<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: December 1, 1999
TMP WORLDWIDE INC.
(Exact name of Registrant as specified in its charter)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 0-21571 13-3906555
(State of Incorporation) (Commission File No.) (I.R.S. Employer
Identification No.)
</TABLE>
<TABLE>
<S> <C>
1633 BROADWAY, NEW YORK, NEW YORK 10019
(Address of principal executive (Zip Code)
offices)
</TABLE>
Registrant's telephone number, including area code: 212-977-4200
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<PAGE>
TMP WORLDWIDE INC.
ITEM 5. OTHER EVENTS.
During the period October 1, 1999 through November 19, 1999, TMP
Worldwide Inc. and Subsidiaries (the "Company" or "TMP") consummated mergers
with the following companies (the "Fourth Quarter 1999 Pooled Companies"), in
transactions which provided for the exchange of all of the outstanding stock of
each entity for a total of 758,613 shares of TMP common stock and which were
accounted for as poolings of interests (the "Fourth Quarter 1999 Mergers").
<TABLE>
<CAPTION>
NATURE OF REGION OF NUMBER OF TMP
ENTITY OPERATIONS OPERATIONS ACQUISITION DATE SHARES ISSUED
- ------ ------------------ ------------------ ---------------- -------------
<S> <C> <C> <C> <C>
Highland Search Group
L.L.C.
("Highland")........ Search & selection North America October 21, 1999 699,333
TMC S.r.l. ("Amrop
Italy")............. Search & selection Continental Europe October 27, 1999 59,280
</TABLE>
The Company's consolidated financial statements have been retroactively
restated as of September 30, 1999, December 31, 1998 and 1997, for the nine
months ended September 30, 1999 and 1998 and for each of the three years in the
period ended December 31, 1998, to reflect the consummation of the Fourth
Quarter 1999 Mergers. The supplemental consolidated financial statements
included herein give retroactive effect to the Fourth Quarter 1999 Mergers,
which were accounted for using the pooling of interests method. As a result, the
financial position, results of operations, and statements of comprehensive
income (loss) and cash flows are presented as if the Fourth Quarter 1999 Pooled
Companies had been consolidated for all periods presented. The supplemental
consolidated statements of stockholders' equity reflect the accounts of TMP as
if the common stock issued in connection with the Fourth Quarter 1999 Mergers
had been issued for all periods presented. As required by generally accepted
accounting principles, the supplemental consolidated financial statements will
become the historical financial statements of the Company upon issuance of the
financial statements for the period that includes the consummation of the Fourth
Quarter 1999 Mergers.
In the supplemental consolidated balance sheets, the balance sheets of TMP
as of September 30, 1999 and December 31, 1998 and 1997 have been combined with
those of the Fourth Quarter 1999 Pooled Companies as of September 30, 1999 and
December 31, 1998 and 1997. The supplemental consolidated statements of
operations combine the results of TMP for the nine months ended September 30,
1999 and 1998 and each year in the three year period ended December 31, 1998
with those of the Fourth Quarter 1999 Pooled Companies for the same periods.
The supplemental consolidated financial statements, including the notes
thereto, should be read in conjunction with TMP's historical consolidated
financial statements included in its Annual Report on Form 10-K for the year
ended December 31, 1998 and its supplemental consolidated financial statements
included in the Company's Current Report on Form 8-K dated September 30, 1999.
2
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and Results
of Operations which follows is reflective of the supplemental consolidated
financial statements referred to above.
Statements in this Current Report on Form 8-K concerning our business
outlook or future economic performance, anticipated profitability, gross
billings, commissions & fees, expenses or other financial items and statements
concerning assumptions made or exceptions as to any future events, conditions,
performance or other matters are "forward-looking statements" as that term is
defined under the federal securities laws. Forward-looking statements are
subject to risks, uncertainties and other factors which would cause actual
results to differ materially from those stated in such statements. Such risks,
uncertainties and factors include, but are not limited to, (i) the uncertain
acceptance of the Internet and our Internet content, (ii) that we have grown
rapidly and there can be no assurance that we will continue to be able to grow
profitably or manage our growth, (iii) risks associated with acquisitions,
(iv) competition, (v) our quarterly operating results have fluctuated in the
past and are expected to fluctuate in the future, (vi) our business experiences
seasonality, (vii) the loss of services of certain key individuals could have a
material adverse effect on our business, financial condition or operating
results, (viii) we have entered into certain transactions with affiliated
parties and (ix) that we are controlled by one stockholder, Andrew J. McKelvey.
OVERVIEW
A substantial part of our growth has been achieved through acquisitions. For
the period January 1, 1996 through September 30, 1999, we completed 58
acquisitions which were accounted for under the purchase method and which had
estimated annual gross billings of approximately $662.7 million. Given the
significant number of acquisitions in each of the periods presented, the results
of operations from period to period may not necessarily be comparable. In
addition, for the period May 1, 1998 through October 30, 1999, we completed 20
mergers which were accounted for as poolings of interests.
Of the pooling of interests mergers, the seven completed prior to April 1,
1999 are Johnson, Smith & Knisely Inc. ("JSK"), TASA Holding AG ("TASA"),
Stackig, Inc. ("Stackig"), Recruitment Solutions Inc., Sunquest L.L.C. d.b.a.
The SMART Group and The Consulting Group (International) Limited ("TCG"), in
1998 (the "1998 Mergers"), and Morgan & Banks Limited ("M&B") in January 1999
(the "M&B Merger"). In connection with these mergers, we issued approximately
8.7 million shares of our common stock in exchange for all of the outstanding
common stock of these seven companies. From April 1, 1999 through June 30, 1999,
we completed pooling of interests mergers (the "Second Quarter 1999 Mergers"),
with six companies, Interquest, Pty. Limited ("Interquest"), LIDA
Advertising Inc. ("LIDA"), Maes & Lunau ("M&L"), IN2, Inc. ("IN2"), Lemming &
LeVan, Inc. ("L&L"), and Yellow Pages Unlimited, Inc. ("YPU"), (the "Second
Quarter 1999 Pooled Companies"). In connection with the Second Quarter 1999
Mergers we issued a total of approximately 0.9 million shares of TMP common
stock in exchange for all of the outstanding stock of the Second Quarter 1999
Pooled Companies. From July 1, 1999 through September 30, 1999, we completed
pooling of interests mergers (the "Third Quarter 1999 Mergers"),with the five
companies, Cameron-Newell Advertising, Inc. ("CNA"), Brook Street Bureau (QLD)
Pty Ltd ("Brook St."), LAI Worldwide, Inc. ("LAI"), Fox Advertising Inc. ("Fox")
and Lampen Group Limited ("Lampen") (the "Third Quarter 1999 Pooled Companies").
In connection with the Third Quarter 1999 Mergers we issued a total of
approximately 2.2 million shares of TMP common stock in exchange for all of the
outstanding stock of the Third Quarter 1999 Pooled Companies. Furthermore, from
October 1, 1999 through November 19, 1999, we completed mergers with the two
companies listed below (the "Fourth Quarter 1999 Pooled Companies"), which
provided for the exchange of all of the outstanding stock of such
3
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
companies for a total of 758,613 shares of TMP common stock and which were
accounted for as poolings of interests (the "Fourth Quarter 1999 Mergers").
<TABLE>
<CAPTION>
NATURE OF REGION OF NUMBER OF TMP
ENTITY OPERATIONS OPERATIONS ACQUISITION DATE SHARES ISSUED
- ------ ------------------ -------------------- ---------------- -------------
<S> <C> <C> <C> <C>
Highland Search Group
L.L.C.
("Highland")....... Search & selection North America October 21, 1999 699,333
TMC S.r.l. ("Amrop
Italy")............ Search & selection Continental Europe October 27, 1999 59,280
</TABLE>
Accordingly, the supplemental consolidated financial statements in our
Current Report on Form 8-K filed on September 30, 1999, which reflect the
consummation of the M&B Merger, and the Second Quarter 1999 Mergers and Third
Quarter 1999 Mergers, are being retroactively restated to reflect the Fourth
Quarter 1999 Mergers. As a result, the financial position, results of operations
and statements of comprehensive income (loss) and cash flows are presented as if
the Fourth Quarter 1999 Pooled Companies had been consolidated for all periods
presented
Gross billings refer to billings for advertising placed in telephone
directories, newspapers, new media and other media, and associated fees for
related services, fees earned for search & selection and related services, and
fees from temporary contracting services. Gross billings are not included in our
consolidated financial statements, because they include a substantial amount of
funds that are collected from our clients but passed through to publishers for
advertisements. However, the trends in gross billings directly impact the
Company's total commissions & fees earned. For recruitment and yellow page
advertising, we earn commissions based on a percentage of the media advertising
purchased at a rate established by the related publisher, and associated fees
for related services. Publishers typically bill us for the advertising purchased
by clients and we in turn bill our clients for this amount. Generally, the
payment terms with yellow page clients require payment to us prior to the date
payment is due to publishers. The payment terms with recruitment advertising
clients typically require payment when payment is due to publishers.
Historically, we have not experienced substantial problems with unpaid accounts.
For recruitment advertising placements in the U.S., publisher commissions
historically average 15% of recruitment advertising gross billings. We also earn
fees from related services such as campaign development and design, retention
and referral programs, brochures and other collateral services, research and
other creative and administrative services. Outside of the U.S., where,
collectively, we derive the majority of our recruitment advertising
commissions & fees, our commission rates for recruitment advertising vary,
historically ranging from approximately 10% in Australia to 15% in Canada and
the United Kingdom.
We design and execute yellow page advertising programs, receiving an
effective commission rate from directory publishers which historically
approximated 20% of yellow page gross billings. However, due to reductions in
commission rates by the publishers and higher discounts granted by us to
clients, the rate has declined and for the current year is approximately 19% and
is expected to decline to approximately 18% by the middle of 2000. In general,
publishers consider orders renewed unless formally canceled. In addition to base
commissions, certain yellow pages publishers pay increased commissions for
volume placement by advertising agencies. We typically recognize this additional
commission, if any, in the fourth quarter when it is certain that such
commission has been earned. The amounts reported in the fourth quarters of 1998,
1997 and 1996 were $0.9 million, $2.2 million and $3.5 million, respectively.
4
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Through our search & selection services, we identify and screen candidates
for hiring by clients based on criteria established by such clients. We entered
this business in 1998 by acquiring, JSK, the 12th largest executive search firm
in the U.S. according to Kennedy Publications, an official ranking service for
the search industry, TASA, an international executive search firm, both of which
were accounted for as poolings of interests, and five regional European firms,
including TCG, whose acquisition was accounted for as a pooling of interests. In
the first quarter of 1999 we merged with M&B, the largest search & selection
firm in Australia, in a pooling of interests transaction and acquired two
European search & selection firms (one with operations in eastern Europe and one
in Belgium). In the second quarter of 1999, in pooling of interests
transactions, we merged with three companies with search & selection operations,
M&L in the Netherlands, L&L in the United States and Interquest in Australia. In
the third quarter of 1999, in a pooling of interests transaction, we merged with
LAI, the 5th largest executive search firm in the U.S. (according to
Hunt-Scanlon Publishing, Inc., a publication that follows the executive search
industry). In addition, we expanded our temporary contracting services in
Australia, New Zealand and the United Kingdom with the additions of Brook St.
and Lampen, which also have selection operations in those regions. In the fourth
quarter of 1999, in pooling of interests transactions, we merged with Highland,
based in the United States, and Amrop Italy.
Commissions & fees related to our Internet business are derived from
(a) recruitment advertisement and related services placed on the Internet,
primarily TMP's own Website, Monster.com, (b) employment searches and temporary
contracting services sourced through the Internet, (c) Internet related
advertising services provided to our yellow page clients and (d) the providing
of interactive advertising services and technologies, which allow advertisers to
measure and track sales, repeat traffic and other key brand and e-commerce
metrics enabling such advertisers to greatly reduce costs, while driving only
the most qualified users to their websites.
Recruitment advertising commissions & fees increased from $76.6 million in
1996 to $177.8 million in 1998, while yellow page advertising commissions & fees
increased from $100.9 million in 1996 to $106.5 million in 1998. Both
recruitment and yellow page advertising commissions & fees increased as a result
of acquisitions made from January 1, 1996 through December 31, 1998 and which
are included in the financial statements using the purchase method of accounting
from their respective dates of acquisition. Search & selection commissions &
fees grew from $185.4 million in 1996 to $276.1 million in 1998 primarily as a
result of increased demand for these services by new and existing clients.
Temporary contracting commissions & fees increased from $29.2 million in 1996 to
$47.0 million in 1998 reflecting a greater demand for executive and information
technology temporary contract personnel. Internet commissions & fees increased
from $6.9 million in 1996 to $50.2 million in 1998 reflecting an increase in the
acceptance of our Internet products from existing and new clients and increased
sales and marketing activities. We are continuously monitoring the marketplace
for opportunities to expand our presence in recruitment advertising, yellow page
advertising, search & selection, temporary contracting and on the Internet, and
intend to continue our acquisition strategy to supplement our internal growth
and the expansion of our businesses.
Based on our consolidated results for the years ended December 31, 1998,
1997 and 1996, 44%, 42%, and 40%, respectively, of our consolidated
commissions & fees were attributable to clients outside the U.S.
Our total operating expenses have increased significantly since 1996
primarily as a result of acquisitions and added expenses to support gross
billings growth for our Internet and recruitment businesses and marketing for
our Internet business.
5
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Salaries and related costs increased $150.5 million to $382.7 million for
the year ended December 31, 1998 from $232.2 million for the year ended
December 31, 1996, a 64.8% increase, supporting a $683.4 million or a 64.0%
increase in gross billings over the same period. When measured as a percent of
gross billings, salaries and related costs for the year ended December 31, 1998
were 21.9%, up slightly from 21.8% for the comparable 1996 period. Salaries and
related costs include total payroll and associated benefits as well as payroll
taxes, sales commissions, recruitment fees and training costs.
Office and general expenses increased $75.0 million to $190.2 million for
the year ended December 31, 1998 from $115.2 million for the year ended
December 31, 1996, a 65.1% increase. This increase is due primarily to increased
costs needed to support the increased gross billings, the expansion of
recruitment and search & selection offices through acquisitions in the U.S. and
foreign markets, and expansion of our infrastructure and marketing costs to
promote the growth of our Internet business. When measured as a percent of gross
billings, office and general expenses for the year ended December 31, 1998 were
10.9%, a slight increase from 10.8% for the comparable 1996 period. This cost
category includes expenses for office operations, business promotion, market
research, advertising, professional fees and fees paid to our primary lending
institution for its services in the processing and collection of payments for
accounts receivable, gains or losses from the sale of operating assets, and
costs associated with legal settlements.
Merger & integration costs are expenses incurred in connection with business
combinations accounted for under the pooling of interests method of accounting.
In general, these costs are comprised of transaction costs (such as advisory,
legal and accounting fees, printing costs and costs incurred for the subsequent
registration of shares in connection with the transactions), stay bonuses, costs
to eliminate redundant facilities and personnel, costs to integrate operations
of the pooled entities and acceleration of benefits and separation pay in
accordance with pre-existing contractual change in control provisions.
For the year ended December 31, 1998, the Company expensed merger &
integration costs of $22.4 million in connection with the 1998 Mergers and the
M&B Merger. These costs consist of (1) $11.9 million of non-cash employee stay
bonuses, (2) $1.5 million of stay bonuses paid as cash to key personnel of the
1998 Pooled Companies and (3) $9.0 million of transaction related costs,
including legal, accounting and advisory fees and the costs incurred for the
subsequent registration of shares issued in the mergers.
For the nine months ended September 30, 1999, the Company expensed merger &
integration of $46.3 million compared with $9.6 million for the same period in
1998 an increase of $36.7 million or 383.1%. These costs are related to the 1998
Mergers, the M&B Merger, the Second Quarter 1999 Mergers, and the Third Quarter
1999 Mergers. The increase of $36.7 million primarily resulted from the pooling
of interests transactions that occurred in the quarter ended September 30, 1999
and the planned integration of such companies. The increase is due to:
(1) $4.8 million for separation pay and accelerated vesting of employee stock
and stock option grants, both in accordance with pre-existing contractual change
in control provisions, (2) $7.8 million more of transaction related costs, which
include legal, accounting, printing and advisory fees and the costs incurred for
the subsequent registration of shares issued in the transactions and
(3) $25.2 million of office integration costs, which include the closing of
excess leased facilities, the write-off of fixed assets which will not be used
in the future and a reserve for the effect, after reduction for related
compensation, of uncollectible search fees recorded as a result of a loss of
executive search consultants, partially offset by $4.4 million less for employee
stay bonuses paid with TMP shares and options to certain key personnel of the
merged companies. Approximately $18.5 million of the $46.3 million are non-cash
charges. The after tax effect of these charges on diluted earnings per share is
$(0.73) and $(0.16) for the nine months ended September 30, 1999 and 1998,
respectively. The Company anticipates that it will incur additional integration
costs in connection with the Third Quarter 1999 Mergers in future
6
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
periods. These costs will be primarily related to severance and will be recorded
when the associated integration plans are finalized. Furthermore, the Company
will incur merger & integration costs associated with the Fourth Quarter 1999
Mergers, including amortization of the cost of 160,120 shares of TMP common
stock that were issued as stay bonuses to certain key employees of Highland and
that will vest one year from the date of grant.
Restructuring costs for the year ended December 31, 1998 were $3.5 million
or, on an after tax basis, $(0.05) per diluted share. These charges relate to
LAI's closing of its London and Hong Kong offices, and include the write-off of
leasehold improvements and fixed assets, severance benefits and costs for
consolidation of facilities related to the restructuring.
Amortization of intangibles includes amortization of acquisition related
charges, including the costs in excess of fair market value of net assets of
business acquisitions accounted for under the purchase method and capitalized
costs for non-compete arrangements with the principals of acquired companies.
This acquisition related amortization was $10.2 million, $6.9 million and
$4.7 million for the years ended December 31, 1998, 1997 and 1996, respectively
and $8.6 million and $7.4 million for the nine months ended September 30, 1999
and 1998, respectively.
The special CEO bonus for the years ended December 31, 1998 and 1997 of
$1.3 million and $1.5 million reflects non-cash charges, recorded in compliance
with Staff Accounting Bulletin No. 79 ("SAB 79"), for a bonus mandated by the
Principal Stockholder's employment contract, even though such bonus was
irrevocably waived. The contractual obligation to pay such bonus was eliminated
as of November 1998. The special compensation for the year ended December 31,
1996, reflects a non-cash, non-recurring charge of approximately $52.0 million
resulting from the issuance of approximately 3.6 million shares of our common
stock to stockholders of our predecessor companies in exchange for their shares
in those companies. This charge was incurred because these stockholders had
received such shares for nominal or no consideration as employees or as
management of such companies and, accordingly, were not considered to have made
substantive investments for their shares.
Net interest expense includes interest: (i) on loans made by our primary
lender under our financing agreement with such lender, (ii) to certain vendors,
(iii) on capitalized lease obligations, (iv) on net amounts payable to the
holders of seller financed notes and (v) on a term loan related to the purchase
of certain transportation equipment. In addition, 1996 net interest expense
includes a non-recurring charge of approximately $2.6 million to reflect, upon
exercise of the warrant issued in connection with our financing agreement, the
difference between the value of the stock issued at the initial public offering
price of $14.00 per share and the value recorded for the warrant when it was
originally issued.
7
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
The following table sets forth our gross billings, commissions & fees,
commissions & fees as a percentage of gross billings, EBITDA and cash flow
information.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ -----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
GROSS BILLINGS:
Recruitment advertising............ $ 369,979 $ 642,872 $ 849,563 $ 646,141 $ 615,488
Yellow page advertising............ 466,230 497,848 520,129 406,349 413,692
Search & selection................. 194,848 244,153 277,304 215,630 221,699
Internet(1)........................ 6,939 20,553 56,666 36,077 93,734
Temporary contracting(2)........... 29,210 41,285 46,989 33,027 44,866
---------- ---------- ---------- ---------- ----------
Total billings..................... $1,067,206 $1,446,711 $1,750,651 $1,337,224 $1,389,479
========== ========== ========== ========== ==========
COMMISSIONS & FEES:
Recruitment advertising............ $ 76,601 $ 134,291 $ 177,774 $ 133,858 $ 134,928
Yellow page advertising............ 100,883 103,941 106,455 82,534 79,522
Search & selection................. 185,406 242,841 276,110 214,765 219,213
Internet(1)........................ 6,939 19,470 50,158 32,688 82,952
Temporary contracting(2)........... 29,210 41,285 46,989 33,027 44,866
---------- ---------- ---------- ---------- ----------
Total commissions & fees........... $ 399,039 $ 541,828 $ 657,486 $ 496,872 $ 561,481
========== ========== ========== ========== ==========
Commissions & fees as a percentage
of gross billings:
Recruitment advertising............ 20.7% 20.9% 20.9% 20.7% 21.9%
Yellow page advertising............ 21.6% 20.9% 20.5% 20.3% 19.2%
Search & selection................. 95.2% 99.5% 99.6% 99.6% 98.9%
Internet(1)........................ 100.0% 94.7% 88.5% 90.6% 88.5%
Temporary contracting.............. 100.0% 100.0% 100.0% 100.0% 100.0%
Total commissions & fees........... 37.4% 37.5% 37.6% 37.2% 40.4%
EBITDA(3).......................... $ 7,755 $ 92,420 $ 79,075 $ 77,492 $ 32,591
Cash provided by operating
activities....................... $ 37,097 $ 51,251 $ 63,617 $ 32,686 $ 55,846
Cash used in investing
activities....................... $ (46,401) $ (89,726) $ (66,519) $ (79,985) $ (31,952)
Cash provided by (used in)
financing activities............. $ 13,368 $ 65,524 $ 20,093 $ 32,680 $ (28,782)
Effect of exchange rate changes on
cash............................. $ (151) $ (298) $ (7) $ (56) $ (648)
</TABLE>
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(1) Represents fees earned in connection with recruitment, yellow page and other
advertisements placed on the Internet and employment searches and temporary
contracting services sourced through the Internet.
(2) Amounts for temporary contracting are reported after the costs paid to the
temporary contractor.
(3) Earnings before interest, income taxes, depreciation and amortization
("EBITDA") is presented to provide additional information about our ability
to meet our future debt service, capital expenditures and working capital
requirements and is one of the measures which determines our ability to
borrow under our credit facility. EBITDA should not be considered in
isolation or as a substitute for operating income, cash flows from operating
activities and other income or cash flow statement data prepared in
accordance with generally accepted accounting principles or as a measure of
our profitability or liquidity.
8
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
EBITDA for the indicated periods is calculated as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income (loss)........................... $(31,841) $41,954 $20,542 $29,209 $(4,917)
Interest expense, net....................... 14,358 8,443 9,828 7,035 6,272
Income tax expense.......................... 11,058 20,565 14,367 16,637 1,154
Depreciation and amortization............... 14,180 21,458 34,338 24,611 30,082
-------- ------- ------- ------- -------
EBITDA...................................... $ 7,755 $92,420 $79,075 $77,492 $32,591
======== ======= ======= ======= =======
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
Gross billings for the nine months ended September 30, 1999 were
$1,389.5 million, a net increase of $52.3 million or 3.9% from $1,337.2 million
for the nine months ended September 30, 1998. Commissions & fees for the nine
months ended September 30, 1999 were $561.5 million, an increase of
$64.6 million or 13.0% from $496.9 million in the first nine months of 1998.
Recruitment commissions & fees were $134.9 million for the nine months ended
September 30, 1999 compared with $133.9 million for the nine months ended
September 30, 1998, an increase of $1.0 million or 0.8% due primarily to lower
discounts to clients and increased ancillary services in North America offset,
in part, by a loss of business in the Asia\Pacific Region which was ameliorated
by an increase in business in Europe. Yellow page commissions & fees were
$79.5 million for the nine months ended September 30, 1999, a decrease of
$3.0 million or 3.6% from $82.5 million in the first nine months of 1998
primarily due to increased discounts to clients and lower commissions paid by
publishers offset, in part by higher gross billings from internal growth and
acquisitions. Search & selection commissions & fees were $219.2 million, an
increase of $4.4 million or 2.1% from $214.8 million for the comparable nine
months of 1998, due primarily to acquisitions and growth in Continental Europe
offset by a decline in executive search due to a loss of consultants, as
anticipated, at LAI and TASA, which resulted from the merger & integration of
these companies. Internet commissions & fees for the nine months ended
September 30, 1999 were $83.0 million, an increase of 153.8% or $50.3 million as
compared with $32.7 million for the nine months ended September 30, 1998. This
increase in Internet commissions & fees is due to: (i) an increasing acceptance
of our Internet services and products from existing clients, new clients and
Internet users, (ii) the benefits of Monster.com's marketing campaign,
(iii) increases in the services and content available on our Websites,
(iv) expansion into certain European markets and (v) price increases on certain
products. Temporary contracting commissions & fees were $44.9 million, up
$11.9 million or 35.8% from $33.0 million for the period ended September 30,
1998. TMP's temporary contracting operations are primarily conducted in
Australia and New Zealand. The 35.8% increase reflects an increase in the number
of contractors placed, particularly information technology personnel and
executives, which have higher margins than general and support staff.
Operating expenses for the nine months ended September 30, 1999 were
$557.7 million compared with $442.8 million for the same period in 1998. The
increase of $114.9 million or 25.9% is due to an increase of $36.7 million in
merger & integration costs related to mergers accounted for as poolings of
interests, acquisitions accounted for as purchases, higher operating and
marketing costs to support our expanding Internet operations and $2.8 million in
restructuring expenses resulting from the closings of LAI's Hong Kong and London
offices.
9
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Salaries and related costs for the nine months ended September 30, 1999 were
$327.0 million or 58.2% of total commissions & fees, compared with
$288.0 million or 58.0% of total commissions & fees for the same period in 1998.
The increase of $39.0 million or 13.5% is primarily due to increased staff for
Internet operations additions and acquisitions in search & selection.
Office and general expenses for the nine months ended September 30, 1999
were $173.1 million or 30.8% of total commissions & fees, compared with
$136.6 million or 27.5% of commissions & fees for the same period in 1998. The
increase of $36.5 million or 26.6% is primarily due to acquisitions and higher
costs for our Internet operations, partially offset by reductions in expenses
for the yellow page advertising and recruitment advertising businesses, due to
improved efficiencies. Included in the increase for Internet was $15.9 million
more in marketing costs for Monster.com and $13.8 million for search related
Internet services at LAIcompass and Highland. The higher ratio of 30.7% compared
27.5% is due primarily to marketing costs for search related Internet services,
a slight increase in costs at LAI and a decline in commissions & fees. (Please
see discussion above.)
Merger & integration costs for the nine months ended September 30, 1999 were
$46.3 million compared with $9.6 million for the same period in 1998 an increase
of $36.7 million or 383.1%. This increase primarily resulted from the pooling of
interests transactions that occurred in the quarter ended September 30, 1999 and
the planned integration of such companies and is due to: (1) $4.8 million for
separation pay and accelerated vesting of employee stock and stock option
grants, both in accordance with pre-existing contractual change in control
provisions, (2) $7.8 million more of transaction related costs, which include
legal, accounting, printing and advisory fees and the costs incurred for the
subsequent registration of shares issued in the transactions and
(3) $25.2 million of office integration costs, which include the closing of
excess leased facilities, the write-off of fixed assets which will not be used
in the future and a reserve for the effect, after reduction for related
compensation, of uncollectible search fees recorded as a result of a loss of
executive search consultants, partially offset by $4.4 million less for employee
stay bonuses paid with TMP shares and options to certain key personnel of the
merged companies. Approximately $18.5 million of the $46.3 million are non-cash
charges. The after tax effect of these charges on diluted earnings per share is
$(0.73) and $(0.16) for the nine months ended September 30, 1999 and 1998,
respectively.
Restructuring charges for the nine months ended September 30, 1999 were
$2.8 million or, on an after tax basis, $(0.04) per diluted share. These charges
relate to LAI's closing of its London and Hong Kong offices, and include
$0.5 million for the write-off of leasehold improvements and fixed assets,
$1.3 million for severance benefits payable to 24 employees and $1.0 million for
consolidation of facilities related to the restructuring.
As a result of the above, operating income for the nine months ended
September 30, 1999 decreased $50.3 million or 91.7% to $3.8 million from
$54.1 million for the comparable period last year.
Net interest expense for the nine months ended September 30, 1999 was
$6.3 million, a decrease of $0.7 million or 10.8% from $7.0 million for the same
period in 1998, reflecting lower interest rates and borrowing costs resulting
from the amended and restated financing agreement entered into by the Company on
November 5, 1998, partially offset by increased borrowings.
Taxes on income for the nine months ended September 30, 1999 were
$1.2 million on a $2.7 million pretax loss, resulting in an effective tax rate
of (43.4)% compared with a tax expense of $16.6 million on a $46.1 million
pretax profit, resulting in an effective tax rate of 36.1% for the same period
last year. The negative effective tax rate for the 1999 period is caused by
expenses that are not tax deductible. Such expenses are primarily related to
merger costs from pooling of interests transactions and amortization of
10
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
intangible assets. For both periods the effective tax rate is benefited by
profits from Highland which were not taxed at the corporate level prior to the
merger with TMP.
Class B common stockholders for the nine months ended September 30, 1999 was
$(0.12) per share, a decrease of $0.85 per share or 116.4% from the $0.73 per
share for the comparable 1998 period.
THE YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
Gross billings for the year ended December 31, 1998 were $1,750.7 million, a
$304.0 million or 21.0% increase when compared to gross billings of
$1,446.7 million for the year ended December 31, 1997. This increase in gross
billings resulted primarily from acquisitions in recruitment advertising and
growth in our temporary contracting and Internet businesses.
Total commissions & fees for the year ended December 31, 1998 were
$657.5 million, an increase of $115.7 million or 21.3% from $541.8 million for
the year ended December 31, 1997. Recruitment advertising commissions & fees
were $177.8 million for the year ended December 31, 1998 compared with
$134.3 million for the year ended December 31, 1997, an increase of
$43.5 million or 32.4%. This increase was primarily due to acquisitions, which
contributed approximately $25.1 million, and approximately $21.4 million from
increased client spending and new clients partially offset by client losses and
a decrease in foreign currency translation rates, which had a negative effect of
approximately $3.0 million. Yellow page commissions & fees were $106.5 million
for the year ended December 31, 1998 compared with $103.9 million for the year
ended December 31, 1997, an increase of 2.4% or $2.6 million due primarily to
acquisitions. Search & selection commissions & fees were $276.1 million compared
with $242.8 million for the year ended December 31, 1997, an increase of
$33.3 million or 13.7%, due primarily to acquisitions and increased business
from existing clients and new clients. Internet commissions & fees for the year
ended December 31, 1998 were $50.2 million, an increase of 157.6% or
$30.7 million from $19.5 million for the year ended December 31, 1997. The
increase in Internet commissions & fees is due to (i) an increasing acceptance
of our Internet services and products from existing clients and Internet users,
(ii) the benefits of Monster.com's marketing campaign, (iii) increases in the
service and content available on our Websites, (iv) expansion into certain
European markets and (v) price increases on certain products. Temporary
contracting commissions & fees increased to $47.0 million from $41.3 million, an
increase of $5.7 million or 13.8%. This increase is primarily due to a greater
number of temporary contract workers placed during 1998 as compared with the
prior period, and reflects growth in the executive temporary contracting
business, and to a lesser extent growth for clerical and support staff.
Total operating expenses for the year ended December 31, 1998 were
$610.3 million, compared with $471.4 million for 1997. The increase of
$138.9 million or 29.5% is due primarily to acquisitions and internal growth,
together with the addition of $22.4 million for merger & integration costs
related to pooling of interests transactions and $3.5 million in restructuring
charges for the closing of LAI's London, England and Hong Kong offices.
Salaries and related costs for the year ended December 31, 1998 were
$382.7 million or 58.2% of total commissions & fees, compared with
$310.2 million or 57.2% of total commissions & fees for the same period in 1997,
representing an increase of $72.5 million or 23.4%. This increase reflects
acquisitions in search & selection and recruitment advertising and growth in
Internet operations.
11
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Office and general expenses increased $37.4 million to $190.2 million for
the year ended December 31, 1998, as compared with $152.8 million for the prior
period primarily due to acquisitions and added marketing and other expenses to
grow our Internet businesses. As a percent of total commissions & fees, office
and general expenses increased to 28.9% for the year ended December 31, 1998
from 28.2% for the year ended December 31, 1997.
Restructuring charges for the year ended December 31, 1998 were
$3.5 million or, on an after tax basis, $(0.05) per diluted share and relate to
LAI's plan to close its international offices in London, England and Hong Kong.
These charges include $1.1 million for severance, and $2.4 million for the
write-off of leasehold improvements and other costs to close these facilities.
In connection with the 1998 Mergers and the M&B Merger, we expensed
merger & integration costs of $22.4 million for the year ended December 31,
1998, consisting of (1) $11.9 million of non-cash employee stay bonuses, which
included (a) $3.6 million for the amortization for TMP shares set aside for key
personnel of JSK and TCG, who must remain employees for a full year in order to
earn such shares and (b) $8.3 million for TMP shares to key personnel of TASA
and Stackig as employee stay bonuses, (2) $1.5 million of stay bonuses paid as
cash to key personnel of one of the companies merged in 1998 and
(3) $9.0 million of transaction related costs, including fees for legal,
accounting and advisory services and the costs incurred for the subsequent
registration of shares issued in the acquisitions. The after tax effect of this
charge is $16.7 million or $(0.43) per diluted share. (See Notes 1 and 5 to the
Company's Supplemental Consolidated Financial Statements included elsewhere
herein.)
Amortization of intangibles was $10.2 million for the year ended
December 31, 1998 compared to $6.9 million for the year ended December 31, 1997.
The increase is due to our continued growth through acquisitions. As a
percentage of total commissions & fees, amortization of intangibles was 1.5% and
1.3% for the year ended December 31, 1998 and 1997, respectively.
As a result of all of the above, operating income decreased $23.3 million to
$47.2 million for the year ended December 31, 1998 as compared with operating
income of $70.5 million for the year ended December 31, 1997 and, as a percent
of total commissions & fees, operating income decreased to 7.2% from 13.0%.
Net interest expense increased $1.4 million to $9.8 million for the year
ended December 31, 1998 as compared to $8.4 million for the year ended
December 31, 1997, reflecting a net increase in debt as a result of acquisitions
and capital expenditures. In addition, the Company's effective interest rate was
10.8% for the year ended December 31, 1998 compared with 10.4% for the year
ended December 31, 1997.
Taxes on income decreased $6.2 million to $14.4 million for the year ended
December 31, 1998 from $20.1 million for the year ended December 31, 1997
primarily due to lower pre-tax income. The effective tax rate for the year ended
December 31, 1998 was 40.7% compared with 32.7% for the year ended December 31,
1997. The higher effective rate in 1998 reflects the inability to deduct for
tax, certain costs associated with the 1998 Mergers and the M&B Merger.
For the year ended December 31, 1998, equity in losses of affiliates was
$396,000, reflecting losses at our minority owned real estate advertising
affiliate, as compared with a $33,000 loss for the same period in 1997. Minority
interests in consolidated earnings for the year ended December 31, 1998 were
$28,000 compared with $296,000 for the year ended December 31, 1997.
As a result of all of the above, the net income applicable to common and
Class B common stockholders was $20.5 million for the year ended December 31,
1998, or $0.52 per diluted share,
12
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
compared with net income of $41.8 million, or $1.13 per diluted share for the
year ended December 31, 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 $1,446.7 million, a
$379.5 million or 35.6% increase when compared to gross billings of
$1,067.2 million for the year ended December 31, 1996. The growth is primarily
due to acquisitions in recruitment advertising, rate increases in yellow page
advertising, increased clients and higher client spending for search &
selection, and growing acceptance of the Company's Internet products.
Total commissions & fees increased to $541.8 million for the year ended
December 31, 1997 from $399.0 million for the year ended December 31, 1996, an
increase of $142.8 million or 35.8%. This reflects increases, as compared to the
prior year period, in commissions & fees for (a) recruitment advertising of
$57.6 million or 75.3%, (b) yellow page advertising of $3.1 million or 3.0%,
(c) search & selection of $57.4 million or 31.0%, (d) Internet of $12.5 million
or 180.6% and (e) temporary contracting of $12.1 million or 41.3%. A substantial
portion of the increase in commissions & fees for recruitment advertising was
due to acquisitions, including $15.5 million from Austin Knight, acquired in
August 1997, and the remainder was due to higher client spending and new
clients. The increase in commissions & fees for yellow page advertising was due
primarily to increased rates by the yellow page publishers and an acquisition,
substantially offset by lower publisher incentives and the full year effect of
accounts lost and resigned in 1996. The increase in commissions & fees for
search & selection was primarily due to the healthy economy and related
employment markets in the U.S. Fees derived from Internet were generated from
job searches and recruitment advertising placed on the Internet, primarily on
the Company's wholly owned websites Monster.com and occ.com, and reflects the
continued customer acceptance of our Internet products both from our existing
clients as well as new clients and price increases on certain products. The
increase in temporary contracting commissions & fees is due to expansion of the
temporary contracting market in Australia.
Salaries and related costs increased $77.9 million to $310.2 million for the
year ended December 31, 1997 but as a percent of total commissions & fees,
salaries and related costs decreased to 57.2% for the year ended December 31,
1997 from 58.2% for the year ended December 31, 1996. This $77.9 million
increase was primarily due to additional staff required to service increased
recruitment advertising billings, increased sales staffing for Internet, and
generally higher salaries and related costs for search & selection operations.
Office and general expenses increased $37.6 million to $152.8 million for
the year ended December 31, 1997 as compared with $115.2 million for the prior
period. The increase was primarily due to growth across all lines of business.
However, as a percent of total commissions & fees, office and general expenses
decreased to 28.2% for the year ended December 31, 1997 from 28.9% for the year
ended December 31, 1996. This decrease was primarily due to (1) consolidation of
offices, which slowed the growth of office related expenses, (2) increased
growth in recruitment advertising commissions & fees combined with the
relatively fixed nature of some of these expenses and (3) increased temporary
contracting operations which have relatively stable office and general expenses.
Amortization of intangibles was $6.9 million for the year ended
December 31, 1997 compared to $4.7 million for the year ended December 31, 1996.
The increase is due to our continued growth through acquisitions. As a
percentage of total commissions & fees, amortization of intangibles was 1.3% and
1.2%, respectively, for the years ended December 31, 1997 and 1996.
13
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
For 1996, special compensation of $52.0 million consists of a non-cash,
non-recurring charge that reflects the value of shares issued in connection with
the acquisition of the minority interests in predecessors of the Company because
the stockholders had received such shares for nominal or no consideration and,
accordingly, were not considered to have made a substantive investment for their
shares. The value of such shares was based on the per share initial public
offering price of $14.00 for our common stock.
As a result of the above, operating income for the year ended December 31,
1997 increased $75.7 million to $70.5 million as compared with an operating loss
of $5.2 million for the year ended December 31, 1996 and as a percent of total
commissions & fees increased to 13.0% from (1.3)% for the year ended
December 31, 1996.
Net interest expense decreased $5.9 million to $8.4 million for the year
ended December 31, 1997 as compared to $14.3 million for the year ended
December 31, 1996. This decrease in interest expense is due primarily to the
repayment of a portion of the debt with the net cash proceeds of our initial
public and supplemental offerings. In addition, in 1996 there was a
$2.6 million non-cash, non-recurring charge to reflect, upon exercise of a
warrant issued in connection with our financing agreement, the value of the
stock issued at our initial public offering price of $14.00 per share and the
value recorded for the warrant when it was originally issued. Our effective
interest rate was 10.4% for the year ended December 31, 1997 compared with 15.8%
for the year ended December 31, 1996.
Taxes on income increased $9.5 million to $20.6 million for the year ended
December 31, 1997 from $11.1 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 32.7% compared with (55.6)% for the year ended
December 31, 1996. The effective tax rate for 1997 was lower than the U.S.
Federal statutory rate of 34.0% primarily due to profits of pooled entities
taxed directly to owners, partially offset by nondeductible expenses of
approximately $2.9 million and state taxes of $1.1 million. The effective tax
rate for 1996 reflects the non-deductability of a non-cash special compensation
charge of $52.0 million, non-cash interest expense of $2.6 million and state
taxes of $0.4 million, as well as our inability to offset profits at certain
subsidiaries with losses incurred by others.
As a result of all of the above, the net income applicable to common and
Class B common stockholders was $41.8 million for the year ended December 31,
1997, or $1.13 per diluted share, compared with net loss of $32.1 million, or
$(1.04) per diluted share for the year ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements have been to fund (i) acquisitions,
(ii) working capital, (iii) capital expenditures and (iv) marketing and
development of our Internet business. Our working capital requirements are
generally higher in the quarters ending March 31 and June 30 during which
payments to the major yellow page directory publishers are at their highest
levels. We have met our liquidity needs over the last three years through
(a) funds provided by operating activities, (b) equity offerings, (c) long-term
borrowings, (d) capital leases and (e) vendor financing in 1996. In
December 1996, we completed our initial public offering of an aggregate of
4,147,408 shares of Common Stock at a purchase price of $14.00 per share in an
underwritten public offering managed by Morgan Stanley & Co. Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation and Ladenburg Thalmann &
Co. Inc. In the initial public offering, certain stockholders sold an additional
aggregate of 652,592 shares of Common Stock. The net proceeds that we received
from the initial public offering of $50.8 million were used to repay debt and,
in early 1997, to pay down accounts payable and to redeem preferred stock. In
September 1997, we
14
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
completed a second public offering of an aggregate of 2,400,000 shares of Common
Stock at a purchase price of $23.00 per share in an underwritten public offering
managed by Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., BT Alex
Brown Incorporated, Montgomery Securities and Ladenburg Thalmann & Co. Inc. In
addition, certain stockholders sold an aggregate of 1,600,000 shares of common
stock in such offering. Our net proceeds from this offering of $63.4 million,
including net repayment of borrowings of $12.2 million, paid to us by certain
stockholders were used to repay debt. In 1998, LAI received $41.4 million in net
proceeds from its second public offering. Such proceeds were used to support its
international expansion, support enhancements to its technology-based
infrastructure, acquire two search & selection companies and provide additional
working capital.
Net cash provided by operating activities for the nine months ended
September 30, 1999 was $55.8 million compared with $32.7 million provided by
operating activities for the nine months ended September 30, 1998, an increase
of $23.1 million. This increase was primarily due to (a) the net increase in
funds from a $23.5 million greater increase in deferred revenue for the 1999
period over the 1998 period, related mostly to Internet operations (b) a
$18.0 million increase in cash from work-in-process and prepaid and other
assets, (c) $6.2 million more from tax benefits from the exercise of employee
stock options, (d) a $3.8 million effect from inclusion of losses from companies
accounted for as poolings of interests, in both the current period and the
previous year, because of overlapping reporting periods and (e) a $0.3 million
net increase in the use of funds from increases in accounts receivable over
increases in accounts payable and accrued expenses for the 1999 period over the
1998 period, reduced by a $28.6 million decline in earnings after adjusting for
non-cash items. EBITDA was $32.6 million for the nine months ended
September 30, 1999, a decrease of $44.9 million or 57.9% from $77.5 million for
the nine months ended September 30, 1998. The decrease primarily reflects, for
the 1999 period, a $50.3 million decrease in operating profits partially offset
by $5.5 million more in depreciation and amortization costs. As a percentage of
commissions & fees, EBITDA decreased to 5.8% for the nine months ended
September 30, 1999 as compared with 15.6% for the nine months ended
September 30, 1998. The lower percent reflects the increase in merger &
integration and restructuring costs, which were 8.7% and 1.9% of commissions &
fees for the 1999 and 1998 periods, respectively.
Our investing activities for the nine months ended September 30, 1999 used
cash of $32.0 million, which is $48.0 million less than the $80.0 million for
the nine months ended September 30, 1998. This decrease was primarily due to the
use in 1998 of $33.4 million more in investments by a pooled company and
$2.0 million more used for business acquisitions combined with $9.8 million
received from the sale of fixed assets, primarily our plane, in the 1999 period.
We estimate that our expenditures for computer equipment and software,
furniture and fixtures and leasehold improvements will be approximately
$30 million for the year ended 1999.
Our financing activities include borrowings and repayments under our bank
financing agreements and issuance of and payments against installment notes used
principally to finance acquisitions and equipment. Our financing activities for
the nine months ended September 30, 1999 used net cash of $28.8 million but
provided $32.7 million for the nine months ended September 30, 1998. The change
of $61.5 million resulted primarily from $41.4 million in proceeds from a common
stock offering by LAI in the 1998 period and net repayments in the 1999 period
of $29.9 million against credit facilities and capitalized lease obligations
compared with a net borrowing of $1.5 million in the prior year period, offset
in part by a $6.8 million increase in cash received from the exercise of
employee stock options and a $4.3 million decline in dividends paid by pooled
companies in the 1999 period from the 1998 period.
15
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Net cash provided by operating activities for the years ended December 31,
1998, 1997 and 1996 was $63.6 million, $51.3 million and $37.1 million,
respectively. The increase in cash of $12.3 million from operating activities
for 1998 over 1997 was primarily due to an increase of $17.9 million in accounts
payable, accrued expenses and other current liabilities, a $12.9 million
increase in depreciation and amortization costs, $8.3 million for the
utilization of our common stock to pay bonuses, a decrease of $7.3 million in
accounts receivable and a $3.2 million increase in deferred revenue, partially
offset by decreases in net income of $21.4 million, $8.1 million in deferred
income taxes and $10.7 million in prepaid and other assets. In addition, in 1998
we paid approximately $13.6 million for restructuring. Such amount was applied
against a reserve set up during 1997 in connection with acquisitions accounted
for using the purchase method. This reserve was increased in 1998 by a
$3.5 million charge to earnings and by $10.1 million, with a corresponding
increase to intangible assets, and reduced by payments of $13.6 million, leaving
a restructuring reserve at December 31, 1998 of $16.7 million. (See Note 5 to
the Company's Supplemental Consolidated Financial Statements included elsewhere
herein.) The increase in cash from operating activities for 1997 over 1996 was
primarily due to increased net income, after adding back the effect of non-cash
charges in 1996, partially offset by higher payments of accounts payable,
including amounts to substantially repay vendor financed payables.
EBITDA was $79.1 million for the year ended December 31, 1998, a decrease of
$13.3 million from $92.4 million for the year ended December 31, 1997. As a
percentage of total commissions & fees, EBITDA decreased to 12.0% for the year
ended December 31, 1998 from 17.1% for the year ended December 31, 1997. The
decrease resulted primarily from the $18.0 million charge for merger costs
($22.4 million less $4.4 million in amortization of deferred compensation),
which was 2.7% of total commissions & fees for the year ended December 31, 1998,
offset, in part, by increased depreciation and amortization of $12.9 million.
For the year ended December 31, 1997, EBITDA was $92.4 million, an increase of
$84.6 million from $7.8 million for the year ended December 31, 1996. As a
percent of total commissions & fees, EBITDA increased to 17.1% for the year
ended December 31, 1997 as compared to 1.9% for the year ended December 31, 1996
due to a higher operating profit. For the year ended December 31, 1996, EBITDA
was $7.8 million primarily due to the $52.0 million non-cash special
compensation charge.
Net cash used in investing activities for the years ended December 31, 1998,
1997 and 1996 was $66.5 million, $89.7 million and $46.4 million, respectively.
The $23.2 million decrease in 1998 as compared with 1997 was primarily due to
$34.1 million less in payments for acquisitions, reflecting the use of company
stock to make acquisitions of businesses, offset in part by $0.4 million more in
capital expenditures and during 1997 our receipt of a net $11.4 million from the
Principal Stockholder and certain other stockholders, who repaid borrowings with
funds received primarily from their sale of shares included with our second
public offering. Payments for businesses acquired using the purchase method of
accounting, excluding $5.5 million in TMP stock, were $32.8 million in 1998,
$66.9 million in 1997, of which $47.2 million was for Austin Knight, and
$31.3 million in 1996. Capital expenditures, primarily for computer equipment
and furniture and fixtures, were $31.9 million, $31.6 million and $15.4 million
for the years ended December 31, 1998, 1997 and 1996, respectively. In addition,
in 1997, we acquired certain transportation equipment and made capital
improvements for a total of $6.8 million, replacing the transportation equipment
sold during 1996 for $6.1 million, and simultaneously entered into a
$7.8 million financing agreement to fund the purchase and provide additional
operating funds. In December 1996, we sold certain transportation equipment for
$6.1 million receiving a note for $2.7 million and retained $1.2 million in
cash, after payment of related debt.
16
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Our financing activities include equity offerings, borrowings and repayments
under our financing agreement and payments on (i) installment notes, principally
to finance acquisitions, and (ii) capital leases. In the fourth quarter of 1996,
we completed our initial public offering of 4,147,408 shares of Common Stock for
net proceeds of $50.8 million and in the third quarter of 1997, we completed our
second public offering of 2,400,000 shares of Common Stock for net proceeds of
$51.2 million. With a portion of the proceeds received from our initial public
offering in January 1997, we redeemed all of the shares of the cumulative
preferred stock issued by a subsidiary, reported as a minority interest, and our
previously issued preferred stock for approximately $3.1 million and
$2.1 million, respectively. Such redemptions included approximately $100,000
each of premiums. Our financing activities provided net cash of $20.1 million,
$65.5 million and $13.4 million in 1998, 1997 and 1996, respectively. In
November, 1998 and 1997 we amended our financing agreement with our primary
lender to provide for borrowings, under a revolving credit facility, of a
minimum of $175 million. In May 1999 we increased this amount to $185 million.
This facility is used to finance our acquisitions and for working capital
requirements. As of December 31, 1998, there was $97.7 million outstanding and
approximately $77.3 million available under such facility. Our current interest
rate under the agreement is LIBOR plus 75 basis points. In addition, we had
secured lines of credit aggregating $49.0 million for LAI and our operations in
Australia, France, Belgium and the Netherlands of which approximately
$42.5 million was unused at December 31, 1998. Upon consummation of the merger
with TMP, LAI's $25.0 million line of credit was eliminated by TMP. We believe
we will be able to fund our short-term cash needs through funds from operations,
our credit facilities in the United States, the United Kingdom, Canada and
Australia and, to a lesser extent, equipment leases. The borrowings are secured
by a lien on substantially all of our assets. In addition, the financing
agreement contains certain covenants which restrict, among other things, our
ability to borrow, pay dividends, acquire businesses, guarantee debts of others
and lend funds to affiliated companies and contains criteria on the maintenance
of certain financial statement amounts and ratios.
At September 30, 1999, we had a $185 million committed line of credit from
our primary lender pursuant to a revolving credit agreement expiring June 30,
2001. Of such line, at September 30, 1999, approximately $58.2 million was
unused and accounts receivable as defined in the agreement is sufficient to
allow draw down of the entire amount. In addition, we have lines of credit
aggregating $20.6 million for our operations in Australia, New Zealand, France,
Belgium and the Netherlands of which approximately $12.0 million was unused at
September 30, 1999.
Cash and cash equivalents at September 30, 1999 were $68.0 million, an
increase of $26.4 million from $41.6 million at September 30,1998.
Part of our acquisition strategy is to pay, over time, a portion of the
purchase price of certain acquisitions through seller financed notes.
Accordingly, such notes are included in long-term debt, are generally payable
over five years and totaled approximately $13.8 million at December 31, 1998.
We intend to continue our acquisition strategy and marketing and promotion
of our Internet business through the use of operating profits, borrowings
against our long-term debt facility and seller financed notes. We believe that
our anticipated cash flow from operations, as well as the availability of funds
under our existing financing agreements and access to public equity and debt
markets, will provide us with liquidity to meet our current foreseeable cash
needs for at least the next year. However, if we determine that conditions are
favorable, we would consider additional corporate equity or debt transactions.
17
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" ("SFAS No. 133"), which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. SFAS
No. 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. The Company does not expect the adoption of this statement to
have a significant impact on the Company's results of operations, financial
position or cash flows.
YEAR 2000 ISSUE
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These systems
and software products will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software used by many companies and governmental agencies may need to be
upgraded to comply with such Year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities.
STATE OF READINESS
Since early in 1999, we have been working to position TMP as Year 2000 ready
before December 31, 1999. We have developed a comprehensive plan to deal with
the Year 2000 issue and have engaged internal and external resources to focus on
this effort. The plan is an evolving document as we continue to acquire and
integrate companies throughout 1999. The plan is intended to achieve three basic
objectives: to ensure that computer systems and other equipment function in the
same manner after December 31, 1999 as it did before the century date change, to
ensure that each business unit follows a consistent approach for assessment
renovation, and validation of all IT and non-IT assets, and to track the status
of all Year 2000 efforts. In addition to our internal assets, we are assessing
and monitoring the Year 2000 readiness of our key vendors and service providers.
We are also monitoring the readiness of public infrastructure service providers
such as power, communications, and transportation providers.
Our Year 2000 task force has conducted an inventory of and has developed
testing procedures for all software and other systems that we believe might be
affected by Year 2000 issues. Since third parties developed and currently
support many of the systems used, a significant part of this effort will be to
ensure that these third-party systems are Year 2000 ready. Our plan is to
confirm this readiness by obtaining representations by these third parties that
their products' are year 2000 ready and through specific testing of these
systems. We have substantially completed this process as of the end of the third
quarter of 1999 and plan to complete this process by the end of the fourth
quarter. Until such testing is completed and such vendors and providers are
contacted, we will not be able to completely evaluate whether our systems will
need to be revised or replaced.
COSTS
We expect to incur approximately $3.0 million, globally, during 1999 in
connection with identifying, evaluating and addressing Year 2000 readiness
issues. Most of these costs relate to time spent by employees and consultants in
making our systems Year 2000 ready. Such costs are not expected to have a
material adverse effect on the Company's business, results of operations and
financial condition.
18
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RISKS
While we are making every effort to address the Year 2000 issue, there are
inherent risks. We are not currently aware of any Year 2000 readiness problems
relating to our systems that would have a material adverse effect on our
business, results of operations and financial condition, without taking into
account our efforts to avoid or fix such problems. There can be no assurance
that we will not discover Year 2000 readiness problems in our systems and
equipment that will require substantial revision. In addition, there can be no
assurance that third-party software, hardware or services incorporated into our
material systems will not need to be revised or replaced, all of which could be
time-consuming and expensive. Our failure to fix or replace our internally
developed proprietary software or third-party software, hardware or services on
a timely basis could result in lost commissions & fees, increased operating
costs, the loss of customers and other business interruptions, any of which
could have a material adverse effect on our business, results of operations and
financial condition. Moreover, the failure to adequately address Year 2000
readiness issues in our internally developed proprietary software could result
in claims of mismanagement, misrepresentation or breach of contract and related
litigation, which could be costly and time-consuming to defend.
We are heavily dependent on a significant number of third party vendors to
provide both network services and equipment. A significant Year 2000 related
disruption of the network, services or equipment that third-party vendors
provide to us could cause our members and visitors to consider seeking alternate
providers or cause an unmanageable burden on our technical support, which in
turn could materially and adversely affect our business, financial condition and
results of operations.
In addition, we cannot assure you that governmental agencies, utility
companies, internet access companies, third party service providers and others
outside of our control will be Year 2000 ready. The failure by such entities to
be Year 2000 ready could result in a systemic failure beyond our control, such
as a prolonged internet, telecommunications or electrical failure, which could
also prevent us from delivering our services to our customers, decrease the use
of the internet or prevent users from accessing our websites which could have a
material adverse effect on our business, results of operations and financial
condition.
CONTINGENCY PLAN
We have developed contingency plans for those systems and equipment which we
consider at risk of not being Year 2000 ready at least four weeks before
year-end. The results of our Year 2000 simulation testing and the responses
received from third-party vendors and service providers will be taken into
account in determining the nature and extent to which our contingency plans will
be implemented. In addition, we are developing an event planning procedure to
monitor the function of our global operations before, during and after the
century date change.
FLUCTUATIONS OF QUARTERLY RESULTS
Our quarterly commissions & fees are affected by the timing of yellow page
directory closings which currently have a concentration in the third quarter.
Yellow page publishers may change the timing of directory publications which may
have an effect on our quarterly results. Our yellow page advertising results are
also affected by commissions earned for volume placements for the year, which
are typically reported in the fourth quarter. Our quarterly commissions & fees
for recruitment advertising are typically highest in the first quarter and
lowest in the fourth quarter. However, the cyclicality in the economy and our
clients' employment needs have an overriding impact on our quarterly results in
recruitment advertising, search & selection and temporary contracting. (See
Note 2 to the Company's Supplemental Consolidated Financial Statements included
elsewhere herein.).
19
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The following table sets forth summary quarterly unaudited financial
information for the nine months ended September 30, 1999 and the years ended
December 31, 1998 and 1997. Amounts have been restated to reflect the effect of
the retroactive restatement for the Fourth Quarter 1999 Mergers: (in millions,
except share and per share amounts).
<TABLE>
<CAPTION>
1999 QUARTERS
-----------------------------------
MARCH 31 JUNE 30, SEPTEMBER 30,
-------- -------- -------------
<S> <C> <C> <C>
Commissions & fees:
Recruitment advertising..................................... $ 45.6 $ 46.3 $ 43.0
Yellow page advertising..................................... 23.8 27.2 28.5
Search & selection.......................................... 66.3 70.2 82.7
Internet.................................................... 20.5 25.8 36.7
Temporary contracting....................................... 12.8 16.6 15.5
------ ------ ------
Total commissions & fees.................................... $169.0 $186.1 $206.4
====== ====== ======
Operating income (loss)..................................... $ (1.2) $ 7.4 $ (2.4)
Net income (loss) applicable to common and Class B common
stockholders.............................................. $ (2.3) $ 3.2 $ (5.8)
Net income (loss) per common and Class B common share:
Basic....................................................... $(0.06) $ 0.08 $(0.15)
Diluted..................................................... $(0.06) $ 0.08 $(0.15)
Weighted average shares outstanding (in thousands):
Basic....................................................... 39,323 39,876 39,992
Diluted..................................................... 39,323 41,596 39,992
</TABLE>
<TABLE>
<CAPTION>
1998 QUARTERS
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Commissions & fees:
Recruitment advertising........................... $ 45.8 $ 45.7 $ 42.3 $ 43.9
Yellow page advertising........................... 23.3 27.1 32.1 23.9
Search & selection................................ 69.9 74.0 70.9 61.3
Internet.......................................... 8.0 11.0 13.7 17.5
Temporary contracting............................. 5.6 13.6 13.8 14.0
------ ------ ------ ------
Total commissions & fees.......................... $152.6 $171.4 $172.8 $160.6
====== ====== ====== ======
Operating income (loss)........................... $ 17.2 $ 21.2 $ 15.7 $ (6.9)
Net income (loss) applicable to common and Class B
common stockholders............................. $ 9.7 $ 11.6 $ 7.9 $ (8.7)
Net income (loss) per common and Class B common
share:
Basic............................................. $ .25 $ .30 $ .20 $(0.22)
Diluted........................................... $ .24 $ .29 $ .20 $(0.22)
Weighted average shares outstanding (in
thousands):
Basic............................................. 38,421 38,748 38,811 38,857
Diluted........................................... 39,735 39,806 39,970 38,857
</TABLE>
20
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
1997 QUARTERS
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Commissions & fees:
Recruitment advertising........................... $ 27.7 $ 30.8 $ 35.4 $ 40.4
Yellow page advertising........................... 21.9 25.1 30.6 26.3
Search & selection................................ 56.8 63.4 59.6 63.0
Internet.......................................... 4.0 4.7 5.0 5.8
Temporary contracting............................. 5.3 24.2 5.8 6.0
------ ------ ------ ------
Total commissions & fees.......................... $115.7 $148.2 $136.4 $141.5
====== ====== ====== ======
Operating income.................................. $ 18.5 $ 19.4 $ 19.9 $ 12.7
Net income applicable to common and Class B common
stockholders.................................... $ 11.2 $ 11.9 $ 11.0 $ 7.7
Net income per common and Class B common share:
Basic............................................. $ 0.32 $ 0.33 $ 0.31 $ 0.20
Diluted........................................... $ 0.31 $ 0.33 $ 0.30 $ 0.20
Weighted average shares outstanding (in
thousands):
Basic............................................. 35,355 35,578 36,171 38,257
Diluted........................................... 35,798 36,204 36,847 38,896
</TABLE>
Earnings (loss) per share calculations for each quarter include the weighted
average effect for the quarter; therefore, the sum of the quarters may not equal
the full year earnings (loss) per share amount, which reflects the weighted
average effect on an annual basis. In addition, diluted earnings per share
calculations for each quarter include the effect of stock options and warrants,
when dilutive to the quarter.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following are the supplemental consolidated financial statements and
exhibits of TMP Worldwide Inc. and Subsidiaries, which are filed as part of this
report.
21
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED):
Balance sheet as of September 30, 1999...................... F-2
Statements of operations for the nine months ended September
30, 1999 and 1998......................................... F-3
Statements of comprehensive income (loss) for the nine
months ended September 30,
1999 and 1998............................................. F-4
Statement of stockholders' equity for the nine months ended
September 30, 1999........................................ F-5
Statements of cash flows for the nine months ended September
30, 1999 and 1998......................................... F-6
Notes to supplemental consolidated condensed financial
statements................................................ F-7
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants.......... F-16
Independent Auditor's Report to the Members of Morgan &
Banks Limited............................................. F-17
Report of Independent Certified Public Accountants (with
respect to LAI)........................................... F-18
Statements of consolidated balance sheets for the years
ended December 31, 1998 and 1997.......................... F-19
Statements of operations for the years ended December 31,
1998, 1997 and 1996....................................... F-20
Statements of comprehensive income (loss) for the years
ended December 31, 1998, 1997 and 1996.................... F-21
Statements of stockholders' equity (deficit) for the years
ended December 31, 1998, 1997 and 1996.................... F-22
Statements of cash flows for the years ended December 31,
1998, 1997 and 1996....................................... F-24
Notes to supplemental consolidated financial statements..... F-25
Report of Independent Certified Public Accountants.......... F-58
Report of Independent Certified Public Accountants (with
respect to LAI)........................................... F-59
Supplemental Schedule II: Valuation and qualifying accounts
for the years ended December 31, 1998, 1997 and 1996...... F-60
</TABLE>
All other schedules are omitted because the required information is either
inapplicable or is included in the supplemental consolidated financial
statements or the notes thereto.
F-1
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 67,964
Accounts receivable, net.................................... 417,326
Work-in-process............................................. 19,593
Prepaid and other........................................... 24,995
---------
Total current assets................................ 529,878
Property and equipment, net................................. 62,691
Deferred income taxes....................................... 15,817
Intangibles, net............................................ 257,807
Other assets................................................ 17,491
---------
$ 883,684
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................ $ 302,184
Accrued expenses and other liabilities...................... 122,452
Accrued restructuring costs................................. 25,041
Deferred commissions & fees................................. 47,016
Deferred income taxes....................................... 278
Current portion of long term debt........................... 8,898
---------
Total current liabilities........................... 505,869
Long term debt, less current portion........................ 101,198
Other liabilities........................................... 16,572
---------
Total liabilities................................... 623,639
---------
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: 37,788,761 shares......... 38
Class B common stock, $.001 par value, authorized 39,000,000
shares; issued and outstanding: 2,381,000................. 2
Additional paid-in capital.................................. 300,413
Other comprehensive loss.................................... (4,363)
Deficit..................................................... (36,045)
---------
Total stockholders' equity.................................. 260,045
---------
$ 883,684
=========
</TABLE>
See accompanying notes to supplemental consolidated condensed financial
statements.
F-2
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Commissions & fees.......................................... $561,481 $496,872
-------- --------
Operating expenses:
Salaries and related costs.............................. 327,046 288,045
Office and general expenses............................. 173,053 136,639
Merger & integration costs.............................. 46,262 9,577
Restructuring charges................................... 2,789 --
Amortization of intangibles............................. 8,564 7,394
CEO special bonus....................................... -- 1,125
-------- --------
Total operating expenses................................ 557,714 442,780
-------- --------
Operating income........................................ 3,767 54,092
-------- --------
Other expense:
Interest expense, net................................... (6,272) (7,035)
Other, net.............................................. (851) (932)
-------- --------
Total other expense, net............................ (7,123) (7,967)
-------- --------
Income (loss) before provision for income taxes, minority
interests and equity in losses of affiliates.............. (3,356) 46,125
Provision for income taxes.................................. 1,154 16,637
-------- --------
Income (loss) before minority interests and equity in losses
of affiliates............................................. (4,510) 29,488
Minority interests.......................................... 107 (18)
Equity in losses of affiliates.............................. (300) (297)
-------- --------
Net income (loss)........................................... $ (4,917) $ 29,209
======== ========
Net income (loss) per common and Class B common share:
Basic....................................................... $ (0.12) $ 0.75
======== ========
Diluted..................................................... $ (0.12) $ 0.73
======== ========
Weighted average shares outstanding:
Basic....................................................... 39,611 38,696
======== ========
Diluted..................................................... 39,611 39,802
======== ========
</TABLE>
See accompanying notes to supplemental consolidated condensed financial
statements.
F-3
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Net income (loss)........................................... $(4,917) $29,209
Foreign currency translation adjustment..................... (1,289) (580)
------- -------
Comprehensive income (loss)................................. $(6,206) $28,629
======= =======
</TABLE>
See accompanying notes to supplemental consolidated condensed financial
statements.
F-4
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK COMMON STOCK, OTHER
$.001 PAR VALUE $.001 PAR VALUE ADDITIONAL COMPRE- UNAMORTIZED
--------------------- ---------------------- PAID-IN HENSIVE STOCK-BASED
SHARES AMOUNT SHARES AMOUNT CAPITAL LOSS COMPENSATION DEFICIT
---------- -------- --------- ---------- ---------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31,
1998................ 36,592,847 $37 2,381,000 $ 2 $262,399 $(3,074) $(2,732) $(27,882)
Issuance of common
stock in connection
with the exercise of
options............. 649,781 1 -- -- 8,158 -- -- --
Issuance of common
stock in connection
with business
combinations........ 341,981 -- -- -- 17,113 -- -- --
Issuance of common
stock for matching
contribution to
401(k) plan......... 21,477 -- -- -- 902 -- -- --
Issuance of common
stock for employee
stay bonuses........ 163,244 -- -- -- 5,316 -- -- --
Issuance of common
stock for purchase
of minority
interest............ 19,431 -- -- -- 1,210 -- -- --
Issuance of
compensatory stock
options............. -- -- -- -- 134 -- -- --
Tax benefit from the
exercise of stock
options............. -- -- -- -- 6,214 -- -- --
Forfeiture of stock
based compensation
due to departure of
employees of pooled
entity.............. -- -- -- -- (1,033) -- 1,033 --
Pooled company losses
included in both
current and previous
years............... -- -- -- -- -- -- -- 3,784
Accelerated vesting of
stock-based
compensation by
pooled company...... -- -- -- -- -- -- 1,699 --
Foreign currency
translation
adjustment.......... -- -- -- -- -- (1,289) -- --
Net income (loss)..... -- -- -- -- -- -- -- (4,917)
Dividends declared by
pooled companies.... -- -- -- -- -- -- -- (7,030)
---------- --- --------- ---------- -------- ------- ------- --------
Balance, September 30,
1999................ 37,788,761 $38 2,381,000 $ 2 $300,413 $(4,363) $ -- $(36,045)
========== === ========= ========== ======== ======= ======= ========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance December 31,
1998................ $228,750
Issuance of common
stock in connection
with the exercise of
options............. 8,159
Issuance of common
stock in connection
with business
combinations........ 17,113
Issuance of common
stock for matching
contribution to
401(k) plan......... 902
Issuance of common
stock for employee
stay bonuses........ 5,316
Issuance of common
stock for purchase
of minority
interest............ 1,210
Issuance of
compensatory stock
options............. 134
Tax benefit from the
exercise of stock
options............. 6,214
Forfeiture of stock
based compensation
due to departure of
employees of pooled
entity.............. --
Pooled company losses
included in both
current and previous
years............... 3,784
Accelerated vesting of
stock-based
compensation by
pooled company...... 1,699
Foreign currency
translation
adjustment.......... (1,289)
Net income (loss)..... (4,917)
Dividends declared by
pooled companies.... (7,030)
--------
Balance, September 30,
1999................ $260,045
========
</TABLE>
See accompanying notes to supplemental consolidated condensed financial
statements.
F-5
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1999 1998
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $ (4,917) $ 29,209
--------- --------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization of property and equipment..... 17,524 14,586
Amortization of intangibles and deferred costs.............. 8,564 7,394
Amortization of deferred compensation....................... 3,994 2,631
Provision for doubtful accounts............................. 8,596 3,336
Common stock issued for stay bonuses and contributions to
401(k) plan............................................... 2,031 4,040
CEO special bonus........................................... -- 1,125
Minority interests.......................................... 107 (18)
Provision for deferred income taxes......................... (8,202) 778
Net loss on disposal of fixed assets........................ 7,297 13
Tax benefit from the exercise of employee stock options..... 6,214 --
Other....................................................... -- 497
Effect of companies accounted for as poolings of interests
included in both the current period and the previous
year...................................................... 3,784 --
Changes in assets and liabilities, net of effects of
purchases of businesses:
Increase in accounts receivable, net........................ (68,987) (54,777)
Increase in accounts payable and accrued liabilities........ 39,153 24,617
Increase in work-in process prepaid and other............... 9,327 (8,644)
Increase in deferred revenue................................ 31,361 7,899
--------- --------
Total adjustments..................................... 60,763 3,477
--------- --------
Net cash provided by operating activities............. 55,846 32,686
--------- --------
Cash flows from investing activities:
Capital expenditures........................................ (19,684) (20,546)
Proceeds from sale of assets................................ 9,761 (5)
Advances & loan repayments to shareholders & officers of
pooled companies.......................................... -- (580)
Payments for purchases of businesses, net of cash
acquired.................................................. (22,029) (24,058)
Purchases of investments by a pooled company................ -- (33,363)
Investment in life insurance................................ -- (1,433)
--------- --------
Net cash used in investing activities................. (31,952) (79,985)
--------- --------
Cash flows from financing activities:
Payments on capitalized leases.............................. (3,988) (1,787)
Borrowings under lines of credit and proceeds from issuance
of debt................................................... 926,951 756,338
Repayments under lines of credit and principal payments on
debt...................................................... (952,874) (753,014)
Proceeds from common stock offering of pooled company....... -- 41,392
Cash received from the exercise of employee stock options... 8,159 1,405
Distributions to minority interests......................... -- (115)
Dividends paid by pooled entities........................... (7,030) (11,347)
Other....................................................... -- (192)
--------- --------
Net cash (used in) provided by financing activities... (28,782) 32,680
--------- --------
Effect of exchange rate changes on cash..................... (648) (56)
--------- --------
Net decrease in cash and cash equivalents................... (5,536) (14,675)
--------- --------
Cash and cash equivalents, beginning of period.............. 73,500 56,316
--------- --------
Cash and cash equivalents, end of period.................... $ 67,964 $ 41,641
========= ========
</TABLE>
See accompanying notes to supplemental consolidated condensed financial
statements.
F-6
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The supplemental consolidated condensed interim financial statements
included herein have been prepared by TMP Worldwide Inc. ("TMP" or the
"Company"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments which, in the opinion of management, are necessary for fair
presentation of the information contained herein. It is suggested that these
supplemental consolidated condensed financial statements be read in conjunction
with (1) the financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998 and (2) its
supplemental consolidated financial statements included elsewhere herein. The
Company follows the same accounting policies in preparation of interim financial
statements.
Results of operations for the interim periods may not be indicative of
annual results.
For the period April 1, 1998 through September 30, 1999, the Company
completed 18 mergers which were accounted for as poolings of interests. The
seven that the Company completed prior to April 1, 1999 are Johnson, Smith &
Knisely Inc. ("JSK"), TASA Holding AG ("TASA"), Stackig, Inc. ("Stackig"),
Recruitment Solutions Inc., Sunquest L.L.C. d.b.a. The SMART Group and The
Consulting Group (International) Limited ("TCG"), in 1998 (the "1998 Mergers")
and Morgan & Banks Limited ("M&B") in January 1999 (the "M&B Merger"). In
connection with these mergers, the Company issued 8,789,455 shares of our common
stock in exchange for all of the outstanding common stock of these seven
companies. From April 1, 1999 through June 30, 1999, the Company completed
pooling of interests mergers (the "Second Quarter 1999 Mergers"), with six
companies, Interquest, Pty. Limited ("Interquest"), LIDA Advertising Inc.
("LIDA"), Maes & Lunau ("M&L"), IN2, Inc. ("IN2"), Lemming & LeVan, Inc.
("L&L"), and Yellow Pages Unlimited, Inc. ("YPU"), (the "Second Quarter 1999
Pooled Companies"). In connection with the Second Quarter 1999 Mergers the
Company issued a total of 900,240 shares of TMP common stock in exchange for all
of the outstanding stock of the Second Quarter 1999 Pooled Companies. In
addition from July 1, 1999 through September 30, 1999 the Company completed
pooling of interests mergers (the "Third Quarter 1999 Mergers") with five
companies, Cameron-Newell Advertising, Inc ("CNA"), Brook Street Bureau (QLD)
Pty Ltd ("Brook Street"), LAI Worldwide Inc. ("LAI"), Fox Advertising Inc
("Fox") and Lampen Group Limited ("Lampen"), (the "Third Quarter 1999 Pooled
Companies"). In connection with the Third Quarter 1999 Mergers the Company
issued a total of 2,153,456 shares of TMP common stock in exchange for all of
the outstanding stock of the Third Quarter 1999 Pooled Companies.
Furthermore, from October 1, 1999 through November 19, 1999, the Company
completed mergers with the two companies listed below (the "Fourth Quarter 1999
Pooled Companies"), which provided for the exchange of all of the outstanding
stock of such companies for a total of 758,613 shares of TMP
F-7
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
NOTE 1--BASIS OF PRESENTATION (CONTINUED)
common stock and which were accounted for as poolings of interests (the "Fourth
Quarter 1999 Mergers").
<TABLE>
<CAPTION>
NATURE OF REGION OF NUMBER OF TMP
ENTITY OPERATIONS OPERATIONS ACQUISITION DATE SHARES ISSUED
- ------ ------------------ ------------------ ---------------- -------------
<S> <C> <C> <C> <C>
Highland Search
Group, L.L.C.
("Highland")........ Search & selection North America October 21, 1999 699,333
TMC S.r.l.
("Amrop Italy")..... Search & selection Continental Europe October 27, 1999 59,280
</TABLE>
Consequently, the Company's consolidated condensed financial statements have
been retroactively restated as of September 30, 1999, and for the nine months
ended September 30, 1999 and 1998, to reflect the consummation of the Fourth
Quarter 1999 Mergers. The supplemental consolidated condensed financial
statements included herein give retroactive effect to the Fourth Quarter 1999
Mergers, which have been accounted for using the pooling of interests method
and, as a result, the financial position, results of operations, comprehensive
income (loss) and cash flows are presented as if the Fourth Quarter 1999 Pooled
Companies had been consolidated for all periods presented. Furthermore, the
Company's consolidated financial statements had previously been retroactively
restated for the nine months ended September 30, 1998 to reflect the
consummation of the Third Quarter 1999 Mergers and Second Quarter 1999 Mergers,
which have been accounted for using the pooling of interests method. As a
result, the supplemental consolidated condensed balance sheets, statements of
operations, statements of comprehensive income (loss) and statements of cash
flows included herein are presented as if the combining companies had been
consolidated for all periods presented. In addition, the supplemental
consolidated condensed statement of stockholders' equity reflects the accounts
of TMP as if the additional common stock issued in connection with the mergers
had been issued for all periods presented. As required by generally accepted
accounting principles, the supplemental consolidated condensed financial
statements will become the historical financial statements of the Company upon
issuance of the financial statements for the period that includes the
consummation of the Fourth Quarter 1999 Mergers.
TEMPORARY CONTRACTING
The amounts charged to clients for Temporary Contracting services are now
reported after deducting the costs of the temporary contractors. The details for
such amounts are (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Temporary Contracting Revenue........................... $245,015 $184,942
Temporary Contracting Costs............................. 200,149 151,915
-------- --------
Temporary Contracting Billings\Commissions & fees....... $ 44,866 $ 33,027
======== ========
</TABLE>
F-8
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
NOTE 1--BASIS OF PRESENTATION (CONTINUED)
EARNINGS PER SHARE
Basic earnings per share assumes no dilution, and is computed by dividing
income (loss) available to common and Class B common shareholders by the
weighted average number of common and Class B common shares outstanding during
each period. Diluted earnings per share reflect, in periods in which they have a
dilutive effect, the effects of common shares issuable upon exercise of stock
options and warrants, and contingent shares. A reconciliation of shares used in
calculating basic and diluted earnings per common and Class B common share
follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Basic................................................... 39,611 38,696
Effect of assumed conversion of stock options and
other................................................. * 1,106
-------- --------
Diluted................................................. 39,611 39,802
======== ========
</TABLE>
- ------------------------
* Effect of diluted shares is anti-dilutive.
NOTE 2--NATURE OF BUSINESS AND CREDIT RISK
The Company operates in five business segments: recruitment advertising,
yellow page advertising, Internet, search & selection and temporary contracting.
The Company earns commission income for selling and placing recruitment and
yellow page advertising to a large number of customers in many different
industries, fees for executive and mid-level search & selection services, fees
for advertisements placed on its Internet Websites and other Internet related
recruitment and advertising services and fees in connection with providing
temporary contracting services. The Company operates principally throughout
North America, the Asia/Pacific Region (primarily in Australia, New Zealand and
Japan), the United Kingdom and Continental Europe.
NOTE 3--BUSINESS ACQUISITIONS
ACQUISITIONS ACCOUNTED FOR USING THE POOLING OF INTERESTS METHOD
During the period October 1, 1999 through November 19, 1999, the Company
completed the following mergers which provided for the exchange of all the
outstanding stock of each entity for shares of TMP common stock and are being
accounted for as poolings of interests:
<TABLE>
<CAPTION>
NATURE OF REGION OF NUMBER OF TMP
ENTITY OPERATIONS OPERATIONS ACQUISITION DATE SHARES ISSUED
- ------ ------------------ ------------------ ---------------- -------------
<S> <C> <C> <C> <C>
Highland.............. Search & selection North America October 21, 1999 699,333
Amrop Italy........... Search & selection Continental Europe October 27, 1999 59,280
</TABLE>
F-9
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
NOTE 3--BUSINESS ACQUISITIONS (CONTINUED)
Commissions & fees, net income (loss) applicable to common and Class B
common stockholders and net income (loss) per common and Class B common share of
the combining companies, after giving retroactive effect to the pooling of
interests transactions, are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1999 1998
--------- ---------
<S> <C> <C>
COMMISSIONS & FEES
TMP, as previously reported on Form 10-Q for
the period ended September 30, 1999.......... $539,546 $479,903
Highland....................................... 19,708 14,517
Amrop Italy.................................... 2,227 2,452
-------- --------
TMP, as restated............................... $561,481 $496,872
======== ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1999 1998
--------- ---------
<S> <C> <C>
NET INCOME (LOSS) APPLICABLE TO COMMON AND
CLASS B COMMON STOCKHOLDERS
TMP, as previously reported on Form 10-Q....... $ (7,803) $ 22,401
Highland....................................... 2,838 6,704
Amrop Italy.................................... 48 104
-------- --------
TMP, as restated............................... $ (4,917) $ 29,209
======== ========
NET INCOME (LOSS) PER COMMON AND CLASS B COMMON
SHARE
As previously reported on Form 10-Q:
Basic........................................ $ (0.20) $ 0.59
Diluted...................................... $ (0.20) $ 0.57
Restated:
Basic........................................ $ (0.12) $ 0.75
Diluted...................................... $ (0.12) $ 0.73
</TABLE>
MERGER & INTEGRATION COSTS INCURRED WITH POOLING OF INTERESTS TRANSACTIONS
In connection with pooling of interests transactions completed during 1999
and 1998, the Company expensed merger & integration costs of $46,262 for the
nine months ended September 30, 1999. Of this amount $21,018 is for merger costs
and $25,244 is for integration costs. The merger costs for the nine months ended
September 30, 1999, consist of (1) $3,251 of non-cash employee stay bonuses,
which include (a) $2,133 for the amortization of $5,986, recorded as prepaid
compensation and a corresponding long-term liability, being expensed over the
eighteen months from April 1, 1998 to September 30, 1999 for TMP shares set
aside for key personnel of JSK and TCG who must remain employees of the Company
for a full year in order to earn such shares, (b) $351 which is related to an
option grant to employees of a pooled company and which represents the
difference between the option exercise price and the stock price
F-10
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
NOTE 3--BUSINESS ACQUISITIONS (CONTINUED)
on the day the options were granted and (c) $767 for TMP shares given to key
personnel of a pooled company as employee stay bonuses, (2) $1,132 paid in cash
to key personnel of pooled companies as employee stay bonuses, (3) $11,850 of
transaction related costs, including legal, accounting, printing and advisory
fees and the costs incurred for the subsequent registration of shares issued in
the acquisitions and (4) $4,785 in severance costs for managers of LAI, who, in
accordance with the terms of their employment agreements, chose to resign from
LAI after the merger with TMP seemed likely. The $25,244 of integration costs
consist of: (a) $8,703 for assumed obligations of closed facilities,
(b) $12,110 for consolidation of acquired facilities, (c) $575 for severance,
relocation and other employee costs and (d) a $3,856 provision for uncollectible
accounts receivable. See schedule in ACCRUED RESTRUCTURING AND INTEGRATION COSTS
in the section below.
During the nine months ended September 30, 1998, the Company expensed
merger & integration costs of $9,577 which were related to the pooling of
interests transactions with JSK, TASA and Stackig, and are comprised of
transaction costs and the amortization of employee stay bonuses.
ACQUISITIONS ACCOUNTED FOR USING THE PURCHASE METHOD
In addition to the pooling of interests transactions discussed above, in the
nine month period ended September 30, 1999, the Company completed seventeen
acquisitions using the purchase method of accounting: eight search & selection
companies, seven recruitment advertising companies, one Internet company and one
yellow page advertising company. The purchase price of these acquisitions was
approximately $45.8 million, including 337,466 shares of TMP common stock.
Operations of these businesses have been included in the consolidated financial
statements from their acquisition dates.
The summarized unaudited pro forma results of operations set forth below for
the nine month periods ended September 30, 1999 and 1998 and the year ended
December 31, 1998 assume that the acquisitions in 1999 and 1998 occurred as of
the beginning of the period. The unaudited pro forma results of operations are
not necessarily indicative of what actually would have occurred if the
acquisitions had been completed at the beginning of each of the periods
presented, nor are the results of operations necessarily indicative of the
results that will be attained in the future.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------------------- -----------------------
1999 1998 1998
--------- --------- -----------------------
<S> <C> <C> <C>
Commissions & fees.......................... $573,925 $520,258 $697,888
Net income (loss) applicable to common and
Class B common stockholders............... $ (4,687) $ 27,587 $ 19,603
Net income (loss) per common and Class B
common share:
Basic..................................... $ (0.12) $ 0.70 $ 0.50
Diluted................................... $ (0.12) $ 0.68 $ 0.49
</TABLE>
F-11
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
NOTE 3--BUSINESS ACQUISITIONS (CONTINUED)
ACCRUED RESTRUCTURING AND INTEGRATION COSTS
In connection with the acquisitions made in 1997 and accounted for using the
purchase method, the Company developed plans to restructure the operations of
the acquired companies. Such plans involve the closure of certain offices of the
acquired companies and the termination of certain management and employees. The
objective of the plans is to create a single brand in the related markets in
which the Company operates. The preliminary plans were finalized in July 1998.
In addition, in 1999 LAI completed plans to close its London, England and Hong
Kong offices and, in connection with these office closings, charged earnings
$2,789 for the nine months ended September 30, 1999. Including the effects of
integration plans related to business combinations accounted for as pooling of
interests discussed above, the costs and liabilities of these plans include:
<TABLE>
<CAPTION>
BALANCE APPLIED AGAINST BALANCE
12/31/98 EXPENSED RELATED ASSET PAYMENTS 9/30/99
-------- -------- --------------- -------- --------
<S> <C> <C> <C> <C> <C>
Assumed obligations on closed leased
facilities............................... $ 9,590 $ 9,219 -- $(1,333) $17,476
Consolidation of acquired facilities....... 2,745 13,145 $ (9,255) (2,321) 4,314
Contracted lease payments exceeding current
market costs............................. 707 -- -- (108) 599
Severance, relocation and other employee
costs.................................... 1,952 1,813 -- (2,844) 921
Provision for uncollectable receivables.... -- 3,856 (3,856) -- --
Pension obligations........................ 1,753 -- -- (22) 1,731
------- ------- -------- ------- -------
Total.................................... $16,747 $28,033 $(13,111) $(6,628) $25,041
======= ======= ======== ======= =======
</TABLE>
Accrued liabilities for surplus property in the amount of $17,476 as of
September 30, 1999 relate to 20 leased office locations of the acquired
companies that were either unutilized prior to the acquisition date or were
closed by September 30, 1999 in connection with the restructuring and
integration plans. The amount is based on the present value of minimum future
lease obligations, net of sublease revenue on existing leases.
Other costs associated with the closure of existing offices of acquired
companies in the amount of $4,314 as of September 30, 1999, relate to the
write-off of leasehold improvements and other fixed assets and termination costs
of contracts relating to billing systems, external reporting systems and other
contractual agreements with third parties.
Above market lease costs in the amount of $599 as of September 30, 1999
relate to the present value of contractual lease payments in excess of current
market lease rates.
Estimated severance payments, employee relocation expenses and other
employee costs in the amount of $921 as of September 30, 1999 relate to
estimated severance for terminated employees at closed locations, costs
associated with employees to be transferred to continuing offices and other
related costs. Employee groups affected include sales, service, administrative
and management personnel at duplicate locations as well as duplicate corporate
headquarters' management and administrative personnel. As of September 30, 1999,
the accrual related to approximately 40 employees including senior management,
sales, service and administrative personnel.
F-12
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
NOTE 3--BUSINESS ACQUISITIONS (CONTINUED)
Pension obligations in the amount of $1,731 were assumed in connection with
the acquisition of Austin Knight.
The Company continues to evaluate and assess the impact of duplicate
responsibilities and office locations. Future costs incurred resulting from
revised plan actions will be charged to operations in the period in which they
occur.
NOTE 4--SEGMENT AND GEOGRAPHIC DATA
The Company is engaged in five lines of business: recruitment advertising,
yellow page advertising, Internet, search & selection and temporary contracting.
Operations are conducted in several geographic regions: North America, the
Asia/Pacific Region (primarily in Australia, New Zealand and Japan), the United
Kingdom and Continental Europe. The following is a summary of the Company's
operations by business segment and by geographic segment, for the nine months
ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
RECRUITMENT YELLOW PAGE SEARCH & TEMPORARY
ADVERTISING ADVERTISING INTERNET SELECTION CONTRACTING TOTAL
----------- ----------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
INFORMATION BY BUSINESS SEGMENT
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999:
Commissions & fees:
Traditional sources.................. $134,928 $79,522 $ -- $219,213 $44,866 $478,529
Internet............................. 8,526 3,223 66,243 4,026 934 82,952
-------- ------- -------- -------- ------- --------
Commissions & fees................... 143,454 82,745 66,243 223,239 45,800 561,481
-------- ------- -------- -------- ------- --------
Operating expenses:
Salaries & related costs and office &
general expenses................... 117,661 51,592 -- 209,203 31,408 409,864
Internet expenses(a)................. 7,694 3,127 61,596 17,270 (b) 548 90,235
Restructuring charges................ -- -- -- 2,789 -- 2,789
Merger & integration costs........... 401 376 -- 44,575 910 46,262
Amortization of intangibles.......... 4,833 1,550 175 1,923 83 8,564
-------- ------- -------- -------- ------- --------
Total operating expenses............. 130,589 56,645 61,771 275,760 32,949 557,714
-------- ------- -------- -------- ------- --------
Operating income (loss):
Traditional sources.................. 12,033 26,004 -- (39,277) 12,465 11,225
Internet............................. 832 96 4,472 (13,244) 386 (7,458)
-------- ------- -------- -------- ------- --------
Operating income (loss).............. $ 12,865 $26,100 $ 4,472 $(52,521) $12,851 3,767
======== ======= ======== ======== =======
Total other expense, net............. (7,123)
--------
Loss before provision for income
taxes, minority interests and
equity in losses of affiliates..... * * * * * $ (3,356)
========
</TABLE>
- ------------------------
(a) Is comprised of salaries & related costs and office &
general expenses.
(b) Includes $13,806 for the marketing of search & selection
related Internet services offered by LAIcompass and
Highland.
* Not allocated.
F-13
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
NOTE 4--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
RECRUITMENT YELLOW PAGE SEARCH & TEMPORARY
ADVERTISING ADVERTISING INTERNET SELECTION CONTRACTING TOTAL
----------- ----------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
INFORMATION BY BUSINESS SEGMENT
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
Commissions & fees:
Traditional sources.................. $133,858 $82,534 -- $214,765 $ 33,027 $464,184
Internet............................. 4,560 1,751 $ 26,377 -- -- 32,688
-------- ------- -------- -------- -------- --------
Commissions & fees................... 138,418 84,285 26,377 214,765 33,027 496,872
-------- ------- -------- -------- -------- --------
Operating expenses:
Salaries & related costs, office &
general expenses and CEO special
bonus.............................. 126,263 49,409 -- 189,896 28,367 393,935
Internet expenses(a)................. 4,747 1,210 25,917 -- -- 31,874
Merger & integration costs........... 36 -- -- 9,541 -- 9,577
Amortization of intangibles.......... 4,088 1,788 173 1,257 88 7,394
-------- ------- -------- -------- -------- --------
Total operating expenses............. 135,134 52,407 26,090 200,694 28,455 442,780
-------- ------- -------- -------- -------- --------
Operating income (loss):
Traditional sources.................. 3,471 31,337 -- 14,071 4,572 53,451
Internet............................. (187) 541 287 -- -- 641
-------- ------- -------- -------- -------- --------
Operating income..................... $ 3,284 $31,878 $ 287 $ 14,071 $ 4,572 54,092
======== ======= ======== ======== ========
Total other expense, net............. (7,967)
--------
Income before provision for income
taxes, minority interests and
equity in losses of affiliates..... * * * * * $ 46,125
========
</TABLE>
- ------------------------
(a) Is comprised of salaries & related costs and office &
general expenses.
* Not allocated
F-14
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
NOTE 4--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
ASIA/PACIFIC UNITED CONTINENTAL
NORTH AMERICA REGION KINGDOM EUROPE TOTAL
------------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
INFORMATION BY GEOGRAPHIC REGION
FOR THE NINE MONTHS ENDED:
SEPTEMBER 30, 1999
Commissions & fees..................... $308,161 $121,244 $68,513 $63,563 $561,481
Income (loss) before income taxes,
minority interests and equity in
losses
of affiliates........................ $(25,126) $ 17,909 $ (407) $ 4,268 $ (3,356)
SEPTEMBER 30, 1998
Commissions & fees..................... $295,244 $ 95,310 $65,188 $41,130 $496,872
Income before income taxes, minority
interests and equity in losses of
affiliates........................... $ 18,276 $ 11,668 $ 9,221 $ 6,960 $ 46,125
</TABLE>
NOTE 5--PROPOSED ACQUISITION OF HW GROUP PLC
On November 24, 1999 the Company and HW Group PLC ("HW") entered into an
agreement subject to shareholder approval, whereby the Company will acquire all
of the outstanding stock of HW in a stock for stock transaction. HW is a
recruitment consultancy firm based in the UK specializing in the financial and
legal markets with a presence in executive, information technology and
international recruitment disciplines. HW places both permanent and contract
professional staff across a broad range of sectors and clients.
Under the terms of the agreement, each share of HW stock will be exchanged
for TMP common stock at a ratio that is based on the average closing price of a
TMP share, and will be subject to a minimum average price of $58 per new TMP
share. Based upon an estimated exchange value of 130 pence per HW common share
and $93 per TMP common share, TMP expects to issue approximately 0.6 million
shares, including the effect of options. The agreement is subject to customary
closing conditions, and the transaction is expected to be accounted for as a
pooling of interests.
F-15
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
We have audited the accompanying supplemental consolidated balance sheets of
TMP Worldwide Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
related supplemental consolidated statements of operations, comprehensive income
(loss), stockholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1998. The supplemental consolidated
financial statements give retroactive effect to the merger of TMP
Worldwide Inc. and Subsidiaries with Highland Search Group, L.L.C. on
October 21, 1999 and TMC S.r.l on October 27, 1999, which have been accounted
for as poolings of interests as described in Notes 1 and 5 to the supplemental
consolidated financial statements. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Morgan & Banks Limited as of December 31, 1998 and
March 31, 1998 and for the year ended December 31, 1998 and for each of the two
years in the period ended March 31, 1998 which were combined with the Company's
financial statements as of December 31, 1998 and 1997 and for each of the three
years in the period ended December 31, 1998, which financial statements reflect
total assets of approximately $52.3 million and $54.4 million as of
December 31, 1998 and March 31, 1998 and total commissions & fees of
approximately $255.4 million, $174.4 million and $235.8 million for the year
ended December 31, 1998 and for each of the two years in the period ended
March 31, 1998, respectively. Those financial statements were audited by another
auditor whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Morgan & Banks Limited, is based solely on
the report of the other auditor. We did not audit the financial statements of
LAI Worldwide, Inc. and subsidiaries as of February 28, 1999 and 1998 and for
each of the three years in the period ended February 28, 1999 which were
combined with the Company's financial statements as of December 31, 1998 and
1997 and for each of the three years in the period ended December 31, 1998,
which financial statements reflect total assets of approximately $103.8 million
and $88.9 million as of February 28, 1999 and 1998 and total commissions & fees
of approximately $46.4 million, $61.8 million and $86.8 million for each of the
three years in the period ended February 28, 1999, respectively. Those financial
statements were audited by another auditor whose report has been furnished to
us, and our opinion, insofar as it relates to the amounts included for LAI
Worldwide, Inc. and subsidiaries, is based solely on the report of the other
auditor.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
the supplemental consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TMP Worldwide Inc.
and Subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, after giving retroactive effect to the mergers referred to
above, in conformity with generally accepted accounting principles.
<TABLE>
<S> <C> <C>
/s/ BDO SEIDMAN, LLP
------------------------
BDO Seidman, LLP
</TABLE>
New York, New York
November 19, 1999
F-16
<PAGE>
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS
OF MORGAN & BANKS LIMITED
SCOPE
We have audited the financial statements of Morgan & Banks Limited for the
financial years ended 31 December 1998, 31 March 1998 and 31 March 1997. The
financial statements include the consolidated accounts of the economic entity,
comprising the company and the entities it controlled at the year's end or from
time to time during the financial year. The company's directors are responsible
for the preparation and presentation of these financial statements and the
information they contain. We have conducted an independent audit of the
financial statements and the information they contain in order to express an
opinion on them to the members of the company.
Our audit has been conducted in accordance with Australian Auditing
Standards, which are substantially the same as generally accepted auditing
standards in the United States of America, to provide reasonable assurance as to
whether the financial statements are free of material misstatement. Our
procedures included examination, on a test basis, of evidence supporting the
amounts and other disclosures in the financial statements, and the evaluation of
accounting policies and significant accounting estimates. These procedures have
been undertaken to form an opinion as to whether, in all material respects, the
financial statements are presented fairly in accordance with Australian
Accounting Standards and other mandatory professional reporting requirements and
statutory requirements so as to present a view which is consistent with our
understanding of the company's and the economic entity's financial position and
the results of its operations and its cash flows.
The audit opinion expressed in this report has been formed on the above
basis.
AUDIT OPINION
In our opinion, the financial statements of Morgan & Banks Limited are
properly drawn up:
(a) so as to give a true and fair view of the state of affairs as at
31 December 1998 and 31 March 1998, the profit for the financial years
ended on 31 December 1998, 31 March 1998 and 31 March 1997 and the cash
flows for the nine month period ended 31 December 1998, and the years
ended 31 March 1998 and 31 March 1997, of the company and the economic
entity;
(b) in accordance with applicable Australian Accounting Standards and other
mandatory professional reporting requirements.
<TABLE>
<S> <C>
/s/ PANNELL KERR FORSTER /s/ A.P. WHITING
- ------------------------ ------------------------
Pannell Kerr Forster A.P. Whiting
Chartered Accountants PARTNER
New South Wales Partnership
SYDNEY, 15 APRIL 1999
</TABLE>
F-17
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To LAI Worldwide, Inc:
We have audited the consolidated balance sheets of LAI Worldwide, Inc. (a
Florida corporation) and subsidiaries as of February 28, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity,
comprehensive income and cash flows for each of the three years in the period
ended February 28, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LAI Worldwide, Inc. and
subsidiaries as of February 28, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
February 28, 1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Tampa, Florida
April 7, 1999
F-18
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 73,500 $ 56,316
Accounts receivable, net.................................. 350,091 350,848
Work-in-process........................................... 18,569 15,903
Prepaid and other......................................... 32,922 21,077
-------- --------
Total current assets.................................... 475,082 444,144
Property and equipment, net................................. 73,752 61,078
Deferred income taxes....................................... 11,618 8,901
Intangibles, net............................................ 222,866 192,339
Other assets................................................ 19,217 14,604
-------- --------
$802,535 $721,066
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $271,664 $243,079
Accrued expenses and other current liabilities............ 106,906 120,080
Accrued restructuring costs............................... 16,747 16,801
Deferred commissions & fees............................... 15,650 8,491
Deferred income taxes..................................... 4,241 8,850
Current portion of long-term debt......................... 16,235 16,977
-------- --------
Total current liabilities............................... 431,443 414,278
Long-term debt, less current portion........................ 123,106 130,011
Other liabilities........................................... 18,727 9,901
-------- --------
Total liabilities....................................... 573,276 554,190
-------- --------
Minority interests.......................................... 509 431
-------- --------
Stockholders' equity:
Preferred stock, $.001 par value, authorized 800,000
shares; issued and outstanding: none.................... -- --
Common stock, $.001 par value, authorized 200,000,000
shares; issued and outstanding: 36,592,847 and
24,678,113 shares, respectively......................... 37 25
Class B common stock, $.001 par value, authorized
39,000,000 shares; issued and outstanding: 2,381,000 and
13,587,541 shares, respectively......................... 2 14
Additional paid-in capital................................ 262,399 200,141
Other comprehensive loss.................................. (3,074) (1,165)
Unamortized stock-based compensation...................... (2,732) --
Deficit................................................... (27,882) (32,570)
-------- --------
Total stockholders' equity.............................. 228,750 166,445
-------- --------
$802,535 $721,066
======== ========
</TABLE>
See accompanying notes to supplemental consolidated financial statements
F-19
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Commissions & fees.......................................... $657,486 $541,828 $399,039
-------- -------- --------
Operating expenses:
Salaries and related costs................................ 382,689 310,168 232,249
Office and general........................................ 190,204 152,824 115,191
Merger & integration costs................................ 22,412 -- --
Restructuring charges..................................... 3,543 -- --
Amortization of intangibles............................... 10,185 6,866 4,732
Special compensation and CEO bonus........................ 1,250 1,500 52,019
-------- -------- --------
Total operating expenses................................ 610,283 471,358 404,191
-------- -------- --------
Operating income (loss)................................. 47,203 70,470 (5,152)
-------- -------- --------
Other income (expense):
Interest expense, net..................................... (9,828) (8,443) (14,358)
Other, net................................................ (2,042) 821 (370)
-------- -------- --------
(11,870) (7,622) (14,728)
-------- -------- --------
Income (loss) before provision for income taxes, minority
interests and equity in earnings (losses) of affiliates... 35,333 62,848 (19,880)
Provision for income taxes.................................. 14,367 20,565 11,058
-------- -------- --------
Income (loss) before minority interests and equity in
earnings (losses) of affiliates........................... 20,966 42,283 (30,938)
Minority interests.......................................... 28 296 1,017
Equity in earnings (losses) of affiliates................... (396) (33) 114
-------- -------- --------
Net income (loss)........................................... 20,542 41,954 (31,841)
Preferred stock dividend and redemption premium............. -- (123) (210)
-------- -------- --------
Net income (loss) applicable to common and Class B common
stockholders.............................................. $ 20,542 $ 41,831 $(32,051)
======== ======== ========
Net income (loss) per common and Class B common share:
Basic..................................................... $ 0.53 $ 1.15 $ (1.04)
======== ======== ========
Diluted................................................... $ 0.52 $ 1.13 $ (1.04)
======== ======== ========
Weighted average shares outstanding:
Basic..................................................... 38,736 36,333 30,954
======== ======== ========
Diluted................................................... 39,639 36,954 30,954
======== ======== ========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-20
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income (loss)........................................... $20,542 $41,954 $(31,841)
Foreign currency translation adjustment..................... (1,909) (4,055) (193)
------- ------- --------
Comprehensive income (loss)................................. $18,633 $37,899 $(32,034)
======= ======= ========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-21
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK, COMMON STOCK OTHER
$.001 PAR VALUE $.001 PAR VALUE ADDITIONAL COMPREHEN- UNAMORTIZED
--------------------- ---------------------- PAID-IN SIVE INCOME STOCK-BASED
SHARES AMOUNT SHARES AMOUNT CAPITAL (LOSS) COMPENSATION
---------- -------- ----------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995......... 15,719,591 $16 14,787,541 $15 $ 6,925 $ 3,083 --
Stock repurchase agreements........ -- -- -- -- 1,185 -- --
Issuance of common stock for
purchase of minority interests in
subsidiaries..................... 205,581 -- -- -- 1,727 -- --
Issuance of common stock as
compensation..................... 142,740 -- -- -- 20 -- --
Repurchase and cancellation of
common stock..................... (481,284) -- -- -- (2,160) -- --
Issuance of common stock........... 4,147,408 4 -- -- 50,779 -- --
Issuance of common stock in
connection with the exercise of
options.......................... 85,354 -- -- -- 347 -- --
Issuance of common stock in
connection with exercise of
warrant.......................... 228,768 -- -- -- 2,603 -- --
Foreign currency translation
adjustment....................... -- -- -- -- -- (193) --
Dividends on preferred stock....... -- -- -- -- -- -- --
Special compensation............... -- -- -- -- 50,175 -- --
Issuance of common stock in
connection with business
combinations..................... 58,892 -- -- -- 1,139 -- --
Shares issued in connection with a
pooled company formed in 1996.... 289,031 1 -- -- -- -- --
Dividends declared by pooled
companies........................ -- -- -- -- -- -- --
Net loss........................... -- -- -- -- -- -- --
---------- --- ----------- --- -------- ------- -------
Balance, December 31, 1996......... 20,396,081 21 14,787,541 15 112,740 2,890 --
Issuance of common stock in
connection with the exercise of
options.......................... 104,621 -- -- -- 659 -- --
Tax benefit of stock options
exercised........................ -- -- -- -- 175 -- --
Capital contribution from Principal
Stockholder re: CEO bonus and
other............................ -- -- -- -- 1,775 -- --
Issuance of common stock in
connection with business
combinations..................... 135,028 -- -- -- 3,136 -- --
Issuance of common stock for
purchase of an equity interest in
a subsidiary..................... 61,848 -- -- -- 1,000 -- --
Conversion of Class B shares to
shares of common stock........... 1,200,000 1 (1,200,000) (1) -- -- --
Issuance of common stock........... 2,400,000 3 -- -- 51,166 -- --
Issuance of common stock for
matching contribution to 401(k)
plan............................. 43,548 -- -- -- 555 -- --
Initial public offering of pooled
entity........................... 303,830 -- -- -- 24,628 -- --
Other issuance of common stock of
pooled entity.................... 33,157 -- -- -- 4,307 -- --
Foreign currency translation
adjustment....................... -- -- -- -- -- (4,055) --
Dividend and redemption premium on
preferred stock.................. -- -- -- -- -- -- --
Dividends declared by pooled
companies........................ -- -- -- -- -- -- --
Net income......................... -- -- -- -- -- -- --
---------- --- ----------- --- -------- ------- -------
Balance, December 31, 1997......... 24,678,113 $25 13,587,541 $14 $200,141 $(1,165) --
========== === =========== === ======== ======= =======
<CAPTION>
TOTAL
STOCKHOLDERS
EQUITY
DEFICIT (DEFICIT)
-------- ------------
<S> <C> <C>
Balance, December 31, 1995......... $ (3,986) $ 6,053
Stock repurchase agreements........ -- 1,185
Issuance of common stock for
purchase of minority interests in
subsidiaries..................... -- 1,727
Issuance of common stock as
compensation..................... -- 20
Repurchase and cancellation of
common stock..................... -- (2,160)
Issuance of common stock........... -- 50,783
Issuance of common stock in
connection with the exercise of
options.......................... -- 347
Issuance of common stock in
connection with exercise of
warrant.......................... -- 2,603
Foreign currency translation
adjustment....................... -- (193)
Dividends on preferred stock....... (210) (210)
Special compensation............... -- 50,175
Issuance of common stock in
connection with business
combinations..................... -- 1,139
Shares issued in connection with a
pooled company formed in 1996.... -- 1
Dividends declared by pooled
companies........................ (14,371) (14,371)
Net loss........................... (31,841) (31,841)
-------- --------
Balance, December 31, 1996......... (50,408) 65,258
Issuance of common stock in
connection with the exercise of
options.......................... -- 659
Tax benefit of stock options
exercised........................ -- 175
Capital contribution from Principal
Stockholder re: CEO bonus and
other............................ -- 1,775
Issuance of common stock in
connection with business
combinations..................... -- 3,136
Issuance of common stock for
purchase of an equity interest in
a subsidiary..................... -- 1,000
Conversion of Class B shares to
shares of common stock........... -- --
Issuance of common stock........... -- 51,169
Issuance of common stock for
matching contribution to 401(k)
plan............................. -- 555
Initial public offering of pooled
entity........................... -- 24,628
Other issuance of common stock of
pooled entity.................... -- 4,307
Foreign currency translation
adjustment....................... -- (4,055)
Dividend and redemption premium on
preferred stock.................. (123) (123)
Dividends declared by pooled
companies........................ (23,993) (23,993)
Net income......................... 41,954 41,954
-------- --------
Balance, December 31, 1997......... $(32,570) $166,445
======== ========
</TABLE>
F-22
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK, COMMON STOCK OTHER
$.001 PAR VALUE $.001 PAR VALUE ADDITIONAL COMPREHEN- UNAMORTIZED
--------------------- ---------------------- PAID-IN SIVE INCOME STOCK-BASED
SHARES AMOUNT SHARES AMOUNT CAPITAL (LOSS) COMPENSATION
---------- -------- ----------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997......... 24,678,113 $25 13,587,541 $14 $200,141 $(1,165) --
Issuance of common stock in
connection with the exercise of
options.......................... 209,949 -- -- -- 1,494 -- --
Issuance of common stock in
connection with acquisitions..... 201,406 -- -- -- 5,546 -- --
Issuance of compensatory options... -- -- -- -- 295 -- --
Redemption of common stock......... (287,352) -- -- -- (668) -- --
Issuance of common stock for
matching contribution to 401(k)
plan............................. 27,273 -- -- -- 627 -- --
Conversion of Class B common shares
to common shares................. 11,206,541 12 (11,206,541) (12) -- -- --
Issuance of common stock for
employee stay bonuses............ 221,779 -- -- -- 8,312 -- --
Foreign currency translation
adjustment....................... -- -- -- -- -- (1,909) --
Capital contribution by Principal
Stockholder re: CEO bonus........ -- -- -- -- 1,250 -- --
Second public offering of common
stock by pooled entity........... 299,207 -- -- -- 41,365 -- --
Issuance of common stock for
stock-based compensation of
pooled entity.................... 35,931 -- -- -- 4,072 -- $(3,900)
Acquisition of treasury stock by
pooled entity.................... -- -- -- -- (442) -- 592
Tax benefit of stock options
exercised........................ -- -- -- -- 407 -- --
Amortization of stock-based
compensation of pooled entity.... -- -- -- -- -- -- 576
Net income......................... -- -- -- -- -- -- --
Earnings of companies pooled in
second quarter of 1999 included
in both December 31, 1997 and
1998 income statements........... -- -- -- -- -- -- --
Pooled company's earnings from
August 1, 1997 to December 31,
1997 excluded from 1997 statement
of operations.................... -- -- -- -- -- -- --
Dividends declared by pooled
companies........................ -- -- -- -- -- -- --
---------- --- ----------- --- -------- ------- -------
Balance, December 31, 1998......... 36,592,847 $37 2,381,000 $ 2 $262,399 $(3,074) $(2,732)
========== === =========== === ======== ======= =======
<CAPTION>
TOTAL
STOCKHOLDERS
EQUITY
DEFICIT (DEFICIT)
-------- ------------
<S> <C> <C>
Balance, December 31, 1997......... $(32,570) $166,445
Issuance of common stock in
connection with the exercise of
options.......................... -- 1,494
Issuance of common stock in
connection with acquisitions..... -- 5,546
Issuance of compensatory options... -- 295
Redemption of common stock......... -- (668)
Issuance of common stock for
matching contribution to 401(k)
plan............................. -- 627
Conversion of Class B common shares
to common shares................. -- --
Issuance of common stock for
employee stay bonuses............ -- 8,312
Foreign currency translation
adjustment....................... -- (1,909)
Capital contribution by Principal
Stockholder re: CEO bonus........ -- 1,250
Second public offering of common
stock by pooled entity........... -- 41,365
Issuance of common stock for
stock-based compensation of
pooled entity.................... -- 172
Acquisition of treasury stock by
pooled entity.................... -- 150
Tax benefit of stock options
exercised........................ -- 407
Amortization of stock-based
compensation of pooled entity.... -- 576
Net income......................... 20,542 20,542
Earnings of companies pooled in
second quarter of 1999 included
in both December 31, 1997 and
1998 income statements........... (3,182) (3,182)
Pooled company's earnings from
August 1, 1997 to December 31,
1997 excluded from 1997 statement
of operations.................... 873 873
Dividends declared by pooled
companies........................ (13,545) (13,545)
-------- --------
Balance, December 31, 1998......... $(27,882) $228,750
======== ========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-23
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $ 20,542 $ 41,954 $ (31,841)
----------- --------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization of property and equipment... 19,802 14,592 9,448
Amortization of intangibles............................... 10,185 6,866 4,732
Amortization of deferred compensation in connection with
employee stay bonuses................................... 4,351 -- --
Provision for doubtful accounts........................... 6,139 4,047 3,337
Write-off of fixed assets by pooled company............... 2,907 -- --
Common stock issued for matching contribution to 401(k)
plan and employee stay bonuses.......................... 8,939 606 --
Special compensation...................................... -- -- 52,019
Interest expense for shares issued upon exercise of
warrant................................................. -- -- 2,603
Provision for deferred income taxes....................... (1,709) 6,243 3,228
CEO bonus and indemnity payment........................... 1,250 1,775 --
Minority interests........................................ 28 296 1,017
Other..................................................... 222 (594) 822
Effect of pooled companies' earnings included in both
December 31, 1998 and 1997.............................. (3,182) -- --
Effect of pooled company excluded from the periods
presented............................................... 873 -- --
Changes in assets and liabilities, net of effects from
purchases of businesses:
Increase in accounts receivable, net...................... (16,099) (23,381) (20,525)
Increase in work-in-process, prepaid and other............ (14,318) (3,666) (2,532)
Increase in deferred revenue.............................. 7,159 3,925 3,649
Increase in accounts payable, accrued expenses and other
current liabilities..................................... 16,528 (1,412) 11,140
----------- --------- ---------
Total adjustments....................................... 43,075 9,297 68,938
Net cash provided by operating activities............... 63,617 51,251 37,097
----------- --------- ---------
Cash flows from investing activities:
Payments pursuant to notes and advances to Principal
Stockholder............................................... -- (3,064) (12,878)
Repayments from Principal Stockholder....................... -- 14,477 7,994
Capital expenditures........................................ (31,934) (31,574) (15,372)
Payments for purchases of businesses, net of cash
acquired.................................................. (32,845) (66,901) (31,302)
Purchases of short term investments......................... (38,271) -- --
Sales of short term investments............................. 39,047 -- --
Investment in life insurance................................ (1,968) (2,109) (1,048)
Proceeds from sale of assets................................ 659 78 6,215
Advances by pooled entities to officers and affiliates...... (1,207) (955) (10)
Proceeds from life insurance................................ -- 322 --
----------- --------- ---------
Net cash used in investing activities................... (66,519) (89,726) (46,401)
----------- --------- ---------
Cash flows from financing activities:
Payments on capitalized leases.............................. (3,355) (3,051) (2,435)
Borrowings under line of credit and proceeds from issuance
of long-term debt......................................... 1,052,097 724,268 496,459
Repayments under line of credit and principal payments on
long-term debt............................................ (1,055,439) (705,172) (516,042)
Distribution to minority interests.......................... -- -- (457)
Net proceeds from stock issuance............................ 41,563 76,900 51,985
Cash received from the exercise of stock options............ 1,494 846 344
Repurchase of common stock.................................. -- (77) (348)
Redemptions of minority interest and preferred stock
(including premiums)...................................... -- (5,238) (2,160)
Dividends on preferred stock................................ -- (123) (210)
Dividends paid by pooled companies.......................... (16,267) (22,829) (13,768)
----------- --------- ---------
Net cash provided by financing activities............... 20,093 65,524 13,368
----------- --------- ---------
Effect of exchange rate changes on cash..................... (7) (298) (151)
----------- --------- ---------
Net increase in cash and cash equivalents................... 17,184 26,751 3,913
Cash and cash equivalents, beginning of year................ 56,316 29,565 25,652
----------- --------- ---------
Cash and cash equivalents, end of year...................... $ 73,500 $ 56,316 $ 29,565
=========== ========= =========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-24
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION
TMP Worldwide Inc. ("TMP" or the "Company") is the successor to businesses
formerly conducted by TMP Worldwide Inc. and subsidiaries ("Old TMP"), Worldwide
Classified Inc. and subsidiaries ("WCI"), McKelvey Enterprises, Inc. and
subsidiaries ("MEI") and certain other entities under the control of Andrew J.
McKelvey (the "Principal Stockholder"). Immediately prior to the reorganization,
the Principal Stockholder owned 100% of the common stock of MEI (which owned
approximately 86% of the common stock of Old TMP) and approximately 33% of the
common stock of WCI. In addition to his approximately 33% ownership of WCI, the
Principal Stockholder had voting proxy on the remaining outstanding shares of
WCI.
WCI was organized in 1993 to sell recruitment advertising. On December 9,
1996, Old TMP, which sells yellow page advertising, merged into MEI. Thereafter,
WCI merged into MEI, MEI then merged into Telephone Marketing Programs
Incorporated and MEI acquired the outstanding minority interest of a subsidiary
(the "1996 Mergers"). Concurrent with the Mergers, Telephone Marketing Programs
Incorporated changed its name to TMP Worldwide Inc.
Due to the control of these companies by the Principal Stockholder, the
companies have been consolidated on a retroactive basis in a manner similar to a
pooling of interests, the interests previously owned by the Principal
Stockholder are carried at predecessor basis, and in December 1996 (i) goodwill
in the amount of approximately $1.6 million was recorded for the issuance of
271,278 shares of common stock of the Company to Old TMP stockholders who had
been previously issued shares of Old TMP in exchange for their minority
interests in certain operating subsidiaries in which they were original owners
and, accordingly, were considered to have made a substantive investment, and is
based on an initial public offering price of $14.00 per share, less
approximately $2.2 million previously recorded on the issuance of these shares,
and (ii) special compensation in the amount of approximately $52.0 million was
recorded for the issuance of 3,584,790 shares of common stock of the Company to
Old TMP, WCI and the MEI subsidiary stockholders in exchange for their shares in
those companies which they had received for nominal or no consideration, as
employees or as management of businesses financed substantially by the Principal
Stockholder and, accordingly, were not considered to have made substantive
investments for their minority shares, and is based on an initial public
offering price of $14.00 per share. The minority stockholders of Old TMP had
received compensation in lieu of their share of earnings of Old TMP in exchange
for waiving their rights to such earnings, and WCI and the MEI subsidiary had
cumulative losses. Accordingly, no amounts were attributable to these minority
interests in the accompanying consolidated financial statements.
In addition, in 1996, the Principal Stockholder sold or contributed to the
Company his majority interests, and in one case a 49% interest, in five
companies primarily engaged in yellow page and Internet-based advertising. Due
to the element of common control of these companies, all of these transactions
have been accounted for in a manner similar to a pooling of interests and each
of the five companies has been included in the accompanying consolidated
financial statements from their respective dates of acquisition by the Principal
Stockholder.
For the period April 1, 1998 through September 30, 1999, the Company
completed 18 mergers which were accounted for as poolings of interests. The
seven that the Company completed prior to April 1, 1999 are Johnson, Smith &
Knisely Inc. ("JSK"), TASA Holding AG ("TASA"), Stackig, Inc. ("Stackig"),
Recruitment Solutions Inc., Sunquest L.L.C. d.b.a. The SMART Group and The
Consulting Group (International) Limited ("TCG"), in 1998 (the "1998 Mergers");
and Morgan & Banks Limited ("M&B")
F-25
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
in January 1999: (the "M&B Merger"). In connection with these mergers, the
Company issued 8,789,455 shares of our common stock in exchange for all of the
outstanding common stock of these seven companies. From April 1, 1999 to
June 30, 1999:, the Company completed pooling of interests mergers (the "Second
Quarter 1999 Mergers") with six companies Interquest, Pty. Limited
("Interquest"), LIDA Advertising Inc. ("LIDA"), Maes & Lunau ("M&L"), IN2, Inc.
("IN2"), Lemming & LeVan, Inc. ("L&L"), and Yellow Pages Unlimited, Inc.
("YPU"), (the "Second Quarter 1999 Pooled Companies") (the "Second Quarter 1999
Mergers"). In connection with the Second Quarter 1999 Mergers the Company issued
a total of 900,240 shares of TMP common stock in exchange for all of the
outstanding stock of the Second Quarter 1999 Pooled Companies. In addition, from
July 1, 1999 through September 30, 1999, the Company completed pooling of
interests mergers (the "Third Quarter 1999 Mergers") with the five companies,
Cameron-Newell Advertising, Inc. ("CNA"), Brook Street Bureau (QLD) Pty Ltd,
("Brook St."), LAI Worldwide, Inc. ("LAI"), Fox Advertising Inc. ("Fox") and
Lampen Group Limited ("Lampen") ("the Third Quarter 1999 Pooled Companies"). In
connection with the Third Quarter 1999 Mergers the Company issued a total of
2,153,457 shares of TMP common stock in exchange for all of the outstanding
stock of the Third Quarter 1999 Pooled Companies.
Furthermore, from October 1, 1999 through November 19, 1999, the Company
completed mergers with the two companies listed below (the "Fourth Quarter 1999
Pooled Companies"), which provided for the exchange of all of the outstanding
stock of such companies for a total of 758,613 shares of TMP common stock and
which were accounted for as poolings of interests (the "Fourth Quarter 1999
Mergers").
<TABLE>
<CAPTION>
NATURE OF REGION OF NUMBER OF TMP
ENTITY OPERATIONS OPERATIONS ACQUISITION DATE SHARES ISSUED
- ------ ------------------ ------------------ ---------------- -------------
<S> <C> <C> <C> <C>
Highland Search Group October 21,
L.L.C. ("Highland") Search & selection North America 1999............ 699,333
TMC S.r.l. ("Amrop
Italy")............. Search & selection Continental Europe October 27, 1999 59,280
</TABLE>
The consolidated financial statements of the Company reflect the effect of
the 1996 Mergers, the 1998 Mergers, the M & B Merger, the Second Quarter 1999
Mergers and the Third Quarter 1999 Mergers, because such mergers have been
accounted for as poolings of interests (see Note 5). Accordingly, the
supplemental consolidated financial statements in the Company's Current Report
on Form 8-K filed on September 30, 1999, which reflect the consummation of the
M & B Merger and the Second 1999 Mergers and the Third Quarter 1999 Mergers, are
hereby being retroactively restated to reflect the Fourth Quarter 1999 Mergers.
As a result, the financial position, results of operations, and statements of
comprehensive income (loss) and cash flows included herein are presented as if
the combining companies had been consolidated for all periods presented and the
supplemental consolidated statements of stockholders' equity reflect the
accounts of TMP as if the additional common stock issued in connection with the
Fourth Quarter 1999 Mergers had been issued for all periods presented. As
required by generally accepted accounting principles, these supplemental
consolidated financial statements will become the historical financial
statements of the Company upon issuance of the financial statements for the
period that includes the date of the Fourth Quarter 1999 Mergers. In the
supplemental consolidated balance sheets, the balance sheets of TMP as of
December 31, 1998 and 1997 have been combined with those of the Fourth Quarter
1999 Pooled Companies as of December 31, 1998 and 1997. The supplemental
consolidated
F-26
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
statements of operations combine the results of TMP for each year in the three
year period December 31, 1998 with those of the Fourth Quarter Pooled Companies
for the same periods.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The supplemental consolidated financial statements include the accounts of
the Company and all of its wholly-owned and majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Investments in unconsolidated affiliates are accounted for using
the equity method when the Company owns at least 20% but no more than 50% of
such affiliates. Under the equity method, the Company records its proportionate
share of profits and losses based on its percentage interest in earnings of
companies 50% or less owned.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of commissions & fees 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.................................. 5-32
Furniture and equipment..................................... 3-10
Transportation equipment.................................... 3-18
</TABLE>
Leasehold improvements are amortized over their estimated useful lives or
the lives of the related leases, whichever is shorter.
INTANGIBLE ASSETS
Intangible assets 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.
F-27
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In connection with its office closings in London, England and Hong Kong, for the
year ended 1998 LAI wrote off $2,907 of fixed assets. No other impairment losses
have been incurred through December 31, 1998.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The financial position and results of operations of the Company's foreign
subsidiaries are determined using local currency as the functional currency.
Assets and liabilities of these subsidiaries are translated at the exchange rate
in effect at each year-end. Income statement accounts are translated at the
average rate of exchange prevailing during the year. Translation adjustments
arising from the use of differing exchange rates from period to period are
included in the other comprehensive loss account in stockholders' equity. Gains
and losses resulting from foreign currency transactions are included in other
income (expense).
COMMISSIONS & FEES RECOGNITION AND WORK-IN-PROCESS
A significant portion of the Company's commissions & fees are derived from
commissions for advertisements placed in telephone directories, newspapers and
other media, plus associated fees for related services. In addition, the Company
earns fees for the placement of advertisements on the Internet, including its
career websites. Commissions & fees are generally recognized upon placement date
for newspapers and other media and on publication close date for yellow page
advertisements. The Company also earns fees for executive and mid-level
search & selection services. Commissions & fees are recognized as clients are
billed. Billings begin with the client's acceptance of a contract. For search, a
retainer equal to 33 1/3% of a candidate's first year estimated annual cash
compensation is billed in equal installments over three consecutive months (at
which time, in general, the retainer has been substantially earned). A final
invoice is issued in the event that the candidate's actual compensation package
exceeds the original estimate. For selection, a fee equal to between 20% and 30%
of a candidate's first year estimated annual cash compensation is billed in
equal installments over three consecutive months (the average length of time
needed to successfully complete an assignment). Temporary contracting
commissions & fees are recorded when earned.
The amounts charged to clients for Temporary Contracting services are now
reported after deducting the costs of the temporary contractors. The details for
such amounts are (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Temporary Contracting Revenue............................... $258,393 $227,627 $163,337
Temporary Contracting Costs................................. 211,404 186,342 134,127
-------- -------- --------
Temporary Contracting Billings/Commissions & fees........... $ 46,989 $ 41,285 $ 29,210
======== ======== ========
</TABLE>
The Company's quarterly commissions & fees are affected by the cyclical
nature of its operating segments. The timing of yellow page directory closings
is currently concentrated in the third quarter. However, yellow page publishers
may change the timing of directory publications which may have an effect on the
Company's quarterly results. The Company's yellow page advertising results are
also affected by commissions earned for volume placements for the year, which
are typically reported in the fourth quarter. Amounts reported in the three
months ended December 31, 1998, 1997 and 1996 for commissions on
F-28
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
volume placements were $0.9 million, $2.2 million and $3.5 million,
respectively. The Company's quarterly commissions & fees for recruitment
advertising are typically highest in the first quarter and lowest in the fourth
quarter; however, the cyclicality in the economy and the Company's clients'
employment needs have an overriding impact on the Company's quarterly results in
recruitment advertising.
Direct operating costs incurred that relate to future commissions & fees,
principally for yellow page advertisements, are deferred (recorded as
work-in-process in the accompanying consolidated balance sheets) and are
subsequently charged to expense when the directories are closed for publication
and the related commission is recognized as income.
INCOME TAXES
The provision for income taxes is computed on the pretax income (loss) based
on the current tax law. Deferred income taxes are recognized for the tax
consequences in future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates.
NATURE OF BUSINESS AND CREDIT RISK
The Company operates in five business segments; yellow pages advertising,
recruitment advertising, Internet, search & selection and temporary contracting.
The Company earns commission income for selling and placing yellow page and
recruitment advertising to a large number of customers in many different
industries, fees for executive and mid-level search & selection services, fees
for advertisements placed on its Internet websites and commissions & fees in
connection with the providing of temporary contracting services. The Company
operates principally throughout North America, the United Kingdom, Continental
Europe and the Asia/Pacific Region.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which supersedes SFAS
No. 14, "Financial Reporting for Segments of a Business Enterprise." SFAS
No. 131 establishes standards for the way that public companies report
information about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosures
regarding products and services, geographic areas and major customers. SFAS
No. 131 defines operating segments as components of a company about which
separate financial information is available and that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance. SFAS No. 131 became effective for financial statements
for periods beginning after December 15, 1997. As required by SFAS No. 131, all
periods presented have been restated.
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable. The Company
performs continuing credit evaluations of its customers and does not require
collateral. For the most part, the Company has not experienced significant
losses related to receivables from individual customers or groups of customers
in any particular industry or geographic area.
F-29
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable and accounts payable approximate fair
value because of the immediate or short-term maturity of these financial
instruments.
The carrying amount reported for long-term debt approximates fair value
because, in general, the interest on the underlying instruments fluctuates with
market rates.
STOCK-BASED COMPENSATION
The Company accounts for its stock option awards under the intrinsic value
based method of accounting prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees." Under the intrinsic value
based method, compensation cost is the excess, if any, of the quoted market
price of the stock at grant date or other measurement date over the amount an
employee must pay to acquire the stock. The Company makes pro forma disclosures
of net income and earnings per share as if the fair value based method of
accounting had been applied as required by SFAS No. 123, "Accounting for
Stock-Based Compensation."
EARNINGS PER SHARE
During 1997, the FASB issued SFAS No. 128, "Earnings per Share," which
provides for the calculation of "basic" and "diluted" earnings per share. This
Statement is effective for financial statements issued for periods ending after
December 15, 1997. Basic earnings per share includes no dilution and is computed
by dividing income available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted earnings per share
reflect, in periods in which they have a dilutive effect, the effect of common
shares issuable upon exercise of stock options and warrants. As required by SFAS
No. 128 all periods presented have been restated.
A reconciliation of shares used in calculating basic and diluted earnings
per common and Class B common share follows (in thousands):
<TABLE>
<S> <C>
December 31, 1998:
Basic....................................................... 38,736
Effect of assumed exercise of stock options and other....... 903
------
Diluted..................................................... 39,639
======
December 31, 1997:
Basic....................................................... 36,333
Effect of assumed exercise of stock options................. 621
------
Diluted..................................................... 36,954
======
</TABLE>
F-30
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A reconciliation of shares used in calculating basic and diluted earnings per
common and Class B common share follows (in thousands): (continued)
<TABLE>
<S> <C>
December 31, 1996:
Basic....................................................... 30,954
Effect of assumed exercise of stock options................. *
------
Diluted..................................................... 30,954
======
</TABLE>
- ------------------------
- - Effect of diluted shares is anti-dilutive.
- -
STATEMENTS OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments and other short-term investments with an initial
maturity of three months or less to be cash equivalents.
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company adopted SFAS No. 130 in the first quarter of
1998. The only item of comprehensive income (loss) is foreign currency
translation adjustments.
POSTRETIREMENT BENEFITS
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits", which standardizes the
disclosure requirements for pensions and other postretirement benefits. The
adoption of SFAS No. 132 in 1998 did not have a material impact on the Company's
financial statement disclosures.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1. "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
is effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance over accounting for computer software developed
or obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. The Company does not expect the adoption
of this standard to have a material effect on its capitalization policy.
F-31
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities", which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company does not expect the adoption of this
statement to have a significant impact on the Company's results of operations,
financial position or cash flows.
NOTE 3--ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Trade................................................... $355,166 $350,266
Earned commissions(a)................................... 12,811 14,491
-------- --------
367,977 364,757
Less: Allowance for doubtful accounts................... 17,886 13,909
-------- --------
Accounts receivable, net................................ $350,091 $350,848
======== ========
</TABLE>
- ------------------------
(a) Earned commissions receivable represent commissions on advertisements that
have not been published, and relate to yellow page advertisements only. Upon
publication of the related yellow page directories, the earned commissions
plus the related advertising cost at December 31, 1998 and 1997 are recorded
as accounts receivable of $67,955 and $75,058, respectively, and the related
advertising costs are recorded as accounts payable of $55,144 and $60,567,
respectively.
NOTE 4--PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Buildings and improvements................................ $ 1,168 $ 1,048
Furniture and equipment................................... 107,435 87,684
Leasehold improvements.................................... 18,483 14,046
Transportation equipment.................................. 9,576 10,114
Computer equipment........................................ 4,470 2,931
------- -------
141,132 115,823
Less: Accumulated depreciation and amortization........... 67,380 54,745
------- -------
Property and equipment, net........................... $73,752 $61,078
======= =======
</TABLE>
F-32
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 4--PROPERTY AND EQUIPMENT, NET (CONTINUED)
Furniture and equipment includes equipment under capital leases at
December 31, 1998 and 1997 with a cost of $76,348 and $75,199, respectively, and
accumulated amortization of $65,111 and $46,733, respectively.
During 1997, the Company acquired certain transportation equipment and made
capital improvements thereto for a total of $6,800 and simultaneously entered
into a $7,800 financing agreement (see Note 9) to fund the purchase and provide
additional funds.
NOTE 5--BUSINESS ACQUISITIONS
ACQUISITIONS ACCOUNTED FOR USING THE POOLING OF INTERESTS METHOD
During the period of October 1, 1999 through November 19, 1999, the Company
completed the following mergers which provided for the exchange of all of the
outstanding stock of each entity for shares of TMP stock and are accounted for
as poolings of interests (See Note 1):
<TABLE>
<CAPTION>
NATURE OF NUMBER OF TMP
ENTITY OPERATIONS REGION OF OPERATIONS ACQUISITION DATE SHARES ISSUED
- ------ ------------------ -------------------- ---------------- -------------
<S> <C> <C> <C> <C>
Highland............. Search & selection North America October 21, 1999 699,333
Amrop Italy.......... Search & selection Continental Europe October 27, 1999 59,280
</TABLE>
Commissions & fees, net income (loss) applicable to common and Class B
common stockholders and net income (loss) per common and Class B common share of
the combining companies for the three years ending December 31, are as follows:
<TABLE>
<CAPTION>
COMMISSIONS & FEES 1998 1997 1996
- ------------------ -------- -------- --------
<S> <C> <C> <C>
TMP as previously reported on Form 8--K filed September 30,
1999...................................................... $637,516 $518,501 $384,057
Amrop Italy................................................. 3,031 3,946 2,730
Highland.................................................... 16,939 19,381 12,252
-------- -------- --------
TMP, as restated............................................ $657,486 $541,828 $399,039
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
NET INCOME (LOSS) APPLICABLE TO COMMON AND
CLASS B COMMON STOCKHOLDERS 1998 1997 1996
- ------------------------------------------------------------ -------- -------- --------
<S> <C> <C> <C>
TMP, as previously reported on Form 8--K filed September 30,
1999...................................................... $13,925 $30,482 $(38,333)
Amrop Italy................................................. -- 31 28
Highland.................................................... 6,617 11,318 6,254
------- ------- --------
TMP, as restated............................................ $20,542 $41,831 $(32,051)
======= ======= ========
</TABLE>
F-33
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS ACQUISITIONS (CONTINUED)
<TABLE>
<CAPTION>
NET INCOME (LOSS) PER COMMON AND CLASS B COMMON SHARE 1998 1997 1996
- ----------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
TMP s previously reported on Form 8--K filed September 30,
1999:
Basic..................................................... $0.37 $0.86 $(1.27)
Diluted................................................... $0.36 $0.84 $(1.27)
Restated:
Basic..................................................... $0.53 $1.15 ($1.04)
Diluted................................................... $0.52 $1.13 ($1.04)
</TABLE>
MERGER & INTEGRATION COSTS INCURRED WITH POOLING OF INTERESTS TRANSACTIONS
In connection with the pooling of interests transactions completed during
1998 and the M&B Merger, (see Note 1), the Company expensed merger & integration
related costs of $22,412. The $22,412 of merger & integration costs for the year
ended December 31, 1998 consists of (1) $11,934 of non-cash employee stay
bonuses, which included (a) $3,622 for the amortization of $5,986, recorded as
prepaid compensation and a corresponding long-term liability, being expensed
over the eighteen months from April 1, 1998 to September 30, 1999 for TMP shares
set aside for key personnel of JSK and TCG who must remain employees of the
Company for a full year in order to earn such shares and (b) $8,312 for TMP
shares to key personnel of TASA and Stackig as employee stay bonuses and
(2) $1,461 of stay bonuses paid as cash to key personnel of the 1998 Pooled
Companies and (3) $9,017 of transaction related costs, including legal,
accounting and advisory fees and the costs incurred for the subsequent
registration of shares issued in the acquisitions.
ACQUISITIONS ACCOUNTED FOR USING THE PURCHASE METHOD
In addition to the pooling of interests transactions discussed above, the
Company has acquired 41 businesses (primarily recruitment advertising
businesses) between January 1, 1996 and December 31, 1998 including, on
August 26, 1997, all of the outstanding stock of Austin Knight Limited and
subsidiaries ("Austin Knight") for approximately $47,200 net of approximately
$11,500 of cash acquired relating to the sale, in July 1997, of real property by
Austin Knight and on July 2, 1996, all of the outstanding shares of Neville
Jeffress Australia Pty Limited ("Neville Jeffress"). Austin Knight had
commissions & fees of approximately $47,600 for the year ended September 30,
1996, and Neville Jeffress had commissions & fees of approximately $24,000 for
the year ended June 30, 1996. The total amount of cash paid and promissory notes
and Common Stock of the Company issued for these acquisitions was approximately
$30,668, $74,500 and $25,400 for 1998, 1997 and 1996, respectively. The shares
of Common Stock issued by the Company in connection with certain of the above
mentioned acquisitions were 200,753 and 135,028 for 1998 and 1997, respectively.
These acquisitions have been accounted for under the purchase method of
accounting and accordingly, operations of these businesses have been included in
the consolidated financial statements from their acquisition dates.
On February 27, 1998, LAI completed the acquisition of Ward Howell
International, Inc. ("WHI"). The purchase price was approximately $19,500
including $7,600 in notes payable and approximately $3,050 in LAI common stock.
The remaining $8,850 of the purchase consideration was payable to the former WHI
stockholders as of February 28, 1998 and is accrued for in the accompanying
balance sheets. The acquisition was accounted for as a purchase with goodwill
being recognized for the excess of the purchase amount over the fair market
value of the assets acquired.
F-34
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS ACQUISITIONS (CONTINUED)
On January 2, 1998, LAI acquired Chartwell Partners International, Inc.
("CPI"). The acquisition cost was approximately $3,100 and consisted of
approximately $1,400 in cash, a $1,250 convertible subordinated note payable and
$400 of LAI common stock. The acquisition was accounted for as a purchase with
goodwill being recognized for the excess of the purchase amount over the fair
value of the assets acquired. The convertible subordinated note is payable in
three equal installments, plus accrued interest and bears interest at 6.75%. The
subordinated note is convertible into shares of common stock at each anniversary
at prices specified in the asset purchase agreement.
The summarized unaudited pro forma results of operations set forth below for
the years ended December 31, 1998 and 1997 assume the acquisitions accounted for
under the purchase method in 1998 and 1997 occurred as of the beginning of the
year of acquisition and the beginning of the preceding year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Total commissions & fees.................................... $669,229 $635,223
Net income applicable to common and Class B common
stockholders.............................................. $ 20,172 $ 43,183
Net income per common and Class B common share:
Basic..................................................... $ 0.52 $ 1.18
Diluted................................................... $ 0.51 $ 1.16
</TABLE>
The unaudited pro forma results of operations are not necessarily indicative
of what actually would have occurred if the acquisitions had been completed at
the beginning of each of the years presented, nor are the results of operations
necessarily indicative of the results that will be attained in the future.
ACCRUED RESTRUCTURING COSTS
In connection with the acquisitions made in 1997 and accounted for using the
purchase method, the Company began to assess and formulate preliminary plans to
restructure the operations of the acquired companies. Such plans involved the
closure of certain offices of the acquired companies and the termination of
certain management and employees. The objective of the plans was to create a
single brand in the related markets in which the Company operates. The
preliminary plans were finalized in July 1998 and, accordingly intangible assets
were increased by $10,020. In addition, in 1998 LAI formulated plans to close
its London England and Hong Kong offices and, in connection with these office
closings, charged earnings for the year ended December 31, 1998 for $3,543.
These costs and liabilities include:
<TABLE>
<CAPTION>
BALANCE BALANCE
DECEMBER 31, 1997 ADDITIONS PAYMENTS DECEMBER 31, 1998
----------------- --------- -------- -----------------
<S> <C> <C> <C> <C>
Assumed obligations on leased facilities
to be closed............................ $ 7,830 $ 3,190 $ (1,430) $ 9,590
Consolidation of acquired facilities...... 2,521 5,720 (5,496) 2,745
Contracted lease payments exceeding
current market costs.................... 783 73 (149) 707
Severance, relocation and other employee
costs................................... 4,017 4,477 (6,542) 1,952
Pension obligations....................... 1,650 103 -- 1,753
------- ------- -------- -------
Total..................................... $16,801 $13,563 $(13,617) $16,747
======= ======= ======== =======
</TABLE>
F-35
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS ACQUISITIONS (CONTINUED)
Accrued liabilities for surplus property in the amount of $9,590 as of
December 31, 1998 relate to 20 leased office locations of the acquired companies
that were either unutilized prior to the acquisition date or will be closed by
March 31, 1999 in connection with the restructuring plans. The amount is based
on the present value of minimum future lease obligations, net of sublease
commissions & fees on existing subleases.
Other costs associated with the closure of existing offices of acquired
companies in the amount of $2,745 as of December 31, 1998 relate to termination
costs of contracts relating to billing systems, external reporting systems and
other contractual arrangements with third parties.
Above market lease costs in the amount of $707 as of December 31, 1998
relate to the present value of contractual lease payments in excess of current
market lease rates.
Estimated severance payments, employee relocation expenses and other
employee costs in the amount of $1,952 as of December 31, 1998 relate to
estimated severance for terminated employees at closed locations, costs
associated with employees transferred to continuing offices and other related
costs. Employee groups affected include sales, service, administrative and
management personnel at duplicate locations, as well as duplicate corporate
headquarters management and administrative personnel. As of December 31, 1998
the accrual related to approximately 50 employees including senior management,
sales, service and administrative personnel.
Pension obligations in the amount of $1,753 were assumed in connection with
the acquisition of Austin Knight.
During the year ended December 31, 1998, payments of $6,542 were made to 50
members of senior management and employees for severance and charged against the
reserve.
In connection with the finalization of the restructuring plans, the Company
recorded additional charges of $10,020 as additional costs of the acquired
companies and $3,543 as restructuring costs expensed in the supplemental
consolidated statement of operations during the year ended December 31, 1998.
The Company continues to evaluate and assess the impact of duplicate
responsibilities and office locations. Additional future costs incurred,
resulting from revised plan actions occurring after December 31, 1998, in excess
of the amounts previously recorded as goodwill will be charged to operations in
the period in which they occur.
F-36
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 6--INTANGIBLES, NET
Intangibles, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, AMORTIZATION
------------------- PERIOD
1998 1997 (YEARS)
-------- -------- ------------
<S> <C> <C> <C>
Client lists, net of accumulated
amortization of $5,709 and $4,662,
respectively.............................. $ 9,981 $ 10,145 5 to 30
Covenants not to compete, net of accumulated
amortization of $2,551 and $2,056,
respectively.............................. 2,080 2,218 3 to 6
Excess of cost of investments over fair
value of net assets acquired, net of
accumulated amortization of $19,990 and
$11,668, respectively..................... 210,464 179,179 10 to 30
Other, net of accumulated amortization of
$1,931 and $2,103, respectively........... 341 797 4 to 10
-------- --------
$222,866 $192,339
======== ========
</TABLE>
NOTE 7--SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes amounted to the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Interest......................................... $11,642 $13,739 $11,932
Income taxes..................................... 14,671 14,902 10,184
</TABLE>
In conjunction with business acquisitions, the Company used cash as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Fair value of assets acquired, excluding cash... $46,033 $129,126 $60,991
Less: Liabilities assumed and created upon
acquisition................................... 13,188 62,225 29,689
------- -------- -------
Net cash paid................................... $32,845 $ 66,901 $31,302
======= ======== =======
Capital lease obligations incurred.............. $ 217 $ 5,874 $ 4,873
======= ======== =======
</TABLE>
NOTE 8--FINANCING AGREEMENTS
The Company obtains its primary financing from a financial institution under
a five year financing agreement as amended and restated on June 27, 1996,
further amended on November 14, 1997, and amended and restated again on
November 5, 1998 (the "Agreement"). Subsequent to the five year term, which
expires on November 4, 2003, the Agreement provides for one year extensions
subject to bank approval unless terminated by either party at least 90 days
prior to expiration of the initial term or any
F-37
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 8--FINANCING AGREEMENTS (CONTINUED)
renewal term. The Agreement, as amended, provides for borrowings of up to
$175,000 at the higher of (a) prime rate or, (b) Federal Funds rate less
1/2 of 1% or, (c) LIBOR plus a margin determined by the ratio of the Company's
debt to earnings before interest, taxes, depreciation and amortization (EBITDA)
as defined on the Agreement. At December 31, 1998 the margin equaled .875%.
Borrowings under the Agreement are based on 90% of eligible accounts receivable,
which are amounts billed under 120 days old and amounts to be billed as defined
in the Agreement. Substantially all of the assets of the Company are pledged as
collateral for borrowings under the Agreement. The Agreement contains certain
covenants which restrict, among other things, the ability of the Company to
borrow, pay dividends, acquire businesses, guarantee debts of others and lend
funds to affiliated companies and contains criteria on the maintenance of
certain financial statement amounts and ratios, all as defined in the Agreement.
The Agreement also provides for a fee on any unused portion of the commitment
based upon a rate determined by the ratio of the Company's debt to EBITDA. At
December 31, 1998, this rate equaled .25%. In addition, the Agreement provides
for a declining termination fee of $1,000, $500, $0 for the annual periods ended
November 5, 1999, 2000, and 2001, respectively.
In October 1993, the Company issued a warrant to the lender to purchase one
percent of the issued and outstanding common stock of the Company (as defined in
the agreement) for an exercise price of $.01 per share. The warrant was
independently appraised at $600, which amount was being amortized over the
remaining term of the original financing agreement of 30 months from
October 1993 until December 1996, when the warrant was exercised. At that time,
the unamortized balance was expensed. In addition, in December 1996, upon the
exercise of such warrant there was an additional interest charge of $2,603 to
reflect the difference between the value of the stock issued (228,768 shares) at
the initial public offering price of $14.00 per share and the original amount
recorded.
At December 31, 1998, the prime rate, Federal funds rate and one month LIBOR
were 7.75%, 5.75% and 5.06% respectively, and borrowings outstanding were at a
weighted average interest rate of 6.56%.
LAI maintained a line of credit which provided for maximum borrowings of
$25,000 bearing interest at various rates based on either a LIBOR index or the
bank's prime lending rate (7.75% at February 28, 1999) as determined at its
option. Interest is payable monthly and the principal balance is due upon
demand. The line of credit is collateralized by accounts receivable with
borrowings limited to 75% of qualifying receivables. Additionally, LAI is
required to comply with certain working capital and liquidity covenants. LAI is
in compliance with or has obtained waivers for the terms and covenants of its
debt agreements as of February 28, 1998 and 1999. No amounts were outstanding
under the line of credit as of February 28, 1998 and 1999. Effective with the
consummation of the merger with TMP, TMP cancelled this line of credit.
F-38
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 9--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Borrowings under financing agreement (see Note 8)........... $ 97,720 $ 95,800
Borrowings under other financing agreements, interest
payable at rates varying from 5.0% to 9.2%, and
collateralized by assets in certain foreign countries..... 8,251 10,184
Notes payable to former WHI stockholders dated February 27,
1998, payable in three equal annual installments plus
accrued interest bearing interest at 5.0%................. 4,892 7,552
Convertible subordinated promissory note issued by LAI in
connection with an acquisition, dated January 2, 1998,
payable in three equal annual installments plus accrued
interest, bearing interest at 6.75%, and convertible into
shares of common stock at each anniversary date at prices
specified in the asset purchase agreement................. 833 1,250
Other acquisition notes payable, noninterest bearing,
interest imputed at 6.7% to 8.0%, in varying installments
through 2001.............................................. 8,121 9,461
Capitalized lease obligations, payable with interest from 9%
to 15%, in varying installments through 2001 (see
Note 14).................................................. 9,156 7,623
Term note payable in sixty consecutive monthly installments
from July 1997 through June 2002, collateralized by
transportation equipment and with interest at 8.43% for
the first 36 months. Thereafter the interest rate will be
based on two year U.S. Treasury Notes..................... 7,557 7,760
Notes payable, in varying monthly installments maturing
through 2003, with interest at rates ranging from 6.5% to
9.5%...................................................... 2,811 7,358
-------- --------
139,341 146,988
Less: Current portion....................................... 16,235 16,977
-------- --------
$123,106 $130,011
======== ========
</TABLE>
Long-term debt matures as follows:
<TABLE>
<S> <C>
2000........................................................ $ 10,785
2001........................................................ 5,329
2002........................................................ 9,006
2003........................................................ 97,936*
Thereafter.................................................. 50
--------
$123,106
========
</TABLE>
- ------------------------
* Of this amount, $97,720 is subject to one year extensions after 2003. See
Note 8.
F-39
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 10--MINORITY INTERESTS
In connection with an acquisition in 1990, a subsidiary of the Company
issued 88,425 shares of nonvoting convertible 10% cumulative preferred stock in
exchange for 88,425 shares (58%) of the outstanding common stock of the acquired
company held by the acquired company's employee stock ownership trust. These
shares were redeemed in January 1997 for a total of $3,133, which included a
redemption premium of $133.
NOTE 11--REDEEMABLE PREFERRED STOCK
During 1991, the Company sold 200,000 shares of 10.5% non-voting cumulative
preferred stock ($10.00 par value) to the Company's profit sharing plan for
$2,000. These shares were redeemed in January 1997 for a total of $2,105, which
included a redemption premium of $105.
NOTE 12--STOCKHOLDERS' EQUITY
(A) COMMON AND CLASS B COMMON STOCK
Common and Class B common stock have identical rights except that each share
of Class B common stock is entitled to ten votes and is convertible, at any
time, at the option of the stockholder into one share of common stock.
LAI completed its initial public offering of common stock on July 1, 1997.
The proceeds of $24,700 net of underwriters' discounts and other offering costs,
were used to repay outstanding indebtedness under the Company's credit
facilities, finance business acquisitions and provide additional working
capital.
On June 9, 1998, LAI completed a second public offering of common stock,
which included shares offered by certain LAI stockholders. The proceeds to the
Company of approximately $41,400 net of underwriters' discounts and other
offering costs, were used to support the Company's international expansion
efforts, pursue strategic acquisitions, support continued enhancements to the
Company's technology-based infrastructure and provide additional working
capital.
(B) STOCK OPTIONS
The disclosures below include options issued by LAI and M&B, as if such
options were issued for the purchase of the Company's common stock, and are
based on the exchange ratios of the Company's common stock for LAI's and M&B's
common stock pursuant to the related merger agreements.
LAI had two employee stock option plans, the 1997 Omnibus Stock and
Incentive Plan (the "1997 Plan") and the 1998 Omnibus Stock and Incentive Plan
(the "1998 Plan"). Generally incentive stock options, nonqualified stock
options, restricted stock and restricted stock units granted by LAI will vest
each year beginning on the first anniversary of the date of grant at 20-25% per
year and will expire after ten years. In accordance with the terms of the grants
the options vested 100% upon the consummation of the merger with TMP. The
following table summarizes the status of options issued by LAI, as if such
options were issued for the purchase of TMP's common stock, and are based on the
exchange ratio of TMP's common stock for LAI's common stock pursuant to the
merger agreement between TMP and LAI as provided for in that agreement.
F-40
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
(B) STOCK OPTIONS (CONTINUED)
<TABLE>
<CAPTION>
NUMBER OUTSTANDING AS OF WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES DECEMBER 31, 1998 REMAINING CONTRACTUAL LIFE AMOUNT EXERCISABLE
------------------------ ------------------------ -------------------------- ------------------
<C> <C> <S> <C>
$ 42.62-$ 60.50................. 110,742 10 years 1,734
$ 64.35-$ 90.84................. 49,253 9 years 6,159
$135.35-$162.76................. 55,901 9 years 10,123
------- ------
215,896 18,016
======= ======
</TABLE>
On November 10, 1994 options to purchase, at an exercise price of $4.77 per
share, the market price on the date of grant, an aggregate of approximately
129,458 shares of common stock were granted to officers and employees of M&B. Of
this amount, options to purchase 30,719 shares were subsequently cancelled,
93,253 were exercised and 5,486 were vested and exercisable at December 31,
1998. Such options will expire five years from date of grant.
On April 21, 1995, options to purchase, at an exercise price of $4.46 per
share, the market price on the date of grant, 104,746 shares of common stock
were granted to officers and employees of M&B. Of this amount, options for
48,437 shares were subsequently cancelled, options for 41,818 shares were
exercised and options to purchase 14,491 shares were vested and exercisable at
December 31, 1998. Such options will expire five years from the date of grant.
In January 1996, the Company's Board of Directors (the "Board") adopted the
1996 Employee Stock Option Plan (the "Stock Option Plan"), which provides for
the issuance of both incentive stock options within the meaning of Section 422
of the Internal Commissions & fees Code of 1986, as amended (the "Code"), and
nonqualified stock options, to purchase an aggregate of up to 900,000 shares
(amended to 3,000,000 on April 27, 1998) of the common stock of the Company. The
Stock Option Plan permits the granting of options to officers, employees and
consultants of the Company, its subsidiaries and affiliates.
Under the Stock Option Plan, the exercise price of an incentive stock option
must be at least equal to 100% of the fair market value of the common stock on
the date of grant (110% of the fair market value in the case of options granted
to employees who hold more than ten percent of the voting power of the Company's
capital stock on the date of grant). The exercise price of a nonqualified stock
option must be not less than the par value of a share of the common stock on the
date of grant. The term of an incentive or nonqualified stock option is not to
exceed ten years (five years in the case of an incentive stock option granted to
a ten percent holder). The Stock Option Plan provides that the maximum option
grant which may be made to an executive officer in any calendar year is 45,000
shares (amended to 150,000 on June 25, 1997).
In December 1998, the Company also adopted, subject to stockholder approval,
a long-term incentive plan (the "1999 Plan"), pursuant to which stock options,
stock appreciation rights, restricted stock and other equity based awards may be
granted. Stock options which may be granted may be incentive stock options and
nonqualified stock options within the meaning of the Code. The total number of
shares of the common stock of the Company which may be granted under the 1999
Plan is the sum of 3,000,000 and the number of shares available for new awards
under the Stock Option Plan.
On January 3, 1996, options to purchase, at an exercise price equal to $6.65
per share, the fair market value of the common stock on the date of grant as
determined by the Board, an aggregate of 296,640
F-41
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
(B) STOCK OPTIONS (CONTINUED)
shares of common stock were granted to officers, employees and consultants of
the Company. Such options vest at the rate of 25% per year commencing one year
after the date of grant. As of December 31, 1998, 25,879 options were cancelled,
71,343 options were exercised and, of the outstanding options, 64,038 options
were exercisable and will expire ten years from the date of grant.
On August 19, 1996, options to purchase, at an exercise price of $10.37 per
share, the market price on the date of grant, 173,068 shares of common stock
were granted to officers and employees of M&B. Of this amount, options for
53,045 shares were subsequently cancelled. The remaining options to purchase
120,023 shares of common stock will vest three years from the date of grant and
will expire five years from the date of grant. At December 31, 1998, none of
these options were exercisable.
On January 6, 1997 options to purchase, at an exercise price of $12.88 per
share, the market price on the date of grant, an aggregate of approximately
1,203,782 shares of common stock were granted to officers and employees, of the
Company and options for 7,091 shares were subsequently cancelled. Of such
options, options for approximately 29,000 shares of common stock vest at the
rate of 25% per year beginning one year from the date of grant and the balance
of these options were vested at December 31, 1997. At December 31, 1998, 31,355
options were exercised and 7,157 were exercisable. The balance are exercisable
after January 5, 1999. Such options will expire ten years from date of grant.
On April 3, 1997, options to purchase, at an exercise price of $17.25 per
share, the market price on the date of grant, 8,400 shares of common stock were
granted to an officer of the Company. Such options were exercised during 1998.
On June 18, 1997, options to purchase, at an exercise price of $19.00 per
share, the market price on the date of grant, 28,256 shares of common stock were
granted to officers and employees of the Company. Options for 5,815 shares were
subsequently cancelled. Generally, such options were vested as of December 31,
1997, are exercisable after January 5, 1999, and will expire ten years from the
date of grant.
On June 24, 1997, options to purchase 50,000 shares of common stock, at an
exercise price of $21.50 per share, the market price on the date of grant, were
granted to MLE Consultants Inc, with 25,000 options exercisable one year from
the date of grant and 25,000 options exercisable eighteen months from the date
of grant. At December 31, 1998, 5,000 options were exercised and 45,000 were
exercisable. Such options will expire ten years from the date of grant.
On August 28, 1997, options to purchase, at an exercise price of $15.00 per
share, the market price on the date of grant, 35,000 shares of common stock were
granted to various Austin Knight officers and individuals. Such options TMP
generally vest at the rate of 25% per year commencing one year after the date of
grant and will expire ten years from the date of grant. At December 31, 1998,
8,750 options were exercisable.
On October 17, 1997 options to purchase, at an exercise price of $29.59 per
share, the market price on the date of grant, 116,293 shares of common stock
were granted to officers and employees of M&B and options for 17,554 shares were
subsequently cancelled. The remaining options to purchase 98,739 shares of
common stock will expire five years from the date of grant. At December 31,
1998, none of these options were exercisable.
F-42
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
(B) STOCK OPTIONS (CONTINUED)
On December 12, 1997, options to purchase, at an exercise price of $15.00
per share, the market price on the date of grant, an aggregate of 700,000 shares
of common stock were granted to officers and employees of the Company. Such
options vest at the rate of 25% per year commencing one year after the date of
grant and will expire ten years from the date of grant. At December 31, 1998,
175,491 options were cancelled, 6,000 options were exercised and 129,628 were
exercisable at December 31, 1998.
On May 1, 1998 options to purchase, at an exercise price of $24.00 per
share, the market price on the date of grant, 42,604 shares of common stock were
granted to officers and employees of M&B and options for 2,925 shares were
subsequently cancelled. The remaining options to purchase 39,678 shares will
expire five years from the date of grant. At December 31, 1998 none of these
options were exercisable.
On May 4, 1998, options to purchase at an exercise price of $25.50 per
share, the market price on the date of grant, 5,346 shares of common stock were
granted to two employees. Such options vest at the rate of 25% per year
commencing one year after the date of grant and will expire ten years from the
date of grant. At December 31, 1998, 3,846 options were cancelled and none of
the options were exercisable.
On May 19, 1998, options to purchase at an exercise price of $26.25 per
share, the market price on the date of grant, 5,370 shares of common stock were
granted to an employee of the Company. Such options vest at the rate of 25% per
year commencing one year after the date of grant and will expire ten years from
the date of grant. At December 31, 1998 none of the options were exercisable.
On May 20, 1998, options to purchase at an exercise price of $25.625 per
share, the market price on the date of grant, 104,755 shares of common stock
were granted to certain officers and employees of JSK. Such options vest at a
rate of 25% per year commencing one year after the date of grant and will expire
ten years from the date of grant. At December 31, 1998 none of these options
were exercisable.
On June 15, 1998, options to purchase at an exercise price of $26.13 per
share, the market price on the date of grant, an aggregate of approximately
2,100 shares of common stock were granted to an employee of the Company. Such
options vest at the rate of 25% per year commencing one year after the date of
grant and will expire ten years from the date of grant. At December 31, 1998
none of these options were exercisable.
On October 30, 1998, options to purchase at an exercise price of $30.00 per
share, the market price on the date of grant, an aggregate of approximately
184,000 shares of common stock to the officers and employees of the Company.
Such options vest at the rate of 25% per year commencing one year after the date
of grant and will expire ten years from the date of grant. At December 31, 1998,
none of these options were exercisable.
On November 5, 1998, options to purchase at an exercise price of $25.125 per
share, the market price on the date of grant, 100,000 shares of common stock to
the officers and employees of Stackig. Such options vest at the rate of 25% per
year commencing one year after the date of grant and will expire ten years from
the date of grant. At December 31, 1998, none of these options were exercisable.
On November 13, 1998, options to purchase at an exercise price of $23.75 per
share, the market price on the date of grant, 24,450 shares of common stock to
the officers and employees of the Company. Such
F-43
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
(B) STOCK OPTIONS (CONTINUED)
options vest at the rate of 25% per year commencing one year after the date of
grant and will expire ten years from the date of grant. At December 31, 1998,
none of these options were exercisable.
On December 9, 1998, options to purchase at an exercise price of $26.875 per
share, the market price on the date of grant, an aggregate of approximately
800,000 options of common stock to the officers and employees of the Company.
Such options vest at the rate of 25% per year commencing one year after the date
of grant and will expire ten years from the date of grant. At December 31, 1998,
none of these options were exercisable.
On December 11, 1998, options to purchase at an exercise price of $29.50 per
share, the closing market price on the date of grant, 50,000 shares of common
stock to the officers and employees of TASA Holding AG. Such options vest at the
rate of 25% per year commencing one year after the date of grant and will expire
ten years from the date of grant. At December 31, 1998, none of these options
were exercisable.
On December 28, 1998, options to purchase at an exercise price of $38.00 per
share, the market price on the date of grant, an aggregate of approximately
400,000 shares of common stock to the officers and employees of TASA. Such
options vest at the rate of 25% per year commencing one year after the date of
grant and will expire ten years from the date of grant. At December 31, 1998,
none of these options were exercisable. In January 1996, the Company also
adopted a stock option plan for non-employee directors (the "Directors' Plan"),
pursuant to which options to acquire a maximum aggregate of 180,000 shares of
common stock may be granted to non-employee directors. Options granted under the
Directors' Plan do not qualify as incentive stock options within the meaning of
Section 422 of the Code. The Directors' Plan provides for an automatic grant to
each of the Company's non- employee directors of an option to purchase 11,250
shares of common stock on the date of such director's initial election or
appointment to the Board. The options will have an exercise price of 100% of the
fair market value of the common stock on the date of grant, have a ten-year term
and become exercisable in accordance with a vesting schedule determined by the
Board of Directors.
Options to purchase 11,250 shares of common stock at a purchase price per
share equal to $6.65 per share, the fair market value of the common stock on the
date of grant, were granted on January 24, 1996 to one non-employee director.
Half of these options vested on the date of the grant and the balance vested
in two equal annual installments commencing one year after the date of grant. As
of December 31, 1998, all were exercised.
In September 1996, options to purchase an aggregate of 33,750 shares of
common stock were granted to three directors under this plan at an exercise
price per share equal to the initial public offering price per share, the fair
value on the date of grant. Vesting is on terms similar to that of the previous
director's grant. In December 1996, 11,250 of these options were cancelled and
options to purchase 125,000 shares of common stock were granted at an exercise
price of $14.00 (the initial public offering price). Of the total, 50,000 of
such options vested on the closing of the initial public offering. In
April 1997, in connection with this former director's resignation, the Company
agreed that an additional 12,500 of such stock options would vest on June 1,
1997 and the unvested options totaling, 62,500 were cancelled. As of
December 31,
F-44
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
(B) STOCK OPTIONS (CONTINUED)
1998, 42,880 options were exercised and 42,120 options are exercisable and will
expire ten years from the date of grant.
On October 7, 1997, a newly appointed director of the Company was granted
options to purchase 11,250 shares of common stock at $23.625 per share, the
market price on the date of grant. Half of these options vested on the date of
the grant and the balance vests in two equal annual installments commencing one
year after the date of grant. Such options will expire ten years from the date
of grant. At December 31, 1998, 8,438 options were exercisable.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related Interpretations in
accounting for its employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of SFAS
No. 123. The weighted average fair values of options granted during 1998, 1997
and 1996 were $11.72, $6.55 and $5.76, respectively. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions: risk-free interest rates
of approximately 4.6%, 6.5% and 6.1% in 1998, 1997 and 1996 respectively;
volatility factor of the expected market price of the Company's common stock of
24%, 27% and 25% in 1998, 1997 and 1996, respectively; a weighted average
expected life of the option of 9 years in 1998 and 8 years in both 1997 and 1996
and no dividend yield in 1998, 1997 and 1996.
Under the accounting provisions of SFAS No. 123, the Company's net income
(loss) and net income (loss) per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income (loss) applicable to common and Class B common
stockholders.............................................. $15,637 $39,532 $(32,395)
Net income (loss) per common and Class B common share
Basic..................................................... $ 0.40 $ 1.09 $ (1.05)
Diluted................................................... $ 0.39 $ 1.07 $ (1.05)
</TABLE>
F-45
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
(B) STOCK OPTIONS (CONTINUED)
A summary of the status of the Company's fixed stock option plans as of
December 31, 1998, 1997 and 1996, and changes during the years ending on those
dates is presented.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------- -------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.... 2,741,587 $19.50 781,003 $ 8.35 206,173 $ 4.64
Granted............................. 1,995,975 35.39 2,262,990 22.29 639,708 9.48
Exercised........................... (213,719) 8.05 (104,621) 8.65
Forfeited/cancelled................. (318,282) 71.22 (197,785) 12.96 (64,878) 7.72
--------- --------- -------
Outstanding at end of year.......... 4,205,561 $23.73 2,741,587 $13.31 781,003 $ 8.35
========= ========= =======
Options exercisable at year-end..... 343,124 $19.20 158,463 $ 8.44 66,875 $13.38
========= ========= =======
Weighted average fair value of
options granted during the year... $11.72 $ 6.55 $ 5.76
</TABLE>
F-46
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
(B) STOCK OPTIONS (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1998.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- -----------------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
EXERCISE PRICE DECEMBER 31, 1998 CONTRACTUAL LIFE (YEARS) EXERCISE PRICE DECEMBER 31, 1998 EXERCISE PRICES
- -------------- ----------------- ------------------------ -------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 4.46.............. 14,491 1.4 $ 4.46 14,491 $ 4.46
4.77.............. 5,485 0.9 4.77 5,486 4.77
6.65.............. 199,418 7.0 6.65 64,038 6.65
10.37.............. 120,022 1.7 10.37 -- --
12.88.............. 1,165,336 8.0 12.88 7,157 12.88
14.00.............. 42,120 7.9 14.00 42,120 14.00
15.00.............. 518,509 8.9 15.00 129,628 15.00
15.00.............. 35,000 8.8 15.00 8,750 15.00
19.00.............. 22,441 8.6 19.00 -- --
21.50.............. 45,000 7.0 21.50 45,000 21.50
23.63.............. 11,250 8.8 23.63 8,438 23.63
23.75.............. 24,450 9.9 23.75 -- --
24.00.............. 39,679 4.4 24.00 -- --
25.13.............. 100,000 9.8 25.13 -- --
25.50.............. 1,500 8.3 25.50 -- --
25.63.............. 104,755 8.5 25.63 -- --
26.13.............. 2,100 8.6 26.13 -- --
26.25.............. 5,370 8.5 26.25 -- --
26.88.............. 800,000 9.9 26.88 -- --
29.50.............. 50,000 9.9 29.50 -- --
29.59.............. 98,739 3.8 29.59 -- --
30.00.............. 184,000 9.8 30.00 -- --
38.00.............. 400,000 10.0 38.00 -- --
44.21.............. 1,982 9.6 44.21 -- 44.21
42.62.............. 27,081 9.6 42.62 -- 42.62
47.31.............. 8,719 9.6 47.31 -- 47.31
48.75.............. 1,585 9.6 48.75 -- 48.75
50.19.............. 6,605 9.6 50.19 -- 50.19
56.78.............. 6,192 9.6 56.78 1,734 56.78
60.56.............. 58,578 9.6 60.56 -- 60.56
64.35.............. 4,425 9.3 64.35 -- 64.35
67.68.............. 13,210 9.3 67.68 -- 67.68
75.70.............. 18,679 9.3 75.70 -- 75.70
90.84.............. 12,939 9.3 90.84 6,159 90.84
135.35.............. 3,302 9.0 135.35 826 135.35
138.15.............. 1,189 9.0 138.15 -- 138.15
148.07.............. 51,278 9.0 148.07 9,297 148.07
162.76.............. 132 9.0 162.76 -- 162.76
--------- -------
4,205,561 343,124 $ 19.20
========= =======
</TABLE>
F-47
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES
The components of income (loss) before the provision (benefit) for income
taxes, minority interests and equity in earnings (losses) of affiliates are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Domestic........................................ $ 6,583 $34,539 $(39,522)
Foreign......................................... 28,750 28,309 19,642
------- ------- --------
Total income (loss) before provision (benefit)
for income taxes, minority interests and
equity in earnings (losses) of affiliates..... $35,333 $62,848 $(19,880)
======= ======= ========
</TABLE>
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current tax provision:
U.S. Federal..................................... $ 1,124 $ 3,326 $ 545
State and local.................................. 1,607 2,823 1,390
Foreign.......................................... 13,345 8,173 5,895
------- ------- -------
Total current.................................. 16,076 14,322 7,830
------- ------- -------
Deferred tax provision (benefit):
U.S. Federal..................................... 2,379 2,053 1,620
State and local.................................. (684) 525 (377)
Foreign.......................................... (3,404) 3,665 1,985
------- ------- -------
Total deferred................................. (1,709) 6,243 3,228
------- ------- -------
Total provision................................ $14,367 $20,565 $11,058
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to the Company's
deferred tax asset (liability) are below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Current deferred tax assets (liabilities):
Earned commissions........................................ $(5,124) $(5,796)
Allowance for doubtful accounts........................... 6,630 4,904
Work-in-process........................................... (5,224) (6,222)
Prepaid and other......................................... (692) (241)
Accrued expenses and other liabilities.................... (122) (2,103)
Accrued compensation...................................... (418) (117)
Tax loss carryforwards.................................... 709 725
------- -------
Total current deferred tax liability.................. (4,241) (8,850)
------- -------
</TABLE>
F-48
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Noncurrent deferred tax assets (liabilities):
Property and equipment.................................... (2,146) (1,860)
Intangibles............................................... (541) (627)
Accrued expenses and other liabilities.................... 4,080 (2,584)
Accrued rent.............................................. 499 408
Deferred compensation..................................... 3,213 2,798
Tax loss carryforwards.................................... 8,405 12,985
Valuation allowance....................................... (1,892) (2,219)
------- -------
Total noncurrent deferred tax asset................... 11,618 8,901
------- -------
Net deferred tax asset.................................... $ 7,377 $ 51
======= =======
</TABLE>
At December 31, 1998, the Company had net operating loss carryforwards for
U.S. Federal tax purposes of approximately $18,000 which expire through 2018.
The Company has concluded that, based on expected future results and the future
reversals of existing taxable temporary differences, it is more likely than not
that the deferred tax assets will be realized. In addition, certain subsidiaries
have operating loss carryforwards which are only useable by such subsidiary.
Consequently, there is no reasonable assurance that the benefit of such loss
carryforward can be used. Accordingly, a valuation allowance has been
established.
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,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Provision (benefit) at Federal statutory rate.... $12,365 $21,160 $(6,668)
State income taxes, net of Federal income tax
effect......................................... 634 1,845 642
Nondeductible expenses(1)........................ 5,316 1,206 972
Nondeductible special charge and CEO bonus....... 438 510 18,574
Foreign income taxes at other than the Federal
statutory rate................................. (1,387) 721 (522)
Profits of pooled entities taxed directly to
owners......................................... (2,428) (4,146) (2,291)
Other............................................ (571) (731) 351
------- ------- -------
Income tax provision............................. $14,367 $20,565 $11,058
======= ======= =======
</TABLE>
- ------------------------
(1) Primarily due to expense for amortization of intangible assets and meals &
entertainment expenses, in addition, for 1998, nondeductible merger costs of
$6.9 million which at the Federal statutory rate would have been a tax
benefit of $2.4 million.
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
F-49
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED)
the Company should sell its stock in the foreign subsidiaries. It is not
practicable to determine the amount of additional tax, if any, that might be
payable on the foreign earnings; however, the Company believes that foreign tax
credits would substantially offset any U.S. tax. At December 31, 1998, the
cumulative amount of reinvested earnings was approximately $14,000.
NOTE 14--COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases its facilities and certain equipment under operating
leases and certain equipment under capital leases. Future minimum lease
commitments under both noncancellable operating leases and capital leases at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
1999..................................................... $ 4,888 $ 26,538
2001..................................................... 3,670 25,410
2001..................................................... 1,639 22,851
2002..................................................... 592 15,280
2003..................................................... 127 9,980
Thereafter............................................... -- 55,001
------- --------
10,916 $155,060
========
Less: Amount representing interest....................... 1,760
-------
Present value of minimum lease payments.................. 9,156
Less: Current portion.................................... 4,258
-------
$ 4,898
=======
</TABLE>
Rent and related expenses under operating leases amounted to $28,825,
$25,619 and $22,087 for the years ended December 31, 1998, 1997 and 1996,
respectively.
(B) CONSULTING, EMPLOYMENT AND NON-COMPETE AGREEMENTS
The Company has entered into various consulting, employment and noncompete
agreements with certain management personnel and former owners of acquired
businesses. These agreements are generally two to five years in length, with one
for a term of fifteen years and two providing aggregate annual lifetime payments
of approximately $135.
Effective November 15, 1996, the Company entered into an employment
agreement with its Principal Stockholder for a term ending on November 14, 2001.
The agreement provides for automatic renewal for successive one year terms
unless either party notifies the other to the contrary at least 90 days prior to
its expiration. Under the agreement, the Principal Stockholder is entitled to a
base salary of $1,500 per year and mandatory bonuses of $375 per quarter through
November 1998 when the bonus provision of the agreement was eliminated. Such
bonuses were waived by the Principal Stockholder. However, in compliance with
the SEC's interpretation of the application of Staff Accounting Bulletin 79,
Topic 5T "Accounting for Expenses or Liabilities paid by Principal Stockholder,"
the Company recorded in equal quarterly
F-50
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--COMMITMENTS AND CONTINGENCIES (CONTINUED)
amounts for 1997 a total of $1,500 in bonus expense and $1,250 for 1998, and
increased the Additional Paid-in Capital account to complete the concept that
the amount of the waived bonus was contributed to the Company by the Principal
Stockholder. Because the amount was not and will never be paid, no tax benefit
was accrued for this charge. The agreement also provides that the Company will
pay the Principal Stockholder his base salary for the remaining term of the
agreement in the event he is terminated for reasons other than cause.
LAI has entered into employment agreements with certain executive officers
which provide for minimum compensation under certain circumstances. The
agreements also provide for a payment of amounts up to three times their annual
salary if a change in control, as defined, of LAI occurs and include a covenant
against competition with LAI which extends for two to three years after
termination. In the event all the covered executives elected to terminate their
employment during a specified period following a change in control, LAI's
maximum liability would be approximately $5,200. In connection with the merger
with TMP, these costs will be accrued as merger costs. (See Note 5).
The above agreements provide for the following aggregate annual payments:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
1999........................................................ $ 6,408
2000........................................................ 6,246
2001........................................................ 5,216
2002........................................................ 819
2003........................................................ 754
Thereafter.................................................. 1,704
-------
$21,147
=======
</TABLE>
(C) EMPLOYEE BENEFIT PLANS
The Company has a 401(k) profit sharing plan covering all eligible
employees. Employer matching contributions, which are a maximum of 2% of payroll
of participating employees, amounted to $867, $762, and $687 for the years ended
December 31, 1998, 1997 and 1996, respectively. LAI maintains a defined
contribution profit sharing plan covering substantially all employees. In
August 1998, the plan was amended to add a 401(k) savings and company matching
feature. LAI profit sharing and matching contributions are discretionary and are
funded annually as approved by the LAI Board of Directors. As of February 28,
1998, LAI had accrued for contributions totaling approximately $1,600 which is
included in the accrued expenses in the accompanying consolidated balance
sheets. LAI did not accrue an amount as of February 28, 1999. Effective upon the
merger with TMP, LAI's 401(k) plan was combined with that of TMP.
Outside of the United States, the Company has employee benefit plans in the
countries in which it operates. The costs for these plans amounted to $5,102,
$4,438 and $3,868 for the years ended December 31, 1998, 1997 and 1996,
respectively.
F-51
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--COMMITMENTS AND CONTINGENCIES (CONTINUED)
In addition, the Company had a defined contribution profit sharing plan
covering all eligible employees. Contributions, which are at the discretion of
the Board of Directors, were not made in the years ended December 31, 1997 and
1996. The plan was terminated during 1997.
LAI has deferred compensation agreements with 69 employees and former
employees. Under the terms of the agreements, employees are eligible to make
annual elections, on calendar year basis, to defer a portion of their
compensation. This compensation, together with accrued interest, is paid upon
termination of the agreements, as defined. Effective January 1, 1999, the plan
was amended to prohibit future deferrals of compensation to the plan. The
present value of the obligation is recorded as a long-term liability in the
accompanying consolidated balance sheets. Interest is earned on deferred amounts
at a rate determined annually by LAI (6.25% at February 28, 1999). LAI is the
beneficiary of whole life insurance policies with an aggregate cash surrender
value of approximately $5,800 and $4,400, and an aggregate face amount of
$22,300 and $13,500 as of February 28, 1999 and 1998, respectively. The Company
is in the process of surrendering the policies and intends to use the proceeds,
approximately $5,800, for general corporate purposes.
(D) LITIGATION
The Company is subject to various claims, suits and complaints arising in
the ordinary course of business. Although the outcome of these legal matters
cannot be determined, it is the opinion of management that the final resolution
of these matters will not have a material adverse effect on the Company's
financial condition, operations or liquidity.
On February 19, 1998, a class action complaint was filed against the Company
by five former employees. The claims brought by the plaintiffs in the complaint
are that the Company (a) misclassified the named plaintiffs and purported class
members as exempt from the overtime requirements of California wage and hour law
and failed to pay them overtime wages, (b) failed to pay accrued but unused
vacation days at the time of termination, and (c) failed to pay accrued but
unused personal days at the time of termination. The plaintiffs purport to
represent a class of 450 former and current employees who are similarly
situated. The Company intends to vigorously defend the claims brought by the
plaintiffs and on March 18, 1998 responded to the complaint by filing an answer
denying all allegations. Management presently believes that the disposition of
these claims will not have a material adverse effect on the Company's financial
position, operations or liquidity.
In June 1997, a settlement of $275, which was paid by the Principal
Stockholder under an indemnity agreement with the Company, was made relating to
a November 1996 action of a former employee against Old TMP, WCI and the
Principal Stockholder. The complaint alleged, among other things, that the
defendants breached purported contractual obligations pursuant to which the
former employee was entitled to an ownership interest in the Company's
recruitment advertising business.
M & B has had proceedings issued against it for an amount of $3,400. These
proceedings are in relation to the acquisition of the claimant's business in New
Zealand prior to Morgan & Banks New Zealand Limited becoming a controlled entity
of the M & B group. The directors of M & B are of the opinion that the claim is
without substance and accordingly the action is being vigorously defended.
F-52
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--COMMITMENTS AND CONTINGENCIES (CONTINUED)
(E) OTHER
(i) The Company is contingently liable on a note of the Principal
Stockholder in the amount of approximately $1,600.
(ii) The majority stockholder of an unconsolidated equity investee has an
agreement which requires the Company to purchase his interest, based on a
formula value, upon death. The value of his shares at December 31, 1998 is
approximately $5,741 based on the formula.
(iii) As of February 28, 1999, LAI has four standby letters of credit
totaling approximately $2,600. The letters of credit, which were required by
certain lessors as security deposits, expire between August and December 1999.
NOTE 15--RELATED PARTY TRANSACTIONS
(A) In August 1996, the Company entered into an agreement whereby it
acquired the minority interest of a subsidiary for 46,350 shares of common
stock. Such shares, valued at $672, were recorded as special compensation
because the stockholder had received his shares in the subsidiary for no
consideration and, accordingly, was not considered to have made a substantive
investment for his shares.
(B) The Company charged management and other fees to affiliates for services
provided of approximately $651, $788 and $602 for the years ended December 31,
1998, 1997 and 1996, respectively. Such fees are reflected as a reduction of
salaries and related costs in the accompanying supplemental consolidated
statements of operations.
(C) In January 1994, the Company acquired a 50% interest in an agency
selling real estate advertising. In connection with this acquisition, the
Company agreed to provide the agency with certain office and administrative
services which amounted to $321 for the nine months ended September 30, 1997 at
which time the arrangement was terminated. Payments of $875 and $725 were made
in the years ended December 31, 1996 and 1995, respectively, in exchange for 50%
of the agency's profits, as defined in the agreement. The Company also entered
into three-year employment and consulting agreements with the two other
stockholders of the agency and granted them the right to convert their agency
shares into Company shares after an initial public offering. That conversion
right, as amended, provided that those two stockholders may convert 25% of the
agency's stock into unregistered common stock of the Company with a total value
of $1,000 as of the effective date of conversion. The conversion was exercised
in February 1997 and 61,848 shares of common stock were issued to these
stockholders pursuant to the above agreement. Simultaneously, the Company
transferred to such stockholders 50% of its interest in the agency, thus
retaining a 25% interest and terminated its obligation to provide office and
administrative services effective October 1, 1997.
(D) The Company leases three offices from entities in which the Principal
Stockholder and other stockholders have between a 49% and 90% ownership
interest. Annual rent expense under these leases, which expire on various dates
through the year 2013, amounts to approximately $863. In addition, an investee
of the Company leases an office, at an annual rental of approximately $119, from
a partnership in which the Principal Stockholder holds a 49% interest.
F-53
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 16--SEGMENT AND GEOGRAPHIC DATA
The Company is engaged in five lines of business, recruitment advertising,
yellow page advertising, Internet, search & selection and temporary contracting.
Operations are conducted in several geographic regions: North America, the
Asia/Pacific Region (primarily in Australia, New Zealand and Japan) and Europe.
The following is a summary of the Company's operations by business segment and
by geographic segment, as of and for the years ended December 31, 1998, 1997,
and 1996.
<TABLE>
<CAPTION>
RECRUITMENT YELLOW PAGE SEARCH & TEMPORARY
INFORMATION BY BUSINESS SEGMENT ADVERTISING ADVERTISING INTERNET SELECTION CONTRACTING TOTAL
- ------------------------------------ ----------- ----------- --------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
For the year ended December 31, 1998
Commissions & fees:
Traditional sources............... $177,774 $106,455 $ -- $276,110 $ 46,989 $607,328
Internet.......................... 2,436 1,056 46,421 245 -- 50,158
-------- -------- --------- -------- -------- --------
Commissions & fees.................. 180,210 107,511 46,421 276,355 46,989 657,486
-------- -------- --------- -------- -------- --------
Operating expenses:
Salaries & related costs, office &
general expenses and CEO special
bonus........................... 160,925 75,679 -- 253,127 36,107 525,838
Internet expenses(a).............. 1,917 739 45,586 63 -- 48,305
Merger & integration costs........ 2,004 596 -- 19,812 -- 22,412
Restructuring charges............. -- -- -- 3,543 -- 3,543
Amortization of intangibles....... 5,626 2,904 234 1,318 103 10,185
-------- -------- --------- -------- -------- --------
Total operating expenses............ 170,472 79,918 45,820 277,863 36,210 610,283
-------- -------- --------- -------- -------- --------
Operating income (loss):
Traditional sources............... 9,219 27,276 -- (1,690) 10,779 45,584
Internet.......................... 519 317 601 182 -- 1,619
-------- -------- --------- -------- -------- --------
Operating income (loss)............. $ 9,738 $ 27,593 $ 601 $ (1,508) $ 10,779 47,203
======== ======== ========= ======== ========
Total other expense, net:........... (11,870)
--------
Income before provision for income
taxes, minority interests and
equity in losses of affiliates.... * * * * * $ 35,333
========
Total Assets........................ $259,862 $298,417 $ 34,682 $174,763 $ 34,811 $802,535
======== ======== ========= ======== ======== ========
</TABLE>
- ------------------------
(a) Is comprised of salaries & related costs and office & general expenses.
* Not allocated
F-54
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 16--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
RECRUITMENT YELLOW PAGE SEARCH & TEMPORARY
INFORMATION BY BUSINESS SEGMENT ADVERTISING ADVERTISING INTERNET SELECTION CONTRACTING TOTAL
- ------------------------------------ ----------- ----------- --------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
For the year ended December 31, 1997
Commissions & fees:
Traditional sources............... $134,291 $103,941 $ -- $242,841 $ 41,285 $522,358
Internet.......................... 2,206 485 16,779 -- -- 19,470
-------- -------- --------- -------- -------- --------
Total commissions & fees............ 136,497 104,426 16,779 242,841 41,285 541,828
-------- -------- --------- -------- -------- --------
Operating expenses:
Salaries and related costs, office
& general and CEO bonus......... 122,024 75,714 -- 210,628 31,290 439,656
Internet expenses(a).............. 1,678 340 22,818 -- -- 24,836
Amortization of intangibles....... 3,850 2,143 167 582 124 6,866
-------- -------- --------- -------- -------- --------
Total operating expenses............ 127,552 78,197 22,985 211,210 31,414 471,358
-------- -------- --------- -------- -------- --------
Operating income (loss)
Traditional sources............... 8,417 26,084 -- 31,631 9,871 76,003
Internet.......................... 528 145 (6,206) -- -- (5,533)
-------- -------- --------- -------- -------- --------
Operating income (loss)............. $ 8,945 $ 26,229 $ (6,206) $ 31,631 $ 9,871 70,470
======== ======== ========= ======== ========
Total other expense, net:........... (7,622)
--------
Income before provision for income
taxes, minority interests and
equity in losses of affiliates.... * * * * * $ 62,848
========
Total Assets........................ $249,774 $259,311 $ 13,928 $165,794 $ 32,259 $721,066
======== ======== ========= ======== ======== ========
</TABLE>
- ------------------------
(a) Is comprised of salaries & related costs and office & general expenses.
* Not allocated.
F-55
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 16--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
RECRUITMENT YELLOW PAGE SEARCH & TEMPORARY
INFORMATION BY BUSINESS SEGMENT ADVERTISING ADVERTISING INTERNET SELECTION CONTRACTING TOTAL
- -------------------------------------- ----------- ----------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
For the year ended December 31, 1996
Commissions & fees:
Traditional sources................. $ 76,601 $100,883 $ -- $185,406 $29,210 $392,100
Internet............................ 661 -- 6,278 -- -- 6,939
-------- -------- ------- -------- ------- --------
Commissions & fees.................... 77,262 100,883 6,278 185,406 29,210 399,039
-------- -------- ------- -------- ------- --------
Operating expenses:
Salaries & related costs, office &
general expenses and CEO special
bonus............................. 72,886 77,533 -- 167,222 20,750 338,391
Internet expenses(a)................ 496 -- 8,553 -- -- 9,049
Special compensation................ 22,451 29,568 -- -- -- 52,019
Amortization of intangibles......... 2,289 1,927 224 231 61 4,732
-------- -------- ------- -------- ------- --------
Total operating expenses.............. 98,122 109,028 8,777 167,453 20,811 404,191
-------- -------- ------- -------- ------- --------
Operating income (loss):
Traditional sources................. (21,025) (8,145) -- 17,953 8,399 (2,818)
Internet............................ 165 -- (2,499) -- -- (2,334)
-------- -------- ------- -------- ------- --------
Operating income (loss)............... $(20,860) $ (8,145) $(2,499) $ 17,953 $ 8,399 (5,152)
======== ======== ======= ======== =======
Total other expense, net:............. (14,728)
--------
Loss before provision for income
taxes, minority interests and equity
in losses of affiliates............. * * * * * $(19,880)
========
Total Assets.......................... $110,654 $238,763 $ 5,481 $ 92,028 $28,593 $475,519
======== ======== ======= ======== ======= ========
</TABLE>
- ------------------------
(a) Is comprised of salaries & related costs and office & general expenses.
* Not allocated
F-56
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 16--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
ASIA/PACIFIC UNITED CONTINENTAL
INFORMATION BY GEOGRAPHIC REGION: NORTH AMERICA REGION KINGDOM EUROPE TOTAL
- --------------------------------- ------------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
December 31, 1998
Total commissions & fees.............. $376,104 $106,559 $117,153 $57,670 $657,486
Income (loss) before taxes, minority
interests and equity in earnings
of affiliates..................... 21,985 16,085 (4,491) 1,754 35,333
Long-lived assets................... 126,172 32,918 89,439 48,089 296,618
December 31, 1997
Total commissions & fees............ $322,084 $113,620 $ 82,739 $23,385 $541,828
Income before taxes, minority
interests and equity in earnings
of affiliates..................... 34,333 17,560 6,413 4,542 62,848
Long-lived assets................... 116,798 33,054 81,721 21,844 253,417
December 31, 1996
Total commissions & fees............ $247,700 $ 91,561 $ 34,508 $25,270 $399,039
Income (loss) before taxes, minority
interests and equity in earnings
of affiliates*.................... (39,912)* 15,827 3,300 905 (19,880)
Long-lived assets................... 79,706 32,617 7,434 1,629 121,386
</TABLE>
- ------------------------
* Includes non-cash, non-recurring special compensation and interest expense
of $52,019 and $2,603, respectively.
F-57
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
The audits referred to in our report dated November 19, 1999, relating to
the supplemental consolidated financial statements of TMP Worldwide Inc. and
Subsidiaries, included the audits of the supplemental consolidated financial
statement schedule listed in the accompanying index. This supplemental
consolidated financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the supplemental
consolidated financial statement schedule based upon our audits. We did not
audit the financial statement schedule of LAI Worldwide, Inc. and subsidiaries
which was combined with the Company's financial statement schedule. That
financial statement schedule was audited by another auditor whose report has
been furnished to us, and our opinion, insofar as it relates to the amounts
included for LAI Worldwide, Inc., and subsidiaries is based solely on the report
of the other auditor.
In our opinion, based on our audits and the report of the auditor, the
supplemental consolidated financial statement schedule presents fairly, in all
material respects, the information set forth therein.
<TABLE>
<C> <S> <C>
/s/ BDO SEIDMAN, LLP
-------------------------------
BDO Seidman, LLP
</TABLE>
New York, New York
November 19, 1999
F-58
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To LAI Worldwide, Inc:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of LAI Worldwide, Inc. included in this
Form 10-K and have issued our report thereon dated April 7, 1999. Our audits
were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index in Item 16(b) is
the responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
<TABLE>
<C> <S> <C>
ARTHUR ANDERSEN LLP
</TABLE>
Tampa, Florida
April 7, 1999
F-59
<PAGE>
SUPPLEMENTAL SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF CHARGED TO CHARGED TO END OF
DESCRIPTIONS PERIOD COSTS AND OTHER DEDUCTIONS PERIOD
COLUMN A COLUMN B EXPENSES ACCOUNTS COLUMN D COLUMN E
- ------------ ------------ ---------- ---------- ---------- ----------
COLUMN C ADDITIONS
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended December 31, 1996....... $ 5,581 $3,337 $ 3,099(1) $ 2,364 $ 9,653
Year ended December 31, 1997....... $ 9,653 $4,047 $ 3,326(1) $ 3,117 $13,909
Year ended December 31, 1998....... $13,909 $6,139 $ 1,780(1) $ 3,942 $17,886
Restructuring reserves
Year ended December 31, 1997....... -- -- $17,663 $ 862 $16,801
Year ended December 31, 1998....... $16,801 $3,543 $10,020 $13,617 $16,747
</TABLE>
- ------------------------
(1) Initial reserves of acquired companies.
F-60
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
<TABLE>
<S> <C> <C>
TMP WORLDWIDE INC.
By: /s/ BART CATALANE
-----------------------------------------
Bart Catalane
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
</TABLE>
Dated: December 1, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001020416
<NAME> TMP WORLDWIDE
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 67,964
<SECURITIES> 0
<RECEIVABLES> 440,843
<ALLOWANCES> 23,517
<INVENTORY> 0
<CURRENT-ASSETS> 529,878
<PP&E> 144,359
<DEPRECIATION> 81,668
<TOTAL-ASSETS> 883,684
<CURRENT-LIABILITIES> 505,869
<BONDS> 101,198
0
0
<COMMON> 38
<OTHER-SE> 260,007
<TOTAL-LIABILITY-AND-EQUITY> 883,684
<SALES> 561,481
<TOTAL-REVENUES> 561,481
<CGS> 0
<TOTAL-COSTS> 552,444
<OTHER-EXPENSES> 851
<LOSS-PROVISION> 5,270
<INTEREST-EXPENSE> 6,272
<INCOME-PRETAX> (3,356)
<INCOME-TAX> 1,154
<INCOME-CONTINUING> (4,917)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,917)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001020416
<NAME> TMP WORLDWIDE
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 41,641
<SECURITIES> 0
<RECEIVABLES> 419,285
<ALLOWANCES> 17,246
<INVENTORY> 0
<CURRENT-ASSETS> 522,240
<PP&E> 136,399
<DEPRECIATION> 69,179
<TOTAL-ASSETS> 825,312
<CURRENT-LIABILITIES> 447,827
<BONDS> 133,745
0
0
<COMMON> 39
<OTHER-SE> 231,600
<TOTAL-LIABILITY-AND-EQUITY> 825,612
<SALES> 496,872
<TOTAL-REVENUES> 496,872
<CGS> 0
<TOTAL-COSTS> 438,130
<OTHER-EXPENSES> 932
<LOSS-PROVISION> 4,650
<INTEREST-EXPENSE> 7,035
<INCOME-PRETAX> 46,125
<INCOME-TAX> 16,637
<INCOME-CONTINUING> 29,209
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,209
<EPS-BASIC> 0.75
<EPS-DILUTED> 0.73
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001020416
<NAME> TMP WORLDWIDE
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 73,500
<SECURITIES> 0
<RECEIVABLES> 367,977
<ALLOWANCES> 17,886
<INVENTORY> 0
<CURRENT-ASSETS> 475,082
<PP&E> 141,132
<DEPRECIATION> 67,380
<TOTAL-ASSETS> 802,535
<CURRENT-LIABILITIES> 431,443
<BONDS> 123,106
0
0
<COMMON> 37
<OTHER-SE> 228,713
<TOTAL-LIABILITY-AND-EQUITY> 802,535
<SALES> 657,486
<TOTAL-REVENUES> 657,486
<CGS> 0
<TOTAL-COSTS> 604,144
<OTHER-EXPENSES> 2,042
<LOSS-PROVISION> 6,139
<INTEREST-EXPENSE> 9,828
<INCOME-PRETAX> 35,333
<INCOME-TAX> 14,367
<INCOME-CONTINUING> 20,542
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,542
<EPS-BASIC> 0.53
<EPS-DILUTED> 0.52
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001020416
<NAME> TMP WORLDWIDE
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 56,316
<SECURITIES> 0
<RECEIVABLES> 364,757
<ALLOWANCES> 13,909
<INVENTORY> 0
<CURRENT-ASSETS> 444,144
<PP&E> 115,823
<DEPRECIATION> 54,745
<TOTAL-ASSETS> 721,066
<CURRENT-LIABILITIES> 414,278
<BONDS> 130,011
0
0
<COMMON> 25
<OTHER-SE> 166,420
<TOTAL-LIABILITY-AND-EQUITY> 721,066
<SALES> 541,828
<TOTAL-REVENUES> 541,828
<CGS> 0
<TOTAL-COSTS> 467,311
<OTHER-EXPENSES> (821)
<LOSS-PROVISION> 4,047
<INTEREST-EXPENSE> 8,443
<INCOME-PRETAX> 62,848
<INCOME-TAX> 20,565
<INCOME-CONTINUING> 41,831
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,831
<EPS-BASIC> 1.15
<EPS-DILUTED> 1.13
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001020416
<NAME> TMP WORLDWIDE
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 29,565
<SECURITIES> 0
<RECEIVABLES> 274,118
<ALLOWANCES> 9,653
<INVENTORY> 0
<CURRENT-ASSETS> 321,761
<PP&E> 80,360
<DEPRECIATION> 41,308
<TOTAL-ASSETS> 475,519
<CURRENT-LIABILITIES> 320,038
<BONDS> 78,151
0
0
<COMMON> 20
<OTHER-SE> 65,237
<TOTAL-LIABILITY-AND-EQUITY> 475,519
<SALES> 399,039
<TOTAL-REVENUES> 399,039
<CGS> 0
<TOTAL-COSTS> 400,854
<OTHER-EXPENSES> 370
<LOSS-PROVISION> 3,337
<INTEREST-EXPENSE> 14,358
<INCOME-PRETAX> (19,880)
<INCOME-TAX> 11,058
<INCOME-CONTINUING> (32,051)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,051)
<EPS-BASIC> (1.04)
<EPS-DILUTED> (1.04)
</TABLE>
