<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM 10-Q
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
|_| Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act
of 1934 for the transition period from
_______ to _______.
-----------------------
Commission File Number: 0-21571
TMP WORLDWIDE INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3906555
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1633 BROADWAY, 33RD FLOOR, NEW YORK, NEW YORK 10019
(Address of principal executive offices) (Zip Code)
(212) 977-4200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS OUTSTANDING ON MAY 10, 1999
<S> <C>
Common Stock................................ 33,811,942
Class B Common Stock........................ 2,381,000
</TABLE>
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets--
March 31, 1999 and December 31, 1998......................2
Consolidated Condensed Statements of Income--
Three Months Ended March 31, 1999 and 1998................3
Consolidated Condensed Statements of Comprehensive Income--
Three Months Ended March 31, 1999 and 1998...............4
Consolidated Condensed Statement of Stockholders' Equity--
Three Months Ended March 31, 1999.........................5
Consolidated Condensed Statements of Cash Flows--
Three Months Ended March 31, 1999 and 1998................6
Notes to Consolidated Condensed Financial Statements............7-13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................14-20
Item 3. Quantitative and Qualitative Disclosures about Market Risk .....20
PART II OTHER INFORMATION
Item 1. Legal Proceedings...............................................21
Item 2. Changes in Securities and Use of Proceeds.......................21
Item 4. Submission of Matters to a Vote of Security Holders.............21
Item 6. Exhibits and Reports on Form 8-K................................21-22
Signatures..................................................23
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------- --------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 26,450 $ 37,399
Accounts receivable, net.................................................... 327,793 299,921
Work-in-process............................................................. 21,264 18,309
Prepaid and other........................................................... 24,247 25,208
-------- --------
Total current assets.................................................... 399,754 380,837
Property and equipment, net..................................................... 62,054 60,564
Deferred income taxes........................................................... 6,495 6,599
Intangibles, net................................................................ 217,222 200,053
Other assets.................................................................... 6,939 9,893
-------- --------
$692,464 $657,946
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................... $256,210 $254,309
Accrued expenses and other liabilities..................................... 87,429 87,765
Accrued restructuring costs................................................ 14,312 16,170
Deferred revenue........................................................... 15,756 13,348
Deferred income taxes...................................................... 4,407 5,904
Current portion of long term debt.......................................... 10,651 11,672
-------- --------
Total current liabilities............................................... 388,765 389,168
Long term debt, less current portion............................................ 130,696 119,551
Other liabilities............................................................... 8,818 7,871
-------- --------
Total liabilities....................................................... 528,279 516,590
-------- --------
Minority interests.............................................................. 601 509
-------- --------
Stockholders' equity:
Preferred stock, $.001 par value, authorized 800,000 shares;
issued and outstanding - none ...................................... --- ---
Common stock, $.001 par value, authorized 200,000,000 shares;
issued and outstanding--33,417,216, and 32,780,537
shares, respectively................................................... 33 33
Class B common stock, $.001 par value, authorized 39,000,000 shares;
issued and outstanding--2,381,000....................................... 2 2
Additional paid-in capital................................................. 201,492 184,109
Other comprehensive loss................................................... (790) (2,930)
Deficit.................................................................... (37,153) (40,367)
-------- --------
Total stockholders' equity...................................................... 163,584 140,847
-------- --------
$692,464 $657,946
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
-------- -------
<S> <C> <C>
Revenue:
Commissions and fees..................................................... $ 125,230 $ 111,244
Temporary contracting.................................................... 54,690 41,242
-------- -------
Total revenue..................................................... 179,920 152,486
-------- -------
Operating expenses:
Salaries and related costs........................................... 77,675 63,708
Temporary contracting costs.......................................... 45,416 38,886
Office and general expenses.......................................... 40,308 36,866
Merger costs......................................................... 4,687 ---
Amortization of intangibles.......................................... 2,634 2,243
CEO special bonus.................................................... --- 375
-------- -------
Total operating expenses ......................................... 170,720 142,078
-------- -------
Operating income..................................................... 9,200 10,408
-------- -------
Other income (expense):
Interest expense net................................................. (2,631) (2,469)
Other, net........................................................... 72 (108)
-------- -------
Total other income (expense), net................................. (2,559) (2,577)
-------- -------
Income before provision for income taxes, minority interests and
equity in losses of affiliates....................................... 6,641 7,831
Provision for income taxes............................................... 3,228 3,253
-------- -------
Income before minority interests and equity in losses of affiliates...... 3,413 4,578
Minority interests........................................................ 99 16
Equity in losses of affiliates........................................... (100) (87)
-------- -------
Net income............................................................... $ 3,214 $ 4,475
-------- -------
-------- -------
Net income per common and Class B common share:
Basic............................................................. $ 0.09 $ 0.13
Diluted........................................................... $ 0.09 $ 0.12
Weighted average shares outstanding:
Basic............................................................. 35,477 34,898
Diluted........................................................... 37,093 36,204
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
<S> <C> <C>
Net income............................................................... $ 3,214 $ 4,475
Foreign currency translation adjustment.................................. 2,140 1,163
-------- --------
Comprehensive income..................................................... $ 5,354 $ 5,638
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Class B
Common Stock, Common Stock, Other
$.001 Par Value $.001 Par Value Additional Compre- Total
--------------- --------------- Paid-in hensive Stockholders'
Shares Amount Shares Amount Capital Loss Deficit Equity
------ ------ ------ ------ ------- ---- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 32,780,537 $33 2,381,000 $2 $184,109 $(2,930) $(40,367) $140,847
Issuance of options to outside -- -- -- -- 45 -- -- 45
salespersons as commission
Issuance of common stock in
connection with the 465,986 -- -- -- 5,855 -- -- 5,855
exercise of options. . . .
Tax benefit from the exercise -- -- -- -- 2,637 -- -- 2,637
of stock options. . . .
Issuance of common stock in
connection with acquisitions 149,216 -- -- -- 7,944 -- -- 7,944
Issuance of common stock
for matching contribution to
401(k) plan. . . . . 21,477 -- -- -- 902 -- -- 902
Foreign currency translation
adjustment. . . . . . . -- -- -- -- -- 2,140 -- 2,140
Net income. . . . . . . . -- -- -- -- -- -- 3,214 3,214
---------- --- --------- -- -------- ----- -------- --------
Balance, March 31, 1999 33,417,216 $33 2,381,000 $2 $201,492 $(790) $(37,153) $163,584
---------- --- --------- -- -------- ----- -------- --------
---------- --- --------- -- -------- ----- -------- --------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................................. $ 3,214 $ 4,475
-------- --------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization of property and equipment.................. 4,254 3,745
Amortization of intangibles and deferred costs........................... 2,634 2,243
Amortization of deferred compensation in connection
with employee stay bonuses............................................ 1,497 --
Provision for doubtful accounts.......................................... 889 1,285
Common stock issued for matching contribution to 401(k) plan ............ 902 641
CEO special bonus........................................................ -- 375
Minority interests....................................................... 99 16
Provision for deferred income taxes...................................... (1,393) 676
Other.................................................................... -- 108
Tax benefit from the exercise of employee stock options.................. 2,637 --
Effect of M&B included in both March 31, 1998 and December 31, 1997...... -- (2,651)
Changes in assets and liabilities, net of effects of purchases of businesses:
(Increase) in accounts receivable, net.................................. (24,143) (8,395)
(Increase) in work-in-process........................................... (2,955) (2,799)
Decrease in prepaid and other........................................... 1,483 1,255
Decrease in other assets................................................ 1,485 1,017
Increase (decrease) in accounts payable and accrued liabilities......... (807) (5,573)
-------- --------
Total adjustments..................................................... (13,418) (8,057)
-------- --------
Net cash used in operating activities................................. (10,204) (3,582)
-------- --------
Cash flows from investing activities:
Capital expenditures..................................................... (5,499) (4,777)
Payments for purchases of businesses, net of cash acquired............... (12,022) (1,283)
-------- --------
Net cash used in investing activities.................................. (17,521) (6,060)
-------- --------
Cash flows from financing activities:
Payments on capitalized leases........................................... (815) (749)
Borrowings under lines of credit and proceeds from issuance of debt...... 305,290 234,482
Repayments under lines of credit and principal payments on debt.......... (294,313) (224,452)
Cash received from the exercise of employee stock options................ 5,855 215
Dividends paid by pooled entities........................................ -- (63)
-------- --------
Net cash provided by financing activities.............................. 16,017 9,433
-------- --------
Effect of exchange rate changes on cash......................................... 759 48
-------- --------
Net decrease in cash and cash equivalents....................................... (10,949) (161)
Cash and cash equivalents, beginning of period.................................. 37,399 26,985
-------- --------
Cash and cash equivalents, end of period........................................ $ 26,450 $ 26,824
-------- --------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
NOTE 1-BASIS OF PRESENTATION
The consolidated condensed interim financial statements include the accounts
of TMP Worldwide Inc. and all of its wholly-owned and majority-owned
subsidiaries (collectively, "TMP" or the "Company") and have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments which, in the opinion of management, are necessary for fair
presentation of the information contained therein. It is suggested that these
consolidated condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998. The Company follows the same
accounting policies in preparation of interim reports.
The consolidated financial statements of the Company for the three months
ended March 31, 1998 have been restated to give retroactive effect to the
mergers with Johnson Smith & Knisely Inc. on May 6, 1998, TASA Holdings AG on
August 31, 1998, Stackig, Inc. on September 30, 1998, Recruitment Solutions,
Inc. on October 2, 1998, SunQuest L.L.C., d.b.a. the SMART Group on November
2, 1998, The Consulting Group (International) Limited on December 2, 1998 and
Morgan & Banks Limited on January 28, 1999, which have been accounted for
using the pooling of interests method and, as a result, the financial
position, results of operations and cash flows are presented as if the
combining companies had been consolidated for all periods presented and the
consolidated statements of stockholders' equity reflect the accounts of TMP
as if the additional common stock issued in connection with the mergers had
been issued for all periods presented. It is further suggested that these
consolidated condensed financial statements be read in conjunction with the
supplemental consolidated financial statements and notes thereto included in
the Company's Current Report on Form 8-K filed with the Securities & Exchange
Commission on April 21, 1999.
Results of operations for the interim periods are not necessarily indicative
of annual results.
Basic earnings per share assumes no dilution, and is computed by dividing
income available to common and Class B common shareholders by the weighted
average number of common and Class B common shares outstanding during each
period. Diluted earnings per share reflect, in periods in which they have a
dilutive effect, the effect of common shares issuable upon exercise of stock
options and warrants, and contingent shares.
A reconciliation of shares used in calculating basic and diluted earnings
per common and Class B common share follows (in thousands):
<TABLE>
<S> <C>
March 31, 1999:
Basic............................................ 35,477
Effect of assumed conversion of stock options.... 1,616
-------
Diluted.......................................... 37,093
-------
-------
March 31, 1998:
Basic............................................ 34,898
Effect of assumed conversion of stock options.... 1,306
-------
Diluted.......................................... 36,204
-------
-------
</TABLE>
7
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
NOTE 2-NATURE OF BUSINESS AND CREDIT RISK
The Company operates in four business segments: advertising (recruitment and
yellow pages), Internet, search & selection and temporary contracting. The
Company earns commission income for selling and placing yellow page and
recruitment advertising to a large number of customers in many different
industries, fees for executive and mid-level search & selection services, fees
for advertisements placed on its Internet websites and revenue in connection
with the providing of temporary contracting services. The Company operates
principally throughout North America, the United Kingdom, Continental Europe and
the Pacific Rim.
NOTE 3-BUSINESS ACQUISITIONS
ACQUISITIONS ACCOUNTED FOR USING THE POOLING OF INTERESTS METHOD
During the period January 1, 1998 through March 31, 1999, the Company
completed the following acquisitions which provided for the exchange of all the
outstanding stock of each entity for shares of TMP common stock and are
accounted for as poolings of interests:
<TABLE>
<CAPTION>
Nature of Number of
Entity Operations Acquisition Date TMP Shares Issued
- ------------------------------- ---------- ---------------- -----------------
<S> <C> <C> <C>
Johnson Smith & Knisely Search & selection May 6, 1998 771,353
TASA Holding AG Search & selection August 31, 1998 1,703,894
Stackig, Inc. Advertising September 30, 1998 507,082
Recruitment Solutions, Inc. Search & selection October 2, 1998 104,042
Sunquest, L.L.C. d.b.a. the
SMART Group Advertising November 2, 1998 309,702
The Consulting Group
(International) Limited Search & selection December 2, 1998 246,606
Morgan & Banks Limited Search & selection and January 28, 1999 5,148,291
Temporary Contracting
</TABLE>
Revenue, net income applicable to common and Class B common stockholders and
net income per common and Class B common share of the combining companies are as
follows:
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 1998
--------------
<S> <C>
REVENUE
TMP, as previously reported on Form 10-Q/A...................................... $ 72,997
Johnson, Smith & Knisely........................................................ 7,396
TASA Holding AG................................................................. 9,629
Stackig, Inc.................................................................... 2,969
SunQuest, L.L.C. d.b.a The SMART Group.......................................... 438
Recruitment Solutions, Inc...................................................... 4
The Consulting Group (International) Ltd........................................ 1,764
Morgan & Banks Limited.......................................................... 57,289
--------
TMP, as restated................................................................ $152,486
--------
--------
</TABLE>
8
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
NOTE 3-BUSINESS ACQUISITIONS (CONT'D)
<TABLE>
<CAPTION>
NET INCOME APPLICABLE TO COMMON AND CLASS B COMMON STOCKHOLDERS
<S> <C>
TMP, as previously reported on Form 10-Q/A...................................... $1,985
Johnson, Smith & Knisely........................................................ 488
TASA Holding AG................................................................. 87
Stackig, Inc.................................................................... 191
SunQuest, L.L.C. d.b.a The SMART Group.......................................... 32
Recruitment Solutions, Inc...................................................... (116)
The Consulting Group (International) Ltd........................................ 423
Morgan & Banks Limited.......................................................... 1,385
------
TMP, as restated................................................................ $4,475
------
------
</TABLE>
<TABLE>
<CAPTION>
NET INCOME PER COMMON AND CLASS B COMMON SHARE
<S> <C>
TMP, as previously reported on Form 10-Q/A:
Basic........................................................................ $ 0.08
Diluted...................................................................... $ 0.07
Restated:
Basic........................................................................ $ 0.13
Diluted...................................................................... $ 0.12
</TABLE>
MERGER COSTS INCURRED WITH POOLING OF INTERESTS TRANSACTIONS
In connection with the poolings of interests transactions, the Company expensed
merger related costs of $4,687. The $4,687 of merger costs for the period ended
March 31, 1999 consists of (1) $1,497 of non-cash employee stay bonuses which is
the amortization of $5,986 recorded as prepaid compensation and a corresponding
long-term liability, being expensed over the eighteen months from April 1, 1998
to September 30, 1999 for TMP shares set aside for key personnel of Johnson
Smith & Knisely and The Consulting Group Limited who must remain employees of
the Company for a full year in order to earn such shares and (2) $3,190 of
transaction related costs, including legal, accounting and advisory fees and the
costs incurred for the subsequent registration of shares issued in the
acquisitions.
ACQUISITIONS ACCOUNTED FOR USING THE PURCHASE METHOD
In addition to the poolings of interests transactions discussed above, in the
three month period ended March 31, 1999, the Company completed five acquisitions
using the purchase method of accounting, two search and selection firms (one
with operations in eastern Europe and one in Belgium), two recruitment
advertising firms (one in Spain and one in France) and a yellow page advertising
firm in Long Island, New York. The purchase price paid for these acquisitions
was approximately $22,117, including 172,616 shares. Operations of these
businesses have been included in the consolidated financial statements from
their acquisition dates.
The summarized unaudited pro forma results of operations set forth below for the
three month periods ended March 31, 1999 and 1998 and the year ended December
31, 1998 assume that the acquisitions in 1999 and 1998 occurred as of the
beginning of the year of acquisition and the beginning of the preceding year.
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
---------------------------- -----------------------
1999 1998 1998
---- ---- ----
<S> <C> <C> <C>
Total revenue............................... $180,916 $ 158,895 $ 684,290
Net income applicable to common and
Class B common stockholders ............... $ 3,282 $ 4,380 $ 11,102
Net income per common and Class B common share:
Basic................................... $ 0.09 $ 0.12 $ 0.31
Diluted................................. $ 0.09 $ 0.12 $ 0.31
</TABLE>
9
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
NOTE 3-BUSINESS ACQUISITIONS (CONT'D)
The pro forma results of operations are not necessarily indicative of what
actually would have occurred if the acquisitions had been completed at the
beginning of each of the periods presented, nor are the results of operations
necessarily indicative of the results that will be attained in the future.
ACCRUED RESTRUCTURING COSTS
In connection with the acquisitions made in 1997 and accounted for using
the purchase method, the Company developed plans to restructure the operations
of the acquired companies. Such plans involve the closure of certain offices of
the acquired companies and the termination of certain management and employees.
The objective of the plans is to create a single brand in the related markets in
which the Company operates. The preliminary plans were finalized in July 1998.
These costs and liabilities include:
<TABLE>
<CAPTION>
Balance Balance
12/31/98 Additions Payments 3/31/99
-------- --------- -------- -------
<S> <C> <C> <C> <C>
Assumed obligations on leased facilities to be closed $ 9,228 -- $(284) $ 8,944
Consolidation of acquired facilities 2,745 -- (1,356) 1,389
Contracted lease payments exceeding current
market costs 707 -- (35) 672
Severance, relocation and other employee costs 1,737 -- (181) 1,556
Pension obligations 1,753 -- (2) 1,751
------- --------- ----- -------
Total $16,170 -- $(1,858) $14,312
------- --------- ----- -------
------- --------- ----- -------
</TABLE>
Accrued liabilities for surplus property in the amount of $9,054 as of
March 31, 1999 relate to 18 leased office locations of the acquired companies
that were either unutilized prior to the acquisition date or became surplus
as a result of the restructuring plans. The amount is based on the present
value of minimum future lease obligations, net of sublease revenue on
existing subleases.
Other costs associated with the closure of existing offices of acquired
companies in the amount of $2,619 as of March 31, 1999, relate to the
termination costs of contracts relating to billing systems, external reporting
systems and other contractual agreements with third parties.
Above market lease costs in the amount of $672 as of March 31, 1999 relate to
the present value of contractual lease payments in excess of current market
lease rates.
Estimated severance payments, employee relocation expenses and other
employee costs in the amount of $1,576 as of March 31, 1999 relates to
estimated severance for terminated employees at locations to be closed, 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 March 31, 1999
the accrual related to approximately 40 employees including senior
management, sales, service and administrative personnel.
Pension obligations in the amount of $1,751 were assumed in connection
with the acquisition of Austin Knight; alternative funding methods are being
reviewed.
The Company continues to evaluate and assess the impact of duplicate
responsibilities and office locations. Additional future costs incurred,
resulting from revised plan actions occurring after March 31, 1999, in excess of
the amounts previously recorded as goodwill will be charged to operations in the
period in which they occur.
10
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
NOTE 4-SEGMENT AND GEOGRAPHIC DATA
The Company is engaged in four lines of business: advertising (recruitment and
yellow pages), Internet, search & selection and temporary contracting.
Operations are conducted in several geographic regions: North America, the
Pacific Rim (primarily in Australia, New Zealand and Japan) the United Kingdom
and Continental Europe. The following is a summary of the Company's operations
by business segment and by geographic segment, for the three months ended March
31, 1999 and 1998.
<TABLE>
<CAPTION>
SEARCH & TEMPORARY
INFORMATION BY BUSINESS SEGMENT ADVERTISING INTERNET SELECTION CONTRACTING TOTAL
- ------------------------------- ----------- -------- --------- ----------- -----
MARCH 31, 1999
- --------------
<S> <C> <C> <C> <C> <C>
Revenue
Traditional sources............. $64,991 $ ---- $40,132 $54,690 $159,813
Internet........................ 2,109 17,061 445 492 20,107
------- ------- ----- ------- -----
Total revenue....................... 67,100 17,061 40,577 55,182 179,920
------- ------- ----- ------- -----
Operating expenses:
Salaries and related costs, office
& general and CEO special
bonus...................... 55,025 18,709 36,580(a) 7,669(a) 117,983
Temporary contracting costs..... ---- ---- ---- 45,416 45,416
Merger costs.................... 79 ---- 4,608 ---- 4,687
Amortization of intangibles..... 2,329 58 221 26 2,634
------- ------- ----- ------- -----
Total expenses...................... 57,433 18,767 41,409 53,111 170,720
------- ------- ----- ------- -----
Operating income.................... $ 9,667 $(1,706) $(832) $ 2,071 9,200
------- ------- ----- ------- -----
Other income (expense):
Interest expense, net........... * * * * (2,631)
Other, net...................... * * * * 72
-------
Income before provision for income
taxes, minority interests and
equity in losses of affiliates.. * * * * $ 6,641
-------
-------
</TABLE>
11
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(in thousands, except share and per share amounts)
(unaudited)
NOTE 4-SEGMENT AND GEOGRAPHIC DATA (CONT'D)
<TABLE>
<CAPTION>
SEARCH & TEMPORARY
INFORMATION BY BUSINESS SEGMENT ADVERTISING INTERNET SELECTION CONTRACTING TOTAL
- ------------------------------- ----------- -------- --------- ----------- ------
<S> <C> <C> <C> <C> <C>
MARCH 31, 1998
Revenue
Traditional sources............. $65,485 $ -- $38,057 $41,242 $144,784
Internet........................ 663 7,039 -- -- 7,702
----------- -------- --------- ----------- ------
Total revenue....................... 66,148 7,039 38,057 41,242 152,486
----------- -------- --------- ----------- ------
Operating expenses:
Salaries and related costs, office
& general and CEO special
bonus......................... 56,704(a) 8,196 34,518(a) 1,531 100,949
Temporary contracting costs..... -- -- -- 38,886 38,886
Merger costs.................... -- -- -- -- --
Amortization of intangibles..... 2,054 58 106 25 2,243
----------- -------- --------- ----------- ------
Total expenses...................... 58,758 8,254 34,624 40,442 142,078
----------- -------- --------- ----------- ------
Operating income.................... $7,390 $(1,215) $ 3,433 $ 800 10,408
----------- -------- --------- -----------
Other income (expense):
Other, net...................... (2,469)
Interest expense, net........... * * * * (108)
------
Income before provision for income
taxes, minority interests and
equity in losses of affiliates.. * * * * $7,831
-------
-------
</TABLE>
(a) includes Internet expense of $955 for 1999 and $464 for 1998.
* = not allocated
<TABLE>
<CAPTION>
UNITED CONTINENTAL
INFORMATION BY GEOGRAPHIC REGION NORTH AMERICA PACIFIC RIM KINGDOM EUROPE TOTAL
- -------------------------------- -------------- ----------- ------- ------ -----
<S> <C> <C> <C> <C> <C>
MARCH 31, 1999
Total revenue................... $63,505 $73,458 $24,580 $18,377 $179,920
Income (loss) before income taxes,
minority interests and equity
in losses of affiliates..... $(1,934) $2,629 $1,668 $4,278 $6,641
MARCH 31, 1998
Total revenue................... $58,849 $54,197 $29,116 $10,324 $152,486
Income (loss) before income taxes,
minority interests and equity
in losses of affiliates..... $(1,075) $2,745 $3,611 $2,550 $7,831
</TABLE>
NOTE 5-LAI WORLDWIDE ACQUISITION
On March 11, 1999 the Company and LAI Worldwide ("LAI") announced that they
had entered into an agreement by which the Company will acquire all of the
outstanding shares of LAI in exchange for TMP common stock in accordance with
the terms of the agreement. The transaction is expected to be accounted for as a
pooling of interests.
The acquisition is anticipated to close in the third quarter of 1999. It is
estimated that costs associated with the merger, including a non-cash charge of
$2.7 million to reflect the accelerated vesting of equity incentives due LAI
employees, will be approximately $6.0 million.
12
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(in thousands, except share and per share amounts)
(unaudited)
NOTE 5-LAI WORLDWIDE ACQUISITION (CONT'D)
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.
13
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q CONCERNING OUR OUTLOOK OR
FUTURE ECONOMIC PERFORMANCE; ANTICIPATED PROFITABILITY, GROSS BILLINGS,
COMMISSIONS AND FEES, REVENUES, EXPENSES OR OTHER FINANCIAL ITEMS; AND
STATEMENTS CONCERNING ASSUMPTIONS MADE OR EXCEPTIONS TO ANY FUTURE EVENTS,
CONDITIONS, PERFORMANCE OR OTHER MATTER ARE "FORWARD LOOKING STATEMENTS" AS THAT
TERM IS DEFINED UNDER THE FEDERAL SECURITIES LAWS. IN ADDITION, WHEN USED
HEREIN, THE WORDS "ESTIMATE", "PROJECT", "BELIEVE", "ANTICIPATE", AND OTHER
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD LOOKING STATEMENTS WHICH
REFLECT OUR CURRENT VIEWS AS TO FUTURE EVENTS. 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) BUSINESS 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) THE CONTROL OF
THE COMPANY BY ANDREW J. MCKELVEY (IX) CERTAIN TRANSACTIONS WITH AFFILIATED
PARTIES AND THE OTHER RISKS DETAILED IN OUR FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION, INCLUDING OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1998.
OVERVIEW
A substantial part of our growth has been achieved through acquisitions. For
the period January 1, 1996 through December 31, 1998, we completed 45
acquisitions. Of the acquisitions completed during 1998, 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
included in our Annual Report on Form 10-K for the fiscal year ended December
31, 1998, which reflect the consummation of the 1998 Mergers, have been
retroactively restated in our Current Report on Form 8-K filed on April 21,
1999, 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, through March 31, 1999, we completed five acquisitions, which
were accounted for using the purchase method, with estimated annual gross
billings of approximately $8.0 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 our
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 the 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.
14
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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 recruitment & retention programs, 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.
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 March 31, 1999, our total
revenue increased from $152.5 million in 1998 to $179.9 million in 1999. 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 periods ended March 31, 1999 and
1998, 64.7%, and 61.4%, respectively, of our consolidated revenue were
attributable to clients outside the U.S.
RESULTS OF OPERATIONS
The following table sets forth our gross billings, revenue, revenue as a
percentage of gross billings, EBITDA and cash flows.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
GROSS BILLINGS:
Recruitment advertising.................................................. $195,297 $206,618
Yellow page advertising.................................................. 113,147 108,012
Search & selection....................................................... 40,813 38,057
Internet(1) ............................................................ 22,435 8,536
Temporary contracting.................................................... 54,690 41,242
-------- --------
Total .................................................................. $426,382 $402,465
-------- --------
REVENUES:
Recruitment advertising.................................................. $ 42,543 $ 43,478
Yellow page advertising.................................................. 22,448 22,007
Search & selection....................................................... 40,132 38,057
Internet(1) ............................................................ 20,107 7,702
-------- --------
Total commissions and fees............................................... 125,230 111,244
Temporary contracting.................................................... 54,690 41,242
-------- --------
Total revenue............................................................ $179,920 $152,486
-------- --------
</TABLE>
15
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------
1999 1998
---- ----
(in thousands)
<S> <C> <C>
REVENUE AS A PERCENTAGE OF GROSS BILLINGS
Recruitment advertising.................................................. 21.8% 21.0%
Yellow page advertising.................................................. 19.8% 20.4%
Search & selection....................................................... 98.3% 100.0%
Internet(1) ............................................................ 89.6% 90.2%
Total commissions and fees............................................... 33.7% 30.8%
Temporary contracting.................................................... 100.0% 100.0%
Total revenue............................................................ 42.2% 37.9%
EBITDA(2) ............................................................... $ 17,458 $16,185
Cash used in operating activities........................................ $(10,204) $(3,582)
Cash used in investing activities........................................ $(17,521) $(6,060)
Cash provided by financing activities.................................... $ 16,017 $ 9,433
Effect of exchange rates on cash......................................... $ 759 $ 48
</TABLE>
(1) Represents fees earned in connection with recruitment, yellow page
and other advertisements placed on the Internet, primarily on our own Web
sites.
(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 expenditure and working capital
requirements and is one of the measures which determines our ability to
borrow under our credit facility. EBITDA should not be considered in
isolation or as a substitute for operating income, cash flows from
operating activities and other income or cash flow statement data prepared
in accordance with generally accepted accounting principles or as a measure
of our profitability or liquidity. EBITDA for the indicated periods is
calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Net income............................................................... $ 3,214 $ 4,475
Interest expense, net.................................................... 2,631 2,469
Income tax expense....................................................... 3,228 3,253
Depreciation & amortization.............................................. 8,385 5,988
------- -------
EBITDA .................................................................. $17,458 $16,185
------- -------
</TABLE>
16
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1998
Gross billings for the three months ended March 31, 1999 were $426.4
million, a net increase of $23.9 million or 5.9% from $402.5 million for the
three months ended March 31, 1998. Revenue for the three months ended March 31,
1999 were $179.9 million, an increase of $27.4 million or 18.0% from $152.5
million in the comparable three months of 1998. Recruitment commissions & fees
were $42.5 million for the three months ended March 31, 1999 compared with $43.5
million for the three months ended March 31, 1998, a decrease of $1.0 million or
2.2%. This decrease was primarily due to a decline in print media advertising in
the U.S. and the U.K., offset substantially by an increase in creative and
collateral business (such as: campaign development, referral & retention
programs, multi-media presentations, brochures and posters) for existing
clients, growth from new and existing clients in Continental Europe and
acquisitions. Yellow page commissions and fees were $22.4 million for the three
months ended March 31, 1999, an increase of $.4 million or 2.0% from $22.0
million for the comparable three months of 1998. This increase was due to
increases in client spending, net of new clients and acquisitions. Search &
selection commissions and fees were $40.1 million up $2.0 million or 5.5% from
$38.1 million for the comparable three months of 1998, due primarily to
acquisitions in Europe. Internet commissions and fees for the three months ended
March 31, 1999 were $20.1 million, an increase of 161.1% or $12.4 million as
compared with $7.7 million for the three months ended March 31, 1998. The
increase in Internet revenue from the March 1998 period to the March 1999
period, is due to: (i) an increasing acceptance of our Internet services and
products from existing clients, new clients and Internet users, (ii) price
increases on certain products, (iii) increases in the services and content
available on our Websites, (iv) expansion into certain European markets and (v)
the benefits of strategic alliances with other Internet service and content
providers. Temporary contracting revenue was $54.7 million, up $13.5 million or
32.6% from $41.2 million for the period ended March 31, 1998. The increase
reflects an increase in the number of contractors placed due to increased
marketing efforts, a greater need for information technology personnel and an
increase in the executive temporary contracting business, which has a mark-up
higher than for general and support staff.
Operating expenses for the three months ended March 31, 1999 were
$170.7 million, compared with $142.1 million for the same period in 1998. The
increase of $28.6 million or 20.2 % is primarily due to (a) $12.7 million in
expenses for temporary contracting operations, (b) $10.9 million in higher
operating costs to support expanding Internet operations and (c) $4.7 million in
merger costs related to acquisitions accounted for as poolings of interest.
Salaries and related costs for the three months ended March 31, 1999 were $77.7
million or 43.2% of revenue, compared with $63.7 million or 41.8% of revenue for
the same period in 1998. The increase of $14.0 million or 21.9% is primarily due
to increased Internet operations and acquisitions. Temporary contracting costs
were $45.4 million an increase of $6.5 million or 16.8% over the $38.9 million
for the comparable period in 1998. This increase is due to the increase in
business, as discussed above. Office and general expenses for the three months
ended March 31, 1999 were $40.3 million or 22.4 % of revenue, compared with
$36.9 million or 24.2% of revenue for the same period in 1998. The increase of
$3.4 million or 9.3% is primarily due to higher marketing costs for our Internet
operations, including Monster.comsm, partially offset by reductions in
recruitment advertising reflecting increased economies of scale. Additionally,
the decrease as a percentage of revenue was affected by the higher temporary
contracting revenue which did not result in a similar increase in office and
general expenses. Merger costs for the three months ended March 31, 1999 were
$4.7 million, the majority of which were related to the M&B acquisition but also
included $1.5 million for the amortization of employee stay bonuses payable in
stock in connection with certain of the acquisitions consummated in 1998
accounted for as poolings of interests.
As a result of the above, operating income for the three months ended
March 31, 1999 was $9.2 million a decrease of $1.2 million or 11.6 % from $10.4
million for the comparable period last year.
Net interest expense for the three months ended March 31, 1999 was $2.6
million, an increase of $0.1 million or 6.6%, from $2.5 million for the
comparable 1998 period. This increase reflects additional borrowings for
acquisitions and equipment financing.
Taxes on income for the three months ended March 31, 1999 were $3.2
million on a $6.6 million pre-tax profit compared with a tax expense of $3.3
million on a $7.8 million pre-tax profit for the same period last year. The
effective tax rate for the three month period ended March 31, 1999 was 48.6%, up
from the 41.5% effective rate for the comparable period in 1998. The higher 1999
rate reflects the effects of a portion of the merger costs, which are not
deductible for tax purposes.
17
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Minority interests in consolidated earnings for the three months ended
March 31, 1999 was $99,000 compared with $16,000 for the three months ended
March 31, 1998. Equity in losses of unconsolidated subsidiaries, which reflects
losses associated with the real estate advertising company in which the Company
holds a minority interest, was a loss of $100,000 for the three months ended
March 31, 1999 compared with a loss of $87,000 for the comparable period in
1998.
As a result of all of the above, net income available to common and
Class B common stockholders for the three months ended March 31, 1999 was $3.2
million, a decrease of $1.3 million from $4.5 million for the three months ended
March 31, 1998. On a diluted per share basis, net income available to common and
Class B common stockholders for the three months ended March 31, 1999 was $0.09,
a decrease of $0.03 or 25.0% from $0.12 for the comparable 1998 period.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities for the three months ended
March 31, 1999 was $10.2 million compared with a use of $3.6 million for the
three months ended March 31, 1998. This increase of $6.6 million was
primarily due to $8.3 million from the net effect of increases in accounts
receivable over the increases in accounts payable & accrued liabilities, as
adjusted for the tax benefit from the exercise of employee stock options, for
the three months ended March 31, 1999 over the net effect of the changes for
these accounts for the three months ended March 31, 1998, offset in part by
(a) $1.2 million more from funds provided by net income and non-cash charges
to earnings for the period ended March 31, 1999 than for the period ended
March 31, 1998 and (b) a $0.5 million net decline in work in process, and
prepaid and other assets. In addition, EBITDA was $17.5 million for the three
months ended March 31, 1999 an increase of $1.3 million or 7.9% from $16.2
million for the three months ended March 31, 1998. The increase in EBITDA
resulted from higher depreciation and amortization in 1999 offset in part by
lower operating results, as discussed above.
Our investing activities for the three months ended March 31, 1999
used cash of $17.5 million compared with $6.1 million for the three months
ended March 31, 1998. The $11.4 million increase reflects a $10.7 million
increase in payments for purchases of businesses, net of cash acquired, and
by an increase of $0.7 million in capital expenditures over the same period
in 1998.
Our financing activities for the three month period ended March 31,
1999 provided net cash of $16.0 million, compared with $9.4 million for the
three month period ended March 31, 1998. This increase of $6.6 million
primarily reflects a $5.7 million increase in cash received from the
exercise of employee stock options and a $0.9 million increase in net
borrowings for debt under our line of credit and other borrowings for the
three months ended March 31, 1999 compared to March 31, 1998.
At March 31, 1999, we had a $175 million committed line of credit from
our primary lender pursuant to a revolving credit agreement. Of such line, at
March 31, 1999, approximately $53.5 million was unused and accounts receivable
as defined in the agreement is sufficient to allow draw down of the entire
amount. In addition, we have secured lines of credit aggregating $22.9 million
for its operations in Australia, France, Belgium and the Netherlands of which
approximately $12.8 million was unused at March 31, 1999.
Cash and cash equivalents at March 31, 1999 equaled $26.5 million, a
decrease of $0.3 million from $26.8 million at March 31, 1998.
Management believes that the aggregate lines of credit available to
us, plus funds provided by operations will be adequate to support our short-term
cash requirements for acquisitions, capital expenditures, repayment of debt and
maintenance of working capital. We anticipate that future cash flows from
operations plus funds available under existing line of credit facilities will be
adequate to support our long term cash requirements as presently contemplated.
However, if we determine that conditions are favorable, we would consider
additional corporate financing or capital 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.
18
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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 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.
19
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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 Websites 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company's primary market risks include fluctuations in interest
rates, variability in interest rate spread relationships (i.e., prime to LIBOR
spreads) and exchange rate variability. Substantially all of the Company's debt
relates to a five-year financing agreement with an outstanding principal balance
of approximately $105.0 million as of March 31, 1999. Interest on the
outstanding balance is charged based on a variable interest rate related to the
higher of the prime rate, Federal Funds rate less 1/2 of 1% or LIBOR plus a
margin specified in the agreement, and is thus subject to market risk in the
form of fluctuations in interest rates. The Company does not trade in derivative
financial instruments.
The Company also conducts operations in various foreign countries,
including Australia, Belgium, Canada, France, Germany, Japan, the Netherlands,
New Zealand, Singapore, Spain, and the United Kingdom. For the period ended
March 31, 1999 approximately 64.7% of our revenue was earned outside the United
States and collected in local currency. In addition, we generally pay operating
expenses in the corresponding local currency and will be subject to increased
risk for exchange rate fluctuations between such local currencies and the
dollar. We do not conduct any significant hedging activities.
20
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On April 27, 1999, Monster Cable Products, Inc. of Brisbane, California
("Monster Cable") filed a civil action against TMP in United States District
Court for the Northern District of California. Monster Cable manufactures and
sells audio equipment, primarily cables and cable accessories, under the
trademarks MONSTER and MONSTER CABLE. The lawsuit claims that TMP's use and
registration of THE MONSTER BOARD, MONSTER.COM and other "MONSTER" trademarks,
and TMP's ownership of the Internet domain name monster.com, infringes and
dilutes Monster Cable's trademarks. Monster Cable seeks, inter alia, an
injunction against any use of any MONSTER trademark by TMP, transfer of the
monster.com domain name and 1-800-MONSTER telephone number to Monster Cable, an
award of all of TMP's profits arising from the alleged infringement, costs and
attorneys' fees.
In the opinion of TMP's outside trademark counsel, based upon the facts as they
are now known, the Monster Cable lawsuit is without merit. TMP intends to defend
the lawsuit aggressively.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) During the first quarter of 1999, we issued and sold unregistered securities
in the amounts, at the times, and for the aggregate amounts of consideration
listed as follows:
i On January 19, 1999, we issued an aggregate of 18,186 shares
of our common stock in connection with our purchase of all of
the outstanding shares of common stock of Milnat Associates,
Inc. and all of the outstanding membership interests in
Directory Express LLC pursuant to Section 4(2) of the
Securities Act of 1933.
ii On January 28, 1999, we issued 5,148,921 shares of our common
stock in connection with our purchase of all of the
outstanding capital stock of Morgan & Banks Limited ("M&B")
pursuant to the exemption provided by Section 3(a)(10) of the
Securities Act of 1933.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
In January 1999, Andrew J. McKelvey, as majority stockholder,
acted by written consent and approved the issuance of shares of common stock
required to acquire M&B. Reference is made to our Information Statement on
Schedule 14C dated January 6, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as a part of this report:
10.1 Amendment No. 2 to Employment Agreement dated
May 1, 1999, between TMP Worldwide Inc. and
Andrew J. Mckelvey.
27.1 Financial Data Schedule
27.2 Financial Data Schedule
(b) The following Current Reports on Form 8-K were filed during the quarter
ended March 31, 1999:
i The Company's Current Report on Form 8-K dated February 1,
1999, relating to the announcement of the M&B acquisition and
the release of the results of the Company's operations for
the one month and ten months ended October 31, 1998.
ii The Company's Current Report on Form 8-K dated February 12,
1999, relating to the financial statements of M&B as of
September 30, 1998 and March 31, 1998 and 1997, for the six
months ended September 30, 1998 and 1997 and for each of the
three years in the period ended March 31, 1998 and the
unaudited proforma condensed combined financial information
relating to the acquisition of M&B.
21
<PAGE>
iii The Company's Current Report on Form 8-K dated March 5, 1999,
relating to a press release announcing the results of
operations of the Company for the year ended December 31,
1998, issued by the Company on March 2, 1999.
iv The Company's Current Report on Form 8-K dated March 17,
1999, relating to the restatement of the Company's
consolidated financial statements as of September 30, 1998
and December 31, 1997 and 1996, for the nine months ended
September 30, 1998 and 1997 and for each of the three years
in the period ended December 31, 1997 to reflect the
acquisitions, which are being accounted for as
poolings of interests, consummated by the Company from the
October 1, 1998 through January 31, 1999.
Items 3 and 5 of this report are not applicable.
22
<PAGE>
TMP WORLDWIDE INC.
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 thereunto duly authorized.
TMP WORLDWIDE INC.
(Registrant)
Date: May 13, 1999 /S/ THOMAS G. COLLISON
-----------------------
THOMAS G. COLLISON
VICE CHAIRMAN
(PRINCIPAL FINANCIAL OFFICER)
Date: May 13, 1999 /S/ ROXANE PREVITY
-------------------
ROXANE PREVITY
CHIEF FINANCIAL OFFICER
(PRINCIPAL ACCOUNTING OFFICER)
23
<PAGE>
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
TMP Worldwide Inc. ("TMPW") and Andrew J. McKelvey ("Employee") are
parties to an Employment Agreement, dated as of November 15, 1996, as amended
pursuant to Amendment No. 1 to Employment Agreement dated November 4, 1998,
(collectively, the "Employment Agreement"), and by virtue of this Amendment No.
2 to Employment Agreement (the "Amendment Agreement"), are modifying certain
terms of the Employment Agreement.
The parties hereby agree as follows:
1. The clause of Section 2.1 of the Employment Agreement
stating "a base salary at a rate of one million five hundred
thousand dollars ($1,500,000) per annum (the "Base Salary")" is
hereby amended to read "a base salary at a rate of five hundred
thousand ($500,000) per annum (the "Base Salary")".
2. A new Section 2.3(c) is hereby added to the Employment
Agreement immediately following existing Section 2.3(b), which new
Section 2.3(c) reads in its entirety as follows:
"(c) With respect to each calendar year of the Employment
Period, Employee shall be entitled to a bonus as
follows:
(i) In the event that the Earnings Per Share (as
defined below) of the Company for a particular
calendar year exceed the Internal Projections (as
defined below) for that year by 10% or more but
less than 20%, then Employee shall be entitled to
a bonus of 10% of the Base Salary;
(ii) In the event that the Earnings Per Share of the
Company for a particular calendar year exceed the
Internal Projections for that year by 20% or more
but less than 50%, then Employee shall be entitled
to a bonus of 20% of the Base Salary; and
(iii) In the event that the Earnings Per Share of the
Company for a particular calendar year exceed the
Internal Projections for that year by 50% or more
then Employee shall be entitled to a bonus of 100%
of the Base Salary.
As used herein, "Internal Projections" shall mean the last internal
Earnings Per Share projections developed by the Company for the
relevant calendar year prior to the end of the first quarter of such
calendar year. As used herein, "Earnings Per Share" means diluted
earnings per share determined in accordance with generally accepted
accounting principles, exclusive of the after tax effects of merger
costs.
<PAGE>
The bonus payable under this Section 2.3(c) shall be payable no
later than 90 days after the end of calendar year to which it
relates. For any periods at less than a full calendar year of the
Employment Period, the bonus shall be prorated on the basis of
internal projections for the shorter period as well as the Base
Salary paid during such shorter period as determined by the Board on
its reasonable discretion."
3. The Employment Agreement, as amended by this Amendment
Agreement, is hereby ratified and confirmed and remains in full
force and effect.
The parties hereto have executed this Amendment Agreement on May 1,
1999.
TMP WORLDWIDE INC.
By: /s/ Thomas G. Collison
----------------------------------
By: Thomas G. Collison
Title: Vice Chairman and Secretary
/s/ Andrew J. McKelvey
--------------------------------------
Andrew J. McKelvey
- 2 -
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