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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 000-21571
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TMP WORLDWIDE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 13-3906555
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
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1633 BROADWAY, 33RD FLOOR, NEW YORK, NEW YORK 10019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(212) 977-4200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.001 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $346,863,036 as of the close of business on March
20, 1998.
The number of shares of Common Stock, $.001 par value, outstanding as of
March 20, 1998 was 26,125,107.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be used in connection
with its Annual Meeting of Stockholders to be held on May 27, 1998, are
incorporated by reference into Part III of this report.
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ITEM 1. BUSINESS
TMP Worldwide Inc. ("TMP" or the "Company") is a marketing services,
communications and technology company that provides comprehensive, individually
tailored advertising services including development of creative content, media
planning, production and placement of corporate advertising, market research,
direct marketing and other ancillary services and products. The Company is the
world's largest yellow page advertising agency and one of the world's largest
recruitment advertising agencies. In 1995, the Company began marketing
Internet-based services as extensions of its core businesses and has become a
leading provider of Internet content. The Company's clients include more than 70
of the Fortune 100 and more than 285 of the Fortune 500 companies. The Company's
growth strategy is to continue to pursue consolidation opportunities in its core
advertising businesses and to leverage its client base and its approximately
2,200 sales, marketing and customer service personnel to expand its
Internet-based businesses. For the year ended December 31, 1997, the Company's
gross billings were $1.1 billion, commissions and fees were $237.4 million, net
income was $9.6 million and EBITDA was $41.0 million.(1)
TMP is the world's largest yellow page advertising agency, generating
approximately $457.5 million in gross billings for the year ended December 31,
1997. TMP is also one of the world's largest recruitment advertising agencies,
generating approximately $573.2 million in gross billings for the same period.
With approximately 30% of the national accounts segment of the U.S. yellow page
advertising market, TMP is approximately three times larger than its nearest
competitor, based on gross billings. A substantial part of the Company's growth
has been achieved through acquisitions. From January 1, 1993 through December
31, 1997, TMP completed 52 acquisitions with estimated annual gross billings of
$732 million(2) including, in August 1997, the acquisition of Austin Knight
Limited and subsidiaries ("Austin Knight"), for approximately $47.2 million net
of approximately $11.5 million of cash acquired relating to the sale in July
1997 of real property by Austin Knight. For the year ended September 30, 1996,
Austin Knight had annual gross billings of approximately $214.0 million. Austin
Knight was the largest recruitment advertising agency in the United Kingdom and
the fifth largest agency in the U.S. With the acquisition of Austin Knight, the
Company strengthened its position as the third largest recruitment advertising
agency in the U.S. and has become the largest agency in the U.K. The Company
believes additional acquisition opportunities exist, particularly in the
recruitment advertising and Internet markets, and intends to continue its
strategy of making acquisitions which relate to its core business.
TMP has created innovative solutions to assist its clients in capitalizing
on the growing awareness and acceptance of the Internet. For its recruitment
advertising clients, TMP has developed interactive career hubs which can be
accessed by individuals seeking employment via the Internet on a global basis.
The Company has several career sites, including The Monster
Board-Registered Trademark-, Online Career Center-SM-, Be the Boss-SM- and
MedSearch-SM-, which collectively contain approximately 180,000 job listings and
career opportunities. In 1996, the Company began marketing its Dealer Locator
service to yellow page clients. Dealer Locator
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(1) As used in this Report, "gross billings" refers to billings for advertising
placed in telephone directories, newspapers, new media and other media, and
associated fees for related services. While gross billings are not included
in the Company's consolidated financial statements, the trends in gross
billings directly impact the commissions and fees earned by the Company. The
Company, which operates in one business segment, earns commissions based on
a percentage of the media advertising purchased at a rate established by the
related publisher, and associated fees for related services. In addition,
the Company earns fees for the placement of advertisements on the Internet,
including its career Web sites. Earnings before interest, income taxes,
depreciation and amortization ("EBITDA") is presented to provide additional
information about the Company's ability to meet its future debt service,
capital expenditures and working capital requirements and is one of the
measures which determines the Company's ability to borrow under its credit
facility. EBITDA should not be considered in isolation or as a substitute
for operating income, cash flows from operating activities and other income
or cash flow statement data prepared in accordance with generally accepted
accounting principles or as a measure of the Company's profitability or
liquidity.
(2) Gross billings with respect to companies acquired by the Company refer to
the Company's estimate of the acquired companies' annual gross billings.
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provides clients with the ability to create Web pages for their local offices,
franchisees or dealers.Potential customers can then access these pages on the
Internet by zip code or other key word searches.
INDUSTRY OVERVIEW
THE YELLOW PAGE ADVERTISING MARKET. Yellow page directories have been
published in the U.S. since at least the 1890's and, traditionally, have been
published almost exclusively by telephone utilities. In the early 1980's, due in
part to telephone deregulation, independent companies began publishing an
increasing number of directories. Currently, approximately 7,000 yellow page
directories are published annually by 200 publishers and, in the U.S., many
cities with populations in excess of 80,000 are served by multiple directories.
The percentage of adults who use the yellow pages has remained relatively
constant over the last ten years at over 56%, and such readers consult the
yellow pages approximately two times weekly. Accordingly, yellow page
directories continue to be a highly effective advertising medium. For example,
the Company believes that approximately 70% of Ryder's consumer truck rental
customers consulted yellow page directories prior to renting trucks.
For the year ended December 31, 1997, total spending on yellow page
advertisements in the U.S. was $11.4 billion. Of this amount, approximately $9.7
billion was spent by local accounts and approximately $1.7 billion was spent by
national accounts. "Local" and "national," as those terms are used in the yellow
page industry, refer to whether an advertisement is solicited by a yellow page
publisher's own sales staff or is placed by an advertising agency and meets
certain criteria specified by the publisher. Local accounts are typically
merchants who primarily conduct their business within the geographic area served
by the publisher's directories.
The national account market consists of companies which sell products or
services in multiple markets and is the market in which TMP competes. Most
national accounts use independent advertising agencies to design and implement
their yellow page advertising programs to create a consistent brand image and
compelling message, to develop an effective media plan and to execute the
placement of the advertising at the local level. Agencies which place national
yellow page advertising are paid commissions by yellow page publishers. The
market has grown each year since 1981. During the period of 1990 through 1997,
the market grew at a compound average rate of approximately 6.2%.
THE RECRUITMENT ADVERTISING MARKET. Recruitment advertising consists
primarily of creating and placing recruitment advertisements in the classified
advertising sections of newspapers. While the recruitment advertising market has
historically been cyclical, during the period of 1990 through 1997, the U.S.
market grew at a compound annual growth rate of approximately 12%. Classified
readership by job seekers has remained constant over the last ten years and
approximately 85% of companies use newspapers to attract potential employees.
The services provided by recruitment advertising agencies can be complex and
range from the design and placement of classified advertisements to the creation
of comprehensive image campaigns which internationally "brand" a client as a
quality employer. Further, shortages of qualified employees in many industries,
particularly in the technology area, have increased the need for recruitment
advertising agencies to expand the breadth of their service offerings to effect
national and sometimes global recruitment campaigns. For the year ended December
31, 1997, total spending on advertisements globally in the recruitment
classified advertisement section of newspapers was approximately $12 billion.
Agencies which place recruitment advertising are paid commissions generally
equal to 15% of recruitment advertising gross billings.
INTERNET. The Internet is an increasingly significant global medium for
communications, content and commerce. An industry trade publication estimates
that the number of worldwide Web users was approximately 112 million as of
February 1998. Growth in Internet usage has been fueled by a number of factors,
including the availability of a growing number of useful products and services,
the large and growing installed base of personal computers in the workplace and
home, advances in the performance and
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speed of personal computers and modems, improvements in network infrastructure,
easier and cheaper access to the Internet and increased awareness of the
Internet among businesses and consumers.
The increasing functionality, accessibility and overall usage of the
Internet and online services have made them an attractive commercial medium.
Thousands of companies have created corporate Web sites that feature information
about their product offerings and advertise employment opportunities. Through
the Web, Internet content providers are able to deliver timely, personalized
content in a manner not possible through traditional media. Internet content can
be continuously updated, distributed to a large number of consumers on a
real-time basis, and accessed by users at any time. Industry publications
indicate that the historical and projected adoption of online/Internet services
represents a faster rate of penetration than occurred with traditional media,
such as radio, broadcast television and cable television.
TMP'S YELLOW PAGE BUSINESS
TMP entered the yellow page business in 1967 and has grown to become the
largest yellow page advertising agency in the world based on yellow page gross
billings. For the year ended December 31, 1997, the Company had worldwide yellow
page gross billings of approximately $457.5 million. With approximately 30% of
the U.S. national yellow page market, TMP is approximately three times larger
than its nearest competitor, based on yellow page gross billings. The Company's
growth in yellow pages has been driven in part by acquisitions. Since January 1,
1994, TMP has completed the acquisition of four yellow page businesses and
intends to continue to pursue acquisitions as a part of its overall growth
strategy.
CREATING AND PLACING YELLOW PAGE ADVERTISEMENTS. There are currently
approximately 7,000 yellow page directories in the U.S. Each has a separate
closing date for accepting advertisements and one or more of these closings
occur on every working day of the year. The steps involved in placing an
advertisement are numerous and can take as long as nine months.
The first step in the process is the formulation of the advertising
program's creative elements including illustrations, advertising copy, slogans
and other elements which are designed to attract a potential customer's
attention. To assess the effectiveness of a proposed campaign, TMP generally
undertakes extensive research to determine which alternatives best reach the
client's target market. This research typically includes focus group testing and
the running of split-run advertisements. Focus group testing involves forming
groups of potential customers and gauging their reaction to a variety of
potential advertisements. Split-run testing measures the results of specific
campaigns by placing more than one version of an advertisement in various
editions of the same yellow page directory. By using multiple phone numbers and
various monitoring methods, the Company can then determine which advertisements
generate the most effective response.
After designing an advertising program, TMP creates a media plan which
cost-effectively reaches the client's customer base. The Company analyzes
targeted directories to determine circulation, rate of usage and demographic
profile. It then recommends advertisements ranging from a full page to as little
as a one line listing. For some of the Company's larger yellow page clients,
advertisements are placed in over 2,000 directories.
To ensure client satisfaction, TMP maintains an extensive quality control
program. Account teams have frequent in-person client contact as well as formal
annual creative reviews. The Company also solicits feedback through client
interviews, written surveys and other methods consisting of focus groups made up
of yellow page users and yellow page user pollings. The principal aims of this
program are client retention and sales growth. TMP believes that its focus on
customer service has enabled it to maintain its client retention rate, year to
year, in excess of 90%.
In addition to traditional advertising, the Company offers selected yellow
page clients a variety of value-added services ranging from managing the
maintenance and installation of telephone lines for
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branch locations to the staffing and operation of fulfillment centers which
respond to toll-free calls requesting product brochures and other information.
While beyond the typical scope of services provided by an advertising agency,
these ancillary services are designed to further integrate TMP into client
processes for the mutual benefit of both parties.
TMP earns commissions from yellow page advertising paid by directory
publishers, which results in an effective commission rate to the Company of
approximately 20% of yellow page gross billings.
CLIENTS. TMP has over 2,100 yellow page clients, virtually all of whom
determine the content of their advertising programs on a centralized basis.
Placement of the advertising, however, requires an extensive local selling and
quality control effort because many of TMP's clients are franchisors or
manufacturers who are dependent upon franchisees or independent dealers for
distribution. The participation of franchisees and dealers in the yellow page
program is discretionary and must be solicited at the local level. As an example
of the scale of this task, TMP visited approximately 80% of the over 1,800 Midas
shops owned by over 600 franchisees while executing the 1996 Midas yellow page
program.
To implement this local effort, TMP has a yellow page sales, marketing and
customer service staff of approximately 680 people. The Company believes the
size and breadth of this staff, its local client relationships and its databases
of client branch locations, franchisors and dealers provide it with a strong
competitive advantage in executing the yellow page programs of existing clients.
TMP believes these resources are critical in marketing its services to potential
new clients and in marketing and executing its Internet-based service offerings.
The following are some of TMP's larger yellow page accounts:
Beneficial Management Corporation
Bridgestone/Firestone Inc.
Columbia/HCA Healthcare Corp.
Culligan International Company
Ford Motor Company
Hallmark Cards, Inc.
H&R Block Tax Services Inc.
ITT Industries Inc.
Kohler Co.
Mail Boxes Etc.
MCI Telecommunications Corporation
Midas International Corporation
Pizza Hut Inc.
PRIMESTAR Partners L.P.
Ryder
Sears, Roebuck & Co.
ServiceMaster
Sharp Electronics Corp.
Siemens Rohm--AG Communications
Terminix International L.P.
United Van Lines, Inc.
York Heating and Air Conditioning
No account represents more than 5% of the Company's yellow page commissions
and fees.
INTERNET-BASED SOLUTIONS FOR YELLOW PAGE ADVERTISING CLIENTS. To complement
the broad reach and penetration of yellow page advertising, the Company is
offering its clients an Internet-based solution called Dealer Locator. In
creating a Dealer Locator program, the Company typically creates a home page for
each franchise or dealer location and links it to the client's corporate Web
site. Internet users can then
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retrieve information on a specific location such as directions to, or a map of,
such location, hours of operation and potentially other information such as sale
items and other special offers. Dealer Locator is designed to provide an
additional source of customer flow to TMP's clients while, through linkage to
the corporate Web sites, reinforcing the desired brand imagery. TMP charges
clients who utilize the Dealer Locator product an up-front fee for the
development of each individual home page as well as an annual maintenance fee
thereafter. The Company has sold nine Dealer Locator products.
The Company believes that the Dealer Locator concept could be appropriate
for certain of its yellow page clients. For example, the Company has adapted
Dealer Locator technology to create for The America Board of Medical
Specialities the CertifiedDoctor Web Site (http://www.certifieddoctor.org).
CertifiedDoctor allows consumers to search for board certified physicians by
specialty and geographic area and also provides doctors' educational
information.
TMP'S RECRUITMENT ADVERTISING BUSINESS
TMP entered the recruitment advertising business in 1993 with the
acquisition of the business of Bentley, Barnes & Lynn, Inc. and has grown both
through acquisitions and internally. Through March 20, 1998, the Company has
acquired 41 recruitment advertising agencies. For the year ended December 31,
1997, TMP had recruitment advertising gross billings of $573.2 million. In
addition to its offices in the United States, the Company has 47 locations
outside the United States. The Company also maintains relationships with 16
agencies throughout the world, further enhancing the Company's ability to reach
qualified job candidates. As a full service agency, TMP offers its clients
comprehensive recruitment advertising services including creation and placement
of classified advertising, development of employer image campaigns, creation of
collateral materials such as recruiting brochures and implementation of
alternative recruitment programs such as job fairs, employee referral programs
and campus recruiting. The Company specializes in designing recruitment
advertising campaigns for clients in high growth industries and in industries
with high employee turnover rates. Further, the Company believes that as
employers find it more difficult to attract qualified employees, they will
increasingly seek out agencies that can implement national and, in some cases,
global recruitment strategies.
CREATING AND PLACING THE ADVERTISEMENT. The Company's task in formulating
and implementing a global recruitment advertising program is to design the
creative elements of the campaign and to select the appropriate media and/or
other recruitment methods. This is done in the context of the client's staffing
parameters which generally include skill requirements, job location and
advertising budget. In addition, while executing a given campaign, TMP will
often undertake basic research with respect to demographic profiles of selected
geographic areas to assist the client in developing an appropriate overall
strategy.
The Company has historically found that the strongest recruitment
advertising campaigns "brand" the client's image, demonstrate the client's
unique selling points and stress the client's employee benefits and corporate
culture. Effectively differentiating one employer from another has become
particularly important in the technology and healthcare sectors where there is
an acute shortage of qualified job candidates. The success of the campaign may
depend on whether an organization is seen as sufficiently distinct from its
competitors.
After completing the design of an advertisement's creative elements, the
Company develops an appropriate media plan. Typically, a variety of media is
used, including newspapers, trade journals, the Internet, billboards, direct
mail, radio and television. If the Company recommends use of newspapers, it may
recommend certain newspapers or editions of a particular newspaper which are
targeted to a specific demographic segment of the population. TMP may also
recommend a variety of advertisement sizes and vary the frequency with which an
advertisement appears.
After an advertisement is placed, the Company conducts extensive customer
analysis to assure satisfaction, including monitoring the effectiveness of the
chosen media. As an example, for a transportation client, TMP analyzed
cost-per-response, cost-per-application and cost-per-hire data for over a dozen
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media vehicles running in approximately 30 markets in an effort to determine the
return on investment of each media vehicle. TMP's recruitment advertising
division also maintains a quality assurance program for its larger clients which
provides services similar to those provided to the Company's yellow page
clients.
In the U.S., the Company receives commissions generally equal to 15% of
recruitment advertising gross billings. Outside of the U.S., where,
collectively, the Company derives the majority of its recruitment advertising
commissions and fees, TMP's commission rates for recruitment advertising vary,
ranging from approximately 10% in Australia to 15% in Canada and the United
Kingdom. In the U.S., the Company also earns fees from value-added services such
as design, research and other creative and administrative services which
resulted in aggregate commissions and fees equal to approximately 21% of
recruitment advertising gross billings for the year ended December 31, 1997.
CLIENTS. The Company has more than 2,500 recruitment advertising clients.
The Company believes that an important component of its growth in recruitment
advertising is working with clients in high growth industries and in industries
with high employee turnover rates. The following are some of TMP's larger
recruitment advertising clients:
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British Telecom Glaxo-Wellcome Price Waterhouse LLP
Charles Schwab & Co. Inc. Good Guys Inc. Queensland State Government
Cigna Corp. Hewitt Associates Renault UK
Commonwealth Bank of Australia International Business Machines Sun Microsystems Inc.
Corp.
Compaq Computer Corp. Morgan Stanley, Dean Witter, & Co. Sybase Inc.
Darden Restaurants Inc. Motorola Inc. Target Stores Inc.
Federated Department Stores Inc. Nike TGI Friday's Inc.
Gateway 2000 Office Max Inc. University of Melbourne
Genentech Inc. Pizza Hut Inc. Vencor, Inc.
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The Company is leveraging its size and service offerings to attract new and
larger clients. No account represents more than 5% of the Company's recruitment
advertising commissions and fees.
INTERNET-BASED SOLUTIONS FOR RECRUITMENT ADVERTISING CLIENTS. To complement
the broad reach and penetration of print recruitment advertising, the Company
offers its clients Internet-based solutions to meet their recruitment needs. The
Company has several career sites including The Monster
Board-Registered Trademark-, Online Career Center-SM-, Be the Boss-SM- and
MedSearch-SM-. Each of these Web sites consists of a database of employment
opportunities and a variety of other value added features. Collectively, TMP's
career hubs contain approximately 180,000 job and other career opportunities.
TMP believes that it offers the most current career opportunities on the Web,
with the majority of its listings less than 60 days old. The Company intends to
continue to build and expand its portfolio of product offerings through both
internal development and acquisitions.
Based on its experience with its clients, the Company believes that only 20%
to 30% of open job positions are advertised using traditional print media. It is
the Company's belief that on-line solutions will significantly expand the
recruitment advertising market because of their global reach and continuous
availability. Furthermore, on-line advertising is extremely cost effective when
compared to other traditional recruitment methods since print media need not be
purchased. TMP intends to aggressively pursue this market by leveraging its
relationships with its existing clients and by using its portfolio of on-line
services to attract new accounts. TMP's Internet recruitment services have been
actively marketed since May 1995.
The Monster Board-Registered Trademark- (http://www.monster.com), launched
in April 1994, is one of PC Magazine's top 100 Web sites (February 1998) and
receives more unique visitors than any other career Web site, as reported by
Media Metrix in their January 1998 PC Meter survey. It was also one of the first
1,000 commercial Web sites out of the more than 1,000,000 which currently exist.
As of March 20, 1998, The Monster Board-Registered Trademark- listed
approximately 30,000 jobs offered by approximately 5,300 employers. Clients of
The Monster Board-Registered Trademark- include Nike, Blockbuster Entertainment
Inc., McDonald's, CompuServe, Deloitte &
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Touche, and Dell Computer Corporation. According to Nielson Media Research
Internet Profiles Corporation ("I/AUDIT"), The Monster
Board-Registered Trademark- averaged approximately 70,000 visits daily (the
gross number of occasions on which a user looked up a site) in January 1998 with
the average length of each visit exceeding ten minutes. Job seekers can search
The Monster Board-Registered Trademark-'s database of employment opportunities
by location, job category and/or keyword. Keyword Search allows a user to enter
specific keywords to match skills, job titles or other requirements. The Monster
Board-Registered Trademark-'s latest service, the Personal Job Search Agent, is
a unique service that continuously seeks to find the desired job for the job
seeker. Job seekers can sign up for this free service on the site by creating a
simple personal profile indicating the industry and location in which they want
to work and any job-specific keywords. The Personal Job Search Agent then
continually scans the entire Monster Board job database for opportunities that
match the requirements, and delivers the leads to job seekers' desktops--even
while they are off-line. As of March 20, 1998, The Monster
Board-Registered Trademark- contained over 580,000 Personal Job Search Agent
profiles. In addition, job seekers can post their resume free of charge on
Resume City, The Monster Board-Registered Trademark-'s database of resumes.
Resume City can be searched, using key word searches, by prospective employers,
who pay for the service. This service also enables job seekers to easily
transmit their resume to prospective employers electronically. Resume City
currently contains over 290,000 resumes.
Online Career Center-SM- (http://www.occ.com) ("OCC") is the Internet's
earliest career site, originating in late 1992 when a group of U.S. corporations
developed an employment database. Launched in April 1993, OCC is designed to
provide corporate recruiters and job-seekers with efficient and easy-to-use
search software. According to I/AUDIT, in January 1998, OCC averaged
approximately 35,000 visits daily with the average length of visit being
approximately eight minutes. OCC enters into subscription based agreements with
member companies and functions as a central Internet recruitment and human
resources management service. OCC maintains a Member Services Department which
assists corporate users during business hours. As with The Monster
Board-Registered Trademark-, job seekers can place their resumes on-line. At
March 20, 1998, OCC listed approximately 150,000 jobs for a broad client base
including Allied Signal, Andersen Consulting, Bank America Corp., Eli Lilly and
Co., Levi Strauss & Co., and Salomon Smith Barney. OCC is designed for users who
prefer Web sites which are more direct with fewer ancillary features. Its value-
added services include career assistance, a self-help career information section
for applicants, recruiter's office, which provides resource information for
corporate recruiters, on-campus, a link to over 700 colleges and universities
nationwide, and membership opportunities for contractors, agencies and search
firms. Similar to The Monster Board-Registered Trademark-, OCC also employs
agent technology. OCC's pricing structure is membership-based rather than
volume-based, consistent with its "less frills" market positioning.
MedSearch-SM- (http://www.medsearch.com) is a leading Internet Web site for
the healthcare industry. Launched in May 1994, MedSearch-SM- attracts healthcare
professionals and many of North America's largest health care providers,
including Blue Cross/Blue Shield of Massachusetts, Baxter Healthcare Corp.,
Henry Ford Health System, Mayo Clinics & Hospitals and Vencor, Inc.
MedSearch-SM-offers detailed employer profiles, resume postings, discussion
groups, career and industry information, and direct links to numerous healthcare
resources on the Internet. MedSearch-SM- provides access to job listings which
can be searched by location, discipline or by key word.
Be the Boss-SM- (http://www.betheboss.com) focuses on the franchising
industry. Be the Boss-SM- users can search for current franchise opportunities
on-line and apply directly to franchisors using a franchisor-customized
questionnaire. Franchisor profiles allow users to learn more about today's top
franchise companies such as The Athlete's Foot, Mail Boxes Etc., Service Master,
Subway and 7-Eleven. In addition, Be the Boss-SM- provides extensive resources
to the prospective franchisee including sound clips and articles on franchising,
interactive financial worksheets and links to other entrepreneurs' resources on
the Web. Be the Boss-SM- also includes a comprehensive directory of franchises
worldwide.
TMP has also developed private label applications of its interactive
recruitment products. For example, the Company adapted The Monster
Board-Registered Trademark- technology to create a database of jobs for Fidelity
Investments which resides, through a hyper-link, on the Fidelity home page. The
search features have the
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look and ease of use associated with The Monster Board-Registered Trademark-
while appearing to the user as a seamless part of the Fidelity site. TMP intends
to continue to market private label products as a way to increase the scale of
its databases.
To differentiate its on-line products, the Company has focused on segmenting
the user market place. For example, The Monster Board-Registered Trademark- is
TMP's premium general recruitment product and is therefore populated with a
variety of value-added features including:
MONSTER ENTRY LEVEL. A segment of The Monster
Board-Registered Trademark- targeted to the college and entry-level job
seekers. Monster Entry Level offers young professionals the opportunity to
conduct an entry-level career search, access the latest career and lifestyle
trends, pose career-related questions, and enter into on-line discussions
with their peers.
MONSTER HR. Monster HR is an interactive forum which provides Human
Resources professionals with the ability to catch up on the latest industry
trends, network with colleagues through on-line discussions, learn about
pertinent associations and educational offerings, and review current Human
Resources opportunities.
MONSTER CAREERS. This employment resource features interviewing and
resume tips, career fair listings, important career links and a career
counselor to respond to questions submitted by users.
In addition to market segmentation, the Company intends to differentiate
its products by tailoring them to specific geographic areas and by branding
them using both traditional advertising media and the Internet. To date, The
Monster Board-Registered Trademark-has been tailored to reflect the local
customs and terminology of the U.S., Canada, the United Kingdom, the
Netherlands and Australia.
To attract the maximum amount of volume to its Web sites, TMP intends to
continue to develop additional value-added content while developing
strategic alliances with other on-line content providers. As of March 20,
1998, the Company had 35 strategic alliances. The Company's strategic
alliances generally center on The Monster Board-Registered Trademark- and
include:
AMERICA ONLINE. TMP and America Online have formed a strategic alliance
which provides to The Monster Board-Registered Trademark-and OCC advertising
positions on America Online's Employment Classifieds Area.
USA TODAY. TMP and USA Today have introduced on USA Today Online, a
general interest news site on the Internet, a classifieds area featuring
employment, real estate and automotive listings. This alliance gives to USA
Today Online's daily viewers the chance to search one of the most extensive
classified advertisement databases available on the Web.
NBC. With the launch of NBC's Interactive Neighborhood, NBC is
providing its affiliates with a premium content package that includes
business, weather and leisure activities. The Monster
Board-Registered Trademark- is the exclusive provider of career information
as part of this premium package. The relationship gives The Monster
Board-Registered Trademark- an opportunity to provide its services through
the Web sites of 215 NBC affiliates and 11 NBC owned and operated stations.
MCI. MCI Telecommunications, Inc. entered into an agreement with TMP to
open an exclusive online classifieds area featuring employment listings and
career related information from The Monster Board-Registered Trademark-.
This site can be accessed from all MCI web sites.
ADVERTISING AGE. The Ad Age Group is a strong marketing partner with
the following leading publications: Advertising Age, Advertising Age
International, Business Marketing and Creativity, as well as Ad Age's Web
site, AdAge.com (http://www.adage.com). In January 1997, TMP created a
cobranded career service known as The Advertising Age/The Monster
Board-Registered Trademark- Job Bank. This alliance permits the Company to
expand its jobs database, while targeting advertising into market niches.
8
<PAGE>
COMCAST. As a large cable provider and a partner in the @Home broadband
initiative, Comcast is a valuable partner in interactive media. The recent
launch of InYourTown.com, a site developed by Comcast, gives The Monster
Board-Registered Trademark-the opportunity to be the default career center
in key cities and secures a strong local presence while leveraging the
Comcast brand and user base. As interactive media evolves to broadband and
interactive television, Comcast offers the ability to migrate Web
capabilities to the new platforms.
EXCITE, INC., Excite, Inc., an Internet media company offering the
Web's first free online service, and TMP have established a two year
strategic marketing relationship whereby The Monster
Board-Registered Trademark- and OCC are the premier providers of co-branded
jobs and career related information for the Excite Careers & Education
Channel. Excite users now have direct access to the job listings, personal
job search agents, resume-building and posting capabilities, company
profiles and valuable advice on managing a career available through The
Monster Board-Registered Trademark- and OCC.
YAHOO!, INC. Yahoo!, Inc., the world's single largest Internet
navigation guide, and TMP have established a strategic agreement whereby The
Monster Board-Registered Trademark- and OCC are featured in the employment
section of Yahoo! Classifieds. Users of Yahoo! Classifieds have direct
access to the job listings, personal job search agents, resume-building and
posting capabilities, company profiles and valuable advice on managing a
career available through The Monster Board-Registered Trademark- and OCC.
USWEST. The USWest local initiative, DiveIn, is a significant player in
the race to provide local content. The site leverages USWest's and
Continental Cable's user base and brands to provide information in strong
USWest and Continental Cable markets. The Monster
Board-Registered Trademark- is the default career center for each of these
sites providing a strong local presence and local and regional traffic.
THE GARTNER GROUP. The Gartner Group is the leading provider of
independent research, analysis and advisory services to the information
technology industry. In August 1996, The Monster
Board-Registered Trademark-became the official career site for Gartner
Group's Web site www.gartner.com. This alliance serves to continue to
reinforce The Monster Board's brand name while driving volume to The Monster
Board-Registered Trademark-'s jobs database.
RESTRAC, INC. Restrac, Inc. is the leading provider of software used to
automate the recruitment, selection, and placement of an organization's
workforce. Restrac, Inc.'s software is licensed by 450 organizations with
over 4,000 users. Imbedded in Restrac, Inc.'s software is an automatic
download feature whereby job postings can be fed directly into The Monster
Board-Registered Trademark-. Further, resumes posted on The Monster
Board-Registered Trademark- can be downloaded directly into Restrac, Inc.
This alliance significantly streamlines TMP's interface with its clients who
utilize Restrac, Inc.'s software, further enhancing the cost effectiveness
of The Monster Board-Registered Trademark-.
In addition, The Monster Board-Registered Trademark- maintains other
strategic alliances. Collectively, its alliances were responsible for
approximately 38% of The Monster Board-Registered Trademark-'s job searches
in January 1998.
The Monster Board-Registered Trademark- utilizes Digital Equipment
Corporation's Alpha 8400s to provide commercial-grade Web service to an
expanding Internet user-base. The Monster Board-Registered Trademark- is
currently co-located at BBN Planet and connected to two 100 megabit/second
feeds. An Oracle-TM- database is incorporated to store resumes and jobs.
Oracle-TM- also allows The Monster Board-Registered Trademark- to take
advantage of agent technology, which allows enhanced user interaction,
personalization and passive, independent data searches which the user can
customize and view the next time they log on to the site. An Open Market-TM-
server is installed to ensure the speed and reliability of The Monster
Board-Registered Trademark- and to add the ability to handle encrypted
credit card transactions over the Web. The Monster
Board-Registered Trademark- continues to leverage new technology innovations
to provide increased service and efficiencies to job seekers and clients.
9
<PAGE>
SALES AND MARKETING
TMP has over 2,200 employees focused on its sales, marketing and customer
service efforts world-wide. The Company has divided its sales, marketing and
customer service staff into two groups: (i) new business generation
(approximately 220 employees) and (ii) existing client relationships maintenance
and improvement (approximately 2,000 employees). In 1997, the Company's new net
client wins have estimated annual gross billings of approximately $68 million.
Within each group, TMP maintains separate sales and marketing staffs for its
yellow page advertising business, recruitment advertising business and Internet
business. In addition to specializing by product, each group undertakes a
cross-selling effort of TMP's other products. The Company's Internet sales staff
has targeted its yellow page and recruitment advertising clients to capitalize
on the interactivity and additional services that its Internet products can cost
effectively provide to such clients. In addition to pursuing cross-selling
opportunities within TMP's existing client base, each product sales force also
designs targeted selling campaigns for non-TMP clients. TMP's clients have a
marketing manager who works closely with the client to develop and design the
appropriate marketing and advertising campaign. The customer service
representatives work closely with the marketing manager and the client to
implement the marketing and advertising campaign, evaluate the effectiveness of
the campaign and monitor client satisfaction levels.
The Company has more than 17,000 clients, including more than 70 of the
Fortune 100 companies and more than 285 of the Fortune 500 companies. No one
client accounts for more than 5% of the Company's annual commissions and fees.
The Company has 62 sales, marketing and customer service offices located in the
United States and 53 offices in the rest of the world. The Company also
maintains relationships with 16 international recruitment advertising agencies
throughout the world, further enhancing the Company's ability to reach qualified
job candidates.
COMPETITION
The markets for the Company's services and products are highly competitive
and are characterized by pressure to reduce prices, incorporate new capabilities
and technologies and accelerate job completion schedules.
The Company faces competition from a number of sources. These sources
include national and regional advertising agencies, media companies, as well as
specialized and integrated marketing communication firms. Many advertising
agencies and media companies have started to either internally develop or
acquire new media capabilities. New boutiques that provide integrated or
specialized services (such as advertising services or Web site design) and are
technologically proficient, especially in the new media arena, are also
competing with the Company. Many of the Company's competitors or potential
competitors have long operating histories, and some have greater financial,
management, technological, development, sales, marketing and other resources
than the Company. In addition, the Company's ability to maintain its existing
clients and generate new clients depends to a significant degree on the quality
of its services, pricing and its reputation among its clients and potential
clients.
TMP believes that its three largest competitors in the recruitment
advertising segment are Bernard Hodes Advertising, Inc., a subsidiary of
Omnicom, Nationwide Advertising Service, Inc., controlled by the Gund Brothers,
and JWT Specialized Communications, a subsidiary of the WPP Group USA, Inc. The
Company also competes with hundreds of Internet content providers.
INTELLECTUAL PROPERTY
The Company's success and ability to compete is dependent in part on the
protection of its original content for the Internet and on the goodwill
associated with its trademarks, trade names, service marks and other proprietary
rights. The Company relies on copyright laws to protect the original content
that it develops for the Internet. In addition, the Company relies on federal
trademark laws to provide additional protection for the appearance of its
Internet sites. A substantial amount of uncertainty exists concerning
10
<PAGE>
the application of copyright laws to the Internet, and there can be no assurance
that existing laws will provide adequate protection for the Company's original
content. In addition, because copyright laws do not prohibit independent
development of similar content, there can be no assurance that copyright laws
will provide any competitive advantage to the Company.
The Company has registered "The Monster Board-Registered Trademark-." The
Company also asserts common law protection on certain names and marks that it
has used in connection with its business activities.
The Company relies on trade secret and copyright laws to protect the
proprietary technologies that it has developed to manage and improve its
Internet sites and advertising services, but there can be no assurance that such
laws will provide sufficient protection to the Company, that others will not
develop technologies that are similar or superior to the Company's, or that
third parties will not copy or otherwise obtain and use the Company's
technologies without authorization. The Company has filed patent applications
with respect to certain of its software systems, methods and related
technologies, but there can be no assurance that such applications will be
granted or that any future patents will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide a competitive
advantage for the Company. In addition, the Company relies on certain technology
licensed from third parties, and may be required to license additional
technology in the future, for use in managing its Internet sites and providing
related services to users and advertising customers. The Company's ability to
generate fees from Internet commerce may also depend on data encryption and
authentication technologies that the Company may be required to license from
third parties. There can be no assurance that these third party technology
licenses will be available or will continue to be available to the Company on
acceptable commercial terms or at all. The inability to enter into and maintain
any of these technology licenses could have a material adverse effect on the
Company's business, financial condition and operating results.
Policing unauthorized use of the Company's proprietary technology and other
intellectual property rights could entail significant expense and could be
difficult or impossible, particularly given the global nature of the Internet
and the fact that the laws of other countries may afford the Company little or
no effective protection of its intellectual property. In addition, there can be
no assurance that third parties will not bring claims of copyright or trademark
infringement against the Company or claim that the Company's use of certain
technologies violates a patent. The Company anticipates an increase in patent
infringement claims involving Internet-related technologies as the number of
products and competitors in this market grows and as related patents are issued.
Further, there can be no assurance that third parties will not claim that the
Company has misappropriated their creative ideas or formats or otherwise
infringed upon their proprietary rights in connection with its Internet content.
Any claims of infringement, with or without merit, could be time consuming to
defend, result in costly litigation, divert management attention, require the
Company to enter into costly royalty or licensing arrangements or prevent the
Company from using important technologies or methods, any of which could have a
material adverse effect on the Company's business, financial condition or
operating results.
GOVERNMENT REGULATION
As an advertising agency which creates and places print and Internet
advertisements, the Company is subject to Sections 5 and 12 of the Federal Trade
Commission Act (the "FTC Act") which regulate advertising in all media,
including the Internet, and require advertisers and advertising agencies to have
substantiation for advertising claims before disseminating advertisements. The
FTC Act prohibits the dissemination of false, deceptive, misleading, and unfair
advertising, and grants the Federal Trade Commission ("FTC") enforcement powers
to impose and seek civil penalties, consumer redress, injunctive relief and
other remedies upon advertisers and advertising agencies which disseminate
prohibited advertisements. Advertising agencies such as TMP are subject to
liability under the FTC Act if the agency actively participated in creating the
advertisement, and knew or had reason to know that the advertising was false or
deceptive.
11
<PAGE>
In the event that any advertising created by TMP was found to be false,
deceptive or misleading, the FTC Act could potentially subject the Company to
liability. The fact that the FTC has recently brought several actions charging
deceptive advertising via the Internet, and is actively seeking new cases
involving advertising via the Internet, indicates that the FTC Act could pose a
somewhat higher risk of liability to the advertising distributed via the
Internet. The FTC has never brought any actions against the Company.
There can be no assurance that other current or new government laws and
regulations, or the application of existing laws and regulations, will not
subject the Company to significant liabilities, significantly dampen growth in
Internet usage, prevent the Company from offering certain Internet content or
services or otherwise cause a material adverse effect on the Company's business,
financial condition or operating results.
EMPLOYEES
At February 28, 1998, the Company employed approximately 3,300 people, of
whom approximately 2,000 were client services personnel, approximately 220 were
sales and marketing personnel and approximately 350 were creative and graphics
personnel. The remainder of the Company's personnel are information systems,
financial and administrative personnel. The Company's employees are not
represented by a labor union or a collective bargaining agreement. The Company
regards its employee relations as excellent.
COMPANY HISTORY
The Company is the successor to the businesses formerly conducted by TMP
Worldwide Inc. and subsidiaries ("Old TMP"), Worldwide Classified Inc. and
subsidiaries ("WCI") and McKelvey Enterprises, Inc. and subsidiaries, the chief
executive officer of which was Andrew J. McKelvey. On December 9, 1996, Old TMP
merged into McKelvey Enterprises, Inc. Thereafter, WCI merged into McKelvey
Enterprises, Inc. McKelvey Enterprises, Inc. then merged into Telephone
Marketing Programs Incorporated. Such mergers are collectively referred to as
the "Mergers." In addition, Mr. McKelvey sold or contributed his interest in
five other entities to the Company. Pursuant to the Mergers, Telephone Marketing
Programs Incorporated changed its name to TMP Worldwide Inc. All historical
financial data contained herein reflects the historical financial data of Old
TMP, WCI, McKelvey Enterprises, Inc. and the other entities. In December 1996,
the Company completed the initial public offering of an aggregate of 4,147,408
shares of Common Stock at a purchase price of $14.00 per share in an
underwritten public offering managed by Morgan Stanley & Co. Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation and Ladenburg Thalmann & Co.
Inc. In addition, certain stockholders sold an aggregate of 652,592 shares of
Common Stock in such offering. The net proceeds to the Company of this offering
were used to repay debt and to redeem preferred stock. In September 1997, the
Company completed the secondary 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. The net proceeds
to the Company from this offering, including $12.2 million paid to the Company
by certain stockholders, were used to repay debt, including debt incurred to
fund the purchase of Austin Knight.
12
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Andrew J. McKelvey........................ 63 Chairman of the Board, CEO and Director
Thomas G. Collison........................ 58 Vice Chairman and Secretary
James J. Treacy........................... 40 Chief Operating Officer and Executive Vice President
Paul M. Camara............................ 50 Executive Vice President--Creative/Sales/Marketing
Jeffrey C. Taylor......................... 37 Executive Vice President--Interactive
George R. Eisele.......................... 61 Executive Vice President of TMP Worldwide Direct and Director
Karen L. MacPherson....................... 43 Executive Vice President--Recruitment Division
Stuart J. McKelvey........................ 31 Senior Vice President--Yellow Page Division
Roxane Previty............................ 38 Chief Financial Officer
Myron F. Olesnyckyj....................... 36 Vice President--General Counsel
</TABLE>
Andrew J. McKelvey founded the Company in 1967, and has served as Chairman
of the Board and CEO since that time. Mr. McKelvey has a B.A. from Westminster
College. Mr. McKelvey was a member of the Board of Directors of the Yellow Pages
Publishers Association and the Association of Directory Marketing from 1994
through September 1996. Andrew J. McKelvey is the father of Stuart J. McKelvey.
Thomas G. Collison joined the Company in February 1977 as Controller.
Subsequently, he was named Vice President--Finance; Senior Vice President;
Executive Vice President and Chief Financial Officer and, in March 1996, Vice
Chairman. Mr. Collison received a B.S. from Fordham University.
James J. Treacy joined the Company in June 1994 as chief executive officer
of the recruitment division. In April 1996, Mr. Treacy was named Executive Vice
President--Finance and Strategy. In February 1998, Mr. Treacy, in addition to
his then current position, was named to the position of Chief Operating Officer.
Prior to joining the Company, Mr. Treacy was Senior Vice President--Western
Hemisphere Treasurer for the WPP Group USA, Inc. Prior thereto, Mr. Treacy was a
corporate officer of The Ogilvy Group Inc. Mr. Treacy received a B.B.A. from
Siena College and an M.B.A. from St. John's University.
Paul M. Camara joined the Company in February 1970. Mr. Camara was elected
as a Vice President of the Company in 1978 and as a Senior Vice President in
1987. He was named to his current position in April 1996. Mr. Camara received a
B.A. from the University of Massachusetts--Dartmouth.
Jeffrey C. Taylor joined the Company in November 1995. Mr. Taylor was
founder and president of Adion, Inc., a recruitment advertising firm, from May
1989 until its purchase by the Company in November 1995. Mr. Taylor founded The
Monster Board-Registered Trademark- in April 1994. He attended the University of
Massachusetts.
George R. Eisele joined the Company in 1976, and has been Executive Vice
President of TMP Worldwide Direct, the Company's direct marketing division,
since 1989, and a director of the Company since September 1987.
Karen L. MacPherson joined the Company in August 1994 in connection with its
acquisition of CALA H.R.C. Ltd, (Canada), where she was employed. From August
1994 until May 1996 she served as chief executive officer of the Company's
Canadian recruitment division, and from June 1996 through February 1998 she
served as chief executive officer of the Company's Australian recruitment
division. She was named to her current position in February 1998. Ms. MacPherson
holds a B.A. from the University of Prince Edward Island.
13
<PAGE>
Stuart J. McKelvey joined The Monster Board-Registered Trademark- as a
project manager in March 1996 and became a senior project manager in October
1996. He was named to his current position in March 1998. Mr. McKelvey holds a
B.A. from Stetson University. Stuart J. McKelvey is the son of Andrew J.
McKelvey.
Roxane Previty joined the Company in November 1994. Ms. Previty was employed
by WPP Group USA, Inc. in various capacities from June 1987 until October 1994.
Ms. Previty holds a B.A. from Stanford University and an M.B.A. from Harvard
Business School.
Myron F. Olesnyckyj joined the Company in June 1994. From September 1986
through May 1994, Mr. Olesnyckyj was associated with Fulbright & Jaworski L.L.P.
and predecessor firms. Mr. Olesnyckyj holds a B.S.F.S. from Georgetown
University's School of Foreign Service and a J.D. from the University of
Pennsylvania Law School.
ITEM 2. PROPERTIES
Substantially all offices of the Company are located in leased premises.
The Company's principal office is located at 1633 Broadway, New York, New
York, where it occupies approximately 44,000 square feet of space under a lease
expiring in June 2004. Monthly payments under the lease currently are
approximately $108,000 and escalate during the term of the lease.
The Company also has leases covering local offices throughout the United
States and in the foreign countries where it has operations.
All leased space is considered to be adequate for the operation of TMP's
business, and no difficulties are foreseen in meeting any future space
requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings that are incidental to
the conduct of its business. The Company is not involved in any pending or
threatened legal proceedings which the Company believes could reasonably be
expected to have a material adverse effect on the Company's financial condition
or results of operations.
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, the Company 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
14
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Common Stock is quoted on the Nasdaq National Market under the symbol
"TMPW." The following table sets forth for the periods indicated the high and
low reported sale prices per share for the Common Stock as reported by the
Nasdaq National Market.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 HIGH LOW
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First Quarter.................................................................................. $ 22.00 $ 12.88
Second Quarter................................................................................. $ 24.25 $ 17.00
Third Quarter.................................................................................. $ 25.63 $ 19.00
Fourth Quarter................................................................................. $ 28.75 $ 15.00
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 HIGH LOW
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Fourth Quarter (Commencing December 12, 1996).................................................. $ 14.25 $ 12.50
</TABLE>
The number of stockholders of record of Common Stock on March 20, 1998 was
315. On March 20, 1998, the last reported sale price of the Common Stock as
reported by the Nasdaq National Market was $27.88.
DIVIDENDS
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future; it intends to retain its earnings to finance the expansion of its
business and for general corporate purposes. Any payment of dividends will be at
the discretion of the Company's Board of Directors and will depend upon the
earnings, financial condition, capital requirements, level of indebtedness,
contractual restrictions with respect to payment of dividends and other factors.
The Company's revolving credit agreement restricts the payment of dividends
without the prior written consent of the lenders.
ISSUANCE OF UNREGISTERED SECURITIES
In 1997, the Company, in connection with the acquisition of three companies,
issued 110,883 shares of unregistered Common Stock, with an aggregate value of
approximately $2.2 million at the respective closing dates. These securities
were issued in reliance upon exemption from registration provided by Section
4(2) of the Securities Act.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
---------- ---------- ---------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Commissions and fees................................... $ 237,417 $ 162,631 $ 123,907 $ 86,165 $ 73,791
Operating expenses:
Salaries and related costs........................... 121,313 80,291 58,329 45,758 37,747
Office and general................................... 82,712 60,101 43,432 30,316 29,824
Amortization of intangibles.......................... 6,160 4,440 3,237 3,264 2,471
Special compensation and CEO bonus.(1)............... 1,500 52,019 -- -- --
Restructuring charges................................ -- -- -- -- 1,318
Total operating expenses............................... 211,685 196,851 104,998 79,338 71,360
Operating income (loss)................................ 25,732 (34,220) 18,909 6,827 2,431
Other income (expense):
Interest expense, net(2)............................. (8,772) (14,265) (10,894) (9,178) (7,652)
Other, net........................................... (90) (164) 150 (146) (386)
Income (loss) before provision (benefit) for income
taxes, minority interests and equity in earnings
(losses) of affiliates............................... 16,870 (48,649) 8,165 (2,497) (5,607)
Provision (benefit) for income taxes................. 8,571 3,270 4,222 (333) (1,322)
Net income (loss) applicable to common and Class B
common stockholders.................................. 8,000 (52,449) 3,019 (2,677) (4,836)
Net income (loss) per common and Class B common share:
Basic................................................ $ .33 $ (2.72) $ .16 $ (.14) $ (.27)
Diluted.............................................. $ .32 $ (2.72) $ .15 $ (.14) $ (.27)
Weighted average shares outstanding:
Basic................................................ 24,243 19,299 19,064 19,064 17,610
Diluted.............................................. 24,735 19,299 19,355 19,064 17,610
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
------------ ---------- ---------- ---------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT NUMBER OF EMPLOYEES AND OFFICES)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Gross Billings:
Yellow page advertising....................... $ 457,519 $ 434,728 $ 429,176 $ 363,656 $ 336,714
Recruitment advertising....................... 573,152 308,147 166,508 54,872 8,338
Internet (3).................................. 19,640 6,659 392 -- --
------------ ---------- ---------- ---------- ----------
Total Gross Billings............................ $ 1,050,311 $ 749,534 $ 596,076 $ 418,528 $ 345,052
------------ ---------- ---------- ---------- ----------
------------ ---------- ---------- ---------- ----------
Total operating expenses as a percentage of
commissions and fees.......................... 89.2% 121.0% 84.7% 92.1% 96.7%
Number of employees............................. 3,300 2,000 1,400 1,200 970
Number of offices............................... 115 78 50 40 30
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets....................................... $ 288,363 $ 212,650 $ 180,516 $ 134,313 $ 122,168
Current liabilities.................................. 282,496 224,577 186,247 146,124 135,033
Total assets......................................... 495,206 331,753 258,094 198,965 168,424
Long-term liabilities................................ 115,852 70,799 88,070 72,008 49,694
Minority interests................................... -- 3,082 3,105 3,153 3,121
Redeemable preferred stock........................... -- 2,000 2,000 2,000 2,000
Total stockholders' equity (deficit)................. 96,858 31,295 (21,328) (24,320) (21,424)
</TABLE>
- ------------------------
(1) Special compensation consists of a non-cash, non-recurring charge of
approximately $52.0 million for special management compensation resulting
from the issuance of approximately 3.6 million shares of Common Stock of the
Company to stockholders of predecessor companies of the Company in exchange
for their shares in those companies which they had received for nominal or
no consideration, as employees or as management of businesses financed
substantially by the principal stockholder of the Company and, accordingly,
were not considered to have made substantive investments for their minority
shares. The CEO bonus for the year ended December 31, 1997 consists of a
mandatory bonus of $375 thousand per quarter payable to Andrew J. McKelvey,
the Company's CEO and Principal Stockholder, as provided for in the
Principal Stockholder's then existing employment agreement. Receipt of these
bonus amounts was permanently waived by the Principal Stockholder, and
accordingly, since they were not paid, are also accounted for as a
contribution to Additional Paid-in Capital. See "TMP BUSINESS--Management's
Discussion and Analysis of Financial Condition and Results of
Operations--The year ended December 31, 1997 compared to the year ended
December 31, 1996" and "--The year ended December 31, 1996 compared to the
year ended December 31, 1995" and Notes 1 and 13(B) to the Company's
Consolidated Financial Statements included elsewhere herein.
(2) Interest expense for 1996 includes a $2.6 million non-cash, non-recurring
charge to reflect the exercise of a warrant issued in connection with the
Company's financing agreement. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--The year ended December 31,
1997 compared to the year ended December 31, 1996" and "--The year ended
December 31, 1996 compared to the year ended December 31, 1995" and Note 7
to the Company's Consolidated Financial Statements.
(3) Represents fees earned in connection with yellow page, recruitment and other
advertisements placed on the Internet.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements in this Annual Report on Form 10-K concerning the Company's
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 the Company's Internet content, (ii)
that the Company has grown rapidly and there can be no assurance that the
Company will continue to be able to grow profitably or manage its growth, (iii)
risks associated with acquisitions, (iv) competition, (v) the Company's
quarterly operating results have fluctuated in the
17
<PAGE>
past and are expected to fluctuate in the future, (vi) the Company's business
experiences seasonality, (vii) the loss of services of certain key individuals
could have a material adverse effect on the Company's business, financial
condition or operating results, (viii) the Company has entered into certain
transactions with affiliated parties and (ix) the control of the Company by
Andrew J. McKelvey.
OVERVIEW
A substantial part of the Company's growth has been achieved through
acquisitions. For the period January 1, 1995 through December 31, 1997, the
Company has completed 40 acquisitions with estimated annual gross billings of
approximately $600 million. Given the significant number of acquisitions in each
of the last three years, 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. While gross billings are not included in the Company's
consolidated financial statements, the trends in gross billings directly impact
the commissions and fees earned by the Company. The Company earns commissions
based on a percentage of the media advertising purchased at a rate established
by the related publisher, and associated fees for related services. Publishers
typically bill the Company for the advertising purchased by the Company's
clients and the Company in turn bills its clients for this amount. Generally,
the payment terms with yellow page clients require payment to the Company prior
to the date payment is due to publishers. The payment terms with recruitment
advertising clients typically require payment when payment is due to publishers.
Historically, the Company has not experienced substantial problems with unpaid
accounts.
The Company designs and executes yellow page advertising programs, receiving
an effective commission rate from directory publishers of approximately 20% of
yellow page gross billings. In general, publishers consider orders renewed
unless actively canceled. In addition to base commissions, certain yellow pages
publishers pay increased commissions for volume placement by advertising
agencies. The Company typically recognizes this additional commission, if any,
in the fourth quarter when it is certain that such commission has been earned.
The amounts reported in the fourth quarters of 1997, 1996 and 1995 were $2.0
million, $3.5 million and $4.2 million, respectively. For recruitment
advertising placements in the U.S., publisher commissions average 15% of
recruitment advertising gross billings. The Company also earns fees from
value-added services such as design, research and other creative and
administrative services. Outside of the U.S., where, collectively, the Company
derives the majority of its recruitment advertising commissions and fees, TMP's
commission rates for recruitment advertising vary, ranging from approximately
10% in Australia to 15% in Canada and the United Kingdom. Also, outside the U.S.
the Company earns fees for value-added services, which include in Europe, fee-
based search and selection services, whereby the Company identifies and screens
candidates for hiring by clients based on criteria established by such clients.
The Company also earns fees for recruitment advertisements and related services
placed on its career oriented Web sites on the Internet. Collectively, these
services resulted in aggregate commissions and fees equal to approximately 21%
of recruitment advertising gross billings.
Primarily as a result of acquisitions made from January 1, 1995 through
December 31, 1997, the Company's commissions and fees increased from $123.9
million in 1995 to $237.4 million in 1997. The acquisitions were accounted for
using the purchase method of accounting and are included in the Company's
consolidated financial statements from their respective dates of acquisition.
The Company is continuously monitoring the marketplace for opportunities to
expand its presence in both yellow page and recruitment advertising, which
include Internet-related opportunities and intends to continue its acquisition
strategy to supplement its internal growth.
The Company's operating expenses have increased significantly since 1995
primarily due to headcount increases as a result of acquisitions and hiring to
support gross billings growth. Salaries and related costs increased $63.0
million to $121.3 million for the year ended December 31, 1997 from $58.3
million for the year ended December 31, 1995, a 108.0% increase, supporting a
$454.2 million or a 76.2% increase in gross
18
<PAGE>
billings over the same period. When measured as a percent of billings, salaries
and related costs for the year ended December 31, 1997 were 11.6%, up slightly
from 9.8% for the comparable 1995 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 $39.3 million to $82.7 million for the
year ended December 31, 1997 from $43.4 million for the year ended December 31,
1995, a 90.4% increase, primarily due to increased costs needed to support the
increased billings and the expansion of recruitment offices through acquisitions
in new U.S. and foreign markets. When measured as a percent of billings, office
and general costs for the year ended December 31, 1997 were 7.9%, up slightly
from 7.3% for the comparable 1995 period. This cost category includes expenses
for office operations, business promotion, market research, advertising,
professional fees and fees paid to the Company's primary lending institution for
its services in the processing and collection of payments for accounts
receivable.
Amortization of intangibles includes amortization of acquisition related
charges, including the costs in excess of fair market value of net assets
acquired and capitalized costs for non-compete arrangements with the principals
of acquired companies. This acquisition related amortization was $6.2 million,
$4.4 million and $3.2 million for the years ended December 31, 1997, 1996 and
1995, respectively.
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 common stock of the Company to
stockholders of predecessor companies of the Company in exchange for their
shares in those companies, because they 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. The CEO bonus for the year ended December 31, 1997 of $1.5 million
reflects a non-cash charge recorded in compliance with SAB 79 for a bonus
mandated by the Principal Stockholder's employment contract, even though such
bonus was irrevocably waived prior to the beginning of the period to which it
related.
Net interest expense includes interest: (i) on loans made by the Company's
primary lender under its 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 interest expense
includes a non-recurring charge of approximately $2.6 million to reflect, upon
exercise of the warrant issued in connection with the Company's financing
agreement, the difference between 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.
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<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated gross billings,
commissions and fees and commissions and fees as a percentage of gross billings
for the Company's yellow page advertising, recruitment advertising and Internet
businesses and EBITDA for the Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
<S> <C> <C> <C>
1997 1996 1995
------------ ---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
GROSS BILLINGS:
Yellow page advertising.................................................. $ 457,519 $ 434,728 $ 429,176
Recruitment advertising.................................................. 573,152 308,147 166,508
Internet(1).............................................................. 19,640 6,659 392
------------ ---------- ----------
Total.................................................................... $ 1,050,311 $ 749,534 $ 596,076
------------ ---------- ----------
------------ ---------- ----------
COMMISSIONS AND FEES:
Yellow page advertising.................................................. $ 95,768 $ 94,545 $ 87,456
Recruitment advertising.................................................. 123,048 61,427 36,059
Internet(1).............................................................. 18,601 6,659 392
------------ ---------- ----------
Total.................................................................... $ 237,417 $ 162,631 $ 123,907
------------ ---------- ----------
------------ ---------- ----------
COMMISSIONS AND FEES AS A PERCENTAGE OF GROSS BILLINGS:
Yellow page advertising.................................................. 20.9% 21.7% 20.4%
Recruitment advertising.................................................. 21.5% 19.9% 21.7%
Internet(1).............................................................. 94.7% 100.0% 100.0%
Total.................................................................... 22.6% 21.7% 20.8%
EBITDA(2).................................................................. $ 39,501 $ (25,818) $ 24,978
Cash provided operating activities......................................... $ 15,155 $ 8,151 $ 6,706
Cash used in investing activities.......................................... $ (70,262) $ (28,988) $ (13,778)
Cash provided by financing activities...................................... $ 60,146 $ 19,016 $ 7,432
</TABLE>
- ------------------------
(1) Represents fees earned in connection with yellow page, recruitment and other
advertisements placed on the Internet.
(2) Earnings before interest, income taxes, depreciation and amortization.
EBITDA is presented to provide additional information about the Company's
ability to meet its future debt service, capital expenditures and working
capital requirements and is one of the measures which determines the
Company's ability to borrow under its credit facility. EBITDA should not be
considered in isolation or as a substitute for operating income, cash flows
from operating activities and other income or cash flow statement data
prepared in accordance with generally accepted accounting principles or as a
20
<PAGE>
measure of the Company's profitability or liquidity. EBITDA for the
indicated periods is calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
EBITDA CALCULATION 1997 1996 1995
- ------------------------------------------------------------------------------ ---------- ---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Net income (loss)............................................................. $ 8,123 $ (52,239) $ 3,229
Interest, net............................................................... 8,772 14,265 10,894
Income tax expense.......................................................... 8,571 3,270 4,222
Depreciation and amortization............................................... 14,035 8,886 6,633
---------- ---------- ----------
EBITDA........................................................................ $ 39,501 $ (25,818) $ 24,978
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Gross billings for the year ended December 31, 1997 were $1.1 billion, a
$300.8 million or 40.1% increase when compared to gross billings for the year
ended December 31, 1996. Approximately 78% of this growth was attributable to
acquisitions and approximately 22% was attributable to net new clients and
increases in spending by existing clients.
Commissions and fees increased to $237.4 million for the year ended December
31, 1997 from $162.6 million for the year ended December 31, 1996, an increase
of 46.0%. This reflects increases, as compared to the prior year period, in
commissions and fees for (a) recruitment advertising of $61.6 million or 100.3%,
(b) yellow page advertising of $1.2 million or 1.3% and (c) Internet of $11.9
million or 179.3%. A substantial portion of the increase in commissions and fees
derived from recruitment advertising was due to acquisitions, including $9.2
million from Austin Knight, acquired August 1997, and the remainder was due to
higher client spending and new clients. The increase in commissions and fees
derived from yellow page advertising was due primarily to increased rates by the
yellow page publishers and an acquisition offset by lower publisher incentives
and the full year effect of accounts lost and resigned in 1996. Fees derived
from Internet were generated from placements of Internet advertising. The
Internet revenue increase reflects the continued customer acceptance of the
Company's Internet products both from the Company's existing clients as well as
new clients and price increases on certain products.
Salaries and related costs increased $41.0 million to $121.3 million for the
year ended December 31, 1997. As a percent of commissions and fees, salaries and
related costs increased to 51.1% for the year ended December 31, 1997 from 49.4%
for the year ended December 31, 1996. This increase was primarily due to
additional staff required to service increased recruitment advertising billings,
increased sales staffing for Internet, and generally higher salary and related
costs as a percentage of commissions and fees for European operations.
Office and general expenses increased $22.6 million to $82.7 million for the
year ended December 31, 1997. As a percent of commissions and fees, office and
general expenses decreased to 34.8% for the year ended December 31, 1997 from
37.0% for the year ended December 31, 1996. This decrease was primarily due to
consolidation of offices, which slowed the growth of office related expenses,
and to increased growth in recruitment advertising commissions and fees combined
with the relatively fixed nature of some of these expenses.
Amortization of intangibles was $6.2 million for the year ended December 31,
1997 compared to $4.4 million for the year ended December 31, 1996. The increase
is due to the Company's continued growth through acquisitions. As a percentage
of commissions and fees, amortization of intangibles was 2.6% and 2.7% for the
years ended December 31, 1997 and 1996, respectively.
21
<PAGE>
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 the Company's Common Stock.
Operating income increased $59.9 million to $25.7 million for the year ended
December 31, 1997 as compared with an operating loss of $34.2 million for the
year ended December 31, 1996. The increase was primarily due to the inclusion,
in 1996 of the $52.0 million non-cash special compensation charge and increased
1997 recruitment advertising and Internet billings. In addition, operating
expenses relating to the Company's introduction of its Internet business were
$4.1 million for 1997 and $1.9 million for 1996. Operating income for the year
ended December 31, 1997 as a percent of commissions and fees increased to 10.8%
from (21.0)% for the year ended December 31, 1996. The higher percent for 1997
was primarily due the $52.0 million non-cash special compensation charge in
1996.
Net interest expense decreased $5.5 million to $8.8 million for the year
ended December 31, 1997 as compared to $14.3 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 the Company's initial public
and secondary 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 the Company's financing agreement, the value of the stock issued at the
Company's initial public offering price of $14.00 per share and the value
recorded for the warrant when it was originally issued. The Company's effective
interest rate was 10.0% for the year ended December 31, 1997 compared with 11.0%
for the year ended December 31, 1996.
Taxes on income increased $5.3 million to $8.6 million for the year ended
December 31, 1997 from $3.3 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 50.8% compared with (6.7)% for the year ended
December 31, 1996. These effective tax rates are higher than the U.S. Federal
statutory rate of 34.0% primarily due to the non-cash special compensation
charge of $52.0 million and interest expense of $2.6 million in 1996 as
described above and nondeductible expenses of approximately $2.9 million and
$1.7 million and state taxes of $1.1 million and $.4 million for 1997 and 1996,
respectively. In addition, the higher 1996 tax rate, when compared with the 1997
rate, reflects the Company's inability in 1996 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 $8.0 million for the year ended December 31,
1997, or $.32 per diluted share, compared with net loss of $52.4 million, or
$(2.72) per diluted share.
THE YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Gross billings for the year ended December 31, 1996 were $749.5 million, a
$153.5 million or 25.7% increase compared to the year ended December 31, 1995.
More than half of this growth was attributable to acquisitions.
Commissions and fees increased to $162.6 million for the year ended December
31, 1996 from $123.9 million for the year ended December 31, 1995, an increase
of 31.3%. This increase was due to increases, as compared to the prior year
period, of $25.4 million or 70.4% in commissions and fees derived from
recruitment advertising, $7.1 million or 8.1% in commissions and fees derived
from yellow page advertising and a $6.3 million increase in fees derived from
Internet business. A substantial portion of the increase in commissions and fees
derived from recruitment advertising was due to acquisitions, including $11.2
million from Neville Jeffress, acquired July 1996, and the remainder was due to
higher client spending and new clients. The increase in commissions and fees
derived from yellow page advertising was due primarily to
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<PAGE>
increased rates by the yellow page publishers and higher client spending. Fees
derived from Internet were generated from placements of Internet advertising, as
the Company's Internet products gained initial customer acceptance both from the
Company's existing clients as well as new clients.
Salaries and related costs increased $22.0 million to $80.3 million for the
year ended December 31, 1996. As a percent of commissions and fees, salaries and
related costs increased to 49.4% for the year ended December 31, 1996 from 47.1%
for the year ended December 31, 1995. This increase was primarily due to
additional staff required to service increased gross billings, a higher
percentage for costs related to Neville Jeffress and severance and temporary
help expenses related to the consolidation of the recruitment advertising
acquisitions. Internet staffing also increased by $2.8 million to $3.0 million,
which is 45.1% of Internet commissions and fees.
Office and general expenses increased $16.7 million to $60.1 million for the
year ended December 31, 1996. As a percent of commissions and fees, office and
general expenses increased to 37.0% for the year ended December 31, 1996 from
35.1% for the year ended December 31, 1995. This increase was primarily due to
increased advertising of approximately $1.9 million, primarily related to the
Company's introduction of The Monster Board(Registered), general expenses
related to higher gross billings, professional consulting fees for the
establishment of Internet services and airplane related travel costs.
Amortization of intangibles was $4.4 million for the year ended December 31,
1996 compared to $3.2 million for the year ended December 31, 1995. The increase
was due to the Company's continued growth through acquisitions. As a percentage
of commissions and fees, amortization of intangibles was 2.7% and 2.6% for the
years ended December 31, 1996 and 1995, respectively.
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 the Company's Common Stock.
Operating results declined $53.1 million to a loss of $34.2 million for the
year ended December 31, 1996 as compared with operating income of $18.9 million
for the year ended December 31, 1995. The decline was primarily due to the
non-cash $52.0 million special compensation charge, increased advertising
expenses of $2.5 million for the Company's Internet business and $5.1 million in
direct operating expenses related to the Company's introduction of its Internet
business. Operating results for the year ended December 31, 1996, as a percent
of commissions and fees, declined to (21.0)% from 15.3% for the year ended
December 31, 1995. This decline in operating income as a percent of commissions
and fees was primarily due to the non-cash special compensation charge of $52.0
million in 1996 and costs in connection with the consolidation of the
recruitment advertising acquisitions.
Net interest expense increased $3.4 million to $14.3 million for the year
ended December 31, 1996 as compared to $10.9 million for the year ended December
31, 1995. This increase in interest expense is due primarily to (i) a $2.6
million non-cash, non-recurring charge to reflect, upon exercise of a warrant
issued in connection with the Company's financing agreement, the value of the
stock issued at the Company's per share initial public offering price of $14.00
per share and the value recorded for the warrant when it was originally issued,
(ii) higher debt balances for working capital needs and (iii) acquisition
financing, partially offset by lower borrowing costs and the repayment of a
portion of the debt with the net cash proceeds of the Company's initial public
offering. The Company's effective interest rate was 11.0% for the year ended
December 31, 1996 compared with 11.1% for the year ended December 31, 1995.
Taxes on income decreased $0.9 million to $3.3 million for the year ended
December 31, 1996 from $4.2 million for the year ended December 31, 1995
primarily due to lower pre-tax income. The effective tax rate for the year ended
December 31, 1996 on income before income taxes of (6.7)% was higher than the
U.S. Federal statutory rate of 34.0% primarily due to the non-cash special
compensation charge of $52.0
23
<PAGE>
million and $2.6 million in interest expense, described above, which are not
deductible for tax because they are non-cash, nondeductible expenses of
approximately $1.7 million and approximately $.5 million in interest computed on
a receivable from the Company's principal stockholder. The effective tax rate
for the year ended December 31, 1995 was 51.7%, more favorable than the 1996
rate due to lower nondeductible expenses for 1995.
As a result of the above, the net loss applicable to common and Class B
common stockholders was $52.4 million for the year ended December 31, 1996
compared with net income of $3.0 million for the year ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements have been to fund (i)
acquisitions, (ii) working capital, (iii) capital expenditures and (iv)
advertising and development of its Internet business. The Company's working
capital requirements are generally higher in the quarters ending March 31 and
June 30 during which payments to the major yellow page directory publishers are
at their highest levels. The Company has met its liquidity needs over the last
three years through funds provided by operating activities, equity offerings in
1997 and 1996, long-term borrowings in 1997 and 1996, capital leases and vendor
financing in 1996 and 1995. In December 1996, the Company completed the initial
public offering of an aggregate of 4,147,408 shares of Common Stock at a
purchase price of $14.00 per share in an underwritten public offering managed by
Morgan Stanley & Co. Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation and Ladenburg Thalmann & Co. Inc. In the initial public offering,
certain stockholders sold an additional aggregate of 652,592 shares of Common
Stock. The net proceeds to the Company from the initial public offering of $50.8
million were used to repay debt and, in early 1997, to repay accounts payable
and to redeem preferred stock. In September 1997, the Company completed the
secondary 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. The net proceeds to the Company from this offering of
$63.4 million, including $12.2 million paid to the Company by certain
stockholders, were used to repay debt, including debt incurred to fund the
purchase of Austin Knight.
Net cash provided by operating activities for the years ended December 31,
1997, 1996 and 1995 was $15.2 million, $8.2 million and $6.7 million,
respectively. The increase in cash from operating activities for 1997 over 1996
was primarily due to increased net income partially offset by higher payments of
accounts payable, including amounts to substantially repay vendor financed
payables. The increase in cash from operating activities for 1996 over 1995 was
primarily due to improved accounts receivable collection partially offset by
greater payments of accounts payable and accrued liabilities.
Net cash used in investing activities for the years ended December 31, 1997,
1996 and 1995 was $70.3 million, $29.0 million and $13.8 million, respectively.
During 1997, with funds received from their sale of shares included with the
Company's secondary public offering, the Principal Stockholder and certain
stockholders repaid $12.2 million to the Company. Payments for purchases of
business acquisitions were $63.4 million in 1997, including $47.2 million for
Austin Knight, $23.8 million in 1996 and $11.3 million in 1995. Capital
expenditures, primarily for computer equipment and furniture and fixtures, were
$11.5 million, $6.9 million and $5.0 million for the years ended December 31,
1997, 1996 and 1995, respectively. In addition, in 1997, the Company 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, the
Company 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
24
<PAGE>
debt. The Company estimates that its expenditures for computer equipment and
software, furniture and fixtures and leasehold improvements will be
approximately $22.0 million for 1998.
EBITDA increased $65.3 million to $39.5 million for the year ended December
31, 1997 from $(25.8) million for the year ended December 31, 1996, and as a
percent of commissions and fees increased to 16.6% for the year ended December
31, 1997 as compared to (15.9)% for the year ended December 31, 1996 due to a
higher operating profit. For the year ended December 31, 1996, EBITDA decreased
$50.8 million to $(25.8) million or 203.4% as compared to the year ended
December 31, 1995. As a percent of commissions and fees, EBITDA increased to
(15.9)% for the year ended December 31, 1996 from 20.2% for the year ended
December 31, 1995 primarily due to the $52.0 million non-cash special
compensation charge in 1996, partially offset by a higher percentage of costs
related to Neville Jeffress and severance and temporary help expenses related to
consolidation of the recruitment advertising acquisitions.
The Company's financing activities include equity offerings, borrowings and
repayments under its financing agreement and payments on (i) installment notes,
principally to finance acquisitions, and (ii) capital leases. In the fourth
quarter of 1996, the Company completed its initial public offering of 4,147,408
shares of Common Stock for net proceeds to the Company of $50.8 million and in
the third quarter of 1997, the Company completed its secondary public offering
of 2,400,000 shares of Common Stock for net proceeds to the Company (excluding
the repayment of $12.2 million to the Company by certain stockholders) of $51.2
million. With a portion of the proceeds received from its initial public
offering, the Company, in January 1997, redeemed all of the shares of the
cumulative preferred stock issued by a subsidiary, reported as a minority
interest, and its previously issued preferred stock for approximately $3.1
million and $2.1 million, respectively. Such redemptions included approximately
$100,000 each of premiums. The Company's financing activities provided net cash
of $60.1 million, $19.0 million and $7.4 million in 1997, 1996 and 1995,
respectively. In November, 1997 the Company amended its financing agreement with
BNY Financial Corporation to provide for borrowings up to $175 million under a
revolving credit facility. Such facility has been used to finance the Company's
acquisitions and for working capital requirements. As of December 31, 1997,
there was $95.8 million outstanding under such facility. As of February 28,
1998, there was approximately $69 million available under such facility. The
Company believes it will be able to fund its short-term cash needs through funds
from operations, its credit facilities in the United States, the United Kingdom,
Canada and Australia and, to a lesser extent, equipment leases. The financing
agreement with BNY Financial Corporation terminates on June 27, 2001 and
currently bears interest at 7.5% per annum. The interest rate of the financing
agreement is determined pursuant to a formula whereby the interest rate, at the
Company's option, is either (i) the prime rate less 1% or (ii) the Federal Funds
rate less 1/2 of 1% or (iii) LIBOR plus 1 1/2%. The borrowings are secured by a
lien on substantially all of the Company's assets. In addition, the financing
agreement contains certain covenants which restrict, among other things, the
ability of the Company to borrow, pay dividends, acquire businesses, make future
capital expenditures, guarantee debts of others and lend funds to affiliated
companies and contains criteria on the maintenance of certain financial
statement amounts and ratios.
Part of the Company's 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 $9.5 million at December 31, 1997.
The Company intends to continue its acquisition strategy and promotion of
its Internet activities through the use of operating profits, borrowings against
its long-term debt facility and seller financed notes. The Company believes that
its anticipated cash flow from operations, as well as the availability of funds
under its existing financing agreements and the net proceeds of its recent
secondary public offering and access to public equity and debt markets, will
provide it with liquidity to meet its current forseeable cash needs for at least
the next year. However, if the Company determines that conditions are favorable,
the Company would consider additional corporate finance transactions.
25
<PAGE>
YEAR 2000 ISSUE
Many exisiting computer programs use only two digits to identify a year in
the date field. These programs do not consider the impact of the upcoming change
in the century. If not corrected, many computer applications could fail or
create erroneous results by the Year 2000. Internally, the Company has assessed
its Year 2000 computer issues. The Company estimates that it will have to spend
approximately $1 million during 1998 and 1999 to make its major U.S. and
Canadian computer systems, and some non-critical programs, Year 2000 compliant.
The Company will continue to test applications and believes that solutions will
be implemented timely. The Company's foreign operations have also identified
their critical computer systems. As the Company expands its operations in Europe
through acquisitions, it is consolidating back office functions and
standardizing computer systems. As part of this process the Company will upgrade
to a Year 2000 compliant computer system for its foreign subsidiaries.
FLUCTUATIONS OF QUARTERLY RESULTS
The Company's quarterly commissions and fees are affected by the timing of
yellow page directory closings which currently have a concentration in the third
quarter. Yellow page publishers may change the timing of directory publications
which may have an effect on the Company's quarterly results. The Company's
yellow page advertising results are also affected by commissions earned for
volume placements for the year, which are typically reported in the fourth
quarter. The Company's quarterly commissions and fees for recruitment
advertising are typically highest in the first quarter and lowest in the fourth
quarter; however, the cyclicality in the economy and the Company's clients'
employment needs have an overriding impact on the Company's quarterly results in
recruitment advertising. Moreover, the Company's recruitment advertising
acquisition activity has had more of an impact on the Company's recently
reported quarterly results than any other factor. See Note 2 to the Company's
Consolidated Financial Statements.
The following table sets forth summary quarterly unaudited financial
information for 1997 and 1996, excluding nonrecurring special compensation and
interest charges for 1996 (in millions, except share and per share amounts):
<TABLE>
<CAPTION>
1997 QUARTERS
------------------------------------------------------
<S> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- -------------
Commissions and fees:
Yellow page advertising..................................... $ 19.7 $ 23.0 $ 28.6 $ 24.4
Recruitment advertising..................................... 22.5 27.1 33.4 40.0
Internet.................................................... 3.8 4.5 4.7 5.7
----------- ----------- ------ ------
Total commissions and fees.................................... $ 46.0 $ 54.6 $ 66.7 $ 70.1
----------- ----------- ------ ------
----------- ----------- ------ ------
Operating income.............................................. $ 4.6 $ 5.6 $ 10.0 $ 5.6
Net income applicable to common and Class B common
stockholders................................................ $ 1.1 $ 1.5 $ 3.7 $ 1.7
Net income per common and Class B common share:
Basic....................................................... $ .05 $ .06 $ .15 $ .07
Diluted..................................................... $ .05 $ .06 $ .15 $ .06
Weighted average shares outstanding (in thousands):
Basic....................................................... 23,467 23,490 23,978 26,061
Diluted..................................................... 23,789 23,995 24,533 26,571
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
1996 QUARTERS
------------------------------------------------------
<S> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- -------------
Commissions and fees:
Yellow page advertising..................................... $ 20.4 $ 23.0 $ 27.8 $ 23.3
Recruitment advertising..................................... 12.7 12.2 18.5 18.0
Internet.................................................... .9 1.5 1.9 2.4
----------- ----------- ------ ------
Total commissions and fees.................................... $ 34.0 $ 36.7 $ 48.2 $ 43.7
----------- ----------- ------ ------
----------- ----------- ------ ------
Operating income (loss)....................................... $ 3.7 $ 3.1 $ 3.3 $ (44.3)
Net income (loss) applicable to common and Class B common
stockholders................................................ $ (0.1) $ 0.2 $ (0.8) $ (51.7)
Net income (loss) per common and Class B common share:
Basic....................................................... $ (.01) $ .01 $ (.04) $ (2.61)
Diluted..................................................... $ (.01) $ .01 $ (.04) $ (2.61)
Weighted average shares outstanding (in thousands):
Basic....................................................... 19,199 19,169 18,973 19,853
Diluted..................................................... 19,199 19,617 18,973 19,853
</TABLE>
Earnings 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 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.
During the three months ended December 31, 1996 the Company received one
time fees of $150, $175, and $220 for a research study, executive search
services and for assisting in the procurement of bank financing, respectively.
The research study fee is included as a reduction of Office and General
Expenses, the executive search fee is included in Commissions and Fees and the
loan procurement fee is included in Other Income in the accompanying Statement
of Operations for the year ended December 31, 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of TMP Worldwide Inc. and
Subsidiaries are filed as part of this report.
TMP WORLDWIDE INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE NO.
-----------
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS...................................................... 26
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets as of December 31, 1997 and 1996....................................................... 27
Statements of operations for the years ended December 31, 1997, 1996 and 1995......................... 28
Statements of stockholders' equity (deficit) for the years ended December 31, 1997, 1996 and 1995..... 29
Statements of cash flows for the years ended December 31, 1997, 1996 and 1995......................... 30
Notes to consolidated financial statements............................................................ 31-47
SCHEDULE II--Valuation and qualifying accounts for the years ended December 31, 1997, 1996 and 1995..... 53
</TABLE>
All other schedules are omitted because the required information is either
inapplicable or is included in the consolidated financial statements or the
notes thereto.
27
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of TMP
Worldwide Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TMP
Worldwide Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
As discussed in Note 13B, the accompanying financial statements have been
restated to reflect the effect of a change in the accounting treatment for
bonuses waived by the CEO/Principal Stockholder.
BDO SEIDMAN, LLP
New York, New York
March 20, 1998, except for Notes 2 and 13B
for which the date December 17, 1998
28
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 5,937 $ 898
Accounts receivable, net................................................................ 255,527 191,728
Work-in-process......................................................................... 15,554 14,542
Prepaid and other....................................................................... 11,345 5,482
---------- ----------
Total current assets.................................................................. 288,363 212,650
Receivable from Principal Stockholder, net................................................ -- 11,413
Property and equipment, net............................................................... 37,760 20,562
Deferred income taxes..................................................................... 4,922 9,325
Intangibles, net.......................................................................... 159,465 73,975
Other assets.............................................................................. 4,696 3,828
---------- ----------
$ 495,206 $ 331,753
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 203,172 $ 182,129
Accrued expenses and other current liabilities.......................................... 35,300 20,065
Accrued restructuring costs............................................................. 16,801 --
Deferred revenue........................................................................ 7,992 3,398
Deferred income taxes................................................................... 10,782 9,818
Current portion of long-term debt....................................................... 8,449 9,167
---------- ----------
Total current liabilities............................................................. 282,496 224,577
Long-term debt, less current portion...................................................... 115,852 70,799
---------- ----------
Total liabilities..................................................................... 398,348 295,376
---------- ----------
Minority interests........................................................................ -- 3,082
---------- ----------
Redeemable preferred stock................................................................ -- 2,000
---------- ----------
Commitments and contingencies.
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--12,495,626 and 8,605,436, shares, respectively........................... 12 8
Class B common stock, $.001 par value, authorized 39,000,000 shares; issued and
outstanding--13,587,541 and 14,787,541 shares, respectively........................... 14 15
Additional paid-in capital.............................................................. 165,253 106,803
Foreign currency translation adjustment................................................. (510) 380
Deficit................................................................................. (67,911) (75,911)
---------- ----------
Total stockholders' equity............................................................ 96,858 31,295
---------- ----------
$ 495,206 $ 331,753
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Commissions and fees............................................................ $ 237,417 $ 162,631 $ 123,907
--------- --------- ---------
Operating expenses:
Salaries and related costs.................................................... 121,313 80,291 58,329
Office and general............................................................ 82,712 60,101 43,432
Amortization of intangibles................................................... 6,160 4,440 3,237
Special compensation and CEO bonus............................................ 1,500 52,019 --
--------- --------- ---------
Total operating expenses.................................................. 211,685 196,851 104,998
--------- --------- ---------
Operating income (loss)................................................... 25,732 (34,220) 18,909
--------- --------- ---------
Other income (expense):
Interest expense.............................................................. (10,978) (14,598) (11,249)
Interest income............................................................... 2,206 333 355
Other, net.................................................................... (90) (164) 150
--------- --------- ---------
(8,862) (14,429) (10,744)
--------- --------- ---------
Income (loss) before provision for income taxes, minority interests and equity
in earnings (losses) of affiliates............................................ 16,870 (48,649) 8,165
Provision for income taxes...................................................... 8,571 3,270 4,222
--------- --------- ---------
Income (loss) before minority interests and equity in earnings (losses) of
affiliates.................................................................... 8,299 (51,919) 3,943
Minority interests.............................................................. 143 434 435
Equity in earnings (losses) of affiliates....................................... (33) 114 (279)
--------- --------- ---------
Net income (loss)............................................................... 8,123 (52,239) 3,229
Preferred stock dividends....................................................... (123) (210) (210)
--------- --------- ---------
Net income (loss) applicable to common and Class B common stockholders.......... $ 8,000 $ (52,449) $ 3,019
--------- --------- ---------
--------- --------- ---------
Net income (loss) per common and Class B common share:
Basic......................................................................... $ .33 $ (2.72) $ .16
--------- --------- ---------
--------- --------- ---------
Diluted....................................................................... $ .32 $ (2.72) $ .15
--------- --------- ---------
--------- --------- ---------
Weighted average shares outstanding:
Basic......................................................................... 24,243 19,299 19,064
--------- --------- ---------
--------- --------- ---------
Diluted....................................................................... 24,735 19,299 19,355
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK, COMMON STOCK,
$.001 PAR VALUE $.001 PAR VALUE
---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Balance, January 1, 1995.......................................................... 4,276,869 $ 4 14,787,541 $ 15
Foreign currency translation adjustment......................................... -- -- -- --
Dividends on preferred stock.................................................... -- -- -- --
Net income...................................................................... -- -- -- --
--------- ----------- --------- -----------
Balance, December 31, 1995........................................................ 4,276,869 4 14,787,541 15
Stock repurchase agreements..................................................... -- -- -- --
Issuance of common stock for purchase of minority interest in subsidiary........ 159,231 -- -- --
Issuance of common stock as compensation........................................ 142,740 -- -- --
Repurchase and cancellation of common stock..................................... (481,284) -- -- --
Issuance of common stock for purchase of minority interest in subsidiary........ 46,350 -- -- --
Issuance of common stock........................................................ 4,147,408 4 -- --
Issuance of common stock in connection with the exercise of options............. 85,354 -- -- --
Issuance of common stock in connection with exercise of warrant................. 228,768 -- -- --
Foreign currency translation adjustment......................................... -- -- -- --
Dividends on preferred stock.................................................... -- -- -- --
Special compensation............................................................ -- -- -- --
Net loss........................................................................ -- -- -- --
--------- ----------- --------- -----------
Balance, December 31, 1996........................................................ 8,605,436 8 14,787,541 15
Issuance of common stock in connection with the exercise of options............. 49,766 -- -- --
Tax benefit of stock options exercised.......................................... -- -- -- --
Capital contribution from Principal Stockholder re: CEO bonus and other......... -- -- -- --
Issuance of common stock in connection with acquisitions........................ 135,028 1 -- --
Issuance of common stock for purchase of an equity interest in a subsidiary..... 61,848 -- -- --
Conversion of shares............................................................ 1,200,000 1 (1,200,000) (1)
Issuance of common stock........................................................ 2,400,000 2 -- --
Issuance of common stock for matching contribution to 401(k) plan............... 43,548 -- -- --
Foreign currency translation adjustment......................................... -- -- -- --
Dividend and redemption premium on preferred stock.............................. -- -- -- --
Net income...................................................................... -- -- -- --
--------- ----------- --------- -----------
Balance, December 31, 1997........................................................ 12,495,626 $ 12 13,587,541 $ 14
--------- ----------- --------- -----------
--------- ----------- --------- -----------
<CAPTION>
ADDITIONAL FOREIGN CURRENCY
PAID-IN TRANSLATION
CAPITAL ADJUSTMENT DEFICIT
----------- ------------------- ---------
<S> <C>
Balance, January 1, 1995.......................................................... $ 655 $ 2 $ (24,996 )
Foreign currency translation adjustment......................................... -- (27) --
Dividends on preferred stock.................................................... -- -- (210)
Net income...................................................................... -- -- 3,229
----------- ----- ---------
Balance, December 31, 1995........................................................ 655 (25) (21,977 )
Stock repurchase agreements..................................................... 1,172 -- --
Issuance of common stock for purchase of minority interest in subsidiary........ 1,055 -- --
Issuance of common stock as compensation........................................ 20 -- --
Repurchase and cancellation of common stock..................................... (675) -- (1,485)
Issuance of common stock for purchase of minority interest in subsidiary........ 672 -- --
Issuance of common stock........................................................ 50,779 -- --
Issuance of common stock in connection with the exercise of options............. 347 -- --
Issuance of common stock in connection with exercise of warrant................. 2,603 -- --
Foreign currency translation adjustment......................................... -- 405 --
Dividends on preferred stock.................................................... -- -- (210)
Special compensation............................................................ 50,175 -- --
Net loss........................................................................ -- -- (52,239)
----------- ----- ---------
Balance, December 31, 1996........................................................ 106,803 380 (75,911 )
Issuance of common stock in connection with the exercise of options............. 643 -- --
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 shares............................................................ -- -- --
Issuance of common stock........................................................ 51,166 -- --
Issuance of common stock for matching contribution to 401(k) plan............... 555 -- --
Foreign currency translation adjustment......................................... -- (890) --
Dividend and redemption premium on preferred stock.............................. -- -- (123)
Net income...................................................................... -- -- 8,123
----------- ----- ---------
Balance, December 31, 1997........................................................ $ 165,253 $ (510) $ (67,911 )
----------- ----- ---------
----------- ----- ---------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
---------------
Balance, January 1, 1995.......................................................... $ (24,320)
Foreign currency translation adjustment......................................... (27)
Dividends on preferred stock.................................................... (210)
Net income...................................................................... 3,229
---------------
Balance, December 31, 1995........................................................ (21,328)
Stock repurchase agreements..................................................... 1,172
Issuance of common stock for purchase of minority interest in subsidiary........ 1,055
Issuance of common stock as compensation........................................ 20
Repurchase and cancellation of common stock..................................... (2,160)
Issuance of common stock for purchase of minority interest in subsidiary........ 672
Issuance of common stock........................................................ 50,783
Issuance of common stock in connection with the exercise of options............. 347
Issuance of common stock in connection with exercise of warrant................. 2,603
Foreign currency translation adjustment......................................... 405
Dividends on preferred stock.................................................... (210)
Special compensation............................................................ 50,175
Net loss........................................................................ (52,239)
---------------
Balance, December 31, 1996........................................................ 31,295
Issuance of common stock in connection with the exercise of options............. 643
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........................ 3,137
Issuance of common stock for purchase of an equity interest in a subsidiary..... 1,000
Conversion of shares............................................................ --
Issuance of common stock........................................................ 51,168
Issuance of common stock for matching contribution to 401(k) plan............... 555
Foreign currency translation adjustment......................................... (890)
Dividend and redemption premium on preferred stock.............................. (123)
Net income...................................................................... 8,123
---------------
Balance, December 31, 1997........................................................ $ 96,858
---------------
---------------
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Cash flows from operating activities:
Net income (loss)................................................................. $ 8,123 $ (52,239) $ 3,229
--------- --------- ---------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization of property and equipment......................... 7,875 4,446 3,396
Amortization of intangibles..................................................... 6,160 4,440 3,237
Provision for doubtful accounts................................................. 3,580 3,131 2,850
Special compensation, CEO bonus and indemnity payment........................... 1,775 52,019 --
Interest expense for shares issued upon exercise of warrant..................... -- 2,603 --
Provision for deferred income taxes............................................. 5,155 1,573 3,005
Minority interests.............................................................. 143 434 435
Other........................................................................... (90) 100 522
Changes in assets and liabilities, net of effects from purchases of businesses:
Increase in accounts receivable, net............................................ (2,537) (5,048) (30,256)
Increase in work-in-process..................................................... (57) (36) (1,510)
Increase in prepaid and other................................................... (1,115) (909) (425)
(Increase) decrease in other assets............................................. (868) (161) 430
Increase (decrease) in accounts payable, accrued expenses and other current
liabilities.................................................................... (12,714) (2,202) 21,793
--------- --------- ---------
Total adjustments............................................................. 7,307 60,390 3,477
--------- --------- ---------
Net cash provided by operating activities..................................... 15,430 8,151 6,706
--------- --------- ---------
Cash flows from investing activities:
Payments pursuant to notes and advances to Principal Stockholder.................. (3,064) (12,878) (613)
Repayments from Principal Stockholder............................................. 14,477 7,994 2,271
Capital expenditures.............................................................. (18,276) (6,857) (4,954)
Payments for purchases of businesses, net of cash acquired........................ (63,399) (23,755) (11,324)
Proceeds from sale of assets...................................................... -- 6,115 7
Repayments from affiliates........................................................ -- 393 835
--------- --------- ---------
Net cash used in investing activities......................................... (70,262) (28,988) (13,778)
--------- --------- ---------
Cash flows from financing activities:
Payments on capitalized leases.................................................... (2,594) (2,386) (1,064)
Borrowings under line of credit and proceeds from issuance of long-term debt...... 702,747 471,092 540,333
Repayments under line of credit and principal payments on long-term debt.......... (686,086) (497,646) (531,144)
Distribution to minority interests................................................ -- (457) (483)
Net proceeds from stock issuance.................................................. 51,165 50,783 --
Repurchase of common stock........................................................ -- (2,160) --
Redemption of minority interest (including premium)............................... (3,133) -- --
Redemption of preferred stock (including premium)................................. (2,105) -- --
Dividends on preferred stock...................................................... (123) (210) (210)
--------- --------- ---------
Net cash provided by financing activities..................................... 59,871 19,016 7,432
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents................................ 5,039 (1,821) 360
Cash and cash equivalents, beginning of year........................................ 898 2,719 2,359
--------- --------- ---------
Cash and cash equivalents, end of year.............................................. $ 5,937 $ 898 $ 2,719
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION
TMP Worldwide Inc. (the "Company") is the successor to businesses formerly
conducted by TMP Worldwide Inc. and subsidiaries ("Old TMP"), Worldwide
Classified Inc. and subsidiaries ("WCI"), McKelvey Enterprises, Inc. and
subsidiaries ("MEI") and certain other entities under the control of Andrew J.
McKelvey (the "Principal Stockholder"). Immediately prior to the reorganization,
the Principal Stockholder owned 100% of the common stock of MEI (which owned
approximately 86% of the common stock of Old TMP) and approximately 33% of the
common stock of WCI. In addition to his approximately 33% ownership of WCI, the
Principal Stockholder 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 "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.
The accompanying consolidated financial statements reflect the shares of the
Company that were outstanding after the Mergers.
In addition, in 1996, the Principal Stockholder sold or contributed to the
Company his majority interests, and in one case a 49% interest, in five
companies primarily engaged in yellow page and Internet-based advertising. Due
to the element of common control of these companies, all of these transactions
have been accounted for in a manner similar to a pooling-of-interests and each
of the five companies has been included in the accompanying consolidated
financial statements from their respective dates of acquisition by the Principal
Stockholder.
33
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all of its wholly-owned and majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Investments in unconsolidated affiliates are accounted for using the equity
method when the Company owns at least 20% but no more than 50% of such
affiliates. Under the equity method, the Company records its proportionate share
of profits and losses based on its percentage interest in earnings of companies
50% or less owned.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
primarily using the straight-line method over the following estimated useful
lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements............................................................. 8-32
Furniture and equipment................................................................ 4-8
Transportation equipment............................................................... 5-18
</TABLE>
Leasehold improvements are amortized over their estimated useful lives or
the lives of the related leases, whichever is shorter.
INTANGIBLES
Intangibles represent acquisition costs in excess of the fair value of net
tangible assets of businesses purchased and consist primarily of the value of
ongoing client relationships and goodwill. These costs are being amortized over
periods ranging from three to thirty years on a straight-line basis.
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. No impairment losses have been incurred
through December 31, 1997.
34
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The financial position and results of operations of the Company's foreign
subsidiaries are determined using local currency as the functional currency.
Assets and liabilities of these subsidiaries are translated at the exchange rate
in effect at each year-end. Income statement accounts are translated at the
average rate of exchange prevailing during the year. Translation adjustments
arising from the use of differing exchange rates from period to period are
included in the cumulative translation adjustment account in stockholders'
equity (deficit). Gains and losses resulting from foreign currency transactions
are included in other income (expense).
REVENUE RECOGNITION AND WORK-IN-PROCESS
Substantially all revenues are derived from commissions for advertisements
placed in telephone directories, newspapers and other media, plus associated
fees for related services. In addition, the Company earns fees for the placement
of advertisements on the Internet, including its career Web sites. Commissions
and fees are generally recognized upon placement date for newspapers and other
media and on publication close date for yellow page advertisements.
The Company's quarterly commissions and fees are affected by the timing of
yellow page directory closings which currently have a concentration in the third
quarter. Yellow page publishers may change the timing of directory publications
which may have an effect on the Company's quarterly results. The Company's
yellow page advertising results are also affected by commissions earned for
volume placements for the year, which are typically reported in the fourth
quarter. Amounts reported in the three months ended December 31, 1997, 1996 and
1995 for commissions on volume placements were $2.0 million, $3.5 million and
$4.2 million, respectively. The Company's quarterly commissions and fees for
recruitment advertising are typically highest in the first quarter and lowest in
the fourth quarter; however, the cyclicality in the economy and the Company's
clients' employment needs have an overriding impact on the Company's quarterly
results in recruitment advertising.
Direct operating costs incurred that relate to future revenue, principally
for yellow page advertisements, are deferred (recorded as work-in-process in the
accompanying consolidated balance sheets) and are subsequently charged to
expense when the directories are closed for publication and the related
commission is recognized as income.
INCOME TAXES
The provision (benefit) for income taxes is computed on the pretax income
(loss) based on the current tax law. Deferred income taxes are recognized for
the tax consequences in future years of differences between the tax basis of
assets and liabilities and their financial reporting amounts at each year-end
based on enacted tax laws and statutory tax rates.
NATURE OF BUSINESS AND CREDIT RISK
The Company operates in one business segment and primarily earns commission
income for selling and placing yellow page and recruitment advertising to a
large number of customers in many different industries, principally throughout
North America, Europe and the Pacific Rim. Financial instruments which
potentially subject the Company to concentrations of credit risk are primarily
accounts receivable.
35
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, other current assets, accounts
payable and other liabilities approximate fair value because of the immediate or
short-term maturity of these financial instruments. The carrying amount reported
for long-term debt approximates fair value because, in general, the interest on
the underlying instruments fluctuates with market rates. The 1996 carrying
amounts for minority interests and redeemable preferred stock approximated fair
value based on appraisals. (See Notes 9 and 10.) The fair value of the
receivable from the Principal Stockholder could not be determined. (See Note 14
(B).)
STOCK-BASED COMPENSATION
The Company accounts for its stock option awards under the intrinsic value
based method of accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Under the intrinsic value based
method, compensation cost is the excess, if any, of the quoted market price of
the stock at grant date or other measurement date over the amount an employee
must pay to acquire the stock. The Company makes pro forma disclosures of net
income and earnings per share as if the fair value based method of accounting
had been applied as required by Statement of Financial Accounting Standards
("SFAS") 123, "Accounting for Stock-Based Compensation."
EARNINGS PER SHARE
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 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 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 the
Statement all periods presented have been restated to comply with the provisions
of SFAS No. 128.
36
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 1997:
Basic........................................................... 24,243
Effect of assumed conversion of stock options................... 492
-----------
Diluted......................................................... 24,735
-----------
-----------
December 31, 1996:
Basic........................................................... 19,299
-----------
Diluted......................................................... 19,299
-----------
-----------
December 31, 1995:
Basic........................................................... 19,064
Effect of assumed conversion of stock options................... 62
Effect of assumed conversion of warrant......................... 229
-----------
Diluted......................................................... 19,355
-----------
-----------
</TABLE>
Previously, the Company had not charged earnings for bonuses specified in
its employment agreement with Andrew J. McKelvey, its CEO and Principal
Stockholder, because he permanently waived his receipt of the bonuses due to him
before the start of the period to which it related. However, the Securities and
Exchange Commission informed the Company, that in accordance with their
interpretation of Staff Accounting Bulletin 79, Topic 57 "Accounting for
Expenses or Liabilities paid by the Principal Stockholder," TMP must record
bonus expense for this non-cash item, even though their receipt has been
permanently waived. The Company has complied in this amended filing.
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. The Company has
determined that the effect of foreign exchange rate changes on cash flows is not
material.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("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. Results of operations and financial position will be
unaffected by implementation of this new standard.
37
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 ("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 is not expected to materially impact the
Company's current discloures.
NOTE 3--ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Trade................................................................. $ 250,785 $ 185,594
Earned commissions(a)................................................. 14,491 13,166
---------- ----------
265,276 198,760
Less: Allowance for doubtful accounts................................. 9,749 7,032
---------- ----------
Accounts receivable, net.......................................... $ 255,527 $ 191,728
---------- ----------
---------- ----------
</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, 1997 and 1996 are recorded
as accounts receivable of $75,058 and $70,594, respectively, and the related
advertising costs are recorded as accounts payable of $60,567 and $57,428,
respectively.
NOTE 4--PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Buildings and improvements.............................................. $ 916 $ 944
Furniture and equipment................................................. 57,696 41,656
Leasehold improvements.................................................. 5,467 3,728
Transportation equipment................................................ 9,094 301
--------- ---------
73,173 46,629
Less: Accumulated depreciation and amortization......................... 35,413 26,067
--------- ---------
Property and equipment, net......................................... $ 37,760 $ 20,562
--------- ---------
--------- ---------
</TABLE>
Furniture and equipment includes equipment under capital leases at December
31, 1997 and 1996 with a cost of $12,514 and $6,074, respectively, and
accumulated amortization of $5,128 and $2,531, respectively.
38
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 4--PROPERTY AND EQUIPMENT, NET (CONTINUED)
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 8) to fund the purchase and provide
additional funds.
NOTE 5--BUSINESS ACQUISITIONS
The Company has acquired 40 businesses (primarily recruitment advertising
businesses) between January 1, 1995 and December 31, 1997 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 $74,500,
$25,400 and $26,700 for 1997, 1996 and 1995, respectively. In 1997, the shares
of Common Stock issued by the Company in connection with certain of the above
mentioned acquisitions was 135,028. The 1997 amount is net of approximately
$11,500 of cash acquired with Austin Knight. 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.
In connection with these acquisitions, management of 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 are expected to be finalized
within one year of the acquisition to which it relates. Actions under the
preliminary plans are expected to commence in the first quarter of 1998.
As a result of the formulation of the preliminary plans, certain estimated
costs and liabilities were recorded which related to the restructuring of the
acquired businesses. These estimates will be refined in connection with the
finalization of the plans. These costs and liabilities include:
Accrued liabilities relating to surplus property in the amount of $7,830
for approximately 22 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 revenue on existing subleases.
Other costs associated with the closure of existing offices of acquired
companies in the amount of $2,521, including the write off of leasehold
improvements and other fixed assets as well as 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 $783, based on the present
value of contractual lease payments in excess of current market lease rates.
39
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS ACQUISITIONS (CONTINUED)
Estimated severance payments, employee relocation expenses and other
employee costs in the amount of $4,900 relating 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, 1997, the accrual related
to approximately 70 employees including senior management, sales, service
and administrative personnel.
Pension obligations in the amount of $1,650 assumed in connection with
the acquisition of Austin Knight.
As of December 31, 1997, payments of $833 were made to 18 members of senior
management and employees for severance and charged against the reserve. The
Company continues to evaluate and assess the impact of duplicate
responsibilities and office locations. Additional future costs incurred,
resulting from revised plan actions and that do not result from events occurring
after the consummation dates of the related acquisitions, in excess of the above
estimated amounts will be recorded as additional costs of acquired companies.
The summarized unaudited pro forma results of operations set forth below for
the years ended December 31, 1997 and 1996 assume the acquisitions in 1997 and
1996 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>
1997 1996
---------- ----------
Commissions and fees...................................................................... $ 285,254 $ 261,113
Net income (loss) applicable to common and Class B common stockholders.................... $ 8,473 $ (50,948)
Net income (loss) per common and Class B common share:
Basic................................................................................... $.35 $(2.65)
Diluted................................................................................. $.34 $(2.65)
</TABLE>
The pro forma results of operations are not necessarily indicative of what
actually would have occurred if the acquisitions had been completed at the
beginning of each of the years presented, nor are the results of operations
necessarily indicative of the results that will be attained in the future.
40
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 6--INTANGIBLES, NET
Intangibles, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, AMORTIZATION
--------------------- PERIOD
1997 1996 (YEARS)
---------- --------- -------------
<S> <C> <C> <C>
Client lists, net of accumulated amortization of $4,370
and $3,715, respectively.............................. $ 10,083 $ 8,913 5 to 30
Covenants not to compete, net of accumulated
amortization of $2,036 and $1,713, respectively....... 2,188 1,336 3 to 6
Excess of cost of investments over fair value of net
assets acquired, net of accumulated amortization of
$10,651 and $6,428, respectively...................... 146,397 62,947 10 to 30
Other, net of accumulated amortization of $2,103 and
$1,709, respectively.................................. 797 779 4 to 10
---------- ---------
$ 159,465 $ 73,975
---------- ---------
---------- ---------
</TABLE>
NOTE 7--FINANCING AGREEMENT
The Company obtains its primary financing from a financial institution under
a five-year financing agreement as amended and restated on June 27, 1996, and as
further amended on November 14, 1997, with automatic one-year extensions unless
terminated by either party at least 90 days prior to expiration of the initial
term or any renewal term (the "Agreement"). The Agreement, as amended, provides
for borrowings of up to $175,000 at an interest rate of either: (a) prime rate
less 1% or, (b) Federal Funds rate less 1/2 of 1% or, (c) LIBOR plus 1 1/2%, at
the borrower's option. Borrowings under the Agreement are based on 90% of
eligible accounts receivable, which are amounts billed under 120 days old and
amounts to be billed on an installment basis under 360 days old from first
installment billing, as defined. Substantially all assets of the Company are
pledged as collateral for borrowings under the Agreement. The Agreement contains
certain covenants which restrict, among other things, the ability of the Company
to borrow, pay dividends, acquire businesses, make future capital expenditures,
guarantee debts of others and lend funds to affiliated companies and contains
criteria on the maintenance of certain financial statement amounts and ratios,
all as defined in the Agreement. In addition, the Agreement also provides for a
1/8% fee on any unused portion of the commitment and a declining fixed
termination fee of $2,000, $1,000 and $500 for the annual periods ended June 30,
1998, 1999, and 2000, respectively.
At December 31, 1997, the prime rate, Federal Funds rate and one month LIBOR
were 8.50%, 6.00% and 5.72%, respectively, and borrowings outstanding were at a
weighted average interest rate of 7.62%.
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.
41
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 8--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
<S> <C> <C>
1997 1996
---------- ---------
Borrowings under financing agreement (see Note 7)...................... $ 95,800 $ 59,495
Borrowings under financing agreements, interest payable at rates
varying from 5% to 9.2%, and collateralized by assets in certain
foreign countries.................................................... 3,339 3,776
Acquisition notes payable in annual and monthly installments through
1997 with interest at 8.5%........................................... -- 3,374
Other acquisition notes payable, noninterest bearing, interest imputed
at 6.7% to 8.0%, in varying installments through 2001................ 9,461 7,153
Capitalized lease obligations, payable with interest from 9% to 15%, in
varying installments through 2001.................................... 7,245 4,058
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.......... 7,760 --
Notes payable, in varying monthly installments maturing through 2001,
with interest at rates ranging from 7.5% to 8.5%..................... 696 2,110
---------- ---------
124,301 79,966
Less: Current portion.................................................. 8,449 9,167
---------- ---------
$ 115,852 $ 70,799
---------- ---------
---------- ---------
</TABLE>
The noncurrent portion of long-term debt matures as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
1999................................................................................................ $ 6,519
2000................................................................................................ 3,762
2001................................................................................................ 96,512*
2002................................................................................................ 7,513
Thereafter.......................................................................................... 1,546
------------
$ 115,852
------------
------------
</TABLE>
- ------------------------
* Of this amount, $95,800 is subject to automatic one year extentions. See
Note 7.
42
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 9--MINORITY INTEREST
In connection with an acquisition in 1990, a subsidiary of the Company
issued 88,425 shares of nonvoting convertible 10% cumulative preferred stock in
exchange for 88,425 shares (58%) of the outstanding common stock of the acquired
company held by the acquired company's employee stock ownership trust. The book
value of these shares of approximately $3,000, which approximates the redemption
price, is included in minority interest in the consolidated balance sheet at
December 31, 1996. These shares were redeemed in January 1997 for a total of
$3,133, which included a redemption premium of $133.
NOTE 10--REDEEMABLE PREFERRED STOCK
During 1991, the Company sold 200,000 shares of 10.5% nonvoting cumulative
preferred stock ($10.00 par value) to the Company's profit sharing plan for
$2,000. These shares were redeemed in January 1997 for a total of $2,105, which
included a redemption premium of $105.
NOTE 11--STOCKHOLDERS' EQUITY
(A) COMMON AND CLASS B COMMON STOCK
Common and Class B common stock have indentical 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.
(B) STOCK OPTIONS
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 Revenue Code of 1986, as amended (the "Code"), and nonqualified
stock options, to purchase an aggregate of up to 900,000 shares (amended to
1,800,000 on June 25, 1997) of the common stock of the Company. The Stock Option
Plan permits the granting of options to officers, employees and consultants of
the Company, its subsidiaries and affiliates.
Under the Stock Option Plan, the exercise price of an incentive stock option
must be at least equal to 100% of the fair market value of the common stock on
the date of grant (110% of the fair market value in the case of options granted
to employees who hold more than ten percent of the voting power of the Company's
capital stock on the date of grant). The exercise price of a nonqualified stock
option must be not less than the par value of a share of the common stock on the
date of grant. The term of an incentive or nonqualified stock option is not to
exceed ten years (five years in the case of an incentive stock option granted to
a ten percent holder). The Stock Option Plan provides that the maximum option
grant which may be made to an executive officer in any calendar year is 45,000
shares (amended to 150,000 on June 25, 1997).
On January 3, 1996, options to purchase, 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, 1997, 13,010 options were cancelled, 7,266 options were exercised
and, of the outstanding options, 63,641 options were exercisable and will expire
ten years from the date of grant.
43
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 11--STOCKHOLDERS' EQUITY (CONTINUED)
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
1,203,737 shares of common stock were granted to officers and employees of the
Company and options for 74,611 shares were subsequently cancelled. Of such
options, options for approximately 29,000 shares of common stock vest at the
rate at 25% per year beginning one year from the date of grant and the balance
of these options were vested at December 31, 1997 and 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 vested as of December 31,
1997, are exercisable after January 5, 1999 and will expire ten years from the
date of grant.
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. Options for 2,388 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 August 28, 1997 options to purchase, at an exercise price of $20.00 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
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, 1997,
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 approximately
700,000 shares of common stock were granted to officers and employees of the
Company, subject to stockholder approval of an increase in the number of shares
authorized under the Plan to 3,000,000 from 1,800,000. 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, 1997 none of these options
were exercisable.
In January 1996, the Company also adopted a stock option plan for
nonemployee directors (the "Directors' Plan"), pursuant to which options to
acquire a maximum aggregate of 180,000 shares of common stock may be granted to
nonemployee directors. Options granted under the Directors' Plan do not qualify
as incentive stock options within the meaning of Section 422 of the Code. The
Directors' Plan provides for an automatic grant to each of the Company's
nonemployee directors of an option to purchase 11,250 shares of common stock on
the date of such director's initial election or appointment to the Board. The
options will have an exercise price of 100% of the fair market value of the
common stock on the date of grant, have a ten-year term and become exercisable
in accordance with a vesting schedule determined by the Board of Directors.
Options to purchase 11,250 shares of common stock at a purchase price per
share equal to $6.65 per share, the fair market value of the common stock on the
date of grant as determined by the Board, were granted on January 24, 1996 to
one nonemployee director. Half of these options vested on the date of the grant
and the balance vests in two equal annual installments commencing one year after
the date of grant. Such options will expire ten years from the date of grant. 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 as
44
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 11--STOCKHOLDERS' EQUITY (CONTINUED)
determined by the Board. Vesting is on terms similar to that of the previous
director's grant. Such options will expire ten years from the date of grant. In
December 1996, 11,250 of the options granted to a director in September 1996
were cancelled and options to purchase 125,000 shares of common stock were
granted at an exercise price of $14.00 (the initial public offering price). Of
the total, 50,000 of such options vested on the closing of the initial public
offering. In April 1997, in connection with this former director's resignation,
the Company agreed that an additional 12,500 of such stock options would vest on
June 1, 1997 and the unvested options totalling, 62,500 were cancelled. All
options previously vested expire on December 9, 2006. 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. For options
granted to all directors, at December 31, 1997, 50,938 of the outstanding
options were exercisable and 42,500 were exercised.
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 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of SFAS 123. The
weighted average fair values of options granted during 1997 and 1996 were $7.10
and $5.93, 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 6.5% and
6.1% in 1997 and 1996 respectively; volatility factor of the expected market
price of the Company's common stock of 27% and 25% in 1997 and 1996,
respectively; and a weighted average expected life of the option of 8 years in
both 1997 and 1996.
Under the accounting provisions of SFAS 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Net income (loss) applicable to common and Class B common stockholders....................... $ 2,884 $ (53,062)
Net income (loss) per common and Class B common share
Basic...................................................................................... $.12 $(2.75)
Diluted.................................................................................... $.12 $(2.75)
</TABLE>
45
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 11--STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the status of the Company's two fixed stock option plans as of
December 31, 1997 and 1996, and changes during the years ending on those dates
is presented.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- ------------------------
<S> <C> <C> <C> <C>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
---------- ------------- --------- -------------
Outstanding at beginning of year............................ 448,334 $ 9.07 -- --
Granted..................................................... 1,986,643 13.91 466,640 $ 9.15
Exercised................................................... (49,766) 12.92 -- --
Forfeited/cancelled......................................... (145,453) 13.20 (18,306) 11.17
---------- ---------
Outstanding at end of year.................................. 2,239,758 13.01 448,334 9.07
---------- ---------
---------- ---------
Options exercisable at year-end............................. 114,579 $ 9.85 66,875 $ 13.38
Weighted average fair value of options granted during the
year...................................................... $ 7.10 $ 5.93
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- ----------------------------------
NUMBER WEIGHTED AVERAGE NUMBER WEIGHTED
EXERCISE OUTSTANDING AT REMAINING WEIGHTED AVERAGE EXERCISABLE AT AVERAGE
PRICE DECEMBER 31, 1997 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1997 EXERCISE PRICES
- ----------- ----------------- ---------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
6$.65...... 287,614 8.0(year) $ 6.65 72,079 $ 6.65
14.00..... 42,500 8.9 14.00 36,875 14.00
12.88..... 1,129,126 9.0 12.88 -- --
19.00..... 25,868 9.6 19.00 -- --
17.25..... 8,400 9.3 17.25 -- --
20.00..... 35,000 9.8 20.00 -- --
15.00..... 700,000 9.9 15.00 -- --
23.63..... 11,250 9.8 23.63 5,625 23.63
----------------- -------
2,239,758 114,579 $ 9.85
----------------- -------
----------------- -------
</TABLE>
In connection with an acquisition in 1995, the Company issued options to
acquire shares of the Company's common stock in exchange for an obligation of
the Company incurred in connection with this acquisition. Such options, for
85,354 shares, were exercised upon the closing of the public offering based on
the initial public offering price of $14.00 per share.
46
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--PROVISION (BENEFIT) FOR INCOME TAXES
The components of income (loss) before the provision (benefit) for income
taxes, minority interests and equity in earnings (losses) of affiliates are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- ---------- ---------
Domestic.......................................................... $ 7,675 $ (50,323) $ 6,955
Foreign........................................................... 9,195 1,674 1,210
--------- ---------- ---------
Total income (loss) before provision (benefit) for income taxes,
minority interests and equity in earnings (losses) of
affiliates.................................................... $ 16,870 $ (48,649) $ 8,165
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Current tax provision:
U.S. Federal................................................... $ 220 $ 66 $ 87
State and local................................................ 1,219 922 320
Foreign........................................................ 2,197 709 810
--------- --------- ---------
Total current................................................ 3,636 1,697 1,217
--------- --------- ---------
Deferred tax provision (benefit):
U.S. Federal................................................... 2,689 1,740 2,051
State and local................................................ 739 (321) 535
Foreign........................................................ 1,507 154 419
--------- --------- ---------
Total deferred............................................... 4,935 1,573 3,005
--------- --------- ---------
Total provision.............................................. $ 8,571 $ 3,270 $ 4,222
--------- --------- ---------
--------- --------- ---------
</TABLE>
47
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to the Company's
deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
<S> <C> <C>
1997 1996
---------- ---------
Current deferred tax assets (liabilities):
Earned commissions................................................... $ (5,796) $ (5,266)
Allowance for doubtful accounts...................................... 3,901 2,813
Work-in-process...................................................... (6,222) (5,817)
Accrued expenses and other liabilities............................... (2,665) (1,548)
---------- ---------
Total current deferred tax liability............................... (10,782) (9,818)
---------- ---------
Noncurrent deferred tax assets (liabilities):
Property and equipment............................................... (980) (801)
Intangibles.......................................................... (654) (453)
Accrued expenses and other liabilities............................... (2,235) --
Tax loss carryforwards............................................... 8,791 10,579
---------- ---------
Total noncurrent deferred tax asset................................ 4,922 9,325
---------- ---------
Net deferred tax liability............................................. $ (5,860) $ (493)
---------- ---------
---------- ---------
</TABLE>
At December 31, 1997, the Company has net operating loss carryforwards for
U.S. Federal tax purposes of approximately $23,300 which expire through 2011.
The Company has concluded that, based on expected future results and the future
reversals of existing taxable temporary differences, it is more likely than not
that the deferred tax assets will be realized.
The provision 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>
1997 1995 1996
--------- ---------- ---------
Provision (benefit) at Federal statutory rate.................. $ 5,736 $ (16,541) $ 2,776
State income taxes, net of Federal income tax effect........... 752 216 514
Nondeductible expenses......................................... 1,502 685 419
Nondeductible special charge................................... -- 18,571 --
Interest imputed on receivable from principal stockholder...... -- 216 198
Losses for which no tax benefits are available................. -- 45 503
Foreign income taxes at other than the Federal statutory
rate......................................................... 522 26 149
Other.......................................................... 59 52 (337)
--------- ---------- ---------
Income tax provision........................................... $ 8,571 $ 3,270 $ 4,222
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
48
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED)
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, 1997, the
cumulative amount of reinvested earnings was approximately $10,000.
NOTE 13--COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases its facilities and certain equipment under operating
leases and certain equipment under capital leases. Future minimum lease
commitments under both noncancellable operating leases and capital leases at
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
1998..................................................................... $ 3,191 $ 14,072
1999..................................................................... 2,911 12,602
2000..................................................................... 1,755 10,953
2001..................................................................... 271 8,034
2002..................................................................... 9 6,065
Thereafter............................................................... -- 18,384
--------- -----------
8,137 $ 70,110
-----------
-----------
Less: Amount representing interest....................................... 892
---------
Present value of minimum lease payments.................................. 7,245
Less: Current portion.................................................... 2,658
---------
$ 4,587
---------
---------
</TABLE>
Rent and related expenses under operating leases amounted to $11,948,
$10,856, and $7,735 for the years ended December 31, 1997, 1996 and 1995,
respectively.
(B) CONSULTING, EMPLOYMENT AND NONCOMPETE AGREEMENTS
The Company has entered into various consulting, employment and noncompete
agreements with certain management personnel and former owners of acquired
businesses. These agreements are generally two to five years in length, with one
for a term of fifteen years and two providing aggregate annual lifetime payments
of approximately $135.
Effective November 15, 1996, the Company entered into an employment
agreement with its Principal Stockholder for a term ending on November 14, 2001.
The agreement provides for automatic renewal for successive one year terms
unless either party notifies the other to the contrary at least 90 days prior to
its expiration. Under the agreement, the Principal Stockholder is entitled to a
base salary of $1,500 per year
49
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--COMMITMENTS AND CONTINGENCIES (CONTINUED)
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
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.
The above agreements provide for the following aggregate annual payments:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
1998............................................................................ $ 4,879
1999............................................................................ 2,849
2000............................................................................ 2,763
2001............................................................................ 2,502
2002............................................................................ 522
Thereafter...................................................................... 1,716
------------
$ 15,231
------------
------------
</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 $626, $600 and $584 for the years ended
December 31, 1997, 1996 and 1995, respectively.
Outside of the United States, the Company has employee benefit plans in the
countries in which it operates. For 1997, costs for these plans were $1,264.
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, 1996
and 1995. The plan was terminated during 1997.
(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
50
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
(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, 1997 is
approximately $5,627 based on the formula.
NOTE 14--RELATED PARTY TRANSACTIONS
(A) The Company had receivables from certain of its stockholders aggregating
$761 and $500 at December 31, 1996 and 1995, respectively. During 1997, the
outstanding balances were repaid.
(B) The Company had net receivables from its Principal Stockholder of
$11,413 and $6,530 at December 31, 1996 and 1995, respectively. Prior to January
1, 1997 such amounts were noninterest-bearing. As of January 1, 1997 interest
was charged on the unpaid balance at the prime rate. During 1997, the
outstanding balances were repaid.
(C) In August 1996, the Company entered into an agreement whereby it
acquired the minority interest of a subsidiary for 46,350 shares of common
stock. Such shares, valued at $672, were recorded as special compensation
because the stockholder had received his shares in the subsidiary for no
consideration and, accordingly, was not considered to have made a substantive
investment for his shares.
(D) The Company charged management and other fees to affiliates for services
provided of approximately $788, $602 and $873 for the years ended December 31,
1997, 1996 and 1995, respectively. Such fees are reflected as a reduction of
salaries and related costs in the accompanying consolidated statements of
operations.
(E) 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
51
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--RELATED PARTY TRANSACTIONS (CONTINUED)
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.
(F) In 1994, the Principal Stockholder gave 374,940 shares of common stock
as compensation to certain employees. These shares were recorded at fair market
value of $55 on the date they were given, as determined by the Company. In 1996,
the Company issued 142,740 shares of common stock as compensation to one
employee. These shares were valued at fair market value of $20 on the date they
were issued, as determined by the Company.
(G) The Company leases three offices from entities in which the Principal
Stockholder and other stockholders have between a 49% and 90% ownership
interest. Annual rent expense under these leases, which expire on various dates
through the year 2013, amounts to approximately $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.
NOTE 15--GEOGRAPHIC AND OTHER DATA
The Company is engaged in one line of business, the placing of advertising
in various media. Its operations are conducted in several geographic regions:
North America, the Pacific Rim (Australia, New Zealand, and Japan) and Europe.
The following is a summary of the Company's operations by geographic segment, as
of and for the years ended December 31, 1997 and 1996. Geographic segments were
not material for 1995.
<TABLE>
<CAPTION>
NORTH AMERICA PACIFIC RIM EUROPE TOTAL
-------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
December 31, 1997
Commissions and fees........................................ $ 165,118 $ 20,347 $ 51,952 $ 237,417
Income before taxes, minority interests and equity in
earnings of affiliates.................................... 9,715 1,697 5,458 16,870
Identifiable assets......................................... 381,834 22,469 90,903 495,206
December 31, 1996
Commissions and fees........................................ $ 144,853 $ 11,757 $ 6,021 $ 162,631
Income (loss) before taxes, minority interests and equity in
earnings of affiliates.................................... (49,159)* (381) 891 (48,649)*
Identifiable assets......................................... 266,336 39,244 26,173 331,753
</TABLE>
- ------------------------
* Includes noncash, non-recurring special compensation and interest expense of
$52,019 and $2,603, respectively.
52
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 15--GEOGRAPHIC AND OTHER DATA (CONTINUED)
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, (SFAS 131)
which supersedes SFAS No. 14, Financial Reporiting for Segments of a Business
Enterprise. SFAS 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 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 131 is effective for financial statements for periods beginning after
December 15, 1997 and requires comparative information for earlier years to be
restated. Because of the relatively recent issuance of this standard, management
has been unable to fully evaluate the impact, if any, it may have on future
financial statement disclosures. Results of operations and financial position,
however, will be unaffected by implementation of this standard.
During the three months ended December 31, 1996 the Company received one
time fees of $150, $175, and $220 for a research study, executive search
services and for assisting in the procurement of bank financing, respectively.
The research study fee is included as a reduction of Office and General
Expenses, the executive search fee is included in Commissions and Fees and the
loan procurement fee is included in Other Income in the accompanying Statement
of Operations for the year ended December 31, 1996.
NOTE 16--SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes amounted to the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Interest..................................................... $ 12,966 $ 11,389 $ 10,601
Income taxes................................................. 1,860 936 589
</TABLE>
In conjunction with business acquisitions, the Company used cash as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1997 1996 1995
---------- --------- ---------
Fair value of assets acquired, excluding cash............. $ 125,567 $ 52,731 $ 37,260
Less: Liabilities assumed and created upon acquisition.... 62,168 28,976 25,936
---------- --------- ---------
Net cash paid............................................. $ 63,399 $ 23,755 $ 11,324
---------- --------- ---------
---------- --------- ---------
Capital lease obligations incurred.......................... $ 5,781 $ 4,873 $ 766
---------- --------- ---------
---------- --------- ---------
</TABLE>
53
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The information set forth under the caption "Proposal No. 1--Election of
Directors" in the Company's definitive Proxy Statement to be used in connection
with the 1998 Annual Meeting of Stockholders is incorporated herein by
reference.
EXECUTIVE OFFICERS
See "Part I--Executive Officers of the Company."
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" in the
Company's definitive Proxy Statement to be used in connection with the 1998
Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Principal Stockholders" in the
Company's definitive Proxy Statement to be used in connection with the 1998
Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the captions "Compensation Committee
Interlocks and Insider Participation" and "Certain Transactions" in the
Company's definitive Proxy Statement to be used in connection with the 1998
Annual Meeting of Stockholders is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K
(A) DOCUMENT LIST
1. FINANCIAL STATEMENTS
The financial statements of the Company filed herewith are set forth in Part
II, Item 8 of this Report.
2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule and opinion thereon are filed as
a part of this Report:
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
54
<PAGE>
3. EXHIBITS REQUIRED BY SECURITIES AND EXCHANGE COMMISSION REGULATION S-K
(a) The following exhibits are filed as part of this report or are
incorporated herein by reference (Exhibit Nos. 10.1, 10.3, 10.4, 10.5, 10.6,
10.25, 10.26 and 10.27 are management contracts, compensatory plans or
arrangements):
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------
<C> <S> <C>
.12 -- Agreement relating to the Entire Issued Share Capital of Austin Knight Limited, dated July 1997,
between AK Warranty and Indemnity Limited and TMP Worldwide Inc.*
3.1 -- Certificate of Incorporation.**
3.2 -- Bylaws.**
4.1 -- Form of Common Stock Certificate.**
10.1 -- Form of Employee Confidentiality and Non-Solicitation Agreement.**
10.2 -- Form of Indemnification Agreement.**
10.3 -- 1996 Stock Option Plan.**
10.4 -- Form of Stock Option Agreement under 1996 Stock Option Plan.**
10.5 -- 1996 Stock Option Plan for Non-Employee Directors.**
10.6 -- Form of Stock Option Agreement under 1996 Stock Option Plan for Non-Employee Directors.**
10.7 -- Lease, dated as of October 31, 1978, between Telephone Marketing Programs Inc. and PDC Realty Inc.
as agent for MRI Broadway Rental, Inc., as modified by modifications dated January, 1979 and June
20, 1991.**
10.8 -- Share Sale and Purchase Agreement, dated July 2, 1996, relating to the entire issued share capital
of Neville Jeffress Australia Pty Limited, between Neville Jeffress Holding Pty Limited, Petzow
Holdings Pty Ltd., TMP Australia Pty Limited and Neville Jeffress Australia Pty Ltd.**
10.9 -- Asset Purchase Agreement, dated as of January 3, 1995, by and among Rogers Acquisition Corp.,
Rogers & Associates Advertising, Inc., Curtis Rogers, Steven Schmidt and Ronni Rogers.**
10.10 -- Amended and Restated Accounts Receivable Management and Security Agreement, dated as of June 27,
1996, between TMP Worldwide Inc. and BNY Financial Corporation, as amended by Amendment No. 1 to
Amended and Restated Accounts Receivable Management and Security Agreement, dated as of August 29,
1996.**
10.11 -- Agreement and Plan of Merger of TMP Worldwide Inc., Worldwide Classified Inc., McKelvey
Enterprises, Inc. and Telephone Marketing Programs Incorporated.**
10.12 -- Stock Purchase Agreement, dated May 26, 1977, among Telephone Marketing Programs, Inc., Andrew J.
McKelvey, Timothy P. Hanley and Bard Publishing Company, as amended on June 15, 1977.**
10.13 -- Agreement, dated as of January 3, 1995, among Andrew J. McKelvey, Aeronautic Media, Inc. and
McKelvey Enterprises, Inc. relating to a yacht.**
10.14 -- Stock Purchase Agreement, dated as of January 1, 1996, between Andrew J. McKelvey and McKelvey
Enterprises, Inc., relating to the common stock of Volando, Inc.**
10.15 -- Contribution Agreement, dated as of January 1, 1996, between Andrew J. McKelvey and McKelvey
Enterprises, Inc., relating to the common stock of EPI Aviation, Inc.**
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------
<C> <S> <C>
10.16 -- Lease Agreement, dated as of June 1, 1996, by and between TPH and AJM, a partnership, and Telephone
Directory Advertising, Inc.**
10.17 -- Contribution Agreement, dated as of July 16, 1996, between Andrew J. McKelvey and McKelvey
Enterprises, Inc. relating to the common stock of General Directory Advertising Services, Inc.**
10.18 -- Stock Purchase Agreement, dated as of August 15, 1996, between Andrew J. McKelvey and McKelvey
Enterprises, Inc., relating to the common stock of National Media Holding Company, Inc.**
10.19 -- Stock Purchase Agreement, dated as of September 1, 1996, between Andrew J. McKelvey and McKelvey
Enterprises, Inc., relating to the common stock of Telephone Directory Advertising, Inc.**
10.20 -- Stock Purchase Agreement, dated as of September 4, 1996, between Andrew J. McKelvey and McKelvey
Enterprises, Inc., relating to the common stock of S.M.E.T. Servizio Marketing Elenchi Telefonici
s.r.l.**
10.21 -- Agreement, dated as of March 17, 1996, between TMP Worldwide Inc. and George Eisele, as amended by
Amendment 1 to Agreement, dated as of September 5, 1996.**
10.22 -- Management Agreement, dated as of January 1, 1996, between Cala Services Inc. and Cala H.R.C.
Ltd.**
10.23 -- Lease Agreement, dated May 15, 1993, between 12800 Riverside Drive Corporation and TMP Worldwide
Inc., as amended by Amendment No. 1 to Lease Agreement, dated June 1, 1993.**
10.24 -- Indenture, dated April 29, 1988, between International Drive, L.P. and Telephone Marketing
Programs, Inc.**
10.25 -- Amended and Restated Employment Agreement, dated as of September 11, 1996, between TMP Interactive
Inc. and Jeffrey C. Taylor.**
10.26 -- Employment Agreement, dated November 18, 1996, between TMP Worldwide Inc. and James J. Treacy.**
10.27 -- Employment Agreement, dated November 15, 1996, between TMP Worldwide Inc. and Andrew J. McKelvey.**
10.28 -- Warrant Agreement, dated October 13, 1993, between TMP Worldwide Inc. and BNY Financial
Corporation, as amended by an amendment dated December 31, 1995.**
10.29 -- Form of Option Agreement, dated as of January 1, 1995, relating to options issued to shareholders
and/or principals of Kidd, Schneider & Dersch, Inc.**
10.30 -- Amendment No. 3 to Amended and Restated Accounts Receivable Management and Security Agreement,
dated as of May 15, 1997, between BNY Financial Corporation and TMP Worldwide Inc.*
10.32 -- Management Agreement, dated June 1, 1997, between Dir-Ad Services Inc./Les Services Dir-Ad Inc. and
TMP Worldwide Ltd.*
10.33 -- Second Amended and Restated Accounts Receivable Management and Security Agreement, dated as of
November 14, 1997, between BNY Financial Corporation and TMP Worldwide Inc.
21 -- Subsidiaries of the Company.*
23.1 -- Consent of BDO Seidman, LLP.
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------
<C> <S> <C>
27.1 -- Financial Data Schedule--Year ended December 31, 1997
27.2 -- Restated Financial Data Schedule--Nine months ended September 30, 1997
27.3 -- Restated Financial Data Schedule--Six months ended June 30, 1997
27.4 -- Restated Financial Data Schedule--Three months ended March 31, 1997
27.5 -- Restated Financial Data Schedule--Year ended December 31, 1996
27.6 -- Restated Financial Data Schedule--Nine months ended September 30, 1996
27.7 -- Restated Financial Data Schedule--Six months ended June 30, 1996
27.8 -- Restated Financial Data Schedule--Three months ended March 31, 1996
27.9 -- Restated Financial Data Schedule--Year ended December 31, 1995
</TABLE>
(b) Reports on Form 8-K.
(i) A Form 8-K, dated October 21, 1997, was filed with respect to the
issuance of 16,460 shares of Common Stock to Lorraine Jones in connection with
an acquisition. The shares were issued pursuant to Regulation S.
(ii) A Form 8-K, dated November 8, 1997, was filed with respect to the
issuance of 36,087 shares, 27,814 shares and 5,632 shares of Common Stock to
Eric Petco, Antoine Farisano and Carole Lonhienne, respectively, in connection
with an acquisition. The shares were issued pursuant to Regulation S.
(c) Exhibits.
See (3)(a)above.
* Incorporated by reference to Exhibits to the Registration Statement on Form
S-1 (Registration No. 333-31657).
** Incorporated by reference to Exhibits to the Registration Statement on Form
S-1 (Registration No. 333-12471).
57
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
The audits referred to in our report dated March 20, 1998 relating to the
consolidated financial statements of TMP Worldwide Inc. and subsidiaries, which
is contained in Item 8 of the Form 10-K, included the audit of the financial
statement schedule listed in the accompanying index. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statement schedule based upon our
audits.
In our opinion the financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO SEIDMAN, LLP
New York, New York
March 30, 1998
58
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C--
COLUMN B ADDITIONS COLUMN E
----------------- -------------------------------- -------------
COLUMN A BALANCE AT CHARGED TO CHARGED TO COLUMN D BALANCE AT
- --------------------------------------------- BEGINNING OF COSTS AND OTHER --------------- END OF
DESCRIPTIONS PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- --------------------------------------------- ----------------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Allowance for doubtful accounts............ $ 2,018 $ 2,850 -- $ 1,003 $ 3,865
Year ended December 31, 1996
Allowance for doubtful accounts............ $ 3,865 $ 3,131 $ 2,111(1) $ 2,075 $ 7,032
Year ended December 31, 1997
Allowance for doubtful accounts............ $ 7,032 $ 3,580 $ 1,931(1) $ 2,794 $ 9,749
</TABLE>
- ------------------------
(1) Initial reserves of acquired companies.
59
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
<TABLE>
<S> <C> <C>
TMP WORLDWIDE INC.
By: /s/ ANDREW J. MCKELVEY
-----------------------------------------
Andrew J. McKelvey
CHAIRMAN OF THE BOARD AND PRESIDENT
</TABLE>
January 4, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------ -------------------
<C> <S> <C>
/s/ ANDREW J. MCKELVEY Chairman of the Board, President and January 4, 1999
------------------------------------------- Director (principal executive
Andrew J. McKelvey officer)
/s/ THOMAS G. COLLISON Vice Chairman (principal financial January 4, 1999
------------------------------------------- officer)
Thomas G. Collison
/s/ JAMES J. TREACY Executive Vice President, Chief January 4, 1999
------------------------------------------- Operating Officer and Director
James J. Treacy
/s/ ROXANE PREVITY Chief Financial Officer (principal January 4, 1999
------------------------------------------- accounting officer)
Roxane Previty
/s/ GEORGE R. EISELE Director January 4, 1999
-------------------------------------------
George R. Eisele
/s/ JOHN R. GAULDING Director January 4, 1999
-------------------------------------------
John R. Gaulding
/s/ MICHAEL KAUFMAN Director January 4, 1999
-------------------------------------------
Michael Kaufman
/s/ JOHN SWANN Director January 4, 1999
-------------------------------------------
John Swann
</TABLE>
60
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
We hereby consent to the incorporation by reference in the previously filed
Registration Statements (No. 333-17743) and (No. 333-18937) of TMP Worldwide
Inc. of our report dated March 20, 1998, relating to the consolidated financial
statements of TMP Worldwide Inc. and subsidiaries appearing in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
BDO SEIDMAN, LLP
New York, New York
December 29, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,937
<SECURITIES> 0
<RECEIVABLES> 265,276
<ALLOWANCES> 9,749
<INVENTORY> 0
<CURRENT-ASSETS> 288,363
<PP&E> 73,173
<DEPRECIATION> 35,413
<TOTAL-ASSETS> 495,206
<CURRENT-LIABILITIES> 282,496
<BONDS> 115,852
0
0
<COMMON> 26
<OTHER-SE> 96,832
<TOTAL-LIABILITY-AND-EQUITY> 495,206
<SALES> 237,417
<TOTAL-REVENUES> 237,417
<CGS> 0
<TOTAL-COSTS> 208,105
<OTHER-EXPENSES> 90
<LOSS-PROVISION> 3,580
<INTEREST-EXPENSE> 8,772
<INCOME-PRETAX> 16,870
<INCOME-TAX> 8,571
<INCOME-CONTINUING> 8,123
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,123
<EPS-PRIMARY> .33
<EPS-DILUTED> .32
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,513
<SECURITIES> 0
<RECEIVABLES> 270,925
<ALLOWANCES> 8,502
<INVENTORY> 0
<CURRENT-ASSETS> 289,609
<PP&E> 66,012
<DEPRECIATION> 30,634
<TOTAL-ASSETS> 481,892
<CURRENT-LIABILITIES> 287,041
<BONDS> 100,542
0
0
<COMMON> 26
<OTHER-SE> 93,675
<TOTAL-LIABILITY-AND-EQUITY> 481,892
<SALES> 167,343
<TOTAL-REVENUES> 167,343
<CGS> 0
<TOTAL-COSTS> 144,839
<OTHER-EXPENSES> 50
<LOSS-PROVISION> 2,327
<INTEREST-EXPENSE> 6,434
<INCOME-PRETAX> 13,693
<INCOME-TAX> 6,996
<INCOME-CONTINUING> 6,421
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,421
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,264
<SECURITIES> 0
<RECEIVABLES> 210,841
<ALLOWANCES> 7,332
<INVENTORY> 0
<CURRENT-ASSETS> 228,549
<PP&E> 60,330
<DEPRECIATION> 28,762
<TOTAL-ASSETS> 374,048
<CURRENT-LIABILITIES> 219,680
<BONDS> 116,088
0
0
<COMMON> 24
<OTHER-SE> 37,821
<TOTAL-LIABILITY-AND-EQUITY> 374,048
<SALES> 100,619
<TOTAL-REVENUES> 100,619
<CGS> 0
<TOTAL-COSTS> 88,861
<OTHER-EXPENSES> (3)
<LOSS-PROVISION> 1,507
<INTEREST-EXPENSE> 4,048
<INCOME-PRETAX> 6,206
<INCOME-TAX> 3,306
<INCOME-CONTINUING> 2,668
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,668
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,196
<SECURITIES> 0
<RECEIVABLES> 217,710
<ALLOWANCES> 7,051
<INVENTORY> 0
<CURRENT-ASSETS> 234,797
<PP&E> 50,207
<DEPRECIATION> 27,624
<TOTAL-ASSETS> 362,689
<CURRENT-LIABILITIES> 220,375
<BONDS> 108,132
0
0
<COMMON> 24
<OTHER-SE> 33,724
<TOTAL-LIABILITY-AND-EQUITY> 362,689
<SALES> 45,983
<TOTAL-REVENUES> 45,983
<CGS> 0
<TOTAL-COSTS> 40,854
<OTHER-EXPENSES> 6
<LOSS-PROVISION> 509
<INTEREST-EXPENSE> 1,797
<INCOME-PRETAX> 2,817
<INCOME-TAX> 1,508
<INCOME-CONTINUING> 1,135
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,135
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 898
<SECURITIES> 0
<RECEIVABLES> 198,760
<ALLOWANCES> 7,032
<INVENTORY> 0
<CURRENT-ASSETS> 212,650
<PP&E> 46,629
<DEPRECIATION> 26,067
<TOTAL-ASSETS> 331,753
<CURRENT-LIABILITIES> 224,577
<BONDS> 70,799
2,000
0
<COMMON> 23
<OTHER-SE> 31,272
<TOTAL-LIABILITY-AND-EQUITY> 331,753
<SALES> 162,631
<TOTAL-REVENUES> 162,631
<CGS> 0
<TOTAL-COSTS> 193,720
<OTHER-EXPENSES> 164
<LOSS-PROVISION> 3,131
<INTEREST-EXPENSE> 14,265
<INCOME-PRETAX> (48,649)
<INCOME-TAX> 3,270
<INCOME-CONTINUING> (52,239)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (52,239)
<EPS-PRIMARY> (2.72)
<EPS-DILUTED> (2.72)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,297
<SECURITIES> 0
<RECEIVABLES> 203,412
<ALLOWANCES> 4,913
<INVENTORY> 0
<CURRENT-ASSETS> 255,480
<PP&E> 42,045
<DEPRECIATION> 24,307
<TOTAL-ASSETS> 335,447
<CURRENT-LIABILITIES> 248,399
<BONDS> 102,809
4,899
0
<COMMON> 19
<OTHER-SE> (23,893)
<TOTAL-LIABILITY-AND-EQUITY> 335,447
<SALES> 118,870
<TOTAL-REVENUES> 118,870
<CGS> 0
<TOTAL-COSTS> 105,709
<OTHER-EXPENSES> 32
<LOSS-PROVISION> 3,123
<INTEREST-EXPENSE> 8,600
<INCOME-PRETAX> 1,406
<INCOME-TAX> 1,655
<INCOME-CONTINUING> (539)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (539)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,122
<SECURITIES> 0
<RECEIVABLES> 166,092
<ALLOWANCES> 3,876
<INVENTORY> 0
<CURRENT-ASSETS> 190,270
<PP&E> 32,918
<DEPRECIATION> 19,103
<TOTAL-ASSETS> 277,299
<CURRENT-LIABILITIES> 204,126
<BONDS> 88,204
4,227
0
<COMMON> 19
<OTHER-SE> (22,451)
<TOTAL-LIABILITY-AND-EQUITY> 277,299
<SALES> 70,663
<TOTAL-REVENUES> 70,663
<CGS> 0
<TOTAL-COSTS> 61,918
<OTHER-EXPENSES> (450)
<LOSS-PROVISION> 1,993
<INTEREST-EXPENSE> 5,833
<INCOME-PRETAX> 1,369
<INCOME-TAX> 930
<INCOME-CONTINUING> 229
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 229
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,612
<SECURITIES> 0
<RECEIVABLES> 168,724
<ALLOWANCES> 3,392
<INVENTORY> 0
<CURRENT-ASSETS> 194,656
<PP&E> 31,020
<DEPRECIATION> 18,098
<TOTAL-ASSETS> 267,625
<CURRENT-LIABILITIES> 188,438
<BONDS> 95,216
4,899
0
<COMMON> 19
<OTHER-SE> (24,092)
<TOTAL-LIABILITY-AND-EQUITY> 267,625
<SALES> 33,988
<TOTAL-REVENUES> 33,988
<CGS> 0
<TOTAL-COSTS> 29,027
<OTHER-EXPENSES> (14)
<LOSS-PROVISION> 1,295
<INTEREST-EXPENSE> 2,699
<INCOME-PRETAX> 981
<INCOME-TAX> 937
<INCOME-CONTINUING> (66)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (66)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,719
<SECURITIES> 0
<RECEIVABLES> 159,585
<ALLOWANCES> 3,865
<INVENTORY> 0
<CURRENT-ASSETS> 180,516
<PP&E> 29,162
<DEPRECIATION> 17,225
<TOTAL-ASSETS> 258,094
<CURRENT-LIABILITIES> 186,247
<BONDS> 88,070
2,000
0
<COMMON> 19
<OTHER-SE> (21,347)
<TOTAL-LIABILITY-AND-EQUITY> 258,094
<SALES> 123,907
<TOTAL-REVENUES> 123,907
<CGS> 0
<TOTAL-COSTS> 102,148
<OTHER-EXPENSES> (150)
<LOSS-PROVISION> 2,850
<INTEREST-EXPENSE> 10,894
<INCOME-PRETAX> 8,165
<INCOME-TAX> 4,222
<INCOME-CONTINUING> 3,229
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,229
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.15
</TABLE>
