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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: April 21, 1999
TMP WORLDWIDE INC.
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(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 0-21571 13-3906555
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(State of (Commission File (I.R.S. Employer
Incorporation) No.) Identification No.)
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<S> <C>
1633 BROADWAY, NEW YORK, NEW 10019
YORK
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(Address of principal executive (Zip
offices) Code)
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Registrant's telephone number, including area code: 212-977-4200
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ITEM 5. OTHER EVENTS.
On January 28, 1999, TMP Worldwide Inc. and Subsidiaries (the "Company" or
"TMP") completed the acquisition of Morgan & Banks Limited ("M&B"), which
provided for the exchange of all of the outstanding stock of M&B for 5,148,291
shares of TMP common stock and which has been accounted for as a pooling of
interests (the "M&B Merger").
The Company's consolidated financial statements have been retroactively
restated as of December 31, 1997 and 1998 and for each of the three years in the
period ended December 31, 1998, to reflect the consummation of the M&B Merger.
The supplemental consolidated financial statements included herein give
retroactive effect to the M&B Merger, which has 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 M&B had been consolidated for all
periods presented. As required by generally accepted accounting principles, the
supplemental consolidated financial statements will become the historical
financial statements of the Company upon issuance of the financial statements
for the period that includes the consummation of the M&B merger. The
supplemental consolidated statements of stockholders' equity reflect the
accounts of TMP as if the common stock issued in connection with the M&B Merger
had been issued for all periods presented.
The supplemental consolidated balance sheets of TMP as of December 31, 1998
and 1997 have been combined with those of M&B for December 31, 1998, and March
31, 1998, respectively. The supplemental consolidated statements of operations
combine the results of TMP for each year in the three year period ended December
31, 1998 with those of M&B, for the year ended December 31, 1998 and the years
ended March 31, 1998 and 1997. Consequently, the results for M&B for the three
months ended March 31, 1998 are included in the Supplemental Consolidated
Statements of Operations for the years ended December 31, 1998 and 1997. When
translated at the appropriate exchange rates for the December 31, 1997 and 1998
periods, for the three months ended March 31, 1998, revenue was approximately
$62.1 million and $54.7 million, net income was approximately $2.0 million and
$1.7 million, and the effect on the diluted net income per share was $0.06 and
$0.05, respectively.
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 for the
year ended December 31, 1998 and the consolidated financial statements of M&B
included in the Company's Form 8-K dated February 12, 1999.
The Management's Discussion and Analysis of Financial Condition and Results
of Operations which follows is reflective of the supplemental consolidated
financial statements referred to above.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Statements in this Current Report on Form 8-K concerning our business
outlook or future economic performance, anticipated profitability, gross
billings, commissions and fees, revenue, expenses or other financial items and
statements concerning assumptions made or exceptions as to any future events,
conditions, performance or other matters are "forward-looking statements" as
that term is defined under the federal securities laws. Forward-looking
statements are subject to risks, uncertainties and other factors which would
cause actual results to differ materially from those stated in such statements.
Such risks, uncertainties and factors include, but are not limited to, (i) the
uncertain acceptance of the Internet and our Internet content, (ii) that we have
grown rapidly and there can be no assurance that we will continue to be able to
grow profitably or manage our growth, (iii) risks associated with acquisitions,
(iv) competition, (v) our quarterly operating results have fluctuated in the
past and are expected to fluctuate in the future, (vi) our business experiences
seasonality, (vii) the loss of services of certain key individuals could have a
material adverse effect on our business, financial condition or operating
results, (viii) we have entered into certain transactions with affiliated
parties and (ix) that we are controlled by one stockholder, Andrew J. McKelvey.
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OVERVIEW
A substantial part of our growth has been achieved through acquisitions. For
the period January 1, 1998 through December 31, 1998, we completed 19
acquisitions of which six, Johnson, Smith & Knisely Inc. ("JSK"), TASA Holding
AG ("TASA"), Stackig, Inc. ("Stackig"), Recruitment Solutions Inc., Sunquest
L.L.C. d.b.a. The SMART Group, and The Consulting Group (International) Limited
("TCG"), (the "Pooled Companies") are being accounted for as poolings of
interests. Approximately 3.6 million shares of our common stock were issued in
exchange for all of the outstanding common stock of the Pooled Companies (the
"1998 Mergers"). Furthermore on January 28, 1999, we completed the acquisition
of Morgan & Banks Limited ("M&B"), which provided for the exchange of all of the
outstanding stock of M&B for 5,148,291 shares of TMP common stock and which has
been accounted for as a pooling of interests (the "M&B Merger"). Accordingly,
the consolidated financial statements in our Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, which reflect the consummation of the 1998
Mergers, are being retroactively restated to reflect the M&B Merger and, as a
result, the financial position, results of operations and cash flows are
presented as if the Pooled Companies and M&B had been consolidated for all
periods presented. In addition, for the period January 1, 1996 through December
31, 1998, we completed 39 acquisitions, which were accounted for using the
purchase method, with estimated annual gross billings of approximately $582
million. Given the significant number of acquisitions in each of the periods
presented, the results of operations from period to period may not necessarily
be comparable.
Gross billings refer to billings for advertising placed in telephone
directories, newspapers, new media and other media, and associated fees for
related services, fees earned for search & selection and related services, and
revenue from temporary contracting services. While gross billings are not
included in our consolidated financial statements because they include a
substantial amount of funds which are collected from our clients but passed
through to publishers for advertisements, the trends in gross billings directly
impact the total revenue earned. For recruitment and yellow page advertising, we
earn commissions based on a percentage of the media advertising purchased at a
rate established by the related publisher, and associated fees for related
services. Publishers typically bill us for the advertising purchased by clients
and we in turn bill our clients for this amount. Generally, the payment terms
with yellow page clients require payment to us prior to the date payment is due
to publishers. The payment terms with recruitment advertising clients typically
require payment when payment is due to publishers. Historically, we have not
experienced substantial problems with unpaid accounts.
We design and execute yellow page advertising programs, receiving an
effective commission rate from directory publishers of approximately 20% of
yellow page gross billings. In general, publishers consider orders renewed
unless actively canceled. In addition to base commissions, certain yellow pages
publishers pay increased commissions for volume placement by advertising
agencies. We typically recognize this additional commission, if any, in the
fourth quarter when it is certain that such commission has been earned. The
amounts reported in the fourth quarters of 1998, 1997 and 1996 were $0.9
million, $2.0 million and $3.5 million, respectively. For recruitment
advertising placements in the U.S., publisher commissions average 15% of
recruitment advertising gross billings. We also earn fees from value-added
services such as design, research and other creative and administrative
services. Outside of the U.S., where, collectively, we derive the majority of
our recruitment advertising commissions and fees, our commission rates for
recruitment advertising vary, ranging from approximately 10% in Australia to 15%
in Canada and the United Kingdom. We also earn fees for recruitment
advertisements and related services on our career oriented Web sites on the
Internet.
Through our search & selection services, we identify and screen candidates
for hiring by clients based on criteria established by such clients. We entered
this business by acquiring in 1998, JSK, the 12th largest executive search firm
in the U.S. according to Kennedy Publications, an official ranking service for
the search industry, TASA, an international executive search firm, both of which
were recorded as poolings of interests, and five regional European firms,
including, TCG, which acquisition was recorded as a pooling of interests and in
January 1999, M&B, the largest search and selection firm in Australia.
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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, 1996 through December 31, 1998, our total
revenue increased from $402.1 million in 1996 to $662.2 million in 1998. We are
continuously monitoring the marketplace for opportunities to expand our presence
in both yellow page and recruitment advertising, which include Internet-related
opportunities, and intend to continue our acquisition strategy to supplement our
internal growth and the expansion of our Internet business.
Based on our consolidated results for the years ended December 31, 1998,
1997 and 1996, 62%, 60%, and 56%, respectively, of our consolidated revenue were
attributable to clients outside the U.S.
Our operating expenses have increased significantly since 1996 primarily as
a result of acquisitions and hiring to support gross billings growth and
expansion of our Internet business.
Salaries and related costs increased $115.5 million to $286.0 million for
the year ended December 31, 1998 from $170.5 million for the year ended December
31, 1996, a 67.8% increase, supporting a $652.1 million or a 63.3% increase in
gross billings over the same period. When measured as a percent of gross
billings, salaries and related costs for the year ended December 31, 1998 were
17.0%, up slightly from 16.6% for the comparable 1996 period. Salaries and
related costs include total payroll and associated benefits as well as payroll
taxes, sales commissions, recruitment fees and training costs.
Temporary contracting costs increased $59.4 million to $154.5 million for
the year ended December 31, 1998 from $95.1 million for the year ended December
31, 1996, a 62.5% increase. The decrease in costs as a percentage of temporary
contracting revenue from 83.9% to 82.6% reflects an increase in our executive
temporary contracting business which has a higher markup than temporary
contracting for clerical and support staff.
Office and general expenses increased $54.0 million to $151.0 million for
the year ended December 31, 1998 from $97.0 million for the year ended December
31, 1996, a 55.7% increase, primarily due to increased costs needed to support
the increased gross billings and the expansion of recruitment offices through
acquisitions in the U.S. and foreign markets and marketing costs to promote the
growth of our Internet business. When measured as a percent of gross billings,
office and general costs for the year ended December 31, 1998 were 9.0%, down
from 9.4% for the comparable 1996 period. This cost category includes expenses
for office operations, business promotion, market research, advertising,
professional fees and fees paid to our primary lending institution for its
services in the processing and collection of payments for accounts receivable.
Amortization of intangibles includes amortization of acquisition related
charges, including the costs in excess of fair market value of net assets of
businesses acquired and capitalized costs for non-compete arrangements with the
principals of acquired companies. This acquisition related amortization was $9.4
million, $6.8 million and $4.7 million for the years ended December 31, 1998,
1997 and 1996, respectively.
The CEO bonus for the years ended December 31, 1998 and 1997 of $1.3 and
$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. The contractual obligation to pay such bonus was eliminated as of
November 1998. Special compensation for the year ended December 31, 1996,
reflects a non-cash, non-recurring charge of approximately $52.0 million
resulting from the issuance of approximately 3.6 million shares of our common
stock to stockholders of our predecessor companies in exchange for their shares
in those companies. This charge was incurred because these stockholders had
received such shares for nominal or no consideration as employees or as
management of such companies and, accordingly, were not considered to have made
substantive investments for their shares.
Net interest expense includes interest: (i) on loans made by our primary
lender under our financing agreement with such lender, (ii) to certain vendors,
(iii) on capitalized lease obligations, (iv) on net amounts payable to the
holders of seller financed notes and (v) on a term loan related to the purchase
of certain transportation equipment. In addition, 1996 net interest expense
includes a non-recurring charge of approximately $2.6 million to reflect, upon
exercise of the warrant issued in connection with our financing
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agreement, the difference between the value of the stock issued at the initial
public offering price of $14.00 per share and the value recorded for the warrant
when it was originally issued.
RESULTS OF OPERATIONS
The following table sets forth our gross billings, revenue and revenue as a
percentage of gross billings and our EBITDA.
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YEAR ENDED DECEMBER 31,
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1998 1997 1996
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(IN THOUSANDS)
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GROSS BILLINGS:
Recruitment advertising................................ $ 794,234 $ 604,420 $ 342,379
Yellow page advertising................................ 485,205 469,342 443,594
Search & selection..................................... 160,764 148,215 123,473
Internet(1)............................................ 54,514 19,908 6,839
Temporary contracting.................................. 187,008 163,831 113,299
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Total.................................................. $1,681,725 $1,405,716 $1,029,584
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REVENUE:
Recruitment advertising................................ $ 167,234 $ 127,211 $ 71,741
Yellow page advertising................................ 99,384 98,007 95,942
Search & selection..................................... 159,795 147,398 114,257
Internet(1)............................................ 48,761 18,869 6,839
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Total commissions and fees............................. 475,174 391,485 288,779
Temporary contracting.................................. 187,008 163,831 113,299
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Total revenue.......................................... $ 662,182 $ 555,316 $ 402,078
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REVENUE AS A PERCENTAGE OF GROSS BILLINGS:
Recruitment advertising................................ 21.1% 21.0% 21.0%
Yellow page advertising................................ 20.5% 20.9% 21.6%
Search & selection..................................... 99.4% 99.4% 92.5%
Internet(1)............................................ 89.4% 94.8% 100.0%
Total commissions and fees............................. 31.8% 31.5% 31.5%
Temporary contracting.................................. 100.0% 100.0% 100.0%
Total.................................................. 39.4% 39.5% 39.1%
EBITDA(2)................................................ $ 65,618 $ 62,188 $ (6,087)
Cash provided by operating activities.................... $ 63,240 $ 31,884 $ 27,903
Cash used in investing activities........................ $ (47,382) $ (82,621) $ (42,912)
Cash provided by (used in) financing activities.......... $ (5,444) $ 54,700 $ 18,287
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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 our ability to
meet our future debt service, capital expenditures and working capital
requirements and is one of the measures which determines our ability to
borrow under our credit facility. EBITDA should not be considered in
isolation or as a substitute for operating income, cash flows from operating
activities and other income or cash flow statement data prepared in
accordance with generally accepted accounting principles or as a measure of
our profitability or liquidity.
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EBITDA for the indicated periods is calculated as follows:
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<CAPTION>
YEAR ENDED DECEMBER 31,
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1998 1997 1996
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(IN THOUSANDS)
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Net income (loss)............................................ $ 11,712 $ 18,663 $ (41,850)
Interest expense, net........................................ 10,563 8,934 14,159
Income tax expense........................................... 13,339 15,122 8,995
Depreciation and amortization................................ 30,004 19,469 12,609
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EBITDA....................................................... $ 65,618 $ 62,188 $ (6,087)
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THE YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
Gross billings for the year ended December 31, 1998 were $1,681.7 million, a
$276.0 million or 19.6% increase when compared to gross billings of $1,405.7
million for the year ended December 31, 1997. This increase in gross billings
resulted primarily from acquisitions in recruitment advertising. Total revenue
for the year ended December 31, 1998 was $662.2 million, an increase of $106.9
million or 19.2% from $555.3 million for the year ended December 31, 1997.
Recruitment advertising commissions and fees were $167.2 million for the year
ended December 31, 1998 compared with $127.2 million for the year ended December
31, 1997, an increase of $40.0 million or 31.5%. This increase was primarily due
to acquisitions, which contributed approximately $38.6 million and approximately
$4.1 million from increased client spending and new clients, partially offset by
client losses and a decrease from foreign currency exchange fluctuations with a
negative effect of approximately $2.9 million. Yellow page commissions and fees
were $99.4 million for the year ended December 31, 1998 compared with $98.0
million for the year ended December 31, 1997, an increase of 1.4% or $1.4
million. All of the increase was due to acquisitions. Search & selection fees
were $159.8 million compared with $147.4 million for the year ended December 31,
1997, an increase of $12.4 million or 8.4%, due primarily to increased business
from existing clients and new clients in executive search. Temporary contracting
revenue was $187.0 million for the years ended December 31, 1998 an increase of
$23.2 million or 14.1% when compared with $163.8 million for the year ended
December 31, 1997. This increase reflects expansion of this service to new
clients. Internet commissions and fees for the year ended December 31, 1998 were
$48.8 million, an increase of 158.4% or $29.9 million from $18.9 million for the
year ended December 31, 1997 due to an increasing acceptance of our Internet
products from existing and new clients, the benefits of "co-branding" marketing
efforts with other Internet content providers and increased sales and marketing
activities.
Operating expenses for the year ended December 31, 1998 were $624.6 million,
compared with $512.0 million for 1997. The increase of $112.6 million or 22.0%
reflects acquisition activity, including $22.4 million for merger costs, and
costs related to the internal growth of our business.
Salaries and related costs increased $46.3 million to $286.0 million for the
year ended December 31, 1998 due primarily to acquisitions and growth in search
& selection fees. As a percent of total revenues, salaries and related costs
stayed flat at 43.2% for the year ended December 31, 1998 as compared to the
year ended December 31, 1997.
Temporary contracting costs increased $18.3 million to $154.5 million for
the year ended December 31, 1998. This increase is primarily due to the
increased number of temporary contract workers placed during 1998 as compared
with the prior period. As a percent of temporary contracting revenue, temporary
contracting costs decreased to 82.6% for the year ended December 31, 1998 from
83.1% for the year ended December 31, 1997. This lower cost percentage reflects
greater growth in the executive temporary contracting business, which has a
mark-up higher than that for clerical and support staff.
Office and general expenses increased $23.2 million to $151.0 million for
the year ended December 31, 1998, primarily due to acquisitions and expenditures
to grow our Internet business. As a percent of total revenue, office and general
expenses decreased to 22.8% for the year ended December 31, 1998 from 23.0% for
the year ended December 31, 1997.
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Six of the acquisitions completed by us in the year ended December 31, 1998,
are being accounted for as poolings of interests. In connection with these six
acquisitions and the M&B Merger, we expensed merger related costs of $22.4
million for the year ended December 31, 1998, consisting of (1) $11.9 million of
non-cash employee stay bonuses, which included (a) $3.6 million for the
amortization of a $6.0 million charge being expensed over the eighteen months
from April 1, 1998 to September 30, 1999 for TMP shares set aside for key
personnel of JSK and TCG who must remain employees for a full year in order to
earn such shares and (b) $8.3 million for TMP shares to key personnel of TASA
and Stackig as employee stay bonuses, (2) $1.5 million of stay bonuses paid as
cash to key personnel of the Pooled Companies and (3) $9.0 million of
transaction related costs, including legal, accounting and advisory fees and the
costs incurred for the subsequent registration of shares issued in the
acquisitions. The after tax effect of this charge is $16.1 million or $.45 per
diluted share. (See Notes 1 and 5 to the Company's Consolidated Financial
Statements included elsewhere herein.)
Amortization of intangibles was $9.4 million for the year ended December 31,
1998 compared to $6.8 million for the year ended December 31, 1997. The increase
is due to our continued growth through acquisitions. As a percentage of total
revenue, amortization of intangibles was 1.4% and 1.2% for the year ended
December 31, 1998 and 1997, respectively.
As a result of all of the above, operating income decreased $5.7 million to
$37.6 million for the year ended December 31, 1998 as compared with operating
income of $43.3 million for the year ended December 31, 1997 and as a percent of
total revenue decreased to 5.7% from 7.8%.
Net interest expense increased $1.7 million to $10.6 million for the year
ended December 31, 1998 as compared to $8.9 million for the year ended December
31, 1997, reflecting a net increase in debt as a result of acquisitions and
capital expenditures. The Company's effective interest rate was 10.5% for the
year ended December 31, 1998 compared with 10.4% for the year ended December 31,
1997.
Taxes on income decreased $1.8 million to $13.3 million for the year ended
December 31, 1998 from $15.1 million for the year ended December 31, 1997
primarily due to lower pre-tax income. The effective tax rate for the year ended
December 31, 1998 was 52.4% compared with 44.3% for the year ended December 31,
1997. The higher effective rate in 1998 reflects the non-deductibility of
certain costs associated with the acquisition of the Pooled Companies.
For the year ended December 31, 1998, equity in losses of affiliates was
$396,000, reflecting losses at our minority owned real estate advertising
affiliate, as compared with a $33,000 loss for the same period in 1997. Minority
interests in consolidated earnings for the year ended December 31, 1998 were
$28,000 compared with $296,000 for the year ended December 31, 1997.
As a result of all of the above, the net income applicable to common and
Class B common stockholders was $11.7 million for the year ended December 31,
1998, or $.33 per diluted share, compared with net income of $18.5 million, or
$.55 per diluted share for the year ended December 31, 1997.
THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Gross billings for the year ended December 31, 1997 were $1,405.7 million, a
$376.1 million or 36.5% increase when compared to gross billings of $1,029.6
million for the year ended December 31, 1996. The growth is primarily due to
acquisitions in recruitment advertising, rate increases in yellow page
advertising, increased clients and higher client spending for search &
selection, and growing acceptance of the Company's Internet products.
Total revenue increased to $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
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the increase in commissions and fees derived from recruitment advertising was
due to acquisitions, including $15.5 million from Austin Knight, acquired in
August 1997, and the remainder was due to higher client spending and new
clients. The increase in commissions and fees derived from yellow page
advertising was due primarily to increased rates by the yellow page publishers
and an acquisition, substantially offset by lower publisher incentives and the
full year effect of accounts lost and resigned in 1996. The increase in
commissions and fees for search & selection was primarily due to increased
client spending in the U.S. Fees derived from Internet were generated from
placements of Internet advertising. The Internet revenue increase reflects the
continued customer acceptance of our Internet products both from our existing
clients as well as new clients and price increases on certain products. The
increase in temporary contracting revenue is due to expansion of temporary
contract services.
Salaries and related costs increased $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
(1) consolidation of offices, which slowed the growth of office related
expenses, (2) increased growth in recruitment advertising commissions and fees
combined with the relatively fixed nature of some of these expenses and (3)
increased temporary contracting revenue which has relatively stable office and
general expenses.
Amortization of intangibles was $6.8 million for the year ended December 31,
1997 compared to $4.7 million for the year ended December 31, 1996. The increase
is due to our continued growth through acquisitions. As a percentage of total
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 our 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 & selection,
Internet and temporary contracting revenue slightly offset by a $2.2 million
increase in operating expenses relating to our introduction of our 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.
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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 our initial public and
supplemental offerings. In addition, in 1996 there was a $2.6 million non-cash,
non-recurring charge to reflect, upon exercise of a warrant issued in connection
with our financing agreement, the value of the stock issued at our initial
public offering price of $14.00 per share and the value recorded for the warrant
when it was originally issued. Our effective interest rate was 10.4% for the
year ended December 31, 1997 compared with 15.4% 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,
non-cash interest expense of $2.6 million and state taxes of $.4 million, as
well as our inability to offset profits at certain subsidiaries with losses
incurred by others.
As a result of all of the above, the net income applicable to common and
Class B common stockholders was $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.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements have been to fund (i) acquisitions, (ii)
working capital, (iii) capital expenditures and (iv) advertising and development
of our Internet business. Our working capital requirements are generally higher
in the quarters ending March 31 and June 30 during which payments to the major
yellow page directory publishers are at their highest levels. We have met our
liquidity needs over the last three years through 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, we
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 that we received from the initial
public offering of $50.8 million were used to repay debt and, in early 1997, to
pay down accounts payable and to redeem preferred stock. In September 1997, we
completed a second public offering of an aggregate of 2,400,000 shares of Common
Stock at a purchase price of $23.00 per share in an underwritten public offering
managed by Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., BT Alex
Brown Incorporated, Montgomery Securities and Ladenburg Thalmann & Co. Inc. In
addition, certain stockholders sold an aggregate of 1,600,000 shares of Common
Stock in such offering. Our net proceeds from this offering of $63.4 million,
including net repayment of borrowings of $12.2 million, paid to us by certain
stockholders were used to repay debt.
Net cash provided by operating activities for the years ended December 31,
1998, 1997 and 1996 was $63.2 million, $31.9 million and $27.9 million,
respectively. The increase in cash from operating activities for 1998 over 1997
was primarily due to an increase in accounts payable, a $10.5 million increase
in depreciation and amortization costs and utilization of our common stock to
pay bonuses partially offset by decreases in net income and deferred income
taxes and increases in accounts receivable and work-in-process. In addition, in
1998 we paid approximately $10.6 million for restructuring. Such amount was
applied against a reserve set up during 1997 in connection with acquisitions
accounted for using the purchase method. This restructuring reserve totaled
$16.8 million as of December 31, 1997, was increased by $10.0 million during
1998, with a corresponding increase to intangible assets, and reduced by the
payments of $10.6 million leaving a restructuring reserve at December 31, 1998
of $16.2 million. (See Note
9
<PAGE>
5 to the Company's Consolidated Financial Statements included elsewhere
herein.). The increase in cash from operating activities for 1997 over 1996 was
primarily due to increased net income, after adding back the effect of non-cash
charges in 1996, partially offset by higher payments of accounts payable,
including amounts to substantially repay vendor financed payables.
Net cash used in investing activities for the years ended December 31, 1998,
1997 and 1996 was $47.4 million, $82.6 million and $42.9 million, respectively.
The $35.2 million decrease in 1998 was primarily due to $42.7 million less in
payments for acquisitions, reflecting the use of shares to make acquisitions of
businesses, and $4.1 million less in capital expenditures. In addition, during
1997 we received a net payment of $12.2 million from the Principal Stockholder
and certain other stockholders with funds received from their sale of shares
included with our second public offering. Payments for businesses acquired using
the purchase method of accounting, excluding $5.5 million in TMP stock, were
$24.1 million, $66.8 million in 1997, of which $47.2 million was for Austin
Knight, and $31.3 million in 1996. Capital expenditures, primarily for computer
equipment and furniture and fixtures, were $23.2 million, $27.3 million and
$12.5 million for the years ended December 31, 1998, 1997 and 1996,
respectively. In addition, in 1997, we acquired certain transportation equipment
and made capital improvements for a total of $6.8 million, replacing the
transportation equipment sold during 1996 for $6.1 million, and simultaneously
entered into a $7.8 million financing agreement to fund the purchase and provide
additional operating funds. In December 1996, we sold certain transportation
equipment for $6.1 million receiving a note for $2.7 million and retained $1.2
million in cash, after payment of related debt. We estimate that its
expenditures for computer equipment and software, furniture and fixtures and
leasehold improvements will be approximately $25.0 million for 1999.
EBITDA was $65.6 million for the year ended December 31, 1998, an increase
of $3.4 million from $62.2 million for the year ended December 31, 1997.
However, as a percentage of total revenue, EBITDA decreased to 9.9% for the year
ended December 31, 1998 from 11.2% for the year ended December 31, 1997. The
decrease resulted primarily from the $18.8 million charge for merger costs
($22.4 million less $3.6 million in amortization of deferred compensation),
which was 2.8% of total revenue for the year ended December 31, 1998. For the
year ended December 31, 1997, EBITDA was $62.2 million, an increase of $68.3
million 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 was $(6.1)
million primarily due to the $52.0 million non-cash special compensation charge.
Our financing activities include equity offerings, borrowings and repayments
under our financing agreement and payments on (i) installment notes, principally
to finance acquisitions, and (ii) capital leases. In the fourth quarter of 1996,
we completed our initial public offering of 4,147,408 shares of Common Stock for
net proceeds of $50.8 million and in the third quarter of 1997, we completed our
second public offering of 2,400,000 shares of Common Stock for net proceeds of
$51.2 million. With a portion of the proceeds received from our initial public
offering in January 1997, we redeemed all of the shares of the cumulative
preferred stock issued by a subsidiary, reported as a minority interest, and our
previously issued preferred stock for approximately $3.1 million and $2.1
million, respectively. Such redemptions included approximately $100,000 each of
premiums. Our financing activities used net cash of $5.4 million in 1998, and
provided net cash of $54.7 million and $18.3 million in 1997 and 1996,
respectively. In November, 1998 and 1997 we amended our financing agreement with
our primary lender to provide for borrowings up to $175 million under a
revolving credit facility. Such facility is used to finance our acquisitions and
for working capital requirements. As of December 31, 1998, there was $97.7
million outstanding and approximately $77.3 million available under such
facility. Our current interest rate under the agreement is LIBOR plus 87.5 basis
points. In addition, we have secured lines of credit aggregating $12.7 million
for our operations in Australia, France, Belgium and the Netherlands of which
approximately $7.7 million was unused at December 31, 1998. We believe we will
be able to fund our short-term cash needs through funds from operations, our
credit facilities in the United States, the United Kingdom, Canada and Australia
and,
10
<PAGE>
to a lesser extent, equipment leases. The borrowings are secured by a lien on
substantially all of our assets. In addition, the financing agreement contains
certain covenants which restrict, among other things, our ability to borrow, pay
dividends, acquire businesses, guarantee debts of others and lend funds to
affiliated companies and contains criteria on the maintenance of certain
financial statement amounts and ratios.
Part of our acquisition strategy is to pay, over time, a portion of the
purchase price of certain acquisitions through seller financed notes.
Accordingly, such notes are included in long term debt, are generally payable
over five years and totaled $8.0 million at December 31, 1998.
We intend to continue our acquisition strategy and promotion of our Internet
activities through the use of operating profits, borrowings against our
long-term debt facility and seller financed notes. We believe that our
anticipated cash flow from operations, as well as the availability of funds
under its existing financing agreements and the net proceeds of our recent
secondary public offering and access to public equity and debt markets, will
provide us with liquidity to meet our current forseeable cash needs for at least
the next year. However, if we determine that conditions are favorable, we would
consider additional corporate finance transactions.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
is effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance over accounting for computer software developed
or obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. We do not expect the adoption of this
standard to have a material effect on our capitalization policy.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" ("SFAS No. 133"), which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. SFAS No.
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. The Company does not expect the adoption of this statement to have a
significant impact on the Company's results of operations, financial position or
cash flows.
YEAR 2000 ISSUE
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These systems
and software products will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software used by many companies and governmental agencies may need to be
upgraded to comply with such Year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities.
STATE OF READINESS
We have developed a comprehensive plan to deal with the Year 2000 issue. The
plan is an evolving document as we continue to acquire and integrate companies
throughout 1999. The plan is intended to achieve three basic objectives: to
ensure that core systems will operate reliably through the year 2000 and beyond;
to ensure that each business unit follows a consistent approach and adheres to
project deadlines; and to track the status of all Year 2000 efforts.
Our Year 2000 task force 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
11
<PAGE>
that these third-party systems are Year 2000 compliant. Our plan is to confirm
this compliance by obtaining representations by these third parties that their
products' are year 2000 compliant and through specific testing of these systems.
Our plan is to complete this process prior to the end of the third quarter of
1999. Until such testing is completed and such vendors and providers are
contacted, we will not be able to completely evaluate whether our systems will
need to be revised or replaced.
COSTS
We expect to incur approximately $3.0 million, globally, during 1999 in
connection with identifying, evaluating and addressing Year 2000 compliance
issues. Most of these costs relate to time spent by employees and consultants in
making our systems Year 2000 compliant. Such costs, are not expected to have a
material adverse effect on the Company's business, results of operations and
financial condition.
RISKS
We are not currently aware of any Year 2000 compliance problems relating to
our systems that would have a material adverse effect on our business, results
of operations and financial condition, without taking into account our efforts
to avoid or fix such problems. There can be no assurance that we will not
discover Year 2000 compliance problems in our systems that will require
substantial revision. In addition, there can be no assurance that third-party
software, hardware or services incorporated into our material systems will not
need to be revised or replaced, all of which could be time-consuming and
expensive. Our failure to fix or replace our internally developed proprietary
software or third-party software, hardware or services on a timely basis could
result in lost revenues, increased operating costs, the loss of customers and
other business interruptions, any of which could have a material adverse effect
on our business, results of operations and financial condition. Moreover, the
failure to adequately address Year 2000 compliance issues in our internally
developed proprietary software could result in claims of mismanagement,
misrepresentation or breach of contract and related litigation, which could be
costly and time-consuming to defend.
We are heavily dependent on a significant number of third-party vendors to
provide both network services and equipment. A significant Year 2000-related
disruption of the network, services or equipment that third-party vendors
provide to us could cause our members and visitors to consider seeking alternate
providers or cause an unmanageable burden on our technical support, which in
turn could materially and adversely affect our business, financial condition and
results of operations.
In addition, we cannot assure you that governmental agencies, utility
companies, internet access companies, third-party service providers and others
outside of our control will be Year 2000 compliant. The failure by such entities
to be Year 2000 compliant could result in a systemic failure beyond our control,
such as a prolonged internet, telecommunications or electrical failure, which
could also prevent us from delivering our services to our customers, decrease
the use of the internet or prevent users from accessing our Web sites which
could have a material adverse effect on our business, results of operations and
financial condition.
CONTINGENCY PLAN
As discussed above, we are engaged in an ongoing Year 2000 assessment and
have not yet developed any contingency plans. The results of our Year 2000
simulation testing and the responses received from third-party vendors and
service providers will be taken into account in determining the nature and
extent of any contingency plans.
FLUCTUATIONS OF QUARTERLY RESULTS
Our quarterly commissions and fees are affected by the timing of yellow page
directory closings which currently have a concentration in the third quarter.
Yellow page publishers may change the timing of directory publications which may
have an effect on our quarterly results. Our yellow page advertising
12
<PAGE>
results are also affected by commissions earned for volume placements for the
year, which are typically reported in the fourth quarter. Our quarterly
commissions and fees for recruitment advertising are typically highest in the
first quarter and lowest in the fourth quarter; however, the cyclicality in the
economy and our clients' employment needs have an overriding impact on our
quarterly results in recruitment advertising. Moreover, our recruitment
advertising acquisition activity has had more of an impact on our recently
reported quarterly results than any other factor. (See Note 2 to the Company's
Consolidated Financial Statements included elsewhere herein.)
The following table sets forth summary quarterly unaudited financial
information for the years ended December 31, 1998 and 1997. Amounts have been
restated to reflect the effect of the retroactive restatement for the M&B Merger
completed in January 1999, accounted for as a pooling of interests: (in
millions, except share and per share amounts).
<TABLE>
<CAPTION>
1998 QUARTERS
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Recruitment advertising..................................... $ 43.5 $ 43.2 $ 39.7 $ 40.8
Yellow page advertising..................................... 22.0 25.4 30.1 21.9
Search & selection.......................................... 38.1 41.1 40.6 40.0
Internet.................................................... 7.7 10.7 13.3 17.1
----------- ----------- ------ ------
Total commissions and fees.................................... 111.3 120.4 123.7 119.8
Temporary contracting....................................... 41.2 46.1 46.2 53.5
----------- ----------- ------ ------
Total revenue................................................. $ 152.5 $ 166.5 $ 169.9 $ 173.3
----------- ----------- ------ ------
----------- ----------- ------ ------
Operating income.............................................. $ 10.4 $ 13.5 $ 11.7 $ 1.90
Net income (loss) applicable to common and Class B
common stockholders......................................... $ 4.4 $ 5.8 $ 5.3 $ (3.8)
Net income (loss) per common and Class B common share:
Basic....................................................... $ .13 $ .17 $ .15 $ (.11)
Diluted..................................................... $ .12 $ .16 $ .15 $ (.11)
Weighted average shares outstanding (in thousands):
Basic....................................................... 34,895 34,946 34,969 35,010
Diluted..................................................... 36,202 35,996 36,120 35,010
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
1997 QUARTERS
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
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....................................................... 32,169 32,193 32,681 34,763
Diluted..................................................... 32,613 32,819 33,357 35,395
</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.
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.
14
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE NO.
-----------
<S> <C>
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants.................................................... F-2
Independent Auditor's Report to the Members of Morgan & Banks Limited................................. F-3
Balance sheets as of December 31, 1998 and 1997....................................................... F-4
Statements of operations for the years ended December 31, 1998, 1997 and 1996......................... F-5
Statements of comprehensive income (loss) for the years ended December 31, 1998, 1997 and 1996........ F-6
Statements of stockholders' equity (deficit) for the years ended December 31, 1998, 1997 and 1996..... F-7
Statements of cash flows for the years ended December 31, 1998, 1997 and 1996......................... F-8
Notes to supplemental consolidated financial statements............................................... F-9
Report of Independent Certified Public Accountants.................................................... F-38
Supplemental Schedule II: Valuation and qualifying accounts for the years ended December 31, 1998,
1997 and 1996......................................................................................... F-39
</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>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
We have audited the accompanying supplemental consolidated balance sheets of
TMP Worldwide Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
related supplemental consolidated statements of operations, comprehensive income
(loss), stockholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1998. The supplemental consolidated
financial statements give retroactive effect to the merger of TMP Worldwide Inc.
and Subsidiaries and Morgan & Banks Limited on January 28, 1999, which has been
accounted for as a pooling of interests as described in Notes 1 and 5 to the
supplemental consolidated financial statements. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the financial statements of Morgan & Banks Limited as of December 31, 1998 and
March 31, 1998 and for the year ended December 31, 1998 and for each of the two
years in the period ended March 31, 1998 which were combined with the Company's
financial statements as of December 31, 1998 and 1997 and for each of three
years in the period ended December 31, 1998, which financial statements reflect
total assets of approximately $52.3 million and $54.4 million as of December 31,
1998 and March 31, 1998 and total revenues of approximately $255.4 million,
$174.4 million and $235.8 million for the year ended December 31, 1998 and for
each of the two years in the period ended March 31, 1998, respectively. Those
financial statements were audited by another auditor whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for Morgan & Banks Limited, is based solely on the report of the other auditor.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditor provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditor, the
supplemental consolidated financial statements referred to above present fairly,
in all material respects, the financial position of TMP Worldwide Inc. and
Subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, after giving retroactive effect to the merger with Morgan &
Banks Limited in conformity with generally accepted accounting principles.
/s/ BDO SEIDMAN, LLP
------------------------------------------------------------------------------
BDO SEIDMAN, LLP
New York, New York
April 15, 1999
F-2
<PAGE>
INDEPENDENT AUDITOR REPORT TO THE MEMBERS
OF MORGAN & BANKS LIMITED
SCOPE
We have audited the financial statements of Morgan & Banks Limited for the
financial years ended 31 December 1998, 31 March 1998 and 31 March 1997. The
financial statements include the consolidated accounts of the economic entity,
comprising the company and the entities it controlled at the year's end or from
time to time during the financial year. The company's directors are responsible
for the preparation and presentation of these financial statements and the
information they contain. We have conducted an independent audit of the
financial statements and the information they contain in order to express an
opinion on them to the members of the company.
Our audit has been conducted in accordance with Australian Auditing
Standards, which are substantially the same as generally accepted auditing
standards in the United States of America, to provide reasonable assurance as to
whether the financial statements are free of material misstatement. Our
procedures included examination, on a test basis, of evidence supporting the
amounts and other disclosures in the financial statements, and the evaluation of
accounting policies and significant accounting estimates. These procedures have
been undertaken to form an opinion as to whether, in all material respects, the
financial statements are presented fairly in accordance with Australian
Accounting Standards and other mandatory professional reporting requirements and
statutory requirements so as to present a view which is consistent with our
understanding of the company's and the economic entity's financial position and
the results of its operations and its cash flows.
The audit opinion expressed in this report has been formed on the above
basis.
AUDIT OPINION
In our opinion, the financial statements of Morgan & Banks Limited are
properly drawn up:
(a) so as to give a true and fair view of the state of affairs as at 31 December
1998 and 31 March 1998, the profit for the financial years ended on 31
December 1998, 31 March 1998 and 31 March 1997 and the cash flows for the
nine month period ended 31 December 1998, and the years ended 31 March 1998
and 31 March 1997, of the company and the economic entity;
(b) in accordance with applicable Australian Accounting Standards and other
mandatory professional reporting requirements.
<TABLE>
<S> <C>
/s/ PANNELL KERR FORSTER /s/ A.P. WHITING
- -------------------------------------------- --------------------------------------------
Chartered Accountants A.P. Whiting
New South Wales Partnership Partner
</TABLE>
Sydney, 15 April 1999
F-3
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 37,399 $ 26,985
Accounts receivable, net................................................................ 299,921 303,897
Work-in-process......................................................................... 18,309 15,623
Prepaid and other....................................................................... 25,208 16,505
---------- ----------
Total current assets.................................................................. 380,837 363,010
Property and equipment, net............................................................... 60,564 52,094
Deferred income taxes..................................................................... 6,599 5,330
Intangibles, net.......................................................................... 200,053 167,457
Other assets.............................................................................. 9,893 7,689
---------- ----------
$ 657,946 $ 595,580
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 254,309 $ 225,863
Accrued expenses and other current liabilities.......................................... 87,765 80,579
Accrued restructuring costs............................................................. 16,170 16,801
Deferred revenue........................................................................ 13,348 7,992
Deferred income taxes................................................................... 5,904 9,372
Current portion of long-term debt....................................................... 11,672 12,068
---------- ----------
Total current liabilities............................................................. 389,168 352,675
Long-term debt, less current portion...................................................... 119,551 123,211
Other liabilities......................................................................... 7,871 1,331
---------- ----------
Total liabilities..................................................................... 516,590 477,217
---------- ----------
Minority interests........................................................................ 509 431
---------- ----------
Stockholders' equity:
Preferred stock, $.001 par value, authorized 800,000 shares; issued and
outstanding--none.....................................................................
Common stock, $.001 par value, authorized 200,000,000 shares; issued and
outstanding--32,780,537 and 21,200,941, shares, respectively.......................... 33 21
Class B common stock, $.001 par value, authorized 39,000,000 shares; issued and
outstanding--2,381,000 and 13,587,541 shares, respectively............................ 2 14
Additional paid-in capital.............................................................. 184,109 166,861
Other comprehensive loss................................................................ (2,930) (1,035)
Deficit................................................................................. (40,367) (47,929)
---------- ----------
Total stockholders' equity............................................................ 140,847 117,932
---------- ----------
$ 657,946 $ 595,580
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-4
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Revenue:
Commissions and fees.......................................................... $ 475,174 $ 391,485 $ 288,779
Temporary contracting......................................................... 187,008 163,831 113,299
--------- --------- ---------
Total revenue............................................................. 662,182 555,316 402,078
--------- --------- ---------
Operating expenses:
Salaries and related costs.................................................... 286,021 239,712 170,494
Temporary contracting costs................................................... 154,513 136,185 95,062
Office and general............................................................ 151,026 127,805 97,022
Merger costs.................................................................. 22,412 -- --
Amortization of intangibles................................................... 9,401 6,842 4,732
Special compensation and CEO bonus............................................ 1,250 1,500 52,019
--------- --------- ---------
Total operating expenses.................................................. 624,623 512,044 419,329
--------- --------- ---------
Operating income (loss)................................................... 37,559 43,272 (17,251)
--------- --------- ---------
Other income (expense):
Interest expense, net......................................................... (10,563) (8,934) (14,159)
Other, net.................................................................... (1,521) (224) (542)
--------- --------- ---------
(12,084) (9,158) (14,701)
--------- --------- ---------
Income (loss) before provision for income taxes, minority interests and equity
in earnings (losses) of affiliates............................................ 25,475 34,114 (31,952)
Provision for income taxes...................................................... 13,339 15,122 8,995
--------- --------- ---------
Income (loss) before minority interests and equity in earnings (losses) of
affiliates.................................................................... 12,136 18,992 (40,947)
Minority interests.............................................................. 28 296 1,017
Equity in earnings (losses) of affiliates....................................... (396) (33) 114
--------- --------- ---------
Net income (loss)............................................................... 11,712 18,663 (41,850)
Preferred stock dividend and redemption premium................................. -- (123) (210)
--------- --------- ---------
Net income (loss) applicable to common and Class B common stockholders.......... $ 11,712 $ 18,540 $ (42,060)
--------- --------- ---------
--------- --------- ---------
Net income (loss) per common and Class B common share:
Basic......................................................................... $ .33 $ .56 $ (1.50)
--------- --------- ---------
--------- --------- ---------
Diluted....................................................................... $ .33 $ .55 $ (1.50)
--------- --------- ---------
--------- --------- ---------
Weighted average shares outstanding:
Basic......................................................................... 34,982 32,945 27,947
--------- --------- ---------
--------- --------- ---------
Diluted....................................................................... 35,881 33,559 27,947
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-5
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
---------- --------- ----------
<S> <C> <C> <C>
Net income (loss).............................................................. $ 11,712 $ 18,663 $ (41,850)
Foreign currency translation adjustment........................................ (1,895) (3,686) (374)
---------- --------- ----------
Comprehensive income (loss).................................................... $ 9,817 $ 14,977 $ (42,224)
---------- --------- ----------
---------- --------- ----------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-6
<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
$.001 PAR VALUE VALUE
---------------------- ----------
SHARES AMOUNT SHARES
--------- ----------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1995.......................................................... 12,868,437 $ 13 14,787,541
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
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)
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
Issuance of common stock in connection with the exercise of options............... 209,949 -- --
Issuance of common stock in connection with acquisitions.......................... 201,406 -- --
Issuance of options to outside salespersons for commissions....................... -- -- --
Redemption of common stock........................................................ (287,352) -- --
Issuance of common stock for matching contribution to 401(k) plan................. 27,273 -- --
Conversion of Class B common shares to common shares.............................. 11,206,541 12 (11,206,541)
Issuance of common stock for employee stay bonuses................................ 221,779 -- --
Foreign currency translation adjustment........................................... -- -- --
Capital contribution by Principal Stockholder re: CEO bonus....................... -- -- --
Tax benefit of stock options exercised............................................ -- -- --
Net income........................................................................ -- -- --
M&B's earnings included in both December 31, 1997 and 1998 income statements...... -- -- --
Dividends declared by pooled companies............................................ -- -- --
--------- --- ----------
Balance, December 31, 1998.......................................................... 32,780,537 $ 33 2,381,000
--------- --- ----------
--------- --- ----------
<CAPTION>
ADDITIONAL OTHER
PAID-IN COMPREHENSIVE
AMOUNT CAPITAL INCOME (LOSS)
----------- ----------- ---------------
<S> <C> <C>
Balance, December 31, 1995.......................................................... $ 15 $ 2,593 $ 3,025
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...................................................... -- -- --
Special compensation.............................................................. -- 50,175 --
Issuance of common stock in connection with acquisitions.......................... -- 1,139 --
Dividends declared by pooled companies............................................ -- -- --
Net loss.......................................................................... -- -- --
--- ----------- -------
Balance, December 31, 1996.......................................................... 15 108,395 2,651
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.............................................................. (1) -- --
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................................ -- -- --
Dividends declared by pooled companies............................................ -- -- --
Net income........................................................................ -- -- --
--- ----------- -------
Balance, December 31, 1997.......................................................... 14 166,861 (1,035)
Issuance of common stock in connection with the exercise of options............... -- 1,494
Issuance of common stock in connection with acquisitions.......................... -- 5,546 --
Issuance of options to outside salespersons for commissions....................... -- 280 --
Redemption of common stock........................................................ -- (668) --
Issuance of common stock for matching contribution to 401(k) plan................. -- 627 --
Conversion of Class B common shares to common shares.............................. (12) -- --
Issuance of common stock for employee stay bonuses................................ -- 8,312 --
Foreign currency translation adjustment........................................... -- -- (1,895)
Capital contribution by Principal Stockholder re: CEO bonus....................... -- 1,250 --
Tax benefit of stock options exercised............................................ -- 407 --
Net income........................................................................ -- -- --
M&B's earnings included in both December 31, 1997 and 1998 income statements...... -- -- --
Dividends declared by pooled companies............................................ -- -- --
--- ----------- -------
Balance, December 31, 1998.......................................................... $ 2 $ 184,109 $ (2,930)
--- ----------- -------
--- ----------- -------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
DEFICIT (DEFICIT)
--------- ---------------
Balance, December 31, 1995.......................................................... $ (8,313) $ (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) (210)
Special compensation.............................................................. -- 50,175
Issuance of common stock in connection with acquisitions.......................... -- 1,139
Dividends declared by pooled companies............................................ (5,667) (5,667)
Net loss.......................................................................... (41,850) (41,850)
--------- ---------------
Balance, December 31, 1996.......................................................... (56,040) 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.............................................................. -- --
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) (123)
Dividends declared by pooled companies............................................ (10,429) (10,429)
Net income........................................................................ 18,663 18,663
--------- ---------------
Balance, December 31, 1997.......................................................... (47,929) 117,932
Issuance of common stock in connection with the exercise of options............... -- 1,494
Issuance of common stock in connection with acquisitions.......................... -- 5,546
Issuance of options to outside salespersons for commissions....................... -- 280
Redemption of common stock........................................................ -- (668)
Issuance of common stock for matching contribution to 401(k) plan................. -- 627
Conversion of Class B common shares to common shares.............................. -- --
Issuance of common stock for employee stay bonuses................................ -- 8,312
Foreign currency translation adjustment........................................... -- (1,895)
Capital contribution by Principal Stockholder re: CEO bonus....................... -- 1,250
Tax benefit of stock options exercised............................................ -- 407
Net income........................................................................ 11,712 11,712
M&B's earnings included in both December 31, 1997 and 1998 income statements...... (1,725) (1,725)
Dividends declared by pooled companies............................................ (2,425) (2,425)
--------- ---------------
Balance, December 31, 1998.......................................................... $ (40,367) $ 140,847
--------- ---------------
--------- ---------------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-7
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- --------- ---------
Cash flows from operating activities:
Net income (loss)............................................................ $ 11,712 $ 18,663 $ (41,850)
---------- --------- ---------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization of property and equipment.................... 16,981 12,627 7,877
Amortization of intangibles................................................ 9,401 6,842 4,732
Amortization of deferred compensation in connection with employee stay
bonuses.................................................................. 3,622 -- --
Provision for doubtful accounts............................................ 5,819 3,713 3,301
Common stock issued for matching contribution to 401(k) plan............... 627 -- --
Common stock issued for employee stay bonuses.............................. 8,312 -- --
Special compensation....................................................... -- -- 52,019
Interest expense for shares issued upon exercise of warrant................ -- -- 2,603
Provision for deferred income taxes........................................ 606 7,161 3,462
CEO bonus and indemnity payment............................................ 1,250 1,775 --
Minority interests......................................................... 28 296 1,017
Other...................................................................... 1,606 195 633
Effect of M&B included in both December 31, 1998 and 1997.................. (3,134) -- --
Changes in assets and liabilities, net of effects from purchases of
businesses:
Increase in accounts receivable, net....................................... (12,709) (12,525) (11,492)
(Increase) decrease in work-in-process..................................... (2,583) 42 68
Increase in prepaid and other.............................................. (6,272) (1,616) (1,389)
(Increase) decrease in other assets........................................ (2,501) (62) 235
Increase (decrease) in accounts payable, accrued expenses and other current
liabilities.............................................................. 30,475 (5,227) 6,687
---------- --------- ---------
Total adjustments........................................................ 51,528 13,221 69,753
---------- --------- ---------
Net cash provided by operating activities................................ 63,240 31,884 27,903
---------- --------- ---------
Cash flows from investing activities:
Payments pursuant to notes and advances to Principal Stockholder............. -- (3,064) (12,878)
Repayments from Principal Stockholder........................................ -- 14,477 7,994
Capital expenditures......................................................... (23,230) (27,302) (12,513)
Payments for purchases of businesses, net of cash acquired................... (24,152) (66,832) (31,262)
Proceeds from sale of assets................................................. -- 100 6,197
Advances to affiliates....................................................... -- -- (450)
---------- --------- ---------
Net cash used in investing activities.................................... (47,382) (82,621) (42,912)
---------- --------- ---------
Cash flows from financing activities:
Payments on capitalized leases............................................... (3,257) (2,996) (2,386)
Borrowings under line of credit and proceeds from issuance of long-term
debt....................................................................... 1,049,120 722,333 491,800
Repayments under line of credit and principal payments on long-term debt..... (1,048,480) (703,282) (513,236)
Distribution to minority interests........................................... -- -- (457)
Net proceeds from stock issuance............................................. -- 51,169 50,783
Cash received from the exercise of stock options............................. 1,494 659 --
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)
Dividends paid by pooled companies........................................... (4,321) (7,822) (5,847)
---------- --------- ---------
Net cash (used in) provided by financing activities...................... (5,444) 54,700 18,287
---------- --------- ---------
Net increase in cash and cash equivalents...................................... 10,414 3,963 3,278
Cash and cash equivalents, beginning of year................................... 26,985 23,022 19,744
---------- --------- ---------
Cash and cash equivalents, end of year......................................... $ 37,399 $ 26,985 $ 23,022
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-8
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION
TMP Worldwide Inc. ("TMP" or the "Company") is the successor to businesses
formerly conducted by TMP Worldwide Inc. and subsidiaries ("Old TMP"), Worldwide
Classified Inc. and subsidiaries ("WCI"), McKelvey Enterprises, Inc. and
subsidiaries ("MEI") and certain other entities under the control of Andrew J.
McKelvey (the "Principal Stockholder"). Immediately prior to the reorganization,
the Principal Stockholder owned 100% of the common stock of MEI (which owned
approximately 86% of the common stock of Old TMP) and approximately 33% of the
common stock of WCI. In addition to his approximately 33% ownership of WCI, the
Principal Stockholder had voting proxy on the remaining outstanding shares of
WCI.
WCI was organized in 1993 to sell recruitment advertising. On December 9,
1996, Old TMP, which sells yellow page advertising, merged into MEI. Thereafter,
WCI merged into MEI, MEI then merged into Telephone Marketing Programs
Incorporated and MEI acquired the outstanding minority interest of a subsidiary
(the "1996 Mergers"). Concurrent with the Mergers, Telephone Marketing Programs
Incorporated changed its name to TMP Worldwide Inc.
Due to the control of these companies by the Principal Stockholder, the
companies have been consolidated on a retroactive basis in a manner similar to a
pooling of interests, the interests previously owned by the Principal
Stockholder are carried at predecessor basis, and in December 1996 (i) goodwill
in the amount of approximately $1.6 million was recorded for the issuance of
271,278 shares of common stock of the Company to Old TMP stockholders who had
been previously issued shares of Old TMP in exchange for their minority
interests in certain operating subsidiaries in which they were original owners
and, accordingly, were considered to have made a substantive investment, and is
based on an initial public offering price of $14.00 per share, less
approximately $2.2 million previously recorded on the issuance of these shares,
and (ii) special compensation in the amount of approximately $52.0 million was
recorded for the issuance of 3,584,790 shares of common stock of the Company to
Old TMP, WCI and the MEI subsidiary stockholders in exchange for their shares in
those companies which they had received for nominal or no consideration, as
employees or as management of businesses financed substantially by the Principal
Stockholder and, accordingly, were not considered to have made substantive
investments for their minority shares, and is based on an initial public
offering price of $14.00 per share. The minority stockholders of Old TMP had
received compensation in lieu of their share of earnings of Old TMP in exchange
for waiving their rights to such earnings, and WCI and the MEI subsidiary had
cumulative losses. Accordingly, no amounts were attributable to these minority
interests in the accompanying consolidated financial statements.
In addition, in 1996, the Principal Stockholder sold or contributed to the
Company his majority interests, and in one case a 49% interest, in five
companies primarily engaged in yellow page and Internet-based advertising. Due
to the element of common control of these companies, all of these transactions
have been accounted for in a manner similar to a pooling of interests and each
of the five companies has been included in the accompanying consolidated
financial statements from their respective dates of acquisition by the Principal
Stockholder.
The consolidated financial statements of the Company reflect the effect of
the 1996 Mergers and the mergers that were consummated in 1998, which have been
accounted for as poolings of interests (the "1998 Mergers"). (See Note 5). The
supplemental consolidated financial statements of the Company have been prepared
to give retroactive effect to the merger with Morgan & Banks Limited ("M&B") on
January 28, 1999 (the "M&B Merger"), which has been accounted for using the
pooling of interests method. As a result, the financial position, results of
operations and cash flows are presented as if the
F-9
<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)
combining companies had been consolidated for all periods presented and the
consolidated statements of stockholders' equity reflect the accounts of TMP as
if the additional common stock issued in connection with the M&B Merger had been
issued for all periods presented. As required by generally accepted accounting
principles, these supplemental consolidated financial statements will become the
historical financial statements of the Company upon issuance of the financial
statements for the period that includes the date of the M&B Merger.
In the supplemental consolidated balance sheets, the balance sheets of TMP
as of December 31, 1998 and 1997 have been combined with those of M&B as of
December 31, 1998 and March 31, 1998, respectively. The supplemental
consolidated statements of operations combine the results of TMP for each year
in the three year period ended December 31, 1998 with those of M&B, for the
years ended December 31, 1998, March 31, 1998 and 1997. Consequently, the
results for M&B for the three months ended March 31, 1998 are included in the
Supplemental Consolidated Statements of Operations for the years ended December
31, 1998 and 1997. When translated at the appropriate exchange rates for the
December 31, 1997 and 1998 periods, for the three months ended March 31, 1998,
revenue was approximately $62.1 million and $54.7 million, net income was
approximately $2.0 million and $1.7 million, and the effect on the diluted net
income per share was $0.06 and $0.05, respectively.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The supplemental consolidated financial statements include the accounts of
the Company and all of its wholly-owned and majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Investments in unconsolidated affiliates are accounted for using
the equity method when the Company owns at least 20% but no more than 50% of
such affiliates. Under the equity method, the Company records its proportionate
share of profits and losses based on its percentage interest in earnings of
companies 50% or less owned.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
primarily using the straight-line method over the following estimated useful
lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements............................................................. 8-32
Furniture and equipment................................................................ 3-10
Transportation equipment............................................................... 5-18
</TABLE>
Leasehold improvements are amortized over their estimated useful lives or
the lives of the related leases, whichever is shorter.
F-10
<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)
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, 1998.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The financial position and results of operations of the Company's foreign
subsidiaries are determined using local currency as the functional currency.
Assets and liabilities of these subsidiaries are translated at the exchange rate
in effect at each year-end. Income statement accounts are translated at the
average rate of exchange prevailing during the year. Translation adjustments
arising from the use of differing exchange rates from period to period are
included in the 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
A significant portion of our revenues are derived from commissions for
advertisements placed in telephone directories, newspapers and other media, plus
associated fees for related services. In addition, the Company earns fees for
the placement of advertisements on the Internet, including its career Web sites.
Commissions and fees are generally recognized upon placement date for newspapers
and other media and on publication close date for yellow page advertisements.
The Company also earns fees for executive and mid-level search & selection
services. Revenue is recognized as clients are billed. Billings begin with the
client's acceptance of a contract. For search, a retainer equal to 33 1/3% of a
candidate's first year estimated annual cash compensation is billed in equal
installments over three consecutive months (at which time, in general, the
retainer has been substantially earned). A final invoice is issued in the event
that the candidate's actual compensation package exceeds the original estimate.
For selection, a fee equal to between 20% and 30% of a candidate's first year
estimated annual cash compensation is billed in equal installments over three
consecutive months (the average length of time needed to successfully complete a
search). Temporary contracting revenue is recorded when earned.
The Company's quarterly commissions and fees are affected by the cyclical
nature of its operating segments. The timing of yellow page directory closings
is currently concentrated in the third quarter. However, yellow page publishers
may change the timing of directory publications which may have an effect on the
Company's quarterly results. The Company's yellow page advertising results are
also affected by commissions earned for volume placements for the year, which
are typically reported in the fourth quarter. Amounts reported in the three
months ended December 31, 1998, 1997 and 1996 for commissions on volume
placements were $0.9 million, $2.0 million and $3.5 million, respectively. The
Company's quarterly commissions and fees for recruitment advertising are
typically highest in the first quarter and lowest in the
F-11
<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)
fourth quarter; however, the cyclicality in the economy and the Company's
clients' employment needs have an overriding impact on the Company's quarterly
results in recruitment advertising.
Direct operating costs incurred that relate to future revenue, principally
for yellow page advertisements, are deferred (recorded as work-in-process in the
accompanying consolidated balance sheets) and are subsequently charged to
expense when the directories are closed for publication and the related
commission is recognized as income.
INCOME TAXES
The provision for income taxes is computed on the pretax income (loss) based
on the current tax law. Deferred income taxes are recognized for the tax
consequences in future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates.
NATURE OF BUSINESS AND CREDIT RISK
The Company operates in four business segments, advertising, Internet,
search & selection and temporary contracting. The Company earns commission
income for selling and placing yellow page and recruitment advertising to a
large number of customers in many different industries, fees for executive and
mid-level search & selection services, fees for advertisements placed on its
Internet websites and revenue in connection with the providing of temporary
contracting services. The Company operates principally throughout North America,
the United Kingdom, Continental Europe and the Pacific Rim.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which supersedes SFAS No.
14, "Financial Reporting for Segments of a Business Enterprise." SFAS No. 131
establishes standards for the way that public companies report information about
operating segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS No. 131
defines operating segments as components of a company about which separate
financial information is available and that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. SFAS No. 131 became effective for financial statements for periods
beginning after December 15, 1997. As required by SFAS No. 131, all periods
presented have been restated.
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable. The Company
performs continuing credit evaluations of its customers and does not require
collateral. For the most part, the Company has not experienced significant
losses related to receivables from individual customers or groups of customers
in any particular industry or geographic area.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable and accounts payable approximate fair
value because of the immediate or short-term maturity of these financial
instruments. The carrying amount reported for long-term debt approximates fair
value because, in general, the interest on the underlying instruments fluctuates
with market rates.
F-12
<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)
STOCK-BASED COMPENSATION
The Company accounts for its stock option awards under the intrinsic value
based method of accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Under the intrinsic value based
method, compensation cost is the excess, if any, of the quoted market price of
the stock at grant date or other measurement date over the amount an employee
must pay to acquire the stock. The Company makes pro forma disclosures of net
income and earnings per share as if the fair value based method of accounting
had been applied as required by SFAS No. 123, "Accounting for Stock-Based
Compensation."
EARNINGS PER SHARE
During 1997, the FASB issued SFAS No. 128, "Earnings per Share," which
provides for the calculation of "basic" and "diluted" earnings per share. This
Statement is effective for financial statements issued for periods ending after
December 15, 1997. Basic earnings per share includes no dilution and is computed
by dividing income available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted earnings per share
reflect, in periods in which they have a dilutive effect, the effect of common
shares issuable upon exercise of stock options and warrants. As required by SFAS
No. 128 all periods presented have been restated.
A reconciliation of shares used in calculating basic and diluted earnings
per common and Class B common share follows (in thousands):
<TABLE>
<S> <C>
December 31, 1998:
Basic........................................................... 34,982
Effect of assumed conversion of stock options................... 899
-----------
Diluted......................................................... 35,881
-----------
-----------
December 31, 1997:
Basic........................................................... 32,945
Effect of assumed conversion of stock options................... 614
-----------
Diluted......................................................... 33,559
-----------
-----------
December 31, 1996:
Basic........................................................... 27,947
-----------
-----------
Diluted......................................................... 27,947
-----------
-----------
</TABLE>
STATEMENTS OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments and other short-term investments with an initial
maturity of three months or less to be cash equivalents. The Company has
determined that the effect of foreign exchange rate changes on cash is not
material.
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments
F-13
<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)
by owners and distributions to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company adopted SFAS No. 130 in the first quarter of
1998. The only item of comprehensive income (loss) is foreign currency
translation adjustments.
POST RETIREMENT BENEFITS
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits", which standardizes the
disclosure requirements for pensions and other postretirement benefits. The
adoption of SFAS No. 132 in 1998 did not have a material impact on the Company's
financial statement disclosures.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1. "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
is effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance over accounting for computer software developed
or obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. We do not expect the adoption of this
standard to have a material effect on our capitalization policy.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities", which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company does not expect the adoption of this
statement to have a significant impact on the Company's results of operations,
financial position or cash flows.
NOTE 3--ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
Trade................................................................. $ 301,215 $ 300,947
Earned commissions(a)................................................. 12,811 14,491
---------- ----------
314,026 315,438
Less: Allowance for doubtful accounts................................. 14,105 11,541
---------- ----------
Accounts receivable, net.......................................... $ 299,921 $ 303,897
---------- ----------
---------- ----------
</TABLE>
- ------------------------
(a) Earned commissions receivable represent commissions on advertisements that
have not been published, and relate to yellow page advertisements only. Upon
publication of the related yellow page directories, the earned commissions
plus the related advertising cost at December 31, 1998 and 1997 are recorded
as accounts receivable of $67,955 and $75,058, respectively, and the related
advertising costs are recorded as accounts payable of $55,144 and $60,567,
respectively.
F-14
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 4--PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Buildings and improvements.............................................. $ 860 $ 916
Furniture and equipment................................................. 95,962 79,878
Leasehold improvements.................................................. 13,439 10,715
Transportation equipment................................................ 9,111 9,179
--------- ---------
119,372 100,688
Less: Accumulated depreciation and amortization......................... 58,808 48,594
--------- ---------
Property and equipment, net......................................... $ 60,564 $ 52,094
--------- ---------
--------- ---------
</TABLE>
Furniture and equipment includes equipment under capital leases at December
31, 1998 and 1997 with a cost of $13,663 and $12,514, respectively, and
accumulated amortization of $7,026 and $5,128, respectively.
During 1997, the Company acquired certain transportation equipment and made
capital improvements thereto for a total of $6,800 and simultaneously entered
into a $7,800 financing agreement (see Note 9) to fund the purchase and provide
additional funds.
F-15
<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
ACQUISITIONS ACCOUNTED FOR USING THE POOLING OF INTERESTS METHOD
On January 28, 1999, the Company completed the acquisition of M&B, a search
& selection and temporary contracting company doing business primarily in
Australia and the UK. This acquisition provided for the exchange of all of the
outstanding stock of M&B for 5,148,291 shares of TMP stock and is being
accounted for as a pooling of interests. (See Note 1).
Revenue, net income (loss) applicable to common and Class B common
stockholders and net income (loss) per common and Class B common share of the
combining companies for the three years ending December 31, are as follows:
<TABLE>
<CAPTION>
REVENUE 1998 1997 1996
- --------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
TMP, as previously reported................................................ $ 406,769 $ 319,535 $ 227,695
M&B........................................................................ 255,413 235,781 174,383
----------- ----------- -----------
TMP, as restated........................................................... $ 662,182 $ 555,316 $ 402,078
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
NET INCOME (LOSS) APPLICABLE TO COMMON AND CLASS B COMMON STOCKHOLDERS 1998 1997 1996
- --------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
TMP, as previously reported................................................ $ 4,250 $ 10,677 $ (49,834)
M&B........................................................................ 7,462 7,863 7,774
----------- ----------- -----------
TMP, as restated........................................................... $ 11,712 $ 18,540 $ (42,060)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
NET INCOME (LOSS) PER COMMON AND CLASS B COMMON SHARE 1998 1997 1996
- --------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
As previously reported:
Basic.................................................................... $ .14 $ .38 $ (2.17)
Diluted.................................................................. $ .14 $ .38 $ (2.17)
Restated:
Basic.................................................................... $ .33 $ .56 $ (1.50)
Diluted.................................................................. $ .33 $ .55 $ (1.50)
</TABLE>
F-16
<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)
During the period of January 1, 1998 through December 31, 1998, the Company
completed the following acquisitions which provided for the exchange of all of
the outstanding stock of each entity for shares of TMP stock and are accounted
for as poolings of interests:
<TABLE>
<CAPTION>
NATURE OF
ENTITY OPERATIONS ACQUISITION DATE NUMBER OF TMP 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
("TCG")....................... Search & selection December 2, 1998 246,606
</TABLE>
MERGER COSTS INCURRED WITH POOLING OF INTERESTS TRANSACTIONS
In connection with the poolings of interests transactions completed during
1988 and the M&B Merger, the Company expensed merger related costs of $22,412.
The $22,412 of merger costs for the year ended December 31, 1998 consists of (1)
$11,934 of non-cash employee stay bonuses, which included (a) $3,622 for the
amortization of $5,986, recorded as prepaid compensation and a corresponding
long-term liability, being expensed over the eighteen months from April 1, 1998
to September 30, 1999 for TMP shares set aside for key personnel of JSK and TCG
who must remain employees of the Company for a full year in order to earn such
shares and (b) $8,312 for TMP shares to key personnel of TASA and Stackig as
employee stay bonuses and (2) $1,461 of stay bonuses paid as cash to key
personnel of the Pooled Companies and (3) $9,017 of transaction related costs,
including legal, accounting and advisory fees and the costs incurred for the
subsequent registration of shares issued in the acquisitions.
ACQUISITIONS ACCOUNTED FOR USING THE PURCHASE METHOD
In addition to the poolings of interest transactions discussed above, the
Company has acquired 39 businesses (primarily recruitment advertising
businesses) between January 1, 1996 and December 31, 1998 including, on August
26, 1997, all of the outstanding stock of Austin Knight Limited and subsidiaries
("Austin Knight") for approximately $47,200 net of approximately $11,500 of cash
acquired relating to the sale, in July 1997, of real property by Austin Knight
and on July 2, 1996, all of the outstanding shares of Neville Jeffress Australia
Pty Limited ("Neville Jeffress"). Austin Knight had commissions and fees of
approximately $47,600 for the year ended September 30, 1996, and Neville
Jeffress had commissions and fees of approximately $24,000 for the year ended
June 30, 1996. The total amount of cash paid and promissory notes and Common
Stock of the Company issued for these acquisitions was approximately $30,668,
$74,500 and $25,400 for 1998, 1997 and 1996, respectively. The shares of Common
Stock issued by the Company in connection with certain of the above mentioned
acquisitions were 200,753 and 135,028 for 1998 and 1997, respectively. These
acquisitions have been accounted for under the purchase method of
F-17
<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)
accounting and accordingly, operations of these businesses have been included in
the consolidated financial statements from their acquisition dates.
The summarized pro forma results of operations set forth below for the years
ended December 31, 1998 and 1997 assume the acquisitions accounted for under the
purchase method in 1998 and 1997 occurred as of the beginning of the year of
acquisition and the beginning of the preceding year.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
Total revenue............................................................................. $ 678,456 $ 618,784
Net income applicable to common and Class B common stockholders........................... $ 12,313 $ 19,287
Net income per common and Class B common share:
Basic................................................................................... $ .35 $ .58
Diluted................................................................................. $ .34 $ .57
</TABLE>
The pro forma results of operations are not necessarily indicative of what
actually would have occurred if the acquisitions had been completed at the
beginning of each of the years presented, nor are the results of operations
necessarily indicative of the results that will be attained in the future.
ACCRUED RESTRUCTURING COSTS
In connection with the acquisitions made in 1997 and accounted for using the
purchase method, the Company began to assess and formulate preliminary plans to
restructure the operations of the acquired companies. Such plans involved the
closure of certain offices of the acquired companies and the termination of
certain management and employees. The objective of the plans was to create a
single brand in the related markets in which the Company operates. The
preliminary plans were finalized in July 1998. These costs and liabilities
include:
<TABLE>
<CAPTION>
BALANCE BALANCE
DECEMBER 31, 1997 ADDITIONS PAYMENTS DECEMBER 31, 1998
----------------- ----------- ---------- ------------------
<S> <C> <C> <C> <C>
Assumed obligations on leased facilities to be
closed........................................... $ 7,830 $ 2,846 $ (1,448) $ 9,228
Consolidation of acquired facilities............... 2,521 3,630 (3,406) 2,745
Contracted lease payments exceeding current market
costs............................................ 783 73 (149) 707
Severance, relocation and other employee costs..... 4,017 3,368 (5,648) 1,737
Pension obligation................................. 1,650 103 -- 1,753
------- ----------- ---------- -------
Total.............................................. $ 16,801 $ 10,020 $ (10,651) $ 16,170
------- ----------- ---------- -------
------- ----------- ---------- -------
</TABLE>
Accrued liabilities for surplus property in the amount of $9,228 as of
December 31, 1998 relates to 18 leased office locations of the acquired
companies that were either unutilized prior to the acquisition date or will be
closed by March 31, 1999 in connection with the restructuring plans. The amount
is based on the present value of minimum future lease obligations, net of
sublease revenue on existing subleases.
F-18
<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)
Other costs associated with the closure of existing offices of acquired
companies in the amount of $2,745 as of December 31, 1998 relates to the
write-off of leasehold improvements and other fixed assets as well as
termination costs of contracts relating to billing systems, external reporting
systems and other contractual arrangements with third parties.
Above market lease costs in the amount of $707 as of December 31, 1998
relates to the present value of contractual lease payments in excess of current
market lease rates.
Estimated severance payments, employee relocation expenses and other
employee costs in the amount of $1,737 as of December 31, 1998 relates to
estimated severance for terminated employees at closed locations, costs
associated with employees transferred to continuing offices and other related
costs. Employee groups affected include sales, service, administrative and
management personnel at duplicate locations as well as duplicate corporate
headquarters management and administrative personnel. As of December 31, 1998
the accrual related to approximately 45 employees including senior management,
sales, service and administrative personnel.
Pension obligations in the amount of $1,753 were assumed in connection with
the acquisition of Austin Knight.
During the year ended December 31, 1998, payments of $2,127 were made to 25
members of senior management and employees for severance and charged against the
reserve.
In connection with the finalization of the restructuring plans, the Company
recorded additional charges of $10,020 as additional costs of the acquired
companies during the year ended December 31, 1998. The Company continues to
evaluate and assess the impact of duplicate responsibilities and office
locations. Additional future costs incurred, resulting from revised plan actions
occurring after December 31, 1998, in excess of the amounts previously recorded
as goodwill will be charged to operations in the period in which they occur.
NOTE 6--INTANGIBLES, NET
Intangibles, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, AMORTIZATION
---------------------- PERIOD
1998 1997 (YEARS)
---------- ---------- -------------
<S> <C> <C> <C>
Client lists, net of accumulated amortization of
$5,360 and $4,370, respectively..................... $ 9,693 $ 10,083 5 to 30
Covenants not to compete, net of accumulated
amortization of $2,518 and $2,036, respectively..... 2,047 2,188 3 to 6
Excess of cost of investments over fair value of net
assets acquired, net of accumulated amortization of
$19,197 and $11,651, respectively................... 187,972 154,389 10 to 30
Other, net of accumulated amortization of $1,931 and
$2,103, respectively................................ 341 797 4 to 10
---------- ----------
$ 200,053 $ 167,457
---------- ----------
---------- ----------
</TABLE>
F-19
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 7--SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes amounted to the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- ---------- ---------
Interest.................................................... $ 11,005 $ 13,537 $ 11,680
Income taxes................................................ 10,099 7,869 6,769
</TABLE>
In conjunction with business acquisitions, the Company used cash as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- ---------- ---------
Fair value of assets acquired, excluding cash............. $ 34,586 $ 129,000 $ 60,951
Less: Liabilities assumed and created upon acquisition.... 10,434 62,168 29,689
--------- ---------- ---------
Net cash paid............................................. $ 24,152 $ 66,832 $ 31,262
--------- ---------- ---------
--------- ---------- ---------
Capital lease obligations incurred.......................... $ 217 $ 5,781 $ 4,873
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
NOTE 8--FINANCING AGREEMENT
The Company obtains its primary financing from a financial institution under
a five-year financing agreement as amended and restated on June 27, 1996,
further amended on November 14, 1997, and amended and restated again on November
5, 1998 (the "Agreement"). Subsequent to the five year term, which expires on
November 4, 2003, the Agreement provides for one-year extensions subject to bank
approval unless terminated by either party at least 90 days prior to expiration
of the initial term or any renewal term. The Agreement, as amended, provides for
borrowings of up to $175,000 at the higher of (a) prime rate or, (b) Federal
Funds rate less 1/2 of 1% or, (c) LIBOR plus a margin determined by the ratio of
the Company's debt to earnings before interest, taxes, depreciation and
amortization (EBITDA) as defined on the Agreement. At December 31, 1998 the
margin equaled .875%. Borrowings under the Agreement are based on 90% of
eligible accounts receivable, which are amounts billed under 120 days old and
amounts to be billed as defined in the Agreement. Substantially all of the
assets of the Company are pledged as collateral for borrowings under the
Agreement. The Agreement contains certain covenants which restrict, among other
things, the ability of the Company to borrow, pay dividends, acquire businesses,
guarantee debts of others and lend funds to affiliated companies and contains
criteria on the maintenance of certain financial statement amounts and ratios,
all as defined in the Agreement. The Agreement also provides for a fee on any
unused portion of the commitment based upon a rate determined by the ratio of
the Company's debt to EBITDA. At December 31, 1998, this rate equaled .25%. In
addition, the Agreement provides for a declining termination fee of $1,000,
$500, $0 for the annual periods ended November 5, 1999, 2000, and 2001,
respectively.
At December 31, 1998, the prime rate, Federal Funds rate and one month LIBOR
were 7.75%, 5.75% and 5.06%, respectively, and borrowings outstanding were at a
weighted average interest rate of 6.56%.
In October 1993, the Company issued a warrant to the lender to purchase one
percent of the issued and outstanding common stock of the Company (as defined in
the agreement) for an exercise price of $.01
F-20
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 8--FINANCING AGREEMENT (CONTINUED)
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.
NOTE 9--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
Borrowings under financing agreement (see Note 8)..................... $ 97,720 $ 95,800
Borrowings under financing agreements, interest payable at rates
varying from 5.0% to 9.2%, and collateralized by assets in certain
foreign countries................................................... 8,251 10,184
Other acquisition notes payable, noninterest bearing, interest imputed
at 6.7% to 8.0%, in varying installments through 2001............... 8,121 9,461
Capitalized lease obligations, payable with interest from 9% to 15%,
in varying installments through 2001 (see Note 14).................. 9,115 7,623
Term note payable in sixty consecutive monthly installments from July
1997 through June 2002, collateralized by transportation equipment
and with interest at 8.43% for the first 36 months. Thereafter the
interest rate will be based on two year U.S. Treasury Notes......... 7,556 7,760
Notes payable, in varying monthly installments maturing through 2001,
with interest at rates ranging from
7.5% to 8.5%........................................................ 460 4,451
---------- ----------
131,223 135,279
Less: Current portion................................................. 11,672 12,068
---------- ----------
$ 119,551 $ 123,211
---------- ----------
---------- ----------
</TABLE>
F-21
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 9--LONG-TERM DEBT (CONTINUED)
The noncurrent portion of long-term debt matures as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
2000................................................................................................ $ 7,546
2001................................................................................................ 5,220
2002................................................................................................ 8,888
2003................................................................................................ 97,847*
Thereafter.......................................................................................... 50
------------
$ 119,551
------------
------------
</TABLE>
- ------------------------
* Of this amount, $97,720 is subject to one year extensions to 2003. See Note
8.
NOTE 10--MINORITY INTERESTS
In connection with an acquisition in 1990, a subsidiary of the Company
issued 88,425 shares of nonvoting convertible 10% cumulative preferred stock in
exchange for 88,425 shares (58%) of the outstanding common stock of the acquired
company held by the acquired company's employee stock ownership trust. These
shares were redeemed in January 1997 for a total of $3,133, which included a
redemption premium of $133.
NOTE 11--REDEEMABLE PREFERRED STOCK
During 1991, the Company sold 200,000 shares of 10.5% non-voting cumulative
preferred stock ($10.00 par value) to the Company's profit sharing plan for
$2,000. These shares were redeemed in January 1997 for a total of $2,105, which
included a redemption premium of $105.
NOTE 12--STOCKHOLDERS' EQUITY
(A) COMMON AND CLASS B COMMON STOCK
Common and Class B common stock have identical rights except that each share
of Class B common stock is entitled to ten votes and is convertible, at any
time, at the option of the stockholder into one share of common stock.
(B) STOCK OPTIONS
The disclosures below include options issued by M&B, as if such options were
issued for the purchase of the Company's Common Stock, and are based on the
exchange ratio of the Company's common stock for M&B's common stock pursuant to
the related merger agreement.
On November 10, 1994 options to purchase, at an exercise price of $4.77 per
share, the market price on the date of grant, an aggregate of approximately
129,458 shares of common stock were granted to officers and employees of M&B. Of
this amount, options to purchase 30,719 shares were subsequently cancelled,
93,253 were exercised and 5,486 were vested and exercisable at December 31,
1998. Such options will expire five years from date of grant.
F-22
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
On April 21, 1995, options to purchase, at an exercise price of $4.46 per
share, the market price on the date of grant, 104,746 shares of common stock
were granted to officers and employees of M&B. Of this amount, options for
48,437 shares were subsequently cancelled, options for 41,818 shares were
exercised and options to purchase 14,491 shares were vested and exercisable at
December 31, 1998. Such options will expire five years from the date of grant.
In January 1996, the Company's Board of Directors (the "Board") adopted the
1996 Employee Stock Option Plan (the "Stock Option Plan"), which provides for
the issuance of both incentive stock options within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified
stock options, to purchase an aggregate of up to 900,000 shares (amended to
3,000,000 on April 27, 1998) of the common stock of the Company. The Stock
Option Plan permits the granting of options to officers, employees and
consultants of the Company, its subsidiaries and affiliates.
Under the Stock Option Plan, the exercise price of an incentive stock option
must be at least equal to 100% of the fair market value of the common stock on
the date of grant (110% of the fair market value in the case of options granted
to employees who hold more than ten percent of the voting power of the Company's
capital stock on the date of grant). The exercise price of a nonqualified stock
option must be not less than the par value of a share of the common stock on the
date of grant. The term of an incentive or nonqualified stock option is not to
exceed ten years (five years in the case of an incentive stock option granted to
a ten percent holder). The Stock Option Plan provides that the maximum option
grant which may be made to an executive officer in any calendar year is 45,000
shares (amended to 150,000 on June 25, 1997).
In December 1998, the Company also adopted, subject to stockholder approval,
a long-term incentive plan (the "1999 Plan"), pursuant to which stock options,
stock appreciation rights, restricted stock and other equity based awards may be
granted. Stock options which may be granted may be incentive stock options and
nonqualified stock options within the meaning of the Code. The total number of
shares of the common stock of the Company which may be granted under the 1999
Plan is the sum of 3,000,000 and the number of shares available for new awards
under the Stock Option Plan.
On January 3, 1996, options to purchase, at an exercise price equal to $6.65
per share, the fair market value of the common stock on the date of grant as
determined by the Board, an aggregate of 296,640 shares of common stock were
granted to officers, employees and consultants of the Company. Such options vest
at the rate of 25% per year commencing one year after the date of grant. As of
December 31, 1998, 25,879 options were cancelled, 71,343 options were exercised
and, of the outstanding options, 64,038 options were exercisable and will expire
ten years from the date of grant.
On August 19, 1996, options to purchase, at an exercise price of $10.37 per
share, the market price on the date of grant, 173,068 shares of common stock
were granted to officers and employees of M&B. Of this amount, options for
53,045 shares were subsequently cancelled. The remaining options to purchase
120,023 shares of common stock will vest three years from the date of grant and
will expire five years from the date of grant. At December 31, 1998, none of
these options were exercisable.
On January 6, 1997 options to purchase, at an exercise price of $12.88 per
share, the market price on the date of grant, an aggregate of approximately
1,203,782 shares of common stock were granted to officers and employees, of the
Company and options for 7,091 shares were subsequently cancelled. Of such
options, options for approximately 29,000 shares of common stock vest at the
rate of 25% per year
F-23
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
beginning one year from the date of grant and the balance of these options were
vested at December 31, 1997. At December 31, 1998, 31,355 options were exercised
and 7,157 were exercisable. The balance are exercisable after January 5, 1999.
Such options will expire ten years from date of grant.
On April 3, 1997, options to purchase, at an exercise price of $17.25 per
share, the market price on the date of grant, 8,400 shares of common stock were
granted to an officer of the Company. Such options were exercised during 1998.
On June 18, 1997, options to purchase, at an exercise price of $19.00 per
share, the market price on the date of grant, 28,256 shares of common stock were
granted to officers and employees of the Company. Options for 5,815 shares were
subsequently cancelled. Generally, such options were vested as of December 31,
1997, are exercisable after January 5, 1999, and will expire ten years from the
date of grant.
On June 24, 1997, options to purchase 50,000 shares of common stock, at an
exercise price of $21.50 per share, the market price on the date of grant, were
granted to MLE Consultants Inc, with 25,000 options exercisable one year from
the date of grant and 25,000 options exercisable eighteen months from the date
of grant. At December 31, 1998, 5,000 options were exercised and 45,000 were
exercisable. Such options will expire ten years from the date of grant.
On August 28, 1997, options to purchase, at an exercise price of $15.00 per
share, the market price on the date of grant, 35,000 shares of common stock were
granted to various Austin Knight officers and individuals. Such options
generally vest at the rate of 25% per year commencing one year after the date of
grant and will expire ten years from the date of grant. At December 31, 1998,
8,750 options were exercisable.
On October 17, 1997 options to purchase, at an exercise price of $29.59 per
share, the market price on the date of grant, 116,293 shares of common stock
were granted to officers and employees of M&B and options for 17,554 shares were
subsequently cancelled. The remaining options to purchase 98,739 shares of
common stock will expire five years from the date of grant. At December 31,
1998, none of these options were exercisable.
On December 12, 1997, options to purchase, at an exercise price of $15.00
per share, the market price on the date of grant, an aggregate of 700,000 shares
of common stock were granted to officers and employees of the Company. Such
options vest at the rate of 25% per year commencing one year after the date of
grant and will expire ten years from the date of grant. At December 31, 1998,
175,491 options were cancelled, 6,000 options were exercised and 129,628 were
exercisable at December 31, 1998.
On May 1, 1998 options to purchase, at an exercise price of $24.00 per
share, the market price on the date of grant, 42,604 shares of common stock were
granted to officers and employees of M&B and options for 2,925 shares were
subsequently canceled. The remaining options to purchase 39,678 shares will
expire five years from the date of grant. At December 31, 1998 none of these
options were exercisable.
On May 4, 1998, options to purchase at an exercise price of $25.50 per
share, the market price on the date of grant, 5,346 shares of common stock were
granted to two employees. Such options vest at the rate of 25% per year
commencing one year after the date of grant and will expire ten years from the
date of grant. At December 31, 1998, 3,846 options were cancelled and none of
the options were exercisable.
F-24
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
On May 19, 1998, options to purchase at an exercise price of $26.25 per
share, the market price on the date of grant, 5,370 shares of common stock were
granted to an employee of the Company. Such options vest at the rate of 25% per
year commencing one year after the date of grant and will expire ten years from
the date of grant. At December 31, 1998 none of the options were exercisable.
On May 20, 1998, options to purchase at an exercise price of $25.625 per
share, the market price on the date of grant, 104,755 shares of common stock
were granted to certain officers and employees of JSK. Such options vest at a
rate of 25% per year commencing one year after the date of grant and will expire
ten years from the date of grant. At December 31, 1998 none of these options
were exercisable.
On June 15, 1998, options to purchase at an exercise price of $26.13 per
share, the market price on the date of grant, an aggregate of approximately
2,100 shares of common stock were granted to an employee of the Company. Such
options vest at the rate of 25% per year commencing one year after the date of
grant and will expire ten years from the date of grant. At December 31, 1998
none of these options were exercisable.
On October 30, 1998, options to purchase at an exercise price of $30.00 per
share, the market price on the date of grant, an aggregate of approximately
184,000 shares of common stock to the officers and employees of the Company.
Such options vest at the rate of 25% per year commencing one year after the date
of grant and will expire ten years from the date of grant. At December 31, 1998,
none of these options were exercisable.
On November 5, 1998, options to purchase at an exercise price of $25.125 per
share, the market price on the date of grant, 100,000 shares of common stock to
the officers and employees of Stackig. Such options vest at the rate of 25% per
year commencing one year after the date of grant and will expire ten years from
the date of grant. At December 31, 1998, none of these options were exercisable.
On November 13, 1998, options to purchase at an exercise price of $23.75 per
share, the market price on the date of grant, 24,450 shares of common stock to
the officers and employees of the Company. Such options vest at the rate of 25%
per year commencing one year after the date of grant and will expire ten years
from the date of grant. At December 31, 1998, none of these options were
exercisable.
On December 9, 1998, options to purchase at an exercise price of $26.875 per
share, the market price on the date of grant, an aggregate of approximately
800,000 options of common stock to the officers and employees of the Company.
Such options vest at the rate of 25% per year commencing one year after the date
of grant and will expire ten years from the date of grant. At December 31, 1998,
none of these options were exercisable.
On December 11, 1998, options to purchase at an exercise price of $29.50 per
share, the closing market price on the date of grant, 50,000 shares of common
stock to the officers and employees of TASA Holding AG. Such options vest at the
rate of 25% per year commencing one year after the date of grant and will expire
ten years from the date of grant. At December 31, 1998, none of these options
were exercisable.
On December 28, 1998, options to purchase at an exercise price of $38.00 per
share, the market price on the date of grant, an aggregate of approximately
400,000 shares of common stock to the officers and employees of TASA. Such
options vest at the rate of 25% per year commencing one year after the date of
F-25
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
grant and will expire ten years from the date of grant. At December 31, 1998,
none of these options were exercisable.
In January 1996, the Company also adopted a stock option plan for
nonemployee directors (the "Directors' Plan"), pursuant to which options to
acquire a maximum aggregate of 180,000 shares of common stock may be granted to
nonemployee directors. Options granted under the Directors' Plan do not qualify
as incentive stock options within the meaning of Section 422 of the Code. The
Directors' Plan provides for an automatic grant to each of the Company's
nonemployee directors of an option to purchase 11,250 shares of common stock on
the date of such director's initial election or appointment to the Board. The
options will have an exercise price of 100% of the fair market value of the
common stock on the date of grant, have a ten-year term and become exercisable
in accordance with a vesting schedule determined by the Board of Directors.
Options to purchase 11,250 shares of common stock at a purchase price per
share equal to $6.65 per share, the fair market value of the common stock on the
date of grant, were granted on January 24, 1996 to one nonemployee director.
Half of these options vested on the date of the grant and the balance vested in
two equal annual installments commencing one year after the date of grant. As of
December 31, 1998, all were exercised.
In September 1996, options to purchase an aggregate of 33,750 shares of
common stock were granted to three directors under this plan at an exercise
price per share equal to the initial public offering price per share, the fair
value on the date of grant. Vesting is on terms similar to that of the previous
director's grant. In December 1996, 11,250 of these options were cancelled and
options to purchase 125,000 shares of common stock were granted at an exercise
price of $14.00 (the initial public offering price). Of the total, 50,000 of
such options vested on the closing of the initial public offering. In April
1997, in connection with this former director's resignation, the Company agreed
that an additional 12,500 of such stock options would vest on June 1, 1997 and
the unvested options totalling, 62,500 were cancelled. As of December 31, 1998,
42,880 options were exercised and 42,120 options are exercisable and will expire
ten years from the date of grant.
On October 7, 1997, a newly appointed director of the Company was granted
options to purchase 11,250 shares of common stock at $23.625 per share, the
market price on the date of grant. Half of these options vested on the date of
the grant and the balance vests in two equal annual installments commencing one
year after the date of grant. Such options will expire ten years from the date
of grant. At December 31, 1998, 8,438 options were exercisable.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related Interpretations in
accounting for its employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of SFAS No.
123. The weighted average fair values of options granted during 1998, 1997 and
1996 were $11.58, $6.88 and $5.76, respectively. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions: risk-free interest rates
of approximately 4.6%, 6.5% and 6.1% in 1998, 1997 and 1996 respectively;
volatility
F-26
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
factor of the expected market price of the Company's common stock of 24%, 27%
and 25% in 1998, 1997 and 1996, respectively; a weighted average expected life
of the option of 9 years in 1998 and 8 years in both 1997 and 1996 and no
dividend yield in 1998, 1997 and 1996.
Under the accounting provisions of SFAS No. 123, the Company's net income
(loss) and earnings (loss) per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
Net income (loss) applicable to common and Class B common stockholders.......... $ 6,885 $ 16,298 $ (42,798)
Net income (loss) per common and Class B common share
Basic......................................................................... $ .20 $ .50 $ (1.53)
Diluted....................................................................... $ .19 $ .49 $ (1.53)
</TABLE>
A summary of the status of the Company's fixed stock option plans as of
December 31, 1998, 1997 and 1996, and changes during the years ending on those
dates is presented.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- ------------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- ------------- ---------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year......................... 2,581,533 $ 13.22 781,003 $ 8.35 206,173 $ 4.64
Granted........................ 1,777,648 29.23 2,102,936 14.78 639,708 9.48
Exercised...................... (212,960) 7.75 (104,621) 8.65 -- --
Forfeited/cancelled............ (156,556) 16.93 (197,785) 12.96 (64,878) 7.72
---------- ---------- ---------
Outstanding at end of year..... 3,989,665 $ 20.51 2,581,533 $ 13.22 781,003 $ 8.35
---------- ---------- ---------
---------- ---------- ---------
Options exercisable at year-
end.......................... 325,108 $ 13.66 158,463 $ 8.44 66,875 $ 13.38
---------- ---------- ---------
---------- ---------- ---------
Weighted average fair value of
options granted during the
year......................... $ 11.58 $ 6.88 $ 5.76
</TABLE>
F-27
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1998.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- ----------------------------------
NUMBER WEIGHTED AVERAGE NUMBER WEIGHTED
EXERCISE OUTSTANDING AT REMAINING WEIGHTED AVERAGE EXERCISABLE AT AVERAGE
PRICE DECEMBER 31, 1998 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1998 EXERCISE PRICES
- ----------- ----------------- ---------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 4.46 14,491 1.4(ye rs) $ 4.46 14,491 $ 4.46
4.77 5,485 0.9 4.77 5,486 4.77
6.65 199,418 7.0 6.65 64,038 6.65
14.00 42,120 7.9 14.00 42,120 14.00
10.37 120,022 1.7 10.37 -- --
12.88 1,165,336 8.0 12.88 7,157 12.88
19.00 22,441 8.6 19.00 -- --
15.00 35,000 8.8 15.00 8,750 15.00
15.00 518,509 8.9 15.00 129,628 15.00
23.63 11,250 8.8 23.63 8,438 23.63
21.50 45,000 7.0 21.50 45,000 21.50
24.00 39,679 4.4 24.00 -- --
25.63 104,755 8.5 25.63 -- --
25.50 1,500 8.3 25.50 -- --
26.25 5,370 8.5 26.25 -- --
26.13 2,100 8.6 26.13 -- --
29.50 50,000 9.9 29.50 -- --
30.00 184,000 9.8 30.00 -- --
25.13 100,000 9.8 25.13 -- --
23.75 24,450 9.9 23.75 -- --
29.59 98,739 3.8 29.59 -- --
26.88 800,000 9.9 26.88 -- --
38.00 400,000 10.0 38.00 -- --
----------------- -----------------
3,989,665 325,108 $ 13.66
----------------- -----------------
----------------- -----------------
</TABLE>
F-28
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES
The components of income (loss) before the provision (benefit) for income
taxes, minority interests and equity in earnings (losses) of affiliates are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ----------
Domestic......................................................... $ 3,595 $ 12,416 $ (46,213)
Foreign.......................................................... 21,880 21,698 14,261
--------- --------- ----------
Total income (loss) before provision (benefit) for income
taxes, minority interests and equity in earnings (losses) of
affiliates................................................... $ 25,475 $ 34,114 $ (31,952)
--------- --------- ----------
--------- --------- ----------
</TABLE>
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Current tax provision:
U.S. Federal................................................. $ 240 $ 220 $ 145
State and local.............................................. 858 1,311 984
Foreign...................................................... 11,635 6,430 4,404
--------- --------- ---------
Total current.............................................. 12,733 7,961 5,533
--------- --------- ---------
Deferred tax provision (benefit):
U.S. Federal................................................. 3,756 2,689 1,787
State and local.............................................. 145 739 (321)
Foreign...................................................... (3,295) 3,733 1,996
--------- --------- ---------
Total deferred............................................. 606 7,161 3,462
--------- --------- ---------
Total provision............................................ $ 13,339 $ 15,122 $ 8,995
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-29
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to the Company's
deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
<S> <C> <C>
1998 1997
---------- ---------
Current deferred tax assets (liabilities):
Earned commissions................................................... $ (5,124) $ (5,796)
Allowance for doubtful accounts...................................... 5,493 4,309
Work-in-process...................................................... (5,224) (6,222)
Prepaid and other.................................................... (492) (241)
Accrued expenses and other liabilities............................... (816) (1,642)
Tax loss carryforwards............................................... 259 220
---------- ---------
Total current deferred tax liability............................... (5,904) (9,372)
---------- ---------
Noncurrent deferred tax assets (liabilities):
Property and equipment............................................... (1,449) (1,082)
Intangibles.......................................................... (541) (654)
Accrued expenses and other liabilities............................... 3,777 (1,998)
Tax loss carryforwards............................................... 6,733 11,283
Valuation allowance.................................................. (1,921) (2,219)
---------- ---------
Total noncurrent deferred tax asset................................ 6,599 5,330
---------- ---------
Net deferred tax asset (liability)..................................... $ 695 $ (4,042)
---------- ---------
---------- ---------
</TABLE>
At December 31, 1998, the Company has net operating loss carryforwards for
U.S. Federal tax purposes of approximately $12,000 which expire through 2011.
The Company has concluded that, based on expected future results and the future
reversals of existing taxable temporary differences, it is more likely than not
that the deferred tax assets will be realized. In addition, certain subsidiaries
have operating loss carryforwards which are only useable by such subsidiary.
Consequently, there is no reasonable assurance that the benefit of such loss
carryforward can be used. Accordingly, a valuation allowance has been
established.
F-30
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED)
The provision for income taxes differs from the amount computed using the
Federal statutory income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ----------
Provision (benefit) at Federal statutory rate............ $ 8,662 $ 11,599 $ (10,864)
State income taxes, net of Federal income tax effect..... 662 844 278
Nondeductible expenses(1)................................ 4,732 1,029 784
Nondeductible special charge and CEO bonus............... 425 510 18,571
Interest imputed on receivable from principal
stockholder............................................ -- -- 216
Losses for which no tax benefits are available........... -- -- 45
Foreign income taxes at other than the Federal statutory
rate................................................... (614) 1,081 (134)
Other.................................................... (528) 59 99
--------- --------- ----------
Income tax provision..................................... $ 13,339 $ 15,122 $ 8,995
--------- --------- ----------
--------- --------- ----------
</TABLE>
- ------------------------
(1) Primarily composed of amortization of intangible assets and meals and
entertainment expense and, in addition, for 1998, nondeductible merger
costs.
Provision has not been made for U.S. or additional foreign taxes on
undistributed earnings of foreign subsidiaries. Such earnings have been and will
continue to be reinvested but could become subject to additional tax if they
were remitted as dividends, or were loaned to the Company or a U.S. affiliate,
or if the Company should sell its stock in the foreign subsidiaries. It is not
practicable to determine the amount of additional tax, if any, that might be
payable on the foreign earnings; however, the Company believes that foreign tax
credits would substantially offset any U.S. tax. At December 31, 1998, the
cumulative amount of reinvested earnings was approximately $14,000.
F-31
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases its facilities and certain equipment under operating
leases and certain equipment under capital leases. Future minimum lease
commitments under both noncancellable operating leases and capital leases at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ----------
<S> <C> <C>
1999................................................................... $ 4,869 $ 17,782
2000................................................................... 3,650 17,193
2001................................................................... 1,633 15,974
2002................................................................... 592 9,092
2003................................................................... 127 4,986
Thereafter............................................................. -- 36,239
--------- ----------
10,871 $ 101,266
----------
----------
Less: Amount representing interest..................................... 1,756
---------
Present value of minimum lease payments................................ 9,115
Less: Current portion.................................................. 4,258
---------
$ 4,857
---------
---------
</TABLE>
Rent and related expenses under operating leases amounted to $18,388,
$20,601, and $18,169 for the years ended December 31, 1998, 1997 and 1996,
respectively.
(B) CONSULTING, EMPLOYMENT AND NONCOMPETE AGREEMENTS
The Company has entered into various consulting, employment and noncompete
agreements with certain management personnel and former owners of acquired
businesses. These agreements are generally two to five years in length, with one
for a term of fifteen years and two providing aggregate annual lifetime payments
of approximately $135.
Effective November 15, 1996, the Company entered into an employment
agreement with its Principal Stockholder for a term ending on November 14, 2001.
The agreement provides for automatic renewal for successive one year terms
unless either party notifies the other to the contrary at least 90 days prior to
its expiration. Under the agreement, the Principal Stockholder is entitled to a
base salary of $1,500 per year and mandatory bonuses of $375 per quarter through
November 1998 when the bonus provision of the agreement was eliminated. Such
bonuses were waived by the Principal Stockholder. However, in compliance with
the SEC's interpretation of the application of Staff Accounting Bulletin 79,
Topic 5T "Accounting for Expenses or Liabilities paid by Principal Stockholder,"
the Company recorded in equal quarterly amounts for 1997 a total of $1,500 in
bonus expense and increased the Additional Paid-in Capital account to complete
the concept that the amount of the waived bonus was contributed to the Company
by the Principal Stockholder. Because the amount was not and will never be paid,
no tax benefit was accrued for this charge. The agreement also provides that the
Company will pay the Principal Stockholder his base salary for the remaining
term of the agreement in the event he is terminated for reasons other than
cause.
F-32
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--COMMITMENTS AND CONTINGENCIES (CONTINUED)
The above agreements provide for the following aggregate annual payments:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
1999............................................................................ $ 6,397
2000............................................................................ 6,235
2001............................................................................ 5,205
2002............................................................................ 819
2003............................................................................ 754
Thereafter...................................................................... 1,704
------------
$ 21,114
------------
------------
</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 $738, $626, and $600 for the years ended
December 31, 1998, 1997 and 1996, respectively.
Outside of the United States, the Company has employee benefit plans in the
countries in which it operates. The costs for these plans amounted to $3,676,
$3,080 and $2,624 for the years ended December 31, 1998, 1997 and 1996,
respectively.
In addition, the Company had a defined contribution profit sharing plan
covering all eligible employees. Contributions, which are at the discretion of
the Board of Directors, were not made in the years ended December 31, 1997 and
1996. The plan was terminated during 1997.
(D) LITIGATION
The Company is subject to various claims, suits and complaints arising in
the ordinary course of business. Although the outcome of these legal matters
cannot be determined, it is the opinion of management that the final resolution
of these matters will not have a material adverse effect on the Company's
financial condition, operations or liquidity.
On February 19, 1998, a class action complaint was filed against the Company
by five former employees. The claims brought by the plaintiffs in the complaint
are that the Company (a) misclassified the named plaintiffs and purported class
members as exempt from the overtime requirements of California wage and hour law
and failed to pay them overtime wages, (b) failed to pay accrued but unused
vacation days at the time of termination, and (c) failed to pay accrued but
unused personal days at the time of termination. The plaintiffs purport to
represent a class of 450 former and current employees who are similarly
situated. The Company intends to vigorously defend the claims brought by the
plaintiffs and on March 18, 1998 responded to the complaint by filing an answer
denying all allegations. Management presently believes that the disposition of
these claims will not have a material adverse effect on the Company's financial
position, operations or liquidity.
In June 1997, a settlement of $275, which was paid by the Principal
Stockholder under an indemnity agreement with the Company, was made relating to
a November 1996 action of a former employee against Old TMP, WCI and the
Principal Stockholder. The complaint alleged, among other things, that the
F-33
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--COMMITMENTS AND CONTINGENCIES (CONTINUED)
defendants breached purported contractual obligations pursuant to which the
former employee was entitled to an ownership interest in the Company's
recruitment advertising business.
M & B has had proceedings issued against it for an amount of $3.4 million.
These proceedings are in relation to the acquisition of the claimant's business
in New Zealand prior to Morgan & Banks New Zealand Limited becoming a controlled
entity of the M & B group. The directors of M & B are of the opinion that the
claim is without substance and accordingly the action is being vigorously
defended.
(E) OTHER
(i) The Company is contingently liable on a note of the Principal
Stockholder in the amount of approximately $1,600.
(ii) The majority stockholder of an unconsolidated equity investee has an
agreement which requires the Company to purchase his interest, based on a
formula value, upon death. The value of his shares at December 31, 1998 is
approximately $5,741 based on the formula.
NOTE 15--RELATED PARTY TRANSACTIONS
(A) In August 1996, the Company entered into an agreement whereby it
acquired the minority interest of a subsidiary for 46,350 shares of common
stock. Such shares, valued at $672, were recorded as special compensation
because the stockholder had received his shares in the subsidiary for no
consideration and, accordingly, was not considered to have made a substantive
investment for his shares.
(B) The Company charged management and other fees to affiliates for services
provided of approximately $651, $788 and $602 for the years ended December 31,
1998, 1997 and 1996, respectively. Such fees are reflected as a reduction of
salaries and related costs in the accompanying supplemental consolidated
statements of operations.
(C) In January 1994, the Company acquired a 50% interest in an agency
selling real estate advertising. In connection with this acquisition, the
Company agreed to provide the agency with certain office and administrative
services which amounted to $321 for the nine months ended September 30, 1997 at
which time the arrangement was terminated. Payments of $875 and $725 were made
in the years ended December 31, 1996 and 1995, respectively, in exchange for 50%
of the agency's profits, as defined in the agreement. The Company also entered
into three-year employment and consulting agreements with the two other
stockholders of the agency and granted them the right to convert their agency
shares into Company shares after an initial public offering. That conversion
right, as amended, provided that those two stockholders may convert 25% of the
agency's stock into unregistered common stock of the Company with a total value
of $1,000 as of the effective date of conversion. The conversion was exercised
in February 1997 and 61,848 shares of common stock were issued to these
stockholders pursuant to the above agreement. Simultaneously, the Company
transferred to such stockholders 50% of its interest in the agency, thus
retaining a 25% interest and terminated its obligation to provide office and
administrative services effective October 1, 1997.
(D) The Company leases three offices from entities in which the Principal
Stockholder and other stockholders have between a 49% and 90% ownership
interest. Annual rent expense under these leases, which expire on various dates
through the year 2013, amounts to approximately $863. In addition, an
F-34
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 15--RELATED PARTY TRANSACTIONS (CONTINUED)
investee of the Company leases an office, at an annual rental of approximately
$119, from a partnership in which the Principal Stockholder holds a 49%
interest.
NOTE 16--SEGMENT AND GEOGRAPHIC DATA
The Company is engaged in four lines of business, advertising (recruitment
and yellow pages), Internet, executive search & selection and temporary
contracting. Operations are conducted in several geographic regions: North
America, the Pacific Rim (primarily in Australia, New Zealand and Japan) and
Europe. The following is a summary of the Company's operations by business
segment and by geographic segment, as of and for the years ended December 31,
1998, 1997, and 1996.
<TABLE>
<CAPTION>
SEARCH & TEMPORARY
Information by business segment ADVERTISING INTERNET SELECTION CONTRACTING TOTAL
- ----------------------------------------------------- ----------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1998
- -----------------------------------------------------
Revenue.............................................. $ 266,618 $ 48,761 $ 159,795 $ 187,008 $ 662,182
----------- --------- ---------- ----------- ----------
Operating expenses:
Salaries and related costs, office & general and
CEO bonus........................................ 221,235 47,261 143,962 25,839 438,297
Temporary contracting costs........................ -- -- -- 154,513 154,513
Merger costs....................................... 2,600 -- 19,812 -- 22,412
Amortization of intangibles........................ 8,522 234 542 103 9,401
----------- --------- ---------- ----------- ----------
Total expenses....................................... 232,357 47,495 164,316 180,455 624,623
----------- --------- ---------- ----------- ----------
Operating income (loss).............................. $ 34,261 $ 1,266 $ (4,521) $ 6,553 37,559
----------- --------- ---------- -----------
----------- --------- ---------- -----------
Other expense:
Interest expense, net.............................. * * * * (10,563)
Other, net......................................... * * * * (1,521)
----------
Income before provision for income taxes, minority
interests and equity in losses of affiliates....... * * * * $ 25,475
----------
----------
Total assets......................................... $ 535,713 $ 33,751 $ 63,607 $ 24,875 $ 657,946
----------- --------- ---------- ----------- ----------
----------- --------- ---------- ----------- ----------
</TABLE>
F-35
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 16--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
SEARCH & TEMPORARY
Information by business segment (Continued) ADVERTISING INTERNET SELECTION CONTRACTING TOTAL
- ---------------------------------------------------- ----------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1997
- ----------------------------------------------------
Revenue............................................. $ 225,218 $ 18,869 $ 147,398 $ 163,831 $ 555,316
----------- --------- ---------- ----------- -----------
Operating expenses:
Salaries and related costs, office & general and
CEO bonus....................................... 188,300 22,246 137,208 21,263 369,017
Temporary contracting costs....................... -- -- -- 136,185 136,185
Amortization of intangibles....................... 5,993 167 565 117 6,842
----------- --------- ---------- ----------- -----------
Total expenses...................................... 194,293 22,413 137,773 157,565 512,044
----------- --------- ---------- ----------- -----------
Operating income (loss)............................. $ 30,925 $ (3,544) $ 9,625 $ 6,266 43,272
----------- --------- ---------- -----------
----------- --------- ---------- -----------
Other expense:
Interest expense, net............................. * * * * (8,934)
Other, net........................................ * * * * (224)
-----------
Income before provision for income taxes, minority
interests and equity in losses of affiliates...... * * * * $ 34,114
-----------
-----------
Total assets........................................ $ 491,374 $ 13,844 $ 65,361 $ 25,001 $ 595,580
----------- --------- ---------- ----------- -----------
----------- --------- ---------- ----------- -----------
December 31, 1996
- ----------------------------------------------------
Revenue............................................. $ 167,683 $ 6,839 $ 114,257 $ 113,299 $ 402,078
----------- --------- ---------- ----------- -----------
Operating expenses:
Salaries and related costs, office & general and
CEO bonus....................................... 142,009 8,446 104,443 12,618 267,516
Temporary contracting costs....................... -- -- -- 95,062 95,062
Amortization of intangibles....................... 4,216 224 231 61 4,732
Special compensation.............................. 52,019 -- -- -- 52,019
----------- --------- ---------- ----------- -----------
Total expenses...................................... 198,244 8,670 104,674 107,741 419,329
----------- --------- ---------- ----------- -----------
Operating income (loss)............................. $ (30,561) $ (1,831) $ 9,583 $ 5,558 (17,251)
----------- --------- ---------- -----------
----------- --------- ---------- -----------
Other expense:
Interest expense, net............................. * * * * (14,159)
Other, net........................................ * * * * (542)
-----------
Loss before provision for income taxes, minority
interests and equity in earnings of affiliates.... * * * * $ (31,952)
-----------
-----------
Total assets........................................ $ 337,467 $ 5,431 $ 58,238 $ 22,526 $ 423,662
----------- --------- ---------- ----------- -----------
----------- --------- ---------- ----------- -----------
</TABLE>
- ------------------------
* Not allocated
F-36
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 16--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
UNITED CONTINENTAL
NORTH AMERICA PACIFIC RIM KINGDOM EUROPE TOTAL
-------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Information by geographic region:
December 31, 1998
Total revenue................................ $ 253,575 $ 248,174 $ 109,179 $ 51,254 $ 662,182
Income (loss) before taxes, minority
interests and equity in earnings of
affiliates................................. 5,989 13,764 5,902 (180) 25,475
Long-lived assets............................ 93,437 31,978 87,563 47,639 260,617
December 31, 1997
Total revenue................................ $ 224,089 $ 236,414 $ 78,593 $ 16,220 $ 555,316
Income before taxes, minority interests and
equity in earnings of affiliates........... 12,210 14,700 4,647 2,557 34,114
Long-lived assets............................ 84,232 32,177 81,493 21,649 219,551
December 31, 1996
Total revenue................................ $ 175,824 $ 174,498 $ 31,799 $ 19,957 $ 402,078
Income (loss) before taxes, minority
interests and equity in earnings of
affiliates*................................ (46,603)* 13,014 2,216 (579) (31,952)*
Long-lived assets............................ 74,274 31,650 7,225 1,501 114,650
</TABLE>
- ------------------------
* Includes non-cash, non-recurring special compensation and interest expense
of $52,019 and $2,603, respectively.
NOTE 17--SUBSEQUENT EVENT
On March 11, 1999 the Company and LAI Worldwide ("LAI") announced that they
had entered into an agreement by which the Company will acquire all of the
outstanding shares of LAI 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.
F-37
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
The audits referred to in our report dated April 15, 1999, relating to the
supplemental consolidated financial statements of TMP Worldwide Inc. and
Subsidiaries, included the audits of the supplemental consolidated financial
statement schedule listed in the accompanying index. This supplemental
consolidated financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the supplemental
consolidated financial statement schedule based upon our audits.
In our opinion the supplemental consolidated financial statement schedule
presents fairly, in all material respects, the information set forth therein.
/s/ BDO SEIDMAN, LLP
-------------------------------------------------------------------------------
BDO SEIDMAN, LLP
New York, New York
April 15, 1999
F-38
<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>
Allowance for doubtful accounts
Year ended December 31, 1996............... $ 5,581 $ 3,301 $ 2,111(1) $ 2,245 $ 8,748
Year ended December 31, 1997............... $ 8,748 $ 3,713 $ 1,931(1) $ 2,851 $ 11,541
Year ended December 31, 1998............... $ 11,541 $ 5,819 $ 286(1) $ 3,541 $ 14,105
Restructuring reserves
Year ended December 31, 1997............... $ -- $ -- $ 17,663 $ 862 $ 16,801
Year ended December 31, 1998............... $ 16,801 $ -- $ 10,020 $ 10,651 $ 16,170
</TABLE>
- ------------------------
(1) Initial reserves of acquired companies.
F-39
<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: April 21, 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 on Form S-3 (No. 333-750351) of TMP Worldwide Inc. and
Subsidiaries of our reports dated April 15, 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 April 21 , 1999.
/s/ BDO SEIDMAN, LLP
---------------------------------------------------------------
BDO SEIDMAN, LLP
New York, New York
April 20, 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 on Form S-3
(No. 333-750351) of TMP Worldwide Inc. and Subsidiaries of our report dated 15
April 1999, appearing in the Form 8-K of TMP Worldwide Inc. dated April 21,
1999, relating to the consolidated balance sheets of Morgan & Banks Limited as
at 31 December 1998 and 31 March 1998, and the consolidated profit statements
for the years ended 31 December 1998, 31 March 1998 and 31 March 1997, and the
cash flow statements for the nine month period ended 31 December 1998 and the
years ended 31 March 1998 and 31 March 1997.
Sydney Australia
April 20, 1999
Pannell Kerr Forster, P.C.
/s/ PANNELL KERR FORSTER
<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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 37,399
<SECURITIES> 0
<RECEIVABLES> 314,026
<ALLOWANCES> 14,105
<INVENTORY> 0
<CURRENT-ASSETS> 380,837
<PP&E> 119,372
<DEPRECIATION> 58,808
<TOTAL-ASSETS> 657,946
<CURRENT-LIABILITIES> 389,168
<BONDS> 119,551
0
0
<COMMON> 35
<OTHER-SE> 140,812
<TOTAL-LIABILITY-AND-EQUITY> 657,946
<SALES> 662,182
<TOTAL-REVENUES> 662,182
<CGS> 0
<TOTAL-COSTS> 618,804
<OTHER-EXPENSES> 1,521
<LOSS-PROVISION> 5,819
<INTEREST-EXPENSE> 10,563
<INCOME-PRETAX> 25,475
<INCOME-TAX> 13,339
<INCOME-CONTINUING> 11,712
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,712
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
</TABLE>
