<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM 10-Q/A
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
|_| Transition report pursuant to Section 13
or 15(d) of the Securities Exchange Act
of 1934 for the transition period from
_______ to _______.
-----------------------
Commission File Number: 0-21571
TMP WORLDWIDE INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3906555
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1633 BROADWAY, 33RD FLOOR, NEW YORK, NEW YORK 10019
(Address of principal executive offices) (Zip Code)
(212) 977-4200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
class of common stock, as of the latest practicable date.
Class Outstanding on August 7, 1998
----- -----------------------------
Common Stock............................. 24,629,158
Class B Common Stock......................... 2,381,000
================================================================================
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
INDEX
Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets--
June 30, 1998 and December 31, 1997............................ 2
Consolidated Condensed Statements of Income--
Three Month and Six Month Periods Ended June 30, 1998 and 1997. 3
Consolidated Condensed Statement of Stockholders' Equity--
Six Months Ended June 30, 1998................................. 4
Consolidated Condensed Statements of Cash Flows--
Six Months Ended June 30, 1998 and 1997........................ 5
Notes to Consolidated Condensed Financial Statements............. 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 8-13
PART II OTHER INFORMATION
Item 2. Changes In Securities............................................ 14
Item 4. Submission of Matters to a Vote of Security-Holders.............. 14
Item 6. Exhibits and Reports on Form 8-K................................. 14
Signatures....................................................... 15
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 5,927 $ 5,992
Accounts receivable, net..................................................... 283,261 260,086
Work-in-process.............................................................. 17,243 15,554
Prepaid and other............................................................ 18,037 11,661
-------- --------
Total current assets................................................... 324,468 293,293
Property and equipment, net..................................................... 44,837 39,626
Deferred income taxes........................................................... 6,238 4,922
Intangibles, net................................................................ 164,064 159,465
Other assets.................................................................... 12,418 4,809
-------- --------
$552,025 $502,115
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................. $238,038 $207,815
Accrued expenses and other liabilities....................................... 34,831 35,734
Accrued restructuring costs.................................................. 14,242 16,801
Deferred revenue............................................................ 12,335 7,992
Deferred income taxes....................................................... 11,033 10,733
Current portion of long term debt........................................... 6,398 9,314
-------- --------
Total current liabilities.............................................. 316,877 288,389
Long term debt, less current portion ........................................... 124,939 116,502
Other liability................................................................. 4,254 ---
-------- --------
Total liabilities...................................................... 446,070 404,891
-------- --------
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--24,619,281, and 12,495,626
shares, respectively................................................... 25 13
Class B common stock, $.001 par value, authorized 39,000,000 shares;
issued and outstanding--2,381,000 and 13,587,541 shares,
respectively....................................................... 2 14
Additional paid-in capital................................................ 168,721 165,246
Foreign currency translation adjustment................................... (789) (510)
Accumulated deficit....................................................... (62,004) (67,539)
-------- --------
Total stockholders' equity................................................ 105,955 97,224
-------- --------
$552,025 $502,115
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
Commissions and fees ....................... $86,278 $59,892 $166,671 $109,747
------- ------- -------- --------
Operating expenses:
Salaries and related costs............... 44,653 31,143 87,174 57,792
Office and general expenses.............. 27,098 20,668 55,488 37,720
Amortization of intangibles.............. 2,537 1,519 4,625 2,849
CEO bonus................................ 375 375 750 750
Merger costs............................. 2,487 --- 2,487 ---
------- ------- -------- --------
Total operating expenses ............ 77,150 53,705 150,524 99,111
------- ------- -------- --------
Operating income............................ 9,128 6,187 16,147 10,636
------- ------- -------- --------
Other income (expense):
Interest expense......................... (2,988) (2,799) (5,978) (5,055)
Interest income.......................... 534 510 1,090 947
Other, net............................... (65) 9 (124) 3
------- ------- -------- --------
Total other income (expense), net.... (2,519) (2,280) (5,012) (4,105)
------- ------- -------- --------
Income before provision for income taxes,
minority interests and equity in
(losses) of affiliates............... 6,609 3,907 11,135 6,531
Provision for income taxes.................. 3,460 1,798 5,426 3,324
------- ------- -------- --------
Income before minority interests
and equity in (losses) of affiliates. 3,149 2,109 5,709 3,207
Minority interests.......................... --- 43 --- 227
Equity in (losses) of affiliates............ (87) (15) (174) (5)
------- ------- -------- --------
Net income ................................. 3,062 2,051 5,535 2,975
Preferred stock dividend and
redemption premium................... --- --- --- (123)
------- ------- -------- --------
Net income applicable to common and
Class B common stockholders.......... $ 3,062 $ 2,051 $ 5,535 $ 2,852
======= ======= ======== ========
Net income per common and Class B
common share:
Basic................................ $ 0.11 $ 0.08 $ 0.21 $ 0.12
======= ======= ======== ========
Diluted.............................. $ 0.11 $ 0.08 $ 0.20 $ 0.12
======= ======= ======== ========
Weighted average shares outstanding:
Basic................................ 26,928 24,262 26,903 24,225
======= ======= ======== ========
Diluted.............................. 27,692 24,767 27,613 24,654
======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Class B Foreign
Common stock, Common stock, Additional currency Total
$.001 PAR VALUE $.001 PAR VALUE paid-in translation Accumulated Stockholders'
Shares Amount Shares Amount capital adjustment deficit Equity
------ ------ ------ ------ ------- ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998..... 13,266,979 $13 13,587,541 $14 $165,246 $ (510) $(67,539) $ 97,224
Issuance of common stock
in connection with the
exercise of options........ 56,075 --- --- --- 458 --- --- 458
Issuance of common stock
for purchases of interests
in subsidiaries............. 62,413 --- --- --- 1,626 --- --- 1,626
Issuance of common stock
for matching contribution
to 401(k) plan.............. 27,273 --- --- --- 641 --- --- 641
Conversion of Class B
common shares to
common shares............... 11,206,541 12 (11,206,541) (12) --- --- --- ---
Capital contribution from
Principal Stockholder
re: CEO bonus .............. --- --- --- --- 750 --- --- 750
Foreign currency
translation adjustment...... --- --- --- --- --- (279) --- (279)
Net income................... --- --- --- --- --- --- 5,535 5,535
---------- --- ----------- --- -------- ------ -------- --------
Balance, June 30, 1998....... 24,619,281 $25 2,381,000 $ 2 $168,721 $ (789) $(62,004) $105,955
========== === =========== === ======== ====== ======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
1998 1997
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................................. $ 5,535 $ 2,975
--------- ---------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization of property and equipment.................. 5,357 3,667
Amortization of intangibles.............................................. 4,625 2,849
Provision for doubtful accounts.......................................... 1,912 1,582
Amortization of deferred compensation.................................... 1,062 ---
CEO bonus and indemnity payment.......................................... 750 1,025
Minority interests....................................................... --- 227
Provision for deferred income taxes...................................... 1,016 912
Other.................................................................... (93) (3)
Changes in assets and liabilities, net of effects of purchases of businesses:
(Increase) decrease in accounts receivable, net......................... (23,512) 1,187
Increase in work-in-process............................................. (1,689) (2,768)
Increase in prepaid and other........................................... (6,263) 257
(Increase) decrease in other assets.................................... (4,732) 169
Increase (decrease) in accounts payable, accrued expenses and other
liabilities............................................................ 26,712 (17,046)
--------- ---------
Total adjustments..................................................... 5,145 (7,942)
--------- ---------
Net cash provided by (used in) operating activities................... 10,680 (4,967)
--------- ---------
Cash flows from investing activities:
Payments pursuant to notes to Principal Stockholder...................... --- (656)
Repayments from Principal Stockholder.................................... --- 695
Capital expenditures..................................................... (10,571) (12,960)
Payments for purchases of businesses, net of cash acquired............... (9,787) (11,375)
Advances to and investments in affiliates................................ ---- (71)
--------- ---------
Net cash used in investing activities.................................. (20,358) (24,367)
--------- ---------
Cash flows from financing activities:
Payments on capitalized leases........................................... (1,560) (1,450)
Borrowings under line of credit and proceeds from issuance of debt....... 472,522 320,794
Repayments under line of credit and principal payments on debt........... (461,299) (284,567)
Distributions to minority interest....................................... --- (25)
Redemption of minority interest (including premium) ..................... --- (3,133)
Redemption of preferred stock (including premium)........................ --- (2,105)
Dividends on preferred stock............................................. --- (18)
Dividends paid by pooled entity.......................................... (50) ---
--------- ---------
Net cash provided by financing activities.............................. 9,613 29,496
--------- ---------
Net increase (decrease) in cash and cash equivalents............................ (65) 162
Cash and cash equivalents, beginning of period.................................. 5,992 1,206
--------- ---------
Cash and cash equivalents, end of period........................................ $ 5,927 $ 1,368
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
NOTE 1-BASIS OF PRESENTATION
The consolidated condensed interim financial statements included herein
have been prepared by TMP Worldwide Inc. ("TMP" or the "Company"), without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments which, in the opinion of management, are necessary for fair
presentation of the information contained therein. It is suggested that these
consolidated condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended December 31, 1997. The Company follows the same
accounting policies in preparation of interim reports.
Previously, the Company had not charged earnings for bonuses specified
in its employment agreement with Andrew J. McKelvey, its CEO Principal
Stockholder, because he permanently waived his receipt of the bonuses due to
him before the start of the period to which it related. However, the
Securities and Exchange Commission informed the Company, that in accordance
with their interpretation of Staff Accounting Bulletin 79, Topic 5T
"Accounting for Expenses n Liabilities paid by the Principal Stockholders,
TMP must record bonus expense for this non-cash item, even though their
receipt has been permanently waived. The Company has complied in this amended
filing.
SEC's interpretation of the criteria for determining the size for which
pooling of interests transactions are material for purposes of restating
prior period financial statements was documented after the Company released
its earnings for the six months ended June 30, 1998. Consequently, the
Company believed that it was in compliance with existing accounting rules
when it accounted for the pooling of interests with Johnson Smith and Knisely
Inc. as immaterial with respect to the restatement of prior period financial
statements. The SEC has since informed the Company, that in its view,
restatement of prior period financials is required and the Company has
complied.
Results of operations for the interim periods may not be indicative of
annual results.
Basic earnings per share assumes no dilution, and is computed by dividing
income available to common and Class B common shareholders by the weighted
average number of common and Class B common shares outstanding during each
period. Diluted earnings per share reflect, in periods in which they have a
dilutive effect, the effects of common shares issuable upon exercise of stock
options and warrants, and contingent shares.
A reconciliation of shares used in calculating basic and diluted earnings per
common and Class B common share follows (in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
June 30, 1998 June 30, 1998
------------- -------------
<S> <C> <C>
Basic............................................... 26,928 26,903
Contingent shares................................... 149 100
Effect of assumed conversion of stock options....... 615 610
------ ------
Diluted............................................. 27,692 27,613
====== ======
<CAPTION>
Three Months Six Months
June 30, 1997 June 30, 1997
------------- -------------
<S> <C> <C>
Basic............................................... 24,262 24,225
Effect of assumed conversion of stock options....... 505 429
------ ------
Diluted............................................. 24,767 24,654
====== ======
</TABLE>
NOTE 2-BUSINESS ACQUISITIONS
In the six month period ended June 30, 1998, the Company completed
one pooling of interest and nine acquisitions. The pooling of interests
transaction was with Johnson, Smith and Knisely Inc. ("JSK"), an executive
search firm, and the historical financial statements of the Company were
restated for this merger. The nine acquisitions were comprised of (a) a human
resources consulting firm, intended to expand the traditional advertising
services offered to the Company's recruitment advertising clients, (b) two
recruitment advertising agencies in Singapore, (c) four recruitment
advertising agencies in Europe, two in England, one in Germany and one in the
Netherlands and (d) two U.S. based websites, AboutWork.com and
StudentCenter.com. The total value of cash paid, promissory notes issued, and
common stock issued for these transactions was approximately $32,918,
including $22,832 of TMP common stock, and $15,539 for the 1998 and 1997
periods, respectively.
6
<PAGE>
The summarized unaudited pro forma results of operations set forth
below for the six month periods ended June 30, 1998 and 1997 and the years ended
December 31, 1997 and 1996 assume that the acquisitions in 1998 and 1997
occurred as of the beginning of the year of acquisition and the beginning of the
preceding year.
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
------------------------- -----------------------
1998 1997 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Commission and fees......................... $170,529 $159,810 $311,645 $261,113
Net income (loss) applicable to common and
Class B common stockholders ............ $ 5,058 $ 2,524 $ 8,495 $(52,448)
Net income (loss) per common and
Class B common share:
Basic.................................. $ .19 $ .10 $ .35 $ (2.72)
Diluted................................ $ .18 $ .10 $ .34 $ (2.72)
</TABLE>
NOTE 3-PROPOSED ACQUISITION
In May 1998, the Company issued a letter of intent to acquire all of the
outstanding stock of TASA Holdings AG of Zurich, Switzerland, ("TASA"), an
international executive search firm, in a stock for stock transaction. The
acquisition is expected to be accounted for as a pooling of interests. The
purchase price is anticipated to be approximately $50 million worth of TMP
common stock. The acquisition, which is subject to definitive documentation and
customary closing conditions, is expected to be completed during the third
quarter of 1998. For the year ended December 31, 1997 TASA had annual revenue of
approximately $39 million.
NOTE 4-COMPREHENSIVE NET INCOME
The Company adopted SFAS No. 130 REPORTING COMPREHENSIVE INCOME, which requires
that all components of comprehensive income and total comprehensive income be
reported on one of the following: a statement of income and comprehensive
income, a statement of comprehensive income or a statement of stockholders'
equity. Comprehensive income is comprised of net income and all changes to
stockholders' equity, except those due to investments by owners (changes in paid
in capital) and distributions to owners (dividends). For interim purposes, SFAS
130 requires disclosure of total comprehensive income.
Total comprehensive income is as follows:
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
-------------------------- ------------------------
June 30, June 30,
-------- --------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income................................. $3,062 $2,051 $5,535 $2,852
Foreign currency translation adjustments... (2) (155) (279) (109)
------ ------ ------ ------
Comprehensive income....................... $3,060 $1,896 $5,256 $2,743
====== ====== ====== ======
</TABLE>
7
<PAGE>
NOTE 5 - ACCRUED RESTRUCTURING COSTS
Following is an analysis of the changes to accrued restructuring costs during
the six months from December 31, 1997 to June 30, 1998.
<TABLE>
<CAPTION>
BALANCE BALANCE
12/31/97 PAYMENTS 06/30/98
-------- -------- --------
<S> <C> <C> <C>
Assumed obligations on leased facilities to be closed $ 7,830 $ (415) $ 7,415
Consolidation of acquired facilities 2,521 (309) 2,212
Contracted payments exceeding current market costs 783 -- 783
Relocation and other employee costs 5,667 (1,835) 3,832
-------- ------- --------
Total $16,801 $(2,559) $14,242
-------- ------- --------
-------- ------- --------
</TABLE>
NOTE 6 - MERGER COSTS
In connection with the acquisition of JSK, the Company expensed merger
related costs of $2,487, all of which were expensed during the three month
period, ended June 30, 1998. The $2,487 of merger costs consists of (1)
$1,063 of non-cash employee stay bonuses, which is one quarter of the
amortization of a $4,254 charge being expensed over 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 to earn such shares,
and (2) $1,424 of transaction related costs, including legal, accounting, and
advisory fees. Of such costs $175 were accrued as of June 30, 1998.
8
<PAGE>
TMP WORLDWIDE INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q CONCERNING THE
COMPANY'S OUTLOOK OR FUTURE ECONOMIC PERFORMANCE, ANTICIPATED PROFITABILITY,
GROSS BILLINGS, COMMISSIONS AND FEES, EXPENSES OR OTHER FINANCIAL ITEMS AND
STATEMENTS CONCERNING ASSUMPTIONS MADE OR EXCEPTIONS 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, AND 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, AND (VIII) THE CONTROL OF THE
COMPANY BY ANDREW J. MCKELVEY.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
TMP Worldwide Inc. ("TMP" or the "Company") is a marketing services,
communications, search and selection and technology company that provides
comprehensive, individually tailored advertising services, including development
of creative content, media planning, production and placement of corporate
advertising, market research, direct marketing and other ancillary services and
products, and search and selection services. The Company is one of the world's
largest recruitment advertising agencies, the world's largest yellow page
advertising agency and a leader in the use of the Internet for recruiting.
The Company offers advertising programs to more than 17,000
clients, including more than 70 of the Fortune 100 and more than 285 of the
Fortune 500 companies. A substantial part of the Company's growth in
recruitment advertising has been achieved through acquisitions and during the
six months ended June 30, 1998, the Company completed one pooling of
interests and nine acquisitions, including seven acquisitions of companies in
recruitment advertising. Given the significant number of acquisitions, the
results of operations from period to period are not comparable.
Gross billings refer to billings for advertisements placed in
telephone directories, newspapers, Internet and other media, associated fees
for related services and fees for search and selection. 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. In
addition, the Company earns fees for the placement of advertisements on the
Internet, primarily its career Web sites.
Commissions paid by publishers for recruitment advertising placed in
the U.S. average 15% of recruitment gross billings. Outside of the U.S., TMP's
commission rates for recruitment advertising vary, ranging from approximately
10% in Australia to 15% in Canada and the United Kingdom where, collectively the
Company derived approximately 39% of its recruitment commissions and fees, based
on consolidated results for the six months ended June 30, 1998. The Company also
earns fees for value-added services such as design, research and other creative
and administrative services which resulted in aggregate commissions and fees
equal to approximately 20% of recruitment advertising gross billings. In April
1998, the Company continued to expand the scope of its recruitment advertising
business by acquiring Johnson, Smith and Knisely Inc. ("JSK"), the 12th largest
executive search firm in the U.S., according to Kenneth Publications, an
official ranking service for the search industry. Through JSK, the Company will
be able to further serve its recruitment advertising clients by helping
9
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
OVERVIEW (CONTINUED)
them identify and hire middle to senior level executives. For yellow page
advertising, the Company designs and executes advertising programs and
receives an effective commission rate from directory publishers of
approximately 20% of yellow page billings. The Company offers its clients
"Internet based" recruitment advertising and other products to complement
their advertising needs and has several career Web sites that provide fee
based advertising services. The Company's Web sites include The Monster
Board(R), Online Career Center(sm), Be the Boss and MedSearch. Each of these
Web sites consists of a database of employment opportunities, resumes and a
variety of other value added features. Collectively, as of June 30, 1998,
TMP's career Web sites contained approximately 155,000 paid job postings from
34,000 clients and 560,000 resumes. TMP believes that it offers the most
current career opportunities on the Web, with the majority of its listings
less than 60 days old. For June 1998, web traffic as measured by Nielsen
IPRO, for the Company's two major career web sites (The Monster Board(R) and
Online Career Center(sm)) was 3.9 million visits compared with 3.7 million
visits for March 1998 and 1.7 million visits for June 1997. The increases in
revenue and visits reflect an increasing acceptance of the Company's Internet
services and products from existing and new clients and internet users, and
the benefits of "co-branding" marketing efforts with other Internet content
providers.
In the six month period ended June 30, 1998, the Company completed one
pooling of interests and nine acquisitions. The pooling of interests transaction
was with Johnson, Smith and Knisely, Inc ("JSK"), the executive search firm
mentioned above, in a stock for stock transaction, with the Company issuing
771,353 shares of its common stock. The nine acquisitions were comprised of (a)
a human resources consulting firm intended to expand the traditional advertising
services offered to the Company's recruitment advertising clients, (b) two
recruitment advertising agencies in Singapore, (c) four recruitment advertising
agencies in Europe, two in England, one in Germany and one in the Netherlands
and (d) two U.S. based websites, AboutWork.com and StudentCenter.com, which is
intended to enable the Company's clients to more easily reach the critical
college marketplace. The total value of cash paid, promissory notes issued and
common stock issued for these transactions was approximately $32.9 million,
including $22.8 million for the fair market value of TMP common stock. This
compares with the Company's acquisition of six recruitment advertising business
and one yellow page business for an aggregate purchase price of approximately
$15.5 million, for the six months ended June 30, 1997. In addition, during May
1998, the Company entered into an agreement in principal, subject to due
diligence review, regulatory approval and other closing conditions, to acquire
TASA, a European based international executive search firm with fiscal year end
1997 revenues of approximately $39 million. During July, 1998 the Company
expanded its executive search and selection network with the acquisition Europ
Consultants, S.L. in Barcelona, marking its entry into the Spanish recruitment
market.
10
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
GROSS BILLINGS:
Yellow page advertising...................... $123,763 $111,566 $229,281 $210,377
Recruitment.................................. 193,205 127,554 390,069 238,105
Search & selection......................... 10,904 6,888 21,521 11,645
Internet(1).................................. 11,820 4,649 20,356 8,555
-------- -------- -------- --------
Total ......................................... $339,692 $250,657 $661,227 $468,682
======== ======== ======== ========
COMMISSIONS AND FEES:
Yellow page advertising...................... $ 24,868 $ 23,036 $ 46,437 $ 42,750
Recruitment.................................. 39,796 25,529 80,301 47,144
Search & selection......................... 10,904 6,888 21,521 11,645
Internet(1).................................. 10,710 4,439 18,412 8,208
-------- -------- -------- --------
Total ......................................... $ 86,278 $ 59,892 $166,671 $109,747
======== ======== ======== ========
COMMISSIONS AND FEES AS A PERCENTAGE OF GROSS BILLINGS:
Yellow page advertising...................... 20.1% 20.6% 20.3% 20.3%
Recruitment.................................. 20.6% 20.0% 20.6% 19.8%
Search & Selection........................... 100.0% 100.0% 100.0% 100.0%
Internet(1).................................. 90.6% 95.5% 90.4% 95.9%
Total ........................................ 25.4% 23.9% 25.2% 23.4%
EBITDA(2)...................................... $ 14,146 $ 9,700 $ 25,831 $ 16,904
Cash provided by (used in) operating activities $ 4,952 $ 9,596 $ 10,680 $ (5,992)
Cash used in investing activities.............. $(15,512) $(14,606) $(20,358) $(24,367)
Cash provided by financing activities......... $ 8,296 $ 4,874 $ 9,613 $ 30,521
</TABLE>
- ---------------
(1) Represents fees earned in connection with yellow page, recruitment and
other advertisements placed on the Internet, primarily on the Company's
own Web sites.
(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 expenditure
and working capital requirements and is one of the measures which
determines the Company's ability to borrow under its credit facility.
EBITDA should not be considered in isolation or as a substitute for
operating income, cash flows from operating activities and other income
or cash flow statement data prepared in accordance with generally
accepted accounting principles or as a measure of the Company's
profitability or liquidity. EBITDA for the indicated periods is
calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
------- ------ ------- -------
( in thousands)
<S> <C> <C> <C> <C>
Net income............................... $ 3,062 $2,051 $ 5,535 $ 2,975
Interest expense, net.................. 2,454 2,289 4,888 4,108
Income tax expense..................... 3,460 1,807 5,426 3,324
Depreciation and amortization.......... 5,170 3,553 9,982 6,497
------- ------ ------- -------
EBITDA .................................. $14,146 $9,700 $25,831 $16,904
======= ====== ======= =======
</TABLE>
11
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1997
Gross billings for the three months ended June 30, 1998 were $339.7
million, a net increase of $89.0 million or 35.5% from $250.7 million for the
three months ended June 30, 1997. Commissions and fees for the three months
ended June 30, 1998 were $86.3 million, an increase of $26.4 million or 44.1%
from $59.9 million in the first three months of 1997. Yellow page commissions
and fees were $24.9 million for the three months ended June 30, 1998, an
increase of $1.9 million or 8.3% from $23.0 million in the first three months
of 1997. Of this increase, $1.1 million or 4.8% was due to net increases in
client spending and net new clients and the balance was due to acquisitions.
Recruitment advertising commissions and fees were $39.8 million for the three
months ended June 30, 1998 compared with $25.5 million for the three months
ended June 30, 1997, an increase of $14.3 million or 56.1%. This increase was
primarily due to acquisitions and $1.0 million was due to net increases in
client spending and net new clients. Search and selection commissions and
fees were $10.9 million for the three months ended June 30, 1998 compared
with $6.9 million for the same period in 1997, an increase of $4.0 million or
58.0%. The increase was due to business growth. Internet commissions and fees
increased 143.1% to $10.7 million for the three months ended June 30, 1998
from $4.4 million for the three months ended June 30, 1997 and reflects an
increasing acceptance of the Company's Internet services and products by
existing and new clients and internet users, and the benefits of
"co-branding" marketing efforts with other Internet content providers.
Operating expenses for the three months ended June 30, 1998 were
$77.2 million, compared with $53.7 million for the same period in 1997. The
increase of $23.5 million or 43.8% reflects acquisition activity, including
$2.5 million for merger costs, a $1.0 million increase for amortization of
intangibles related to acquisitions, and growth in client service
expenditures to support the increased revenue base. Operating expenses as a
percentage of commissions and fees were 89.4% for the three months ended June
30, 1998 and 89.7% for the same period in 1997. The $2.5 million in merger
costs is comprised of (a) $1.4 million in non-recurring legal, accounting,
investment banking fees and (b) $1.1 million for the amortization of a $4.4
million charge, which is being expensed over the twelve months from April 1,
1998 to March 31, 1999. This charge is for TMP shares set aside as stay
bonuses for key personnel, who must remain employees of the Company for a
full year in order to earn such shares. The after tax effect of this charge
on diluted earnings per share is $.08.
As a result of the above, operating income for the three months
ended June 30, 1998 increased $2.9 million or 46.8% to $9.1 million from
$6.2 million for the comparable period last year.
Net interest expense for the three months ended June 30, 1998 was
$2.5 million, an increase of $.2 million or 7.2%, reflecting a net increase
in debt resulting from acquisitions and capital expenditures.
Taxes on income for the three months ended June 30, 1998 were $3.5
million on a $6.6 million pretax profit for an effective tax rate of 52.3%
compared with $1.8 million on a $3.9 million profit for an effective tax rate of
46.2% for the same period last year. The primary cause for the higher effective
rate was the $1.4 million in merger costs for non-recurring legal, accounting
and investment banking fees, which are not tax deductible.
The Company had no minority interests in consolidated earnings for
the three months ended June 30, 1998 compared with $43 thousand for the three
months ended June 30, 1997.
As a result of all of the above, net income available to common and
Class B common stockholders for the three months ended June 30, 1998 increased
$1.0 million to $3.1 million from $2.1 million for the three months ended June
30, 1997. On a diluted per share basis, net income available to common and Class
B common stockholders for the three months ended June 30, 1998 was $.11, an
increase of $.03 or 37.5% over the $.08 for the comparable 1997 period.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997
Gross billings for the six months ended June 30, 1998 were $661.2
million, a net increase of $192.5 million or 41.1% from $468.7 million for
the six months ended June 30, 1997. Commissions and fees for the six months
ended June 30, 1998 were $166.7 million, an increase of $57 million or 51.9%
from $109.7 million in the first six months of 1997. Yellow page commissions
and fees were $46.4 million for the six months ended June 30, 1998 compared
with $42.8 million for the six months ended June 30, 1997, an increase of
8.6% or $3.6 million, reflecting net increases in client spending, new
clients and, to a slightly lesser degree, acquisitions.
12
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997
(CONTINUED)
Recruitment advertising commissions and fees were $80.3
million for the six months ended June 30, 1998 compared with $47.1 million
for the six months ended June 30, 1997, an increase of $33.2 million or
70.3%. This increase was primarily due to acquisitions and net increases in
client spending and new clients, which slightly outpaced the effects of
client losses. For the six months ended June 30, 1998, Search & Selection
commissions and fees were 21.5 million, an increase of 9.9 million or 84.8%
from 11.6 million for the same period in 1997 due to increased business from
new and existing clients. Internet commissions and fees increased 124.3% or
$10.2 million to $18.4 million for the six months ended June 30, 1998 from
$8.2 million for the six months ended June 30, 1997. This increase reflects
an increasing acceptance of the Company's Internet products from existing and
new clients and the benefits of "co-branding" marketing efforts with other
Internet content providers.
Operating expenses for the six months ended June 30, 1998 were
$150.5 million, compared with $99.1 million for the same period in 1997. The
increase of $51.4 million or 51.9% reflects acquisition activity, including
$2.5 million for merger costs (see three months ended June 30, 1998 compared
to three months ended June 30, 1997), $1.8 million for higher amortization of
intangibles related to acquisitions, and growth in client service
expenditures to support the increased revenue base. Operating expenses as a
percentage of commissions and fees were 90.3% for the six month periods ended
June 30, 1998 and 1997.
As a result of the above, operating income for the six months
ended June 30, 1998 increased $5.5 million or 51.8% to $16.1 million
from $10.6 million for the comparable period last year.
Net interest expense for the six months ended June 30, 1998 was
$4.9 million, an increase of $.8 million or 19.0%, reflecting a net
increase in debt resulting from acquisitions and capital expenditures.
Taxes on income for the six months ended June 30, 1998 were $5.4
million on a pretax profit of $11.1 million, for an effective tax rate of
48.7%. This compares with taxes of $3.3 million for the same period last year
on a pretax profit of $6.5 million, for an effective tax rate of 50.9%. The
increase of $2.1 million is a result of higher pretax profits. The higher
effective tax rate reflects the effect of the $1.4 million in merger costs
for non-recurring legal, accounting and investment banking fees, which are
not tax deductible.
Equity in affiliates was a $174 thousand loss, reflecting the
decline in value in the Company's minority owned real estate advertising
affiliate. Minority interests in consolidated earnings for the six months
ended June 30, 1997 were $.2 million and preferred dividends for the six
months ended June 30, 1997 were $123,000. There were no such charges 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 six months ended June 30, 1998 was $5.5
million, an increase of $2.7 million or 94.1% over the $2.9 million for the
six months ended June 30, 1997. Per diluted share, earnings for the six
months ended June 30, 1998 was $.20 an increase of $.08 or 66.7% over the
$.12 for the six months ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the six months ended
June 30, 1998 was $10.7 million compared with $6.0 million used by operating
activities for the six months ended June 30, 1997. The favorable variance of
$4.7 million for the 1998 period compared with the 1997 period was primarily
due to higher earnings in 1998, while the 1997 period reflected increased
payments to yellow page vendors. The cash for these payments was provided by
higher borrowing capacity after the Company repaid a portion of its bank debt
with proceeds from its initial public offering in December 1996. EBITDA was
$25.98 million for the six months ended June 30, 1998, an increase of $8.9
million or 52.8% from $16.9 million for the six months ended June 30, 1997.
As a percentage of commissions and fees, EBITDA remained relatively flat at
15.5% for the six months ended June 30, 1998 as compared with 15.4% for the
six months ended June 30, 1997, even after the $2.5 million charge for
merger costs, which was 1.5% of commissions and fees for the six months ended
June 30, 1998.
13
<PAGE>
TMP WORLDWIDE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The Company's investing activities for the six months ended June 30,
1998 used cash of $20.4 million compared with $24.4 million for the six
months ended June 30, 1997. The $4.0 million decrease was primarily due to
$2.4 million less in capital expenditures and $1.6 million less in payments
for acquisitions. In addition, in May 1998, the Company issued a letter of
intent to acquire all of the outstanding stock of TASA Holdings AG of Zurich,
Switzerland, ("TASA"), an international executive search firm, in a stock for
stock transaction. The acquisition is expected to be accounted for as a
pooling of interests. The purchase price is anticipated to be approximately
$50 million worth of TMP common stock, based on $28 per share, the market
price at the time the letter of intent was issued. The acquisition, which is
subject to definitive documentation and customary closing conditions, is
expected to be completed during the third quarter of 1998. For the year ended
December 31, 1997 TASA had annual revenue of approximately $39 million.
The Company's financing activities include borrowings and repayments
under its bank financing agreements, issuance of and payments against
installment notes used principally to finance acquisitions and equipment and,
prior to 1997, loans to the Principal and certain other stockholders. The
Company's financing activities for the six months ended June 30, 1998 provided
net cash of $9.6 million, compared with $30.5 million provided for in the six
months ended June 30, 1997. The change of $20.9 million resulted from lower net
borrowings against credit facilities.
At June 30, 1998, the Company had a $175 million committed line of
credit from its primary lender pursuant to a revolving credit agreement expiring
June 30, 2001. Of such line, at June 30, 1998, approximately $50.9 million was
unused and $20.9 million could be borrowed based upon the eligible collateral
base. 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 June 30, 1998.
Cash and cash equivalents at June 30, 1998 equaled $5.9 million,
reflecting no change from December 31, 1997.
Management believes that the aggregate lines of credit available to the
Company, plus funds provided by operations will be adequate to support its
short-term cash requirements for acquisitions, capital expenditures, repayment
of debt and maintenance of working capital. The Company anticipates that future
cash flows from operations plus funds available under existing line of credit
facilities will be adequate to support its long term cash requirements as
presently contemplated. However, if the Company determines that conditions are
favorable, it would consider additional corporate finance or capital
transactions.
14
<PAGE>
TMP WORLDWIDE INC.
PART II OTHER INFORMATION
Item 2. Changes in Securities
(c) 771,353 shares of Common Stock were issued to Gary Knisely in
April 1998 in connection with the acquisition of Johnson,
Smith & Knisely, Inc. Such securities were not registered
under the Securities Act of 1933, as amended, pursuant to the
exemption contained in Section 4(2) of such Act.
Item 4. Submission of Matters to a Vote of Security-Holders
(a) The Annual Meeting of Stockholders was held on May 27,1998.
(b) The following directors were reelected at the Annual Meeting of
Stockholders and received the vote indicated:
For Withheld
Andrew J. McKelvey 145,356,449 97,379
George Eisele 145,356,341 97,487
John Gaulding 145,356,451 97,377
Michael Kaufman 145,356,451 97,377
John Swann 145,354,341 99,487
(c) The amendment to the Company's 1996 Stock Option Plan was
approved by the vote indicated:
For: 143,496,700
Against: 1,449,649
Broker non-votes: 500,359
Abstain: 7,120
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as a part of this report:
27 Financial Data Schedule
(b) Reports on Form 8-K: (i) On April 11, 1998, the Company filed
a Form 8-K which included a press release announcing the
commencement of a private sale of up to $115 million principal
amount of the Company's Convertible Subordinated Notes, (ii)
On May 6, 1998, the Company filed a Form 8-K with respect to
the issuance of 53,988 shares, pursuant to Regulation S, in
connection with an acquisition.
All other items of this report are inapplicable.
15
<PAGE>
TMP WORLDWIDE INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TMP WORLDWIDE INC.
---------------------------------
(Registrant)
Date: Janaury 4, 1999 /s/ Thomas G. Collison
---------------------------------
THOMAS G. COLLISON
VICE CHAIRMAN
(PRINCIPAL FINANCIAL OFFICER)
Date: January 4, 1999 /s/ Roxane Previty
---------------------------------
ROXANE PREVITY
CHIEF FINANCIAL OFFICER
(PRINCIPAL ACCOUNTING OFFICER)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,927
<SECURITIES> 0
<RECEIVABLES> 293,488
<ALLOWANCES> 10,227
<INVENTORY> 0
<CURRENT-ASSETS> 324,468
<PP&E> 83,450
<DEPRECIATION> 38,613
<TOTAL-ASSETS> 552,025
<CURRENT-LIABILITIES> 316,877
<BONDS> 129,193
0
0
<COMMON> 27
<OTHER-SE> 105,955
<TOTAL-LIABILITY-AND-EQUITY> 552,025
<SALES> 166,671
<TOTAL-REVENUES> 166,671
<CGS> 0
<TOTAL-COSTS> 148,612
<OTHER-EXPENSES> 124
<LOSS-PROVISION> 1,912
<INTEREST-EXPENSE> 4,888
<INCOME-PRETAX> 11,435
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,535
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,535
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.20
</TABLE>
