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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: June 10, 1999
TMP WORLDWIDE INC.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 0-21571 13-3906555
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(State of (Commission File No.) (I.R.S. Employer
Incorporation) Identification No.)
</TABLE>
<TABLE>
<S> <C>
1633 BROADWAY, NEW YORK, NEW YORK 10019
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(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: 212-977-4200
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ITEM 5. OTHER EVENTS.
During the period April 30, 1999 through May 31, 1999, TMP Worldwide Inc.
and Subsidiaries (the "Company" or "TMP") consummated mergers with the following
companies (the "Second Quarter 1999 Pooled Companies"), in transactions which
provided for the exchange of all of the outstanding stock of each entity for a
total of 900,240 shares of TMP common stock and have been accounted for as
poolings of interests (the "Second Quarter 1999 Mergers").
<TABLE>
<CAPTION>
NATURE OF REGION OF NUMBER OF TMP
ENTITY OPERATIONS OPERATIONS ACQUISITION DATE SHARES ISSUED
- ------------------------------- ------------------------- ---------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Interquest, Pty. Limited Temporary contracting and Pacific Rim April 30, 1999 176,695
("Interquest") search & selection
LIDA Advertising, Inc. ("LIDA") Advertising North America May 19, 1999 112,606
Maes & Lunau ("M&L") Search & selection Continental Europe May 20, 1999 110,000
IN2, Inc. ("IN2") Internet North America May 28, 1999 289,031
Lemming & LeVan, Inc. ("L&L") Search & selection North America May 28, 1999 122,908
Yellow Pages Unlimited, Inc. Advertising North America May 28, 1999 89,000
("YPU")
</TABLE>
The Company's consolidated financial statements have been retroactively
restated as of March 31, 1999 and December 31, 1998 and 1997 and for the three
months ended March 31, 1999 and 1998 and for each of the three years in the
period ended December 31, 1998, to reflect the consummation of the Second
Quarter 1999 Mergers. The supplemental consolidated financial statements
included herein give retroactive effect to the Second Quarter 1999 Mergers,
which have been accounted for using the pooling of interests method and, as a
result, the financial position, results of operations and cash flows are
presented as if the Second Quarter 1999 Pooled Companies had been consolidated
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 Second Quarter
1999 Mergers. The supplemental consolidated statements of stockholders' equity
reflect the accounts of TMP as if the common stock issued in connection with the
Second Quarter 1999 Mergers had been issued for all periods presented.
In the supplemental consolidated balance sheets, the balance sheets of TMP
as of March 31, 1999 and December 31, 1998 and 1997 have been combined with
those of the Second Quarter 1999 Pooled Companies as of March 31, 1999 and
December 31, 1998 and 1997, respectively, except for Interquest, for which the
balance sheet as of June 30, 1998 was combined with that of TMP as of December
31, 1997. The supplemental consolidated statements of operations combine the
results of TMP for the three months ended March 31, 1999 and 1998 and each year
in the three year period ended December 31, 1998 with those of the Second
Quarter 1999 Pooled Companies for the same periods except for Interquest, for
which the statement of operations for the years ended June 30, 1998 and 1997 are
combined with those of TMP for the years ended December 31, 1997 and 1996.
Consequently, the results for Interquest for the six months ended June 30, 1998
are included in the Supplemental Consolidated Statements of Operations for the
years ended December 31, 1998 and 1997. When translated at the appropriate
exchange rates for the December 31, 1998 and 1997 periods, for the six months
ended June 30, 1998, revenue was approximately $10.9 million and $12.8 million,
net income was approximately $.4 million and $.5 million, and the effect on the
diluted net income per share was $.01 and $.01, respectively.
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 April 21, 1999.
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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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Statements in this Current Report on Form 8-K concerning our business
outlook or future economic performance, anticipated profitability, gross
billings, commissions and fees, revenue, 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 March 31, 1999, we completed 51 acquisitions,
including in pooling of interests transactions, Johnson, Smith & Knisely Inc.
("JSK"), TASA Holding AG ("TASA"), Stackig, Inc. ("Stackig"), Recruitment
Solutions Inc., Sunquest L.L.C. d.b.a. The SMART Group, and The Consulting Group
(International) Limited ("TCG"), in 1998 (the "1998 Mergers"), and Morgan &
Banks Limited ("M&B") in January 1999 (the "M&B Merger"), and issued
approximately 8.7 million shares of our common stock in exchange for all of the
outstanding common stock of these seven companies. Furthermore, from April 30
through May 31, 1999, we completed mergers with the six companies listed below
(the "Second Quarter 1999 Pooled Companies"), which provided for the exchange of
all of the outstanding stock of such companies for a total of 900,240 shares of
TMP common stock and which have been accounted for as poolings of interests (the
"Second Quarter 1999 Mergers").
<TABLE>
<CAPTION>
NATURE OF REGION OF NUMBER OF TMP
ENTITY OPERATIONS OPERATIONS ACQUISITION DATE SHARES ISSUED
- -------------------------------- ------------------------- ---------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Interquest, Pty. Limited Temporary contracting and Pacific Rim April 30, 1999 176,695
("Interquest") Search & selection
LIDA Advertising, Inc. ("LIDA") Advertising North America May 19, 1999 112,606
Maes & Lunau ("M&L") Search & selection Continental Europe May 20, 1999 110,000
IN2, Inc. ("IN2") Internet North America May 28, 1999 289,031
Lemming & LeVan, Inc. ("L&L") Search & selection North America May 28, 1999 122,908
Yellow Pages Unlimited, Inc. Advertising North America May 28, 1999 89,000
("YPU")
</TABLE>
Accordingly, the supplemental consolidated financial statements in our
Current Report on Form 8-K filed on April 21, 1999, which reflect the
consummation of the M&B Merger, are being retroactively restated to reflect the
Second Quarter 1999 Mergers and, as a result, the financial position, results of
operations and cash flows are presented as if the Second Quarter 1999 Pooled
Companies had been consolidated for all periods presented. In addition, for the
period of January 1, 1996 through March 31,
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1999, we completed 44 acquisitions, which were accounted for using the purchase
method, with estimated annual gross billings of approximately $591 million.
Given the significant number of acquisitions in each of the periods presented,
the results of operations from period to period may not necessarily be
comparable.
Gross billings refer to billings for advertising placed in telephone
directories, newspapers, new media and other media, and associated fees for
related services, fees earned for search & selection and related services, and
revenue from temporary contracting services. While gross billings are not
included in our consolidated financial statements because they include a
substantial amount of funds which are collected from our clients but passed
through to publishers for advertisements, the trends in gross billings directly
impact the total revenue earned. For recruitment and yellow page advertising, we
earn commissions based on a percentage of the media advertising purchased at a
rate established by the related publisher, and associated fees for related
services. Publishers typically bill us for the advertising purchased by clients
and we in turn bill our clients for this amount. Generally, the payment terms
with yellow page clients require payment to us prior to the date payment is due
to publishers. The payment terms with recruitment advertising clients typically
require payment when payment is due to publishers. Historically, we have not
experienced substantial problems with unpaid accounts.
For recruitment advertising placements in the U.S., publisher commissions
average 15% of recruitment advertising gross billings. We also earn fees from
related services such as campaign development and design, retention and referral
programs, brochures and other collateral services, research and other creative
and administrative services. Outside of the U.S., where, collectively, we derive
the majority of our recruitment advertising commissions and fees, our commission
rates for recruitment advertising vary, ranging from approximately 10% in
Australia to 15% in Canada and the United Kingdom.
We design and execute yellow page advertising programs, receiving an
effective commission rate from directory publishers of approximately 20% of
yellow page gross billings. In general, publishers consider orders renewed
unless actively canceled. In addition to base commissions, certain yellow pages
publishers pay increased commissions for volume placement by advertising
agencies. We typically recognize this additional commission, if any, in the
fourth quarter when it is certain that such commission has been earned. The
amounts reported in the fourth quarters of 1998, 1997 and 1996 were $0.9
million, $2.0 million and $3.5 million, respectively.
Through our search & selection services, we identify and screen candidates
for hiring by clients based on criteria established by such clients. We entered
this business in 1998 by acquiring, JSK, the 12th largest executive search firm
in the U.S. according to Kennedy Publications, an official ranking service for
the search industry, TASA, an international executive search firm, both of which
were accounted for as poolings of interest, 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 and selection
operations, M&L in the Netherlands, L&L in the United States and Interquest in
Australia.
Interquest is primarily a provider of temporary contracting services, a
business we entered with the M&B merger in January 1999.
Fees related to our Internet business are derived from recruitment
advertisement and related services placed on the Internet, primarily TMP's own
Website, Monster.com, employment searches sourced through the Internet, Internet
related advertising services provided to our yellow page clients and the
providing of interactive advertising services as well as technologies that allow
advertisers to measure sales, repeat traffic and other key brand and e-commerce
metrics back to individual marketing units, such as banners, giving the
advertisers the ability to greatly reduce costs, while driving only the most
qualified users to their websites.
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Our yellow page and recruitment advertising revenue increased from $171.3
million in 1996 to $271.0 million in 1998, primarily as a result of acquisitions
which are included in the financial statements using the purchase method of
accounting from their respective dates of acquisition made from January 1, 1996
through December 31, 1998. Search & selection revenue grew from $121.2 million
in 1996 to $167.2 million in 1998 primarily as a result of increased demand for
these services by new and existing clients. Temporary contracting revenue
increased from $132.1 million in 1996 to $211.1 million in 1998 reflecting an
increase in the use of temporary contract personnel and a greater demand for
executive and information technology temporary contract personnel. Internet
revenue 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 yellow
page and recruitment advertising, search & selection, temporary contracting and
Internet-related opportunities, 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, 62%, 61%, and 58%, respectively, of our consolidated revenue were
attributable to clients outside the U.S.
Our operating expenses have increased significantly since 1996 primarily as
a result of acquisitions, hiring to support gross billings growth for our
Internet and recruitment businesses and marketing for our Internet business.
Salaries and related costs increased $117.1 million to $294.9 million for
the year ended December 31, 1998 from $177.8 million for the year ended December
31, 1996, a 65.8% increase, supporting a $665.9 million or a 62.2% 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
17.0%, up slightly from 16.6% for the comparable 1996 period. Salaries and
related costs include total payroll and associated benefits as well as payroll
taxes, sales commissions, recruitment fees and training costs.
Temporary contracting costs increased $64.7 million to $175.1 million for
the year ended December 31, 1998 from $110.4 million for the year ended December
31, 1996, a 58.6% increase. The decrease in costs as a percentage of temporary
contracting revenue from 83.6% to 83.0% reflects an increase in our executive
temporary contracting business which has a higher markup than temporary
contracting for clerical and support staff.
Office and general expenses increased $55.1 million to $155.3 million for
the year ended December 31, 1998 from $100.2 million for the year ended December
31, 1996, a 55.0% increase, primarily due to increased costs needed to support
the increased gross billings, the expansion of recruitment offices through
acquisitions in the U.S. and foreign markets, and marketing costs to promote the
growth of our Internet business. When measured as a percent of gross billings,
office and general costs for the year ended December 31, 1998 were 8.9%, down
from 9.4% for the comparable 1996 period. This cost category includes expenses
for office operations, business promotion, market research, advertising,
professional fees and fees paid to our primary lending institution for its
services in the processing and collection of payments for accounts receivable.
Merger costs reflect expenses incurred with acquisitions accounted for as
poolings of interests. Costs include employee stay bonuses paid with TMP common
stock or cash, fees for legal, advisory and accounting services and registration
costs for shares issued in connection with certain of the mergers.
Amortization of intangibles includes amortization of acquisition related
charges, including the costs in excess of fair market value of net assets of
businesses acquired and capitalized costs for non-compete arrangements with the
principals of acquired companies. This acquisition related amortization was $9.4
million, $6.8 million and $4.7 million for the years ended December 31, 1998,
1997 and 1996, respectively.
The special CEO bonus for the years ended December 31, 1998 and 1997 of $1.3
and $1.5 million reflects non-cash charges, recorded in compliance with Staff
Accounting Bulletin No. 79 ("SAB 79"), for a
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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.
RESULTS OF OPERATIONS
The following table sets forth our gross billings, revenue and revenue as a
percentage of gross billings, EBITDA and cash flow information.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
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<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
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<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Gross billings:
Recruitment advertising...................... $ 342,379 $ 604,420 $ 794,234 $ 206,618 $ 195,297
Yellow page advertising...................... 459,348 488,236 506,907 112,048 117,054
Search & selection........................... 130,378 155,714 168,149 39,998 42,667
Internet(1).................................. 6,939 20,553 56,666 8,932 23,091
Temporary contracting........................ 132,110 186,458 211,089 46,532 60,648
------------ ------------ ------------ ---------- ----------
Total........................................ $ 1,071,154 $ 1,455,381 $ 1,737,045 $ 414,128 $ 438,757
------------ ------------ ------------ ---------- ----------
------------ ------------ ------------ ---------- ----------
Revenue:
Recruitment advertising...................... $ 71,741 $ 127,211 $ 167,234 $ 43,478 $ 42,543
Yellow page advertising...................... 99,573 101,830 103,768 22,742 23,170
Search & selection........................... 121,162 154,897 167,180 39,998 41,986
Internet(1).................................. 6,939 19,470 50,158 8,042 20,538
------------ ------------ ------------ ---------- ----------
Total commissions and fees................... 299,415 403,408 488,340 114,260 128,237
Temporary contracting........................ 132,110 186,458 211,089 46,532 60,648
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Total revenue................................ $ 431,525 $ 589,866 $ 699,429 $ 160,792 $ 188,885
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</TABLE>
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
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1996 1997 1998 1998 1999
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(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue as a percentage of gross billings:
Recruitment advertising...................... 21.0% 21.0% 21.1% 21.0% 21.8%
Yellow page advertising...................... 21.7% 20.9% 20.5% 20.3% 19.8%
Search & selection........................... 92.9% 99.5% 99.4% 100.0% 98.4%
Internet(1).................................. 100.0% 94.7% 88.5% 90.0% 88.9%
Total commissions and fees................... 31.9% 31.8% 32.0% 31.1% 33.9%
Temporary contracting........................ 100.0% 100.0% 100.0% 100.0% 100.0%
Total........................................ 40.3% 40.5% 40.3% 38.9% 43.0%
EBITDA(2).................................... $ (2,212) $ 68,300 $ 69,133 $ 16,956 $ 18,159
Cash provided by (used in) operating
activities................................. $ 31,271 $ 34,540 $ 67,176 $ (2,955) $ (10,975)
Cash used in investing activities............ $ (43,210) $ (83,736) $ (47,874) $ (6,169) $ (17,578)
Cash provided by (used in) financing
activities................................. $ 15,340 $ 52,425 $ (9,089) $ 8,570 $ 16,151
Effect of exchange rate changes on cash...... $ -- $ -- $ -- $ 31 $ 725
</TABLE>
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(1) Represents fees earned in connection with yellow page, recruitment and other
advertisements placed on the Internet and employment searches sourced
through the Internet.
(2) Earnings before interest, income taxes, depreciation and amortization.
EBITDA is presented to provide additional information about 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.
EBITDA for the indicated periods is calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
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<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
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<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income (loss)............................... $ (38,957) $ 23,868 $ 14,409 $ 5,036 $ 3,890
Interest expense, net........................... 14,126 8,891 10,607 2,466 2,730
Income tax expense.............................. 9,733 15,770 13,821 3,416 3,056
Depreciation and amortization................... 12,886 19,771 30,296 6,038 8,483
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EBITDA.......................................... $ (2,212) $ 68,300 $ 69,133 $ 16,956 $ 18,159
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---------- --------- --------- --------- ---------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1998
Gross billings for the three months ended March 31, 1999 were $438.8
million, a net increase of $24.7 million or 6.0% from $414.1 million for the
three months ended March 31, 1998. Total revenue for the three months ended
March 31, 1999 was $188.9 million, an increase of $28.1 million or 17.5% from
$160.8 million in the comparable three months of 1998. Recruitment commissions &
fees were $42.5 million for the three months ended March 31, 1999 compared with
$43.5 million for the three months ended March 31, 1998, a decrease of $1.0
million or 2.3%. This decrease was primarily due to a decline in print media
advertising in the U.S. and the U.K., offset substantially by an increase in
creative and collateral business (such as: campaign development, referral &
retention programs, multi-media presentations,
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brochures and posters) for existing clients, growth from new and existing
clients in Continental Europe and acquisitions. Yellow page commissions and fees
were $23.2 million for the three months ended March 31, 1999, an increase of $.5
million or 1.9% from $22.7 million for the comparable three months in 1998. This
increase was due to increases in client spending, new clients and acquisitions.
Search & selection commissions and fees were $42.0 million up $2.0 million or
5.0% from $40.0 million for the comparable three months of 1998, due primarily
to acquisitions in Europe. Internet commissions and fees for the three months
ended March 31, 1999 were $20.5 million, an increase of 155.4% or $12.5 million
as compared with $8.0 million for the three months ended March 31, 1998. The
increase in Internet revenue from the March 1998 period to the March 1999
period, is due to: (i) an increasing acceptance of our Internet services and
products from existing clients, new clients and Internet users, (ii) price
increases on certain products, (iii) increases in the services and content
available on our Websites, (iv) expansion into certain European markets and (v)
the benefits of strategic alliances with other Internet service and content
providers. Temporary contracting revenue was $60.6 million, up $14.1 million or
30.3% from $46.5 million for the period ended March 31, 1998. The increase
reflects an increase in the number of contractors placed due to increased
marketing efforts, a greater need for information technology personnel and an
increase in the executive temporary contracting business, which has a mark-up
higher than for general and support staff.
Operating expenses for the three months ended March 31, 1999 were $179.0
million, compared with $149.7 million for the same period in 1998. The increase
of $29.3 million or 19.6% is primarily due to (a) $7.2 million in expenses for
temporary contracting operations, (b) $17.4 million in higher operating costs to
support expanding Internet operations and (c) $4.7 million in merger costs
related to acquisitions accounted for as pooling of interests. Salaries and
related costs for the three months ended March 31, 1999 were $79.8 million or
42.2% of total revenue, compared with $65.8 million or 40.9% of total revenue
for the same period in 1998. The increase of $14.0 million or 21.3% is primarily
due to increased Internet operations and acquisitions. Temporary contracting
costs were $50.6 million, an increase of $7.2 million or 16.7% over the $43.4
million for the comparable period in 1998. This increase is due to the increase
in business, as discussed above. Office and general expenses for the three
months ended March 31, 1999 were $41.2 million or 21.8% of total revenues
compared with $37.9 million or 23.6% of total revenue for the same period in
1998. The increase of $3.3 million or 8.8% is primarily due to higher marketing
costs for our Internet operations, including Monster.com, partially offset by
reductions in recruitment advertising reflecting increased economies of scale.
Additionally, the decrease as a percentage of revenue was affected by the higher
temporary contracting revenue which did not result in a similar increase in
office and general expenses. Merger costs for the three months ended March 31,
1999 were $4.7 million, the majority of which were related to the M&B Merger,
but also included $1.5 million for the amortization of employee stay bonuses
payable in shares of TMP common stock in connection with certain of the mergers
consummated in 1998 and accounted for as poolings of interests.
As a result of the above, operating income for the three months ended March
31, 1999 was $9.9 million a decrease of $1.2 million or 10.8% from $11.1 million
for the comparable period last year.
Net interest expense for the three months ended March 31, 1999 was $2.7
million, an increase of $.2 million or 10.7%, from $2.5 million for the
comparable 1998 period. This increase reflects additional borrowings for
acquisitions and equipment financing.
Taxes on income for the three months ended March 31, 1999 were $3.1 million
on a $7.1 million pre-tax profit compared with a tax expense of $3.4 million on
an $8.6 million pre-tax profit for the same period last year. The effective tax
rate for the three month period ended March 31, 1999 was 42.8%, up from the
39.9% effective rate for the comparable period in 1998. The higher 1999 rate
reflects the effects of a portion of the merger costs which are not deductible
for tax.
Minority interests in consolidated earnings for the three months ended March
31, 1999 were $99,000 compared with $16,000 for the three months ended March 31,
1998. Equity in losses of affiliates, which reflects losses associated with the
real estate advertising company in which the Company holds a minority
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interest, was a loss of $100,000 for the three months ended March 31, 1999
compared to a loss of $87,000 for the comparable period in 1998.
As a result of all of the above, net income available to common and Class B
common stockholders for the three months ended March 31, 1999 was $3.9 million,
a decrease of $1.1 million from $5.0 million for the three months ended March
31, 1998. On a diluted per share basis, net income available to common and Class
B common stockholders for the three months ended March 31, 1999 was $0.10, a
decrease of $0.04 or 28.6% from $0.14 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 $1,737.0 million, a
$281.6 million or 19.3% increase when compared to gross billings of $1,455.4
million for the year ended December 31, 1997. This increase in gross billings
resulted primarily from acquisitions in recruitment advertising and growth in
our temporary contracting and Internet businesses. Total revenue for the year
ended December 31, 1998 was $699.4 million, an increase of $109.5 million or
18.6% from $589.9 million for the year ended December 31, 1997. Recruitment
advertising commissions and fees were $167.2 million for the year ended December
31, 1998 compared with $127.2 million for the year ended December 31, 1997, an
increase of $40.0 million or 31.4%. This increase was primarily due to
acquisitions, which contributed approximately $38.6 million and approximately
$4.1 million from increased client spending and new clients, partially offset by
client losses and a decrease from foreign currency exchange fluctuations with a
negative effect of approximately $2.9 million. Yellow page commissions and fees
were $103.8 million for the year ended December 31, 1998 compared with $101.8
million for the year ended December 31, 1997, an increase of 2.0% or $2.0
million. All of the increase was due to acquisitions. Search & selection fees
were $167.2 million compared with $154.9 million for the year ended December 31,
1997, an increase of $12.3 million or 7.9%, due primarily to increased business
from existing clients and new clients in executive search. Temporary contracting
revenue was $211.1 million for the years ended December 31, 1998, an increase of
$24.6 million or 13.2% when compared with $186.5 million for the year ended
December 31, 1997. This increase reflects expansion of this service to new
clients. Internet commissions and 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 due to an increasing acceptance of our Internet
products from existing and new clients, the benefits of "co-branding" marketing
efforts with other Internet content providers and increased sales and marketing
activities.
Operating expenses for the year ended December 31, 1998 were $658.4 million,
compared with $541.6 million for 1997. The increase of $116.8 million or 21.6%
reflects acquisition activity, including $22.4 million for merger costs, and
costs related to the internal growth of our business.
Salaries and related costs for the year ended December 31, 1998 were $294.9
or 42.2% of revenue, compared with $246.6 or 41.8% of revenue for the same
period in 1997. The increase is due primarily to acquisitions and growth in
search & selection fees.
Temporary contracting costs increased $20.0 million or 12.9% to $175.1
million for the year ended December 31, 1998. This increase is primarily due to
the increased number of temporary contract workers placed during 1998 as
compared with the prior period. As a percentage of temporary contracting
revenue, temporary contracting costs decreased to 83.0% for the year ended
December 31, 1998 from 83.2% for the year ended December 31, 1997. This lower
cost percentage reflects greater growth in the executive temporary contracting
business, which has a mark-up higher than that for clerical and support staff.
Office and general expenses increased $23.8 million to $155.4 million for
the year ended December 31, 1998, primarily due to acquisitions and expenditures
to grow our Internet business. As a percent of total revenue, office and general
expenses decreased to 22.2% for the year ended December 31, 1998 from 22.3% for
the year ended December 31, 1997.
9
<PAGE>
In connection with the 1998 Mergers and the M&B Merger, we expensed merger
related 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 of a $6.0 million charge 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 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 $16.1 million or $.45 per diluted share. (See Notes 1 and 5 to the
Company's Supplemental Consolidated Financial Statements included elsewhere
herein.)
Amortization of intangibles was $9.4 million for the year ended December 31,
1998 compared to $6.8 million for the year ended December 31, 1997. The increase
is due to our continued growth through acquisitions. As a percentage of total
revenue, amortization of intangibles was 1.3% and 1.2% for the year ended
December 31, 1998 and 1997, respectively.
As a result of all of the above, operating income decreased $7.2 million to
$41.0 million for the year ended December 31, 1998 as compared with operating
income of $48.2 million for the year ended December 31, 1997 and as a percent of
total revenue decreased to 5.9% from 8.2%.
Net interest expense increased $1.7 million to $10.6 million for the year
ended December 31, 1998 as compared to $8.9 million for the year ended December
31, 1997, reflecting a net increase in debt as a result of acquisitions and
capital expenditures. The Company's effective interest rate was 10.5% for the
year ended December 31, 1998 compared with 10.4% for the year ended December 31,
1997.
Taxes on income decreased $2.0 million to $13.8 million for the year ended
December 31, 1998 from $15.8 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 48.2% compared with 39.5% for the year ended December 31,
1997. The higher effective rate in 1998 reflects the non-deductibility of
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 $14.4 million for the year ended December 31,
1998, or $.39 per diluted share, compared with net income of $23.7 million, or
$.69 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 $1,455.4 million, a
$384.3 million or 35.9% increase when compared to gross billings of $1,071.1
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 revenue increased to $589.9 million for the year ended December 31,
1997 from $431.5 million for the year ended December 31, 1996, an increase of
36.7%. This reflects increases, as compared to the prior year period, in revenue
for (a) recruitment advertising of $55.5 million or 77.3%, (b) yellow page
advertising of $2.3 million or 2.3%, (c) search & selection of $33.7 million or
27.8%, (d) Internet of $12.6 million or 180.6% and (e) temporary contracting of
$54.3 million or 41.1%. A substantial portion of the increase in commissions and
fees derived from recruitment advertising was due to acquisitions, including
10
<PAGE>
$15.5 million from Austin Knight, acquired in August 1997, and the remainder was
due to higher client spending and new clients. The increase in commissions and
fees derived from 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 and fees for search & selection was primarily
due to increased client spending in the U.S. Fees derived from Internet were
generated from placements of Internet advertising. The Internet revenue increase
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 revenue is due to expansion of
temporary contract services.
Salaries and related costs increased $68.8 million to $246.6 million for the
year ended December 31, 1997. As a percentage of total revenue, salaries and
related costs increased to 41.8% for the year ended December 31, 1997 from 41.2%
for the year ended December 31, 1996. This increase was primarily due to
additional staff required to service increased recruitment advertising billings,
increased sales staffing for Internet, and generally higher salary and related
costs as a percentage of commissions and fees for search & selection operations.
Temporary contracting costs increased $44.7 million to $155.1 million for
the year ended December 31, 1997, as compared with $110.4 million for the prior
period and reflects a greater number of temporary contract workers placed in the
year ended December 31, 1997 as compared with the prior period. As a percentage
of temporary contracting revenue, temporary contracting costs declined slightly
to 83.2% for the year ended December 31, 1997 from 83.6% for the year ended
December 31, 1996.
Office and general expenses increased $31.3 million to $131.5 million for
the year ended December 31, 1997 as compared with $100.2 million for the prior
period. As a percentage of total revenue, office and general expenses decreased
to 22.3% for the year ended December 31, 1997 from 23.2% for the year ended
December 31, 1996. This decrease was primarily due to (1) consolidation of
offices, which slowed the growth of office related expenses, (2) increased
growth in recruitment advertising commissions and fees combined with the
relatively fixed nature of some of these expenses and (3) increased temporary
contracting revenue which has relatively stable office and general expenses.
Amortization of intangibles was $6.8 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
revenue, amortization of intangibles was 1.2% and 1.1%, respectively, for the
years ended December 31, 1997 and 1996.
For 1996, special compensation of $52.0 million consists of a non-cash,
non-recurring charge that reflects the value of shares issued in connection with
the acquisition of the minority interests in predecessors of the Company because
the stockholders had received such shares for nominal or no consideration and,
accordingly, were not considered to have made a substantive investment for their
shares. The value of such shares was based on the per share initial public
offering price of $14.00 for our Common Stock.
As a result of the above, operating income for the year ended December 31,
1997 increased $61.9 million to $48.2 million for the year ended December 31,
1997 as compared with an operating loss of $13.7 million for the year ended
December 31, 1996 and as a percent of total revenue increased to 8.2% from
(3.2)% for the year ended December 31, 1996.
Net interest expense decreased $5.2 million to $8.9 million for the year
ended December 31, 1997 as compared to $14.1 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
11
<PAGE>
when it was originally issued. Our effective interest rate was 10.4% for the
year ended December 31, 1997 compared with 15.4% for the year ended December 31,
1996.
Taxes on income increased $6.0 million to $15.7 million for the year ended
December 31, 1997 from $9.7 million for the year ended December 31, 1996
primarily due to higher pre-tax income. The effective tax rate for the year
ended December 31, 1997 was 39.5% compared with (34.4)% for the year ended
December 31, 1996. The effective tax rate for 1997 was higher than the U.S.
Federal statutory rate of 34.0% primarily due to nondeductible expenses of
approximately $2.9 million and state taxes of $1.1 million. The effective tax
rate for 1996 reflects a non-cash special compensation charge of $52.0 million,
non-cash interest expense of $2.6 million and state taxes of $.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 $23.7 million for the year ended December 31,
1997, or $.69 per diluted share, compared with net loss of $39.2 million, or
$(1.37) 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) advertising 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 in 1997 and 1996, (c) long-term
borrowings in 1997, (d) capital leases and (e) vendor financing in 1996. In
December 1996, we completed our initial public offering of an aggregate of
4,147,408 shares of Common Stock at a purchase price of $14.00 per share in an
underwritten public offering managed by Morgan Stanley & Co. Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation and Ladenburg Thalmann & Co.
Inc. In the initial public offering, certain stockholders sold an additional
aggregate of 652,592 shares of Common Stock. The net proceeds that we received
from the initial public offering of $50.8 million were used to repay debt and,
in early 1997, to pay down accounts payable and to redeem preferred stock. In
September 1997, we completed a second public offering of an aggregate of
2,400,000 shares of Common Stock at a purchase price of $23.00 per share in an
underwritten public offering managed by Morgan Stanley & Co. Incorporated,
Goldman, Sachs & Co., BT Alex Brown Incorporated, Montgomery Securities and
Ladenburg Thalmann & Co. Inc. In addition, certain stockholders sold an
aggregate of 1,600,000 shares of common stock in such offering. Our net proceeds
from this offering of $63.4 million, including net repayment of borrowings of
$12.2 million, paid to us by certain stockholders were used to repay debt.
Net cash used by operating activities for the three months ended March 31,
1999 was $11.0 million compared with a use of $3.0 million for the three months
ended March 31, 1998. This increase of $8.0 million was primarily due to $9.2
million from the net effect of increases in accounts receivable over the
increases in accounts payable & accrued liabilities, as adjusted for the tax
benefit from the exercise of employee stock options, for the three months ended
March 31, 1999 as compared to the three months ended March 31, 1998. This
increase was offset in part by (a) $1.1 million more from funds provided by net
income and non-cash charges to earnings for the period ended March 31, 1999 than
for the period ended March 31, 1998 and (b) a $0.4 million net decline in work
in process, and prepaid and other assets. In addition, EBITDA was $18.2 million
for the three months ended March 31, 1999 an increase of $1.2 million or 7.1%
from $17.0 million for the three months ended March 31, 1998. The increase in
EBITDA resulted from higher depreciation and amortization in 1999 offset in part
by lower operating results, as discussed above.
Our investing activities for the three months ended March 31, 1999 used cash
of $17.6 million compared with $6.2 million for the three months ended March 31,
1998. The $11.4 million increase reflects
12
<PAGE>
a $10.7 million increase in payments for purchases of businesses, net of cash
acquired, and an increase of $0.7 million in capital expenditures over the same
period in 1998.
Our financing activities for the three month period ended March 31, 1999
provided net cash of $16.2 million, compared with $8.6 million for the three
month period ended March 31, 1998. This increase of $7.6 million primarily
reflects a $5.6 million increase in cash received from the exercise of employee
stock options and a $2.0 million increase in net borrowings for debt under our
line of credit and other borrowing arrangements for the three months ended March
31, 1999 compared to March 31, 1998.
At March 31, 1999, we had a $175 million committed line of credit from our
primary lender pursuant to a revolving credit agreement. Of such line, at March
31, 1999, approximately $53.5 million was unused and accounts receivable as
defined in the agreement was sufficient to allow draw down of the entire amount.
In addition, we have secured lines of credit aggregating $22.9 million for our
operations in Australia, France, Belgium and the Netherlands of which
approximately $12.8 million was unused at March 31, 1999.
Cash and cash equivalents at March 31, 1999 were $27.1 million, a decrease
of $1.0 million from $28.1 million at March 31, 1998.
Net cash provided by operating activities for the years ended December 31,
1998, 1997 and 1996 was $67.2 million, $34.5 million and $31.3 million,
respectively. The increase in cash of $32.7 million from operating activities
for 1998 over 1997 was primarily due to an increase of $40.3 million in accounts
payable, accrued expenses and other current liabilities, a $10.5 million
increase in depreciation and amortization costs and $8.3 million for the
utilization of our common stock to pay bonuses, partially offset by decreases in
net income of $9.5 million, $6.6 million in deferred income taxes and a $4.4
million increase in accounts receivable and work-in-process and $6.5 million in
prepaid and other assets. In addition, in 1998 we paid approximately $10.6
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 restructuring reserve totaled $16.8 million as of December 31,
1997, was increased by $10.0 million during 1998, with a corresponding increase
to intangible assets, and reduced by the payments of $10.6 million leaving a
restructuring reserve at December 31, 1998 of $16.2 million. (See Note 5 to the
Company's Supplemental Consolidated Financial Statements included elsewhere
herein.) The increase in cash from operating activities for 1997 over 1996 was
primarily due to increased net income, after adding back the effect of non-cash
charges in 1996, partially offset by higher payments of accounts payable,
including amounts to substantially repay vendor financed payables.
Net cash used in investing activities for the years ended December 31, 1998,
1997 and 1996 was $47.9 million, $83.7 million and $43.2 million, respectively.
The $35.8 million decrease in 1998 as compared with 1997 was primarily due to
$42.4 million less in payments for acquisitions, reflecting the use of shares to
make acquisitions of businesses, and $4.5 million less in capital expenditures.
In addition, during 1997 we received a net of $11.4 million from the Principal
Stockholder and certain other stockholders paid primarily with funds received
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 $24.4 million in 1998, $66.8 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
$23.7 million, $28.3 million and $12.7 million for the years ended December 31,
1998, 1997 and 1996, respectively. In addition, in 1997, we acquired certain
transportation equipment and made capital improvements for a total of $6.8
million, replacing the transportation equipment sold during 1996 for $6.1
million, and simultaneously entered into a $7.8 million financing agreement to
fund the purchase and provide additional operating funds. In December 1996, we
sold certain transportation equipment for $6.1 million receiving a note for $2.7
million and retained $1.2 million in cash, after payment of related debt. We
estimate that our expenditures for computer equipment and software, furniture
and fixtures and leasehold improvements will be approximately $25.0 million for
1999.
13
<PAGE>
EBITDA was $69.1 million for the year ended December 31, 1998, an increase
of $0.8 million from $68.3 million for the year ended December 31, 1997. As a
percentage of total revenue, EBITDA decreased to 9.9% for the year ended
December 31, 1998 from 11.6% for the year ended December 31, 1997. The decrease
resulted primarily from the $18.8 million charge for merger costs ($22.4 million
less $3.6 million in amortization of deferred compensation), which was 2.7% of
total revenue for the year ended December 31, 1998, offset by increased
depreciation and amortization of $10.5 million. For the year ended December 31,
1997, EBITDA was $68.3 million, an increase of $70.5 million from $(2.2) million
for the year ended December 31, 1996, and as a percent of total revenue
increased to 11.6% for the year ended December 31, 1997 as compared to (0.5)%
for the year ended December 31, 1996 due to a higher operating profit. For the
year ended December 31, 1996, EBITDA was $(2.2) million primarily due to the
$52.0 million non-cash special compensation charge.
Our financing activities include equity offerings, borrowings and repayments
under our financing agreement and payments on (i) installment notes, principally
to finance acquisitions, and (ii) capital leases. In the fourth quarter of 1996,
we completed our initial public offering of 4,147,408 shares of Common Stock for
net proceeds of $50.8 million and in the third quarter of 1997, we completed our
second public offering of 2,400,000 shares of Common Stock for net proceeds of
$51.2 million. With a portion of the proceeds received from our initial public
offering in January 1997, we redeemed all of the shares of the cumulative
preferred stock issued by a subsidiary, reported as a minority interest, and our
previously issued preferred stock for approximately $3.1 million and $2.1
million, respectively. Such redemptions included approximately $100,000 each of
premiums. Our financing activities used net cash of $9.1 million in 1998, and
provided net cash of $52.4 million and $15.3 million in 1997 and 1996,
respectively. In November, 1998 and 1997 we amended our financing agreement with
our primary lender to provide for borrowings up to $175 million under a
revolving credit facility. Such facility is used to finance our acquisitions and
for working capital requirements. As of December 31, 1998, there was $97.7
million outstanding and approximately $77.3 million available under such
facility. Our current interest rate under the agreement is LIBOR plus 87.5 basis
points. In addition, we have secured lines of credit aggregating $24.0 million
for our operations in Australia, France, Belgium and the Netherlands of which
approximately $17.5 million was unused at December 31, 1998. 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.
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 $8.0 million at December 31, 1998.
We intend to continue our acquisition strategy and promotion of our Internet
activities 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 forseeable cash
needs for at least the next year. However, if we determine that conditions are
favorable, we would consider additional corporate finance transactions.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
is effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance over accounting for computer software developed
or
14
<PAGE>
obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. We do not expect the adoption of this
standard to have a material effect on our capitalization policy.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" ("SFAS No. 133"), which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. SFAS No.
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. The Company does not expect the adoption of this statement to have a
significant impact on the Company's results of operations, financial position or
cash flows.
YEAR 2000 ISSUE
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These systems
and software products will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software used by many companies and governmental agencies may need to be
upgraded to comply with such Year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities.
STATE OF READINESS
We have developed a comprehensive plan to deal with the Year 2000 issue. The
plan is an evolving document as we continue to acquire and integrate companies
throughout 1999. The plan is intended to achieve three basic objectives: to
ensure that core systems will operate reliably through the year 2000 and beyond;
to ensure that each business unit follows a consistent approach and adheres to
project deadlines; and to track the status of all Year 2000 efforts.
Our Year 2000 task force has conducted an inventory of and developed testing
procedures for all software and other systems that it believes might be affected
by Year 2000 issues. Since third parties developed and currently support many of
the systems used, a significant part of this effort will be to ensure that these
third-party systems are Year 2000 compliant. Our plan is to confirm this
compliance by obtaining representations by these third parties that their
products' are year 2000 compliant and through specific testing of these systems.
Our plan is to complete this process prior to the end of the third quarter of
1999. Until such testing is completed and such vendors and providers are
contacted, we will not be able to completely evaluate whether our systems will
need to be revised or replaced.
COSTS
We expect to incur approximately $3.0 million, globally, during 1999 in
connection with identifying, evaluating and addressing Year 2000 compliance
issues. Most of these costs relate to time spent by employees and consultants in
making our systems Year 2000 compliant. Such costs, are not expected to have a
material adverse effect on the Company's business, results of operations and
financial condition.
RISKS
We are not currently aware of any Year 2000 compliance 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 compliance problems in our systems that will require
substantial revision. In addition, there can be no assurance that third-party
software, hardware or services incorporated into our material systems will not
need to be revised or replaced, all of which could be time-consuming and
expensive. Our failure to fix or replace our internally developed proprietary
software or third-party software, hardware or services on a timely basis could
result in lost revenues, increased operating costs, the loss of customers and
other
15
<PAGE>
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 compliance 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 compliant. The failure by such entities
to be Year 2000 compliant 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 Web sites which
could have a material adverse effect on our business, results of operations and
financial condition.
CONTINGENCY PLAN
We are currently developing contingency plans for those systems which we
consider at risk of not being Year 2000 compliant at least three months before
year-end. The results of our Year 2000 simulation testing and the responses
received from third-party vendors and service providers will be taken into
account in determining the nature and extent to which our contingency plans will
be implemented.
FLUCTUATIONS OF QUARTERLY RESULTS
Our quarterly commissions and fees are affected by the timing of yellow page
directory closings which currently have a concentration in the third quarter.
Yellow page publishers may change the timing of directory publications which may
have an effect on our quarterly results. Our yellow page advertising results are
also affected by commissions earned for volume placements for the year, which
are typically reported in the fourth quarter. Our quarterly commissions and fees
for recruitment advertising are typically highest in the first quarter and
lowest in the fourth quarter; however, the cyclicality in the economy and our
clients' employment needs have an overriding impact on our quarterly results in
recruitment advertising. Moreover, our recruitment advertising acquisition
activity has had more of an impact on our recently reported quarterly results
than any other factor. (See Note 2 to the Company's Consolidated Financial
Statements included elsewhere herein.)
The following table sets forth summary quarterly unaudited financial
information for the quarter ended March 31, 1999 and the years ended December
31, 1998 and 1997. Amounts have been restated to
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<PAGE>
reflect the effect of the retroactive restatement for the Second Quarter 1999
Mergers: (in millions, except share and per share amounts).
<TABLE>
<CAPTION>
1999
QUARTER
-----------
<S> <C>
MARCH 31,
-----------
Revenue:
Recruitment advertising.............................................................................. $ 42.5
Yellow page advertising.............................................................................. 23.2
Search & selection................................................................................... 42.0
Internet............................................................................................. 20.5
-----------
Total commissions and fees............................................................................. 128.2
Temporary contracting................................................................................ 60.7
-----------
Total revenue.......................................................................................... $ 188.9
-----------
-----------
Operating income....................................................................................... $ 9.9
Net income applicable to common and Class B common stockholders........................................ $ 3.9
Net income per common and Class B common share:
Basic................................................................................................ $ .11
Diluted.............................................................................................. $ .10
Weighted average shares outstanding (in thousands):
Basic................................................................................................ 36,381
Diluted.............................................................................................. 37,972
</TABLE>
<TABLE>
<CAPTION>
1998 QUARTERS
---------------------------------------------------
<S> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- --------- ------------- ------------
Revenue:
Recruitment advertising.................................... $ 43.5 $ 43.2 $ 39.7 $ 40.8
Yellow page advertising.................................... 22.7 26.6 31.3 23.1
Search & selection......................................... 40.0 43.0 42.4 41.8
Internet................................................... 8.0 11.0 13.7 17.5
----------- --------- ------------- ------------
Total commissions and fees................................... 114.2 123.8 127.1 123.2
Temporary contracting...................................... 46.5 51.6 52.2 60.8
----------- --------- ------------- ------------
Total revenue................................................ $ 160.7 $ 175.4 $ 179.3 $ 184.0
----------- --------- ------------- ------------
----------- --------- ------------- ------------
Operating income............................................. $ 11.1 $ 14.7 $ 12.6 $ 2.6
Net income (loss) applicable to common and Class B common
stockholders............................................... $ 5.0 $ 6.7 $ 6.0 $ (3.3)
Net income (loss) per common and Class B common share:
Basic...................................................... $ 0.14 $ 0.19 $ 0.17 $ (0.09)
Diluted.................................................... $ 0.14 $ 0.18 $ 0.16 $ (0.09)
Weighted average shares outstanding (in thousands):
Basic...................................................... 35,795 35,846 35,869 35,910
Diluted.................................................... 37,129 36,923 37,047 35,910
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
1997 QUARTERS
---------------------------------------------------
<S> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- --------- ------------- ------------
Revenue:
Recruitment advertising.................................... $ 25.8 $ 29.0 $ 33.6 $ 38.8
Yellow page advertising.................................... 21.4 24.6 30.0 25.7
Search & selection......................................... 36.9 38.7 37.6 41.7
Internet................................................... 4.0 4.7 5.0 5.8
----------- --------- ------------- ------------
Total commissions and fees................................... 88.1 97.0 106.2 112.0
Temporary contracting...................................... 46.2 46.1 47.0 47.3
----------- --------- ------------- ------------
Total revenue................................................ $ 134.3 $ 143.1 $ 153.2 $ 159.3
----------- --------- ------------- ------------
----------- --------- ------------- ------------
Operating income............................................. $ 13.0 $ 12.3 $ 13.9 $ 9.0
Net income applicable to common and Class B common
stockholders............................................... $ 6.9 $ 6.0 $ 6.1 $ 4.7
Net income per common and Class B common share:
Basic...................................................... $ 0.21 $ 0.18 $ 0.18 $ 0.13
Diluted.................................................... $ 0.21 $ 0.18 $ 0.18 $ 0.13
Weighted average shares outstanding (in thousands):
Basic...................................................... 33,070 33,093 33,581 35,664
Diluted.................................................... 33,540 33,747 34,285 36,323
</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.
18
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE NO.
-----------
<S> <C>
SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED):
Balance sheet as of March 31, 1999.................................................................... F-2
Statements of income for the three months ended March 31, 1999 and 1998............................... F-3
Statements of comprehensive income for the three months ended March 31, 1999 and 1998................. F-4
Statement of stockholders' equity for the three months ended March 31, 1999........................... F-5
Statements of cash flows for the three months ended March 31, 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-14
Independent Auditor's Report to the Members of Morgan & Banks Limited................................. F-15
Balance sheets as of December 31, 1998 and 1997....................................................... F-16
Statements of operations for the years ended December 31, 1998, 1997 and 1996......................... F-17
Statements of comprehensive income (loss) for the years ended December 31, 1998, 1997 and 1996........ F-18
Statements of stockholders' equity (deficit) for the years ended December 31, 1998, 1997 and 1996..... F-19
Statements of cash flows for the years ended December 31, 1998, 1997 and 1996......................... F-20
Notes to supplemental consolidated financial statements............................................... F-21
Report of Independent Certified Public Accountants.................................................... F-52
Supplemental Schedule II: Valuation and qualifying accounts for the years ended December 31, 1998,
1997 and 1996....................................................................................... F-53
</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>
MARCH 31,
1999
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................................... $ 27,149
Accounts receivable, net........................................................................... 339,207
Work-in-process.................................................................................... 21,264
Prepaid and other.................................................................................. 25,830
-----------
Total current assets........................................................................... 413,450
Property and equipment, net.......................................................................... 63,133
Deferred income taxes................................................................................ 6,684
Intangibles, net..................................................................................... 217,524
Other assets......................................................................................... 7,795
-----------
$ 708,586
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................................... $ 262,252
Accrued expenses and other liabilities............................................................. 92,820
Accrued restructuring costs........................................................................ 14,312
Deferred revenue................................................................................... 16,111
Deferred income taxes.............................................................................. 4,808
Current portion of long term debt.................................................................. 11,779
-----------
Total current liabilities...................................................................... 402,082
Long term debt, less current portion................................................................. 130,776
Other liabilities.................................................................................... 8,818
-----------
Total liabilities.............................................................................. 541,676
-----------
Minority interests................................................................................... 601
-----------
Stockholders' equity:
Preferred stock, $.001 par value, authorized 800,000 shares; issued and outstanding-- none......... --
Common stock, $.001 par value, authorized 200,000,000 shares; issued and outstanding-- 34,317,456
shares........................................................................................... 34
Class B common stock, $.001 par value, authorized 39,000,000 shares; issued and
outstanding--2,381,000........................................................................... 2
Additional paid-in capital......................................................................... 200,531
Other comprehensive loss........................................................................... (920)
Deficit............................................................................................ (33,338)
-----------
Total stockholders' equity........................................................................... 166,309
-----------
$ 708,586
-----------
-----------
</TABLE>
See accompanying notes to supplemental consolidated condensed financial
statements.
F-2
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Revenue:
Commissions and fees...................................................................... $ 128,237 $ 114,260
Temporary contracting..................................................................... 60,648 46,532
---------- ----------
Total revenue....................................................................... 188,885 160,792
---------- ----------
Operating expenses:
Salaries and related costs.............................................................. 79,804 65,797
Temporary contracting costs............................................................. 50,609 43,355
Office and general expenses............................................................. 41,233 37,904
Merger costs............................................................................ 4,687 --
Amortization of intangibles............................................................. 2,634 2,243
CEO special bonus....................................................................... -- 375
---------- ----------
Total operating expenses............................................................ 178,967 149,674
---------- ----------
Operating income.................................................................... 9,918 11,118
Other expense:
Interest expense, net................................................................... (2,730) (2,466)
Other, net.............................................................................. (43) (97)
---------- ----------
Total other expense, net............................................................ (2,773) (2,563)
---------- ----------
Income before provision for income taxes, minority interests and equity in losses of
affiliates.............................................................................. 7,145 8,555
Provision for income taxes................................................................ 3,056 3,416
---------- ----------
Income before minority interests and equity in losses of affiliates....................... 4,089 5,139
Minority interests........................................................................ 99 16
Equity in losses of affiliates............................................................ (100) (87)
---------- ----------
Net income................................................................................ $ 3,890 $ 5,036
---------- ----------
---------- ----------
Net income per common and Class B common share:
Basic................................................................................... $ 0.11 $ 0.14
---------- ----------
---------- ----------
Diluted................................................................................. $ 0.10 $ 0.14
---------- ----------
---------- ----------
Weighted average shares outstanding:
Basic................................................................................... 36,381 35,795
---------- ----------
---------- ----------
Diluted................................................................................. 37,972 37,129
---------- ----------
---------- ----------
</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
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Net income............................................................................... $ 3,890 $ 5,036
Foreign currency translation adjustment.................................................. 2,096 (292)
--------- ---------
Comprehensive income..................................................................... $ 5,986 $ 4,744
--------- ---------
--------- ---------
</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-
------------------------ ------------------------ PAID-IN HENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL LOSS DEFICIT
----------- ----------- --------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1998......... 33,680,777 $ 34 2,381,000 $ 2 $ 183,148 $ (3,016) $ (36,435)
Issuance of options to outside
salespersons as commission....... -- -- -- -- 45 -- --
Issuance of common stock in
connection with the exercise of
options.......................... 465,986 -- -- -- 5,855 -- --
Tax benefit from the exercise of
stock options.................... -- -- -- -- 2,637 -- --
Issuance of common stock in
connection with acquisitions..... 149,216 -- -- -- 7,944 -- --
Issuance of common stock for
matching contribution to 401(k)
plan............................. 21,477 -- -- -- 902 -- --
Foreign currency translation
adjustment....................... -- -- -- -- 2,096 --
Net income........................ -- -- -- -- -- -- 3,890
Dividends declared by pooled
companies -- -- -- -- -- -- (793)
--
----------- --- --------- ----------- --------- ---------
Balance, March 31, 1999........... 34,317,456 $ 34 2,381,000 $ 2 $ 200,531 $ (920) $ (33,338)
--
--
----------- --- --------- ----------- --------- ---------
----------- --- --------- ----------- --------- ---------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
------------
<S> <C>
Balance December 31, 1998......... $ 143,733
Issuance of options to outside
salespersons as commission....... 45
Issuance of common stock in
connection with the exercise of
options.......................... 5,855
Tax benefit from the exercise of
stock options.................... 2,637
Issuance of common stock in
connection with acquisitions..... 7,944
Issuance of common stock for
matching contribution to 401(k)
plan............................. 902
Foreign currency translation
adjustment....................... 2,096
Net income........................ 3,890
Dividends declared by pooled
companies (793)
------------
Balance, March 31, 1999........... $ 166,309
------------
------------
</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>
THREE MONTHS ENDED MARCH
31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income......................................................................... $ 3,890 $ 5,036
----------- -----------
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization of property and equipment........................ 4,352 3,795
Amortization of intangibles and deferred costs................................. 2,634 2,243
Amortization of deferred compensation in connection with employee stay
bonuses...................................................................... 1,497 --
Provision for doubtful accounts................................................ 903 1,287
Common stock issued for matching contribution to 401(k) plan................... 902 641
CEO special bonus.............................................................. -- 375
Minority interests............................................................. 99 16
Provision for deferred income taxes............................................ (1,887) 916
Other.......................................................................... 147 108
Tax benefit from the exercise of employee stock options........................ 2,637 --
Effect of companies accounted for as poolings of interest included in both the
current period and the previous year......................................... -- (2,651)
Changes in assets and liabilities, net of effects of purchases of businesses:
Increase in accounts receivable, net........................................... (24,694) (8,128)
Increase in work-in process.................................................... (2,955) (2,799)
Decrease in prepaid and other.................................................. 1,380 1,220
Decrease in other assets....................................................... 1,452 1,039
Decrease in accounts payable and accrued liabilities........................... (1,332) (6,053)
----------- -----------
Total adjustments............................................................ (14,865) (7,991)
----------- -----------
Net cash used in operating activities........................................ (10,975) (2,955)
----------- -----------
Cash flows from investing activities:
Capital expenditures............................................................. (5,548) (4,886)
Payments for purchases of businesses, net of cash acquired....................... (12,030) (1,283)
----------- -----------
Net cash used in investing activities........................................ (17,578) (6,169)
----------- -----------
Cash flows from financing activities:
Payments on capitalized leases................................................... (815) (749)
Borrowings under lines of credit and proceeds from issuance of debt.............. 306,330 234,522
Repayments under lines of credit and principal payments on debt.................. (294,432) (224,659)
Cash received from the exercise of employee stock options........................ 5,855 215
Dividends paid by pooled entities................................................ (787) (759)
----------- -----------
Net cash provided by financing activities.................................... 16,151 8,570
----------- -----------
Effect of exchange rate changes on cash.............................................. 725 31
----------- -----------
Net decrease in cash and cash equivalents............................................ (11,677) (523)
Cash and cash equivalents, beginning of period....................................... 38,826 28,613
----------- -----------
Cash and cash equivalents, end of period............................................. $ 27,149 $ 28,090
----------- -----------
----------- -----------
</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 include
the accounts of TMP Worldwide Inc. and all of its wholly-owned and
majority-owned subsidiaries (collectively, "TMP" or the "Company") and have been
prepared by 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 therein. It is suggested that these
consolidated condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998 and the supplemental
consolidated financial statements and notes thereto included elsewhere in this
report. The Company follows the same accounting policies in preparation of
interim reports.
Previously, in its Quarterly Report on Form 10-Q for the period ended March
31, 1999, the Company included the effects of the mergers with Johnson Smith &
Knisely Inc. ("JSK") on May 6, 1998, TASA Holdings AG on August 31, 1998,
Stackig, Inc. on September 30, 1998, Recruitment Solutions, Inc. on October 2,
1998, SunQuest L.L.C., d.b.a. the SMART Group on November 2, 1998, The
Consulting Group (International) Limited ("TCG") on December 2, 1998 and Morgan
& Banks Limited ("M&B") on January 28, 1999 and restated the consolidated
financial statements of the Company for the three months ended March 31, 1998 to
give retroactive effect to such mergers, which have been accounted for using the
pooling of interests method. During the period April 30 through May 31, 1999,
the Company completed the acquisitions of Interquest, Pty. Limited
("Interquest"), LIDA Advertising, Inc. ("LIDA"), Maes & Lunau ("M&L"), Lemming &
LeVan, Inc. ("L&L"), IN2, Inc. ("IN2") and Yellow Pages Unlimited, Inc. ("YPU"),
(the "Second Quarter 1999 Pooled Companies"), which were accounted for as
poolings of interests (the "Second Quarter 1999 Mergers"). As a result, the
financial position, results of operations and cash flows are presented in the
accompanying supplemental consolidated condensed financial statements as if the
Second Quarter 1999 Pooled Companies had been consolidated with TMP for all
periods presented and the consolidated statements of stockholders' equity
reflect the accounts of TMP as if the additional common stock issued in
connection with the mergers had been issued for all periods presented. It is
further suggested that these supplemental consolidated condensed financial
statements be read in conjunction with the supplemental consolidated financial
statements and notes thereto included in the Company's Current Report on Form
8-K filed with the Securities & Exchange Commission on April 21, 1999. The
supplemental consolidated balance sheet of TMP as of March 31, 1999 has been
combined with those of the Second Quarter 1999 Pooled Companies as of March 31,
1999. For the three months ended March 31, 1999 and 1998, the results of TMP
have been combined with those of the Second Quarter 1999 Pooled Companies for
the same periods.
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)
Results of operations for the interim periods are not necessarily indicative
of annual results.
Basic earnings per share assumes no dilution, and is computed by dividing
income available to common and Class B common shareholders by the weighted
average number of common and Class B common shares outstanding during each
period. Diluted earnings per share reflect, in periods in which they have a
dilutive effect, the effect 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>
THREE MONTHS ENDED MARCH 31,
--------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Basic.................................................................... 36,381 35,795
Effect of assumed exercise of stock options.............................. 1,591 1,334
------ ------
Diluted.................................................................. 37,972 37,129
------ ------
------ ------
</TABLE>
NOTE 2--NATURE OF BUSINESS AND CREDIT RISK
The Company operates in four business segments: advertising (recruitment and
yellow pages), 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 revenue in connection
with providing temporary contracting services. The Company operates principally
throughout North America, the United Kingdom, Continental Europe and the Pacific
Rim.
NOTE 3--BUSINESS ACQUISITIONS
ACQUSITIONS ACCOUNTED FOR USING THE POOLING OF INTERESTS METHOD
During the period April 30, 1999 through May 31, 1999, the Company completed
the following acquisitions which provided for the exchange of all the
outstanding stock of each entity for shares of TMP common stock and are
accounted for as poolings of interests:
<TABLE>
<CAPTION>
NATURE OF REGION OF NUMBER OF
ENTITY OPERATIONS OPERATIONS ACQUISITION DATE TMP SHARES ISSUED
- ----------------------- -------------------------- ---------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Interquest............. Temporary contracting and Pacific Rim April 30, 1999 176,695
Search & selection
LIDA................... Advertising North America May 19, 1999 112,606
M&L.................... Search & selection Continental Europe May 20, 1999 110,000
IN2.................... Internet North America May 28, 1999 289,031
L&L.................... Search & selection North America May 28, 1999 122,908
YPU.................... Advertising North America May 28, 1999 89,000
</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 3--BUSINESS ACQUISITIONS (CONTINUED)
Revenue, net income (loss) applicable to common and Class B common
stockholders and net income per common and Class B common share of the combining
companies are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
REVENUE
TMP, as previously reported on Form 10-Q.................................................. $ 179,920 $ 152,486
Interquest................................................................................ 6,179 5,596
M&L....................................................................................... 1,014 845
LIDA...................................................................................... 388 403
IN2....................................................................................... 431 341
L&L....................................................................................... 619 789
YPU....................................................................................... 334 332
---------- ----------
TMP, as restated.......................................................................... $ 188,885 $ 160,792
---------- ----------
---------- ----------
NET INCOME (LOSS) APPLICABLE TO COMMON AND CLASS B COMMON STOCKHOLDERS
TMP, as previously reported on Form 10-Q.................................................. $ 3,214 $ 4,475
Interquest................................................................................ 202 258
M&L....................................................................................... 560 445
LIDA...................................................................................... (102) (352)
IN2....................................................................................... 33 182
L&L....................................................................................... (149) (118)
YPU....................................................................................... 132 146
---------- ----------
TMP, as restated.......................................................................... $ 3,890 $ 5,036
---------- ----------
---------- ----------
NET INCOME PER COMMON AND CLASS B COMMON SHARE
As previously reported on Form 10-Q
Basic................................................................................... $ 0.13 $ 0.09
Diluted................................................................................. $ 0.12 $ 0.09
Restated:
Basic................................................................................... $ 0.11 $ 0.14
Diluted................................................................................. $ 0.10 $ 0.14
</TABLE>
MERGER COSTS INCURRED WITH POOLING OF INTERESTS TRANSACTIONS
In connection with the pooling of interests transactions completed during
1998 and the merger with M&B in January 1999, the Company expensed merger
related costs of $4,687. The $4,687 of merger costs for the period ended March
31, 1999 consists of (1) $1,497 of non-cash employee stay bonuses which is 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
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)
earn such shares and (2) $3,190 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, in the
three month period ended March 31, 1999, the Company completed five acquisitions
using the purchase method of accounting, two search and selection firms (one
with operations in eastern Europe and one in Belgium), two recruitment
advertising firms (one in Spain and one in France) and a yellow page advertising
firm in Long Island, New York. The purchase price of these acquisitions was
approximately $22,117, including 172,616 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 three month periods ended March 31, 1999 and 1998 assume that the
acquisitions in 1999 and 1998 occurred as of the beginning of the period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Total revenue............................................................................. $ 189,875 $ 167,201
Net income applicable to common and Class B common stockholders........................... $ 3,958 $ 4,941
Net income per common and Class B common share:...........................................
Basic................................................................................... $ 0.11 $ 0.14
Diluted................................................................................. $ 0.10 $ 0.13
</TABLE>
The pro forma results of operations are not necessarily indicative of what
actually would have occurred if the acquisitions had been completed at the
beginning of each of the periods presented, nor are the results of operations
necessarily indicative of the results that will be attained in the future.
ACCRUED RESTRUCTURING COSTS
In connection with the acquisitions made in 1997 and accounted for using the
purchase method, the Company developed plans to restructure the operations of
the acquired companies. Such plans involve the closure of certain offices of the
acquired companies and the termination of certain management and employees. The
objective of the plans is to create a single brand in the related markets in
which the Company operates. The preliminary plans were finalized in July 1998.
These costs and liabilities include:
<TABLE>
<CAPTION>
BALANCE BALANCE
12/31/98 ADDITIONS PAYMENTS 3/31/99
--------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Assumed obligations on leased facilities to be closed................. $ 9,228 -- $ (284) $ 8,944
Consolidation of acquired facilities.................................. 2,745 -- (1,356) 1,389
Contracted lease payments exceeding current market costs.............. 707 -- (35) 672
Severance, relocation and other employee costs........................ 1,737 -- (181) 1,556
Pension obligations................................................... 1,753 -- (2) 1,751
--------- --- ----------- ---------
Total................................................................. $ 16,170 -- $ (1,858) $ 14,312
--------- --- ----------- ---------
--------- --- ----------- ---------
</TABLE>
F-10
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 3--BUSINESS ACQUISITIONS (CONTINUED)
Accrued liabilities for surplus property in the amount of $8,944 as of March
31, 1999 relate to 18 leased office locations of the acquired companies that
were either unutilized prior to the acquisition date or were closed by March 31,
1999 in connection with the restructuring plans. The amount is based on the
present value of minimum future lease obligations, net of sublease revenue on
existing subleases.
Other costs associated with the closure of existing offices of acquired
companies in the amount of $1,389 as of March 31, 1999, relate to the
termination costs of contracts relating to billing systems, external reporting
systems and other contractual agreements with third parties.
Above market lease costs in the amount of $672 as of March 31, 1999 relate
to the present value of contractual lease payments in excess of current market
lease rates.
Estimated severance payments, employee relocation expenses and other
employee costs in the amount of $1,556 as of March 31, 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 March 31, 1999 the accrual
related to approximately 40 employees including senior management, sales,
service and administrative personnel.
Pension obligations in the amount of $1,751 were assumed in connection with
the acquisition of Austin Knight.
The Company continues to evaluate and assess the impact of duplicate
responsibilities and office locations. Additional future costs incurred,
resulting from revised plan actions occurring after March 31, 1999, in excess of
the amounts previously recorded as goodwill will be charged to operations in the
period in which they occur.
NOTE 4--SEGMENT AND GEOGRAPHIC DATA
The Company is engaged in four lines of business: advertising (recruitment
and yellow pages), Internet, search & selection and temporary contracting.
Operations are conducted in several geographic regions: North America, the
Pacific Rim (primarily in Australia, New Zealand and Japan), the United Kingdom
and Continental Europe. The following is a summary of the Company's operations
by business segment and by geographic segment, for the three months ended March
31, 1999 and 1998.
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 4--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
SEARCH & TEMPORARY
INFORMATION BY BUSINESS SEGMENT ADVERTISING INTERNET SELECTION CONTRACTING TOTAL
- --------------------------------------------------- ----------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
March 31, 1999
Revenue
Traditional sources.............................. $ 65,713 $ -- $ 41,986 $ 60,648 $ 168,347
Internet......................................... 2,109 17,492 445 492 20,538
----------- --------- ----------- ----------- ----------
Total revenue...................................... 67,822 17,492 42,431 61,140 188,885
----------- --------- ----------- ----------- ----------
Operating expenses:
Salaries and related costs, office & general and
CEO special bonus.............................. 55,815(a) 19,104 37,798(a) 8,320(a) 121,037
Temporary contracting costs...................... -- -- -- 50,609 50,609
Merger costs..................................... 79 -- 4,608 -- 4,687
Amortization of intangibles...................... 2,329 58 221 26 2,634
----------- --------- ----------- ----------- ----------
Total expenses..................................... 58,223 19,162 42,627 58,955 178,967
----------- --------- ----------- ----------- ----------
Operating income (loss)............................ $ 9,599 $ (1,670) $ (196) $ 2,185 9,918
----------- --------- ----------- -----------
----------- --------- ----------- -----------
Other expense:
Interest expense, net............................ * * * * (2,730)
Other, net....................................... * * * * (43)
----------
Income before provision for income taxes, minority
interests and equity in losses of affiliates...... * * * * $ 7,145
----------
----------
<CAPTION>
SEARCH & TEMPORARY
INFORMATION BY BUSINESS SEGMENT ADVERTISING INTERNET SELECTION CONTRACTING TOTAL
- --------------------------------------------------- ----------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
March 31, 1998
Revenue
Traditional sources.............................. $ 66,220 $ -- $ 39,998 $ 46,532 $ 152,750
Internet......................................... 662 7,380 -- -- 8,042
----------- --------- ----------- ----------- ----------
Total revenue...................................... 66,882 7,380 39,998 46,532 160,792
----------- --------- ----------- ----------- ----------
Operating expenses:
Salaries and related costs, office & general and
CEO special bonus.............................. 57,663(a) 8,339 35,833 2,241 104,076
Temporary contracting costs...................... -- -- -- 43,355 43,355
Amortization of intangibles...................... 2,054 58 106 25 2,243
----------- --------- ----------- ----------- ----------
Total expenses..................................... 59,717 8,397 35,939 45,621 149,674
----------- --------- ----------- ----------- ----------
Operating income (loss)............................ $ 7,165 $ (1,017) $ 4,059 $ 911 11,118
----------- --------- ----------- -----------
----------- --------- ----------- -----------
Other expense:
Interest expense, net............................ * * * * (2,466)
Other, net....................................... * * * * (97)
----------
Income before provision for income taxes, minority
interests and equity in losses of affiliates...... * * * * $ 8,555
----------
----------
</TABLE>
- ------------------------------
(a) Includes Internet expense of $955 for 1999 and $464 for 1998.
* Not allocated.
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 4--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
UNITED CONTINENTAL
INFORMATION BY GEOGRAPHIC REGION NORTH AMERICA PACIFIC RIM KINGDOM EUROPE TOTAL
- ------------------------------------------------- -------------- ----------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
March 31, 1999
Total revenue.................................. $ 65,277 $ 79,637 $ 24,580 $ 19,391 $ 188,885
Income (loss) before provision for income
taxes, minority interests and equity in
losses of affiliates......................... $ (2,307) $ 2,946 $ 1,668 $ 4,838 $ 7,145
March 31, 1998
Total revenue.................................. $ 60,713 $ 59,793 $ 29,116 $ 11,170 $ 160,792
Income (loss) before provision for income
taxes, minority interests and equity in
losses of affiliates......................... $ (1,200) $ 3,149 $ 3,611 $ 2,995 $ 8,555
</TABLE>
NOTE 5--LAI WORLDWIDE ACQUISITION
On March 11, 1999 the Company and LAI Worldwide ("LAI") announced that they
had entered into an agreement by which the Company will acquire all of the
outstanding shares of LAI in exchange for TMP common stock in accordance with
the terms of the agreement. The transaction is expected to be accounted for as a
pooling of interests.
The acquisition is anticipated to close in the third quarter of 1999. It is
estimated that costs associated with the merger, including a non-cash charge of
$2.7 million to reflect the accelerated vesting of equity incentives due LAI
employees, will be approximately $6.0 million.
Under the terms of the agreement, each share of LAI stock will be exchanged
for 0.1321 shares of the Company's common stock, assuming that the average share
price of the Company's common stock for the 20 days ending on the 2nd day prior
to closing is between $42.00 and $64.00 per share. Should such 20-day average
share price fall below $42.00 per share, unless the Company elects to terminate
the acquisition, the exchange ratio will be adjusted to that obtained by
dividing $5.55 by the Company's 20-day average stock price measured prior to
closing. Should such 20-day average share price exceed $64.00 per share, the
exchange ratio will be adjusted to that obtained by dividing $8.45 by the
Company's 20-day average stock price measured prior to closing, but not below
that which would provide LAI shareholders with a fraction of a share of the
Company's common stock equal to $5.55. Based on the exchange ratio of 0.1321,
the Company expects to issue approximately 1.2 million shares, including the
effect of options. The agreement is subject to customary closing conditions,
including approval by the shareholders of LAI.
F-13
<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, Interquest, Pty. Limited on April 30, 1999, LIDA Advertising,
Inc. on May 19, 1999, Maes & Lunau on May 20, 1999, IN2, Inc. on May 28, 1999,
Lemming & LeVan, Inc. on May 28, 1999 and Yellow Pages Unlimited, Inc.
Advertising on May 28, 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 revenues 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 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 report of the other auditor provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditor, 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.
/s/ BDO Seidman, LLP
--------------------------------------
BDO Seidman, LLP
New York, New York
June 7, 1999
F-14
<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
</TABLE>
SYDNEY, 15 APRIL 1999
F-15
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 38,826 $ 28,613
Accounts receivable, net................................................................ 310,699 310,995
Work-in-process......................................................................... 18,309 15,623
Prepaid and other....................................................................... 26,427 17,971
---------- ----------
Total current assets.................................................................. 394,261 373,202
Property and equipment, net............................................................... 61,584 53,381
Deferred income taxes..................................................................... 6,599 5,202
Intangibles, net.......................................................................... 200,374 167,549
Other assets.............................................................................. 10,882 9,045
---------- ----------
$ 673,700 $ 608,379
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 259,841 $ 229,270
Accrued expenses and other current liabilities.......................................... 92,545 83,956
Accrued restructuring costs............................................................. 16,170 16,801
Deferred revenue........................................................................ 13,933 8,462
Deferred income taxes................................................................... 6,438 9,372
Current portion of long-term debt....................................................... 13,067 13,767
---------- ----------
Total current liabilities............................................................. 401,994 361,628
Long-term debt, less current portion...................................................... 119,593 123,778
Other liabilities......................................................................... 7,871 1,331
---------- ----------
Total liabilities..................................................................... 529,458 486,737
---------- ----------
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--33,680,777 and 22,101,181 shares, respectively........................... 34 22
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.............................................................. 183,148 165,885
Other comprehensive loss................................................................ (3,016) (1,152)
Deficit................................................................................. (36,435) (43,558)
---------- ----------
Total stockholders' equity............................................................ 143,733 121,211
---------- ----------
$ 673,700 $ 608,379
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-16
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- ---------- ----------
Revenue:
Commissions and fees..................................................... $ 488,340 $ 403,408 $ 299,415
Temporary contracting.................................................... 211,089 186,458 132,110
---------- ---------- ----------
Total revenue........................................................ 699,429 589,866 431,525
---------- ---------- ----------
Operating expenses:
Salaries and related costs............................................... 294,883 246,601 177,840
Temporary contracting costs.............................................. 175,133 155,133 110,408
Office and general....................................................... 155,359 131,564 100,242
Merger costs............................................................. 22,412 -- --
Amortization of intangibles.............................................. 9,401 6,842 4,732
Special compensation and CEO bonus....................................... 1,250 1,500 52,019
---------- ---------- ----------
Total operating expenses............................................. 658,438 541,640 445,241
---------- ---------- ----------
Operating income (loss).............................................. 40,991 48,226 (13,716)
---------- ---------- ----------
Other income (expense):
Interest expense, net.................................................... (10,607) (8,891) (14,126)
Other, net............................................................... (1,730) 632 (479)
---------- ---------- ----------
(12,337) (8,259) (14,605)
---------- ---------- ----------
Income (loss) before provision for income taxes, minority interests and
equity in earnings (losses) of affiliates.................................. 28,654 39,967 (28,321)
Provision for income taxes................................................... 13,821 15,770 9,733
---------- ---------- ----------
Income (loss) before minority interests and equity in earnings (losses) of
affiliates................................................................. 14,833 24,197 (38,054)
Minority interests........................................................... 28 296 1,017
Equity in earnings (losses) of affiliates.................................... (396) (33) 114
---------- ---------- ----------
Net income (loss)............................................................ 14,409 23,868 (38,957)
Preferred stock dividend and redemption premium.............................. -- (123) (210)
---------- ---------- ----------
Net income (loss) applicable to common and Class B common stockholders....... $ 14,409 $ 23,745 $ (39,167)
---------- ---------- ----------
---------- ---------- ----------
Net income (loss) per common and Class B common share:
Basic.................................................................... $ .40 $ .70 $ (1.37)
---------- ---------- ----------
---------- ---------- ----------
Diluted.................................................................. $ .39 $ .69 $ (1.37)
---------- ---------- ----------
---------- ---------- ----------
Weighted average shares outstanding:
Basic.................................................................... 35,882 33,846 28,679
---------- ---------- ----------
---------- ---------- ----------
Diluted.................................................................. 36,808 34,487 28,679
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-17
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ----------
Net income (loss)............................................................... $ 14,409 $ 23,868 $ (38,957)
Foreign currency translation adjustment......................................... (1,864) (3,887) (348)
--------- --------- ----------
Comprehensive income (loss)..................................................... $ 12,545 $ 19,981 $ (39,305)
--------- --------- ----------
--------- --------- ----------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-18
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK, COMMON STOCK,
$.001 PAR VALUE $.001 PAR VALUE
---------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995................................................ 13,479,646 $ 14 14,787,541 $ 15
Stock repurchase agreements............................................. -- -- -- --
Issuance of common stock for purchase of minority interests in
subsidiaries.......................................................... 205,581 -- -- --
Issuance of common stock as compensation................................ 142,740 -- -- --
Repurchase and cancellation of common stock............................. (481,284) -- -- --
Issuance of common stock................................................ 4,147,408 4 -- --
Issuance of common stock in connection with the exercise of options..... 85,354 -- -- --
Issuance of common stock in connection with exercise of warrant......... 228,768 -- -- --
Foreign currency translation adjustment................................. -- -- -- --
Dividends on preferred stock............................................ -- -- -- --
Special compensation.................................................... -- -- -- --
Issuance of common stock in connection with acquisitions................ 58,892 -- -- --
Shares issued in connection with a pooled company formed in 1996........ 289,031 -- -- --
Dividends declared by pooled companies.................................. -- -- -- --
Net loss................................................................ -- -- -- --
--------- ----- ---------- -----
Balance, December 31, 1996................................................ 18,156,136 18 14,787,541 15
Issuance of common stock in connection with the exercise of options..... 104,621 -- -- --
Tax benefit of stock options exercised.................................. -- -- -- --
Capital contribution from Principal Stockholder re: CEO bonus and
other................................................................. -- -- -- --
Issuance of common stock in connection with acquisitions................ 135,028 -- -- --
Issuance of common stock for purchase of an equity interest in a
subsidiary............................................................ 61,848 -- -- --
Conversion of shares.................................................... 1,200,000 1 (1,200,000) (1)
Issuance of common stock................................................ 2,400,000 3 -- --
Issuance of common stock for matching contribution to 401(k) plan....... 43,548 -- -- --
Foreign currency translation adjustment................................. -- -- -- --
Dividend and redemption premium on preferred stock...................... -- -- -- --
Dividends declared by pooled companies.................................. -- -- -- --
Net income.............................................................. -- -- -- --
--------- ----- ---------- -----
Balance, December 31, 1997................................................ 22,101,181 22 13,587,541 14
Issuance of common stock in connection with the exercise of options..... 209,949 -- -- --
Issuance of common stock in connection with acquisitions................ 201,406 -- -- --
Issuance of compensatory options........................................ -- -- -- --
Redemption of common stock.............................................. (287,352) -- -- --
Issuance of common stock for matching contribution to 401(k) plan....... 27,273 -- -- --
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 -- -- --
Foreign currency translation adjustment................................. -- -- -- --
Capital contribution by Principal Stockholder re: CEO bonus............. -- -- -- --
Tax benefit of stock options exercised.................................. -- -- -- --
Net income.............................................................. -- -- -- --
Pooled companies' earnings included in both December 31, 1997 and 1998
income statements..................................................... -- -- -- --
Dividends declared by pooled companies.................................. -- -- -- --
--------- ----- ---------- -----
Balance, December 31, 1998................................................ 33,680,777 $ 34 2,381,000 $ 2
--------- ----- ---------- -----
--------- ----- ---------- -----
<CAPTION>
TOTAL
ADDITIONAL OTHER STOCKHOLDERS'
PAID-IN COMPREHENSIVE EQUITY
CAPITAL INCOME (LOSS) DEFICIT (DEFICIT)
----------- --------------- --------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995................................................ $ 1,617 $ 3,083 $ (5,443) $ (714)
Stock repurchase agreements............................................. 1,172 -- -- 1,172
Issuance of common stock for purchase of minority interests in
subsidiaries.......................................................... 1,727 -- -- 1,727
Issuance of common stock as compensation................................ 20 -- -- 20
Repurchase and cancellation of common stock............................. (2,160) -- -- (2,160)
Issuance of common stock................................................ 50,779 -- -- 50,783
Issuance of common stock in connection with the exercise of options..... 347 -- -- 347
Issuance of common stock in connection with exercise of warrant......... 2,603 -- -- 2,603
Foreign currency translation adjustment................................. -- (348) -- (348)
Dividends on preferred stock............................................ -- -- (210) (210)
Special compensation.................................................... 50,175 -- -- 50,175
Issuance of common stock in connection with acquisitions................ 1,139 -- -- 1,139
Shares issued in connection with a pooled company formed in 1996........ -- -- -- --
Dividends declared by pooled companies.................................. -- -- (9,443) (9,443)
Net loss................................................................ -- -- (38,957) (38,957)
----------- ------- --------- -------------
Balance, December 31, 1996................................................ 107,419 2,735 (54,053) 56,134
Issuance of common stock in connection with the exercise of options..... 659 -- -- 659
Tax benefit of stock options exercised.................................. 175 -- -- 175
Capital contribution from Principal Stockholder re: CEO bonus and
other................................................................. 1,775 -- -- 1,775
Issuance of common stock in connection with acquisitions................ 3,136 -- -- 3,136
Issuance of common stock for purchase of an equity interest in a
subsidiary............................................................ 1,000 -- -- 1,000
Conversion of shares.................................................... -- -- -- --
Issuance of common stock................................................ 51,166 -- -- 51,169
Issuance of common stock for matching contribution to 401(k) plan....... 555 -- -- 555
Foreign currency translation adjustment................................. -- (3,887) -- (3,887)
Dividend and redemption premium on preferred stock...................... -- -- (123) (123)
Dividends declared by pooled companies.................................. -- -- (13,250) (13,250)
Net income.............................................................. -- -- 23,868 23,868
----------- ------- --------- -------------
Balance, December 31, 1997................................................ 165,885 (1,152) (43,558) 121,211
Issuance of common stock in connection with the exercise of options..... 1,494 -- -- 1,494
Issuance of common stock in connection with acquisitions................ 5,546 -- -- 5,546
Issuance of compensatory options........................................ 295 -- -- 295
Redemption of common stock.............................................. (668) -- -- (668)
Issuance of common stock for matching contribution to 401(k) plan....... 627 -- -- 627
Conversion of Class B common shares to common shares.................... -- -- -- --
Issuance of common stock for employee stay bonuses...................... 8,312 -- -- 8,312
Foreign currency translation adjustment................................. -- (1,864) -- (1,864)
Capital contribution by Principal Stockholder re: CEO bonus............. 1,250 -- -- 1,250
Tax benefit of stock options exercised.................................. 407 -- -- 407
Net income.............................................................. -- -- 14,409 14,409
Pooled companies' earnings included in both December 31, 1997 and 1998
income statements..................................................... -- -- (2,309) (2,309)
Dividends declared by pooled companies.................................. -- -- (4,977) (4,977)
----------- ------- --------- -------------
Balance, December 31, 1998................................................ $ 183,148 $ (3,016) $ (36,435) $ 143,733
----------- ------- --------- -------------
----------- ------- --------- -------------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-19
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Cash flows from operating activities:
Net income (loss)............................................................... $ 14,409 $ 23,868 $ (38,957)
--------- --------- ---------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization of property and equipment....................... 17,273 12,929 8,154
Amortization of intangibles................................................... 9,401 6,842 4,732
Amortization of deferred compensation in connection with employee stay
bonuses...................................................................... 3,622 -- --
Provision for doubtful accounts............................................... 5,891 3,845 3,317
Common stock issued for matching contribution to 401(k) plan.................. 627 -- --
Common stock issued for employee stay bonuses................................. 8,312 -- --
Special compensation.......................................................... -- -- 52,019
Interest expense for shares issued upon exercise of warrant................... -- -- 2,603
Provision for deferred income taxes........................................... 606 7,207 3,515
CEO bonus and indemnity payment............................................... 1,250 1,775 --
Minority interests............................................................ 28 296 1,017
Other......................................................................... 1,576 (689) 663
Effect of pooled companies included in both December 31, 1998 and 1997........ (3,718) -- --
Changes in assets and liabilities, net of effects from purchases of businesses:
Increase in accounts receivable, net.......................................... (16,411) (14,685) (11,986)
(Increase) decrease in work-in-process........................................ (2,583) 42 68
Increase in prepaid and other current assets.................................. (5,841) (1,700) (1,382)
(Increase) decrease in other assets........................................... (2,519) (152) 112
Increase (decrease) in accounts payable, accrued expenses and other current
liabilities.................................................................. 35,253 (5,038) 7,396
--------- --------- ---------
Total adjustments........................................................... 52,767 10,672 70,228
--------- --------- ---------
Net cash provided by operating activities................................... 67,176 34,540 31,271
--------- --------- ---------
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............................................................ (23,733) (28,268) (12,743)
Payments for purchases of businesses, net of cash acquired...................... (24,461) (66,832) (31,302)
Proceeds from sale of assets.................................................... 659 78 6,215
Proceeds from life insurance.................................................... -- 322 --
Advances to affiliates.......................................................... (339) (449) (496)
--------- --------- ---------
Net cash used in investing activities....................................... (47,874) (83,736) (43,210)
--------- --------- ---------
Cash flows from financing activities:
Payments on capitalized leases.................................................. (3,257) (2,996) (2,386)
Borrowings under line of credit and proceeds from issuance of long-term debt.... 1,049,149 724,060 492,326
Repayments under line of credit and principal payments on long-term debt........ (1,049,648) (703,376) (513,645)
Distribution to minority interests.............................................. -- -- (457)
Net proceeds from stock issuance................................................ -- 51,169 50,788
Cash received from the exercise of stock options................................ 1,494 659 --
Repurchase of common stock...................................................... -- -- (77)
Redemption of minority interest (including premium)............................. -- (3,133) --
Redemption of preferred stock (including premium)............................... -- (2,105) (2,160)
Dividends on preferred stock.................................................... -- (123) (210)
Dividends paid by pooled companies.............................................. (6,827) (11,730) (8,839)
--------- --------- ---------
Net cash (used in) provided by financing activities......................... (9,089) 52,425 15,340
--------- --------- ---------
Net increase in cash and cash equivalents......................................... 10,213 3,229 3,401
Cash and cash equivalents, beginning of year...................................... 28,613 25,384 21,983
--------- --------- ---------
Cash and cash equivalents, end of year............................................ $ 38,826 $ 28,613 $ 25,384
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-20
<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.
The Company consummated the mergers, which have been accounted for as
poolings of interests, with Johnson Smith & Knisely Inc. ("JSK") on May 6, 1998,
TASA Holding AG ("TASA") on August 31, 1998, Stackig, Inc. ("Stackig") on
September 30, 1998, Recruitment Solutions, Inc. on October 2, 1998,
F-21
<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)
SunQuest, LLC., d.b.a. The SMART Group on November 2, 1998 and The Consulting
Group (International) Limited ("TCG") on December 2, 1998 (the "1998 Pooled
Companies") (the "1998 Mergers") with Morgan & Banks Limited ("M&B") on January
28, 1999 (the "M&B Merger").
During the period April 30, through May 31, 1999, the Company completed the
following acquisitions (the "Second Quarter 1999 Pooled Companies"), which
provided for the exchange of all the outstanding stock of each entity for shares
of TMP's common stock and have been accounted for as poolings of interests (the
"Second Quarter 1999 Mergers").
<TABLE>
<CAPTION>
NATURE REGION NUMBER OF TMP
ENTITY OF OPERATIONS OF OPERATIONS ACQUISITION DATE SHARES ISSUED
- -------------------------------------- --------------------- -------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Interquest, Pty. Limited Temporary contracting Pacific Rim April 30, 1999 176,695
("Interquest")....................... and Search &
selection
LIDA Advertising, Inc. ("LIDA")....... Advertising North America May 19, 1999 112,606
Maes & Lunau ("M&L").................. Search & selection Continental Europe May 20, 1999 110,000
IN2, Inc. ("IN2")..................... Internet North America May 28, 1999 289,031
Lemming & LeVan, Inc. ("L&L")......... Search and selection North America May 28, 1999 122,908
Yellow Pages Unlimited, Inc. Advertising North America May 28, 1999 89,000
("YPU")..............................
</TABLE>
The consolidated financial statements of the Company reflect the effect of
the 1996 Mergers, the mergers consummated in 1998 (the "1998 Mergers"), and the
merger with Morgan & Banks Limited ("M & B") on January 28, 1999 (the "M & B
Merger"), which have been accounted for as poolings of interests (see Note 5).
The supplemental consolidated financial statements of the company, included
herein, have been prepared to give retroactive effect to the Second Quarter 1999
Mergers, which have been accounted for using the pooling of interests method. As
a result, the financial position, results of operations and cash flows are
presented as if the combining companies had been consolidated for all periods
presented and the consolidated statements of stockholders' equity reflect the
accounts of TMP as if the additional common stock issued in connection with the
Second 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 Second 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 Second
Quarter 1999 Pooled Companies as of December 31, 1998 and 1997, respectively,
except for Interquest, for which the balance sheet as of June 30, 1998 was
combined with that of TMP as of December 31, 1997. The supplemental consolidated
statements of operations combine the results of TMP for each year in the three
year period ended December 31, 1998 with those of the Second Quarter 1999 Pooled
Companies for the same periods, except for Interquest, for which the statements
of operations for the years ended June 30, 1998 and 1997 are combined with those
of TMP for the years ended December 31, 1997 and 1996. Consequently, the results
for Interquest for the six months ended June 30, 1998 are included in the
Supplemental Consolidated Statements of Operations for the years ended December
31, 1998 and 1997. When translated at the appropriate exchange rates for the
December 31, 1998 and 1997 periods, for the six months ended June 30, 1998,
revenue was approximately $10.9 million and $12.8 million, net income was
approximately $.4 million and $.5 million, and the net effect on the diluted net
income per share was $.01 and $.01, respectively.
F-22
<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
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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
primarily using the straight-line method over the following estimated useful
lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements............................................................. 8-32
Furniture and equipment................................................................ 3-10
Transportation equipment............................................................... 5-18
</TABLE>
Leasehold improvements are amortized over their estimated useful lives or
the lives of the related leases, whichever is shorter.
Intangibles represent acquisition costs in excess of the fair value of net
tangible assets of businesses purchased and consist primarily of the value of
ongoing client relationships and goodwill. These costs are being amortized over
periods ranging from three to thirty years on a straight-line basis.
LONG-LIVED ASSETS
Long-lived assets, such as ongoing client relationships, goodwill and
property and equipment, are evaluated for impairment when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future cash flows resulting from
the use of these assets. When any such impairment exists, the related assets
will be written down to fair value. No 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
F-23
<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)
of exchange prevailing during the year. Translation adjustments arising from the
use of differing exchange rates from period to period are included in the
Comprehensive Income (Loss) account in stockholders' equity. Gains and losses
resulting from foreign currency transactions are included in other income
(expense).
REVENUE RECOGNITION AND WORK-IN-PROCESS
A significant portion of our revenues are derived from commissions for
advertisements placed in telephone directories, newspapers and other media, plus
associated fees for related services. In addition, the Company earns fees for
the placement of advertisements on the Internet, including its career Web sites.
Commissions and fees are generally recognized upon placement date for newspapers
and other media and on publication close date for yellow page advertisements.
The Company also earns fees for executive and mid-level search & selection
services. Revenue is 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 a
search). Temporary contracting revenue is recorded when earned.
The Company's quarterly commissions and fees are affected by the cyclical
nature of its operating segments. The timing of yellow page directory closings
is currently concentrated in the third quarter. However, yellow page publishers
may change the timing of directory publications which may have an effect on the
Company's quarterly results. The Company's yellow page advertising results are
also affected by commissions earned for volume placements for the year, which
are typically reported in the fourth quarter. Amounts reported in the three
months ended December 31, 1998, 1997 and 1996 for commissions on volume
placements were $0.9 million, $2.0 million and $3.5 million, respectively. The
Company's quarterly commissions and fees for recruitment advertising are
typically highest in the first quarter and lowest in the fourth quarter;
however, the cyclicality in the economy and the Company's clients' employment
needs have an overriding impact on the Company's quarterly results in
recruitment advertising.
Direct operating costs incurred that relate to future revenue, principally
for yellow page advertisements, are deferred (recorded as work-in-process in the
accompanying consolidated balance sheets) and are subsequently charged to
expense when the directories are closed for publication and the related
commission is recognized as income.
INCOME TAXES
The provision 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.
F-24
<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)
NATURE OF BUSINESS AND CREDIT RISK
The Company operates in four business segments, 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 revenue in connection with the providing of temporary
contracting services. The Company operates principally throughout North America,
the United Kingdom, Continental Europe and the Pacific Rim.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which supersedes SFAS No.
14, "Financial Reporting for Segments of a Business Enterprise." SFAS No. 131
establishes standards for the way that public companies report information about
operating segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS No. 131
defines operating segments as components of a company about which separate
financial information is available and that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. SFAS No. 131 became effective for financial statements for periods
beginning after December 15, 1997. As required by SFAS No. 131, all periods
presented have been restated.
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable. The Company
performs continuing credit evaluations of its customers and does not require
collateral. For the most part, the Company has not experienced significant
losses related to receivables from individual customers or groups of customers
in any particular industry or geographic area.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable and accounts payable approximate fair
value because of the immediate or short-term maturity of these financial
instruments. The carrying amount reported for long-term debt approximates fair
value because, in general, the interest on the underlying instruments fluctuates
with market rates.
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
F-25
<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)
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............................................................. 35,882
Effect of assumed exercise of stock options....................... 926
---------
Diluted........................................................... 36,808
---------
---------
December 31, 1997:
Basic............................................................. 33,846
Effect of assumed exercise of stock options....................... 641
---------
Diluted........................................................... 34,487
---------
---------
December 31, 1996:
Basic............................................................. 28,679
---------
---------
Diluted........................................................... 28,679
---------
---------
</TABLE>
STATEMENTS OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments and other short-term investments with an initial
maturity of three months or less to be cash equivalents. The Company has
determined that the effect of foreign exchange rate changes on cash is not
material.
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company adopted SFAS No. 130 in the first quarter of
1998. The only item of comprehensive income (loss) is foreign currency
translation adjustments.
F-26
<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)
POST RETIREMENT BENEFITS
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits", which standardizes the
disclosure requirements for pensions and other postretirement benefits. The
adoption of SFAS No. 132 in 1998 did not have a material impact on the Company's
financial statement disclosures.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1. "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
is effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance over accounting for computer software developed
or obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. The Company does not expect the adoption
of this standard to have a material effect on its capitalization policy.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities", which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company does not expect the adoption of this
statement to have a significant impact on the Company's results of operations,
financial position or cash flows.
NOTE 3--ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
Trade................................................................. $ 312,276 $ 308,197
Earned commissions(a)................................................. 12,811 14,491
---------- ----------
325,087 322,688
Less: Allowance for doubtful accounts................................. 14,388 11,693
---------- ----------
Accounts receivable, net............................................ $ 310,699 $ 310,995
---------- ----------
---------- ----------
</TABLE>
- ------------------------
(a) Earned commissions receivable represent commissions on advertisements that
have not been published, and relate to yellow page advertisements only. Upon
publication of the related yellow page directories, the earned commissions
plus the related advertising cost at December 31, 1998 and 1997 are recorded
as accounts receivable of $67,955 and $75,058, respectively, and the related
advertising costs are recorded as accounts payable of $55,144 and $60,567,
respectively.
F-27
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 4--PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Buildings and improvements.............................................. $ 1,139 $ 1,018
Furniture and equipment................................................. 97,354 80,869
Leasehold improvements.................................................. 13,459 10,877
Transportation equipment................................................ 9,230 9,831
--------- ---------
121,182 102,595
Less: Accumulated depreciation and amortization......................... 59,598 49,214
--------- ---------
Property and equipment, net........................................... $ 61,584 $ 53,381
--------- ---------
--------- ---------
</TABLE>
Furniture and equipment includes equipment under capital leases at December
31, 1998 and 1997 with a cost of $13,663 and $12,514, respectively, and
accumulated amortization of $7,026 and $5,128, respectively.
During 1997, the Company acquired certain transportation equipment and made
capital improvements thereto for a total of $6,800 and simultaneously entered
into a $7,800 financing agreement (see Note 9) to fund the purchase and provide
additional funds.
NOTE 5--BUSINESS ACQUISITIONS
ACQUISITIONS ACCOUNTED FOR USING THE POOLING OF INTERESTS METHOD
During the period of April 30, 1999 through May 31, 1999, the Company
completed the following acquisitions which provided for the exchange of all of
the outstanding stock of each entity for shares of TMP stock and are accounted
for as poolings of interests (See Note 1):
<TABLE>
<CAPTION>
NATURE OF NUMBER OF TMP
ENTITY OPERATIONS REGION OF OPERATIONS ACQUISITION DATE SHARES ISSUED
- ----------------------------- --------------------------- ----------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Interquest................... Temporary contracting Pacific Rim April 30, 1999 176,695
and Search & selection
LIDA......................... Advertising North America May 19, 1999 112,606
M&L.......................... Search & selection Continental Europe May 20, 1999 110,000
IN2.......................... Internet North America May 28, 1999 289,031
L&L.......................... Search & selection North America May 28, 1999 122,908
YPU.......................... Advertising North America May 28, 1999 89,000
</TABLE>
F-28
<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)
Revenue, 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>
REVENUE 1998 1997 1996
- ----------------------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
TMP, as previously reported on Form 8-K filed April 21, 1999................. $ 662,182 $ 555,316 $ 402,078
Interquest................................................................... 24,927 23,687 19,846
M&L.......................................................................... 3,385 3,219 2,583
LIDA......................................................................... 3,058 2,592 2,630
IN2.......................................................................... 1,397 601 100
L&L.......................................................................... 3,154 3,220 3,287
YPU.......................................................................... 1,326 1,231 1,001
---------- ---------- ----------
TMP, as restated............................................................. $ 699,429 $ 589,866 $ 431,525
---------- ---------- ----------
---------- ---------- ----------
</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 April 21, 1999.................... $ 11,712 $ 18,540 $ (42,060)
Interquest...................................................................... 787 1,027 1,204
M&L............................................................................. 1,786 1,898 1,444
LIDA............................................................................ (343) (103) 164
IN2............................................................................. 356 26 (8)
L&L............................................................................. (471) 875 (324)
YPU............................................................................. 582 1,482 413
--------- --------- ----------
TMP, as restated................................................................ $ 14,409 $ 23,745 $ (39,167)
--------- --------- ----------
--------- --------- ----------
</TABLE>
<TABLE>
<CAPTION>
NET INCOME (LOSS) PER COMMON AND CLASS B COMMON SHARE 1998 1997 1996
- ----------------------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
As previously reported on Form 8-K filed April 21, 1999:
Basic...................................................................... $ 0.33 $ 0.56 $ (1.50)
Diluted.................................................................... $ 0.33 $ 0.55 $ (1.50)
Restated:
Basic...................................................................... $ 0.40 $ 0.70 $ (1.37)
Diluted.................................................................... $ 0.39 $ 0.69 $ (1.37)
</TABLE>
MERGER COSTS INCURRED WITH POOLING OF INTERESTS TRANSACTIONS
In connection with the poolings of interests transactions completed during
1998 and the M&B Merger, (see Note 1), the Company expensed merger related costs
of $22,412. The $22,412 of merger 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
F-29
<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)
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 poolings of interest transactions discussed above, the
Company has acquired 57 businesses (primarily recruitment advertising
businesses) between January 1, 1996 and May 31, 1999 including, on August 26,
1997, all of the outstanding stock of Austin Knight Limited and subsidiaries
("Austin Knight") for approximately $47,200 net of approximately $11,500 of cash
acquired relating to the sale, in July 1997, of real property by Austin Knight
and on July 2, 1996, all of the outstanding shares of Neville Jeffress Australia
Pty Limited ("Neville Jeffress"). Austin Knight had commissions and fees of
approximately $47,600 for the year ended September 30, 1996, and Neville
Jeffress had commissions and fees of approximately $24,000 for the year ended
June 30, 1996. The total amount of cash paid and promissory notes and Common
Stock of the Company issued for these acquisitions was approximately $30,668,
$74,500 and $25,400 for 1998, 1997 and 1996, respectively. The shares of Common
Stock issued by the Company in connection with certain of the above mentioned
acquisitions were 200,753 and 135,028 for 1998 and 1997, respectively. These
acquisitions have been accounted for under the purchase method of accounting and
accordingly, operations of these businesses have been included in the
consolidated financial statements from their acquisition dates.
The summarized 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 revenue......................................................... $ 721,537 $ 617,545
Net income applicable to common and Class B common stockholders....... $ 13,799 $ 22,085
Net income per common and Class B common share:
Basic............................................................... $ .38 $ .64
Diluted............................................................. $ .37 $ .63
</TABLE>
The pro forma results of operations are not necessarily indicative of what
actually would have occurred if the acquisitions had been completed at the
beginning of each of the years presented, nor are the results of operations
necessarily indicative of the results that will be attained in the future.
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
F-30
<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)
in the related markets in which the Company operates. The preliminary plans were
finalized in July 1998. These costs and liabilities include:
<TABLE>
<CAPTION>
BALANCE BALANCE
DECEMBER 31, 1997 ADDITIONS PAYMENTS DECEMBER 31, 1998
------------------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
Assumed obligations on leased facilities to be
closed............................................. $ 7,830 $ 2,846 $ (1,448) $ 9,228
Consolidation of acquired facilities................. 2,521 3,630 (3,406) 2,745
Contracted lease payments exceeding current market
costs.............................................. 783 73 (149) 707
Severance, relocation and other employee costs....... 4,017 3,368 (5,648) 1,737
Pension obligations.................................. 1,650 103 -- 1,753
------- ----------- ----------- -------
Total................................................ $ 16,801 $ 10,020 $ (10,651) $ 16,170
------- ----------- ----------- -------
------- ----------- ----------- -------
</TABLE>
Accrued liabilities for surplus property in the amount of $9,228 as of
December 31, 1998 relate to 18 leased office locations of the acquired companies
that were either unutilized prior to the acquisition date or will be closed by
March 31, 1999 in connection with the restructuring plans. The amount is based
on the present value of minimum future lease obligations, net of sublease
revenue on existing subleases.
Other costs associated with the closure of existing offices of acquired
companies in the amount of $2,745 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 $1,737 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 45 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 $2,127 were made to 25
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 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-31
<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 $19,197 and $11,651, respectively......... 187,972 154,389 10 to 30
Other, net of accumulated amortization of $1,931 and $2,103,
respectively............................................................. 341 797 4 to 10
---------- ----------
$ 200,374 $ 167,549
---------- ----------
---------- ----------
</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 7--SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes amounted to the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Interest......................................................................... $ 11,115 $ 13,565 $ 11,706
Income taxes..................................................................... 10,690 8,710 7,157
</TABLE>
In conjunction with business acquisitions, the Company used cash as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- ---------- ---------
Fair value of assets acquired, excluding cash................................... $ 34,895 $ 129,000 $ 60,991
Less: Liabilities assumed and created upon acquisition.......................... 10,434 62,168 29,689
--------- ---------- ---------
Net cash paid................................................................... $ 24,461 $ 66,832 $ 31,302
--------- ---------- ---------
--------- ---------- ---------
Capital lease obligations incurred.............................................. $ 217 $ 5,781 $ 4,873
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
NOTE 8--FINANCING AGREEMENT
The Company obtains its primary financing from a financial institution under
a five-year financing agreement as amended and restated on June 27, 1996,
further amended on November 14, 1997, and amended and restated again on November
5, 1998 (the "Agreement"). Subsequent to the five year term, which expires on
November 4, 2003, the Agreement provides for one-year extensions subject to bank
approval unless terminated by either party at least 90 days prior to expiration
of the initial term or any renewal term. The Agreement, as amended, provides for
borrowings of up to $175,000 at the higher of (a) prime rate or, (b) Federal
Funds rate less 1/2 of 1% or, (c) LIBOR plus a margin determined by the ratio of
the Company's debt to earnings before interest, taxes, depreciation and
amortization (EBITDA) as defined on the Agreement. At December 31, 1998 the
margin equaled .875%. Borrowings under the Agreement are based on 90% of
eligible accounts receivable, which are amounts billed under 120 days old and
amounts to be billed as defined in the Agreement. Substantially all of the
assets of the Company are pledged as collateral for borrowings under the
Agreement. The Agreement contains certain covenants which restrict, among other
things, the ability of the Company to borrow, pay dividends, acquire businesses,
guarantee debts of others and lend funds to affiliated companies and contains
criteria on the maintenance of certain financial statement amounts and ratios,
all as defined in the Agreement. The Agreement also provides for a fee on any
unused portion of the commitment based upon a rate determined by the ratio of
the Company's debt to EBITDA. At December 31, 1998, this rate equaled .25%. In
addition, the Agreement provides for a declining termination fee of $1,000,
$500, $0 for the annual periods ended November 5, 1999, 2000, and 2001,
respectively.
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%.
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
F-33
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 8--FINANCING AGREEMENT (CONTINUED)
remaining term of the original financing agreement of 30 months from October
1993 until December 1996, when the warrant was exercised. At that time, the
unamortized balance was expensed. In addition, in December 1996, upon the
exercise of such warrant there was an additional interest charge of $2,603 to
reflect the difference between the value of the stock issued (228,768 shares) at
the initial public offering price of $14.00 per share and the original amount
recorded.
NOTE 9--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
Borrowings under financing agreement (see Note 8)......................................... $ 97,720 $ 95,800
Borrowings under 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
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)................................................. 9,138 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................................................................................... 7,556 7,760
Notes payable, in varying monthly installments maturing through 2001, with interest at
rates ranging from 7.5% to 8.5%......................................................... 1,874 6,717
---------- ----------
132,660 137,545
Less: Current portion..................................................................... 13,067 13,767
---------- ----------
$ 119,593 $ 123,778
---------- ----------
---------- ----------
</TABLE>
The noncurrent portion of long-term debt matures as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
2000............................................................................ $ 7,588
2001............................................................................ 5,220
2002............................................................................ 8,888
2003............................................................................ 97,847*
Thereafter...................................................................... 50
------------
$ 119,593
------------
------------
</TABLE>
- ------------------------
* Of this amount, $97,720 is subject to one year extensions to 2003. See Note
8.
F-34
<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.
(B) STOCK OPTIONS
The disclosures below include options issued by M&B, as if such options were
issued for the purchase of the Company's Common Stock, and are based on the
exchange ratio of the Company's common stock for M&B's common stock pursuant to
the related merger agreement.
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 Revenue 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
F-35
<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)
Company's capital stock on the date of grant). The exercise price of a
nonqualified stock option must be not less than the par value of a share of the
common stock on the date of grant. The term of an incentive or nonqualified
stock option is not to exceed ten years (five years in the case of an incentive
stock option granted to a ten percent holder). The Stock Option Plan provides
that the maximum option grant which may be made to an executive officer in any
calendar year is 45,000 shares (amended to 150,000 on June 25, 1997).
In December 1998, the Company also adopted, subject to stockholder approval,
a long-term incentive plan (the "1999 Plan"), pursuant to which stock options,
stock appreciation rights, restricted stock and other equity based awards may be
granted. Stock options which may be granted may be incentive stock options and
nonqualified stock options within the meaning of the Code. The total number of
shares of the common stock of the Company which may be granted under the 1999
Plan is the sum of 3,000,000 and the number of shares available for new awards
under the Stock Option Plan.
On January 3, 1996, options to purchase, at an exercise price equal to $6.65
per share, the fair market value of the common stock on the date of grant as
determined by the Board, an aggregate of 296,640 shares of common stock were
granted to officers, employees and consultants of the Company. Such options vest
at the rate of 25% per year commencing one year after the date of grant. As of
December 31, 1998, 25,879 options were cancelled, 71,343 options were exercised
and, of the outstanding options, 64,038 options were exercisable and will expire
ten years from the date of grant.
On August 19, 1996, options to purchase, at an exercise price of $10.37 per
share, the market price on the date of grant, 173,068 shares of common stock
were granted to officers and employees of M&B. Of this amount, options for
53,045 shares were subsequently cancelled. The remaining options to purchase
120,023 shares of common stock will vest three years from the date of grant and
will expire five years from the date of grant. At December 31, 1998, none of
these options were exercisable.
On January 6, 1997 options to purchase, at an exercise price of $12.88 per
share, the market price on the date of grant, an aggregate of approximately
1,203,782 shares of common stock were granted to officers and employees, of the
Company and options for 7,091 shares were subsequently cancelled. Of such
options, options for approximately 29,000 shares of common stock vest at the
rate of 25% per year beginning one year from the date of grant and the balance
of these options were vested at December 31, 1997. At December 31, 1998, 31,355
options were exercised and 7,157 were exercisable. The balance are exercisable
after January 5, 1999. Such options will expire ten years from date of grant.
On April 3, 1997, options to purchase, at an exercise price of $17.25 per
share, the market price on the date of grant, 8,400 shares of common stock were
granted to an officer of the Company. Such options were exercised during 1998.
On June 18, 1997, options to purchase, at an exercise price of $19.00 per
share, the market price on the date of grant, 28,256 shares of common stock were
granted to officers and employees of the Company. 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
F-36
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
the 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
generally vest at the rate of 25% per year commencing one year after the date of
grant and will expire ten years from the date of grant. At December 31, 1998,
8,750 options were exercisable.
On October 17, 1997 options to purchase, at an exercise price of $29.59 per
share, the market price on the date of grant, 116,293 shares of common stock
were granted to officers and employees of M&B and options for 17,554 shares were
subsequently cancelled. The remaining options to purchase 98,739 shares of
common stock will expire five years from the date of grant. At December 31,
1998, none of these options were exercisable.
On December 12, 1997, options to purchase, at an exercise price of $15.00
per share, the market price on the date of grant, an aggregate of 700,000 shares
of common stock were granted to officers and employees of the Company. Such
options vest at the rate of 25% per year commencing one year after the date of
grant and will expire ten years from the date of grant. At December 31, 1998,
175,491 options were cancelled, 6,000 options were exercised and 129,628 were
exercisable at December 31, 1998.
On May 1, 1998 options to purchase, at an exercise price of $24.00 per
share, the market price on the date of grant, 42,604 shares of common stock were
granted to officers and employees of M&B and options for 2,925 shares were
subsequently canceled. 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.
F-37
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
On October 30, 1998, options to purchase at an exercise price of $30.00 per
share, the market price on the date of grant, an aggregate of approximately
184,000 shares of common stock to the officers and employees of the Company.
Such options vest at the rate of 25% per year commencing one year after the date
of grant and will expire ten years from the date of grant. At December 31, 1998,
none of these options were exercisable.
On November 5, 1998, options to purchase at an exercise price of $25.125 per
share, the market price on the date of grant, 100,000 shares of common stock to
the officers and employees of Stackig. Such options vest at the rate of 25% per
year commencing one year after the date of grant and will expire ten years from
the date of grant. At December 31, 1998, none of these options were exercisable.
On November 13, 1998, options to purchase at an exercise price of $23.75 per
share, the market price on the date of grant, 24,450 shares of common stock to
the officers and employees of the Company. Such options vest at the rate of 25%
per year commencing one year after the date of grant and will expire ten years
from the date of grant. At December 31, 1998, none of these options were
exercisable.
On December 9, 1998, options to purchase at an exercise price of $26.875 per
share, the market price on the date of grant, an aggregate of approximately
800,000 options of common stock to the officers and employees of the Company.
Such options vest at the rate of 25% per year commencing one year after the date
of grant and will expire ten years from the date of grant. At December 31, 1998,
none of these options were exercisable.
On December 11, 1998, options to purchase at an exercise price of $29.50 per
share, the closing market price on the date of grant, 50,000 shares of common
stock to the officers and employees of TASA Holding AG. Such options vest at the
rate of 25% per year commencing one year after the date of grant and will expire
ten years from the date of grant. At December 31, 1998, none of these options
were exercisable.
On December 28, 1998, options to purchase at an exercise price of $38.00 per
share, the market price on the date of grant, an aggregate of approximately
400,000 shares of common stock to the officers and employees of TASA. Such
options vest at the rate of 25% per year commencing one year after the date of
grant and will expire ten years from the date of grant. At December 31, 1998,
none of these options were exercisable.
In January 1996, the Company also adopted a stock option plan for
nonemployee directors (the "Directors' Plan"), pursuant to which options to
acquire a maximum aggregate of 180,000 shares of common stock may be granted to
nonemployee directors. Options granted under the Directors' Plan do not qualify
as incentive stock options within the meaning of Section 422 of the Code. The
Directors' Plan provides for an automatic grant to each of the Company's
nonemployee directors of an option to purchase 11,250 shares of common stock on
the date of such director's initial election or appointment to the Board. The
options will have an exercise price of 100% of the fair market value of the
common stock on the date of grant, have a ten-year term and become exercisable
in accordance with a vesting schedule determined by the Board of Directors.
Options to purchase 11,250 shares of common stock at a purchase price per
share equal to $6.65 per share, the fair market value of the common stock on the
date of grant, were granted on January 24, 1996 to one nonemployee director.
Half of these options vested on the date of the grant and the balance vested in
F-38
<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)
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 totalling, 62,500 were cancelled. As of December 31, 1998,
42,880 options were exercised and 42,120 options are exercisable and will expire
ten years from the date of grant.
On October 7, 1997, a newly appointed director of the Company was granted
options to purchase 11,250 shares of common stock at $23.625 per share, the
market price on the date of grant. Half of these options vested on the date of
the grant and the balance vests in two equal annual installments commencing one
year after the date of grant. Such options will expire ten years from the date
of grant. At December 31, 1998, 8,438 options were exercisable.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related Interpretations in
accounting for its employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of SFAS No.
123. The weighted average fair values of options granted during 1998, 1997 and
1996 were $11.58, $6.88 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 earnings (loss) per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
Net income (loss) applicable to common and Class B common
stockholders............................................... $ 9,582 $ 21,446 $ (39,511)
Net income (loss) per common and Class B common share
Basic...................................................... $ 0.27 $ 0.63 $ (1.38)
Diluted.................................................... $ 0.26 $ 0.62 $ (1.38)
</TABLE>
F-39
<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)
A summary of the status of the Company's fixed stock option plans as of
December 31, 1998, 1997 and 1996, and changes during the years ending on those
dates is presented.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- ----------- ---------- ----------- --------- -----------
Outstanding at beginning of year...................... 2,581,533 $ 13.22 781,003 $ 8.35 206,173 $ 4.64
Granted............................................... 1,777,648 29.23 2,102,936 14.78 639,708 9.48
Exercised............................................. (212,960) 7.75 (104,621) 8.65 -- --
Forfeited/cancelled................................... (156,556) 16.93 (197,785) 12.96 (64,878) 7.72
---------- ---------- ---------
Outstanding at end of year............................ 3,989,665 $ 20.51 2,581,533 $ 13.22 781,003 $ 8.35
---------- ---------- ---------
---------- ---------- ---------
Options exercisable at year-end....................... 325,108 $ 13.66 158,463 $ 8.44 66,875 $ 13.38
---------- ---------- ---------
---------- ---------- ---------
Weighted average fair value of options granted during
the year............................................ $ 11.58 $ 6.88 $ 5.76
</TABLE>
F-40
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1998.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
NUMBER WEIGHTED AVERAGE NUMBER WEIGHTED
EXERCISE OUTSTANDING AT REMAINING WEIGHTED AVERAGE EXERCISABLE AT AVERAGE
PRICE DECEMBER 31, 1998 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1998 EXERCISE PRICES
- ----------- ----------------- ------------------- ----------------- ----------------- ---------------
$ 4.46 14,491 1.4(years) $ 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 -- --
----------------- -------
3,989,665 325,108 $ 13.66
----------------- -------
----------------- -------
</TABLE>
F-41
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES
The components of income (loss) before the provision (benefit) for income
taxes, minority interests and equity in earnings (losses) of affiliates are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ----------
Domestic........................................................................ $ 3,756 $ 14,745 $ (45,914)
Foreign......................................................................... 24,898 25,222 17,593
--------- --------- ----------
Total income (loss) before provision (benefit) for income taxes, minority
interests and equity in earnings (losses) of affiliates....................... $ 28,654 $ 39,967 $ (28,321)
--------- --------- ----------
--------- --------- ----------
</TABLE>
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Current tax provision:
U.S. Federal.................................................................... $ 277 $ 220 $ 145
State and local................................................................. 858 1,314 985
Foreign......................................................................... 12,080 7,029 5,088
--------- --------- ---------
Total current................................................................. 13,215 8,563 6,218
--------- --------- ---------
Deferred tax provision (benefit):
U.S. Federal.................................................................... 3,756 2,736 1,840
State and local................................................................. 145 739 (321)
Foreign......................................................................... (3,295) 3,732 1,996
--------- --------- ---------
Total deferred................................................................ 606 7,207 3,515
--------- --------- ---------
Total provision............................................................... $ 13,821 $ 15,770 $ 9,733
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-42
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to the Company's
deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Current deferred tax assets (liabilities):
Earned commissions......................................................................... $ (5,124) $ (5,796)
Allowance for doubtful accounts............................................................ 5,493 4,309
Work-in-process............................................................................ (5,224) (6,222)
Prepaid and other.......................................................................... (492) (241)
Accrued expenses and other liabilities..................................................... (1,350) (1,642)
Tax loss carryforwards..................................................................... 259 220
--------- ---------
Total current deferred tax liability..................................................... (6,438) (9,372)
--------- ---------
Noncurrent deferred tax assets (liabilities):
Property and equipment..................................................................... (1,577) (1,237)
Intangibles................................................................................ (541) (627)
Accrued expenses and other liabilities..................................................... 3,905 (1,998)
Tax loss carryforwards..................................................................... 6,733 11,283
Valuation allowance........................................................................ (1,921) (2,219)
--------- ---------
Total noncurrent deferred tax asset...................................................... 6,599 5,202
--------- ---------
Net deferred tax asset (liability)........................................................... $ 161 $ (4,170)
--------- ---------
--------- ---------
</TABLE>
At December 31, 1998, the Company has net operating loss carryforwards for
U.S. Federal tax purposes of approximately $12,000 which expire through 2011.
The Company has concluded that, based on expected future results and the future
reversals of existing taxable temporary differences, it is more likely than not
that the deferred tax assets will be realized. In addition, certain subsidiaries
have operating loss carryforwards which are only useable by such subsidiary.
Consequently, there is no reasonable assurance that the benefit of such loss
carryforward can be used. Accordingly, a valuation allowance has been
established.
F-43
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED)
The provision for income taxes differs from the amount computed using the
Federal statutory income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ----------
Provision (benefit) at Federal statutory rate................................... $ 9,742 $ 13,589 $ (9,629)
State income taxes, net of Federal income tax effect............................ 662 844 278
Nondeductible expenses(1)....................................................... 4,732 1,029 784
Nondeductible special charge and CEO bonus...................................... 425 510 18,571
Foreign income taxes at other than the Federal statutory rate................... (1,195) 482 (583)
Other........................................................................... (545) (684) 312
--------- --------- ----------
Income tax provision............................................................ $ 13,821 $ 15,770 $ 9,733
--------- --------- ----------
--------- --------- ----------
</TABLE>
- ------------------------
(1) Primarily composed of amortization of intangible assets and meals and
entertainment expense and, in addition, for 1998, nondeductible merger
costs.
Provision has not been made for U.S. or additional foreign taxes on
undistributed earnings of foreign subsidiaries. Such earnings have been and will
continue to be reinvested but could become subject to additional tax if they
were remitted as dividends, or were loaned to the Company or a U.S. affiliate,
or if the Company should sell its stock in the foreign subsidiaries. It is not
practicable to determine the amount of additional tax, if any, that might be
payable on the foreign earnings; however, the Company believes that foreign tax
credits would substantially offset any U.S. tax. At December 31, 1998, the
cumulative amount of reinvested earnings was approximately $14,000.
F-44
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases its facilities and certain equipment under operating
leases and certain equipment under capital leases. Future minimum lease
commitments under both noncancellable operating leases and capital leases at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ----------
<S> <C> <C>
1999.................................................................... $ 4,869 $ 18,171
2000.................................................................... 3,650 17,532
2001.................................................................... 1,633 16,271
2002.................................................................... 592 9,273
2003.................................................................... 127 4,986
Thereafter.............................................................. -- 36,239
--------- ----------
10,871 $ 102,472
----------
----------
Less: Amount representing interest...................................... 1,756
---------
Present value of minimum lease payments................................. 9,115
Less: Current portion................................................... 4,258
---------
$ 4,857
---------
---------
</TABLE>
Rent and related expenses under operating leases amounted to $18,772,
$20,917, and $18,283 for the years ended December 31, 1998, 1997 and 1996,
respectively.
(B) CONSULTING, EMPLOYMENT AND NONCOMPETE AGREEMENTS
The Company has entered into various consulting, employment and noncompete
agreements with certain management personnel and former owners of acquired
businesses. These agreements are generally two to five years in length, with one
for a term of fifteen years and two providing aggregate annual lifetime payments
of approximately $135.
Effective November 15, 1996, the Company entered into an employment
agreement with its Principal Stockholder for a term ending on November 14, 2001.
The agreement provides for automatic renewal for successive one year terms
unless either party notifies the other to the contrary at least 90 days prior to
its expiration. Under the agreement, the Principal Stockholder is entitled to a
base salary of $1,500 per year and mandatory bonuses of $375 per quarter through
November 1998 when the bonus provision of the agreement was eliminated. Such
bonuses were waived by the Principal Stockholder. However, in compliance with
the SEC's interpretation of the application of Staff Accounting Bulletin 79,
Topic 5T "Accounting for Expenses or Liabilities paid by Principal Stockholder,"
the Company recorded in equal quarterly amounts for 1997 a total of $1,500 in
bonus expense and 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.
F-45
<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)
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 $843, $751, and $678 for the years ended
December 31, 1998, 1997 and 1996, respectively.
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 $4,144,
$3,489 and $2,959 for the years ended December 31, 1998, 1997 and 1996,
respectively.
In addition, the Company had a defined contribution profit sharing plan
covering all eligible employees. Contributions, which are at the discretion of
the Board of Directors, were not made in the years ended December 31, 1997 and
1996. The plan was terminated during 1997.
(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
F-46
<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)
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 $3.4 million.
These proceedings are in relation to the acquisition of the claimant's business
in New Zealand prior to Morgan & Banks New Zealand Limited becoming a controlled
entity of the M & B group. The directors of M & B are of the opinion that the
claim is without substance and accordingly the action is being vigorously
defended.
(E) OTHER
(i) The Company is contingently liable on a note of the Principal
Stockholder in the amount of approximately $1,600.
(ii) The majority stockholder of an unconsolidated equity investee has an
agreement which requires the Company to purchase his interest, based on a
formula value, upon death. The value of his shares at December 31, 1998 is
approximately $5,741 based on the formula.
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,
F-47
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 15--RELATED PARTY TRANSACTIONS (CONTINUED)
which expire on various dates through the year 2013, amounts to approximately
$863. In addition, an investee of the Company leases an office, at an annual
rental of approximately $119, from a partnership in which the Principal
Stockholder holds a 49% interest.
NOTE 16--SEGMENT AND GEOGRAPHIC DATA
The Company is engaged in four lines of business, advertising (recruitment
and yellow pages), Internet, executive search & selection and temporary
contracting. Operations are conducted in several geographic regions: North
America, the Pacific Rim (primarily in Australia, New Zealand and Japan) and
Europe. The following is a summary of the Company's operations by business
segment and by geographic segment, as of and for the years ended December 31,
1998, 1997, and 1996.
<TABLE>
<CAPTION>
SEARCH & TEMPORARY
INFORMATION BY BUSINESS SEGMENT ADVERTISING INTERNET SELECTION CONTRACTING TOTAL
- ---------------------------------------- -------------- ----------- ------------ --------------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1998
Revenue
Traditional sources................... $ 271,002 $ -- $ 167,180 $ 211,089 $ 649,271
Internet.............................. 3,492 46,421 245 -- 50,158
-------------- ----------- ------------ --------------- ----------
Total revenue........................... 274,494 46,421 167,425 211,089 699,429
-------------- ----------- ------------ --------------- ----------
Operating expenses:
Salaries and related costs, office &
general and CEO bonus............... 225,168(a) 48,268 149,969(a) 28,087 451,492
Temporary contracting costs........... -- -- -- 175,133 175,133
Merger costs.......................... 2,600 -- 19,812 -- 22,412
Amortization of intangibles........... 8,522 234 542 103 9,401
-------------- ----------- ------------ --------------- ----------
Total expenses.......................... 236,290 48,502 170,323 203,323 658,438
-------------- ----------- ------------ --------------- ----------
Operating income (loss)................. $ 38,204 $ (2,081) $ (2,898) $ 7,766 40,991
-------------- ----------- ------------ ---------------
-------------- ----------- ------------ ---------------
Other expense:
Interest expense, net................. * * * * (10,607)
Other, net............................ * * * * (1,730)
----------
Income before provision for income
taxes, minority interests and equity
in losses of affiliates............... * * * * $ 28,654
----------
----------
Total assets............................ $ 544,912 $ 34,682 $ 65,989 $ 28,117 $ 673,700
-------------- ----------- ------------ --------------- ----------
-------------- ----------- ------------ --------------- ----------
</TABLE>
- ------------------------
(a) Includes Internet expenses of $2,719.
* Not allocated.
F-48
<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>
SEARCH & TEMPORARY
INFORMATION BY BUSINESS SEGMENT ADVERTISING INTERNET SELECTION CONTRACTING TOTAL
- ---------------------------------------- -------------- ----------- ------------ --------------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1997
Revenue
Traditional sources................... $ 229,041 $ -- $ 154,897 $ 186,458 $ 570,396
Internet.............................. 2,691 16,779 -- -- 19,470
-------------- ----------- ------------ --------------- ----------
Total revenue........................... 231,732 16,779 154,897 186,458 589,866
-------------- ----------- ------------ --------------- ----------
Operating expenses:
Salaries and related costs, office &
general and CEO bonus............... 191,626(a) 22,818 141,327 23,894 379,665
Temporary contracting costs........... -- -- -- 155,133 155,133
Amortization of intangibles........... 5,993 167 565 117 6,842
-------------- ----------- ------------ --------------- ----------
Total expenses.......................... 197,619 22,985 141,892 179,144 541,640
-------------- ----------- ------------ --------------- ----------
Operating income (loss)................. $ 34,113 $ (6,206) $ 13,005 $ 7,314 48,226
-------------- ----------- ------------ ---------------
-------------- ----------- ------------ ---------------
Other income (expense):
Interest expense, net................. * * * * (8,891)
Other, net............................ * * * * 632
----------
Income before provision for income
taxes, minority interests and equity
in losses of affiliates............... * * * * $ 39,967
----------
----------
Total assets............................ $ 499,413 $ 13,928 $ 68,388 $ 26,650 $ 608,379
-------------- ----------- ------------ --------------- ----------
-------------- ----------- ------------ --------------- ----------
</TABLE>
- ------------------------
(a) Includes Internet expenses of $2,018.
* Not allocated.
F-49
<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>
SEARCH & TEMPORARY
INFORMATION BY BUSINESS SEGMENT ADVERTISING INTERNET SELECTION CONTRACTING TOTAL
- ---------------------------------------- -------------- ----------- ------------ --------------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1996
Revenue
Traditional sources........... $ 171,314 $ -- $ 121,162 $ 132,110 $ 424,586
Internet...................... 661 6,278 -- -- 6,939
----------- ----------- ----------- ------------- ---------
Total revenue................... 171,975 6,278 121,162 132,110 431,525
----------- ----------- ----------- ------------- ---------
Operating expenses:
Salaries and related costs,
office & general and CEO
bonus....................... 145,109(a) 8,553 109,494 14,926 278,082
Temporary contracting costs... -- -- -- 110,408 110,408
Amortization of intangibles... 4,216 224 231 61 4,732
Special compensation.......... 52,019 -- -- -- 52,019
----------- ----------- ----------- ------------- ---------
Total expenses.................. 201,344 8,777 109,725 125,395 445,241
----------- ----------- ----------- ------------- ---------
Operating income (loss)......... $ (29,369) $ (2,499) $ 11,437 $ 6,715 (13,716)
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
Other expense:
Interest expense, net......... * * * * (14,126)
Other, net.................... * * * * (479)
---------
Loss before provision for income
taxes, minority interests and
equity in earnings of
affiliates.................... * * * * $ (28,321)
---------
---------
Total assets.................... $ 343,934 $ 5,481 $ 60,086 $ 24,392 $ 433,893
----------- ----------- ----------- ------------- ---------
----------- ----------- ----------- ------------- ---------
</TABLE>
- ------------------------
(a) Includes Internet expenses of $496.
* Not allocated.
F-50
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 16--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
UNITED CONTINENTAL
INFORMATION BY GEOGRAPHIC REGION: NORTH AMERICA PACIFIC RIM KINGDOM EUROPE TOTAL
- ----------------------------------------------- -------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1998
Total revenue................................ $ 262,510 $ 273,101 $ 109,179 $ 54,639 $ 699,429
Income (loss) before taxes, minority
interests and equity in earnings of
affiliates................................. 6,150 14,996 5,902 1,606 28,654
Long-lived assets............................ 94,402 32,122 87,563 47,871 261,958
December 31, 1997
Total revenue................................ $ 231,733 $ 260,101 $ 78,593 $ 19,439 $ 589,866
Income before taxes, minority interests and
equity in earnings of affiliates........... 14,539 16,326 4,647 4,455 39,967
Long-lived assets............................ 85,390 32,336 81,493 21,711 220,930
December 31, 1996
Total revenue................................ $ 182,842 $ 194,344 $ 31,799 $ 22,540 431,525
Income (loss) before taxes, minority
interests and equity in earnings of
affiliates*................................ (46,304)* 14,902 2,216 865 (28,321)
Long-lived assets............................ 74,879 31,781 7,225 1,542 115,427
</TABLE>
- ------------------------
* Includes non-cash, non-recurring special compensation and interest expense
of $52,019 and $2,603, respectively.
NOTE 17--SUBSEQUENT EVENT
On March 11, 1999 the Company and LAI Worldwide ("LAI") announced that they
had entered into an agreement by which the Company will acquire all of the
outstanding shares of LAI in exchange for TMP common stock in accordance with
the terms of the agreement. The transaction is expected to be accounted for as a
pooling of interests.
The acquisition is anticipated to close in the third quarter of 1999. It is
estimated that costs associated with the merger, including a non-cash charge of
$2.7 million to reflect the accelerated vesting of equity incentives due LAI
employees, will be approximately $6.0 million.
Under the terms of the agreement, each share of LAI stock will be exchanged
for 0.1321 shares of the Company common stock, assuming that the average share
price of the Company's common stock for the 20 days ending on the 2nd day prior
to closing is between $42.00 and $64.00 per share. Should such 20-day average
share price fall below $42.00 per share, unless the Company elects to terminate
the acquisition, the exchange ratio will be adjusted to that obtained by
dividing $5.55 by the Company's 20-day average stock price measured prior to
closing. Should such 20-day average share price exceed $64.00 per share, the
exchange ratio will be adjusted to that obtained by dividing $8.45 by the
Company's 20-day average stock price measured prior to closing, but not below
that which would provide LAI shareholders with a fraction of a share of the
Company's common stock equal to $5.55. Based on the exchange ratio of 0.1321,
the Company expects to issue approximately 1.2 million shares, including the
effect of options. The agreement is subject to customary closing conditions,
including approval by the shareholders of LAI.
F-51
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
The audits referred to in our report dated June 7, 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.
In our opinion the supplemental consolidated financial statement schedule
presents fairly, in all material respects, the information set forth therein.
/s/ BDO Seidman, LLP
--------------------------------------
BDO Seidman, LLP
New York, New York
June 7, 1999
F-52
<PAGE>
SUPPLEMENTAL SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN B COLUMN C ADDITIONS COLUMN E
------------ ------------------------ -----------
COLUMN A BALANCE AT CHARGED TO CHARGED TO COLUMN D BALANCE AT
- -------------------------------------------------- BEGINNING OF COSTS AND OTHER ----------- END OF
DESCRIPTIONS PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- -------------------------------------------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended December 31, 1996.................... $ 5,581 $ 3,317 $ 2,211(1) $ 2,261 $ 8,848
Year ended December 31, 1997.................... $ 8,848 $ 3,845 $ 1,983(1) $ 2,983 $ 11,693
Year ended December 31, 1998.................... $ 11,693 $ 5,891 $ 419(1) $ 3,615 $ 14,388
Restructuring reserves
Year ended December 31, 1997.................... $ -- $ -- $ 17,663 $ 862 $ 16,801
Year ended December 31, 1998.................... $ 16,801 $ -- $ 10,020 $ 10,651 $ 16,170
</TABLE>
- ------------------------
(1) Initial reserves of acquired companies.
F-53
<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/ THOMAS G. COLLISON
-----------------------------------------
Thomas G. Collison
VICE CHAIRMAN
</TABLE>
Dated: June 10, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001020416
<NAME> TMP WORLDWIDE INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 25,384
<SECURITIES> 0
<RECEIVABLES> 248,264
<ALLOWANCES> 8,848
<INVENTORY> 0
<CURRENT-ASSETS> 290,851
<PP&E> 70,190
<DEPRECIATION> 37,097
<TOTAL-ASSETS> 433,893
<CURRENT-LIABILITIES> 293,271
<BONDS> 76,461
0
2,000
<COMMON> 33
<OTHER-SE> 59,181
<TOTAL-LIABILITY-AND-EQUITY> 433,893
<SALES> 431,525
<TOTAL-REVENUES> 431,525
<CGS> 0
<TOTAL-COSTS> 441,924
<OTHER-EXPENSES> 479
<LOSS-PROVISION> 3,317
<INTEREST-EXPENSE> 14,126
<INCOME-PRETAX> (28,321)
<INCOME-TAX> 9,733
<INCOME-CONTINUING> (38,957)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (38,957)
<EPS-BASIC> (1.37)
<EPS-DILUTED> (1.37)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001020416
<NAME> TMP WORLDWIDE INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 28,613
<SECURITIES> 0
<RECEIVABLES> 322,688
<ALLOWANCES> 11,693
<INVENTORY> 0
<CURRENT-ASSETS> 373,202
<PP&E> 102,595
<DEPRECIATION> 49,214
<TOTAL-ASSETS> 608,379
<CURRENT-LIABILITIES> 361,628
<BONDS> 123,778
0
0
<COMMON> 36
<OTHER-SE> 121,175
<TOTAL-LIABILITY-AND-EQUITY> 608,379
<SALES> 589,866
<TOTAL-REVENUES> 589,866
<CGS> 0
<TOTAL-COSTS> 538,263
<OTHER-EXPENSES> (632)
<LOSS-PROVISION> 3,377
<INTEREST-EXPENSE> 8,891
<INCOME-PRETAX> 39,967
<INCOME-TAX> 15,770
<INCOME-CONTINUING> 23,868
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,868
<EPS-BASIC> 0.70
<EPS-DILUTED> 0.69
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001020416
<NAME> TMP WORLDWIDE INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 38,826
<SECURITIES> 0
<RECEIVABLES> 325,087
<ALLOWANCES> 14,388
<INVENTORY> 0
<CURRENT-ASSETS> 394,261
<PP&E> 121,182
<DEPRECIATION> 59,598
<TOTAL-ASSETS> 673,700
<CURRENT-LIABILITIES> 401,994
<BONDS> 119,593
0
0
<COMMON> 36
<OTHER-SE> 143,697
<TOTAL-LIABILITY-AND-EQUITY> 673,700
<SALES> 699,429
<TOTAL-REVENUES> 699,429
<CGS> 0
<TOTAL-COSTS> 654,892
<OTHER-EXPENSES> 1,730
<LOSS-PROVISION> 3,546
<INTEREST-EXPENSE> 10,607
<INCOME-PRETAX> 28,654
<INCOME-TAX> 13,821
<INCOME-CONTINUING> 14,409
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,409
<EPS-BASIC> 0.40
<EPS-DILUTED> 0.39
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SUPPLEMENTAL CONSOLIDATED CONDENSED BALANCE SHEET AND CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001020416
<NAME> TMP WORLDWIDE INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 27,149
<SECURITIES> 0
<RECEIVABLES> 353,528
<ALLOWANCES> 14,321
<INVENTORY> 0
<CURRENT-ASSETS> 413,450
<PP&E> 127,668
<DEPRECIATION> 64,525
<TOTAL-ASSETS> 708,586
<CURRENT-LIABILITIES> 402,082
<BONDS> 130,776
0
0
<COMMON> 34
<OTHER-SE> 166,275
<TOTAL-LIABILITY-AND-EQUITY> 708,586
<SALES> 188,885
<TOTAL-REVENUES> 188,885
<CGS> 0
<TOTAL-COSTS> 178,064
<OTHER-EXPENSES> 43
<LOSS-PROVISION> 903
<INTEREST-EXPENSE> 2,730
<INCOME-PRETAX> 7,145
<INCOME-TAX> 3,056
<INCOME-CONTINUING> 3,890
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,890
<EPS-BASIC> .11
<EPS-DILUTED> .10
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SUPPLEMENTAL CONSOLIDATED CONDENSED BALANCE SHEET AND CONSOLIDATED STATEMENT OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 28,090
<SECURITIES> 0
<RECEIVABLES> 330,816
<ALLOWANCES> 12,980
<INVENTORY> 0
<CURRENT-ASSETS> 301,098
<PP&E> 107,481
<DEPRECIATION> 53,009
<TOTAL-ASSETS> 617,237
<CURRENT-LIABILITIES> 356,599
<BONDS> 132,892
0
0
<COMMON> 36
<OTHER-SE> 125,933
<TOTAL-LIABILITY-AND-EQUITY> 617,237
<SALES> 160,792
<TOTAL-REVENUES> 160,792
<CGS> 0
<TOTAL-COSTS> 148,387
<OTHER-EXPENSES> 97
<LOSS-PROVISION> 1,287
<INTEREST-EXPENSE> 2,466
<INCOME-PRETAX> 8,555
<INCOME-TAX> 3,416
<INCOME-CONTINUING> 5,036
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,036
<EPS-BASIC> .14
<EPS-DILUTED> .14
</TABLE>
