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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: March 16, 1999
TMP WORLDWIDE INC.
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(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 0-21571 13-3906555
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(State of (Commission File (I.R.S. Employer
Incorporation) No.) Identification No.)
</TABLE>
<TABLE>
<S> <C>
1633 BROADWAY, NEW YORK, NEW 10019
YORK
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(Address of principal executive (Zip
offices) Code)
</TABLE>
Registrant's telephone number, including area code: 212-977-4200
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<PAGE>
ITEM 5. OTHER EVENTS.
During the period of January 1, 1998 through January 31, 1999, TMP Worldwide
Inc. and Subsidiaries (the "Company" or "TMP") completed the following
acquisitions (the "Pooled Companies") which provided for the exchange of all of
the outstanding stock of each entity for shares of TMP common stock and have
been accounted for as poolings of interests (the "Mergers"):
<TABLE>
<CAPTION>
POOLED COMPANY ACQUISITION DATE NUMBER OF TMP SHARES ISSUED
- ------------------------------------------------------------ ---------------------- ----------------------------
<S> <C> <C>
Johnson Smith & Knisely May 6, 1998 771,353
TASA Holding AG August 31, 1998 1,703,894
Stackig, Inc. September 30, 1998 507,082
Recruitment Solutions, Inc. October 2, 1998 104,042
Sunquest, L.L.C. d.b.a. SMART Group November 2, 1998 309,702
The Consulting Group (International) Limited December 2, 1998 246,606
Morgan & Banks Limited January 28, 1999 5,150,924
</TABLE>
The Company's consolidated financial statements have been retroactively
restated as of September 30, 1998 and December 31, 1997 and 1996 and for the
nine months ended September 30, 1998 and 1997 and each of the three years in the
period ended December 31, 1997 to reflect the consummation of the Mergers. The
supplemental consolidated financial statements give retroactive effect to the
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 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 upon issuance of the financial statements for the period
that includes the dates of the Mergers. The supplemental consolidated statements
of stockholders' equity reflect the accounts of TMP as if the common stock
issued in connection with the Mergers had been issued for all periods presented.
The supplemental consolidated balance sheets of TMP as of September 30, 1998
and December 31, 1997 and 1996 have been combined with those of the Pooled
Companies as of September 30, 1998 and December 31, 1997 and 1996 except for
Morgan & Banks Limited ("M&B") for which the September 30, 1998, March 31, 1998
and 1997 balance sheets were used. The supplemental consolidated statements of
operations combine the results of TMP for each year in the three year period
ended December 31, 1997 with those of the Pooled Companies, except for M&B, for
each year in the three year period ended December 31, 1997. The statements of
operations for each year in the three year-period ended March 31, 1998 were used
for M&B. For the nine months ended September 30, 1998 and 1997, the results of
TMP have been combined with those of the Pooled Companies for the same periods.
Consequently, the results for M&B for the three months ended March 31, 1998 and
1997 are included in the Supplemental Consolidated Statements of Operations for
the years ended December 31, 1997 and 1996 and the nine months ended September
30, 1998 and 1997. When translated at the appropriate exchange rates for the
December 31, 1997 and September 30, 1998 periods, for the three months ended
March 31, 1998, revenue was approximately $60.7 million and $53.8 million, net
income was approximately $1.5 million and $1.3 million, and the effect on the
diluted net income per share was $0.05 and $0.04, respectively. Revenue, net
income and the effect on the diluted net income per share was approximately
$47.6 million and $40.9 million, $2.1 million and $1.8 million and $.07 and
$.06, respectively, for the three months ended March 31, 1997, when translated
at the appropriate exchange rates for the December 31, 1996 and September 30,
1997 periods.
The supplemental consolidated financial statements, including the notes
thereto, should be read in conjunction with the historical consolidated
financial statements of TMP included in its Annual Report on Form 10-K/A for the
year ended December 31, 1997 and the consolidated financial statements of M&B
included in the Company's 8-K dated February 11, 1999.
2
<PAGE>
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 the TMP Worldwide
Inc. and Subsidiaries ("TMP" or the "Company") business outlook or future
economic performance, anticipated profitability, gross billings, commissions and
fees, expenses or other financial items and statements concerning assumptions
made or exceptions as to any future events, conditions, performance or other
matters are "forward-looking statements" as that term is defined under the
federal securities laws. Forward-looking statements are subject to risks,
uncertainties and other factors which would cause actual results to differ
materially from those stated in such statements. Such risks, uncertainties and
factors include, but are not limited to, (i) the uncertain acceptance of the
Internet and the Company's Internet content, (ii) that the Company has grown
rapidly and there can be no assurance that the Company will continue to be able
to grow profitably or manage its growth, (iii) risks associated with
acquisitions, (iv) competition, (v) the Company's quarterly operating results
have fluctuated in the past and are expected to fluctuate in the future, (vi)
the Company's business experiences seasonality, (vii) the loss of services of
certain key individuals could have a material adverse effect on the Company's
business, financial condition or operating results, (viii) the Company has
entered into certain transactions with affiliated parties and (ix) the control
of the Company by Andrew J. McKelvey.
OVERVIEW
A substantial part of the Company's growth has been achieved through
acquisitions. For the period January 1, 1998 through January 31, 1999, the
Company completed 22 acquisitions of which seven, 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, The Consulting Group
(International) Limited, and M&B (the "Pooled Companies") (the "Mergers"), are
being accounted for as poolings of interests. Approximately 8.8 million shares
of the Company's common stock were issued in exchange for all of the outstanding
common stock of the Pooled Companies and the accompanying financial statements
have been restated to include the accounts and operations of the Pooled
Companies for all periods presented. For the period January 1, 1995 through
December 31, 1997, the Company completed 40 acquisitions with estimated annual
gross billings of approximately $600 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.
The Company's consolidated financial statements have been retroactively
restated as of September 30, 1998 and December 31, 1997 and 1996 and for the
nine months ended September 30, 1998 and 1997 and each of the three years in the
period ended December 31, 1997 to reflect the consummation of the Mergers. The
supplemental consolidated financial statements give retroactive effect to the
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 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 upon issuance of the financial statements for the period
that includes the dates of the Mergers. The supplemental consolidated statements
of stockholders' equity, reflect the accounts of TMP as if the common stock
issued in connection with the Mergers had been issued for all periods presented.
The supplemental consolidated balance sheets of TMP as of September 30, 1998
and December 31, 1997 and 1996 have been combined with those of the Pooled
Companies as of September 30, 1998 and December 31, 1997 and 1996 except for M&B
for which the September 30, 1998, March 31, 1998 and 1997 balance sheets were
used. The supplemental consolidated statement of operations combines the results
of
3
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TMP for each year in the three year period ended December 31, 1997 with those of
the Pooled Companies, except for M&B, for each year in the three year period
ended December 31, 1997. The statements of operations for each year in the three
year period ended March 31, 1998 were used for M&B. For the nine months ended
September 30, 1998 and 1997, the results of TMP have been combined with those of
the Pooled Companies for the same periods. The results for M&B for the three
months ended March 31, 1998 and 1997 are included in the Supplemental
Consolidated Statements of Operations for the years ended December 31, 1997 and
1996 and the nine months ended September 30, 1998 and 1997. When translated at
the appropriate exchange rates for the December 31, 1997 and September 30, 1998
periods, for the three months ended March 31, 1998, revenue was approximately
$60.7 million and $53.8 million, net income was approximately $1.5 million and
$1.3 million, and the effect on the diluted net income per share was $0.05 and
$0.04, respectively. Revenue, net income and the effect on the diluted net
income per share was approximately $47.6 million and $40.9 million, $2.1 million
and $1.8 million and $.07 and $.06, respectively, for the three months ended
March 31, 1997, when translated at the appropriate exchange rates for the
December 31, 1996 and September 30, 1997 periods.
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 and selection and related services and
revenue from temporary contracting services. While gross billings are not
included in the Company's consolidated financial statements, the trends in gross
billings directly impact the total revenue earned by the Company. For
recruitment and yellow page advertising, the Company earns commissions based on
a percentage of the media advertising purchased at a rate established by the
related publisher, and associated fees for related services. Publishers
typically bill the Company for the advertising purchased by the Company's
clients and the Company in turn bills its clients for this amount. Generally,
the payment terms with yellow page clients require payment to the Company prior
to the date payment is due to publishers. The payment terms with recruitment
advertising clients typically require payment when payment is due to publishers.
Historically, the Company has not experienced substantial problems with unpaid
accounts.
The Company designs and executes yellow page advertising programs, receiving
an effective commission rate from directory publishers of approximately 20% of
yellow page gross billings. In general, publishers consider orders renewed
unless actively canceled. In addition to base commissions, certain yellow pages
publishers pay increased commissions for volume placement by advertising
agencies. The Company typically recognizes this additional commission, if any,
in the fourth quarter when it is certain that such commission has been earned.
The amounts reported in the fourth quarters of 1997, 1996 and 1995 were $2.0
million, $3.5 million and $4.2 million, respectively. For recruitment
advertising placements in the U.S., publisher commissions average 15% of
recruitment advertising gross billings. The Company also earns fees from
value-added services such as design, research and other creative and
administrative services. Outside of the U.S., where, collectively, the Company
derives the majority of its recruitment advertising commissions and fees, TMP's
commission rates for recruitment advertising vary, ranging from approximately
10% in Australia to 15% in Canada and the United Kingdom. Based on the
consolidated results of the Company for the nine months ended September 30, 1998
and the years ended December 31, 1997, 1996 and 1995, 59%, 52%, 29%, and 10%,
respectively, of the Company's recruitment commission fees were attributable to
clients outside the U.S. The company also earns fees for recruitment
advertisements and related services on its career oriented Web sites on the
Internet.
Through its search and selection services, the Company identifies and
screens candidates for hiring by clients based on criteria established by such
clients. The Company entered this business by acquiring in 1998, (1) JSK, the
12th largest executive search firm in the US., according to Kennedy
Publications, and official ranking service for the search industry, (2) Europe
Consultants, S.L. a search and selection firm in Barcelona, Spain, (3) TASA, an
international executive search firm (4) Daniel Porte, a French search and
selection firm and in 1999, M&B, the largest search & selection firm in
Australia.
4
<PAGE>
The Company also generates revenues for temporary contract services in
response to specific client assignments with revenue based on time worked by
temporary staff at an agreed upon hourly rate. The costs for temporary
contracting personnel are typically due before payment is received from the
client.
Primarily as a result of acquisitions which are included in the financial
statements using the purchase method of accounting from their respective dates
of acquisitions made from January 1, 1995 through December 31, 1997, the
Company's total revenue increased from $293.4 million in 1995 to $555.3 million
in 1997. The Company is continuously monitoring the marketplace for
opportunities to expand its presence in both yellow page and recruitment
advertising, which include Internet-related opportunities and intends to
continue its acquisition strategy to supplement its internal growth.
The Company's operating expenses have increased significantly since 1995
primarily due to headcount increases as a result of acquisitions and hiring to
support gross billings growth. Salaries and related costs increased $106.8
million to $239.7 million for the year ended December 31, 1997 from $132.9
million for the year ended December 31, 1995, an 80.4% increase, supporting a
$606.1 million or a 75.8% increase in gross billings over the same period. When
measured as a percent of billings, salaries and related costs for the year ended
December 31, 1997 were 17.1%, up slightly from 16.6% for the comparable 1995
period. Salaries and related costs include total payroll and associated benefits
as well as payroll taxes, sales commissions, recruitment fees and training
costs.
Temporary contract costs increased $85.8 million to $136.2 million for the
year ended December 31, 1997 from $50.4 for the year ended December 31, 1995, a
170.3% increase. The increase in costs as a percentage of temporary contracting
revenue from 81.6% to 83.1% reflects the continued expansion of temporary
contracting services into lower skilled areas.
Office and general expenses increased $52.8 million to $127.8 million for
the year ended December 31, 1997 from $75.0 million for the year ended December
31, 1995, a 70.4% increase, primarily due to increased costs needed to support
the increased billings and the expansion of recruitment offices through
acquisitions in new U.S. and foreign markets. When measured as a percent of
billings, office and general costs for the year ended December 31, 1997 were
9.1%, down slightly from 9.4% for the comparable 1995 period. This cost category
includes expenses for office operations, business promotion, market research,
advertising, professional fees and fees paid to the Company's primary lending
institution for its services in the processing and collection of payments for
accounts receivable.
Amortization of intangibles includes amortization of acquisition related
charges, including the costs in excess of fair market value of net assets
acquired and capitalized costs for non-compete arrangements with the principals
of acquired companies. This acquisition related amortization was $6.8 million,
$4.7 million and $3.4 million for the years ended December 31, 1997, 1996 and
1995, respectively.
The CEO bonus for the year ended December 31, 1997 of $1.5 million reflects
a non-cash charge recorded in compliance with Staff Accounting Bulletin No. 79
("SAB 79"), for a bonus mandated by the Principal Stockholder's employment
contract, even though such bonus was irrevocably waived. Special compensation
for the year ended December 31, 1996, reflects a non-cash, non-recurring charge
of approximately $52.0 million resulting from the issuance of approximately 3.6
million shares of common stock of the Company to stockholders of predecessor
companies of the Company in exchange for their shares in those companies,
because they had received such shares for nominal or no consideration as
employees or as management of such companies and, accordingly, were not
considered to have made substantive investments for their shares.
Net interest expense includes interest: (i) on loans made by the Company's
primary lender under its financing agreement with such lender, (ii) to certain
vendors, (iii) on capitalized lease obligations, (iv) on net amounts payable to
the holders of seller financed notes and (v) on a term loan related to the
purchase of certain transportation equipment. In addition, 1996 net interest
expense includes a non-recurring charge of approximately $2.6 million to
reflect, upon exercise of the warrant issued in connection with the Company's
financing agreement, the difference between the value of the stock issued at the
initial public offering price of $14.00 per share and the value recorded for the
warrant when it was originally issued.
5
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RESULTS OF OPERATIONS
The following table sets forth for the periods indicated gross billings and
revenue as a percentage of gross billings for the Company's yellow page
advertising, recruitment advertising, search and selection, Internet and
temporary contracting businesses and EBITDA for the Company.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
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1997 1996 1995 1998 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
GROSS BILLINGS:
Recruitment advertising........... $ 604,420 $ 342,379 $ 195,178 $ 605,160 $ 419,843
Yellow page advertising........... 469,342 443,594 435,283 381,317 358,072
Search & selection................ 148,215 123,473 106,970 119,802 107,619
Internet(1)....................... 19,908 6,839 392 34,823 13,715
Temporary contracting............. 163,831 113,299 61,768 133,501 122,589
--------- --------- --------- --------- ---------
Total............................. $1,405,716 $1,029,584 $ 799,591 $1,274,603 $1,021,838
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
REVENUE:
Recruitment advertising........... $ 127,211 $ 71,741 $ 43,941 $ 126,409 $ 88,445
Yellow page advertising........... 98,007 95,942 88,459 77,472 73,037
Search & selection................ 147,398 114,257 98,834 119,802 107,619
Internet(1)....................... 18,869 6,839 392 31,724 13,091
--------- --------- --------- --------- ---------
Total commissions and fees........ 391,485 288,779 231,626 355,407 282,192
Temporary contracting............. 163,831 113,299 61,768 133,501 122,589
--------- --------- --------- --------- ---------
Total revenue..................... $ 555,316 $ 402,078 $ 293,394 $ 488,908 $ 404,781
--------- --------- --------- --------- ---------
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REVENUE AS A PERCENTAGE OF GROSS
BILLINGS:
Recruitment advertising........... 21.0% 21.0% 22.5% 20.9% 21.1%
Yellow page advertising........... 20.9% 21.6% 20.3% 20.3% 20.4%
Search & selection................ 99.4% 92.5% 92.4% 100.0% 100.0%
Internet(1)....................... 94.8% 100.0% 100.0% 91.1% 95.5%
Total commissions and fees........ 31.5% 31.5% 31.4% 31.1% 31.4%
Temporary contracting............. 100.0% 100.0% 100.0% 100.0% 100.0%
Total............................. 39.5% 39.1% 36.7% 38.4% 39.6%
EBITDA(2)........................... $ 62,188 $ (6,087) $ 38,790 $ 54,920 $ 47,687
Cash provided by operating
activities........................ $ 31,884 $ 27,903 $ 15,790 $ 33,129 $ 31,322
Cash used in investing activities... $ (82,621) $ (42,912) $ (19,837) $ (29,764) $ (68,383)
Cash provided by (used in) financing
activities........................ $ 54,700 $ 18,287 $ 4,188 $ (3,061) $ 37,939
</TABLE>
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(1) Represents fees earned in connection with yellow page, recruitment and other
advertisements placed on the Internet.
(2) Earnings before interest, income taxes, depreciation and amortization.
EBITDA is presented to provide additional information about the Company's
ability to meet its future debt service, capital expenditures and working
capital requirements and is one of the measures which determines the
Company's ability to borrow under its credit facility. EBITDA should not be
considered in isolation or as a substitute for operating income, cash flows
from operating activities and other income or cash flow statement data
prepared in accordance with generally accepted accounting principles or as a
measure of the Company's profitability or liquidity.
6
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EBITDA for the indicated periods is calculated as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1997 1996 1995 1998 1997
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(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income (loss)........................... $ 18,663 $ (41,850) $ 10,597 $ 15,575 $ 15,672
Interest expense, net....................... 8,934 14,159 10,415 7,493 6,564
Income tax expense.......................... 15,122 8,995 8,642 11,407 12,454
Depreciation and amortization............... 19,469 12,609 9,136 20,445 12,997
--------- --------- --------- --------- ---------
EBITDA...................................... $ 62,188 $ (6,087) $ 38,790 $ 54,920 $ 47,687
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Gross billings for the nine months ended September 30, 1998 were $1,274.6, a
$252.8 million or 24.7% increase when compared to gross billings for nine months
ended September 30, 1997. 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 $488.9 million for the nine months ended
September 30, 1998 from $404.8 million for nine months ended September 30, 1997,
an increase of 20.8%. This reflects increases, as compared to the prior year
period, in total revenue for (a) recruitment advertising of $38.0 million or
42.9%, (b) yellow page advertising of $4.4 million or 6.1% (c) search &
selection of $12.2 million or 11.3%, (d) Internet of $18.6 million or 142.3% and
(e) temporary contracting of $10.9 million or 8.9%. The increase in commissions
and fees for recruitment advertising was primarily due to acquisitions which
contributed approximately $36.7 million, foreign currency exchange fluctuations
with a negative effect of approximately $2.7 million and approximately $4.1
million from increased client spending and new clients partially offset by
client losses. The increase in commissions and fees derived from yellow page
advertising is comprised of approximately $3.0 million due to net increases in
client spending and new clients and approximately $1.4 million due to
acquisitions. The increase in commissions and fees for search & selection was
due to acquisitions, primarily in executive search. The Internet revenue
increase reflects an increasing acceptance of the Company's Internet products
from existing and new clients, the benefits of "co-branding" marketing efforts
with other Internet content providers and increased sales and marketing
activities. Temporary contracting revenues increased due to additional clients
and increased spending by clients.
Salaries and related costs increased $38.3 million to $214.7 million for the
nine months ended September 30, 1998. As a percent of total revenues, salaries
and related costs increased to 43.9% for nine months ended September 30, 1998
from 43.6% for nine months ended September 30, 1997. This increase was primarily
due to acquisitions and increased sales staffing for Internet.
Temporary contracting costs increased $13.9 million to $111.2 million for
the nine months ended September 30, 1998. This increase is primarily due to the
increased number of temporary contract workers placed in the nine months ended
September 30, 1998 as compared with the prior period. As a percent of temporary
contracting revenue, temporary contracting costs increased to 83.3% for the nine
months ended September 30, 1998 from 79.4% for the nine months ended September
30, 1997. This increased percentage reflects the continued expansion of
temporary contracting services into lower skilled areas.
Office and general expenses increased $20.1 million to $109.9 million for
nine months ended September 30, 1998, primarily due to acquisitions. As a
percent of total revenue, office and general expenses increased to 22.5% for the
nine months ended September 30, 1998 from 22.2% for the nine months ended
September 30, 1997.
7
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Amortization of intangibles was $6.8 million for the nine months ended
September 30, 1998 compared to $4.9 million for the nine months ended September
30, 1997. The increase is due to the Company's continued growth through
acquisitions. As a percentage of total revenues, amortization of intangibles was
1.4% and 1.2% for the nine months ended September 30, 1998 and 1997,
respectively.
The $9.6 million in merger costs for the nine months ended September 30,
1998 reflects the costs associated with the three companies acquired during the
period which are being accounted for as pooling of interests, JSK, TASA and
Stackig, and is comprised of (1) $5.5 million of non-cash employee stay bonuses,
which included (a) $2.1 million for the amortization of 50% of a $4.2 million
charge being expensed over the twelve months from April 1, 1998 to March 31,
1999 for TMP shares set aside for key personnel of JSK who must remain employees
of the Company for a full year in order to earn such shares, (the "JSK Stay
Bonus") and (b) $3.4 million for TMP shares issued to key personnel of TASA as
employee stay bonuses and (2) $4.1 million of transaction related costs,
including legal, accounting and advisory fees and the costs incurred for the
subsequent registration of shares issued in the acquisitions.
Operating income increased $0.4 million to $35.6 million for the nine months
ended September 30, 1998 as compared with an operating income of $35.2 million
for the nine months ended September 30, 1997 and as a percent of total revenue
decreased to 7.3% from 8.7% as a result of all of the above.
Net interest expense increased $0.9 million to $7.5 million for the nine
months ended September 30, 1998 as compared to $6.6 million for the nine months
ended September 30, 1997. The Company's effective interest rate was 6.9% for the
nine months ended September 30, 1998 compared with 6.2% for the nine months
ended September 30, 1997.
Taxes on income decreased $1.1 million to $11.4 million for nine months
ended September 30, 1998 from $12.5 million for nine months ended September 30,
1997 primarily due to lower pre-tax income. The effective tax rate for the nine
months ended September 30, 1998 was 41.8% compared with 43.6% for the nine
months ended September 30, 1997. The decrease in the effective rate reflects a
benefit in 1998 from operating loss carryovers of certain subsidiaries that were
previously unable to benefit from losses and the effect in 1997 of higher state
and foreign tax rates.
As a result of all of the above, the net income applicable to common and
Class B common stockholders was $15.6 million for the nine months ended
September 30, 1998, or $.43 per diluted share, compared with net income of $15.5
million, or $.47 per diluted share for the nine months ended September 30, 1997.
THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Gross billings for the year ended December 31, 1997 were $1,405.7, a $376.1
million or 36.5% increase when compared to gross billings for the year ended
December 31, 1996. The growth is primarily due to acquisitions in recruitment
advertising, rate increases in yellow page advertising, increased clients and
higher client spending for search & selection, and growing acceptance of the
Company's Internet products.
Total revenue increased to $555.3 million for the year ended December 31,
1997 from $402.1 million for the year ended December 31, 1996, an increase of
38.1%. This reflects increases, as compared to the prior year period, in total
revenue for (a) recruitment advertising of $55.5 million or 77.4%, (b) yellow
page advertising of $2.1 million or 2.2% (c) search & selection of $33.1 million
or 29.0%, (d) Internet of $12.0 million or 175.9% and (e) temporary contracting
of $50.5 million or 44.6%. A substantial portion of the increase in commissions
and fees derived from recruitment advertising was due to acquisitions, including
$15.5 million from Austin Knight, acquired August 1997, and the remainder was
due to higher client spending and new clients. The increase in commissions and
fees derived from yellow page advertising was due primarily to increased rates
by the yellow page publishers and an acquisition offset by lower publisher
incentives and the full year effect of accounts lost and resigned in 1996. 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
8
<PAGE>
increase reflects the continued customer acceptance of the Company's Internet
products both from the Company's existing clients as well as new clients and
price increases on certain products. The increase in temporary contracting
revenue is due to expansion of temporary contract services.
Salaries and related costs increased $69.2 million to $239.7 million for the
year ended December 31, 1997. As a percent of total revenues, salaries and
related costs increased to 43.2% for the year ended December 31, 1997 from 42.4%
for the year ended December 31, 1996. This increase was primarily due to
additional staff required to service increased recruitment advertising billings,
increased sales staffing for Internet, and generally higher salary and related
costs as a percentage of commissions and fees for search & selection operations.
Temporary contracting costs increased $41.1 million to $136.2 million for
the year ended December 31, 1997, reflecting a greater number of temporary
contract workers placed in the year ended December 31, 1997. This increase is
primarily due to the increased number of temporary contract workers placed in
the year ended December 31, 1997 compared with the prior period. As a percent of
total contracting revenue, temporary contracting costs declined slightly to
83.1% for the year ended December 31, 1997 from 83.9% for the year ended
December 31, 1996.
Office and general expenses increased $30.8 million to $127.8 million for
the year ended December 31, 1997. As a percent of total revenue, office and
general expenses decreased to 23.0% for the year ended December 31, 1997 from
24.1% for the year ended December 31, 1996. This decrease was primarily due to
consolidation of offices, which slowed the growth of office related expenses,
increased growth in recruitment advertising commissions and fees combined with
the relatively fixed nature of some of these expenses and generally lower office
and general expenses as a percentage of total revenue for search & selection
operations.
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 the Company's continued growth through acquisitions. As a percentage
of total revenues, amortization of intangibles was 1.2% for both 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 the Company's Common Stock.
Operating income increased $60.5 million to $43.3 million for the year ended
December 31, 1997 as compared with an operating loss of $17.3 million for the
year ended December 31, 1996. The increase was primarily due to the inclusion,
in 1996 of the $52.0 million non-cash, non-recurring special compensation charge
and costs in connection with consolidation of recruitment advertising
acquisitions and for 1997 increased recruitment advertising, search and
selection, Internet and temporary contracting revenue slightly offset by a $2.2
million increase in operating expenses relating to the Company's introduction of
its Internet business, which were $4.1 million for 1997 and $1.9 million for
1996. As a result of the above, operating income for the year ended December 31,
1997 as a percent of total revenue increased to 7.8% from (4.3)% 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 $14.2 million for the year ended December
31, 1996. This decrease in interest expense is due primarily to the repayment of
a portion of the debt with the net cash proceeds of the Company's initial public
and 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 the Company's financing agreement, the value of the stock issued
at the Company's initial public offering price of $14.00 per share and the value
9
<PAGE>
recorded for the warrant when it was originally issued. The Company's 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 $6.1 million to $15.1 million for the year ended
December 31, 1997 from $9.0 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 44.3% compared with (28.2)% 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,
interest expense of $2.6 million and state taxes of $.4 million, as well as the
Company's 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 $18.5 million for the year ended December 31,
1997, or $.55 per diluted share, compared with net loss of $42.1 million, or
$(1.50) per diluted share for the year ended December 31, 1996.
THE YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Gross billings for the year ended December 31, 1996 were $1,029.6 million, a
$230.0 million or 28.8% increase compared to the year ended December 31, 1995. A
substantial portion of this growth was attributable to acquisitions in
recruitment advertising and increased acceptance of the Company's Internet
business.
Total revenue increased to $402.1 million for the year ended December 31,
1996 from $293.4 million for the year ended December 31, 1995, an increase of
37.0%. This increase was due to increases, as compared to the prior year period,
for (a) recruitment advertising of $27.8 million or 63.3%, (b) yellow page
advertising of $7.5 million or 8.5%, (c) search & selection of $15.4 million or
15.6%, (d) Internet of $6.4 million or 1644.6% and (e) temporary contracting of
$51.5 million or 83.4%. A substantial portion of the increase in commissions and
fees derived from recruitment advertising was due to acquisitions, including
$11.2 million from Neville Jeffress, acquired July 1996, and the remainder was
due to higher client spending and new clients. The increase in commissions and
fees derived from yellow page advertising was due primarily to increased rates
by the yellow page publishers and higher client spending. Fees derived from
Internet were generated from placements of Internet advertising, as the
Company's Internet products gained initial customer acceptance both from the
Company's existing clients as well as new clients. Increases in revenue for 1996
and 1995 for search & selection and temporary contracting reflects additional
clients and increased spending by existing clients.
Salaries and related costs increased $37.6 million to $170.5 million for the
year ended December 31, 1996. As a percent of total revenue, salaries and
related costs decreased to 42.4% for the year ended December 31, 1996 from 45.3%
for the year ended December 31, 1995. This decrease was primarily due to
increased temporary contracting revenue, with the associated primary cost
isolated as temporary contracting costs, partially offset by additional staff
required to service increased gross billings, a higher percentage for costs
related to Neville Jeffress and severance and temporary help expenses related to
the consolidation of the recruitment advertising acquisitions. Internet staffing
also increased by $2.8 million to $3.0 million, which is 45% of Internet
commissions and fees.
Temporary contracting costs increased $44.7 million to $95.1 million for the
year ended December 31, 1996. The increase is a result of increased temporary
contracting revenue. As a percent of temporary contracting revenue, temporary
contracting costs increased to 83.9% for the year ended December 31, 1996 from
81.6% for the year ended December 31, 1995 reflecting movement of services into
lower skilled areas.
Office and general expenses increased $22.0 million to $97.0 million for the
year ended December 31, 1996. As a percent of total revenue, office and general
expenses decreased to 24.1% for the year ended
10
<PAGE>
December 31, 1996 from 25.6% for the year ended December 31, 1995. This decrease
was primarily due to increases in temporary contracting revenue, with the
associated primary cost isolated as temporary contracting costs, partially
offset by increased advertising of approximately $1.9 million, primarily related
to the Company's introduction of The Monster Board-Registered Trademark-,
general expenses related to higher gross billings, professional consulting fees
for the establishment of Internet services and airplane related travel costs.
Amortization of intangibles was $4.7 million for the year ended December 31,
1996 compared to $3.4 million for the year ended December 31, 1995. The increase
was due to the Company's continued growth through acquisitions. As a percentage
of total revenue, amortization of intangibles was 1.2% and 1.1% for the years
ended December 31, 1996 and 1995, respectively.
Special compensation of $52.0 million consists of a non-cash, non-recurring
charge that reflects the value of shares issued in connection with the
acquisition of the minority interests in predecessors of the Company because the
stockholders had received such shares for nominal or no consideration and,
accordingly, were not considered to have made a substantive investment for their
shares. The value of such shares was based on the per share initial public
offering price of $14.00 for the Company's Common Stock.
Operating results declined $49.0 million to a loss of $17.3 million for the
year ended December 31, 1996 as compared with operating income of $31.7 million
for the year ended December 31, 1995. The decline was primarily due to the
non-cash $52.0 million special compensation charge, increased advertising
expenses of $2.5 million for the Company's Internet business and $5.1 million in
direct operating expenses related to the Company's introduction of its Internet
business. Operating results for the year ended December 31, 1996, as a percent
of total revenue, declined to (4.3)% from 10.8% for the year ended December 31,
1995. This decline in operating income as a percent of commissions and fees was
primarily due to the non-cash special compensation charge of $52.0 million in
1996 and costs in connection with the consolidation of the recruitment
advertising acquisitions.
Net interest expense increased $3.7 million to $14.2 million for the year
ended December 31, 1996 as compared to $10.4 million for the year ended December
31, 1995. This increase in interest expense is due primarily to (i) a $2.6
million non-cash, non-recurring charge to reflect, upon exercise of a warrant
issued in connection with the Company's financing agreement, the value of the
stock issued at the Company's per share initial public offering price of $14.00
per share and the value recorded for the warrant when it was originally issued,
(ii) higher debt balances for working capital needs and (iii) acquisition
financing, partially offset by lower borrowing costs and the repayment of a
portion of the debt with the net cash proceeds of the Company's initial public
offering. The Company's effective interest rate was 15.4% for the year ended
December 31, 1996 compared with 11.1% for the year ended December 31, 1995. The
higher interest charge in 1996 is primarily due to the $2.6 million non-cash,
non-recurring charge in 1996.
Taxes on income increased $0.4 million to $9.0 million for the year ended
December 31, 1996 from $8.6 million for the year ended December 31, 1995
primarily due to lower pre-tax income. The effective tax rate for the year ended
December 31, 1996 on income before income taxes of (28.2)% was lower than the
U.S. Federal statutory rate of 34.0% primarily due to the non-cash special
compensation charge of $52.0 million and $2.6 million in interest expense,
described above, nondeductible expenses of approximately $2.9 million and
approximately $1.7 million in interest computed on a receivable from the
Company's principal stockholder. The effective tax rate for the year ended
December 31, 1995 was 42.6% and the nondeductible expenses for 1995 were lower
than in 1996.
As a result of the above, the net loss applicable to common and Class B
common stockholders was $42.1 million for the year ended December 31, 1996, or
$(1.50) per diluted share, compared with net income of $10.4 million, or $.37
per diluted share, for the year ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements have been to fund (i)
acquisitions, (ii) working capital, (iii) capital expenditures and (iv)
advertising and development of its Internet business. The Company's
11
<PAGE>
working capital requirements are generally higher in the quarters ending March
31 and June 30 during which payments to the major yellow page directory
publishers are at their highest levels. The Company has met its liquidity needs
over the last three years through funds provided by operating activities, equity
offerings in 1997 and 1996, long-term borrowings in 1997 and 1996, capital
leases and vendor financing in 1996 and 1995. In December 1996, the Company
completed the initial public offering of an aggregate of 4,147,408 shares of
Common Stock at a purchase price of $14.00 per share in an underwritten public
offering managed by Morgan Stanley & Co. Incorporated, Donaldson, Lufkin &
Jenrette Securities Corporation and Ladenburg Thalmann & Co. Inc. In the initial
public offering, certain stockholders sold an additional aggregate of 652,592
shares of Common Stock. The net proceeds to the Company from the initial public
offering of $50.8 million were used to repay debt and, in early 1997, to repay
accounts payable and to redeem preferred stock. In September 1997, the Company
completed 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. The net proceeds to the Company from this offering of
$63.4 million, including $12.2 million paid to the Company by certain
stockholders, were used to repay debt, including debt incurred to fund the
purchase of Austin Knight.
Net cash provided by operating activities for the nine months ended
September 30, 1998 was $33.1 million compared with $31.3 million for the nine
months ended September 30, 1997. The increase of $1.8 million for the 1998
period compared with the 1997 period was primarily due to (1) $6.3 million of
charges funded through stock issuances compared with $.6 million for the 1997
period, (2) a $5.3 million increase in depreciation and amortization expenses
and (3) a $1.3 million increase in the provision for doubtful accounts
substantially offset by (1) a $3.6 million increase in prepaid and other assets
and (2) $6.6 million resulting from a greater increase in accounts receivable in
the 1998 period as compared to the 1997 period than the increase in accounts
payable and accrued liabilities for the same periods, reflecting increased
payments to yellow page vendors. The cash for these payments was provided by
higher borrowing capacity after the Company repaid a portion of its bank debt
with proceeds from its second public offering in September 1997.
Net cash provided by operating activities for the years ended December 31,
1997, 1996 and 1995 was $31.9 million, $27.9 million and $15.8 million,
respectively. 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. The
increase in cash from operating activities for 1996 over 1995 was primarily due
to improved accounts receivable collection offset by greater payments of
accounts payable and accrued liabilities, increased depreciation and
amortization, decreases in work in progress and an increase in net income for
1996 after adding back the non-cash charges.
Net cash used in investing activities for the nine months ended September
30, 1998 was $29.8 million compared with $68.4 million for the nine months ended
September 30, 1997. The $38.6 million decrease from the nine months ended
September 30, 1997 to the nine months ended September 30, 1998 was primarily due
to $45.0 million less in payments for acquisitions, reflecting the use of shares
to make acquisitions of businesses, and $5.3 million less in capital
expenditures. In addition, in the nine months ended September 30, 1997 the
Company received a net payment of $11.8 million from its principal stockholder,
as he used proceeds from the sale of some of his TMP stock sold in the secondary
offering to repay the net outstanding debt owed to the Company.
Net cash used in investing activities for the years ended December 31, 1997,
1996 and 1995 was $82.6 million, $42.9 million and $19.8 million, respectively.
During 1997, with funds received from their sale of shares included with the
Company's second public offering, the Principal Stockholder and certain other
stockholders repaid $12.2 million to the Company. Payments for purchases of
business acquisitions were $66.8 million in 1997, including $47.2 million for
Austin Knight, $29.0 million in 1996 and $11.4 million in
12
<PAGE>
1995. Capital expenditures, primarily for computer equipment and furniture and
fixtures, were $27.3 million, $12.5 million and $10.9 million for the years
ended December 31, 1997, 1996 and 1995, respectively. In addition, in 1997, the
Company acquired certain transportation equipment and made capital improvements
for a total of $6.8 million, replacing the transportation equipment sold during
1996 for $6.1 million, and simultaneously entered into a $7.8 million financing
agreement to fund the purchase and provide additional operating funds. In
December 1996, the Company sold certain transportation equipment for $6.1
million receiving a note for $2.7 million and retained $1.2 million in cash,
after payment of related debt. The Company estimates that its expenditures for
computer equipment and software, furniture and fixtures and leasehold
improvements will be approximately $25.0 million for 1998.
EBITDA was $54.9 million for the nine months ended September 30, 1998, an
increase of $7.2 million or 15.2% from $47.7 million for the nine months ended
September 30, 1997. This improvement for 1998 as compared with 1997, reflects a
$7.4 million increase in depreciation and amortization expense for 1998 as
compared with 1997. However, as a percentage of total revenue, EBITDA decreased
to 11.2% for the nine months ended September 30, 1998 from 11.8% for the nine
months ended September 30, 1997. The decrease resulted primarily from the $9.6
million charge for merger costs, which was 2.0% of total revenue for the nine
months ended September 30, 1998.
EBITDA increased $68.3 million to $62.2 million for the year ended December
31, 1997 from $(6.1) million for the year ended December 31, 1996, and as a
percent of total revenue increased to 11.2% for the year ended December 31, 1997
as compared to (1.5)% for the year ended December 31, 1996 due to a higher
operating profit. For the year ended December 31, 1996, EBITDA decreased $44.9
million to $(6.1) million or 115.7% as compared to the year ended December 31,
1995. As a percent of total revenue, EBITDA decreased to (1.5)% for the year
ended December 31, 1996 from 13.2% for the year ended December 31, 1995
primarily due to the $52.0 million non-cash special compensation charge in 1996,
partially offset by a higher percentage of costs related to Neville Jeffress and
severance and temporary help expenses related to consolidation of the
recruitment advertising acquisitions.
The Company's financing activities include equity offerings, borrowings and
repayments under its financing agreement and payments on (i) installment notes,
principally to finance acquisitions, and (ii) capital leases. In the fourth
quarter of 1996, the Company completed its initial public offering of 4,147,408
shares of Common Stock for net proceeds to the Company of $50.8 million and in
the third quarter of 1997, the Company completed its second public offering of
2,400,000 shares of Common Stock for net proceeds to the Company (excluding the
repayment of $12.2 million to the Company by certain stockholders) of $51.2
million. With a portion of the proceeds received from its initial public
offering, the Company, in January 1997, redeemed all of the shares of the
cumulative preferred stock issued by a subsidiary, reported as a minority
interest, and its previously issued preferred stock for approximately $3.1
million and $2.1 million, respectively. Such redemptions included approximately
$100,000 each of premiums. The company's financing activities used net cash of
$3.1 million and provided $37.9 million in the nine months ended September 30,
1998 and 1997, respectively. The decrease of $41.0 million reflects the receipt
of $51.2 million in cash from the Company's second public offering in 1997,
partially offset by $6.2 million used for the redemption of a minority interest
and preferred stock and the payment of $6.9 million for dividends by pooled
companies, compared with $6.3 million for dividends paid by pooled companies for
the 1998 period partially offset by net borrowings of $4.2 million and $1.4
million from the exercise of employee stock options. The Company's financing
activities provided net cash of $54.7 million, $18.3 million and $4.2 million in
1997, 1996 and 1995, respectively. In November, 1997 the Company amended its
financing agreement with BNY Financial Corporation to provide for borrowings up
to $175 million under a revolving credit facility. Such facility has been used
to finance the Company's acquisitions and for working capital requirements. As
of December 31, 1997, there was $95.8 million outstanding under such facility.
As of December 31, 1998, there was approximately $57.4 million available under
such facility. The Company believes it will be able to fund its short-term cash
needs through funds from operations, its credit facilities in the United States,
the United Kingdom, Canada and Australia and, to a lesser extent, equipment
leases. The financing agreement with BNY Financial Corporation terminates on
June 27, 2001
13
<PAGE>
and currently bears interest at 7.5% per annum. The interest rate of the
financing agreement is determined pursuant to a formula whereby the interest
rate, at the Company's option, is either (i) the prime rate less 1% or (ii) the
Federal Funds rate less 1/2 of 1% or (iii) LIBOR plus 1 1/2%. The borrowings are
secured by a lien on substantially all of the Company's assets. In addition, the
financing agreement contains certain covenants which restrict, among other
things, the ability of the Company to borrow, pay dividends, acquire businesses,
make future capital expenditures, guarantee debts of others and lend funds to
affiliated companies and contains criteria on the maintenance of certain
financial statement amounts and ratios.
Part of the Company's acquisition strategy is to pay, over time, a portion
of the purchase price of certain acquisitions through seller financed notes.
Accordingly, such notes are included in long term debt, are generally payable
over five years and totaled $9.5 million at December 31, 1997.
The Company intends to continue its acquisition strategy and promotion of
its Internet activities through the use of operating profits, borrowings against
its long-term debt facility and seller financed notes. The Company believes that
its anticipated cash flow from operations, as well as the availability of funds
under its existing financing agreements and the net proceeds of its recent
supplemental public offering and access to public equity and debt markets, will
provide it with liquidity to meet its current forseeable cash needs for at least
the next year. However, if the Company determines that conditions are favorable,
the Company would consider additional corporate finance transactions.
YEAR 2000 ISSUE
Many 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
The Company has developed a comprehensive plan to deal with the Year 2000
issue. The plan is an evolving document as the Company continues 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 within the Company follows a
consistent approach and adheres to project deadlines; and to track the status of
all Year 2000 efforts.
The Company's Year 2000 task force is currently conducting an inventory of
and developing 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.
The Company's plan to confirm this compliance through a combination of the
representation by these third parties of their products' Year 2000 compliance,
as well as specific testing of these systems. The Company plans 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, the Company will not be
able to completely evaluate whether its systems will need to be revised or
replaced.
COSTS
The Company expects to incur approximately $3.0 million, globally, during
1998 and 1999 in connection with identifying, evaluating and addressing Year
2000 compliance issues. Most of these costs will to relate to the operating
costs associated with time spent by employees and consultants in the evaluation
process and Year 2000 compliance matters generally. Such costs, are not expected
to have a material adverse effect on the Company's business, results of
operations and financial condition.
14
<PAGE>
RISKS
The Company is not currently aware of any Year 2000 compliance problems
relating to its systems that would have a material adverse effect on its
business, results of operations and financial condition, without taking into
account the Company's efforts to avoid or fix such problems. There can be no
assurance that the Company will not discover Year 2000 compliance problems in
its systems that will require substantial revision. In addition, there can be no
assurance that third-party software, hardware or services incorporated into
TMP's material systems will not need to be revised or replaced, all of which
could be time-consuming and expensive. The failure of the Company to fix or
replace its 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 business interruptions, any of
which could have a material adverse effect on the Company's business, results of
operations and financial condition. Moreover, the failure to adequately address
Year 2000 compliance issues in its 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.
TMP is 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 TMP could cause TMP's members and visitors to consider seeking
alternate providers or cause an unmanageable burden on its technical support,
which in turn could materially and adversely affect TMP's business, financial
condition and results of operations.
In addition, there can be no assurance that governmental agencies, utility
companies, internet access companies, third-party service providers and others
outside of TMP's control will be Year 2000 compliant. The failure by such
entities to be Year 2000 compliant could result in a systemic failure beyond the
control of TMP, such as a prolonged internet, telecommunications or electrical
failure, which could also prevent TMP from delivering its services to its
customers, decrease the use of the internet or prevent users from accessing its
Web sites which could have a material adverse effect on TMP's business, results
of operations and financial condition.
CONTINGENCY PLAN
As discussed above, the Company is engaged in an ongoing Year 2000
assessment and has not yet developed any contingency plans. The results of the
Company's 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 of any contingency plans.
FLUCTUATIONS OF QUARTERLY RESULTS
The Company's quarterly commissions and fees are affected by the timing of
yellow page directory closings which currently have a concentration in the third
quarter. Yellow page publishers may change the timing of directory publications
which may have an effect on the Company's quarterly results. The Company's
yellow page advertising results are also affected by commissions earned for
volume placements for the year, which are typically reported in the fourth
quarter. The Company's quarterly commissions and fees for recruitment
advertising, excluding the effect of acquisitions made throughout the year, 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. This economic cyclicality also has a major effect on
search & selection and temporary contracting volume. Moreover, the Company's
recruitment advertising acquisition activity has had more of an impact on the
Company's recently reported quarterly results than any other factor. See Note 2
to the Company's Supplemental Consolidated Financial Statements.
The following table sets forth supplemental summary quarterly unaudited
financial information for the nine months ended September 30, 1998, and the
years ended December 31, 1997 and 1996. Amounts have been restated to reflect
the effect of the retroactive restatement for business combinations completed
15
<PAGE>
through January 1999, accounted for as poolings of interests, and the change in
accounting for a waived bonus to the Company's CEO/Principal Stockholder: (in
millions, except share and per share amounts)
<TABLE>
<CAPTION>
1998 QUARTERS
---------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30,
----------- ----------- -------------
<S> <C> <C> <C>
Commissions and fees:
Recruitment advertising.................................................... $ 43.5 $ 43.2 $ 39.7
Yellow page advertising.................................................... 22.0 25.4 30.1
Search & selection......................................................... 38.1 41.1 40.6
Internet................................................................... 7.7 10.7 13.3
----------- ----------- ------
Total commissions and fees................................................... 111.3 120.4 123.7
Temporary contracting...................................................... 41.2 46.1 46.2
----------- ----------- ------
Total revenue................................................................ $ 152.5 $ 166.5 $ 169.9
----------- ----------- ------
----------- ----------- ------
Operating income............................................................. $ 10.4 $ 13.5 $ 11.7
Net income applicable to common and Class B
common stockholders........................................................ $ 4.4 $ 5.8 $ 5.3
Net income per common and Class B common share:
Basic...................................................................... $ .13 $ .17 $ .15
Diluted.................................................................... $ .12 $ .16 $ .15
Weighted average shares outstanding (in thousands):
Basic...................................................................... 34,898 34,949 34,971
Diluted.................................................................... 36,204 35,999 36,123
</TABLE>
<TABLE>
<CAPTION>
1997 QUARTERS
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Commissions and fees:
Recruitment advertising..................................... $ 25.8 $ 29.0 $ 33.6 $ 38.8
Yellow page advertising..................................... 20.3 23.5 29.2 25.0
Search & selection.......................................... 35.2 36.8 35.6 39.8
Internet.................................................... 3.8 4.5 4.8 5.8
----------- ----------- ------ ------
Total commissions and fees.................................... 85.1 93.8 103.2 109.4
Temporary contracting....................................... 41.0 40.3 41.2 41.3
----------- ----------- ------ ------
Total revenue................................................. $ 126.1 $ 134.1 $ 144.4 $ 150.7
----------- ----------- ------ ------
----------- ----------- ------ ------
Operating income.............................................. $ 11.6 $ 10.8 $ 12.8 $ 8.1
Net income applicable to common and Class B common
stockholders................................................ $ 5.7 $ 4.7 $ 5.1 $ 3.0
Net income per common and Class B common share:
Basic....................................................... $ .18 $ .15 $ .16 $ .09
Diluted..................................................... $ .17 $ .14 $ .15 $ .08
Weighted average shares outstanding (in thousands):
Basic....................................................... 32,172 32,196 32,683 34,766
Diluted..................................................... 32,615 32,822 33,360 35,398
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
1996 QUARTERS
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Commissions and fees:
Recruitment advertising..................................... $ 14.9 $ 14.9 $ 20.8 $ 21.1
Yellow page advertising..................................... 20.7 23.3 28.1 23.8
Search & selection.......................................... 26.4 28.5 29.4 30.0
Internet.................................................... .9 1.5 2.1 2.3
----------- ----------- ------ ------
Total commissions and fees.................................... 62.9 68.2 80.4 77.2
Temporary contracting....................................... 24.7 24.7 31.1 32.8
----------- ----------- ------ ------
Total revenue................................................. $ 87.6 $ 92.9 $ 111.5 $ 110.0
----------- ----------- ------ ------
----------- ----------- ------ ------
Operating income (loss)....................................... $ 7.2 $ 7.4 $ 7.4 $ (39.3)
Net income (loss) applicable to common and Class B common
stockholders................................................ $ 2.1 $ 3.1 $ 1.4 $ (48.7)
Net income (loss) per common and Class B common share:
Basic....................................................... $ .08 $ .11 $ .05 $ (1.71)
Diluted..................................................... $ .08 $ .11 $ .05 $ (1.71)
Weighted average shares outstanding (in thousands):
Basic....................................................... 27,849 27,819 27,624 28,503
Diluted..................................................... 27,981 28,399 27,755 28,503
</TABLE>
Earnings per share calculations for each quarter include the weighted
average effect for the quarter; therefore, the sum of the quarters may not equal
the full year earnings per share amount, which reflects the weighted average
effect on an annual basis. In addition, diluted earnings per share calculations
for each quarter include the effect of stock options and warrants, when dilutive
to the quarter.
During the three months ended December 31, 1996 the Company received one
time fees of $150,000, $175,000, and $220,000 for a research study, executive
search services and for assisting in the procurement of bank financing,
respectively. The research study fee is included as a reduction of office and
general expenses, the executive search fee is included in commissions and fees
and the loan procurement fee is included in other income in the accompanying
Supplemental Statement of Operations for the year ended December 31, 1996.
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.
17
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE NO.
-----------
<S> <C>
SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS:
Balance sheet as of September 30, 1998 (unaudited).................................................... F-2
Statements of income for the nine months ended September 30, 1998 and 1997 (unaudited)................ F-3
Statement of stockholders' equity for the nine months ended September 30, 1998 (unaudited)............ F-4
Statements of cash flows for the nine months ended September 30, 1998 and 1997 (unaudited)............ F-5
Notes to supplemental consolidated condensed financial statements (unaudited)......................... F-6
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants.................................................... F-11
Independent Auditor's Report to Members............................................................... F-12
Balance sheets as of December 31, 1997 and 1996....................................................... F-13
Statements of operations for the years ended December 31, 1997, 1996 and 1995......................... F-14
Statements of stockholders' equity (deficit) for the years ended December 31, 1997, 1996 and 1995..... F-15
Statements of cash flows for the years ended December 31, 1997, 1996 and 1995......................... F-16
Notes to supplemental consolidated financial statements............................................... F-17
Report of Independent Certified Public Accountants.................................................... F-41
Supplemental Schedule II: Valuation and qualifying accounts for the years ended December 31, 1997,
1996 and 1995......................................................................................... F-42
</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.
Exhibit 23.1 Consent of Independent Certified Public Accountants
Exhibit 23.2 Consent of Independent Chartered Accountants
F-1
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................................ $ 27,289
Accounts receivable, net......................................................................... 345,116
Work-in-process.................................................................................. 16,367
Prepaid and other................................................................................ 22,054
-------------
Total current assets........................................................................... 410,826
Property and equipment, net........................................................................ 58,213
Deferred income taxes.............................................................................. 4,201
Intangibles, net................................................................................... 190,018
Other assets....................................................................................... 5,501
-------------
$ 668,759
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................................. $ 260,553
Accrued expenses and other liabilities........................................................... 82,135
Accrued restructuring costs...................................................................... 20,902
Deferred revenue................................................................................. 13,927
Deferred income taxes............................................................................ 11,862
Current portion of long-term debt................................................................ 9,075
-------------
Total current liabilities...................................................................... 398,454
Long-term debt, less current portion............................................................... 133,092
Other liabilities.................................................................................. 1,007
-------------
Total liabilities.............................................................................. 532,553
-------------
Minority interests................................................................................. 475
-------------
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:
32,480,278..................................................................................... 33
Class B common stock, $.001 par value, authorized 39,000,000 shares; issued and outstanding:
2,381,000...................................................................................... 2
Additional paid-in capital....................................................................... 174,390
Foreign currency translation adjustment.......................................................... (3,246)
Accumulated deficit.............................................................................. (35,448)
-------------
Total stockholders' equity..................................................................... 135,731
-------------
$ 668,759
-------------
-------------
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Revenue:
Commissions and fees.................................................................... $ 355,407 $ 282,192
Temporary contracting................................................................... 133,501 122,589
---------- ----------
Total revenue............................................................................. 488,908 404,781
---------- ----------
Operating expenses:
Salaries and related costs.............................................................. 214,700 176,421
Temporary contracting costs............................................................. 111,227 97,299
Office and general...................................................................... 109,923 89,836
Amortization of intangibles............................................................. 6,779 4,905
CEO bonus............................................................................... 1,125 1,125
Merger costs............................................................................ 9,577 --
---------- ----------
Total operating expenses............................................................ 453,331 369,586
---------- ----------
Operating income.......................................................................... 35,577 35,195
---------- ----------
Other income (expense):
Interest expense, net................................................................... (7,493) (6,564)
Other, net.............................................................................. (822) (92)
---------- ----------
Total other (expense), net.......................................................... (8,315) (6,656)
---------- ----------
Income before provision for income taxes, minority interests and equity in (losses) of
affiliates.............................................................................. 27,262 28,539
Provision for income taxes................................................................ 11,407 12,454
---------- ----------
Income before minority interests and equity in (losses) of affiliates..................... 15,855 16,085
Minority interests........................................................................ (17) 393
Equity in (losses) of affiliates.......................................................... (297) (20)
---------- ----------
Net income................................................................................ 15,575 15,672
Preferred stock dividend.................................................................. -- (123)
---------- ----------
Net income applicable to common and Class B common stockholders........................... $ 15,575 $ 15,549
---------- ----------
---------- ----------
Net income per common and Class B common share:
Basic................................................................................... $ .45 $ .48
---------- ----------
---------- ----------
Diluted................................................................................. $ .43 $ .47
---------- ----------
---------- ----------
Weighted average shares outstanding:
Basic................................................................................... 34,975 32,336
---------- ----------
---------- ----------
Diluted................................................................................. 36,066 32,937
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to supplemental consolidated condensed financial
statements.
F-3
<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, FOREIGN
$.001 PAR VALUE $.001 PAR VALUE ADDITIONAL CURRENCY TOTAL
---------------------- ----------------------- PAID-IN TRANSLATION ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT EQUITY
--------- ----------- ---------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998.... 21,200,941 $ 21 13,587,541 $ 14 $ 166,861 $ (1,035) $ (47,929) $ 117,932
Issuance of common stock in
connection with the
exercise of options....... 150,662 -- -- -- 1,405 -- 1,405
Issuance of common stock for
purchases of interests in
subsidiaries.............. 62,413 -- -- -- 1,627 -- -- 1,627
Redemption of common stock.. (287,352) -- -- -- (668) -- -- (668)
Issuance of common stock for
matching contribution to
401(k) plan............... 27,273 -- -- -- 627 -- -- 627
Conversion of Class B common
shares to common shares... 11,206,541 12 (11,206,541) (12) -- -- -- --
Issuance of common stock for
bonuses................... 119,800 -- -- -- 3,413 -- -- 3,413
Foreign currency translation
adjustment................ -- -- -- -- -- (2,211) -- (2,211)
Capital contribution by
Principal Stockholder re:
CEO bonus................. -- -- -- -- 1,125 -- -- 1,125
Net income.................. -- -- -- -- -- -- 15,575 15,575
Pooled Company's earnings
included in both December
31, 1997 and September 30,
1998 income statements.... -- -- -- -- -- -- (1,345) (1,345)
Dividends declared by pooled
companies................. -- -- -- -- -- -- (1,749) (1,749)
--------- --- ---------- --- ----------- ----------- ------------ ------------
Balance, September 30,
1998...................... 32,480,278 $ 33 2,381,000 $ 2 $ 174,390 $ (3,246) $ (35,448) $ 135,731
--------- --- ---------- --- ----------- ----------- ------------ ------------
--------- --- ---------- --- ----------- ----------- ------------ ------------
</TABLE>
See accompanying notes to supplemental consolidated condensed financial
statements.
F-4
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................................. $ 15,575 $ 15,672
---------- ----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of property and equipment.............................. 11,539 8,092
Amortization of intangibles.......................................................... 6,779 4,905
Amortization of deferred compensation................................................ 2,127 --
Provision for doubtful accounts...................................................... 3,331 2,056
Common stock issued for stay bonus................................................... 3,413 --
Common stock issued for match to 401(k) plan......................................... 627 555
CEO bonus and indemnity payment...................................................... 1,125 1,400
Minority interests................................................................... (17) 393
Provision for deferred income taxes.................................................. 3,756 5,458
Other................................................................................ 1,042 248
Changes in assets and liabilities, net of effects of purchases of businesses:
Increase in accounts receivable, net............................................... (46,931) (13,657)
Increase in work-in-process........................................................ (882) (639)
Increase in prepaid and other...................................................... (6,453) (2,841)
(Increase) decrease in other assets................................................ 163 (1,639)
Increase in accounts payable, accrued expenses and other liabilities............... 37,935 11,319
---------- ----------
Total adjustments.................................................................... 17,554 15,650
---------- ----------
Net cash provided by operating activities........................................ 33,129 31,322
---------- ----------
Cash flows from investing activities:
Payments pursuant to notes to Principal Stockholder.................................. -- (3,064)
Repayments from Principal Stockholder................................................ -- 14,903
Capital expenditures................................................................. (14,090) (19,428)
Payments for purchases of businesses, net of cash acquired........................... (15,674) (60,723)
Advances to and investments in affiliates............................................ -- (71)
---------- ----------
Net cash used in investing activities............................................ (29,764) (68,383)
---------- ----------
Cash flows from financing activities:
Payments on capitalized leases....................................................... (2,250) (2,170)
Borrowings under line of credit and proceeds from issuance of debt................... 755,455 476,845
Repayments under line of credit and principal payments on debt....................... (751,234) (476,180)
Proceeds from stock issuance......................................................... -- 51,165
Cash received from the exercise of employee stock options............................ 1,405 539
Distributions to minority interest................................................... (115) (25)
Redemption of minority interest (including premium).................................. -- (3,133)
Redemption of preferred stock (including premium).................................... -- (2,105)
Dividends paid by pooled companies................................................... (6,322) (6,874)
Dividends on preferred stock......................................................... -- (123)
---------- ----------
Net cash (used in) provided by financing activities.............................. (3,061) 37,939
---------- ----------
Net increase in cash and cash equivalents................................................ 304 878
Cash and cash equivalents, beginning of year............................................. 26,985 23,022
---------- ----------
Cash and cash equivalents, end of period................................................. $ 27,289 $ 23,900
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to supplemental consolidated condensed financial
statements.
F-5
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The supplemental consolidated condensed interim financial statements
included herein have been prepared by TMP Worldwide Inc. ("TMP" or the
"Company"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments which, in the opinion of management, are necessary for fair
presentation of the information contained therein. It is suggested that these
supplemental consolidated condensed financial statements be read in conjunction
with the supplemental consolidated financial statements and notes thereto
included elsewhere in this report. The Company follows the same accounting
policies in preparation of interim financial statements.
Results of operations for the interim periods may not be indicative of
annual results.
Previously, the Company had not charged earnings for bonuses specified in
its employment agreement with Andrew J. McKelvey, its CEO and Principal
Stockholder, because he permanently waived his receipt of the bonuses due to him
before the start of the period to which it related. However, the Securities and
Exchange Commission informed the Company, that in accordance with their
interpretation of Staff Accounting Bulletin 79, Topic 5T "Accounting for
Expenses or Liabilities paid by the Principal Stockholder," TMP must record
bonus expense for this item, even though it has been permanently waived.
During the period of January 1, 1998 through January 31, 1999, TMP Worldwide
Inc. and Subsidiaries (the "Company" or "TMP") completed the following
acquisitions ( the "Pooled Companies") which provided for the exchange of all of
the outstanding stock of each entity for shares of TMP common stock and have
been accounted for as poolings of interests (the "Mergers"):
<TABLE>
<CAPTION>
NATURE OF NUMBER OF TMP
POOLED COMPANY OPERATIONS ACQUISITION DATE SHARES ISSUED
- -------------------------------------------- -------------------------- ---------------------- ---------------
<S> <C> <C> <C>
Johnson Smith & Knisely ("JSK") Search & selection May 6, 1998 771,353
TASA Holding AG ("TASA") Search & selection August 31, 1998 1,703,894
Stackig, Inc. ("Stackig") Advertising September 30, 1998 507,082
Recruitment Solutions, Inc. Search & selection October 2, 1998 104,042
Sunquest, L.L.C. d.b.a. the SMART Group Advertising November 2, 1998 309,702
The Consulting Group (International) Limited Search & selection December 2, 1998 246,606
Morgan & Banks Limited ("M&B") Search & selection and January 28, 1999 5,150,924
temporary contracting
</TABLE>
The Company's consolidated financial statements have been retroactively
restated as of September 30, 1998 and for the nine months ended September 30,
1998 and 1997 to reflect the recording of bonus expense and the consummation of
the Mergers. The supplemental consolidated financial statements give retroactive
effect to the 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 combining
F-6
<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)
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 upon
issuance of the financial statements for the period that includes the dates of
the Mergers. The supplemental 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.
The supplemental consolidated balance sheet of TMP as of September 30, 1998
has been combined with those of the Pooled Companies as of September 30, 1998.
For the nine months ended September 30, 1998 and 1997, the results of TMP have
been combined with those of the Pooled Companies for the same periods. The
results for M&B for the three months ended March 31, 1998 and 1997 are included
in the Supplemental Consolidated Statement of Operations for the years ended
December 31, 1997 and 1996 and for the nine months ended September 30, 1998 and
1997. When translated at the appropriate exchange rate for the September 30,
1998 period, revenue was approximately $53.8 million, net income was
approximately $1.3 million, and the effect on the diluted net income per share
was $0.04. Revenue, net income and the effect on the diluted net income per
share was approximately $40.9 million, $1.8 million, and $0.06, respectively,
for the three months ended March 31, 1997, when translated at the appropriate
exchange rates for the nine months ended September 30, 1997.
Basic earnings per share assumes no dilution, and is computed by dividing
income available to common and Class B common shareholders by the weighted
average number of common and Class B common shares outstanding during each
period. Diluted earnings per share reflect, in periods in which they have a
dilutive effect, the effects of common shares issuable upon exercise of stock
options and warrants, and contingent shares.
A reconciliation of shares used in calculating basic and diluted earnings
per common and Class B common share follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
30,
----------------------------
<S> <C> <C>
1998 1997
------------- -------------
Basic............................................................ 34,975 32,336
Contingent shares................................................ 82 --
Effect of assumed conversion of stock options.................... 1,009 601
------ ------
Diluted.......................................................... 36,066 32,937
------ ------
------ ------
</TABLE>
NOTE 2--BUSINESS ACQUISITIONS
In the nine month period ended September 30, 1998, the Company completed
eleven acquisitions which are being accounted for as purchases. These purchases
were comprised of (a) a human resources consulting firm intended to expand the
traditional advertising services offered to the company's recruitment
advertising clients, (b) two recruitment advertising agencies in Singapore, (c)
four recruitment advertising agencies in Europe, two in England, one in Germany
and one in the Netherlands (d) two U.S.
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 2--BUSINESS ACQUISITIONS (CONTINUED)
based websites, AboutWork.com and StudentCenter.com and (e) two selection
agencies, one in France and one in Spain. The Company also completed three
acquisitions which are being accounted for as poolings of interests, two in
executive search and one in recruitment advertising. (See Note 1.) The total
value of cash paid, promissory notes issued, and common stock issued for all of
these transactions was approximately $102,023, including $85,276 of TMP common
stock, for the 1998 period compared with $74,279 paid for acquisitions in the
1997 period.
The summarized unaudited pro forma results of operations set forth below for
the nine month periods ended September 30, 1998 and 1997 assume that 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>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
Total revenue............................................................................. $ 494,839 $ 418,264
Net income applicable to common and Class B common stockholders........................... 15,307 16,499
Net income per common and Class B common share:
Basic................................................................................... .44 .51
Diluted................................................................................. .42 .50
</TABLE>
NOTE 3--MERGER COSTS
During the nine month period ended September 30, 1998, the Company completed
the acquisitions of JSK, TASA and Stackig, which are being accounted for as
poolings-of-interests. (See Note 1.) In connection with these acquisitions, the
Company expensed merger related costs of $9,577. The $9,577 of merger costs for
the nine month period ended September 30, 1998 consists of (1) $5,539 of
non-cash employee stay bonuses, which included (a) $2,127 for the amortization
of a $4,254 charge being expensed over the twelve months from April 1, 1998 to
March 31, 1999 for TMP shares set aside for key personnel of JSK who must remain
employees of the Company for a full year in order to earn such shares, (the "JSK
Stay Bonus") and (b) $3,412 for TMP shares to key personnel of TASA as employee
stay bonuses and (2) $4,038 of transaction related costs, including legal,
accounting and advisory fees and the costs incurred for the subsequent
registration of shares issued in the acquisitions.
NOTE 4--COMPREHENSIVE NET INCOME
SFAS No. 130 "Reporting Comprehensive Income", requires that all components
of comprehensive income and total comprehensive income be reported on one of the
following: a statement of income and comprehensive income, a statement of
comprehensive income or a statement of stockholders' equity. Comprehensive
income is comprised of net income and all changes to stockholders' equity,
except those due to investments by owners (changes in additional paid-in
capital) and distributions to owners (dividends). For interim purposes, SFAS No.
130 requires disclosure of total comprehensive income.
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 4--COMPREHENSIVE NET INCOME (CONTINUED)
Total comprehensive income is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
<S> <C> <C>
1998 1997
----------- -----------
Net income............................................................ $ 15,575 $ 15,672
Foreign currency translation adjustment............................... (2,211) (369)
----------- -----------
Comprehensive income.................................................. $ 13,364 $ 15,303
----------- -----------
----------- -----------
</TABLE>
NOTE 5--ACCRUED RESTRUCTURING COSTS
In connection with acquisitions completed in 1997, the Company recorded
certain accruals for restructuring costs to be incurred in connection with
preliminary restructuring plans formulated at the time of the respective
acquisitions. Such plans involved the closure of certain offices of the acquired
companies and the termination of certain management and employees. The objective
of the plans was to create a single brand in the related markets in which the
Company operates. The preliminary plans were finalized in July 1998. Following
is an analysis of the types of expenses accrued as well as charges against the
accruals during the period ended September 30, 1998:
<TABLE>
<CAPTION>
BALANCE BALANCE
DECEMBER 31, 1997 ADDITIONS PAYMENTS SEPTEMBER 30, 1998
----------------- ----------- ----------- ------------------
<S> <C> <C> <C> <C>
Assumed obligations on leased facilities to be
closed............................................ $ 7,830 $ 3,992 $ (559) $ 11,263
Consolidation of acquired facilities................ 2,521 1,580 (493) 3,608
Contracted lease payments exceeding current market
costs............................................. 783 34 -- 817
Severance, relocation and other employee costs...... 4,017 2,280 (2,782) 3,515
Pension obligation.................................. 1,650 49 -- 1,699
------- ----------- ----------- -------
Total............................................... $ 16,801 $ 7,935 $ (3,834) $ 20,902
------- ----------- ----------- -------
------- ----------- ----------- -------
</TABLE>
NOTE 6--SUBSEQUENT EVENT
On November 5, 1998, the Company renegotiated its existing credit facility
with its primary lender, the Bank of New York. The new agreement provides for a
five year $175 million revolving credit facility at lower borrowing costs than
the previous agreement, putting the Company's current interest rate at LIBOR
plus 87.5 basis points as compared with LIBOR plus 150 basis points under the
old facility.
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 and that the transaction is expected to be accounted
for as a pooling of interests.
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 6--SUBSEQUENT EVENT (CONTINUED)
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 Worldwide.
F-10
<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, 1997 and 1996, and the
related supplemental consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1997. The supplemental consolidated financial statements give
retroactive effect to the merger of TMP Worldwide Inc. and Subsidiaries and
Johnson Smith & Knisely Inc. on May 6, 1998, TASA Holding 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 on December 2, 1998 and Morgan & Banks
Limited on January 28, 1999, which have been accounted for as poolings of
interests as described in Notes 2 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 March 31, 1998 and 1997 and for each
of the three years in the period ended March 31, 1998, which were combined with
the Company's financial statements as of December 31, 1997 and 1996 and for each
of three years in the period ended December 31, 1997, which financial statements
reflect total assets of approximately $54.4 million and $51.2 million as of
March 31, 1998 and 1997 and total revenues of approximately $106.6 million,
$174.4 million and $235.8 million for each of the three 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, after giving retroactive effect to the mergers referred to
above, in conformity with generally accepted accounting principles.
As discussed in Note 13B, the accompanying supplemental consolidated
financial statements have been restated to reflect the effect of a change in the
accounting treatment for bonuses waived by the CEO/ Principal Stockholder.
/s/ BDO SEIDMAN, LLP
-------------------------------------------------------------------------
BDO SEIDMAN, LLP
New York, New York
March 20, 1998, except for Notes 2, 5 and 13B
for which the date is February 26, 1999
F-11
<PAGE>
INDEPENDENT AUDITOR'S REPORT TO MEMBERS
SCOPE
We have audited the financial statements of Morgan & Banks Limited for the
financial years ended 31 March 1998, 1997 and 1996. The financial statements
include the consolidated accounts of the economic entity comprising the company
and the entities it controlled at each year's end or from time to time during
the financial year. The company's directors are responsible for the preparation
and presentation of the financial statements and the information they contain.
We have conducted an independent audit of these financial statements in order to
express an opinion on them to the members of the company.
Our audit has been conducted in accordance with Australian Auditing
Standards which do not differ in any material respects from generally accepted
auditing standards in the United States of America to provide reasonable
assurance as to whether the financial statements are free of material
misstatement. Our procedures included examination, on a test basis, of evidence
supporting the amounts and other disclosures in the financial statements, and
the evaluation of accounting policies and significant accounting estimates.
These procedures have been undertaken to form an opinion as to whether, in all
material respects, the financial statements are presented fairly in accordance
with Australian Accounting Standards and other mandatory professional reporting
requirements (Urgent Issues Group Consensus Views) and statutory requirements so
as to present a view which is consistent with our understanding of the company's
and the economic entity's financial position, and the results of their
operations and their cash flows.
The names of the entities controlled during all or part of, or at the end
of, the financial year, but of which we have not acted as auditors are set out
in Note 32 to the financial statements. We have, however, received sufficient
information and explanations concerning these controlled entities to enable us
to form an opinion on the consolidated accounts. The audit opinion expressed in
this report has been formed on the above basis.
AUDIT OPINION
In our opinion, the financial statements of Morgan & Banks Limited are
properly drawn up:
(a) so as to give a true and fair view of
- the state of affairs as at 31 March 1998 and 1997 and the profit and cash
flows for the financial years ended 31 March 1998, 1997 and 1996 of the
company and the economic entity; and
- the other matters required by Divisions 4, 4A and 4B of Part 3.6 of the
Corporations Law to be dealt with in the financial statements;
(b) in accordance with the provisions of the Corporation Law; and
(c) in accordance with applicable Australian Accounting Standards and other
mandatory professional reporting requirements.
<TABLE>
<S> <C>
[LOGO] /s/ A.P. WHITING
- -------------------------------------------- --------------------------------------------
Chartered Accountants A.P. Whiting
New South Wales Partnership Partner
</TABLE>
Sydney, 16 June 1998, except for Note 2 of Notes
to and Forming Part of the Consolidated Financial
Statements, for which the date is 21 September
1998.
F-12
<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>
1997 1996
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 26,985 $ 23,022
Accounts receivable, net................................................................ 303,897 233,916
Work-in-process......................................................................... 15,623 14,709
Prepaid and other....................................................................... 16,505 10,713
---------- ----------
Total current assets.................................................................. 363,010 282,360
Receivable from Principal Stockholder, net................................................ -- 11,413
Property and equipment, net............................................................... 52,094 32,548
Deferred income taxes..................................................................... 5,330 9,492
Intangibles, net.......................................................................... 167,457 82,102
Other assets.............................................................................. 7,689 5,747
---------- ----------
$ 595,580 $ 423,662
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 225,863 $ 200,416
Accrued expenses and other current liabilities.......................................... 80,579 60,098
Accrued restructuring costs............................................................. 16,801 --
Deferred revenue........................................................................ 7,992 3,640
Deferred income taxes................................................................... 9,372 8,791
Current portion of long-term debt....................................................... 12,068 12,650
---------- ----------
Total current liabilities............................................................. 352,675 285,595
Long-term debt, less current portion...................................................... 123,211 76,309
Other liabilities......................................................................... 1,331 1,015
---------- ----------
Total liabilities..................................................................... 477,217 362,919
---------- ----------
Minority interests........................................................................ 431 3,705
---------- ----------
Redeemable preferred stock................................................................ -- 2,000
---------- ----------
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--21,200,941 and 17,255,896, shares, respectively.......................... 21 17
Class B common stock, $.001 par value, authorized 39,000,000 shares; issued and
outstanding--13,587,541 and 14,787,541 shares, respectively........................... 14 15
Additional paid-in capital.............................................................. 166,861 108,395
Foreign currency translation adjustment................................................. (1,035) 2,651
Deficit................................................................................. (47,929) (56,040)
---------- ----------
Total stockholders' equity............................................................ 117,932 55,038
---------- ----------
$ 595,580 $ 423,662
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-13
<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>
1997 1996 1995
--------- --------- ---------
Revenue:
Commissions and fees.......................................................... $ 391,485 $ 288,779 $ 231,626
Temporary contracting......................................................... 163,831 113,299 61,768
--------- --------- ---------
Total revenue............................................................. 555,316 402,078 293,394
--------- --------- ---------
Operating expenses:
Salaries and related costs.................................................... 239,712 170,494 132,893
Temporary contracting costs................................................... 136,185 95,062 50,389
Office and general............................................................ 127,805 97,022 75,008
Amortization of intangibles................................................... 6,842 4,732 3,356
Special compensation and CEO bonus............................................ 1,500 52,019 --
--------- --------- ---------
Total operating expenses.................................................. 512,044 419,329 261,646
--------- --------- ---------
Operating income (loss)................................................... 43,272 (17,251) 31,748
--------- --------- ---------
Other income (expense):
Interest expense, net......................................................... (8,934) (14,159) (10,415)
Other, net.................................................................... (224) (542) (1,054)
--------- --------- ---------
(9,158) (14,701) (11,469)
--------- --------- ---------
Income (loss) before provision for income taxes, minority interests and equity
in earnings (losses) of affiliates............................................ 34,114 (31,952) 20,279
Provision for income taxes...................................................... 15,122 8,995 8,642
--------- --------- ---------
Income (loss) before minority interests and equity in earnings (losses) of
affiliates.................................................................... 18,992 (40,947) 11,637
Minority interests.............................................................. 296 1,017 761
Equity in earnings (losses) of affiliates....................................... (33) 114 (279)
--------- --------- ---------
Net income (loss)............................................................... 18,663 (41,850) 10,597
Preferred stock dividend and redemption premium................................. (123) (210) (210)
--------- --------- ---------
Net income (loss) applicable to common and Class B common stockholders.......... $ 18,540 $ (42,060) $ 10,387
--------- --------- ---------
--------- --------- ---------
Net income (loss) per common and Class B common share:
Basic......................................................................... $ .56 $ (1.50) $ .38
--------- --------- ---------
--------- --------- ---------
Diluted....................................................................... $ .55 $ (1.50) $ .37
--------- --------- ---------
--------- --------- ---------
Weighted average shares outstanding:
Basic......................................................................... 32,948 27,950 27,654
--------- --------- ---------
--------- --------- ---------
Diluted....................................................................... 33,562 27,950 28,270
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-14
<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>
Balance, January 1, 1995.......................................................... 12,868,437 $ 13 14,787,541 $ 15
Foreign currency translation adjustment.........................................
Dividends on preferred stock....................................................
Dividends declared by pooled companies..........................................
Net income......................................................................
--------- ----------- --------- -----------
Balance, December 31, 1995........................................................ 12,868,437 13 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
Dividends declared by pooled companies..........................................
Net loss........................................................................
--------- ----------- --------- -----------
Balance, December 31, 1996........................................................ 17,255,896 17 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........................................................ 21,200,941 $ 21 13,587,541 $ 14
--------- ----------- --------- -----------
--------- ----------- --------- -----------
<CAPTION>
ADDITIONAL FOREIGN CURRENCY
PAID-IN TRANSLATION
CAPITAL ADJUSTMENT DEFICIT
----------- ----------------- ---------
<S> <C>
Balance, January 1, 1995.......................................................... $ 2,593 $ 1,945 $ (14,376)
Foreign currency translation adjustment......................................... 1,080
Dividends on preferred stock.................................................... (210)
Dividends declared by pooled companies.......................................... (4,324)
Net income...................................................................... 10,597
----------- ------- ---------
Balance, December 31, 1995........................................................ 2,593 3,025 (8,313)
Stock repurchase agreements..................................................... 1,172
Issuance of common stock for purchase of minority interests in subsidiaries..... 1,727
Issuance of common stock as compensation........................................ 20
Repurchase and cancellation of common stock..................................... (2,160)
Issuance of common stock........................................................ 50,779
Issuance of common stock in connection with the exercise of options............. 347
Issuance of common stock in connection with exercise of warrant................. 2,603
Foreign currency translation adjustment......................................... (374)
Dividends on preferred stock.................................................... (210)
Special compensation............................................................ 50,175
Issuance of common stock in connection with acquisitions........................ 1,139
Dividends declared by pooled companies.......................................... (5,667)
Net loss........................................................................ (41,850)
----------- ------- ---------
Balance, December 31, 1996........................................................ 108,395 2,651 (56,040)
Issuance of common stock in connection with the exercise of options............. 659
Tax benefit of stock options exercised.......................................... 175
Capital contribution from Principal Stockholder re: CEO bonus and other......... 1,775
Issuance of common stock in connection with acquisitions........................ 3,136
Issuance of common stock for purchase of an equity interest in a subsidiary..... 1,000
Conversion of shares............................................................
Issuance of common stock........................................................ 51,166
Issuance of common stock for matching contribution to 401(k) plan............... 555
Foreign currency translation adjustment......................................... (3,686)
Dividend and redemption premium on preferred stock.............................. (123)
Dividends declared by pooled companies.......................................... (10,429)
Net income...................................................................... 18,663
----------- ------- ---------
Balance, December 31, 1997........................................................ $ 166,861 $ (1,035) $ (47,929)
----------- ------- ---------
----------- ------- ---------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
---------------
Balance, January 1, 1995.......................................................... $ (9,810)
Foreign currency translation adjustment......................................... 1,080
Dividends on preferred stock.................................................... (210)
Dividends declared by pooled companies.......................................... (4,324)
Net income...................................................................... 10,597
---------------
Balance, December 31, 1995........................................................ (2,667)
Stock repurchase agreements..................................................... 1,172
Issuance of common stock for purchase of minority interests in subsidiaries..... 1,727
Issuance of common stock as compensation........................................ 20
Repurchase and cancellation of common stock..................................... (2,160)
Issuance of common stock........................................................ 50,783
Issuance of common stock in connection with the exercise of options............. 347
Issuance of common stock in connection with exercise of warrant................. 2,603
Foreign currency translation adjustment......................................... (374)
Dividends on preferred stock.................................................... (210)
Special compensation............................................................ 50,175
Issuance of common stock in connection with acquisitions........................ 1,139
Dividends declared by pooled companies.......................................... (5,667)
Net loss........................................................................ (41,850)
---------------
Balance, December 31, 1996........................................................ 55,038
Issuance of common stock in connection with the exercise of options............. 659
Tax benefit of stock options exercised.......................................... 175
Capital contribution from Principal Stockholder re: CEO bonus and other......... 1,775
Issuance of common stock in connection with acquisitions........................ 3,136
Issuance of common stock for purchase of an equity interest in a subsidiary..... 1,000
Conversion of shares............................................................ 0
Issuance of common stock........................................................ 51,169
Issuance of common stock for matching contribution to 401(k) plan............... 555
Foreign currency translation adjustment......................................... (3,686)
Dividend and redemption premium on preferred stock.............................. (123)
Dividends declared by pooled companies.......................................... (10,429)
Net income...................................................................... 18,663
---------------
Balance, December 31, 1997........................................................ $ 117,932
---------------
---------------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-15
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Cash flows from operating activities:
Net income (loss).............................................................. $ 18,663 $ (41,850) $ 10,597
--------- --------- ---------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization of property and equipment...................... 12,627 7,877 5,780
Amortization of intangibles.................................................. 6,842 4,732 3,356
Provision for doubtful accounts.............................................. 3,713 3,301 3,260
Special compensation......................................................... -- 52,019 --
Interest expense for shares issued upon exercise of warrant.................. -- 2,603 --
Provision for deferred income taxes.......................................... 7,161 3,462 3,489
CEO bonus and indemnity payment.............................................. 1,775 -- --
Minority interests........................................................... 296 1,017 761
Other........................................................................ 195 633 388
Changes in assets and liabilities, net of effects from purchases of businesses:
Increase in accounts receivable, net......................................... (12,525) (11,492) (39,721)
(Increase) decrease in work-in-process....................................... 42 68 (1,705)
Increase in prepaid and other................................................ (1,616) (1,389) (36)
(Increase) decrease in other assets.......................................... (62) 235 (792)
Increase (decrease) in accounts payable, accrued expenses and other current
liabilities................................................................ (5,227) 6,687 30,413
--------- --------- ---------
Total adjustments.......................................................... 13,221 69,753 5,193
--------- --------- ---------
Net cash provided by operating activities.................................. 31,884 27,903 15,790
--------- --------- ---------
Cash flows from investing activities:
Payments pursuant to notes and advances to Principal Stockholder............... (3,064) (12,878) (613)
Repayments from Principal Stockholder.......................................... 14,477 7,994 2,271
Capital expenditures........................................................... (27,302) (12,513) (10,890)
Payments for purchases of businesses, net of cash acquired..................... (66,832) (31,262) (11,404)
Proceeds from sale of assets................................................... 100 6,197 12
(Advances to) repayments from affiliates....................................... -- (450) 787
--------- --------- ---------
Net cash used in investing activities...................................... (82,621) (42,912) (19,837)
--------- --------- ---------
Cash flows from financing activities:
Payments on capitalized leases................................................. (2,996) (2,386) (1,064)
Borrowings under line of credit and proceeds from issuance of long-term debt... 722,992 491,800 542,431
Repayments under line of credit and principal payments on long-term debt....... (703,282) (513,236) (532,334)
Distribution to minority interests............................................. -- (457) (483)
Net proceeds from stock issuance............................................... 51,169 50,783 --
Repurchase of common stock..................................................... -- (2,160) --
Redemption of minority interest (including premium)............................ (3,133) -- --
Redemption of preferred stock (including premium).............................. (2,105) -- --
Dividends on preferred stock................................................... (123) (210) (210)
Dividends paid by pooled companies............................................. (7,822) (5,847) (4,152)
--------- --------- ---------
Net cash provided by financing activities.................................. 54,700 18,287 4,188
--------- --------- ---------
Net increase in cash and cash equivalents........................................ 3,963 3,278 141
Cash and cash equivalents, beginning of year..................................... 23,022 19,744 19,603
--------- --------- ---------
Cash and cash equivalents, end of year........................................... $ 26,985 $ 23,022 $ 19,744
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-16
<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. (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 supplemental consolidated financial statements of the Company reflect
the shares of the Company that were outstanding after the 1996 Mergers and have
been prepared to give retroactive affect to the mergers with Johnson Smith &
Knisely Inc. on May 6, 1998, TASA Holding AG on August 31, 1998, Stackig, Inc.
on September 30, 1998, Recruitment Solutions, Inc. on October 2, 1998, SunQuest,
LLC., d.b.a. the SMART Group on November 2, 1998, The Consulting Group
(International) Limited on
F-17
<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)
December 2, 1998 and Morgan & Banks Limited ("M&B") on January 28, 1999 which
have been accounted for as poolings of interests (the "Pooled Companies") (the
"Mergers"). The supplemental consolidated financial statements give retroactive
effect to the 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 combining 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 upon issuance of the financial statements for
the period that includes the dates of the Mergers. The supplemental 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.
The supplemental consolidated balance sheets of TMP as of December 31, 1997
and 1996 have been combined with those of the Pooled Companies as of December
31, 1997 and 1996 except for M&B for which March 31, 1998 and 1997 balance
sheets were used. The supplemental consolidated statement of operations combines
the results of TMP for each year in the three year period ended December 31,
1997 with those of the Pooled Companies, except for M&B, for each year in the
three year period ended December 31, 1997. The statements of operations for each
year in the three year period ended March 31, 1998 were used for M&B. The
results for M&B for the three months ended March 31, 1998 and 1997 are included
in the Supplemental Consolidated Statement of Operations for the years ended
December 31, 1997 and 1996 and the nine months ended September 30, 1998 and
1997. When translated at the appropriate exchange rate for the December 31, 1997
period, revenue was approximately $60.7 million net income was approximately
$1.5 million and the effect on the diluted net income per share was $0.05.
Revenue, net income and the effect on the diluted net income per share was
approximately $47.6 million, $2.1 million and $0.07, respectively, for the three
months ended March 31, 1997, when translated at the appropriate exchange rates
for the year ended December 31, 1996.
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.
F-18
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
primarily using the straight-line method over the following estimated useful
lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements............................................................. 8-32
Furniture and equipment................................................................ 3-10
Transportation equipment............................................................... 5-18
</TABLE>
Leasehold improvements are amortized over their estimated useful lives or
the lives of the related leases, whichever is shorter.
INTANGIBLES
Intangibles represent acquisition costs in excess of the fair value of net
tangible assets of businesses purchased and consist primarily of the value of
ongoing client relationships and goodwill. These costs are being amortized over
periods ranging from three to thirty years on a straight-line basis.
LONG-LIVED ASSETS
Long-lived assets, such as ongoing client relationships, goodwill and
property and equipment, are evaluated for impairment when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future cash flows resulting from
the use of these assets. When any such impairment exists, the related assets
will be written down to fair value. No impairment losses have been incurred
through December 31, 1997.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The financial position and results of operations of the Company's foreign
subsidiaries are determined using local currency as the functional currency.
Assets and liabilities of these subsidiaries are translated at the exchange rate
in effect at each year-end. Income statement accounts are translated at the
average rate of exchange prevailing during the year. Translation adjustments
arising from the use of differing exchange rates from period to period are
included in the cumulative translation adjustment account in stockholders'
equity (deficit). Gains and losses resulting from foreign currency transactions
are included in other income (expense).
REVENUE RECOGNITION AND WORK-IN-PROCESS
Substantially all revenues are derived from commissions for advertisements
placed in telephone directories, newspapers and other media, plus associated
fees for related services. In addition, the Company earns fees for the placement
of advertisements on the Internet, including its career Web sites. Commissions
and fees are generally recognized upon placement date for newspapers and other
media and on publication close date for yellow page advertisements.
The Company's quarterly commissions and fees are affected by the timing of
yellow page directory closings which currently have a concentration in the third
quarter. Yellow page publishers may change the timing of directory publications
which may have an effect on the Company's quarterly results. The
F-19
<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)
Company's yellow page advertising results are also affected by commissions
earned for volume placements for the year, which are typically reported in the
fourth quarter. Amounts reported in the three months ended December 31, 1997,
1996 and 1995 for commissions on volume placements were $2.0 million, $3.5
million and $4.2 million, respectively. The Company's quarterly commissions and
fees for recruitment advertising are typically highest in the first quarter and
lowest in the fourth quarter; however, the cyclicality in the economy and the
Company's clients' employment needs have an overriding impact on the Company's
quarterly results in recruitment advertising, search & selection and temporary
contracting.
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.
NATURE OF BUSINESS AND CREDIT RISK
The Company is engaged in three lines of business, earns commission and fee
income for selling and placing yellow page and recruitment advertising, search &
selection services and temporary contracting services to a large number of
customers in many different industries, principally throughout North America,
Europe and the Pacific Rim. Financial instruments which potentially subject the
Company to concentrations of credit risk are primarily accounts receivable. The
Company performs continuing credit evaluations of its customers and does not
require collateral. For the most part, the Company has not experienced
significant losses related to receivables from individual customers or groups of
customers in any particular industry or geographic area.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable, other current assets, accounts
payable and other liabilities approximate fair value because of the immediate or
short-term maturity of these financial instruments. The carrying amount reported
for long-term debt approximates fair value because, in general, the interest on
the underlying instruments fluctuates with market rates. The 1996 carrying
amounts for the cumulative preferred stock and redeemable preferred stock
approximated fair value based on appraisals. (See Notes 9 and 10.) The fair
value of the receivable from the Principal Stockholder could not be determined.
(See Note 14 (B).)
STOCK-BASED COMPENSATION
The Company accounts for its stock option awards under the intrinsic value
based method of accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Under the intrinsic value based
method, compensation cost is the excess, if any, of the quoted market price of
the stock at grant date or other measurement date over the amount an employee
must pay
F-20
<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)
to acquire the stock. The Company makes pro forma disclosures of net income and
earnings per share as if the fair value based method of accounting had been
applied as required by Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation."
EARNINGS PER SHARE
During 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings per Share," which provides for the calculation of "basic" and
"diluted" earnings per share. This Statement is effective for financial
statements issued for periods ending after December 15, 1997. Basic earnings per
share includes no dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflect, in periods in which they
have a dilutive effect, the effect of common shares issuable upon exercise of
stock options and warrants. As required by the Statement all periods presented
have been restated to comply with the provisions of SFAS No. 128.
A reconciliation of shares used in calculating basic and diluted earnings
per common and Class B common share follows (in thousands):
<TABLE>
<S> <C>
December 31, 1997:
Basic........................................................... 32,948
Effect of assumed conversion of stock options................... 614
-----------
Diluted......................................................... 33,562
-----------
-----------
December 31, 1996:
Basic........................................................... 27,950
-----------
-----------
Diluted......................................................... 27,950
-----------
-----------
December 31, 1995:
Basic........................................................... 27,654
Effect of assumed conversion of stock options................... 387
Effect of assumed conversion of warrant......................... 229
-----------
Diluted......................................................... 28,270
-----------
-----------
</TABLE>
STATEMENTS OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments and other short-term investments with an initial
maturity of three months or less to be cash equivalents. The Company has
determined that the effect of foreign exchange rate changes on cash flows is not
material.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the 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
F-21
<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)
are required to be recognized under current accounting standards as components
of comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. Results of operations
and financial position will be unaffected by implementation of this new
standard.
In February 1998, the 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 is not expected to materially impact the
Company's current disclosures.
NOTE 3--ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Trade................................................................. $ 300,947 $ 229,498
Earned commissions(a)................................................. 14,491 13,166
---------- ----------
315,438 242,664
Less: Allowance for doubtful accounts................................. 11,541 8,748
---------- ----------
Accounts receivable, net.......................................... $ 303,897 $ 233,916
---------- ----------
---------- ----------
</TABLE>
- ------------------------
(a) Earned commissions receivable represent commissions on advertisements that
have not been published, and relate to yellow page advertisements only. Upon
publication of the related yellow page directories, the earned commissions
plus the related advertising cost at December 31, 1997 and 1996 are recorded
as accounts receivable of $75,058 and $70,594, respectively, and the related
advertising costs are recorded as accounts payable of $60,567 and $57,428,
respectively.
NOTE 4--PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Buildings and improvements.............................................. $ 916 $ 944
Furniture and equipment................................................. 79,878 60,873
Leasehold improvements.................................................. 10,715 6,879
Transportation equipment................................................ 9,179 388
--------- ---------
100,688 69,084
Less: Accumulated depreciation and amortization......................... 48,594 36,536
--------- ---------
Property and equipment, net......................................... $ 52,094 $ 32,548
--------- ---------
--------- ---------
</TABLE>
Furniture and equipment includes equipment under capital leases at December
31, 1997 and 1996 with a cost of $12,514 and $6,074, respectively, and
accumulated amortization of $5,128 and $2,531, respectively.
F-22
<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
During the period of January 1, 1998 through January 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 to be
accounted for as a pooling of interests:
<TABLE>
<CAPTION>
NATURE OF
ENTITY OPERATIONS ACQUISITION DATE NUMBER OF TMP SHARES ISSUED
- ------------------------------- -------------------------- ---------------------- ----------------------------
<S> <C> <C> <C>
Johnson Smith & Knisely........ Search & selection May 6, 1998 771,353
TASA Holding AG................ Search & selection August 31, 1998 1,703,894
Stackig Inc.................... Advertising September 30, 1998 507,082
Recruitment Solutions, Inc. ... Search & selection October 2, 1998 104,042
SunQuest, L.L.C. d.b.a. the
SMART Group................... Advertising November 2, 1998 309,072
The Consulting Group
(International) Limited....... Search & selection December 2, 1998 246,606
Morgan & Banks Limited......... Search & selection and January 28, 1999 5,150,924
temporary contracting
</TABLE>
Revenue, net income (loss) and net income (loss) applicable to common and
Class B common stockholders of the combining entities for the three years ending
December 31, are as follows:
<TABLE>
<CAPTION>
REVENUE 1997 1996 1995
- --------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
TMP, as previously reported................................................ $ 237,417 $ 162,631 $ 123,907
TASA Holding AG............................................................ 39,518 37,763 39,471
Johnson Smith & Knisely Inc................................................ 21,868 12,850 12,509
Stackig Inc................................................................ 11,816 10,075 7,787
SunQuest, L.L.C. d.b.a. the SMART Group.................................... 2,239 1,397 1,003
Recruitment Solutions, Inc................................................. 920 239 95
The Consulting Group (International) Limited............................... 5,757 2,740 1,973
Morgan & Banks Limited..................................................... 235,781 174,383 106,649
----------- ----------- -----------
TMP, as restated........................................................... $ 555,316 $ 402,078 $ 293,394
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
NET INCOME (LOSS) APPLICABLE TO COMMON AND CLASS B COMMON STOCKHOLDERS 1997 1996 1995
- --------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
TMP, as previously reported................................................ $ 9,500 $ (52,449) $ 3,019
Restatement for change in net income. See accounting for CEO bonus (Note
13B)..................................................................... (1,500) -- --
----------- ----------- -----------
Net income (loss), as adjusted............................................. 8,000 (52,449) 3,019
TASA Holding AG............................................................ 422 366 557
Johnson Smith & Knisely Inc................................................ 289 364 572
Stackig Inc................................................................ 1,571 1,736 1,082
SunQuest, L.L.C. d.b.a. the SMART Group.................................... (64) 170 188
Recruitment Solutions...................................................... 119 -- --
The Consulting Group (International) Limited............................... 340 (21) 203
Morgan & Banks Limited..................................................... 7,863 7,774 4,766
----------- ----------- -----------
TMP, as restated........................................................... $ 18,540 $ (42,060) $ 10,387
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-23
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS ACQUISITIONS (CONTINUED)
<TABLE>
<CAPTION>
NET INCOME (LOSS) PER COMMON AND CLASS B COMMON SHARE 1997 1996 1995
- ------------------------------------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
As previously reported:
Basic................................................................................... $ .39 $ (2.72) $ .16
Diluted................................................................................. $ .38 $ (2.72) $ .15
Restated:
Basic................................................................................... $ .56 $ (1.50) $ .38
Diluted................................................................................. $ .55 $ (1.50) $ .37
</TABLE>
The Company acquired 40 businesses (primarily recruitment advertising
businesses) between January 1, 1995 and December 31, 1997 including, on August
26, 1997, all of the outstanding stock of Austin Knight Limited and subsidiaries
("Austin Knight") for approximately $47,200 net of approximately $11,500 of cash
acquired relating to the sale, in July 1997, of real property by Austin Knight
and on July 2, 1996, all of the outstanding shares of Neville Jeffress Australia
Pty Limited ("Neville Jeffress"). Austin Knight had commissions and fees of
approximately $47,600 for the year ended September 30, 1996, and Neville
Jeffress had commissions and fees of approximately $24,000 for the year ended
June 30, 1996. The total amount of cash paid and promissory notes and Common
Stock of the Company issued for these acquisitions was approximately $74,500,
$25,400 and $26,700 for 1997, 1996 and 1995, respectively. In 1997, the shares
of Common Stock issued by the Company in connection with certain of the above
mentioned acquisitions was 135,028. The 1997 amount is net of approximately
$11,500 of cash acquired with Austin Knight. These acquisitions have been
accounted for under the purchase method of accounting and accordingly,
operations of these businesses have been included in the consolidated financial
statements from their acquisition dates.
In connection with these acquisitions, management of the Company began to
assess and formulate preliminary plans to restructure the operations of the
acquired companies. Such plans involved the closure of certain offices of the
acquired companies and the termination of certain management and employees. The
objective of the plans was to create a single brand in the related markets in
which the Company operates. The preliminary plans are expected to be finalized
within one year of the acquisition to which it relates. Actions under the
preliminary plans are expected to commence in the first quarter of 1998.
As a result of the formulation of the preliminary plans, certain estimated
costs and liabilities were recorded which related to the restructuring of the
acquired businesses. These estimates will be refined in connection with the
finalization of the plans. These costs and liabilities include:
Accrued liabilities relating to surplus property in the amount of $7,830
for approximately 22 leased office locations of the acquired companies that
were either unutilized prior to the acquisition date or will be closed by
March 31, 1999 in connection with the restructuring plans. The amount is
based on the present value of minimum future lease obligations, net of
sublease revenue on existing subleases.
Other costs associated with the closure of existing offices of acquired
companies in the amount of $2,521, including the write off of leasehold
improvements and other fixed assets as well as termination costs of
contracts relating to billing systems, external reporting systems and other
contractual arrangements with third parties.
F-24
<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)
Above market lease costs in the amount of $783, based on the present
value of contractual lease payments in excess of current market lease rates.
Estimated severance payments, employee relocation expenses and other
employee costs in the amount of $4,900 relating to estimated severance for
terminated employees at closed locations, costs associated with employees
transferred to continuing offices and other related costs. Employee groups
affected include sales, service, administrative and management personnel at
duplicate locations as well as duplicate corporate headquarters management
and administrative personnel. As of December 31, 1997, the accrual related
to approximately 70 employees including senior management, sales, service
and administrative personnel.
Pension obligations in the amount of $1,650 assumed in connection with
the acquisition of Austin Knight.
As of December 31, 1997, payments of $833 were made to 18 members of senior
management and employees for severance and charged against the reserve. The
Company continues to evaluate and assess the impact of duplicate
responsibilities and office locations. Additional future costs incurred,
resulting from revised plan actions and that do not result from events occurring
after the consummation dates of the related acquisitions, in excess of the above
estimated amounts will be recorded as additional costs of acquired companies.
The summarized unaudited pro forma results of operations set forth below for
the years ended December 31, 1997 and 1996 assume the acquisitions, accounted
for under the purchase method, in 1997 and 1996 occurred as of the beginning of
the year of acquisition and the beginning of the preceding year.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Commissions and fees...................................................................... $ 603,153 $ 500,560
Net income (loss) applicable to common and Class B common stockholders.................... $ 19,013 $ (40,557)
Net income (loss) per common and Class B common share:
Basic................................................................................... $ .58 $ (1.45)
Diluted................................................................................. $ .57 $ (1.45)
</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.
F-25
<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
1997 1996 (YEARS)
---------- --------- -------------
<S> <C> <C> <C>
Client lists, net of accumulated amortization of $4,370
and $3,715, respectively.............................. $ 10,083 $ 8,913 5 to 30
Covenants not to compete, net of accumulated
amortization of $2,036 and $1,713, respectively....... 2,188 1,336 3 to 6
Excess of cost of investments over fair value of net
assets acquired, net of accumulated amortization of
$11,651 and $6,846, respectively...................... 154,389 71,074 10 to 30
Other, net of accumulated amortization of $2,103 and
$1,709, respectively.................................. 797 779 4 to 10
---------- ---------
$ 167,457 $ 82,102
---------- ---------
---------- ---------
</TABLE>
NOTE 7--FINANCING AGREEMENT
The Company obtains its primary financing from a financial institution under
a five-year financing agreement as amended and restated on June 27, 1996, and as
further amended on November 14, 1997, with automatic one-year extensions unless
terminated by either party at least 90 days prior to expiration of the initial
term or any renewal term (the "Agreement"). The Agreement, as amended, provides
for borrowings of up to $175,000 at an interest rate of either: (a) prime rate
less 1% or, (b) Federal Funds rate less 1/2 of 1% or, (c) LIBOR plus 1 1/2%, at
the borrower's option. Borrowings under the Agreement are based on 90% of
eligible accounts receivable, which are amounts billed under 120 days old and
amounts to be billed on an installment basis under 360 days old from first
installment billing, as defined. Substantially all assets of the Company are
pledged as collateral for borrowings under the Agreement. The Agreement contains
certain covenants which restrict, among other things, the ability of the Company
to borrow, pay dividends, acquire businesses, make future capital expenditures,
guarantee debts of others and lend funds to affiliated companies and contains
criteria on the maintenance of certain financial statement amounts and ratios,
all as defined in the Agreement. In addition, the Agreement also provides for a
1/8% fee on any unused portion of the commitment and a declining fixed
termination fee of $2,000, $1,000 and $500 for the annual periods ended June 30,
1998, 1999, and 2000, respectively.
At December 31, 1997, the prime rate, Federal Funds rate and one month LIBOR
were 8.50%, 6.00% and 5.72%, respectively, and borrowings outstanding were at a
weighted average interest rate of 7.62%.
In October 1993, the Company issued a warrant to the lender to purchase one
percent of the issued and outstanding common stock of the Company (as defined in
the agreement) for an exercise price of $.01 per share. The warrant was
independently appraised at $600, which amount was being amortized over the
remaining term of the original financing agreement of 30 months from October
1993 until December 1996, when the warrant was exercised. At that time, the
unamortized balance was expensed. In addition, in December 1996, upon the
exercise of such warrant there was an additional interest charge of $2,603 to
reflect the difference between the value of the stock issued (228,768 shares) at
the initial public offering price of $14.00 per share and the original amount
recorded.
F-26
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 8--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
<S> <C> <C>
1997 1996
---------- ---------
Borrowings under financing agreement (see Note 7)...................... $ 95,800 $ 59,495
Borrowings under financing agreements, interest payable at rates
varying from 5% to 11%, and collateralized by assets in certain
foreign countries.................................................... 10,184 9,885
Acquisition notes payable in annual and monthly installments through
1997 with interest at 8.5%........................................... -- 3,374
Other acquisition notes payable, noninterest bearing, interest imputed
at 6.7% to 8.0%, in varying installments through 2001................ 9,461 7,153
Capitalized lease obligations, payable with interest from 9% to 15%, in
varying installments through 2001.................................... 7,623 4,058
Term note payable in sixty consecutive monthly installments from July
1997 through June 2002, collateralized by transportation equipment
and with interest at 8.43% for the first 36 months. Thereafter the
interest rate will be based on two year U.S. Treasury Notes.......... 7,760 --
Notes payable, in varying monthly installments maturing through 2001,
with interest at rates ranging from 7.5% to 8.5%..................... 4,451 4,994
---------- ---------
135,279 88,959
Less: Current portion.................................................. 12,068 12,650
---------- ---------
$ 123,211 $ 76,309
---------- ---------
---------- ---------
</TABLE>
The noncurrent portion of long-term debt matures as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
1999................................................................................................ $ 7,317
2000................................................................................................ 6,872
2001................................................................................................ 98,895*
2002................................................................................................ 8,581
Thereafter.......................................................................................... 1,546
------------
$ 123,211
------------
------------
</TABLE>
- ------------------------
* Of this amount, $95,800 is subject to automatic one year extentions. See
Note 7.
F-27
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 9--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. The book
value of these shares of approximately $3,000, which approximates the redemption
price, is included in minority interest in the consolidated balance sheet at
December 31, 1996. These shares were redeemed in January 1997 for a total of
$3,133, which included a redemption premium of $133.
NOTE 10--REDEEMABLE PREFERRED STOCK
During 1991, the Company sold 200,000 shares of 10.5% 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 11--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 Pooled Companies, 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 and
54,855 were subsequently exercised. Options to purchase 43,884 shares of common
stock remain vested and were exercisable at December 31, 1997. 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 the Company and options for 48,437
shares were subsequently cancelled. The remaining options to purchase 56,309
shares will expire five years from the date of grant. At December 31, 1997, none
of these options were exercisable.
In January 1996, the Company's Board of Directors (the "Board") adopted the
1996 Employee Stock Option Plan (the "Stock Option Plan"), which provides for
the issuance of both incentive stock options within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified
stock options, to purchase an aggregate of up to 900,000 shares (amended to
1,800,000 on June 25, 1997) of the common stock of the Company. The Stock Option
Plan permits the granting of options to officers, employees and consultants of
the Company, its subsidiaries and affiliates.
F-28
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 11--STOCKHOLDERS' EQUITY (CONTINUED)
Under the Stock Option Plan, the exercise price of an incentive stock option
must be at least equal to 100% of the fair market value of the common stock on
the date of grant (110% of the fair market value in the case of options granted
to employees who hold more than ten percent of the voting power of the Company's
capital stock on the date of grant). The exercise price of a nonqualified stock
option must be not less than the par value of a share of the common stock on the
date of grant. The term of an incentive or nonqualified stock option is not to
exceed ten years (five years in the case of an incentive stock option granted to
a ten percent holder). The Stock Option Plan provides that the maximum option
grant which may be made to an executive officer in any calendar year is 45,000
shares (amended to 150,000 on June 25, 1997).
On January 3, 1996, options to purchase, at an exercise price equal to $6.65
per share, the fair market value of the common stock on the date of grant as
determined by the Board, an aggregate of 296,640 shares of common stock were
granted to officers, employees and consultants of the Company. Such options vest
at the rate of 25% per year commencing one year after the date of grant. As of
December 31, 1997, 13,010 options were cancelled, 7,266 options were exercised
and, of the outstanding options, 63,641 options were exercisable and will expire
ten years from the date of grant.
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, and options for 36,808 shares
were subsequently cancelled. The remaining options to purchase 136,260 shares of
common stock will expire five years from the date of grant. At December 31,
1997, none of these options were exercisable.
On April 3, 1997, options to purchase, at an exercise price of $17.25 per
share, the market price on the date of grant, 8,400 shares of common stock were
granted to an officer of the Company. Such options vested as of December 31,
1997, are exercisable after January 5, 1999 and will expire ten years from the
date of grant.
On June 18, 1997, options to purchase, at an exercise price of $19.00 per
share, the market price on the date of grant, 28,256 shares of common stock were
granted to officers and employees of the Company. Options for 2,388 shares were
subsequently cancelled. Generally, such options were vested as of December 31,
1997, are exercisable after January 5, 1999, and will expire ten years from the
date of grant.
On 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 10,971 shares were
subsequently cancelled. The remaining options to purchase 105,322 shares of
common stock will expire five years from the date of grant. At December 31,
1997, none of these options were exercisable.
In January 1996, the Company also adopted a stock option plan for
nonemployee directors (the "Directors' Plan"), pursuant to which options to
acquire a maximum aggregate of 180,000 shares of common stock may be granted to
nonemployee directors. Options granted under the Directors' Plan do not qualify
as incentive stock options within the meaning of Section 422 of the Code. The
Directors' Plan provides for an automatic grant to each of the Company's
nonemployee directors of an option to purchase 11,250 shares of common stock on
the date of such director's initial election or appointment to the Board. The
options will have an exercise price of 100% of the fair market value of the
common stock on the date
F-29
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 11--STOCKHOLDERS' EQUITY (CONTINUED)
of grant, have a ten-year term and become exercisable in accordance with a
vesting schedule determined by the Board of Directors.
Options to purchase 11,250 shares of common stock at a purchase price per
share equal to $6.65 per share, the fair market value of the common stock on the
date of grant as determined by the Board, were granted on January 24, 1996 to
one nonemployee director. Half of these options vested on the date of the grant
and the balance vests in two equal annual installments commencing one year after
the date of grant. Such options will expire ten years from the date of grant. In
September 1996, options to purchase an aggregate of 33,750 shares of common
stock were granted to three directors under this plan at an exercise price per
share equal to the initial public offering price per share, the fair value on
the date of grant as determined by the Board. Vesting is on terms similar to
that of the previous director's grant. Such options will expire ten years from
the date of grant. In December 1996, 11,250 of the options granted to a director
in September 1996 were cancelled and options to purchase 125,000 shares of
common stock were granted at an exercise price of $14.00 (the initial public
offering price). Of the total, 50,000 of such options vested on the closing of
the initial public offering. In April 1997, in connection with this former
director's resignation, the Company agreed that an additional 12,500 of such
stock options would vest on June 1, 1997 and the unvested options totalling,
62,500 were cancelled. All options previously vested expire on December 9, 2006.
On October 7, 1997, a newly appointed director of the Company was granted
options to purchase 11,250 shares of common stock at $23.625 per share, the
market price on the date of grant. Half of these options vested on the date of
the grant and the balance vests in two equal annual installments commencing one
year after the date of grant. Such options will expire ten years from the date
of grant. For options granted to all directors, at December 31, 1997, 50,938 of
the outstanding options were exercisable and 42,500 were exercised.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related Interpretations in
accounting for its employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of SFAS 123. The
weighted average fair values of options granted during 1997 and 1996 were $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 6.5% and
6.1% in 1997 and 1996 respectively; volatility factor of the expected market
price of the Company's common stock of 27% and 25% in 1997 and 1996,
respectively; and a weighted average expected life of the option of 8 years in
both 1997 and 1996.
F-30
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 11--STOCKHOLDERS' EQUITY (CONTINUED)
Under the accounting provisions of SFAS 123, the Company's net income (loss)
and net income (loss) per common and Class B common share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Net income (loss) applicable to common and Class B common stockholders..................... $ 16,298 $ (42,798)
Net income (loss) per common and Class B common share
Basic.................................................................................... $ .50 $ (1.53)
Diluted.................................................................................. $ .49 $ (1.53)
</TABLE>
A summary of the status of the Company's two fixed stock option plans as of
December 31, 1997 and 1996, and changes during the years ending on those dates
is presented.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
<S> <C> <C> <C> <C>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
---------- ------------- ---------- -------------
Outstanding at beginning of year........................... 781,003 $ 8.35 206,173 $ 4.64
Granted.................................................... 2,102,936 14.78 639,708 9.48
Exercised.................................................. (104,621) 8.65 -- --
Forfeited/cancelled........................................ (197,785) 12.96 (64,878) 7.72
---------- ----------
Outstanding at end of year................................. 2,581,533 $ 13.22 781,003 $ 8.35
---------- ----------
---------- ----------
Options exercisable at year-end............................ 158,463 $ 8.44 66,875 $ 13.38
---------- ----------
---------- ----------
Weighted average fair value of options granted during the
year..................................................... $ 6.88 $ 5.76
</TABLE>
F-31
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 11--STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1997.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------- ----------------------------------
NUMBER WEIGHTED AVERAGE NUMBER WEIGHTED
EXERCISE OUTSTANDING AT REMAINING WEIGHTED AVERAGE EXERCISABLE AT AVERAGE
PRICE DECEMBER 31, 1997 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1997 EXERCISE PRICES
- ----------- ----------------- ---------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 4.46 56,309 2.1(year) $ 4.50 -- $ --
4.77 43,884 1.8 4.82 43,884 4.77
6.65...... 287,614 8.0 7.15 72,079 6.65
10.37 136,260 3.6 10.47 -- --
12.88..... 1,129,126 9.0 12.88 -- --
14.00..... 42,500 8.9 14.00 36,875 14.00
15.00..... 700,000 9.9 15.00 -- --
17.25..... 8,400 9.3 17.25 -- --
19.00..... 25,868 9.6 19.00 -- --
20.00..... 35,000 9.8 20.00 -- --
23.63..... 11,250 9.8 23.63 5,625 23.63
29.59 105,322 4.8 29.88 -- --
----------------- -------
2,581,533 158,463 $ 8.44
----------------- -------
----------------- -------
</TABLE>
In connection with an acquisition in 1995, the Company issued options to
acquire shares of the Company's common stock in exchange for an obligation of
the Company incurred in connection with this acquisition. Such options, for
85,354 shares, were exercised upon the closing of the public offering based on
the initial public offering price of $14.00 per share.
F-32
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--PROVISION FOR INCOME TAXES
The components of income (loss) before the provision for income taxes,
minority interests and equity in earnings (losses) of affiliates are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- ---------- ---------
Domestic......................................................... $ 12,416 $ (46,213) $ 10,327
Foreign.......................................................... 21,698 14,261 9,952
--------- ---------- ---------
Total income (loss) before provision for income taxes, minority
interests and equity in earnings (losses) of affiliates...... $ 34,114 $ (31,952) $ 20,279
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Current tax provision:
U.S. Federal.................................................. $ 220 $ 145 $ 201
State and local............................................... 1,311 984 498
Foreign....................................................... 6,430 4,404 4,454
--------- --------- ---------
Total current............................................... 7,961 5,533 5,153
--------- --------- ---------
Deferred tax provision:
U.S. Federal.................................................. 2,689 1,787 2,051
State and local............................................... 739 (321) 535
Foreign....................................................... 3,733 1,996 903
--------- --------- ---------
Total deferred.............................................. 7,161 3,462 3,489
--------- --------- ---------
Total provision............................................. $ 15,122 $ 8,995 $ 8,642
--------- --------- ---------
--------- --------- ---------
</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 12--PROVISION FOR INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to the Company's
deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
<S> <C> <C>
1997 1996
---------- ---------
Current deferred tax assets (liabilities):
Earned commissions................................................... $ (5,796) $ (4,961)
Allowance for doubtful accounts...................................... 4,309 3,280
Work-in-process...................................................... (6,222) (5,817)
Accrued expenses and other liabilities............................... (1,883) (1,293)
Tax loss carryforwards............................................... 220 --
---------- ---------
Total current deferred tax liability............................... (9,372) (8,791)
---------- ---------
Noncurrent deferred tax assets (liabilities):
Property and equipment............................................... (1,082) (971)
Intangibles.......................................................... (654) (453)
Accrued expenses and other liabilities............................... (1,725) 337
Tax loss carryforwards............................................... 8,791 10,579
---------- ---------
Total noncurrent deferred tax asset................................ 5,330 9,492
---------- ---------
Net deferred tax asset (liability)..................................... $ (4,042) $ 701
---------- ---------
---------- ---------
</TABLE>
At December 31, 1997, the Company has net operating loss carryforwards for
U.S. Federal tax purposes of approximately $23,300 which expire through 2011.
The Company has concluded that, based on expected future results and the future
reversals of existing taxable temporary differences, it is more likely than not
that the deferred tax assets will be realized.
The provision for income taxes differs from the amount computed using the
Federal statutory income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- ---------- ---------
Provision (benefit) at Federal statutory rate................ $ 11,599 $ (10,864) $ 6,896
State income taxes, net of Federal income tax effect......... 844 278 692
Nondeductible expenses....................................... 1,029 784 419
Nondeductible special charge and CEO bonus................... 510 18,571 --
Interest imputed on receivable from Principal Stockholder.... -- 216 198
Losses for which no tax benefits are available............... -- 45 503
Foreign income taxes at other than the Federal statutory
rate....................................................... 1,081 (134) 271
Other........................................................ 59 99 (337)
--------- ---------- ---------
Income tax provision......................................... $ 15,122 $ 8,995 $ 8,642
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
F-33
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--PROVISION FOR INCOME TAXES (CONTINUED)
Provision has not been made for U.S. or additional foreign taxes on
undistributed earnings of foreign subsidiaries. Such earnings have been and will
continue to be reinvested but could become subject to additional tax if they
were remitted as dividends, or were loaned to the Company or a U.S. affiliate,
or if the Company should sell its stock in the foreign subsidiaries. It is not
practicable to determine the amount of additional tax, if any, that might be
payable on the foreign earnings; however, the Company believes that foreign tax
credits would substantially offset any U.S. tax. At December 31, 1997, the
cumulative amount of reinvested earnings was approximately $10,000.
NOTE 13--COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases its facilities and certain equipment under operating
leases and certain equipment under capital leases. Future minimum lease
commitments under both noncancellable operating leases and capital leases at
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
1998..................................................................... $ 3,532 $ 20,031
1999..................................................................... 2,973 17,951
2000..................................................................... 1,755 20,887
2001..................................................................... 271 8,798
2002..................................................................... 9 6,655
Thereafter............................................................... -- 21,478
--------- -----------
8,540 $ 95,800
-----------
-----------
Less: Amount representing interest....................................... 917
---------
Present value of minimum lease payments.................................. 7,623
Less: Current portion.................................................... 2,976
---------
$ 4,647
---------
---------
</TABLE>
Rent and related expenses under operating leases amounted to $20,601,
$18,169, and $13,596 for the years ended December 31, 1997, 1996 and 1995,
respectively.
(B) CONSULTING, EMPLOYMENT AND NONCOMPETE AGREEMENTS
The Company has entered into various consulting, employment and noncompete
agreements with certain management personnel and former owners of acquired
businesses. These agreements are generally two to five years in length, with one
for a term of fifteen years and two providing aggregate annual lifetime payments
of approximately $135.
Effective November 15, 1996, the Company entered into an employment
agreement with its Principal Stockholder for a term ending on November 14, 2001.
The agreement provides for automatic renewal for successive one year terms
unless either party notifies the other to the contrary at least 90 days prior to
its expiration. Under the agreement, the Principal Stockholder is entitled to a
base salary of $1,500 per year and mandatory bonuses of $375 per quarter through
November 1998 when the bonus provision of the
F-34
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--COMMITMENTS AND CONTINGENCIES (CONTINUED)
agreement was eliminated. Such bonuses were waived by the Principal Stockholder.
However, in compliance with the SEC's interpretation of the application of Staff
Accounting Bulletin 79, Topic 5T "Accounting for Expenses or Liabilities paid by
Principal Stockholder," the Company recorded in equal quarterly amounts for 1997
a total of $1,500 in bonus expense and increased the Additional Paid-in Capital
account to complete the concept that the amount of the waived bonus was
contributed to the Company by the Principal Stockholder. Because the amount was
not and will never be paid, no tax benefit was accrued for this charge. The
agreement also provides that the Company will pay the Principal Stockholder his
base salary for the remaining term of the agreement in the event he is
terminated for reasons other than cause.
The above agreements provide for the following aggregate annual payments:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
1998............................................................................ $ 5,169
1999............................................................................ 3,139
2000............................................................................ 3,184
2001............................................................................ 2,658
2002............................................................................ 522
Thereafter...................................................................... 1,716
------------
$ 16,388
------------
------------
</TABLE>
(C) EMPLOYEE BENEFIT PLANS
The Company has a 401(k) profit sharing plan covering all eligible
employees. Employer matching contributions, which are a maximum of 2% of payroll
of participating employees, amounted to $626, $600 and $584 for the years ended
December 31, 1997, 1996 and 1995, respectively.
Outside of the United States, the Company has employee benefit plans in the
countries in which it operates. For 1997, costs for these plans were $1,264.
In addition, the Company had a defined contribution profit sharing plan
covering all eligible employees. Contributions, which are at the discretion of
the Board of Directors, were not made in the years ended December 31, 1997, 1996
and 1995. The plan was terminated during 1997.
(D) LITIGATION
The Company is subject to various claims, suits and complaints arising in
the ordinary course of business. Although the outcome of these legal matters
cannot be determined, it is the opinion of management that the final resolution
of these matters will not have a material adverse effect on the Company's
financial condition, operations or liquidity.
On February 19, 1998, a class action complaint was filed against the Company
by five former employees. The claims brought by the plaintiffs in the complaint
are that the Company (a) misclassified the named plaintiffs and purported class
members as exempt from the overtime requirements of California wage and hour law
and failed to pay them overtime wages, (b) failed to pay accrued but unused
vacation days at the time of termination, and (c) failed to pay accrued but
unused personal days at the time of
F-35
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--COMMITMENTS AND CONTINGENCIES (CONTINUED)
termination. The plaintiffs purport to represent a class of 450 former and
current employees who are similarly situated. The Company intends to vigorously
defend the claims brought by the plaintiffs and on March 18, 1998 responded to
the complaint by filing an answer denying all allegations. Management presently
believes that the disposition of these claims will not have a material adverse
effect on the Company's financial position, operations or liquidity.
In June 1997, a settlement of $275, which was paid by the Principal
Stockholder under an indemnity agreement with the Company, was made relating to
a November 1996 action of a former employee against Old TMP, WCI and the
Principal Stockholder. The complaint alleged, among other things, that the
defendants breached purported contractual obligations pursuant to which the
former employee was entitled to an ownership interest in the Company's
recruitment advertising business.
Morgan & Banks Limited has had proceedings issued against it for an amount
of $3.1 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 Morgan & Banks Limited group. The directors
of Morgan & Banks Limited are of the opinion that the claim is without substance
and accordingly the action will be vigorously defended.
(E) OTHER
(i) The Company is contingently liable on a note of the Principal
Stockholder in the amount of approximately $1,600.
(ii) The majority stockholder of an unconsolidated equity investee has an
agreement which requires the Company to purchase his interest, based on a
formula value, upon death. The value of his shares at December 31, 1997 is
approximately $5,627 based on the formula.
NOTE 14--RELATED PARTY TRANSACTIONS
(A) The Company had receivables from certain of its stockholders aggregating
$761 and $500 at December 31, 1996 and 1995, respectively. During 1997, the
outstanding balances were repaid.
(B) The Company had net receivables from its Principal Stockholder of
$11,413 and $6,530 at December 31, 1996 and 1995, respectively. Prior to January
1, 1997 such amounts were noninterest-bearing. As of January 1, 1997 interest
was charged on the unpaid balance at the prime rate. During 1997, the
outstanding balances were repaid.
(C) In August 1996, the Company entered into an agreement whereby it
acquired the minority interest of a subsidiary for 46,350 shares of common
stock. Such shares, valued at $672, were recorded as special compensation
because the stockholder had received his shares in the subsidiary for no
consideration and, accordingly, was not considered to have made a substantive
investment for his shares.
(D) The Company charged management and other fees to affiliates for services
provided of approximately $788, $602 and $873 for the years ended December 31,
1997, 1996 and 1995, respectively. Such fees are reflected as a reduction of
salaries and related costs in the accompanying supplemental consolidated
statements of operations.
F-36
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--RELATED PARTY TRANSACTIONS (CONTINUED)
(E) In January 1994, the Company acquired a 50% interest in an agency
selling real estate advertising. In connection with this acquisition, the
Company agreed to provide the agency with certain office and administrative
services which amounted to $321 for the nine months ended September 30, 1997 at
which time the arrangement was terminated. Payments of $875 and $725 were made
in the years ended December 31, 1996 and 1995, respectively, in exchange for 50%
of the agency's profits, as defined in the agreement. The Company also entered
into three-year employment and consulting agreements with the two other
stockholders of the agency and granted them the right to convert their agency
shares into Company shares after an initial public offering. That conversion
right, as amended, provided that those two stockholders may convert 25% of the
agency's stock into unregistered common stock of the Company with a total value
of $1,000 as of the effective date of conversion. The conversion was exercised
in February 1997 and 61,848 shares of common stock were issued to these
stockholders pursuant to the above agreement. Simultaneously, the Company
transferred to such stockholders 50% of its interest in the agency, thus
retaining a 25% interest and terminated its obligation to provide office and
administrative services effective October 1, 1997.
(F) In 1994, the Principal Stockholder gave 374,940 shares of common stock
as compensation to certain employees. These shares were recorded at fair market
value of $55 on the date they were given, as determined by the Company. In 1996,
the Company issued 142,740 shares of common stock as compensation to one
employee. These shares were valued at fair market value of $20 on the date they
were issued, as determined by the Company.
(G) The Company leases three offices from entities in which the Principal
Stockholder and other stockholders have between a 49% and 90% ownership
interest. Annual rent expense under these leases, which expire on various dates
through the year 2013, amounts to approximately $863. In addition, an investee
of the Company leases an office, at an annual rental of approximately $119, from
a partnership in which the Principal Stockholder holds a 49% interest.
NOTE 15--GEOGRAPHIC, SEGMENT AND OTHER DATA
The Company is engaged in three lines of business, the placing of advertising in
various media, executive and mid-level search & selection, and temporary
contracting.
F-37
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 15--GEOGRAPHIC, SEGMENT AND OTHER DATA (CONTINUED)
Line of business information is as follows
<TABLE>
<CAPTION>
NET INCOME IDENTIFIABLE DEPRECIATION
REVENUE (LOSS) ASSETS EXPENSE
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997
Advertising.................................................. $ 244,087 $ 9,749 $ 508,523 $ 8,160
Search & selection........................................... 147,398 3,410 73,914 4,467
Temporary contracting........................................ 163,831 5,504 13,143 --
---------- ----------- ---------- ------------
Total.................................................... $ 555,316 $ 18,663 $ 595,580 $ 12,627
---------- ----------- ---------- ------------
---------- ----------- ---------- ------------
Year Ended December 31, 1996
Advertising.................................................. $ 174,522 $ (50,333) $ 342,898 $ 4,848
Search & selection........................................... 114,257 3,430 71,501 3,029
Temporary contracting........................................ 113,299 5,053 9,263 --
---------- ----------- ---------- ------------
Total.................................................... $ 402,078 $ (41,850) $ 423,662 $ 7,877
---------- ----------- ---------- ------------
---------- ----------- ---------- ------------
Year Ended December 31, 1995
Advertising.................................................. $ 132,792 $ 4,499 $ 267,700 $ 3,776
Search & selection........................................... 98,834 2,763 41,271 2,004
Temporary contracting........................................ 61,768 3,335 18,012 --
---------- ----------- ---------- ------------
Total.................................................... $ 293,394 $ 10,597 $ 326,983 $ 5,780
---------- ----------- ---------- ------------
---------- ----------- ---------- ------------
</TABLE>
Operations are conducted in several geographic regions: North America, the
Pacific Rim (Australia, New Zealand, Hong Kong, Singapore and Japan) and Europe.
The following is a summary of the Company's operations by geographic segment, as
of and for the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
NORTH AMERICA PACIFIC RIM EUROPE TOTAL
-------------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1997
Total revenue.............................................. $ 212,850 $ 236,341 $ 106,125 $ 555,316
Income before taxes, minority interests and equity in
earnings of affiliates................................... 12,416 14,700 6,998 34,114
Identifiable assets........................................ 408,550 75,893 111,137 595,580
December 31, 1996
Total revenue.............................................. $ 179,988 $ 173,365 $ 48,725 $ 402,078
Income (loss) before taxes, minority interests and equity
in earnings of affiliates*............................... (46,213)* 12,541 1,720 (31,952)*
Identifiable assets........................................ 287,617 91,282 44,763 423,662
December 31, 1995
Total revenue.............................................. $ 154,678 $ 96,961 $ 41,755 $ 293,394
Income before taxes, minority interests and equity in
earnings of affiliates................................... 9,262 7,991 3,026 20,279
Identifiable assets........................................ 273,503 30,928 22,552 326,983
</TABLE>
- ------------------------
* Includes non-cash, non-recurring special compensation and interest expense
of $52,019 and $2,603, respectively.
F-38
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 15--GEOGRAPHIC, SEGMENT AND OTHER DATA (CONTINUED)
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, ("SFAS
131") which supersedes SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise. SFAS 131 establishes standards for the way that public
companies report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS 131 defines operating segments as
components of a company about which separate financial information is available
and that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997 and requires comparative information for earlier years to be
restated. Because of the relatively recent issuance of this standard, management
has been unable to fully evaluate the impact, if any, it may have on future
financial statement disclosures. Results of operations and financial position,
however, will be unaffected by implementation of this standard.
During the three months ended December 31, 1996 the Company received one
time fees of $150, $175, and $220 for a research study, executive search
services and for assisting in the procurement of bank financing, respectively.
The research study fee is included as a reduction of Office and General
Expenses, the executive search fee is included in Commissions and Fees and the
loan procurement fee is included in Other Income in the accompanying Statement
of Operations for the year ended December 31, 1996.
NOTE 16--SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes amounted to the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1997 1996 1995
---------- --------- ---------
Interest.................................................... $ 13,537 $ 11,680 $ 10,949
Income taxes................................................ 7,869 6,769 4,154
</TABLE>
In conjunction with business acquisitions, the Company used cash as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1997 1996 1995
---------- --------- ---------
Fair value of assets acquired, excluding cash............. $ 129,000 $ 60,951 $ 37,340
Less: Liabilities assumed and created upon acquisition.... 62,168 29,689 25,936
---------- --------- ---------
Net cash paid............................................. $ 66,832 $ 31,262 $ 11,404
---------- --------- ---------
---------- --------- ---------
Capital lease obligations incurred.......................... $ 5,781 $ 4,873 $ 766
---------- --------- ---------
---------- --------- ---------
</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 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 and that 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 Worldwide.
F-40
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
The audits referred to in our report dated March 20, 1998, except for notes
2, 5 and 13B for which the date is February 26, 1999, relating to the
supplemental consolidated financial statements of TMP Worldwide Inc. and
Subsidiaries, included the audit of the supplemental consolidated financial
statement schedule. This supplemental consolidated financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statement schedule based upon our audits.
In our opinion the 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
February 26, 1999
F-41
<PAGE>
SUPPLEMENTAL SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C--
COLUMN B ADDITIONS COLUMN E
----------------- -------------------------------- -------------
COLUMN A BALANCE AT CHARGED TO CHARGED TO COLUMN D BALANCE AT
- --------------------------------------------- BEGINNING OF COSTS AND OTHER --------------- END OF
DESCRIPTIONS PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- --------------------------------------------- ----------------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Allowance for doubtful accounts............ $ 3,324 $ 3,260 -- $ 1,003 $ 5,581
Year ended December 31, 1996
Allowance for doubtful accounts............ $ 5,581 $ 3,301 $ 2,111(1) $ 2,245 $ 8,748
Year ended December 31, 1997
Allowance for doubtful accounts............ $ 8,748 $ 3,407 $ 1,931(1) $ 2,545 $ 11,541
</TABLE>
- ------------------------
(1) Initial reserves of acquired companies.
F-42
<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.
TMP WORLDWIDE INC.
By: /s/ THOMAS G. COLLISON
-------------------------------------------------------------------------
Thomas G. Collison
Vice Chairman
Dated: March 16, 1999
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
We hereby consent to the incorporation by reference in the previously filed
Registration Statement (No. 333-70795) of TMP Worldwide Inc. and Subsidiaries of
our reports dated March 20, 1998, except for Notes 2, 5 and 13B, for which the
date is February 26, 1999, relating to the supplemental consolidated financial
statements and schedule of TMP Worldwide Inc. and Subsidiaries appearing in the
Company's Form 8-K dated March 16 , 1999.
/S/ BDO SEIDMAN, LLP
--------------------------------------------------------------------------
BDO Seidman, LLP
New York, New York
March 16, 1999
<PAGE>
EXHIBIT 23.2
The Board of Directors
Morgan & Banks Limited
Level 11, Grosvenor Place
225 George Street
SYDNEY, NSW 2000
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of the previously filed Registration Statement (No.
333-70795) of TMP Worldwide Inc. and Subsidiaries of our report dated 16 June
1998, except for Note 2 of Notes to and forming Part of the Supplemental
Consolidated Financial Statements for which the date is 21 September 1998
appearing in the Form 8-K of TMP Worldwide Inc. dated March 16, 1999, relating
to the consolidated balance sheets of Morgan & Banks Limited as at 31 March 1998
and 1997, and the consolidated profit and loss statements and cash flow
statements for each of the years in the three year period ended 31 March 1998.
Sydney Australia
March 16, 1999
Pannell Kerr Forster, P.C.
/s/ PANNELL KERR FORSTER
- --------------------------------
PANNELL KERR FORSTER
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SUPPLEMENTAL CONSOLIDATED CONDENSED BALANCE SHEET AND CONSOLIDATED STATEMENTS
OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 27,289
<SECURITIES> 0
<RECEIVABLES> 352,589
<ALLOWANCES> 7,473
<INVENTORY> 0
<CURRENT-ASSETS> 410,826
<PP&E> 118,346
<DEPRECIATION> 60,133
<TOTAL-ASSETS> 668,759
<CURRENT-LIABILITIES> 398,454
<BONDS> 133,092
0
0
<COMMON> 35
<OTHER-SE> 135,696
<TOTAL-LIABILITY-AND-EQUITY> 668,759
<SALES> 488,908
<TOTAL-REVENUES> 488,908
<CGS> 0
<TOTAL-COSTS> 450,000
<OTHER-EXPENSES> 822
<LOSS-PROVISION> 3,331
<INTEREST-EXPENSE> 7,493
<INCOME-PRETAX> 27,262
<INCOME-TAX> 11,407
<INCOME-CONTINUING> 15,575
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,575
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.43
</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
STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 23,900
<SECURITIES> 0
<RECEIVABLES> 317,683
<ALLOWANCES> 9,473
<INVENTORY> 0
<CURRENT-ASSETS> 363,938
<PP&E> 92,851
<DEPRECIATION> 44,059
<TOTAL-ASSETS> 582,749
<CURRENT-LIABILITIES> 361,038
<BONDS> 105,883
0
0
<COMMON> 35
<OTHER-SE> 111,811
<TOTAL-LIABILITY-AND-EQUITY> 582,744
<SALES> 404,781
<TOTAL-REVENUES> 404,781
<CGS> 0
<TOTAL-COSTS> 367,530
<OTHER-EXPENSES> 92
<LOSS-PROVISION> 2,056
<INTEREST-EXPENSE> 6,564
<INCOME-PRETAX> 28,539
<INCOME-TAX> 12,454
<INCOME-CONTINUING> 15,672
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,672
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.47
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 26,985
<SECURITIES> 0
<RECEIVABLES> 315,438
<ALLOWANCES> 11,541
<INVENTORY> 0
<CURRENT-ASSETS> 363,010
<PP&E> 100,688
<DEPRECIATION> 48,594
<TOTAL-ASSETS> 595,580
<CURRENT-LIABILITIES> 352,675
<BONDS> 123,211
0
0
<COMMON> 35
<OTHER-SE> 117,897
<TOTAL-LIABILITY-AND-EQUITY> 595,580
<SALES> 555,316
<TOTAL-REVENUES> 555,316
<CGS> 0
<TOTAL-COSTS> 508,331
<OTHER-EXPENSES> 224
<LOSS-PROVISION> 3,713
<INTEREST-EXPENSE> 8,934
<INCOME-PRETAX> 34,114
<INCOME-TAX> 15,122
<INCOME-CONTINUING> 18,663
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,663
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.55
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 23,022
<SECURITIES> 0
<RECEIVABLES> 242,664
<ALLOWANCES> 8,748
<INVENTORY> 0
<CURRENT-ASSETS> 282,360
<PP&E> 69,084
<DEPRECIATION> 36,536
<TOTAL-ASSETS> 423,662
<CURRENT-LIABILITIES> 285,595
<BONDS> 76,309
2,000
0
<COMMON> 32
<OTHER-SE> 55,006
<TOTAL-LIABILITY-AND-EQUITY> 423,662
<SALES> 402,078
<TOTAL-REVENUES> 402,078
<CGS> 0
<TOTAL-COSTS> 416,028
<OTHER-EXPENSES> 542
<LOSS-PROVISION> 3,301
<INTEREST-EXPENSE> 14,159
<INCOME-PRETAX> (31,952)
<INCOME-TAX> 8,995
<INCOME-CONTINUING> (41,850)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (41,850)
<EPS-PRIMARY> (1.50)
<EPS-DILUTED> (1.50)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 19,744
<SECURITIES> 0
<RECEIVABLES> 194,120
<ALLOWANCES> 5,581
<INVENTORY> 0
<CURRENT-ASSETS> 235,270
<PP&E> 38,094
<DEPRECIATION> 17,225
<TOTAL-ASSETS> 326,983
<CURRENT-LIABILITIES> 233,425
<BONDS> 90,114
2,000
0
<COMMON> 28
<OTHER-SE> (2,695)
<TOTAL-LIABILITY-AND-EQUITY> 326,983
<SALES> 293,394
<TOTAL-REVENUES> 293,394
<CGS> 0
<TOTAL-COSTS> 258,386
<OTHER-EXPENSES> 1,054
<LOSS-PROVISION> 3,260
<INTEREST-EXPENSE> 10,415
<INCOME-PRETAX> 20,279
<INCOME-TAX> 8,642
<INCOME-CONTINUING> 10,597
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,597
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.37
</TABLE>
