<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 12, 1999
REGISTRATION NO. 333-63499
- --------------------------------------------------------------------------------
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
TMP WORLDWIDE INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 13-3906555
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
</TABLE>
--------------------------
1633 BROADWAY
NEW YORK, NEW YORK 10019
(212) 977-4200
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------
ANDREW J. MCKELVEY
CHAIRMAN OF THE BOARD AND CEO
TMP WORLDWIDE INC.
1633 BROADWAY
NEW YORK, NEW YORK 10019
(212) 977-4200
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
Copies of all communications, including all communications sent to the agent for
service, should be sent to:
GREGG BERMAN, ESQ.
FULBRIGHT & JAWORSKI L.L.P.
666 FIFTH AVENUE
NEW YORK, NEW YORK 10103
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
- ------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- ------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SHARES AMOUNT TO BE AGGREGATE PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER UNIT (1) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.001 par value per share 1,853,868 $29.99 $55,597,501 $16,401.26(2)
</TABLE>
(1) The price is estimated in accordance with Rule 457(c) under the Securities
Act of 1933, as amended, solely for the purpose of calculating the
registration fee and is $29.99, the average of the high and low prices of
the Common Stock of TMP Worldwide Inc. as reported by The Nasdaq Stock
Market on September 11, 1998.
(2) Previously paid.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 12, 1999
TMP WORLDWIDE INC.
1,853,868 Shares of Common Stock
------------------------
This Prospectus relates to (A) the resale of 150,000 shares of Common Stock,
$.001 par value per share (the "Common Stock"), of TMP Worldwide Inc. ("TMP" or
the "Company") from time to time for the account of Gary Knisely ("Knisely") and
(B)(i) the resale of 44,839 shares of Common Stock from time to time for the
account of Pierre Aussure, (ii) the resale of 51,244 shares of Common Stock from
time to time for the account of Gerhard Bartels, (iii) the resale of 6,405
shares of Common Stock from time to time for the account of David Kenneth Bray,
(iv) the resale of 35,230 shares of Common Stock from time to time for the
account of The TASA Ltd. Self Administered Pension Plan F/B/O David Kenneth
Bray, (v) the resale of 9,608 shares of Common Stock from time to time for the
account of Charles Marie Brusselmans, (vi) the resale of 12,811 shares of Common
Stock from time to time for the account of Neil Campbell Callie, (vii) the
resale of 3,202 shares of Common Stock from time to time for the account of
Remtor Nominees Pty. Ltd. F/B/O Trevor Morton Clark, (viii) the resale of 9,608
shares of Common Stock from time to time for the account of Jo Carol Conover,
(ix) the resale of 64,056 shares of Common Stock from time to time for the
account of Manuel Gutierrez Cortines, (x) the resale of 32,028 shares of Common
Stock from time to time for the account of Edgar S.K. Dammroff, (xi) the resale
of 48,042 shares of Common Stock from time to time for the account of Victor
Carlos Dana, (xii) the resale of 38,433 shares of Common Stock from time to time
for the account of The TASA Ltd. Self Administered Pension Plan F/B/O Fiona Mary
Hilton Darby, (xiii) the resale of 51,244 shares of Common Stock from time to
time for the account of The DeKesel Family 1998 Trust, (xiv) the resale of
41,636 shares of Common Stock from time to time for the account of James P.
Demchak, (xv) the resale of 6,405 shares of Common Stock from time to time for
the account of Trevor M. Dunn, (xvi) the resale of 32,028 shares of Common Stock
from time to time for the account of Luis Escudero Ygartua, (xvii) the resale of
54,447 shares of Common Stock from time to time for the account of Joaquim
Espriu Malagelada, (xviii) the resale of 25,622 shares of Common Stock from time
to time for the account of Juan Manuel Farias Gutierrez, (xix) the resale of
41,636 shares of Common Stock from time to time for the account of The TASA Ltd.
Self Administered Pension Plan F/B/O Patrick John Michael Fearon, (xx) the
resale of 3,202 shares of Common Stock from time to time for the account of
Richard L. Fleming, (xxi) the resale of 44,839 shares of Common Stock from time
to time for the account of Michael Franzino, (xxii) the resale of 54,447 shares
of Common Stock from time to time for the account of Vito Gioia, (xxiii) the
resale of 41,636 shares of Common Stock from time to time for the account of
Duane R. Goar, (xxiv) the resale of 6,405 shares of Common Stock from time to
time for the account of Frans Jacob Gosses, (xxv) the resale of 9,608 shares of
Common Stock from time to time for the account of Christian A.F. Groh, (xxvi)
the resale of 9,608 shares of Common Stock from time to time for the account of
Luminoz Staff Superannuation Fund F/B/O R. Neil Hatherly, (xxvii) the resale of
19,216 shares of Common Stock from time to time for the account of RJ & SG
Ingersoll Superannuation Fund F/B/O Russel J. Ingersoll, (xxviii) the resale of
16,014 shares of Common Stock from time to time for the account of Phoenix
Holdings Pty. Ltd. F/B/O Russel J. Ingersoll, (xxix) the resale of 64,056 shares
of Common Stock from time to time for the account of Klaus Jacobs, (xxx) the
resale of 41,636 shares of Common Stock from time to time for the account of
Thomas R. Keller, (xxxi) the resale of 9,608 shares of Common Stock from time to
time for the account of Dag Einhard Kremer-Nehring, (xxxii) the resale of 6,405
shares of Common Stock from time to time for the account of Michel LeGuillou,
(xxxiii) the resale of 16,014 shares of Common Stock from time to time for the
account of Harvey D. Letcher, (xxxiv) the resale of 12,811 shares of Common
Stock from time to time for the account of Claudia K. Liebesny, (xxxv) the
resale of 35,230 shares of Common Stock from time to time for the account of
David W.H. Lowry, (xxxvi) the resale of 64,056 shares of Common Stock from time
to time for the account of Peter Magnet, (xxxvii) the resale of 9,608 shares of
Common Stock from time to time for the account of Bernhard Mahlo, (xxxviii) the
resale of 32,028 shares of Common Stock from time to time for the account of
Warren L. McGregor, (xxxix) the resale of 70,461 shares of Common Stock from
time to time for the account of John McLaughlin, (xl) the resale of 16,014
shares of Common Stock from time to time for the account of Massimo Misticoni,
(xli) the resale of 6,405 shares of Common Stock from time to time for the
account of Maria Elena Quijada Cordero, (xlii) the resale of 6,405 shares of
Common Stock from time to time for the account of Terteducon Pty. Ltd. F/B/O
Gregor A. Ramsey, (xliii) the resale of 76,867 shares of Common Stock from time
to time for the account of Reinhard Fritz Rijke, (xliv) the resale of 32,028
shares of Common Stock from time to time for the account of Herbert Schmaderer,
(xlv) the resale of 41,636 shares of Common Stock from time to time for the
account of The TASA Ltd. Self Administered Pension Plan F/B/O Andrew R.F.
Simpson, (xlvi) the resale of 64,056 shares of Common Stock from time to time
for the account of Michael T.D. Squires, (xlvii) the resale of 51,244 shares of
Common Stock from time to time for the account of Yarramay Pty Ltd., (xlviii)
the resale of 32,028 shares of Common Stock from time to time for the account of
Hans Uher, (xlix) the resale of 12,811 shares of Common Stock from time to time
for the account of Van Es Superannuation Fund, (l) the resale of 19,216 shares
of Common Stock from time to time for the account of Strathwood Unit Trust F/B/O
Alan R. Van Es, (li) the resale of 12,811 shares of Common Stock from time to
time for the account of Victoriano Vila Vilar, (lii) the resale of 9,608 shares
of Common Stock from time to time for the account of Robert Bruce Whaley, (liii)
the resale of 6,405 shares of Common Stock from time to time for the account of
Jeffery C. Wierichs, (liv) the resale of 57,650 shares of Common Stock from time
to time for the account of Gabriele D.E. Willner-Lange, (lv) the resale of
57,650 shares of Common Stock from time to time for the account of Andrea M.
Wine, (lvi) the resale of 16,014 shares of Common Stock from time to time for
the account of J. Herbert Wise, and (lvii) the resale of 9,608 shares of Common
Stock from time to time for the account of Heinz Henning Witt (collectively, the
"TASA Stockholders" and together with Knisely the "Selling Stockholders"). The
Common Stock offered hereby by Knisely was issued to Knisely by the Company on
May 6, 1998 pursuant to a private placement in connection with the acquisition
by the Company of all the outstanding capital stock of Johnson, Smith & Knisely,
Inc. The Common Stock offered hereby by the TASA Stockholders was issued to the
TASA Stockholders by the Company on August 31, 1998 pursuant to a private
placement in connection with the acquisition by the Company of all the
outstanding capital stock of TASA Holding AG. See "Recent Developments." The
Company will not receive any of the proceeds from the sale of the Common Stock
by the Selling Stockholders.
(CONTINUED ON NEXT PAGE)
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10
FOR A DISCUSSION OF CERTAIN INFORMATION THAT SHOULD BE CONSIDERED
BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is January , 1999
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
The distribution of the Common Stock by the Selling Stockholders (and their
respective donees and pledgees) may be effected from time to time in one or more
transactions (which may involve block transactions) in the over-the-counter
market (including the Nasdaq National Market) or any exchange on which the
Common Stock may then be listed, in negotiated transactions, through the writing
of options on shares (whether such options are listed on an options exchange or
otherwise), or a combination of such methods of sale, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Selling Stockholders (and their respective
donees and pledgees) may effect such transactions by selling shares to or
through broker-dealers, and such broker-dealers may receive compensation in the
form of underwriting discounts, concessions or commissions from the Selling
Stockholders and/or purchasers of shares for whom they may act as agent (which
compensation may be in excess of customary commissions). The Selling
Stockholders may also sell the shares of Common Stock pursuant to Rule 144
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
or may pledge shares as collateral for margin accounts and such shares could be
resold pursuant to the terms of such accounts. The Selling Stockholders and any
broker-dealers that act in connection with the sale of Common Stock might be
deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act and any commissions received by them and any profit on the resale
of the shares might be deemed to be underwriting discounts or commissions under
the Securities Act. The Selling Stockholders may agree to indemnify any agent,
dealer or broker-dealer that participates in transactions involving sales of the
Common Stock against certain liabilities, including liabilities arising under
the Securities Act.
The Common Stock trades on the Nasdaq National Market under the symbol
"TWPW." On January 8, 1999, the closing sale price of the Common Stock was
$41.00 per share.
All expenses of the registration of securities covered by this Prospectus
are to be borne by the Company, except that the Selling Stockholders will pay
underwriting discounts, selling commissions, and fees and the expenses, if any,
of counsel or other advisers to the Selling Stockholders.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS OR A SUPPLEMENT TO THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON. NEITHER THIS PROSPECTUS NOR ANY
SUPPLEMENT TO THIS PROSPECTUS CONSTITUTES AN OFFER TO SELL OR THE SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES
OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN
ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS OR A SUPPLEMENT TO THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THEREOF OR THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Available Information..................................................................................... 3
Incorporation of Certain Documents by Reference........................................................... 4
The Company............................................................................................... 6
Recent Developments....................................................................................... 9
Risk Factors.............................................................................................. 10
Unaudited Pro Forma Condensed Combined Financial Information.............................................. 18
Use of Proceeds........................................................................................... 25
Dividend Policy........................................................................................... 25
Price Range of Common Stock............................................................................... 25
Selling Stockholders...................................................................................... 26
Plan of Distribution...................................................................................... 27
Legal Matters............................................................................................. 28
Experts................................................................................................... 29
Index to Consolidated Financial Statements................................................................ F-1
</TABLE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Proxy statements, reports
and other information concerning the Company can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and the regional offices
of the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048, and 500 West Madison Street, Chicago, Illinois 60661, and copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and its public
reference facilities in New York, New York and Chicago, Illinois, at prescribed
rates. Copies of such information may also be inspected at the reading room of
the library of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006. The Commission maintains a World Wide Web
site on the Internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding the Company and other
registrants that file electronically with the Commission.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
hereby made to the Registration Statement. Statements contained herein
concerning the
3
<PAGE>
provisions of any contract, agreement or other document are not necessarily
complete, and in each instance reference is made to the copy of such contract,
agreement or other document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference. Copies of the Registration Statement together with
exhibits may be inspected at the offices of the Commission as indicated above
without charge and copies thereof may be obtained therefrom upon payment of a
prescribed fee.
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT. This
Prospectus (including the documents incorporated by reference herein) contains
certain forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995) and information relating to TMP that
are based on the beliefs of the management of TMP, as well as assumptions made
by and information currently available to the management of TMP. When used in
this Prospectus, the words "estimate," "project," "believe," "anticipate,"
"intend," "expect" and similar expressions are intended to identify forward-
looking statements. Such statements reflect the current views of TMP with
respect to future events and are subject to risks and uncertainties that could
cause actual results to differ materially from those contemplated in such
forward-looking statements, including those discussed under "Risk Factors."
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. TMP does not undertake any
obligation to publicly release any revisions to these forward looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which are on file with the Commission (File No.
000-21571) pursuant to the Exchange Act are incorporated by reference and made a
part hereof:
(i) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
(ii) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.
(iii) The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998.
(iv) The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
(v) The Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1997.
(vi) The Company's Quarterly Report on Form 10-Q/A for the quarter ended
March 31, 1998.
(vii) The Company's Quarterly Report on Form 10-Q/A for the quarter ended
June 30, 1998.
(viii) The Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1998.
(ix) Management's Discussion and Analysis of Results of Operations and
Financial Condition on pages 62 through 74, and the Financial Statements on
pages F-11 through F-113, of the Company's Information Statement on Schedule
14C, dated January 6, 1999, file no. (0-21571).
(x) The description of the Company's common stock contained in Item 1 of
the Company's Registration Statement on Form 8-A, dated October 16, 1996.
(xi) The Company's Current Report on Form 8-K, dated December 17, 1998,
relating to the acquisition of Bonde & Schmah Media GmbH, a/k/a Bonde &
Schmah Human Resources Services GmbH and PMM Management Consultants GmbH.
(xii) The Company's Current Report on Form 8-K, dated December 7, 1998,
relating to the acquisition of The Consulting Group (International) Limited.
(xiii) The Company's Current Report on Form 8-K, dated August 31, 1998,
relating to the acquisition of TASA Holding A.G.
4
<PAGE>
(xiv) The Company's Current Report on Form 8-K, dated April 28, 1998,
relating to the acquisition of Fossler & Partner, M-Page and ConServe.
All documents and reports subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of the securities
offered hereby shall be deemed incorporated by reference into this Prospectus
and to be a part hereof from the date of the filing of such documents or
reports. The information relating to the Company in this Prospectus should be
read together with the information in the documents incorporated by reference.
Any statement contained in a document incorporated by reference herein,
unless otherwise indicated therein, speaks as of the date of the document. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for all purposes to the extent that a
statement contained in this Prospectus modifies or replaces such statement.
The Company will furnish without charge to each person to whom this
Prospectus is delivered, upon request, a copy of any or all of the documents
described above, other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference into such documents. Requests should be
addressed to: TMP Worldwide Inc., 1633 Broadway, New York, New York 10019,
Attention: Myron F. Olesnyckyj, Esq., Vice President-General Counsel, (Tel. No.
(212) 977-4200). The Company furnishes its stockholders with an annual report
containing audited financial statements. In addition, the Company may furnish
such other reports as may be authorized, from time to time, by the Board of
Directors.
5
<PAGE>
THE COMPANY
AS USED IN THIS PROSPECTUS, "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 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, AND THROUGH
EXECUTIVE SEARCH SERVICES. 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 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. GROSS BILLINGS WITH RESPECT TO COMPANIES ACQUIRED BY THE COMPANY
REFER TO THE COMPANY'S ESTIMATE OF THE ACQUIRED COMPANIES' ANNUAL GROSS
BILLINGS.
TMP Worldwide Inc. ("TMP" or the "Company") is a marketing services,
communications, executive search 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, executive search and other
ancillary services and products. The Company is one of the world's largest
recruitment advertising agencies and the world's largest yellow page advertising
agency as well as a leader in the use of the Internet for recruiting.
The Company offers advertising programs to more than 17,000 clients,
including more than 70 of the Fortune 100 and more than 400 of the Fortune 500
companies. The Company's growth strategy is to continue to pursue consolidation
opportunities in its core advertising business and to leverage its client base
and its approximately 2,420 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 $1.2 billion, commissions and fees were $310.6
million, net income was $10.4 million and EBITDA was $43.9 million.
TMP is the world's largest yellow page advertising agency, generating
approximately $457.5 million in yellow page gross billings for the year ended
December 31, 1997. TMP is one of the world's largest recruitment advertising
agencies, generating approximately $602.7 million in recruitment advertising
gross billings for the same period. With approximately 30% of the national
accounts segment of the U.S. yellow page advertising market, TMP is
approximately three times larger than its nearest competitor, based on yellow
page gross billings. A substantial part of the Company's growth in each of its
targeted markets has been achieved through acquisitions. From January 1, 1993
through December 31, 1998, TMP completed 71 acquisitions including, in May 1998,
the acquisition of all the outstanding capital stock of Johnson, Smith &
Knisely, Inc. ("JSK"), the twelfth largest executive search firm in the United
States, in August 1998, the acquisition of all the outstanding capital stock of
TASA Holding A.G. ("TASA"), an international executive search firm and, in
September 1998, the acquisition of all the outstanding capital stock of Stackig,
Inc. ("Stackig"), a public relations firm. The Company believes additional
acquisition opportunities exist, particularly in the recruitment advertising,
executive search and Internet markets, and intends to continue its strategy of
making acquisitions which relate to its core businesses.
TMP has created innovative solutions to assist its clients in capitalizing
on the growing awareness and acceptance of the Internet. For its recruitment
advertising clients, TMP has developed interactive career sites which can be
accessed 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- ("OCC"), Be the Boss-SM-
and MedSearch-SM-, which as of December 31, 1998 collectively contain
approximately 145,000 paid job listings and 1,000,000 resumes. In addition, in
May 1998, the Company expanded its suite of online career products and services,
adding new content and community with the acquisition of About Work
(www.aboutwork.com) and the largest online internship database, with the
acquisition of Student Center (www.studentcenter.com).
6
<PAGE>
YELLOW PAGE ADVERTISING. TMP develops yellow page marketing programs for
national accounts, clients which sell products or services in multiple markets.
The national segment of the yellow page advertising market was an approximately
$1.7 billion market in the U.S. for the year ended December 31, 1997. The
national yellow page market has grown each year since 1981. During the period of
1990 through 1997, the market grew at a compound annual growth rate of
approximately 6.2%. Yellow page advertising is a complex process involving the
creation of effective imagery and message and the development of media plans
which evaluate approximately 7,000 yellow page directories of which TMP's larger
accounts utilize over 2,000. Coordinating the placement of advertisements in
this number of directories requires an extensive effort at the local level, and
TMP's yellow page sales, marketing and customer service staff of approximately
680 people provides an important competitive advantage in marketing and
executing yellow page advertising programs. TMP earns commissions from yellow
page advertising paid by directory publishers which result in an effective
commission rate to the Company of approximately 20% of yellow page gross
billings.
TMP takes a proactive approach to yellow page advertising by undertaking
original research on the efficacy of the medium, in many cases quantifying the
effectiveness of a given advertising campaign. The Company also has a rigorous
quality assurance program designed to ensure client satisfaction. The Company
believes that this program has enabled it to maintain a yellow page client
retention rate, year to year, in excess of 90%.
RECRUITMENT ADVERTISING. For the year ended December 31, 1997, total
spending on advertisements globally in the recruitment classified advertisement
section of newspapers was approximately $12 billion. 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%. 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. 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.
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 these reasons, the
Company believes that over time, the proportion of overall recruitment
advertising placed through recruitment advertising agencies will grow. Given the
scale of its recruitment advertising operations and the scope of its service
offerings, the Company believes it is well positioned to participate in this
market growth.
EXECUTIVE SEARCH. To expand the range of services it offers its recruitment
advertising clients, the Company determined to enter the executive search field
because recruitment advertising traditionally has not targeted the senior
executive community. Accordingly, in May 1998, the Company acquired JSK, the
twelfth largest executive search firm in the United States. This acquisition,
coupled with the acquisition of TASA, provided the Company with 32 executive
search offices in 17 countries.
The TMP retained executive search process typically includes the following
steps: (a) a TMP executive search consultant interviews the client in order to
analyze the senior executive position that needs to be filled, the general
environment of the client's work place and the character and quality of
candidates that have successfully performed as an executive of the client; (b)
the consultant then prepares a written synopsis of the position to be filled in
order to attract a suitable, qualified and successful candidate; (c) the
synopsis is then forwarded to other recruiters in order to assist with the
search for a candidate that fits the
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criteria set forth in the synopsis; (d) a pool of suitable candidates is
gathered and the consultants begin to schedule interviews; (e) the candidates
are then interviewed and analyzed by the consultants on the premises of TMP to
determine if the candidate meets the requisite experience and potential cultural
fit outlined by the consultant and the client; (f) reports of the most suitable
candidates are prepared by the consultant and presented to the clients, from
which the client can choose which candidates it wants to meet; (g) the
consultant then organizes a mutually convenient time and place for the client to
personally meet and interview such candidates for the position; (h) the
consultant will follow up with the successful candidate to obtain any
supplemental information needed or requested by the client, including obtaining
references and other documentary materials; and (i) the Company then assists the
client in structuring and negotiating the final compensation package and other
benefits for the hired executive based on all relevant factors researched by the
Company, including industry comparisons, the experience levels of the executive
and future trends.
The Company believes that its expansion into the executive search market
will enable it to attract and service additional major clients since TMP can now
market itself as a full service firm that can accommodate all of its clients'
employment and recruitment advertising needs.
INTERNET SERVICES. The Company's Internet-based services complement its
traditional advertising businesses. In recruitment, the Company has several
career sites, including The Monster Board-Registered Trademark-, Online Career
Center-SM-, Be the Boss-SM- and MedSearch-SM- which provide continuously
available databases of career opportunities. Users of these sites can search for
employment opportunities by location, type of job and other criteria. Resumes
can be sent to prospective employers electronically and submitted on-line or via
mail. Users can also access other value-added services such as discussion forums
and on-line career advice. Based on its experience with its clients, TMP
believes that only 20% to 30% of open job positions are advertised using
traditional print media and that on-line solutions, which are significantly less
expensive than traditional recruitment methods, will significantly expand the
recruitment advertising market. More than 55 of the Fortune 100 companies are
utilizing the Company's career sites.
Dealer Locator, which is marketed to yellow page accounts, allows clients to
offer World Wide Web ("Web") pages for local offices, dealers or franchise
locations which are linked to the client's corporate Web site. These pages are
designed to generate additional customer flow while reinforcing brand imagery
contained in other advertising programs. Dealer Locator home pages will
typically include address, directions, hours of operation and potentially other
information such as sale items.
TMP believes its pre-existing relationships with yellow page and recruitment
advertising clients and its sales, marketing and customer service staff of over
2,200 people provide an important competitive advantage in pursuing the market
for Internet clients. Further, the Company believes its innovative Internet
products will provide an opportunity to enhance its ability to market both
traditional advertising and Internet services to non-TMP clients.
The Company is the successor to the businesses formerly conducted by TMP
Worldwide Inc. and subsidiaries ("Old TMP"), Worldwide Classified Inc. and
subsidiaries ("WCI") and McKelvey Enterprises, Inc. and subsidiaries, the chief
executive officer of which was Andrew J. McKelvey (the "Principal Stockholder").
McKelvey Enterprises, Inc. was formed in 1967 by Mr. McKelvey. On December 9,
1996, Old TMP merged into McKelvey Enterprises, Inc. Thereafter, WCI merged into
McKelvey Enterprises, Inc. McKelvey Enterprises, Inc. then merged into Telephone
Marketing Programs Incorporated. Such mergers are collectively referred to as
the "Mergers." In addition, Mr. McKelvey sold or contributed his interest in
five other entities to the Company. Following the Mergers, Telephone Marketing
Programs Incorporated changed its name to TMP Worldwide Inc. All historical
financial data contained herein for periods ended prior to December 9, 1996
reflects the historical financial data of Old TMP, WCI, McKelvey Enterprises,
Inc. and the other entities. The Company was incorporated in Delaware in August
1996. Its executive offices are located at 1633 Broadway, 33rd Floor, New York,
New York 10019, and its telephone number at that location is (212) 977-4200.
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RECENT DEVELOPMENTS
Subsequent to September 30, 1998, TMP has continued its efforts to acquire
Morgan & Banks Limited ("M&B"), a search and selection firm based in Australia.
A brief description of M&B follows:
M&B PROBABLE ACQUISITION
On August 17, 1998, the Company announced an agreement in principle to
acquire all of the outstanding capital stock of M&B, an Australian corporation
(the "M&B Transaction"). The M&B Transaction, which is expected to be completed
in the first quarter of 1999, is expected to be accounted for as a
pooling-of-interests.
M&B, one of the largest temporary contracting and search and selection firms
in Australasia, has offices in Australia, New Zealand, the UK, Hong Kong and
Singapore. For the year ended March 31, 1998, M&B generated revenue of
approximately $235.8 million and had net income of approximately $7.9 million.
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE SHARES
OF COMMON STOCK OFFERED BY THIS PROSPECTUS. THIS PROSPECTUS CONTAINS, IN
ADDITION TO HISTORICAL INFORMATION, FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS.
RISKS RELATING TO THE M&B TRANSACTION
POTENTIAL INCREASED ISSUANCE OF SHARES. The formula which will be used to
calculate the number of shares of TMP Common Stock which may be issued pursuant
to the acquisition of M&B (the "Exchange Ratio") is expected to fluctuate
between the date hereof and the effective date of the M&B Transaction. The
Exchange Ratio per M&B Ordinary Share, based on the US$-A$ exchange rate as of
December 31, 1998 and the 20-day average ordinary share closing prices of TMP
Common Stock, as reported by Nasdaq, through December 31, 1998, is 0.08431.
Accordingly, based on the approximate number of outstanding M&B shares on such
date, TMP would issue approximately 6,000,000 shares of TMP Common Stock to
acquire the M&B shares. Although, for the purposes of calculating the Exchange
Ratio, the maximum per share price of TMP Common Stock will not exceed $40.00
and the minimum price, without the consent of TMP, will not be less than $25.00,
to the extent TMP issues a higher number of shares of TMP Common Stock pursuant
to the Exchange Ratio, TMP's net income per share would be adversely affected.
NONREALIZATION OF SYNERGIES. TMP believes that an important benefit to be
realized from the M&B Transaction will be the integration of TMP's and M&B's
respective managements, strategies, and operations. Certain of the anticipated
benefits of the M&B Transaction may not be achieved unless such integration is
successful and achieved in a timely manner. The difficulties of such integration
may initially be increased by the necessity of coordinating geographically
separated organizations (TMP is headquartered in the United States and M&B is
headquartered in Australia) and integrating personnel with diverse business
backgrounds and corporate cultures. There can be no assurance that TMP will
successfully integrate the respective operations of TMP and M&B without
encountering difficulties or experiencing the loss of key TMP or M&B personnel
or that the benefits expected from such integration will be realized. In
addition, the Company recently acquired TASA Holding AG, an executive search
firm, and Stackig, Inc., a public relations firm, and such transactions could
make the integration of M&B more time consuming and difficult. The diversion of
the attention of management and any difficulties encountered in the transition
process (including the interruption of, or a loss of momentum in, M&B
activities, problems associated with integration of management information and
reporting systems, and delays in implementation of consolidation plans) could
also have an adverse impact on the combined company's ability to realize
anticipated synergies from the M&B Transaction.
INCURRENCE OF SIGNIFICANT TRANSACTION EXPENSES; POTENTIAL DILUTIVE EFFECT TO
STOCKHOLDERS. TMP expects to incur M&B Transaction-related expenses currently
estimated to be approximately $4.5 million in the quarter ending March 31, 1999,
the quarter in which the M&B Transaction is expected to be consummated, to
reflect direct transaction costs, primarily for legal and accounting fees and
costs and financial printing, stamp duties, listing fees and other related
costs. This estimate does not include any costs associated with restructuring,
integrating or consolidating the operations of the two companies. This amount is
a preliminary estimate and is therefore subject to change. Additional
unanticipated expenses may be incurred relating to the integration of the
businesses of TMP and M&B. Although TMP expects that the eventual elimination of
duplicative expenses as well as other efficiencies related to the integration of
the business of M&B may offset additional expenses over time, there can be no
assurance that such net benefit will be achieved in the near term, or at all.
There can be no assurance that combining the business of TMP with the business
of M&B, even if achieved in an efficient and effective manner, will result in
combined results of operations and financial condition superior to what would
have been achieved by TMP or M&B independently. The issuance of TMP Common Stock
in connection with the M&B Transaction may have
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the effect of reducing TMP's net income per share from levels otherwise expected
and could reduce the market price of the TMP Common Stock unless revenue growth
or cost savings and other business synergies sufficient to offset the effect of
such issuance can be achieved. See "--Potential Increased Issuance of Shares."
EFFECT OF M&B TRANSACTION ON M&B CLIENTS. The executive search and search
and selection industries are relationship-driven. Consequently, due to the M&B
Transaction, it is possible that certain clients of M&B may terminate their
relationship with M&B. In addition, although the Company does not anticipate any
material personnel changes at M&B, to the extent M&B loses material personnel,
which in turn causes M&B to lose large clients, TMP could be materially
adversely affected.
POTENTIAL UNAVAILABILITY OF "POOLING-OF-INTERESTS" ACCOUNTING TREATMENT OF
M&B TRANSACTION. The M&B Transaction is intended to qualify as a
"pooling-of-interests" for accounting and financial reporting purposes. Under
this method of accounting, the assets and liabilities of TMP and M&B will be
carried forward to the combined company at their recorded amounts, income from
the combined company will include income from TMP and M&B for the entire fiscal
period in which the combination occurs and the reported income of the separate
companies for prior periods will be combined and restated as the results of
operations of the combined company. It is a condition to the consummation of the
M&B Transaction that the M&B Transaction will qualify for pooling-of-interests
accounting treatment. However, if the requirements necessary for
pooling-of-interests are not met prior to the consummation of the M&B
Transaction, TMP may nevertheless elect to consummate the M&B Transaction under
the purchase method of accounting.
Under the pooling-of-interests rules, none of the executive officers,
directors or affiliates of either of the combining companies may sell any shares
of either TMP or M&B (except for certain DE MINIMIS sales) until the combined
company releases financial results covering at least 30 days of combined
operations of TMP and M&B. Accordingly, pooling-of-interests accounting
treatment for the M&B Transaction as of such time may not be available because
of sales by such stockholders (except for certain DE MINIMIS sales) prior to the
time the combined company releases such financial results. There can be no
assurance that an executive officer, director or affiliate of either company
will not sell shares of TMP or M&B stock or that all requirements necessary to
qualify for pooling-of-interests will be met. If the requirements necessary to
qualify for pooling-of-interests are not met prior to consummation of the M&B
Transaction, then TMP is not required to consummate the M&B Transaction.
However, if TMP nevertheless elects to consummate the M&B Transaction, the M&B
Transaction would necessarily be accounted for under the purchase method of
accounting, which would have the effect of M&B's assets and liabilities being
recognized at their fair value and any excess of the purchase price over such
fair value (other than amounts charged to in-process research and development
costs) being recognized as goodwill on TMP's balance sheet. The goodwill would
thereafter be amortized as an expense over its anticipated useful life. The
impact of such treatment could have a material adverse effect on the combined
company's results of operations throughout the amortization period. The M&B
Transaction would also be required to be accounted for under the purchase method
of accounting if, among other things, any affiliate of either company sells
shares in TMP subsequent to consummation of the M&B Transaction and prior to the
release of financial results covering at least 30 days of combined operations,
which would have the effect on the combined company's results of operations
described above. Each of the current executive officers and directors of TMP and
each of the current executive officers and directors and other affiliates of M&B
has entered into an affiliate agreement agreeing to comply with the above
described restrictions on selling shares of TMP and M&B.
RISKS RELATING TO M&B
FOREIGN OPERATIONS. M&B conducts operations in various foreign countries
including New Zealand, Hong Kong, Singapore, and the United Kingdom. For the
fiscal year ended March 31, 1998, 28.7% of M&B's revenue was earned outside of
Australia and collected in the local currency. Because M&B generally pays for
the operating expenses of its foreign operations in local currency, M&B is at
risk for
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exchange rate fluctuations between such local currencies and the Australian
dollar. M&B undertakes minimal hedging activities. M&B is also subject to
taxation in foreign jurisdictions. In addition, transactions between M&B and its
foreign subsidiaries may be subject to Australian or foreign withholding taxes.
Applicable tax rates in foreign countries differ from those of Australia and are
subject to periodic change. The extent, if any, to which M&B will receive credit
in Australia for taxes paid in foreign jurisdictions will depend upon
limitations set forth by the Australian Taxation Office, as well as the
provisions of any tax treaties which may exist between Australia and such
foreign jurisdictions. The failure to receive such credit would subject M&B to
increased taxes and adversely affect operating profit. M&B's operating margins
for its Asian business have been impacted significantly during the fiscal year
ended March 31, 1998. M&B closed its Indonesian office in March 1998 and has
scaled back its operations in Hong Kong and Singapore. Currently, M&B does not
anticipate that it will open any new Asian offices.
INDUSTRY RISKS. Temporary/contracting service providers employ and place
people generally in the workplace of other businesses. An attendant risk of such
activity includes possible claims of discrimination and harassment, workplace
injury of its temporary employees, errors and omissions, particularly for the
actions of professionals (for example, lawyers, accountants and engineers),
misuse of client proprietary information, misappropriation of funds, other
criminal activities or torts and other similar claims. In certain instances with
its clients in the government sector and a limited number of companies in the
private sector, aggregating less than 50 clients, M&B, pursuant to a written
contract, has agreed to indemnify clients against some or all of the foregoing
matters. Moreover, under certain circumstances, M&B may be held responsible for
the actions at a workplace of persons not under M&B's direct control. The scope
of such indemnities vary and can cover injuries to workers and errors and
omissions of M&B supplied workers. Although M&B historically has not had any
significant problems in this area, there can be no assurance that M&B will not
experience such problems in the future or that M&B's insurance, if any, will be
sufficient in amount or scope to cover any such liability.
COMPETITIVE MARKET. The temporary staffing/contracting and permanent
recruitment industry is highly competitive with limited barriers to entry. M&B
competes in national, regional and local markets with full service and
specialized temporary staffing companies, a number of which have greater
marketing, financial and other resources than M&B. In addition, price
competition in the temporary/contracting industry is high particularly for the
provision of clerical and light industrial personnel and this could have an
adverse effect on M&B's business, results of operations and financial condition.
EFFECT OF ECONOMIC FLUCTUATIONS. Demand for staffing services is affected
by the general level of economic activity. When economic activity slows the
permanent staff at many companies may become redundant and such companies may
slow their hiring and reduce their use of temporary employees. Any sustained
slowdown in economic activity in Australasia could have an adverse effect on
M&B's business, results of operations and financial condition.
DEPENDENCE ON ATTRACTING, MOTIVATING AND RETAINING STAFF. The success of
M&B's business depends upon its ability to attract, motivate and retain
consultants and staff who possess the skills, knowledge and attributes necessary
to service the needs of its clients and grow the business. M&B believes it has
been able to attract and retain staff as a result of its reputation, performance
based compensation systems and infrastructure support. Consultants have the
potential to earn significant bonuses based on the amount of revenue generated
from placing either temporary staff/contractors or permanent staff. Bonuses
represent a significant proportion of consultants' total compensation. Any
diminution of M&B's reputation could impair its ability to retain existing
consultants and attract new consultants. Any such inability to attract and
retain consultants could have a material adverse effect on M&B's business,
results of operations and financial condition.
RISKS RELATING TO TMP, M&B AND THE COMBINED COMPANY
UNCERTAIN ABILITY TO MANAGE GROWTH. The Company's business has grown
rapidly in recent periods. The growth of the Company's business has placed a
significant strain on the Company's management and
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operations. As an example, the Company has completed the acquisition of two
executive search companies since May 1998 and, with the acquisition of M&B, the
Company believes that it will be one of the largest executive search firms in
the world. The Company's expansion has resulted, and is expected in the future
to result, in substantial growth in the number of its employees and in increased
responsibility for both existing and new management personnel and incremental
strain on the Company's existing operations, financial and management
information systems. The Company's success depends to a significant extent on
the ability of its executive officers and other members of senior management to
operate effectively both independently and as a group. If the Company is not
able to manage existing or anticipated growth, the Company's business, financial
condition and operating results would be materially adversely affected.
RISKS ASSOCIATED WITH ACQUISITIONS. The Company expects that it will
continue to grow, in part, by acquiring businesses. The success of this strategy
depends upon several factors, including the continued availability of financing
and the Company's ability to identify and acquire businesses on a cost-effective
basis, as well as its continued ability to integrate acquired personnel,
operations, products and technologies into its organization effectively, to
retain and motivate key personnel and to retain the clients of acquired firms.
There can be no assurance that financing for acquisitions will be available on
terms acceptable to the Company, or that the Company will be able to identify or
consummate new acquisitions, or manage and integrate its recent or future
expansions successfully, and any inability to do so would have a material
adverse effect on the Company's business, financial condition and operating
results. There also can be no assurance that the Company will be able to sustain
the rates of growth that it has experienced in the past.
UNCERTAIN VIABILITY OF TRADITIONAL MEDIA. The Company derives a substantial
portion of its commissions and fees from designing and placing recruitment
advertisements in traditional media such as newspapers and trade publications.
This business, excluding search and selection which traditionally had been
included therein, constituted approximately 40.4% of total commissions and fees
for the year ended December 31, 1997 (34.0% of total revenue on a pro forma
basis giving effect to the M&B Transaction). The Company also derives a
substantial portion of its commissions and fees from placing advertising in
yellow page directories. This business constituted approximately 30.8% of total
commissions and fees for the year ended December 31, 1997 (16.5% of total
revenue on a pro forma basis giving effect to the M&B Transaction). There can be
no assurance that the commissions received by the Company in the future will be
equal to the commissions which it has historically received. To the extent that
new media, such as the Internet, cause yellow page directories and other forms
of traditional media to be less desirable forms of advertising media without at
least a proportionate fee increase generated from advertising on the Internet,
of which there can be no assurance, the Company's business, financial condition
and operating results will be materially adversely affected.
UNCERTAIN ACCEPTANCE OF THE INTERNET. Use of the Internet by consumers is
at a very early stage of development, and market acceptance of the Internet as a
medium for information, entertainment, commerce and advertising is subject to a
high level of uncertainty. The Company's and M&B's clients have only limited
experience with the Internet as an advertising medium and such clients have not
devoted a significant portion of their advertising budgets to Internet-based
advertising in the past. In addition, a significant portion of the Company's
potential clients have no experience with the Internet as an advertising medium
and have not devoted any portion of their advertising budgets to Internet-based
advertising in the past. There can be no assurance that advertisers will be
persuaded to allocate or continue to allocate portions of their budgets to
Internet-based advertising. If Internet-based advertising is not widely accepted
by advertisers and advertising agencies, the Company's business, financial
condition and operating results, including its expected rate of commissions and
fees growth, would be materially adversely affected. Although the Company
generated Internet revenue of $18.6 million for the year ended December 31,
1997, and $31.7 million for the nine months ended September 30, 1998, there can
be no assurance that the Company will continue to generate substantial
Internet-based revenue in the future.
UNCERTAIN ACCEPTANCE OF THE COMPANY'S INTERNET CONTENT. The Company's
future growth depends, in part, upon its ability to deliver original and
compelling services in order to attract users valuable to the
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Company's advertising clients. There can be no assurance that the Company's
content will be attractive to a sufficient number of Internet users to generate
material advertising revenues. There also can be no assurance that the Company
will be able to anticipate, monitor and successfully respond to rapidly changing
consumer tastes and preferences so as to attract a sufficient number of users to
its Web sites. Internet users can freely navigate and instantly switch among a
large number of Web sites, many of which offer original content, making it
difficult for the Company to distinguish its content and attract users. In
addition, many other Web sites offer very specific, highly targeted content that
could have greater appeal than the Company's sites to particular subsets of the
Company's target audience.
COMPETITION; LOW BARRIERS TO ENTRY. The markets for the Company's services
are highly competitive and are characterized by pressures to reduce prices,
incorporate new capabilities and technologies and accelerate job completion
schedules.
The Company faces competition from a number of sources. These sources
include national and regional advertising agencies, specialized and integrated
marketing communication firms, traditional media companies, executive search,
and search and selection firms. In addition, with respect to new media, many
advertising agencies and publications have started either to internally develop
or acquire new media capabilities. Some established companies that provide
integrated specialized services (such as advertising services or Web site
design) and are technologically proficient, especially in the new media area,
are also competing with the Company. Many of the Company's competitors or
potential competitors have long operating histories, and some may have greater
financial, management, technological development, sales, marketing and other
resources than the Company. In addition, the Company's ability to maintain its
existing clients and attract new clients depends, to a significant degree, on
the quality of its services and its reputation among its clients and potential
clients.
The Company has no significant proprietary technology that would preclude or
inhibit competitors from entering the yellow page advertising, recruitment
advertising, executive search or on-line advertising markets. There can be no
assurance that existing or future competitors will not develop or offer services
and products that provide significant performance, price, creative or other
advantages over those offered by the Company, which could have a material
adverse effect on the Company's business, financial condition and operating
results.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY AND CYCLICALITY OF
BUSINESS. The Company's and M&B's quarterly operating results have fluctuated
in the past and may fluctuate in the future as a result of a variety of factors,
including the timing of acquisitions. In addition, the timing of yellow page
directory closings, the largest number of which currently occur in the third
quarter, and the receipt of additional commissions, if earned, from yellow page
publishers for achieving a specified volume of advertising, which commissions
are typically reported in the fourth quarter, also affect the cyclicality of the
Company's quarterly results. The Company's quarterly commissions and fees earned
from recruitment advertising are typically highest in the first quarter and
lowest in the fourth quarter. For the year ended December 31, 1997, the
Company's commissions and fees from recruitment advertising, excluding search
and selection which traditionally had been included therein, were 40.4% of the
Company's total commissions and fees (27.6% of total revenue on a pro forma
basis, giving effect to the M&B Transaction). Recruitment advertising
commissions and fees tend to be more cyclical than yellow page commissions and
fees, and therefore, to the extent that a significant percentage of the
Company's commissions and fees are derived from recruitment advertising, the
Company's operating results may be subject to increased cyclicality.
TECHNOLOGICAL RISKS. The market for Internet products and services is
characterized by rapid technological developments, frequent new product
introductions and evolving industry standards. The emerging character of these
products and services and their rapid evolution will require that the Company
continually improve the performance, features and reliability of its Internet
content, particularly in response to competitive offerings. There can be no
assurance that the Company will be successful in responding quickly, cost
effectively and sufficiently to these developments. In addition, the widespread
adoption of new Internet technologies or standards could require substantial
expenditures by the Company
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to modify or adapt its Web sites and services and could affect the Company's
financial condition or operating results. In addition, new Internet services or
enhancements which are or may be offered by the Company may contain design flaws
or other defects that could require costly modifications or result in a loss of
client confidence, either of which could have a material adverse effect on the
Company's business, financial condition or operating results. The Monster
Board-Registered Trademark- connects to the Internet through GTE
Internetworking. OCC connects to the Internet directly through its own on-site
servers. Any disruption in Internet access, or in the Internet generally, could
affect the Company's financial condition or operating results.
DEPENDENCE ON ATTRACTING AND RETAINING QUALIFIED CONSULTANTS. The success
of TMP's executive search business, including that of M&B, giving effect to the
Transaction, depends upon its ability to attract and retain consultants who
possess the skills, contacts and experience necessary to fulfill its clients'
executive search needs. Competition for qualified consultants is intense. TMP
and M&B believe they have been able to attract and retain highly qualified,
effective consultants as a result of their respective reputations, and their
performance-based compensation systems. Consultants have the potential to earn
substantial bonuses based on the amount of revenue generated by obtaining
executive search assignments, executing search assignments and by assisting
other consultants to obtain or complete executive search assignments. Bonuses
represent a significant proportion of consultants' total compensation. Any
diminution of TMP's or M&B's reputation could impair their ability to retain
existing or attract additional qualified consultants. Any such inability to
attract and retain qualified consultants could have a material adverse effect on
TMP's executive search business, results of operations and financial condition.
PORTABLE CLIENT RELATIONSHIPS. The success of TMP's and M&B's executive
search and search and selection businesses depends upon the ability of their
consultants to develop and maintain strong, long-term relationships with
clients. Usually, one or two consultants have primary responsibility for a
client relationship. When a consultant leaves one executive search firm and
joins another, clients that have established relationships with the departing
consultant may move their business to the consultant's new employer. The loss of
one or more clients is more likely to occur if the departing consultant enjoys
widespread name recognition or has developed a reputation as a specialist in
executing searches in a specific industry or management function. Although
client portability historically has not caused significant problems for TMP or
M&B, the failure to retain its most effective consultants or maintain the
quality of service to which its clients are accustomed, and the ability of a
departing consultant to move business to his or her new employer, could have a
material adverse effect on TMP's executive search business, results of
operations and financial condition.
MAINTENANCE OF PROFESSIONAL REPUTATION AND BRAND NAME. TMP's and M&B's
ability to secure new executive search engagements and hire qualified
professionals is highly dependent upon their overall reputation and brand name
recognition, as well as the individual reputations of their professionals.
Because TMP and M&B obtain a majority of their new engagements from existing
clients, or from referrals by those clients, the dissatisfaction of any such
client could have a disproportionate, adverse impact on their ability to secure
new engagements. Any factor that diminishes the reputation of TMP or M&B or any
of its personnel, including poor performance, could make it substantially more
difficult for them to compete successfully for both new engagements and
qualified consultants, and could have an adverse effect on TMP's and M&B's
executive search and search and selection businesses, results of operations and
financial condition.
RESTRICTIONS IMPOSED BY BLOCKING ARRANGEMENTS. Either by agreement with
clients or for marketing or client relationship purposes, executive search firms
frequently refrain, for a specified period of time, from recruiting certain
employees of a client, and possibly other entities affiliated with such client,
when conducting executive searches on behalf of other clients (a "blocking"
arrangement). Blocking arrangements generally remain in effect for one or two
years following completion of an assignment. However, the duration and scope of
the blocking arrangement or "off limits" period, including whether it covers all
operations of a client and its affiliates or only certain divisions of a client,
generally depends on such
15
<PAGE>
factors as the length of the client relationship, the frequency with which the
executive search firm has been engaged to perform executive searches for the
client and the number of assignments the executive search firm has generated or
expects to generate from the client. Some of TMP's and M&B's executive search
clients are recognized as industry leaders and/or employ a significant number of
qualified executives who are potential candidates for other companies in that
client's industry. Blocking arrangements with such a client or awareness by a
client's competitors of such an arrangement may make it difficult for TMP or M&B
to obtain executive search assignments from, or to fulfill executive search
assignments for, competitors while employees of that client may not be
solicited. As TMP's and M&B's client base grows, particularly in its targeted
business sectors, blocking arrangements increasingly may impede their growth or
their ability to attract and serve new clients, which could have an adverse
effect on TMP's executive search business, results of operations and financial
condition.
DEPENDENCE ON KEY PERSONNEL. The Company's continued success will depend to
a significant extent upon its senior management, including Andrew J. McKelvey,
the Company's Chairman of the Board and CEO. The loss of the services of one or
more key employees could have a material adverse effect on the Company's
business, financial condition or operating results. In addition, if one or more
key employees join a competitor or form a competing company, the resulting loss
of existing or potential clients could have a material adverse effect on the
Company's business, financial condition or operating results. In the event of
the loss of any such employee there can be no assurance that the Company would
be able to prevent the unauthorized disclosure or use of its procedures,
practices, new product development or client lists.
CONTROL BY PRINCIPAL STOCKHOLDER. Andrew J. McKelvey beneficially owns all
of the outstanding TMP Class B Common Stock and 11,206,877 shares of TMP Common
Stock which together represent approximately 68.2% of the combined voting power
of all classes of voting stock of the Company and will represent approximately
60.8% of the combined voting power of the Company assuming an Exchange Ratio of
0.08431 and giving effect to the M&B Transaction. Mr. McKelvey is and will be,
therefore, able to direct the election of all of the members of the Company's
Board of Directors and exercise a controlling influence over the business and
affairs of the Company, including any determinations with respect to mergers or
other business combinations involving the Company, the acquisition or
disposition of assets of the Company, the incurrence of indebtedness by the
Company, the issuance of any additional Common Stock or other equity securities
and the payment of dividends with respect to the Common Stock. Similarly, Mr.
McKelvey has the power to determine matters submitted to a vote of the Company's
stockholders without the consent of the Company's other stockholders and has the
power to prevent a change of control of the Company.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION,
BYLAWS AND DELAWARE LAW. The Company's Board of Directors has the authority to
issue up to 800,000 shares of undesignated preferred stock and to determine the
price, rights, preferences, privileges and restrictions, including voting and
conversion rights of such shares, without any further vote or action by the
Company's stockholders. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of preferred
stock could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company. The Company
has no current plans to issue shares of preferred stock. Further, certain
provisions of the Company's Certificate of Incorporation and Bylaws and of
Delaware law could delay, prevent or make more difficult a merger, tender offer
or proxy content involving the Company. Among other things, these provisions
specify advance notice requirements for stockholder proposals and director
nominations. In addition, Mr. McKelvey controls approximately 68.2% of the
combined voting power of all classes of voting stock of the Company and,
assuming an Exchange Ratio of 0.08431, will control approximately 60.8% of the
combined voting power following consummation of the M&B Transaction.
16
<PAGE>
FOREIGN OPERATIONS AND RELATED RISKS. The Company conducts operations in
various foreign countries, including Australia, Belgium, Canada, France,
Germany, Japan, the Netherlands, New Zealand, Singapore, Spain and the United
Kingdom. For the year ended December 31, 1997, approximately 34.6% of the
Company's commissions and fees were earned outside of the U.S. and collected in
local currency. Giving pro forma effect to the M&B Transaction, approximately
57.6% of revenue, after considering costs directly associated with revenues of
temporary contracting operations, would have been earned outside the U.S. for
the year ended December 31, 1997. In addition, the Company generally pays
operating expenses in the corresponding local currency and will be subject to
increased risk for exchange rate fluctuations between such local currencies and
the dollar upon consummation of the M&B Transaction. The Company does not
conduct any significant hedging activities.
The Company is also subject to taxation in foreign jurisdictions. In
addition, transactions between the Company and its foreign subsidiaries may be
subject to U.S. and foreign withholding taxes. Applicable tax rates in foreign
jurisdictions differ from those of the U.S., and are subject to periodic change.
The extent, if any, to which the Company will receive credit in the U.S. for
taxes paid in foreign jurisdictions will depend upon the application of
limitations set forth in the Code, as well as the provisions of any tax treaties
which may exist between the U.S. and such foreign jurisdictions.
POSSIBLE VOLATILITY OF STOCK PRICE. The stock market has, from time to
time, experienced extreme price and volume fluctuations. Factors such as
announcements by the Company of variations in its quarterly financial results
and fluctuations in advertising commissions and fees, including the percentage
of the Company's commissions and fees derived from Internet-based services and
products could cause the market price of TMP Common Stock to fluctuate
significantly. Further, due to the volatility of the stock market generally, the
price of TMP Common Stock could fluctuate for reasons unrelated to the operating
performance of the Company.
GOVERNMENT REGULATION. As an advertising agency which creates and places
print and Internet advertisements, the Company is subject to Sections 5 and 12
of the U.S. 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 participates in creating the advertisement, and knew or had reason to
know that the advertising was false or deceptive.
In the event that any advertising created by TMP was found to be false,
deceptive or misleading, the FTC Act could potentially subject the Company to
liability. The fact that the FTC has recently brought several actions charging
deceptive advertising via the Internet, and is actively seeking new cases
involving advertising via the Internet, indicates that the FTC Act could pose a
somewhat higher risk of liability to the advertising distributed via the
Internet. The FTC has never brought any actions against the Company.
Further, there can be no assurance that other current or new government laws
and regulations, or the application of existing laws and regulations will not
subject the Company to significant liabilities, significantly dampen growth in
Internet usage, prevent the Company from offering certain Internet content or
services or otherwise cause a material adverse effect on the Company's business,
financial condition or operating results.
DIVIDEND POLICY. The Company currently intends to retain earnings, if any,
to support its growth strategy and does not anticipate paying dividends on the
TMP Common Stock and TMP Class B Common Stock in the foreseeable future. Payment
of dividends on TMP Common Stock and TMP Class B Common Stock is restricted by
the Company's financing agreement.
17
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The Unaudited Pro Forma Condensed Combined Financial Information reflects
financial information which gives effect to the Company's probable acquisition
of all the outstanding stock of M&B and the assumed replacement of all options
to acquire M&B stock with options to purchase TMP stock in exchange for the
issuance of approximately 6,000,000 shares of the Company's Common Stock and
327,000 options to purchase shares of TMP Common Stock. The share amounts and
option amounts were calculated using an exchange formula based upon a per share
price for M&B shares of 4.65 Australian dollars translated at 0.6123 US dollar
per Australian dollar for the periods presented and assuming 70,421,773 M&B
shares and 3,883,125 M&B options are outstanding at January 4, 1999. The Pro
Forma Financial Information included herein reflects the anticipated use of the
pooling-of-interests method of accounting, after giving effect to the pro forma
adjustments discussed in the accompanying notes. Such financial information has
been prepared from, and should be read in conjunction with, the historical
consolidated financial statements and notes thereto of TMP and M&B included
elsewhere in this Prospectus.
The Pro Forma Condensed Combined Financial Information (i) gives effect to
the M&B Transaction, (ii) gives effect, in the Combined Statement of Operations
for the year ended December 31, 1997, to the acquisition, in August 1997, of all
the outstanding stock of Austin Knight Limited, ("Austin Knight"), for a
purchase price of approximately $47.2 million, and (iii) includes the
adjustments described in the notes hereto.
The Pro Forma Condensed Combined Balance Sheet gives effect to the M&B
Transaction as if it had occurred on September 30, 1998, combining the balance
sheets of TMP at September 30, 1998 with that of M&B as of March 31, 1998. The
Pro Forma Condensed Combined Statements of Operations give effect to the M&B
Transaction as if it had occurred at the beginning of the earliest period
presented, combining the results of TMP for the nine months ended September 30,
1998 and each year in the three-year period ended December 31, 1997 with those
of M&B for the nine months ended March 31, 1998 and each year in the three-year
period ended March 31, 1998, respectively. The results for M&B for the nine
months ended March 31, 1998 are included in the Pro Forma Condensed Combined
Statement of Operations for both the year ended December 31, 1997 and the nine
months ended September 30, 1998. When translated at the appropriate exchange
rates for the December 31, 1997 and September 30, 1998 periods, revenue was
approximately $180,141,000 and $175,550,000, net income was approximately
$5,797,000 and $5,648,000, and net income per share was $0.08 and $0.08,
respectively. In addition, the Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1997 includes the results of Austin
Knight for the period prior to its acquisition by TMP on August 26, 1997.
The consolidated financial statements of M&B included in the Pro Forma
Condensed Combined Financial Information utilize Australian GAAP (which
substantially conforms to US GAAP) and were translated at the following exchange
rates: Australian dollars were translated to US dollars at the rate of 0.6613,
0.6955, 0.7137, 0.7874 and 0.7455, respectively, with respect to the Balance
Sheet at March 31, 1998 and the Statement of Operations for the nine months
ended March 31, 1998 and the years ended March 31, 1998, 1997 and 1996. The
Statement of Operations of Austin Knight included in the December 31, 1997 Pro
Forma Condensed Combined Statement of Operations was translated from British
Pounds Sterling to US dollars at the rate of 1.634 US dollars per British Pound
Sterling.
The Pro Forma Condensed Combined Statements of Operations presented do not
include any potential cost savings. The Company believes that it may be able to
reduce salaries and related costs and office and general expenses as it
eliminates duplication of overhead. However, there can be no assurance that the
Company will be successful in effecting any such cost savings.
The Pro Forma Condensed Combined Financial Information is unaudited and is
not necessarily indicative of the consolidated results which actually would have
occurred if the above transactions had been consummated at the beginning of the
periods presented, nor does it purport to present the future financial position
and results of operations for future periods.
18
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP MORGAN & BANKS PRO FORMA
WORLDWIDE INC. LIMITED ADJUSTMENTS COMBINED
-------------- ---------------- ------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 12,855 $ 9,581 $ -- $ 22,436
Accounts receivable, net....................... 317,048 25,401 -- 342,449
Work-in-process................................ 16,367 -- -- 16,367
Deferred income taxes.......................... -- 1,446 -- 1,446
Prepaid and other.............................. 19,385 2,243 -- 21,628
-------------- ------- ------ -----------
Total current assets....................... 365,655 38,671 -- 404,326
Property and equipment, net...................... 49,928 9,359 -- 59,287
Deferred income taxes............................ 4,084 135 -- 4,219
Intangibles, net................................. 184,463 6,155 -- 190,618
Other assets..................................... 5,473 30 -- 5,503
-------------- ------- ------ -----------
$ 609,603 $ 54,350 $ -- $ 663,953
-------------- ------- ------ -----------
-------------- ------- ------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 254,864 $ 4,419 $ -- $ 259,283
Accrued expenses and other liabilities......... 50,808 30,759 4,500(a) 86,067
Accrued restructuring costs.................... 20,902 -- -- 20,902
Deferred revenue............................... 13,923 -- -- 13,923
Deferred income taxes.......................... 13,519 9 -- 13,528
Current portion of long-term debt.............. 8,908 318 -- 9,226
-------------- ------- ------ -----------
Total current liabilities.................. 362,924 35,505 4,500 402,929
Long-term debt, less current portion............. 128,581 5,370 -- 133,951
Other liabilities................................ -- 659 -- 659
Minority interests............................... -- 431 -- 431
Stockholders' equity:
Common stock................................... 27 -- 6(b) 33
Class B common stock........................... 2 -- -- 2
Common stock of Morgan & Banks Limited......... -- 1,526 (1,526) (c) --
Additional paid-in capital..................... 171,973 2,780 1,520 (b,c 176,273
Foreign currency translation adjustment........ (543) (204) -- (747)
Retained earnings (deficit).................... (53,361) 8,283 (4,500) (a) (49,578)
-------------- ------- ------ -----------
Total stockholders' equity................. 118,098 12,385 (4,500) 125,983
-------------- ------- ------ -----------
$ 609,603 $ 54,350 $ -- $ 663,953
-------------- ------- ------ -----------
-------------- ------- ------ -----------
</TABLE>
- ------------------------
(a) To accrue for costs to be incurred in connection with the Transaction.
(b) Represents par value of the 5,937 shares to be issued in connection with the
Transaction, based on the number of outstanding M&B Shares as of the balance
sheet date.
(c) Par value of the M&B Shares is reclassified as additional paid-in capital
net of the par value of the newly issued TMP Common Stock.
19
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP MORGAN & BANKS PRO FORMA
WORLDWIDE INC. LIMITED COMBINED
-------------- ---------------- -----------
<S> <C> <C> <C>
Revenue:
Commissions and fees.......................................... $ 297,854 $ 52,220 $ 350,074
Temporary contracting......................................... -- 123,330 123,330
-------------- -------- -----------
Total revenue............................................. 297,854 175,550 473,404
-------------- -------- -----------
Operating expenses:
Salaries and related costs.................................... 164,012 45,000 209,012
Temporary contracting costs................................... -- 102,307 102,307
Office and general............................................ 91,060 18,157 109,217
Amortization of intangibles................................... 6,403 399 6,802
CEO bonus..................................................... 1,125 -- 1,125
Merger costs.................................................. 9,577 -- 9,577
-------------- -------- -----------
Total operating expenses.................................. 272,177 165,863 438,040
-------------- -------- -----------
Operating income................................................ 25,677 9,687 35,364
Interest expense, net........................................... (7,507) (202) (7,709)
Other expense, net.............................................. (842) (15) (857)
-------------- -------- -----------
Income before provision for income taxes, minority interests and
equity in losses of affiliates................................ 17,328 9,470 26,798
Provision for income taxes...................................... 7,735 3,712 11,447
Minority interests.............................................. -- 110 110
Equity in losses of affiliates.................................. (297) -- (297)
-------------- -------- -----------
Net income...................................................... $ 9,296 $ 5,648 $ 14,944
-------------- -------- -----------
-------------- -------- -----------
Net income per common and Class B common share:
Basic......................................................... $ 0.32 $ 0.43(a)
Diluted....................................................... $ 0.31 $ 0.42(a)
Weighted average shares outstanding:
Basic......................................................... 29,142 34,979(a)
Diluted....................................................... 29,949 35,926(a)
</TABLE>
- ------------------------
(a) Gives effect to the additional shares and options expected to be issued in
connection with the Transaction, including M&B's weighted average basic and
diluted shares outstanding for the periods, which were 69,239 and 70,899,
respectively, multiplied by the assumed Exchange Ratio of 0.08431.
If the Transaction is consummated with TMP Common Stock valued at $25.00 per
share, the minimum share price provided for in the Agreement, basic and
diluted weighted shares outstanding would have been 37,027 and 38,024
shares, respectively, and basic and diluted net income per Common and Class
B Common share would have been $0.40 and $0.39, respectively.
If the Transaction is consummated with TMP Common Stock valued at $40.00 per
share, the maximum share price provided for in the Agreement, basic and
diluted weighted shares outstanding would have been 34,070 and 34,996
shares, respectively, and basic and diluted net income per Common and Class
B Common share would have been $0.44 and $0.43, respectively.
20
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP AUSTIN KNIGHT MORGAN & BANKS PRO FORMA
WORLDWIDE INC. LIMITED(A) ADJUSTMENTS SUBTOTAL LIMITED COMBINED
-------------- ------------- ----------- ---------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Commissions and fees.......... $ 310,619 $ 34,800 $ -- $ 345,419 $ 71,950 $ 417,369
Temporary contracting......... -- -- -- -- 163,831 163,831
-------------- ------------- ----------- ---------- -------- -----------
Total revenue............. 310,619 34,800 -- 345,419 235,781 581,200
-------------- ------------- ----------- ---------- -------- -----------
Operating expenses:
Salaries and related costs.... 172,528 28,480 -- 201,008 60,342 261,350
Temporary contracting costs... -- -- -- -- 136,185 136,185
Office and general............ 101,176 5,758 -- 106,934 25,258 132,192
Amortization of intangibles... 6,269 -- 1,323(b) 7,592 558 8,150
CEO bonus..................... 1,500 -- -- 1,500 -- 1,500
-------------- ------------- ----------- ---------- -------- -----------
Total operating
expenses................ 281,473 34,238 1,323 317,034 222,343 539,377
-------------- ------------- ----------- ---------- -------- -----------
Operating income................ 29,146 562 (1,323) 28,385 13,438 41,823
Interest expense, net........... (8,813) (244) (2,896)(c) (11,953) (247) (12,200)
Other income (expense), net..... (181) 1,547 -- 1,366 (22) 1,344
-------------- ------------- ----------- ---------- -------- -----------
Income before provision for
income taxes, minority
interests and equity in losses
of affiliates................. 20,152 1,865 (4,219) 17,798 13,169 30,967
Provision for income taxes...... 9,571 1,442 (1,158)(d) 9,855 5,153 15,008
Minority interests.............. 143 -- -- 143 153 296
Equity in losses of affiliates.. (33) -- -- (33) -- (33)
-------------- ------------- ----------- ---------- -------- -----------
Net income...................... 10,405 423 (3,061) 7,767 7,863 15,630
Preferred stock dividends....... (123) -- -- (123) -- (123)
-------------- ------------- ----------- ---------- -------- -----------
Net income applicable to common
and Class B common
stockholders.................. $ 10,282 $ 423 $ (3,061) $ 7,644 $ 7,863 $ 15,507
-------------- ------------- ----------- ---------- -------- -----------
-------------- ------------- ----------- ---------- -------- -----------
Net income per common and Class
B common share:
Basic......................... $ 0.38 $ 0.47(e)
Diluted....................... $ 0.37 $ 0.46(e)
Weighted average shares
outstanding:
Basic......................... 27,224 32,998(e)
Diluted....................... 27,716 33,642(e)
</TABLE>
- ------------------------
(a) For the period January 1, 1997 through the date of the acquisition by TMP of
Austin Knight on August 26, 1997.
(b) To record amortization of intangibles arising from the acquisition of Austin
Knight, as if such acquisition occurred on January 1, 1997. Such
amortization is based on a 30 year life and is computed on an intangible
asset of $59,523, amortized for eight months.
(c) To record interest expense on borrowings of $47,208, at 9.2% for eight
months, made in connection with the acquisition of Austin Knight, as if such
acquisition occurred on January 1, 1997.
21
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
(d) To record the tax benefit on interest expense of $2,896 on borrowings for
the acquisition of Austin Knight, at an estimated tax rate of 40%.
(e) Gives effect to the additional shares and options expected to be issued in
connection with the Transaction, including M&B's weighted average basic and
diluted shares outstanding for the period, which were 68,489 and 70,289,
respectively, multiplied by the assumed Exchange Ratio of 0.08431.
If the Transaction is consummated with TMP Common Stock valued at $25.00 per
share, the minimum share price provided for in the Agreement, basic and
diluted weighted shares outstanding would have been 35,024 and 35,721
shares, respectively, and basic and diluted net income per Common and Class
B Common share would have been $0.44 and $0.43, respectively.
If the Transaction is consummated with TMP Common Stock valued at $40.00 per
share, the maximum share price provided for in the Agreement, basic and
diluted weighted shares outstanding would have been 32,099 and 32,719
shares, respectively, and basic and diluted net income per Common and Class
B Common share would have been $0.48 and $0.47, respectively.
22
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP MORGAN & BANKS PRO FORMA
WORLDWIDE INC. LIMITED COMBINED
-------------- ---------------- -----------
<S> <C> <C> <C>
Revenue:
Commissions and fees.......................................... $ 223,319 $ 61,084 $ 284,403
Temporary contracting......................................... -- 113,299 113,299
-------------- -------- -----------
Total revenue............................................. 223,319 174,383 397,702
-------------- -------- -----------
Operating expenses:
Salaries and related costs.................................... 122,964 45,507 168,471
Temporary contracting costs................................... -- 93,585 93,585
Office and general............................................ 74,252 21,944 96,196
Amortization of intangibles................................... 4,440 292 4,732
Special compensation.......................................... 52,019 -- 52,019
-------------- -------- -----------
Total operating expenses.................................. 253,675 161,328 415,003
-------------- -------- -----------
Operating income (loss)......................................... (30,356) 13,055 (17,301)
Interest expense, net........................................... (14,216) (27) (14,243)
Other income (expense), net..................................... (755) 141 (614)
-------------- -------- -----------
Income (loss) before provision for income taxes, minority
interests and equity in earnings of affiliates................ (45,327) 13,169 (32,158)
Provision for income taxes...................................... 4,125 4,812 8,937
Minority interests.............................................. 434 583 1,017
Equity in earnings of affiliates................................ 114 -- 114
-------------- -------- -----------
Net income (loss)............................................... (49,772) 7,774 (41,998)
Preferred stock dividends....................................... (210) -- (210)
-------------- -------- -----------
Net income (loss) applicable to common and Class B common
stockholders.................................................. $ (49,982) $ 7,774 $ (42,208)
-------------- -------- -----------
-------------- -------- -----------
Net (loss) per common and Class B common share:
Basic......................................................... $ (2.24) $ (1.51)
Diluted....................................................... $ (2.24) $ (1.51)
Weighted average shares outstanding:
Basic......................................................... 22,280 27,985(a)
Diluted....................................................... 22,280 27,985(a)
</TABLE>
- ------------------------
(a) Gives effect to the additional shares and options expected to be issued in
connection with the Transaction, including M&B's weighted average basic and
diluted shares outstanding for the period, which were 67,664 and 69,895,
respectively, multiplied by the assumed Exchange Ratio of 0.08431.
If the Transaction is consummated with TMP Common Stock valued at $25.00 per
share, the minimum share price provided for in the Agreement, basic and
diluted weighted shares outstanding would have been 29,986 and 29,986
shares, respectively, and basic and diluted net income per Common and Class
B Common share would have been $(1.41) and $(1.41), respectively.
If the Transaction is consummated with TMP Common Stock valued at $40.00 per
share, the maximum share price provided for in the Agreement, basic and
diluted weighted shares outstanding would have been 27,096 and 27,096
shares, respectively and basic and diluted net income per Common and Class B
Common share would have been $(1.56) and $(1.56), respectively.
23
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP MORGAN & BANKS PRO FORMA
WORLDWIDE INC. LIMITED COMBINED
-------------- ---------------- -----------
<S> <C> <C> <C>
Revenue:
Commissions and fees.......................................... $ 183,674 $ 44,881 $ 228,555
Temporary contracting......................................... -- 61,768 61,768
-------------- -------- -----------
Total revenue............................................. 183,674 106,649 290,323
-------------- -------- -----------
Operating expenses:
Salaries and related costs.................................... 100,162 31,701 131,863
Temporary contracting costs................................... -- 49,503 49,503
Office and general............................................ 57,310 17,032 74,342
Amortization of intangibles................................... 3,237 118 3,355
-------------- -------- -----------
Total operating expenses.................................. 160,709 98,354 259,063
-------------- -------- -----------
Operating income................................................ 22,965 8,295 31,260
Interest income (expense), net.................................. (10,654) 77 (10,577)
Other income (expense), net..................................... (1,057) 123 (934)
-------------- -------- -----------
Income before provision for income taxes, minority interests and
equity in losses of affiliates................................ 11,254 8,495 19,749
Provision for income taxes...................................... 5,100 3,136 8,236
Minority interests.............................................. 435 326 761
Equity in losses of affiliates.................................. (279) -- (279)
-------------- -------- -----------
Net income...................................................... 5,440 5,033 10,473
Preferred stock dividends....................................... (210) -- (210)
-------------- -------- -----------
Net income applicable to common and Class B common
stockholders.................................................. $ 5,230 $ 5,033 $ 10,263
-------------- -------- -----------
-------------- -------- -----------
Net income per common and Class B common share:
Basic......................................................... $ 0.24 $ 0.37(a)
Diluted....................................................... $ 0.23 $ 0.36(a)
Weighted average shares outstanding:
Basic......................................................... 22,045 27,670(a)
Diluted....................................................... 22,497 28,158(a)
</TABLE>
- ------------------------
(a) Gives effect to the additional shares and options expected to be issued in
connection with the Transaction including M&B's weighted average basic and
diluted shares outstanding for the period, which were 66,718 and 67,152,
respectively, multiplied by the assumed Exchange Ratio of 0.08431.
If the Transaction is consummated with TMP Common Stock valued at $25.00 per
share, the minimum share price provided for in the Agreement, basic and
diluted weighted shares outstanding would have been 29,643 and 30,145
shares, respectively, and basic and diluted net income per Common and Class
B Common share would have been $0.35 and $0.34, respectively.
If the Transaction is consummated with TMP Common Stock valued at $40.00 per
share, the maximum share price provided for in the Agreement, basic and
diluted weighted shares outstanding would have been 26,794 and 27,277
shares, respectively, and basic and diluted net income per Common and Class
B Common share would have been $0.38 and $0.38, respectively.
24
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders.
DIVIDEND POLICY
TMP has never declared or paid any cash dividends on its Common Stock. The
Company currently anticipates that all future earnings will be retained by the
Company to support its growth strategy. Accordingly, TMP does not anticipate
paying cash dividends on the Common Stock for the foreseeable future. The
payment of any future dividends will be at the discretion of the Company's Board
of Directors and will depend upon, among other things, future earnings,
operations, capital requirements, the general financial condition of the
Company, contractual restrictions and general business conditions. The Company's
financing agreement prohibits the payment of dividends on Common Stock.
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on the Nasdaq National Market under the symbol
"TMPW." The Common Stock was initially offered to the public on December 12,
1996 at $14.00 per share. The following table sets forth for the periods
indicated the high and low reported sale prices per share for the Common Stock
as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1999 HIGH LOW
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First Quarter (through January 8, 1999).................................... $ 50.00 $ 38.75
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 HIGH LOW
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First Quarter.............................................................. $ 32.62 $ 21.62
Second Quarter............................................................. $ 34.88 $ 24.75
Third Quarter.............................................................. $ 39.19 $ 27.88
Fourth Quarter............................................................. $ 42.00 $ 20.50
--------- ---------
</TABLE>
<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.............................................................. $ 25.62 $ 19.00
Fourth Quarter............................................................. $ 28.75 $ 15.00
</TABLE>
The number of stockholders of record of Common Stock on January 8, 1999 was
approximately 380. On January 8, 1999, the last reported sale price of the
Common Stock as reported by the Nasdaq National Market was $41.00.
25
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth information as of December 31, 1998, except
as otherwise noted, with respect to the number of shares of Common Stock
beneficially owned by each of the Selling Stockholders. All of the shares
offered hereby were acquired by the Selling Stockholders from the Company
pursuant to the acquisition of Johnson, Smith & Knisely, Inc. and TASA. Except
for Gary Knisely, who currently owns 2.7% of the Common Stock and who will own
2.2% of the Common Stock after his sale of 150,000 shares of Common Stock
hereby, no other Selling Stockholder owns more than one percent of the
outstanding Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK
BENEFICIALLY OF COMMON STOCK BENEFICIALLY
OWNED PRIOR TO REGISTERED OWNED AFTER
SELLING STOCKHOLDER OFFERING HEREIN OFFERING(1)
- ---------------------------------------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Gary Knisely.............................................. 771,353 150,000 621,353
Pierre Aussure............................................ 44,839 44,839 0
Gerhard Bartels........................................... 51,244 51,244 0
David Kenneth Bray........................................ 6,405 6,405 0
The TASA Ltd. Self Administered Pension Plan
F/B/O David Kenneth Bray................................ 35,230 35,230 0
Charles Marie Brusselmans................................. 9,608 9,608 0
Neil Campbell Callie...................................... 12,811 12,811 0
Remtor Nominees Pty. Ltd.
F/B/O Trevor Morton Clark............................... 3,202 3,202 0
Jo Carol Conover.......................................... 9,608 9,608 0
Manuel Gutierrez Cortines................................. 64,056 64,056 0
Edgar S.K. Dammroff....................................... 32,028 32,028 0
Victor Carlos Dana........................................ 48,042 48,042 0
The TASA Ltd. Self Administered Pension Plan
F/B/O Fiona Mary Hilton Darby........................... 38,433 38,433 0
The DeKesel Family 1998 Trust............................. 51,244 51,244 0
James P. Demchak.......................................... 41,636 41,636 0
Trevor M. Dunn............................................ 6,405 6,405 0
Luis Escudero Ygartua..................................... 32,028 32,028 0
Joaquim Espriu Malagelada................................. 54,447 54,447 0
Juan Manuel Farias Gutierrez.............................. 25,622 25,622 0
The TASA Ltd. Self Administered Pension Plan
F/B/O Patrick John Michael Fearon....................... 41,636 41,636 0
Richard L. Fleming........................................ 3,202 3,202 0
Michael Franzino.......................................... 44,839 44,839 0
Vito Gioia................................................ 54,447 54,447 0
Duane R. Goar............................................. 41,636 41,636 0
Frans Jacob Gosses........................................ 6,405 6,405 0
Christian A.F. Groh....................................... 9,608 9,608 0
Luminoz Staff Superannuation Fund
F/B/O R. Neil Hatherly.................................. 9,608 9,608 0
RJ & SG Ingersoll Superannuation Fund
F/B/O Russel J. Ingersoll............................... 19,216 19,216 0
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK
BENEFICIALLY OF COMMON STOCK BENEFICIALLY
OWNED PRIOR TO REGISTERED OWNED AFTER
SELLING STOCKHOLDER OFFERING HEREIN OFFERING(1)
- ---------------------------------------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Phoenix Holdings Pty. Ltd.
F/B/O Russel J. Ingersoll............................... 16,014 16,014 0
Klaus Jacobs.............................................. 64,056 64,056 0
Thomas R. Keller.......................................... 41,636 41,636 0
Dag Einhard Kremer-Nehring................................ 9,608 9,608 0
Michel LeGuillou.......................................... 6,405 6,405 0
Harvey D. Letcher......................................... 16,014 16,014 0
Claudia K. Liebesny....................................... 12,811 12,811 0
David H. W. Lowry......................................... 35,230 35,230 0
Peter Magnet.............................................. 64,056 64,056 0
Bernhard Mahlo............................................ 9,608 9,608 0
Warren L. McGregor........................................ 32,028 32,028 0
John McLaughlin........................................... 70,461 70,461 0
Massimo Misticoni......................................... 16,014 16,014 0
Maria Elena Quijada Cordero............................... 6,405 6,405 0
Terteducon Pty. Ltd.
F/B/O Gregor A. Ramsey.................................. 6,405 6,405 0
Reinhard Fritz Rijke...................................... 76,867 76,867 0
Herbert Schmaderer........................................ 32,028 32,028 0
The TASA Self Administered Pension Plan
F/B/O Andrew R.F. Simpson............................... 41,636 41,636 0
Michael T.D. Squires...................................... 64,056 64,056 0
Yarramay Pty Ltd.......................................... 51,244 51,244 0
Hans Uher................................................. 32,028 32,028 0
Van Es Superannuation Fund................................ 12,811 12,811 0
Strathwood Unit Trust
F/B/O Alan R. Van Es.................................... 19,216 19,216 0
Victoriano Vila Vilar..................................... 12,811 12,811 0
Robert Bruce Whaley....................................... 9,608 9,608 0
Jeffrey C. Wierichs....................................... 6,405 6,405 0
Gabriele D.E. Willner-Lange............................... 57,650 57,650 0
Andrea M. Wine............................................ 57,650 57,650 0
J. Herbert Wise........................................... 16,014 16,014 0
Heinz Henning Witt........................................ 9,608 9,608 0
</TABLE>
- ------------------------
(1) Assumes that all shares offered by each Selling Stockholder are sold in this
offering.
PLAN OF DISTRIBUTION
The Company is registering the shares of Common Stock offered hereby on
behalf of the Selling Stockholders. All expenses of the registration of the
shares offered hereby are to be borne by the Company, except that the Selling
Stockholders will pay underwriting discounts, selling commissions, and fees and
expenses, if any, of counsel or other advisers to the Selling Stockholders.
27
<PAGE>
The distribution of the shares of Common Stock by the Selling Stockholders
(or their respective donees and pledgees) may be effected from time to time in
one or more transactions (which may involve block transactions) in the
over-the-counter market (including the Nasdaq National Market) or any exchange
on which the Common Stock may then be listed, in negotiated transactions,
through the writing of options on shares (whether such options are listed on an
options exchange or otherwise), or a combination of such methods of sale, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Selling Stockholders (or
their respective donees and pledgees) may effect such transactions by selling
shares to or through broker-dealers, and such broker-dealer may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Stockholders and/or purchasers of shares for whom they may act
as agent (which compensation may be in excess of customary commissions). The
Selling Stockholders (or their respective donees and pledgees) may also sell
such shares of Common Stock pursuant to Rule 144 promulgated under the
Securities Act, or may pledge shares as collateral for margin accounts and such
shares could be resold pursuant to the terms of such accounts. The Selling
Stockholders and any broker-dealers that act in connection with the sale of the
Common Stock might be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act and any commission received by them and any profit
on the resale of the shares of Common Stock as principal might be deemed to be
underwriting discounts and commissions under the Securities Act. The Selling
Stockholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act.
Because the Selling Stockholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, the Selling Stockholders
will be subject to prospectus delivery requirements under the Securities Act.
Furthermore, in the event of a "distribution" of the shares, such Selling
Stockholders, any selling broker or dealer and any "affiliated purchasers" may
be subject to Regulation M under the Exchange Act, which Regulation prohibits,
with certain exceptions, any such person from bidding for or purchasing any
security which is the subject of such distribution until his participation in
that distribution is completed. In addition, Regulation M under the Exchange Act
prohibits, with certain exceptions, any "stabilizing bid" or "stabilizing
purchase" for the purpose of pegging, fixing or stabilizing the price of Common
Stock in connection with this offering.
The Selling Stockholders have agreed with the Company not to effect any sale
or distribution of Common Stock during any period that is designated by TMP as
"restricted" under TMP's normal policies governing sales of Common Stock by its
directors, officers and employees. The TASA Stockholders have agreed with the
Company not to effect any sale or distribution of Common Stock until after
financial results covering at least thirty (30) days of combined operations of
TMP and TASA Holding AG after August 31, 1998 are published, and otherwise
during any period of time or in a manner which would call into question the
accounting treatment of TMP's acquisition of TASA Holding AG as a "pooling-of-
interests."
In order to comply with certain state securities laws, if applicable, the
Common Stock will not be sold in a particular state unless the Common Stock has
been registered or qualified for sale in such state or an exemption from
registration or qualification is available and complied with.
LEGAL MATTERS
Legal matters relating to the Common Stock have been passed upon for the
Company by Fulbright & Jaworski L.L.P., New York, New York 10103.
28
<PAGE>
EXPERTS
The consolidated financial statements and schedule included in the Company's
Annual Report on Form 10-K/A for the year ended December 31, 1997 and the
Company's Information Statement on Schedule 14C, dated January 6. 1999, which
are incorporated by reference in this Prospectus, have been audited by BDO
Seidman, LLP, independent certified public accountants, and the consolidated
financial statements of Neville Jeffress Australia Pty Limited and subsidiaries
incorporated by reference in this Prospectus have been audited by BDO Nelson
Parkhill, independent auditors, to the extent and for the periods set forth in
their reports incorporated herein by reference, and are incorporated herein in
reliance upon the authority of said firm as experts in accounting and auditing.
The audited consolidated financial statements of M&B incorporated by reference
in this Prospectus and Registration Statement have been audited by Pannell Kerr
Forster, independent chartered accountants, as indicated in their report with
respect thereto, and are incorporated herein in reliance upon the authority of
said firm as experts in accounting and auditing.
The consolidated financial statements of Austin Knight Limited and its
Subsidiaries incorporated by reference in this Prospectus have been audited by
KPMG, independent chartered accountants, to the extent and for the periods set
forth in their report incorporated by reference herein and are included in
reliance upon such report given upon the authority of such firm as experts in
auditing and accounting.
29
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses payable by the Registrant in connection with the issuance and
distribution of the securities being registered (other than underwriting
accounts and commissions) are estimated to be as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................... $16,401.26
Accountants' Fees and Expenses................................. 75,000.00
Legal Fees and Expenses........................................ 20,000.00
Miscellaneous.................................................. 3,598.74
----------
Total.......................................................... $115,000.00
----------
----------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware permits
indemnification of directors, officers and employees of a corporation under
certain conditions and subject to certain limitations. Article VI of the By-Laws
of the Registrant contains provision for the indemnification of directors,
officers and employees within the limitations permitted by Section 145. In
addition, the Company has entered into Indemnity Agreements with its directors
and officers which provide the maximum indemnification allowed by Section 145.
The Company's officers and directors are insured against losses arising from any
claim against them as such for wrongful acts or omissions, subject to certain
limitations.
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
2.1 Scheme Implementation Agreement by and between Morgan & Banks Limited and TMP
Worldwide Inc. dated August 17, 1998.*
5.1 Opinion of Fulbright & Jaworski L.L.P. regarding legality.*
10.1 Agreement dated as of August 31, 1998, by and among TMP Worldwide Inc., TASA Holding
A.G. and the Shareholders named therein.*
23.1 (a) Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).*
(b) Consent of BDO Seidman, LLP
(c) Consent of BDO Nelson Parkhill
(d) Consent of Pannell Kerr Forster
(e) Consent of KPMG
24 Power of Attorney (on signature page).*
99.1 The Company's Management's Discussion and Analysis of Results of Operations and
Financial Condition (page 62-74 of the Company's Schedule 14C, file no. 0-21571) and
Financial Statements (pages F-11-F-113 of the Schedule 14C)
</TABLE>
- ------------------------
* Previously filed.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person of the Registrant in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on January 12, 1999.
<TABLE>
<S> <C> <C>
TMP WORLDWIDE INC.
By: /s/ ANDREW J. MCKELVEY
-----------------------------------------
Andrew J. McKelvey
CHAIRMAN AND CEO
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ ANDREW J. MCKELVEY Chairman, CEO and Director
- ------------------------------ (PRINCIPAL EXECUTIVE January 12, 1999
Andrew J. McKelvey OFFICER)
*
- ------------------------------ Vice Chairman (PRINCIPAL January 12, 1999
Thomas G. Collison FINANCIAL OFFICER)
/s/ JAMES J. TREACY Executive Vice President,
- ------------------------------ Chief Operating Officer January 12, 1999
James J. Treacy and Director
* Chief Financial Officer
- ------------------------------ (PRINCIPAL ACCOUNTING January 12, 1999
Roxane Previty OFFICER)
*
- ------------------------------ Director January 12, 1999
(George R. Eisele)
*
- ------------------------------ Director January 12, 1999
(John R. Gaulding)
*
- ------------------------------ Director January 12, 1999
(Michael Kaufman)
*
- ------------------------------ Director January 12, 1999
(John Swann)
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ ANDREW J. MCKELVEY
-------------------------
ATTORNEY-IN-FACT
</TABLE>
II-3
<PAGE>
EXHIBIT 23.1(B)
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our reports dated March
20, 1998, except for Notes 5 and 13(B), for which the date is December 17, 1998,
relating to the consolidated financial statements and schedule of TMP Worldwide
Inc. appearing in the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1997 and the Company's Information Statement in Schedule 14C, dated
January 6, 1999.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
New York, New York
January 11, 1999
<PAGE>
[IBDO LETTER HEAD LOGO]
EXHIBIT 23.1(C)
11 January 1999
TMP Worldwide Inc
New York, NY
We consent to the inclusion of our report dated 8 November 1996, with respect to
the consolidated balance sheets of Neville Jeffress Australia Pty. Limited as of
31 December 1995 and 1996, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the years in the two year period
ended 31 December 1996 appearing in the Company's Information Statement in
Schedule 14C, dated January 6, 1999, which report is incorporated by reference
in Amendment 1 to Registration Statement on Form S-3 of TMP Worldwide Inc.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO International
/s/ BDO International
/s/ Stephen La Greca
Stephen La Greca
Partner
<PAGE>
EXHIBIT 23.1(D)
The Board of Directors
Morgan & Banks Limited
Level 11, Grosvenor Place
225 George Street
SYDNEY NSW 2000
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We hereby consent to the use of our report dated 16 June 1998, except for Note 2
of Notes to and forming Part of the Consolidated Financial Statements relating
to the consolidated balance sheets of Morgan & Banks Limited as at 31 March 1998
and 1997, and the consolidated profit and loss statements and cash flow
statements for each of the years in the three year period ended 31 March 1998
appearing in the Company's Information Statement on Schedule 14C, dated January
6, 1999, which report is incorporated by reference in Amendment 1 to this
Registration Statement on Form S-3 of TMP Worldwide Inc.
We also consent to the reference to us under the caption "Experts" in the
Prospectus constituting a part of this Registration Statement.
Sydney, Australia
12 January 1999
[LOGO]
PANNELL KERR FORSTER
<PAGE>
EXHIBIT 23.1(E)
PRIVATE & CONFIDENTIAL
The Directors
TMP Worldwide Inc
1633 Broadway
New York NY 10019
11 January 1999
Dear Sir
We consent to the inclusion of our report dated 4 February 1997, with respect to
the consolidated balance sheets of Austin Knight Limited as of 31 December 1995
and 1996, and the related consolidated statements of earnings, stockholders'
equity and cash flows for each of the years in the two year period ended 31
December 1996 appearing in the Company's Information Statement on Schedule 14C,
dated January 6, 1999, which report is incorporated by reference in Amendment 1
to this Registration Statement on Form S-3 of TMP Worldwide Inc.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
Yours sincerely
KPMG
<PAGE>
EXHIBIT 99.1
TMP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Statements in this Information Statement 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 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. The Company completed fourteen recruitment related acquisitions of
which three, Johnson, Smith & Knisely Inc., TASA Holding AG, and Stackig, Inc.
("the pooled companies") are being accounted for as poolings of interests.
2,981,000 shares of the Company's common stock were issued in exchange for all
of the outstanding common stock of these pooled companies and the accompanying
financial statements have been restated to include the accounts and operations
of the pooled companies for all periods presented. 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 and the nine
months ended September 30, 1998, 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. For recruitment and yellow page
advertising, 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
1
<PAGE>
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. Based on the consolidated
results of the Company for the nine months ended September 30, 1998 and the
years ended December 31, 1997, 1996 and 1995, 59%, 52%, 29%, and 10%,
respectively, of the Company's recruitment commission fees were attributable to
clients outside the U.S. The Company also earns fees for recruitment
advertisements and related services on its career oriented Web sites on the
Internet. Through its search and selection services, the Company identifies and
screens candidates for hiring by clients based on criteria established by such
clients. The Company entered this business by acquiring in 1998, (1) Johnson,
Smith and Knisely Inc. ("JSK"), the 12th largest executive search firm in the
U.S., according to Kennedy Publications, an official ranking service for the
search industry, (2) Europ Consultants, S.L. a search and selection firm in
Barcelona, Spain, (3) TASA Holding AG of Zurich, Switzerland, ("TASA"), an
international executive search firm and (4) Daniel Porte, a French search and
selection firm.
Primarily as a result of acquisitions which are included in the financial
statements using the purchase method of accounting from their respective dates
of acquisitions made from January 1, 1995 through December 31, 1997, the
Company's commissions and fees increased from $183.7 million in 1995 to $310.6
million in 1997. 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 $72.3
million to $172.5 million for the year ended December 31, 1997 from $100.2
million for the year ended December 31, 1995, a 72.2% increase, supporting a
$474.0 million or a 70.1% increase in gross billings over the same period. When
measured as a percent of billings, salaries and related costs for the year ended
December 31, 1997 were 15.0%, up slightly from 14.8% 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 $43.9 million to $101.2 million for
the year ended December 31, 1997 from $57.3 million for the year ended December
31, 1995, a 76.6% 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 years ended December 31, 1997 were
8.8%, up slightly from 8.5% 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 $6.3 million,
$4.4 million and $3.2 million for the years ended December 31, 1997, 1996 and
1995, respectively, and was $6.4 million and $4.5 million for the nine months
ended September 30, 1998 and 1997, respectively.
The CEO bonus for the nine months ended September 30, 1998 and the year
ended December 31, 1997 of $1.1 million and $1.5 million respectively reflects a
non-cash charge recorded in compliance with SAB 79, for a bonus mandated by the
Principal Stockholder's employment contract which he irrevocably waived. 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
2
<PAGE>
employees or as management of such companies and, accordingly, were not
considered to have made substantive investments for their shares.
Net interest expense includes interest: (i) on loans made by 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.
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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ ------------------------
1995 1996 1997 1997 1998
---------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS) (UNAUDITED)
GROSS BILLINGS:
Yellow page advertising........................ $ 429,176 $ 434,728 $ 457,519 $ 349,910 $ 372,899
Recruitment advertising........................ 195,020 341,955 602,672 417,872 604,566
Search & selection............................. 51,980 50,613 70,776 49,382 63,889
Internet(1).................................... 392 6,659 19,640 13,548 34,823
---------- ---------- ------------ ---------- ------------
Total.......................................... $ 676,568 $ 833,955 $ 1,150,607 $ 830,712 $ 1,076,177
---------- ---------- ------------ ---------- ------------
---------- ---------- ------------ ---------- ------------
COMMISSIONS AND FEES:
Yellow page advertising........................ $ 87,456 $ 94,545 $ 95,768 $ 71,375 $ 75,982
Recruitment advertising........................ 43,846 71,502 125,474 86,216 126,259
Search & selection............................. 51,980 50,613 70,776 49,382 63,889
Internet(1).................................... 392 6,659 18,601 12,922 31,724
---------- ---------- ------------ ---------- ------------
Total.......................................... $ 183,674 $ 223,319 $ 310,619 $ 219,895 $ 297,854
---------- ---------- ------------ ---------- ------------
---------- ---------- ------------ ---------- ------------
COMMISSIONS AND FEES AS A PERCENTAGE OF GROSS
BILLINGS:
Yellow page advertising........................ 20.4% 21.7% 20.9% 20.4% 20.4%
Recruitment advertising........................ 22.5% 20.9% 20.8% 20.6% 20.9%
Search & selection............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Internet(1).................................... 100.0% 100.0% 94.7% 95.4% 91.1%
Total.......................................... 27.1% 26.8% 27.0% 26.5% 27.7%
EBITDA(2)........................................ $ 28,700 $ (21,521) $ 43,856 $ 33,283 $ 42,036
Cash provided by operating activities............ $ 8,592 $ 10,991 $ 19,710 $ 20,719 $ 25,081
Cash used in investing activities................ $ (15,136) $ (30,903) $ (75,992) $ (63,326) $ (28,496)
Cash provided by financing activities............ $ 7,501 $ 18,772 $ 58,103 $ 42,795 $ 1,339
</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
3
<PAGE>
flow statement data prepared in accordance with generally accepted
accounting principles or as a measure of the Company's profitability or
liquidity. EBITDA for the indicated periods is calculated as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- --------------------
EBITDA CALCULATION 1995 1996 1997 1997 1998
- ---------------------------------------------------------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS) (UNAUDITED)
Net income (loss)......................................... $ 5,440 $ (49,772) $ 10,405 $ 8,132 $ 9,296
Interest, net........................................... 10,654 14,216 8,813 6,453 7,507
Income tax expense...................................... 5,100 4,125 9,571 7,894 7,735
Depreciation and amortization........................... 7,506 9,910 15,067 10,804 17,498
--------- ---------- --------- --------- ---------
EBITDA.................................................... $ 28,700 $ (21,521) $ 43,856 $ 33,283 $ 42,036
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1997
Gross billings for the nine months ended September 30, 1998 were $1,076.2
million, a net increase of $245.5 million or 29.6% from $830.7 million for the
nine months ended September 30, 1997. This increase in gross billings resulted
primarily from acquisitions in recruitment advertising. Commissions and fees for
the nine months ended September 30, 1998 were $297.9 million, an increase of
$78.0 million or 35.5% from $219.9 million in the first nine months of 1997.
Recruitment commissions and fees were $126.3 million for the nine months ended
September 30, 1998 compared with $86.2 million for the nine months ended
September 30, 1997, an increase of $40.1 million or 46.4%. This increase was
primarily due to acquisitions which contributed approximately $38.6 million,
foreign currency exchange fluctuations with a negative effect of approximately
$2.7 million and approximately $4.1 million from increased client spending and
new clients partially offset by client losses. Yellow page commissions and fees
were $76.0 million for the nine months ended September 30, 1998 compared with
$71.4 million for the nine months ended September 30, 1997, an increase of 6.4%
or $4.6 million. Approximately $3.0 million of such increase was due to net
increases in client spending and new clients and approximately $1.5 million was
due to acquisitions. Search and selection fees were $63.9 million compared with
$49.4 million for the nine months ended September 30, 1997, an increase of $14.5
million, due to acquisitions, primarily in executive search. Internet
commissions and fees increased 145.7% or $18.8 million to $31.7 million for the
nine months ended September 30, 1998 from $12.9 million for the nine months
ended September 30, 1997. This increase reflects an increasing acceptance of the
Company's Internet products from existing and new clients, the benefits of
"co-branding" marketing efforts with other Internet content providers and
increased sales and marketing activities.
Operating expenses for the nine months ended September 30, 1998 were $272.2
million, compared with $197.1 million for the same period in 1997. The increase
of $75.1 million or 38.1% reflects acquisition activity, including $9.6 million
for merger costs. The $9.6 million in merger costs is comprised of (1) $5.5
million of non-cash employee stay bonuses, which included (a) $2.1 million for
the amortization of 50% of a $4.2 million charge being expensed over the twelve
months from April 1, 1998 to March 31, 1999 for TMP shares set aside for key
personnel of JSK who must remain employees of the Company for a full year in
order to earn such shares, (the "JSK Stay Bonus") and (b) $3.4 million for TMP
shares issued to key personnel of TASA as employee stay bonuses and (2) $4.1
million of transaction related costs, including legal, accounting and advisory
fees and the costs incurred for the subsequent registration of shares issued in
the acquisitions. The after tax effect of this charge is $6.2 million or $.21
per diluted share. Salary and related costs for the nine months ended September
30, 1998 were $164.0 million, a $41.6 million or 33.9% increase over the $122.4
million for the nine months ended September 30, 1997. This increase is due to
the growth of the Company's businesses. The ratio of salary and related costs
for the nine months ended September 30, 1998 to commissions and fees was 55.1%
compared with 55.7% ratio for the nine months ended September 30, 1997. Office
and general costs was $91.1 million, a $22.0 million or 31.8% increase
4
<PAGE>
over the $69.1 million for the nine months ended September 30, 1997. However,
office and general expenses as a percentage of commissions and fees declined to
30.6% for the nine months ended September 30, 1998 from 31.4% in the prior year
period.
As a result of the above, operating income for the nine months ended
September 30, 1998 increased $2.9 million or 12.6% to $25.7 million from $22.8
million for the comparable period last year.
Net interest expense for the nine months ended September 30, 1998 was $7.5
million, an increase of $1.0 million or 15.4% over the $6.5 million for the
comparable period in 1997, reflecting a net increase in debt resulting from
acquisitions and capital expenditures.
Taxes on income for the nine months ended September 30, 1998 were $7.7
million on a pretax profit of $17.3 million, for an effective tax rate of 44.5%.
This compares with taxes of $7.9 million for the same period last year on a
pretax profit of $16.3 million, for an effective tax rate of 48.5%. The lower
effective tax rate reflects a benefit in 1998 from operating loss carryovers of
certain subsidiaries that were previously unable to benefit from losses and the
effect in 1997 of higher state and foreign tax rates.
For the nine months ended September 30, 1998, equity in losses of affiliates
was $297,000, reflecting losses at the Company's minority owned real estate
advertising affiliate, as compared with a $20,000 loss for the same period in
1997. Minority interests in consolidated earnings for the nine months ended
September 30, 1997 were $.3 million and preferred dividends for the nine months
ended September 30, 1997 were $123,000. There were no such items in 1998 because
the underlying instruments were redeemed in 1997.
As a result of all of the above, net income available to common and Class B
common stockholders for the nine months ended September 30, 1998 was $9.3
million, an increase of $1.3 million or 16.3% over the $8.0 million for the nine
months ended September 30, 1997. Per diluted share, earnings for the nine months
ended September 30, 1998 was $.31, an increase of $.01 or 4.7% over the $.30 for
the nine months ended September 30, 1997.
THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Gross billings for the year ended December 31, 1997 were $1.2 billion, a
$316.6 million or 38.0% increase when compared to gross billings for the year
ended December 31, 1996. The growth is primarily due to acquisitions in
recruitment advertising, rate increases in yellow page advertising and increased
clients and higher client spending for search & selection and Internet.
Commissions and fees increased to $310.6 million for the year ended December
31, 1997 from $223.3 million for the year ended December 31, 1996, an increase
of 39.1%. This reflects increases, as compared to the prior year period, in
commissions and fees for (a) recruitment advertising of $54.0 million or 75.5%,
(b) search & selection of $20.2 million or 39.8%, (c) yellow page advertising of
$1.2 million or 1.3% and (d) 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 for search & selection was due
primarily to increased client spending in the U.S. 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 $49.5 million to $172.5 million for the
year ended December 31, 1997. As a percent of commissions and fees, salaries and
related costs increased to 55.5% for the year ended December 31, 1997 from 55.1%
for the year ended December 31, 1996. This increase was primarily
5
<PAGE>
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 search & selection
operations.
Office and general expenses increased $26.9 million to $101.2 million for
the year ended December 31, 1997. As a percent of commissions and fees, office
and general expenses decreased to 32.6% for the year ended December 31, 1997
from 33.3% for the year ended December 31, 1996. This decrease was primarily due
to consolidation of offices, which slowed the growth of office related expenses,
increased growth in recruitment advertising commissions and fees combined with
the relatively fixed nature of some of these expenses and generally lower office
and general expenses as a percentage of commissions and fees for search &
selection operations.
Amortization of intangibles was $6.3 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 2.0% for both of the
years ended December 31, 1997 and 1996, respectively.
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 $59.5 million to $29.1 million for the year ended
December 31, 1997 as compared with an operating loss of $(30.4) million for the
year ended December 31, 1996. The increase was primarily due to the 1996
non-recurring special compensation charge and increased recruitment advertising
commissions and fees and Internet billings. As a percent of commissions and
fees, operating income was 9.4% for the year ended December 31, 1997 as compared
to a loss of 13.6% for the year ended December 31, 1996. The lower percent for
1996 was primarily due to the 1996 non-recurring special compensation charge,
expenses related to the introduction of its Internet business, and costs in
connection with the consolidation of the recruitment advertising acquisitions.
Net interest expense decreased $5.4 million to $8.8 million for the year
ended December 31, 1997 as compared to $14.2 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.
6
<PAGE>
Taxes on income increased $5.5 million to $9.6 million for the year ended
December 31, 1997 from $4.1 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 47.5% compared with (9.1)% 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 nondeductible special compensation 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.
The net income applicable to common and Class B common stockholders was
$10.3 million for the year ended December 31, 1997, or $.37 per diluted share,
compared with a net loss of $50.0 million, or $(2.24) per diluted share, for the
year ended December 31, 1996.
THE YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Gross billings for the year ended December 31, 1996 were $834.0 million, a
$157.4 million or 23.3% increase compared to the year ended December 31, 1995.
This increase in gross billings is primarily due to acquisitions in recruitment
advertising and increased acceptance of the Company's Internet business.
Commissions and fees increased to $223.3 million for the year ended December
31, 1996 from $183.7 million for the year ended December 31, 1995, an increase
of 21.6%. This increase was due to increases, as compared to the prior year
period, of $27.7 million or 63% 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. Search & Selection revenue decreased $1.4 million, or 2.6% due to
decreases in client spending in 1996. A substantial portion of the increase in
commissions and fees derived from recruitment advertising was due to
acquisitions, including $11.2 million from Neville Jeffress, acquired July 1996,
and the remainder was due to higher client spending and new clients. The
increase in commissions and fees derived from yellow page advertising was due
primarily to increased rates by the yellow page publishers and higher client
spending. 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 $22.8 million to $123.0 million for the
year ended December 31, 1996. As a percent of commissions and fees, salaries and
related costs increased to 55.1% for the year ended December 31, 1996 from 54.5%
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 $16.9 million to $74.3 million for the
year ended December 31, 1996. As a percent of commissions and fees, office and
general expenses increased to 33.3% for the year ended December 31, 1996 from
31.2% 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 Trademark-, general
expenses related to higher gross billings, professional consulting fees for the
establishment of Internet services and airplane related travel costs.
Amortization of intangibles was $4.4 million 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 2.0% and 1.8% for the
years ended December 31, 1996 and 1995, respectively.
7
<PAGE>
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 declined $53.3 million to $(30.4) million for the year
ended December 31, 1996 as compared with operating income of $23.0 million for
the year ended December 31, 1995. The decline was primarily due to the $52.0
million non-cash compensation charge and increased advertising expenses of $2.5
million for the Company's Internet business. As a percent of commissions and
fees, operating income declined to (13.6)% for the year ended December 31, 1996
from 12.5% for the year ended December 31, 1995. This decline in operating
income as a percent of commissions and fees was primarily due to the 1996
special compensation charge, increased advertising expenses of $2.5 million for
the Company's introduction of its Internet business, and costs in connection
with the consolidation of the recruitment advertising acquisitions.
Net interest expense increased $3.5 million to $14.2 million for the year
ended December 31, 1996 as compared to $10.7 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 15.3% for the year ended
December 31, 1996 compared with 11.9% for the year ended December 31, 1995. The
higher rate in 1996 was due primarily to the $2.6 million non-cash, non
recurring charge in 1996.
Taxes on income decreased $1.0 million to $4.1 million for the year ended
December 31, 1996 from $5.1 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 (9.1)% was higher than the
U.S. Federal statutory rate of 34.0% primarily due to nondeductible special
compensation of $52.0 million and $2.6 million in interest expense described
above and 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
45.3%, and nondeductible expenses for 1995 were lower than in 1996.
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 and during the nine months ended September 30, 1998 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
8
<PAGE>
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 nine months ended
September 30, 1998 was $24.0 million compared with $19.3 million for the nine
months ended September 30, 1997. The increase of $4.7 million for the 1998
period compared with the 1997 period was primarily due to (1) $6.2 million of
charges funded through stock issuances compared with $.6 million for the 1997, a
$5.6 million improvement, (2) a $4.5 million increase in depreciation and
amortization expenses, and (3) a $1.1 million benefit in 1998, from the increase
in accounts payable over accounts receivable while the change in these items for
the 1997 period reflected a $5.0 million net use of cash, reflecting increased
payments to yellow page vendors, a $6.1 million improvement. The cash for these
payments was provided by higher borrowing capacity after the Company repaid a
portion of its bank debt with proceeds from its initial public offering in
December 1996.
Net cash provided by operating activities for the years ended December 31,
1997, 1996 and 1995 was $19.7 million, $11.0 million and $8.6 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 nine months ended September
30, 1998 was $28.5 million compared with $63.3 million for the nine months ended
September 30, 1997. The $34.8 million decrease from the nine months ended
September 30, 1997 to the nine months ended September 30, 1998 was primarily due
to $41.6 million less in payments for acquisitions, reflecting the use of shares
to make acquisitions of businesses, and $1.5 million less in capital
expenditures. In addition, in the nine months ended September 30, 1997 the
Company received a net payment of $11.8 million from its principal stockholder,
as he used proceeds from the sale of some of his TMP stock sold in the secondary
offering to repay the net outstanding debt owed to the Company.
Net cash used in investing activities for the years ended December 31, 1997,
1996 and 1995 was $76.0 million, $30.9 million and $15.1 million, respectively.
During 1997, with funds received from their sale of shares included with the
Company's secondary public offering, the Company's principal stockholder and
certain stockholders repaid $14.5 million to the Company. Payments for purchases
of business acquisitions were $66.8 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
$20.6 million, $8.8 million and $6.3 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
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 was $42.0 million for the nine months ended September 30, 1998, an
increase of $8.7 million or 26.1% from $33.3 million for the nine months ended
September 30, 1997. This improvement for 1998 as compared with 1997, reflects a
$6.7 million increase in depreciation and amortization expense for 1998 as
compared with 1997. However, as a percentage of commissions and fees, EBITDA
decreased to 14.1% for the nine months ended September 30, 1998 from 15.1% for
the nine months ended September 30, 1997.
9
<PAGE>
The decrease resulted primarily from the $9.6 million charge for merger costs,
which was 3.2% of commissions and fees for the nine months ended September 30,
1998.
EBITDA increased $65.4 million to $43.9 million for the year ended December
31, 1997 from $(21.5) million for the year ended December 31, 1996. As a percent
of commissions and fees EBITDA increased to 14.1% for the year ended December
31, 1997 as compared to (9.6)% for the year ended December 31, 1996. The
increase primarily reflects the effect of the 1996 special compensation charge.
For the year ended December 31, 1996, EBITDA decreased $50.2 million to $(21.5)
million or 175.0% as compared to the year ended December 31, 1995. As a percent
of commissions and fees, EBITDA declined to (9.6)% for the year ended December
31, 1996 from 15.6% for the year ended December 31, 1995 primarily due to the
1996 special compensation charge, 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 $1.3 million and $42.8 million in the nine months ended September 30, 1998
and 1997, respectively. The decrease of $41.5 million for the nine-month period
in 1997 to the nine-month period in 1998 primarily reflects the $45.9 million
receipt and use of cash from the Company's 1997 Secondary Offering, partially
offset in 1998 by net borrowings of $4.6 million. The Company's financing
activities provided net cash of $58.1 million, $18.8 million and $7.5 million in
1997, 1996 and 1995, respectively. In November, 1997 the Company amended its
financing agreement with its primary lender 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 September 30, 1998, there was approximately $50.9 available under such
facility, and $20.9 million could be borrowed based on the eligible collateral
base. On November 5, 1998, the Company renegotiated its existing credit facility
with its primary lender. The new agreement provides for a five year $175 million
revolving credit facility at lower borrowing costs than the previous agreement,
putting the Company's current interest rate at LIBOR plus 87.5 basis points. In
addition, the Company has secured lines of credit aggregating $6 million for its
operations in Australia, France, Belgium and the Netherlands of which
approximately $3 million was unused at September 30, 1998. 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 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 $9.1 million at September 30, 1998 and $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
10
<PAGE>
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.
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 $2.5 million during the remainder of 1998 and during 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.
11
<PAGE>
The following table sets forth summary quarterly unaudited financial
information for the nine months ended September 30, 1998, and the years ended
December 31, 1997 and 1996. Amounts have been restated to reflect the effect of
the retroactive restatement for business combinations completed in 1998,
accounted for as poolings-of-interests, and the change in accounting for a
waived bonus to the Company's CEO/ Principal Stockholder:
<TABLE>
<CAPTION>
1998 QUARTERS
---------------------------------------
<S> <C> <C> <C>
MARCH 31, JUNE 30, SEPTEMBER 30,
----------- ----------- -------------
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AND
SHARE AMOUNTS)
<S> <C> <C> <C>
Commissions and fees:
Recruitment advertising.................................................... $ 43.5 $ 43.1 $ 39.6
Yellow page advertising.................................................... 21.6 24.9 29.5
Search & selection......................................................... 20.2 22.4 21.3
Internet................................................................... 7.7 10.7 13.3
----------- ----------- ------
Total commissions and fees................................................... $ 93.0 $ 101.1 $ 103.7
----------- ----------- ------
----------- ----------- ------
Operating income............................................................. $ 7.5 $ 9.8 $ 8.4
Net income applicable to common and Class B common stockholders.............. $ 2.8 $ 3.4 $ 3.1
Net income per common and Class B common share:
Basic...................................................................... $ 0.09 $ 0.12 $ 0.11
Diluted.................................................................... $ 0.09 $ 0.11 $ 0.11
Weighted average shares outstanding (in thousands):
Basic...................................................................... 29,087 29,138 29,094
Diluted.................................................................... 30,109 29,908 29,961
</TABLE>
<TABLE>
<CAPTION>
1997 QUARTERS
------------------------------------------------------
<S> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- -------------
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Commissions and fees:
Yellow page advertising..................................... $ 19.7 $ 23.0 $ 28.6 $ 24.4
Recruitment advertising..................................... 25.4 28.5 33.2 39.3
Search & selection.......................................... 13.1 16.7 18.7 21.3
Internet.................................................... 3.8 4.4 4.7 5.7
----------- ----------- ------ ------
Total commissions and fees.................................... $ 62.0 $ 72.6 $ 85.3 $ 90.7
----------- ----------- ------ ------
----------- ----------- ------ ------
Operating income.............................................. $ 5.5 $ 6.9 $ 10.4 $ 6.3
Net income applicable to common and Class B common
stockholders................................................ $ 1.5 $ 2.6 $ 3.9 $ 2.3
Net income per common and Class B common share:
Basic....................................................... $ 0.06 $ 0.10 $ 0.14 $ 0.08
Diluted..................................................... $ 0.06 $ 0.10 $ 0.14 $ 0.08
Weighted average shares outstanding (in thousands):
Basic....................................................... 26,448 26,471 26,959 29,042
Diluted..................................................... 26,770 26,976 27,514 29,552
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
1996 QUARTERS
------------------------------------------------------
<S> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- -------------
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Commissions and fees:
Yellow page advertising..................................... $ 20.4 $ 23.0 $ 27.8 $ 23.4
Recruitment advertising..................................... 14.8 14.2 20.8 21.0
Search & selection.......................................... 11.2 13.4 13.1 13.5
Internet.................................................... .9 1.5 2.0 2.2
----------- ----------- ------ ------
Total commissions and fees.................................... $ 47.3 $ 52.8 $ 63.7 $ 60.1
----------- ----------- ------ ------
----------- ----------- ------ ------
Operating income (loss)....................................... $ 4.1 $ 4.4 $ 4.2 $ (43.0)
Net income (loss) applicable to common and Class B common
stockholders................................................ $ 0.2 $ 1.3 $ (0.1) $ (51.4)
Net income (loss) per common and Class B common share:
Basic....................................................... $ 0.01 $ 0.06 $ (0.01) $ (2.30)
Diluted..................................................... $ 0.01 $ 0.06 $ (0.01) $ (2.30)
Weighted average shares outstanding (in thousands):
Basic....................................................... 22,180 22,149 21,954 22,834
Diluted..................................................... 22,180 22,598 21,954 22,834
</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.
13
<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 Notes 5 and 13B, the accompanying financial statements have
been restated to reflect the effect of business combinations accounted for as
poolings of interests consummated subsequent to December 31, 1997 and 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 5 and 13B
for which the date is December 17, 1998
14
<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............................................................... $ 14,931 $ 13,110
Accounts receivable, net................................................................ 275,461 208,834
Work-in-process......................................................................... 15,623 14,709
Prepaid and other....................................................................... 14,178 8,634
---------- ----------
Total current assets.................................................................. 320,193 245,287
Receivable from Principal Stockholder, net................................................ -- 11,413
Property and equipment, net............................................................... 42,408 24,061
Deferred income taxes..................................................................... 4,922 9,325
Intangibles, net.......................................................................... 161,148 73,975
Other assets.............................................................................. 7,657 5,713
---------- ----------
$ 536,328 $ 369,774
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 216,220 $ 190,622
Accrued expenses and other current liabilities.......................................... 50,979 37,041
Accrued restructuring costs............................................................. 16,801 --
Deferred revenue........................................................................ 7,992 3,569
Deferred income taxes................................................................... 10,733 9,818
Current portion of long-term debt....................................................... 11,750 12,129
---------- ----------
Total current liabilities............................................................. 314,475 253,178
Long-term debt, less current portion...................................................... 117,825 71,672
---------- ----------
Total liabilities..................................................................... 432,300 324,850
---------- ----------
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--15,476,440 and 11,586,250, shares, respectively.......................... 15 11
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.............................................................. 165,250 106,800
Foreign currency translation adjustment................................................. (117) 1,415
Deficit................................................................................. (61,134) (68,399)
---------- ----------
Total stockholders' equity............................................................ 104,028 39,842
---------- ----------
$ 536,328 $ 369,774
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
15
<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............................................................ $ 310,619 $ 223,319 $ 183,674
--------- --------- ---------
Operating expenses:
Salaries and related costs.................................................... 172,528 122,964 100,162
Office and general............................................................ 101,176 74,252 57,310
Amortization of intangibles................................................... 6,269 4,440 3,237
Special compensation and CEO bonus............................................ 1,500 52,019 --
--------- --------- ---------
Total operating expenses.................................................. 281,473 253,675 160,709
--------- --------- ---------
Operating income (loss)................................................... 29,146 (30,356) 22,965
--------- --------- ---------
Other income (expense):
Interest expense.............................................................. (11,219) (14,804) (11,489)
Interest income............................................................... 2,406 588 835
Other, net.................................................................... (181) (755) (1,057)
--------- --------- ---------
(8,994) (14,971) (11,711)
--------- --------- ---------
Income (loss) before provision for income taxes, minority interests and equity
in earnings (losses) of affiliates............................................ 20,152 (45,327) 11,254
Provision for income taxes...................................................... 9,571 4,125 5,100
--------- --------- ---------
Income (loss) before minority interests and equity in earnings (losses) of
affiliates.................................................................... 10,581 (49,452) 6,154
Minority interests.............................................................. 143 434 435
Equity in earnings (losses) of affiliates....................................... (33) 114 (279)
--------- --------- ---------
Net income (loss)............................................................... 10,405 (49,772) 5,440
Preferred stock dividends....................................................... (123) (210) (210)
--------- --------- ---------
Net income (loss) applicable to common and Class B common stockholders.......... $ 10,282 $ (49,982) $ 5,230
--------- --------- ---------
--------- --------- ---------
Net income (loss) per common and Class B common share:
Basic......................................................................... $ .38 $ (2.24) $ .24
--------- --------- ---------
--------- --------- ---------
Diluted....................................................................... $ .37 $ (2.24) $ .23
--------- --------- ---------
--------- --------- ---------
Weighted average shares outstanding:
Basic......................................................................... 27,224 22,280 22,045
--------- --------- ---------
--------- --------- ---------
Diluted....................................................................... 27,716 22,280 22,497
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
16
<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 (as restated for pooling-of-interests
transactions)......................................................... 7,257,683 $ 7 14,787,541 $ 15
Foreign currency translation adjustment............................... -- -- -- --
Dividends on preferred stock.......................................... -- -- -- --
Dividends paid by pooled companies.................................... -- -- -- --
Net income............................................................ -- -- -- --
--------- ----------- --------- -----------
Balance, December 31, 1995.............................................. 7,257,683 7 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.......................................... -- -- -- --
Dividends paid by pooled companies.................................... -- -- -- --
Special compensation.................................................. -- -- -- --
Net loss.............................................................. -- -- -- --
--------- ----------- --------- -----------
Balance, December 31, 1996.............................................. 11,586,250 11 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.................... -- -- -- --
Dividends paid by pooled companies....................................
Net income............................................................ -- -- -- --
--------- ----------- --------- -----------
Balance, December 31, 1997.............................................. 15,476,440 $ 15 13,587,541 $ 14
--------- ----------- --------- -----------
--------- ----------- --------- -----------
<CAPTION>
TOTAL
ADDITIONAL FOREIGN CURRENCY STOCKHOLDERS'
PAID-IN TRANSLATION EQUITY
CAPITAL ADJUSTMENT DEFICIT (DEFICIT)
----------- ----------------- --------- ---------------
<S> <C> <C> <C> <C>
Balance, January 1, 1995 (as restated for pooling-of-interests
transactions)......................................................... $ 652 $ 780 $ (19,360) $ (17,906)
Foreign currency translation adjustment............................... -- 966 -- 966
Dividends on preferred stock.......................................... -- -- (210) (210)
Dividends paid by pooled companies.................................... -- -- (1,130) (1,130)
Net income............................................................ -- -- 5,440 5,440
----------- ------- --------- ---------------
Balance, December 31, 1995.............................................. 652 1,746 (15,260) (12,840)
Stock repurchase agreements........................................... 1,172 -- -- 1,172
Issuance of common stock for purchase of minority interest in
subsidiary.......................................................... 1,055 -- -- 1,055
Issuance of common stock as compensation.............................. 20 -- -- 20
Repurchase and cancellation of common stock........................... (675) -- (1,485) (2,160)
Issuance of common stock for purchase of minority interest in
subsidiary.......................................................... 672 -- -- 672
Issuance of common stock.............................................. 50,779 -- -- 50,783
Issuance of common stock in connection with the exercise of options... 347 -- -- 347
Issuance of common stock in connection with exercise of warrant....... 2,603 -- -- 2,603
Foreign currency translation adjustment............................... -- (331) -- (331)
Dividends on preferred stock.......................................... -- -- (210) (210)
Dividends paid by pooled companies.................................... -- -- (1,672) (1,672)
Special compensation.................................................. 50,175 -- -- 50,175
Net loss.............................................................. -- -- (49,772) (49,772)
----------- ------- --------- ---------------
Balance, December 31, 1996.............................................. 106,800 1,415 (68,399) 39,842
Issuance of common stock in connection with the exercise of options... 643 -- -- 643
Tax benefit of stock options exercised................................ 175 -- -- 175
Capital contribution from Principal Stockholder: re CEO bonus and
other............................................................... 1,775 -- -- 1,775
Issuance of common stock in connection with acquisitions.............. 3,136 -- -- 3,137
Issuance of common stock for purchase of an equity interest in a
subsidiary.......................................................... 1,000 -- -- 1,000
Conversion of shares.................................................. -- -- -- --
Issuance of common stock.............................................. 51,166 -- -- 51,168
Issuance of common stock for matching contribution to 401(k) plan..... 555 -- -- 555
Foreign currency translation adjustment............................... -- (1,532) -- (1,532)
Dividend and redemption premium on preferred stock.................... -- -- (123) (123)
Dividends paid by pooled companies.................................... (3,017) (3,017)
Net income............................................................ -- -- 10,405 10,405
----------- ------- --------- ---------------
Balance, December 31, 1997.............................................. $ 165,250 $ (117) $ (61,134) $ 104,028
----------- ------- --------- ---------------
----------- ------- --------- ---------------
</TABLE>
17
<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)................................................................. $ 10,405 $ (49,772) $ 5,440
--------- --------- ---------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization of property and equipment......................... 8,798 5,470 4,269
Amortization of intangibles..................................................... 6,269 4,440 3,237
Provision for doubtful accounts................................................. 3,479 3,264 3,111
Special compensation............................................................ -- 52,019 --
Interest expense for shares issued upon exercise of warrant..................... -- 2,603 --
Provision for deferred income taxes............................................. 5,155 1,573 3,005
CEO bonus and indemnity payment................................................. 1,775 -- --
Minority interests.............................................................. 143 434 435
Other........................................................................... 3 451 542
Changes in assets and liabilities, net of effects from purchases of businesses:
Increase in accounts receivable, net............................................ (5,513) (6,760) (33,085)
(Increase) decrease in work-in-process.......................................... 42 68 (1,705)
Increase in prepaid and other................................................... (759) (787) 259
(Increase) decrease in other assets............................................. (1,134) (286) (1,066)
Increase (decrease) in accounts payable, accrued expenses and other current
liabilities.................................................................... (8,953) (1,726) 24,150
--------- --------- ---------
Total adjustments............................................................. 9,305 60,763 3,152
--------- --------- ---------
Net cash provided by operating activities..................................... 19,710 10,991 8,592
--------- --------- ---------
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.............................................................. (20,573) (8,772) (6,317)
Payments for purchases of businesses, net of cash acquired........................ (66,832) (23,755) (11,324)
Proceeds from sale of assets...................................................... -- 6,115 12
Repayments from affiliates........................................................ -- 393 835
--------- --------- ---------
Net cash used in investing activities......................................... (75,992) (30,903) (15,136)
--------- --------- ---------
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...... 721,074 486,457 542,431
Repayments under line of credit and principal payments on long-term debt.......... (703,164) (511,583) (532,043)
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)
Dividends paid by pooled companies................................................ (3,017) (1,672) (1,130)
--------- --------- ---------
Net cash provided by financing activities..................................... 58,103 18,772 7,501
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents................................ 1,821 (1,140) 957
Cash and cash equivalents, beginning of year........................................ 13,110 14,250 13,293
--------- --------- ---------
Cash and cash equivalents, end of year.............................................. $ 14,931 $ 13,110 $ 14,250
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
18
<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.
19
<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.
20
<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.
21
<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.
22
<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........................................................... 27,224
Effect of assumed conversion of stock options................... 492
-----------
Diluted......................................................... 27,716
-----------
-----------
December 31, 1996:
Basic........................................................... 22,280
-----------
Diluted......................................................... 22,280
-----------
-----------
December 31, 1995:
Basic........................................................... 22,045
Effect of assumed conversion of stock options................... 223
Effect of assumed conversion of warrant......................... 229
-----------
Diluted......................................................... 22,497
-----------
-----------
</TABLE>
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.
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.
23
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 3--ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Trade................................................................. $ 271,128 $ 203,145
Earned commissions(a)................................................. 14,491 13,166
---------- ----------
285,619 216,311
Less: Allowance for doubtful accounts................................. 10,158 7,447
---------- ----------
Accounts receivable, net.......................................... $ 275,461 $ 208,834
---------- ----------
---------- ----------
</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................................................. 66,293 49,224
Leasehold improvements.................................................. 6,072 4,177
Transportation equipment................................................ 9,151 360
--------- ---------
82,432 54,705
Less: Accumulated depreciation and amortization......................... 40,024 30,644
--------- ---------
Property and equipment, net......................................... $ 42,408 $ 24,061
--------- ---------
--------- ---------
</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.
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
During the nine month period ended September 30, 1998, the Company completed
three pooling of interest transactions (issuing 2,980,814 common shares in
connection therewith). Consequently, the accompanying financial statements have
been retroactively restated to include the accounts and results of operations of
the pooled companies for all periods presented.
24
<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)
Commissions and fees and net income (loss) of the combining entities for the
three years ending December 31, are as follows:
<TABLE>
<CAPTION>
COMMISSIONS AND FEES 1997 1996 1995
- --------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
TMP, as previously reported.............................. $ 237,417 $ 162,631 $ 123,907
Johnson Smith & Knisely Inc.............................. 21,868 12,850 12,509
TASA Holding AG.......................................... 39,518 37,763 39,471
Stackig Inc.............................................. 11,816 10,075 7,787
---------- ---------- ----------
TMP, as restated......................................... $ 310,619 $ 223,319 $ 183,674
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
NET INCOME (LOSS) 1997 1996 1995
- ------------------------------------------------------------ ---------- ---------- ---------
<S> <C> <C> <C>
TMP, as previously reported................................. $ 9,500 ($ 52,449) $ 3,019
Restatement for change in net income. See accounting for CEO
bonus (Note 13B).......................................... (1,500) -- --
---------- ---------- ---------
Net income (loss), as adjusted.............................. 8,000 (52,449) 3,019
Johnson Smith & Knisely Inc................................. 289 364 572
TASA Holding AG............................................. 422 367 557
Stackig Inc................................................. 1,571 1,736 1,082
---------- ---------- ---------
TMP, as restated............................................ $ 10,282 ($ 49,982) $ 5,230
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
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:
25
<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)
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.
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...................................................................... $ 358,456 $ 321,801
Net income (loss) applicable to common and Class B common stockholders.................... $ 10,755 $ (48,481)*
Net income (loss) per common and Class B common share:
Basic................................................................................... $.41 $(2.18)*
Diluted................................................................................. $.39 $(2.18)*
</TABLE>
- ------------------------
* Includes non-cash, non-recurring special compensation and interest charges
in the amounts of $52,019 and $2,603, respectively.
26
<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)
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.
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
$10,760 and $6,428,
respectively.......................................... 148,080 62,947 10 to 30
Other, net of accumulated amortization of $2,103 and
$1,709, respectively.................................. 797 779 4 to 10
---------- ---------
$ 161,148 $ 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
27
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 7--FINANCING AGREEMENT (CONTINUED)
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.
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 and pooled companies, prior to acquisitions........ 4,707 5,421
Acquisition notes payable in annual and monthly installments through
1997 with interest at 8.5%........................................... -- 4,324
Other acquisition notes payable, noninterest bearing, interest imputed
at 6.7% to 8.0%, in varying installments through 2001................ 10,601 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 to shareholders of pooled companies. Interest at LIBOR
plus 2.25%, payable in annual principal payments maturing December
1999................................................................. 670 75
Notes payable, in varying monthly installments maturing through 2002,
with interest at rates ranging from 7.5% to 9.0%, secured by certain
assets of pooled companies........................................... 2,792 3,275
---------- ---------
129,575 83,801
Less: Current portion.................................................. 11,750 12,129
---------- ---------
$ 117,825 $ 71,672
---------- ---------
---------- ---------
</TABLE>
28
<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 (CONTINUED)
The noncurrent portion of long-term debt matures as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
1999................................................................................................ $ 7,301
2000................................................................................................ 4,517
2001................................................................................................ 96,825*
2002................................................................................................ 7,635
Thereafter.......................................................................................... 1,547
------------
$ 117,825
------------
------------
</TABLE>
- ------------------------
* Of this amount, $95,800 is subject to automatic one year extentions. See
Note 7.
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
29
<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)
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.
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
30
<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)
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 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.
31
<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)
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....................... $ 5,166 $ (50,595)*
Net income (loss) per common and Class B common share:
Basic...................................................................................... $.19 $(2.27)*
Diluted.................................................................................... $.19 $(2.27)*
</TABLE>
- ------------------------
* Including non-cash, non-recurring charges for special compensation of
$52,019 and interest of $2,603.
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.
32
<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......................................................... $ 10,274 $ (47,890) $ 9,024
Foreign.......................................................... 9,878 2,563 2,230
--------- ---------- ---------
Total income (loss) before provision (benefit) for income
taxes, minority interests and equity in earnings (losses) of
affiliates................................................... $ 20,152 $ (45,327) $ 11,254
--------- ---------- ---------
--------- ---------- ---------
</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................................................... $ 357 $ 145 $ 201
State and local................................................ 2,293 984 448
Foreign........................................................ 1,986 1,423 1,446
--------- --------- ---------
Total current................................................ 4,636 2,552 2,095
--------- --------- ---------
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.............................................. $ 9,591 $ 4,125 $ 5,100
--------- --------- ---------
--------- --------- ---------
</TABLE>
33
<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 1996 1995
--------- ---------- ---------
Provision (benefit) at Federal statutory rate.................. $ 6,852 $ (15,411) $ 3,826
State income taxes, net of Federal income tax effect........... 752 438 649
Nondeductible expenses......................................... 1,026 685 419
Nondeductible special charge and bonus......................... 510 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......................................................... 955 416 431
In case of pooled companies taxed directly at the shareholder
level........................................................ (644) (727) (589)
Other.......................................................... 120 (108) (337)
--------- ---------- ---------
Income tax provision........................................... $ 9,571 $ 4,125 $ 5,100
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
34
<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 $ 15,279
1999..................................................................... 2,911 13,662
2000..................................................................... 1,755 11,703
2001..................................................................... 271 8,736
2002..................................................................... 9 6,655
Thereafter............................................................... -- 20,905
--------- -----------
8,137 $ 76,940
-----------
-----------
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 $15,788,
$13,887, and $10,686 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, as amended, the Principal Stockholder is
entitled to a base salary of $1,500 per year and mandatory bonuses of $375 per
quarter through November, 1998 when the bonus
35
<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)
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 as amended 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
36
<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
37
<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, SEGMENT AND OTHER DATA
The Company is engaged in two lines of business, the placing of advertising
in various media and executive and mid-level executive search & selection.
Line of business information is as follows:
<TABLE>
<CAPTION>
NET IDENTIFIABLE
REVENUE INCOME ASSETS DEPRECIATION
----------- ---------- --------------- -----------------
<S> <C> <C> <C> <C>
December 31, 1997
Advertising......................................... $ 249,233 $ 9,694 $ 505,904 $ 8,082
Search & selection.................................. 61,386 711 30,424 716
----------- ---------- --------------- ------
Total............................................. $ 310,619 $ 10,405 $ 536,328 $ 8,798
----------- ---------- --------------- ------
----------- ---------- --------------- ------
December 31, 1996
Advertising......................................... $ 172,706 $ (50,503) $ 340,773 $ 4,812
Search & selection.................................. 50,613 731 29,001 658
----------- ---------- --------------- ------
Total............................................. $ 223,319 $ (49,772) $ 369,774 $ 5,470
----------- ---------- --------------- ------
----------- ---------- --------------- ------
December 31, 1995
Advertising......................................... $ 131,694 $ 4,311 $ 265,437 $ 3,755
Search & selection.................................. 51,980 1,129 28,227 514
----------- ---------- --------------- ------
Total............................................. $ 183,674 $ 5,440 $ 293,664 $ 4,269
----------- ---------- --------------- ------
----------- ---------- --------------- ------
</TABLE>
38
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 15--GEOGRAPHIC, SEGMENT AND OTHER DATA (CONTINUED)
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, 1996 and 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.................................... 11,215 1,697 5,458 18,370
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
December 31, 1995
Commissions and fees........................................ $ 153,580 $ 2,043 $ 28,051 $ 183,674
Income (loss) before taxes minority interest and equity in
earnings of affiliate..................................... 9,024 (248) 2,478 11,254
Identifiable assets......................................... 272,306 1,580 19,778 293,664
</TABLE>
- ------------------------
* Includes noncash, non-recurring special compensation and interest expense of
$52,019 and $2,603, respectively.
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 Reporting 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.
39
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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..................................................... $ 13,221 $ 11,587 $ 10,830
Income taxes................................................. 2,860 1,791 1,467
</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............. $ 129,000 $ 52,731 $ 37,260
Less: Liabilities assumed and created upon acquisition.... 62,168 28,976 25,936
---------- --------- ---------
Net cash paid............................................. $ 66,832 $ 23,755 $ 11,324
---------- --------- ---------
---------- --------- ---------
Capital lease obligations incurred.......................... $ 5,781 $ 4,873 $ 766
---------- --------- ---------
---------- --------- ---------
</TABLE>
40
<PAGE>
INDEPENDENT AUDITOR'S REPORT TO MEMBERS
SCOPE
We have audited the financial statements of Morgan & Banks Limited for the
financial years ended 31 March 1998, 1997 and 1996 as set out on pages F-3 to
F-26. The financial statements include the consolidated accounts of the economic
entity comprising the company and the entities it controlled at each year's end
or from time to time during the financial year. The company's directors are
responsible for the preparation and presentation of the financial statements and
the information they contain. We have conducted an independent audit of these
financial statements in order to express an opinion on them to the members of
the company.
Our audit has been conducted in accordance with Australian Auditing
Standards which do not differ in any material respects from generally accepted
auditing standards in the United States of America to provide reasonable
assurance as to whether the financial statements are free of material
misstatement. Our procedures included examination, on a test basis, of evidence
supporting the amounts and other disclosures in the financial statements, and
the evaluation of accounting policies and significant accounting estimates.
These procedures have been undertaken to form an opinion as to whether, in all
material respects, the financial statements are presented fairly in accordance
with Australian Accounting Standards and other mandatory professional reporting
requirements (Urgent Issues Group Consensus Views) and statutory requirements so
as to present a view which is consistent with our understanding of the company's
and the economic entity's financial position, and the results of their
operations and their cash flows.
The names of the entities controlled during all or part of, or at the end
of, the financial year, but of which we have not acted as auditors are set out
in Note 32 to the financial statements. We have, however, received sufficient
information and explanations concerning these controlled entities to enable us
to form an opinion on the consolidated accounts. The audit opinion expressed in
this report has been formed on the above basis.
AUDIT OPINION
In our opinion, the financial statements of Morgan & Banks Limited are
properly drawn up:
(a) so as to give a true and fair view of
- the state of affairs as at 31 March 1998 and 1997 and the profit and cash
flows for the financial years ended 31 March 1998, 1997 and 1996 of the
company and the economic entity; and
- the other matters required by Divisions 4, 4A and 4B of Part 3.6 of the
Corporations Law to be dealt with in the financial statements;
(b) in accordance with the provisions of the Corporations Law; and
(c) in accordance with applicable Australian Accounting Standards and other
mandatory professional reporting requirements.
<TABLE>
<S> <C>
/s/ A.P. WHITING
[LOGO] ----------------------------
A.P. Whiting
- ---------------------------- Partner
Pannell Kerr Forster
Chartered Accountants
New South Wales Partnership
Sydney, 16 June 1998, except for Note 2 of
Notes to and Forming Part of the Consolidated
Financial Statements, for which the date is
21 September 1998.
</TABLE>
41
<PAGE>
MORGAN & BANKS LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
-------------------------------
1998 1997 1996
NOTES $000 $000 $000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales revenue.......................................................... 4 330,364 221,467 143,057
--------- --------- ---------
Operating profit before depreciation, amortisation, interest and income
tax.................................................................. 25,466 20,002 13,440
Depreciation, amortisation and interest................................ 6,312 3,276 2,046
--------- --------- ---------
Operating profit before abnormal items and income tax.................. 3 19,154 16,726 11,394
Abnormal loss before income tax........................................ 5 703 -- --
--------- --------- ---------
Operating profit before income tax..................................... 18,451 16,726 11,394
Income tax attributable to operating profit............................ 6 7,220 6,118 4,200
--------- --------- ---------
Operating profit after income tax...................................... 11,231 10,608 7,194
Outside equity interests in operating profit after income tax.......... 214 741 437
--------- --------- ---------
Operating profit after income tax attributable to members of Morgan &
Banks Limited........................................................ 11,017 9,867 6,757
Retained profits at the beginning of the financial year................ 8,699 4,848 2,499
Retrospective adjustments for the introduction of AASB 1028............ -- -- (123)
--------- --------- ---------
Total available for appropriation...................................... 19,716 14,715 9,133
Dividends provided for or paid......................................... 7,190 6,016 4,285
--------- --------- ---------
Retained profits at the end of the financial year...................... 12,526 8,699 4,848
--------- --------- ---------
--------- --------- ---------
</TABLE>
The above Profit and Loss Accounts are to be read in conjunction with the
attached Notes.
42
<PAGE>
MORGAN & BANKS LIMITED
CONSOLIDATED BALANCE SHEETS
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------------
1998 1997
NOTES $000 $000
----------- --------- ---------
<S> <C> <C> <C>
CURRENT ASSETS
Cash................................................................................... 22 14,488 11,067
Receivables............................................................................ 9 39,446 30,175
Other.................................................................................. 10 2,357 1,844
--------- ---------
TOTAL CURRENT ASSETS................................................................... 56,291 43,086
--------- ---------
NON-CURRENT ASSETS
Receivables............................................................................ 11 46 42
Plant and equipment.................................................................... 12 14,152 10,385
Intangibles............................................................................ 13 9,308 10,147
Other.................................................................................. 14 2,993 2,339
--------- ---------
TOTAL NON-CURRENT ASSETS............................................................... 26,499 22,913
--------- ---------
TOTAL ASSETS........................................................................... 82,790 65,999
--------- ---------
CURRENT LIABILITIES
Accounts payable....................................................................... 15 43,665 34,029
Borrowings............................................................................. 16 481 665
Provisions............................................................................. 17 9,530 8,230
--------- ---------
TOTAL CURRENT LIABILITIES.............................................................. 53,676 42,924
--------- ---------
NON-CURRENT LIABILITIES
Borrowings............................................................................. 18 8,121 5,915
Provisions............................................................................. 19 1,613 1,719
--------- ---------
TOTAL NON-CURRENT LIABILITIES.......................................................... 9,734 7,634
--------- ---------
TOTAL LIABILITIES...................................................................... 63,410 50,558
--------- ---------
NET ASSETS............................................................................. 19,380 15,441
--------- ---------
--------- ---------
Shareholders' Equity
Issued capital......................................................................... 21 2,308 2,283
Reserves............................................................................... 8 3,895 3,664
Retained profits....................................................................... 12,526 8,699
--------- ---------
Shareholders' equity attributable to members
of Morgan & Banks Limited............................................................ 18,729 14,646
Outside equity interests in controlled entities........................................ 31 651 795
--------- ---------
TOTAL SHAREHOLDERS' EQUITY............................................................. 19,380 15,441
--------- ---------
--------- ---------
</TABLE>
The above Balance Sheets are to be read in conjunction with the attached Notes.
43
<PAGE>
MORGAN & BANKS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
----------------------------------
1998 1997 1996
NOTES $000 $000 $000
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers............................................... 322,055 216,454 135,179
Payments to suppliers and employees................................... (296,859) (192,397) (122,187)
Interest received..................................................... 188 220 259
Borrowing costs including interest and cost of finance paid........... (472) (99) (165)
Dividends received.................................................... -- 151 --
Income taxes paid..................................................... (7,217) (6,577) (4,025)
---------- ---------- ----------
Net cash provided by operating activities............................. 23(a) 17,695 17,752 9,061
---------- ---------- ----------
CASH FLOWS TO INVESTING ACTIVITIES
Payments for businesses acquired 23(b) -- -- (102)
Payments for investments in controlled entities....................... 23(b) -- (6,647) --
Payments for additional shares in controlled entities................. (665) (1,075) --
Payment for investments -- -- (1,491)
Payment for plant and equipment....................................... (9,407) (4,558) (4,324)
Proceeds from sale of plant and equipment............................. 155 104 --
Long-term loans to related bodies corporate........................... (4) -- (61)
---------- ---------- ----------
Net cash used in investing activities................................. (9,921) (12,176) (5,978)
---------- ---------- ----------
CASH FLOWS TO FINANCING ACTIVITIES
Proceeds from borrowings.............................................. 2,900 6,815 --
Repayments of borrowings.............................................. (179) (1,500) --
Payments under hire purchase contracts................................ (608) (608) (359)
Proceeds from exercise of options..................................... 420 -- --
Dividends paid........................................................ (7,148) (5,325) (4,060)
---------- ---------- ----------
Net cash used in financing activities................................. (4,615) (618) (4,419)
---------- ---------- ----------
Net increase (decrease) in cash held.................................. 3,159 4,958 (1,336)
Cash at the beginning of the year..................................... 11,067 6,141 7,514
Effects of exchange rate changes on the balances of cash held in
foreign currencies at the beginning of the year..................... 262 (32) (37)
---------- ---------- ----------
Cash at the end of the year........................................... 22 14,488 11,067 6,141
---------- ---------- ----------
---------- ---------- ----------
Non-cash financing and investing activities........................... 23(c)
Financing arrangements................................................ 23(d)
</TABLE>
The above Statements of Cash Flows are to be read in conjunction with the
attached Notes.
44
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
(IN AUSTRALIAN DOLLARS)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted by the economic entity comprising
the chief entity Morgan & Banks Limited and its controlled entities are stated
in order to assist in a general understanding of the financial statements. These
policies have been consistently applied except as otherwise indicated.
The financial statements, which constitute a general purpose financial
report, have been drawn up in accordance with applicable Accounting Standards
and other mandatory professional requirements, and comply with other
requirements of the law.
ACCOUNTS PAYABLE
Accounts payable represent the principal amounts outstanding at balance
date. The carrying amounts of accounts payable approximate net fair values.
NON-CURRENT ASSETS
The carrying amounts of non-current assets do not exceed the net amounts
that are expected to be recovered through the cash inflows and outflows arising
from their continued use and subsequent disposal. The expected net cash flows
included in determining the recoverable amount have not been discounted to their
present values.
DEPRECIATION AND AMORTISATION OF PLANT AND EQUIPMENT
Items of plant and equipment are depreciated over their estimated useful
lives using the straight line method. Leasehold improvements are amortised over
the period of the lease.
GOODWILL
Goodwill, representing the excess of the cost of acquisition over the fair
values of the net assets acquired, is being amortised over the period of time
during which benefits are expected to arise. The period over which goodwill is
being amortised is reviewed annually and does not exceed 20 years.
RECEIVABLES
Trade accounts receivable, amounts due from related parties and other
receivables represent the principal amounts due at balance date less any
provisions for doubtful debts and approximate net fair value.
EMPLOYEE ENTITLEMENTS
AASB 1028 Accounting for Employee Entitlements was adopted as at 1 April
1995. The net effect of the adoption was accounted for against profits at that
date. The adjustment to retained profits net of the tax effect of $69,000 was
$123,000.
REVENUE RECOGNITION
Income from contracting activities is brought to account when earned. All
other fee income is brought to account when billed.
45
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SUPERANNUATION
The economic entity contributes to superannuation funds which provide
benefits to employees and contractors and their dependants on retirement, total
and permanent disability or death. The economic entity's commitment in respect
of these accumulation funds is limited to making the specified contributions as
required by the relevant award and legislation. The economic entity's
contributions to the superannuation funds are expensed in the profit and loss
accounts as incurred.
TRANSLATION OF FOREIGN CURRENCY TRANSACTION
Transactions in foreign currencies are initially measured and brought to
account at the rate of exchange in affect at the date of each transaction.
As foreign controlled entities are self sustaining, the assets and
liabilities are translated into Australian currency at rates of exchange current
at balance date, while its revenue and expenses are translated at the average of
rates ruling during the year. Exchange differences arising on translation are
taken to the foreign currency translation reserve.
Foreign currency monetary items outstanding at balance date have been
translated at the spot rates current at balance date.
Exchange differences arising on the translation of foreign currency
borrowings designated as hedges of investments in controlled foreign entities
are taken to the foreign currency translation reserve.
BORROWINGS
Bank loans are recognised in the financial statements on the basis of the
nominal amounts outstanding at balance date plus accrued interest. The carrying
amounts of borrowings approximate net fair values.
46
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 2. RECONCILIATIONS FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Reconciliation of operating profit after income tax for the year ended 31 March,
<TABLE>
<CAPTION>
1998 1997 1996
$000 $000 $000
--------- --------- ---------
<S> <C> <C> <C>
Operating profit after income tax attributable to members of
Morgan & Banks Limited.......................................................... 11,017 9,867 6,757
Deferred income taxes............................................................. -- 7 (7)
--------- --------- ---------
Net income in accordance with US Generally
Accepted Accounting Principles.................................................. 11,017 9,874 6,750
--------- --------- ---------
--------- --------- ---------
Reconciliation of shareholders' equity at 31 March,
<CAPTION>
1998 1997 1996
$000 $000 $000
--------- --------- ---------
<S> <C> <C> <C>
Shareholders' equity attributable to members of
Morgan & Banks Limited.......................................................... 18,729 14,646 9,495
Deferred income taxes............................................................. -- -- 7
--------- --------- ---------
Shareholders' equity in accordance with US Generally
Accepted Accounting Principles.................................................. 18,729 14,646 9,502
--------- --------- ---------
--------- --------- ---------
</TABLE>
Generally accepted accounting principles in Australia ("Australian GAAP") as
utilized by the Company differ in certain respects from generally accepted
accounting principles in the United States ("US GAAP"). With respect to the
Company's financial statements, these differences primarily relate to accounting
for income taxes. Australian GAAP stipulates that an announcement of the
Government's intention to change the rate of company income tax in advance of
the periods in which the change will apply is adequate evidence for deferred tax
balances to be restated. US GAAP requires the adjustment in the year that a
change in tax rate is effective.
The provision for employee entitlements prepared in accordance with AASB
1028 "Accounting for Employee Entitlements" substantially approximates the
required provision under US GAAP. As such the provision for employee
entitlements for 1996, 1997 and 1998 as prepared under Australian GAAP require
no adjustment. In order to reflect the adoption of AASB 1028 in 1996, and
therefore US GAAP in preceding years, the adjustment booked through opening
retained profits in 1996 has been reversed and effected through net income in
1994 and 1995.
Under Australian GAAP, companies were not allowed to use the equity method
of accounting for investments in associates in the consolidated profit and loss
statement or balance sheet. Instead companies record the investment at cost and
bring to account dividend income. US GAAP requires investments in associates to
be accounted for under the equity method after elimination of unrealised profits
on transactions with associates. The adjustment was not material and therefore
not included in the summary of differences.
Under Australian GAAP, no cost attributable to executive options has been
recognised in the profit and loss statement. Under US GAAP the compensation cost
is zero for each year ended to date.
47
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 2. RECONCILIATIONS FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
Under Australian GAAP, Operating Income before Depreciation, Amortization,
Interest and Income Tax is an appropriate measure. The Company understands that
this measure is not recognized under US GAAP.
Under Australian GAAP the item identified as an abnormal loss is
characterized as an extraordinary item under US GAAP. This is not appropriate
under US GAAP and would be treated as an operating expense.
The disclosure of operating expenses as required under US GAAP are included
below. This disclosure is not an Australian GAAP requirement.
<TABLE>
<CAPTION>
1998 1997 1996
$000 $000 $000
--------- --------- ---------
<S> <C> <C> <C>
Cost of sales.................................................................... 190,816 118,853 66,403
Salary and related costs......................................................... 84,548 57,794 42,523
Office and general expenses...................................................... 35,390 27,869 22,846
Amortisation of intangibles...................................................... 782 371 158
--------- --------- ---------
Total operating expenses......................................................... 311,536 204,887 131,930
--------- --------- ---------
--------- --------- ---------
</TABLE>
48
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 3. OPERATING PROFIT
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
$000 $000 $000
--------- --------- ---------
Operating profit before income tax has been determined after:
(A) CREDITING AS REVENUE:
Dividends received/receivable
Associated entities............................................................ -- 151 189
--------- --------- ---------
--------- --------- ---------
Interest:
Others......................................................................... 188 229 259
--------- --------- ---------
--------- --------- ---------
(B) CHARGING AS EXPENSE:
Net expenses resulting from movements in provision for:
Amortisation of goodwill....................................................... 782 274 158
Amortisation of leasehold improvements......................................... 1,318 565 299
Depreciation of plant and equipment............................................ 3,866 2,402 1,692
Employee entitlements.......................................................... 204 748 278
--------- --------- ---------
6,170 3,989 2,427
--------- --------- ---------
--------- --------- ---------
Borrowing Costs:
Interest expense other persons................................................. 440 116 --
Hire purchase interest charges................................................. 94 147 156
--------- --------- ---------
534 263 156
--------- --------- ---------
--------- --------- ---------
Other:
Net bad and doubtful debts expense............................................. 814 671 781
Goodwill written off........................................................... -- 97 --
(Gain) loss on sales/write-off of plant & equipment............................ (1) (11) 24
Operating lease rental expense................................................. 7,293 5,493 3,769
--------- --------- ---------
8,106 6,250 4,574
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 4. OPERATING REVENUE
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
$000 $000 $000
--------- --------- ---------
Sales revenue.................................................................... 330,364 221,467 143,057
Interest......................................................................... 188 229 259
Dividends........................................................................ -- 151 189
Proceeds from sales of non-current assets........................................ 155 104 --
--------- --------- ---------
Total operating revenue.......................................................... 330,707 221,951 143,505
--------- --------- ---------
--------- --------- ---------
</TABLE>
49
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 5. ABNORMAL ITEM
In August 1997, the Company commenced operations in Jakarta, Indonesia. The
Company closed its Jakarta, Indonesia office in March 1998 due to continued
political unrest and instability. The costs of opening and closing its Jakarta
Indonesia office and the related tax effect as shown below.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
$000 $000 $000
--------- --------- ---------
INDONESIAN OPERATION
Set-up of operations............................................................. 494 -- --
Office closure costs............................................................. 209 -- --
--------- --------- ---------
703 -- --
Income tax expense............................................................... 8 -- --
Outside equity interest.......................................................... (2) -- --
--------- --------- ---------
709 -- --
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 6. INCOME TAX
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
$000 $000 $000
--------- --------- ---------
The amount provided in respect of income tax differs from the amount prima facie
payable on operating profit. The difference is reconciled as follows:
Prima facie tax on operating profit at 36%....................................... 6,642 6,021 4,102
Add tax effect of:
(Over)/Under provision in prior years.......................................... (35) 95 --
Entertainment not allowable.................................................... 181 174 194
Goodwill amortisation.......................................................... 266 93 57
Non-deductible expenses........................................................ 30 114 23
Abnormal item not allowable (Note 5)........................................... 8 -- --
Deduct tax effect of:
Overseas income tax differential............................................... 128 (334) (78)
Non-assessable profit of overseas subsidiaries................................. -- -- (30)
Exempt income.................................................................. -- (45) (68)
--------- --------- ---------
Income tax attributable to operating profit...................................... 7,220 6,118 4,200
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 7. EVENTS SUBSEQUENT TO BALANCE DATE
No matter or circumstance has arisen since the end of the financial year
that has significantly affected or may significantly affect the operations of
the economic entity, the results of those operations, or the state of affairs of
the economic entity, in subsequent financial years.
50
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 8. RESERVES
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------------
1998 1997
$000 $000
--------- ---------
<S> <C> <C>
Share premium account.......................................................................... 4,204 3,809
Foreign currency translation reserve........................................................... (309) (145)
--------- ---------
3,895 3,664
--------- ---------
--------- ---------
MOVEMENTS IN RESERVES
Share premium account:
Balance at beginning of the financial year................................................... 3,809 2,399
Exercise of 250,000 options at a premium of $1.58 per share.................................. 395 --
Issue of 275,170 ordinary shares at a premium of $5.124 per share............................ -- 1,410
--------- ---------
Balance at end of the financial year......................................................... 4,204 3,809
--------- ---------
--------- ---------
Foreign currency translation reserve:
Balance at beginning of the financial year................................................... (145) (7)
Exchange differences arising from the translation of the net assets of self-sustaining
foreign operations......................................................................... (164) (138)
--------- ---------
Balance at end of the financial year........................................................... (309) (145)
--------- ---------
--------- ---------
</TABLE>
NOTE 9. CURRENT RECEIVABLES
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------------
1998 1997
$000 $000
--------- ---------
<S> <C> <C>
Trade accounts receivable...................................................................... 40,422 31,374
Provision for doubtful debts................................................................... (2,012) (1,837)
--------- ---------
38,410 29,537
Non-trade accounts receivable from:
Other debtors................................................................................ 1,036 638
--------- ---------
39,446 30,175
--------- ---------
--------- ---------
Amounts receivable in foreign currencies
New Zealand dollars.......................................................................... 6,137 4,789
British pounds............................................................................... 1,980 1,814
Singapore dollars............................................................................ 568 1,447
Hong Kong dollars............................................................................ 1,352 1,736
Trade accounts receivable are subject to normal terms of trade which provide for settlement
within seven to fourteen days. Non-trade accounts receivable are due within various periods of
less than 12 months.
</TABLE>
NOTE 10. OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------------
1998 1997
$000 $000
--------- ---------
<S> <C> <C>
Prepayments.................................................................................... 2,357 1,844
--------- ---------
--------- ---------
</TABLE>
51
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 11. NON-CURRENT RECEIVABLES
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------------
1998 1997
$000 $000
--------- ---------
<S> <C> <C>
Loans to related bodies corporate.............................................................. 46 42
--------- ---------
--------- ---------
</TABLE>
NOTE 12. PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------------
1998 1997
$000 $000
--------- ---------
<S> <C> <C>
Leasehold improvements
At cost...................................................................................... 6,992 3,421
Provision for amortisation................................................................... 2,535 1,172
--------- ---------
4,457 2,249
--------- ---------
Plant and equipment
At cost...................................................................................... 19,882 14,364
Provision for depreciation................................................................... 10,187 6,228
--------- ---------
9,695 8,136
--------- ---------
Total plant and equipment at cost.............................................................. 26,874 17,785
Provision for depreciation and amortisation.................................................... 12,722 7,400
--------- ---------
14,152 10,385
--------- ---------
--------- ---------
</TABLE>
NOTE 13. INTANGIBLES
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------------
1998 1997
$000 $000
--------- ---------
<S> <C> <C>
Goodwill--at cost.............................................................................. 10,551 10,608
Accumulated amortisation....................................................................... 1,243 461
--------- ---------
9,308 10,147
--------- ---------
--------- ---------
</TABLE>
52
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 14. OTHER NON-CURRENT ASSETS
<TABLE>
<CAPTION>
AS AT 31 MARCH
------------------------
<S> <C> <C>
1998 1997
$000 $000
----------- -----------
Future income tax benefits -- timing differences.............................................. 2,684 2,339
-- tax losses.......................................................... 309 --
----------- -----------
2,993 2,339
----------- -----------
----------- -----------
</TABLE>
NOTE 15. CURRENT ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
AS AT 31 MARCH
------------------------
<S> <C> <C>
1998 1997
$000 $000
----------- -----------
Trade accounts payable........................................................................ 6,683 4,264
Other creditors:
Commissions/bonus accrual................................................................... 13,108 10,392
On hire contractor's wages.................................................................. 11,412 9,876
Employee related taxes accrued.............................................................. 3,190 1,370
Other general accruals...................................................................... 9,272 8,127
----------- -----------
43,665 34,029
----------- -----------
----------- -----------
Amounts payable in foreign currencies:
New Zealand dollars......................................................................... 7,089 6,032
British pounds.............................................................................. 3,589 2,898
Singapore dollars........................................................................... 746 548
Hong Kong dollars........................................................................... 740 848
</TABLE>
NOTE 16. CURRENT BORROWINGS
<TABLE>
<CAPTION>
AS AT 31 MARCH
------------------------
<S> <C> <C>
1998 1997
$000 $000
----------- -----------
Hire purchase creditors (Note 24)--secured*................................................... 481 486
Bank loan--secured............................................................................ -- 179
----------- -----------
481 665
----------- -----------
----------- -----------
</TABLE>
- ------------------------
* Partly secured by a first ranking fixed charge over the book debts of the
chief entity to an amount of $1 million, and also secured by the assets
acquired.
NOTE 17. CURRENT PROVISIONS
<TABLE>
<CAPTION>
AS AT 31 MARCH
------------------------
<S> <C> <C>
1998 1997
$000 $000
----------- -----------
Dividends..................................................................................... 3,497 3,196
Taxation...................................................................................... 4,581 3,772
Employee entitlements......................................................................... 1,452 1,262
----------- -----------
9,530 8,230
----------- -----------
----------- -----------
</TABLE>
53
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 18. NON-CURRENT BORROWINGS
<TABLE>
<CAPTION>
AS AT 31 MARCH
------------------------
<S> <C> <C>
1998 1997
$000 $000
----------- -----------
Hire purchase creditors (Note 24)--secured*................................................... 91 600
Commercial bills--unsecured (Note 23(d))...................................................... 8,030 5,315
----------- -----------
8,121 5,915
----------- -----------
----------- -----------
</TABLE>
- ------------------------
* Partly secured by a first ranking fixed charge over the book debts of the
chief entity to an amount of $1 million, and also secured by the assets
acquired.
NOTE 19. NON-CURRENT PROVISIONS
<TABLE>
<CAPTION>
AS AT 31 MARCH
------------------------
<S> <C> <C>
1998 1997
$000 $000
----------- -----------
Employee entitlements......................................................................... 996 983
Deferred income taxation...................................................................... 617 736
----------- -----------
1,613 1,719
----------- -----------
----------- -----------
</TABLE>
NOTE 20. FOREIGN CURRENCY MONETARY ITEMS
Current and non-current assets and liabilities not effectively hedged to a
date at least 12 months after balance date:
<TABLE>
<CAPTION>
AS AT 31 MARCH
------------------------
<S> <C> <C>
1998 1997
$000 $000
----------- -----------
British pounds:
Current assets.............................................................................. 1,029 577
Non-current assets.......................................................................... 729 636
----------- -----------
1,758 1,213
----------- -----------
----------- -----------
New Zealand dollars:
Non-current assets.......................................................................... 8,658 10,629
Current liabilities......................................................................... (7,139) (7,452)
----------- -----------
1,519 3,177
----------- -----------
----------- -----------
Hong Kong dollars:
Current assets.............................................................................. 1,433 930
Non-current assets.......................................................................... 345 441
----------- -----------
1,778 1,371
----------- -----------
----------- -----------
Singapore dollars:
Current assets.............................................................................. 256 966
Non-current assets.......................................................................... 389 216
----------- -----------
645 1,182
----------- -----------
----------- -----------
</TABLE>
54
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 21. ISSUED CAPITAL
The Shareholders of the company approved a capital reconstruction of
three-new-shares-for-one-old at a General Shareholders' Meeting on 25 February
1998.
<TABLE>
<CAPTION>
AS AT 31 MARCH
------------------------
<S> <C> <C>
1998 1997
$000 $000
----------- -----------
ISSUED
Ordinary shares:
69,239,148 (1997: 22,829,716) ordinary shares of 3.33 cents (1997: 10 cents) each fully
paid...................................................................................... 2,308 2,283
----------- -----------
----------- -----------
Shares issued (all issued prior to capital reconstruction):
During the current year 250,000 ordinary shares of $0.10 each were issued at a premium of
$1.58 per share following the exercise of options......................................... 25 --
----------- -----------
----------- -----------
During the prior year 275,170 ordinary shares of $0.10 each were issued at a premium of
$5.124 per share as partial consideration for the acquisition of 64.5% of Morgan & Banks
Limited, New Zealand...................................................................... -- 28
----------- -----------
----------- -----------
</TABLE>
OPTIONS
Prior to the capital reconstruction and during the year 788,750 options were
issued under the Morgan & Banks Employee Share Option Scheme and 530,000 options
were issued under the new Morgan & Banks Executive Option Plan. Of such amounts,
188,500 options (1997: 212,250) were forfeited under the Morgan & Banks Employee
Share Option Scheme and 50,000 were forfeited under the Morgan & Banks Executive
Option Plan. During the year ended March 31, 1998, 250,000 options were
exercised. As at 31 March 1998, unissued shares, following the capital
reconstruction, under all option plans were as follows:
<TABLE>
<CAPTION>
SHARES UNDER EXERCISE EXERCISE
ISSUE DATE OPTION PRICE PERIOD
- ------------ ------------- --------- ------------------------
<S> <C> <C> <C>
10/11/1994 600,000 $ 0.5600 10/11/1997-09/11/1999
21/04/1995 769,875 $ 0.5233 21/04/1998-20/04/2000
19/08/1996 1,863,000 $ 1.2167 19/08/1999-17/08/2001
17/10/1997 1,440,000 $ 3.4733 17/10/2000-17/10/2002
</TABLE>
55
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 22. CASH
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------------
1998 1997
$000 $000
--------- ---------
<S> <C> <C>
Cash........................................................................................... 7,671 8,076
Short-term deposits............................................................................ 6,817 2,991
--------- ---------
14,488 11,067
--------- ---------
--------- ---------
</TABLE>
For the purposes of the statements of cash flows, cash includes cash on hand
and in banks and investments in money market instruments, net of outstanding
bank overdrafts.
The average floating interest rate for short-term deposits is 5.39%.
NOTE 23. NOTES TO THE STATEMENTS OF CASH FLOWS
(A) RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO OPERATING
PROFIT AFTER INCOME TAX:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
-------------------------------
1998 1997 1996
$000 $000 $000
--------- --------- ---------
<S> <C> <C> <C>
Operating profit after income tax.................................................... 11,231 10,608 7,194
Depreciation and amortisation...................................................... 5,184 2,967 1,991
Amortisation of goodwill........................................................... 782 274 158
Goodwill written-off............................................................... -- 97 --
Hire purchase interest charges..................................................... 94 146 --
(Gain) loss on sales/write-off of non-current assets............................... (1) (11) 24
Provision for doubtful debts....................................................... 175 216 550
Abnormal item...................................................................... 198 -- --
Changes in assets and liabilities net of effects of
purchases of new businesses:
Increase/(decrease) in income taxes payable........................................ 787 (124) 771
(Decrease)/increase in provision for deferred income tax........................... (120) 254 (135)
(Increase) in future income tax benefit............................................ (664) (590) (461)
(Increase) in trade debtors........................................................ (8,675) (5,013) (7,878)
(Increase) in other debtors and prepayments........................................ (910) (684) (375)
Increase in trade creditors........................................................ 2,482 1,487 1,111
Increase in other creditors........................................................ 6,928 7,377 5,857
Decrease in lease liabilities -- -- (24)
Increase in employee entitlements.................................................. 204 748 278
--------- --------- ---------
Net cash provided by operating activities............................................ 17,695 17,752 9,061
--------- --------- ---------
--------- --------- ---------
</TABLE>
(B) ENTITIES ACQUIRED
During the 1997 financial year the economic entity acquired the remaining
71.38% interest in Morgan & Banks, New Zealand in a number of stages. These
acquisitions were financed through the issue of shares and cash as detailed
below. As a result of the issue of shares, the chief entity became the
beneficial owner of 16.1% of the issued capital of Morgan & Banks, New Zealand.
This beneficial ownership was on-sold at
56
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 23. NOTES TO THE STATEMENTS OF CASH FLOWS (CONTINUED)
cost to Maldon Holdings Limited, a wholly owned controlled entity, and therefore
not reflected in the statements of cash flows.
During the 1996 financial year, the economic entity acquired the trading
operations of Westside Employment (Aust) Pty Limited.
Details of the acquisitions are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
---------------------------------
1998 1997 1996
$000 $000 $000
--------- --------- -----
<S> <C> <C> <C>
Consideration
275,170 ordinary shares of Morgan & Banks Limited issued at
$5.224 per share............................................................... -- 1,437 --
Cash............................................................................. -- 7,557 102
--------- --------- ---
-- 8,994 102
Equity interest at date of acquisition............................................. -- 1,491 --
--------- --------- ---
-- 10,485 102
--------- --------- ---
--------- --------- ---
Fair value of net assets acquired
Current Assets
Cash........................................................................... -- 910 --
Trade debtors.................................................................. -- 3,947 --
Sundry debtors and prepayments................................................. -- 264 --
Non-Current Assets
Plant and equipment............................................................ -- 1,792 --
Intangible assets.............................................................. -- 929 --
Investments.................................................................... -- 68 --
Future income tax benefit...................................................... -- 346 --
Current Liabilities
Trade creditors................................................................ -- (1,194) --
Provisions and accruals........................................................ -- (3,816) --
Related party payable.......................................................... -- (19) --
Bank loan--secured............................................................. -- (179) --
--------- --------- ---
Net assets acquired.............................................................. -- 3,048 --
Goodwill on acquisition.......................................................... -- 7,437 102
--------- --------- ---
-- 10,485 102
--------- --------- ---
Cash consideration................................................................. -- 7,557 102
Less: Cash balances acquired....................................................... -- 910 --
--------- --------- ---
Cash outflow....................................................................... -- 6,647 102
--------- --------- ---
--------- --------- ---
</TABLE>
On 1 April 1997, an additional 7.5% of the ordinary shares of Morgan & Banks
(Hong Kong) Limited was acquired.
On 24 January 1997, an additional 16.5% of the ordinary shares of Morgan &
Banks (Hong Kong) Limited was also acquired.
57
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 23. NOTES TO THE STATEMENTS OF CASH FLOWS (CONTINUED)
(C) NON-CASH FINANCING AND INVESTING ACTIVITIES
During the 1997 financial year the chief entity acquired plant and equipment
with an aggregate fair value of $72,315 (1996: $814,440) by means of hire
purchase contracts. During the 1997 financial year the chief entity issued
275,170 ordinary shares as part consideration of the acquisition of 64.5% of the
ordinary shares of Morgan & Banks Limited, New Zealand (refer to Note 23(b)).
These transactions are not reflected in the statements of cash flows.
(D) FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
-------------------------------
1998 1997 1996
$000 $000 $000
--------- --------- ---------
<S> <C> <C> <C>
FACILITIES SUMMARY
Bank loan facilities............................................................... -- 179 --
Fixed rate commercial bill facility................................................ 2,500 -- --
Fixed and variable rate commercial bill acceptance/discount facility............... 2,630 5,675 --
Interchangeable overdraft or fixed and variable rate commercial bill
acceptance/discount facility..................................................... 8,196 1,992 --
Overdraft facilities............................................................... -- 447 2,000
--------- --------- ---------
13,326 8,293 2,000
--------- --------- ---------
--------- --------- ---------
USED AT BALANCE DATE
Bank loan facilities............................................................... -- 179 --
Fixed rate commercial bill facility................................................ 2,500 -- --
Fixed and variable rate commercial bill acceptance/discount facility............... 2,630 5,315 --
Interchangeable overdraft or fixed and variable rate commercial bill
acceptance/discount facility..................................................... 2,900 -- --
--------- --------- ---------
8,030 5,494 --
--------- --------- ---------
--------- --------- ---------
UNUSED AT BALANCE DATE
Fixed and variable rate commercial bill acceptance/discount facility............... -- 360 --
Interchangeable overdraft or fixed and variable rate commercial bill
acceptance/discount facility..................................................... 5,296 1,992 --
Overdraft facilities............................................................... -- 447 2,000
--------- --------- ---------
5,296 2,799 2,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
The bank loan facility was repaid in August 1997.
The fixed rate commercial bill facility matures in August 2001 with a fixed
interest rate of 5.74%.
The fixed and variable rate commercial bill acceptance/discount facility and
the interchangeable facility are subject to annual review, with the exception of
$2,630,000 of the commercial bill facility which matures in 2000. The commercial
bill facility of $2,630,000 and an additional amount of $796,000 of the
interchangeable facility may only be drawn in New Zealand dollars.
58
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 23. NOTES TO THE STATEMENTS OF CASH FLOWS (CONTINUED)
An interest rate option was taken out on the fixed and variable commercial
bill acceptance/discount facility drawn in New Zealand dollars until 15
September 1998. The interest rate cap is 8.50%.
Interest rates on the interchangeable overdraft and fixed and variable rate
commercial bill acceptance/ discount facility are determined by reference to the
prevailing bank bill or overdraft rate as applicable.
NOTE 24. COMMITMENTS FOR EXPENDITURE
<TABLE>
<CAPTION>
AS AT 31 MARCH
-------------------------------
1998 1997 1996
$000 $000 $000
--------- --------- ---------
<S> <C> <C> <C>
CAPITAL EXPENDITURE CONTRACTED FOR
AT 31 MARCH BUT NOT PROVIDED FOR:
Payable:
Not later than 1 year.............................................................. 76 426 179
--------- --------- ---------
--------- --------- ---------
NON-CANCELLABLE OPERATING LEASES WITH A TERM OF
MORE THAN ONE YEAR--COMMITMENTS NOT PROVIDED FOR:
Payable:
Not later than 1 year.............................................................. 7,056 5,892 3,894
Later than 1 year but not later than 2 years....................................... 6,332 5,193 3,500
Later than 2 years but not later than 5 years...................................... 13,742 12,757 7,091
Later than 5 years................................................................. 867 3,866 2,501
--------- --------- ---------
27,997 27,708 16,986
--------- --------- ---------
--------- --------- ---------
HIRE PURCHASE AGREEMENTS--ANALYSIS OF COMMITMENTS:
Payable:
Not later than 1 year.............................................................. 516 608 586
Later than 1 year but not later than 2 years....................................... 94 516 586
Later than 2 years but not later than 5 years...................................... -- 94 552
--------- --------- ---------
Total minimum lease payments......................................................... 610 1,218 1,724
Future finance charges............................................................... (38) (132) (249)
--------- --------- ---------
572 1,086 1,475
--------- --------- ---------
--------- --------- ---------
Current liability (Note 16).......................................................... 481 486 445
Non-current liability (Note 18)...................................................... 91 600 1,030
--------- --------- ---------
572 1,086 1,475
--------- --------- ---------
--------- --------- ---------
</TABLE>
The average interest rate for hire purchase liabilities is 10.776%.
NOTE 25. SUPERANNUATION COMMITMENTS
The economic entity contributes to accumulation plans to provide benefits to
permanent employees and contractors as required by Superannuation Guarantee
legislation. The economic entity does not guarantee the performance of these
funds.
The economic entity's commitment in respect of these accumulation plans is
limited to making the specified contributions as required by the relevant award
and legislation.
59
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 25. SUPERANNUATION COMMITMENTS (CONTINUED)
Funds are available for the purposes of the fund to satisfy all benefits
that would have been vested under the fund in the event of the termination of
the fund or the voluntary or compulsory termination of employment of each
employee member.
NOTE 26. CONTINGENT LIABILITIES
MORGAN & BANKS LIMITED
Particulars and estimated maximum amounts of contingent liabilities arising
in respect of:
Morgan & Banks New Zealand Limited has had proceedings issued against the
company for an amount of NZ$5.9 million. These proceedings are in relation to
the acquisition of the claimant's business in New Zealand prior to Morgan &
Banks New Zealand Limited becoming a controlled entity of the Group. The
directors of Morgan & Banks Limited are of the opinion that the claim is without
substance and accordingly the action will be vigorously defended.
Bank guarantees provided to third parties at 31 March 1998 amount to
$1,402,987 (1997: $1,286,391, 1996: $1,286,391).
In order to secure certain financing facilities, a deed of cross guarantee
and indemnity has been signed between Morgan & Banks Limited, Morgan & Banks New
Zealand Limited, and Maldon Holdings Limited to guarantee payment and indemnify
against losses.
60
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 27. REMUNERATION OF AUDITORS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
-------------------------------
1998 1997 1996
$000 $000 $000
--------- --------- ---------
<S> <C> <C> <C>
Total of all remuneration received or due and receivable for the audit and review of
financial reports by:
Auditors of the chief entity........................................................... 95 82 67
Other auditors......................................................................... 85 56 27
--------- --------- ---------
180 138 94
--------- --------- ---------
--------- --------- ---------
Total of all remuneration received or due and receivable for other services by:
Auditors of the chief entity........................................................... 71 124 68
Other auditors......................................................................... 35 3 8
--------- --------- ---------
106 127 76
--------- --------- ---------
286 265 170
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 28. DIRECTORS' INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
-------------------------------
1998 1997 1996
$000 $000 $000
--------- --------- ---------
<S> <C> <C> <C>
Aggregate of income paid or payable or otherwise made available from entities within the
economic entity and any related parties:............................................... 5,545 5,298 3,452
--------- --------- ---------
--------- --------- ---------
</TABLE>
The total income reported above excludes income of directors of wholly-owned
controlled corporations who are executives but not directors of the chief entity
and who are required as part of their executive duties to be directors of
controlled entities.
Directors of the chief entity in office at any time during the financial
years 1998, 1997 and 1996 were:
<TABLE>
<S> <C> <C>
W S Cutbush I G Burns A A Cox
G K Morgan M Hinves A W Whatmore
A R Banks P S Laidlaw
</TABLE>
NOTE 29. EXECUTIVES' INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
-------------------------------
1998 1997 1996
$000 $000 $000
--------- --------- ---------
<S> <C> <C> <C>
Total income received, or receivable by executive officers (including income received or
receivable from related parties) whose total income exceeds $100,000................... 7,624 6,997 6,442
--------- --------- ---------
--------- --------- ---------
</TABLE>
61
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 29. EXECUTIVES' INCOME (CONTINUED)
Number of executive officers whose total income exceeds $100,000:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
-------------------------------------------
1998 1997 1996
NUMBER NUMBER NUMBER
------------- ------------- -------------
<S> <C> <C> <C>
$100,000-$109,899................................................................... -- -- 1
$110,000-$119,999................................................................... 1 -- 1
$120,000-$129,999................................................................... 1 -- --
$130,000-$139,999................................................................... -- 1 3
$140,000-$149,999................................................................... 1 1 1
$150,000-$159,999................................................................... -- 1 --
$160,000-$169,999................................................................... 1 1 1
$180,000-$189,999................................................................... 2 -- --
$190,000-$199,999................................................................... -- -- 1
$200,000-$209,999................................................................... -- 1 --
$210,000-$219,999................................................................... -- 1 1
$220,000-$229,999................................................................... 1 1 2
$240,000-$249,999................................................................... 1 -- 1
$250,000-$259,999................................................................... 1 1 1
$260,000-$269,999................................................................... -- 1 --
$270,000-$279,999................................................................... -- 1 --
$290,000-$299,999................................................................... 1 1 1
$300,000-$309,999................................................................... 2 2 --
$320,000-$329,999................................................................... -- -- 2
$340,000-$349,999................................................................... -- 1 --
$350,000-$359,999................................................................... 1 1 --
$370,000-$379,999................................................................... 1 1 --
$390,000-$399,999................................................................... 1 -- --
$430,000-$439,999................................................................... 1 -- --
$450,000-$459,999................................................................... 1 -- --
$470,000-$479,999................................................................... -- -- 1
$500,000-$509,999................................................................... -- -- 2
$550,000-$559,999................................................................... 1 3 --
$560,000-$569,999................................................................... 1 -- --
$570,000-$579,999................................................................... 1 -- --
$590,000-$599,999................................................................... -- -- 2
$670,000-$679,999................................................................... -- 2 --
$690,000-$699,999................................................................... 2 -- --
</TABLE>
The total income reported above includes the income of executive directors. This
is also included in the income of all directors reported in Note 28.
NOTE 30. SEGMENT INFORMATION
INDUSTRY SEGMENTS
The economic entity operates in the field of human resource services.
62
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 30. SEGMENT INFORMATION (CONTINUED)
GEOGRAPHICAL SEGMENTS
The economic entity operated in the following geographic segments during the
year--Australia, the United Kingdom, New Zealand and Asia.
A statement of operations of geographical segments are as follows:
<TABLE>
<CAPTION>
TOTAL REVENUE TOTAL ASSETS AS AT
------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED 31 MARCH
------------------------------- 31 MARCH 31 MARCH 31 MARCH
(A$ THOUSAND) 1998 1997 1996 1998 1997 1996
- ----------------------------------------------- --------- --------- --------- ----------- ----------- -----------
Australia...................................... 235,738 179,952 122,645 53,913 38,803 35,512
United Kingdom................................. 37,091 23,951 15,504 5,190 3,941 2,221
Asia........................................... 11,092 9,144 5,356 6,203 6,083 2,470
New Zealand*................................... 46,786 8,904 -- 17,484 17,172 --
--------- --------- --------- ----------- ----------- -----------
Consolidated................................... 330,707 221,951 143,505 82,790 65,999 40,203
--------- --------- --------- ----------- ----------- -----------
--------- --------- --------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
OPERATING PROFIT
BEFORE TAX AND GOODWILL OPERATING PROFIT
GOODWILL AMORTISATION AMORTISATION BEFORE TAX
YEAR ENDED 31 MARCH ------------------------------- ------------------------------- -------------------------------
(A$ THOUSAND) 1998 1997 1996 1998 1997 1996 1998 1997 1996
- --------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Australia............ 17,753 14,259 10,163 (9) (106) (19) 17,744 14,153 10,144
United Kingdom....... 526 531 239 -- -- -- 526 531 239
Asia................. 839 1,934 1,150 (262) (153) (139) 577 1,781 1,011
Asia (abnormal
loss).............. (703) -- -- -- -- -- (703) -- --
New Zealand*......... 818 373 -- (511) (112) -- 307 261 --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Consolidated......... 19,233 17,097 11,552 (782) (371) (158) 18,451 16,726 11,394
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
- ------------------------
There were no material intersegment sales.
* The results for New Zealand for 1997 are for the period 1 February to 31 March
1997.
NOTE 31. OUTSIDE EQUITY INTEREST
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------------
1998 1997
$000 $000
--------- ---------
<S> <C> <C>
Outside equity interest in controlled entities comprises:
Share capital..................................................................................... 25 33
Foreign currency translation reserve.............................................................. 60 (31)
Retained profits.................................................................................. 566 793
--------- ---------
651 795
--------- ---------
--------- ---------
</TABLE>
63
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 32. CONTROLLED ENTITIES
<TABLE>
<CAPTION>
PERCENTAGE
OF SHARES HELD
--------------------
AS AT 31 MARCH
COUNTRY OF --------------------
FORMATION/ 1998 1997
CONTROLLED ENTITY INCORPORATION % %
- ------------------------------------------------------------------------------- --------------- --------- ---------
<S> <C> <C> <C>
SHARES HELD BY MORGAN & BANKS LIMITED
Morgan & Banks Management Services Pty Ltd..................................... Australia 100 100
Credential Check Pty Ltd....................................................... Australia 100 100
Labour LinQ Pty Ltd............................................................ Australia 100 100
Alectus Personnel Pty Ltd...................................................... Australia 100 100
Tristram Investments Limited................................................... Australia 100 100
The Labour LinQ Business Solution Pty Ltd j.................................... Australia 100 100
Morgan & Banks Reward Consulting Pty Ltd....................................... Australia 100 100
Morgan & Banks Investor No. 1 Pty Ltd.......................................... Australia 100 100
H. Neumann International Pty Ltd............................................... Australia 67.5 67.5
S.B.N. Convenience Pty Limited................................................. Australia 100 100
M&B Search Pte Ltd bd.......................................................... Singapore 75 67.5
Maldon Holdings Limited a...................................................... New Zealand 100 100
Morgan & Banks Holdings Ltd a.................................................. UK 100 100
Morgan & Banks Recruitment Ltd a............................................... Hong Kong 100 100
Health Resources International Pty Limited k................................... Australia 100 --
H. Neumann International Limited a............................................. New Zealand 47.5 47.5
PT Morgan Nusantara ac......................................................... Indonesia 99 --
SHARES HELD BY MALDON HOLDINGS LIMITED
Morgan & Banks New Zealand Limited ag.......................................... New Zealand 100 100
SHARES HELD BY MORGAN & BANKS NEW ZEALAND LIMITED
Compuforce Recruitment Limited ae.............................................. New Zealand 100 100
Alectus Recruitment Consultants Ltd a.......................................... New Zealand 100 100
H. Neumann International Limited a............................................. New Zealand 47.5 47.5
Sibson & Company Limited ae.................................................... New Zealand 100 100
Compubank Limited e............................................................ New Zealand -- 100
Executive Leasing & Consulting Ltd a........................................... New Zealand 100 100
Job Bank (NZ) Ltd e............................................................ New Zealand -- 100
Labour Linq Limited a.......................................................... New Zealand 100 100
MB Management Systems Ltd e.................................................... New Zealand -- 100
Job Index Limited af........................................................... New Zealand 100 --
H. Neumann International Limited............................................... Australia 27.5 27.5
</TABLE>
64
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 32. CONTROLLED ENTITIES (CONTINUED)
<TABLE>
<CAPTION>
PERCENTAGE
OF SHARES HELD
--------------------
AS AT 31 MARCH
COUNTRY OF --------------------
FORMATION/ 1998 1997
CONTROLLED ENTITY INCORPORATION % %
- ------------------------------------------------------------------------------- --------------- --------- ---------
<S> <C> <C> <C>
SHARES HELD BY MORGAN & BANKS HOLDINGS LTD
Morgan & Banks PLC a........................................................... UK 100 100
Morgan & Banks Payroll Services Ltd al......................................... UK 100 100
SHARES HELD BY MORGAN & BANKS RECRUITMENT LTD
Morgan & Banks (Hong Kong) Ltd ad.............................................. Hong Kong 75 67.5
SHARES HELD BY MORGAN & BANKS (HONG KONG) LTD
The Wright Company (S) Pte Ltd b............................................... Singapore 100 100
The Wright Company (Beijing) Ltd a............................................. Hong Kong 100 100
The Wright Company (Guangzhou) Ltd a........................................... Hong Kong 100 100
H. Neumann International (Asia) Ltd ah......................................... Hong Kong 95 100
The Wright Company (M) Sdn Bhd a............................................... Malaysia 100 100
Maston Development Limited a................................................... Hong Kong 100 100
PT Morgan Nusantara ac......................................................... Indonesia 1 --
</TABLE>
- ------------------------
All controlled entities carried on business in their countries of incorporation.
a Controlled entities audited by other member firms of the Pannell Kerr
Forster worldwide association.
b Controlled entities audited by firms other than Pannell Kerr Forster
worldwide association.
c Incorporated on 26 February 1997.
d Acquired an additional 16.5% effective 24 January 1997 and an additional 7.5%
effective 1 April 1997.
e Controlled entity wound up.
f Incorporated 12 June 1997.
g Name changed from Morgan & Banks Limited on 5 March 1998.
h Name changed from The Wright Company (Shanghai) Ltd. on 12 December 1997.
j Name changed from Inform International Pty Ltd on 1 August 1997.
k Incorporated on 20 May 1997.
l Name changed from Morgan & Banks Executive Leasing Ltd on 7 March 1997.
On 24 January 1997, the economic entity acquired an additional 16.5% of the
share capital of Morgan & Banks (Hong Kong) Ltd for $1,075,635 and the
additional percentage of the operating results were included in Profit and Loss
Accounts from that date. During the 1998 financial year the economic entity
65
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 32. CONTROLLED ENTITIES (CONTINUED)
acquired a further 7.5% of the share capital of Morgan & Banks (Hong Kong) Ltd
for an amount of $664,778. The acquisition took place on 1 April 1997 and the
operating results of the increased ownership interest was included in the profit
and loss account from that date.
NOTE 33. EARNINGS PER SHARE
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
----------------------------------------
<S> <C> <C> <C>
1998 1997 1996
$ $ $
------------ ------------ ------------
Basic earnings per share--before abnormal items......................... 0.169 0.144 0.10
Basic earnings per share--after abnormal items.......................... 0.159 0.144 0.10
<CAPTION>
NUMBER NUMBER NUMBER
------------ ------------ ------------
<S> <C> <C> <C>
Weighted average number of ordinary shares outstanding during the year
used in the calculation of basic earnings per share................... 69,239,148 68,489,148 67,663,638
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Diluted earnings per share is not materially different from basic earnings
per share and is therefore not disclosed in the accounts.
The prior year numbers have been adjusted to reflect the capital
reconstruction for the purposes of comparability.
NOTE 34. RELATED PARTY TRANSACTIONS
During the financial period to 31 March 1998 the following transactions took
place with related parties:
Dividends totalling $1,555,334 (1997: $1,501,253, 1996: $1,522,260) were
paid during the year to entities associated with directors, this being in
accordance with normal shareholder entitlements.
An amount of $20,000 (1997: $20,000, 1996: $20,000) was paid under a
sponsorship agreement to Geoff Morgan Motor Sports, a director related entity of
Mr G K Morgan.
Director related entities of non-executive directors, Mr W S Cutbush, Mr A A
Cox, Mr A W Whatmore and joint managing directors, Mr G K Morgan and Mr A R
Banks, have from time to time utilised the services of the economic entity, this
being in the normal course of business and on standard terms and conditions.
66
<PAGE>
SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN US GAAP AND UK GAAP
Austin Knight Limited and subsidiaries' (the "Group") consolidated financial
statements have been prepared in accordance with UK GAAP which differs in
certain significant respects from US GAAP. This summary should not be taken as a
complete list of all differences between UK GAAP and US GAAP. No attempt has
been made to identify all disclosures, presentations or classifications that
would affect the manner in which transactions or events are presented in the
financial statements or notes thereto. Further, no attempt has been made to
identify future differences between UK GAAP and US GAAP as the result of
prescribed changes in accounting standards. The identified significant
differences as they relate to the Group are summarized in the following
paragraphs.
GOODWILL AND OTHER INTANGIBLES
Goodwill represents the amounts paid for subsidiary companies and acquired
businesses in excess of their net asset value. Under UK GAAP, for acquisitions
made on or before 30 September 1992, the net book value of goodwill at that date
is amortised in equal monthly instalments over a maximum period of 10 years. For
acquisitions after that date, goodwill is written off in full, directly to
reserves, in the year of purchase. Under US GAAP, goodwill is capitalized and
amortized through the statement of income over a period representing the
estimated useful life, not exceeding 40 years.
TANGIBLE FIXED ASSETS
Under UK GAAP, no depreciation is charged on freehold buildings with an
estimated useful life of more than 50 years, as it is the Group's policy to
maintain its properties in good condition so prolonging their useful lives and
the Directors consider that the lives of these properties and their residual
values are such that any depreciation involved would not be material. Cost of
repairs and maintenance are charged against revenue in the year in which they
are incurred. Provision for depreciation on freehold investment properties is
made when the Directors consider there has been a permanent reduction in their
realisable values. Under US GAAP, all tangible fixed assets are carried at
historical cost less accumulated depreciation.
SALES OF PROPERTY (REAL ESTATE)
Under UK GAAP, the general concepts of prudence and accruals apply when
accounting for sales of property. Additionally, US GAAP dictates a prescriptive
methodology in this area. US GAAP makes a distinction between retail land sales
and other sales of real estate. Separate guidance is provided for companies in
the real estate industry, which are frequently involved in highly complex
transactions.
LEASES
While US GAAP is similar in concept to UK GAAP, its detailed requirements
are more extensive and differences exist. Leases classified as finance leases
under UK GAAP are likely to be classified as capital leases under US GAAP.
Certain operating leases under UK GAAP, however, may also be classified as
capital leases under US GAAP.
DEFERRED TAXATION
Under UK GAAP, provision is made for deferred taxation under the liability
method unless there is reasonable certainty that such deferred taxation will not
become payable or receivable in the foreseeable future. Under US GAAP, deferred
taxation is provided on all temporary differences which will result in taxable
or tax deductible amounts in future years subject to a valuation allowance to
reduce deferred tax assets if it is more likely than not that the related tax
benefit will not be realized.
67
<PAGE>
DIVIDENDS
Under UK GAAP, dividends are provided for in the year to which they relate.
These dividends are deducted from current year earnings. US GAAP recognizes
dividends as a reduction of retained earnings in the accounting period in which
they are formally declared.
PENSIONS
Under UK GAAP, contributions to pension funds are assessed in accordance
with advice from actuaries and charged to the income statement so as to spread
the pension cost over the expected service lives of the relevant employees.
Pension accounting under US GAAP is more prescriptive than that under UK GAAP,
where a more judgmental approach is taken. Under US GAAP, a liability is
recognized when plan assets are less than employees' accumulated benefits.
Accordingly, there may be differences in the actuarial assumptions and methods
of valuation of the plan assets compared with those that would be made under US
GAAP.
ACQUISITION ACCOUNTING
Prior to the introduction of Financial Reporting Standard No. 7, "Fair
Values in Acquisition Accounting" ("FRS7"), certain costs of restructuring were
provided for as part of the purchase accounting adjustments on an acquisition
under UK GAAP. FRS7, introduced for the year ended December 31, 1995, requires
that the fair value balance sheet of the acquired company not include provisions
for integration and reorganization costs set up by the acquiring company. The
FRS contained no requirement to restate prior year figures.
Under US GAAP, such costs would generally be included in the statement of
income when incurred. Certain integration and reorganization costs meeting
specific criteria, however, may be considered liabilities assumed and included
in the allocation of the acquisition cost.
ESOT ADJUSTMENT
Under UK GAAP, shares acquired by the ESOT are included in the balance sheet
as an asset. Under US GAAP they are treated as a reduction in shareholders'
equity.
REVALUATION OF PROPERTIES
Under UK GAAP, properties may be restated on the basis of appraised values
in financial statements prepared in all other respects in accordance with the
historic cost convention. Increases in value are credited directly to the
revaluation reserve. When revalued properties are sold the gain or loss on sale
is calculated based on revalued carrying amounts. Under US GAAP, such
revaluations are not reflected in the financial statements, and the gain or loss
on sale is calculated based on depreciated historical cost.
CURRENT ASSETS AND LIABILITIES
Current assets under UK GAAP, include certain amounts which fall due after
more than one year. Under US GAAP, such assets would be reclassified as
non-current assets. Borrowings under UK GAAP are classified according to the
maturity of the financial instrument, while under US GAAP, certain borrowings
would be classified according to the maturity of the available back-up facility.
Provisions for liabilities and charges under UK GAAP include certain amounts due
within one year which would be reclassified as current liabilities under US
GAAP.
ADVERTISING COSTS
Under UK GAAP, advertising costs may be recognized in the period in which
the related benefit is expected to arise and may, accordingly, be carried as a
prepayment in the balance sheet. Under US GAAP,
68
<PAGE>
advertising costs are primarily expensed in the periods in which those costs are
incurred. In certain limited circumstances, however, advertising costs may be
deferred.
CASH FLOWS
Under UK GAAP, the Group complies with Financial Reporting Standard No. 1
(revised), "Cash flow statements" ("FRS1"). Its objectives and principles are
similar to US GAAP as set out in Statement of Financial Accounting Standards No.
92, "Statement of Cash Flows" (SFAS No. 95"). The principal difference between
the standards is in respect of classification. Under FRS1, the Group presents
its cash flows for (a) operating activities, (b) returns on investments and
servicing of finance, (c) taxation, (d) capital expenditure and financial
investment, (e) acquisitions and disposals, (f) equity dividends paid, (g)
management of liquid resources and (h) financing, SFAS No. 95 requires only
three categories of cash flow activity: (a) operating activities, (b) investing
activities and (c) financing activities.
Under FRS1, cash includes deposits and overdrafts repayable on demand while
movements on short-term investments are included in management of liquid
resources. SFAS No. 95 defines cash and cash equivalents as also including
short-term highly liquid investments.
Cash flows arising from taxation and returns on investments and servicing of
finance under FRS1 would be included as operating activities under SFAS No. 95.
Cash flows relating to capital expenditure and financial investment and
acquisitions and disposals would be included as investing activities under SFAS
No. 95. Equity dividend payments would be included as a financing activity under
SFAS No. 95.
Management has not quantified the effect of the differences between UK GAAP
and US GAAP on the net profit or stockholders' funds of the Group. Accordingly,
there can be no assurances that such net profit or stockholders' funds
determined in accordance with UK GAAP would not be significantly different if
they had been determined under US GAAP.
69
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Members of Austin Knight Limited
We have audited the accompanying consolidated balance sheets of Austin
Knight Limited and its subsidiaries as at 30 September 1995 and 1996 and the
related consolidated profit and loss accounts, cash flow statements, statements
of movements in shareholders' funds and statements of total recognised gains and
losses for each of the years in the two year period ended 30 September 1996.
These consolidated financial statements are the responsibility of the directors
of Austin Knight Limited. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United Kingdom which do not differ in any material respects from
generally accepted auditing standards in the United States of America. These
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Austin
Knight Limited and its subsidiaries at 30 September 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
two year period ended 30 September 1996, in conformity with generally accepted
accounting principles in the United Kingdom.
KPMG
Chartered Accountants
Registered Auditors
London, England
4 February 1997
70
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
YEAR ENDED 30
SEPTEMBER
----------------------
<S> <C> <C> <C>
1995 1996
NOTE L'000 L'000
----- ---------- ----------
TURNOVER............................................................... 2 123,118 134,444
Cost of Sales.......................................................... (110,403) (120,196)
---------- ----------
GROSS PROFIT........................................................... 12,715 14,248
Administrative expenses................................................ (9,796) (11,206)
Other operating income................................................. 378 473
---------- ----------
OPERATING PROFIT....................................................... 3 3,297 3,515
Exceptional Item....................................................... 6 -- (95)
Interest............................................................... 7 (539) (407)
---------- ----------
PROFIT on ordinary activities before taxation.......................... 2,758 3,013
TAXATION............................................................... 8 (1,098) (1,210)
---------- ----------
PROFIT for the financial year.......................................... 1,660 1,803
DIVIDENDS.............................................................. 9 (408) (445)
---------- ----------
RETAINED PROFIT for the financial year................................. 18 1,252 1,358
---------- ----------
---------- ----------
</TABLE>
There are no discontinued operations contained within the above results.
Details of the results of the acquisitions made during the year are shown in
note 3.
The notes on pages F-45 to F-60 form part of these financial statements.
71
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
--------------------
<S> <C> <C> <C>
1995 1996
NOTE L'000 L'000
--------- --------- ---------
FIXED ASSETS
Intangible assets...................................................... 10 498 419
Tangible assets........................................................ 11 16,131 16,923
Investments............................................................ 12 112 112
--------- ---------
16,741 17,454
--------- ---------
CURRENT ASSETS
Work-in-process........................................................ 270 193
Debtors................................................................ 13 24,547 24,444
Cash at bank and in hand............................................... 24 1,006 1,596
--------- ---------
25,823 26,233
CREDITORS: Amounts falling due within one year......................... 14 (24,490) (24,668)
--------- ---------
NET CURRENT ASSETS/(LIABILITIES)....................................... 1,333 1,565
--------- ---------
TOTAL ASSETS LESS CURRENT LIABILITIES.................................. 18,074 19,019
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR................ 15 (4,495) (4,857)
PROVISION FOR LIABILITIES AND CHARGES.................................. 16 (308) (214)
--------- ---------
NET ASSETS............................................................. 13,271 13,948
--------- ---------
--------- ---------
CAPITAL AND RESERVES
Called up share capital................................................ 17 1,237 1,237
Share Premium Account.................................................. 18 87 87
Revaluation reserve.................................................... 18 5,396 5,396
Profit and loss account................................................ 18 6,551 7,228
--------- ---------
13,271 13,948
--------- ---------
--------- ---------
</TABLE>
The notes on pages F-45 to F-60 form part of these financial statements.
72
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED
30 SEPTEMBER,
--------------------
<S> <C> <C> <C>
1995 1996
NOTE L'000 L'000
--------- --------- ---------
NET CASH INFLOW FROM OPERATING ACTIVITIES.............................................. 21 2,906 6,184
--------- ---------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid.......................................................................... (561) (433)
Interest received...................................................................... 34 50
Interest element of finance lease rental payments...................................... (24) (27)
Dividends paid......................................................................... (328) (416)
--------- ---------
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE.................. (879) (826)
--------- ---------
TAXATION
ACT paid............................................................................... (60) (102)
UK corporation tax paid................................................................ (537) (668)
Overseas and other taxes paid.......................................................... (277) (581)
--------- ---------
TAX PAID............................................................................... (874) (1,351)
--------- ---------
INVESTING ACTIVITIES
Purchase of own shares................................................................. (118) --
Sale of shares under option............................................................ 11 --
Purchase of intangible assets.......................................................... 22 -- (78)
Purchase of subsidiaries............................................................... 23 (51) (632)
Purchase of tangible fixed assets...................................................... (1,024) (1,740)
Less: Inception of finance leases...................................................... 63 1,024
Proceeds from sales of fixed assets.................................................... 146 112
--------- ---------
NET CASH OUTFLOW FROM INVESTING ACTIVITIES............................................. (973) (1,314)
--------- ---------
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING............................................. 180 2,693
FINANCING
Additional loan repayable over 5 years................................................. -- 641
Issue of ordinary share capital........................................................ 118 --
--------- ---------
298 3,334
--------- ---------
--------- ---------
FINANCING
Repayment of loans..................................................................... 767 767
Capital element of finance lease.......................................................
Net rental payments.................................................................... 105 149
--------- ---------
NET CASH OUTFLOW FROM FINANCING........................................................ 872 916
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS....................................... 24 (574) 2,418
--------- ---------
298 3,334
--------- ---------
--------- ---------
</TABLE>
The notes on pages F-45 to F-60 form part of these financial statements.
73
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
YEAR ENDED
30 SEPTEMBER,
--------------------
<S> <C> <C>
1995 1996
L'000 L'000
--------- ---------
Profit for the financial year.................................................................. 1,660 1,803
Dividends...................................................................................... (408) (445)
--------- ---------
1,252 1,358
Goodwill written off........................................................................... (51) (710)
Exchange adjustments........................................................................... 72 29
--------- ---------
1,273 677
New share capital subscribed................................................................... 118 --
Opening Shareholders' Funds.................................................................... 11,741 13,271
Prior year adjustments......................................................................... 139 --
--------- ---------
Closing Shareholders' Funds.................................................................... 13,271 13,948
--------- ---------
--------- ---------
</TABLE>
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
<TABLE>
<CAPTION>
YEAR ENDED
30 SEPTEMBER,
--------------------
<S> <C> <C>
1995 1996
L'000 L'000
--------- ---------
Profit for the financial year.................................................................... 1,660 1,803
Exchange adjustments............................................................................. 72 29
--------- ---------
Total recognised gains for the financial year.................................................... 1,732 1,832
Prior year adjustment............................................................................ 139 --
--------- ---------
Total gains recognised since the last Annual Report.............................................. 1,871 1,832
--------- ---------
--------- ---------
</TABLE>
The notes on pages F-45 to F-60 form part of these financial statements.
74
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
1. ACCOUNTING POLICIES
A. BASIS OF PREPARATION
The accounts have been prepared under the historical cost accounting rules
as modified by the revaluation of freehold property and in accordance with
applicable accounting standards.
B. TURNOVER AND RECOGNITION OF REVENUE
Turnover represents amounts receivable from clients, exclusive of sales
related taxes, in respect of charges for advertising placed, production work and
fees. Revenue in respect of advertising and production is recognized when the
work is completed. Fees are recognised over the period of the relevant
assignment.
C. CONSOLIDATION
The consolidated accounts of the Group incorporate the accounts of the
Company and its subsidiaries, together with the accounts of the Austin Knight
Limited Employees Trust.
In accordance with the Companies Act of 1985 S230, a separate profit and
loss account dealing with the results of Austin Knight Limited is not presented.
The amount of the consolidated profit for the financial year dealt with in the
accounts of the Company is L1,128,000 (1995 L1,149,000).
D. FOREIGN CURRENCIES
Exchange differences on transactions during the year are charged or credited
to the profit and loss account. The trading results and cash flow of overseas
subsidiaries are translated at the average exchange rate for the year. Assets
and liabilities are translated at exchange rates ruling at the year-end. On
consolidation, differences on exchange arising from the retranslation of the
opening net investment and from the translation of the profits or losses at
average rates are taken directly to reserves.
E. GOODWILL
Goodwill represents the amounts paid for subsidiary companies and acquired
businesses in excess of their net asset value. For acquisitions made on or
before 30 September 1992, the net book value of goodwill at that date is
amortised in equal monthly installments over a maximum period of 10 years. For
acquisitions after that date, goodwill is written off in full, directly to
reserves in the year of purchase.
F. DEPRECIATION
Tangible fixed assets are stated at historical cost or valuation less
accumulated depreciation. Depreciation is provided to write off the cost of
tangible fixed assets by equal monthly installments at the following rates:
FREEHOLD PROPERTY--Provision for depreciation on freehold buildings with an
estimated useful life of more than 50 years is not considered necessary since it
is the Company's policy to maintain its properties in good condition which
prolongs their useful lives and the Directors consider that the lives of these
properties and their residual values are such that any depreciation involved
would not be material. Costs of repairs and maintenance are charged against
revenue in the year in which they are incurred.
75
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
1. ACCOUNTING POLICIES (CONTINUED)
INVESTMENT PROPERTIES--Provision for depreciation on freehold investment
properties is made when the Directors consider there has been a permanent
reduction in their realisable values.
FURNITURE AND EQUIPMENT--10% to 25% per annum according to the estimated
life of assets.
MOTOR VEHICLES--20% per annum.
G. WORK-IN-PROGRESS
Work-in-progress is valued at the lower of cost or net realisable value.
H. DEFERRED TAXATION
Provision is made for deferred taxation using the liability method in
respect of all material timing differences, to the extent that it is probable
that the liability or asset will crystallise in the foreseeable future.
I. LEASES
Leases are accounted for as finance leases where the Group enters into a
lease which entails taking substantially all the risks and rewards of ownership
of an asset. All other leases are accounted for as operating leases.
Assets acquired under finance leases are capitalised in the balance sheet
and are depreciated over their estimated useful lives. The capital element of
future rentals is treated as a liability and the interest element is charged to
the profit and loss account over the period of the leases in proportion to the
balance outstanding. Rentals payable under operating leases are charged to the
profit and loss account as incurred.
J. PENSIONS
Contributions are paid to the Group's pension schemes to secure and enhance
the benefits for personnel under the schemes in accordance with the
recommendations of independent actuaries.
Contributions are charged to the profit and loss account so as to spread the
cost of the provisions over the employees' working lives in accordance with
Statement of Standard Accounting Practice 24. Pension scheme surpluses or
deficits are amortised over the expected remaining service lives of employees.
2. TURNOVER
The turnover of the Group arose in the following geographical markets:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
United Kingdom.......................................................... 76,908 82,473
United States........................................................... 27,566 33,942
Rest of world........................................................... 18,644 18,029
--------- ---------
123,118 134,444
--------- ---------
--------- ---------
</TABLE>
76
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
3. OPERATING PROFIT
The operating profit is stated after including:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Depreciation of tangible fixed assets........................................ 995 665
Amortisation of intangibles.................................................. 70 68
Hire of plant and equipment.................................................. 629 724
Other rents payable.......................................................... 1,235 1,478
Directors' emoluments (Note 4):
Management remuneration--Salaries and benefits............................. 268 274
--Performance payments.............................. 27 29
Fees....................................................................... 36 36
Compensation for loss of office............................................ 25 --
Pension contributions...................................................... 26 27
Auditors' remuneration--in respect of audit.................................. 104 119
Auditors' remuneration--in respect of other work............................. 45 36
Rent receivable.............................................................. 363 473
</TABLE>
Operating profit also includes the following amounts relating to
acquisitions made during the year ended 30 September 1996:
<TABLE>
<CAPTION>
L'000
---------
<S> <C>
Turnover............................................................................... 655
Cost of sales.......................................................................... (487)
---
Gross profit........................................................................... 168
Administrative expenses................................................................ (137)
---
Operating profit arising from acquisitions............................................. 31
---
---
</TABLE>
4. DIRECTORS' EMOLUMENTS
The details of Directors' emoluments are set out in Note 26, Remuneration
Committee Report.
5. STAFF COSTS
Staff costs, which include Directors' emoluments, were:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Wages and salaries......................................................... 11,963 13,548
Social security costs...................................................... 971 1,253
Pension costs.............................................................. 525 611
--------- ---------
13,459 15,412
--------- ---------
--------- ---------
</TABLE>
The average number of employees including Directors during the year was 514
(1995:476).
77
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
6. EXCEPTIONAL ITEM
This comprises solely the provisions necessary to reduce the Group's
investment properties to their estimated net realisable values.
7. INTEREST
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
----- -----
<S> <C> <C>
INTEREST PAYABLE
On bank loan repayable over more than five years............................... 393 342
On overdrafts and other loans repayable wholly within five years............... 156 105
Finance leases................................................................. 24 20
INTEREST RECEIVABLE............................................................ (34) (60)
--- ---
539 407
--- ---
--- ---
</TABLE>
8. TAXATION
The taxation on the profit on ordinary activities for the year was as
follows:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
United Kingdom corporation tax at 33%........................................ 746 804
Overseas taxation............................................................ 410 494
Deferred taxation--charge/(credit)
UK......................................................................... 42 (235)
Overseas................................................................... (49) 110
Adjustments to prior years--charge/(credit).................................. (51) 37
--------- ---------
1,098 1,210
--------- ---------
--------- ---------
</TABLE>
9. DIVIDENDS
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Interim dividend of 2.75p per 25p share (1995: 2.60p per 25p share) 128 136
Final dividend of 6.25p per 25p share (1995: 5.65p per 25p share) 280 309
--------- ---------
408 445
--------- ---------
--------- ---------
</TABLE>
78
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
10. INTANGIBLE FIXED ASSETS--GOODWILL
<TABLE>
<CAPTION>
L'000
---------
<S> <C>
COST
At 1 October 1995..................................................................... 2,823
Exchange adjustments.................................................................. (18)
Addition on Acquisition of Business--see Note 22...................................... 78
Addition on Acquisition of Subsidiaries--see Note 23.................................. 632
---------
AT 30 September 1996.................................................................. 3,515
---------
AMORTISATION
At 1 October 1995..................................................................... 2,325
Charge for year....................................................................... 68
Written off to reserves............................................................... 710
Exchange adjustments.................................................................. (7)
---------
At 30 September 1996.................................................................. 3,096
---------
NET BOOK VALUES
At 30 September 1996.................................................................. 419
---------
---------
At 30 September 1995.................................................................. 498
---------
---------
</TABLE>
11. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FREEHOLD FURNITURE/
PROPERTY EQUIPMENT MOTOR VEHICLES TOTAL
L'000 L'000 L'000 L'000
----------- ----------- ----------------- ---------
<S> <C> <C> <C> <C>
COST OR VALUATION
At 1 October 1995................................................ 14,472 5,447 513 20,432
Exchange adjustments............................................. -- 40 5 45
Additions........................................................ -- 1,719 26 1,745
Acquisitions..................................................... -- 61 -- 61
Disposals........................................................ -- (793) (92) (885)
----------- ----- --- ---------
At 30 September 1996............................................. 14,472 6,474 452 21,398
----------- ----- --- ---------
DEPRECIATION
At 1 October 1995................................................ -- 4,094 207 4,301
Exchange adjustments............................................. -- 25 1 26
Disposals........................................................ -- (616) (36) (652)
Acquisitions..................................................... -- 40 -- 40
Charge for the year.............................................. 95 585 80 760
----------- ----- --- ---------
At 30 September 1996............................................. 95 4,128 252 4,475
----------- ----- --- ---------
NET BOOK VALUES
At 30 September 1996............................................. 14,377 2,346 200 16,923
----------- ----- --- ---------
----------- ----- --- ---------
At 30 September 1995............................................. 14,472 1,353 306 16,131
----------- ----- --- ---------
----------- ----- --- ---------
</TABLE>
79
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
11. TANGIBLE FIXED ASSETS (CONTINUED)
Included in freehold property are investment properties of L627,000 shown at
written down value (1995: L722,000). The remaining property was revalued to
L13.75 million in 1992 based upon a Directors' valuation having regard to
professional advice. Its historical cost is L8,385,000.
The net book value of tangible fixed assets includes an amount of L933,000
(1995:L127,000) in respect of assets held under finance leases and hire purchase
obligations. The depreciation to these assets in the year is L203,000 (1995:
L47,000).
12. INVESTMENTS
PRINCIPAL TRADING SUBSIDIARIES
<TABLE>
<CAPTION>
PERCENTAGE OF
COUNTRY OF INCORPORATION ORDINARY SHARE
AND OPERATION CAPITAL HELD
-------------------------------------- -----------------
<S> <C> <C>
Austin Knight Incorporated............ United States of America 100
Austin Knight Canada Incorporated..... Canada 100
Austin Knight Proprietary Limited..... Australia 100
Austin Knight Consulting Proprietary Australia
Limited............................. 100
Austin Knight France SA............... France 100
Austin Knight BV...................... Netherlands 100*
Carre Turenne SA...................... France 100**
Alliance Resource Humaines SA......... France 100***
Austin Knight International BV........ Netherlands 100
Austin Knight Investments Ltd......... Great Britain 100
</TABLE>
- ------------------------
* Held by subsidiary, Austin Knight International BV
** Held by subsidiary, Austin Knight Investments Limited
*** Held by subsidiary, Austin Knight France SA
The principal activities of the trading subsidiaries are recruitment and
legal advertising and human resource consultancy.
The results of all the above companies are included in the consolidated
results for the Group using the acquisition method of accounting.
Austin Knight Limited has given guarantees on behalf of certain subsidiary
companies. The contingent liability at 30 September 1996 under these guarantees
amounted to L512,000 (1995: L630,000) at the year-end rates of exchange.
80
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
12. INVESTMENTS (CONTINUED)
OWN SHARES HELD
The Group includes 152,250 of its own shares which are held by the Austin
Knight Limited Employees Trust as an investment. They have been included at the
cost to the Trust.
The Austin Knight Limited Employees Trust exists for the benefit of the UK
employees and to incentivise the Directors and senior employees of the Group.
The Trust receives and holds shares in the Company either by means of a gift or
a purchase made at the then fair value price. It receives and invests the
dividends due on those shares and earns interest on its accumulated cash
balances. Periodically, options over the shares which it holds are granted to
individuals at the discretion of the Trustees based on recommendations by the
Board.
<TABLE>
<CAPTION>
L'000
---------
<S> <C> <C>
Shares at cost 1 October 1995 and at 30 September 1996..................... 112
</TABLE>
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
SUMMARY OF INVESTMENTS
Own shares held............................................................ 112 112
--------- ---------
Net book value............................................................. 112 112
--------- ---------
--------- ---------
</TABLE>
13. DEBTORS
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Trade debtors.............................................................. 23,104 23,016
Other debtors.............................................................. 624 698
Prepayments and accrued income............................................. 819 730
--------- ---------
24,547 24,444
--------- ---------
--------- ---------
</TABLE>
14. CREDITORS--AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Bank loans and overdrafts.................................................. 2,884 1,171
Trade creditors............................................................ 17,061 18,608
Obligations under finance leases and hire purchase contracts............... 99 333
Dividend payable........................................................... 280 309
Other creditors including taxation and social security..................... 2,231 2,140
Accruals and deferred income............................................... 1,935 2,107
--------- ---------
24,490 24,668
--------- ---------
--------- ---------
</TABLE>
81
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
14. CREDITORS--AMOUNTS FALLING DUE WITHIN ONE YEAR (CONTINUED)
Details of the security given for the bank loan and overdrafts are shown in
Note 15.
Other creditors including taxation and social security comprise:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Corporation tax.............................................................. 1,070 917
Social security and other taxes.............................................. 289 937
Other creditors.............................................................. 872 286
--------- ---------
2,231 2,140
--------- ---------
--------- ---------
</TABLE>
15. CREDITORS--AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Bank loans................................................................... 4,409 4,138
Finance lease and hire purchase obligations.................................. 58 700
Other creditors.............................................................. 28 19
--------- ---------
4,495 4,857
--------- ---------
--------- ---------
</TABLE>
The bank loans and overdrafts are secured by fixed and floating charges on
the freehold property and trade debtors of Austin Knight Limited and its UK and
French subsidiaries. The loans bear interest based upon LIBOR and its French
equivalent and are scheduled for repayment as follows:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Between one and two years.................................................... 767 891
Between two and five years................................................... 2,300 2,671
More than five years......................................................... 1,342 576
--------- ---------
4,409 4,138
--------- ---------
--------- ---------
Bank loan included in creditors due within one year.......................... 767 891
--------- ---------
</TABLE>
The finance lease and hire purchase obligations fall due as follows:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
----- -----
<S> <C> <C>
Between one and two years...................................................... 49 302
Between two and five years..................................................... 9 398
--
---
58 700
--
--
---
---
</TABLE>
All other creditors falling due after more than one year are payable within
five years.
82
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
16. PROVISIONS FOR LIABILITIES AND CHARGES
The amounts provided for deferred taxation and other liabilities and charges
are as follows:
<TABLE>
<CAPTION>
DEFERRED TAX OTHER
L'000 L'000
--------------- -----------
<S> <C> <C>
Provision at 1 October 1995............................................. 127 181
(Credit)/charge for the year in the profit and loss account
UK.................................................................. (235) --
Overseas............................................................ 110 33
Transfers........................................................... (2) --
--- ---
Provision at 30 September 1996.......................................... -- 214
--- ---
--- ---
</TABLE>
The amount of deferred taxation not provided is L221,000 and arises solely
on capital allowances.
The other provisions relate to pensions and other employee benefits.
17. CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
AUTHORISED
8,000,000 shares of 25p each (1995: 8,000,000 shares of 25p each)............ 2,000 2,000
--------- ---------
--------- ---------
ALLOTTED AND FULLY PAID
4,948,000 ordinary shares of 25p each (1995: 4,948,000 ordinary shares of 25p
each)...................................................................... 1,237 1,237
--------- ---------
--------- ---------
</TABLE>
18. RESERVES
<TABLE>
<CAPTION>
PROFIT AND LOSS REVALUATION SHARE
ACCOUNT RESERVE PREMIUM
L'000 L'000 L'000
--------------- ------------- -------------
<S> <C> <C> <C>
At 1 October 1995......................................................... 6,551 5,396 87
Goodwill written off...................................................... (710) -- --
Profit retained........................................................... 1,358 -- --
Exchange adjustments...................................................... 29 -- --
--
----- -----
At 30 September 1996...................................................... 7,228 5,396 87
--
--
----- -----
----- -----
</TABLE>
19. CAPITAL COMMITMENTS
Capital expenditure authorised and contracted for by the Board of Directors
at 30 September 1996, for which no provision has been made in these accounts,
was L73,000 (1995: L107,000).
83
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
20. LEASE COMMITMENTS
The Group had the following annual commitments under operating leases:
<TABLE>
<CAPTION>
LAND AND BUILDINGS
OTHER
------------------------ -----------
<S> <C> <C> <C>
1995 1996 1995
L'000 L'000 L'000
----- ----- -----
ON LEASES EXPIRING
Within 1 year....................................................................... 274 115 220
Within 2--5 years................................................................... 423 467 295
After 5 years....................................................................... 773 914 --
<CAPTION>
<S> <C>
1996
L'000
-----
ON LEASES EXPIRING
Within 1 year....................................................................... 296
Within 2--5 years................................................................... 485
After 5 years....................................................................... --
</TABLE>
21. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Operating profit............................................................ 3,297 3,515
Depreciation................................................................ 995 665
Amortisation of intangible fixed assets..................................... 70 68
Loss on disposal of fixed assets............................................ 27 122
Decrease/(increase) in work-in-progress..................................... (94) 82
Decrease/(increase) in debtors.............................................. (2,935) 424
Increase in creditors....................................................... 1,546 1,308
--------- ---------
Net cash inflow from operating activities................................... 2,906 6,184
--------- ---------
--------- ---------
</TABLE>
22. PURCHASE OF INTANGIBLE ASSETS
This relates to the goodwill arising on the acquisition of Dawson
Advertising, a UK business in March 1996.
23. PURCHASE OF SUBSIDIARY UNDERTAKINGS
1. During the year, further payments of L101,700 were made under the terms
of the agreement for the purchase of Carre Turenne SA. These payments are
determined by the level of sales and profits earned from that Company's clients
since it joined the Group.
84
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
23. PURCHASE OF SUBSIDIARY UNDERTAKINGS (CONTINUED)
2. In July 1996, the Company acquired, through its subsidiary, Austin Knight
France SA, the entire issued share capital of Alliance Resources Humaines SA, a
company registered in France. The consideration paid and assets acquired were as
follows:
<TABLE>
<CAPTION>
L'000
---------
<S> <C>
Total Paid............................................................................ 666
Cash Acquired......................................................................... (159)
---------
Net Payment........................................................................... 507
---------
Fixed Assets.......................................................................... 21
Debtors............................................................................... 409
Creditors............................................................................. (453)
---------
(23)
Goodwill.............................................................................. 530
---------
507
---------
---------
GOODWILL SUMMARY L,000
---------
Arising on the acquisition of Carre Turenne........................................... 102
Arising on the acquisition of Alliance RH............................................. 530
---------
632
---------
---------
</TABLE>
85
<PAGE>
AUSTIN KNIGHT LIMITED AND SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
24. CASH AND CASH EQUIVALENTS
Analysis of the balances as shown in the balance sheet and changes during
the current year:
<TABLE>
<CAPTION>
CHANGE
1995 1996 IN YEAR
L'000 L'000 L'000
--------- --------- ---------
<S> <C> <C> <C>
Analysis of Balances
Cash at bank and in hand...................................... 1,006 1,596 590
Bank loan and overdrafts...................................... (2,884) (1,171) 1,713
Less: Amounts repayable after three months.................... 767 891 124
--------- --------- ---------
---------
(1,111) 1,316 2,427
--------- --------- ---------
--------- --------- ---------
L'000
---------
Analysis of Changes
Balance 1 October 1995........................................ (1,111)
Net cash inflow before the effect of exchange rate changes.... 2,418
Effect of exchange rate changes............................... 9
---------
Balance 30 September 1996..................................... 1,316
---------
---------
</TABLE>
<TABLE>
<CAPTION>
SHARE LOANS AND FINANCE
CAPITAL LEASE OBLIGATIONS
L'000 L'000
----------- -------------------
<S> <C> <C>
Analysis of changes in financing during the year
Balance 1 October 1995....................................... 1,324 5,332
Additional loan raised....................................... -- 641
Repayment of loan............................................ -- (767)
Finance lease repayments..................................... -- (149)
Finance lease inceptions (non-cash transaction).............. -- 1,024
Effect of exchange rate changes.............................. -- (19)
----- -----
Balance 30 September 1996.................................... 1,324 6,062
----- -----
----- -----
</TABLE>
25. PENSION SCHEMES
The two principal schemes of the Group are operated in the United Kingdom,
one a defined contribution scheme, the other a defined benefit scheme. The
defined contribution scheme is operated on the Group's behalf by an independent,
recognised pension provider. It is currently being wound up and the accrued
benefits transferred to other schemes not administered by the Group or the
individuals concerned.
The defined benefit scheme is trustee administered and the fund is
maintained by fund managers independently of the Group's finances. The funding
and accounting policies are identical and consist of providing for the
liabilities in respect of an individual in a systematic manner over the
individual's working lifetime.
186
<PAGE>
AUSTIN KNIGHT LIMITED AND SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
25. PENSION SCHEMES (CONTINUED)
The pension cost has been assessed in accordance with the advice of an
independent actuary and has been based on a valuation carried out as at 1 April
1996. The market value of the scheme's assets as at 1 April 1996 was
approximately L10.2 million and the level of funding approximately 100%.
The actuarial valuation at 1 April 1996 was carried out on the attained age
valuation method and the main actuarial assumptions adopted were:
<TABLE>
<S> <C>
Nominal return on investments....... 8.5% p.a.
Rate of salary increases............ 6.0% p.a.
Rate of pension increases........... 2.5% p.a. (for benefits related to service
prior to 1 April 1996).
4.0% p.a. (for service after 1 April 1996).
Rate of dividend increases.......... 4.0% p.a.
</TABLE>
26. REMUNERATION COMMITTEE REPORT
INTRODUCTION
This report of the Remuneration Committee, on behalf of the Board, sets out
Austin Knight Limited's policy on Executive Directors' remuneration and provides
details of the remuneration earned by the Directors in the 1995/96 financial
year. It also details their interests in the Company's shares.
The remuneration arrangements for all Executive Directors are determined by
the Remuneration Committee, which is also responsible for the operation of the
Executive Share Option Scheme.
The Company has considered the provisions of the Code of Best Practice of
the Greenbury Study Group on Directors' Remuneration. It complies with Section A
of the best practice provisions annexed to the Listing Rules of the London Stock
Exchange and the Remuneration Committee has given full consideration to the
provisions of Section B in framing its remuneration policy.
GENERAL POLICY ON EXECUTIVE REMUNERATION
The Remuneration Committee, when setting objectives on pay and benefits,
aims to ensure that remuneration packages offered are competitive and designed
to attract, retain and motivate executive directors and senior management of the
highest quality.
The main components of the remuneration package are set out below.
BASE SALARIES
Basic salaries are determined by the Remuneration Committee taking into
account the performance of the individual and information from independent
sources on the rates of salaries in the competitive market.
187
<PAGE>
AUSTIN KNIGHT LIMITED AND SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
26. REMUNERATION COMMITTEE REPORT (CONTINUED)
ANNUAL BONUS
The annual bonus scheme for Executive Directors is based on the profit
performance of the Group and its earnings per share.
SHARE OPTION SCHEME
Executive Directors, as members of senior management, are eligible share
options granted by the Austin Knight Limited Employees Trust. Periodically,
options are granted by the Trust at the discretion of the trustees based on
recommendations by the Board.
PENSION
Executive Directors are eligible to join the August Knight Pension and Life
Assurance Scheme. Pension contributions are paid to the Company's pension scheme
which is open to all senior employees and most other staff with more than two
years' service. The scheme provides a pension of one-sixtieth of final
pensionable salary for each year of pensionable service. It also provides the
usual pension related benefits including a lump sum of four times salary in the
event of death in service. Only base salary is pensionable.
CONTRACTS OF SERVICE
Details of individual Directors' contract terms are given in the table of
Directors' emoluments below.
DIRECTORS' EMOLUMENTS
Details of Directors' emoluments in 1996, with the comparison for the
previous year, are as follows:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
----- -----
<S> <C> <C>
Fees........................................................................... 36 36
Salaries and other benefits.................................................... 268 274
Performance payments........................................................... 27 29
Pension contributions.......................................................... 26 27
--- ---
TOTAL.......................................................................... 357 366
--- ---
--- ---
</TABLE>
188
<PAGE>
AUSTIN KNIGHT LIMITED AND SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
26. REMUNERATION COMMITTEE REPORT (CONTINUED)
The emoluments of individual Directors are set out below:
<TABLE>
<CAPTION>
CONTRACT
BASE PAYMENTS NOTICE
SALARY/ FOR PENSION PERIOD/
FEES BENEFITS PERFORMANCE CONTRIBUTIONS TOTAL EXPIRY DATE
--------- ----------- ------------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
K.G. Fordham................... 1996 50,000 14,028 -- -- 64,028 6 months
1995 50,000 13,539 -- -- 63,539
--------- --------- ----------- ------ ------ --------- ------------
J.R. Ratcliffe................. 1996 115,000 21,363 20,125 17,250 173,738 12 months
1995 105,060 21,424 20,000 15,750 162,234
--------- --------- ----------- ------ ------ --------- ------------
J.B. Gowshall.................. 1996 35,750 5,223 -- 5,363 46,336 Retired
1995 66,560 10,268 7,500 9,975 94,303 31.3.96
--------- --------- ----------- ------ ------ --------- ------------
R.A. Campbell.................. 1996 12,000 -- -- -- 12,000 30.11.97
1995 12,000 -- -- -- 12,000
--------- --------- ----------- ------ ------ --------- ------------
D.T. French.................... 1996 12,000 -- -- -- 12,000 30.11.98
1995 12,000 -- -- -- 12,000
--------- --------- ----------- ------ ------ --------- ------------
T.C. Mallott................... 1996 12,000 1,327 -- -- 13,327 30.11.97
1995 12,000 834 -- -- 12,834
--------- --------- ----------- ------ ------ --------- ------------
S.J. Cooney.................... 1996 27,000 4,670 8,750 4,050 44,470 6 months
1995 -- -- -- -- --
--------- --------- ----------- ------ ------ --------- ------------
--------- --------- ----------- ------ ------ --------- ------------
1996 263,750 46,611 28,875 26,663 365,899
1995 257,620 46,065 27,500 25,725 356,910
--------- --------- ----------- ------ ------ --------- ------------
--------- --------- ----------- ------ ------ --------- ------------
</TABLE>
In addition to the above payments, K.G. Fordham and T.C. Mallott receive a
pension from the Company's pension scheme in accordance with the terms of that
scheme. J.B. Gowshall has been retained as a consultant to the Company until 31
March 1997 for a fee of L10,000. He also receives a pension from the Company's
pension scheme.
Executive Directors may hold other non-executive directorships with the
prior written consent of the Board.
189
<PAGE>
AUSTIN KNIGHT LIMITED AND SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
26. REMUNERATION COMMITTEE REPORT (CONTINUED)
The Director's interests in the 25p ordinary shares of the Company at 30
September 1996 and 1995 or date of appointment were as follows:
<TABLE>
<CAPTION>
BENEFICIAL NON-BENEFICIAL
---------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
1995 NO. 1996 NO. 1995 1996
OF SHARE OF SHARE NO. OF NO. OF
SHARES OPTIONS SHARES OPTIONS SHARES SHARES
--------- ----------- --------- ----------- --------- ---------
K.G. Fordham.................................. 468,224 -- 468,224 -- 704,320 704,320
J.R. Ratcliffe................................ 88,200 25,000 88,200 35,000 -- --
J.B. Gowshall................................. 3,000 12,000 -- -- -- --
D.T. French................................... -- -- 8,000 -- 64,000 56,000
T.C. Mallott.................................. 92,032 -- 92,032 -- -- --
S.J. Cooney................................... -- 2,000* -- 2,000 -- --
R.A. Campbell................................. -- -- -- -- -- --
Trustee of the Austin Knight
Limited Employees Trust....................... -- -- -- -- 152,250 152,250
</TABLE>
- ------------------------
* Date of appointment.
On 1 September 1994, J.R. Ratcliffe was granted options over 25,000 ordinary
shares of 25p each at 95p per ordinary share exercisable between 1 September
1995 and 1 September 2001. On 28 November 1995, J.R. Ratcliffe and S.J. Cooney
were granted options on a further 10,000 and 2,000 ordinary shares,
respectively, at L1.30p per ordinary share , exercisable between 28 November
1998 and 28 November 2002. None of the Directors have any interests in the
shares of the other Group companies. No other Director has any rights to
subscribe for shares in the Company or any other Group company.
The trustee of the Austin Knight Limited Employees Trust is Austin Knight
Trustees Limited, a corporate Trustee, the Directors of which are K.G. Fordham,
R.A. Campbell and D.T. French.
190
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
NINE MONTHS ENDED 30
JUNE
----------------------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
1996 1997
NOTE L'000 L'000
----- ---------- ----------
<S> <C> <C> <C>
TURNOVER............................................................... 1 100,585 105,158
Cost of Sales.......................................................... (90,262) (93,297)
---------- ----------
GROSS PROFIT........................................................... 10,323 11,861
Administrative expenses................................................ (8,160) (9,291)
Other operating income................................................. 229 --
---------- ----------
OPERATING PROFIT....................................................... 2 2,392 2,570
Interest expense....................................................... 4 (340) (298)
---------- ----------
PROFIT on ordinary activities before taxation.......................... 2,052 2,272
TAXATION............................................................... 5 (839) (1,007)
---------- ----------
PROFIT for the financial period........................................ 1,213 1,265
DIVIDENDS.............................................................. (334) --
---------- ----------
RETAINED PROFIT for the financial period............................... 879 1,265
---------- ----------
---------- ----------
</TABLE>
The notes on pages F-65 to F-68 form part of these financial statements.
91
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS AT 30 JUNE
1997
-----------------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
NOTE L'000
--------- -----------------
<S> <C> <C>
FIXED ASSETS
Intangible assets.............................................................. 6 303
Tangible assets................................................................ 16,876
Investments.................................................................... 163
-------
17,342
-------
CURRENT ASSETS
Work-in-progress............................................................... 219
Debtors........................................................................ 27,274
Cash at bank and in hand....................................................... 364
-------
27,857
CREDITORS: Amounts falling due within one year................................. (25,614)
-------
NET CURRENT ASSETS/(LIABILITIES)............................................... 2,243
-------
TOTAL ASSETS LESS CURRENT LIABILITIES.......................................... 19,585
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR........................ 7 (4,465)
PROVISION FOR LIABILITIES AND CHARGES.......................................... 8 (123)
-------
NET ASSETS..................................................................... 14,997
-------
-------
CAPITAL AND RESERVES
Called up share capital........................................................ 1,251
Share Premium Account.......................................................... 195
Revaluation reserve............................................................ 5,396
Profit and loss account........................................................ 8,155
-------
14,997
-------
-------
</TABLE>
The notes on pages F-65 to F-68 form part of these financial statements.
92
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS*
<TABLE>
<CAPTION>
NINE MONTHS ENDED
30 JUNE,
--------------------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
1996 1997
--------- ---------
NOTE L'000 L'000
--------- --------- ---------
<S> <C> <C> <C>
NET CASH INFLOW (OUTFLOW) FROM OPERATING ACTIVITIES..................................... 9 4,719 (1,506)
--------- ---------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid........................................................................... (373) (327)
Interest received....................................................................... 50 44
Interest element of finance lease rental payments....................................... (17) (15)
--------- ---------
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE................... (340) (298)
--------- ---------
TAXATION
ACT paid................................................................................ (102) (111)
UK corporation tax paid................................................................. (668) (763)
Overseas and other taxes paid........................................................... (666) (210)
--------- ---------
TAX PAID................................................................................ (1,436) (1,084)
--------- ---------
CAPITAL EXPENDITURES
Purchase of own shares.................................................................. -- (122)
Sale of shares under option............................................................. -- 71
Purchase of intangible assets........................................................... (78) --
Purchase of tangible fixed assets....................................................... (1,450) (1,434)
Less: Inception of finance leases....................................................... 798 686
Proceeds from sales of fixed assets..................................................... 84 682
--------- ---------
NET CASH OUTFLOW FROM INVESTING ACTIVITIES.............................................. (646) (117)
--------- ---------
Dividends paid.......................................................................... (280) (309)
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING.............................................. 2,017 (3,314)
FINANCING
Issue of ordinary share capital......................................................... -- 122
--------- ---------
2,017 (3,192)
--------- ---------
--------- ---------
FINANCING
Repayment of loans...................................................................... 575 657
Net rental payments..................................................................... 91 202
--------- ---------
NET CASH OUTFLOW FROM FINANCING......................................................... 666 859
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS........................................ 10 1,351 (4,051)
--------- ---------
2,017 (3,192)
--------- ---------
--------- ---------
</TABLE>
* Due to changes in Accounting Standards in the United Kingdom the information
on this page is presented in a format different than that presented elsewhere
in this document.
The notes on pages F-65 to F-68 form part of these financial statements.
93
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
(UNAUDITED)
30 JUNE, 1997
-------------------
<S> <C>
L'000
Opening Shareholders' Funds................................................................... 13,948
------
Profit for the financial period............................................................... 1,265
Exchange adjustments.......................................................................... (338)
------
Total recognised gains for the financial period............................................... 927
New share capital subscribed.................................................................. 122
------
Closing Shareholders' Funds................................................................... 14,997
------
------
</TABLE>
The notes on pages F-65 to F-68 form part of these financial statements.
94
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS
FOR THE NINE MONTHS ENDED 30 JUNE 1996 AND 1997
(UNAUDITED)
1. TURNOVER
The turnover at the Group arose in the following geographical markets:
<TABLE>
<CAPTION>
1996 1997
L'000 L'000
--------- ---------
<S> <C> <C>
United Kingdom.............................................................................. 61,631 64,191
United States............................................................................... 25,196 28,258
Rest of world............................................................................... 13,758 12,709
--------- ---------
100,585 105,158
--------- ---------
--------- ---------
</TABLE>
2. OPERATING PROFIT
The operating profit is stated after including:
<TABLE>
<CAPTION>
1996 1997
L'000 L'000
--------- ---------
<S> <C> <C>
Depreciation of tangible fixed assets........................................ 501 741
Amortisation of intangibles.................................................. 51 50
Hire of plant and equipment.................................................. 531 600
Other rents payable.......................................................... 842 857
Directors' emoluments
Management remuneration--Salaries and benefits............................. 223 203
--Performance payments.............................. 19 --
Fees....................................................................... 27 35
Pension contributions...................................................... 20 20
Auditors' remuneration--in respect of audit.................................. 89 98
Auditors' remuneration--in respect to other work............................. 27 65
Rent receivable.............................................................. 283 291
</TABLE>
3. STAFF COSTS
Staff costs, which include Directors' emoluments, were:
<TABLE>
<CAPTION>
1996 1997
L'000 L'000
--------- ---------
<S> <C> <C>
Wages and salaries......................................................... 9,975 11,118
Social security costs...................................................... 1,102 1,245
Pension costs.............................................................. 441 652
--------- ---------
11,518 13,015
--------- ---------
--------- ---------
</TABLE>
The average number of employees including Directors during the nine months
ended June 30, 1996 and 1997 were 510 and 531, respectively.
95
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE NINE MONTHS ENDED 30 JUNE 1996 AND 1997
(UNAUDITED)
4. INTEREST
<TABLE>
<CAPTION>
1996 1997
L'000 L'000
----- -----
<S> <C> <C>
INTEREST PAYABLE
On bank loan repayable over more than five years............................... 285 250
On overdrafts and other loans repayable wholly within five years............... 88 77
Finance leases................................................................. 17 15
INTEREST RECEIVABLE............................................................ (50) (44)
--- ---
340 298
--- ---
--- ---
</TABLE>
5. TAXATION
The taxation on the profit on ordinary activities for the period was as
follows:
<TABLE>
<CAPTION>
1996 1997
L'000 L'000
--------- ---------
<S> <C> <C>
United Kingdom corporation tax at 33%........................................ 505 311
Overseas taxation............................................................ 334 607
Adjustments to prior years--charge........................................... -- 89
--------- ---------
839 1,007
--------- ---------
--------- ---------
</TABLE>
6. INTANGIBLE FIXED ASSETS--GOODWILL
<TABLE>
<CAPTION>
L'000
---------
<S> <C>
COST
At 1 October 1996..................................................................... 3,515
Exchange adjustments.................................................................. (126)
---------
AT 30 June 1997....................................................................... 3,389
---------
AMORTISATION
At 1 October 1996..................................................................... 3,096
Charge for period..................................................................... 50
Written off to reserves............................................................... --
Exchange adjustments.................................................................. (60)
---------
At 30 June 1997....................................................................... 3,086
---------
NET BOOK VALUE
At 30 June 1997....................................................................... 303
---------
---------
</TABLE>
96
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE NINE MONTHS ENDED 30 JUNE 1996 AND 1997
(UNAUDITED)
7. CREDITORS--AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1997
L'000
---------
<S> <C>
Bank loans............................................................................ 3,402
Finance lease and hire purchase obligations........................................... 1,063
---------
4,465
---------
---------
</TABLE>
8. PROVISIONS FOR LIABILITIES AND CHARGES
The amounts provided for deferred taxation and other liabilities and charges
are as follows:
<TABLE>
<CAPTION>
L'000
-----
<S> <C>
Provision at 1 October 1996............................................................ 214
Credit for the period in the profit and loss account
Overseas........................................................................... (91)
---
Provision at 30 June 1997.............................................................. 123
---
---
</TABLE>
The amount of deferred taxation not provided is L221,000 and arises solely
on capital allowances.
The other provisions relate to pensions and other employee benefits.
9. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1996 1997
L'000 L'000
--------- ---------
<S> <C> <C>
Operating profit........................................................... 2,392 2,570
Depreciation............................................................... 501 741
Amortisation of intangible fixed assets.................................... 51 50
Loss on disposal of fixed assets........................................... 92 (13)
Decrease/(increase) in work-in-progress.................................... 71 (31)
Increase in debtors........................................................ (1,525) (3,735)
Increase/(decrease) in creditors........................................... 3,137 (1,088)
--------- ---------
Net cash inflow (outflow) from operating activities........................ 4,719 (1,506)
--------- ---------
--------- ---------
</TABLE>
97
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE NINE MONTHS ENDED 30 JUNE 1996 AND 1997
(UNAUDITED)
10. RECONCILIATION OF MOVEMENT TO NET DEBT
<TABLE>
<CAPTION>
30 SEPTEMBER OTHER
-------------------- CHANGE EXCHANGE NON CASH
1996 1997 IN PERIOD MOVEMENTS CASHFLOWS MOVEMENTS
--------- --------- ------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
L000 L000 L000 L000 L000 L000
Cash at bank and in hand................... 1,596 364 (1,232) (18) (1,214) --
Overdrafts................................. (280) (3,158) (2,878) (41) (2,837) --
1,316 (2,794) (4,110) (59) (4,051) --
--
--------- --------- ------ ------ ---
Bank loans under 1 year.................... (891) (869) 22 22 -- --
Bank loans over 1 year..................... (4,138) (3,402) 736 79 657 --
Finance leases under 1 year................ (333) (504) (171) (16) -- (155)
Finance leases over 1 year................. (700) (1,063) (363) (34) 202 (531)
--
--------- --------- ------ ------ ---
(4,746) (8,632) (3,886) (8) (3,192) (686)
--
--
--------- --------- ------ ------ ---
--------- --------- ------ ------ ---
</TABLE>
98
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Members of
Neville Jeffress Australia Pty Limited
SCOPE
We have audited the accompanying consolidated statements of profit and loss
and cash flows of Neville Jeffress Australia Pty Limited (the "Company") for the
years ended June 30, 1995 and 1996 (the "audit periods").
These special purpose financial statements, which have been prepared in
accordance with accounting principles generally accepted in Australia, are the
responsibility of the Company's management.
Our responsibility is to conduct independent audits of the financial
statements for the audit periods in order to express an opinion on them based on
our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
Our audit opinion expressed in this report has been formed on the above
basis.
OPINION
In our opinion, the consolidated financial statements of Neville Jeffress
Australia Pty Limited for the audit periods present fairly, in all material
respects, the results of operations of the Company and its subsidiaries and
their cash flows for the years ended June 30, 1995 and 1996 in conformity with
accounting principles generally accepted in Australia, as described in the
financial statements.
Dated at Sydney, Australia, this 8th day of November 1996.
BDO NELSON PARKHILL
Chartered Accountants
99
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PROFIT AND LOSS
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
NOTES $ $
----- --------- ---------
Commissions and fees........................................... 21,663,259 32,060,026
<S> <C> <C> <C>
--------- ---------
Operating expenses:
Wages and salaries........................................... 10,449,141 17,216,840
Depreciation of fixed assets................................. 577,807 1,169,472
Abnormal bad debt provision.................................. 2,144,331 --
Other operating expenses..................................... 7,684,587 11,373,602
--------- ---------
Total operating expenses....................................... 20,855,866 29,759,914
--------- ---------
Operating profit............................................... 807,393 2,300,112
--------- ---------
Dividend received.............................................. -- 116,170
Interest income................................................ 440,856 334,306
Interest expense............................................... 329,510 424,430
--------- ---------
Net financial income......................................... 111,346 26,046
--------- ---------
Income before income tax expense............................... 918,739 2,326,158
Income tax expense............................................. 5 65,246 888,459
--------- ---------
Net income..................................................... 853,493 1,437,699
Outside equity interest in net income.......................... 2 22,669 62,864
--------- ---------
Net income attributable to members of Neville Jeffress
Australia Pty Limited........................................ 830,824 1,374,835
--------- ---------
--------- ---------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
100
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
NOTES $ $
----- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income attributable to members................................................ 830,824 1,374,835
Add/(deduct) non-cash items:
Depreciation & amortisation....................................................... 577,807 1,169,472
Bad debts write-off............................................................... 1,876,858 --
Profit on sale of property, plant and equipment................................... (12,966) (2,323)
Loss on disposal of controlled entity............................................. 15,289 --
Amortisation of goodwill on acquisition........................................... 56,848 --
Change due to application of new accounting standard.............................. (53,900) --
Increase in outside shareholders' interest........................................ 22,669 62,864
Gain/(loss) on translation of foreign controlled entities......................... 47,148 (2,246)
Other............................................................................. (58,224) (77,558)
Changes in assets and liabilities :
(Increase)/decrease in trade debtors.............................................. (3,960,773) 1,617,175
(Increase)/decrease in inventories................................................ 161,251 (74,023)
(Increase)/decrease in other current assets and prepayments....................... 322,746 (47,490)
(Increase)/decrease in future income tax benefit.................................. (153,113) (18,292)
Increase/ (decrease) in trade creditors........................................... 1,662,980 (300,486)
Increase/ (decrease) in other creditors and accruals.............................. (1,943,907) 595,217
Increase/ (decrease) in tax provision............................................. 142,095 144,714
Increase in employee entitlements................................................. 375,088 177,832
----------- -----------
Net cash flows from/(used in) operating activities................................ (91,280) 4,619,691
----------- -----------
CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES
Cash (into)/out of short-term deposit............................................. (5,248,849) (2,798,323)
Acquisition of property, plant and equipment...................................... (980,956) (1,375,265)
Proceeds from sale of property, plant and equipment............................... 78,836 113,297
Net cash flow on disposal of controlled entity.................................... 7 118,096 --
Cash paid for purchase of entity.................................................. (544,604) (4,265)
Net cash inflow/(outflow) on acquisition of controlled entity..................... 7 1,490,459 --
----------- -----------
Net cash from/(used in) investing activities...................................... (5,087,018) (4,064,556)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Finance lease repayments, net..................................................... 118,857 (92,435)
Repayments of borrowings
-external parties............................................................... -- (1,257,299)
Proceeds of borrowings
-external parties............................................................... 2,231,376 --
-related entities............................................................... 650,491 839,826
----------- -----------
Net cash from/(used in) financing activities...................................... 3,000,724 (509,908)
----------- -----------
NET INCREASE/(DECREASE) IN CASH HELD.............................................. (2,177,574) 45,227
Cash at beginning of the reporting period......................................... 50,220 (2,127,354)
----------- -----------
CASH AT END OF REPORTING PERIOD................................................... (2,127,354) (2,082,127)
----------- -----------
----------- -----------
RECONCILIATION OF CASH
Cash balances comprise:
Cash at bank...................................................................... 1,674,722 1,211,020
Bank loan......................................................................... (3,802,076) (3,293,147)
----------- -----------
(2,127,354) (2,082,127)
----------- -----------
----------- -----------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
101
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
BASIS OF ACCOUNTING
These consolidated financial statements are a special purpose financial
report prepared in order to meet the requirements of a registration statement to
be submitted to the Securities and Exchange Commission.
These consolidated financial statements have been prepared in Australian
dollars in accordance with accounting principles generally accepted in
Australia. These include applicable Accounting Standards and other mandatory
professional reporting requirements with the exception of AASB 1024:
Consolidated Accounts (see Principles of Consolidation). At June 30, 1997 the
exchange rate of Australian dollars to US dollars was .7538.
The accounts have also been prepared on an accrual basis. They are based on
historical costs and do not take into account changing money values or, except
where specifically stated, current valuations of non-current assets.
The accounting policies adopted have been consistently applied throughout
the periods presented.
Generally accepted accounting principles in Australia ("Australian GAAP") as
utilized by the Company differs in certain respects from generally accepted
accounting principles in the United States ("US GAAP"). With respect to the
Company's financial statements, these differences primarily relate to accounting
for business combinations. Under US GAAP, goodwill arising on acquisitions is
capitalized and amortized over its economic life while under Australian GAAP as
utilized by the Company, this goodwill is charged to operations in the year of
the acquisition. In addition, subsequent utilization of acquired net operating
losses is recorded as a reduction of income tax expense under Australian GAAP
while under US GAAP, it is recorded as an adjustment to assets purchased.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements comprise the fully consolidated
financial information for Neville Jeffress Australia Pty Limited and its group
companies in which the company has majority control, with the exception of the
following companies:
Media Monitors Australia Pty Limited;
National Advertising Services Pty Limited; and
Neville Jeffress Newsagencies Pty Limited.
These companies were not included at the effective date of the acquisition
of Neville Jeffress Australia Pty Limited and subsidiaries by TMP Worldwide Inc
("TMP"). Accordingly they do not form part of the group being acquired by TMP.
The consolidated financial statements comprise the financial statements of
those companies as set out in Note 1 to the consolidated financial statements.
The consolidated financial statements include the information contained in
the financial statements of Neville Jeffress Australia Pty Limited and each of
the entities in the group being acquired by TMP as from the date the company
obtains control until such time as control ceases.
102
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
The accounts of subsidiaries are prepared for the same reporting period as
the company, using consistent accounting policies. Adjustments are made to bring
into line any dissimilar accounting policies which may exist.
All intercompany transactions, between entities consolidated, including
unrealised profits and losses, have been eliminated in consolidation.
INVESTMENTS
The company's interest in subsidiaries not forming part of the group of
companies acquired by TMP was not consolidated (see Principles of Consolidation
above), and has been included with associated entities at cost, and only
dividend income received is taken into earnings. Associated entities are those
in which the company holds a significant shareholding of the issued ordinary
capital and participates in commercial and policy decision making.
INVENTORIES
Inventories, including work-in-progress, are valued at the lower of cost and
net realisable value.
RECOVERABLE AMOUNTS
Assets are not revalued to an amount above their recoverable amount and,
where carrying values exceed this recoverable amount, assets are written down.
In determining the recoverable amount, the expected net cash flows have not been
discounted to their present value.
PROPERTY, PLANT AND EQUIPMENT
COST AND VALUATION
Property, plant and equipment are valued at cost or at independent
valuation. Decrements arising from revaluation have been debited to the profit
and loss account. Acquisitions since the last revaluation have been brought to
account at cost.
Where assets have been revalued, the potential effect of the capital gains
tax on disposal has not been taken into account in the determination of the
revalued carrying amount where it is expected that a liability for capital gains
tax will arise.
Any gain or loss on the disposal of revalued assets is determined as the
difference between the carrying value of the asset at the time of disposal and
the proceeds from disposal, and is included in the results of the group in the
year of disposal.
DEPRECIATION AND AMORTISATION
Buildings, plant and equipment are depreciated on a straight-line basis so
as to write-off the cost or valuation of each asset over its anticipated useful
life.
Major depreciation periods are:
Freehold buildings - 40 years
Plant and equipment - 3 to 15 years
103
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
INCOME TAX
Tax-effect accounting is applied using the liability method whereby income
tax is regarded as an expense and is calculated on the accounting profit after
allowing for permanent differences. To the extent timing differences occur
between the time items are recognised in the accounts and when items are taken
into account in determining taxable income, the net related taxation benefit or
liability, calculated at current rates, is disclosed as a future income tax
benefit or a provision for deferred income tax. The net future income tax
benefit relating to tax losses and timing differences is not carried forward as
an asset unless the benefit is virtually certain of being realised.
Where the earnings of overseas subsidiaries are subject to taxation under
the Controlled Foreign Companies rules, this tax has been provided for in the
accounts.
FOREIGN CURRENCIES
TRANSLATION OF FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currencies of entities within the group are
converted to local currency at the rate of exchange ruling at the date of the
transaction.
Amounts payable to and by the entities within the group that are outstanding
at the balance date and are denominated in foreign currencies have been
converted to local currency using rates of exchange ruling at the balance sheet
date.
TRANSLATION OF ACCOUNTS OF OVERSEAS OPERATIONS
All overseas operations are deemed self-sustaining as each is financially
and operationally independent of Neville Jeffress Australia Pty Limited. The
accounts of overseas operations are translated using the current rate method and
any exchange differences are taken directly to the foreign currency translation
reserve.
LEASES
Finance leases, which effectively transfer to the group substantially all of
the risks and benefits incidental to ownership of the leased item, are
capitalised at the present value of the minimum lease payments, disclosed as
leased property, plant and equipment, and amortised over the period the group is
expected to benefit from the use of the leased assets.
Operating lease payments, where the lessor effectively retains substantially
all of the risks and benefits of ownership of the leased items, are included in
the determination of the operating profit in equal instalments over the lease
term.
EMPLOYEE ENTITLEMENTS
Provision is made for employee entitlement benefits accumulated as a result
of employees rendering services up to the reporting date. These benefits include
wages and salaries, annual leave, and long service leave.
Liabilities arising in respect of wages and salaries, annual leave, and any
other employee entitlements expected to be settled within twelve months of the
reporting date are measured at their nominal amounts. All other employee
entitlement liabilities are measured at the present value of the estimated
future cash outflows to be made in respect of services provided by employees up
to the reporting date. In determining
104
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
the present value of future cash outflows, the interest rates attaching to
government guaranteed securities which have terms to maturities approximating
the terms of the related liability are used.
Employee entitlement expenses and revenues arising in respect of the
following categories:
- wages and salaries, non-monetary benefits, annual leave, long service
leave, sick leave and other leave entitlements; and
- other types of employee entitlements,
are charged against profits on a net basis in their respective categories.
Contributions are made by the group to employee defined contribution
superannuation funds. These contributions are charged as expenses when incurred.
REVENUE RECOGNITION
Substantially all revenues are derived from commissions for advertisements
placed in newspapers, plus associated fees for related services. Commissions and
fees are generally recognized upon placement date.
CASH FLOW DEFINITIONS
For the purpose of the Consolidated Statements of Cash Flows, the group
considers cash to include cash on hand and in banks and investments in money
market instruments readily convertible to cash within two working days, net of
outstanding bank overdraft.
GOODWILL
Goodwill represents the excess of the purchase consideration over the fair
value of identifiable net assets acquired at the time of acquisition of a
business or share in a subsidiary. Goodwill is written off to the profit and
loss account on acquisition.
105
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN AUSTRALIAN DOLLARS)
1 INVESTMENTS
<TABLE>
<CAPTION>
BENEFICIAL INTEREST
--------------------
<S> <C> <C>
% %
--------- ---------
Investments in subsidiaries not consolidated in these financial statements
Neville Jeffress Newsagencies Pty Limited and its controlled entity:
The Cremorne Newsagency................................................................. 100 100
National Advertising Services Pty Limited................................................. 100 100
Media Monitors Australia Pty Limited and its controlled entities:
Media Monitors NSW Pty Limited.......................................................... 45 45
Media Monitors Victoria Pty Limited..................................................... 45 45
Media Monitors ACT Pty Limited.......................................................... 45 45
Media Monitors Queensland Pty Limited................................................... 45 45
News Bank Pty Limited................................................................... 45 45
News Monitor Pty Limited................................................................ 45 45
</TABLE>
106
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
1 INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
--------- ---------
BENEFICIAL INTEREST
--------------------
% %
<S> <C> <C>
Associates
Mitchell Armstrong's Consortium Pty Limited............................................... -- 50
Print Production Trust.................................................................... 45 --
Investments in subsidiaries consolidated in these financial statements
Neville Jeffress--Perth Pty Limited....................................................... 100 100
Neville Jeffress--Darwin Pty Limited...................................................... 100 100
Neville Jeffress--Queensland Pty Limited and its controlled entity:
Neville Jeffress--Queensland Pty Limited................................................ 91 91
Neville Jeffress Brisbane Pty Limited................................................... 91 91
Neville Jeffress--Adelaide Pty Limited.................................................... 100 100
Neville Jeffress--Canberra Pty Limited.................................................... 100 100
Neville Jeffress NSW Pty Limited and its controlled entities:
Neville Jeffress NSW Pty Limited........................................................ 100 100
Neville Jeffress Sydney Pty Limited..................................................... 100 100
Neville Jeffress Pty Limited............................................................ 100 100
Neville Jeffress Parramatta Pty Limited................................................... 100 100
Neville Jeffress Financial Pty Limited.................................................... 90 90
Neville Jeffress Advertising (Tasmania) Pty Limited....................................... 100 100
Neville Jeffress Caldwell Limited......................................................... 70 70
Neville Jeffress Victoria Pty Limited..................................................... 100 100
Neville Jeffress New Zealand Ltd.......................................................... 90 90
Armstrong's Australia Pty Limited and its controlled entities:
Armstrong's Australia Pty Limited....................................................... 100 100
Armstrong's--Victoria Pty Limited....................................................... 100 100
Armstrong's--NSW Pty Limited............................................................ 100 100
Armstrong's--Queensland Pty Limited..................................................... 100 100
Armstrong's--W.A. Pty Limited........................................................... 100 100
</TABLE>
2 OUTSIDE SHAREHOLDERS' INTEREST
<TABLE>
<CAPTION>
SHARE RETAINED
CAPITAL RESERVES INCOME TOTAL
$ $ $ $
--------- ------------- --------- ---------
<S> <C> <C> <C> <C>
MOVEMENTS IN OUTSIDE SHAREHOLDERS' INTERESTS ARE:
Balance, 1 July 1994................................................... 65,377 -- 23,854 89,231
Acquisition of controlled entities..................................... 35,767 -- -- 35,767
Net income attributable to outside shareholders........................ -- -- 22,669 22,669
--
--------- --------- ---------
Balance, 30 June 1995.................................................. 101,144 -- 46,523 147,667
Net income attributable to outside shareholders........................ -- -- 62,864 62,864
--
--------- --------- ---------
Balance, 30 June 1996.................................................. 101,144 -- 109,387 210,531
--
--
--------- --------- ---------
--------- --------- ---------
</TABLE>
107
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
3 PROVISIONS
<TABLE>
<CAPTION>
$
----------
<S> <C>
Employee Entitlements
Balance, 1 July 1994............................................................................. 724,757
Charged to profit and loss....................................................................... 417,768
Acquisition of controlled entities............................................................... 505,023
Adjustment to reserves on introduction of new accounting standard................................ 53,900
----------
Balance, 30 June 1995............................................................................ 1,701,448
Charged to profit and loss....................................................................... 177,832
----------
Balance, 30 June 1996............................................................................ 1,879,280
----------
----------
Deferred Taxation
Balance, 1 July 1994............................................................................. 66,738
Charged to profit and loss....................................................................... 20,213
----------
Balance, 30 June 1995............................................................................ 86,951
Charged to profit and loss....................................................................... (77,558)
----------
Balance, 30 June 1996............................................................................ 9,393
----------
----------
</TABLE>
4 LEASE LIABILITY
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
$ $
---------- ----------
<S> <C> <C>
Not later than one year................................................................... 408,423 362,747
Later than one year and not later than two years.......................................... 296,357 222,687
Later than two years and not later than five years........................................ 188,383 204,602
Later than five years..................................................................... -- --
---------- ----------
Minimum lease payments.................................................................... 893,163 790,036
Future finance charges.................................................................... (116,801) (106,109)
---------- ----------
776,362 683,927
---------- ----------
---------- ----------
Current lease liability................................................................... 337,684 292,022
Non-current lease liability............................................................... 438,678 391,905
---------- ----------
776,362 683,927
---------- ----------
---------- ----------
</TABLE>
108
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
5 INCOME TAX
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
$ $
----------- -----------
<S> <C> <C>
The prima facie tax, using tax rates applicable in the country of operation, on income
before income tax differs from the income tax provided in the accounts and is calculated
as follows:
Prima facie tax on income before income tax............................................... 303,184 837,415
Tax effect of permanent differences....................................................... (18,762) 48,404
Future income tax benefit not previously brought to account............................... (175,944) --
Income tax underprovided in previous year................................................. 61,616 2,640
Net gain from change in income tax rate from 33% to 36%................................... (104,848) --
----------- -----------
Income tax attributable to operating profit............................................... 65,246 888,459
----------- -----------
----------- -----------
Income tax provided comprises:
Provision attributable to future years:
Future income tax benefit............................................................... (855,206) 18,292
Provision for deferred income tax....................................................... 20,213 (77,558)
Underprovision of previous year........................................................... 61,616 2,640
Provision attributable to current period.................................................. 838,623 945,085
----------- -----------
65,246 888,459
----------- -----------
----------- -----------
The amount of future income tax benefit carried forward as an asset in the consolidated
financial statements which is attributable to tax losses is :........................... 252,967 282,382
----------- -----------
----------- -----------
</TABLE>
6 EXPENDITURE COMMITMENTS
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
$ $
------------ ------------
<S> <C> <C>
Lease commitments
Operating lease commitments not provided for in the accounts:
Not later than one year............................................................... 737,161 885,764
Later than one year and not later than two years...................................... 276,252 630,687
Later than two years and not later than five years.................................... 68,007 1,439,434
Later than five years................................................................. -- --
------------ ------------
1,081,420 2,955,885
------------ ------------
------------ ------------
</TABLE>
109
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
7 CONSOLIDATED STATEMENTS OF CASH FLOWS
(a) The company acquired a controlling interest in the following entities:
Year Ended 30 June 1996: None
Year Ended 30 June 1995:
(i) 95.93% in Armstrong's Australia Pty Limited
(ii) 90% of Neville Jeffress New Zealand Ltd.
(iii) 100% of Neville Jeffress Victoria Pty Limited
<TABLE>
<CAPTION>
30 JUNE
1995
$
---------
<S> <C>
The acquisition details are:
Cash consideration............................................................... 2,204,677
Outside equity interest.......................................................... 35,767
Share of reserves attributable to investment..................................... 75,463
---------
2,315,907
---------
---------
DETAILS OF NET ASSETS ACQUIRED
Assets
Cash at bank................................................................... 3,695,136
Trade debtors.................................................................. 7,268,424
Inventory...................................................................... 137,399
Other debtors and prepayments.................................................. 568,990
Plant and equipment--at cost................................................... 1,266,993
Accumulated depreciation....................................................... (364,071)
Other assets................................................................... 624,854
Liabilities
Trade creditors................................................................ (7,688,646)
Taxation....................................................................... (123,768)
Other.......................................................................... (3,126,252)
---------
Fair value of net tangible assets................................................ 2,259,059
Goodwill arising on acquisition.................................................. 56,848
---------
2,315,907
---------
---------
NET CASH EFFECT
Cash consideration............................................................... (2,204,677)
Cash at bank included in net assets acquired..................................... 3,695,136
---------
Cash inflow on purchase of controlled entities as reflected in consolidated
accounts....................................................................... 1,490,459
---------
---------
</TABLE>
110
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
7 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(b) The Company disposed of its controlling interest in the following entities:
Year Ended 30 June 1996: None
Year Ended 30 June 1995: 100% of Group Communications Pty Limited as
follows:
<TABLE>
<CAPTION>
30 JUNE
1995
$
----------
<S> <C>
Proceeds on sale:
Cash............................................................................ 118,096
Other........................................................................... --
----------
118,096
----------
----------
DETAILS OF NET ASSETS DISPOSED
Assets
Cash at bank.................................................................... --
Trade debtors................................................................... 133,385
Liabilities
Bank overdraft.................................................................. --
----------
Fair value of net tangible assets................................................. 133,385
Loss on disposal.................................................................. (15,289)
----------
118,096
----------
----------
NET CASH EFFECT
Cash proceeds..................................................................... 118,096
Cash at bank included in net assets disposed...................................... --
Bank overdraft included in net assets disposed.................................... --
----------
Cash proceeds from disposal of controlled entities as reflected in consolidated
accounts......................................................................... 118,096
----------
----------
</TABLE>
111
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
8 RELATED PARTY TRANSACTIONS
REMUNERATION OF DIRECTORS
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
$ $
---------- ----------
<S> <C> <C>
Amounts received or due and receivable by the directors of the economic entity from
corporations of which they are directors or related bodies corporate or entities
controlled by the chief entity........................................................ 2,973,832 3,038,882
---------- ----------
---------- ----------
The directors have availed themselves of ASC Class Order 95/741 in the disclosure of
directors' remunerations and benefits
Amounts received or due and receivable by directors of Neville Jeffress Australia Pty
Limited from that company and related bodies corporate................................ 506,580 460,569
The number of directors of Neville Jeffress Australia Pty Limited whose remuneration
(including superannuation contributions) falls within the following bands:
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
$20,000-$29,000........................................................................ 1 2
$60,000-$69,000........................................................................ 2 --
$70,000-$79,000........................................................................ -- 1
$150,000-$159,000....................................................................... 1 1
$200,000-$209,000....................................................................... -- 1
$210,000-$219,000....................................................................... 1 --
</TABLE>
In the opinion of the directors, remuneration paid to directors is
considered reasonable.
OTHER RELATED PARTY TRANSACTIONS
(a) The directors of Neville Jeffress Australia Pty Limited during the 1996
financial year were:
<TABLE>
<S> <C>
N Jeffress B M Robertson
P G Bush P A Allen
C D Cameron
</TABLE>
(b) Related party transactions which occurred during the financial year
included:
(i) Transactions with related parties of the Neville Jeffress Australia
Group
During the year, the company traded with other companies in the Neville
Jeffress Group at normal commercial rates.
Interest has been paid/(received) on intercompany loans between subsidiaries
of Neville Jeffress Australia Pty Limited under normal commercial terms and
conditions.
112
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
8 RELATED PARTY TRANSACTIONS (CONTINUED)
Interest received on a loan from Neville Jeffress Australia Pty Limited to
Neville Jeffress Holdings Pty Limited under normal commercial terms and
conditions amounted to $304,196 (1995: $104,582).
Loans receivable under normal commercial terms and conditions at:
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
$ $
------------ ------------
<S> <C> <C>
Current
Neville Jeffress Holdings Pty Limited........................... 2,355,276 2,012,022
Controlled entities of Neville Jeffress Australia Pty Limited... -- --
Other related parties........................................... -- 1,607,021
Non-Current
Neville Jeffress Holdings Pty Limited........................... -- --
Controlled entities of Neville Jeffress Australia Pty Limited... -- --
Other related parties........................................... -- --
------------ ------------
2,355,276 3,619,043
------------ ------------
------------ ------------
</TABLE>
Loans payable under normal commercial terms and conditions at:
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
$ $
------------ ------------
<S> <C> <C>
Current
Neville Jeffress Holdings Pty Limited........................... -- --
Controlled entities of Neville Jeffress Australia Pty Limited... -- --
Other related parties........................................... 228,206 2,574,287
Non-Current
Neville Jeffress Holdings Pty Limited........................... -- --
Controlled entities of Neville Jeffress Australia Pty Limited... -- --
Other related parties........................................... 242,489 --
------------ ------------
470,695 2,574,287
------------ ------------
------------ ------------
</TABLE>
Franchise fees have been received by Neville Jeffress Australia Pty Limited
from subsidiaries under normal commercial terms and conditions, amounting to
$1,611,337 (1995: $1,648,759)
Neville Jeffress Australia Pty Limited provided management, accounting and
computer services to subsidiaries under normal commercial terms and conditions.
Subsidiaries of Neville Jeffress Australia Pty Limited have paid rent on
buildings they occupied that are owned by a company controlled by N. Jeffress
under normal commercial terms and conditions amounting to $702,930 (1995:
$516,142)
113
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
8 RELATED PARTY TRANSACTIONS (CONTINUED)
Armstrong's Victoria Pty Limited provided management and accounting services
to Armstrong's NSW Pty Limited and Armstrong's Queensland Pty Limited under
normal terms and conditions.
The premises occupied by Neville Jeffress - Parramatta Pty Limited were
rented from The Neville Jeffress Advertising Staff Superannuation Fund under
normal commercial terms and conditions.
(ii) Transactions with the directors of Neville Jeffress Australia Pty
Limited and the economic entity
Accounting and taxation services were provided by C.D. Cameron to other
group companies under normal terms and conditions.
Consulting fees were paid to J Griffin Pty Ltd, of which Mr. J Griffin is a
director, at normal commercial rates. J Griffin Pty Ltd has loaned funds to the
company at 9% interest per annum, compounded quarterly and repayable at call. At
30 June 1996, the balance of the loan outstanding was $45,887 (1995: $26,877).
Mr. J. Griffin is a director of Neville Jeffress Perth Pty Limited.
The company has borrowed funds from N. Jeffress, a director. At 30 June
1996, the balance of this unsecured loan amounted to Nil (1995: $170,381).
(iii) Transactions with director-related entities
Travel services were provided by Barrenjoey Travel Pty Limited under normal
commercial terms and conditions. Directors associated with Barrenjoey Travel are
N. Jeffress and C.D. Cameron.
Mrs. L. Griffin, a director-related party, has loaned funds to the company
at 9% interest per annum, compounded quarterly and repayable at call. At 30 June
1996, the balance of the loan outstanding was $26,780 (1995: 24,493).
Media billings revenue under normal commercial terms and conditions
aggregated $1,963. These transactions were undertaken with respect to Bernie
Finance and Leasing of which Mr. B.D. Lewis is a director. Mr. B.D. Lewis is a
director of Neville Jeffress Adelaide Pty Limited.
(c) At 30 June 1996, Neville Jeffress Holdings Pty Limited was the ultimate
controlling entity. (On 2 July 1996, Neville Jeffress Holdings Pty Limited
disposed of its 91% interest in Neville Jeffress Australia Pty Limited. As a
result, at the reporting date, TMP Australia Pty Limited is the ultimate
Australian holding company and its ultimate controlling entity is McKelvey
Enterprises Inc., a company incorporated in the USA).
(d) Interests in the shares of entities within the economic entity held by
directors of the company and their director-related entities as of 30 June 1996.
Mr. N. Jeffress had an indirect interest in 91% of the shares of Neville
Jeffress Australia Pty Limited through his controlling interest in Neville
Jeffress Holdings Pty Limited.
Messrs. C.D. Cameron and P.G. Bush had an indirect interest in the shares of
Neville Jeffress Australia Pty Limited through their interest in Petzow Holdings
Pty Limited which owned 9% of the shares of Neville Jeffress Australia Pty
Limited.
There were no movements in directors' shareholdings in the twelve months
ended 30 June 1996. However, the indirect interests of Messsrs N. Jeffress, P.
G. Bush and C. D. Cameron in Neville Jeffress
114
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
8 RELATED PARTY TRANSACTIONS (CONTINUED)
Australia Pty Limited were disposed of on 2 July 1996, with the sale of 100%
ownership to TMP Australia Pty Limited as detailed above.
9 CONTINGENT LIABILITIES
Neville Jeffress Australia Pty Limited has agreed to support the valuation
of The Neville Jeffress Advertising Staff Superannuation Fund investment
property at 12 Palmer Street, North Parramatta, of which Neville
Jeffress--Parramatta Pty Limited is the sole tenant. Based on a company
valuation at 30 June 1996, a contingent liability of $111,000 exists.
A liability may exist in relation to the contract of employment of a senior
executive of the Company. Notice has been served on the company under the
contract and the company is proceeding to establish its contractual liability.
The maximum exposure of the liability is estimated at $500,000.
10 SUBSEQUENT EVENTS
All of the issued share capital of the company was acquired by a subsidiary
of McKelvey Enterprises, Inc. with effect from 1 July 1996. In accordance with
the terms of the purchase of shares agreement, the following transactions
occurred:
(1) NJA disposed of its investments in:
-- Media Monitors Australia Pty Limited and its controlled entities;
-- National Advertising Services Pty Limited; and
-- Neville Jeffress Newsagencies Pty Limited.
(2) Certain controlled entities of NJA, which owned certain properties,
disposed of those properties.
(3) The company declared and paid to its previous shareholders a
dividend amounting to $4,714,183.
(4) The company acquired the minority interests in certain controlled
entities.
The financial effect of the above transactions in the year to 30 June 1996
would have been to:
-- Increase net income attributable to members by $332,020; and
-- Increase the dividends paid by $4,714,183; and
-- Decrease the consolidated net assets by $4,599,820.
The Australian Competition and Consumer Commission handed down its decision
on 26 July 1996, confirming that the Media Accreditation System, in place since
1978 and under which the company derives the majority of its income, is to be
revoked, effective 3 February 1997. Sections of the media with which the company
deals, have already indicated a continuance of similar conditions under a
revised system. The directors foresee a continuance of operations in the
deregulated environment, although its is difficult to fully predict the impact
of the ACCC decision.
115
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN AUSTRALIAN DOLLARS)
11 SEGMENT INFORMATION
(a) Industry Segments
The group operates in only one segment of business, namely the
advertising industry.
(b) Geographical Segments
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
$ $
------------ ------------
<S> <C> <C>
SEGMENT Commissions and Fees
Australia 21,243,271 31,040,003
United Kingdom 409,548 629,285
New Zealand 10,440 390,738
------------ ------------
21,663,259 32,060,026
------------ ------------
------------ ------------
<CAPTION>
SEGMENT Total Assets
<S> <C> <C>
Australia 44,095,416 45,931,219
United Kingdom 878,820 1,018,818
New Zealand 226,208 470,509
------------ ------------
45,200,444 47,420,546
------------ ------------
------------ ------------
<CAPTION>
Income Before
SEGMENT Income Tax Expense
<S> <C> <C>
Australia 1,178,883 2,344,871
United Kingdom (56,225) 30,508
New Zealand (203,919) (49,221)
------------ ------------
918,739 2,326,158
------------ ------------
------------ ------------
</TABLE>
12 FOREIGN CURRENCIES
Net Australian dollar equivalents of assets/(liabilities) outstanding in
foreign currencies not effectively hedged:
<TABLE>
<S> <C> <C>
New Zealand dollars 173,439 111,942
English pound (91,868) (51,330)
</TABLE>
116