.84 per diluted share for the year ended December 31, 1997.
12
<PAGE>
THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Gross billings for the year ended December 31, 1997 were $1,423.4 million, a
$371.2 million or 35.3% increase when compared to gross billings of $1,052.2
million for the year ended December 31, 1996. The growth is primarily due to
acquisitions in recruitment advertising, rate increases in yellow page
advertising, increased clients and higher client spending for search &
selection, and growing acceptance of the Company's Internet products.
Total commissions & fees increased to $518.5 million for the year ended
December 31, 1997 from $384.1 million for the year ended December 31, 1996, an
increase of $134.4 million or 35.0%. This reflects increases, as compared to the
prior year period, in commissions and fees for (a) recruitment advertising of
$57.6 million or 75.3%, (b) yellow page advertising of $3.1 million or 3.0%, (c)
search & selection of $49.1 million or 28.8%, (d) Internet of $12.5 million or
180.6% and (e) temporary contracting of $12.1 million or 41.3%. A substantial
portion of the increase in commissions and fees for recruitment advertising was
due to acquisitions, including $15.5 million from Austin Knight, acquired in
August 1997, and the remainder was due to higher client spending and new
clients. The increase in commissions and fees for yellow page advertising was
due primarily to increased rates by the yellow page publishers and an
acquisition, substantially offset by lower publisher incentives and the full
year effect of accounts lost and resigned in 1996. The increase in commissions &
fees for search & selection was primarily due to the healthy economy and related
employment markets in the U.S. Fees derived from Internet were generated from
job searches and recruitment advertising placed on the Internet, primarily on
the Company's wholly owned websites monster.com and occ.com, and reflects the
continued customer acceptance of our Internet products both from our existing
clients as well as new clients and price increases on certain products. The
increase in temporary contracting commissions and fees is due to expansion of
the temporary contracting market in Australia.
Salaries and related costs increased $76.9 million to $304.0 million for the
year ended December 31, 1997 but as a percent of total commissions and fees,
salaries and related costs decreased to 58.6% for the year ended December 31,
1997 from 59.2% for the year ended December 31, 1996. This $76.9 million
increase was primarily due to additional staff required to service increased
recruitment advertising billings, increased sales staffing for Internet, and
generally higher salaries and related costs for search & selection operations.
Office and general expenses increased $35.6 million to $147.4 million for
the year ended December 31, 1997 as compared with $111.8 million for the prior
period. This $35.6 million increase was primarily due to growth across all lines
of business. However, as a percent of total commissions and fees, office and
general expenses decreased to 28.4% for the year ended December 31, 1997 from
29.1% for the year ended December 31, 1996. This decrease was primarily due to
(1) consolidation of offices, which slowed the growth of office related
expenses, (2) increased growth in recruitment advertising commissions and fees
combined with the relatively fixed nature of some of these expenses and (3)
increased temporary contracting commissions and fees which has relatively stable
office and general expenses.
Amortization of intangibles was $6.9 million for the year ended December 31,
1997 compared to $4.7 million for the year ended December 31, 1996. The increase
is due to our continued growth through acquisitions. As a percentage of total
commissions and fees, amortization of intangibles was 1.3% and 1.2%,
respectively, for the years ended December 31, 1997 and 1996.
For 1996, special compensation of $52.0 million consists of a non-cash,
non-recurring charge that reflects the value of shares issued in connection with
the acquisition of the minority interests in predecessors of the Company because
the stockholders had received such shares for nominal or no consideration and,
accordingly, were not considered to have made a substantive investment for their
shares. The value of such shares was based on the per share initial public
offering price of $14.00 for our Common Stock.
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As a result of the above, operating income for the year ended December 31,
1997 increased $70.4 million to $58.7 million as compared with an operating loss
of $11.7 million for the year ended December 31, 1996 and as a percent of total
commissions and fees increased to 11.3% from (3.0)% for the year ended December
31, 1996.
Net interest expense decreased $5.9 million to $8.6 million for the year
ended December 31, 1997 as compared to $14.5 million for the year ended December
31, 1996. This decrease in interest expense is due primarily to the repayment of
a portion of the debt with the net cash proceeds of our initial public and
supplemental offerings. In addition, in 1996 there was a $2.6 million non-cash,
non-recurring charge to reflect, upon exercise of a warrant issued in connection
with our financing agreement, the value of the stock issued at our initial
public offering price of $14.00 per share and the value recorded for the warrant
when it was originally issued. Our effective interest rate was 10.4% for the
year ended December 31, 1997 compared with 15.8% for the year ended December 31,
1996.
Taxes on income increased $9.2 million to $20.0 million for the year ended
December 31, 1997 from $10.8 million for the year ended December 31, 1996
primarily due to higher pre-tax income. The effective tax rate for the year
ended December 31, 1997 was 39.2% compared with (40.6)% for the year ended
December 31, 1996. The effective tax rate for 1997 was higher than the U.S.
Federal statutory rate of 34.0% primarily due to nondeductible expenses of
approximately $2.9 million and state taxes of $1.1 million. The effective tax
rate for 1996 reflects a non-cash special compensation charge of $52.0 million,
non-cash interest expense of $2.6 million and state taxes of $0.4 million, as
well as our inability to offset profits at certain subsidiaries with losses
incurred by others.
As a result of all of the above, the net income applicable to common and
Class B common stockholders was $30.5 million for the year ended December 31,
1997, or $0.84 per diluted share, compared with net loss of $38.3 million, or
$(1.27) per diluted share for the year ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements have been to fund (i) acquisitions, (ii)
working capital, (iii) capital expenditures and (iv) marketing and development
of our Internet business. Our working capital requirements are generally higher
in the quarters ending March 31 and June 30 during which payments to the major
yellow page directory publishers are at their highest levels. We have met our
liquidity needs over the last three years through (a) funds provided by
operating activities, (b) equity offerings, (c) long-term borrowings, (d)
capital leases and (e) vendor financing in 1996. In December 1996, we completed
our initial public offering of an aggregate of 4,147,408 shares of Common Stock
at a purchase price of $14.00 per share in an underwritten public offering
managed by Morgan Stanley & Co. Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation and Ladenburg Thalmann & Co. Inc. In the initial public
offering, certain stockholders sold an additional aggregate of 652,592 shares of
Common Stock. The net proceeds that we received from the initial public offering
of $50.8 million were used to repay debt and, in early 1997, to pay down
accounts payable and to redeem preferred stock. In September 1997, we completed
a second public offering of an aggregate of 2,400,000 shares of Common Stock at
a purchase price of $23.00 per share in an underwritten public offering managed
by Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., BT Alex Brown
Incorporated, Montgomery Securities and Ladenburg Thalmann & Co. Inc. In
addition, certain stockholders sold an aggregate of 1,600,000 shares of common
stock in such offering. Our net proceeds from this offering of $63.4 million,
including net repayment of borrowings of $12.2 million, paid to us by certain
stockholders were used to repay debt. In 1998, LAI received $41.4 million in net
proceeds from its second public offering. Such proceeds were used to support its
international expansion, support enhancements to its technology-based
infrastructure, acquire two search & selection companies and provide additional
working capital.
14
<PAGE>
Our operating activities for the six months ended June 30, 1999 provided net
cash of $9.2 million compared with cash provided of $9.0 million for the six
months ended June 30, 1998. This increase of $0.2 million was primarily due to
increases of $1.8 million in non-cash charges, $4.1 million in tax benefits from
the exercise of employee stock options and a net increase of $13.5 million due
to the decline in the use of cash for accounts receivable, work in process,
prepaid and other assets substantially offset by the $18.6 million decrease in
net income and a $10.1 million decrease in cash provided by accounts payable &
accrued liabilities for the six months ended June 30, 1999 as compared to the
six months ended June 30, 1998 and a $9.5 million increase in the effect of
companies accounted for as poolings of interests in both the current period and
the previous year. In addition, EBITDA was $20.8 million for the six months
ended June 30, 1999 a decrease of $27.7 million or 57.1% from $48.5 million for
the six months ended June 30, 1998. The decrease in EBITDA resulted from a $30.4
million decline in operating profits offset, in part by a $2.7 million increase
in depreciation and amortization in 1999.
Our investing activities for the six months ended June 30, 1999 used cash of
$33.4 million compared with $73.1 million for the six months ended June 30,
1998, a $39.7 million decrease primarily due to the use in the 1998 period of
$38.3 million to purchase short-term investments. In addition, capital
expenditures decreased $0.7 million and payments for purchases of businesses,
net of cash acquired, decreased $0.6 million, for the six months ended June 30,
1999 as compared to the same period in 1998.
Our financing activities for the six month period ended June 30, 1999
provided net cash of $11.6 million, compared with $44.5 million for the six
month period ended June 30, 1998. This decrease of $32.9 million is due
primarily to the receipt of $41.4 million in proceeds from the offering of
common stock by LAI during the six months ended June 30, 1998 and a $1.7 million
increase in net repayments of debt under our line of credit and other borrowing
arrangements for the six months ended June 30, 1999 compared to June 30, 1998.
These amounts were offset by increases of $6.7 million in cash received from the
exercise of employee stock options and a decrease of $3.5 million in dividends
paid by pooled entities for the six months ended June 30, 1999 as compared to
the same period in 1998.
Net cash provided by operating activities for the years ended December 31,
1998, 1997 and 1996 was $56.2 million, $40.6 million and $32.1 million,
respectively. The increase in cash of $15.6 million from operating activities
for 1998 over 1997 was primarily due to an increase of $21.7 million in accounts
payable, accrued expenses and other current liabilities, a $12.8 million
increase in depreciation and amortization costs and $8.3 million for the
utilization of our common stock to pay bonuses and a decrease of $3.6 million in
accounts receivable, partially offset by decreases in net income of $16.7
million, $8.0 million in deferred income taxes and $6.4 million in prepaid and
other assets. In addition, in 1998 we paid approximately $13.6 million for
restructuring. Such amount was applied against a reserve set up during 1997 in
connection with acquisitions accounted for using the purchase method. This
reserve was increased in 1998 by a $3.5 million charge to earnings and by $10.1
million, with a corresponding increase to intangible assets, and reduced by
payments of $13.6 million, leaving a restructuring reserve at December 31, 1998
of $16.7 million. (See Note 5 to the Company's Supplemental Consolidated
Financial Statements included elsewhere herein.) The increase in cash from
operating activities for 1997 over 1996 was primarily due to increased net
income, after adding back the effect of non-cash charges in 1996, partially
offset by higher payments of accounts payable, including amounts to
substantially repay vendor financed payables.
Net cash used in investing activities for the years ended December 31, 1998,
1997 and 1996 was $65.9 million, $89.4 million and $46.0 million, respectively.
The $23.5 million decrease in 1998 as compared with 1997 was primarily due to
$34.1 million less in payments for acquisitions, reflecting the use of company
stock to make acquisitions of businesses, offset in part by $0.2 million more in
capital expenditures and during 1997 our receipt of a net $11.4 million from the
Principal Stockholder and certain other stockholders, who repaid borrowings with
funds received primarily from their sale of shares included with our second
public offering. Payments for businesses acquired using the purchase method of
accounting, excluding $5.5 million in TMP stock, were $32.8 million in 1998,
$66.9 million in 1997, of which
15
<PAGE>
$47.2 million was for Austin Knight, and $31.3 million in 1996. Capital
expenditures, primarily for computer equipment and furniture and fixtures, were
$31.4 million, $31.2 million and $15.0 million for the years ended December 31,
1998, 1997 and 1996, respectively. In addition, in 1997, we acquired certain
transportation equipment and made capital improvements for a total of $6.8
million, replacing the transportation equipment sold during 1996 for $6.1
million, and simultaneously entered into a $7.8 million financing agreement to
fund the purchase and provide additional operating funds. In December 1996, we
sold certain transportation equipment for $6.1 million receiving a note for $2.7
million and retained $1.2 million in cash, after payment of related debt. We
estimate that our expenditures for computer equipment and software, furniture
and fixtures and leasehold improvements will be approximately $25.0 million for
1999.
EBITDA was $71.8 million for the year ended December 31, 1998, a decrease of
$8.7 million from $80.5 million for the year ended December 31, 1997. As a
percentage of total commissions and fees, EBITDA decreased to 11.3% for the year
ended December 31, 1998 from 15.5% for the year ended December 31, 1997. The
decrease resulted primarily from the $18.0 million charge for merger costs
($22.4 million less $4.4 million in amortization of deferred compensation),
which was 2.8% of total commissions and fees for the year ended December 31,
1998, offset, in part, by increased depreciation and amortization of $12.8
million. For the year ended December 31, 1997, EBITDA was $80.5 million, an
increase of $79.4 million from $1.1 million for the year ended December 31,
1996. As a percent of total commissions and fees, EBITDA increased to 15.5% for
the year ended December 31, 1997 as compared to 0.3% for the year ended December
31, 1996 due to a higher operating profit. For the year ended December 31, 1996,
EBITDA was $1.1 million primarily due to the $52.0 million non-cash special
compensation charge.
Our financing activities include equity offerings, borrowings and repayments
under our financing agreement and payments on (i) installment notes, principally
to finance acquisitions, and (ii) capital leases. In the fourth quarter of 1996,
we completed our initial public offering of 4,147,408 shares of Common Stock for
net proceeds of $50.8 million and in the third quarter of 1997, we completed our
second public offering of 2,400,000 shares of Common Stock for net proceeds of
$51.2 million. With a portion of the proceeds received from our initial public
offering in January 1997, we redeemed all of the shares of the cumulative
preferred stock issued by a subsidiary, reported as a minority interest, and our
previously issued preferred stock for approximately $3.1 million and $2.1
million, respectively. Such redemptions included approximately $100,000 each of
premiums. Our financing activities provided net cash of $27.7 million, $75.2
million and $17.1 million in 1998, 1997 and 1996, respectively. In November,
1998 and 1997 we amended our financing agreement with our primary lender to
provide for borrowings up to $175 million under a revolving credit facility.
Such facility is used to finance our acquisitions and for working capital
requirements. As of December 31, 1998, there was $97.7 million outstanding and
approximately $77.3 million available under such facility. Our current interest
rate under the agreement is LIBOR plus 75 basis points. In addition, we had
secured lines of credit aggregating $49.0 million for LAI and our operations in
Australia, France, Belgium and the Netherlands of which approximately $42.5
million was unused at December 31, 1998. Upon consummation of the merger with
TMP, LAI's $25.0 million line of credit was eliminated by TMP. We believe we
will be able to fund our short-term cash needs through funds from operations,
our credit facilities in the United States, the United Kingdom, Canada and
Australia and, to a lesser extent, equipment leases. The borrowings are secured
by a lien on substantially all of our assets. In addition, the financing
agreement contains certain covenants which restrict, among other things, our
ability to borrow, pay dividends, acquire businesses, guarantee debts of others
and lend funds to affiliated companies and contains criteria on the maintenance
of certain financial statement amounts and ratios.
At June 30, 1999 we had a $185 million committed line of credit from our
primary lender pursuant to a revolving credit agreement. Of such line, at June
30, 1999, approximately $29.9 million was unused and accounts receivable as
defined in the agreement was sufficient to allow draw down of the entire amount.
As of the same date, LAI had an unused line of credit of $25.0 million, which
was eliminated by TMP upon
16
<PAGE>
consummation of the merger with TMP. In addition, we have secured lines of
credit aggregating $20.7 million for our 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 were $60.4 million, an increase
of $26.6 million from $33.8 million at June 30, 1998.
Part of our acquisition strategy is to pay, over time, a portion of the
purchase price of certain acquisitions through seller financed notes.
Accordingly, such notes are included in long-term debt, are generally payable
over five years and totaled $9.0 million at December 31, 1998.
We intend to continue our acquisition strategy and marketing and promotion
of our Internet business through the use of operating profits, borrowings
against our long-term debt facility and seller financed notes. We believe that
our anticipated cash flow from operations, as well as the availability of funds
under our existing financing agreements and access to public equity and debt
markets, will provide us with liquidity to meet our current foreseeable cash
needs for at least the next year. However, if we determine that conditions are
favorable, we would consider additional corporate equity or debt transactions.
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 adoption of this standard did not 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, 2000. 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
Since early in 1999, we have been working to position TMP as Year 2000 ready
before December 31, 1999. We have developed a comprehensive plan to deal with
the Year 2000 issue and have engaged internal and external resources to focus on
this effort. 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 computer systems and other equipment function in the
same manner after December 31, 1999 as it did before the century date change, to
ensure that each business unit follows a consistent approach for assessment
renovation, and validation of all IT and non-IT assets, and to track the status
of all Year 2000 efforts. In addition to our internal assets, we are assessing
and monitoring the Year 2000 readiness of our
17
<PAGE>
key vendors and service providers. We are also monitoring the readiness of
public infrastructure service providers such as power, communications, and
transportation providers.
Our Year 2000 task force has conducted an inventory of and has developed
testing procedures for all software and other systems that we believe 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. We have substantially completed this process as of the end of the third
quarter of 1999 and plan to complete this process by the end of the fourth
quarter. 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.
RISKS
While we are making every effort to address the Year 2000 issue, there are
inherent 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 and
equipment 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 commissions and fees, 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 and
equipment which we consider at risk of not being Year 2000 ready at least four
weeks 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
18
<PAGE>
into account in determining the nature and extent to which our contingency plans
will be implemented. In addition, we are developing an event planning procedure
to monitor the function of our global operations before, during and after the
century date change.
FLUCTUATIONS OF QUARTERLY RESULTS
Our quarterly commissions and fees are affected by the timing of yellow page
directory closings which currently have a concentration in the third quarter.
Yellow page publishers may change the timing of directory publications which may
have an effect on our quarterly results. Our yellow page advertising results are
also affected by commissions earned for volume placements for the year, which
are typically reported in the fourth quarter. Our quarterly commissions and fees
for recruitment advertising are typically highest in the first quarter and
lowest in the fourth quarter. However, the cyclicality in the economy and our
clients' employment needs have an overriding impact on our quarterly results in
recruitment advertising, search & selection and temporary contracting. (See Note
2 to the Company's Supplemental Consolidated Financial Statements included
elsewhere herein.).
The following table sets forth summary quarterly unaudited financial
information for the six months ended June 30, 1999 and the years ended December
31, 1998 and 1997. Amounts have been restated to reflect the effect of the
retroactive restatement for the Third Quarter 1999 Mergers: (in millions, except
share and per share amounts).
<TABLE>
<CAPTION>
1999 QUARTERS
------------------------
<S> <C> <C>
MARCH 31 JUNE 30,
----------- -----------
Commissions and fees:
Recruitment advertising.................................................................... $ 45.6 $ 46.3
Yellow page advertising.................................................................... 23.8 27.2
Search & selection......................................................................... 61.5 63.0
Internet................................................................................... 20.5 25.8
Temporary contracting...................................................................... 12.8 16.6
----------- -----------
Total commissions and fees................................................................... $ 164.2 $ 178.9
----------- -----------
----------- -----------
Operating income (loss)...................................................................... $ (2.2) $ 4.7
Net income (loss) applicable to common and Class B common stockholders....................... $ (3.2) $ 0.8
Net income (loss) per common and Class B common share:
Basic...................................................................................... $ (.08) $ .02
Diluted.................................................................................... $ (.08) $ .02
Weighted average shares outstanding (in thousands):
Basic...................................................................................... 38,565 39,118
Diluted.................................................................................... 38,565 40,838
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
1998 QUARTERS
------------------------------------------------------
<S> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- -------------
Commissions and fees:
Recruitment advertising..................................... $ 45.8 $ 45.7 $ 42.4 $ 43.9
Yellow page advertising..................................... 23.3 27.1 32.1 23.9
Search & selection.......................................... 64.1 67.8 66.1 58.1
Internet.................................................... 8.0 11.0 13.7 17.5
Temporary contracting....................................... 5.6 13.6 13.8 14.0
----------- ----------- ------ ------
Total commissions and fees.................................... $ 146.8 $ 165.2 $ 168.1 $ 157.4
----------- ----------- ------ ------
----------- ----------- ------ ------
Operating income (loss)....................................... $ 14.6 $ 18.5 $ 14.2 $ (7.4)
Net income (loss) applicable to common and Class B common
stockholders................................................ $ 7.2 $ 9.0 $ 6.4 $ (8.7)
Net income (loss) per common and Class B common share:
Basic....................................................... $ .19 $ .24 $ .17 $ (0.23)
Diluted..................................................... $ .19 $ .23 $ .16 $ (0.23)
Weighted average shares outstanding (in thousands):
Basic....................................................... 37,663 37,990 38,053 38,098
Diluted..................................................... 38,977 39,047 39,211 38,098
</TABLE>
<TABLE>
<CAPTION>
1997 QUARTERS
------------------------------------------------------
<S> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- -------------
Commissions and fees:
Recruitment advertising..................................... $ 27.7 $ 30.8 $ 35.4 $ 40.4
Yellow page advertising..................................... 21.9 25.1 30.6 26.3
Search & selection.......................................... 51.4 56.2 53.6 58.3
Internet.................................................... 4.0 4.7 5.0 5.8
Temporary contracting....................................... 5.3 24.2 5.8 6.0
----------- ----------- ------ ------
Total commissions and fees.................................... $ 110.3 $ 141.0 $ 130.4 $ 136.8
----------- ----------- ------ ------
----------- ----------- ------ ------
Operating income.............................................. $ 15.4 $ 15.1 $ 16.6 $ 11.6
Net income applicable to common and Class B common
stockholders................................................ $ 8.3 $ 7.7 $ 7.9 $ 6.5
Net income per common and Class B common share:
Basic....................................................... $ 0.24 $ 0.22 $ 0.22 $ 0.17
Diluted..................................................... $ 0.24 $ 0.22 $ 0.22 $ 0.17
Weighted average shares outstanding (in thousands):
Basic....................................................... 34,596 34,819 35,412 37,498
Diluted..................................................... 35,039 35,445 36,089 38,137
</TABLE>
Earnings (loss) per share calculations for each quarter include the weighted
average effect for the quarter; therefore, the sum of the quarters may not equal
the full year earnings (loss) per share amount, which reflects the weighted
average effect on an annual basis. In addition, diluted earnings per share
calculations for each quarter include the effect of stock options and warrants,
when dilutive to the quarter.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following are the supplemental consolidated financial statements and
exhibits of TMP Worldwide Inc. and Subsidiaries, which are filed as part of this
report.
20
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE NO.
-----------
<S> <C>
SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED):
Balance sheet as of June 30, 1999....................................................................... F-2
Statements of operations for the six months ended June 30, 1999 and 1998................................ F-3
Statements of comprehensive income (loss) for the six months ended June 30, 1999 and 1998............... F-4
Statement of stockholders' equity for the six months ended June 30, 1999................................ F-5
Statements of cash flows for the six months ended June 30, 1999 and 1998................................ F-6
Notes to supplemental consolidated condensed financial statements....................................... F-7
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants...................................................... F-18
Independent Auditor's Report to the Members of Morgan & Banks Limited................................... F-19
Report of Independent Certified Public Accountants (with respect to LAI)................................ F-20
Balance sheets as of December 31, 1998 and 1997......................................................... F-21
Statements of operations for the years ended December 31, 1998, 1997 and 1996........................... F-22
Statements of comprehensive income (loss) for the years ended December 31, 1998, 1997 and 1996.......... F-23
Statements of stockholders' equity (deficit) for the years ended December 31, 1998, 1997 and 1996....... F-24
Statements of cash flows for the years ended December 31, 1998, 1997 and 1996........................... F-26
Notes to supplemental consolidated financial statements................................................. F-27
Report of Independent Certified Public Accountants...................................................... F-62
Report of Independent Certified Public Accountants (with respect to LAI)................................ F-63
Supplemental Schedule II: Valuation and qualifying accounts for the years ended December 31, 1998, 1997
and 1996.............................................................................................. F-64
</TABLE>
All other schedules are omitted because the required information is either
inapplicable or is included in the supplemental consolidated financial
statements or the notes thereto.
F-1
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1999
-----------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................................... $ 60,358
Accounts receivable, net..................................................................... 383,831
Work-in-process.............................................................................. 20,349
Prepaid and other............................................................................ 28,182
-----------------
Total current assets....................................................................... 492,720
Property and equipment, net.................................................................... 76,208
Deferred income taxes.......................................................................... 21,654
Intangibles, net............................................................................... 248,651
Other assets................................................................................... 17,569
-----------------
$ 856,802
-----------------
-----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................................. $ 301,691
Accrued expenses and other liabilities....................................................... 96,844
Accrued restructuring costs.................................................................. 13,722
Deferred commissions and fees................................................................ 25,020
Deferred income taxes........................................................................ 2,201
Current portion of long term debt............................................................ 11,893
-----------------
Total current liabilities.................................................................. 451,371
Long term debt, less current portion........................................................... 136,002
Other liabilities.............................................................................. 17,063
-----------------
Total liabilities.......................................................................... 604,436
-----------------
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:
36,812,177 shares.......................................................................... 37
Class B common stock, $.001 par value, authorized 39,000,000 shares; issued and outstanding:
2,381,000.................................................................................. 2
Additional paid-in capital................................................................... 289,495
Other comprehensive loss..................................................................... (3,048)
Unamortized stock-based compensation......................................................... (1,699)
Deficit...................................................................................... (32,421)
-----------------
Total stockholders' equity..................................................................... 252,366
-----------------
$ 856,802
-----------------
-----------------
</TABLE>
See accompanying notes to supplemental consolidated condensed financial
statements.
F-2
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
----------------------
<S> <C> <C>
1999 1998
---------- ----------
Commissions and fees...................................................................... $ 343,085 $ 312,027
Operating expenses:
Salaries and related costs.............................................................. 208,822 182,357
Office and general expenses............................................................. 111,848 87,973
Merger & integration costs.............................................................. 11,454 2,487
Restructuring charges................................................................... 2,789 --
Amortization of intangibles............................................................. 5,643 5,381
CEO special bonus....................................................................... -- 750
---------- ----------
Total operating expenses................................................................ 340,556 278,948
---------- ----------
Operating income........................................................................ 2,529 33,079
---------- ----------
Other expense:
Interest expense, net................................................................... (4,267) (4,694)
Other, net.............................................................................. (40) (352)
---------- ----------
Total other expense, net.............................................................. (4,307) (5,046)
---------- ----------
Income (loss) before provision for income taxes, minority interests and equity in losses
of affiliates........................................................................... (1,778) 28,033
Provision for income taxes................................................................ 319 11,619
---------- ----------
Income (loss) before minority interests and equity in losses of affiliates................ (2,097) 16,414
Minority interests........................................................................ 107 (1)
Equity in losses of affiliates............................................................ (200) (174)
---------- ----------
Net income (loss)......................................................................... $ (2,404) $ 16,241
---------- ----------
---------- ----------
Net income (loss) per common and Class B common share:
Basic..................................................................................... $ (.06) $ 0.43
---------- ----------
---------- ----------
Diluted................................................................................... $ (.06) $ 0.42
---------- ----------
---------- ----------
Weighted average shares outstanding:
Basic..................................................................................... 38,724 37,827
---------- ----------
---------- ----------
Diluted................................................................................... 38,724 38,828
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to supplemental consolidated condensed financial
statements.
F-3
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
Net income (loss)............................................................................ $ (2,404) $ 16,241
Foreign currency translation adjustment...................................................... 19 763
--------- ---------
Comprehensive income (loss).................................................................. $ (2,385) $ 17,004
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to supplemental consolidated condensed financial
statements.
F-4
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL 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
---------------------- ------------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ----------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1998............................... 35,834,234 $ 36 2,381,000 $ 2 $ 262,386
Issuance of common stock in connection with the exercise
of options............................................ 572,317 1 -- -- 7,163
Issuance of common stock in connection with
acquisitions.......................................... 204,795 -- -- -- 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
Forfeiture of stock based compensation due to departure
of employees of pooled entity......................... -- -- -- -- (1,033)
Pooled company losses included in both December 31, 1998
and June 30, 1999..................................... -- -- -- -- --
Foreign currency translation adjustment................. -- -- -- -- --
Net income (loss)....................................... -- -- -- -- --
Dividends declared by pooled companies.................. -- -- -- -- --
--
--------- --- --------- -----------
Balance, June 30, 1999.................................. 36,812,177 $ 37 2,381,000 $ 2 $ 289,495
--
--
--------- --- --------- -----------
--------- --- --------- -----------
<CAPTION>
OTHER UNAMORTIZED TOTAL
COMPREHENSIVE STOCK-BASED STOCKHOLDERS'
LOSS COMPENSATION DEFICIT EQUITY
--------------- --------------- --------- -------------
<S> <C> <C> <C> <C>
Balance December 31, 1998............................... $ (3,067) $ (2,732) $ (31,715) $ 224,910
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
Forfeiture of stock based compensation due to departure
of employees of pooled entity......................... -- 1,033 -- --
Pooled company losses included in both December 31, 1998
and June 30, 1999..................................... -- -- 3,784 3,784
Foreign currency translation adjustment................. 19 -- -- 19
Net income (loss)....................................... -- -- (2,404) (2,404)
Dividends declared by pooled companies.................. -- -- (2,086) (2,086)
------- ------- --------- -------------
Balance, June 30, 1999.................................. $ (3,048) $ (1,699) $ (32,421) $ 252,366
------- ------- --------- -------------
------- ------- --------- -------------
</TABLE>
See accompanying notes to supplemental consolidated condensed financial
statements.
F-5
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
Cash flows from operating activities:
Net income (loss)........................................................................... $ (2,404) $ 16,241
--------- ---------
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Depreciation and amortization of property and equipment..................................... 10,950 9,192
Amortization of intangibles and deferred costs.............................................. 5,643 5,381
Amortization of deferred compensation....................................................... 2,023 1,346
Provision for doubtful accounts............................................................. 2,472 2,378
Writedown of property and equipment by LAI.................................................. 2,801 --
Common stock issued for matching contribution to 401(k) plan................................ 902 627
CEO special bonus........................................................................... -- 750
Minority interests.......................................................................... 107 (1)
Provision for deferred income taxes......................................................... (2,897) 280
Tax benefit from the exercise of employee stock options..................................... 4,265 181
Other....................................................................................... 90 328
Effect of companies accounted for as poolings of interests included in both the current
period and the previous year.............................................................. 6,899 (2,651)
Changes in assets and liabilities, net of effects of purchases of businesses:
Increase in accounts receivable, net........................................................ (30,644) (31,002)
Increase in work-in process................................................................. (1,524) (5,647)
Increase in prepaid and other............................................................... (4,351) (4,850)
Increase in other assets.................................................................... (435) (8,987)
Increase in accounts payable and accrued liabilities........................................ 15,322 25,446
--------- ---------
Total adjustments......................................................................... 11,623 (7,229)
--------- ---------
Net cash provided by operating activities................................................. 9,219 9,012
--------- ---------
Cash flows from investing activities:
Capital expenditures........................................................................ (14,897) (15,621)
Proceeds from sale of assets................................................................ 297 --
Advances & loan repayments to shareholders & officers of pooled companies................... (625) (194)
Advances to affiliates...................................................................... (550) --
Payments for purchases of businesses, net of cash acquired.................................. (17,522) (18,171)
Purchases of investments by a pooled company................................................ -- (38,271)
Investment in life insurance................................................................ (159) (875)
Other....................................................................................... 27 (15)
--------- ---------
Net cash used in investing activities..................................................... (33,429) (73,147)
--------- ---------
Cash flows from financing activities:
Payments on capitalized leases.............................................................. (2,028) (1,823)
Borrowings under lines of credit and proceeds from issuance of debt......................... 585,910 473,568
Repayments under lines of credit and principal payments on debt............................. (577,814) (463,806)
Proceeds from common stock offering of pooled company....................................... -- 41,411
Cash received from the exercise of employee stock options................................... 7,164 453
Dividends paid by pooled entities........................................................... (1,858) (5,390)
Other....................................................................................... 181 88
--------- ---------
Net cash provided by financing activities................................................. 11,555 44,501
--------- ---------
Effect of exchange rate changes on cash....................................................... 408 (1,164)
--------- ---------
Net decrease in cash and cash equivalents..................................................... (12,247) (20,798)
Cash and cash equivalents, beginning of period................................................ 72,605 54,591
--------- ---------
Cash and cash equivalents, end of period...................................................... $ 60,358 $ 33,793
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to supplemental consolidated condensed financial
statements.
F-6
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The supplemental 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
supplemental consolidated condensed financial statements be read in conjunction
with (1) 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 (2) its
supplemental consolidated financial statements included elsewhere herein. The
Company follows the same accounting policies in preparation of interim financial
statements.
Results of operations for the interim periods may not be indicative of
annual results.
For the period April 1, 1998 through August 31, 1999, we completed 18
mergers which were accounted for as poolings of interests. The seven that we
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"), and we issued approximately 8.7
million shares of our common stock in exchange for all of the outstanding common
stock of these seven companies. In addition, from April 1, 1999 through June 30,
1999, we completed pooling of interests mergers (the "Second Quarter 1999
Mergers"), with six companies, Interquest, Pty. Limited ("Interquest"), LIDA
Advertising Inc. ("LIDA"), Maes & Lunau ("M&L"), IN2, Inc. ("IN2"), Lemming &
LeVan, Inc. ("L&L"), and Yellow Pages Unlimited, Inc. ("YPU"), (the "Second
Quarter 1999 Pooled Companies"). In connection with the Second Quarter 1999
Mergers 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.
Furthermore, from July 1, 1999 through August 31, 1999, we completed mergers
with the five companies listed below (the "Third Quarter 1999 Pooled
Companies"), which provided for the exchange of
F-7
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION (CONTINUED)
all of the outstanding stock of such companies for a total of 2,153,457 shares
of TMP common stock and which were accounted for as poolings of interests (the
"Third Quarter 1999 Mergers").
<TABLE>
<CAPTION>
NATURE OF REGION OF NUMBER OF TMP
ENTITY OPERATIONS OPERATIONS ACQUISITION DATE SHARES ISSUED
- -------------------------- -------------------------- ------------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Cameron-Newell Recruitment advertising North America August 2, 1999 420,000
Advertising, Inc.("CNA")
Brook Street Bureau (QLD) Temporary contracting and Pacific Rim August 3, 1999 130,900
Pty Ltd ("Brook St.") search & selection
LAI Worldwide, Inc. Search & selection North America August 26, 1999 1,059,821
("LAI")
Fox Advertising Inc. Yellow page advertising North America August 30, 1999 129,640
("Fox")
Lampen Group Limited Temporary contracting and Pacific Rim & August 31, 1999 413,096
("Lampen") search & selection United Kingdom
</TABLE>
Consequently, the Company's consolidated condensed financial statements have
been retroactively restated as of June 30, 1999, and for the six months ended
June 30, 1999 and 1998, to reflect the consummation of the Third Quarter 1999
Mergers. The supplemental consolidated condensed financial statements included
herein give retroactive effect to the Third Quarter 1999 Mergers, which have
been accounted for using the pooling of interests method and, as a result, the
financial position, results of operations, comprehensive income (loss) and cash
flows are presented as if the Third Quarter 1999 Pooled Companies had been
consolidated for all periods presented. Furthermore, the Company's consolidated
financial statements had previously been retroactively restated for the 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. As a result, the supplemental consolidated condensed balance
sheets, statements of operations, statements of comprehensive loss and
statements of cash flows included herein are presented as if the combining
companies had been consolidated for all periods presented. In addition, the
supplemental consolidated condensed statement of stockholders' equity reflects
the accounts of TMP as if the additional common stock issued in connection with
the mergers had been issued for all periods presented. As required by generally
accepted accounting principles, the supplemental consolidated financial
statements will become the historical financial statements of the Company upon
issuance of the financial statements for the period that includes the
consummation of the Third Quarter 1999 Mergers.
F-8
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION (CONTINUED)
The presentation of Temporary Contracting Revenue and Costs has changed from
that in the Form 8-K filed June 10, 1999. The amounts charged to clients for
Temporary Contracting services are now reported after deducting the costs of the
temporary contractor. The details for such amounts are (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
<S> <C> <C>
1999 1998
---------- ----------
Temporary Contracting Revenue......................................... $ 156,926 $ 120,029
Temporary Contracting Costs........................................... 127,483 100,822
---------- ----------
Temporary Contracting Billings\Commissions & fees..................... $ 29,443 $ 19,207
---------- ----------
---------- ----------
</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,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
Basic...................................................................... 38,724 37,827
Effect of assumed conversion of stock options and other.................... * 1,001
--------- ---------
Diluted.................................................................... 38,724 38,828
--------- ---------
--------- ---------
</TABLE>
- ------------------------
* Effect of diluted shares is anti-dilutive.
F-9
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
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.
NOTE 3--BUSINESS ACQUISITIONS
ACQUISITIONS ACCOUNTED FOR USING THE POOLING OF INTERESTS METHOD
During the period July 1, 1999 through August 31, 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>
Cameron-Newell Recruitment advertising North America August 2, 1999 420,000
Advertising, Inc.
("CNA")
Brook Street Bureau (QLD) Temporary contracting and Pacific Rim August 3, 1999 130,900
Pty Ltd ("Brook St.") search & selection
LAI Worldwide, Inc. Search & selection North America August 26, 1999 1,059,821
("LAI")
Fox Advertising Inc. Yellow page advertising North America August 30, 1999 129,640
("Fox")
Lampen Group Limited Temporary contracting and Pacific Rim & August 31, 1999 413,096
("Lampen") search & selection United Kingdom
</TABLE>
F-10
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 3--BUSINESS ACQUISITIONS (CONTINUED)
Commissions & fees, net income applicable to common and Class B common
stockholders and net income (loss) 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>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
<S> <C> <C>
COMMISSIONS & FEES
TMP, as previously reported on Form 10-Q........................ $ 295,321 $ 252,003
CNA............................................................. 6,072 4,867
LAI............................................................. 33,035 47,673
Brook St. ...................................................... 1,390 1,193
Fox............................................................. 1,251 1,108
Lampen.......................................................... 6,016 5,183
------------- -------------
TMP, as restated................................................ $ 343,085 $ 312,027
------------- -------------
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1999 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........................ $ 12,587 $ 11,745
CNA............................................................. 222 617
LAI............................................................. (16,784) 2,369
Brook St........................................................ 284 291
Fox............................................................. 209 149
Lampen.......................................................... 1,078 1,070
------------- -------------
TMP, as restated................................................ $ (2,404) $ 16,241
------------- -------------
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998
------------- ---------------
<S> <C> <C>
NET INCOME (LOSS) PER COMMON AND CLASS B COMMON SHARE
As previously reported on Form 10-Q:
Basic......................................................... $ 0.34 $ 0.33
Diluted....................................................... $ 0.33 $ 0.32
Restated:
Basic......................................................... $ (0.06) $ 0.43
Diluted....................................................... $ (0.06) $ 0.42
</TABLE>
F-11
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 3--BUSINESS ACQUISITIONS (CONTINUED)
MERGER & INTEGRATION COSTS INCURRED WITH POOLING OF INTERESTS TRANSACTIONS
In connection with pooling of interests transactions completed during 1998,
the first six months of 1999 and, the merger with LAI, the Company expensed
merger & integration costs of $11,454 for the six months ended June 30, 1999.
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) $4,649 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,
(3) $2,100 in separation costs for the Chief Operating Officer of LAI, who, in
accordance with the terms of his employment agreement, chose to resign from LAI
after the merger with TMP seemed likely, (4) $1,125 in office and staff
integration costs, (5) approximately $800 for investment banking and legal fees
incurred by LAI and (6) approximately $500 in licensing fees reserved by LAI for
software made redundant by the merger.
During the 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 and are comprised of transaction costs and the amortization
of employee stay bonuses.
The Company currently estimates that the merger & integration costs that
will be expensed in the third quarter of 1999 will total between $30 million and
$35 million. These costs are primarily associated with the Third Quarter 1999
Mergers and their integration with other TMP operations, most of which have been
added to TMP as a result of recent mergers and acquisitions. These costs are
comprised of transaction costs (such as advisory, legal and accounting fees,
printing costs and costs incurred for the subsequent registration of shares in
connection with the transactions), costs to eliminate redundant facilities and
personnel, costs to integrate TMP's existing search & selection operations with
those of LAI and M&B, separation pay in accordance with pre-existing contractual
change in control provisions and non-cash items estimated to be between $20
million and $25 million. These non-cash items are primarily comprised of the
charges associated with the accelerated vesting of employee stock and stock
option grants and the write-offs of software and leasehold improvements.
Furthermore, the Company anticipates that there will be additional future period
merger & integration costs in connection with the Third Quarter 1999 Mergers.
These costs are primarily related to severance and will be recorded when the
associated integration plans are finalized.
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. The purchase of these acquisitions was approximately $35.3
million,
F-12
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 3--BUSINESS ACQUISITIONS (CONTINUED)
including 204,795 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
JUNE 30, YEAR ENDED
---------------------- DECEMBER 31,
1999 1998 1998
---------- ---------- ------------
<S> <C> <C> <C>
Commissions & fees..................................... $ 349,416 $ 327,141 $ 670,100
Net income (loss) applicable to common and Class B
common stockholders.................................. $ (1,746) $ 15,832 $ 13,850
Net income (loss) per common and Class B common share:
Basic................................................ $ (0.04) $ 0.41 $ 0.36
---------- ---------- ------------
Diluted.............................................. $ (0.04) $ 0.40 $ 0.35
---------- ---------- ------------
</TABLE>
The unaudited 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.
In addition, in 1999 LAI completed plans to close its London, England and Hong
Kong offices and, in connection with these office closings,
F-13
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 3--BUSINESS ACQUISITIONS (CONTINUED)
charged earnings for the six months ended June 30, 1999 for $2,789. The costs
and liabilities of these plans include:
<TABLE>
<CAPTION>
BALANCE BALANCE
12/31/98 ADDITIONS PAYMENTS 6/30/99
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Assumed obligations on closed leased facilities... $ 9,590 $ 516 $ (1,125) $ 8,981
Consolidation of acquired facilities.............. 2,745 1,035 (2,481) 1,299
Contracted lease payments exceeding current market
costs........................................... 707 -- (69) 638
Severance, relocation and other employee costs.... 1,952 1,238 (2,115) 1,075
Pension obligations............................... 1,753 -- (24) 1,729
--------- ----------- ----------- ---------
Total............................................. $ 16,747 $ 2,789 $ (5,814) $ 13,722
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
</TABLE>
Accrued liabilities for surplus property in the amount of $8,981 as of June
30, 1999 relate to 20 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 commissions
and fees 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.
Estimated severance payments, employee relocation expenses and other
employee costs in the amount of $1,075 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 40 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.
F-14
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 4--SEGMENT AND GEOGRAPHIC DATA
The Company is engaged in five lines of business: recruitment advertising,
yellow page advertising, Internet, search & 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
ADVERTISING ADVERTISING INTERNET SELECTION CONTRACTING TOTAL
----------- ----------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
INFORMATION BY BUSINESS SEGMENT
For the six months ended June 30, 1999
Commissions and fees
Traditional sources.......................... $ 91,904 $ 50,982 $ -- $ 124,443 $ 29,443 $ 296,772
Internet..................................... 5,647 1,652 35,979 2,418 617 46,313
----------- ----------- --------- ---------- ----------- ----------
Commissions and fees........................... 97,551 52,634 35,979 126,861 30,060 343,085
----------- ----------- --------- ---------- ----------- ----------
Operating expenses:
Salaries & related costs and office & general
expenses................................... 81,151 33,310 -- 129,539 22,566 266,566
Internet expenses(A)......................... 4,943 1,489 36,344 10,884(B) 444 54,104
Restructuring charge......................... -- -- -- 2,789 -- 2,789
Merger & integration costs................... 198 30 -- 10,623 603 11,454
Amortization of intangibles.................. 3,235 1,306 121 913 68 5,643
----------- ----------- --------- ---------- ----------- ----------
Total operating expenses....................... 89,527 36,135 36,465 154,748 23,681 340,556
----------- ----------- --------- ---------- ----------- ----------
Operating income (loss):
Traditional sources.......................... 7,320 16,336 -- (19,421) 6,206 10,441
Internet..................................... 704 163 (486) (8,466) 173 (7,912)
----------- ----------- --------- ---------- ----------- ----------
Operating income (loss)........................ $ 8,024 $ 16,499 $ (486) $ (27,887) $ 6,379 2,529
----------- ----------- --------- ---------- -----------
----------- ----------- --------- ---------- -----------
Other expense:
Interest expense, net........................ * * * * * (4,267)
Other, net................................... * * * * * (40)
----------
Loss before provision for income taxes,
minority interests and equity in losses of
affiliates................................... * * * * * $ (1,778)
----------
----------
</TABLE>
- ------------------------
(a) Is comprised of salaries & related costs and office & general expenses.
(b) Includes $8,823 for the marketing of search & selection related Internet
services offered by LAIcompass.
* Not allocated.
F-15
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 4--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
INFORMATION BY BUSINESS SEGMENT
FOR THE SIX MONTHS ENDED RECRUITMENT YELLOW PAGE SEARCH & TEMPORARY
JUNE 30, 1998 ADVERTISING ADVERTISING INTERNET SELECTION CONTRACTING TOTAL
- ----------------------------------------------- ----------- ----------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Commissions and fees:
Traditional sources.......................... $ 91,552 $ 50,410 $ -- $ 131,824 $ 19,207 $ 292,993
Internet..................................... 3,162 1,263 14,609 -- -- 19,034
----------- ----------- --------- ---------- ----------- ----------
Commissions and fees........................... 94,714 51,673 14,609 131,824 19,207 312,027
----------- ----------- --------- ---------- ----------- ----------
Operating expenses:
Salaries & related costs, office & general
expenses and CEO special bonus............. 79,293 37,006 -- 120,008 15,624 251,931
Internet expenses (A)........................ 3,768 755 14,626 -- -- 19,149
Merger & integration costs................... -- -- -- 2,487 -- 2,487
Amortization of intangibles.................. 2,956 1,284 110 966 65 5,381
----------- ----------- --------- ---------- ----------- ----------
Total operating expenses....................... 86,017 39,045 14,736 123,461 15,689 278,948
----------- ----------- --------- ---------- ----------- ----------
Operating income (loss):
Traditional sources.......................... 9,303 12,120 -- 8,363 3,518 33,304
Internet..................................... (606) 508 (127) -- -- (225)
----------- ----------- --------- ---------- ----------- ----------
Operating income (loss)........................ $ 8,697 $ 12,628 $ (127) $ 8,363 $ 3,518 33,079
----------- ----------- --------- ---------- -----------
----------- ----------- --------- ---------- -----------
Other expense:
Interest expense, net........................ * * * * * (4,694)
Other, net................................... * * * * * (352)
----------
Income before provision for income taxes,
minority interests and equity in losses of
affiliates................................... * * * * * $ 28,033
----------
----------
</TABLE>
- ------------------------
(a) Is comprised of salaries & related costs and office & general expenses
* Not allocated
F-16
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL 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
- ----------------------------------------------------------- -------------- ----------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED:
June 30, 1999
Commissions & fees....................................... $ 182,678 $ 77,829 $ 42,359 $ 40,219 $ 343,085
Income (loss) before income taxes, minority interests and
equity in losses of affiliates......................... $ (16,543) $ 9,248 $ (1,645) $ 7,162 $ (1,778)
June 30, 1998
Commissions & fees....................................... $ 178,986 $ 59,160 $ 47,685 $ 26,196 $ 312,027
Income before income taxes, minority interests and equity
in losses of affiliates................................ $ 15,539 $ 7,880 $ 347 $ 4,267 $ 28,033
</TABLE>
F-17
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
We have audited the accompanying supplemental consolidated balance sheets of
TMP Worldwide Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
related supplemental consolidated statements of operations, comprehensive income
(loss), stockholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1998. The supplemental consolidated
financial statements give retroactive effect to the merger of TMP Worldwide Inc.
and Subsidiaries with Cameron-Newell Advertising Inc. on August 2, 1999, Brook
Street Bureau (QLD) Pty Ltd on August 3, 1999, LAI Worldwide, Inc. on August 26,
1999, Fox Advertising, Inc. on August 30, 1999 and Lampen Group Limited on
August 31, 1999, which have been accounted for as poolings of interests as
described in Notes 1 and 5 to the supplemental consolidated financial
statements. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
Morgan & Banks Limited as of December 31, 1998 and March 31, 1998 and for the
year ended December 31, 1998 and for each of the two years in the period ended
March 31, 1998 which were combined with the Company's financial statements as of
December 31, 1998 and 1997 and for each of the three years in the period ended
December 31, 1998, which financial statements reflect total assets of
approximately $52.3 million and $54.4 million as of December 31, 1998 and March
31, 1998 and total commissions and fees of approximately $255.4 million, $174.4
million and $235.8 million for the year ended December 31, 1998 and for each of
the two years in the period ended March 31, 1998, respectively. Those financial
statements were audited by another auditor whose report has been furnished to
us, and our opinion, insofar as it relates to the amounts included for Morgan &
Banks Limited, is based solely on the report of the other auditor. We did not
audit the financial statements of LAI Worldwide, Inc. and subsidiaries as of
February 28, 1999 and 1998 and for each of the three years in the period ended
February 28, 1999 which were combined with the Company's financial statements as
of December 31, 1998 and 1997 and for each of the three years in the period
ended December 31, 1998, which financial statements reflect total assets of
approximately $103.8 million and $88.9 million as of February 28, 1999 and 1998
and total commissions and fees of approximately $46.4 million, $61.8 million and
$86.8 million for each of the three years in the period ended February 28, 1999,
respectively. Those financial statements were audited by another auditor whose
report has been furnished to us, and in our opinion, insofar as it relates to
the amounts included for LAI Worldwide, Inc. and subsidiaries, is based solely
on the report of the other auditor.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
the supplemental consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TMP Worldwide Inc.
and Subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, after giving retroactive effect to the mergers referred to
above, in conformity with generally accepted accounting principles.
<TABLE>
<S> <C> <C>
/s/ BDO SEIDMAN, LLP
-----------------------------------------
BDO Seidman, LLP
New York, New York
September 20, 1999
</TABLE>
F-18
<PAGE>
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS
OF MORGAN & BANKS LIMITED
SCOPE
We have audited the financial statements of Morgan & Banks Limited for the
financial years ended 31 December 1998, 31 March 1998 and 31 March 1997. The
financial statements include the consolidated accounts of the economic entity,
comprising the company and the entities it controlled at the year's end or from
time to time during the financial year. The company's directors are responsible
for the preparation and presentation of these financial statements and the
information they contain. We have conducted an independent audit of the
financial statements and the information they contain in order to express an
opinion on them to the members of the company.
Our audit has been conducted in accordance with Australian Auditing
Standards, which are substantially the same as generally accepted auditing
standards in the United States of America, to provide reasonable assurance as to
whether the financial statements are free of material misstatement. Our
procedures included examination, on a test basis, of evidence supporting the
amounts and other disclosures in the financial statements, and the evaluation of
accounting policies and significant accounting estimates. These procedures have
been undertaken to form an opinion as to whether, in all material respects, the
financial statements are presented fairly in accordance with Australian
Accounting Standards and other mandatory professional reporting requirements and
statutory requirements so as to present a view which is consistent with our
understanding of the company's and the economic entity's financial position and
the results of its operations and its cash flows.
The audit opinion expressed in this report has been formed on the above
basis.
AUDIT OPINION
In our opinion, the financial statements of Morgan & Banks Limited are
properly drawn up:
(a) so as to give a true and fair view of the state of affairs as at 31
December 1998 and 31 March 1998, the profit for the financial years ended
on 31 December 1998, 31 March 1998 and 31 March 1997 and the cash flows
for the nine month period ended 31 December 1998, and the years ended 31
March 1998 and 31 March 1997, of the company and the economic entity;
(b) in accordance with applicable Australian Accounting Standards and other
mandatory professional reporting requirements.
<TABLE>
<S> <C>
/s/ Pannell Kerr Forster /s/ A.P. Whiting
- -------------------------------------------- --------------------------------------------
Pannell Kerr Forster A.P. Whiting
Chartered Accountants PARTNER
New South Wales Partnership
SYDNEY, 15 APRIL 1999
</TABLE>
F-19
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To LAI Worldwide, Inc:
We have audited the accompanying consolidated balance sheets of LAI
Worldwide, Inc. (a Florida corporation) and subsidiaries as of February 28, 1999
and 1998, and the related consolidated statements of operations, stockholders'
equity, comprehensive income and cash flows for each of the three years in the
period ended February 28, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LAI Worldwide, Inc. and
subsidiaries as of February 28, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
February 28, 1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Tampa, Florida
April 7, 1999
F-20
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................. $ 72,605 $ 54,591
Accounts receivable, net.............................................. 346,501 345,918
Work-in-process....................................................... 18,569 15,903
Prepaid and other..................................................... 30,932 21,011
--------- ---------
Total current assets................................................ 468,607 437,423
Property and equipment, net............................................. 72,729 60,357
Deferred income taxes................................................... 11,618 8,901
Intangibles, net........................................................ 222,866 192,339
Other assets............................................................ 18,896 14,259
--------- ---------
$ 794,716 $ 713,279
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................... $ 271,358 $ 242,770
Accrued expenses and other current liabilities........................ 105,918 118,278
Accrued restructuring costs........................................... 16,747 16,801
Deferred commissions and fees......................................... 13,945 8,491
Deferred income taxes................................................. 4,000 8,669
Current portion of long-term debt..................................... 16,148 16,960
--------- ---------
Total current liabilities........................................... 428,116 411,969
Long-term debt, less current portion.................................... 122,710 130,011
Other liabilities....................................................... 18,471 9,674
--------- ---------
Total liabilities................................................... 569,297 551,654
--------- ---------
Minority interests...................................................... 509 431
--------- ---------
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: 35,834,234 and 23,919,500 shares, respectively..... 36 24
Class B common stock, $.001 par value, authorized 39,000,000 shares;
issued and outstanding: 2,381,000 and 13,587,541 shares,
respectively........................................................ 2 14
Additional paid-in capital............................................ 262,386 200,128
Other comprehensive loss.............................................. (3,067) (1,144)
Unamortized stock-based compensation.................................. (2,732) --
Deficit............................................................... (31,715) (37,828)
--------- ---------
Total stockholders' equity.......................................... 224,910 161,194
--------- ---------
$ 794,716 $ 713,279
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to supplemental consolidated financial statements
F-21
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Commissions and fees.......................................... $ 637,516 $ 518,501 $ 384,057
--------- --------- ---------
Operating expenses:
Salaries and related costs.................................. 374,908 304,043 227,178
Office and general.......................................... 185,277 147,427 111,799
Restructuring charges....................................... 3,543 -- --
Merger & integration costs.................................. 22,412 -- --
Amortization of intangibles................................. 10,185 6,866 4,732
Special compensation and CEO bonus.......................... 1,250 1,500 52,019
--------- --------- ---------
Total operating expenses.................................. 597,575 459,836 395,728
--------- --------- ---------
Operating income (loss)................................... 39,941 58,665 (11,671)
--------- --------- ---------
Other income (expense):
Interest expense, net....................................... (9,903) (8,629) (14,450)
Other, net.................................................. (1,790) 878 (346)
--------- --------- ---------
(11,693) (7,751) (14,796)
--------- --------- ---------
Income (loss) before provision for income taxes, minority
interests and equity in earnings (losses) of affiliates..... 28,248 50,914 (26,467)
Provision for income taxes.................................... 13,899 19,980 10,753
--------- --------- ---------
Income (loss) before minority interests and equity in earnings
(losses) of affiliates...................................... 14,349 30,934 (37,220)
Minority interests............................................ 28 296 1,017
Equity in earnings (losses) of affiliates..................... (396) (33) 114
--------- --------- ---------
Net income (loss)............................................. 13,925 30,605 (38,123)
Preferred stock dividend and redemption premium............... -- (123) (210)
--------- --------- ---------
Net income (loss) applicable to common and Class B common
stockholders................................................ $ 13,925 $ 30,482 $ (38,333)
--------- --------- ---------
--------- --------- ---------
Net income (loss) per common and Class B common share:
Basic....................................................... $ 0.37 $ 0.86 $ (1.27)
--------- --------- ---------
--------- --------- ---------
Diluted..................................................... $ 0.36 $ 0.84 $ (1.27)
--------- --------- ---------
--------- --------- ---------
Weighted average shares outstanding:
Basic....................................................... 37,977 35,575 30,195
--------- --------- ---------
--------- --------- ---------
Diluted..................................................... 38,880 36,196 30,195
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-22
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss)............................................... $ 13,925 $ 30,605 $ (38,123)
Foreign currency translation adjustment......................... (1,923) (4,028) (199)
--------- --------- ---------
Comprehensive income (loss)..................................... $ 12,002 $ 26,577 $ (38,322)
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-23
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK, COMMON STOCK,
$.001 PAR VALUE $.001 PAR VALUE ADDITIONAL
---------------------- ----------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995................................. 14,960,978 $ 15 14,787,541 $ 15 $ 6,925
Stock repurchase agreements.............................. -- -- -- -- 1,172
Issuance of common stock for purchase of minority
interests in subsidiaries.............................. 205,581 -- -- -- 1,727
Issuance of common stock as compensation................. 142,740 -- -- -- 20
Repurchase and cancellation of common stock.............. (481,284) -- -- -- (2,160)
Issuance of common stock................................. 4,147,408 4 -- -- 50,779
Issuance of common stock in connection with the exercise
of options............................................. 85,354 -- -- -- 347
Issuance of common stock in connection with exercise of
warrant................................................ 228,768 -- -- -- 2,603
Foreign currency translation adjustment.................. -- -- -- -- --
Dividends on preferred stock............................. -- -- -- -- --
Special compensation..................................... -- -- -- -- 50,175
Issuance of common stock in connection with
acquisitions........................................... 58,892 -- -- -- 1,139
Shares issued in connection with a pooled company formed
in 1996................................................ 289,031 1 -- -- --
Dividends declared by pooled companies................... -- -- -- -- --
Net loss................................................. -- -- -- -- --
--------- --- ---------- --- -----------
Balance, December 31, 1996................................. 19,637,468 20 14,787,541 15 112,727
Issuance of common stock in connection with the exercise
of options............................................. 104,621 -- -- -- 659
Tax benefit of stock options exercised................... -- -- -- -- 175
Capital contribution from Principal Stockholder re: CEO
bonus and other........................................ -- -- -- -- 1,775
Issuance of common stock in connection with
acquisitions........................................... 135,028 -- -- -- 3,136
Issuance of common stock for purchase of an equity
interest in a subsidiary............................... 61,848 -- -- -- 1,000
Conversion of Class B shares to shares of common stock... 1,200,000 1 (1,200,000) (1) --
Issuance of common stock................................. 2,400,000 3 -- -- 51,166
Issuance of common stock for matching contribution to
401(k) plan............................................ 43,548 -- -- -- 555
Initial public offering of pooled entity................. 303,830 -- -- -- 24,628
Other issuance of common stock of pooled entity.......... 33,157 -- -- -- 4,307
Foreign currency translation adjustment.................. -- -- -- -- --
Dividend and redemption premium on preferred stock....... -- -- -- -- --
Dividends declared by pooled companies................... -- -- -- -- --
Net income............................................... -- -- -- -- --
--------- --- ---------- --- -----------
Balance, December 31, 1997................................. 23,919,500 $ 24 13,587,541 $ 14 $ 200,128
--------- --- ---------- --- -----------
--------- --- ---------- --- -----------
<CAPTION>
TOTAL
OTHER UNAMORTIZED STOCKHOLDERS
COMPREHENSIVE STOCK-BASED EQUITY
INCOME (LOSS) COMPENSATION DEFICIT (DEFICIT)
--------------- --------------- --------- ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995................................. $ 3,083 -- $ (4,900) $ 5,138
Stock repurchase agreements.............................. -- -- -- 1,172
Issuance of common stock for purchase of minority --
interests in subsidiaries.............................. -- -- 1,727
Issuance of common stock as compensation................. -- -- -- 20
Repurchase and cancellation of common stock.............. -- -- -- (2,160)
Issuance of common stock................................. -- -- -- 50,783
Issuance of common stock in connection with the exercise --
of options............................................. -- -- 347
Issuance of common stock in connection with exercise of --
warrant................................................ -- -- 2,603
Foreign currency translation adjustment.................. (199) -- -- (199)
Dividends on preferred stock............................. -- -- (210) (210)
Special compensation..................................... -- -- -- 50,175
Issuance of common stock in connection with --
acquisitions........................................... -- -- 1,139
Shares issued in connection with a pooled company formed --
in 1996................................................ -- -- 1
Dividends declared by pooled companies................... -- -- (10,703) (10,703)
Net loss................................................. -- -- (38,123) (38,123)
------- ------- --------- ------------
Balance, December 31, 1996................................. 2,884 -- (53,936) 61,710
Issuance of common stock in connection with the exercise --
of options............................................. -- -- 659
Tax benefit of stock options exercised................... -- -- -- 175
Capital contribution from Principal Stockholder re: CEO --
bonus and other........................................ -- -- 1,775
Issuance of common stock in connection with --
acquisitions........................................... -- -- 3,136
Issuance of common stock for purchase of an equity --
interest in a subsidiary............................... -- -- 1,000
Conversion of Class B shares to shares of common stock... -- -- -- --
Issuance of common stock................................. -- -- -- 51,169
Issuance of common stock for matching contribution to --
401(k) plan............................................ -- -- 555
Initial public offering of pooled entity................. -- -- -- 24,628
Other issuance of common stock of pooled entity.......... -- -- -- 4,307
Foreign currency translation adjustment.................. (4,028) -- -- (4,028)
Dividend and redemption premium on preferred stock....... -- -- (123) (123)
Dividends declared by pooled companies................... -- -- (14,374) (14,374)
Net income............................................... -- -- 30,605 30,605
------- ------- --------- ------------
Balance, December 31, 1997................................. $ (1,144) -- $ (37,828) $ 161,194
------- ------- --------- ------------
------- ------- --------- ------------
</TABLE>
F-24
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK, COMMON STOCK,
$.001 PAR VALUE $.001 PAR VALUE ADDITIONAL
---------------------- ----------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997................................. 23,919,500 $ 24 13,587,541 $ 14 $ 200,128
Issuance of common stock in connection with the exercise
of options............................................. 209,949 -- -- -- 1,494
Issuance of common stock in connection with
acquisitions........................................... 201,406 -- -- -- 5,546
Issuance of compensatory options......................... -- -- -- -- 295
Redemption of common stock............................... (287,352) -- -- -- (668)
Issuance of common stock for matching contribution to
401(k) plan............................................ 27,273 -- -- -- 627
Conversion of Class B common shares to common shares..... 11,206,541 12 (11,206,541) (12) --
Issuance of common stock for employee stay bonuses....... 221,779 -- -- -- 8,312
Foreign currency translation adjustment.................. -- -- -- -- --
Capital contribution by Principal Stockholder re: CEO
bonus.................................................. -- -- -- -- 1,250
Second public offering of common stock by pooled
entity................................................. 299,207 -- -- -- 41,365
Issuance of common stock for stock-based compensation of
pooled entity.......................................... 35,931 -- -- -- 4,072
Acquisition of treasury stock by pooled entity........... -- -- -- -- (442)
Tax benefit of stock options exercised................... -- -- -- -- 407
Amortization of stock-based compensation of pooled
entity................................................. -- -- -- -- --
Net income............................................... -- -- -- -- --
Earnings of companies pooled in second quarter of 1999
included in both December 31, 1997 and 1998 income
statements............................................. -- -- -- -- --
Pooled companies' earnings from August 1, 1997 to
December 31, 1997 excluded from 1997 statement of
operations............................................. -- -- -- -- --
Dividends declared by pooled companies................... -- -- -- -- --
--------- --- ---------- --- -----------
Balance, December 31, 1998................................. 35,834,234 $ 36 2,381,000 $ 2 $ 262,386
--------- --- ---------- --- -----------
--------- --- ---------- --- -----------
<CAPTION>
TOTAL
OTHER UNAMORTIZED STOCKHOLDERS
COMPREHENSIVE STOCK-BASED EQUITY
INCOME (LOSS) COMPENSATION DEFICIT (DEFICIT)
--------------- --------------- --------- ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1997................................. $ (1,144) -- $ (37,828) $ 161,194
Issuance of common stock in connection with the exercise --
of options............................................. -- -- 1,494
Issuance of common stock in connection with --
acquisitions........................................... -- -- 5,546
Issuance of compensatory options......................... -- -- -- 295
Redemption of common stock............................... -- -- -- (668)
Issuance of common stock for matching contribution to --
401(k) plan............................................ -- -- 627
Conversion of Class B common shares to common shares..... -- -- -- --
Issuance of common stock for employee stay bonuses....... -- -- -- 8,312
Foreign currency translation adjustment.................. (1,923) -- -- (1,923)
Capital contribution by Principal Stockholder re: CEO --
bonus.................................................. -- -- 1,250
Second public offering of common stock by pooled --
entity................................................. -- -- 41,365
Issuance of common stock for stock-based compensation of $ (3,900)
pooled entity.......................................... -- -- 172
Acquisition of treasury stock by pooled entity........... -- 592 -- 150
Tax benefit of stock options exercised................... -- -- -- 407
Amortization of stock-based compensation of pooled 576
entity................................................. -- -- 576
Net income............................................... -- -- 13,925 13,925
Earnings of companies pooled in second quarter of 1999 --
included in both December 31, 1997 and 1998 income
statements............................................. -- (2,309) (2,309)
Pooled companies' earnings from August 1, 1997 to --
December 31, 1997 excluded from 1997 statement of
operations............................................. -- 873 873
Dividends declared by pooled companies................... -- -- (6,376) (6,376)
------- ------- --------- ------------
Balance, December 31, 1998................................. $ (3,067) $ (2,732) $ (31,715) $ 224,910
------- ------- --------- ------------
------- ------- --------- ------------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-25
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- --------- ---------
Cash flows from operating activities:
Net income (loss)............................................................ $ 13,925 $ 30,605 $ (38,123)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization of property and equipment.................... 19,545 14,407 9,332
Amortization of intangibles................................................ 10,185 6,866 4,732
Amortization of deferred compensation in connection with employee stay
bonuses.................................................................. 4,351 -- --
Provision for doubtful accounts............................................ 5,891 3,845 3,322
Write-off of fixed assets by pooled company................................ 2,907 -- --
Common stock issued for matching contribution to 401(k) plan and employee
stay bonuses............................................................. 8,939 606 --
Special compensation....................................................... -- -- 52,019
Interest expense for shares issued upon exercise of warrant................ -- -- 2,603
Provision for deferred income taxes........................................ (1,709) 6,243 3,228
CEO bonus and indemnity payment............................................ 1,250 1,775 --
Minority interests......................................................... 28 296 1,017
Other...................................................................... 784 (736) 706
Effect of pooled companies' included in both December 31, 1998 and 1997.... (3,718) -- --
Effect of pooled company excluded from the periods presented............... 873 -- --
Changes in assets and liabilities, net of effects from purchases of
businesses:
Increase in accounts receivable, net....................................... (17,245) (20,805) (18,532)
(Increase) decrease in work-in-process..................................... (2,583) 42 68
Increase in prepaid and other current assets............................... (7,438) (3,441) (2,950)
(Increase) decrease in other assets........................................ (2,510) (152) 326
Increase in accounts payable, accrued expenses and other current
liabilities.............................................................. 22,754 1,073 14,390
---------- --------- ---------
Total adjustments........................................................ 42,304 10,019 70,261
---------- --------- ---------
Net cash provided by operating activities................................ 56,229 40,624 32,138
---------- --------- ---------
Cash flows from investing activities:
Payments pursuant to notes and advances to Principal Stockholder............. -- (3,064) (12,878)
Repayments from Principal Stockholder........................................ -- 14,477 7,994
Capital expenditures......................................................... (31,385) (31,216) (14,990)
Payments for purchases of businesses, net of cash acquired................... (32,845) (66,901) (31,302)
Purchases of short term investments.......................................... (38,271) -- --
Sales of short term investments.............................................. 39,047 -- --
Investment in life insurance................................................. (1,968) (2,109) (1,048)
Proceeds from sale of assets................................................. 659 78 6,215
Advances by pooled entities to officers and affiliates....................... (1,107) (955) (10)
Proceeds from life insurance................................................. -- 322 --
---------- --------- ---------
Net cash used in investing activities.................................... (65,870) (89,368) (46,019)
---------- --------- ---------
Cash flows from financing activities:
Payments on capitalized leases............................................... (3,334) (3,032) (2,409)
Borrowings under line of credit and proceeds from issuance of long-term
debt....................................................................... 1,051,597 724,268 496,459
Repayments under line of credit and principal payments on long-term debt..... (1,055,422) (705,172) (516,042)
Distribution to minority interests........................................... -- -- (457)
Net proceeds from stock issuance............................................. 41,563 76,579 51,985
Cash received from the exercise of stock options............................. 1,494 846 344
Repurchase of common stock................................................... -- (77) (348)
Redemptions of minority interest and preferred stock (including premiums).... -- (5,238) (2,160)
Dividends on preferred stock................................................. -- (123) (210)
Dividends paid by pooled companies........................................... (8,226) (12,890) (10,100)
---------- --------- ---------
Net cash provided by financing activities................................ 27,672 75,161 17,062
---------- --------- ---------
Effect of exchange rate changes on cash........................................ (17) (260) (159)
---------- --------- ---------
Net increase in cash and cash equivalents...................................... 18,014 26,157 3,022
Cash and cash equivalents, beginning of year................................... 54,591 28,434 25,412
---------- --------- ---------
Cash and cash equivalents, end of year......................................... $ 72,605 $ 54,591 $ 28,434
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-26
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION
TMP Worldwide Inc. ("TMP" or the "Company") is the successor to businesses
formerly conducted by TMP Worldwide Inc. and subsidiaries ("Old TMP"), Worldwide
Classified Inc. and subsidiaries ("WCI"), McKelvey Enterprises, Inc. and
subsidiaries ("MEI") and certain other entities under the control of Andrew J.
McKelvey (the "Principal Stockholder"). Immediately prior to the reorganization,
the Principal Stockholder owned 100% of the common stock of MEI (which owned
approximately 86% of the common stock of Old TMP) and approximately 33% of the
common stock of WCI. In addition to his approximately 33% ownership of WCI, the
Principal Stockholder had voting proxy on the remaining outstanding shares of
WCI.
WCI was organized in 1993 to sell recruitment advertising. On December 9,
1996, Old TMP, which sells yellow page advertising, merged into MEI. Thereafter,
WCI merged into MEI, MEI then merged into Telephone Marketing Programs
Incorporated and MEI acquired the outstanding minority interest of a subsidiary
(the "1996 Mergers"). Concurrent with the Mergers, Telephone Marketing Programs
Incorporated changed its name to TMP Worldwide Inc.
Due to the control of these companies by the Principal Stockholder, the
companies have been consolidated on a retroactive basis in a manner similar to a
pooling of interests, the interests previously owned by the Principal
Stockholder are carried at predecessor basis, and in December 1996 (i) goodwill
in the amount of approximately $1.6 million was recorded for the issuance of
271,278 shares of common stock of the Company to Old TMP stockholders who had
been previously issued shares of Old TMP in exchange for their minority
interests in certain operating subsidiaries in which they were original owners
and, accordingly, were considered to have made a substantive investment, and is
based on an initial public offering price of $14.00 per share, less
approximately $2.2 million previously recorded on the issuance of these shares,
and (ii) special compensation in the amount of approximately $52.0 million was
recorded for the issuance of 3,584,790 shares of common stock of the Company to
Old TMP, WCI and the MEI subsidiary stockholders in exchange for their shares in
those companies which they had received for nominal or no consideration, as
employees or as management of businesses financed substantially by the Principal
Stockholder and, accordingly, were not considered to have made substantive
investments for their minority shares, and is based on an initial public
offering price of $14.00 per share. The minority stockholders of Old TMP had
received compensation in lieu of their share of earnings of Old TMP in exchange
for waiving their rights to such earnings, and WCI and the MEI subsidiary had
cumulative losses. Accordingly, no amounts were attributable to these minority
interests in the accompanying consolidated financial statements.
In addition, in 1996, the Principal Stockholder sold or contributed to the
Company his majority interests, and in one case a 49% interest, in five
companies primarily engaged in yellow page and Internet-based advertising. Due
to the element of common control of these companies, all of these transactions
have been accounted for in a manner similar to a pooling of interests and each
of the five companies has been included in the accompanying consolidated
financial statements from their respective dates of acquisition by the Principal
Stockholder.
For the period April 1, 1998 through August 31, 1999, the Company completed
18 mergers which were accounted for as poolings of interests. They are the
following: from April 1, 1998 to December 31, 1998: 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"), (the "1998 Mergers"); in January 1999: Morgan &
Banks Limited ("M&B") (the
F-27
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
"M&B Merger"); from April 1, 1999 to June 30, 1999: Interquest, Pty. Limited
("Interquest"), LIDA Advertising Inc. ("LIDA"), Maes & Lunau ("M&L"), IN2, Inc.
("IN2"), Lemming & LeVan, Inc. ("L&L"), and Yellow Pages Unlimited, Inc.
("YPU"), (the "Second Quarter 1999 Pooled Companies") (the "Second Quarter 1999
Mergers"). In connection with all of the above pooling of interest transactions,
in exchange for all of the outstanding stock of such companies, the Company
issued a total of 9.6 million shares of TMP common stock.
Furthermore, from July 1, 1999 through August 31, 1999, the Company
completed mergers with the five companies listed below (the "Third Quarter 1999
Pooled Companies"), which provided for the exchange of all the outstanding stock
of each entity for shares of TMP's common stock and which were accounted for as
poolings of interests (the "Third Quarter 1999 Mergers").
<TABLE>
<CAPTION>
NATURE OF REGION OF NUMBER OF TMP
ENTITY OPERATIONS OPERATIONS ACQUISITION DATE SHARES ISSUED
- --------------------------- -------------------------- ----------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Cameron-Newell Advertising, Recruitment advertising North America August 2, 1999 420,000
Inc. ("CNA")
Brook Street Bureau (QLD) Temporary contracting and Pacific Rim August 3, 1999 130,900
Pty Ltd ("Brook St.") search & selection
LAI Worldwide, Inc. ("LAI") Search & selection North America August 26, 1999 1,059,821
Fox Advertising Inc.("Fox") Yellow page advertising North America August 30, 1999 129,640
Lampen Group Limited Temporary contracting and Pacific Rim and August 31, 1999 413,096
("Lampen") search & selection United Kingdom
</TABLE>
The consolidated financial statements of the Company reflect the effect of
the 1996 Mergers, the 1998 Mergers, the M & B Merger, the Second Quarter 1999
Mergers and the Third Quarter 1999 Mergers, because such mergers have been
accounted for as poolings of interests (see Note 5). Accordingly, the
supplemental consolidated financial statements in the Company's Current Report
on Form 8-K filed on June 10, 1999, which reflect the consummation of the Second
Quarter 1999 Mergers, are hereby being retroactively restated to reflect the
Third Quarter 1999 Mergers. As a result, the financial position, results of
operations and statements of cash flows included herein are presented as if the
combining companies had been consolidated for all periods presented and the
supplemental consolidated statements of stockholders' equity reflect the
accounts of TMP as if the additional common stock issued in connection with the
Third Quarter 1999 Mergers had been issued for all periods presented. As
required by generally accepted accounting principles, these supplemental
consolidated financial statements will become the historical financial
statements of the Company upon issuance of the financial statements for the
period that includes the date of the Third Quarter 1999 Mergers.
In the supplemental consolidated balance sheets, the balance sheets of TMP
as of December 31, 1998 and 1997 have been combined with those of the Third
Quarter 1999 Pooled Companies as of December 31,
F-28
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
1998 and 1997 except for the following: CNA, for which the balance sheet as of
July 1997 is combined with that of TMP as of December 31, 1997; Brook St., for
which the balance sheets as of June 30, 1999 and 1998, are combined with those
of TMP as of December 31, 1998 and 1997, respectively; and LAI, for which the
balance sheets as of February 28, 1999 and 1998 are combined with those of TMP
as of December 31, 1998 and 1997, respectively.
The supplemental consolidated statements of operations combine the results
of TMP for each year in the three year period ended December 31, 1998 with those
of the Third Quarter Pooled Companies for the same periods except for the
following: CNA, for which the statement of operations for the years ended July
31, 1997 and 1996 are included in the Supplemental Consolidated Statements of
Operations for the years ended December 31, 1997 and 1996, respectively; Brook
St., for which the statements of operations for each year in the three year
fiscal period ended June 30, 1999 are included in the Supplemental Consolidated
Statements of Operations for the three years ended December 31, 1998,
respectively; and LAI, for which the statements of operations for each year in
the three year fiscal period ended February 28, 1999 are included in the
Supplemental Consolidated Statements of Operations for each year ended December
31,1998, respectively. Consequently, the results of CNA for the period August 1,
1997 through December 31, 1997 are not included in the supplemental consolidated
statements of operations. The effects on consolidated commissions and fees, net
income and diluted earnings per share would have been $4.0 million, $0.9 million
and $0.02, respectively. Furthermore, the results of Brook St. for the six
months ended June 30, 1999 and the results of LAI for the two months ended
February 28, 1999 are included in the Supplemental Consolidated Statements of
Operations for the year ended December 31, 1998 and the six months ended June
30, 1999 and the effects on both periods on (a) commissions and fees was
approximately $11.1 million, (b) net income was a loss of approximately $3.8
million and (c) diluted earnings per share was $(0.10).
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The supplemental consolidated financial statements include the accounts of
the Company and all of its wholly-owned and majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Investments in unconsolidated affiliates are accounted for using
the equity method when the Company owns at least 20% but no more than 50% of
such affiliates. Under the equity method, the Company records its proportionate
share of profits and losses based on its percentage interest in earnings of
companies 50% or less owned.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of commissions and fees and expenses during
the reporting period. Actual results could differ from those estimates.
F-29
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
primarily using the straight-line method over the following estimated useful
lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements............................................................. 8-32
Furniture and equipment................................................................ 3-10
Transportation equipment............................................................... 5-18
</TABLE>
Leasehold improvements are amortized over their estimated useful lives or
the lives of the related leases, whichever is shorter.
Intangibles represent acquisition costs in excess of the fair value of net
tangible assets of businesses purchased and consist primarily of the value of
ongoing client relationships and goodwill. These costs are being amortized over
periods ranging from three to thirty years on a straight-line basis.
LONG-LIVED ASSETS
Long-lived assets, such as ongoing client relationships, goodwill and
property and equipment, are evaluated for impairment when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future cash flows resulting from
the use of these assets. When any such impairment exists, the related assets
will be written down to fair value. In connection with its office closings in
London, England and Hong Kong, for the year ended 1998 LAI wrote off $2,907 of
fixed assets. No other impairment losses have been incurred through December 31,
1998.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The financial position and results of operations of the Company's foreign
subsidiaries are determined using local currency as the functional currency.
Assets and liabilities of these subsidiaries are translated at the exchange rate
in effect at each year-end. Income statement accounts are translated at the
average rate of exchange prevailing during the year. Translation adjustments
arising from the use of differing exchange rates from period to period are
included in the other comprehensive loss account in stockholders' equity. Gains
and losses resulting from foreign currency transactions are included in other
income (expense).
COMMISSIONS AND FEES RECOGNITION AND WORK-IN-PROCESS
A significant portion of the Company's commissions and fees are derived from
commissions for advertisements placed in telephone directories, newspapers and
other media, plus associated fees for related services. In addition, the Company
earns fees for the placement of advertisements on the Internet, including its
career websites. Commissions and fees are generally recognized upon placement
date for newspapers and other media and on publication close date for yellow
page advertisements. The Company also earns fees for executive and mid-level
search & selection services. Commissions and fees are recognized as clients are
billed. Billings begin with the client's acceptance of a contract. For search, a
retainer equal to 33 1/3% of a candidate's first year estimated annual cash
compensation is billed in equal installments over three consecutive months (at
which time, in general, the retainer has been substantially
F-30
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
earned). A final invoice is issued in the event that the candidate's actual
compensation package exceeds the original estimate. For selection, a fee equal
to between 20% and 30% of a candidate's first year estimated annual cash
compensation is billed in equal installments over three consecutive months (the
average length of time needed to successfully complete an assignment). Temporary
contracting commissions and fees are recorded when earned.
The presentation of Temporary Contracting Revenue and Costs has changed from
that in the Form 8-K filed June 10, 1999. The amount charged to clients for
Temporary Contracting services are now reported after deducting the costs of the
temporary contractor. The details for such amounts are (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- ---------- ----------
Temporary Contracting Revenue............................ $ 258,393 $ 227,627 $ 163,337
Temporary Contracting Costs.............................. 211,404 186,342 134,127
---------- ---------- ----------
Temporary Contracting Billings/
Commissions & fees..................................... $ 46,989 $ 41,285 $ 29,210
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The Company's quarterly commissions and fees are affected by the cyclical
nature of its operating segments. The timing of yellow page directory closings
is currently concentrated in the third quarter. However, yellow page publishers
may change the timing of directory publications which may have an effect on the
Company's quarterly results. The Company's yellow page advertising results are
also affected by commissions earned for volume placements for the year, which
are typically reported in the fourth quarter. Amounts reported in the three
months ended December 31, 1998, 1997 and 1996 for commissions on volume
placements were $0.9 million, $2.2 million and $3.5 million, respectively. The
Company's quarterly commissions and fees for recruitment advertising are
typically highest in the first quarter and lowest in the fourth quarter;
however, the cyclicality in the economy and the Company's clients' employment
needs have an overriding impact on the Company's quarterly results in
recruitment advertising.
Direct operating costs incurred that relate to future commissions and fees,
principally for yellow page advertisements, are deferred (recorded as
work-in-process in the accompanying consolidated balance sheets) and are
subsequently charged to expense when the directories are closed for publication
and the related commission is recognized as income.
INCOME TAXES
The provision for income taxes is computed on the pretax income (loss) based
on the current tax law. Deferred income taxes are recognized for the tax
consequences in future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates.
NATURE OF BUSINESS AND CREDIT RISK
The Company operates in five business segments; yellow pages advertising,
recruitment advertising, Internet, search & selection and temporary contracting.
The Company earns commission income for
F-31
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
selling and placing yellow page and recruitment 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 commissions and fees in connection with the providing of temporary
contracting services. The Company operates principally throughout North America,
the United Kingdom, Continental Europe and the Pacific Rim.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which supersedes SFAS No.
14, "Financial Reporting for Segments of a Business Enterprise." SFAS No. 131
establishes standards for the way that public companies report information about
operating segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS No. 131
defines operating segments as components of a company about which separate
financial information is available and that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. SFAS No. 131 became effective for financial statements for periods
beginning after December 15, 1997. As required by SFAS No. 131, all periods
presented have been restated.
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable. The Company
performs continuing credit evaluations of its customers and does not require
collateral. For the most part, the Company has not experienced significant
losses related to receivables from individual customers or groups of customers
in any particular industry or geographic area.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable and accounts payable approximate fair
value because of the immediate or short-term maturity of these financial
instruments. The carrying amount reported for long-term debt approximates fair
value because, in general, the interest on the underlying instruments fluctuates
with market rates.
STOCK-BASED COMPENSATION
The Company accounts for its stock option awards under the intrinsic value
based method of accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Under the intrinsic value based
method, compensation cost is the excess, if any, of the quoted market price of
the stock at grant date or other measurement date over the amount an employee
must pay to acquire the stock. The Company makes pro forma disclosures of net
income and earnings per share as if the fair value based method of accounting
had been applied as required by SFAS No. 123, "Accounting for Stock-Based
Compensation."
EARNINGS PER SHARE
During 1997, the FASB issued SFAS No. 128, "Earnings per Share," which
provides for the calculation of "basic" and "diluted" earnings per share. This
Statement is effective for financial statements issued for periods ending after
December 15, 1997. Basic earnings per share includes no dilution and is computed
by
F-32
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
dividing income available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted earnings per share reflect,
in periods in which they have a dilutive effect, the effect of common shares
issuable upon exercise of stock options and warrants. As required by SFAS No.
128 all periods presented have been restated.
A reconciliation of shares used in calculating basic and diluted earnings
per common and Class B common share follows (in thousands):
<TABLE>
<S> <C>
December 31, 1998:
Basic............................................................. 37,977
Effect of assumed exercise of stock options and other............. 903
---------
Diluted........................................................... 38,880
---------
---------
December 31, 1997:
Basic............................................................. 35,575
Effect of assumed exercise of stock options....................... 621
---------
Diluted........................................................... 36,196
---------
---------
December 31, 1996:
Basic............................................................. 30,195
Effect of assumed exercise of stock options....................... *
---------
Diluted........................................................... 30,195
---------
---------
</TABLE>
- ------------------------
* Effect of diluted shares is anti-dilutive.
STATEMENTS OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments and other short-term investments with an initial
maturity of three months or less to be cash equivalents.
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company adopted SFAS No. 130 in the first quarter of
1998. The only item of comprehensive income (loss) is foreign currency
translation adjustments.
F-33
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
POSTRETIREMENT BENEFITS
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits", which standardizes the
disclosure requirements for pensions and other postretirement benefits. The
adoption of SFAS No. 132 in 1998 did not have a material impact on the Company's
financial statement disclosures.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
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 its capitalization policy.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities", 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, 2000. 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.
NOTE 3--ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
Trade................................................................. $ 351,482 $ 345,257
Earned commissions(a)................................................. 12,811 14,491
---------- ----------
364,293 359,748
Less: Allowance for doubtful accounts................................. 17,792 13,830
---------- ----------
Accounts receivable, net.............................................. $ 346,501 $ 345,918
---------- ----------
---------- ----------
</TABLE>
- ------------------------
(a) Earned commissions receivable represent commissions on advertisements that
have not been published, and relate to yellow page advertisements only. Upon
publication of the related yellow page directories, the earned commissions
plus the related advertising cost at December 31, 1998 and 1997 are recorded
as accounts receivable of $67,955 and $75,058, respectively, and the related
advertising costs are recorded as accounts payable of $55,144 and $60,567,
respectively.
F-34
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 4--PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Buildings and improvements.............................................. $ 1,168 $ 1,048
Furniture and equipment................................................. 106,497 87,078
Leasehold improvements.................................................. 18,182 13,897
Transportation equipment................................................ 9,531 10,098
Computer equipment...................................................... 3,948 2,468
--------- ---------
139,326 114,589
Less: Accumulated depreciation and amortization......................... 66,597 54,232
--------- ---------
Property and equipment, net........................................... $ 72,729 $ 60,357
--------- ---------
--------- ---------
</TABLE>
Furniture and equipment includes equipment under capital leases at December
31, 1998 and 1997 with a cost of $13,663 and $12,514, respectively, and
accumulated amortization of $7,026 and $5,128, respectively.
During 1997, the Company acquired certain transportation equipment and made
capital improvements thereto for a total of $6,800 and simultaneously entered
into a $7,800 financing agreement (see Note 9) to fund the purchase and provide
additional funds.
NOTE 5--BUSINESS ACQUISITIONS
ACQUISITIONS ACCOUNTED FOR USING THE POOLING OF INTERESTS METHOD
During the period of July 1, 1999 through August 31, 1999, the Company
completed the following acquisitions which provided for the exchange of all of
the outstanding stock of each entity for shares of TMP stock and are accounted
for as poolings of interests (See Note 1):
<TABLE>
<CAPTION>
NATURE OF NUMBER OF TMP
ENTITY OPERATIONS REGION OF OPERATIONS ACQUISITION DATE SHARES ISSUED
- --------------------- -------------------------- ------------------------ ------------------ ---------------
<S> <C> <C> <C> <C>
CNA.................. Recruitment advertising North America August 2, 1999 420,000
Brook St. ........... Temporary contracting and
search & selection Pacific Rim August 3, 1999 130,900
LAI.................. Search & selection North America August 26, 1999 1,059,821
Fox.................. Yellow page advertising North America August 30, 1999 129,640
Lampen............... Temporary contracting and Pacific Rim and United
search & selection Kingdom August 31, 1999 413,096
</TABLE>
Commissions and fees, net income (loss) applicable to common and Class B
common stockholders and net income (loss) per common and Class B common share of
the combining companies for the three years ending December 31, are as follows:
F-35
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS ACQUISITIONS (CONTINUED)
<TABLE>
<CAPTION>
COMMISSIONS AND FEES 1998 1997 1996
- ----------------------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
TMP revenue, as previously reported on Form 8-K filed June 10, 1999.......... $ 699,429 $ 589,866 $ 431,525
Less: Temporary contracting costs............................................ 175,133 155,133 110,408
---------- ---------- ----------
Commissions & fees........................................................... 524,296 434,733 321,117
CNA.......................................................................... 10,518 7,056 4,859
Brook St..................................................................... 2,550 2,420 1,747
LAI.......................................................................... 86,811 61,803 46,437
Fox.......................................................................... 2,687 2,111 1,310
Lampen....................................................................... 10,654 10,378 8,587
---------- ---------- ----------
TMP, as restated............................................................. $ 637,516 $ 518,501 $ 384,057
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
NET INCOME (LOSS) APPLICABLE TO COMMON AND
CLASS B COMMON STOCKHOLDERS 1998 1997 1996
- ---------------------------------------------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C>
TMP, as previously reported on Form 8-K filed June 10, 1999................. $ 14,409 $ 23,745 $ (39,167)
CNA......................................................................... 596 349 285
Brook St.................................................................... 567 491 199
LAI......................................................................... (4,238) 3,880 (567)
Fox......................................................................... 560 529 (109)
Lampen...................................................................... 2,031 1,488 1,026
---------- ---------- -----------
TMP, as restated............................................................ $ 13,925 $ 30,482 $ (38,333)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
NET INCOME (LOSS) PER COMMON AND CLASS B COMMON SHARE 1998 1997 1996
- ---------------------------------------------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C>
As previously reported on Form 8-K filed June 10, 1999:
Basic..................................................................... $ 0.40 $ 0.70 $ (1.37)
Diluted................................................................... $ 0.39 $ 0.69 $ (1.37)
Restated:
Basic..................................................................... $ 0.37 $ 0.86 $ (1.27)
Diluted................................................................... $ 0.36 $ 0.84 $ (1.27)
</TABLE>
MERGER & INTEGRATION COSTS INCURRED WITH POOLING OF INTERESTS TRANSACTIONS
In connection with the poolings of interests transactions completed during
1998 and the M&B Merger, (see Note 1), the Company expensed merger & integration
related costs of $22,412. The $22,412 of merger & integration costs for the year
ended December 31, 1998 consists of (1) $11,934 of non-cash employee stay
bonuses, which included (a) $3,622 for the amortization of $5,986, recorded as
prepaid compensation and a corresponding long-term liability, being expensed
over the eighteen months from April 1, 1998 to September 30, 1999 for TMP shares
set aside for key personnel of JSK and TCG who must remain employees of the
Company for a full year in order to earn such shares and (b) $8,312 for TMP
shares to key personnel of TASA and Stackig as employee stay bonuses and (2)
$1,461 of stay bonuses paid as cash to key personnel of the 1998 Pooled
Companies and (3) $9,017 of transaction related costs,
F-36
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS ACQUISITIONS (CONTINUED)
including legal, accounting and advisory fees and the costs incurred for the
subsequent registration of shares issued in the acquisitions.
The Company currently estimates that the merger & integration costs that
will be expensed in the third quarter of 1999 will total between $30 million and
$35 million. These costs are primarily associated with the Third Quarter 1999
Merger and their integration with other TMP operations most of which have been
added to TMP as a result of mergers and acquisitions. These costs are comprised
of transaction costs (such as advisory, legal and accounting fees, printing
costs and costs incurred for the subsequent registration of shares in connection
with the transactions), costs to eliminate redundant facilities and personnel,
costs to integrate TMP's existing search & selection operations with those of
LAI and M&B, separation pay in accordance with pre-existing contractual change
in control provisions and non-cash items estimated to be between $20 million and
$25 million. These non-cash items are primarily comprised of the charges
associated with the accelerated vesting of employee stock and stock option
grants and the write-offs of software and leasehold improvements. Furthermore,
the Company anticipates that there will be additional future period merger &
integration costs in connection with the Third Quarter 1999 Mergers. These costs
are primarily related to severance and will be recorded when the associated
integration plans are finalized.
ACQUISITIONS ACCOUNTED FOR USING THE PURCHASE METHOD
In addition to the poolings of interest transactions discussed above, the
Company has acquired 41 businesses (primarily recruitment advertising
businesses) between January 1, 1996 and December 31, 1998 including, on August
26, 1997, all of the outstanding stock of Austin Knight Limited and subsidiaries
("Austin Knight") for approximately $47,200 net of approximately $11,500 of cash
acquired relating to the sale, in July 1997, of real property by Austin Knight
and on July 2, 1996, all of the outstanding shares of Neville Jeffress Australia
Pty Limited ("Neville Jeffress"). Austin Knight had commissions and fees of
approximately $47,600 for the year ended September 30, 1996, and Neville
Jeffress had commissions and fees of approximately $24,000 for the year ended
June 30, 1996. The total amount of cash paid and promissory notes and Common
Stock of the Company issued for these acquisitions was approximately $30,668,
$74,500 and $25,400 for 1998, 1997 and 1996, respectively. The shares of Common
Stock issued by the Company in connection with certain of the above mentioned
acquisitions were 200,753 and 135,028 for 1998 and 1997, respectively. These
acquisitions have been accounted for under the purchase method of accounting and
accordingly, operations of these businesses have been included in the
consolidated financial statements from their acquisition dates.
On February 27, 1998, LAI completed the acquisition of Ward Howell
International, Inc. ("WHI"). The purchase price was approximately $19,500
including $7,600 in notes payable and approximately $3,050 in LAI common stock.
The remaining $8,850 of the purchase consideration was payable to the former WHI
stockholders as of February 28, 1998 and is accrued for in the accompanying
balance sheets. The acquisition was accounted for as a purchase with goodwill
being recognized for the excess of the purchase amount over the fair market
value of the assets acquired.
On January 2, 1998, LAI acquired Chartwell Partners International, Inc.
("CPI"). The acquisition cost was approximately $3,100 and consisted of
approximately $1,400 in cash, a $1,250 convertible subordinated note payable and
$400 of LAI common stock. The acquisition was accounted for as a purchase with
goodwill being recognized for the excess of the purchase amount over the fair
value of the assets acquired.
F-37
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS ACQUISITIONS (CONTINUED)
The convertible subordinated note is payable in three equal installments, plus
accrued interest and bears interest at 6.75%. The subordinated note is
convertible into shares of common stock at each anniversary at prices specified
in the asset purchase agreement.
The summarized unaudited pro forma results of operations set forth below for
the years ended December 31, 1998 and 1997 assume the acquisitions accounted for
under the purchase method in 1998 and 1997 occurred as of the beginning of the
year of acquisition and the beginning of the preceding year.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
Total commissions and fees............................................ $ 649,259 $ 611,896
---------- ----------
---------- ----------
Net income applicable to common and Class B common stockholders....... $ 13,556 $ 31,834
---------- ----------
---------- ----------
Net income per common and Class B common share:
Basic............................................................... $ .35 $ .89
Diluted............................................................. $ .35 $ .87
</TABLE>
The unaudited 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 years 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 began to assess and formulate preliminary plans to
restructure the operations of the acquired companies. Such plans involved the
closure of certain offices of the acquired companies and the termination of
certain management and employees. The objective of the plans was to create a
single brand in the related markets in which the Company operates. The
preliminary plans were finalized in July 1998 and, accordingly intangible assets
were increased by $10,020. In addition, in 1998 LAI formulated plans to close
its London England and Hong Kong offices and, in connection with these office
closings, charged earnings for the year ended December 31, 1998 for $3,543.
These costs and liabilities include:
<TABLE>
<CAPTION>
BALANCE BALANCE
DECEMBER 31, 1997 ADDITIONS PAYMENTS DECEMBER 31, 1998
----------------- ----------- ---------- -----------------
<S> <C> <C> <C> <C>
Assumed obligations on leased facilities to be
closed............................................ $ 7,830 $ 3,190 $ (1,430) $ 9,590
Consolidation of acquired facilities................ 2,521 5,720 (5,496) 2,745
Contracted lease payments exceeding current market
costs............................................. 783 73 (149) 707
Severance, relocation and other employee costs...... 4,017 4,477 (6,542) 1,952
Pension obligations................................. 1,650 103 -- 1,753
------- ----------- ---------- -------
Total............................................... $ 16,801 $ 13,563 $ (13,617) $ 16,747
------- ----------- ---------- -------
------- ----------- ---------- -------
</TABLE>
F-38
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS ACQUISITIONS (CONTINUED)
Accrued liabilities for surplus property in the amount of $9,590 as of
December 31, 1998 relate to 20 leased office locations of the acquired companies
that were either unutilized prior to the acquisition date or will be closed by
March 31, 1999 in connection with the restructuring plans. The amount is based
on the present value of minimum future lease obligations, net of sublease
commissions and fees on existing subleases.
Other costs associated with the closure of existing offices of acquired
companies in the amount of $2,745 as of December 31, 1998 relate to termination
costs of contracts relating to billing systems, external reporting systems and
other contractual arrangements with third parties.
Above market lease costs in the amount of $707 as of December 31, 1998
relate to the present value of contractual lease payments in excess of current
market lease rates.
Estimated severance payments, employee relocation expenses and other
employee costs in the amount of $1,952 as of December 31, 1998 relate to
estimated severance for terminated employees at closed locations, costs
associated with employees 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 December 31, 1998
the accrual related to approximately 50 employees including senior management,
sales, service and administrative personnel.
Pension obligations in the amount of $1,753 were assumed in connection with
the acquisition of Austin Knight.
During the year ended December 31, 1998, payments of $6,542 were made to 50
members of senior management and employees for severance and charged against the
reserve.
In connection with the finalization of the restructuring plans, the Company
recorded additional charges of $10,020 as additional costs of the acquired
companies and $3,543 as restructuring costs expensed in the supplemental
consolidated statement of operations during the year ended December 31, 1998.
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 December 31, 1998, in excess
of the amounts previously recorded as goodwill will be charged to operations in
the period in which they occur.
F-39
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 6--INTANGIBLES, NET
Intangibles, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, AMORTIZATION
---------------------- PERIOD
1998 1997 (YEARS)
---------- ---------- ------------
<S> <C> <C> <C>
Client lists, net of accumulated amortization of $5,709
and $4,662, respectively............................. $ 9,981 $ 10,145 5 to 30
Covenants not to compete, net of accumulated
amortization of $2,551 and $2,056, respectively...... 2,080 2,218 3 to 6
Excess of cost of investments over fair value of net
assets acquired, net of accumulated amortization of
$19,990 and $11,668, respectively.................... 210,464 179,179 10 to 30
Other, net of accumulated amortization of $1,931 and
$2,103, respectively................................. 341 797 4 to 10
---------- ----------
$ 222,866 $ 192,339
---------- ----------
---------- ----------
</TABLE>
NOTE 7--SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes amounted to the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Interest..................................................... $ 11,607 $ 13,733 $ 11,920
Income taxes................................................. 14,488 14,676 9,948
</TABLE>
F-40
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 7--SUPPLEMENTAL CASH FLOW INFORMATION (CONTINUED)
In conjunction with business acquisitions, the Company used cash as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- ---------- ---------
Fair value of assets acquired, excluding cash............... $ 46,033 $ 129,126 $ 60,991
Less: Liabilities assumed and created upon acquisition...... 13,188 62,225 29,689
--------- ---------- ---------
Net cash paid............................................... $ 32,845 $ 66,901 $ 31,302
--------- ---------- ---------
--------- ---------- ---------
Capital lease obligations incurred.......................... $ 217 $ 5,874 $ 4,873
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
NOTE 8--FINANCING AGREEMENTS
The Company obtains its primary financing from a financial institution under
a five year financing agreement as amended and restated on June 27, 1996,
further amended on November 14, 1997, and amended and restated again on November
5, 1998 (the "Agreement"). Subsequent to the five year term, which expires on
November 4, 2003, the Agreement provides for one year extensions subject to bank
approval unless terminated by either party at least 90 days prior to expiration
of the initial term or any renewal term. The Agreement, as amended, provides for
borrowings of up to $175,000 at the higher of (a) prime rate or, (b) Federal
Funds rate less 1/2 of 1% or, (c) LIBOR plus a margin determined by the ratio of
the Company's debt to earnings before interest, taxes, depreciation and
amortization (EBITDA) as defined on the Agreement. At December 31, 1998 the
margin equaled .875%. Borrowings under the Agreement are based on 90% of
eligible accounts receivable, which are amounts billed under 120 days old and
amounts to be billed as defined in the Agreement. Substantially all of the
assets of the Company are pledged as collateral for borrowings under the
Agreement. The Agreement contains certain covenants which restrict, among other
things, the ability of the Company to borrow, pay dividends, acquire businesses,
guarantee debts of others and lend funds to affiliated companies and contains
criteria on the maintenance of certain financial statement amounts and ratios,
all as defined in the Agreement. The Agreement also provides for a fee on any
unused portion of the commitment based upon a rate determined by the ratio of
the Company's debt to EBITDA. At December 31, 1998, this rate equaled .25%. In
addition, the Agreement provides for a declining termination fee of $1,000,
$500, $0 for the annual periods ended November 5, 1999, 2000, and 2001,
respectively.
In October 1993, the Company issued a warrant to the lender to purchase one
percent of the issued and outstanding common stock of the Company (as defined in
the agreement) for an exercise price of $.01 per share. The warrant was
independently appraised at $600, which amount was being amortized over the
remaining term of the original financing agreement of 30 months from October
1993 until December 1996, when the warrant was exercised. At that time, the
unamortized balance was expensed. In addition, in December 1996, upon the
exercise of such warrant there was an additional interest charge of $2,603 to
reflect the difference between the value of the stock issued (228,768 shares) at
the initial public offering price of $14.00 per share and the original amount
recorded.
At December 31, 1998, the prime rate, Federal funds rate and one month LIBOR
were 7.75%, 5.75% and 5.06% respectively, and borrowings outstanding were at a
weighted average interest rate of 6.56%.
F-41
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 8--FINANCING AGREEMENTS (CONTINUED)
LAI maintained a line of credit which provided for maximum borrowings of
$25,000 bearing interest at various rates based on either a LIBOR index or the
bank's prime lending rate (7.75% at February 28, 1999) as determined at its
option. Interest is payable monthly and the principal balance is due upon
demand. The line of credit is collateralized by accounts receivable with
borrowings limited to 75% of qualifying receivables. Additionally, LAI is
required to comply with certain working capital and liquidity covenants. LAI is
in compliance with or has obtained waivers for the terms and covenants of its
debt agreements as of February 28, 1998 and 1999. No amounts were outstanding
under the line of credit as of February 28, 1998 and 1999. Effective with the
consummation of the merger with TMP, TMP cancelled this line of credit.
NOTE 9--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
Borrowings under financing agreement (see Note 8)..................... $ 97,720 $ 95,800
Borrowings under other financing agreements, interest payable at rates
varying from 5.0% to 9.2%, and collateralized by assets in certain
foreign countries................................................... 8,251 10,184
Notes payable to former WHI stockholders dated February 27, 1998,
payable in three equal annual installments plus accrued interest
bearing interest at 5.0%............................................ 4,892 7,552
Convertible subordinated promissory note issued by LAI in connection
with an acquisition, dated January 2, 1998, payable in three equal
annual installments plus accrued interest, bearing interest at
6.75%, and convertible into shares of common stock at each
anniversary date at prices specified in the asset purchase
agreement........................................................... 833 1,250
Other acquisition notes payable, noninterest bearing, interest imputed
at 6.7% to 8.0%, in varying installments through 2001............... 8,121 9,461
Capitalized lease obligations, payable with interest from 9% to 15%,
in varying installments through 2001 (see Note 14).................. 9,156 7,623
Term note payable in sixty consecutive monthly installments from July
1997 through June 2002, collateralized by transportation equipment
and with interest at 8.43% for the first 36 months. Thereafter the
interest rate will be based on two year U.S. Treasury Notes......... 7,557 7,760
Notes payable, in varying monthly installments maturing through 2001,
with interest at rates ranging from 6.5% to 9.5%.................... 2,328 7,341
---------- ----------
138,858 146,971
Less: Current portion................................................. 16,148 16,960
---------- ----------
$ 122,710 $ 130,011
---------- ----------
---------- ----------
</TABLE>
F-42
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 9--LONG-TERM DEBT (CONTINUED)
Long-term debt matures as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
2000............................................................................ $ 10,691
2001............................................................................ 5,227
2002............................................................................ 8,895
2003............................................................................ 97,847*
Thereafter...................................................................... 50
------------
$ 122,710
------------
------------
</TABLE>
- ------------------------
* Of this amount, $97,720 is subject to one year extensions after 2003. See
Note 8.
NOTE 10--MINORITY INTERESTS
In connection with an acquisition in 1990, a subsidiary of the Company
issued 88,425 shares of nonvoting convertible 10% cumulative preferred stock in
exchange for 88,425 shares (58%) of the outstanding common stock of the acquired
company held by the acquired company's employee stock ownership trust. These
shares were redeemed in January 1997 for a total of $3,133, which included a
redemption premium of $133.
NOTE 11--REDEEMABLE PREFERRED STOCK
During 1991, the Company sold 200,000 shares of 10.5% non-voting cumulative
preferred stock ($10.00 par value) to the Company's profit sharing plan for
$2,000. These shares were redeemed in January 1997 for a total of $2,105, which
included a redemption premium of $105.
NOTE 12--STOCKHOLDERS' EQUITY
(A) COMMON AND CLASS B COMMON STOCK
Common and Class B common stock have identical rights except that each share
of Class B common stock is entitled to ten votes and is convertible, at any
time, at the option of the stockholder into one share of common stock.
LAI completed its initial public offering of common stock on July 1, 1997.
The proceeds of $24,700 net of underwriters' discounts and other offering costs,
were used to repay outstanding indebtedness under the Company's credit
facilities, finance business acquisitions and provide additional working
capital.
F-43
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
On June 9, 1998, LAI completed a second public offering of common stock,
which including shares offered by certain LAI stockholders. The proceeds to the
Company of approximately $41,400 net of underwriters' discounts and other
offering costs, were used to support the Company's international expansion
efforts, pursue strategic acquisitions, support continued enhancements to the
Company's technology-based infrastructure and provide additional working
capital.
(B) STOCK OPTIONS
The disclosures below include options issued by LAI and M&B, as if such
options were issued for the purchase of the Company's common stock, and are
based on the exchange ratios of the Company's common stock for LAI's and M&B's
common stock pursuant to the related merger agreement.
LAI had two employee stock option plans, the 1997 Omnibus Stock and
Incentive Plan (the "1997 Plan") and the 1998 Omnibus Stock and Incentive Plan
(the "1998 Plan"). Generally incentive stock options, nonqualified stock
options, restricted stock and restricted stock units granted by LAI will vest
each year beginning on the first anniversary of the date of grant at 20-25% per
year and will expire after ten years. In accordance with the terms of the grants
the options vested 100% upon the consummation of the merger with TMP. The
following table summarizes the status of options issued by LAI, as if such
options were issued for the purchase of TMP's common stock, and are based on the
exchange ratio of TMP's common stock for LAI's common stock pursuant to the
merger agreement between TMP and LAI as provided for in that agreement.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OUTSTANDING AS OF REMAINING CONTRACTUAL
RANGE OF EXERCISE PRICES DECEMBER 31, 1998 LIFE AMOUNT EXERCISABLE
- ---------------------------------------- ------------------------ ------------------------- -------------------
<S> <C> <C> <C>
$42.62--60.50........................... 110,742 10 years 1,734
$64.35--90.84........................... 49,253 9 years 6,159
$135.35--162.76......................... 55,901 9 years 10,123
------- ------
215,896 18,016
------- ------
------- ------
</TABLE>
On November 10, 1994 options to purchase, at an exercise price of $4.77 per
share, the market price on the date of grant, an aggregate of approximately
129,458 shares of common stock were granted to officers and employees of M&B. Of
this amount, options to purchase 30,719 shares were subsequently cancelled,
93,253 were exercised and 5,486 were vested and exercisable at December 31,
1998. Such options will expire five years from date of grant.
On April 21, 1995, options to purchase, at an exercise price of $4.46 per
share, the market price on the date of grant, 104,746 shares of common stock
were granted to officers and employees of M&B. Of this amount, options for
48,437 shares were subsequently cancelled, options for 41,818 shares were
exercised and options to purchase 14,491 shares were vested and exercisable at
December 31, 1998. Such options will expire five years from the date of grant.
In January 1996, the Company's Board of Directors (the "Board") adopted the
1996 Employee Stock Option Plan (the "Stock Option Plan"), which provides for
the issuance of both incentive stock options within the meaning of Section 422
of the Internal Commissions and fees Code of 1986, as amended (the "Code"), and
nonqualified stock options, to purchase an aggregate of up to 900,000 shares
(amended to
F-44
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
3,000,000 on April 27, 1998) of the common stock of the Company. The Stock
Option Plan permits the granting of options to officers, employees and
consultants of the Company, its subsidiaries and affiliates.
Under the Stock Option Plan, the exercise price of an incentive stock option
must be at least equal to 100% of the fair market value of the common stock on
the date of grant (110% of the fair market value in the case of options granted
to employees who hold more than ten percent of the voting power of the Company's
capital stock on the date of grant). The exercise price of a nonqualified stock
option must be not less than the par value of a share of the common stock on the
date of grant. The term of an incentive or nonqualified stock option is not to
exceed ten years (five years in the case of an incentive stock option granted to
a ten percent holder). The Stock Option Plan provides that the maximum option
grant which may be made to an executive officer in any calendar year is 45,000
shares (amended to 150,000 on June 25, 1997).
In December 1998, the Company also adopted, subject to stockholder approval,
a long-term incentive plan (the "1999 Plan"), pursuant to which stock options,
stock appreciation rights, restricted stock and other equity based awards may be
granted. Stock options which may be granted may be incentive stock options and
nonqualified stock options within the meaning of the Code. The total number of
shares of the common stock of the Company which may be granted under the 1999
Plan is the sum of 3,000,000 and the number of shares available for new awards
under the Stock Option Plan.
On January 3, 1996, options to purchase, at an exercise price equal to $6.65
per share, the fair market value of the common stock on the date of grant as
determined by the Board, an aggregate of 296,640 shares of common stock were
granted to officers, employees and consultants of the Company. Such options vest
at the rate of 25% per year commencing one year after the date of grant. As of
December 31, 1998, 25,879 options were cancelled, 71,343 options were exercised
and, of the outstanding options, 64,038 options were exercisable and will expire
ten years from the date of grant.
On August 19, 1996, options to purchase, at an exercise price of $10.37 per
share, the market price on the date of grant, 173,068 shares of common stock
were granted to officers and employees of M&B. Of this amount, options for
53,045 shares were subsequently cancelled. The remaining options to purchase
120,023 shares of common stock will vest three years from the date of grant and
will expire five years from the date of grant. At December 31, 1998, none of
these options were exercisable.
On January 6, 1997 options to purchase, at an exercise price of $12.88 per
share, the market price on the date of grant, an aggregate of approximately
1,203,782 shares of common stock were granted to officers and employees, of the
Company and options for 7,091 shares were subsequently cancelled. Of such
options, options for approximately 29,000 shares of common stock vest at the
rate of 25% per year beginning one year from the date of grant and the balance
of these options were vested at December 31, 1997. At December 31, 1998, 31,355
options were exercised and 7,157 were exercisable. The balance are exercisable
after January 5, 1999. Such options will expire ten years from date of grant.
On April 3, 1997, options to purchase, at an exercise price of $17.25 per
share, the market price on the date of grant, 8,400 shares of common stock were
granted to an officer of the Company. Such options were exercised during 1998.
On June 18, 1997, options to purchase, at an exercise price of $19.00 per
share, the market price on the date of grant, 28,256 shares of common stock were
granted to officers and employees of the Company.
F-45
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
Options for 5,815 shares were subsequently cancelled. Generally, such options
were vested as of December 31, 1997, are exercisable after January 5, 1999, and
will expire ten years from the date of grant.
On June 24, 1997, options to purchase 50,000 shares of common stock, at an
exercise price of $21.50 per share, the market price on the date of grant, were
granted to MLE Consultants Inc, with 25,000 options exercisable one year from
the date of grant and 25,000 options exercisable eighteen months from the date
of grant. At December 31, 1998, 5,000 options were exercised and 45,000 were
exercisable. Such options will expire ten years from the date of grant.
On August 28, 1997, options to purchase, at an exercise price of $15.00 per
share, the market price on the date of grant, 35,000 shares of common stock were
granted to various Austin Knight officers and individuals. Such options TMP
generally vest at the rate of 25% per year commencing one year after the date of
grant and will expire ten years from the date of grant. At December 31, 1998,
8,750 options were exercisable.
On October 17, 1997 options to purchase, at an exercise price of $29.59 per
share, the market price on the date of grant, 116,293 shares of common stock
were granted to officers and employees of M&B and options for 17,554 shares were
subsequently cancelled. The remaining options to purchase 98,739 shares of
common stock will expire five years from the date of grant. At December 31,
1998, none of these options were exercisable.
On December 12, 1997, options to purchase, at an exercise price of $15.00
per share, the market price on the date of grant, an aggregate of 700,000 shares
of common stock were granted to officers and employees of the Company. Such
options vest at the rate of 25% per year commencing one year after the date of
grant and will expire ten years from the date of grant. At December 31, 1998,
175,491 options were cancelled, 6,000 options were exercised and 129,628 were
exercisable at December 31, 1998.
On May 1, 1998 options to purchase, at an exercise price of $24.00 per
share, the market price on the date of grant, 42,604 shares of common stock were
granted to officers and employees of M&B and options for 2,925 shares were
subsequently cancelled. The remaining options to purchase 39,678 shares will
expire five years from the date of grant. At December 31, 1998 none of these
options were exercisable.
On May 4, 1998, options to purchase at an exercise price of $25.50 per
share, the market price on the date of grant, 5,346 shares of common stock were
granted to two employees. Such options vest at the rate of 25% per year
commencing one year after the date of grant and will expire ten years from the
date of grant. At December 31, 1998, 3,846 options were cancelled and none of
the options were exercisable.
On May 19, 1998, options to purchase at an exercise price of $26.25 per
share, the market price on the date of grant, 5,370 shares of common stock were
granted to an employee of the Company. Such options vest at the rate of 25% per
year commencing one year after the date of grant and will expire ten years from
the date of grant. At December 31, 1998 none of the options were exercisable.
On May 20, 1998, options to purchase at an exercise price of $25.625 per
share, the market price on the date of grant, 104,755 shares of common stock
were granted to certain officers and employees of JSK. Such options vest at a
rate of 25% per year commencing one year after the date of grant and will expire
ten years from the date of grant. At December 31, 1998 none of these options
were exercisable.
F-46
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
On June 15, 1998, options to purchase at an exercise price of $26.13 per
share, the market price on the date of grant, an aggregate of approximately
2,100 shares of common stock were granted to an employee of the Company. Such
options vest at the rate of 25% per year commencing one year after the date of
grant and will expire ten years from the date of grant. At December 31, 1998
none of these options were exercisable.
On October 30, 1998, options to purchase at an exercise price of $30.00 per
share, the market price on the date of grant, an aggregate of approximately
184,000 shares of common stock to the officers and employees of the Company.
Such options vest at the rate of 25% per year commencing one year after the date
of grant and will expire ten years from the date of grant. At December 31, 1998,
none of these options were exercisable.
On November 5, 1998, options to purchase at an exercise price of $25.125 per
share, the market price on the date of grant, 100,000 shares of common stock to
the officers and employees of Stackig. Such options vest at the rate of 25% per
year commencing one year after the date of grant and will expire ten years from
the date of grant. At December 31, 1998, none of these options were exercisable.
On November 13, 1998, options to purchase at an exercise price of $23.75 per
share, the market price on the date of grant, 24,450 shares of common stock to
the officers and employees of the Company. Such options vest at the rate of 25%
per year commencing one year after the date of grant and will expire ten years
from the date of grant. At December 31, 1998, none of these options were
exercisable.
On December 9, 1998, options to purchase at an exercise price of $26.875 per
share, the market price on the date of grant, an aggregate of approximately
800,000 options of common stock to the officers and employees of the Company.
Such options vest at the rate of 25% per year commencing one year after the date
of grant and will expire ten years from the date of grant. At December 31, 1998,
none of these options were exercisable.
On December 11, 1998, options to purchase at an exercise price of $29.50 per
share, the closing market price on the date of grant, 50,000 shares of common
stock to the officers and employees of TASA Holding AG. Such options vest at the
rate of 25% per year commencing one year after the date of grant and will expire
ten years from the date of grant. At December 31, 1998, none of these options
were exercisable.
On December 28, 1998, options to purchase at an exercise price of $38.00 per
share, the market price on the date of grant, an aggregate of approximately
400,000 shares of common stock to the officers and employees of TASA. Such
options vest at the rate of 25% per year commencing one year after the date of
grant and will expire ten years from the date of grant. At December 31, 1998,
none of these options were exercisable.
In January 1996, the Company also adopted a stock option plan for
non-employee directors (the "Directors' Plan"), pursuant to which options to
acquire a maximum aggregate of 180,000 shares of common stock may be granted to
non-employee directors. Options granted under the Directors' Plan do not qualify
as incentive stock options within the meaning of Section 422 of the Code. The
Directors' Plan provides for an automatic grant to each of the Company's
non-employee directors of an option to purchase 11,250 shares of common stock on
the date of such director's initial election or appointment to the Board. The
options will have an exercise price of 100% of the fair market value of the
common stock on the date
F-47
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
of grant, have a ten-year term and become exercisable in accordance with a
vesting schedule determined by the Board of Directors.
Options to purchase 11,250 shares of common stock at a purchase price per
share equal to $6.65 per share, the fair market value of the common stock on the
date of grant, were granted on January 24, 1996 to one non-employee director.
Half of these options vested on the date of the grant and the balance vested in
two equal annual installments commencing one year after the date of grant. As of
December 31, 1998, all were exercised.
In September 1996, options to purchase an aggregate of 33,750 shares of
common stock were granted to three directors under this plan at an exercise
price per share equal to the initial public offering price per share, the fair
value on the date of grant. Vesting is on terms similar to that of the previous
director's grant. In December 1996, 11,250 of these options were cancelled and
options to purchase 125,000 shares of common stock were granted at an exercise
price of $14.00 (the initial public offering price). Of the total, 50,000 of
such options vested on the closing of the initial public offering. In April
1997, in connection with this former director's resignation, the Company agreed
that an additional 12,500 of such stock options would vest on June 1, 1997 and
the unvested options totaling, 62,500 were cancelled. As of December 31, 1998,
42,880 options were exercised and 42,120 options are exercisable and will expire
ten years from the date of grant.
On October 7, 1997, a newly appointed director of the Company was granted
options to purchase 11,250 shares of common stock at $23.625 per share, the
market price on the date of grant. Half of these options vested on the date of
the grant and the balance vests in two equal annual installments commencing one
year after the date of grant. Such options will expire ten years from the date
of grant. At December 31, 1998, 8,438 options were exercisable.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related Interpretations in
accounting for its employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of SFAS No.
123. The weighted average fair values of options granted during 1998, 1997 and
1996 were $11.72, $6.55 and $5.76, respectively. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions: risk-free interest rates
of approximately 4.6%, 6.5% and 6.1% in 1998, 1997 and 1996 respectively;
volatility factor of the expected market price of the Company's common stock of
24%, 27% and 25% in 1998, 1997 and 1996, respectively; a weighted average
expected life of the option of 9 years in 1998 and 8 years in both 1997 and 1996
and no dividend yield in 1998, 1997 and 1996.
F-48
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
Under the accounting provisions of SFAS No. 123, the Company's net income
(loss) and net income (loss) per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
Net income (loss) applicable to common and Class B common
stockholders............................................... $ 9,020 $ 28,183 $ (38,677)
Net income (loss) per common and Class B common share
Basic...................................................... $ 0.24 $ 0.79 $ (1.28)
Diluted.................................................... $ 0.23 $ 0.78 $ (1.28)
</TABLE>
A summary of the status of the Company's fixed stock option plans as of
December 31, 1998, 1997 and 1996, and changes during the years ending on those
dates is presented.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- ----------- ---------- ----------- --------- -----------
Outstanding at beginning of year...................... 2,741,587 $ 19.50 781,003 $ 8.35 206,173 $ 4.64
Granted............................................... 1,995,975 35.39 2,262,990 22.29 639,708 9.48
Exercised............................................. (213,719) 8.05 (104,621) 8.65 -- --
Forfeited/cancelled................................... (318,282) 71.22 (197,785) 12.96 (64,878) 7.72
---------- ---------- ---------
Outstanding at end of year............................ 4,205,561 $ 23.73 2,741,587 $ 13.31 781,003 $ 8.35
---------- ---------- ---------
---------- ---------- ---------
Options exercisable at year-end....................... 343,124 $ 19.20 158,463 $ 8.44 66,875 $ 13.38
---------- ---------- ---------
---------- ---------- ---------
Weighted average fair value of options granted during
the year............................................ $ 11.72 $ 6.55 $ 5.76
</TABLE>
F-49
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1998.
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING ---------------------------------
-------------------------------------------- WEIGHTED
NUMBER WEIGHTED AVERAGE NUMBER AVERAGE
OUTSTANDING AT REMAINING WEIGHTED AVERAGE EXERCISABLE AT EXERCISE
EXERCISE PRICE DECEMBER 31, 1998 CONTRACTUAL LIFE (YEARS) EXERCISE PRICE DECEMBER 31, 1998 PRICES
- ---------------- ----------------- ------------------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
$ 4.46......... 14,491 1.4 $ 4.46 14,491 $ 4.46
4.77......... 5,485 0.9 4.77 5,486 4.77
6.65......... 199,418 7.0 6.65 64,038 6.65
10.37......... 120,022 1.7 10.37 -- --
12.88......... 1,165,336 8.0 12.88 7,157 12.88
14.00......... 42,120 7.9 14.00 42,120 14.00
15.00......... 518,509 8.9 15.00 129,628 15.00
15.00......... 35,000 8.8 15.00 8,750 15.00
19.00......... 22,441 8.6 19.00 -- --
21.50......... 45,000 7.0 21.50 45,000 21.50
23.63......... 11,250 8.8 23.63 8,438 23.63
23.75......... 24,450 9.9 23.75 -- --
24.00......... 39,679 4.4 24.00 -- --
25.13......... 100,000 9.8 25.13 -- --
25.50......... 1,500 8.3 25.50 -- --
25.63......... 104,755 8.5 25.63 -- --
26.13......... 2,100 8.6 26.13 -- --
26.25......... 5,370 8.5 26.25 -- --
26.88......... 800,000 9.9 26.88 -- --
29.50......... 50,000 9.9 29.50 -- --
29.59......... 98,739 3.8 29.59 -- --
30.00......... 184,000 9.8 30.00 -- --
38.00......... 400,000 10.0 38.00 -- --
56.78......... 6,192 9.6 56.78 1,734 56.78
90.84......... 12,939 9.3 90.84 6,159 90.84
135.35......... 3,302 9.0 135.35 826 135.35
148.07......... 51,278 9.0 148.07 9,297 148.07
162.76......... 132 9.0 162.76 -- 162.76
138.15......... 1,189 9.0 138.15 -- 138.15
44.21......... 1,982 9.6 44.21 -- 44.21
42.62......... 27,081 9.6 42.62 -- 42.62
60.56......... 58,578 9.6 60.56 -- 60.56
75.70......... 18,679 9.3 75.70 -- 75.70
64.35......... 4,425 9.3 64.35 -- 64.35
67.68......... 13,210 9.3 67.68 -- 67.68
48.75......... 1,585 9.6 48.75 -- 48.75
50.19......... 6,605 9.6 50.19 -- 50.19
47.31......... 8,719 9.6 47.31 -- 47.31
----------------- ------- -------
4,205,561 343,124 $ 19.20
----------------- ------- -------
----------------- ------- -------
</TABLE>
F-50
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES
The components of income (loss) before the provision (benefit) for income
taxes, minority interests and equity in earnings (losses) of affiliates are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ----------
Domestic........................................................................ $ (354) $ 22,692 $ (46,069)
Foreign......................................................................... 28,602 28,222 19,602
--------- --------- ----------
Total income (loss) before provision (benefit) for income taxes, minority
interests and equity in earnings (losses) of affiliates....................... $ 28,248 $ 50,914 $ (26,467)
--------- --------- ----------
--------- --------- ----------
</TABLE>
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Current tax provision:
U.S. Federal..................................................................... $ 1,124 $ 3,326 $ 545
State and local.................................................................. 1,287 2,294 1,097
Foreign.......................................................................... 13,197 8,117 5,883
--------- --------- ---------
Total current.................................................................. 15,608 13,737 7,525
--------- --------- ---------
Deferred tax provision (benefit):
U.S. Federal..................................................................... 2,379 2,053 1,620
State and local.................................................................. (684) 525 (377)
Foreign.......................................................................... (3,404) 3,665 1,985
--------- --------- ---------
Total deferred................................................................. (1,709) 6,243 3,228
--------- --------- ---------
Total provision................................................................ $ 13,899 $ 19,980 $ 10,753
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-51
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to the Company's
deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Current deferred tax assets (liabilities):
Earned commissions......................................................................... $ (5,124) $ (5,796)
Allowance for doubtful accounts............................................................ 6,630 4,904
Work-in-process............................................................................ (5,224) (6,222)
Prepaid and other.......................................................................... (692) (241)
Accrued expenses and other liabilities..................................................... 119 (1,922)
Accrued compensation....................................................................... (418) (117)
Tax loss carryforwards..................................................................... 709 725
--------- ---------
Total current deferred tax liability..................................................... (4,000) (8,669)
--------- ---------
Noncurrent deferred tax assets (liabilities):
Property and equipment..................................................................... (2,146) (1,860)
Intangibles................................................................................ (541) (627)
Accrued expenses and other liabilities..................................................... 4,080 (2,584)
Accrued rent............................................................................... 499 408
Deferred compensation...................................................................... 3,213 2,798
Tax loss carryforwards..................................................................... 8,405 12,985
Valuation allowance........................................................................ (1,892) (2,219)
--------- ---------
Total noncurrent deferred tax asset...................................................... 11,618 8,901
--------- ---------
Net deferred tax asset....................................................................... $ 7,618 $ 232
--------- ---------
--------- ---------
</TABLE>
At December 31, 1998, the Company has net operating loss carryforwards for
U.S. Federal tax purposes of approximately $18,000 which expire through 2018.
The Company has concluded that, based on expected future results and the future
reversals of existing taxable temporary differences, it is more likely than not
that the deferred tax assets will be realized. In addition, certain subsidiaries
have operating loss carryforwards which are only useable by such subsidiary.
Consequently, there is no reasonable assurance that the benefit of such loss
carryforward can be used. Accordingly, a valuation allowance has been
established.
F-52
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED)
The provision for income taxes differs from the amount computed using the
Federal statutory income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Provision (benefit) at Federal statutory rate.................................... $ 9,885 $ 16,983 $ (8,973)
State income taxes, net of Federal income tax effect............................. 314 1,316 349
Nondeductible expenses(1)........................................................ 5,316 1,206 972
Nondeductible special charge and CEO bonus....................................... 438 510 18,574
Foreign income taxes at other than the Federal statutory rate.................... (1,483) 695 (520)
Other............................................................................ (571) (730) 351
--------- --------- ---------
Income tax provision............................................................. $ 13,899 $ 19,980 $ 10,753
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Primarily composed of amortization of intangible assets and meals and
entertainment expense and, in addition, for 1998, nondeductible merger
costs.
Provision has not been made for U.S. or additional foreign taxes on
undistributed earnings of foreign subsidiaries. Such earnings have been and will
continue to be reinvested but could become subject to additional tax if they
were remitted as dividends, or were loaned to the Company or a U.S. affiliate,
or if the Company should sell its stock in the foreign subsidiaries. It is not
practicable to determine the amount of additional tax, if any, that might be
payable on the foreign earnings; however, the Company believes that foreign tax
credits would substantially offset any U.S. tax. At December 31, 1998, the
cumulative amount of reinvested earnings was approximately $14,000.
F-53
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases its facilities and certain equipment under operating
leases and certain equipment under capital leases. Future minimum lease
commitments under both noncancellable operating leases and capital leases at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ----------
<S> <C> <C>
1999....................................................................................... $ 4,888 $ 25,507
2000....................................................................................... 3,670 24,413
2001....................................................................................... 1,639 22,065
2002....................................................................................... 592 14,595
2003....................................................................................... 127 9,428
Thereafter................................................................................. -- 53,703
--------- ----------
10,916 $ 149,711
----------
----------
Less: Amount representing interest......................................................... 1,760
---------
Present value of minimum lease payments.................................................... 9,156
Less: Current portion...................................................................... 4,258
---------
$ 4,898
---------
---------
</TABLE>
Rent and related expenses under operating leases amounted to $27,752,
$24,840 and $21,467 for the years ended December 31, 1998, 1997 and 1996,
respectively.
(B) CONSULTING, EMPLOYMENT AND NONCOMPETE AGREEMENTS
The Company has entered into various consulting, employment and noncompete
agreements with certain management personnel and former owners of acquired
businesses. These agreements are generally two to five years in length, with one
for a term of fifteen years and two providing aggregate annual lifetime payments
of approximately $135.
F-54
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Effective November 15, 1996, the Company entered into an employment
agreement with its Principal Stockholder for a term ending on November 14, 2001.
The agreement provides for automatic renewal for successive one year terms
unless either party notifies the other to the contrary at least 90 days prior to
its expiration. Under the agreement, the Principal Stockholder is entitled to a
base salary of $1,500 per year and mandatory bonuses of $375 per quarter through
November 1998 when the bonus provision of the agreement was eliminated. Such
bonuses were waived by the Principal Stockholder. However, in compliance with
the SEC's interpretation of the application of Staff Accounting Bulletin 79,
Topic 5T "Accounting for Expenses or Liabilities paid by Principal Stockholder,"
the Company recorded in equal quarterly amounts for 1997 a total of $1,500 in
bonus expense and $1,250 for 1998, and increased the Additional Paid-in Capital
account to complete the concept that the amount of the waived bonus was
contributed to the Company by the Principal Stockholder. Because the amount was
not and will never be paid, no tax benefit was accrued for this charge. The
agreement also provides that the Company will pay the Principal Stockholder his
base salary for the remaining term of the agreement in the event he is
terminated for reasons other than cause.
LAI has entered into employment agreements with certain executive officers
which provide for minimum compensation under certain circumstances. The
agreements also provide for a payment of amounts up to three times their annual
salary if a change in control, as defined, of LAI occurs and include a covenant
against competition with LAI which extends for two to three years after
termination. In the event all the covered executives elected to terminate their
employment during a specified period following a change in control, LAI's
maximum liability would be approximately $5,200. In connection with the merger
with TMP, these costs will be accrued as merger costs. (See Note 5).
The above agreements provide for the following aggregate annual
payments:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
1999............................................................................ $ 6,408
2000............................................................................ 6,246
2001............................................................................ 5,216
2002............................................................................ 819
2003............................................................................ 754
Thereafter...................................................................... 1,704
------------
$ 21,147
------------
------------
</TABLE>
(C) EMPLOYEE BENEFIT PLANS
The Company has a 401(k) profit sharing plan covering all eligible
employees. Employer matching contributions, which are a maximum of 2% of payroll
of participating employees, amounted to $867, $762, and $687 for the years ended
December 31, 1998, 1997 and 1996, respectively.
LAI maintains a defined contribution profit sharing plan covering
substantially all employees. In August 1998, the plan was amended to add a
401(k) savings and company matching feature. LAI profit sharing and matching
contributions are discretionary and are funded annually as approved by the LAI
Board of Directors. As of February 28, 1998, LAI had accrued for contributions
totaling approximately $1,600 which is included in the accrued expenses in the
accompanying consolidated balance sheets. LAI
F-55
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--COMMITMENTS AND CONTINGENCIES (CONTINUED)
did not accrue an amount as of February 28, 1999. Effective upon the merger with
TMP, LAI's 401(k) plan was combined with that of TMP.
Outside of the United States, the Company has employee benefit plans in the
countries in which it operates. The costs for these plans amounted to $5,102,
$4,438 and $3,868 for the years ended December 31, 1998, 1997 and 1996,
respectively.
In addition, the Company had a defined contribution profit sharing plan
covering all eligible employees. Contributions, which are at the discretion of
the Board of Directors, were not made in the years ended December 31, 1997 and
1996. The plan was terminated during 1997.
LAI has deferred compensation agreements with 69 employees and former
employees. Under the terms of the agreements, employees are eligible to make
annual elections, on calendar year basis, to defer a portion of their
compensation. This compensation, together with accrued interest, is paid upon
termination of the agreements, as defined. Effective January 1, 1999, the plan
was amended to prohibit future deferrals of compensation to the plan. The
present value of the obligation is recorded as a long-term liability in the
accompanying consolidated balance sheets. Interest is earned on deferred amounts
at a rate determined annually by LAI (6.25% at February 28, 1999). LAI is the
beneficiary of whole life insurance policies with an aggregate cash surrender
value of approximately $5,800 and $4,400, and an aggregate face amount of
$22,300 and $13,500 as of February 28, 1999 and 1998, respectively. The Company
is in the process of surrendering the policies and intends to use the proceeds,
approximately $5,800, for general corporate purposes.
(D) LITIGATION
The Company is subject to various claims, suits and complaints arising in
the ordinary course of business. Although the outcome of these legal matters
cannot be determined, it is the opinion of management that the final resolution
of these matters will not have a material adverse effect on the Company's
financial condition, operations or liquidity.
On February 19, 1998, a class action complaint was filed against the Company
by five former employees. The claims brought by the plaintiffs in the complaint
are that the Company (a) misclassified the named plaintiffs and purported class
members as exempt from the overtime requirements of California wage and hour law
and failed to pay them overtime wages, (b) failed to pay accrued but unused
vacation days at the time of termination, and (c) failed to pay accrued but
unused personal days at the time of termination. The plaintiffs purport to
represent a class of 450 former and current employees who are similarly
situated. The Company intends to vigorously defend the claims brought by the
plaintiffs and on March 18, 1998 responded to the complaint by filing an answer
denying all allegations. Management presently believes that the disposition of
these claims will not have a material adverse effect on the Company's financial
position, operations or liquidity.
In June 1997, a settlement of $275, which was paid by the Principal
Stockholder under an indemnity agreement with the Company, was made relating to
a November 1996 action of a former employee against Old TMP, WCI and the
Principal Stockholder. The complaint alleged, among other things, that the
defendants breached purported contractual obligations pursuant to which the
former employee was entitled to an ownership interest in the Company's
recruitment advertising business.
F-56
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--COMMITMENTS AND CONTINGENCIES (CONTINUED)
M & B has had proceedings issued against it for an amount of $3,400. These
proceedings are in relation to the acquisition of the claimant's business in New
Zealand prior to Morgan & Banks New Zealand Limited becoming a controlled entity
of the M & B group. The directors of M & B are of the opinion that the claim is
without substance and accordingly the action is being vigorously defended.
(E) OTHER
(i) The Company is contingently liable on a note of the Principal
Stockholder in the amount of approximately $1,600.
(ii) The majority stockholder of an unconsolidated equity investee has an
agreement which requires the Company to purchase his interest, based on a
formula value, upon death. The value of his shares at December 31, 1998 is
approximately $5,741 based on the formula.
(iii) As of February 28, 1999, LAI has four standby letters of credit
totaling approximately $2,600. The letters of credit, which were required by
certain lessors as security deposits, expire between August and December 1999.
NOTE 15--RELATED PARTY TRANSACTIONS
(A) In August 1996, the Company entered into an agreement whereby it
acquired the minority interest of a subsidiary for 46,350 shares of common
stock. Such shares, valued at $672, were recorded as special compensation
because the stockholder had received his shares in the subsidiary for no
consideration and, accordingly, was not considered to have made a substantive
investment for his shares.
(B) The Company charged management and other fees to affiliates for services
provided of approximately $651, $788 and $602 for the years ended December 31,
1998, 1997 and 1996, respectively. Such fees are reflected as a reduction of
salaries and related costs in the accompanying supplemental consolidated
statements of operations.
(C) In January 1994, the Company acquired a 50% interest in an agency
selling real estate advertising. In connection with this acquisition, the
Company agreed to provide the agency with certain office and administrative
services which amounted to $321 for the nine months ended September 30, 1997 at
which time the arrangement was terminated. Payments of $875 and $725 were made
in the years ended December 31, 1996 and 1995, respectively, in exchange for 50%
of the agency's profits, as defined in the agreement. The Company also entered
into three-year employment and consulting agreements with the two other
stockholders of the agency and granted them the right to convert their agency
shares into Company shares after an initial public offering. That conversion
right, as amended, provided that those two stockholders may convert 25% of the
agency's stock into unregistered common stock of the Company with a total value
of $1,000 as of the effective date of conversion. The conversion was exercised
in February 1997 and 61,848 shares of common stock were issued to these
stockholders pursuant to the above agreement. Simultaneously, the Company
transferred to such stockholders 50% of its interest in the agency, thus
retaining a 25% interest and terminated its obligation to provide office and
administrative services effective October 1, 1997.
(D) The Company leases three offices from entities in which the Principal
Stockholder and other stockholders have between a 49% and 90% ownership
interest. Annual rent expense under these leases, which expire on various dates
through the year 2013, amounts to approximately $863. In addition, an investee
of the Company leases an office, at an annual rental of approximately $119, from
a partnership in which the Principal Stockholder holds a 49% interest.
F-57
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 16--SEGMENT AND GEOGRAPHIC DATA
The Company is engaged in five lines of business, recruitment advertising,
yellow page advertising, Internet, search & selection and temporary contracting.
Operations are conducted in several geographic regions: North America, the
Pacific Rim (primarily in Australia, New Zealand and Japan) and Europe. The
following is a summary of the Company's operations by business segment and by
geographic segment, as of and for the years ended December 31, 1998, 1997, and
1996.
<TABLE>
<CAPTION>
RECRUITMENT YELLOW PAGE SEARCH & TEMPORARY
ADVERTISING ADVERTISING INTERNET SELECTION CONTRACTING TOTAL
----------- ----------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
INFORMATION BY BUSINESS SEGMENT
For the year ended December 31, 1998
Commissions and fees:
Traditional sources.................................. $177,774 $106,455 $ -- $ 256,140 $46,989 $587,358
Internet............................................. 2,436 1,056 46,421 245 -- 50,158
----------- ----------- -------- --------- ----------- --------
Commissions and fees................................... 180,210 107,511 46,421 256,385 46,989 637,516
----------- ----------- -------- --------- ----------- --------
Operating expenses:
Salaries & related costs, office & general expenses
and CEO special bonus.............................. 160,925 75,679 -- 240,419 36,107 513,130
Internet expenses(A)................................. 1,917 739 45,586 63 -- 48,305
Merger & integration costs........................... 2,004 596 -- 19,812 -- 22,412
Restructuring charge................................. -- -- 3,543 3,543
Amortization of intangibles.......................... 5,626 2,904 234 1,318 103 10,185
----------- ----------- -------- --------- ----------- --------
Total operating expenses............................... 170,472 79,918 45,820 265,155 36,210 597,575
----------- ----------- -------- --------- ----------- --------
Operating income (loss):
Traditional sources.................................. 9,219 27,276 -- (8,952) 10,779 38,322
Internet............................................. 519 317 601 182 -- 1,619
----------- ----------- -------- --------- ----------- --------
Operating income (loss)................................ $ 9,738 $ 27,593 $ 601 $ (8,770) $10,779 39,941
----------- ----------- -------- --------- -----------
----------- ----------- -------- --------- -----------
Other expense:
Interest expense, net................................ * * * * * (9,903)
Other, net........................................... * * * * * (1,790)
--------
Income before provision for income taxes, minority
interests and equity in losses of affiliates......... * * * * * $ 28,248
--------
--------
Total Assets........................................... $259,862 $296,712 $ 34,682 $ 168,649 $34,811 $794,716
----------- ----------- -------- --------- ----------- --------
----------- ----------- -------- --------- ----------- --------
</TABLE>
- --------------------------
(A) Is comprised of salaries & related costs and office & general expenses
* Not allocated
F-58
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 16--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
RECRUITMENT YELLOW PAGE SEARCH & TEMPORARY
ADVERTISING ADVERTISING INTERNET SELECTION CONTRACTING TOTAL
----------- ----------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
INFORMATION BY BUSINESS SEGMENT
For the year ended December 31, 1997
Commissions and fees
Traditional sources.................................. $134,291 $103,941 $ -- $ 219,514 $41,285 $499,031
Internet............................................. 2,206 485 16,779 -- -- 19,470
----------- ----------- -------- --------- ----------- --------
Total commissions and fees............................. 136,497 104,426 16,779 219,514 41,285 518,501
----------- ----------- -------- --------- ----------- --------
Operating expenses:
Salaries and related costs, office & general and CEO
bonus.............................................. 122,024 75,714 -- 199,106 31,290 428,134
Internet expenses(A)................................. 1,678 340 22,818 -- -- 24,836
Amortization of intangibles.......................... 3,850 2,143 167 582 124 6,866
----------- ----------- -------- --------- ----------- --------
Total operating expenses............................... 127,552 78,197 22,985 199,688 31,414 459,836
----------- ----------- -------- --------- ----------- --------
Operating income (loss)
Traditional sources.................................. 8,417 26,084 -- 19,826 9,871 64,198
Internet............................................. 528 145 (6,206) -- -- (5,533)
----------- ----------- -------- --------- ----------- --------
Operating income (loss)................................ $ 8,945 $ 26,229 $ (6,206) $ 19,826 $ 9,871 58,665
----------- ----------- -------- --------- -----------
----------- ----------- -------- --------- -----------
Other income (expense):
Interest expense, net................................ * * * * * (8,629)
Other, net........................................... * * * * * 878
--------
Income before provision for income taxes, minority
interests and equity in losses of affiliates......... * * * * * $ 50,914
--------
--------
Total Assets........................................... $249,774 $259,311 $ 13,928 $ 158,007 $32,259 $713,279
----------- ----------- -------- --------- ----------- --------
----------- ----------- -------- --------- ----------- --------
</TABLE>
- --------------------------
(A) Is comprised of salaries & related costs and office & general expenses
* Not allocated.
F-59
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 16--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
RECRUITMENT YELLOW PAGE SEARCH & TEMPORARY
ADVERTISING ADVERTISING INTERNET SELECTION CONTRACTING TOTAL
----------- ----------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
INFORMATION BY BUSINESS SEGMENT
For the year ended December 31, 1996
Commissions and fees:
Traditional sources.................................. $ 76,601 $100,883 $ -- $ 170,424 $29,210 $377,118
Internet............................................. 661 -- 6,278 -- -- 6,939
----------- ----------- -------- --------- ----------- --------
Commissions and fees................................... 77,262 100,883 6,278 170,424 29,210 384,057
----------- ----------- -------- --------- ----------- --------
Operating expenses:
Salaries & related costs, office & general expenses
and CEO special bonus.............................. 72,886 77,533 -- 158,759 20,750 329,928
Internet expenses(A)................................. 496 -- 8,553 -- -- 9,049
Special compensation................................. 22,451 29,568 -- -- -- 52,019
Amortization of intangibles.......................... 2,289 1,927 224 231 61 4,732
----------- ----------- -------- --------- ----------- --------
Total operating expenses............................... 98,122 109,028 8,777 158,990 20,811 395,728
----------- ----------- -------- --------- ----------- --------
Operating income (loss):
Traditional sources.................................. (21,025) (8,145) -- 11,434 8,399 (9,337)
Internet............................................. 165 -- (2,499) -- -- (2,334)
----------- ----------- -------- --------- ----------- --------
Operating income (loss)................................ $(20,860) $ (8,145) $ (2,499) $ 11,434 $ 8,399 (11,671)
----------- ----------- -------- --------- -----------
----------- ----------- -------- --------- -----------
Other expense:
Interest expense, net................................ * * * * * (14,450)
Other, net........................................... * * * * * (346)
--------
Income before provision for income taxes, minority
interests and equity in losses of affiliates......... * * * * $(26,467)
--------
--------
Total Assets........................................... $110,654 $238,763 $ 5,481 $ 87,371 $28,593 $470,862
----------- ----------- -------- --------- ----------- --------
----------- ----------- -------- --------- ----------- --------
</TABLE>
- --------------------------
(A) Is comprised of salaries & related costs and office & general expenses
* Not allocated
F-60
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 16--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
UNITED CONTINENTAL
NORTH AMERICA PACIFIC RIM KINGDOM EUROPE TOTAL
------------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
INFORMATION BY GEOGRAPHIC REGION:
December 31, 1998
Total commissions and fees....................................... $359,165 $106,559 $117,153 $54,639 $637,516
Income (loss) before taxes, minority interests and equity in
earnings of affiliates....................................... 15,048 16,085 (4,491) 1,606 28,248
Long-lived assets.............................................. 125,367 32,918 89,439 47,871 295,595
December 31, 1997
Total commissions and fees..................................... $302,703 $113,620 $ 82,739 $19,439 $518,501
Income before taxes, minority interests and equity in earnings
of affiliates................................................ 22,486 17,560 6,413 4,455 50,914
Long-lived assets.............................................. 116,210 33,054 81,721 21,711 252,696
December 31, 1996
Total commissions and fees..................................... $235,448 $ 91,561 $ 34,508 $22,540 $384,057
Income (loss) before taxes, minority interests and equity in
earnings of affiliates*...................................... (46,459)* 15,827 3,300 865 (26,467)
Long-lived assets.............................................. 79,231 32,617 7,434 1,542 120,824
</TABLE>
- ------------------------
* Includes non-cash, non-recurring special compensation and interest expense
of $52,019 and $2,603, respectively.
F-61
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
The audits referred to in our report dated September 20, 1999, relating to
the supplemental consolidated financial statements of TMP Worldwide Inc. and
Subsidiaries, included the audits of the supplemental consolidated financial
statement schedule listed in the accompanying index. This supplemental
consolidated financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the supplemental
consolidated financial statement schedule based upon our audits. We did not
audit the financial statement schedule of LAI Worldwide, Inc. and subsidiaries
which was combined with the Company's financial statement schedule. That
financial statement schedule was audited by another auditor whose report has
been furnished to us, and our opinion, insofar as it relates to the amounts
included for LAI Worldwide, Inc., and subsidiaries is based solely on the report
of the other auditor.
In our opinion, based on our audit and the report of the auditor, the
supplemental consolidated financial statement schedule presents fairly, in all
material respects, the information set forth therein.
/s/ BDO Seidman, LLP
------------------------------------------------------------------
BDO Seidman, LLP
New York, New York
September 20, 1999
F-62
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To LAI Worldwide, Inc:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of LAI Worldwide, Inc. included in this Form
10-K and have issued our report thereon dated April 7, 1999. Our audits were
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedule listed in the index in Item 16(b) is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Tampa, Florida
April 7, 1999
F-63
<PAGE>
SUPPLEMENTAL SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C ADDITIONS
BALANCE AT ------------------------ BALANCE AT
BEGINNING OF CHARGED TO CHARGED TO END OF
DESCRIPTIONS PERIOD COSTS AND OTHER DEDUCTIONS PERIOD
COLUMN A COLUMN B EXPENSES ACCOUNTS COLUMN D COLUMN E
- -------------------------------------------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended December 31, 1996.................... $ 5,581 $ 3,322 $ 3,084(1) $ 2,349 $ 9,638
Year ended December 31, 1997.................... $ 9,638 $ 3,845 $ 3,247(1) $ 2,900 $ 13,830
Year ended December 31, 1998.................... $ 13,830 $ 5,891 $ 1,686(1) $ 3,615 $ 17,792
Restructuring reserves
Year ended December 31, 1997.................... $ -- $ -- $ 17,663 $ 862 $ 16,801
Year ended December 31, 1998.................... $ 16,801 $ 3,543 $ 10,020 $ 13,617 $ 16,747
</TABLE>
- ------------------------
(1) Initial reserves of acquired companies.
F-64
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
<TABLE>
<S> <C> <C>
TMP WORLDWIDE INC.
By: /s/ BART CATALANE
-----------------------------------------
Bart Catalane
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
</TABLE>
Dated: September 30, 1999
F-65
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 28,434
<SECURITIES> 0
<RECEIVABLES> 271,445
<ALLOWANCES> 9,638
<INVENTORY> 0
<CURRENT-ASSETS> 317,899
<PP&E> 79,435
<DEPRECIATION> 40,945
<TOTAL-ASSETS> 470,862
<CURRENT-LIABILITIES> 318,843
<BONDS> 78,151
0
0
<COMMON> 20
<OTHER-SE> 61,690
<TOTAL-LIABILITY-AND-EQUITY> 470,862
<SALES> 384,057
<TOTAL-REVENUES> 384,057
<CGS> 0
<TOTAL-COSTS> 392,406
<OTHER-EXPENSES> 346
<LOSS-PROVISION> 3,322
<INTEREST-EXPENSE> 14,450
<INCOME-PRETAX> (26,467)
<INCOME-TAX> 10,753
<INCOME-CONTINUING> 38,333
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,333
<EPS-BASIC> (1.27)
<EPS-DILUTED> (1.27)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 54,591
<SECURITIES> 0
<RECEIVABLES> 359,748
<ALLOWANCES> 13,830
<INVENTORY> 0
<CURRENT-ASSETS> 437,423
<PP&E> 114,589
<DEPRECIATION> 54,232
<TOTAL-ASSETS> 713,279
<CURRENT-LIABILITIES> 411,969
<BONDS> 130,011
0
0
<COMMON> 24
<OTHER-SE> 161,170
<TOTAL-LIABILITY-AND-EQUITY> 713,279
<SALES> 518,501
<TOTAL-REVENUES> 518,501
<CGS> 0
<TOTAL-COSTS> 455,991
<OTHER-EXPENSES> (878)
<LOSS-PROVISION> 3,845
<INTEREST-EXPENSE> 8,629
<INCOME-PRETAX> 50,914
<INCOME-TAX> 19,980
<INCOME-CONTINUING> 30,482
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,482
<EPS-BASIC> 0.86
<EPS-DILUTED> 0.84
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 72,605
<SECURITIES> 0
<RECEIVABLES> 364,293
<ALLOWANCES> 17,792
<INVENTORY> 0
<CURRENT-ASSETS> 468,607
<PP&E> 139,326
<DEPRECIATION> 66,597
<TOTAL-ASSETS> 794,716
<CURRENT-LIABILITIES> 428,116
<BONDS> 122,710
0
0
<COMMON> 36
<OTHER-SE> 224,874
<TOTAL-LIABILITY-AND-EQUITY> 794,716
<SALES> 637,516
<TOTAL-REVENUES> 637,516
<CGS> 0
<TOTAL-COSTS> 591,684
<OTHER-EXPENSES> 1,790
<LOSS-PROVISION> 5,891
<INTEREST-EXPENSE> 9,903
<INCOME-PRETAX> 28,248
<INCOME-TAX> 13,899
<INCOME-CONTINUING> 13,925
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,925
<EPS-BASIC> 0.37
<EPS-DILUTED> 0.36
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 33,793
<SECURITIES> 0
<RECEIVABLES> 388,744
<ALLOWANCES> 12,752
<INVENTORY> 0
<CURRENT-ASSETS> 496,998
<PP&E> 127,326
<DEPRECIATION> 58,154
<TOTAL-ASSETS> 788,548
<CURRENT-LIABILITIES> 426,834
<BONDS> 136,755
0
0
<COMMON> 35
<OTHER-SE> 125,450
<TOTAL-LIABILITY-AND-EQUITY> 788,548
<SALES> 312,027
<TOTAL-REVENUES> 312,027
<CGS> 0
<TOTAL-COSTS> 276,570
<OTHER-EXPENSES> 352
<LOSS-PROVISION> 2,378
<INTEREST-EXPENSE> 4,694
<INCOME-PRETAX> 28,033
<INCOME-TAX> 11,619
<INCOME-CONTINUING> 16,241
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,241
<EPS-BASIC> 0.43
<EPS-DILUTED> 0.42
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 60,358
<SECURITIES> 0
<RECEIVABLES> 404,018
<ALLOWANCES> 20,187
<INVENTORY> 0
<CURRENT-ASSETS> 492,720
<PP&E> 153,262
<DEPRECIATION> 77,054
<TOTAL-ASSETS> 856,802
<CURRENT-LIABILITIES> 451,371
<BONDS> 136,002
0
0
<COMMON> 37
<OTHER-SE> 252,329
<TOTAL-LIABILITY-AND-EQUITY> 856,802
<SALES> 343,085
<TOTAL-REVENUES> 343,085
<CGS> 0
<TOTAL-COSTS> 338,084
<OTHER-EXPENSES> 40
<LOSS-PROVISION> 2,472
<INTEREST-EXPENSE> 4,267
<INCOME-PRETAX> (1,778)
<INCOME-TAX> 319
<INCOME-CONTINUING> (2,404)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,404)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
