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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 19, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
TMP WORLDWIDE INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 13-3906555
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
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1633 BROADWAY
NEW YORK, NEW YORK 10019
(212) 977-4200
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------
ANDREW J. MCKELVEY
CHAIRMAN OF THE BOARD AND CEO
TMP WORLDWIDE INC.
1633 BROADWAY
NEW YORK, NEW YORK 10019
(212) 977-4200
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
Copies of all communications, including all communications sent to the agent for
service, should be sent to:
GREGG BERMAN, ESQ.
FULBRIGHT & JAWORSKI L.L.P.
666 FIFTH AVENUE
NEW YORK, NEW YORK 10103
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SHARES AMOUNT TO BE AGGREGATE PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER UNIT (1) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.001 par value per share 1,425,943 $41.94 $59,804,049.42 $16,625.53
</TABLE>
(1) The price is estimated in accordance with Rule 457(c) under the Securities
Act of 1933, as amended, solely for the purpose of calculating the
registration fee and is $41.94, the average of the high and low prices of
the Common Stock of TMP Worldwide Inc. as reported by The Nasdaq Stock
Market on January 14, 1999.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE AMENDED. THE
SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE SEC DECLARES OUR
REGISTRATION STATEMENT EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS
IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 19, 1999
TMP WORLDWIDE INC.
1,425,943 SHARES OF COMMON STOCK
------------------------
TMP Worldwide Inc.'s common stock trades on the Nasdaq National Market under
the ticker symbol "TMPW." On January 14, 1999, the closing sale price of one
share of TMP's stock was $42.25.
------------------------
The stockholders of TMP Worldwide Inc. ("TMP" or the "Company") listed in
this prospectus are offering and selling an aggregate of 1,425,943 shares of
TMP's common stock under this prospectus. A portion of these selling
stockholders obtained their shares of TMP stock in connection with the September
30, 1998 acquisition by TMP of all of the outstanding stock of Stackig, Inc., a
public relations and advertising company. Another portion of the selling
stockholders obtained their shares in connection with the October 2, 1998
acquisition by TMP of all of the outstanding stock of Recruitment Solutions,
Inc., a recruitment advertising services company. Additional portions of the
selling stockholders obtained their shares on October 30, 1998 and December 1,
1998 when TMP acquired substantially all of the assets of SunQuest, L.L.C. d/b/a
The Smart Group and all of the outstanding stock of The Consulting Group
(International) Limited. The remaining selling stockholders, Andrew J. McKelvey,
TMP's CEO and principal stockholder, and John R. Gaulding, a director of TMP,
propose to sell 250,000 shares and 10,000 shares, respectively. Some or all of
the selling stockholders expect to sell their shares. TMP will not receive any
part of the proceeds from the sale by the selling stockholders.
------------------------
The selling stockholders may offer their TMP stock through public or private
transactions, on or off the United States exchanges, at prevailing market
prices, or at privately negotiated prices.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT YOU SHOULD CONSIDER BEFORE YOU INVEST IN THE SHARES BEING SOLD WITH THIS
PROSPECTUS.
---------------------
THE TMP STOCK OFFERED OR SOLD UNDER THIS PROSPECTUS HAS NOT BEEN APPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR ANY STATE SECURITIES
COMMISSION, NOR HAVE THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is , 1999
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TABLE OF CONTENTS
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PAGE
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Where You Can Find More Information....................................................................... 3
The Company............................................................................................... 5
Recent Developments....................................................................................... 8
Risk Factors.............................................................................................. 9
Unaudited Pro Forma Condensed Combined Financial Information.............................................. 17
Use of Proceeds........................................................................................... 24
Dividend Policy........................................................................................... 24
Price Range of Common Stock............................................................................... 24
Selling Stockholders...................................................................................... 25
Plan of Distribution...................................................................................... 26
Legal Opinion............................................................................................. 26
Experts................................................................................................... 26
Index to Consolidated Financial Statements................................................................ F-1
</TABLE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
from our website at www.tmp.com or at the SEC's website at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus, and information that we file later with the SEC
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we will make with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934 until the selling stockholders sell all their shares of TMP stock. This
prospectus is part of a registration statement we filed with the SEC
(Registration No. 333- ).
(i) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
(ii) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.
(iii) The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998.
(iv) The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
(v) The Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1997.
(vi) The Company's Quarterly Reports on Form 10-Q/A for the quarter
ended March 31, 1998.
(vii) The Company's Quarterly Report on Form 10-Q/A for the quarter ended
June 30, 1998.
(viii) The Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1998.
(ix) Management's Discussion and Analysis of Results of Operations and
Financial Condition on pages 62 through 74, and the Financial Statements on
pages F-11 through F-113, of the Company's Information Statement on Schedule
14C, dated January 6, 1999, file no. 0-21571.
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(x) The description of the Company's common stock contained in Item 1 of
the Company's Registration Statement on Form 8-A, dated October 16, 1996.
(xi) The Company's Current Report on Form 8-K, dated December 17, 1998,
relating to the acquisition of Bonde & Schmah Media GmbH, a/k/a/ Bonde &
Schmah Human Resources Services GmbH
(xii) The Company's Current Report on Form 8-K, dated December 7, 1998,
relating to the acquisition of The Consulting Group (International) Limited.
(xiii) The Company's Current Report on Form 8-K, dated August 31, 1998,
relating to the acquisition of TASA Holding A.G.
(xiv) The Company's Current Report on Form 8-K, dated April 28, 1998,
relating to the acquisition of Fossler & Partner, M-Page and ConServe.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
TMP Worldwide Inc.
1633 Broadway, 33rd Floor, New York, New York 10019
Attention: Investor Relations
(Tel. No. (212) 977-4200)
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. The selling stockholders will
not make an offer of these shares in any state where the offer is not permitted.
You should not assume that the information in this prospectus or any supplement
is accurate as of any date other than the date on the front of these documents.
4
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THE COMPANY
AS USED IN THIS PROSPECTUS, "GROSS BILLINGS" REFERS TO BILLINGS FOR
ADVERTISING PLACED IN TELEPHONE DIRECTORIES, NEWSPAPERS, NEW MEDIA AND OTHER
MEDIA, AND ASSOCIATED FEES FOR RELATED SERVICES. WHILE GROSS BILLINGS ARE NOT
INCLUDED IN THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS, THE TRENDS IN GROSS
BILLINGS DIRECTLY IMPACT THE COMMISSIONS AND FEES EARNED BY THE COMPANY. THE
COMPANY EARNS COMMISSIONS BASED ON A PERCENTAGE OF THE MEDIA ADVERTISING
PURCHASED AT A RATE ESTABLISHED BY THE RELATED PUBLISHER, AND ASSOCIATED FEES
FOR RELATED SERVICES. IN ADDITION, THE COMPANY EARNS FEES FOR THE PLACEMENT OF
ADVERTISEMENTS ON THE INTERNET, INCLUDING ITS CAREER WEB SITES, AND THROUGH
EXECUTIVE SEARCH SERVICES. EARNINGS BEFORE INTEREST, INCOME TAXES, DEPRECIATION
AND AMORTIZATION ("EBITDA") IS PRESENTED TO PROVIDE ADDITIONAL INFORMATION ABOUT
THE COMPANY'S ABILITY TO MEET ITS FUTURE DEBT SERVICE, CAPITAL EXPENDITURES AND
WORKING CAPITAL REQUIREMENTS AND IS ONE OF THE MEASURES WHICH DETERMINES THE
COMPANY'S ABILITY TO BORROW UNDER ITS CREDIT FACILITY. EBITDA SHOULD NOT BE
CONSIDERED IN ISOLATION OR AS A SUBSTITUTE FOR OPERATING ACTIVITIES AND OTHER
INCOME OR CASH FLOW STATEMENT DATA PREPARED IN ACCORDANCE WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES OR AS A MEASURE OF THE COMPANY'S PROFITABILITY OR
LIQUIDITY. GROSS BILLINGS WITH RESPECT TO COMPANIES ACQUIRED BY THE COMPANY
REFER TO THE COMPANY'S ESTIMATE OF THE ACQUIRED COMPANIES' ANNUAL GROSS
BILLINGS.
We are a marketing services, communications, executive search and technology
company. We provide comprehensive, individually tailored advertising services,
including development of creative content, media planning, production and
placement of corporate advertising, market research, direct marketing, executive
search and other ancillary services and products. We are one of the world's
largest recruitment advertising agencies and the world's largest yellow page
advertising agency as well as a leader in the use of the Internet for
recruiting.
TMP offers advertising programs to more than 17,000 clients, including more
than 70 of the Fortune 100 and more than 400 of the Fortune 500 companies. Our
growth strategy is to continue to pursue consolidation opportunities in our core
advertising business and to leverage its client base and our approximately 2,420
sales, marketing and customer service personnel to expand our Internet-based
businesses. For the year ended December 31, 1997, TMP's gross billings were $1.2
billion, commissions and fees were $310.6 million, net income was $10.4 million
and EBITDA was $43.9 million.
TMP is the world's largest yellow page advertising agency, generating
approximately $457.5 million in yellow page gross billings for the year ended
December 31, 1997. We are one of the world's largest recruitment advertising
agencies, generating approximately $602.7 million in recruitment advertising
gross billings for the same period. With approximately 30% of the national
accounts segment of the U.S. yellow page advertising market, We are
approximately three times larger than our nearest competitor, based on yellow
page gross billings. A substantial part of our growth in each of our targeted
markets has been achieved through acquisitions. From January 1, 1993 through
December 31, 1998, TMP completed 71 acquisitions including, in May 1998, the
acquisition of all the outstanding stock of Johnson, Smith & Knisely, Inc.
("JSK"), the twelfth largest executive search firm in the United States, in
August 1998, the acquisition of all the outstanding stock of TASA Holding A.G.
("TASA"), an international executive search firm and in September 1998, the
acquisition of all the outstanding stock of Stackig, Inc. ("Stackig"), a public
relations and advertising Company. We believe additional acquisition
opportunities exist, particularly in the recruitment advertising, executive
search and Internet markets, and we intend to continue our strategy of making
acquisitions which relate to our core businesses.
TMP has created innovative solutions to assist its clients in capitalizing
on the growing awareness and acceptance of the Internet. For our recruitment
advertising clients, we have developed interactive career sites which can be
accessed by individuals seeking employment via the Internet on a global basis.
TMP has several career sites, including Monster.com-SM-, The Monster
Board-Registered Trademark-, Online Career Center-SM-, Be the Boss-SM- and
MedSearch-SM-, which as of December 31, 1998 collectively contain approximately
145,000 paid job listings, and 1,000,000 resumes. In addition, in May 1998, we
expanded our suite of online career products and services, adding new content
and community with the acquisition of About Work
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(www.aboutwork.com) and adding the largest online internship database with the
acquisition of Student Center (www.studentcenter.com).
YELLOW PAGE ADVERTISING. TMP develops yellow page marketing programs for
national accounts. These are clients which sell products or services in multiple
markets. The national segment of the yellow page advertising market was an
approximately $1.7 billion market in the U.S. for the year ended December 31,
1997. The national yellow page market has grown each year since 1981. During the
period of 1990 through 1997, the market grew at a compound annual growth rate of
approximately 6.2%. Yellow page advertising is a complex process involving the
creation of effective imagery and message and the development of media plans
which evaluate approximately 7,000 yellow page directories of which TMP's larger
accounts utilize over 2,000. Coordinating the placement of advertisements in
this number of directories requires an extensive effort at the local level, and
our yellow page sales, marketing and customer service staff of approximately 680
people provides an important competitive advantage in marketing and executing
yellow page advertising programs. We earn commissions from yellow page
advertising paid by directory publishers which result in an effective commission
rate to us of approximately 20% of yellow page gross billings.
TMP takes a proactive approach to yellow page advertising by undertaking
original research on the efficacy of the medium, in many cases quantifying the
effectiveness of a given advertising campaign. TMP also has a rigorous quality
assurance program designed to ensure client satisfaction. We believe that this
program has enabled us to maintain a yellow page client retention rate, year to
year, in excess of 90%.
RECRUITMENT ADVERTISING. For the year ended December 31, 1997, total
spending on advertisements globally in the recruitment classified advertisement
section of newspapers was approximately $12 billion. While the recruitment
advertising market has historically been cyclical, during the period of 1990
through 1997, the U.S. market grew at a compound annual growth rate of
approximately 12%. In the U.S., we receive commissions generally equal to 15% of
recruitment advertising gross billings. 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. TMP also
earns fees from value-added services such as design, research and other creative
and administrative services which resulted in aggregate commissions and fees
equal to approximately 21% of recruitment advertising gross billings for the
year ended December 31, 1997.
The services provided by recruitment advertising agencies can be complex and
range from the design and placement of classified advertisements to the creation
of comprehensive image campaigns which internationally "brand" a client as a
quality employer. Further, shortages of qualified employees in many industries,
particularly in the technology area, have increased the need for recruitment
advertising agencies to expand the breadth of their service offerings to effect
national and sometimes global recruitment campaigns. For these reasons, TMP
believes that over time, the proportion of overall recruitment advertising
placed through recruitment advertising agencies will grow. Given the scale of
its recruitment advertising operations and the scope of its service offerings,
the Company believes it is well positioned to participate in this market growth.
EXECUTIVE SEARCH. To expand the range of services we offer to our
recruitment advertising clients, we decided to enter the executive search field
because recruitment advertising traditionally did not target the senior
executive community. Accordingly, in May 1998, we acquired JSK, the twelfth
largest executive search firm in the United States. This acquisition, coupled
with the acquisition of TASA, provided the Company with 32 executive search
offices in 17 countries.
The TMP retained executive search process typically includes the following
steps: (a) a TMP executive search consultant interviews the client in order to
analyze the senior executive position that needs to be filled, the general
environment of the client's work place and the character and quality of
candidates that have successfully performed as executives of the client; (b) the
consultant then prepares a written synopsis of the position to be filled in
order to attract a suitable, qualified and successful candidate; (c) the
synopsis is then forwarded to other recruiters in order to assist with the
search for a candidate that fits the criteria
6
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set forth in the synopsis; (d) a pool of suitable candidates is gathered and the
consultants begin to schedule interviews; (e) the candidates are then
interviewed and analyzed by the consultants to determine if the candidate meets
the requisite experience and potential cultural fit outlined by the consultant
and the client; (f) reports of the most suitable candidates are prepared by the
consultant and presented to the client, enabling the client to choose which
candidates it wants to meet; (g) the consultant then organizes a mutually
convenient time and place for the client to personally meet and interview such
candidates for the position; (h) the consultant follows up with the successful
candidate to obtain any supplemental information needed or requested by the
client, including to obtain references and other documentary materials; and (i)
the Company then assists the client in structuring and negotiating the final
compensation package and other benefits for the hired executive based on all
relevant factors researched by the Company, including industry comparisons, the
experience levels of the executive and future trends.
TMP believes that its expansion into the executive search market will enable
it to attract and service additional major clients since TMP can now market
itself as a full service firm that can accommodate all of its clients'
employment and recruitment advertising needs.
INTERNET SERVICES. TMP's Internet-based services complement its traditional
advertising businesses. In recruitment, we have several career sites, including
Monster.com-SM-, The Monster Board-Registered Trademark-, Online Career
Center-SM-, Be the Boss-SM- and MedSearch-SM- which provide continuously
available databases of career opportunities. Users of these sites can search for
employment opportunities by location, type of job and other criteria. Resumes
can be sent to prospective employers electronically and submitted on-line or via
mail. Users can also access other value-added services such as discussion forums
and on-line career advice. Based on its experience with our clients, we believes
that only 20% to 30% of open job positions are advertised using traditional
print media and that on-line solutions, which are significantly less expensive
than traditional recruitment methods, will significantly expand the recruitment
advertising market. More than 55 of the Fortune 100 companies are utilizing our
career sites.
Dealer Locator, which is marketed to yellow page accounts, allows clients to
offer World Wide Web ("Web") pages for local offices, dealers or franchise
locations which are linked to the client's corporate Web site. These pages are
designed to generate additional customer flow while reinforcing brand imagery
contained in other advertising programs. Dealer Locator home pages will
typically include address, directions, hours of operation and potentially other
information such as sale items.
TMP believes its pre-existing relationships with yellow page and recruitment
advertising clients and its sales, marketing and customer service staff of over
2,200 people provide an important competitive advantage in pursuing the market
for Internet clients. Further, we believe our innovative Internet products will
provide an opportunity to enhance our ability to market both traditional
advertising and Internet services to non-TMP clients.
TMP is the successor to the businesses formerly conducted by TMP Worldwide
Inc. and subsidiaries ("Old TMP"), Worldwide Classified Inc. and subsidiaries
("WCI") and McKelvey Enterprises, Inc. and subsidiaries, the chief executive
officer of which was Andrew J. McKelvey (the "Principal Stockholder"). McKelvey
Enterprises, Inc. was formed in 1967 by Mr. McKelvey. On December 9, 1996, Old
TMP merged into McKelvey Enterprises, Inc. Thereafter, WCI merged into McKelvey
Enterprises, Inc. McKelvey Enterprises, Inc. then merged into Telephone
Marketing Programs Incorporated. Such mergers are collectively referred to as
the "Mergers." In addition, Mr. McKelvey sold or contributed his interest in
five other entities to the Company. Following the Mergers, Telephone Marketing
Programs Incorporated changed its name to TMP Worldwide Inc. All historical
financial data contained herein for periods ended prior to December 9, 1996
reflects the historical financial data of Old TMP, WCI, McKelvey Enterprises,
Inc. and the other entities. TMP was incorporated in Delaware in August 1996.
Its executive offices are located at 1633 Broadway, 33rd Floor, New York, New
York 10019, and its telephone number at that location is (212) 977-4200.
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RECENT DEVELOPMENTS
After September 30, 1998, TMP completed the acquisitions of Recruitment
Solutions, Inc., a recruitment advertising services company, the business of
SunQuest, L.L.C. d/b/a The Smart Group, a certified market representative for
yellow page advertising, and continued its efforts to acquire Morgan & Banks
Limited ("M&B"), a search and selection firm based in Australia. A brief
description of Recruitment Solutions, The Smart Group and M&B follows:
RECRUITMENT SOLUTIONS ACQUISITION
On October 2, 1998, we acquired all of the outstanding capital stock of
Recruitment Solutions, Inc., a Massachusetts corporation. In connection with the
acquisition of Recruitment Solutions, we issued an aggregate of 104,042 shares
of our stock in a private placement transaction. The acquisition has been
accounted for as a pooling-of-interests.
Recruitment Solutions is a provider of resume response management, applicant
evaluation and related services to hiring companies.
SMART GROUP ACQUISITION
On October 30, 1998, we acquired substantially all of the assets of
SunQuest, L.L.C. d/b/a The Smart Group, a Georgia limited liability company. In
connection with this acquisition, we issued 309,702 shares of our stock in a
private placement transaction. The acquisition has been accounted for as a
pooling-of-interests.
The Smart Group is a certified market representative for yellow page
advertising in the United States.
M&B PROBABLE ACQUISITION
On August 17, 1998, TMP announced an agreement in principle to acquire all
of the outstanding capital stock of M&B, an Australian corporation (the "M&B
Transaction"). The M&B Transaction, which is expected to be completed in the
first quarter of 1999, is expected to be accounted for as a pooling-of-
interests.
M&B, one of the largest temporary contracting and search and selection firms
in Australasia, has offices in Australia, New Zealand, the UK, Hong Kong and
Singapore. For the year ended March 31, 1998, M&B generated revenue of
approximately $235.8 million and had net income of approximately $7.9 million.
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RISK FACTORS
BEFORE YOU INVEST IN OUR STOCK, YOU SHOULD BE AWARE THAT THERE ARE VARIOUS
RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CONSIDER CAREFULLY THESE RISK
FACTORS TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS
BEFORE YOU DECIDE TO PURCHASE SHARES OF OUR STOCK.
THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL
RESULTS COULD DIFFER MATERIALLY. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW, AS WELL AS
THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS. "WE," "US" AND "OUR," WHEN USED IN
THIS PROSPECTUS, REFER TO TMP.
RISKS RELATING TO THE M&B TRANSACTION
POTENTIAL INCREASED ISSUANCE OF TMP STOCK. We will be exchanging our stock
with the shareholders of M&B in the M&B Transaction pursuant to a formula
specified in the acquisition agreement. This formula is expected to fluctuate
until the closing date of the M&B Transaction because the formula is based, in
part, on the stock prices of TMP, the number of outstanding M&B shares and the
U.S. dollar-Australian dollar exchange rate on the effective date of the M&B
Transaction. Based on such information as of December 31, 1998, the formula
would require TMP to issue approximately 6,000,000 shares of TMP Common Stock to
acquire the M&B Shares in the M&B Transaction. However, to the extent that TMP
is required to issue a higher number of shares of TMP Common Stock pursuant to
this formula, TMP's net income per share, if any, would decrease.
NONREALIZATION OF SYNERGIES. We believe that an important benefit to the
M&B Transaction will be the integration of our and M&B's respective managements,
business strategies and operations. We may not be able to realize the benefits
of this integration if the integration process is not successful or timely. Our
ability to integrate TMP and M&B may be hindered by the necessity to coordinate
our geographically separate organizations (TMP is headquartered in the U.S. and
M&B is headquartered in Australia) and to integrate the respective personnel of
TMP and M&B, because of their diverse business backgrounds and corporate
cultures. There can be no assurance that we will be able to successfully
integrate the operations of TMP and M&B without encountering difficulties or
losing key personnel from either TMP or M&B. In addition, we recently acquired
TASA Holding A.G. and other businesses and such acquisitions may make the
integration of M&B more difficult or time consuming. Any difficulties
encountered in this transition process or the diversion of the attention of our
management from the transition process could also have an adverse impact on our
ability to realize the anticipated synergies of the M&B Transaction.
INCURRENCE OF SIGNIFICANT M&B TRANSACTION EXPENSES. The expenses related to
the M&B Transaction, estimated to be approximately $4.5 million, are expected to
be incurred in the first quarter of 1999, the quarter in which the M&B
Transaction is expected to be consummated. These expenses include legal and
accounting fees and costs, financial printing, stamp duties, listing fees,
transfer agent fees, and other related costs, but do not include any costs
associated with restructuring the company or integrating or consolidating the
businesses of TMP and M&B. This is a preliminary estimate and is, therefore,
subject to change. Although we expect the eventual integration of management,
personnel and operations and elimination of duplicative expenses to offset these
expenses, we cannot guarantee that the integration will be successful or
cost-efficient.
POTENTIAL DILUTIVE EFFECT TO STOCKHOLDERS. When we issue TMP Common Stock
in connection with the M&B Transaction, TMP's net income per share could be
reduced from levels otherwise expected. This could have the effect of reducing
the market price of TMP's Common Stock unless revenue growth attributable to the
M&B Transaction or cost savings and other business synergies from the
integration of TMP and M&B are sufficient to offset the dilution in value
attributable to the issuance of the TMP Common Stock.
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EFFECT OF M&B TRANSACTION ON M&B CLIENTS. The executive search and the
search and selection industries, in which M&B competes, are highly
relationship-driven. Consequently, due to the M&B Transaction, it is possible
that certain clients of M&B may terminate their relationship with M&B if their
relationship with M&B is adversely effected by this transaction. In addition,
although we do not anticipate any personnel changes at M&B after the M&B
Transaction, to the extent M&B loses material personnel it may lose large
clients. The loss of a number of large clients of M&B could adversely affect
TMP.
POTENTIAL UNAVAILABILITY OF "POOLING-OF-INTERESTS" ACCOUNTING TREATMENT OF
M&B TRANSACTION. The M&B Transaction is intended to qualify as a
"pooling-of-interests" for accounting and financial reporting purposes. Under
this method of accounting, the assets and liabilities of TMP and M&B will be
carried forward to the combined company at their recorded amounts, income from
the combined company will include income from TMP and M&B for the entire fiscal
period in which the combination occurs and the reported income of the separate
companies for prior periods will be restated as the results of operations of the
combined company. Although it is a condition to the consummation of the M&B
Transaction that the M&B Transaction qualify for "pooling-of-interests"
treatment TMP may nevertheless elect to consummate the M&B Transaction under the
purchase method of accounting.
Under the pooling-of-interests rules, none of the affiliates of either of
the combining companies may sell any shares of either TMP or M&B (except for
certain DE MINIMIS sales) until the combined company releases financial results
covering at least 30 days of combined operations of TMP and M&B. Accordingly,
pooling-of-interests accounting treatment for the M&B Transaction as of such
time may not be available because of sales by such stockholders (except for
certain DE MINIMIS sales) prior to the time the combined company releases such
financial results. There can be no assurance that an affiliate of either company
will not sell shares of TMP or M&B stock or that all requirements necessary to
qualify for pooling-of-interests will be met.
If the requirements necessary to qualify for pooling-of-interests are not
met prior to consummation of the M&B Transaction, then TMP is not required to
consummate the M&B Transaction. However, if TMP nevertheless elects to
consummate the M&B Transaction, the M&B Transaction would necessarily be
accounted for under the purchase method of accounting, which would have the
effect of M&B's assets and liabilities being recognized at their fair value and
any excess of the purchase price over such fair value (other than amounts
charged to in-process research and development costs) being recognized as
goodwill on TMP's balance sheet. The goodwill would thereafter be amortized as
an expense over its anticipated useful life. The impact of such treatment could
have a material adverse effect on the combined company's reported earnings
throughout the amortization period. The M&B Transaction would also be required
to be accounted for under the purchase method of accounting if, among other
things, any affiliate of either company sells shares in TMP subsequent to
consummation of the M&B Transaction and prior to the release of financial
results covering at least 30 days of combined operations, which would have the
effect on the combined company's results of operations described above. Each of
the affiliates of TMP who are executive officers or directors of TMP and each of
the current executive officers and directors and other affiliates of M&B has
entered into an affiliates agreement agreeing to comply with the above described
restrictions on selling shares of TMP and M&B.
RISKS RELATING TO M&B
FOREIGN OPERATIONS. M&B conducts operations in various foreign countries
including New Zealand, Hong Kong, Singapore, and the United Kingdom. For the
fiscal year ended March 31, 1998, M&B earned 28.7% of its revenue outside of
Australia and collected the revenues in the local currency. Because M&B
generally pays for the operating expenses of its foreign operations in local
currency, M&B is at risk for exchange rate fluctuations between such local
currencies and the Australian dollar. M&B exposure to such fluctuations is
compounded by the fact that it undertakes minimal hedging activities. M&B is
also subject to taxation in foreign jurisdictions. In addition, transactions
between M&B and its foreign subsidiaries may be subject to Australian or foreign
withholding taxes. Applicable tax rates in foreign countries differ from
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those of Australia and are subject to periodic change. The extent, if any, to
which M&B will receive credit in Australia for taxes paid in foreign
jurisdictions will depend upon limitations set forth by the Australian Taxation
Office, as well as the provisions of any tax treaties which may exist between
Australia and such foreign jurisdictions. The failure to receive such credit
would subject M&B to increased taxes and adversely affect operating profit.
Furthermore, M&B closed its Indonesian office in March 1998 and has scaled back
its operations in Hong Kong and Singapore. This significantly impacted M&B's
operating margins for its Asian business for the fiscal year ended March 31,
1998. Currently, M&B does not anticipate that it will open any new Asian
offices.
INDUSTRY RISKS. Temporary/contracting service providers employ and place
people in the workplace of other businesses. An attendant risk of this activity
includes possible claims of discrimination and harassment, workplace injury of
its temporary employees, errors and omissions, particularly for the actions of
professionals (for example, lawyers, accountants and engineers), misuse of
client proprietary information, misappropriation of funds, other criminal
activities or torts and other similar claims. In certain instances M&B, pursuant
to a written contract, has agreed to indemnify its clients in the government
sector and a limited number of companies in the private sector, aggregating less
than 50 clients, against some or all of the foregoing matters. Moreover, under
certain circumstances, M&B may be held responsible for the actions at a
workplace of persons not under M&B's direct control. The scope of such
indemnities vary and can cover injuries to workers and errors and omissions of
M&B supplied workers. Although M&B historically has not had any significant
problems in this area, there can be no assurance that M&B will not experience
such problems in the future or that M&B's insurance, if any, will be sufficient
in amount or scope to cover these potential liabilities
COMPETITIVE MARKET. The temporary staffing/contracting and permanent
recruitment industry is highly competitive with limited barriers to entry. M&B
competes in national, regional and local markets with full service and
specialized temporary staffing companies, a number of which have greater
marketing, financial and other resources than M&B. In addition, price
competition in the temporary/contracting industry is high particularly for the
provision of clerical and light industrial personnel and this could adversely
effect M&B's business, results of operations and financial condition.
EFFECT OF ECONOMIC FLUCTUATIONS. The general level of economic activity
effects demand for staffing services. When economic activity slows, the
permanent staff at many companies may become redundant and such companies may
slow their hiring and reduce their use of temporary employees. Any sustained
slowdown in economic activity in Australasia could adversely effect M&B's
business, results of operations and financial condition.
DEPENDENCE ON ATTRACTING, MOTIVATING AND RETAINING STAFF. The success of
M&B's business depends upon its ability to attract, motivate and retain
consultants and staff who possess the skills, knowledge and attributes necessary
to service the needs of its clients and grow the business. M&B believes it has
been able to attract and retain staff as a result of its reputation, performance
based compensation systems and infrastructure support. Consultants may earn
significant bonuses based on the amount of revenue generated from placing either
temporary staff/contractors or permanent staff. Bonuses represent a significant
proportion of consultants' total compensation. Any diminution of M&B's
reputation could impair its ability to retain existing consultants and attract
new consultants. Any such inability to attract and retain consultants could have
a material adverse effect on M&B's business, results of operations and financial
condition.
RISKS RELATING TO TMP, M&B AND THE COMBINED COMPANY
UNCERTAIN ABILITY TO MANAGE GROWTH. Our business has grown rapidly in
recent periods. This growth has placed a significant strain on our management
and operations. For example, our expansion has resulted, and is expected in the
future to result, in substantial growth in the number of our employees and in
increased responsibility for both existing and new management personnel. Growth
may also strain our
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existing financial and management information systems. Our success depends to a
significant extent on the ability of our executive officers and other members of
senior management to operate effectively both independently and as a group. If
we are not able to manage existing or anticipated growth, our business,
financial condition and operating results would be materially adversely
affected.
RISKS ASSOCIATED WITH ACQUISITIONS. We expect to continue to grow, in part,
by acquiring businesses. The success of this strategy depends upon several
factors, including the continued availability of financing and our ability to
identify and acquire businesses on a cost-effective basis. It is also critical
that we integrate acquired personnel, operations, products and technologies into
our organization effectively and that we retain and motivate key personnel and
retain the clients of firms we acquire. We have no assurance that financing for
future acquisitions will be available on terms acceptable to us, or that we will
be able to identify or consummate new acquisitions, or manage and integrate our
recent or future expansions successfully. Any inability to do so would have a
material adverse effect on our business, financial condition and operating
results.
UNCERTAIN VIABILITY OF TRADITIONAL MEDIA. We derive a substantial portion
of our commissions and fees from designing and placing recruitment
advertisements in traditional media such as newspapers and trade publications.
This business, excluding search and selection which has historically been
included therein, constituted approximately 40.4% of our total commissions and
fees for the year ended December 31, 1997 (34.0% of total revenue giving pro
forma effect to the M&B Transaction). We also derive a substantial portion of
our commissions and fees from placing advertising in yellow page directories.
This business constituted approximately 30.8% of our total commissions and fees
for the year ended December 31, 1997 (16.5% of total revenue giving pro forma
effect to the M&B Transaction). Any future commissions we earn may not equal the
commissions we have historically received. New media, such as the Internet, may
also cause yellow page directories and other forms of traditional media to
become less desirable forms of advertising media. Without at least a
proportionate fee increase generated from advertising on the Internet, our
business, financial condition and operating results will be materially adversely
affected.
UNCERTAIN ACCEPTANCE OF THE INTERNET. Use of the Internet by consumers is
at a very early stage of development. Market acceptance of the Internet as a
medium for information, entertainment, commerce and advertising, therefore,
remains subject to a high level of uncertainty. Although we generated Internet
revenue of $19.6 million for the year ended December 31, 1997, and $34.8 million
for the nine months ended September 30, 1998, in the future we may not generate
substantial Internet-based revenue. Our clients and potential clients have only
limited experience with the Internet as an advertising medium and in the past
they have not devoted a significant portion of their advertising budgets to
Internet-based advertising. In addition, advertisers may not be persuaded to
allocate or to continue to allocate portions of their budgets to Internet-based
advertising. If Internet-based advertising is not widely accepted by advertisers
and advertising agencies, our expected growth rate for commissions and fees
derived from Internet use, as well as for the Company as a whole, will be
materially adversely affected.
UNCERTAIN ACCEPTANCE OF THE COMPANY'S INTERNET CONTENT. Our future growth
depends, in part, upon our ability to deliver original and compelling services
in order to attract users that our advertising clients want to reach. Consumer
tastes and preferences, however, change rapidly. We can never be sure that our
Internet content will reflect the latest consumer tastes and preferences and
thereby attract a sufficient number of users to our Web sites to generate
material advertising revenues. Internet users can freely navigate and instantly
switch among a large number of Web sites, many of which offer original content,
making it more difficult for us to continually distinguish our content and
attract users. In addition, many other Web sites offer very specific, highly
targeted content that could have greater appeal than our Web sites to particular
subsets of our target audience.
COMPETITION; LOW BARRIERS TO ENTRY. The markets for our services are highly
competitive and are characterized by pressures to reduce prices, incorporate new
capabilities and technologies and accelerate job completion schedules.
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We face competition from a number of sources. These sources include national
and regional advertising agencies, specialized and integrated marketing
communication firms, traditional media companies and executive search and search
and selection firms. Our ability to maintain existing clients and attract new
clients depends to a significant degree on the quality of our services and our
reputation among clients and potential clients. In addition, with respect to new
media, many advertising agencies and publications have started either to
internally develop or acquire new media capabilities. Some of our established
competitors provide integrated specialized services (such as advertising
services or Web site design) and are technologically proficient, especially in
the new media area. In addition, many of our competitors or potential
competitors have long operating histories, and some may have greater financial,
management, technological development, sales, marketing and other resources than
us.
We have no significant proprietary technology that would preclude or inhibit
competitors from entering the yellow page, recruitment, executive search or
on-line advertising markets. Existing or future competitors may also develop or
offer services and products that provide significant performance, price,
creative or other advantages over our services and products, which could have a
material adverse effect on our future business, financial condition and
operating results.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY AND CYCLICALITY OF
BUSINESS. Our quarterly operating results have fluctuated in the past and may
fluctuate in the future due to diverse factors. These factors include the timing
of acquisitions, the timing of yellow page directory closings, and the receipt
of additional commissions, if earned, from yellow page publishers for achieving
a specified volume of advertising. Our quarterly commissions and fees earned
from recruitment advertising are typically highest in the first quarter and
lowest in the fourth quarter. For the year ended December 31, 1997, our
commissions and fees from recruitment advertising, excluding search and
selection which had historically been included therein, were 40.4% of our total
commissions and fees (27.6% of total revenue on a pro forma basis giving effect
to the M&B Transaction). Recruitment advertising commissions and fees tend to be
more cyclical than yellow page commissions and fees, and, therefore, to the
extent that a significant percentage of our commissions and fees are derived
from recruitment advertising our operating results may be subject to increased
cyclicality. This cyclicality may affect the market price, at any time, of our
Common Stock.
INABILITY OF COMPANY TO KEEP UP WITH CHANGES IN INTERNET TECHNOLOGY MAY
REDUCE AMOUNT OF BUSINESS AND PROFITS. The technology of the Internet is
rapidly developing and changing. In addition, new Internet products are
continually being introduced to the market and Internet industry standards are
frequently changing. Although we attempt to keep up with these changes, we may
be unable to respond to the changes as quickly or effectively as our
competitors. In this event, our clients may choose to use the services of a
competitor who has kept up with technological change more effectively than us.
We may also have to spend large sums of money to keep up with Internet
technological changes which could diminish our profits. In addition, any new
Internet services or enhancements may contain design flaws or other defects that
could require costly modifications or result in a loss of client confidence,
which could cause our clients to remove their business from us. The loss in
business would cause our revenues and profits to decline. In addition, any
disruption in our Internet access or in the Internet generally could adversely
affect us. Monster.com-SM- connects to the Internet through GTE Internetworking
and Online Career Center-SM- connects to the Internet directly through its own
on-site servers. If any of the above services is interrupted, our access to the
Internet would be disrupted and we could lose clients, thus adversely affecting
our financial condition and operating results.
FAILURE TO ATTRACT AND RETAIN QUALIFIED CONSULTANTS COULD AFFECT COMPANY'S
ABILITY TO COMPETE. To be successful in the executive search marketplace, we
must be able to attract and retain qualified consultants. We depend upon
consultants that possess the skills and experience necessary to effectively give
employment advice to our clients and address their executive search needs.
Competition for qualified consultants is intense. We believe we have been able
to attract and retain highly qualified and productive consultants
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because of our reputation. In addition, we use performance-based compensation
plans in which bonuses represent a significant proportion of consultants' total
compensation. However, if our reputation is negatively affected or if there is
any decrease in our business, we would be less able or unable to retain existing
consultants or attract additional qualified consultants. In either case, we
would be less able to compete in the executive search and selection business. As
a consequence, our executive search business, results of operations and
financial condition would be materially adversely affected.
POTENTIAL LOSS OF CLIENT RELATIONSHIPS DUE TO DEPARTURE OF CONSULTANTS. Our
executive search business has been successful to date because of our
consultants' ability to develop and maintain strong, long-term relationships
with clients. Usually, only one or two consultants have primary responsibility
for a client relationship. If one of the consultants leaves TMP and joins
another executive search firm, the clients that have established relationships
with the departing consultant may move their business to the consultant's new
employer. The loss of one or more clients is more likely to occur if the
departing consultant has developed a reputation as a specialist in executing
searches in a specific industry or position. Although the loss of clients upon
the relocation of a consultant historically has not caused significant problems
for us, the failure to retain our most effective consultants, or the failure to
maintain the quality of service to which our clients are accustomed, could have
a material adverse effect on our executive search business, results of
operations and financial condition.
MAINTENANCE OF PROFESSIONAL REPUTATION AND BRAND NAME. Our ability to
secure new executive search engagements and hire qualified professionals is
highly dependent upon our overall reputation and brand name recognition as well
as the individual reputations of our professionals. Because we obtain a majority
of our new engagements from existing clients, or from referrals by those
clients, the dissatisfaction of any such client could have a disproportionate,
adverse impact on our ability to secure new engagements. Any factor that
diminishes TMP's reputation or any of our personnel, including poor performance,
could make it substantially more difficult for us to compete successfully for
both new engagements and qualified consultants, and could have an adverse effect
on our executive search business, results of operations and financial condition.
RESTRICTIONS IMPOSED BY BLOCKING ARRANGEMENTS. Pursuant to agreements known
as "blocking arrangements," executive search firms frequently refrain from
recruiting certain employees of a client, or an affiliate of a client, when
conducting executive searches on behalf of a competing client. Blocking
arrangements generally remain in effect for one or two years following the
completion of a candidate's employment, but can be increased or decreased
depending on the types and length of services provided. Some of our executive
search clients are recognized as industry leaders and/or employ a significant
number of qualified executives who are potential candidates for other companies
in that client's industry. This may make it difficult for us to place candidates
with competitors of their clients due to the blocking arrangements. If a
potential client of ours becomes aware of such blocking arrangements, it may not
be willing to engage us to conduct executive search and selection services;
therefore, the existence of these blocking arrangements could have a material
adverse effect on our ability to expand our client base and to achieve
significant growth in any one industry.
Although the duration and scope of these blocking arrangements may vary,
including whether a particular arrangement covers all operations of a client and
its affiliates or only certain divisions of a client, we are unable to predict
how restrictive such blocking arrangements may be in the future. The more
restrictive the blocking arrangements, the less able we will be to place
executive candidates in a particular industry. As our client base grows,
particularly in our targeted business sectors, blocking arrangements
increasingly may impede our growth or our ability to attract and serve new
clients, which could have an adverse effect on our executive search business,
results of operations and financial condition.
DEPENDENCE ON OUR KEY PERSONNEL. Our continued success will depend to a
significant extent upon our senior management, including Andrew J. McKelvey, our
Chairman of the Board and CEO. The loss of the services of one or more key
employees could have a material adverse effect on our business, financial
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condition or operating results. In addition, if one or more key employees join a
competitor or forms a competing company, the resulting loss of that key
employee's services and the loss of existing or potential clients could have a
material adverse effect on our business, financial condition or operating
results. If one of our key employees leaves to join a new employer, he or she
may also disclose or use our procedures, practices, new product development or
client lists without our authorization. This can have the effect of diminishing
our competitive advantage or enhancing the ability of a competitor to obtain
clients otherwise obtainable by us, the result of which could be a diminution of
revenues and profits of TMP.
CONTROL BY PRINCIPAL STOCKHOLDER. Andrew J. McKelvey beneficially owns all
of the outstanding TMP Class B Common Stock and 11,204,016 shares of TMP Common
Stock, including 250,000 shares of Common Stock registered hereby, which
together represent approximately 68.0% of the combined voting power of all
classes of our voting stock and will represent approximately 60.6% of the
combined voting power of the Company after giving effect to the M&B Transaction.
Mr. McKelvey is and will be, therefore, able to direct the election of all of
the members of TMP's Board of Directors and exercise a controlling influence
over the business and affairs of TMP, including any determinations with respect
to mergers or other business combinations involving TMP, the acquisition or
disposition of assets of TMP, the incurrence of indebtedness by TMP, the
issuance of any additional Common Stock or other equity securities and the
payment of dividends with respect to the Common Stock. Similarly, Mr. McKelvey
has the power to determine matters submitted to a vote of our stockholders
without the consent of our other stockholders and has the power to prevent a
change of control of TMP.
ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION,
BY-LAWS AND DELAWARE LAW. Our Board of Directors has the authority to issue up
to 800,000 shares of undesignated preferred stock and to determine all of the
rights and privileges of such shares without any further vote or action by the
Company's stockholders. Certain of these rights and privileges could be adverse
to the Common Stock. For example, the Board may issue shares of preferred stock
which contain a liquidation preference to the Common Stock. We have no current
plans to issue shares of preferred stock. Certain provisions of our Certificate
of Incorporation and By-Laws and of Delaware law could delay, prevent or make
more difficult a merger, tender offer or proxy contest involving the Company.
Among other things, these provisions specify advance notice requirements for
stockholder proposals and director nominations. In addition, Mr. McKelvey
controls approximately 68.0% of the combined voting power of all classes of
voting stock of the Company.
FOREIGN OPERATIONS AND RELATED RISKS. We conduct operations in various
foreign countries, including Australia, Austria, Belgium, Canada, France,
Germany, Hong Kong, Indonesia, Italy, Japan, Mexico, the Netherlands, New
Zealand, Panama, Singapore, South Africa, Spain, Switzerland and the United
Kingdom. For the year ended December 31, 1997, approximately 34.6% of our
commissions and fees were earned outside of the U.S. and collected in local
currency. Giving pro forma effect to the M&B Transaction, approximately 57.6% of
revenue, after considering costs directly associated with revenues if temporary
contracting operations would have been earned outside the U.S. for the year
ended December 31, 1997. In addition, we generally pay operating expenses with
the corresponding local currency and are at risk for exchange rate fluctuations
between such local currencies and the dollar. We do not conduct any significant
hedging activities.
We are subject to taxation in foreign jurisdictions. In addition,
transactions between the Company and its foreign subsidiaries may be subject to
U.S. and foreign withholding taxes. Applicable tax rates in foreign
jurisdictions differ from those of the U.S., and are subject to periodic change.
The extent, if any, to which we will receive credit in the U.S. for taxes paid
in foreign jurisdictions will depend upon the application of limitations set
forth in the Internal Revenue Code, as well as the provisions of any tax
treaties which may exist between the U.S. and such foreign jurisdictions. If we
do not receive credit, we will be subject to increased taxation.
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POSSIBLE VOLATILITY OF STOCK PRICE. Factors such as announcements of
variations in our quarterly financial results and fluctuations in advertising
commissions and fees, including our percentage of commissions and fees derived
from Internet-based services and products could cause the market price of the
Common Stock to fluctuate for reasons unrelated to our operating performance.
Our stock price, therefore, may be volatile.
GOVERNMENT REGULATION. As an advertising agency which creates and places
print and Internet advertisements, we are subject to Sections 5 and 12 of the
Federal Trade Commission (the "FTC Act") which regulate advertising in all
media, including the Internet, and require advertising agencies to have
substantiation for advertising claims before disseminating advertisements. The
FTC Act prohibits the dissemination of false, deceptive, misleading, and unfair
advertising, and grants the Federal Trade Commission (the "FTC") enforcement
powers to impose and seek civil penalties, consumer redress, injunctive relief
and other remedies upon advertisers and advertising agencies which disseminate
prohibited advertisements. Advertising agencies such as TMP are subject to
liability under the FTC Act if the agency actively participates in creating the
advertisement, and knew or had reason to know that the advertising was false or
deceptive. In the event that any advertising created by us was found to be
false, deceptive or misleading, the FTC Act could potentially subject us to
liability. The fact that the FTC has recently brought several actions charging
deceptive advertising via the Internet, and is actively seeking new cases
involving advertising via the Internet, indicates that the FTC Act could pose a
somewhat higher risk of liability to the advertising distributed via the
Internet. The FTC has never brought any actions against us.
DIVIDEND POLICY. We currently intend to retain earnings, if any, to support
our growth strategy and do not anticipate paying dividends on our stock for the
foreseeable future. Payment of dividends on our stock is also restricted by our
financing agreement.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The Unaudited Pro Forma Condensed Combined Financial Information reflects
financial information which gives effect to the Company's probable acquisition
of all the outstanding stock of M&B and the assumed replacement of all options
to acquire M&B stock with options to purchase TMP stock in exchange for the
issuance of approximately 6,000,000 shares of the Company's Common Stock and
327,000 options to purchase shares of TMP Common Stock. The share amounts and
option amounts were calculated using an exchange formula based upon a per share
price for M&B shares of 4.65 Australian dollars translated at 0.6123 US dollar
per Australian dollar for the periods presented and assuming 70,421,773 M&B
shares and 3,883,125 M&B options are outstanding at January 4, 1999. The Pro
Forma Financial Information included herein reflects the anticipated use of the
pooling-of-interests method of accounting, after giving effect to the pro forma
adjustments discussed in the accompanying notes. Such financial information has
been prepared from, and should be read in conjunction with, the historical
consolidated financial statements and notes thereto of TMP and M&B included
elsewhere in this Prospectus.
The Pro Forma Condensed Combined Financial Information (i) gives effect to
the M&B Transaction, (ii) gives effect, in the Combined Statement of Operations
for the year ended December 31, 1997, to the acquisition, in August 1997, of all
the outstanding stock of Austin Knight Limited, ("Austin Knight"), for a
purchase price of approximately $47.2 million, and (iii) includes the
adjustments described in the notes hereto.
The Pro Forma Condensed Combined Balance Sheet gives effect to the M&B
Transaction as if it had occurred on September 30, 1998, combining the balance
sheets of TMP at September 30, 1998 with that of M&B as of March 31, 1998. The
Pro Forma Condensed Combined Statements of Operations give effect to the M&B
Transaction as if it had occurred at the beginning of the earliest period
presented, combining the results of TMP for the nine months ended September 30,
1998 and each year in the three-year period ended December 31, 1997 with those
of M&B for the nine months ended March 31, 1998 and each year in the three-year
period ended March 31, 1998, respectively. The results for M&B for the nine
months ended March 31, 1998 are included in the Pro Forma Condensed Combined
Statement of Operations for both the year ended December 31, 1997 and the nine
months ended September 30, 1998. When translated at the appropriate exchange
rates for the December 31, 1997 and September 30, 1998 periods, revenue was
approximately $180,141,000 and $175,550,000, net income was approximately
$5,797,000 and $5,648,000, and net income per share was $0.08 and $0.08,
respectively. In addition, the Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1997 includes the results of Austin
Knight for the period prior to its acquisition by TMP on August 26, 1997.
The consolidated financial statements of M&B included in the Pro Forma
Condensed Combined Financial Information utilize Australian GAAP (which
substantially conforms to US GAAP) and were translated at the following exchange
rates: Australian dollars were translated to US dollars at the rate of 0.6613,
0.6955, 0.7137, 0.7874 and 0.7455, respectively, with respect to the Balance
Sheet at March 31, 1998 and the Statement of Operations for the nine months
ended March 31, 1998 and the years ended March 31, 1998, 1997 and 1996. The
Statement of Operations of Austin Knight included in the December 31, 1997 Pro
Forma Condensed Combined Statement of Operations was translated from British
Pounds Sterling to US dollars at the rate of 1.634 US dollars per British Pound
Sterling.
The Pro Forma Condensed Combined Statements of Operations presented do not
include any potential cost savings. The Company believes that it may be able to
reduce salaries and related costs and office and general expenses as it
eliminates duplication of overhead. However, there can be no assurance that the
Company will be successful in effecting any such cost savings.
The Pro Forma Condensed Combined Financial Information is unaudited and is
not necessarily indicative of the consolidated results which actually would have
occurred if the above transactions had been consummated at the beginning of the
periods presented, nor does it purport to present the future financial position
and results of operations for future periods.
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TMP WORLDWIDE INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP MORGAN & BANKS PRO FORMA
WORLDWIDE INC. LIMITED ADJUSTMENTS COMBINED
-------------- ---------------- ------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 12,855 $ 9,581 $ -- $ 22,436
Accounts receivable, net....................... 317,048 25,401 -- 342,449
Work-in-process................................ 16,367 -- -- 16,367
Deferred income taxes.......................... -- 1,446 -- 1,446
Prepaid and other.............................. 19,385 2,243 -- 21,628
-------------- ------- ------ -----------
Total current assets....................... 365,655 38,671 -- 404,326
Property and equipment, net...................... 49,928 9,359 -- 59,287
Deferred income taxes............................ 4,084 135 -- 4,219
Intangibles, net................................. 184,463 6,155 -- 190,618
Other assets..................................... 5,473 30 -- 5,503
-------------- ------- ------ -----------
$ 609,603 $ 54,350 $ -- $ 663,953
-------------- ------- ------ -----------
-------------- ------- ------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 254,864 $ 4,419 $ -- $ 259,283
Accrued expenses and other liabilities......... 50,808 30,759 4,500(a) 86,067
Accrued restructuring costs.................... 20,902 -- -- 20,902
Deferred revenue............................... 13,923 -- -- 13,923
Deferred income taxes.......................... 13,519 9 -- 13,528
Current portion of long-term debt.............. 8,908 318 -- 9,226
-------------- ------- ------ -----------
Total current liabilities.................. 362,924 35,505 4,500 402,929
Long-term debt, less current portion............. 128,581 5,370 -- 133,951
Other liabilities................................ -- 659 -- 659
Minority interests............................... -- 431 -- 431
Stockholders' equity:
Common stock................................... 27 -- 6(b) 33
Class B common stock........................... 2 -- -- 2
Common stock of Morgan & Banks Limited......... -- 1,526 (1,526) (c) --
Additional paid-in capital..................... 171,973 2,780 1,520 (b,c 176,273
Foreign currency translation adjustment........ (543) (204) -- (747)
Retained earnings (deficit).................... (53,361) 8,283 (4,500) (a) (49,578)
-------------- ------- ------ -----------
Total stockholders' equity................. 118,098 12,385 (4,500) 125,983
-------------- ------- ------ -----------
$ 609,603 $ 54,350 $ -- $ 663,953
-------------- ------- ------ -----------
-------------- ------- ------ -----------
</TABLE>
- ------------------------
(a) To accrue for costs to be incurred in connection with the M&B Transaction.
(b) Represents par value of the 5,937 shares to be issued in connection with the
M&B Transaction, based on the number of outstanding M&B Shares as of the
balance sheet date.
(c) Par value of the M&B Shares is reclassified as additional paid-in capital
net of the par value of the newly issued TMP Common Stock.
18
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP MORGAN & BANKS PRO FORMA
WORLDWIDE INC. LIMITED COMBINED
-------------- ---------------- -----------
<S> <C> <C> <C>
Revenue:
Commissions and fees.......................................... $ 297,854 $ 52,220 $ 350,074
Temporary contracting......................................... -- 123,330 123,330
-------------- -------- -----------
Total revenue............................................. 297,854 175,550 473,404
-------------- -------- -----------
Operating expenses:
Salaries and related costs.................................... 164,012 45,000 209,012
Temporary contracting costs................................... -- 102,307 102,307
Office and general............................................ 91,060 18,157 109,217
Amortization of intangibles................................... 6,403 399 6,802
CEO bonus..................................................... 1,125 -- 1,125
Merger costs.................................................. 9,577 -- 9,577
-------------- -------- -----------
Total operating expenses.................................. 272,177 165,863 438,040
-------------- -------- -----------
Operating income................................................ 25,677 9,687 35,364
Interest expense, net........................................... (7,507) (202) (7,709)
Other expense, net.............................................. (842) (15) (857)
-------------- -------- -----------
Income before provision for income taxes, minority interests and
equity in losses of affiliates................................ 17,328 9,470 26,798
Provision for income taxes...................................... 7,735 3,712 11,447
Minority interests.............................................. -- 110 110
Equity in losses of affiliates.................................. (297) -- (297)
-------------- -------- -----------
Net income...................................................... $ 9,296 $ 5,648 $ 14,944
-------------- -------- -----------
-------------- -------- -----------
Net income per common and Class B common share:
Basic......................................................... $ 0.32 $ 0.43(a)
Diluted....................................................... $ 0.31 $ 0.42(a)
Weighted average shares outstanding:
Basic......................................................... 29,142 34,979(a)
Diluted....................................................... 29,949 35,926(a)
</TABLE>
- ------------------------
(a) Gives effect to the additional shares and options expected to be issued in
connection with the M&B Transaction, including M&B's weighted average basic
and diluted shares outstanding for the periods, which were 69,239 and
70,899, respectively, multiplied by the assumed Exchange Ratio of 0.08431.
If the M&B Transaction is consummated with TMP Common Stock valued at $25.00
per share, the minimum share price provided for in the Agreement, basic and
diluted weighted shares outstanding would have been 37,027 and 38,024
shares, respectively, and basic and diluted net income per Common and Class
B Common share would have been $0.40 and $0.39, respectively.
If the M&B Transaction is consummated with TMP Common Stock valued at $40.00
per share, the maximum share price provided for in the Agreement, basic and
diluted weighted shares outstanding would have been 34,070 and 34,996
shares, respectively, and basic and diluted net income per Common and Class
B Common share would have been $0.44 and $0.43, respectively.
19
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP AUSTIN KNIGHT MORGAN & BANKS PRO FORMA
WORLDWIDE INC. LIMITED(A) ADJUSTMENTS SUBTOTAL LIMITED COMBINED
-------------- ------------- ----------- ---------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Commissions and fees.......... $ 310,619 $ 34,800 $ -- $ 345,419 $ 71,950 $ 417,369
Temporary contracting......... -- -- -- -- 163,831 163,831
-------------- ------------- ----------- ---------- -------- -----------
Total revenue............. 310,619 34,800 -- 345,419 235,781 581,200
-------------- ------------- ----------- ---------- -------- -----------
Operating expenses:
Salaries and related costs.... 172,528 28,480 -- 201,008 60,342 261,350
Temporary contracting costs... -- -- -- -- 136,185 136,185
Office and general............ 101,176 5,758 -- 106,934 25,258 132,192
Amortization of intangibles... 6,269 -- 1,323(b) 7,592 558 8,150
CEO bonus..................... 1,500 -- -- 1,500 -- 1,500
-------------- ------------- ----------- ---------- -------- -----------
Total operating
expenses................ 281,473 34,238 1,323 317,034 222,343 539,377
-------------- ------------- ----------- ---------- -------- -----------
Operating income................ 29,146 562 (1,323) 28,385 13,438 41,823
Interest expense, net........... (8,813) (244) (2,896)(c) (11,953) (247) (12,200)
Other income (expense), net..... (181) 1,547 -- 1,366 (22) 1,344
-------------- ------------- ----------- ---------- -------- -----------
Income before provision for
income taxes, minority
interests and equity in losses
of affiliates................. 20,152 1,865 (4,219) 17,798 13,169 30,967
Provision for income taxes...... 9,571 1,442 (1,158)(d) 9,855 5,153 15,008
Minority interests.............. 143 -- -- 143 153 296
Equity in losses of affiliates.. (33) -- -- (33) -- (33)
-------------- ------------- ----------- ---------- -------- -----------
Net income...................... 10,405 423 (3,061) 7,767 7,863 15,630
Preferred stock dividends....... (123) -- -- (123) -- (123)
-------------- ------------- ----------- ---------- -------- -----------
Net income applicable to common
and Class B common
stockholders.................. $ 10,282 $ 423 $ (3,061) $ 7,644 $ 7,863 $ 15,507
-------------- ------------- ----------- ---------- -------- -----------
-------------- ------------- ----------- ---------- -------- -----------
Net income per common and Class
B common share:
Basic......................... $ 0.38 $ 0.47(e)
Diluted....................... $ 0.37 $ 0.46(e)
Weighted average shares
outstanding:
Basic......................... 27,224 32,998(e)
Diluted....................... 27,716 33,642(e)
</TABLE>
- ------------------------
(a) For the period January 1, 1997 through the date of the acquisition by TMP of
Austin Knight on August 26, 1997.
(b) To record amortization of intangibles arising from the acquisition of Austin
Knight, as if such acquisition occurred on January 1, 1997. Such
amortization is based on a 30 year life and is computed on an intangible
asset of $59,523, amortized for eight months.
(c) To record interest expense on borrowings of $47,208, at 9.2% for eight
months, made in connection with the acquisition of Austin Knight, as if such
acquisition occurred on January 1, 1997.
20
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
(d) To record the tax benefit on interest expense of $2,896 on borrowings for
the acquisition of Austin Knight, at an estimated tax rate of 40%.
(e) Gives effect to the additional shares and options expected to be issued in
connection with the Transaction, including M&B's weighted average basic and
diluted shares outstanding for the period, which were 68,489 and 70,289,
respectively, multiplied by the assumed Exchange Ratio of 0.08431.
If the Transaction is consummated with TMP Common Stock valued at $25.00 per
share, the minimum share price provided for in the Agreement, basic and
diluted weighted shares outstanding would have been 35,024 and 35,721
shares, respectively, and basic and diluted net income per Common and Class
B Common share would have been $0.44 and $0.43, respectively.
If the Transaction is consummated with TMP Common Stock valued at $40.00 per
share, the maximum share price provided for in the Agreement, basic and
diluted weighted shares outstanding would have been 32,099 and 32,719
shares, respectively, and basic and diluted net income per Common and Class
B Common share would have been $0.48 and $0.47, respectively.
21
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP MORGAN & BANKS PRO FORMA
WORLDWIDE INC. LIMITED COMBINED
-------------- ---------------- -----------
<S> <C> <C> <C>
Revenue:
Commissions and fees.......................................... $ 223,319 $ 61,084 $ 284,403
Temporary contracting......................................... -- 113,299 113,299
-------------- -------- -----------
Total revenue............................................. 223,319 174,383 397,702
-------------- -------- -----------
Operating expenses:
Salaries and related costs.................................... 122,964 45,507 168,471
Temporary contracting costs................................... -- 93,585 93,585
Office and general............................................ 74,252 21,944 96,196
Amortization of intangibles................................... 4,440 292 4,732
Special compensation.......................................... 52,019 -- 52,019
-------------- -------- -----------
Total operating expenses.................................. 253,675 161,328 415,003
-------------- -------- -----------
Operating income (loss)......................................... (30,356) 13,055 (17,301)
Interest expense, net........................................... (14,216) (27) (14,243)
Other income (expense), net..................................... (755) 141 (614)
-------------- -------- -----------
Income (loss) before provision for income taxes, minority
interests and equity in earnings of affiliates................ (45,327) 13,169 (32,158)
Provision for income taxes...................................... 4,125 4,812 8,937
Minority interests.............................................. 434 583 1,017
Equity in earnings of affiliates................................ 114 -- 114
-------------- -------- -----------
Net income (loss)............................................... (49,772) 7,774 (41,998)
Preferred stock dividends....................................... (210) -- (210)
-------------- -------- -----------
Net income (loss) applicable to common and Class B common
stockholders.................................................. $ (49,982) $ 7,774 $ (42,208)
-------------- -------- -----------
-------------- -------- -----------
Net (loss) per common and Class B common share:
Basic......................................................... $ (2.24) $ (1.51)
Diluted....................................................... $ (2.24) $ (1.51)
Weighted average shares outstanding:
Basic......................................................... 22,280 27,985(a)
Diluted....................................................... 22,280 27,985(a)
</TABLE>
- ------------------------
(a) Gives effect to the additional shares and options expected to be issued in
connection with the Transaction, including M&B's weighted average basic and
diluted shares outstanding for the period, which were 67,664 and 69,895,
respectively, multiplied by the assumed Exchange Ratio of 0.08431.
If the Transaction is consummated with TMP Common Stock valued at $25.00 per
share, the minimum share price provided for in the Agreement, basic and
diluted weighted shares outstanding would have been 29,986 and 29,986
shares, respectively, and basic and diluted net income per Common and Class
B Common share would have been $(1.41) and $(1.41), respectively.
If the Transaction is consummated with TMP Common Stock valued at $40.00 per
share, the maximum share price provided for in the Agreement, basic and
diluted weighted shares outstanding would have been 27,096 and 27,096
shares, respectively and basic and diluted net income per Common and Class B
Common share would have been $(1.56) and $(1.56), respectively.
22
<PAGE>
TMP WORLDWIDE INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP MORGAN & BANKS PRO FORMA
WORLDWIDE INC. LIMITED COMBINED
-------------- ---------------- -----------
<S> <C> <C> <C>
Revenue:
Commissions and fees.......................................... $ 183,674 $ 44,881 $ 228,555
Temporary contracting......................................... -- 61,768 61,768
-------------- -------- -----------
Total revenue............................................. 183,674 106,649 290,323
-------------- -------- -----------
Operating expenses:
Salaries and related costs.................................... 100,162 31,701 131,863
Temporary contracting costs................................... -- 49,503 49,503
Office and general............................................ 57,310 17,032 74,342
Amortization of intangibles................................... 3,237 118 3,355
-------------- -------- -----------
Total operating expenses.................................. 160,709 98,354 259,063
-------------- -------- -----------
Operating income................................................ 22,965 8,295 31,260
Interest income (expense), net.................................. (10,654) 77 (10,577)
Other income (expense), net..................................... (1,057) 123 (934)
-------------- -------- -----------
Income before provision for income taxes, minority interests and
equity in losses of affiliates................................ 11,254 8,495 19,749
Provision for income taxes...................................... 5,100 3,136 8,236
Minority interests.............................................. 435 326 761
Equity in losses of affiliates.................................. (279) -- (279)
-------------- -------- -----------
Net income...................................................... 5,440 5,033 10,473
Preferred stock dividends....................................... (210) -- (210)
-------------- -------- -----------
Net income applicable to common and Class B common
stockholders.................................................. $ 5,230 $ 5,033 $ 10,263
-------------- -------- -----------
-------------- -------- -----------
Net income per common and Class B common share:
Basic......................................................... $ 0.24 $ 0.37(a)
Diluted....................................................... $ 0.23 $ 0.36(a)
Weighted average shares outstanding:
Basic......................................................... 22,045 27,670(a)
Diluted....................................................... 22,497 28,158(a)
</TABLE>
- ------------------------
(a) Gives effect to the additional shares and options expected to be issued in
connection with the Transaction including M&B's weighted average basic and
diluted shares outstanding for the period, which were 66,718 and 67,152,
respectively, multiplied by the assumed Exchange Ratio of 0.08431.
If the Transaction is consummated with TMP Common Stock valued at $25.00 per
share, the minimum share price provided for in the Agreement, basic and
diluted weighted shares outstanding would have been 29,643 and 30,145
shares, respectively, and basic and diluted net income per Common and Class
B Common share would have been $0.35 and $0.34, respectively.
If the Transaction is consummated with TMP Common Stock valued at $40.00 per
share, the maximum share price provided for in the Agreement, basic and
diluted weighted shares outstanding would have been 26,794 and 27,277
shares, respectively, and basic and diluted net income per Common and Class
B Common share would have been $0.38 and $0.38, respectively.
23
<PAGE>
USE OF PROCEEDS
TMP will not receive any proceeds from the sale of shares of TMP stock by
the selling stockholders.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our stock. We currently
anticipate that all future earnings will be retained by TMP to support our
growth strategy. Accordingly, we do not anticipate paying cash dividends on our
stock for the foreseeable future. The payment of any future dividends will be at
the discretion of our Board of Directors and will depend upon, among other
things, future earnings, operations, capital requirements, our general financial
condition, contractual restrictions and general business conditions. Our
financing agreement prohibits the payment of dividends on our stock.
PRICE RANGE OF COMMON STOCK
Our stock is quoted on the Nasdaq National Market under the ticker symbol
"TMPW." The stock was initially offered to the public on December 12, 1996 at
$14.00 per share. The following table sets forth for the periods indicated the
high and low reported sale prices per share for our stock as reported by Nasdaq.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1999 HIGH LOW
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First Quarter (through January 14, 1999)................................... $ 50.00 $ 37.00
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 HIGH LOW
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First Quarter.............................................................. $ 32.62 $ 21.62
Second Quarter............................................................. $ 34.88 $ 24.75
Third Quarter.............................................................. $ 39.19 $ 27.88
Fourth Quarter............................................................. $ 42.00 $ 20.50
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 HIGH LOW
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First Quarter.............................................................. $ 22.00 $ 12.88
Second Quarter............................................................. $ 24.25 $ 17.00
Third Quarter.............................................................. $ 25.62 $ 19.00
Fourth Quarter............................................................. $ 28.75 $ 15.00
</TABLE>
There were approximately 390 stockholders of record of our Common Stock on
January 12, 1999. On January 12, 1999, the last reported sale price of our stock
as reported by Nasdaq was $42.75.
24
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth information as of January 12, 1999. Except
for shares owned by Andrew J. McKelvey and John R. Gaulding, all of the shares
offered by this prospectus were acquired by the selling stockholders from TMP
pursuant to our acquisition of Stackig, Inc. as of September 30, 1998, of
Recruitment Solutions, Inc. on October 2, 1998, of The Smart Group on October
30, 1998 and of The Consulting Group (International) Limited on December 1,
1998. Except for Mr. McKelvey no selling stockholder owns more than one percent
of the outstanding shares of our stock.
Under the Stock Purchase Agreements relating to our acquisition of each of
Stackig, Inc., The Smart Group and The Consulting Group (International) Limited,
we agreed to register the shares of TMP stock issued to the selling
stockholders. Our registration of these shares does not necessarily mean that
the selling stockholders will sell all or any of their shares.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF SHARES
SHARES OWNED SHARES BENEFICIALLY
PRIOR TO REGISTERED OWNED AFTER
SELLING STOCKHOLDER OFFERING HEREIN OFFERING(1)
- ----------------------------------------------------------------- ---------------- ----------- ----------------
<S> <C> <C> <C>
Ann Marie Avellino............................................... 10,115 10,115 0
Gary Gracie...................................................... 2,528 2,528 0
Lindsay Hall..................................................... 10,115 10,115 0
Gary A. Harris................................................... 2,528 2,528 0
William T. Lane.................................................. 10,115 10,115 0
Deborah M. League................................................ 202,230 202,230 0
Timothy R. Letzkus............................................... 2,528 2,528 0
David O. Pogue................................................... 50,561 50,561 0
Dina Punturi-Scherer............................................. 2,528 2,528 0
David C. Swanston................................................ 10,115 10,115 0
Laurence J. Rosenfeld............................................ 202,230 202,230 0
Andrew Hatch..................................................... 98,840 98,840 0
Jeffrey Elletson................................................. 5,202 5,202 0
Andrew J. McKelvey(2)............................................ 13,585,016 250,000 13,335,016
John R. Gaulding................................................. 21,250 10,000 11,250
Peter W. Evans................................................... 241,674 241,674 0
Peter W. Evans and Suzanne Evans (Trustees for Rosie Evans)...... 2,466 2,466 0
Peter W. Evans and Suzanne Evans (Trustees for Tomos Evans)...... 2,466 2,466 0
SunQuest LLC..................................................... 309,702 309,702 0
</TABLE>
- ------------------------
(1) Assumes that all shares offered by each selling stockholder are sold in this
offering.
(2) Includes 2,381,000 shares of Class B Common Stock which are convertible, on
a share for share basis, into Common Stock. Each share of Class B Common
Stock has ten votes per share. Also includes 2,000 shares of Common Stock
owned by Mr. McKelvey's wife and 100 shares of Common Stock owned by Mr.
McKelvey's daughter. Mr. McKelvey disclaims beneficial ownership of the
shares owned by his wife. Prior to the Offering, Mr. McKelvey owned all of
the Class B Common Stock and 40.4% of the Common Stock which, collectively,
conferred upon him 68.0% of TMP's total voting power. Assuming that the
shares offered hereby are sold, Mr. McKelvey will still own all of the Class
B Common Stock and 39.5% of the Common Stock which will confer upon him
67.5% of TMP's total voting power.
25
<PAGE>
PLAN OF DISTRIBUTION
The selling stockholders may offer their shares at various times in one or
more transactions on the Nasdaq National Market, in special offerings, exchange
distributions, secondary distributions, negotiated transactions, or a
combination of such. They may sell at market prices at the time of sale, at
prices related to the market price or at negotiated prices. The selling
stockholders may use broker-dealers to sell their shares. If this happens,
broker-dealers will either receive discounts or commissions from the selling
stockholders, or they will receive commissions from purchasers of shares for
whom they acted as agents.
LEGAL OPINION
For the purpose of this offering, our outside counsel, Fulbright & Jaworski
L.L.P., New York, New York 10103, is giving its opinion on the validity of the
shares.
EXPERTS
The consolidated financial statements and schedule included in the Company's
Annual Report on Form 10-K/A for the year ended December 31, 1997 and the
Company's Information Statement on Schedule 14C, dated January 6, 1999, which
are incorporated by reference in this Prospectus, have been audited by BDO
Seidman, LLP, independent certified public accountants, and the consolidated
financial statements of Neville Jeffress Australia Pty Limited and subsidiaries
incorporated by reference in this Prospectus have been audited by BDO Nelson
Parkhill, independent auditors, to the extent and for the periods set forth in
their reports incorporated herein by reference, and are incorporated herein in
reliance upon the authority of said firm as experts in accounting and auditing.
The audited consolidated financial statements of M&B incorporated by reference
in this Prospectus and Registration Statement have been audited by Pannell Kerr
Forster, independent chartered accountants, as indicated in their report with
respect thereto, and are incorporated herein in reliance upon the authority of
said firm as experts in accounting and auditing.
The consolidated financial statements of Austin Knight Limited and its
Subsidiaries incorporated by reference in this Prospectus have been audited by
KPMG, independent chartered accountants, to the extent and for the periods set
forth in their report incorporated by reference herein and are included in
reliance upon such report given upon the authority of such firm as experts in
auditing and accounting.
26
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses payable by the Registrant in connection with the issuance and
distribution of the securities being registered (other than underwriting
accounts and commissions) are estimated to be as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................... $16,625.53
Accountants' Fees and Expenses................................. 75,000.00
Legal Fees and Expenses........................................ 20,000.00
Miscellaneous.................................................. 13,374.47
----------
Total.......................................................... $125,000.00
----------
----------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware permits
indemnification of directors, officers and employees of a corporation under
certain conditions and subject to certain limitations. Article VI of the By-Laws
of the Registrant contains provision for the indemnification of directors,
officers and employees within the limitations permitted by Section 145. In
addition, the Company has entered into Indemnity Agreements with its directors
and officers which provide the maximum indemnification allowed by Section 145.
The Company's officers and directors are insured against losses arising from any
claim against them as such for wrongful acts or omissions, subject to certain
limitations.
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
2.1 Scheme Implementation Agreement by and between Morgan & Banks Limited and TMP
Worldwide Inc. dated August 17, 1998.*
5.1 Opinion of Fulbright & Jaworski L.L.P. regarding legality.
23.1 (a) Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).
(b) Consent of BDO Seidman, LLP
(c) Consent of BDO Nelson Parkhill
(d) Consent of Pannell Kerr Forster
(e) Consent of KPMG
24 Power of Attorney (on signature page).
99.1 The Company's Management's Discussion and Analysis of Results of Operations and
Financial Condition(pages 62-74 of the Company's Schedule 14C, file no. 0-21571) and
Financial Statements (pages F-11-F-113) of the Schedule 14C.
</TABLE>
- ------------------------
* incorporated by reference from the Company's Registration Statement on Form
S-3 (File No. 333-63499)
II-1
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person of the Registrant in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on January 19, 1999.
<TABLE>
<S> <C> <C>
TMP WORLDWIDE INC.
By: /s/ ANDREW J. MCKELVEY
-----------------------------------------
Andrew J. McKelvey
CHAIRMAN AND CEO
</TABLE>
II-3
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each individual whose signature appears
below constitutes and appoints ANDREW J. MCKELVEY and THOMAS G. COLLISON, or
either of them, his true and lawful attorney-in-fact and agent with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to file the same with all
exhibits thereto and all documents in connection therewith, with the Securities
and Exchange Commission, granting said attorney-in-fact and agent and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ ANDREW J. MCKELVEY Chairman, CEO and Director
- ------------------------------ (PRINCIPAL EXECUTIVE January 19, 1998
Andrew J. McKelvey OFFICER)
/s/ THOMAS G. COLLISON
- ------------------------------ Vice Chairman (PRINCIPAL January 19, 1998
Thomas G. Collison FINANCIAL OFFICER)
/s/ JAMES J. TREACY Executive Vice President,
- ------------------------------ Chief Operating Officer January 19, 1998
(James J. Treacy) and Director
/s/ ROXANE PREVITY Chief Financial Officer
- ------------------------------ (PRINCIPAL ACCOUNTING January 19, 1998
Roxane Previty OFFICER)
/s/ GEORGE R. EISELE
- ------------------------------ Director January 19, 1998
(George R. Eisele)
/s/ JOHN R. GAULDING
- ------------------------------ Director January 19, 1998
(John R. Gaulding)
/s/ MICHAEL KAUFMAN
- ------------------------------ Director January 19, 1998
(Michael Kaufman)
/s/ JOHN SWANN
- ------------------------------ Director January 19, 1998
(John Swann)
</TABLE>
II-4
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF FULBRIGHT & JAWORSKI L.L.P.]
January 19, 1999
TMP Worldwide Inc.
1633 Broadway
New York, New York 10019
Re: TMP Worldwide Inc. Registration Statement on Form S-3
--------------------------------------------------------
Dear Sirs:
In connection with the Registration Statement on Form S-3 (the "Registration
Statement") to be filed by TMP Worldwide Inc., a Delaware corporation (the
"Company"), under the Securities Act of 1933, as amended, relating to the resale
by certain stockholders of the Company of up to an aggregate of 1,425,943 shares
(the "Shares") of Common Stock, par value $.001 per share, of the Company, we as
counsel for the Company, have examined such corporate records, other documents
and questions of law as we have deemed necessary or appropriate for the purposes
of this opinion.
Upon the basis of such examination, we advise you that in our opinion the
Shares have been duly and validly authorized, legally issued, fully paid and
non-assessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to this firm under the caption "Legal Matters" in
the Prospectus contained therein and elsewhere in the Registration Statement and
Prospectus. This consent is not to be construed as an admission that we are a
party whose consent is required to be filed with the Registration Statement
under the provisions of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Fulbright & Jaworski L.L.P.
<PAGE>
EXHIBIT 23.1(B)
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our reports dated March
20, 1998, except for Notes 5 and 13(c) for which the date is December 17, 1998,
relating to the consolidated financial statements and schedule of TMP Worldwide
Inc. appearing in the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1997 and the Company's Information Statement on Schedule 14C, dated
January 6, 1999.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
New York, New York
January 19, 1999
<PAGE>
[BDO LETTER HEAD]
EXHIBIT 23.1(C)
19 January 1999
TMP Worldwide Inc
New York, NY
We consent to the inclusion of our report dated 8 November 1996, with respect to
the consolidated balance sheets of Neville Jeffress Australia Pty. Limited as of
31 December 1995 and 1996, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the years in the two year period
ended 31 December 1996 appearing in the Company's Information Statement in
Schedule 14C, dated January 6, 1999, which report is incorporated by reference
in this Registration Statement on Form S-3 of TMP Worldwide Inc.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO International
/s/ BDO International
/s/ Stephen La Greca
Stephen La Greca
Partner
<PAGE>
EXHIBIT 23.1(D)
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 use of our report dated 16 June 1998, except for Note 2
of Notes to and forming Part of the Consolidated Financial Statements, relating
to the consolidated balance sheets of Morgan & Banks Limited as at 31 March 1998
and 1997, and the consolidated profit and loss statements and cash flow
statements for each of the years in the three year period ended 31 March 1998
appearing in the Company's Information Statement on Schedule 14C, dated January
6, 1999, which report is incorporated by reference in this Registration
Statement on Form S-3 of TMP Worldwide Inc.
We also consent to the reference to us under the caption "Experts" in the
Prospectus constituting a part of this Registration Statement.
Sydney, Australia
15 January 1999
Pannell Kerr Forster, P.C.
[LOGO]
PANNELL KERR FORSTER
<PAGE>
EXHIBIT 23.1(E)
PRIVATE & CONFIDENTIAL
The Directors
TMP Worldwide Inc
1633 Broadway
New York NY 10019
18 January 1999
Dear Sir
We consent to the inclusion of our report dated 4 February 1997, with respect to
the consolidated balance sheets of Austin Knight Limited as of 31 December 1995
and 1996, and the related consolidated statements of earnings, stockholders'
equity and cash flows for each of the years in the two year period ended 31
December 1996 appearing in the Company's Information Statement on Schedule 14C,
dated January 6, 1999, which report is incorporated by reference in this
Registration Statement on Form S-3 of TMP Worldwide Inc.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
Yours sincerely
KPMG
<PAGE>
EXHIBIT 99.1
TMP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Statements in this Information Statement concerning the Company's business
outlook or future economic performance, anticipated profitability, gross
billings, commissions and fees, expenses or other financial items and statements
concerning assumptions made or exceptions as to any future events, conditions,
performance or other matters are "forward-looking statements" as that term is
defined under the federal securities laws. Forward-looking statements are
subject to risks, uncertainties and other factors which would cause actual
results to differ materially from those stated in such statements. Such risks,
uncertainties and factors include, but are not limited to, (i) the uncertain
acceptance of the Internet and the Company's Internet content, (ii) that the
Company has grown rapidly and there can be no assurance that the Company will
continue to be able to grow profitably or manage its growth, (iii) risks
associated with acquisitions, (iv) competition, (v) the Company's quarterly
operating results have fluctuated in the past and are expected to fluctuate in
the future, (vi) the Company's business experiences seasonality, (vii) the loss
of services of certain key individuals could have a material adverse effect on
the Company's business, financial condition or operating results, (viii) the
Company has entered into certain transactions with affiliated parties and (ix)
the control of the Company by Andrew J. McKelvey.
OVERVIEW
A substantial part of the Company's growth has been achieved through
acquisitions. The Company completed fourteen recruitment related acquisitions of
which three, Johnson, Smith & Knisely Inc., TASA Holding AG, and Stackig, Inc.
("the pooled companies") are being accounted for as poolings of interests.
2,981,000 shares of the Company's common stock were issued in exchange for all
of the outstanding common stock of these pooled companies and the accompanying
financial statements have been restated to include the accounts and operations
of the pooled companies for all periods presented. For the period January 1,
1995 through December 31, 1997, the Company has completed 40 acquisitions with
estimated annual gross billings of approximately $600 million. Given the
significant number of acquisitions in each of the last three years and the nine
months ended September 30, 1998, 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. While gross billings are not included in the Company's
consolidated financial statements, the trends in gross billings directly impact
the commissions and fees earned by the Company. For recruitment and yellow page
advertising, the Company earns commissions based on a percentage of the media
advertising purchased at a rate established by the related publisher, and
associated fees for related services. Publishers typically bill the Company for
the advertising purchased by the Company's clients and the Company in turn bills
its clients for this amount. Generally, the payment terms with yellow page
clients require payment to the Company prior to the date payment is due to
publishers. The payment terms with recruitment advertising clients typically
require payment when payment is due to publishers. Historically, the Company has
not experienced substantial problems with unpaid accounts.
The Company designs and executes yellow page advertising programs, receiving
an effective commission rate from directory publishers of approximately 20% of
yellow page gross billings. In general, publishers consider orders renewed
unless actively canceled. In addition to base commissions, certain yellow pages
publishers pay increased commissions for volume placement by advertising
agencies. The Company typically recognizes this additional commission, if any,
in the fourth quarter when it is certain that such commission has been earned.
The amounts reported in the fourth quarters of 1997, 1996 and 1995 were $2.0
million, $3.5 million and $4.2 million, respectively. For recruitment
advertising placements in the U.S., publisher commissions average 15% of
recruitment advertising gross billings. The Company also earns fees from
value-added services such as design, research and other creative and
administrative
1
<PAGE>
services. Outside of the U.S., where, collectively, the Company derives the
majority of its recruitment advertising commissions and fees, TMP's commission
rates for recruitment advertising vary, ranging from approximately 10% in
Australia to 15% in Canada and the United Kingdom. Based on the consolidated
results of the Company for the nine months ended September 30, 1998 and the
years ended December 31, 1997, 1996 and 1995, 59%, 52%, 29%, and 10%,
respectively, of the Company's recruitment commission fees were attributable to
clients outside the U.S. The Company also earns fees for recruitment
advertisements and related services on its career oriented Web sites on the
Internet. Through its search and selection services, the Company identifies and
screens candidates for hiring by clients based on criteria established by such
clients. The Company entered this business by acquiring in 1998, (1) Johnson,
Smith and Knisely Inc. ("JSK"), the 12th largest executive search firm in the
U.S., according to Kennedy Publications, an official ranking service for the
search industry, (2) Europ Consultants, S.L. a search and selection firm in
Barcelona, Spain, (3) TASA Holding AG of Zurich, Switzerland, ("TASA"), an
international executive search firm and (4) Daniel Porte, a French search and
selection firm.
Primarily as a result of acquisitions which are included in the financial
statements using the purchase method of accounting from their respective dates
of acquisitions made from January 1, 1995 through December 31, 1997, the
Company's commissions and fees increased from $183.7 million in 1995 to $310.6
million in 1997. The Company is continuously monitoring the marketplace for
opportunities to expand its presence in both yellow page and recruitment
advertising, which include Internet-related opportunities and intends to
continue its acquisition strategy to supplement its internal growth.
The Company's operating expenses have increased significantly since 1995
primarily due to headcount increases as a result of acquisitions and hiring to
support gross billings growth. Salaries and related costs increased $72.3
million to $172.5 million for the year ended December 31, 1997 from $100.2
million for the year ended December 31, 1995, a 72.2% increase, supporting a
$474.0 million or a 70.1% increase in gross billings over the same period. When
measured as a percent of billings, salaries and related costs for the year ended
December 31, 1997 were 15.0%, up slightly from 14.8% for the comparable 1995
period. Salaries and related costs include total payroll and associated benefits
as well as payroll taxes, sales commissions, recruitment fees and training
costs.
Office and general expenses increased $43.9 million to $101.2 million for
the year ended December 31, 1997 from $57.3 million for the year ended December
31, 1995, a 76.6% increase, primarily due to increased costs needed to support
the increased billings and the expansion of recruitment offices through
acquisitions in new U.S. and foreign markets. When measured as a percent of
billings, office and general costs for the years ended December 31, 1997 were
8.8%, up slightly from 8.5% for the comparable 1995 period. This cost category
includes expenses for office operations, business promotion, market research,
advertising, professional fees and fees paid to the Company's primary lending
institution for its services in the processing and collection of payments for
accounts receivable.
Amortization of intangibles includes amortization of acquisition related
charges, including the costs in excess of fair market value of net assets
acquired and capitalized costs for non-compete arrangements with the principals
of acquired companies. This acquisition related amortization was $6.3 million,
$4.4 million and $3.2 million for the years ended December 31, 1997, 1996 and
1995, respectively, and was $6.4 million and $4.5 million for the nine months
ended September 30, 1998 and 1997, respectively.
The CEO bonus for the nine months ended September 30, 1998 and the year
ended December 31, 1997 of $1.1 million and $1.5 million respectively reflects a
non-cash charge recorded in compliance with SAB 79, for a bonus mandated by the
Principal Stockholder's employment contract which he irrevocably waived. Special
compensation for the year ended December 31, 1996, reflects a non-cash,
non-recurring charge of approximately $52.0 million resulting from the issuance
of approximately 3.6 million shares of common stock of the Company to
stockholders of predecessor companies of the Company in exchange for their
shares in those companies, because they had received such shares for nominal or
no consideration as
2
<PAGE>
employees or as management of such companies and, accordingly, were not
considered to have made substantive investments for their shares.
Net interest expense includes interest: (i) on loans made by the Company's
primary lender under its financing agreement with such lender, (ii) to certain
vendors, (iii) on capitalized lease obligations, (iv) on net amounts payable to
the holders of seller financed notes and (v) on a term loan related to the
purchase of certain transportation equipment. In addition, 1996 interest expense
includes a non-recurring charge of approximately $2.6 million to reflect, upon
exercise of the warrant issued in connection with the Company's financing
agreement, the difference between the value of the stock issued at the initial
public offering price of $14.00 per share and the value recorded for the warrant
when it was originally issued.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated gross billings,
commissions and fees and commissions and fees as a percentage of gross billings
for the Company's yellow page advertising, recruitment advertising and Internet
businesses and EBITDA for the Company.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ ------------------------
1995 1996 1997 1997 1998
---------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS) (UNAUDITED)
GROSS BILLINGS:
Yellow page advertising........................ $ 429,176 $ 434,728 $ 457,519 $ 349,910 $ 372,899
Recruitment advertising........................ 195,020 341,955 602,672 417,872 604,566
Search & selection............................. 51,980 50,613 70,776 49,382 63,889
Internet(1).................................... 392 6,659 19,640 13,548 34,823
---------- ---------- ------------ ---------- ------------
Total.......................................... $ 676,568 $ 833,955 $ 1,150,607 $ 830,712 $ 1,076,177
---------- ---------- ------------ ---------- ------------
---------- ---------- ------------ ---------- ------------
COMMISSIONS AND FEES:
Yellow page advertising........................ $ 87,456 $ 94,545 $ 95,768 $ 71,375 $ 75,982
Recruitment advertising........................ 43,846 71,502 125,474 86,216 126,259
Search & selection............................. 51,980 50,613 70,776 49,382 63,889
Internet(1).................................... 392 6,659 18,601 12,922 31,724
---------- ---------- ------------ ---------- ------------
Total.......................................... $ 183,674 $ 223,319 $ 310,619 $ 219,895 $ 297,854
---------- ---------- ------------ ---------- ------------
---------- ---------- ------------ ---------- ------------
COMMISSIONS AND FEES AS A PERCENTAGE OF GROSS
BILLINGS:
Yellow page advertising........................ 20.4% 21.7% 20.9% 20.4% 20.4%
Recruitment advertising........................ 22.5% 20.9% 20.8% 20.6% 20.9%
Search & selection............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Internet(1).................................... 100.0% 100.0% 94.7% 95.4% 91.1%
Total.......................................... 27.1% 26.8% 27.0% 26.5% 27.7%
EBITDA(2)........................................ $ 28,700 $ (21,521) $ 43,856 $ 33,283 $ 42,036
Cash provided by operating activities............ $ 8,592 $ 10,991 $ 19,710 $ 20,719 $ 25,081
Cash used in investing activities................ $ (15,136) $ (30,903) $ (75,992) $ (63,326) $ (28,496)
Cash provided by financing activities............ $ 7,501 $ 18,772 $ 58,103 $ 42,795 $ 1,339
</TABLE>
- ------------------------
(1) Represents fees earned in connection with yellow page, recruitment and other
advertisements placed on the Internet.
(2) Earnings before interest, income taxes, depreciation and amortization.
EBITDA is presented to provide additional information about the Company's
ability to meet its future debt service, capital expenditures and working
capital requirements and is one of the measures which determines the
Company's ability to borrow under its credit facility. EBITDA should not be
considered in isolation or as a substitute for operating income, cash flows
from operating activities and other income or cash
3
<PAGE>
flow statement data prepared in accordance with generally accepted
accounting principles or as a measure of the Company's profitability or
liquidity. EBITDA for the indicated periods is calculated as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- --------------------
EBITDA CALCULATION 1995 1996 1997 1997 1998
- ---------------------------------------------------------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS) (UNAUDITED)
Net income (loss)......................................... $ 5,440 $ (49,772) $ 10,405 $ 8,132 $ 9,296
Interest, net........................................... 10,654 14,216 8,813 6,453 7,507
Income tax expense...................................... 5,100 4,125 9,571 7,894 7,735
Depreciation and amortization........................... 7,506 9,910 15,067 10,804 17,498
--------- ---------- --------- --------- ---------
EBITDA.................................................... $ 28,700 $ (21,521) $ 43,856 $ 33,283 $ 42,036
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1997
Gross billings for the nine months ended September 30, 1998 were $1,076.2
million, a net increase of $245.5 million or 29.6% from $830.7 million for the
nine months ended September 30, 1997. This increase in gross billings resulted
primarily from acquisitions in recruitment advertising. Commissions and fees for
the nine months ended September 30, 1998 were $297.9 million, an increase of
$78.0 million or 35.5% from $219.9 million in the first nine months of 1997.
Recruitment commissions and fees were $126.3 million for the nine months ended
September 30, 1998 compared with $86.2 million for the nine months ended
September 30, 1997, an increase of $40.1 million or 46.4%. This increase was
primarily due to acquisitions which contributed approximately $38.6 million,
foreign currency exchange fluctuations with a negative effect of approximately
$2.7 million and approximately $4.1 million from increased client spending and
new clients partially offset by client losses. Yellow page commissions and fees
were $76.0 million for the nine months ended September 30, 1998 compared with
$71.4 million for the nine months ended September 30, 1997, an increase of 6.4%
or $4.6 million. Approximately $3.0 million of such increase was due to net
increases in client spending and new clients and approximately $1.5 million was
due to acquisitions. Search and selection fees were $63.9 million compared with
$49.4 million for the nine months ended September 30, 1997, an increase of $14.5
million, due to acquisitions, primarily in executive search. Internet
commissions and fees increased 145.7% or $18.8 million to $31.7 million for the
nine months ended September 30, 1998 from $12.9 million for the nine months
ended September 30, 1997. This increase reflects an increasing acceptance of the
Company's Internet products from existing and new clients, the benefits of
"co-branding" marketing efforts with other Internet content providers and
increased sales and marketing activities.
Operating expenses for the nine months ended September 30, 1998 were $272.2
million, compared with $197.1 million for the same period in 1997. The increase
of $75.1 million or 38.1% reflects acquisition activity, including $9.6 million
for merger costs. The $9.6 million in merger costs is comprised of (1) $5.5
million of non-cash employee stay bonuses, which included (a) $2.1 million for
the amortization of 50% of a $4.2 million charge being expensed over the twelve
months from April 1, 1998 to March 31, 1999 for TMP shares set aside for key
personnel of JSK who must remain employees of the Company for a full year in
order to earn such shares, (the "JSK Stay Bonus") and (b) $3.4 million for TMP
shares issued to key personnel of TASA as employee stay bonuses and (2) $4.1
million of transaction related costs, including legal, accounting and advisory
fees and the costs incurred for the subsequent registration of shares issued in
the acquisitions. The after tax effect of this charge is $6.2 million or $.21
per diluted share. Salary and related costs for the nine months ended September
30, 1998 were $164.0 million, a $41.6 million or 33.9% increase over the $122.4
million for the nine months ended September 30, 1997. This increase is due to
the growth of the Company's businesses. The ratio of salary and related costs
for the nine months ended September 30, 1998 to commissions and fees was 55.1%
compared with 55.7% ratio for the nine months ended September 30, 1997. Office
and general costs was $91.1 million, a $22.0 million or 31.8% increase
4
<PAGE>
over the $69.1 million for the nine months ended September 30, 1997. However,
office and general expenses as a percentage of commissions and fees declined to
30.6% for the nine months ended September 30, 1998 from 31.4% in the prior year
period.
As a result of the above, operating income for the nine months ended
September 30, 1998 increased $2.9 million or 12.6% to $25.7 million from $22.8
million for the comparable period last year.
Net interest expense for the nine months ended September 30, 1998 was $7.5
million, an increase of $1.0 million or 15.4% over the $6.5 million for the
comparable period in 1997, reflecting a net increase in debt resulting from
acquisitions and capital expenditures.
Taxes on income for the nine months ended September 30, 1998 were $7.7
million on a pretax profit of $17.3 million, for an effective tax rate of 44.5%.
This compares with taxes of $7.9 million for the same period last year on a
pretax profit of $16.3 million, for an effective tax rate of 48.5%. The lower
effective tax rate reflects a benefit in 1998 from operating loss carryovers of
certain subsidiaries that were previously unable to benefit from losses and the
effect in 1997 of higher state and foreign tax rates.
For the nine months ended September 30, 1998, equity in losses of affiliates
was $297,000, reflecting losses at the Company's minority owned real estate
advertising affiliate, as compared with a $20,000 loss for the same period in
1997. Minority interests in consolidated earnings for the nine months ended
September 30, 1997 were $.3 million and preferred dividends for the nine months
ended September 30, 1997 were $123,000. There were no such items in 1998 because
the underlying instruments were redeemed in 1997.
As a result of all of the above, net income available to common and Class B
common stockholders for the nine months ended September 30, 1998 was $9.3
million, an increase of $1.3 million or 16.3% over the $8.0 million for the nine
months ended September 30, 1997. Per diluted share, earnings for the nine months
ended September 30, 1998 was $.31, an increase of $.01 or 4.7% over the $.30 for
the nine months ended September 30, 1997.
THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Gross billings for the year ended December 31, 1997 were $1.2 billion, a
$316.6 million or 38.0% increase when compared to gross billings for the year
ended December 31, 1996. The growth is primarily due to acquisitions in
recruitment advertising, rate increases in yellow page advertising and increased
clients and higher client spending for search & selection and Internet.
Commissions and fees increased to $310.6 million for the year ended December
31, 1997 from $223.3 million for the year ended December 31, 1996, an increase
of 39.1%. This reflects increases, as compared to the prior year period, in
commissions and fees for (a) recruitment advertising of $54.0 million or 75.5%,
(b) search & selection of $20.2 million or 39.8%, (c) yellow page advertising of
$1.2 million or 1.3% and (d) Internet of $11.9 million or 179.3%. A substantial
portion of the increase in commissions and fees derived from recruitment
advertising was due to acquisitions, including $9.2 million from Austin Knight,
acquired August 1997, and the remainder was due to higher client spending and
new clients. The increase in commissions and fees for search & selection was due
primarily to increased client spending in the U.S. The increase in commissions
and fees derived from yellow page advertising was due primarily to increased
rates by the yellow page publishers and an acquisition offset by lower publisher
incentives and the full year effect of accounts lost and resigned in 1996. Fees
derived from Internet were generated from placements of Internet advertising.
The Internet revenue increase reflects the continued customer acceptance of the
Company's Internet products both from the Company's existing clients as well as
new clients and price increases on certain products.
Salaries and related costs increased $49.5 million to $172.5 million for the
year ended December 31, 1997. As a percent of commissions and fees, salaries and
related costs increased to 55.5% for the year ended December 31, 1997 from 55.1%
for the year ended December 31, 1996. This increase was primarily
5
<PAGE>
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.
Office and general expenses increased $26.9 million to $101.2 million for
the year ended December 31, 1997. As a percent of commissions and fees, office
and general expenses decreased to 32.6% for the year ended December 31, 1997
from 33.3% for the year ended December 31, 1996. This decrease was primarily due
to consolidation of offices, which slowed the growth of office related expenses,
increased growth in recruitment advertising commissions and fees combined with
the relatively fixed nature of some of these expenses and generally lower office
and general expenses as a percentage of commissions and fees for search &
selection operations.
Amortization of intangibles was $6.3 million for the year ended December 31,
1997 compared to $4.4 million for the year ended December 31, 1996. The increase
is due to the Company's continued growth through acquisitions. As a percentage
of commissions and fees, amortization of intangibles was 2.0% for both of the
years ended December 31, 1997 and 1996, respectively.
For 1996, special compensation of $52.0 million consists of a non-cash,
non-recurring charge that reflects the value of shares issued in connection with
the acquisition of the minority interests in predecessors of the Company because
the stockholders had received such shares for nominal or no consideration and,
accordingly, were not considered to have made a substantive investment for their
shares. The value of such shares was based on the per share initial public
offering price of $14.00 for the Company's Common Stock.
Operating income increased $59.5 million to $29.1 million for the year ended
December 31, 1997 as compared with an operating loss of $(30.4) million for the
year ended December 31, 1996. The increase was primarily due to the 1996
non-recurring special compensation charge and increased recruitment advertising
commissions and fees and Internet billings. As a percent of commissions and
fees, operating income was 9.4% for the year ended December 31, 1997 as compared
to a loss of 13.6% for the year ended December 31, 1996. The lower percent for
1996 was primarily due to the 1996 non-recurring special compensation charge,
expenses related to the introduction of its Internet business, and costs in
connection with the consolidation of the recruitment advertising acquisitions.
Net interest expense decreased $5.4 million to $8.8 million for the year
ended December 31, 1997 as compared to $14.2 million for the year ended December
31, 1996. This decrease in interest expense is due primarily to the repayment of
a portion of the debt with the net cash proceeds of the Company's initial public
and secondary offerings. In addition, in 1996 there was a $2.6 million non-cash,
non-recurring charge to reflect, upon exercise of a warrant issued in connection
with the Company's financing agreement, the value of the stock issued at the
Company's initial public offering price of $14.00 per share and the value
recorded for the warrant when it was originally issued. The Company's effective
interest rate was 10.0% for the year ended December 31, 1997 compared with 11.0%
for the year ended December 31, 1996.
6
<PAGE>
Taxes on income increased $5.5 million to $9.6 million for the year ended
December 31, 1997 from $4.1 million for the year ended December 31, 1996
primarily due to higher pre-tax income. The effective tax rate for the year
ended December 31, 1997 was 47.5% compared with (9.1)% for the year ended
December 31, 1996. These effective tax rates are higher than the U.S. Federal
statutory rate of 34.0% primarily due to nondeductible special compensation of
$52.0 million and interest expense of $2.6 million in 1996, as described above,
and nondeductible expenses of approximately $2.9 million and $1.7 million and
state taxes of $1.1 million and $.4 million for 1997 and 1996, respectively. In
addition, the higher 1996 tax rate, when compared with the 1997 rate, reflects
the Company's inability in 1996 to offset profits at certain subsidiaries with
losses incurred by others.
The net income applicable to common and Class B common stockholders was
$10.3 million for the year ended December 31, 1997, or $.37 per diluted share,
compared with a net loss of $50.0 million, or $(2.24) per diluted share, for the
year ended December 31, 1996.
THE YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Gross billings for the year ended December 31, 1996 were $834.0 million, a
$157.4 million or 23.3% increase compared to the year ended December 31, 1995.
This increase in gross billings is primarily due to acquisitions in recruitment
advertising and increased acceptance of the Company's Internet business.
Commissions and fees increased to $223.3 million for the year ended December
31, 1996 from $183.7 million for the year ended December 31, 1995, an increase
of 21.6%. This increase was due to increases, as compared to the prior year
period, of $27.7 million or 63% in commissions and fees derived from recruitment
advertising, $7.1 million or 8.1% in commissions and fees derived from yellow
page advertising and a $6.3 million increase in fees derived from Internet
business. Search & Selection revenue decreased $1.4 million, or 2.6% due to
decreases in client spending in 1996. A substantial portion of the increase in
commissions and fees derived from recruitment advertising was due to
acquisitions, including $11.2 million from Neville Jeffress, acquired July 1996,
and the remainder was due to higher client spending and new clients. The
increase in commissions and fees derived from yellow page advertising was due
primarily to increased rates by the yellow page publishers and higher client
spending. Fees derived from Internet were generated from placements of Internet
advertising, as the Company's Internet products gained initial customer
acceptance both from the Company's existing clients as well as new clients.
Salaries and related costs increased $22.8 million to $123.0 million for the
year ended December 31, 1996. As a percent of commissions and fees, salaries and
related costs increased to 55.1% for the year ended December 31, 1996 from 54.5%
for the year ended December 31, 1995. This increase was primarily due to
additional staff required to service increased gross billings, a higher
percentage for costs related to Neville Jeffress and severance and temporary
help expenses related to the consolidation of the recruitment advertising
acquisitions. Internet staffing also increased by $2.8 million to $3.0 million,
which is 45.1% of Internet commissions and fees.
Office and general expenses increased $16.9 million to $74.3 million for the
year ended December 31, 1996. As a percent of commissions and fees, office and
general expenses increased to 33.3% for the year ended December 31, 1996 from
31.2% for the year ended December 31, 1995. This increase was primarily due to
increased advertising of approximately $1.9 million, primarily related to the
Company's introduction of The Monster Board-Registered Trademark-, general
expenses related to higher gross billings, professional consulting fees for the
establishment of Internet services and airplane related travel costs.
Amortization of intangibles was $4.4 million for the year ended December 31,
1996 compared to $3.2 million for the year ended December 31, 1995. The increase
was due to the Company's continued growth through acquisitions. As a percentage
of commissions and fees, amortization of intangibles was 2.0% and 1.8% for the
years ended December 31, 1996 and 1995, respectively.
7
<PAGE>
Special compensation of $52.0 million consists of a non-cash, non-recurring
charge that reflects the value of shares issued in connection with the
acquisition of the minority interests in predecessors of the Company because the
stockholders had received such shares for nominal or no consideration and,
accordingly, were not considered to have made a substantive investment for their
shares. The value of such shares was based on the per share initial public
offering price of $14.00 for the Company's Common Stock.
Operating income declined $53.3 million to $(30.4) million for the year
ended December 31, 1996 as compared with operating income of $23.0 million for
the year ended December 31, 1995. The decline was primarily due to the $52.0
million non-cash compensation charge and increased advertising expenses of $2.5
million for the Company's Internet business. As a percent of commissions and
fees, operating income declined to (13.6)% for the year ended December 31, 1996
from 12.5% for the year ended December 31, 1995. This decline in operating
income as a percent of commissions and fees was primarily due to the 1996
special compensation charge, increased advertising expenses of $2.5 million for
the Company's introduction of its Internet business, and costs in connection
with the consolidation of the recruitment advertising acquisitions.
Net interest expense increased $3.5 million to $14.2 million for the year
ended December 31, 1996 as compared to $10.7 million for the year ended December
31, 1995. This increase in interest expense is due primarily to (i) a $2.6
million non-cash, non-recurring charge to reflect, upon exercise of a warrant
issued in connection with the Company's financing agreement, the value of the
stock issued at the Company's per share initial public offering price of $14.00
per share and the value recorded for the warrant when it was originally issued,
(ii) higher debt balances for working capital needs and (iii) acquisition
financing, partially offset by lower borrowing costs and the repayment of a
portion of the debt with the net cash proceeds of the Company's initial public
offering. The Company's effective interest rate was 15.3% for the year ended
December 31, 1996 compared with 11.9% for the year ended December 31, 1995. The
higher rate in 1996 was due primarily to the $2.6 million non-cash, non
recurring charge in 1996.
Taxes on income decreased $1.0 million to $4.1 million for the year ended
December 31, 1996 from $5.1 million for the year ended December 31, 1995
primarily due to lower pre-tax income. The effective tax rate for the year ended
December 31, 1996 on income before income taxes of (9.1)% was higher than the
U.S. Federal statutory rate of 34.0% primarily due to nondeductible special
compensation of $52.0 million and $2.6 million in interest expense described
above and nondeductible expenses of approximately $1.7 million and approximately
$.5 million in interest computed on a receivable from the Company's Principal
Stockholder. The effective tax rate for the year ended December 31, 1995 was
45.3%, and nondeductible expenses for 1995 were lower than in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements have been to fund (i)
acquisitions, (ii) working capital, (iii) capital expenditures and (iv)
advertising and development of its Internet business. The Company's working
capital requirements are generally higher in the quarters ending March 31 and
June 30 during which payments to the major yellow page directory publishers are
at their highest levels. The Company has met its liquidity needs over the last
three years and during the nine months ended September 30, 1998 through funds
provided by operating activities, equity offerings in 1997 and 1996, long-term
borrowings in 1997 and 1996, capital leases and vendor financing in 1996 and
1995. In December 1996, the Company completed the initial public offering of an
aggregate of 4,147,408 shares of Common Stock at a purchase price of $14.00 per
share in an underwritten public offering managed by Morgan Stanley & Co.
Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation and Ladenburg
Thalmann & Co. Inc. In the initial public offering, certain stockholders sold an
additional aggregate of 652,592 shares of Common Stock. The net proceeds to the
Company from the initial public offering of $50.8 million were used to repay
debt and, in early 1997, to repay accounts payable and to redeem preferred
stock. In September 1997, the Company completed the secondary 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
8
<PAGE>
managed by Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., BT Alex.
Brown Incorporated, Montgomery Securities and Ladenburg Thalmann & Co. Inc. In
addition, certain stockholders sold an aggregate of 1,600,000 shares of Common
Stock in such offering. The net proceeds to the Company from this offering of
$63.4 million, including $12.2 million paid to the Company by certain
stockholders, were used to repay debt, including debt incurred to fund the
purchase of Austin Knight.
Net cash provided by operating activities for the nine months ended
September 30, 1998 was $24.0 million compared with $19.3 million for the nine
months ended September 30, 1997. The increase of $4.7 million for the 1998
period compared with the 1997 period was primarily due to (1) $6.2 million of
charges funded through stock issuances compared with $.6 million for the 1997, a
$5.6 million improvement, (2) a $4.5 million increase in depreciation and
amortization expenses, and (3) a $1.1 million benefit in 1998, from the increase
in accounts payable over accounts receivable while the change in these items for
the 1997 period reflected a $5.0 million net use of cash, reflecting increased
payments to yellow page vendors, a $6.1 million improvement. The cash for these
payments was provided by higher borrowing capacity after the Company repaid a
portion of its bank debt with proceeds from its initial public offering in
December 1996.
Net cash provided by operating activities for the years ended December 31,
1997, 1996 and 1995 was $19.7 million, $11.0 million and $8.6 million,
respectively. The increase in cash from operating activities for 1997 over 1996
was primarily due to increased net income partially offset by higher payments of
accounts payable, including amounts to substantially repay vendor financed
payables. The increase in cash from operating activities for 1996 over 1995 was
primarily due to improved accounts receivable collection partially offset by
greater payments of accounts payable and accrued liabilities.
Net cash used in investing activities for the nine months ended September
30, 1998 was $28.5 million compared with $63.3 million for the nine months ended
September 30, 1997. The $34.8 million decrease from the nine months ended
September 30, 1997 to the nine months ended September 30, 1998 was primarily due
to $41.6 million less in payments for acquisitions, reflecting the use of shares
to make acquisitions of businesses, and $1.5 million less in capital
expenditures. In addition, in the nine months ended September 30, 1997 the
Company received a net payment of $11.8 million from its principal stockholder,
as he used proceeds from the sale of some of his TMP stock sold in the secondary
offering to repay the net outstanding debt owed to the Company.
Net cash used in investing activities for the years ended December 31, 1997,
1996 and 1995 was $76.0 million, $30.9 million and $15.1 million, respectively.
During 1997, with funds received from their sale of shares included with the
Company's secondary public offering, the Company's principal stockholder and
certain stockholders repaid $14.5 million to the Company. Payments for purchases
of business acquisitions were $66.8 million in 1997, including $47.2 million for
Austin Knight, $23.8 million in 1996 and $11.3 million in 1995. Capital
expenditures, primarily for computer equipment and furniture and fixtures, were
$20.6 million, $8.8 million and $6.3 million for the years ended December 31,
1997, 1996 and 1995, respectively. In addition, in 1997, the Company acquired
certain transportation equipment and made capital improvements for a total of
$6.8 million, replacing the transportation equipment sold during 1996 for $6.1
million, and simultaneously entered into a $7.8 million financing agreement to
fund the purchase and provide additional operating funds. In December 1996, the
Company sold certain transportation equipment for $6.1 million receiving a note
for $2.7 million and retained $1.2 million in cash, after payment of related
debt. The Company estimates that its expenditures for computer equipment and
software, furniture and fixtures and leasehold improvements will be
approximately $22.0 million for 1998.
EBITDA was $42.0 million for the nine months ended September 30, 1998, an
increase of $8.7 million or 26.1% from $33.3 million for the nine months ended
September 30, 1997. This improvement for 1998 as compared with 1997, reflects a
$6.7 million increase in depreciation and amortization expense for 1998 as
compared with 1997. However, as a percentage of commissions and fees, EBITDA
decreased to 14.1% for the nine months ended September 30, 1998 from 15.1% for
the nine months ended September 30, 1997.
9
<PAGE>
The decrease resulted primarily from the $9.6 million charge for merger costs,
which was 3.2% of commissions and fees for the nine months ended September 30,
1998.
EBITDA increased $65.4 million to $43.9 million for the year ended December
31, 1997 from $(21.5) million for the year ended December 31, 1996. As a percent
of commissions and fees EBITDA increased to 14.1% for the year ended December
31, 1997 as compared to (9.6)% for the year ended December 31, 1996. The
increase primarily reflects the effect of the 1996 special compensation charge.
For the year ended December 31, 1996, EBITDA decreased $50.2 million to $(21.5)
million or 175.0% as compared to the year ended December 31, 1995. As a percent
of commissions and fees, EBITDA declined to (9.6)% for the year ended December
31, 1996 from 15.6% for the year ended December 31, 1995 primarily due to the
1996 special compensation charge, a higher percentage of costs related to
Neville Jeffress and severance and temporary help expenses related to
consolidation of the recruitment advertising acquisitions.
The Company's financing activities include equity offerings, borrowings and
repayments under its financing agreement and payments on (i) installment notes,
principally to finance acquisitions, and (ii) capital leases. In the fourth
quarter of 1996, the Company completed its initial public offering of 4,147,408
shares of Common Stock for net proceeds to the Company of $50.8 million and in
the third quarter of 1997, the Company completed its secondary public offering
of 2,400,000 shares of Common Stock for net proceeds to the Company (excluding
the repayment of $12.2 million to the Company by certain stockholders) of $51.2
million. With a portion of the proceeds received from its initial public
offering, the Company, in January 1997, redeemed all of the shares of the
cumulative preferred stock issued by a subsidiary, reported as a minority
interest, and its previously issued preferred stock for approximately $3.1
million and $2.1 million, respectively. Such redemptions included approximately
$100,000 each of premiums. The Company's financing activities provided net cash
of $1.3 million and $42.8 million in the nine months ended September 30, 1998
and 1997, respectively. The decrease of $41.5 million for the nine-month period
in 1997 to the nine-month period in 1998 primarily reflects the $45.9 million
receipt and use of cash from the Company's 1997 Secondary Offering, partially
offset in 1998 by net borrowings of $4.6 million. The Company's financing
activities provided net cash of $58.1 million, $18.8 million and $7.5 million in
1997, 1996 and 1995, respectively. In November, 1997 the Company amended its
financing agreement with its primary lender to provide for borrowings up to $175
million under a revolving credit facility. Such facility has been used to
finance the Company's acquisitions and for working capital requirements. As of
December 31, 1997, there was $95.8 million outstanding under such facility. As
of September 30, 1998, there was approximately $50.9 available under such
facility, and $20.9 million could be borrowed based on the eligible collateral
base. On November 5, 1998, the Company renegotiated its existing credit facility
with its primary lender. The new agreement provides for a five year $175 million
revolving credit facility at lower borrowing costs than the previous agreement,
putting the Company's current interest rate at LIBOR plus 87.5 basis points. In
addition, the Company has secured lines of credit aggregating $6 million for its
operations in Australia, France, Belgium and the Netherlands of which
approximately $3 million was unused at September 30, 1998. The Company believes
it will be able to fund its short-term cash needs through funds from operations,
its credit facilities in the United States, the United Kingdom, Canada and
Australia and, to a lesser extent, equipment leases. The borrowings are secured
by a lien on substantially all of the Company's assets. In addition, the
financing agreement contains certain covenants which restrict, among other
things, the ability of the Company to borrow, pay dividends, acquire businesses,
make future capital expenditures, guarantee debts of others and lend funds to
affiliated companies and contains criteria on the maintenance of certain
financial statement amounts and ratios.
Part of the Company's acquisition strategy is to pay, over time, a portion
of the purchase price of certain acquisitions through seller financed notes.
Accordingly, such notes are included in long term debt, are generally payable
over five years and totaled $9.1 million at September 30, 1998 and $9.5 million
at December 31, 1997.
The Company intends to continue its acquisition strategy and promotion of
its Internet activities through the use of operating profits, borrowings against
its long-term debt facility and seller financed
10
<PAGE>
notes. The Company believes that its anticipated cash flow from operations, as
well as the availability of funds under its existing financing agreements and
the net proceeds of its recent secondary public offering and access to public
equity and debt markets, will provide it with liquidity to meet its current
forseeable cash needs for at least the next year. However, if the Company
determines that conditions are favorable, the Company would consider additional
corporate finance transactions.
YEAR 2000 ISSUE
Many exisiting computer programs use only two digits to identify a year in
the date field. These programs do not consider the impact of the upcoming change
in the century. If not corrected, many computer applications could fail or
create erroneous results by the Year 2000. Internally, the Company has assessed
its Year 2000 computer issues. The Company estimates that it will have to spend
approximately $2.5 million during the remainder of 1998 and during 1999 to make
its major U.S. and Canadian computer systems, and some non-critical programs,
Year 2000 compliant. The Company will continue to test applications and believes
that solutions will be implemented timely. The Company's foreign operations have
also identified their critical computer systems. As the Company expands its
operations in Europe through acquisitions, it is consolidating back office
functions and standardizing computer systems. As part of this process the
Company will upgrade to a Year 2000 compliant computer system for its foreign
subsidiaries.
FLUCTUATIONS OF QUARTERLY RESULTS
The Company's quarterly commissions and fees are affected by the timing of
yellow page directory closings which currently have a concentration in the third
quarter. Yellow page publishers may change the timing of directory publications
which may have an effect on the Company's quarterly results. The Company's
yellow page advertising results are also affected by commissions earned for
volume placements for the year, which are typically reported in the fourth
quarter. The Company's quarterly commissions and fees for recruitment
advertising are typically highest in the first quarter and lowest in the fourth
quarter; however, the cyclicality in the economy and the Company's clients'
employment needs have an overriding impact on the Company's quarterly results in
recruitment advertising. Moreover, the Company's recruitment advertising
acquisition activity has had more of an impact on the Company's recently
reported quarterly results than any other factor. See Note 2 to the Company's
Consolidated Financial Statements.
11
<PAGE>
The following table sets forth summary quarterly unaudited financial
information for the nine months ended September 30, 1998, and the years ended
December 31, 1997 and 1996. Amounts have been restated to reflect the effect of
the retroactive restatement for business combinations completed in 1998,
accounted for as poolings-of-interests, and the change in accounting for a
waived bonus to the Company's CEO/ Principal Stockholder:
<TABLE>
<CAPTION>
1998 QUARTERS
---------------------------------------
<S> <C> <C> <C>
MARCH 31, JUNE 30, SEPTEMBER 30,
----------- ----------- -------------
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AND
SHARE AMOUNTS)
<S> <C> <C> <C>
Commissions and fees:
Recruitment advertising.................................................... $ 43.5 $ 43.1 $ 39.6
Yellow page advertising.................................................... 21.6 24.9 29.5
Search & selection......................................................... 20.2 22.4 21.3
Internet................................................................... 7.7 10.7 13.3
----------- ----------- ------
Total commissions and fees................................................... $ 93.0 $ 101.1 $ 103.7
----------- ----------- ------
----------- ----------- ------
Operating income............................................................. $ 7.5 $ 9.8 $ 8.4
Net income applicable to common and Class B common stockholders.............. $ 2.8 $ 3.4 $ 3.1
Net income per common and Class B common share:
Basic...................................................................... $ 0.09 $ 0.12 $ 0.11
Diluted.................................................................... $ 0.09 $ 0.11 $ 0.11
Weighted average shares outstanding (in thousands):
Basic...................................................................... 29,087 29,138 29,094
Diluted.................................................................... 30,109 29,908 29,961
</TABLE>
<TABLE>
<CAPTION>
1997 QUARTERS
------------------------------------------------------
<S> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- -------------
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Commissions and fees:
Yellow page advertising..................................... $ 19.7 $ 23.0 $ 28.6 $ 24.4
Recruitment advertising..................................... 25.4 28.5 33.2 39.3
Search & selection.......................................... 13.1 16.7 18.7 21.3
Internet.................................................... 3.8 4.4 4.7 5.7
----------- ----------- ------ ------
Total commissions and fees.................................... $ 62.0 $ 72.6 $ 85.3 $ 90.7
----------- ----------- ------ ------
----------- ----------- ------ ------
Operating income.............................................. $ 5.5 $ 6.9 $ 10.4 $ 6.3
Net income applicable to common and Class B common
stockholders................................................ $ 1.5 $ 2.6 $ 3.9 $ 2.3
Net income per common and Class B common share:
Basic....................................................... $ 0.06 $ 0.10 $ 0.14 $ 0.08
Diluted..................................................... $ 0.06 $ 0.10 $ 0.14 $ 0.08
Weighted average shares outstanding (in thousands):
Basic....................................................... 26,448 26,471 26,959 29,042
Diluted..................................................... 26,770 26,976 27,514 29,552
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
1996 QUARTERS
------------------------------------------------------
<S> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- -------------
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Commissions and fees:
Yellow page advertising..................................... $ 20.4 $ 23.0 $ 27.8 $ 23.4
Recruitment advertising..................................... 14.8 14.2 20.8 21.0
Search & selection.......................................... 11.2 13.4 13.1 13.5
Internet.................................................... .9 1.5 2.0 2.2
----------- ----------- ------ ------
Total commissions and fees.................................... $ 47.3 $ 52.8 $ 63.7 $ 60.1
----------- ----------- ------ ------
----------- ----------- ------ ------
Operating income (loss)....................................... $ 4.1 $ 4.4 $ 4.2 $ (43.0)
Net income (loss) applicable to common and Class B common
stockholders................................................ $ 0.2 $ 1.3 $ (0.1) $ (51.4)
Net income (loss) per common and Class B common share:
Basic....................................................... $ 0.01 $ 0.06 $ (0.01) $ (2.30)
Diluted..................................................... $ 0.01 $ 0.06 $ (0.01) $ (2.30)
Weighted average shares outstanding (in thousands):
Basic....................................................... 22,180 22,149 21,954 22,834
Diluted..................................................... 22,180 22,598 21,954 22,834
</TABLE>
Earnings per share calculations for each quarter include the weighted
average effect for the quarter; therefore, the sum of the quarters may not equal
the full year earnings per share amount, which reflects the weighted average
effect on an annual basis. In addition, diluted earnings per share calculations
for each quarter include the effect of stock options and warrants, when dilutive
to the quarter.
During the three months ended December 31, 1996 the Company received one
time fees of $150, $175, and $220 for a research study, executive search
services and for assisting in the procurement of bank financing, respectively.
The research study fee is included as a reduction of Office and General
Expenses, the executive search fee is included in Commissions and Fees and the
loan procurement fee is included in Other Income in the accompanying Statement
of Operations for the year ended December 31, 1996.
13
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of TMP
Worldwide Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TMP
Worldwide Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
As discussed in Notes 5 and 13B, the accompanying financial statements have
been restated to reflect the effect of business combinations accounted for as
poolings of interests consummated subsequent to December 31, 1997 and the effect
of a change in the accounting treatment for bonuses waived by the CEO/ Principal
Stockholder.
BDO SEIDMAN, LLP
New York, New York
March 20, 1998, except for Notes 5 and 13B
for which the date is December 17, 1998
14
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 14,931 $ 13,110
Accounts receivable, net................................................................ 275,461 208,834
Work-in-process......................................................................... 15,623 14,709
Prepaid and other....................................................................... 14,178 8,634
---------- ----------
Total current assets.................................................................. 320,193 245,287
Receivable from Principal Stockholder, net................................................ -- 11,413
Property and equipment, net............................................................... 42,408 24,061
Deferred income taxes..................................................................... 4,922 9,325
Intangibles, net.......................................................................... 161,148 73,975
Other assets.............................................................................. 7,657 5,713
---------- ----------
$ 536,328 $ 369,774
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 216,220 $ 190,622
Accrued expenses and other current liabilities.......................................... 50,979 37,041
Accrued restructuring costs............................................................. 16,801 --
Deferred revenue........................................................................ 7,992 3,569
Deferred income taxes................................................................... 10,733 9,818
Current portion of long-term debt....................................................... 11,750 12,129
---------- ----------
Total current liabilities............................................................. 314,475 253,178
Long-term debt, less current portion...................................................... 117,825 71,672
---------- ----------
Total liabilities..................................................................... 432,300 324,850
---------- ----------
Minority interests........................................................................ -- 3,082
---------- ----------
Redeemable preferred stock................................................................ -- 2,000
---------- ----------
Commitments and contingencies.............................................................
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--15,476,440 and 11,586,250, shares, respectively.......................... 15 11
Class B common stock, $.001 par value, authorized 39,000,000 shares; issued and
outstanding--13,587,541 and 14,787,541 shares, respectively........................... 14 15
Additional paid-in capital.............................................................. 165,250 106,800
Foreign currency translation adjustment................................................. (117) 1,415
Deficit................................................................................. (61,134) (68,399)
---------- ----------
Total stockholders' equity............................................................ 104,028 39,842
---------- ----------
$ 536,328 $ 369,774
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Commissions and fees............................................................ $ 310,619 $ 223,319 $ 183,674
--------- --------- ---------
Operating expenses:
Salaries and related costs.................................................... 172,528 122,964 100,162
Office and general............................................................ 101,176 74,252 57,310
Amortization of intangibles................................................... 6,269 4,440 3,237
Special compensation and CEO bonus............................................ 1,500 52,019 --
--------- --------- ---------
Total operating expenses.................................................. 281,473 253,675 160,709
--------- --------- ---------
Operating income (loss)................................................... 29,146 (30,356) 22,965
--------- --------- ---------
Other income (expense):
Interest expense.............................................................. (11,219) (14,804) (11,489)
Interest income............................................................... 2,406 588 835
Other, net.................................................................... (181) (755) (1,057)
--------- --------- ---------
(8,994) (14,971) (11,711)
--------- --------- ---------
Income (loss) before provision for income taxes, minority interests and equity
in earnings (losses) of affiliates............................................ 20,152 (45,327) 11,254
Provision for income taxes...................................................... 9,571 4,125 5,100
--------- --------- ---------
Income (loss) before minority interests and equity in earnings (losses) of
affiliates.................................................................... 10,581 (49,452) 6,154
Minority interests.............................................................. 143 434 435
Equity in earnings (losses) of affiliates....................................... (33) 114 (279)
--------- --------- ---------
Net income (loss)............................................................... 10,405 (49,772) 5,440
Preferred stock dividends....................................................... (123) (210) (210)
--------- --------- ---------
Net income (loss) applicable to common and Class B common stockholders.......... $ 10,282 $ (49,982) $ 5,230
--------- --------- ---------
--------- --------- ---------
Net income (loss) per common and Class B common share:
Basic......................................................................... $ .38 $ (2.24) $ .24
--------- --------- ---------
--------- --------- ---------
Diluted....................................................................... $ .37 $ (2.24) $ .23
--------- --------- ---------
--------- --------- ---------
Weighted average shares outstanding:
Basic......................................................................... 27,224 22,280 22,045
--------- --------- ---------
--------- --------- ---------
Diluted....................................................................... 27,716 22,280 22,497
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK, COMMON STOCK,
$.001 PAR VALUE $.001 PAR VALUE
---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Balance, January 1, 1995 (as restated for pooling-of-interests
transactions)......................................................... 7,257,683 $ 7 14,787,541 $ 15
Foreign currency translation adjustment............................... -- -- -- --
Dividends on preferred stock.......................................... -- -- -- --
Dividends paid by pooled companies.................................... -- -- -- --
Net income............................................................ -- -- -- --
--------- ----------- --------- -----------
Balance, December 31, 1995.............................................. 7,257,683 7 14,787,541 15
Stock repurchase agreements........................................... -- -- -- --
Issuance of common stock for purchase of minority interest in
subsidiary.......................................................... 159,231 -- -- --
Issuance of common stock as compensation.............................. 142,740 -- -- --
Repurchase and cancellation of common stock........................... (481,284) -- -- --
Issuance of common stock for purchase of minority interest in
subsidiary.......................................................... 46,350 -- -- --
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.......................................... -- -- -- --
Dividends paid by pooled companies.................................... -- -- -- --
Special compensation.................................................. -- -- -- --
Net loss.............................................................. -- -- -- --
--------- ----------- --------- -----------
Balance, December 31, 1996.............................................. 11,586,250 11 14,787,541 15
Issuance of common stock in connection with the exercise of options... 49,766 -- -- --
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 1 -- --
Issuance of common stock for purchase of an equity interest in a
subsidiary.......................................................... 61,848 -- -- --
Conversion of shares.................................................. 1,200,000 1 (1,200,000) (1)
Issuance of common stock.............................................. 2,400,000 2 -- --
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 paid by pooled companies....................................
Net income............................................................ -- -- -- --
--------- ----------- --------- -----------
Balance, December 31, 1997.............................................. 15,476,440 $ 15 13,587,541 $ 14
--------- ----------- --------- -----------
--------- ----------- --------- -----------
<CAPTION>
TOTAL
ADDITIONAL FOREIGN CURRENCY STOCKHOLDERS'
PAID-IN TRANSLATION EQUITY
CAPITAL ADJUSTMENT DEFICIT (DEFICIT)
----------- ----------------- --------- ---------------
<S> <C> <C> <C> <C>
Balance, January 1, 1995 (as restated for pooling-of-interests
transactions)......................................................... $ 652 $ 780 $ (19,360) $ (17,906)
Foreign currency translation adjustment............................... -- 966 -- 966
Dividends on preferred stock.......................................... -- -- (210) (210)
Dividends paid by pooled companies.................................... -- -- (1,130) (1,130)
Net income............................................................ -- -- 5,440 5,440
----------- ------- --------- ---------------
Balance, December 31, 1995.............................................. 652 1,746 (15,260) (12,840)
Stock repurchase agreements........................................... 1,172 -- -- 1,172
Issuance of common stock for purchase of minority interest in
subsidiary.......................................................... 1,055 -- -- 1,055
Issuance of common stock as compensation.............................. 20 -- -- 20
Repurchase and cancellation of common stock........................... (675) -- (1,485) (2,160)
Issuance of common stock for purchase of minority interest in
subsidiary.......................................................... 672 -- -- 672
Issuance of common stock.............................................. 50,779 -- -- 50,783
Issuance of common stock in connection with the exercise of options... 347 -- -- 347
Issuance of common stock in connection with exercise of warrant....... 2,603 -- -- 2,603
Foreign currency translation adjustment............................... -- (331) -- (331)
Dividends on preferred stock.......................................... -- -- (210) (210)
Dividends paid by pooled companies.................................... -- -- (1,672) (1,672)
Special compensation.................................................. 50,175 -- -- 50,175
Net loss.............................................................. -- -- (49,772) (49,772)
----------- ------- --------- ---------------
Balance, December 31, 1996.............................................. 106,800 1,415 (68,399) 39,842
Issuance of common stock in connection with the exercise of options... 643 -- -- 643
Tax benefit of stock options exercised................................ 175 -- -- 175
Capital contribution from Principal Stockholder: re CEO bonus and
other............................................................... 1,775 -- -- 1,775
Issuance of common stock in connection with acquisitions.............. 3,136 -- -- 3,137
Issuance of common stock for purchase of an equity interest in a
subsidiary.......................................................... 1,000 -- -- 1,000
Conversion of shares.................................................. -- -- -- --
Issuance of common stock.............................................. 51,166 -- -- 51,168
Issuance of common stock for matching contribution to 401(k) plan..... 555 -- -- 555
Foreign currency translation adjustment............................... -- (1,532) -- (1,532)
Dividend and redemption premium on preferred stock.................... -- -- (123) (123)
Dividends paid by pooled companies.................................... (3,017) (3,017)
Net income............................................................ -- -- 10,405 10,405
----------- ------- --------- ---------------
Balance, December 31, 1997.............................................. $ 165,250 $ (117) $ (61,134) $ 104,028
----------- ------- --------- ---------------
----------- ------- --------- ---------------
</TABLE>
17
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Cash flows from operating activities:
Net income (loss)................................................................. $ 10,405 $ (49,772) $ 5,440
--------- --------- ---------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization of property and equipment......................... 8,798 5,470 4,269
Amortization of intangibles..................................................... 6,269 4,440 3,237
Provision for doubtful accounts................................................. 3,479 3,264 3,111
Special compensation............................................................ -- 52,019 --
Interest expense for shares issued upon exercise of warrant..................... -- 2,603 --
Provision for deferred income taxes............................................. 5,155 1,573 3,005
CEO bonus and indemnity payment................................................. 1,775 -- --
Minority interests.............................................................. 143 434 435
Other........................................................................... 3 451 542
Changes in assets and liabilities, net of effects from purchases of businesses:
Increase in accounts receivable, net............................................ (5,513) (6,760) (33,085)
(Increase) decrease in work-in-process.......................................... 42 68 (1,705)
Increase in prepaid and other................................................... (759) (787) 259
(Increase) decrease in other assets............................................. (1,134) (286) (1,066)
Increase (decrease) in accounts payable, accrued expenses and other current
liabilities.................................................................... (8,953) (1,726) 24,150
--------- --------- ---------
Total adjustments............................................................. 9,305 60,763 3,152
--------- --------- ---------
Net cash provided by operating activities..................................... 19,710 10,991 8,592
--------- --------- ---------
Cash flows from investing activities:
Payments pursuant to notes and advances to Principal Stockholder.................. (3,064) (12,878) (613)
Repayments from Principal Stockholder............................................. 14,477 7,994 2,271
Capital expenditures.............................................................. (20,573) (8,772) (6,317)
Payments for purchases of businesses, net of cash acquired........................ (66,832) (23,755) (11,324)
Proceeds from sale of assets...................................................... -- 6,115 12
Repayments from affiliates........................................................ -- 393 835
--------- --------- ---------
Net cash used in investing activities......................................... (75,992) (30,903) (15,136)
--------- --------- ---------
Cash flows from financing activities:
Payments on capitalized leases.................................................... (2,594) (2,386) (1,064)
Borrowings under line of credit and proceeds from issuance of long-term debt...... 721,074 486,457 542,431
Repayments under line of credit and principal payments on long-term debt.......... (703,164) (511,583) (532,043)
Distribution to minority interests................................................ -- (457) (483)
Net proceeds from stock issuance.................................................. 51,165 50,783 --
Repurchase of common stock........................................................ -- (2,160) --
Redemption of minority interest (including premium)............................... (3,133) -- --
Redemption of preferred stock (including premium)................................. (2,105) -- --
Dividends on preferred stock...................................................... (123) (210) (210)
Dividends paid by pooled companies................................................ (3,017) (1,672) (1,130)
--------- --------- ---------
Net cash provided by financing activities..................................... 58,103 18,772 7,501
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents................................ 1,821 (1,140) 957
Cash and cash equivalents, beginning of year........................................ 13,110 14,250 13,293
--------- --------- ---------
Cash and cash equivalents, end of year.............................................. $ 14,931 $ 13,110 $ 14,250
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION
TMP Worldwide Inc. (the "Company") is the successor to businesses formerly
conducted by TMP Worldwide Inc. and subsidiaries ("Old TMP"), Worldwide
Classified Inc. and subsidiaries ("WCI"), McKelvey Enterprises, Inc. and
subsidiaries ("MEI") and certain other entities under the control of Andrew J.
McKelvey (the "Principal Stockholder"). Immediately prior to the reorganization,
the Principal Stockholder owned 100% of the common stock of MEI (which owned
approximately 86% of the common stock of Old TMP) and approximately 33% of the
common stock of WCI. In addition to his approximately 33% ownership of WCI, the
Principal Stockholder had voting proxy on the remaining outstanding shares of
WCI.
WCI was organized in 1993 to sell recruitment advertising. On December 9,
1996, Old TMP, which sells yellow page advertising, merged into MEI. Thereafter,
WCI merged into MEI, MEI then merged into Telephone Marketing Programs
Incorporated and MEI acquired the outstanding minority interest of a subsidiary
(the "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.
The accompanying consolidated financial statements reflect the shares of the
Company that were outstanding after the Mergers.
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.
19
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The 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................................................................ 4-8
Transportation equipment............................................................... 5-18
</TABLE>
Leasehold improvements are amortized over their estimated useful lives or
the lives of the related leases, whichever is shorter.
INTANGIBLES
Intangibles represent acquisition costs in excess of the fair value of net
tangible assets of businesses purchased and consist primarily of the value of
ongoing client relationships and goodwill. These costs are being amortized over
periods ranging from three to thirty years on a straight-line basis.
LONG-LIVED ASSETS
Long-lived assets, such as ongoing client relationships, goodwill and
property and equipment, are evaluated for impairment when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future cash flows resulting from
the use of these assets. When any such impairment exists, the related assets
will be written down to fair value. No impairment losses have been incurred
through December 31, 1997.
20
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The financial position and results of operations of the Company's foreign
subsidiaries are determined using local currency as the functional currency.
Assets and liabilities of these subsidiaries are translated at the exchange rate
in effect at each year-end. Income statement accounts are translated at the
average rate of exchange prevailing during the year. Translation adjustments
arising from the use of differing exchange rates from period to period are
included in the cumulative translation adjustment account in stockholders'
equity (deficit). Gains and losses resulting from foreign currency transactions
are included in other income (expense).
REVENUE RECOGNITION AND WORK-IN-PROCESS
Substantially all revenues are derived from commissions for advertisements
placed in telephone directories, newspapers and other media, plus associated
fees for related services. In addition, the Company earns fees for the placement
of advertisements on the Internet, including its career Web sites. Commissions
and fees are generally recognized upon placement date for newspapers and other
media and on publication close date for yellow page advertisements.
The Company's quarterly commissions and fees are affected by the timing of
yellow page directory closings which currently have a concentration in the third
quarter. Yellow page publishers may change the timing of directory publications
which may have an effect on the Company's quarterly results. The Company's
yellow page advertising results are also affected by commissions earned for
volume placements for the year, which are typically reported in the fourth
quarter. Amounts reported in the three months ended December 31, 1997, 1996 and
1995 for commissions on volume placements were $2.0 million, $3.5 million and
$4.2 million, respectively. The Company's quarterly commissions and fees for
recruitment advertising are typically highest in the first quarter and lowest in
the fourth quarter; however, the cyclicality in the economy and the Company's
clients' employment needs have an overriding impact on the Company's quarterly
results in recruitment advertising.
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 (benefit) 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 one business segment and primarily earns commission
income for selling and placing yellow page and recruitment advertising to a
large number of customers in many different industries, principally throughout
North America, Europe and the Pacific Rim. Financial instruments which
potentially subject the Company to concentrations of credit risk are primarily
accounts receivable.
21
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company performs continuing credit evaluations of its customers and does not
require collateral. For the most part, the Company has not experienced
significant losses related to receivables from individual customers or groups of
customers in any particular industry or geographic area.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable, other current assets, accounts
payable and other liabilities approximate fair value because of the immediate or
short-term maturity of these financial instruments. The carrying amount reported
for long-term debt approximates fair value because, in general, the interest on
the underlying instruments fluctuates with market rates. The 1996 carrying
amounts for minority interests and redeemable preferred stock approximated fair
value based on appraisals. (See Notes 9 and 10.) The fair value of the
receivable from the Principal Stockholder could not be determined. (See Note 14
(B).)
STOCK-BASED COMPENSATION
The Company accounts for its stock option awards under the intrinsic value
based method of accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Under the intrinsic value based
method, compensation cost is the excess, if any, of the quoted market price of
the stock at grant date or other measurement date over the amount an employee
must pay to acquire the stock. The Company makes pro forma disclosures of net
income and earnings per share as if the fair value based method of accounting
had been applied as required by Statement of Financial Accounting Standards
("SFAS") 123, "Accounting for Stock-Based Compensation."
EARNINGS PER SHARE
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share," which provides for
the calculation of "basic" and "diluted" earnings per share. This Statement is
effective for financial statements issued for periods ending after December 15,
1997. Basic earnings per share includes no dilution and is computed by dividing
income available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflect, in
periods in which they have a dilutive effect, the effect of common shares
issuable upon exercise of stock options and warrants. As required by the
Statement all periods presented have been restated to comply with the provisions
of SFAS No. 128.
22
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A reconciliation of shares used in calculating basic and diluted earnings
per common and Class B common share follows (in thousands):
<TABLE>
<S> <C>
December 31, 1997:
Basic........................................................... 27,224
Effect of assumed conversion of stock options................... 492
-----------
Diluted......................................................... 27,716
-----------
-----------
December 31, 1996:
Basic........................................................... 22,280
-----------
Diluted......................................................... 22,280
-----------
-----------
December 31, 1995:
Basic........................................................... 22,045
Effect of assumed conversion of stock options................... 223
Effect of assumed conversion of warrant......................... 229
-----------
Diluted......................................................... 22,497
-----------
-----------
</TABLE>
STATEMENTS OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments and other short-term investments with an initial
maturity of three months or less to be cash equivalents. The Company has
determined that the effect of foreign exchange rate changes on cash flows is not
material.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS No. 130"), Reporting Comprehensive
Income, which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Results of operations and financial position will be
unaffected by implementation of this new standard.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 ("SFAS No. 132"). Employers'
Disclosures about Pensions and Other Postretirement Benefits, which standardizes
the disclosure requirements for pensions and other postretirement benefits. The
adoption of SFAS No. 132 in 1998 is not expected to materially impact the
Company's current discloures.
23
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 3--ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Trade................................................................. $ 271,128 $ 203,145
Earned commissions(a)................................................. 14,491 13,166
---------- ----------
285,619 216,311
Less: Allowance for doubtful accounts................................. 10,158 7,447
---------- ----------
Accounts receivable, net.......................................... $ 275,461 $ 208,834
---------- ----------
---------- ----------
</TABLE>
- ------------------------
(a) Earned commissions receivable represent commissions on advertisements that
have not been published, and relate to yellow page advertisements only. Upon
publication of the related yellow page directories, the earned commissions
plus the related advertising cost at December 31, 1997 and 1996 are recorded
as accounts receivable of $75,058 and $70,594, respectively, and the related
advertising costs are recorded as accounts payable of $60,567 and $57,428,
respectively.
NOTE 4--PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Buildings and improvements.............................................. $ 916 $ 944
Furniture and equipment................................................. 66,293 49,224
Leasehold improvements.................................................. 6,072 4,177
Transportation equipment................................................ 9,151 360
--------- ---------
82,432 54,705
Less: Accumulated depreciation and amortization......................... 40,024 30,644
--------- ---------
Property and equipment, net......................................... $ 42,408 $ 24,061
--------- ---------
--------- ---------
</TABLE>
Furniture and equipment includes equipment under capital leases at December
31, 1997 and 1996 with a cost of $12,514 and $6,074, respectively, and
accumulated amortization of $5,128 and $2,531, respectively.
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 8) to fund the purchase and provide
additional funds.
NOTE 5--BUSINESS ACQUISITIONS
During the nine month period ended September 30, 1998, the Company completed
three pooling of interest transactions (issuing 2,980,814 common shares in
connection therewith). Consequently, the accompanying financial statements have
been retroactively restated to include the accounts and results of operations of
the pooled companies for all periods presented.
24
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS ACQUISITIONS (CONTINUED)
Commissions and fees and net income (loss) of the combining entities for the
three years ending December 31, are as follows:
<TABLE>
<CAPTION>
COMMISSIONS AND FEES 1997 1996 1995
- --------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
TMP, as previously reported.............................. $ 237,417 $ 162,631 $ 123,907
Johnson Smith & Knisely Inc.............................. 21,868 12,850 12,509
TASA Holding AG.......................................... 39,518 37,763 39,471
Stackig Inc.............................................. 11,816 10,075 7,787
---------- ---------- ----------
TMP, as restated......................................... $ 310,619 $ 223,319 $ 183,674
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
NET INCOME (LOSS) 1997 1996 1995
- ------------------------------------------------------------ ---------- ---------- ---------
<S> <C> <C> <C>
TMP, as previously reported................................. $ 9,500 ($ 52,449) $ 3,019
Restatement for change in net income. See accounting for CEO
bonus (Note 13B).......................................... (1,500) -- --
---------- ---------- ---------
Net income (loss), as adjusted.............................. 8,000 (52,449) 3,019
Johnson Smith & Knisely Inc................................. 289 364 572
TASA Holding AG............................................. 422 367 557
Stackig Inc................................................. 1,571 1,736 1,082
---------- ---------- ---------
TMP, as restated............................................ $ 10,282 ($ 49,982) $ 5,230
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
The Company has acquired 40 businesses (primarily recruitment advertising
businesses) between January 1, 1995 and December 31, 1997 including, on August
26, 1997, all of the outstanding stock of Austin Knight Limited and subsidiaries
("Austin Knight") for approximately $47,200 net of approximately $11,500 of cash
acquired relating to the sale, in July 1997, of real property by Austin Knight
and on July 2, 1996, all of the outstanding shares of Neville Jeffress Australia
Pty Limited ("Neville Jeffress"). Austin Knight had commissions and fees of
approximately $47,600 for the year ended September 30, 1996, and Neville
Jeffress had commissions and fees of approximately $24,000 for the year ended
June 30, 1996. The total amount of cash paid and promissory notes and Common
Stock of the Company issued for these acquisitions was approximately $74,500,
$25,400 and $26,700 for 1997, 1996 and 1995, respectively. In 1997, the shares
of Common Stock issued by the Company in connection with certain of the above
mentioned acquisitions was 135,028. The 1997 amount is net of approximately
$11,500 of cash acquired with Austin Knight. These acquisitions have been
accounted for under the purchase method of accounting and accordingly,
operations of these businesses have been included in the consolidated financial
statements from their acquisition dates.
In connection with these acquisitions, management of the Company began to
assess and formulate preliminary plans to restructure the operations of the
acquired companies. Such plans involved the closure of certain offices of the
acquired companies and the termination of certain management and employees. The
objective of the plans was to create a single brand in the related markets in
which the Company operates. The preliminary plans are expected to be finalized
within one year of the acquisition to which it relates. Actions under the
preliminary plans are expected to commence in the first quarter of 1998.
As a result of the formulation of the preliminary plans, certain estimated
costs and liabilities were recorded which related to the restructuring of the
acquired businesses. These estimates will be refined in connection with the
finalization of the plans. These costs and liabilities include:
25
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS ACQUISITIONS (CONTINUED)
Accrued liabilities relating to surplus property in the amount of $7,830
for approximately 22 leased office locations of the acquired companies
that were either unutilized prior to the acquisition date or will be
closed by March 31, 1999 in connection with the restructuring plans. The
amount is based on the present value of minimum future lease obligations,
net of sublease revenue on existing subleases.
Other costs associated with the closure of existing offices of acquired
companies in the amount of $2,521, including the write off of leasehold
improvements and other fixed assets as well as termination costs of
contracts relating to billing systems, external reporting systems and
other contractual arrangements with third parties.
Above market lease costs in the amount of $783, based on the present
value of contractual lease payments in excess of current market lease
rates.
Estimated severance payments, employee relocation expenses and other
employee costs in the amount of $4,900 relating to estimated severance
for terminated employees at closed locations, costs associated with
employees transferred to continuing offices and other related costs.
Employee groups affected include sales, service, administrative and
management personnel at duplicate locations as well as duplicate
corporate headquarters management and administrative personnel. As of
December 31, 1997, the accrual related to approximately 70 employees
including senior management, sales, service and administrative personnel.
Pension obligations in the amount of $1,650 assumed in connection with
the acquisition of Austin Knight.
As of December 31, 1997, payments of $833 were made to 18 members of senior
management and employees for severance and charged against the reserve. The
Company continues to evaluate and assess the impact of duplicate
responsibilities and office locations. Additional future costs incurred,
resulting from revised plan actions and that do not result from events occurring
after the consummation dates of the related acquisitions, in excess of the above
estimated amounts will be recorded as additional costs of acquired companies.
The summarized unaudited pro forma results of operations set forth below for
the years ended December 31, 1997 and 1996 assume the acquisitions in 1997 and
1996 occurred as of the beginning of the year of acquisition and the beginning
of the preceding year.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Commissions and fees...................................................................... $ 358,456 $ 321,801
Net income (loss) applicable to common and Class B common stockholders.................... $ 10,755 $ (48,481)*
Net income (loss) per common and Class B common share:
Basic................................................................................... $.41 $(2.18)*
Diluted................................................................................. $.39 $(2.18)*
</TABLE>
- ------------------------
* Includes non-cash, non-recurring special compensation and interest charges
in the amounts of $52,019 and $2,603, respectively.
26
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS ACQUISITIONS (CONTINUED)
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.
NOTE 6--INTANGIBLES, NET
Intangibles, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, AMORTIZATION
--------------------- PERIOD
1997 1996 (YEARS)
---------- --------- -------------
<S> <C> <C> <C>
Client lists, net of accumulated amortization of $4,370
and $3,715, respectively.............................. $ 10,083 $ 8,913 5 to 30
Covenants not to compete, net of accumulated
amortization of $2,036 and $1,713, respectively....... 2,188 1,336 3 to 6
Excess of cost of investments over fair value of net
assets acquired, net of accumulated amortization of
$10,760 and $6,428,
respectively.......................................... 148,080 62,947 10 to 30
Other, net of accumulated amortization of $2,103 and
$1,709, respectively.................................. 797 779 4 to 10
---------- ---------
$ 161,148 $ 73,975
---------- ---------
---------- ---------
</TABLE>
NOTE 7--FINANCING AGREEMENT
The Company obtains its primary financing from a financial institution under
a five-year financing agreement as amended and restated on June 27, 1996, and as
further amended on November 14, 1997, with automatic one-year extensions unless
terminated by either party at least 90 days prior to expiration of the initial
term or any renewal term (the "Agreement"). The Agreement, as amended, provides
for borrowings of up to $175,000 at an interest rate of either: (a) prime rate
less 1% or, (b) Federal Funds rate less 1/2 of 1% or, (c) LIBOR plus 1 1/2%, at
the borrower's option. Borrowings under the Agreement are based on 90% of
eligible accounts receivable, which are amounts billed under 120 days old and
amounts to be billed on an installment basis under 360 days old from first
installment billing, as defined. Substantially all assets of the Company are
pledged as collateral for borrowings under the Agreement. The Agreement contains
certain covenants which restrict, among other things, the ability of the Company
to borrow, pay dividends, acquire businesses, make future capital expenditures,
guarantee debts of others and lend funds to affiliated companies and contains
criteria on the maintenance of certain financial statement amounts and ratios,
all as defined in the Agreement. In addition, the Agreement also provides for a
1/8% fee on any unused portion of the commitment and a declining fixed
termination fee of $2,000, $1,000 and $500 for the annual periods ended June 30,
1998, 1999, and 2000, respectively.
At December 31, 1997, the prime rate, Federal Funds rate and one month LIBOR
were 8.50%, 6.00% and 5.72%, respectively, and borrowings outstanding were at a
weighted average interest rate of 7.62%.
In October 1993, the Company issued a warrant to the lender to purchase one
percent of the issued and outstanding common stock of the Company (as defined in
the agreement) for an exercise price of $.01 per share. The warrant was
independently appraised at $600, which amount was being amortized over the
27
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 7--FINANCING AGREEMENT (CONTINUED)
remaining term of the original financing agreement of 30 months from October
1993 until December 1996, when the warrant was exercised. At that time, the
unamortized balance was expensed. In addition, in December 1996, upon the
exercise of such warrant there was an additional interest charge of $2,603 to
reflect the difference between the value of the stock issued (228,768 shares) at
the initial public offering price of $14.00 per share and the original amount
recorded.
NOTE 8--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
<S> <C> <C>
1997 1996
---------- ---------
Borrowings under financing agreement (see Note 7)...................... $ 95,800 $ 59,495
Borrowings under financing agreements, interest payable at rates
varying from 5% to 9.2%, and collateralized by assets in certain
foreign countries and pooled companies, prior to acquisitions........ 4,707 5,421
Acquisition notes payable in annual and monthly installments through
1997 with interest at 8.5%........................................... -- 4,324
Other acquisition notes payable, noninterest bearing, interest imputed
at 6.7% to 8.0%, in varying installments through 2001................ 10,601 7,153
Capitalized lease obligations, payable with interest from 9% to 15%, in
varying installments through 2001.................................... 7,245 4,058
Term note payable in sixty consecutive monthly installments from July
1997 through June 2002, collateralized by transportation equipment
and with interest at 8.43% for the first 36 months. Thereafter the
interest rate will be based on two year U.S. Treasury Notes.......... 7,760 --
Notes payable to shareholders of pooled companies. Interest at LIBOR
plus 2.25%, payable in annual principal payments maturing December
1999................................................................. 670 75
Notes payable, in varying monthly installments maturing through 2002,
with interest at rates ranging from 7.5% to 9.0%, secured by certain
assets of pooled companies........................................... 2,792 3,275
---------- ---------
129,575 83,801
Less: Current portion.................................................. 11,750 12,129
---------- ---------
$ 117,825 $ 71,672
---------- ---------
---------- ---------
</TABLE>
28
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 8--LONG-TERM DEBT (CONTINUED)
The noncurrent portion of long-term debt matures as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
1999................................................................................................ $ 7,301
2000................................................................................................ 4,517
2001................................................................................................ 96,825*
2002................................................................................................ 7,635
Thereafter.......................................................................................... 1,547
------------
$ 117,825
------------
------------
</TABLE>
- ------------------------
* Of this amount, $95,800 is subject to automatic one year extentions. See
Note 7.
NOTE 9--MINORITY INTEREST
In connection with an acquisition in 1990, a subsidiary of the Company
issued 88,425 shares of nonvoting convertible 10% cumulative preferred stock in
exchange for 88,425 shares (58%) of the outstanding common stock of the acquired
company held by the acquired company's employee stock ownership trust. The book
value of these shares of approximately $3,000, which approximates the redemption
price, is included in minority interest in the consolidated balance sheet at
December 31, 1996. These shares were redeemed in January 1997 for a total of
$3,133, which included a redemption premium of $133.
NOTE 10--REDEEMABLE PREFERRED STOCK
During 1991, the Company sold 200,000 shares of 10.5% nonvoting cumulative
preferred stock ($10.00 par value) to the Company's profit sharing plan for
$2,000. These shares were redeemed in January 1997 for a total of $2,105, which
included a redemption premium of $105.
NOTE 11--STOCKHOLDERS' EQUITY
(A) COMMON AND CLASS B COMMON STOCK
Common and Class B common stock have indentical 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
In January 1996, the Company's Board of Directors (the "Board") adopted the
1996 Employee Stock Option Plan (the "Stock Option Plan"), which provides for
the issuance of both incentive stock options within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified
stock options, to purchase an aggregate of up to 900,000 shares (amended to
1,800,000 on June 25, 1997) of the common stock of the Company. The Stock Option
Plan permits the granting of options to officers, employees and consultants of
the Company, its subsidiaries and affiliates.
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
29
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 11--STOCKHOLDERS' EQUITY (CONTINUED)
the case of options granted to employees who hold more than ten percent of
the voting power of the Company's capital stock on the date of grant). The
exercise price of a nonqualified stock option must be not less than the par
value of a share of the common stock on the date of grant. The term of an
incentive or nonqualified stock option is not to exceed ten years (five years
in the case of an incentive stock option granted to a ten percent holder).
The Stock Option Plan provides that the maximum option grant which may be
made to an executive officer in any calendar year is 45,000 shares (amended
to 150,000 on June 25, 1997).
On January 3, 1996, options to purchase, at an exercise price equal to $6.65
per share, the fair market value of the common stock on the date of grant as
determined by the Board, an aggregate of 296,640 shares of common stock were
granted to officers, employees and consultants of the Company. Such options vest
at the rate of 25% per year commencing one year after the date of grant. As of
December 31, 1997, 13,010 options were cancelled, 7,266 options were exercised
and, of the outstanding options, 63,641 options were exercisable and will expire
ten years from the date of grant.
On 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
1,203,737 shares of common stock were granted to officers and employees of the
Company and options for 74,611 shares were subsequently cancelled. Of such
options, options for approximately 29,000 shares of common stock vest at the
rate at 25% per year beginning one year from the date of grant and the balance
of these options were vested at December 31, 1997 and 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 vested as of December 31,
1997, are exercisable after January 5, 1999 and will expire ten years from the
date of grant.
On June 18, 1997, options to purchase, at an exercise price of $19.00 per
share, the market price on the date of grant, 28,256 shares of common stock were
granted to officers and employees of the Company. Options for 2,388 shares were
subsequently cancelled. Generally, such options were vested as of December 31,
1997, are exercisable after January 5, 1999, and will expire ten years from the
date of grant.
On August 28, 1997 options to purchase, at an exercise price of $20.00 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, 1997,
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 approximately
700,000 shares of common stock were granted to officers and employees of the
Company, subject to stockholder approval of an increase in the number of shares
authorized under the Plan to 3,000,000 from 1,800,000. 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, 1997 none of these options
were exercisable.
In January 1996, the Company also adopted a stock option plan for
nonemployee directors (the "Directors' Plan"), pursuant to which options to
acquire a maximum aggregate of 180,000 shares of common stock may be granted to
nonemployee directors. Options granted under the Directors' Plan do
30
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 11--STOCKHOLDERS' EQUITY (CONTINUED)
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 as determined by the Board, were granted on January 24, 1996 to
one nonemployee director. Half of these options vested on the date of the grant
and the balance vests in two equal annual installments commencing one year after
the date of grant. Such options will expire ten years from the date of grant. In
September 1996, options to purchase an aggregate of 33,750 shares of common
stock were granted to three directors under this plan at an exercise price per
share equal to the initial public offering price per share, the fair value on
the date of grant as determined by the Board. Vesting is on terms similar to
that of the previous director's grant. Such options will expire ten years from
the date of grant. In December 1996, 11,250 of the options granted to a director
in September 1996 were cancelled and options to purchase 125,000 shares of
common stock were granted at an exercise price of $14.00 (the initial public
offering price). Of the total, 50,000 of such options vested on the closing of
the initial public offering. In April 1997, in connection with this former
director's resignation, the Company agreed that an additional 12,500 of such
stock options would vest on June 1, 1997 and the unvested options totalling,
62,500 were cancelled. All options previously vested expire on December 9, 2006.
On October 7, 1997, a newly appointed director of the Company was granted
options to purchase 11,250 shares of common stock at $23.625 per share, the
market price on the date of grant. Half of these options vested on the date of
the grant and the balance vests in two equal annual installments commencing one
year after the date of grant. Such options will expire ten years from the date
of grant. For options granted to all directors, at December 31, 1997, 50,938 of
the outstanding options were exercisable and 42,500 were exercised.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related Interpretations in
accounting for its employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of SFAS 123. The
weighted average fair values of options granted during 1997 and 1996 were $7.10
and $5.93, respectively. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted average assumptions; risk-free interest rates of approximately 6.5% and
6.1% in 1997 and 1996 respectively; volatility factor of the expected market
price of the Company's common stock of 27% and 25% in 1997 and 1996,
respectively; and a weighted average expected life of the option of 8 years in
both 1997 and 1996.
31
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 11--STOCKHOLDERS' EQUITY (CONTINUED)
Under the accounting provisions of SFAS 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Net income (loss) applicable to common and Class B common stockholders....................... $ 5,166 $ (50,595)*
Net income (loss) per common and Class B common share:
Basic...................................................................................... $.19 $(2.27)*
Diluted.................................................................................... $.19 $(2.27)*
</TABLE>
- ------------------------
* Including non-cash, non-recurring charges for special compensation of
$52,019 and interest of $2,603.
A summary of the status of the Company's two fixed stock option plans as of
December 31, 1997 and 1996, and changes during the years ending on those dates
is presented.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- ------------------------
<S> <C> <C> <C> <C>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
---------- ------------- --------- -------------
Outstanding at beginning of year............................ 448,334 $ 9.07 -- --
Granted..................................................... 1,986,643 13.91 466,640 $ 9.15
Exercised................................................... (49,766) 12.92 -- --
Forfeited/cancelled......................................... (145,453) 13.20 (18,306) 11.17
---------- ---------
Outstanding at end of year.................................. 2,239,758 13.01 448,334 9.07
---------- ---------
---------- ---------
Options exercisable at year-end............................. 114,579 $ 9.85 66,875 $ 13.38
Weighted average fair value of options granted during the
year...................................................... $ 7.10 $ 5.93
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- ----------------------------------
NUMBER WEIGHTED AVERAGE NUMBER WEIGHTED
EXERCISE OUTSTANDING AT REMAINING WEIGHTED AVERAGE EXERCISABLE AT AVERAGE
PRICE DECEMBER 31, 1997 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1997 EXERCISE PRICES
- ----------- ----------------- ---------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
6$.65...... 287,614 8.0(year) $ 6.65 72,079 $ 6.65
14.00..... 42,500 8.9 14.00 36,875 14.00
12.88..... 1,129,126 9.0 12.88 -- --
19.00..... 25,868 9.6 19.00 -- --
17.25..... 8,400 9.3 17.25 -- --
20.00..... 35,000 9.8 20.00 -- --
15.00..... 700,000 9.9 15.00 -- --
23.63..... 11,250 9.8 23.63 5,625 23.63
----------------- -------
2,239,758 114,579 $ 9.85
----------------- -------
----------------- -------
</TABLE>
In connection with an acquisition in 1995, the Company issued options to
acquire shares of the Company's common stock in exchange for an obligation of
the Company incurred in connection with this acquisition. Such options, for
85,354 shares, were exercised upon the closing of the public offering based on
the initial public offering price of $14.00 per share.
32
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--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>
1997 1996 1995
--------- ---------- ---------
Domestic......................................................... $ 10,274 $ (47,890) $ 9,024
Foreign.......................................................... 9,878 2,563 2,230
--------- ---------- ---------
Total income (loss) before provision (benefit) for income
taxes, minority interests and equity in earnings (losses) of
affiliates................................................... $ 20,152 $ (45,327) $ 11,254
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Current tax provision:
U.S. Federal................................................... $ 357 $ 145 $ 201
State and local................................................ 2,293 984 448
Foreign........................................................ 1,986 1,423 1,446
--------- --------- ---------
Total current................................................ 4,636 2,552 2,095
--------- --------- ---------
Deferred tax provision (benefit):
U.S. Federal................................................... 2,689 1,740 2,051
State and local................................................ 739 (321) 535
Foreign........................................................ 1,507 154 419
--------- --------- ---------
Total deferred............................................... 4,935 1,573 3,005
--------- --------- ---------
Total provision.............................................. $ 9,591 $ 4,125 $ 5,100
--------- --------- ---------
--------- --------- ---------
</TABLE>
33
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--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>
1997 1996
---------- ---------
Current deferred tax assets (liabilities):
Earned commissions................................................... $ (5,796) $ (5,266)
Allowance for doubtful accounts...................................... 3,901 2,813
Work-in-process...................................................... (6,222) (5,817)
Accrued expenses and other liabilities............................... (2,665) (1,548)
---------- ---------
Total current deferred tax liability............................... (10,782) (9,818)
---------- ---------
Noncurrent deferred tax assets (liabilities):
Property and equipment............................................... (980) (801)
Intangibles.......................................................... (654) (453)
Accrued expenses and other liabilities............................... (2,235) --
Tax loss carryforwards............................................... 8,791 10,579
---------- ---------
Total noncurrent deferred tax asset................................ 4,922 9,325
---------- ---------
Net deferred tax liability............................................. $ (5,860) $ (493)
---------- ---------
---------- ---------
</TABLE>
At December 31, 1997, the Company has net operating loss carryforwards for
U.S. Federal tax purposes of approximately $23,300 which expire through 2011.
The Company has concluded that, based on expected future results and the future
reversals of existing taxable temporary differences, it is more likely than not
that the deferred tax assets will be realized.
The provision for income taxes differs from the amount computed using the
Federal statutory income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- ---------- ---------
Provision (benefit) at Federal statutory rate.................. $ 6,852 $ (15,411) $ 3,826
State income taxes, net of Federal income tax effect........... 752 438 649
Nondeductible expenses......................................... 1,026 685 419
Nondeductible special charge and bonus......................... 510 18,571 --
Interest imputed on receivable from principal stockholder...... -- 216 198
Losses for which no tax benefits are available................. -- 45 503
Foreign income taxes at other than the Federal statutory
rate......................................................... 955 416 431
In case of pooled companies taxed directly at the shareholder
level........................................................ (644) (727) (589)
Other.......................................................... 120 (108) (337)
--------- ---------- ---------
Income tax provision........................................... $ 9,571 $ 4,125 $ 5,100
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
34
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED)
Provision has not been made for U.S. or additional foreign taxes on
undistributed earnings of foreign subsidiaries. Such earnings have been and will
continue to be reinvested but could become subject to additional tax if they
were remitted as dividends, or were loaned to the Company or a U.S. affiliate,
or if the Company should sell its stock in the foreign subsidiaries. It is not
practicable to determine the amount of additional tax, if any, that might be
payable on the foreign earnings; however, the Company believes that foreign tax
credits would substantially offset any U.S. tax. At December 31, 1997, the
cumulative amount of reinvested earnings was approximately $10,000.
NOTE 13--COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases its facilities and certain equipment under operating
leases and certain equipment under capital leases. Future minimum lease
commitments under both noncancellable operating leases and capital leases at
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
1998..................................................................... $ 3,191 $ 15,279
1999..................................................................... 2,911 13,662
2000..................................................................... 1,755 11,703
2001..................................................................... 271 8,736
2002..................................................................... 9 6,655
Thereafter............................................................... -- 20,905
--------- -----------
8,137 $ 76,940
-----------
-----------
Less: Amount representing interest....................................... 892
---------
Present value of minimum lease payments.................................. 7,245
Less: Current portion.................................................... 2,658
---------
$ 4,587
---------
---------
</TABLE>
Rent and related expenses under operating leases amounted to $15,788,
$13,887, and $10,686 for the years ended December 31, 1997, 1996 and 1995,
respectively.
(B) CONSULTING, EMPLOYMENT AND NONCOMPETE AGREEMENTS
The Company has entered into various consulting, employment and noncompete
agreements with certain management personnel and former owners of acquired
businesses. These agreements are generally two to five years in length, with one
for a term of fifteen years and two providing aggregate annual lifetime payments
of approximately $135.
Effective November 15, 1996, the Company entered into an employment
agreement with its Principal Stockholder for a term ending on November 14, 2001.
The agreement provides for automatic renewal for successive one year terms
unless either party notifies the other to the contrary at least 90 days prior to
its expiration. Under the agreement, as amended, 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
35
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
The above agreements as amended provide for the following aggregate annual
payments:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
1998............................................................................ $ 4,879
1999............................................................................ 2,849
2000............................................................................ 2,763
2001............................................................................ 2,502
2002............................................................................ 522
Thereafter...................................................................... 1,716
------------
$ 15,231
------------
------------
</TABLE>
(C) EMPLOYEE BENEFIT PLANS
The Company has a 401(k) profit sharing plan covering all eligible
employees. Employer matching contributions, which are a maximum of 2% of payroll
of participating employees, amounted to $626, $600 and $584 for the years ended
December 31, 1997, 1996 and 1995, respectively.
Outside of the United States, the Company has employee benefit plans in the
countries in which it operates. For 1997, costs for these plans were $1,264.
In addition, the Company had a defined contribution profit sharing plan
covering all eligible employees. Contributions, which are at the discretion of
the Board of Directors, were not made in the years ended December 31, 1997, 1996
and 1995. The plan was terminated during 1997.
(D) LITIGATION
The Company is subject to various claims, suits and complaints arising in
the ordinary course of business. Although the outcome of these legal matters
cannot be determined, it is the opinion of management that the final resolution
of these matters will not have a material adverse effect on the Company's
financial condition, operations or liquidity.
On February 19, 1998, a class action complaint was filed against the Company
by five former employees. The claims brought by the plaintiffs in the complaint
are that the Company (a) misclassified the named plaintiffs and purported class
members as exempt from the overtime requirements of California wage and hour law
and failed to pay them overtime wages, (b) failed to pay accrued but unused
vacation
36
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--COMMITMENTS AND CONTINGENCIES (CONTINUED)
days at the time of termination, and (c) failed to pay accrued but unused
personal days at the time of termination. The plaintiffs purport to represent a
class of 450 former and current employees who are similarly situated. The
Company intends to vigorously defend the claims brought by the plaintiffs and on
March 18, 1998 responded to the complaint by filing an answer denying all
allegations. Management presently believes that the disposition of these claims
will not have a material adverse effect on the Company's financial position,
operations or liquidity.
In June 1997, a settlement of $275, which was paid by the Principal
Stockholder under an indemnity agreement with the Company, was made relating to
a November 1996 action of a former employee against Old TMP, WCI and the
Principal Stockholder. The complaint alleged, among other things, that the
defendants breached purported contractual obligations pursuant to which the
former employee was entitled to an ownership interest in the Company's
recruitment advertising business.
(E) OTHER
(i) The Company is contingently liable on a note of the Principal
Stockholder in the amount of approximately $1,600.
(ii) The majority stockholder of an unconsolidated equity investee has an
agreement which requires the Company to purchase his interest, based on a
formula value, upon death. The value of his shares at December 31, 1997 is
approximately $5,627 based on the formula.
NOTE 14--RELATED PARTY TRANSACTIONS
(A) The Company had receivables from certain of its stockholders aggregating
$761 and $500 at December 31, 1996 and 1995, respectively. During 1997, the
outstanding balances were repaid.
(B) The Company had net receivables from its Principal Stockholder of
$11,413 and $6,530 at December 31, 1996 and 1995, respectively. Prior to January
1, 1997 such amounts were noninterest-bearing. As of January 1, 1997 interest
was charged on the unpaid balance at the prime rate. During 1997, the
outstanding balances were repaid.
(C) In August 1996, the Company entered into an agreement whereby it
acquired the minority interest of a subsidiary for 46,350 shares of common
stock. Such shares, valued at $672, were recorded as special compensation
because the stockholder had received his shares in the subsidiary for no
consideration and, accordingly, was not considered to have made a substantive
investment for his shares.
(D) The Company charged management and other fees to affiliates for services
provided of approximately $788, $602 and $873 for the years ended December 31,
1997, 1996 and 1995, respectively. Such fees are reflected as a reduction of
salaries and related costs in the accompanying consolidated statements of
operations.
(E) In January 1994, the Company acquired a 50% interest in an agency
selling real estate advertising. In connection with this acquisition, the
Company agreed to provide the agency with certain office and administrative
services which amounted to $321 for the nine months ended September 30, 1997 at
which time the arrangement was terminated. Payments of $875 and $725 were made
in the years ended December 31, 1996 and 1995, respectively, in exchange for 50%
of the agency's profits, as defined in the agreement. The Company also entered
into three-year employment and consulting agreements with the
37
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--RELATED PARTY TRANSACTIONS (CONTINUED)
two other stockholders of the agency and granted them the right to convert their
agency shares into Company shares after an initial public offering. That
conversion right, as amended, provided that those two stockholders may convert
25% of the agency's stock into unregistered common stock of the Company with a
total value of $1,000 as of the effective date of conversion. The conversion was
exercised in February 1997 and 61,848 shares of common stock were issued to
these stockholders pursuant to the above agreement. Simultaneously, the Company
transferred to such stockholders 50% of its interest in the agency, thus
retaining a 25% interest and terminated its obligation to provide office and
administrative services effective October 1, 1997.
(F) In 1994, the Principal Stockholder gave 374,940 shares of common stock
as compensation to certain employees. These shares were recorded at fair market
value of $55 on the date they were given, as determined by the Company. In 1996,
the Company issued 142,740 shares of common stock as compensation to one
employee. These shares were valued at fair market value of $20 on the date they
were issued, as determined by the Company.
(G) The Company leases three offices from entities in which the Principal
Stockholder and other stockholders have between a 49% and 90% ownership
interest. Annual rent expense under these leases, which expire on various dates
through the year 2013, amounts to approximately $863. In addition, an investee
of the Company leases an office, at an annual rental of approximately $119, from
a partnership in which the Principal Stockholder holds a 49% interest.
NOTE 15--GEOGRAPHIC, SEGMENT AND OTHER DATA
The Company is engaged in two lines of business, the placing of advertising
in various media and executive and mid-level executive search & selection.
Line of business information is as follows:
<TABLE>
<CAPTION>
NET IDENTIFIABLE
REVENUE INCOME ASSETS DEPRECIATION
----------- ---------- --------------- -----------------
<S> <C> <C> <C> <C>
December 31, 1997
Advertising......................................... $ 249,233 $ 9,694 $ 505,904 $ 8,082
Search & selection.................................. 61,386 711 30,424 716
----------- ---------- --------------- ------
Total............................................. $ 310,619 $ 10,405 $ 536,328 $ 8,798
----------- ---------- --------------- ------
----------- ---------- --------------- ------
December 31, 1996
Advertising......................................... $ 172,706 $ (50,503) $ 340,773 $ 4,812
Search & selection.................................. 50,613 731 29,001 658
----------- ---------- --------------- ------
Total............................................. $ 223,319 $ (49,772) $ 369,774 $ 5,470
----------- ---------- --------------- ------
----------- ---------- --------------- ------
December 31, 1995
Advertising......................................... $ 131,694 $ 4,311 $ 265,437 $ 3,755
Search & selection.................................. 51,980 1,129 28,227 514
----------- ---------- --------------- ------
Total............................................. $ 183,674 $ 5,440 $ 293,664 $ 4,269
----------- ---------- --------------- ------
----------- ---------- --------------- ------
</TABLE>
38
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 15--GEOGRAPHIC, SEGMENT AND OTHER DATA (CONTINUED)
Operations are conducted in several geographic regions: North America, the
Pacific Rim (Australia, New Zealand, and Japan) and Europe. The following is a
summary of the Company's operations by geographic segment, as of and for the
years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
NORTH AMERICA PACIFIC RIM EUROPE TOTAL
-------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
December 31, 1997
Commissions and fees........................................ $ 165,118 $ 20,347 $ 51,952 $ 237,417
Income before taxes, minority interests and equity in
earnings of affiliates.................................... 11,215 1,697 5,458 18,370
Identifiable assets......................................... 381,834 22,469 90,903 495,206
December 31, 1996
Commissions and fees........................................ $ 144,853 $ 11,757 $ 6,021 $ 162,631
Income (loss) before taxes, minority interests and equity in
earnings of affiliates.................................... (49,159)* (381) 891 (48,649)*
Identifiable assets......................................... 266,336 39,244 26,173 331,753
December 31, 1995
Commissions and fees........................................ $ 153,580 $ 2,043 $ 28,051 $ 183,674
Income (loss) before taxes minority interest and equity in
earnings of affiliate..................................... 9,024 (248) 2,478 11,254
Identifiable assets......................................... 272,306 1,580 19,778 293,664
</TABLE>
- ------------------------
* Includes noncash, non-recurring special compensation and interest expense of
$52,019 and $2,603, respectively.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, (SFAS 131)
which supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise. SFAS 131 establishes standards for the way that public companies
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS 131 defines operating segments as components of a company about
which separate financial information is available and that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997 and requires comparative information for earlier years to be
restated. Because of the relatively recent issuance of this standard, management
has been unable to fully evaluate the impact, if any, it may have on future
financial statement disclosures. Results of operations and financial position,
however, will be unaffected by implementation of this standard.
During the three months ended December 31, 1996 the Company received one
time fees of $150, $175, and $220 for a research study, executive search
services and for assisting in the procurement of bank financing, respectively.
The research study fee is included as a reduction of Office and General
Expenses, the executive search fee is included in Commissions and Fees and the
loan procurement fee is included in Other Income in the accompanying Statement
of Operations for the year ended December 31, 1996.
39
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 16--SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes amounted to the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Interest..................................................... $ 13,221 $ 11,587 $ 10,830
Income taxes................................................. 2,860 1,791 1,467
</TABLE>
In conjunction with business acquisitions, the Company used cash as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1997 1996 1995
---------- --------- ---------
Fair value of assets acquired, excluding cash............. $ 129,000 $ 52,731 $ 37,260
Less: Liabilities assumed and created upon acquisition.... 62,168 28,976 25,936
---------- --------- ---------
Net cash paid............................................. $ 66,832 $ 23,755 $ 11,324
---------- --------- ---------
---------- --------- ---------
Capital lease obligations incurred.......................... $ 5,781 $ 4,873 $ 766
---------- --------- ---------
---------- --------- ---------
</TABLE>
40
<PAGE>
INDEPENDENT AUDITOR'S REPORT TO MEMBERS
SCOPE
We have audited the financial statements of Morgan & Banks Limited for the
financial years ended 31 March 1998, 1997 and 1996 as set out on pages F-3 to
F-26. The financial statements include the consolidated accounts of the economic
entity comprising the company and the entities it controlled at each year's end
or from time to time during the financial year. The company's directors are
responsible for the preparation and presentation of the financial statements and
the information they contain. We have conducted an independent audit of these
financial statements in order to express an opinion on them to the members of
the company.
Our audit has been conducted in accordance with Australian Auditing
Standards which do not differ in any material respects from generally accepted
auditing standards in the United States of America to provide reasonable
assurance as to whether the financial statements are free of material
misstatement. Our procedures included examination, on a test basis, of evidence
supporting the amounts and other disclosures in the financial statements, and
the evaluation of accounting policies and significant accounting estimates.
These procedures have been undertaken to form an opinion as to whether, in all
material respects, the financial statements are presented fairly in accordance
with Australian Accounting Standards and other mandatory professional reporting
requirements (Urgent Issues Group Consensus Views) and statutory requirements so
as to present a view which is consistent with our understanding of the company's
and the economic entity's financial position, and the results of their
operations and their cash flows.
The names of the entities controlled during all or part of, or at the end
of, the financial year, but of which we have not acted as auditors are set out
in Note 32 to the financial statements. We have, however, received sufficient
information and explanations concerning these controlled entities to enable us
to form an opinion on the consolidated accounts. The audit opinion expressed in
this report has been formed on the above basis.
AUDIT OPINION
In our opinion, the financial statements of Morgan & Banks Limited are
properly drawn up:
(a) so as to give a true and fair view of
- the state of affairs as at 31 March 1998 and 1997 and the profit and cash
flows for the financial years ended 31 March 1998, 1997 and 1996 of the
company and the economic entity; and
- the other matters required by Divisions 4, 4A and 4B of Part 3.6 of the
Corporations Law to be dealt with in the financial statements;
(b) in accordance with the provisions of the Corporations Law; and
(c) in accordance with applicable Australian Accounting Standards and other
mandatory professional reporting requirements.
<TABLE>
<S> <C>
/s/ A.P. WHITING
[LOGO] ----------------------------
A.P. Whiting
- ---------------------------- Partner
Pannell Kerr Forster
Chartered Accountants
New South Wales Partnership
Sydney, 16 June 1998, except for Note 2 of
Notes to and Forming Part of the Consolidated
Financial Statements, for which the date is
21 September 1998.
</TABLE>
41
<PAGE>
MORGAN & BANKS LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
-------------------------------
1998 1997 1996
NOTES $000 $000 $000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales revenue.......................................................... 4 330,364 221,467 143,057
--------- --------- ---------
Operating profit before depreciation, amortisation, interest and income
tax.................................................................. 25,466 20,002 13,440
Depreciation, amortisation and interest................................ 6,312 3,276 2,046
--------- --------- ---------
Operating profit before abnormal items and income tax.................. 3 19,154 16,726 11,394
Abnormal loss before income tax........................................ 5 703 -- --
--------- --------- ---------
Operating profit before income tax..................................... 18,451 16,726 11,394
Income tax attributable to operating profit............................ 6 7,220 6,118 4,200
--------- --------- ---------
Operating profit after income tax...................................... 11,231 10,608 7,194
Outside equity interests in operating profit after income tax.......... 214 741 437
--------- --------- ---------
Operating profit after income tax attributable to members of Morgan &
Banks Limited........................................................ 11,017 9,867 6,757
Retained profits at the beginning of the financial year................ 8,699 4,848 2,499
Retrospective adjustments for the introduction of AASB 1028............ -- -- (123)
--------- --------- ---------
Total available for appropriation...................................... 19,716 14,715 9,133
Dividends provided for or paid......................................... 7,190 6,016 4,285
--------- --------- ---------
Retained profits at the end of the financial year...................... 12,526 8,699 4,848
--------- --------- ---------
--------- --------- ---------
</TABLE>
The above Profit and Loss Accounts are to be read in conjunction with the
attached Notes.
42
<PAGE>
MORGAN & BANKS LIMITED
CONSOLIDATED BALANCE SHEETS
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------------
1998 1997
NOTES $000 $000
----------- --------- ---------
<S> <C> <C> <C>
CURRENT ASSETS
Cash................................................................................... 22 14,488 11,067
Receivables............................................................................ 9 39,446 30,175
Other.................................................................................. 10 2,357 1,844
--------- ---------
TOTAL CURRENT ASSETS................................................................... 56,291 43,086
--------- ---------
NON-CURRENT ASSETS
Receivables............................................................................ 11 46 42
Plant and equipment.................................................................... 12 14,152 10,385
Intangibles............................................................................ 13 9,308 10,147
Other.................................................................................. 14 2,993 2,339
--------- ---------
TOTAL NON-CURRENT ASSETS............................................................... 26,499 22,913
--------- ---------
TOTAL ASSETS........................................................................... 82,790 65,999
--------- ---------
CURRENT LIABILITIES
Accounts payable....................................................................... 15 43,665 34,029
Borrowings............................................................................. 16 481 665
Provisions............................................................................. 17 9,530 8,230
--------- ---------
TOTAL CURRENT LIABILITIES.............................................................. 53,676 42,924
--------- ---------
NON-CURRENT LIABILITIES
Borrowings............................................................................. 18 8,121 5,915
Provisions............................................................................. 19 1,613 1,719
--------- ---------
TOTAL NON-CURRENT LIABILITIES.......................................................... 9,734 7,634
--------- ---------
TOTAL LIABILITIES...................................................................... 63,410 50,558
--------- ---------
NET ASSETS............................................................................. 19,380 15,441
--------- ---------
--------- ---------
Shareholders' Equity
Issued capital......................................................................... 21 2,308 2,283
Reserves............................................................................... 8 3,895 3,664
Retained profits....................................................................... 12,526 8,699
--------- ---------
Shareholders' equity attributable to members
of Morgan & Banks Limited............................................................ 18,729 14,646
Outside equity interests in controlled entities........................................ 31 651 795
--------- ---------
TOTAL SHAREHOLDERS' EQUITY............................................................. 19,380 15,441
--------- ---------
--------- ---------
</TABLE>
The above Balance Sheets are to be read in conjunction with the attached Notes.
43
<PAGE>
MORGAN & BANKS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
----------------------------------
1998 1997 1996
NOTES $000 $000 $000
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers............................................... 322,055 216,454 135,179
Payments to suppliers and employees................................... (296,859) (192,397) (122,187)
Interest received..................................................... 188 220 259
Borrowing costs including interest and cost of finance paid........... (472) (99) (165)
Dividends received.................................................... -- 151 --
Income taxes paid..................................................... (7,217) (6,577) (4,025)
---------- ---------- ----------
Net cash provided by operating activities............................. 23(a) 17,695 17,752 9,061
---------- ---------- ----------
CASH FLOWS TO INVESTING ACTIVITIES
Payments for businesses acquired 23(b) -- -- (102)
Payments for investments in controlled entities....................... 23(b) -- (6,647) --
Payments for additional shares in controlled entities................. (665) (1,075) --
Payment for investments -- -- (1,491)
Payment for plant and equipment....................................... (9,407) (4,558) (4,324)
Proceeds from sale of plant and equipment............................. 155 104 --
Long-term loans to related bodies corporate........................... (4) -- (61)
---------- ---------- ----------
Net cash used in investing activities................................. (9,921) (12,176) (5,978)
---------- ---------- ----------
CASH FLOWS TO FINANCING ACTIVITIES
Proceeds from borrowings.............................................. 2,900 6,815 --
Repayments of borrowings.............................................. (179) (1,500) --
Payments under hire purchase contracts................................ (608) (608) (359)
Proceeds from exercise of options..................................... 420 -- --
Dividends paid........................................................ (7,148) (5,325) (4,060)
---------- ---------- ----------
Net cash used in financing activities................................. (4,615) (618) (4,419)
---------- ---------- ----------
Net increase (decrease) in cash held.................................. 3,159 4,958 (1,336)
Cash at the beginning of the year..................................... 11,067 6,141 7,514
Effects of exchange rate changes on the balances of cash held in
foreign currencies at the beginning of the year..................... 262 (32) (37)
---------- ---------- ----------
Cash at the end of the year........................................... 22 14,488 11,067 6,141
---------- ---------- ----------
---------- ---------- ----------
Non-cash financing and investing activities........................... 23(c)
Financing arrangements................................................ 23(d)
</TABLE>
The above Statements of Cash Flows are to be read in conjunction with the
attached Notes.
44
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS
(IN AUSTRALIAN DOLLARS)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted by the economic entity comprising
the chief entity Morgan & Banks Limited and its controlled entities are stated
in order to assist in a general understanding of the financial statements. These
policies have been consistently applied except as otherwise indicated.
The financial statements, which constitute a general purpose financial
report, have been drawn up in accordance with applicable Accounting Standards
and other mandatory professional requirements, and comply with other
requirements of the law.
ACCOUNTS PAYABLE
Accounts payable represent the principal amounts outstanding at balance
date. The carrying amounts of accounts payable approximate net fair values.
NON-CURRENT ASSETS
The carrying amounts of non-current assets do not exceed the net amounts
that are expected to be recovered through the cash inflows and outflows arising
from their continued use and subsequent disposal. The expected net cash flows
included in determining the recoverable amount have not been discounted to their
present values.
DEPRECIATION AND AMORTISATION OF PLANT AND EQUIPMENT
Items of plant and equipment are depreciated over their estimated useful
lives using the straight line method. Leasehold improvements are amortised over
the period of the lease.
GOODWILL
Goodwill, representing the excess of the cost of acquisition over the fair
values of the net assets acquired, is being amortised over the period of time
during which benefits are expected to arise. The period over which goodwill is
being amortised is reviewed annually and does not exceed 20 years.
RECEIVABLES
Trade accounts receivable, amounts due from related parties and other
receivables represent the principal amounts due at balance date less any
provisions for doubtful debts and approximate net fair value.
EMPLOYEE ENTITLEMENTS
AASB 1028 Accounting for Employee Entitlements was adopted as at 1 April
1995. The net effect of the adoption was accounted for against profits at that
date. The adjustment to retained profits net of the tax effect of $69,000 was
$123,000.
REVENUE RECOGNITION
Income from contracting activities is brought to account when earned. All
other fee income is brought to account when billed.
45
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SUPERANNUATION
The economic entity contributes to superannuation funds which provide
benefits to employees and contractors and their dependants on retirement, total
and permanent disability or death. The economic entity's commitment in respect
of these accumulation funds is limited to making the specified contributions as
required by the relevant award and legislation. The economic entity's
contributions to the superannuation funds are expensed in the profit and loss
accounts as incurred.
TRANSLATION OF FOREIGN CURRENCY TRANSACTION
Transactions in foreign currencies are initially measured and brought to
account at the rate of exchange in affect at the date of each transaction.
As foreign controlled entities are self sustaining, the assets and
liabilities are translated into Australian currency at rates of exchange current
at balance date, while its revenue and expenses are translated at the average of
rates ruling during the year. Exchange differences arising on translation are
taken to the foreign currency translation reserve.
Foreign currency monetary items outstanding at balance date have been
translated at the spot rates current at balance date.
Exchange differences arising on the translation of foreign currency
borrowings designated as hedges of investments in controlled foreign entities
are taken to the foreign currency translation reserve.
BORROWINGS
Bank loans are recognised in the financial statements on the basis of the
nominal amounts outstanding at balance date plus accrued interest. The carrying
amounts of borrowings approximate net fair values.
46
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 2. RECONCILIATIONS FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Reconciliation of operating profit after income tax for the year ended 31 March,
<TABLE>
<CAPTION>
1998 1997 1996
$000 $000 $000
--------- --------- ---------
<S> <C> <C> <C>
Operating profit after income tax attributable to members of
Morgan & Banks Limited.......................................................... 11,017 9,867 6,757
Deferred income taxes............................................................. -- 7 (7)
--------- --------- ---------
Net income in accordance with US Generally
Accepted Accounting Principles.................................................. 11,017 9,874 6,750
--------- --------- ---------
--------- --------- ---------
Reconciliation of shareholders' equity at 31 March,
<CAPTION>
1998 1997 1996
$000 $000 $000
--------- --------- ---------
<S> <C> <C> <C>
Shareholders' equity attributable to members of
Morgan & Banks Limited.......................................................... 18,729 14,646 9,495
Deferred income taxes............................................................. -- -- 7
--------- --------- ---------
Shareholders' equity in accordance with US Generally
Accepted Accounting Principles.................................................. 18,729 14,646 9,502
--------- --------- ---------
--------- --------- ---------
</TABLE>
Generally accepted accounting principles in Australia ("Australian GAAP") as
utilized by the Company differ in certain respects from generally accepted
accounting principles in the United States ("US GAAP"). With respect to the
Company's financial statements, these differences primarily relate to accounting
for income taxes. Australian GAAP stipulates that an announcement of the
Government's intention to change the rate of company income tax in advance of
the periods in which the change will apply is adequate evidence for deferred tax
balances to be restated. US GAAP requires the adjustment in the year that a
change in tax rate is effective.
The provision for employee entitlements prepared in accordance with AASB
1028 "Accounting for Employee Entitlements" substantially approximates the
required provision under US GAAP. As such the provision for employee
entitlements for 1996, 1997 and 1998 as prepared under Australian GAAP require
no adjustment. In order to reflect the adoption of AASB 1028 in 1996, and
therefore US GAAP in preceding years, the adjustment booked through opening
retained profits in 1996 has been reversed and effected through net income in
1994 and 1995.
Under Australian GAAP, companies were not allowed to use the equity method
of accounting for investments in associates in the consolidated profit and loss
statement or balance sheet. Instead companies record the investment at cost and
bring to account dividend income. US GAAP requires investments in associates to
be accounted for under the equity method after elimination of unrealised profits
on transactions with associates. The adjustment was not material and therefore
not included in the summary of differences.
Under Australian GAAP, no cost attributable to executive options has been
recognised in the profit and loss statement. Under US GAAP the compensation cost
is zero for each year ended to date.
47
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 2. RECONCILIATIONS FROM AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
Under Australian GAAP, Operating Income before Depreciation, Amortization,
Interest and Income Tax is an appropriate measure. The Company understands that
this measure is not recognized under US GAAP.
Under Australian GAAP the item identified as an abnormal loss is
characterized as an extraordinary item under US GAAP. This is not appropriate
under US GAAP and would be treated as an operating expense.
The disclosure of operating expenses as required under US GAAP are included
below. This disclosure is not an Australian GAAP requirement.
<TABLE>
<CAPTION>
1998 1997 1996
$000 $000 $000
--------- --------- ---------
<S> <C> <C> <C>
Cost of sales.................................................................... 190,816 118,853 66,403
Salary and related costs......................................................... 84,548 57,794 42,523
Office and general expenses...................................................... 35,390 27,869 22,846
Amortisation of intangibles...................................................... 782 371 158
--------- --------- ---------
Total operating expenses......................................................... 311,536 204,887 131,930
--------- --------- ---------
--------- --------- ---------
</TABLE>
48
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 3. OPERATING PROFIT
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
$000 $000 $000
--------- --------- ---------
Operating profit before income tax has been determined after:
(A) CREDITING AS REVENUE:
Dividends received/receivable
Associated entities............................................................ -- 151 189
--------- --------- ---------
--------- --------- ---------
Interest:
Others......................................................................... 188 229 259
--------- --------- ---------
--------- --------- ---------
(B) CHARGING AS EXPENSE:
Net expenses resulting from movements in provision for:
Amortisation of goodwill....................................................... 782 274 158
Amortisation of leasehold improvements......................................... 1,318 565 299
Depreciation of plant and equipment............................................ 3,866 2,402 1,692
Employee entitlements.......................................................... 204 748 278
--------- --------- ---------
6,170 3,989 2,427
--------- --------- ---------
--------- --------- ---------
Borrowing Costs:
Interest expense other persons................................................. 440 116 --
Hire purchase interest charges................................................. 94 147 156
--------- --------- ---------
534 263 156
--------- --------- ---------
--------- --------- ---------
Other:
Net bad and doubtful debts expense............................................. 814 671 781
Goodwill written off........................................................... -- 97 --
(Gain) loss on sales/write-off of plant & equipment............................ (1) (11) 24
Operating lease rental expense................................................. 7,293 5,493 3,769
--------- --------- ---------
8,106 6,250 4,574
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 4. OPERATING REVENUE
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
$000 $000 $000
--------- --------- ---------
Sales revenue.................................................................... 330,364 221,467 143,057
Interest......................................................................... 188 229 259
Dividends........................................................................ -- 151 189
Proceeds from sales of non-current assets........................................ 155 104 --
--------- --------- ---------
Total operating revenue.......................................................... 330,707 221,951 143,505
--------- --------- ---------
--------- --------- ---------
</TABLE>
49
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 5. ABNORMAL ITEM
In August 1997, the Company commenced operations in Jakarta, Indonesia. The
Company closed its Jakarta, Indonesia office in March 1998 due to continued
political unrest and instability. The costs of opening and closing its Jakarta
Indonesia office and the related tax effect as shown below.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
$000 $000 $000
--------- --------- ---------
INDONESIAN OPERATION
Set-up of operations............................................................. 494 -- --
Office closure costs............................................................. 209 -- --
--------- --------- ---------
703 -- --
Income tax expense............................................................... 8 -- --
Outside equity interest.......................................................... (2) -- --
--------- --------- ---------
709 -- --
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 6. INCOME TAX
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
$000 $000 $000
--------- --------- ---------
The amount provided in respect of income tax differs from the amount prima facie
payable on operating profit. The difference is reconciled as follows:
Prima facie tax on operating profit at 36%....................................... 6,642 6,021 4,102
Add tax effect of:
(Over)/Under provision in prior years.......................................... (35) 95 --
Entertainment not allowable.................................................... 181 174 194
Goodwill amortisation.......................................................... 266 93 57
Non-deductible expenses........................................................ 30 114 23
Abnormal item not allowable (Note 5)........................................... 8 -- --
Deduct tax effect of:
Overseas income tax differential............................................... 128 (334) (78)
Non-assessable profit of overseas subsidiaries................................. -- -- (30)
Exempt income.................................................................. -- (45) (68)
--------- --------- ---------
Income tax attributable to operating profit...................................... 7,220 6,118 4,200
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 7. EVENTS SUBSEQUENT TO BALANCE DATE
No matter or circumstance has arisen since the end of the financial year
that has significantly affected or may significantly affect the operations of
the economic entity, the results of those operations, or the state of affairs of
the economic entity, in subsequent financial years.
50
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 8. RESERVES
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------------
1998 1997
$000 $000
--------- ---------
<S> <C> <C>
Share premium account.......................................................................... 4,204 3,809
Foreign currency translation reserve........................................................... (309) (145)
--------- ---------
3,895 3,664
--------- ---------
--------- ---------
MOVEMENTS IN RESERVES
Share premium account:
Balance at beginning of the financial year................................................... 3,809 2,399
Exercise of 250,000 options at a premium of $1.58 per share.................................. 395 --
Issue of 275,170 ordinary shares at a premium of $5.124 per share............................ -- 1,410
--------- ---------
Balance at end of the financial year......................................................... 4,204 3,809
--------- ---------
--------- ---------
Foreign currency translation reserve:
Balance at beginning of the financial year................................................... (145) (7)
Exchange differences arising from the translation of the net assets of self-sustaining
foreign operations......................................................................... (164) (138)
--------- ---------
Balance at end of the financial year........................................................... (309) (145)
--------- ---------
--------- ---------
</TABLE>
NOTE 9. CURRENT RECEIVABLES
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------------
1998 1997
$000 $000
--------- ---------
<S> <C> <C>
Trade accounts receivable...................................................................... 40,422 31,374
Provision for doubtful debts................................................................... (2,012) (1,837)
--------- ---------
38,410 29,537
Non-trade accounts receivable from:
Other debtors................................................................................ 1,036 638
--------- ---------
39,446 30,175
--------- ---------
--------- ---------
Amounts receivable in foreign currencies
New Zealand dollars.......................................................................... 6,137 4,789
British pounds............................................................................... 1,980 1,814
Singapore dollars............................................................................ 568 1,447
Hong Kong dollars............................................................................ 1,352 1,736
Trade accounts receivable are subject to normal terms of trade which provide for settlement
within seven to fourteen days. Non-trade accounts receivable are due within various periods of
less than 12 months.
</TABLE>
NOTE 10. OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------------
1998 1997
$000 $000
--------- ---------
<S> <C> <C>
Prepayments.................................................................................... 2,357 1,844
--------- ---------
--------- ---------
</TABLE>
51
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 11. NON-CURRENT RECEIVABLES
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------------
1998 1997
$000 $000
--------- ---------
<S> <C> <C>
Loans to related bodies corporate.............................................................. 46 42
--------- ---------
--------- ---------
</TABLE>
NOTE 12. PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------------
1998 1997
$000 $000
--------- ---------
<S> <C> <C>
Leasehold improvements
At cost...................................................................................... 6,992 3,421
Provision for amortisation................................................................... 2,535 1,172
--------- ---------
4,457 2,249
--------- ---------
Plant and equipment
At cost...................................................................................... 19,882 14,364
Provision for depreciation................................................................... 10,187 6,228
--------- ---------
9,695 8,136
--------- ---------
Total plant and equipment at cost.............................................................. 26,874 17,785
Provision for depreciation and amortisation.................................................... 12,722 7,400
--------- ---------
14,152 10,385
--------- ---------
--------- ---------
</TABLE>
NOTE 13. INTANGIBLES
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------------
1998 1997
$000 $000
--------- ---------
<S> <C> <C>
Goodwill--at cost.............................................................................. 10,551 10,608
Accumulated amortisation....................................................................... 1,243 461
--------- ---------
9,308 10,147
--------- ---------
--------- ---------
</TABLE>
52
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 14. OTHER NON-CURRENT ASSETS
<TABLE>
<CAPTION>
AS AT 31 MARCH
------------------------
<S> <C> <C>
1998 1997
$000 $000
----------- -----------
Future income tax benefits -- timing differences.............................................. 2,684 2,339
-- tax losses.......................................................... 309 --
----------- -----------
2,993 2,339
----------- -----------
----------- -----------
</TABLE>
NOTE 15. CURRENT ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
AS AT 31 MARCH
------------------------
<S> <C> <C>
1998 1997
$000 $000
----------- -----------
Trade accounts payable........................................................................ 6,683 4,264
Other creditors:
Commissions/bonus accrual................................................................... 13,108 10,392
On hire contractor's wages.................................................................. 11,412 9,876
Employee related taxes accrued.............................................................. 3,190 1,370
Other general accruals...................................................................... 9,272 8,127
----------- -----------
43,665 34,029
----------- -----------
----------- -----------
Amounts payable in foreign currencies:
New Zealand dollars......................................................................... 7,089 6,032
British pounds.............................................................................. 3,589 2,898
Singapore dollars........................................................................... 746 548
Hong Kong dollars........................................................................... 740 848
</TABLE>
NOTE 16. CURRENT BORROWINGS
<TABLE>
<CAPTION>
AS AT 31 MARCH
------------------------
<S> <C> <C>
1998 1997
$000 $000
----------- -----------
Hire purchase creditors (Note 24)--secured*................................................... 481 486
Bank loan--secured............................................................................ -- 179
----------- -----------
481 665
----------- -----------
----------- -----------
</TABLE>
- ------------------------
* Partly secured by a first ranking fixed charge over the book debts of the
chief entity to an amount of $1 million, and also secured by the assets
acquired.
NOTE 17. CURRENT PROVISIONS
<TABLE>
<CAPTION>
AS AT 31 MARCH
------------------------
<S> <C> <C>
1998 1997
$000 $000
----------- -----------
Dividends..................................................................................... 3,497 3,196
Taxation...................................................................................... 4,581 3,772
Employee entitlements......................................................................... 1,452 1,262
----------- -----------
9,530 8,230
----------- -----------
----------- -----------
</TABLE>
53
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 18. NON-CURRENT BORROWINGS
<TABLE>
<CAPTION>
AS AT 31 MARCH
------------------------
<S> <C> <C>
1998 1997
$000 $000
----------- -----------
Hire purchase creditors (Note 24)--secured*................................................... 91 600
Commercial bills--unsecured (Note 23(d))...................................................... 8,030 5,315
----------- -----------
8,121 5,915
----------- -----------
----------- -----------
</TABLE>
- ------------------------
* Partly secured by a first ranking fixed charge over the book debts of the
chief entity to an amount of $1 million, and also secured by the assets
acquired.
NOTE 19. NON-CURRENT PROVISIONS
<TABLE>
<CAPTION>
AS AT 31 MARCH
------------------------
<S> <C> <C>
1998 1997
$000 $000
----------- -----------
Employee entitlements......................................................................... 996 983
Deferred income taxation...................................................................... 617 736
----------- -----------
1,613 1,719
----------- -----------
----------- -----------
</TABLE>
NOTE 20. FOREIGN CURRENCY MONETARY ITEMS
Current and non-current assets and liabilities not effectively hedged to a
date at least 12 months after balance date:
<TABLE>
<CAPTION>
AS AT 31 MARCH
------------------------
<S> <C> <C>
1998 1997
$000 $000
----------- -----------
British pounds:
Current assets.............................................................................. 1,029 577
Non-current assets.......................................................................... 729 636
----------- -----------
1,758 1,213
----------- -----------
----------- -----------
New Zealand dollars:
Non-current assets.......................................................................... 8,658 10,629
Current liabilities......................................................................... (7,139) (7,452)
----------- -----------
1,519 3,177
----------- -----------
----------- -----------
Hong Kong dollars:
Current assets.............................................................................. 1,433 930
Non-current assets.......................................................................... 345 441
----------- -----------
1,778 1,371
----------- -----------
----------- -----------
Singapore dollars:
Current assets.............................................................................. 256 966
Non-current assets.......................................................................... 389 216
----------- -----------
645 1,182
----------- -----------
----------- -----------
</TABLE>
54
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 21. ISSUED CAPITAL
The Shareholders of the company approved a capital reconstruction of
three-new-shares-for-one-old at a General Shareholders' Meeting on 25 February
1998.
<TABLE>
<CAPTION>
AS AT 31 MARCH
------------------------
<S> <C> <C>
1998 1997
$000 $000
----------- -----------
ISSUED
Ordinary shares:
69,239,148 (1997: 22,829,716) ordinary shares of 3.33 cents (1997: 10 cents) each fully
paid...................................................................................... 2,308 2,283
----------- -----------
----------- -----------
Shares issued (all issued prior to capital reconstruction):
During the current year 250,000 ordinary shares of $0.10 each were issued at a premium of
$1.58 per share following the exercise of options......................................... 25 --
----------- -----------
----------- -----------
During the prior year 275,170 ordinary shares of $0.10 each were issued at a premium of
$5.124 per share as partial consideration for the acquisition of 64.5% of Morgan & Banks
Limited, New Zealand...................................................................... -- 28
----------- -----------
----------- -----------
</TABLE>
OPTIONS
Prior to the capital reconstruction and during the year 788,750 options were
issued under the Morgan & Banks Employee Share Option Scheme and 530,000 options
were issued under the new Morgan & Banks Executive Option Plan. Of such amounts,
188,500 options (1997: 212,250) were forfeited under the Morgan & Banks Employee
Share Option Scheme and 50,000 were forfeited under the Morgan & Banks Executive
Option Plan. During the year ended March 31, 1998, 250,000 options were
exercised. As at 31 March 1998, unissued shares, following the capital
reconstruction, under all option plans were as follows:
<TABLE>
<CAPTION>
SHARES UNDER EXERCISE EXERCISE
ISSUE DATE OPTION PRICE PERIOD
- ------------ ------------- --------- ------------------------
<S> <C> <C> <C>
10/11/1994 600,000 $ 0.5600 10/11/1997-09/11/1999
21/04/1995 769,875 $ 0.5233 21/04/1998-20/04/2000
19/08/1996 1,863,000 $ 1.2167 19/08/1999-17/08/2001
17/10/1997 1,440,000 $ 3.4733 17/10/2000-17/10/2002
</TABLE>
55
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 22. CASH
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------------
1998 1997
$000 $000
--------- ---------
<S> <C> <C>
Cash........................................................................................... 7,671 8,076
Short-term deposits............................................................................ 6,817 2,991
--------- ---------
14,488 11,067
--------- ---------
--------- ---------
</TABLE>
For the purposes of the statements of cash flows, cash includes cash on hand
and in banks and investments in money market instruments, net of outstanding
bank overdrafts.
The average floating interest rate for short-term deposits is 5.39%.
NOTE 23. NOTES TO THE STATEMENTS OF CASH FLOWS
(A) RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO OPERATING
PROFIT AFTER INCOME TAX:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
-------------------------------
1998 1997 1996
$000 $000 $000
--------- --------- ---------
<S> <C> <C> <C>
Operating profit after income tax.................................................... 11,231 10,608 7,194
Depreciation and amortisation...................................................... 5,184 2,967 1,991
Amortisation of goodwill........................................................... 782 274 158
Goodwill written-off............................................................... -- 97 --
Hire purchase interest charges..................................................... 94 146 --
(Gain) loss on sales/write-off of non-current assets............................... (1) (11) 24
Provision for doubtful debts....................................................... 175 216 550
Abnormal item...................................................................... 198 -- --
Changes in assets and liabilities net of effects of
purchases of new businesses:
Increase/(decrease) in income taxes payable........................................ 787 (124) 771
(Decrease)/increase in provision for deferred income tax........................... (120) 254 (135)
(Increase) in future income tax benefit............................................ (664) (590) (461)
(Increase) in trade debtors........................................................ (8,675) (5,013) (7,878)
(Increase) in other debtors and prepayments........................................ (910) (684) (375)
Increase in trade creditors........................................................ 2,482 1,487 1,111
Increase in other creditors........................................................ 6,928 7,377 5,857
Decrease in lease liabilities -- -- (24)
Increase in employee entitlements.................................................. 204 748 278
--------- --------- ---------
Net cash provided by operating activities............................................ 17,695 17,752 9,061
--------- --------- ---------
--------- --------- ---------
</TABLE>
(B) ENTITIES ACQUIRED
During the 1997 financial year the economic entity acquired the remaining
71.38% interest in Morgan & Banks, New Zealand in a number of stages. These
acquisitions were financed through the issue of shares and cash as detailed
below. As a result of the issue of shares, the chief entity became the
beneficial owner of 16.1% of the issued capital of Morgan & Banks, New Zealand.
This beneficial ownership was on-sold at
56
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 23. NOTES TO THE STATEMENTS OF CASH FLOWS (CONTINUED)
cost to Maldon Holdings Limited, a wholly owned controlled entity, and therefore
not reflected in the statements of cash flows.
During the 1996 financial year, the economic entity acquired the trading
operations of Westside Employment (Aust) Pty Limited.
Details of the acquisitions are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
---------------------------------
1998 1997 1996
$000 $000 $000
--------- --------- -----
<S> <C> <C> <C>
Consideration
275,170 ordinary shares of Morgan & Banks Limited issued at
$5.224 per share............................................................... -- 1,437 --
Cash............................................................................. -- 7,557 102
--------- --------- ---
-- 8,994 102
Equity interest at date of acquisition............................................. -- 1,491 --
--------- --------- ---
-- 10,485 102
--------- --------- ---
--------- --------- ---
Fair value of net assets acquired
Current Assets
Cash........................................................................... -- 910 --
Trade debtors.................................................................. -- 3,947 --
Sundry debtors and prepayments................................................. -- 264 --
Non-Current Assets
Plant and equipment............................................................ -- 1,792 --
Intangible assets.............................................................. -- 929 --
Investments.................................................................... -- 68 --
Future income tax benefit...................................................... -- 346 --
Current Liabilities
Trade creditors................................................................ -- (1,194) --
Provisions and accruals........................................................ -- (3,816) --
Related party payable.......................................................... -- (19) --
Bank loan--secured............................................................. -- (179) --
--------- --------- ---
Net assets acquired.............................................................. -- 3,048 --
Goodwill on acquisition.......................................................... -- 7,437 102
--------- --------- ---
-- 10,485 102
--------- --------- ---
Cash consideration................................................................. -- 7,557 102
Less: Cash balances acquired....................................................... -- 910 --
--------- --------- ---
Cash outflow....................................................................... -- 6,647 102
--------- --------- ---
--------- --------- ---
</TABLE>
On 1 April 1997, an additional 7.5% of the ordinary shares of Morgan & Banks
(Hong Kong) Limited was acquired.
On 24 January 1997, an additional 16.5% of the ordinary shares of Morgan &
Banks (Hong Kong) Limited was also acquired.
57
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 23. NOTES TO THE STATEMENTS OF CASH FLOWS (CONTINUED)
(C) NON-CASH FINANCING AND INVESTING ACTIVITIES
During the 1997 financial year the chief entity acquired plant and equipment
with an aggregate fair value of $72,315 (1996: $814,440) by means of hire
purchase contracts. During the 1997 financial year the chief entity issued
275,170 ordinary shares as part consideration of the acquisition of 64.5% of the
ordinary shares of Morgan & Banks Limited, New Zealand (refer to Note 23(b)).
These transactions are not reflected in the statements of cash flows.
(D) FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
-------------------------------
1998 1997 1996
$000 $000 $000
--------- --------- ---------
<S> <C> <C> <C>
FACILITIES SUMMARY
Bank loan facilities............................................................... -- 179 --
Fixed rate commercial bill facility................................................ 2,500 -- --
Fixed and variable rate commercial bill acceptance/discount facility............... 2,630 5,675 --
Interchangeable overdraft or fixed and variable rate commercial bill
acceptance/discount facility..................................................... 8,196 1,992 --
Overdraft facilities............................................................... -- 447 2,000
--------- --------- ---------
13,326 8,293 2,000
--------- --------- ---------
--------- --------- ---------
USED AT BALANCE DATE
Bank loan facilities............................................................... -- 179 --
Fixed rate commercial bill facility................................................ 2,500 -- --
Fixed and variable rate commercial bill acceptance/discount facility............... 2,630 5,315 --
Interchangeable overdraft or fixed and variable rate commercial bill
acceptance/discount facility..................................................... 2,900 -- --
--------- --------- ---------
8,030 5,494 --
--------- --------- ---------
--------- --------- ---------
UNUSED AT BALANCE DATE
Fixed and variable rate commercial bill acceptance/discount facility............... -- 360 --
Interchangeable overdraft or fixed and variable rate commercial bill
acceptance/discount facility..................................................... 5,296 1,992 --
Overdraft facilities............................................................... -- 447 2,000
--------- --------- ---------
5,296 2,799 2,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
The bank loan facility was repaid in August 1997.
The fixed rate commercial bill facility matures in August 2001 with a fixed
interest rate of 5.74%.
The fixed and variable rate commercial bill acceptance/discount facility and
the interchangeable facility are subject to annual review, with the exception of
$2,630,000 of the commercial bill facility which matures in 2000. The commercial
bill facility of $2,630,000 and an additional amount of $796,000 of the
interchangeable facility may only be drawn in New Zealand dollars.
58
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 23. NOTES TO THE STATEMENTS OF CASH FLOWS (CONTINUED)
An interest rate option was taken out on the fixed and variable commercial
bill acceptance/discount facility drawn in New Zealand dollars until 15
September 1998. The interest rate cap is 8.50%.
Interest rates on the interchangeable overdraft and fixed and variable rate
commercial bill acceptance/ discount facility are determined by reference to the
prevailing bank bill or overdraft rate as applicable.
NOTE 24. COMMITMENTS FOR EXPENDITURE
<TABLE>
<CAPTION>
AS AT 31 MARCH
-------------------------------
1998 1997 1996
$000 $000 $000
--------- --------- ---------
<S> <C> <C> <C>
CAPITAL EXPENDITURE CONTRACTED FOR
AT 31 MARCH BUT NOT PROVIDED FOR:
Payable:
Not later than 1 year.............................................................. 76 426 179
--------- --------- ---------
--------- --------- ---------
NON-CANCELLABLE OPERATING LEASES WITH A TERM OF
MORE THAN ONE YEAR--COMMITMENTS NOT PROVIDED FOR:
Payable:
Not later than 1 year.............................................................. 7,056 5,892 3,894
Later than 1 year but not later than 2 years....................................... 6,332 5,193 3,500
Later than 2 years but not later than 5 years...................................... 13,742 12,757 7,091
Later than 5 years................................................................. 867 3,866 2,501
--------- --------- ---------
27,997 27,708 16,986
--------- --------- ---------
--------- --------- ---------
HIRE PURCHASE AGREEMENTS--ANALYSIS OF COMMITMENTS:
Payable:
Not later than 1 year.............................................................. 516 608 586
Later than 1 year but not later than 2 years....................................... 94 516 586
Later than 2 years but not later than 5 years...................................... -- 94 552
--------- --------- ---------
Total minimum lease payments......................................................... 610 1,218 1,724
Future finance charges............................................................... (38) (132) (249)
--------- --------- ---------
572 1,086 1,475
--------- --------- ---------
--------- --------- ---------
Current liability (Note 16).......................................................... 481 486 445
Non-current liability (Note 18)...................................................... 91 600 1,030
--------- --------- ---------
572 1,086 1,475
--------- --------- ---------
--------- --------- ---------
</TABLE>
The average interest rate for hire purchase liabilities is 10.776%.
NOTE 25. SUPERANNUATION COMMITMENTS
The economic entity contributes to accumulation plans to provide benefits to
permanent employees and contractors as required by Superannuation Guarantee
legislation. The economic entity does not guarantee the performance of these
funds.
The economic entity's commitment in respect of these accumulation plans is
limited to making the specified contributions as required by the relevant award
and legislation.
59
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 25. SUPERANNUATION COMMITMENTS (CONTINUED)
Funds are available for the purposes of the fund to satisfy all benefits
that would have been vested under the fund in the event of the termination of
the fund or the voluntary or compulsory termination of employment of each
employee member.
NOTE 26. CONTINGENT LIABILITIES
MORGAN & BANKS LIMITED
Particulars and estimated maximum amounts of contingent liabilities arising
in respect of:
Morgan & Banks New Zealand Limited has had proceedings issued against the
company for an amount of NZ$5.9 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 Group. The
directors of Morgan & Banks Limited are of the opinion that the claim is without
substance and accordingly the action will be vigorously defended.
Bank guarantees provided to third parties at 31 March 1998 amount to
$1,402,987 (1997: $1,286,391, 1996: $1,286,391).
In order to secure certain financing facilities, a deed of cross guarantee
and indemnity has been signed between Morgan & Banks Limited, Morgan & Banks New
Zealand Limited, and Maldon Holdings Limited to guarantee payment and indemnify
against losses.
60
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 27. REMUNERATION OF AUDITORS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
-------------------------------
1998 1997 1996
$000 $000 $000
--------- --------- ---------
<S> <C> <C> <C>
Total of all remuneration received or due and receivable for the audit and review of
financial reports by:
Auditors of the chief entity........................................................... 95 82 67
Other auditors......................................................................... 85 56 27
--------- --------- ---------
180 138 94
--------- --------- ---------
--------- --------- ---------
Total of all remuneration received or due and receivable for other services by:
Auditors of the chief entity........................................................... 71 124 68
Other auditors......................................................................... 35 3 8
--------- --------- ---------
106 127 76
--------- --------- ---------
286 265 170
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 28. DIRECTORS' INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
-------------------------------
1998 1997 1996
$000 $000 $000
--------- --------- ---------
<S> <C> <C> <C>
Aggregate of income paid or payable or otherwise made available from entities within the
economic entity and any related parties:............................................... 5,545 5,298 3,452
--------- --------- ---------
--------- --------- ---------
</TABLE>
The total income reported above excludes income of directors of wholly-owned
controlled corporations who are executives but not directors of the chief entity
and who are required as part of their executive duties to be directors of
controlled entities.
Directors of the chief entity in office at any time during the financial
years 1998, 1997 and 1996 were:
<TABLE>
<S> <C> <C>
W S Cutbush I G Burns A A Cox
G K Morgan M Hinves A W Whatmore
A R Banks P S Laidlaw
</TABLE>
NOTE 29. EXECUTIVES' INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
-------------------------------
1998 1997 1996
$000 $000 $000
--------- --------- ---------
<S> <C> <C> <C>
Total income received, or receivable by executive officers (including income received or
receivable from related parties) whose total income exceeds $100,000................... 7,624 6,997 6,442
--------- --------- ---------
--------- --------- ---------
</TABLE>
61
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 29. EXECUTIVES' INCOME (CONTINUED)
Number of executive officers whose total income exceeds $100,000:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
-------------------------------------------
1998 1997 1996
NUMBER NUMBER NUMBER
------------- ------------- -------------
<S> <C> <C> <C>
$100,000-$109,899................................................................... -- -- 1
$110,000-$119,999................................................................... 1 -- 1
$120,000-$129,999................................................................... 1 -- --
$130,000-$139,999................................................................... -- 1 3
$140,000-$149,999................................................................... 1 1 1
$150,000-$159,999................................................................... -- 1 --
$160,000-$169,999................................................................... 1 1 1
$180,000-$189,999................................................................... 2 -- --
$190,000-$199,999................................................................... -- -- 1
$200,000-$209,999................................................................... -- 1 --
$210,000-$219,999................................................................... -- 1 1
$220,000-$229,999................................................................... 1 1 2
$240,000-$249,999................................................................... 1 -- 1
$250,000-$259,999................................................................... 1 1 1
$260,000-$269,999................................................................... -- 1 --
$270,000-$279,999................................................................... -- 1 --
$290,000-$299,999................................................................... 1 1 1
$300,000-$309,999................................................................... 2 2 --
$320,000-$329,999................................................................... -- -- 2
$340,000-$349,999................................................................... -- 1 --
$350,000-$359,999................................................................... 1 1 --
$370,000-$379,999................................................................... 1 1 --
$390,000-$399,999................................................................... 1 -- --
$430,000-$439,999................................................................... 1 -- --
$450,000-$459,999................................................................... 1 -- --
$470,000-$479,999................................................................... -- -- 1
$500,000-$509,999................................................................... -- -- 2
$550,000-$559,999................................................................... 1 3 --
$560,000-$569,999................................................................... 1 -- --
$570,000-$579,999................................................................... 1 -- --
$590,000-$599,999................................................................... -- -- 2
$670,000-$679,999................................................................... -- 2 --
$690,000-$699,999................................................................... 2 -- --
</TABLE>
The total income reported above includes the income of executive directors. This
is also included in the income of all directors reported in Note 28.
NOTE 30. SEGMENT INFORMATION
INDUSTRY SEGMENTS
The economic entity operates in the field of human resource services.
62
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 30. SEGMENT INFORMATION (CONTINUED)
GEOGRAPHICAL SEGMENTS
The economic entity operated in the following geographic segments during the
year--Australia, the United Kingdom, New Zealand and Asia.
A statement of operations of geographical segments are as follows:
<TABLE>
<CAPTION>
TOTAL REVENUE TOTAL ASSETS AS AT
------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED 31 MARCH
------------------------------- 31 MARCH 31 MARCH 31 MARCH
(A$ THOUSAND) 1998 1997 1996 1998 1997 1996
- ----------------------------------------------- --------- --------- --------- ----------- ----------- -----------
Australia...................................... 235,738 179,952 122,645 53,913 38,803 35,512
United Kingdom................................. 37,091 23,951 15,504 5,190 3,941 2,221
Asia........................................... 11,092 9,144 5,356 6,203 6,083 2,470
New Zealand*................................... 46,786 8,904 -- 17,484 17,172 --
--------- --------- --------- ----------- ----------- -----------
Consolidated................................... 330,707 221,951 143,505 82,790 65,999 40,203
--------- --------- --------- ----------- ----------- -----------
--------- --------- --------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
OPERATING PROFIT
BEFORE TAX AND GOODWILL OPERATING PROFIT
GOODWILL AMORTISATION AMORTISATION BEFORE TAX
YEAR ENDED 31 MARCH ------------------------------- ------------------------------- -------------------------------
(A$ THOUSAND) 1998 1997 1996 1998 1997 1996 1998 1997 1996
- --------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Australia............ 17,753 14,259 10,163 (9) (106) (19) 17,744 14,153 10,144
United Kingdom....... 526 531 239 -- -- -- 526 531 239
Asia................. 839 1,934 1,150 (262) (153) (139) 577 1,781 1,011
Asia (abnormal
loss).............. (703) -- -- -- -- -- (703) -- --
New Zealand*......... 818 373 -- (511) (112) -- 307 261 --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Consolidated......... 19,233 17,097 11,552 (782) (371) (158) 18,451 16,726 11,394
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
- ------------------------
There were no material intersegment sales.
* The results for New Zealand for 1997 are for the period 1 February to 31 March
1997.
NOTE 31. OUTSIDE EQUITY INTEREST
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------------
1998 1997
$000 $000
--------- ---------
<S> <C> <C>
Outside equity interest in controlled entities comprises:
Share capital..................................................................................... 25 33
Foreign currency translation reserve.............................................................. 60 (31)
Retained profits.................................................................................. 566 793
--------- ---------
651 795
--------- ---------
--------- ---------
</TABLE>
63
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 32. CONTROLLED ENTITIES
<TABLE>
<CAPTION>
PERCENTAGE
OF SHARES HELD
--------------------
AS AT 31 MARCH
COUNTRY OF --------------------
FORMATION/ 1998 1997
CONTROLLED ENTITY INCORPORATION % %
- ------------------------------------------------------------------------------- --------------- --------- ---------
<S> <C> <C> <C>
SHARES HELD BY MORGAN & BANKS LIMITED
Morgan & Banks Management Services Pty Ltd..................................... Australia 100 100
Credential Check Pty Ltd....................................................... Australia 100 100
Labour LinQ Pty Ltd............................................................ Australia 100 100
Alectus Personnel Pty Ltd...................................................... Australia 100 100
Tristram Investments Limited................................................... Australia 100 100
The Labour LinQ Business Solution Pty Ltd j.................................... Australia 100 100
Morgan & Banks Reward Consulting Pty Ltd....................................... Australia 100 100
Morgan & Banks Investor No. 1 Pty Ltd.......................................... Australia 100 100
H. Neumann International Pty Ltd............................................... Australia 67.5 67.5
S.B.N. Convenience Pty Limited................................................. Australia 100 100
M&B Search Pte Ltd bd.......................................................... Singapore 75 67.5
Maldon Holdings Limited a...................................................... New Zealand 100 100
Morgan & Banks Holdings Ltd a.................................................. UK 100 100
Morgan & Banks Recruitment Ltd a............................................... Hong Kong 100 100
Health Resources International Pty Limited k................................... Australia 100 --
H. Neumann International Limited a............................................. New Zealand 47.5 47.5
PT Morgan Nusantara ac......................................................... Indonesia 99 --
SHARES HELD BY MALDON HOLDINGS LIMITED
Morgan & Banks New Zealand Limited ag.......................................... New Zealand 100 100
SHARES HELD BY MORGAN & BANKS NEW ZEALAND LIMITED
Compuforce Recruitment Limited ae.............................................. New Zealand 100 100
Alectus Recruitment Consultants Ltd a.......................................... New Zealand 100 100
H. Neumann International Limited a............................................. New Zealand 47.5 47.5
Sibson & Company Limited ae.................................................... New Zealand 100 100
Compubank Limited e............................................................ New Zealand -- 100
Executive Leasing & Consulting Ltd a........................................... New Zealand 100 100
Job Bank (NZ) Ltd e............................................................ New Zealand -- 100
Labour Linq Limited a.......................................................... New Zealand 100 100
MB Management Systems Ltd e.................................................... New Zealand -- 100
Job Index Limited af........................................................... New Zealand 100 --
H. Neumann International Limited............................................... Australia 27.5 27.5
</TABLE>
64
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 32. CONTROLLED ENTITIES (CONTINUED)
<TABLE>
<CAPTION>
PERCENTAGE
OF SHARES HELD
--------------------
AS AT 31 MARCH
COUNTRY OF --------------------
FORMATION/ 1998 1997
CONTROLLED ENTITY INCORPORATION % %
- ------------------------------------------------------------------------------- --------------- --------- ---------
<S> <C> <C> <C>
SHARES HELD BY MORGAN & BANKS HOLDINGS LTD
Morgan & Banks PLC a........................................................... UK 100 100
Morgan & Banks Payroll Services Ltd al......................................... UK 100 100
SHARES HELD BY MORGAN & BANKS RECRUITMENT LTD
Morgan & Banks (Hong Kong) Ltd ad.............................................. Hong Kong 75 67.5
SHARES HELD BY MORGAN & BANKS (HONG KONG) LTD
The Wright Company (S) Pte Ltd b............................................... Singapore 100 100
The Wright Company (Beijing) Ltd a............................................. Hong Kong 100 100
The Wright Company (Guangzhou) Ltd a........................................... Hong Kong 100 100
H. Neumann International (Asia) Ltd ah......................................... Hong Kong 95 100
The Wright Company (M) Sdn Bhd a............................................... Malaysia 100 100
Maston Development Limited a................................................... Hong Kong 100 100
PT Morgan Nusantara ac......................................................... Indonesia 1 --
</TABLE>
- ------------------------
All controlled entities carried on business in their countries of incorporation.
a Controlled entities audited by other member firms of the Pannell Kerr
Forster worldwide association.
b Controlled entities audited by firms other than Pannell Kerr Forster
worldwide association.
c Incorporated on 26 February 1997.
d Acquired an additional 16.5% effective 24 January 1997 and an additional 7.5%
effective 1 April 1997.
e Controlled entity wound up.
f Incorporated 12 June 1997.
g Name changed from Morgan & Banks Limited on 5 March 1998.
h Name changed from The Wright Company (Shanghai) Ltd. on 12 December 1997.
j Name changed from Inform International Pty Ltd on 1 August 1997.
k Incorporated on 20 May 1997.
l Name changed from Morgan & Banks Executive Leasing Ltd on 7 March 1997.
On 24 January 1997, the economic entity acquired an additional 16.5% of the
share capital of Morgan & Banks (Hong Kong) Ltd for $1,075,635 and the
additional percentage of the operating results were included in Profit and Loss
Accounts from that date. During the 1998 financial year the economic entity
65
<PAGE>
MORGAN & BANKS LIMITED
NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
NOTE 32. CONTROLLED ENTITIES (CONTINUED)
acquired a further 7.5% of the share capital of Morgan & Banks (Hong Kong) Ltd
for an amount of $664,778. The acquisition took place on 1 April 1997 and the
operating results of the increased ownership interest was included in the profit
and loss account from that date.
NOTE 33. EARNINGS PER SHARE
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 MARCH
----------------------------------------
<S> <C> <C> <C>
1998 1997 1996
$ $ $
------------ ------------ ------------
Basic earnings per share--before abnormal items......................... 0.169 0.144 0.10
Basic earnings per share--after abnormal items.......................... 0.159 0.144 0.10
<CAPTION>
NUMBER NUMBER NUMBER
------------ ------------ ------------
<S> <C> <C> <C>
Weighted average number of ordinary shares outstanding during the year
used in the calculation of basic earnings per share................... 69,239,148 68,489,148 67,663,638
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Diluted earnings per share is not materially different from basic earnings
per share and is therefore not disclosed in the accounts.
The prior year numbers have been adjusted to reflect the capital
reconstruction for the purposes of comparability.
NOTE 34. RELATED PARTY TRANSACTIONS
During the financial period to 31 March 1998 the following transactions took
place with related parties:
Dividends totalling $1,555,334 (1997: $1,501,253, 1996: $1,522,260) were
paid during the year to entities associated with directors, this being in
accordance with normal shareholder entitlements.
An amount of $20,000 (1997: $20,000, 1996: $20,000) was paid under a
sponsorship agreement to Geoff Morgan Motor Sports, a director related entity of
Mr G K Morgan.
Director related entities of non-executive directors, Mr W S Cutbush, Mr A A
Cox, Mr A W Whatmore and joint managing directors, Mr G K Morgan and Mr A R
Banks, have from time to time utilised the services of the economic entity, this
being in the normal course of business and on standard terms and conditions.
66
<PAGE>
SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN US GAAP AND UK GAAP
Austin Knight Limited and subsidiaries' (the "Group") consolidated financial
statements have been prepared in accordance with UK GAAP which differs in
certain significant respects from US GAAP. This summary should not be taken as a
complete list of all differences between UK GAAP and US GAAP. No attempt has
been made to identify all disclosures, presentations or classifications that
would affect the manner in which transactions or events are presented in the
financial statements or notes thereto. Further, no attempt has been made to
identify future differences between UK GAAP and US GAAP as the result of
prescribed changes in accounting standards. The identified significant
differences as they relate to the Group are summarized in the following
paragraphs.
GOODWILL AND OTHER INTANGIBLES
Goodwill represents the amounts paid for subsidiary companies and acquired
businesses in excess of their net asset value. Under UK GAAP, for acquisitions
made on or before 30 September 1992, the net book value of goodwill at that date
is amortised in equal monthly instalments over a maximum period of 10 years. For
acquisitions after that date, goodwill is written off in full, directly to
reserves, in the year of purchase. Under US GAAP, goodwill is capitalized and
amortized through the statement of income over a period representing the
estimated useful life, not exceeding 40 years.
TANGIBLE FIXED ASSETS
Under UK GAAP, no depreciation is charged on freehold buildings with an
estimated useful life of more than 50 years, as it is the Group's policy to
maintain its properties in good condition so prolonging their useful lives and
the Directors consider that the lives of these properties and their residual
values are such that any depreciation involved would not be material. Cost of
repairs and maintenance are charged against revenue in the year in which they
are incurred. Provision for depreciation on freehold investment properties is
made when the Directors consider there has been a permanent reduction in their
realisable values. Under US GAAP, all tangible fixed assets are carried at
historical cost less accumulated depreciation.
SALES OF PROPERTY (REAL ESTATE)
Under UK GAAP, the general concepts of prudence and accruals apply when
accounting for sales of property. Additionally, US GAAP dictates a prescriptive
methodology in this area. US GAAP makes a distinction between retail land sales
and other sales of real estate. Separate guidance is provided for companies in
the real estate industry, which are frequently involved in highly complex
transactions.
LEASES
While US GAAP is similar in concept to UK GAAP, its detailed requirements
are more extensive and differences exist. Leases classified as finance leases
under UK GAAP are likely to be classified as capital leases under US GAAP.
Certain operating leases under UK GAAP, however, may also be classified as
capital leases under US GAAP.
DEFERRED TAXATION
Under UK GAAP, provision is made for deferred taxation under the liability
method unless there is reasonable certainty that such deferred taxation will not
become payable or receivable in the foreseeable future. Under US GAAP, deferred
taxation is provided on all temporary differences which will result in taxable
or tax deductible amounts in future years subject to a valuation allowance to
reduce deferred tax assets if it is more likely than not that the related tax
benefit will not be realized.
67
<PAGE>
DIVIDENDS
Under UK GAAP, dividends are provided for in the year to which they relate.
These dividends are deducted from current year earnings. US GAAP recognizes
dividends as a reduction of retained earnings in the accounting period in which
they are formally declared.
PENSIONS
Under UK GAAP, contributions to pension funds are assessed in accordance
with advice from actuaries and charged to the income statement so as to spread
the pension cost over the expected service lives of the relevant employees.
Pension accounting under US GAAP is more prescriptive than that under UK GAAP,
where a more judgmental approach is taken. Under US GAAP, a liability is
recognized when plan assets are less than employees' accumulated benefits.
Accordingly, there may be differences in the actuarial assumptions and methods
of valuation of the plan assets compared with those that would be made under US
GAAP.
ACQUISITION ACCOUNTING
Prior to the introduction of Financial Reporting Standard No. 7, "Fair
Values in Acquisition Accounting" ("FRS7"), certain costs of restructuring were
provided for as part of the purchase accounting adjustments on an acquisition
under UK GAAP. FRS7, introduced for the year ended December 31, 1995, requires
that the fair value balance sheet of the acquired company not include provisions
for integration and reorganization costs set up by the acquiring company. The
FRS contained no requirement to restate prior year figures.
Under US GAAP, such costs would generally be included in the statement of
income when incurred. Certain integration and reorganization costs meeting
specific criteria, however, may be considered liabilities assumed and included
in the allocation of the acquisition cost.
ESOT ADJUSTMENT
Under UK GAAP, shares acquired by the ESOT are included in the balance sheet
as an asset. Under US GAAP they are treated as a reduction in shareholders'
equity.
REVALUATION OF PROPERTIES
Under UK GAAP, properties may be restated on the basis of appraised values
in financial statements prepared in all other respects in accordance with the
historic cost convention. Increases in value are credited directly to the
revaluation reserve. When revalued properties are sold the gain or loss on sale
is calculated based on revalued carrying amounts. Under US GAAP, such
revaluations are not reflected in the financial statements, and the gain or loss
on sale is calculated based on depreciated historical cost.
CURRENT ASSETS AND LIABILITIES
Current assets under UK GAAP, include certain amounts which fall due after
more than one year. Under US GAAP, such assets would be reclassified as
non-current assets. Borrowings under UK GAAP are classified according to the
maturity of the financial instrument, while under US GAAP, certain borrowings
would be classified according to the maturity of the available back-up facility.
Provisions for liabilities and charges under UK GAAP include certain amounts due
within one year which would be reclassified as current liabilities under US
GAAP.
ADVERTISING COSTS
Under UK GAAP, advertising costs may be recognized in the period in which
the related benefit is expected to arise and may, accordingly, be carried as a
prepayment in the balance sheet. Under US GAAP,
68
<PAGE>
advertising costs are primarily expensed in the periods in which those costs are
incurred. In certain limited circumstances, however, advertising costs may be
deferred.
CASH FLOWS
Under UK GAAP, the Group complies with Financial Reporting Standard No. 1
(revised), "Cash flow statements" ("FRS1"). Its objectives and principles are
similar to US GAAP as set out in Statement of Financial Accounting Standards No.
92, "Statement of Cash Flows" (SFAS No. 95"). The principal difference between
the standards is in respect of classification. Under FRS1, the Group presents
its cash flows for (a) operating activities, (b) returns on investments and
servicing of finance, (c) taxation, (d) capital expenditure and financial
investment, (e) acquisitions and disposals, (f) equity dividends paid, (g)
management of liquid resources and (h) financing, SFAS No. 95 requires only
three categories of cash flow activity: (a) operating activities, (b) investing
activities and (c) financing activities.
Under FRS1, cash includes deposits and overdrafts repayable on demand while
movements on short-term investments are included in management of liquid
resources. SFAS No. 95 defines cash and cash equivalents as also including
short-term highly liquid investments.
Cash flows arising from taxation and returns on investments and servicing of
finance under FRS1 would be included as operating activities under SFAS No. 95.
Cash flows relating to capital expenditure and financial investment and
acquisitions and disposals would be included as investing activities under SFAS
No. 95. Equity dividend payments would be included as a financing activity under
SFAS No. 95.
Management has not quantified the effect of the differences between UK GAAP
and US GAAP on the net profit or stockholders' funds of the Group. Accordingly,
there can be no assurances that such net profit or stockholders' funds
determined in accordance with UK GAAP would not be significantly different if
they had been determined under US GAAP.
69
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Members of Austin Knight Limited
We have audited the accompanying consolidated balance sheets of Austin
Knight Limited and its subsidiaries as at 30 September 1995 and 1996 and the
related consolidated profit and loss accounts, cash flow statements, statements
of movements in shareholders' funds and statements of total recognised gains and
losses for each of the years in the two year period ended 30 September 1996.
These consolidated financial statements are the responsibility of the directors
of Austin Knight Limited. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United Kingdom which do not differ in any material respects from
generally accepted auditing standards in the United States of America. These
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Austin
Knight Limited and its subsidiaries at 30 September 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
two year period ended 30 September 1996, in conformity with generally accepted
accounting principles in the United Kingdom.
KPMG
Chartered Accountants
Registered Auditors
London, England
4 February 1997
70
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
YEAR ENDED 30
SEPTEMBER
----------------------
<S> <C> <C> <C>
1995 1996
NOTE L'000 L'000
----- ---------- ----------
TURNOVER............................................................... 2 123,118 134,444
Cost of Sales.......................................................... (110,403) (120,196)
---------- ----------
GROSS PROFIT........................................................... 12,715 14,248
Administrative expenses................................................ (9,796) (11,206)
Other operating income................................................. 378 473
---------- ----------
OPERATING PROFIT....................................................... 3 3,297 3,515
Exceptional Item....................................................... 6 -- (95)
Interest............................................................... 7 (539) (407)
---------- ----------
PROFIT on ordinary activities before taxation.......................... 2,758 3,013
TAXATION............................................................... 8 (1,098) (1,210)
---------- ----------
PROFIT for the financial year.......................................... 1,660 1,803
DIVIDENDS.............................................................. 9 (408) (445)
---------- ----------
RETAINED PROFIT for the financial year................................. 18 1,252 1,358
---------- ----------
---------- ----------
</TABLE>
There are no discontinued operations contained within the above results.
Details of the results of the acquisitions made during the year are shown in
note 3.
The notes on pages F-45 to F-60 form part of these financial statements.
71
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
--------------------
<S> <C> <C> <C>
1995 1996
NOTE L'000 L'000
--------- --------- ---------
FIXED ASSETS
Intangible assets...................................................... 10 498 419
Tangible assets........................................................ 11 16,131 16,923
Investments............................................................ 12 112 112
--------- ---------
16,741 17,454
--------- ---------
CURRENT ASSETS
Work-in-process........................................................ 270 193
Debtors................................................................ 13 24,547 24,444
Cash at bank and in hand............................................... 24 1,006 1,596
--------- ---------
25,823 26,233
CREDITORS: Amounts falling due within one year......................... 14 (24,490) (24,668)
--------- ---------
NET CURRENT ASSETS/(LIABILITIES)....................................... 1,333 1,565
--------- ---------
TOTAL ASSETS LESS CURRENT LIABILITIES.................................. 18,074 19,019
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR................ 15 (4,495) (4,857)
PROVISION FOR LIABILITIES AND CHARGES.................................. 16 (308) (214)
--------- ---------
NET ASSETS............................................................. 13,271 13,948
--------- ---------
--------- ---------
CAPITAL AND RESERVES
Called up share capital................................................ 17 1,237 1,237
Share Premium Account.................................................. 18 87 87
Revaluation reserve.................................................... 18 5,396 5,396
Profit and loss account................................................ 18 6,551 7,228
--------- ---------
13,271 13,948
--------- ---------
--------- ---------
</TABLE>
The notes on pages F-45 to F-60 form part of these financial statements.
72
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED
30 SEPTEMBER,
--------------------
<S> <C> <C> <C>
1995 1996
NOTE L'000 L'000
--------- --------- ---------
NET CASH INFLOW FROM OPERATINGACTIVITIES............................................... 21 2,906 6,184
--------- ---------
RETURNS ON INVESTMENTS ANDSERVICING OF FINANCE
Interest paid.......................................................................... (561) (433)
Interest received...................................................................... 34 50
Interest element of finance leaserental payments....................................... (24) (27)
Dividends paid......................................................................... (328) (416)
--------- ---------
NET CASH OUTFLOW FROM RETURNS ONINVESTMENTS AND SERVICING OFFINANCE.................... (879) (826)
--------- ---------
TAXATION
ACT paid............................................................................... (60) (102)
UK corporation tax paid................................................................ (537) (668)
Overseas and other taxes paid.......................................................... (277) (581)
--------- ---------
TAX PAID............................................................................... (874) (1,351)
--------- ---------
INVESTING ACTIVITIES
Purchase of own shares................................................................. (118) --
Sale of shares under option............................................................ 11 --
Purchase of intangible assets.......................................................... 22 -- (78)
Purchase of subsidiaries............................................................... 23 (51) (632)
Purchase of tangible fixed assets...................................................... (1,024) (1,740)
Less: Inception of finance leases...................................................... 63 1,024
Proceeds from sales of fixed assets.................................................... 146 112
--------- ---------
NET CASH OUTFLOW FROM INVESTINGACTIVITIES.............................................. (973) (1,314)
--------- ---------
NET CASH INFLOW/(OUTFLOW) BEFOREFINANCING.............................................. 180 2,693
FINANCING
Additional loan repayable over 5 years................................................. -- 641
Issue of ordinary share capital........................................................ 118 --
--------- ---------
298 3,334
--------- ---------
--------- ---------
FINANCING
Repayment of loans..................................................................... 767 767
Capital element of finance lease.......................................................
Net rental payments.................................................................... 105 149
--------- ---------
NET CASH OUTFLOW FROM FINANCING........................................................ 872 916
INCREASE/(DECREASE) IN CASH ANDCASH EQUIVALENTS........................................ 24 (574) 2,418
--------- ---------
298 3,334
--------- ---------
--------- ---------
</TABLE>
The notes on pages F-45 to F-60 form part of these financial statements.
73
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
YEAR ENDED
30 SEPTEMBER,
--------------------
<S> <C> <C>
1995 1996
L'000 L'000
--------- ---------
Profit for the financial year.................................................................. 1,660 1,803
Dividends...................................................................................... (408) (445)
--------- ---------
1,252 1,358
Goodwill written off........................................................................... (51) (710)
Exchange adjustments........................................................................... 72 29
--------- ---------
1,273 677
New share capital subscribed................................................................... 118 --
Opening Shareholders' Funds.................................................................... 11,741 13,271
Prior year adjustments......................................................................... 139 --
--------- ---------
Closing Shareholders' Funds.................................................................... 13,271 13,948
--------- ---------
--------- ---------
</TABLE>
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
<TABLE>
<CAPTION>
YEAR ENDED
30 SEPTEMBER,
--------------------
<S> <C> <C>
1995 1996
L'000 L'000
--------- ---------
Profit for the financial year.................................................................... 1,660 1,803
Exchange adjustments............................................................................. 72 29
--------- ---------
Total recognised gains for the financial year.................................................... 1,732 1,832
Prior year adjustment............................................................................ 139 --
--------- ---------
Total gains recognised since the last Annual Report.............................................. 1,871 1,832
--------- ---------
--------- ---------
</TABLE>
The notes on pages F-45 to F-60 form part of these financial statements.
74
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
1. ACCOUNTING POLICIES
A. BASIS OF PREPARATION
The accounts have been prepared under the historical cost accounting rules
as modified by the revaluation of freehold property and in accordance with
applicable accounting standards.
B. TURNOVER AND RECOGNITION OF REVENUE
Turnover represents amounts receivable from clients, exclusive of sales
related taxes, in respect of charges for advertising placed, production work and
fees. Revenue in respect of advertising and production is recognized when the
work is completed. Fees are recognised over the period of the relevant
assignment.
C. CONSOLIDATION
The consolidated accounts of the Group incorporate the accounts of the
Company and its subsidiaries, together with the accounts of the Austin Knight
Limited Employees Trust.
In accordance with the Companies Act of 1985 S230, a separate profit and
loss account dealing with the results of Austin Knight Limited is not presented.
The amount of the consolidated profit for the financial year dealt with in the
accounts of the Company is L1,128,000 (1995 L1,149,000).
D. FOREIGN CURRENCIES
Exchange differences on transactions during the year are charged or credited
to the profit and loss account. The trading results and cash flow of overseas
subsidiaries are translated at the average exchange rate for the year. Assets
and liabilities are translated at exchange rates ruling at the year-end. On
consolidation, differences on exchange arising from the retranslation of the
opening net investment and from the translation of the profits or losses at
average rates are taken directly to reserves.
E. GOODWILL
Goodwill represents the amounts paid for subsidiary companies and acquired
businesses in excess of their net asset value. For acquisitions made on or
before 30 September 1992, the net book value of goodwill at that date is
amortised in equal monthly installments over a maximum period of 10 years. For
acquisitions after that date, goodwill is written off in full, directly to
reserves in the year of purchase.
F. DEPRECIATION
Tangible fixed assets are stated at historical cost or valuation less
accumulated depreciation. Depreciation is provided to write off the cost of
tangible fixed assets by equal monthly installments at the following rates:
FREEHOLD PROPERTY--Provision for depreciation on freehold buildings with an
estimated useful life of more than 50 years is not considered necessary since it
is the Company's policy to maintain its properties in good condition which
prolongs their useful lives and the Directors consider that the lives of these
properties and their residual values are such that any depreciation involved
would not be material. Costs of repairs and maintenance are charged against
revenue in the year in which they are incurred.
75
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
1. ACCOUNTING POLICIES (CONTINUED)
INVESTMENT PROPERTIES--Provision for depreciation on freehold investment
properties is made when the Directors consider there has been a permanent
reduction in their realisable values.
FURNITURE AND EQUIPMENT--10% to 25% per annum according to the estimated
life of assets.
MOTOR VEHICLES--20% per annum.
G. WORK-IN-PROGRESS
Work-in-progress is valued at the lower of cost or net realisable value.
H. DEFERRED TAXATION
Provision is made for deferred taxation using the liability method in
respect of all material timing differences, to the extent that it is probable
that the liability or asset will crystallise in the foreseeable future.
I. LEASES
Leases are accounted for as finance leases where the Group enters into a
lease which entails taking substantially all the risks and rewards of ownership
of an asset. All other leases are accounted for as operating leases.
Assets acquired under finance leases are capitalised in the balance sheet
and are depreciated over their estimated useful lives. The capital element of
future rentals is treated as a liability and the interest element is charged to
the profit and loss account over the period of the leases in proportion to the
balance outstanding. Rentals payable under operating leases are charged to the
profit and loss account as incurred.
J. PENSIONS
Contributions are paid to the Group's pension schemes to secure and enhance
the benefits for personnel under the schemes in accordance with the
recommendations of independent actuaries.
Contributions are charged to the profit and loss account so as to spread the
cost of the provisions over the employees' working lives in accordance with
Statement of Standard Accounting Practice 24. Pension scheme surpluses or
deficits are amortised over the expected remaining service lives of employees.
2. TURNOVER
The turnover of the Group arose in the following geographical markets:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
United Kingdom.......................................................... 76,908 82,473
United States........................................................... 27,566 33,942
Rest of world........................................................... 18,644 18,029
--------- ---------
123,118 134,444
--------- ---------
--------- ---------
</TABLE>
76
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
3. OPERATING PROFIT
The operating profit is stated after including:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Depreciation of tangible fixed assets........................................ 995 665
Amortisation of intangibles.................................................. 70 68
Hire of plant and equipment.................................................. 629 724
Other rents payable.......................................................... 1,235 1,478
Directors' emoluments (Note 4):
Management remuneration--Salaries and benefits............................. 268 274
--Performance payments.............................. 27 29
Fees....................................................................... 36 36
Compensation for loss of office............................................ 25 --
Pension contributions...................................................... 26 27
Auditors' remuneration--in respect of audit.................................. 104 119
Auditors' remuneration--in respect of other work............................. 45 36
Rent receivable.............................................................. 363 473
</TABLE>
Operating profit also includes the following amounts relating to
acquisitions made during the year ended 30 September 1996:
<TABLE>
<CAPTION>
L'000
---------
<S> <C>
Turnover............................................................................... 655
Cost of sales.......................................................................... (487)
---
Gross profit........................................................................... 168
Administrative expenses................................................................ (137)
---
Operating profit arising from acquisitions............................................. 31
---
---
</TABLE>
4. DIRECTORS' EMOLUMENTS
The details of Directors' emoluments are set out in Note 26, Remuneration
Committee Report.
5. STAFF COSTS
Staff costs, which include Directors' emoluments, were:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Wages and salaries......................................................... 11,963 13,548
Social security costs...................................................... 971 1,253
Pension costs.............................................................. 525 611
--------- ---------
13,459 15,412
--------- ---------
--------- ---------
</TABLE>
The average number of employees including Directors during the year was 514
(1995:476).
77
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
6. EXCEPTIONAL ITEM
This comprises solely the provisions necessary to reduce the Group's
investment properties to their estimated net realisable values.
7. INTEREST
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--- -----
<S> <C> <C>
INTEREST PAYABLE
On bank loan repayable over more than five years................................ 393 342
On overdrafts and other loans repayable wholly within five years................ 156 105
Finance leases.................................................................. 24 20
INTEREST RECEIVABLE............................................................. (34) (60)
--- ---
539 407
--- ---
--- ---
</TABLE>
8. TAXATION
The taxation on the profit on ordinary activities for the year was as
follows:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
United Kingdom corporation tax at 33%........................................ 746 804
Overseas taxation............................................................ 410 494
Deferred taxation--charge/(credit)
UK......................................................................... 42 (235)
Overseas................................................................... (49) 110
Adjustments to prior years--charge/(credit).................................. (51) 37
--------- ---------
1,098 1,210
--------- ---------
--------- ---------
</TABLE>
9. DIVIDENDS
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Interim dividend of 2.75p per 25p share (1995: 2.60p per 25p share) 128 136
Final dividend of 6.25p per 25p share (1995: 5.65p per 25p share) 280 309
--------- ---------
408 445
--------- ---------
--------- ---------
</TABLE>
78
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
10. INTANGIBLE FIXED ASSETS--GOODWILL
<TABLE>
<CAPTION>
L'000
---------
<S> <C>
COST
At 1 October 1995..................................................................... 2,823
Exchange adjustments.................................................................. (18)
Addition on Acquisition of Business--see Note 22...................................... 78
Addition on Acquisition of Subsidiaries--see Note 23.................................. 632
---------
AT 30 September 1996.................................................................. 3,515
---------
AMORTISATION
At 1 October 1995..................................................................... 2,325
Charge for year....................................................................... 68
Written off to reserves............................................................... 710
Exchange adjustments.................................................................. (7)
---------
At 30 September 1996.................................................................. 3,096
---------
NET BOOK VALUES
At 30 September 1996.................................................................. 419
---------
---------
At 30 September 1995.................................................................. 498
---------
---------
</TABLE>
11. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FREEHOLD FURNITURE/
PROPERTY EQUIPMENT MOTOR VEHICLES TOTAL
L'000 L'000 L'000 L'000
----------- ----------- ----------------- ---------
<S> <C> <C> <C> <C>
COST OR VALUATION
At 1 October 1995................................................ 14,472 5,447 513 20,432
Exchange adjustments............................................. -- 40 5 45
Additions........................................................ -- 1,719 26 1,745
Acquisitions..................................................... -- 61 -- 61
Disposals........................................................ -- (793) (92) (885)
----------- ----- --- ---------
At 30 September 1996............................................. 14,472 6,474 452 21,398
----------- ----- --- ---------
DEPRECIATION
At 1 October 1995................................................ -- 4,094 207 4,301
Exchange adjustments............................................. -- 25 1 26
Disposals........................................................ -- (616) (36) (652)
Acquisitions..................................................... -- 40 -- 40
Charge for the year.............................................. 95 585 80 760
----------- ----- --- ---------
At 30 September 1996............................................. 95 4,128 252 4,475
----------- ----- --- ---------
NET BOOK VALUES
At 30 September 1996............................................. 14,377 2,346 200 16,923
----------- ----- --- ---------
----------- ----- --- ---------
At 30 September 1995............................................. 14,472 1,353 306 16,131
----------- ----- --- ---------
----------- ----- --- ---------
</TABLE>
79
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
11. TANGIBLE FIXED ASSETS (CONTINUED)
Included in freehold property are investment properties of L627,000 shown at
written down value (1995: L722,000). The remaining property was revalued to
L13.75 million in 1992 based upon a Directors' valuation having regard to
professional advice. Its historical cost is L8,385,000.
The net book value of tangible fixed assets includes an amount of L933,000
(1995:L127,000) in respect of assets held under finance leases and hire purchase
obligations. The depreciation to these assets in the year is L203,000 (1995:
L47,000).
12. INVESTMENTS
PRINCIPAL TRADING SUBSIDIARIES
<TABLE>
<CAPTION>
PERCENTAGE OF
COUNTRY OF INCORPORATION ORDINARY SHARE
AND OPERATION CAPITAL HELD
-------------------------------------- -----------------
<S> <C> <C>
Austin Knight Incorporated............ United States of America 100
Austin Knight Canada Incorporated..... Canada 100
Austin Knight Proprietary Limited..... Australia 100
Austin Knight Consulting Proprietary Australia
Limited............................. 100
Austin Knight France SA............... France 100
Austin Knight BV...................... Netherlands 100*
Carre Turenne SA...................... France 100**
Alliance Resource Humaines SA......... France 100***
Austin Knight International BV........ Netherlands 100
Austin Knight Investments Ltd......... Great Britain 100
</TABLE>
- ------------------------
* Held by subsidiary, Austin Knight International BV
** Held by subsidiary, Austin Knight Investments Limited
*** Held by subsidiary, Austin Knight France SA
The principal activities of the trading subsidiaries are recruitment and
legal advertising and human resource consultancy.
The results of all the above companies are included in the consolidated
results for the Group using the acquisition method of accounting.
Austin Knight Limited has given guarantees on behalf of certain subsidiary
companies. The contingent liability at 30 September 1996 under these guarantees
amounted to L512,000 (1995: L630,000) at the year-end rates of exchange.
80
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
12. INVESTMENTS (CONTINUED)
OWN SHARES HELD
The Group includes 152,250 of its own shares which are held by the Austin
Knight Limited Employees Trust as an investment. They have been included at the
cost to the Trust.
The Austin Knight Limited Employees Trust exists for the benefit of the UK
employees and to incentivise the Directors and senior employees of the Group.
The Trust receives and holds shares in the Company either by means of a gift or
a purchase made at the then fair value price. It receives and invests the
dividends due on those shares and earns interest on its accumulated cash
balances. Periodically, options over the shares which it holds are granted to
individuals at the discretion of the Trustees based on recommendations by the
Board.
<TABLE>
<CAPTION>
L'000
---------
<S> <C> <C>
Shares at cost 1 October 1995 and at 30 September 1996..................... 112
</TABLE>
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
SUMMARY OF INVESTMENTS
Own shares held............................................................ 112 112
--------- ---------
Net book value............................................................. 112 112
--------- ---------
--------- ---------
</TABLE>
13. DEBTORS
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Trade debtors.............................................................. 23,104 23,016
Other debtors.............................................................. 624 698
Prepayments and accrued income............................................. 819 730
--------- ---------
24,547 24,444
--------- ---------
--------- ---------
</TABLE>
14. CREDITORS--AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Bank loans and overdrafts.................................................. 2,884 1,171
Trade creditors............................................................ 17,061 18,608
Obligations under finance leases and hire purchasecontracts................ 99 333
Dividend payable........................................................... 280 309
Other creditors including taxation and social security..................... 2,231 2,140
Accruals and deferred income............................................... 1,935 2,107
--------- ---------
24,490 24,668
--------- ---------
--------- ---------
</TABLE>
81
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
14. CREDITORS--AMOUNTS FALLING DUE WITHIN ONE YEAR (CONTINUED)
Details of the security given for the bank loan and overdrafts are shown in
Note 15.
Other creditors including taxation and social security comprise:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Corporation tax.............................................................. 1,070 917
Social security and other taxes.............................................. 289 937
Other creditors.............................................................. 872 286
--------- ---------
2,231 2,140
--------- ---------
--------- ---------
</TABLE>
15. CREDITORS--AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Bank loans................................................................... 4,409 4,138
Finance lease and hire purchase obligations.................................. 58 700
Other creditors.............................................................. 28 19
--------- ---------
4,495 4,857
--------- ---------
--------- ---------
</TABLE>
The bank loans and overdrafts are secured by fixed and floating charges on
the freehold property and trade debtors of Austin Knight Limited and its UK and
French subsidiaries. The loans bear interest based upon LIBOR and its French
equivalent and are scheduled for repayment as follows:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Between one and two years.................................................... 767 891
Between two and five years................................................... 2,300 2,671
More than five years......................................................... 1,342 576
--------- ---------
4,409 4,138
--------- ---------
--------- ---------
Bank loan included in creditors due within one year.......................... 767 891
--------- ---------
</TABLE>
The finance lease and hire purchase obligations fall due as follows:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
----- -----
<S> <C> <C>
Between one and two years...................................................... 49 302
Between two and five years..................................................... 9 398
--
---
58 700
--
--
---
---
</TABLE>
All other creditors falling due after more than one year are payable within
five years.
82
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
16. PROVISIONS FOR LIABILITIES AND CHARGES
The amounts provided for deferred taxation and other liabilities and charges
are as follows:
<TABLE>
<CAPTION>
DEFERRED
TAX OTHER
L'000 L'000
--------- ---------------
<S> <C> <C>
Provision at 1 October 1995............................................. 127 181
(Credit)/charge for the year in the profit andloss account
UK.................................................................. (235) --
Overseas............................................................ 110 33
Transfers........................................................... (2) --
--- ---
Provision at 30 September 1996.......................................... -- 214
--- ---
--- ---
</TABLE>
The amount of deferred taxation not provided is L221,000 and arises solely
on capital allowances.
The other provisions relate to pensions and other employee benefits.
17. CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
AUTHORISED
8,000,000 shares of 25p each (1995: 8,000,000 shares of 25peach)............. 2,000 2,000
--------- ---------
--------- ---------
ALLOTTED AND FULLY PAID
4,948,000 ordinary shares of 25p each (1995: 4,948,000ordinary shares of 25p
each)...................................................................... 1,237 1,237
--------- ---------
--------- ---------
</TABLE>
18. RESERVES
<TABLE>
<CAPTION>
PROFIT AND LOSS REVALUATION SHARE
ACCOUNT RESERVE PREMIUM
L'000 L'000 L'000
--------------- ------------- -------------
<S> <C> <C> <C>
At 1 October 1995......................................................... 6,551 5,396 87
Goodwill written off...................................................... (710) -- --
Profit retained........................................................... 1,358 -- --
Exchange adjustments...................................................... 29 -- --
--
----- -----
At 30 September 1996...................................................... 7,228 5,396 87
--
--
----- -----
----- -----
</TABLE>
19. CAPITAL COMMITMENTS
Capital expenditure authorised and contracted for by the Board of Directors
at 30 September 1996, for which no provision has been made in these accounts,
was L73,000 (1995: L107,000).
83
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
20. LEASE COMMITMENTS
The Group had the following annual commitments under operating leases:
<TABLE>
<CAPTION>
LAND AND BUILDINGS
OTHER
------------------------ -----------
<S> <C> <C> <C>
1995 1996 1995
L'000 L'000 L'000
--- --- ---
ON LEASES EXPIRING
Within 1 year....................................................................... 274 115 220
Within 2--5 years................................................................... 423 467 295
After 5 years....................................................................... 773 914 --
<CAPTION>
<S> <C>
1996
L'000
---
ON LEASES EXPIRING
Within 1 year....................................................................... 296
Within 2--5 years................................................................... 485
After 5 years....................................................................... --
</TABLE>
21. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Operating profit............................................................ 3,297 3,515
Depreciation................................................................ 995 665
Amortisation of intangible fixed assets..................................... 70 68
Loss on disposal of fixed assets............................................ 27 122
Decrease/(increase) in work-in-progress..................................... (94) 82
Decrease/(increase) in debtors.............................................. (2,935) 424
Increase in creditors....................................................... 1,546 1,308
--------- ---------
Net cash inflow from operating activities................................... 2,906 6,184
--------- ---------
--------- ---------
</TABLE>
22. PURCHASE OF INTANGIBLE ASSETS
This relates to the goodwill arising on the acquisition of Dawson
Advertising, a UK business in March 1996.
23. PURCHASE OF SUBSIDIARY UNDERTAKINGS
1. During the year, further payments of L101,700 were made under the terms
of the agreement for the purchase of Carre Turenne SA. These payments are
determined by the level of sales and profits earned from that Company's clients
since it joined the Group.
84
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
23. PURCHASE OF SUBSIDIARY UNDERTAKINGS (CONTINUED)
2. In July 1996, the Company acquired, through its subsidiary, Austin Knight
France SA, the entire issued share capital of Alliance Resources Humaines SA, a
company registered in France. The consideration paid and assets acquired were as
follows:
<TABLE>
<CAPTION>
L'000
---------
<S> <C>
Total Paid............................................................................ 666
Cash Acquired......................................................................... (159)
---------
Net Payment........................................................................... 507
---------
Fixed Assets.......................................................................... 21
Debtors............................................................................... 409
Creditors............................................................................. (453)
---------
(23)
Goodwill.............................................................................. 530
---------
507
---------
---------
GOODWILL SUMMARY L,000
---------
Arising on the acquisition of Carre Turenne........................................... 102
Arising on the acquisition of Alliance RH............................................. 530
---------
632
---------
---------
</TABLE>
85
<PAGE>
AUSTIN KNIGHT LIMITED AND SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
24. CASH AND CASH EQUIVALENTS
Analysis of the balances as shown in the balance sheet and changes during
the current year:
<TABLE>
<CAPTION>
CHANGE
1995 1996 IN YEAR
L'000 L'000 L'000
--------- --------- ---------
<S> <C> <C> <C>
Analysis of Balances
Cash at bank and in hand...................................... 1,006 1,596 590
Bank loan and overdrafts...................................... (2,884) (1,171) 1,713
Less: Amounts repayable after three months.................... 767 891 124
--------- --------- ---------
(1,111) 1,316 2,427
--------- --------- ---------
--------- --------- ---------
L'000
---------
Analysis of Changes
Balance 1 October 1995........................................ (1,111)
Net cash inflow before the effect of exchange ratechanges..... 2,418
Effect of exchange rate changes............................... 9
---------
Balance 30 September 1996..................................... 1,316
---------
---------
</TABLE>
<TABLE>
<CAPTION>
SHARE LOANS AND FINANCE
CAPITAL LEASE OBLIGATIONS
L'000 L'000
----------- -------------------
<S> <C> <C>
Analysis of changes in financing during the year
Balance 1 October 1995....................................... 1,324 5,332
Additional loan raised....................................... -- 641
Repayment of loan............................................ -- (767)
Finance lease repayments..................................... -- (149)
Finance lease inceptions (non-cash transaction).............. -- 1,024
Effect of exchange rate changes.............................. -- (19)
----- -----
Balance 30 September 1996.................................... 1,324 6,062
----- -----
----- -----
</TABLE>
25. PENSION SCHEMES
The two principal schemes of the Group are operated in the United Kingdom,
one a defined contribution scheme, the other a defined benefit scheme. The
defined contribution scheme is operated on the Group's behalf by an independent,
recognised pension provider. It is currently being wound up and the accrued
benefits transferred to other schemes not administered by the Group or the
individuals concerned.
The defined benefit scheme is trustee administered and the fund is
maintained by fund managers independently of the Group's finances. The funding
and accounting policies are identical and consist of providing for the
liabilities in respect of an individual in a systematic manner over the
individual's working lifetime.
86
<PAGE>
AUSTIN KNIGHT LIMITED AND SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
25. PENSION SCHEMES (CONTINUED)
The pension cost has been assessed in accordance with the advice of an
independent actuary and has been based on a valuation carried out as at 1 April
1996. The market value of the scheme's assets as at 1 April 1996 was
approximately L10.2 million and the level of funding approximately 100%.
The actuarial valuation at 1 April 1996 was carried out on the attained age
valuation method and the main actuarial assumptions adopted were:
<TABLE>
<S> <C>
Nominal return on investments....... 8.5% p.a.
Rate of salary increases............ 6.0% p.a.
Rate of pension increases........... 2.5% p.a. (for benefits related to service
prior to 1 April 1996).
4.0% p.a. (for service after 1 April 1996).
Rate of dividend increases.......... 4.0% p.a.
</TABLE>
26. REMUNERATION COMMITTEE REPORT
INTRODUCTION
This report of the Remuneration Committee, on behalf of the Board, sets out
Austin Knight Limited's policy on Executive Directors' remuneration and provides
details of the remuneration earned by the Directors in the 1995/96 financial
year. It also details their interests in the Company's shares.
The remuneration arrangements for all Executive Directors are determined by
the Remuneration Committee, which is also responsible for the operation of the
Executive Share Option Scheme.
The Company has considered the provisions of the Code of Best Practice of
the Greenbury Study Group on Directors' Remuneration. It complies with Section A
of the best practice provisions annexed to the Listing Rules of the London Stock
Exchange and the Remuneration Committee has given full consideration to the
provisions of Section B in framing its remuneration policy.
GENERAL POLICY ON EXECUTIVE REMUNERATION
The Remuneration Committee, when setting objectives on pay and benefits,
aims to ensure that remuneration packages offered are competitive and designed
to attract, retain and motivate executive directors and senior management of the
highest quality.
The main components of the remuneration package are set out below.
BASE SALARIES
Basic salaries are determined by the Remuneration Committee taking into
account the performance of the individual and information from independent
sources on the rates of salaries in the competitive market.
87
<PAGE>
AUSTIN KNIGHT LIMITED AND SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
26. REMUNERATION COMMITTEE REPORT (CONTINUED)
ANNUAL BONUS
The annual bonus scheme for Executive Directors is based on the profit
performance of the Group and its earnings per share.
SHARE OPTION SCHEME
Executive Directors, as members of senior management, are eligible share
options granted by the Austin Knight Limited Employees Trust. Periodically,
options are granted by the Trust at the discretion of the trustees based on
recommendations by the Board.
PENSION
Executive Directors are eligible to join the August Knight Pension and Life
Assurance Scheme. Pension contributions are paid to the Company's pension scheme
which is open to all senior employees and most other staff with more than two
years' service. The scheme provides a pension of one-sixtieth of final
pensionable salary for each year of pensionable service. It also provides the
usual pension related benefits including a lump sum of four times salary in the
event of death in service. Only base salary is pensionable.
CONTRACTS OF SERVICE
Details of individual Directors' contract terms are given in the table of
Directors' emoluments below.
DIRECTORS' EMOLUMENTS
Details of Directors' emoluments in 1996, with the comparison for the
previous year, are as follows:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
----- -----
<S> <C> <C>
Fees............................................................................ 36 36
Salaries and other benefits..................................................... 268 274
Performance payments............................................................ 27 29
Pension contributions........................................................... 26 27
--- ---
TOTAL........................................................................... 357 366
--- ---
--- ---
</TABLE>
88
<PAGE>
AUSTIN KNIGHT LIMITED AND SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
26. REMUNERATION COMMITTEE REPORT (CONTINUED)
The emoluments of individual Directors are set out below:
<TABLE>
<CAPTION>
CONTRACT
BASE PAYMENTS NOTICE
SALARY/ FOR PENSION PERIOD/
FEES BENEFITS PERFORMANCE CONTRIBUTIONS TOTAL EXPIRY DATE
--------- ----------- ------------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
K.G. Fordham................... 1996 50,000 14,028 -- -- 64,028 6 months
1995 50,000 13,539 -- -- 63,539
--------- --------- ----------- ------ ------ --------- ------------
J.R. Ratcliffe................. 1996 115,000 21,363 20,125 17,250 173,738 12 months
1995 105,060 21,424 20,000 15,750 162,234
--------- --------- ----------- ------ ------ --------- ------------
J.B. Gowshall.................. 1996 35,750 5,223 -- 5,363 46,336 Retired
1995 66,560 10,268 7,500 9,975 94,303 31.3.96
--------- --------- ----------- ------ ------ --------- ------------
R.A. Campbell.................. 1996 12,000 -- -- -- 12,000 30.11.97
1995 12,000 -- -- -- 12,000
--------- --------- ----------- ------ ------ --------- ------------
D.T. French.................... 1996 12,000 -- -- -- 12,000 30.11.98
1995 12,000 -- -- -- 12,000
--------- --------- ----------- ------ ------ --------- ------------
T.C. Mallott................... 1996 12,000 1,327 -- -- 13,327 30.11.97
1995 12,000 834 -- -- 12,834
--------- --------- ----------- ------ ------ --------- ------------
S.J. Cooney.................... 1996 27,000 4,670 8,750 4,050 44,470 6 months
1995 -- -- -- -- --
--------- --------- ----------- ------ ------ --------- ------------
--------- --------- ----------- ------ ------ --------- ------------
1996 263,750 46,611 28,875 26,663 365,899
1995 257,620 46,065 27,500 25,725 356,910
--------- --------- ----------- ------ ------ --------- ------------
--------- --------- ----------- ------ ------ --------- ------------
</TABLE>
In addition to the above payments, K.G. Fordham and T.C. Mallott receive a
pension from the Company's pension scheme in accordance with the terms of that
scheme. J.B. Gowshall has been retained as a consultant to the Company until 31
March 1997 for a fee of L10,000. He also receives a pension from the Company's
pension scheme.
Executive Directors may hold other non-executive directorships with the
prior written consent of the Board.
89
<PAGE>
AUSTIN KNIGHT LIMITED AND SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1995 AND 1996
26. REMUNERATION COMMITTEE REPORT (CONTINUED)
The Director's interests in the 25p ordinary shares of the Company at 30
September 1996 and 1995 or date of appointment were as follows:
<TABLE>
<CAPTION>
BENEFICIAL NON-BENEFICIAL
---------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
1995 No. 1996 No. 1995 1996
of Share of Share No. of No. of
shares Options shares Options shares shares
--------- ----------- --------- ----------- --------- ---------
K.G. Fordham...................................... 468,224 -- 468,224 -- 704,320 704,320
J.R. Ratcliffe.................................... 88,200 25,000 88,200 35,000 -- --
J.B. Gowshall..................................... 3,000 12,000 -- -- -- --
D.T. French....................................... -- -- 8,000 -- 64,000 56,000
T.C. Mallott...................................... 92,032 -- 92,032 -- -- --
S.J. Cooney....................................... -- 2,000* -- 2,000 -- --
R.A. Campbell..................................... -- -- -- -- -- --
Trustee of the Austin Knight
Limited Employees Trust........................... -- -- -- -- 152,250 152,250
</TABLE>
- ------------------------
* Date of appointment.
On 1 September 1994, J.R. Ratcliffe was granted options over 25,000 ordinary
shares of 25p each at 95p per ordinary share exercisable between 1 September
1995 and 1 September 2001. On 28 November 1995, J.R. Ratcliffe and S.J. Cooney
were granted options on a further 10,000 and 2,000 ordinary shares,
respectively, at L1.30p per ordinary share , exercisable between 28 November
1998 and 28 November 2002. None of the Directors have any interests in the
shares of the other Group companies. No other Director has any rights to
subscribe for shares in the Company or any other Group company.
The trustee of the Austin Knight Limited Employees Trust is Austin Knight
Trustees Limited, a corporate Trustee, the Directors of which are K.G. Fordham,
R.A. Campbell and D.T. French.
90
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
NINE MONTHS ENDED 30
JUNE
----------------------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
1996 1997
NOTE L'000 L'000
----- ---------- ----------
<S> <C> <C> <C>
TURNOVER............................................................... 1 100,585 105,158
Cost of Sales.......................................................... (90,262) (93,297)
---------- ----------
GROSS PROFIT........................................................... 10,323 11,861
Administrative expenses................................................ (8,160) (9,291)
Other operating income................................................. 229 --
---------- ----------
OPERATING PROFIT....................................................... 2 2,392 2,570
Interest expense....................................................... 4 (340) (298)
---------- ----------
PROFIT on ordinary activities before taxation.......................... 2,052 2,272
TAXATION............................................................... 5 (839) (1,007)
---------- ----------
PROFIT for the financial period........................................ 1,213 1,265
DIVIDENDS.............................................................. (334) --
---------- ----------
RETAINED PROFIT for the financial period............................... 879 1,265
---------- ----------
---------- ----------
</TABLE>
The notes on pages F-65 to F-68 form part of these financial statements.
91
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS AT 30 JUNE
1997
-----------------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
NOTE L'000
--------- -----------------
<S> <C> <C>
FIXED ASSETS
Intangible assets.............................................................. 6 303
Tangible assets................................................................ 16,876
Investments.................................................................... 163
-------
17,342
-------
CURRENT ASSETS
Work-in-progress............................................................... 219
Debtors........................................................................ 27,274
Cash at bank and in hand....................................................... 364
-------
27,857
CREDITORS: Amounts falling due within one year................................. (25,614)
-------
NET CURRENT ASSETS/(LIABILITIES)............................................... 2,243
-------
TOTAL ASSETS LESS CURRENT LIABILITIES.......................................... 19,585
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR........................ 7 (4,465)
PROVISION FOR LIABILITIES AND CHARGES.......................................... 8 (123)
-------
NET ASSETS..................................................................... 14,997
-------
-------
CAPITAL AND RESERVES
Called up share capital........................................................ 1,251
Share Premium Account.......................................................... 195
Revaluation reserve............................................................ 5,396
Profit and loss account........................................................ 8,155
-------
14,997
-------
-------
</TABLE>
The notes on pages F-65 to F-68 form part of these financial statements.
92
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS*
<TABLE>
<CAPTION>
NINE MONTHS ENDED
30 JUNE,
--------------------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
1996 1997
--------- ---------
NOTE L'000 L'000
--------- --------- ---------
<S> <C> <C> <C>
NET CASH INFLOW (OUTFLOW) FROM OPERATINGACTIVITIES...................................... 9 4,719 (1,506)
--------- ---------
RETURNS ON INVESTMENTS ANDSERVICING OF FINANCE
Interest paid........................................................................... (373) (327)
Interest received....................................................................... 50 44
Interest element of finance leaserental payments........................................ (17) (15)
--------- ---------
NET CASH OUTFLOW FROM RETURNS ONINVESTMENTS AND SERVICING OFFINANCE..................... (340) (298)
--------- ---------
TAXATION
ACT paid................................................................................ (102) (111)
UK corporation tax paid................................................................. (668) (763)
Overseas and other taxes paid........................................................... (666) (210)
--------- ---------
TAX PAID................................................................................ (1,436) (1,084)
--------- ---------
CAPITAL EXPENDITURES
Purchase of own shares.................................................................. -- (122)
Sale of shares under option............................................................. -- 71
Purchase of intangible assets........................................................... (78) --
Purchase of tangible fixed assets....................................................... (1,450) (1,434)
Less: Inception of finance leases....................................................... 798 686
Proceeds from sales of fixed assets..................................................... 84 682
--------- ---------
NET CASH OUTFLOW FROM INVESTINGACTIVITIES............................................... (646) (117)
--------- ---------
Dividends paid.......................................................................... (280) (309)
NET CASH INFLOW/(OUTFLOW) BEFOREFINANCING............................................... 2,017 (3,314)
FINANCING
Issue of ordinary share capital......................................................... -- 122
--------- ---------
2,017 (3,192)
--------- ---------
--------- ---------
FINANCING
Repayment of loans...................................................................... 575 657
Net rental payments..................................................................... 91 202
--------- ---------
NET CASH OUTFLOW FROM FINANCING......................................................... 666 859
INCREASE/(DECREASE) IN CASH ANDCASH EQUIVALENTS......................................... 10 1,351 (4,051)
--------- ---------
2,017 (3,192)
--------- ---------
--------- ---------
</TABLE>
* Due to changes in Accounting Standards in the United Kingdom the information
on this page is presented in a format different than that presented elsewhere
in this document.
The notes on pages F-65 to F-68 form part of these financial statements.
93
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
(UNAUDITED)
30 JUNE, 1997
-------------------
<S> <C>
L'000
Opening Shareholders' Funds................................................................... 13,948
------
Profit for the financial period............................................................... 1,265
Exchange adjustments.......................................................................... (338)
------
Total recognised gains for the financial period............................................... 927
New share capital subscribed.................................................................. 122
------
Closing Shareholders' Funds................................................................... 14,997
------
------
</TABLE>
The notes on pages F-65 to F-68 form part of these financial statements.
94
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS
FOR THE NINE MONTHS ENDED 30 JUNE 1996 AND 1997
(UNAUDITED)
1. TURNOVER
The turnover at the Group arose in the following geographical markets:
<TABLE>
<CAPTION>
1996 1997
L'000 L'000
--------- ---------
<S> <C> <C>
United Kingdom.............................................................................. 61,631 64,191
United States............................................................................... 25,196 28,258
Rest of world............................................................................... 13,758 12,709
--------- ---------
100,585 105,158
--------- ---------
--------- ---------
</TABLE>
2. OPERATING PROFIT
The operating profit is stated after including:
<TABLE>
<CAPTION>
1996 1997
L'000 L'000
--------- ---------
<S> <C> <C>
Depreciation of tangible fixed assets........................................ 501 741
Amortisation of intangibles.................................................. 51 50
Hire of plant and equipment.................................................. 531 600
Other rents payable.......................................................... 842 857
Directors' emoluments
Management remuneration--Salaries and benefits............................. 223 203
--Performance payments.............................. 19 --
Fees....................................................................... 27 35
Pension contributions...................................................... 20 20
Auditors' remuneration--in respect of audit.................................. 89 98
Auditors' remuneration--in respect to other work............................. 27 65
Rent receivable.............................................................. 283 291
</TABLE>
3. STAFF COSTS
Staff costs, which include Directors' emoluments, were:
<TABLE>
<CAPTION>
1996 1997
L'000 L'000
--------- ---------
<S> <C> <C>
Wages and salaries......................................................... 9,975 11,118
Social security costs...................................................... 1,102 1,245
Pension costs.............................................................. 441 652
--------- ---------
11,518 13,015
--------- ---------
--------- ---------
</TABLE>
The average number of employees including Directors during the nine months
ended June 30, 1996 and 1997 were 510 and 531, respectively.
95
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE NINE MONTHS ENDED 30 JUNE 1996 AND 1997
(UNAUDITED)
4. INTEREST
<TABLE>
<CAPTION>
1996 1997
L'000 L'000
----- -----
<S> <C> <C>
INTEREST PAYABLE
On bank loan repayable over more than five years............................... 285 250
On overdrafts and other loans repayable wholly within five years............... 88 77
Finance leases................................................................. 17 15
INTEREST RECEIVABLE............................................................ (50) (44)
--- ---
340 298
--- ---
--- ---
</TABLE>
5. TAXATION
The taxation on the profit on ordinary activities for the period was as
follows:
<TABLE>
<CAPTION>
1996 1997
L'000 L'000
--------- ---------
<S> <C> <C>
United Kingdom corporation tax at 33%........................................ 505 311
Overseas taxation............................................................ 334 607
Adjustments to prior years--charge........................................... -- 89
--------- ---------
839 1,007
--------- ---------
--------- ---------
</TABLE>
6. INTANGIBLE FIXED ASSETS--GOODWILL
<TABLE>
<CAPTION>
L'000
---------
<S> <C>
COST
At 1 October 1996..................................................................... 3,515
Exchange adjustments.................................................................. (126)
---------
AT 30 June 1997....................................................................... 3,389
---------
AMORTISATION
At 1 October 1996..................................................................... 3,096
Charge for period..................................................................... 50
Written off to reserves............................................................... --
Exchange adjustments.................................................................. (60)
---------
At 30 June 1997....................................................................... 3,086
---------
NET BOOK VALUE
At 30 June 1997....................................................................... 303
---------
---------
</TABLE>
96
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE NINE MONTHS ENDED 30 JUNE 1996 AND 1997
(UNAUDITED)
7. CREDITORS--AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1997
L'000
---------
<S> <C>
Bank loans............................................................................ 3,402
Finance lease and hire purchase obligations........................................... 1,063
---------
4,465
---------
---------
</TABLE>
8. PROVISIONS FOR LIABILITIES AND CHARGES
The amounts provided for deferred taxation and other liabilities and charges
are as follows:
<TABLE>
<CAPTION>
L'000
-----
<S> <C>
Provision at 1 October 1996............................................................ 214
Credit for the period in the profit andloss account
Overseas........................................................................... (91)
---
Provision at 30 June 1997.............................................................. 123
---
---
</TABLE>
The amount of deferred taxation not provided is L221,000 and arises solely
on capital allowances.
The other provisions relate to pensions and other employee benefits.
9. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1996 1997
L'000 L'000
--------- ---------
<S> <C> <C>
Operating profit........................................................... 2,392 2,570
Depreciation............................................................... 501 741
Amortisation of intangible fixed assets.................................... 51 50
Loss on disposal of fixed assets........................................... 92 (13)
Decrease/(increase) in work-in-progress.................................... 71 (31)
Increase in debtors........................................................ (1,525) (3,735)
Increase/(decrease) in creditors........................................... 3,137 (1,088)
--------- ---------
Net cash inflow (outflow) from operating activities........................ 4,719 (1,506)
--------- ---------
--------- ---------
</TABLE>
97
<PAGE>
AUSTIN KNIGHT LIMITED AND ITS SUBSIDIARIES
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE NINE MONTHS ENDED 30 JUNE 1996 AND 1997
(UNAUDITED)
10. RECONCILIATION OF MOVEMENT TO NET DEBT
<TABLE>
<CAPTION>
30 SEPTEMBER OTHER
-------------------- CHANGE EXCHANGE NON CASH
1996 1997 IN PERIOD MOVEMENTS CASHFLOWS MOVEMENTS
--------- --------- ------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
L000 L000 L000 L000 L000 L000
Cash at bank and in hand................... 1,596 364 (1,232) (18) (1,214) --
Overdrafts................................. (280) (3,158) (2,878) (41) (2,837) --
1,316 (2,794) (4,110) (59) (4,051) --
--
--------- --------- ------ ------ ---
Bank loans under 1 year.................... (891) (869) 22 22 -- --
Bank loans over 1 year..................... (4,138) (3,402) 736 79 657 --
Finance leases under 1 year................ (333) (504) (171) (16) -- (155)
Finance leases over 1 year................. (700) (1,063) (363) (34) 202 (531)
--
--------- --------- ------ ------ ---
(4,746) (8,632) (3,886) (8) (3,192) (686)
--
--
--------- --------- ------ ------ ---
--------- --------- ------ ------ ---
</TABLE>
98
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Members of
Neville Jeffress Australia Pty Limited
SCOPE
We have audited the accompanying consolidated statements of profit and loss
and cash flows of Neville Jeffress Australia Pty Limited (the "Company") for the
years ended June 30, 1995 and 1996 (the "audit periods").
These special purpose financial statements, which have been prepared in
accordance with accounting principles generally accepted in Australia, are the
responsibility of the Company's management.
Our responsibility is to conduct independent audits of the financial
statements for the audit periods in order to express an opinion on them based on
our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
Our audit opinion expressed in this report has been formed on the above
basis.
OPINION
In our opinion, the consolidated financial statements of Neville Jeffress
Australia Pty Limited for the audit periods present fairly, in all material
respects, the results of operations of the Company and its subsidiaries and
their cash flows for the years ended June 30, 1995 and 1996 in conformity with
accounting principles generally accepted in Australia, as described in the
financial statements.
Dated at Sydney, Australia, this 8th day of November 1996.
BDO NELSON PARKHILL
Chartered Accountants
99
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PROFIT AND LOSS
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
NOTES $ $
----- --------- ---------
Commissions and fees........................................... 21,663,259 32,060,026
<S> <C> <C> <C>
--------- ---------
Operating expenses:
Wages and salaries........................................... 10,449,141 17,216,840
Depreciation of fixed assets................................. 577,807 1,169,472
Abnormal bad debt provision.................................. 2,144,331 --
Other operating expenses..................................... 7,684,587 11,373,602
--------- ---------
Total operating expenses....................................... 20,855,866 29,759,914
--------- ---------
Operating profit............................................... 807,393 2,300,112
--------- ---------
Dividend received.............................................. -- 116,170
Interest income................................................ 440,856 334,306
Interest expense............................................... 329,510 424,430
--------- ---------
Net financial income......................................... 111,346 26,046
--------- ---------
Income before income tax expense............................... 918,739 2,326,158
Income tax expense............................................. 5 65,246 888,459
--------- ---------
Net income..................................................... 853,493 1,437,699
Outside equity interest in net income.......................... 2 22,669 62,864
--------- ---------
Net income attributable to members of Neville Jeffress
Australia Pty Limited........................................ 830,824 1,374,835
--------- ---------
--------- ---------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
100
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
NOTES $ $
----- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income attributable to members................................................ 830,824 1,374,835
Add/(deduct) non-cash items:
Depreciation & amortisation....................................................... 577,807 1,169,472
Bad debts write-off............................................................... 1,876,858 --
Profit on sale of property, plant and equipment................................... (12,966) (2,323)
Loss on disposal of controlled entity............................................. 15,289 --
Amortisation of goodwill on acquisition........................................... 56,848 --
Change due to application of new accounting standard.............................. (53,900) --
Increase in outside shareholders' interest........................................ 22,669 62,864
Gain/(loss) on translation of foreigncontrolled entities.......................... 47,148 (2,246)
Other............................................................................. (58,224) (77,558)
Changes in assets and liabilities :
(Increase)/decrease in trade debtors.............................................. (3,960,773) 1,617,175
(Increase)/decrease in inventories................................................ 161,251 (74,023)
(Increase)/decrease in other current assets andprepayments........................ 322,746 (47,490)
(Increase)/decrease in future income tax benefit.................................. (153,113) (18,292)
Increase/ (decrease) in trade creditors........................................... 1,662,980 (300,486)
Increase/ (decrease) in other creditorsand accruals............................... (1,943,907) 595,217
Increase/ (decrease) in tax provision............................................. 142,095 144,714
Increase in employee entitlements................................................. 375,088 177,832
----------- -----------
Net cash flows from/(used in) operating activities................................ (91,280) 4,619,691
----------- -----------
CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES
Cash (into)/out of short-term deposit............................................. (5,248,849) (2,798,323)
Acquisition of property, plant and equipment...................................... (980,956) (1,375,265)
Proceeds from sale of property, plantand equipment................................ 78,836 113,297
Net cash flow on disposal of controlledentity..................................... 7 118,096 --
Cash paid for purchase of entity.................................................. (544,604) (4,265)
Net cash inflow/(outflow) on acquisition ofcontrolled entity...................... 7 1,490,459 --
----------- -----------
Net cash from/(used in) investing activities...................................... (5,087,018) (4,064,556)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Finance lease repayments, net..................................................... 118,857 (92,435)
Repayments of borrowings
-external parties............................................................... -- (1,257,299)
Proceeds of borrowings
-external parties............................................................... 2,231,376 --
-related entities............................................................... 650,491 839,826
----------- -----------
Net cash from/(used in) financingactivities....................................... 3,000,724 (509,908)
----------- -----------
NET INCREASE/(DECREASE) IN CASH HELD.............................................. (2,177,574) 45,227
Cash at beginning of the reporting period......................................... 50,220 (2,127,354)
----------- -----------
CASH AT END OF REPORTING PERIOD................................................... (2,127,354) (2,082,127)
----------- -----------
----------- -----------
RECONCILIATION OF CASH
Cash balances comprise:
Cash at bank...................................................................... 1,674,722 1,211,020
Bank loan......................................................................... (3,802,076) (3,293,147)
----------- -----------
(2,127,354) (2,082,127)
----------- -----------
----------- -----------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
101
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
BASIS OF ACCOUNTING
These consolidated financial statements are a special purpose financial
report prepared in order to meet the requirements of a registration statement to
be submitted to the Securities and Exchange Commission.
These consolidated financial statements have been prepared in Australian
dollars in accordance with accounting principles generally accepted in
Australia. These include applicable Accounting Standards and other mandatory
professional reporting requirements with the exception of AASB 1024:
Consolidated Accounts (see Principles of Consolidation). At June 30, 1997 the
exchange rate of Australian dollars to US dollars was .7538.
The accounts have also been prepared on an accrual basis. They are based on
historical costs and do not take into account changing money values or, except
where specifically stated, current valuations of non-current assets.
The accounting policies adopted have been consistently applied throughout
the periods presented.
Generally accepted accounting principles in Australia ("Australian GAAP") as
utilized by the Company differs in certain respects from generally accepted
accounting principles in the United States ("US GAAP"). With respect to the
Company's financial statements, these differences primarily relate to accounting
for business combinations. Under US GAAP, goodwill arising on acquisitions is
capitalized and amortized over its economic life while under Australian GAAP as
utilized by the Company, this goodwill is charged to operations in the year of
the acquisition. In addition, subsequent utilization of acquired net operating
losses is recorded as a reduction of income tax expense under Australian GAAP
while under US GAAP, it is recorded as an adjustment to assets purchased.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements comprise the fully consolidated
financial information for Neville Jeffress Australia Pty Limited and its group
companies in which the company has majority control, with the exception of the
following companies:
Media Monitors Australia Pty Limited;
National Advertising Services Pty Limited; and
Neville Jeffress Newsagencies Pty Limited.
These companies were not included at the effective date of the acquisition
of Neville Jeffress Australia Pty Limited and subsidiaries by TMP Worldwide Inc
("TMP"). Accordingly they do not form part of the group being acquired by TMP.
The consolidated financial statements comprise the financial statements of
those companies as set out in Note 1 to the consolidated financial statements.
The consolidated financial statements include the information contained in
the financial statements of Neville Jeffress Australia Pty Limited and each of
the entities in the group being acquired by TMP as from the date the company
obtains control until such time as control ceases.
102
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
The accounts of subsidiaries are prepared for the same reporting period as
the company, using consistent accounting policies. Adjustments are made to bring
into line any dissimilar accounting policies which may exist.
All intercompany transactions, between entities consolidated, including
unrealised profits and losses, have been eliminated in consolidation.
INVESTMENTS
The company's interest in subsidiaries not forming part of the group of
companies acquired by TMP was not consolidated (see Principles of Consolidation
above), and has been included with associated entities at cost, and only
dividend income received is taken into earnings. Associated entities are those
in which the company holds a significant shareholding of the issued ordinary
capital and participates in commercial and policy decision making.
INVENTORIES
Inventories, including work-in-progress, are valued at the lower of cost and
net realisable value.
RECOVERABLE AMOUNTS
Assets are not revalued to an amount above their recoverable amount and,
where carrying values exceed this recoverable amount, assets are written down.
In determining the recoverable amount, the expected net cash flows have not been
discounted to their present value.
PROPERTY, PLANT AND EQUIPMENT
COST AND VALUATION
Property, plant and equipment are valued at cost or at independent
valuation. Decrements arising from revaluation have been debited to the profit
and loss account. Acquisitions since the last revaluation have been brought to
account at cost.
Where assets have been revalued, the potential effect of the capital gains
tax on disposal has not been taken into account in the determination of the
revalued carrying amount where it is expected that a liability for capital gains
tax will arise.
Any gain or loss on the disposal of revalued assets is determined as the
difference between the carrying value of the asset at the time of disposal and
the proceeds from disposal, and is included in the results of the group in the
year of disposal.
DEPRECIATION AND AMORTISATION
Buildings, plant and equipment are depreciated on a straight-line basis so
as to write-off the cost or valuation of each asset over its anticipated useful
life.
Major depreciation periods are:
Freehold buildings - 40 years
Plant and equipment - 3 to 15 years
103
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
INCOME TAX
Tax-effect accounting is applied using the liability method whereby income
tax is regarded as an expense and is calculated on the accounting profit after
allowing for permanent differences. To the extent timing differences occur
between the time items are recognised in the accounts and when items are taken
into account in determining taxable income, the net related taxation benefit or
liability, calculated at current rates, is disclosed as a future income tax
benefit or a provision for deferred income tax. The net future income tax
benefit relating to tax losses and timing differences is not carried forward as
an asset unless the benefit is virtually certain of being realised.
Where the earnings of overseas subsidiaries are subject to taxation under
the Controlled ForeignCompanies rules, this tax has been provided for in the
accounts.
FOREIGN CURRENCIES
TRANSLATION OF FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currencies of entities within the group are
converted to local currency at the rate of exchange ruling at the date of the
transaction.
Amounts payable to and by the entities within the group that are outstanding
at the balance date and are denominated in foreign currencies have been
converted to local currency using rates of exchange ruling at the balance sheet
date.
TRANSLATION OF ACCOUNTS OF OVERSEAS OPERATIONS
All overseas operations are deemed self-sustaining as each is financially
and operationally independent of Neville Jeffress Australia Pty Limited. The
accounts of overseas operations are translated using the current rate method and
any exchange differences are taken directly to the foreign currency translation
reserve.
LEASES
Finance leases, which effectively transfer to the group substantially all of
the risks and benefits incidental to ownership of the leased item, are
capitalised at the present value of the minimum lease payments, disclosed as
leased property, plant and equipment, and amortised over the period the group is
expected to benefit from the use of the leased assets.
Operating lease payments, where the lessor effectively retains substantially
all of the risks and benefits of ownership of the leased items, are included in
the determination of the operating profit in equal instalments over the lease
term.
EMPLOYEE ENTITLEMENTS
Provision is made for employee entitlement benefits accumulated as a result
of employees rendering services up to the reporting date. These benefits include
wages and salaries, annual leave, and long service leave.
Liabilities arising in respect of wages and salaries, annual leave, and any
other employee entitlements expected to be settled within twelve months of the
reporting date are measured at their nominal amounts. All other employee
entitlement liabilities are measured at the present value of the estimated
future cash outflows to be made in respect of services provided by employees up
to the reporting date. In determining
104
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
the present value of future cash outflows, the interest rates attaching to
government guaranteed securities which have terms to maturities approximating
the terms of the related liability are used.
Employee entitlement expenses and revenues arising in respect of the
following categories:
- wages and salaries, non-monetary benefits, annual leave, long service
leave, sick leave and other leave entitlements; and
- other types of employee entitlements,
are charged against profits on a net basis in their respective categories.
Contributions are made by the group to employee defined contribution
superannuation funds. These contributions are charged as expenses when incurred.
REVENUE RECOGNITION
Substantially all revenues are derived from commissions for advertisements
placed in newspapers, plus associated fees for related services. Commissions and
fees are generally recognized upon placement date.
CASH FLOW DEFINITIONS
For the purpose of the Consolidated Statements of Cash Flows, the group
considers cash to include cash on hand and in banks and investments in money
market instruments readily convertible to cash within two working days, net of
outstanding bank overdraft.
GOODWILL
Goodwill represents the excess of the purchase consideration over the fair
value of identifiable net assets acquired at the time of acquisition of a
business or share in a subsidiary. Goodwill is written off to the profit and
loss account on acquisition.
105
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN AUSTRALIAN DOLLARS)
1 INVESTMENTS
<TABLE>
<CAPTION>
BENEFICIAL INTEREST
--------------------
<S> <C> <C>
% %
--------- ---------
Investments in subsidiaries not consolidated in these financial statements
Neville Jeffress Newsagencies Pty Limited and its controlled entity:
The Cremorne Newsagency................................................................. 100 100
National Advertising Services Pty Limited................................................. 100 100
Media Monitors Australia Pty Limited and its controlled entities:
Media Monitors NSW Pty Limited.......................................................... 45 45
Media Monitors Victoria Pty Limited..................................................... 45 45
Media Monitors ACT Pty Limited.......................................................... 45 45
Media Monitors Queensland Pty Limited................................................... 45 45
News Bank Pty Limited................................................................... 45 45
News Monitor Pty Limited................................................................ 45 45
</TABLE>
106
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
1 INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
--------- ---------
BENEFICIAL INTEREST
--------------------
% %
<S> <C> <C>
Associates
Mitchell Armstrong's Consortium Pty Limited............................................... -- 50
Print Production Trust.................................................................... 45 --
Investments in subsidiaries consolidated in these financial statements
Neville Jeffress--Perth Pty Limited....................................................... 100 100
Neville Jeffress--Darwin Pty Limited...................................................... 100 100
Neville Jeffress--Queensland Pty Limited and its controlled entity:
Neville Jeffress--Queensland Pty Limited................................................ 91 91
Neville Jeffress Brisbane Pty Limited................................................... 91 91
Neville Jeffress--Adelaide Pty Limited.................................................... 100 100
Neville Jeffress--Canberra Pty Limited.................................................... 100 100
Neville Jeffress NSW Pty Limited and its controlled entities:
Neville Jeffress NSW Pty Limited........................................................ 100 100
Neville Jeffress Sydney Pty Limited..................................................... 100 100
Neville Jeffress Pty Limited............................................................ 100 100
Neville Jeffress Parramatta Pty Limited................................................... 100 100
Neville Jeffress Financial Pty Limited.................................................... 90 90
Neville Jeffress Advertising (Tasmania) Pty Limited....................................... 100 100
Neville Jeffress Caldwell Limited......................................................... 70 70
Neville Jeffress Victoria Pty Limited..................................................... 100 100
Neville Jeffress New Zealand Ltd.......................................................... 90 90
Armstrong's Australia Pty Limited and its controlled entities:
Armstrong's Australia Pty Limited....................................................... 100 100
Armstrong's--Victoria Pty Limited....................................................... 100 100
Armstrong's--NSW Pty Limited............................................................ 100 100
Armstrong's--Queensland Pty Limited..................................................... 100 100
Armstrong's--W.A. Pty Limited........................................................... 100 100
</TABLE>
2 OUTSIDE SHAREHOLDERS' INTEREST
<TABLE>
<CAPTION>
SHARE RETAINED
CAPITAL RESERVES INCOME TOTAL
$ $ $ $
--------- ------------- --------- ---------
<S> <C> <C> <C> <C>
MOVEMENTS IN OUTSIDE SHAREHOLDERS' INTERESTS ARE:
Balance, 1 July 1994................................................... 65,377 -- 23,854 89,231
Acquisition of controlled entities..................................... 35,767 -- -- 35,767
Net income attributable to outside shareholders........................ -- -- 22,669 22,669
--
--------- --------- ---------
Balance, 30 June 1995.................................................. 101,144 -- 46,523 147,667
Net income attributable to outside shareholders........................ -- -- 62,864 62,864
--
--------- --------- ---------
Balance, 30 June 1996.................................................. 101,144 -- 109,387 210,531
--
--
--------- --------- ---------
--------- --------- ---------
</TABLE>
107
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
3 PROVISIONS
<TABLE>
<CAPTION>
$
----------
<S> <C>
Employee Entitlements
Balance, 1 July 1994............................................................................. 724,757
Charged to profit and loss....................................................................... 417,768
Acquisition of controlled entities............................................................... 505,023
Adjustment to reserves on introduction of new accounting standard................................ 53,900
----------
Balance, 30 June 1995............................................................................ 1,701,448
Charged to profit and loss....................................................................... 177,832
----------
Balance, 30 June 1996............................................................................ 1,879,280
----------
----------
Deferred Taxation
Balance, 1 July 1994............................................................................. 66,738
Charged to profit and loss....................................................................... 20,213
----------
Balance, 30 June 1995............................................................................ 86,951
Charged to profit and loss....................................................................... (77,558)
----------
Balance, 30 June 1996............................................................................ 9,393
----------
----------
</TABLE>
4 LEASE LIABILITY
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
$ $
---------- ----------
<S> <C> <C>
Not later than one year................................................................... 408,423 362,747
Later than one year and not later than two years.......................................... 296,357 222,687
Later than two years and not later than five years........................................ 188,383 204,602
Later than five years..................................................................... -- --
---------- ----------
Minimum lease payments.................................................................... 893,163 790,036
Future finance charges.................................................................... (116,801) (106,109)
---------- ----------
776,362 683,927
---------- ----------
---------- ----------
Current lease liability................................................................... 337,684 292,022
Non-current lease liability............................................................... 438,678 391,905
---------- ----------
776,362 683,927
---------- ----------
---------- ----------
</TABLE>
108
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
5 INCOME TAX
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
$ $
----------- -----------
<S> <C> <C>
The prima facie tax, using tax rates applicable inthe country of operation, on income
before income tax differs from the income tax provided in the accounts and is calculated
as follows:
Prima facie tax on income before income tax............................................... 303,184 837,415
Tax effect of permanent differences....................................................... (18,762) 48,404
Future income tax benefit not previously brought to account............................... (175,944) --
Income tax underprovided in previous year................................................. 61,616 2,640
Net gain from change in income tax rate from 33% to 36%................................... (104,848) --
----------- -----------
Income tax attributable to operating profit............................................... 65,246 888,459
----------- -----------
----------- -----------
Income tax provided comprises:
Provision attributable to future years:
Future income tax benefit............................................................... (855,206) 18,292
Provision for deferred income tax....................................................... 20,213 (77,558)
Underprovision of previous year........................................................... 61,616 2,640
Provision attributable to current period.................................................. 838,623 945,085
----------- -----------
65,246 888,459
----------- -----------
----------- -----------
The amount of future income tax benefit carried forward as an asset in the consolidated
financial statements which is attributable to tax losses is :........................... 252,967 282,382
----------- -----------
----------- -----------
</TABLE>
6 EXPENDITURE COMMITMENTS
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
$ $
------------ ------------
<S> <C> <C>
Lease commitments
Operating lease commitments not provided for in the accounts:
Not later than one year............................................................... 737,161 885,764
Later than one year and not later than two years...................................... 276,252 630,687
Later than two years and not later than five years.................................... 68,007 1,439,434
Later than five years................................................................. -- --
------------ ------------
1,081,420 2,955,885
------------ ------------
------------ ------------
</TABLE>
109
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
7 CONSOLIDATED STATEMENTS OF CASH FLOWS
(a) The company acquired a controlling interest in the following entities:
Year Ended 30 June 1996: None
Year Ended 30 June 1995:
(i) 95.93% in Armstrong's Australia Pty Limited
(ii) 90% of Neville Jeffress New Zealand Ltd.
(iii) 100% of Neville Jeffress Victoria Pty Limited
<TABLE>
<CAPTION>
30 JUNE
1995
$
---------
<S> <C>
The acquisition details are:
Cash consideration............................................................... 2,204,677
Outside equity interest.......................................................... 35,767
Share of reserves attributable to investment..................................... 75,463
---------
2,315,907
---------
---------
DETAILS OF NET ASSETS ACQUIRED
Assets
Cash at bank................................................................... 3,695,136
Trade debtors.................................................................. 7,268,424
Inventory...................................................................... 137,399
Other debtors and prepayments.................................................. 568,990
Plant and equipment--at cost................................................... 1,266,993
Accumulated depreciation....................................................... (364,071)
Other assets................................................................... 624,854
Liabilities
Trade creditors................................................................ (7,688,646)
Taxation....................................................................... (123,768)
Other.......................................................................... (3,126,252)
---------
Fair value of net tangible assets................................................ 2,259,059
Goodwill arising on acquisition.................................................. 56,848
---------
2,315,907
---------
---------
NET CASH EFFECT
Cash consideration............................................................... (2,204,677)
Cash at bank included in net assets acquired..................................... 3,695,136
---------
Cash inflow on purchase of controlled entities as reflected in consolidated
accounts....................................................................... 1,490,459
---------
---------
</TABLE>
110
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
7 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(b) The Company disposed of its controlling interest in the following entities:
Year Ended 30 June 1996: None
Year Ended 30 June 1995: 100% of Group Communications Pty Limited as
follows:
<TABLE>
<CAPTION>
30 JUNE
1995
$
----------
<S> <C>
Proceeds on sale:
Cash............................................................................ 118,096
Other........................................................................... --
----------
118,096
----------
----------
DETAILS OF NET ASSETS DISPOSED
Assets
Cash at bank.................................................................... --
Trade debtors................................................................... 133,385
Liabilities
Bank overdraft.................................................................. --
----------
Fair value of net tangible assets................................................. 133,385
Loss on disposal.................................................................. (15,289)
----------
118,096
----------
----------
NET CASH EFFECT
Cash proceeds..................................................................... 118,096
Cash at bank included in net assets disposed...................................... --
Bank overdraft included in net assets disposed.................................... --
----------
Cash proceeds from disposal of controlled entities as reflected in consolidated
accounts......................................................................... 118,096
----------
----------
</TABLE>
111
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
8 RELATED PARTY TRANSACTIONS
REMUNERATION OF DIRECTORS
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
$ $
---------- ----------
<S> <C> <C>
Amounts received or due and receivable by the directors of the economic entity from
corporations of which they are directors or related bodies corporate or entities
controlled by the chief entity........................................................ 2,973,832 3,038,882
---------- ----------
---------- ----------
The directors have availed themselves of ASC Class Order 95/741 in the disclosure of
directors' remunerations and benefits
Amounts received or due and receivable by directors of Neville Jeffress Australia Pty
Limited from that company and related bodies corporate................................ 506,580 460,569
The number of directors of Neville Jeffress Australia Pty Limited whose remuneration
(including superannuation contributions) falls within the following bands:
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
$20,000-$29,000........................................................................ 1 2
$60,000-$69,000........................................................................ 2 --
$70,000-$79,000........................................................................ -- 1
$150,000-$159,000....................................................................... 1 1
$200,000-$209,000....................................................................... -- 1
$210,000-$219,000....................................................................... 1 --
</TABLE>
In the opinion of the directors, remuneration paid to directors is
considered reasonable.
OTHER RELATED PARTY TRANSACTIONS
(a) The directors of Neville Jeffress Australia Pty Limited during the 1996
financial year were:
<TABLE>
<S> <C>
N Jeffress B M Robertson
P G Bush P A Allen
C D Cameron
</TABLE>
(b) Related party transactions which occurred during the financial year
included:
(i) Transactions with related parties of the Neville Jeffress Australia
Group
During the year, the company traded with other companies in the Neville
Jeffress Group at normal commercial rates.
Interest has been paid/(received) on intercompany loans between subsidiaries
of Neville Jeffress Australia Pty Limited under normal commercial terms and
conditions.
112
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
8 RELATED PARTY TRANSACTIONS (CONTINUED)
Interest received on a loan from Neville Jeffress Australia Pty Limited to
Neville Jeffress Holdings Pty Limited under normal commercial terms and
conditions amounted to $304,196 (1995: $104,582).
Loans receivable under normal commercial terms and conditions at:
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
$ $
------------ ------------
<S> <C> <C>
Current
Neville Jeffress Holdings Pty Limited........................... 2,355,276 2,012,022
Controlled entities of Neville Jeffress Australia Pty Limited... -- --
Other related parties........................................... -- 1,607,021
Non-Current
Neville Jeffress Holdings Pty Limited........................... -- --
Controlled entities of Neville Jeffress Australia Pty Limited... -- --
Other related parties........................................... -- --
------------ ------------
2,355,276 3,619,043
------------ ------------
------------ ------------
</TABLE>
Loans payable under normal commercial terms and conditions at:
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
$ $
------------ ------------
<S> <C> <C>
Current
Neville Jeffress Holdings Pty Limited........................... -- --
Controlled entities of Neville Jeffress Australia Pty Limited... -- --
Other related parties........................................... 228,206 2,574,287
Non-Current
Neville Jeffress Holdings Pty Limited........................... -- --
Controlled entities of Neville Jeffress Australia Pty Limited... -- --
Other related parties........................................... 242,489 --
------------ ------------
470,695 2,574,287
------------ ------------
------------ ------------
</TABLE>
Franchise fees have been received by Neville Jeffress Australia Pty Limited
from subsidiaries under normal commercial terms and conditions, amounting to
$1,611,337 (1995: $1,648,759)
Neville Jeffress Australia Pty Limited provided management, accounting and
computer services to subsidiaries under normal commercial terms and conditions.
Subsidiaries of Neville Jeffress Australia Pty Limited have paid rent on
buildings they occupied that are owned by a company controlled by N. Jeffress
under normal commercial terms and conditions amounting to $702,930 (1995:
$516,142)
113
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
8 RELATED PARTY TRANSACTIONS (CONTINUED)
Armstrong's Victoria Pty Limited provided management and accounting services
to Armstrong's NSW Pty Limited and Armstrong's Queensland Pty Limited under
normal terms and conditions.
The premises occupied by Neville Jeffress - Parramatta Pty Limited were
rented from The Neville Jeffress Advertising Staff Superannuation Fund under
normal commercial terms and conditions.
(ii) Transactions with the directors of Neville Jeffress Australia Pty
Limited and the economic entity
Accounting and taxation services were provided by C.D. Cameron to other
group companies under normal terms and conditions.
Consulting fees were paid to J Griffin Pty Ltd, of which Mr. J Griffin is a
director, at normal commercial rates. J Griffin Pty Ltd has loaned funds to the
company at 9% interest per annum, compounded quarterly and repayable at call. At
30 June 1996, the balance of the loan outstanding was $45,887 (1995: $26,877).
Mr. J. Griffin is a director of Neville Jeffress Perth Pty Limited.
The company has borrowed funds from N. Jeffress, a director. At 30 June
1996, the balance of this unsecured loan amounted to Nil (1995: $170,381).
(iii) Transactions with director-related entities
Travel services were provided by Barrenjoey Travel Pty Limited under normal
commercial terms and conditions. Directors associated with Barrenjoey Travel are
N. Jeffress and C.D. Cameron.
Mrs. L. Griffin, a director-related party, has loaned funds to the company
at 9% interest per annum, compounded quarterly and repayable at call. At 30 June
1996, the balance of the loan outstanding was $26,780 (1995: 24,493).
Media billings revenue under normal commercial terms and conditions
aggregated $1,963. These transactions were undertaken with respect to Bernie
Finance and Leasing of which Mr. B.D. Lewis is a director. Mr. B.D. Lewis is a
director of Neville Jeffress Adelaide Pty Limited.
(c) At 30 June 1996, Neville Jeffress Holdings Pty Limited was the ultimate
controlling entity. (On 2 July 1996, Neville Jeffress Holdings Pty Limited
disposed of its 91% interest in Neville Jeffress Australia Pty Limited. As a
result, at the reporting date, TMP Australia Pty Limited is the ultimate
Australian holding company and its ultimate controlling entity is McKelvey
Enterprises Inc., a company incorporated in the USA).
(d) Interests in the shares of entities within the economic entity held by
directors of the company and their director-related entities as of 30 June 1996.
Mr. N. Jeffress had an indirect interest in 91% of the shares of Neville
Jeffress Australia Pty Limited through his controlling interest in Neville
Jeffress Holdings Pty Limited.
Messrs. C.D. Cameron and P.G. Bush had an indirect interest in the shares of
Neville Jeffress Australia Pty Limited through their interest in PetzowHoldings
Pty Limited which owned 9% of the shares of Neville Jeffress Australia Pty
Limited.
There were no movements in directors' shareholdings in the twelve months
ended 30 June 1996. However, the indirect interests of Messsrs N. Jeffress, P.
G. Bush and C. D. Cameron in Neville Jeffress
114
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN AUSTRALIAN DOLLARS)
8 RELATED PARTY TRANSACTIONS (CONTINUED)
Australia Pty Limited were disposed of on 2 July 1996, with the sale of 100%
ownership to TMP Australia Pty Limited as detailed above.
9 CONTINGENT LIABILITIES
Neville Jeffress Australia Pty Limited has agreed to support the valuation
of The Neville Jeffress Advertising Staff Superannuation Fund investment
property at 12 Palmer Street, North Parramatta, of which Neville
Jeffress--Parramatta Pty Limited is the sole tenant. Based on a company
valuation at 30 June 1996, a contingent liability of $111,000 exists.
A liability may exist in relation to the contract of employment of a senior
executive of the Company. Notice has been served on the company under the
contract and the company is proceeding to establish its contractual liability.
The maximum exposure of the liability is estimated at $500,000.
10 SUBSEQUENT EVENTS
All of the issued share capital of the company was acquired by a subsidiary
of McKelvey Enterprises, Inc. with effect from 1 July 1996. In accordance with
the terms of the purchase of shares agreement, the following transactions
occurred:
(1) NJA disposed of its investments in:
-- Media Monitors Australia Pty Limited and its controlled entities;
-- National Advertising Services Pty Limited; and
-- Neville Jeffress Newsagencies Pty Limited.
(2) Certain controlled entities of NJA, which owned certain properties,
disposed of those properties.
(3) The company declared and paid to its previous shareholders a
dividend amounting to $4,714,183.
(4) The company acquired the minority interests in certain controlled
entities.
The financial effect of the above transactions in the year to 30 June 1996
would have been to:
-- Increase net income attributable to members by $332,020; and
-- Increase the dividends paid by $4,714,183; and
-- Decrease the consolidated net assets by $4,599,820.
The Australian Competition and Consumer Commission handed down its decision
on 26 July 1996, confirming that the Media Accreditation System, in place since
1978 and under which the company derives the majority of its income, is to be
revoked, effective 3 February 1997. Sections of the media with which the company
deals, have already indicated a continuance of similar conditions under a
revised system. The directors foresee a continuance of operations in the
deregulated environment, although its is difficult to fully predict the impact
of the ACCC decision.
115
<PAGE>
NEVILLE JEFFRESS AUSTRALIA PTY LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN AUSTRALIAN DOLLARS)
11 SEGMENT INFORMATION
(a)Industry Segments
The group operates in only one segment of business, namely the
advertising industry.
(b) Geographical Segments
<TABLE>
<CAPTION>
30 JUNE 30 JUNE
1995 1996
12 MONTHS 12 MONTHS
$ $
------------ ------------
<S> <C> <C>
SEGMENT Commissions and Fees
Australia 21,243,271 31,040,003
United Kingdom 409,548 629,285
New Zealand 10,440 390,738
------------ ------------
21,663,259 32,060,026
------------ ------------
------------ ------------
<CAPTION>
SEGMENT Total Assets
<S> <C> <C>
Australia 44,095,416 45,931,219
United Kingdom 878,820 1,018,818
New Zealand 226,208 470,509
------------ ------------
45,200,444 47,420,546
------------ ------------
------------ ------------
<CAPTION>
Income Before
SEGMENT Income Tax Expense
<S> <C> <C>
Australia 1,178,883 2,344,871
United Kingdom (56,225) 30,508
New Zealand (203,919) (49,221)
------------ ------------
918,739 2,326,158
------------ ------------
------------ ------------
</TABLE>
12 FOREIGN CURRENCIES
Net Australian dollar equivalents of assets/(liabilities) outstanding in
foreign currencies not effectively hedged:
<TABLE>
<S> <C> <C>
New Zealand dollars 173,439 111,942
English pound (91,868) (51,330)
</TABLE>
F-113
