<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 8-K
---------------
/X/ CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: JULY 21, 2000
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Commission File Number: 000-21571
TMP WORLDWIDE INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3906555
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
</TABLE>
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)
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<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
ITEM 5. OTHER EVENTS (IN THOUSANDS, EXCEPT SHARE AMOUNTS).
During the period of January 1, 2000 through March 31, 2000, TMP Worldwide
Inc. and subsidiaries ("TMP" or the "Company") consummated mergers with the
following companies in transactions that provided for the exchange of all of the
outstanding stock of each entity for a total of 1,699,123 shares of TMP common
stock. Such transactions were accounted for as poolings of interests (the "First
Quarter 2000 Mergers"):
<TABLE>
<CAPTION>
NUMBER OF
ENTITY BUSINESS SEGMENT ACQUISITION DATE TMP SHARES ISSUED
------ --------------------------------- ----------------- -----------------
<S> <C> <C> <C>
HW Group PLC............ Selection & Temporary Contracting February 16, 2000 715,769
Microsurf, Inc.......... Interactive February 16, 2000 684,462
Burlington Wells, Selection & Temporary Contracting February 29, 2000 52,190
Inc...................
Illsley Bourbonnais..... Executive Search March 1, 2000 246,702
</TABLE>
During the period of April 1, 2000 through June 30, 2000, the Company
consummated mergers with the following companies in transactions that provided
for the exchange of all of the outstanding stock of each entity for a total of
3,117,169 shares of TMP common stock. Such transactions were accounted for as
poolings of interests (the "Second Quarter 2000 Mergers"):
<TABLE>
<CAPTION>
NUMBER OF
ENTITY BUSINESS SEGMENT ACQUISITION DATE TMP SHARES ISSUED
------ --------------------------------- ----------------- -----------------
<S> <C> <C> <C>
System One Services,
Inc................... Selection & Temporary Contracting April 3, 2000 1,022,257
GTR Advertising......... Recruitment Advertising April 4, 2000 54,041
Virtual Relocation.com,
Inc................... Interactive May 9, 2000 947,916
Business Technologies
Ltd................... Interactive May 17, 2000 205,703
Simpatix, Inc........... Interactive May 31, 2000 152,500
Rollo Associates, Inc... Executive Search May 31, 2000 110,860
Web Technology Partners,
Inc................... Interactive May 31, 2000 623,892
</TABLE>
The Company's consolidated financial statements have been retroactively
restated (a) as of December 31, 1999 and 1998 and for each of the three years in
the period ended December 31, 1999, to reflect the consummation of the First
Quarter 2000 Mergers and the Second Quarter 2000 Mergers (collectively, the
"First Half 2000 Mergers") and (b) as of March 31, 2000 and 1999 and for the
three months ended March 31, 2000 and 1999 to reflect the consummation of the
Second Quarter 2000 Mergers. Accordingly, the supplemental consolidated
financial statements included herein as of December 31, 1999 and 1998 and for
the three years in the period ended December 31, 1999 have been retroactively
restated to reflect the First Half 2000 Mergers, as if the combining companies
had been consolidated for all periods presented. The supplemental consolidated
condensed financial statements as of March 31, 2000 and for the three months
ended March 31, 2000 and 1999 have been retroactively restated to reflect the
Second Quarter 2000 Mergers, as if the combining companies had been consolidated
for all periods presented. As a result, the financial position, and statements
of income (loss), comprehensive income (loss) and cash flows are presented as if
the combining companies had been consolidated for all periods presented. In
addition, the supplemental consolidated statements of stockholders' equity
reflect the accounts of TMP as if the additional common stock issued in
connection with each of the aforementioned combinations included in the First
Half 2000 Mergers had been issued for all periods when each of the related
companies had issued shares and for the amounts that reflect the exchange ratios
of the mergers.
2
<PAGE>
In accordance with generally accepted accounting principles, the
supplemental consolidated financial statements will become the historical
financial statements of the Company upon issuance of the financial statements
for the period that includes the consummation of the Second Quarter 2000
Mergers.
In the supplemental consolidated balance sheets, the balance sheets of TMP
as of March 31, 2000, have been combined with those of the Second Quarter 2000
Mergers and those as of December 31, 1999 and 1998 have been combined with those
of the First Half 2000 Mergers all as of March 31, 2000 and December 31, 1999
and 1998 except for the following: Illsley Bourbonnais, for which the balance
sheets as of January 31, 2000 and 1999 are combined with those of TMP as of
December 31, 1999 and 1998, respectively; Business Technologies Ltd. ("BTL"),
for which the balance sheets as of July 31, 1999 and 1998 are combined with
those of TMP as of December 31, 1998 and 1998, respectively; HW Group PLC
("HW"), for which the balance sheet as of March 31, 1999 is combined with that
of TMP as of December 31, 1998.
The supplemental consolidated statements of income (loss) combine the
results of TMP for the three months ended March 31, 2000 and 1999 with those of
the Second Quarter 2000 Mergers and each year in the three year period ended
December 31, 1999 with those of the First Half Mergers all for the same periods
except for the following: Illsley Bourbonnais, for which the statements of
income (loss) for the years ended January 31, 2000, 1999 and 1998 are included
in the statements of income (loss) for the years ended December 31, 1999, 1998
and 1997, respectively; BTL, for which the statements of income (loss) for the
years ended July 31, 1999, 1998 and 1997 are included in the statements of
income (loss) for the years ended December 31, 1999, 1998 and 1997,
respectively; HW, for which the statements of income (loss) for the years ended
March 31, 1999 and 1998 are included in the statements of income (loss) for the
years ended December 31, 1998 and 1997, respectively.
The results of Illsley Bourbonnais for the month ended January 31, 2000 are
included in both the supplemental consolidated statements of income (loss) for
the year ended December 31, 1999 and in the supplemental consolidated condensed
statement of income (loss) for the three months ended March 31, 2000. Therefore
the following amounts have been included in both periods: (a) commissions and
fees of $1,019 and (b) net income of $285, with no impact on net income (loss)
per share. Additionally, due to immateriality, the results of BTL for the period
August 1, 1999 through December 31, 1999 of $314 in commissions and fees and $50
in net income have not been included in the supplemental consolidated statement
of income (loss) for the year ended December 31, 1999 because the results of BTL
for the fiscal year ended July 31, 1999 were combined with the supplemental
consolidated statement of income (loss) of TMP for the year ended December 31,
1999. In addition, the results of HW Group Ltd., for the three months ended
March 31, 1999 are included in the supplemental consolidated statements of
income (loss) in both years ended December 31, 1999 and 1998, and the effects on
both periods on (a) commissions and fees was $11,075, (b) net income was $1,893
and (c) diluted earnings per share was $0.02.
The Company has prepared and included herein, a "Supplemental Management's
Discussion and Analysis of Financial Condition and Results of Operations" to
accompany the supplemental consolidated financial statements. The supplemental
consolidated financial statements, including the notes thereto, should be read
in conjunction with TMP's historical consolidated financial statements included
in its Annual Report on Form 10-K for the year ended December 31, 1999.
3
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
STATEMENTS IN THIS CURRENT REPORT ON FORM 8-K CONCERNING OUR BUSINESS
OUTLOOK OR FUTURE ECONOMIC PERFORMANCE, ANTICIPATED PROFITABILITY, GROSS
BILLINGS, COMMISSIONS AND FEES, 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) WE MAY NOT BE
ABLE TO MANAGE OUR GROWTH, (II) OUR SUCCESS DEPENDS ON THE VALUE OF OUR BRANDS,
PARTICULARLY MONSTER.COM(SM), (III) THE ACCEPTANCE AND EFFECTIVENESS OF INTERNET
ADVERTISING IS UNPROVEN, (IV) WE FACE RISKS RELATING TO DEVELOPING TECHNOLOGY,
INCLUDING THE INTERNET, (V) WE DEPEND ON TRADITIONAL MEDIA, (VI) WE ARE
VULNERABLE TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS BROUGHT AGAINST US BY
OTHERS, (VII) THE POTENTIAL IMPACT OF THIRD-PARTY LITIGATION ON OUR AGREEMENT
WITH AOL, (VIII) COMPUTER VIRUSES MAY CAUSE OUR SYSTEMS TO INCUR DELAYS OR
INTERRUPTIONS, (IX) INTERNET USERS MAY NOT ACCEPT OUR INTERNET CONTENT, (X) WE
FACE RISKS ASSOCIATED WITH OUR ACQUISITION STRATEGY, (XI) OUR MARKETS ARE HIGHLY
COMPETITIVE, (XII) OUR OPERATING RESULTS FLUCTUATE FROM QUARTER TO QUARTER,
(XIII) THE EFFECT OF GLOBAL ECONOMIC FLUCTUATIONS, (XIV) WE DEPEND ON OUR
CONSULTANTS, (XV) OUR CONSULTANTS MAY DEPART WITH EXISTING EXECUTIVE SEARCH
CLIENTS, (XVI) WE FACE RISKS MAINTAINING OUR PROFESSIONAL REPUTATION AND BRAND
NAME, (XVII) WE FACE RESTRICTIONS IMPOSED BY OFF-LIMITS ARRANGEMENTS, (XVIII) WE
FACE RISKS RELATING TO OUR FOREIGN OPERATIONS, (XIX) WE DEPEND ON OUR KEY
PERSONNEL, (XX) WE ARE CONTROLLED BY A PRINCIPAL STOCKHOLDER, (XXI) THE EFFECTS
OF ANTI-TAKEOVER PROVISIONS COULD INHIBIT OUR ACQUISITION, (XXII) THERE MAY BE
VOLATILITY IN OUR STOCK PRICE, (XXIII) WE FACE RISKS ASSOCIATED WITH GOVERNMENT
REGULATION AND (XXIV) WE HAVE NEVER PAID CASH DIVIDENDS.
OVERVIEW
TMP Worldwide Inc. ("TMP" or the "Company"), through its flagship
Interactive product, Monster.com(sm) (www.monster.com), is the on-line
recruitment leader. TMP is also the world's largest Recruitment Advertising
agency network, one of the world's largest Executive Search, Selection and
Temporary Contracting agencies, the world's largest Yellow Pages Advertising
agency, a provider of full service interactive advertising and interactive
marketing technology services, and a provider of online moving services.
Our Interactive growth is attributable to increased sales of our Internet
products, expansion of our Interactive businesses into certain European
countries, migration of our traditional businesses to the Internet and the
addition of new Interactive services. Monster.com(sm) is the leading global
career portal on the Web with over 15.2 million unique visits per month as of
May 2000 per Nielson I/Pro. The Monster.com(sm) global network consists of local
language and content sites in the United States, Canada (French and English),
United Kingdom, Ireland, France, Germany, the Netherlands, Belgium, Australia,
New Zealand, Singapore and Hong Kong.
A substantial part of our growth in Recruitment Advertising, Selection &
Temporary Contracting and Yellow Page Advertising has been achieved through
acquisitions accounted for as purchases. For the period January 1, 1997 through
March 31, 2000 we completed 59 such acquisitions, with estimated annual gross
billings of approximately $480.4 million. Given the significant number of
acquisitions affecting the periods presented, the results of operations from
period to period may not necessarily be comparable.
Furthermore, during the six months ended June 30, 2000, we completed eleven
mergers that are being accounted for as poolings of interests (the "First Half
2000 Pooled Companies"). Approximately 4.8 million shares of our common stock
were issued in exchange for all of the outstanding common stock of
4
<PAGE>
the First Half 2000 Pooled Companies (the "First Half 2000 Mergers").
Accordingly, the consolidated financial statements for the periods ended
December 31, 1999, 1998 and 1997 included herein have been retroactively
restated as if the First Half 2000 Pooled Companies had been consolidated for
all periods presented, and the financial statements as of and for the quarters
ended March 31, 2000 and 1999 have been retroactively restated as if the Second
Quarter Pooled Companies had been consolidated from January 1, 2000 and 1999.
Gross billings refers to billings for advertising placed on the Internet, in
newspapers and telephone directories by our clients, and associated fees for
related services. In addition, Executive Search fees, Selection fees, and net
fees from Temporary Contracting services are also part of gross billings. Gross
billings for Recruitment Advertising and Yellow Page Advertising are not
included in our consolidated financial statements because they include a
substantial amount of funds that are collected from our clients but passed
through to publishers for advertisements. However, the trends in gross billings
in these two segments directly impact the commissions and fees earned because,
for these segments, we earn commissions based on a percentage of the media
advertising purchased at a rate established by the related publisher. We also
earn associated fees for related services; such amounts are also included in
gross billings. Publishers and third party websites typically bill us for the
advertising purchased and we in turn bill our clients for this amount and retain
a commission. Generally, the payment terms for Yellow Page Advertising clients
require payment to us prior to the date payment is due to the publishers. The
payment terms with Recruitment Advertising clients typically require payment
when payment is due to publishers. Historically, we have not experienced
substantial problems with unpaid accounts.
Commissions and fees related to our Interactive businesses are derived from:
- job postings and access to the resume database and related services
delivered via the Internet, primarily our own Web site,
www.monster.com(sm);
- searches for permanent and temporary employees, at the executive and
professional levels, and related services conducted through the Internet;
- Internet advertising services provided to our Yellow Page Advertising
clients;
- the providing of interactive advertising services and technologies, which
allow advertisers to measure and track sales, repeat traffic and other key
statistics to enable such advertisers to greatly reduce costs, while
driving only the most qualified users to their web sites and
- online moving services, primarily on our own Web site,
www.monstermoving.com-SM-.
MonsterMoving.com-SM- (www.monstermoving.com) provides important relocation
information and services to Monster.com-SM-'s job seeker and employer community,
which averages over 3.9 million unique visitors and over 15.2 million unique
visits per month. According to the U.S. Census Department 1997 Study,
approximately 20% of the general U.S. population is relocating at any point in
time. As a result, we believe the correlation of moving and changing jobs makes
this percentage even higher and, therefore, that these additional relocation
services will be highly valued by Monster.com's audience and customer base.
MonsterMoving.com-SM-, currently through the individual properties the
Company acquired in 2000 (primarily Virtual Relocation.com, Inc. and Microsurf,
Inc.), is already one of the Internet's most comprehensive providers of
moving-related analytical tools, and features information that addresses the
entire relocation process. This information includes new residence listings,
community maps, education summaries, mortgage quotes, moving quotes, insurance
quotes, address and utility change services, and home repair and maintenance
information.
MonsterMoving.com-SM-, which is scheduled to be launched as a new site in
the third quarter of 2000, will be directly accessible to Monster.com-SM-'s
large base of consumer traffic through URL links and promotions on Monster.com.
In addition, the cross-selling of MonsterMoving.com-SM-'s services has started
with the Company's other divisions and will provide an important new advertising
venue for moving-related clients, particularly in the Yellow Page Advertising
division, where over 30% of our Yellow Page revenues are derived from the moving
services industry, including van lines, truck rentals and home services.
5
<PAGE>
For Recruitment Advertising placements in the U.S., publisher commissions
historically average 15% of recruitment advertising gross billings. We also earn
fees from related services such as campaign development and design, retention
and referral programs, resume screening, brochures and other collateral
services, research and other creative and administrative services. Outside of
the U.S., where, collectively, we derive the majority of our Recruitment
Advertising commissions and fees, our commission rates for recruitment
advertising vary, historically ranging from approximately 10% in Australia to
15% in Canada and the United Kingdom.
Executive Search offers an advanced and comprehensive range of services
aimed at identifying the appropriate senior executive for our clients. Such
senior executives typically earn in excess of $250,000 annually. Our specialized
services include identification of candidates, competence measurement,
assessment of candidate/company cultural fit and transaction negotiation and
closure.
Selection & Temporary Contracting offers placement services for executives
and professionals in mid-level and temporary positions, as well as for specific
short-term projects. Our Selection business provides services similar to our
Executive Search business, and focuses on mid-level professionals or executives,
who typically earn between $75,000 and $150,000, annually. Our Temporary
Contracting business provides contract employees primarily in Australia, New
Zealand, the United Kingdom and the U.S.
We believe that our Executive Search and Selection & Temporary Contracting
services are helping to broaden the universe of both job seekers and employers
who utilize Monster.com(sm). Through the use of Monster.com(sm), Recruitment
Advertising, Selection & Temporary Contracting and Executive Search, we believe
that we can accommodate all of our clients' employee recruitment needs, which is
our "Intern to CEO" strategy.
We design and execute Yellow Page Advertising, receiving an effective
commission rate from directory publishers which historically approximated 20% of
Yellow Page Advertising gross billings. Gross billings increased $34.5 million
or 6.9% to $532.3 million in 1999 from $497.8 million in 1997. However, due to
reductions in commission rates by the publishers and higher discounts provided
to clients, the rate has declined and for 1999 was approximately 19% and has
declined to approximately 17.5% by March 31, 2000. Consequently, commissions and
fees declined $2.6 million or 2.5% to $101.3 million in 1999 from $103.9 million
in 1997. In addition to base commissions, certain yellow pages publishers pay
increased commissions for volume placement by advertising agencies. We typically
recognize this additional commission, if any, in the fourth quarter when it is
certain that such commission has been earned. No such amounts were reported in
the fourth quarter of 1999 due to the aggressive objectives set by the
publishers, and the Company does not foresee achieving these aggressive goals in
the future.
Interactive commissions and fees were $70.8 million for the quarter ended
March 31, 2000, an increase of $48.4 million or 216.6% over the first quarter of
1999, which had Interactive commissions and fees of $22.4 million. This growth
reflects an increase in the acceptance of our Interactive products and services
by existing and new clients and the effect of increased sales and marketing
activities. Recruitment Advertising commissions and fees were flat at $46.5
million for the three months ended March 31, 2000 versus $46.4 million for the
first quarter of 1999 reflecting modest growth in traditional billings of 0.2%
and a reduced amount of higher margin collateral work. Selection & Temporary
Contracting commissions and fees were $77.8 million, up $20.4 million or 35.5%
from $57.4 million for the period ended March 31, 1999. The increase reflects
the increased demand for professional level employees worldwide, particularly in
mid-level management positions (annual salaries ranging from $75,000 to
$150,000) and the resumption of strong demand for temporary employees in
Australia, particularly in the information technology sector. Executive Search
commissions and fees were $39.0 million for the three months ended March 31,
2000, a decrease of $2.5 million or 6.0% from $41.5 million for the comparable
three months of 1999, due primarily to the decrease, as anticipated, in
consultants at LAI Worldwide, Inc. ("LAI") (many of whom would have been deemed
redundant as a consequence of the merger), in the second quarter of 1999, in
anticipation of the merger with TMP. Yellow Page Advertising billings increased
11.0% to $133.2 million for the quarter ended March 31, 2000. However, Yellow
Page Advertising commissions and fees decreased 2.1% to $23.3 million for the
first quarter of 2000 compared to $23.8 million for the prior year period,
6
<PAGE>
reflecting substantially reduced commissions paid by publishers and the effects
of higher discounts provided to certain large clients. Total commissions and
fees as a percent of related billings for the first quarter ended March 31, 2000
were 46.7% as compared to 41.6% for the prior year period. The higher percentage
reflects increased sales volume for Interactive and Selection & Temporary
Contracting, where the Company retains greater portions of the amounts billed.
Based on our consolidated results for the periods ended March 31, 2000 and
1999, 42.7%, and 46.2%, respectively, of our consolidated commissions and fees
are attributable to clients outside the U.S.
RESULTS OF OPERATIONS
The following table sets forth our gross billings, commissions and fees,
commissions and fees as a percentage of gross billings, EBITDA and cash flow
information.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -------------------
1997 1998 1999 1999 2000
---------- ---------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
GROSS BILLINGS:
Interactive(1)...................... $ 23,023 $ 60,705 $ 162,772 $ 24,984 $ 80,459
Recruitment Advertising............. 659,467 869,302 831,624 214,985 219,555
Selection & Temporary
Contracting(2).................... 181,332 209,227 271,910 58,642 79,286
Executive Search.................... 168,107 195,268 173,558 41,544 39,007
Yellow Page Advertising............. 497,848 520,129 532,258 120,011 133,175
---------- ---------- ---------- -------- --------
Total................................. $1,529,777 $1,854,631 $1,972,122 $460,166 $551,482
========== ========== ========== ======== ========
COMMISSIONS AND FEES:
Interactive(1)...................... $ 21,940 $ 53,992 $ 144,400 $ 22,356 $ 70,774
Recruitment Advertising............. 136,758 180,774 181,228 46,425 46,513
Selection & Temporary
Contracting(2).................... 180,016 208,028 269,008 57,433 77,816
Executive Search.................... 168,107 195,268 173,277 41,513 39,007
Yellow Page Advertising............. 103,941 106,455 101,294 23,795 23,300
---------- ---------- ---------- -------- --------
Total................................. $ 610,762 $ 744,517 $ 869,207 $191,522 $257,410
========== ========== ========== ======== ========
COMMISSIONS AND FEES AS A PERCENTAGE
OF GROSS BILLINGS:
Interactive(1)...................... 95.3% 88.9% 88.7% 89.5% 88.0%
Recruitment Advertising............. 20.7% 20.8% 21.8% 21.6% 21.2%
Selection & Temporary
Contracting(2).................... 99.3% 99.4% 98.9% 97.9% 98.1%
Executive Search.................... 100.0% 100.0% 99.8% 99.9% 100.0%
Yellow Page Advertising............. 20.9% 20.5% 19.0% 19.8% 17.5%
Total................................. 39.9% 40.1% 44.1% 41.6% 46.7%
EBITDA(3)............................. $ 107,400 $ 96,795 $ 57,789 $ 12,551 $ 22,746
Cash provided by (used in) operating
activities.......................... $ 62,438 $ 72,166 $ 95,520 $(13,023) $(57,362)
Cash used in investing activities..... $ (109,367) $ (73,863) $ (61,571) $(22,173) $(30,345)
Cash provided by (used in) financing
activities.......................... $ 75,613 $ 22,100 $ (48,463) $ 13,781 $545,102
Effect of exchange rate changes on
cash................................ $ (303) $ (165) $ (755) $ 670 $ (1,463)
</TABLE>
------------------------
(1) Represents fees earned in connection with recruitment, yellow page and other
advertisements placed on the Internet, interactive moving services and
employment searches and temporary contracting services sourced through the
Internet.
(2) Amounts for temporary contracting are reported net of the costs paid to the
temporary contractor.
(3) Earnings before interest, income taxes, depreciation and amortization.
EBITDA is presented to provide additional information about our ability to
meet our future debt service, capital expenditures
7
<PAGE>
and working capital requirements and is one of the measures which determines
our ability to borrow under our credit facility. EBITDA should not be
considered in isolation or as a substitute for operating income, cash flows
from operating activities and other income or cash flow statement data
prepared in accordance with generally accepted accounting principles or as a
measure of our profitability or liquidity.
EBITDA for the indicated periods is calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income (loss)............................. $ 50,879 $29,043 $(9,054) $ (703) $ 3,050
Interest (income) expense, net................ 10,502 12,876 12,927 3,503 (1,794)
Income tax expense (benefit).................. 22,805 16,884 6,908 (795) 7,280
Depreciation and amortization................. 23,214 37,992 47,008 10,546 14,210
-------- ------- ------- ------- -------
EBITDA........................................ $107,400 $96,795 $57,789 $12,551 $22,746
======== ======= ======= ======= =======
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1999
Gross billings for the three months ended March 31, 2000 were $551.5
million, an increase of $91.3 million or 19.8% from $460.2 million for the three
months ended March 31, 1999. Total commissions and fees for the three months
ended March 31, 2000 were $257.4 million, an increase of $65.9 million or 34.4%
from $191.5 million for the comparable period in 1999. Interactive commissions
and fees for the three months ended March 31, 2000 were $70.8 million, an
increase of $48.4 million or 216.6% compared with $22.4 million for the three
months ended March 31, 1999. The increase in Interactive commissions and fees
from the March 1999 period to the March 2000 period is due to: (i) an increasing
acceptance of our Interactive services and products from existing clients, new
clients and Internet users, (ii) the benefits of Monster.com(sm)'s marketing
campaign, (iii) increases in the services and content available on our websites,
(iv) expansion into certain European markets, (v) price increases on certain
products, and (vi) the continuing migration of our traditional businesses to the
Internet. Recruitment Advertising commissions and fees were flat at $46.5
million for the three months ended March 31, 2000 versus $46.4 million for the
first quarter of 1999 reflecting modest growth in traditional billings of 0.2%
due to migration of recruitment advertising to the Internet and a reduced amount
of higher margin collateral work. Selection & Temporary Contracting commissions
and fees were $77.8 million, up $20.4 million or 35.5% from $57.4 million for
the period ended March 31, 1999. The increase reflects the increased demand for
professional level employees worldwide and the resumption of strong demand for
temporary employees in Australia, particularly in the information technology
sector. Executive Search commissions and fees were $39.0 million for the three
months ended March 31, 2000, a decrease of $2.5 million or 6.0% from $41.5
million for the comparable three months of 1999, due primarily to the decrease,
as anticipated, in consultants at LAI (many of whom would have been deemed
redundant as a result of the merger), in the second quarter of 1999, in
anticipation of the merger with TMP. Yellow Page Advertising commissions and
fees were $23.3 million for the three months ended March 31, 2000, a decrease of
$0.5 million or 2.1% from $23.8 million for the comparable three months of 1999.
This decrease was due to substantially reduced commissions paid by publishers
and the effects of higher discounts paid to certain large clients.
Operating expenses for the three months ended March 31, 2000 were $248.9
million, compared with $189.1 million for the same period in 1999, an increase
of $59.8 million or 31.6%. The increase is primarily due $31.1 million in higher
salaries and related costs due to organic growth and acquisitions accounted for
as purchases, and $19.1 million in marketing and promotion expenses, primarily
related to Monster.com(sm).
Salaries and related expenses for the three months ended March 31, 2000 were
$146.0 million, compared with $114.9 million for the same period in 1999. The
increase of $31.1 million or 27.1% is primarily due to acquisitions accounted
for as purchases and organic growth in Interactive and Selection & Temporary
Contracting operations. Because the growth in total commissions and fees
outpaced the growth
8
<PAGE>
in salaries and related expenses, salary and related expenses as a percent of
commissions and fees declined from 60.0% to 56.7%. This decline in expenses as a
percent of commissions and fees is primarily due to the organic growth mentioned
above.
Office and general expenses for the three months ended March 31, 2000 were
$61.2 million compared with $53.5 million for the same period in 1999, an
increase of $7.7 million or 14.4%. The increase reflects organic growth in
Interactive, and Selection & Temporary Contracting operations, partially offset
by savings through consolidation of back offices and support functions in
Recruitment and Yellow Pages Advertising. Because the growth in total
commissions and fees outpaced the growth in office and general expenses, office
and general expenses as a percent of commissions and fees declined from 27.9% to
23.8%. This decline in expenses as a percent of commissions & fees is primarily
due to the organic growth mentioned above as well as cost reductions in
Recruitment and Yellow Pages Advertising, where commissions and fees remained
relatively unchanged from the March 1999 quarter to the March 2000 quarter.
Marketing and promotion expenses for the three months ended March 31, 2000
were $29.3 million or 11.4% of commissions and fees, compared with $10.2 million
or 5.3% of commissions and fees for the same period in 1999. The increase of
$19.1 million or 188.1% is primarily due to higher marketing costs for
Monster.com(sm) and reflects the Company's plan to increase the promotion of
Monster.com(sm) with funds provided from increased revenues. The first quarter
2000 expenses include a pro rata charge pursuant to the content and marketing
agreement with America Online, Inc. ("AOL") whereby Monster.com(sm), for the
payment of $100 million over four years, is the exclusive provider of career
search services in the U.S. and Canada to AOL members across seven AOL
properties, including the AOL Service, AOL Canada, Compuserve, ICQ, AOL.com,
Netscape and Digital City.
Merger and integration costs for the three months ended March 31, 2000 were
$8.7 million compared with $4.7 million for the same period in 1999, an increase
of $4.0 million or 85.1%. The majority of the $8.7 million relates to the
acquisition of HW Group PLC in 2000. Also included in the 2000 amount was $2.3
million for the amortization of employee stay bonuses payable in stock in
connection with certain of the acquisitions consummated in 1999 and accounted
for as poolings of interests. The majority of the $4.7 million for the three
months ended March 31, 1999 related to the Morgan & Banks Ltd. pooling of
interests transaction, completed during the first quarter of 1999. Also included
in the 1999 amount was $1.5 million for the amortization of employee stay
bonuses which is payable in stock in connection with certain of the acquisitions
completed in 1998 and accounted for as poolings of interests.
As a result of the above, operating income for the three months ended March
31, 2000 was $8.5 million, an increase of $6.1 million or 259.8% from $2.4
million for the comparable period in 1999.
Net interest income for the three months ended March 31, 2000 was $1.8
million, compared with a net interest expense of $3.5 million for the comparable
1999 period, an improvement of $5.3 million or 151.2%. This improvement
primarily reflects the investing of net proceeds from the Company's February
2000 follow-on offering after a significant portion of existing long-term debt
was repaid with a portion of such proceeds. The Company completed the follow-on
public offering of 4.0 million (8.0 million, adjusted for the February 29, 2000
2-for-1 stock split) shares of common stock on February 2, 2000. The net
proceeds raised by the Company totaled $594.2 million.
Taxes on income for the three months ended March 31, 2000 were $7.3 million
on pre-tax profit of $10.2 million, compared with a tax benefit of $0.8 million
on pre-tax loss of $1.3 million the first quarter of 1999. The increase of $8.1
million reflects the higher pretax profit in the three months ended March 31,
2000. In addition, in each quarter the provision and benefit reflect expenses
that are not tax deductible; these are primarily related to merger costs from
pooling of interests transactions and amortization of certain intangible assets.
Also for both periods the provision and benefit is benefited by profits from
certain pooled entities that were not taxed at the corporate level prior to
their merger with TMP.
Minority interests in consolidated earnings for the three months ended March
31, 2000 was an $81,000 loss compared with a profit of $99,000 for the three
months ended March 31, 1999.
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Equity in losses of unconsolidated affiliates, which reflected losses
associated with the real estate advertising company in which the Company holds a
minority interest, was $100,000 for the three months ended March 31, 1999.
As a result of all of the above, the net income available to common and
Class B common stockholders for the three months ended March 31, 2000 was $3.1
million, an increase of $3.8 million from the net loss of $0.7 million for the
three months ended March 31, 1999. On a diluted per share basis, the net income
available to common and Class B common stockholders for the three months ended
March 31, 2000 was $0.03, compared to a net loss of $0.01 for the comparable
1999 period.
THE YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
Gross billings for the year ended December 31, 1999 were $1,972.1 million, a
net increase of $117.5 million or 6.3% from $1,854.6 million for the year ended
December 31, 1998. Commissions and fees for the year ended December 31, 1999
were $869.2 million, an increase of $124.7 million or 16.7% from $744.5 million
for the year ended December 31, 1998. Interactive commissions and fees for the
year ended December 31, 1999 were $144.4 million, an increase of 167.4% or $90.4
million as compared with $54.0 million for the year ended December 31, 1998.
This increase in Interactive commissions and fees is due to: (i) an increasing
acceptance of our Interactive services and products from existing clients, new
clients and Internet users, (ii) the benefits of Monster.com(sm)'s marketing
campaign, (iii) increases in the services and content available on our Websites,
(iv) expansion into certain European markets and (v) price increases on certain
products. Recruitment Advertising commissions and fees of $181.2 million for the
year ended December 31, 1999 were virtually flat compared with $180.8 million
for the year ended December 31, 1998, reflecting reduced billings due to lower
volume of help-wanted advertisements placed in newspapers and a loss of business
in the Asia-Pacific Region, offset by substantial reductions in client discounts
and increased ancillary services in North America and an increase in business in
Europe. Selection & Temporary Contracting commissions and fees were $269.0
million, up $61.0 million or 29.3% from $208.0 million for the period ended
December 31, 1998, due primarily to organic growth in selection services in
Australia and Continental Europe and in temporary contracting operations. The
increase in Temporary Contracting reflects an increase in the number of
contractors placed, particularly information technology personnel and
executives, which have higher margins than general and support staff. Executive
Search commissions and fees were $173.3 million, a decrease of $22.0 million or
11.3% from $195.3 million for the comparable year of 1998, due primarily to a
loss of consultants, as anticipated, at LAI and TASA, which resulted from the
merger and integration of these companies. Yellow Page Advertising commissions
and fees were $101.3 million for the year ended December 31, 1999, a decrease of
$5.2 million or 4.8% from $106.5 million for the year ended December 31, 1998,
reflecting substantially reduced commission rates and year-end incentives paid
by publishers and the effects of higher discounts for certain clients offset, in
part by the benefits from higher gross billings, internal growth and
acquisitions.
Operating expenses for the year ended December 31, 1999 were $855.1 million
compared with $683.2 million for same period in 1998. The increase of $171.9
million or 25.2% is due to increases of $66.6 million in salary and related
costs, $40.7 million in merger and integration costs related to mergers
accounted for as poolings of interests, $44.9 million in marketing and promotion
expenses primarily to support Monster.com(sm) and $20.3 million in office and
general expenses.
Salaries and related costs for the year ended December 31, 1999 were $496.9
million or 57.2% of total commissions and fees, compared with $430.3 million or
57.8% of total commissions and fees for the same period in 1998. The increase of
$66.6 million or 15.5% is primarily due to increased staff for the expansion of
our Interactive operations, especially Monster.com(sm), and acquisitions
accounted for as purchases in Selection & Temporary Contracting.
Office and general expenses for the year ended December 31, 1999 were $205.2
million or 23.6% of total commissions and fees, compared with $184.9 million or
24.8% of commissions and fees for the same period in 1998. The increase of $20.3
million or 11.0% is primarily due to acquisitions and higher costs for
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our Interactive operations, partially offset by reductions in expenses for the
Yellow Page Advertising and Recruitment Advertising businesses due to improved
efficiencies.
Marketing and promotion expenses increased $44.9 million to $74.6 million
for the year ended December 31, 1999 from $29.7 million for the year ended
December 31, 1998, a 151.0% increase due to increased spending to promote
Monster.com(sm).
Merger and integration costs for the year ended December 31, 1999 were $63.1
million compared with $22.4 million for the same period in 1998 an increase of
$40.7 million or 181.3%. This increase primarily resulted from the pooling of
interests transactions that occurred during the year ended December 31, 1999 and
the planned integration of such companies and is comprised of: (i) $32.5 million
of office integration costs, which include the closing of excess leased
facilities, the write-off of fixed assets which will not be used in the future
and a reserve for the effect, after reduction for related compensation, of
uncollectible search fees recorded as a result of a loss of executive search
consultants, (ii) $9.6 million for separation pay and accelerated vesting of
employee stock and stock option grants, both in accordance with pre-existing
contractual change in control provisions and (iii) $3.6 million more of
transaction related costs, which include legal, accounting, printing and
advisory fees and the costs incurred for the subsequent registration of shares
issued in the transactions, partially offset by $5.0 million less for employee
stay bonuses paid primarily with TMP shares and options to certain key personnel
of the merged companies. Approximately $24.1 million of the $63.1 million are
non-cash charges. The after tax effect of these charges on diluted net income
(loss) per share is $(0.53) and $(0.20) for the year ended December 31, 1999 and
1998, respectively.
Restructuring charges for the year ended December 31, 1999 were $2.8 million
or, on an after tax basis, $(0.02) per diluted share, compared with $3.5 million
or $(0.03) per diluted share on an after tax basis for the year ended December
31, 1998. These charges relate to LAI's closing of its London and Hong Kong
offices prior to LAI's merger with TMP. These charges include $0.5 million for
the write-off of leasehold improvements and fixed assets, $1.3 million for
severance benefits payable to 24 employees, and $1.0 million for consolidation
of facilities related to the restructuring.
As a result of the above, operating income for the year ended December 31,
1999 decreased $47.2 million or 77.0% to $14.1 million from $61.3 million for
the comparable period in 1998.
Net interest expense was $12.9 million for each of the years ended December
31, 1999 and 1998. The effects of lower interest rates and borrowing costs in
1999, resulting from the amended and restated financing agreement entered into
on November 5, 1998, were offset by increased borrowings and interest expense of
pooled companies.
Taxes on income for the year ended December 31, 1999 were $6.9 million on a
$1.7 million pretax loss, compared with a tax expense of $16.9 million on a
$46.4 million pretax profit for the year ended December 31, 1998. Although there
is a loss for the 1999 period, there is a tax expense because certain expenses
are not tax deductible. Such expenses are primarily related to merger costs from
pooling of interests transactions and amortization of intangible assets. The tax
charge in each period benefited from profits of certain pooled entities whose
earnings were not taxed at the corporate level prior to their merger with TMP.
As a result of all of the above, the net loss applicable to common and Class
B common stockholders for the year ended December 31, 1999 was $0.11 per diluted
share, a decrease of $0.46 per diluted share or 131.4% from the net income of
$0.35 per diluted share for the comparable 1998 period.
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THE YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
Gross billings for the year ended December 31, 1998 were $1,854.6 million,
an increase of $324.8 million or 21.2% as compared to gross billings of $1,529.8
million for the year ended December 31, 1997. This increase in gross billings
resulted primarily from acquisitions in Recruitment Advertising and organic
growth in our Interactive, Selection & Temporary Contracting and Executive
Search businesses.
Total commissions and fees for the year ended December 31, 1998 were
$744.5 million, an increase of $133.7 million or 21.9% from $610.8 million for
the year ended December 31, 1997. Interactive commissions and fees for the year
ended December 31, 1998 were $54.0 million, an increase of 146.1% or
$32.1 million from $21.9 million for the year ended December 31, 1997. The
increase in Interactive commissions and fees is due to (i) an increasing
acceptance of our Interactive services and products from existing clients and
Internet users, (ii) the benefits of Monster.com(sm)'s marketing campaign,
(iii) increases in the service and content available on our websites,
(iv) expansion into certain European markets and (v) price increases on certain
products. Recruitment Advertising commissions and fees were $180.8 million for
the year ended December 31, 1998 compared with $136.8 million for the year ended
December 31, 1997, an increase of $44.0 million or 32.2%. This increase was
primarily due to (a) acquisitions, which contributed approximately
$25.1 million and (b) approximately $21.4 million from increased client spending
and new clients partially offset by client losses and a decrease in foreign
currency translation rates, which had a negative effect of approximately
$3.0 million. Executive Search commissions and fees were $195.3 million compared
with $168.1 million for the year ended December 31, 1997, an increase of
$27.2 million or 16.2%, due primarily to strong organic growth due to increased
demand for executive management employees worldwide. Selection & Temporary
Contracting commissions and fees were $208.0 million, an increase of
$28.0 million or 15.6% from $180.0 million for the year ended December 31, 1997.
This increase is primarily due to acquisitions of selection firms in Continental
Europe, a greater number of temporary contract workers placed during 1998 as
compared with the prior period, growth in the executive temporary contracting
business. Yellow Page Advertising commissions and fees were $106.5 million for
the year ended December 31, 1998 compared with $103.9 million for the year ended
December 31, 1997, an increase of 2.4% or $2.6 million due primarily to
acquisitions accounted for as purchases.
Total operating expenses for the year ended December 31, 1998 were $683.2
million, compared with $527.1 million for 1997. The increase of $156.1 million
or 29.6% is due primarily to acquisitions and internal growth, together with the
addition of $22.4 million for merger and integration costs related to pooling of
interests transactions and $3.5 million in restructuring charges for the closing
of LAI's London, England and Hong Kong offices prior to LAI's merger with TMP.
Salaries and related costs for the year ended December 31, 1998 were $430.3
million or 57.8% of total commissions and fees, compared with $345.0 million or
56.5% of total commissions and fees for the same period in 1997, representing an
increase of $85.3 million or 24.7%. This increase reflects acquisitions in
Executive Search and Recruitment Advertising and growth in Interactive
operations.
Office and general expenses increased $24.9 million to $184.9 million for
the year ended December 31, 1998, as compared with $160.0 million for the prior
period primarily due to acquisitions accounted for as purchases and other
expenses to grow our Interactive businesses. As a percent of total commissions
and fees, office and general expenses decreased to 24.8% for the year ended
December 31, 1998 from 26.2% for the year ended December 31, 1997.
Marketing and promotion expenses increased $16.0 million to $29.7 million
for the year ended December 31, 1998 from $13.7 million for the year ended
December 31, 1997, a 117.6% increase due to increased marketing for our
interactive operations, especially Monster.com(sm).
In connection with the mergers completed during 1998 and the merger with
Morgan & Banks Limited completed in January 1999, we expensed merger and
integration costs of $22.4 million for the year ended December 31, 1998,
consisting of (i) $11.9 million of non-cash employee stay bonuses, which
included
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(a) $3.6 million for the amortization of TMP shares set aside for key personnel
of JSK and TCG, who must remain employees for a full year in order to earn such
shares and (b) $8.3 million for TMP shares to key personnel of TASA and Stackig
as employee stay bonuses, (ii) $1.5 million of stay bonuses paid as cash to key
personnel of one of the companies merged in 1998 and (iii) $9.0 million of
transaction related costs, including fees for legal, accounting and advisory
services and the costs incurred for the subsequent registration of shares issued
in the acquisitions. The after tax effect of this charge is $16.7 million or
$(0.20) per diluted share.
Restructuring charges for the year ended December 31, 1998 were
$3.5 million or, on an after tax basis, $(0.03) per diluted share and relate to
LAI's plan prior to its merger with TMP to significantly curtail the operations
of its international offices in London, England. These charges include
$1.1 million for severance, and $2.4 million for the write-off of leasehold
improvements and other costs to close these facilities.
Amortization of intangibles was $11.1 million for the year ended December
31, 1998 compared to $6.9 million for the year ended December 31, 1997. The
increase is due to our continued growth through acquisitions. As a percentage of
total commissions and fees, amortization of intangibles was 1.5% and 1.1% for
the years ended December 31, 1998 and 1997, respectively.
As a result of all of the above, operating income decreased $22.4 million to
$61.3 million for the year ended December 31, 1998 as compared with operating
income of $83.7 million for the year ended December 31, 1997 and, as a percent
of total commissions and fees, operating income decreased to 8.2% from 13.7%.
Net interest expense increased $2.4 million to $12.9 million for the year
ended December 31, 1998 as compared to $10.5 million for the year ended December
31, 1997, reflecting a net increase in debt as a result of acquisitions and
capital expenditures. In addition, our effective interest rate was 11.2% for the
year ended December 31, 1998 compared with 10.8% for the year ended December 31,
1997.
Taxes on income decreased $5.9 million to $16.9 million for the year ended
December 31, 1998 from $22.8 million for the year ended December 31, 1997
primarily due to lower pre-tax income. The 1998 amount reflects the inability to
deduct for tax, certain costs associated with the mergers completed during 1998
and the merger with Morgan & Banks Limited completed in 1999 which were
accounted for as poolings of interests.
For the year ended December 31, 1998, equity in losses of unconsolidated
affiliates was $396, reflecting losses at our minority owned real estate
advertising affiliate, as compared with a $33 loss for the same period in 1997.
Minority interests in consolidated earnings for the year ended December 31, 1998
were $28 compared with $296 for the year ended December 31, 1997.
As a result of all of the above, the net income applicable to common and
Class B common stockholders was $29.0 million for the year ended December 31,
1998, or $0.35 per diluted share, compared with net income applicable to common
and Class B common stockholders of $50.8 million, or $0.66 per diluted share for
the year ended December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements have been to fund (i) acquisitions,
(ii) working capital, (iii) capital expenditures and (iv) marketing and
development of our Interactive business. Our working capital requirements are
generally higher in the quarters ending March 31 and June 30 during which
payments to the major yellow page directory publishers are at their highest
levels. We have met our liquidity needs over the last three years through (a)
funds provided by operating activities, (b) equity offerings, (c) long-term
borrowings, (d) capital leases and (e) vendor financing in 1996. In December
1996, we completed our initial public offering of an aggregate of 8,294,816
shares of Common Stock at a purchase price of $7.00 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
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offering, certain stockholders sold an additional aggregate of 1,305,184 shares
of Common Stock. The net proceeds that we received from the initial public
offering of $50.8 million were used to repay debt and, in early 1997, to pay
down accounts payable and to redeem preferred stock. In September 1997, we
completed a second public offering of an aggregate of 4,800,000 shares of Common
Stock at a purchase price of $11.50 per share in an underwritten public offering
managed by Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., BT Alex
Brown Incorporated, Montgomery Securities and Ladenburg Thalmann & Co. Inc. In
addition, certain stockholders sold an aggregate of 3,200,000 shares of common
stock in such offering. Our net proceeds from this offering of $63.4 million,
including net repayment of borrowings of $12.2 million paid to us by certain
stockholders, were used to repay debt. In 1998, LAI received $41.6 million in
net proceeds from its second public offering managed by Robert W. Baird & Co.
Incorporated, The Robinson-Humphrey Company, LLC and J.C. Bradford & Co. Such
proceeds were used to support its international expansion, support enhancements
to its technology-based infrastructure, acquire two executive search companies
and provide additional working capital. On January 27, 2000, in connection with
its third public offering, the Company issued an aggregate of, on a post split
basis, 8,000,000 shares of common stock at a purchase price of $77 5/16 per
share in an underwritten public offering managed by Morgan Stanley & Co.
Incorporated, Goldman, Sachs & Co., Salomon Smith Barney, Deutsche Bank
Securities, Inc., Paine Webber Incorporated and U.S. Bancorp Piper Jaffrey, Inc.
The offering was completed in February 2000. The net proceeds from this offering
were $594.2 million, and approximately $82 million was used to pay down debt on
the Company's credit line. The remainder is being invested in short and medium
term interest bearing instruments until used for acquisitions, strategic equity
investments and general corporate purposes.
Net cash used in operating activities for the first quarter ended March 31,
2000 and 1999 was $57.4 million, and $13.0 million, respectively. The increase
in cash used in operating activities of $44.4 million for 2000 over 1999 was
primarily attributable to (i) $34.1 million due to increases in accounts
receivable for the 2000 period over the 1999 period, related mostly to growth in
Recruitment Advertising and Interactive operations (ii) $26.0 million resulting
from decreases in cash from accounts payable and accrued liabilities and
(iii) $15.2 million related to increases in the use of funds for work-in-process
and prepaid and other assets for the 2000 period over the 1999 period, partially
offset by (i) $16.0 million increase in earnings after adjusting for non-cash
items (ii) $10.3 million resulting from increases in deferred commissions and
fees and (iii) $4.6 million due to the effects of higher losses from pooled
companies in both the current and previous period.
Net cash provided by operating activities for the years ended December 31,
1999, 1998 and 1997 was $95.5 million, $72.2 million and $62.4 million,
respectively. The increase in cash of $23.3 million from operating activities
for 1999 over 1998 was primarily due to (i) the net increase in funds from a
$49.3 million greater increase in deferred commissions and fees, primarily for
Monster.com(sm), for the 1999 period over the 1998 period, (ii) a $5.1 million
effect from inclusion of losses in 1999 and profits in 1998 from companies
accounted for as poolings of interests, in both the current period and the
previous year, because of overlapping reporting periods reduced by (i) an
$11.8 million net increase in the use of funds from increases in accounts
receivable over increases in accounts payable, accrued expenses and other
liabilities, for the 1999 period over the 1998 period, (ii) a $0.8 million
increase in work-in-process and prepaid and other assets and (iii) a
$17.5 million decline in earnings after adjusting for non-cash items. The
increase in cash of $9.8 million from operating activities for 1998 over 1997
was primarily due to an increase of $8.7 million in accounts payable, accrued
expenses and other current liabilities, a $10.4 million increase in depreciation
and amortization costs, $8.3 million for the utilization of our common stock to
pay bonuses, a decrease of $11.3 million in accounts receivable, $2.9 million
from the net loss on disposal of fixed assets, a $3.4 million increase in
deferred commissions and fees, a $4.4 million increase in amortization of
deferred compensation and a $2.2 million increase in provision for doubtful
accounts, partially offset by decreases in net income of $21.8 million,
$8.0 million in deferred income taxes, $9.9 million in work-in-process, prepaid
and other assets, and a decrease of $2.3 million from the effects of including
losses from pooled companies in both the current and previous period. In
addition, in 1998 we paid
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approximately $13.6 million for restructuring. Such amount was applied against a
reserve set up during 1997 in connection with acquisitions accounted for using
the purchase method. This reserve was increased in 1998 by a $3.5 million charge
to earnings and by a $10.1 million charge to intangible assets, and reduced by
payments of $13.6 million, leaving a restructuring reserve at December 31, 1998
of $16.7 million.
EBITDA was $22.7 million for the first quarter ended March 31, 2000, an
increase of $10.1 million or 81.2% from $12.6 million for the first quarter
ended March 31, 1999. The increase primarily reflects, for the 2000 period, a
$6.1 million increase in operating profits, $3.7 million more in depreciation
and amortization costs and $8.1 million in taxes offset by a $5.3 million
decrease in interest expense. As a percentage of commissions and fees, EBITDA
increased to 8.8% for the first quarter ended March 31, 2000 as compared with
6.6% for the first quarter ended March 31, 1999. The higher percent reflects the
improved operating margins, which were 3.3% and 1.2% of commissions and fees for
the 2000 and 1999 periods, respectively.
EBITDA was $57.8 million for the year ended December 31, 1999, a decrease of
$39.0 million or 40.3% from $96.8 million for the year ended December 31, 1998.
The decrease primarily reflects, for the 1999 period, a $47.2 million decrease
in operating profits and $10.0 million less in income taxes, partially offset by
$9.0 million more in depreciation and amortization costs. As a percentage of
commissions and fees, EBITDA decreased to 6.6% for the year ended December 31,
1999 as compared with 13.0% for the year ended December 31, 1998. The lower
percent reflects the increase in merger & integration and restructuring costs,
which were 7.3% and 3.0% of commissions and fees for the 1999 and 1998 periods,
respectively. EBITDA was $96.8 million for the year ended December 31, 1998, a
decrease of $10.6 million from $107.4 million for the year ended December 31,
1997. As a percentage of total commissions and fees, EBITDA decreased to 13.0%
for the year ended December 31, 1998 from 17.6% for the year ended December 31,
1997. The decrease resulted primarily from the $18.0 million charge for merger
costs ($22.4 million less $4.4 million in amortization of deferred
compensation), which was 2.4% of total commissions and fees for the year ended
December 31, 1998, offset, in part, by increased depreciation and amortization
of $14.8 million.
Net cash used in investing activities for the first quarters ended March 31,
2000 and 1999 was $30.3 million and $22.2 million, respectively. The $8.1
million increase in cash used in 2000 compared to 1999 was due to an increase in
capital expenditures, primarily computer equipment and software for the
expansion of the Company's global technology infrastructure.
Net cash used in investing activities for the years ended December 31, 1999,
1998 and 1997 was $61.6 million, $73.9 million and $109.4 million, respectively.
The decrease in 1999 of $12.3 million as compared to 1998 was primarily due to
$9.1 million received from the sale of fixed assets and $9.0 million less used
for business acquisitions, partially offset by $7.9 million more in capital
expenditures. The $35.5 million decrease in 1998 as compared with 1997 was
primarily due to $46.7 million less in payments for acquisitions, reflecting the
use of company stock to make acquisitions of businesses, offset in part by
$1.9 million more in capital expenditures and during 1997 our receipt of a net
$11.4 million from the Principal Stockholder and certain other stockholders, who
repaid borrowings with funds received primarily from their sale of shares
included with our second public offering. Payments for businesses acquired using
the purchase method of accounting, excluding $5.5 million in TMP stock, were
$37.0 million in 1998 and $83.7 million in 1997, of which $47.2 million was for
Austin Knight. Capital expenditures, primarily for computer equipment and
furniture and fixtures, were $43.0 million, $35.1 million and $33.2 million for
the years ended December 31, 1999, 1998 and 1997, respectively. In addition, in
1997, we acquired certain transportation equipment and made capital improvements
for a total of $6.8 million, and simultaneously entered into a $7.8 million
financing agreement to fund the purchases and provide additional operating
funds.
We estimate that our expenditures for computer equipment and software,
furniture and fixtures, and leasehold improvements will be approximately $70 to
$80 million for the year ended December 31, 2000.
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Our financing activities include equity offerings, borrowings and repayments
under our bank financing agreements and borrowings for and payments on (i)
installment notes, principally to finance acquisitions, (ii) capital leases and
(iii) equipment. Our financing activities for the first quarters ended March 31,
2000 and March 31, 1999 provided net cash of $545.1 million and $13.8 million,
respectively. The change of $531.3 million resulted primarily from
$594.2 million in net proceeds from our follow-on common stock offering and a
$6.4 million increase in cash received from the exercise of employee stock
options, partially offset by net repayments in the 2000 period of $57.4 million
against credit facilities and capitalized lease obligations compared with a net
increase in credit facilities and capitalized lease obligations of
$11.6 million in the prior year period.
Our financing activities include equity offerings, borrowings and repayments
under our bank financing agreements and issuance of and payments on (i)
installment notes, principally to finance acquisitions, (ii) capital leases and
(iii) equipment. Our financing activities for the year ended December 31, 1999
used net cash of $48.5 million but provided $22.1 million and $75.6 million for
the years ended December 31, 1998 and 1997. The change of $70.6 million in 1999
compared to 1998 resulted primarily from $41.6 million in proceeds from common
stock offerings (primarily by LAI) in the 1998 period and an increase in net
repayments in the 1999 period to $53.6 million against credit facilities and
capitalized lease obligations compared with total net repayments of $4.0 million
in the prior year period, offset in part by a $17.6 million increase in cash
received from the exercise of employee stock options and a $2.9 million decline
in dividends paid by pooled companies in the 1999 period. The change of $53.5
million in 1998 compared to 1997 was primarily due to LAI's initial public
offering for net proceeds of $25.4 million and TMP's second public offering of
4,800,000 shares of Common Stock for net proceeds of $51.2 million in the third
quarter of 1997 compared with net proceeds of $41.6 million from LAI's follow-on
offering in 1998. With a portion of the proceeds received from our initial
public offering in January 1997, we redeemed all of the shares of the cumulative
preferred stock issued by a subsidiary, reported as a minority interest, and our
previously issued preferred stock for approximately $3.1 million and $2.1
million, respectively. Such redemptions included approximately $100,000 each of
premiums. In November, 1998 and 1997 we amended our financing agreement with our
primary lender to provide for borrowings, under a revolving credit facility, of
a minimum of $175 million. In May 1999 we increased this amount to $185 million.
This facility is used to finance our acquisitions and for working capital
requirements.
At March 31, 2000, we had a $185 million committed line of credit from our
primary lender pursuant to a revolving credit agreement expiring November 5,
2003. Of such line, at March 31, 2000, approximately $161.3 million was unused
and accounts receivable is sufficient to allow drawdown of the entire amount.
Our current interest rate under the agreement is LIBOR plus 50 basis points. In
addition, we had secured lines of credit aggregating $19.1 million for our
operations in Australia, New Zealand, France, Belgium, Italy and the
Netherlands, of which approximately $10.7 million was unused at March 31, 2000.
Cash and cash equivalents at March 31, 2000 were $520.5 million, an increase
of $455.9 million from $64.6 million at December 31, 1999, and were
$461.4 million higher than the March 31, 1999 balance of $59.1 million.
Cash and cash equivalents at December 31, 1999 were $64.6 million, an
increase of $15.3 million from $79.9 million at December 31, 1998.
Part of our acquisition strategy is to pay, over time, a portion of the
purchase price of certain acquisitions through seller financed notes.
Accordingly, such notes are included in long-term debt, are generally payable
over five years and totaled approximately $7.2 million at March 31, 2000. We
intend to continue our acquisition strategy and the marketing and promotion of
our Interactive businesses through the use of cash-on-hand, operating profits,
issuance of additional shares of our common stock, borrowings against our
long-term debt facility and seller financed notes. We believe that our
anticipated cash flow from operations, cash-on-hand, as well as the availability
of funds under our existing financing agreements and further access to public
equity and debt markets, will provide us with sufficient liquidity to meet our
current foreseeable cash needs.
16
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risks include fluctuations in interest rates,
variability in interest rate spread relationships (i.e., prime to LIBOR spreads)
and exchange rate variability. Substantially all of the Company's debt relates
to a five-year financing agreement with an outstanding principal balance of
approximately $23.7 million, including $8.0 million reflected as a reduction to
accounts receivable and $11.1 million for letters of credit, as of March 31,
2000. Interest on the outstanding balance is charged based on a variable
interest rate related to the higher of the prime rate, Federal Funds rate less
1/2 of 1% or LIBOR plus 50 basis points as specified in the agreement, and is
thus subject to market risk in the form of fluctuations in interest rates. The
Company does not trade in derivative financial instruments.
The Company also conducts operations in various foreign countries, including
Australia, Belgium, Canada, China, France, Germany, Italy, Japan, the
Netherlands, New Zealand, Singapore, Spain, and the United Kingdom. For the
period ended March 31, 2000 approximately 42.7% of our commissions and fees were
earned outside the United States and collected in local currency, and related
operating expenses were also paid in such corresponding local currency.
Accordingly, we will be subject to increased risk for exchange rate fluctuations
between such local currencies and the dollar. We do not conduct any significant
hedging activities.
The financial statements of the Company's non-U.S. subsidiaries are
translated into U.S. dollars using current rates of exchange, with gains or
losses included in the cumulative translation adjustment account, a component of
stockholders' equity. During the first quarter of 2000, due to the strengthening
of the U.S. dollar, the Company had an exchange loss of $33.6 million, primarily
attributable to the strengthening of the U.S. dollar against the Australian
dollar.
RECENT ACCOUNTING PRONOUNCEMENTS
During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which had an initial adoption
date by the Company of January 1, 2000. During the second quarter of 1999, the
FASB postponed the adoption date of SFAS No. 133 until January 1, 2001. The FASB
further amended SFAS No. 133 in June 2000. SFAS No. 133 requires that all
derivative financial instruments be recorded on the consolidated balance sheets
at their fair value. Changes in the fair value of derivatives will be recorded
each period in earnings or other comprehensive earnings, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. Gains and losses on derivative instruments reported in
other comprehensive earnings will be reclassified as earnings in the periods in
which earnings are affected by the hedged item. The Company does not expect the
adoption of this statement to have a significant impact on the Company's results
of operations, financial position or cash flows.
In 1999, the SEC issued Staff Accounting Bulletin No. 101 dealing with
revenue recognition which is effective in the fourth quarter of 2000. The
Company does not expect its adoption to have a material effect on the Company's
financial statements.
In 2000, the Emerging Issues Task Force ("EITF") of the FASB issued EITF
Issue No. 00-2, "Website Development Costs," which established guidelines for
accounting for website development costs and is effective for quarters beginning
after June 30, 2000. Although the Company is still evaluating its impact, the
Company does not believe its adoption will have a significant effect on its
financial statements.
17
<PAGE>
YEAR 2000 ISSUE
We completed our Year 2000 software program conversions and compliance
programs during the fourth quarter of 1999. The total external costs for such
programs were approximately $3.0 million. Through the six months ended June 30,
2000 we have not experienced any Year 2000 problems either internally or from
outside sources. We have no reason to believe that Year 2000 failures will
materially affect us in the future. However, since it may take several
additional months before it is known whether we or third party suppliers,
vendors or customers may have undergone Year 2000 problems, no assurances can be
given that we will not experience losses or disruptions due to Year 2000
computer-related problems. We will continue to monitor the operation of our
computers and microprocessor-based devices for any Year 2000 problems.
FLUCTUATIONS OF QUARTERLY RESULTS
Our quarterly commissions and fees are affected by the timing of yellow page
directory closings which currently have a concentration in the third quarter.
Yellow page publishers may change the timing of directory publications which may
have an effect on our quarterly results. Our Yellow Page advertising results are
also affected by commissions earned for volume placements for the year, which
are typically reported in the fourth quarter. Our quarterly commissions and fees
for recruitment advertising are typically highest in the first quarter and
lowest in the fourth quarter; however, the cyclical nature of the economy and
our clients' employment needs have an overriding impact on our quarterly results
in Recruitment Advertising, Selection & Temporary Contracting and Executive
Search. Moreover, our Recruitment Advertising acquisition activity has had more
of an impact on our recently reported quarterly results than any other factor.
The following table sets forth summary quarterly unaudited financial
information for the three months ended March 31, 2000 and the years ended
December 31, 1999 and 1998. Amounts have been retroactively restated for the
First Half 2000 Mergers except for the three months ended March 31, 2000 and
1999, which have previously been presented to reflect the First Quarter 2000
Mergers and herein are being retroactively restated to reflect the Second
Quarter 2000 Mergers (in millions, except share and per share amounts).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 2000
------------------
<S> <C>
Commissions and fees:
Interactive............................................... $ 70.8
Recruitment Advertising................................... 46.5
Selection & Temporary Contracting......................... 77.8
Executive Search.......................................... 39.0
Yellow Page Advertising................................... 23.3
-------
Total commissions and fees.................................. $ 257.4
=======
Operating income............................................ $ 8.5
Net income applicable to common and Class B common
stockholders.............................................. $ 3.1
Net income per common and Class B common share:
Basic..................................................... $ 0.03
Diluted................................................... $ 0.03
Weighted average shares outstanding (in thousands):
Basic..................................................... 92,399
Diluted................................................... 100,315
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
1999 THREE MONTHS ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Commissions and fees:
Interactive..................................... $ 22.4 $ 28.3 $ 40.2 $ 53.5
Recruitment Advertising......................... 46.4 47.1 43.8 43.9
Selection & Temporary Contracting............... 57.4 65.3 74.7 71.6
Executive Search................................ 41.5 42.7 47.8 41.3
Yellow Page Advertising......................... 23.8 27.2 28.5 21.8
------ ------ ------ ------
Total commissions and fees........................ $191.5 $210.6 $235.0 $232.1
====== ====== ====== ======
Operating income (loss)........................... $ 2.4 $ 9.6 $ 2.0 $ 0.1
Net income (loss) applicable to common and Class B
common stockholders............................. $ (0.7) $ 3.2 $ (4.2) $ (7.4)
Net income (loss) per common and Class B common
share:
Basic........................................... $(0.01) $ 0.04 $(0.05) $(0.09)
Diluted......................................... $(0.01) $ 0.04 $(0.05) $(0.09)
Weighted average shares outstanding (in
thousands):
Basic........................................... 83,065 84,166 84,398 84,978
Diluted......................................... 83,065 88,268 84,398 84,978
</TABLE>
<TABLE>
<CAPTION>
1998 THREE MONTHS ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Commissions and fees:
Interactive..................................... $ 8.7 $ 11.8 $ 14.6 $ 18.9
Recruitment Advertising......................... 46.4 46.4 43.1 44.9
Selection & Temporary Contracting............... 43.9 53.5 53.5 57.1
Executive Search................................ 50.0 54.4 51.6 39.3
Yellow Page Advertising......................... 23.3 27.1 32.1 23.9
------ ------ ------ ------
Total commissions and fees........................ $172.3 $193.2 $194.9 $184.1
====== ====== ====== ======
Operating income (loss)........................... $ 20.4 $ 24.6 $ 18.6 $ (2.3)
Net income (loss) applicable to common and Class B
common stockholders............................. $ 11.4 $ 13.8 $ 9.5 $ (5.7)
Net income (loss) per common and Class B common
share:
Basic........................................... $ 0.14 $ 0.17 $ 0.12 $(0.07)
Diluted......................................... $ 0.14 $ 0.16 $ 0.11 $(0.07)
Weighted average shares outstanding (in
thousands):
Basic........................................... 81,008 81,662 81,788 81,880
Diluted......................................... 83,686 83,828 84,156 81,880
</TABLE>
Earnings (loss) 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 (loss) per share amount, which reflects the weighted
average effect on an annual basis. In addition, diluted earnings per share
calculations for each quarter include the effect of stock options and warrants,
when dilutive to the quarter.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following are the supplemental consolidated financial statements and
exhibits of TMP Worldwide Inc. and Subsidiaries, which are filed as part of this
report.
19
<PAGE>
TMP WORLDWIDE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Supplemental Consolidated Condensed Financial Statements
(unaudited):
Balance sheet as of March 31, 2000........................ F-2
Statements of income (loss) for the three months ended
March 31, 2000 and 1999................................. F-3
Statements of comprehensive income (loss) for the three
months ended March 31, 2000 and 1999.................... F-4
Statement of stockholders' equity for the three months
ended March 31, 2000.................................... F-5
Statements of cash flows for the three months ended March
31, 2000 and 1999....................................... F-6
Notes to supplemental consolidated condensed financial
statements.............................................. F-7
Report of Independent Certified Public Accountants.......... F-19
Independent Auditor's Report to the Members of Morgan &
Banks Limited............................................. F-21
Report of Independent Certified Public Accountants (with
respect to LAI Worldwide, Inc.)........................... F-22
Independent Auditors' Report (with respect to System One
Services, Inc.)........................................... F-23
Supplemental Consolidated Financial Statements:
Balance sheets as of December 31, 1999 and 1998........... F-24
Statements of income (loss) for the years ended December
31, 1999, 1998 and 1997................................. F-25
Statements of comprehensive income (loss) for the years
ended December 31, 1999, 1998 and 1997.................. F-26
Statements of stockholders' equity for the years ended
December 31, 1999, 1998 and 1997........................ F-27
Statements of cash flows for the years ended December 31,
1999, 1998 and 1997..................................... F-30
Notes to supplemental consolidated financial statements... F-31
Report of Independent Certified Public Accountants.......... F-62
Report of Independent Certified Public Accountants (with
respect to LAI Worldwide, Inc.)........................... F-63
Supplemental Schedule II: Valuation and qualifying accounts
for the years ended December 31, 1999, 1998 and 1997...... F-64
</TABLE>
All other schedules are omitted because the required information is either
inapplicable or is included in the supplemental consolidated financial
statements or the notes thereto.
F-1
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
2000
----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 520,531
Accounts receivable, net.................................. 511,670
Work-in-process........................................... 23,321
Prepaid and other......................................... 82,058
----------
Total current assets.................................. 1,137,580
Property and equipment, net................................. 87,379
Intangibles, net............................................ 341,085
Deferred income taxes....................................... 26,742
Other assets................................................ 12,191
----------
$1,604,977
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 281,964
Accrued expenses and other current liabilities............ 210,944
Accrued integration and restructuring costs............... 25,237
Deferred commissions and fees............................. 85,536
Current portion of long term debt......................... 8,863
----------
Total current liabilities............................. 612,544
Long term debt, less current portion........................ 19,956
Other long-term liabilities................................. 56,741
----------
Total liabilities..................................... 689,241
----------
Minority interests.......................................... 52
----------
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: 90,486,634 shares....... 90
Class B common stock, $.001 par value, authorized
39,000,000 shares; issued and outstanding: 4,762,000
shares.................................................. 5
Additional paid-in capital................................ 1,000,949
Other comprehensive loss.................................. (38,478)
Deficit................................................... (46,882)
----------
Total stockholders' equity.................................. 915,684
----------
$1,604,977
==========
</TABLE>
See accompanying notes to supplemental consolidated condensed financial
statements.
F-2
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Commissions and fees........................................ $257,410 $191,522
-------- --------
Operating expenses:
Salaries & related........................................ 146,025 114,931
Office & general.......................................... 61,185 53,466
Marketing & promotion..................................... 29,349 10,186
Merger & integration...................................... 8,674 4,687
Restructuring............................................. -- 2,789
Amortization of intangibles............................... 3,635 3,089
-------- --------
Total operating expenses................................ 248,868 189,148
-------- --------
Operating income............................................ 8,542 2,374
-------- --------
Other income (expense):
Interest income (expense), net............................ 1,794 (3,503)
Other, net................................................ (87) (170)
-------- --------
1,707 (3,673)
-------- --------
Income (loss) before provision (benefit) for income taxes,
minority interests and equity in losses of affiliates..... 10,249 (1,299)
Provision (benefit) for income taxes........................ 7,280 (795)
-------- --------
Income (loss) before minority interests and equity in losses
of affiliates............................................. 2,969 (504)
Minority interests.......................................... (81) 99
Equity in losses of affiliates.............................. -- (100)
-------- --------
Net income (loss) applicable to common and Class B common
stockholders.............................................. $ 3,050 $ (703)
======== ========
Net income (loss) per common and Class B common share:
Basic..................................................... $ 0.03 $ (0.01)
======== ========
Diluted................................................... $ 0.03 $ (0.01)
======== ========
Weighted average shares outstanding:
Basic..................................................... 92,399 83,065
======== ========
Diluted................................................... 100,315 83,065
======== ========
</TABLE>
See accompanying notes to supplemental consolidated condensed financial
statements.
F-3
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Net income (loss)........................................... $ 3,050 $ (703)
Foreign currency translation adjustment..................... (33,579) 2,270
-------- ------
Comprehensive income (loss)................................. $(30,529) $1,567
======== ======
</TABLE>
See accompanying notes to supplemental consolidated condensed financial
statements.
F-4
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK, COMMON STOCK,
$.001 PAR VALUE $.001 PAR VALUE ADDITIONAL OTHER TOTAL
--------------------- -------------------- PAID-IN COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL LOSS DEFICIT EQUITY
---------- -------- --------- -------- ---------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000... 81,359,671 $81 4,762,000 $ 5 $ 367,857 $ (4,899) $(45,257) $317,787
Issuance of common stock in
connection with a pubic
offering completed
February 2, 2000......... 8,000,000 8 -- -- 594,230 -- -- 594,238
Issuance of common stock in
connection with the
exercise of options...... 788,142 1 -- -- 12,329 -- -- 12,330
Tax benefit from the
exercise of stock
options.................. -- -- -- -- 5,443 -- -- 5,443
Issuance of common stock in
connection with
acquisitions............. 323,387 -- -- -- 19,994 -- -- 19,994
Issuance of common stock
for matching contribution
to 401(k) plan........... 15,434 -- -- -- 1,096 -- -- 1,096
Foreign currency
translation adjustment... -- -- -- -- -- (33,579) -- (33,579)
Pooled company earnings
included in both current
and previous periods..... -- -- -- -- -- -- (285) (285)
Dividends declared by
pooled companies......... -- -- -- -- -- -- (4,390) (4,390)
Net income................. -- -- -- -- -- -- 3,050 3,050
---------- --- --------- --- ---------- -------- -------- --------
Balance, March 31, 2000.... 90,486,634 $90 4,762,000 $ 5 $1,000,949 $(38,478) $(46,882) $915,684
========== === ========= === ========== ======== ======== ========
</TABLE>
See accompanying notes to supplemental consolidated condensed financial
statements.
F-5
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 3,050 $ (703)
--------- ---------
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization........................... 14,210 10,546
Provision for doubtful accounts......................... 7,061 1,401
Common stock issued for matching contribution to 401(k)
plan.................................................. 1,096 902
(Gain) loss on disposal & write-down of fixed assets.... (26) 1,060
Provision for deferred income taxes..................... 3,003 (1,927)
Minority interests and other............................ (408) 679
Effect of pooled companies included in more than one
period................................................ (285) (4,881)
Changes in assets and liabilities, net of effects of
purchases of businesses:
Increase in accounts receivable, net.................. (57,944) (23,879)
(Increase) decrease in work-in-process, prepaid and
other............................................... (11,823) 3,392
Increase in deferred commissions and fees............. 12,838 2,513
Decrease in accounts payable and accrued
liabilities......................................... (28,134) (2,126)
--------- ---------
Total adjustments....................................... (60,412) (12,320)
--------- ---------
Net cash used in operating activities................. (57,362) (13,023)
--------- ---------
Cash flows from investing activities:
Capital expenditures.................................... (18,394) (10,125)
Other................................................... 140 (18)
Payments for purchases of businesses, net of cash
acquired.............................................. (12,091) (12,030)
--------- ---------
Net cash used in investing activities................. (30,345) (22,173)
--------- ---------
Cash flows from financing activities:
Borrowings under line of credit and proceeds from
issuance of debt...................................... 117,662 324,647
Repayments under line of credit and principal payments
on debt............................................... (173,960) (311,946)
Net proceeds from issuance of common stock.............. 594,238 1,440
Cash received from the exercise of employee stock
options............................................... 12,330 5,939
Other................................................... 295 30
Redemption of preferred stock........................... -- (2,000)
Dividends paid by pooled entities....................... (4,390) (3,236)
Payments on capitalized leases.......................... (1,073) (1,093)
--------- ---------
Net cash provided by financing activities............. 545,102 13,781
--------- ---------
Effect of exchange rate changes on cash..................... (1,463) 670
--------- ---------
Net increase (decrease) in cash and cash equivalents........ 455,932 (20,745)
Cash and cash equivalents, beginning of period.............. 64,599 79,868
--------- ---------
Cash and cash equivalents, end of period.................... $ 520,531 $ 59,123
========= =========
</TABLE>
See accompanying notes to supplemental consolidated condensed financial
statements.
F-6
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The supplemental consolidated condensed interim financial statements
included herein have been prepared by TMP Worldwide Inc. ("TMP" or the
"Company") without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments that, in the opinion of management, are necessary for fair
presentation of the information contained herein. It is suggested that these
supplemental consolidated condensed financial statements be read in conjunction
with (i) the financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999 and (ii) the
supplemental consolidated financial statements included elsewhere herein. The
Company follows the same accounting policies in preparation of interim reports.
During the period of January 1, 2000 through March 31, 2000, the Company
consummated mergers with the following companies in transactions that provided
for the exchange of all of the outstanding stock of each entity for a total of
1,699,123 shares of TMP common stock. Such transactions were accounted for as
poolings of interests (the "First Quarter 2000 Mergers"):
<TABLE>
<CAPTION>
NUMBER OF
ENTITY BUSINESS SEGMENT ACQUISITION DATE TMP SHARES ISSUED
------ --------------------------------- ----------------- -----------------
<S> <C> <C> <C>
HW Group PLC................... Selection & Temporary Contracting February 16, 2000 715,769
Microsurf, Inc................. Interactive February 16, 2000 684,462
Burlington Wells, Inc.......... Selection & Temporary Contracting February 29, 2000 52,190
Illsley Bourbonnais............ Executive Search March 1, 2000 246,702
</TABLE>
During the period of April 1, 2000 through June 30, 2000, the Company
consummated mergers with the following companies in transactions that provided
for the exchange of all of the outstanding stock of each entity for a total of
3,117,169 shares of TMP common stock. Such transactions were accounted for as
poolings of interests (the "Second Quarter 2000 Mergers"):
<TABLE>
<CAPTION>
NUMBER OF
ENTITY BUSINESS SEGMENT ACQUISITION DATE TMP SHARES ISSUED
------ --------------------------------- ----------------- -----------------
<S> <C> <C> <C>
System One Services, Inc....... Selection & Temporary Contracting April 3, 2000 1,022,257
GTR Advertising................ Recruitment Advertising April 4, 2000 54,041
Virtual Relocation.com, Inc.... Interactive May 9, 2000 947,916
Business Technologies Ltd...... Interactive May 17, 2000 205,703
Simpatix, Inc.................. Interactive May 31, 2000 152,500
Rollo Associates, Inc.......... Executive Search May 31, 2000 110,860
Web Technology Partners,
Inc.......................... Interactive May 31, 2000 623,892
</TABLE>
F-7
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION (CONTINUED)
The Company's consolidated financial statements have been retroactively
restated as of March 31, 2000 and 1999 and for the three months ended March 31,
2000 and 1999 to reflect the Second Quarter 2000 Mergers. As a result, the
financial position, and statements of income (loss), comprehensive income (loss)
and cash flows are presented as if the combining companies had been consolidated
for all periods presented. In addition, the consolidated statements of
stockholders' equity reflect the accounts of TMP as if the additional common
stock issued in connection with with these mergers had been issued for all
periods when each of the related companies had issued their shares and for the
amounts that reflect the exchange ratios of the mergers. In accordance with
generally accepted accounting principles, the supplemental consolidated
financial statements will become the historical financial statements of the
Company upon issuance of the financial statements for the period that includes
the consummation of the Second Quarter 2000 Mergers.
In the supplemental consolidated balance sheets, the balance sheets of TMP
as of March 31, 2000, have been combined with those of the Second Quarter 2000
Mergers and those as of December 31, 1999 and 1998 have been combined with those
of the First Half 2000 Mergers as of March 31, 2000 and December 31, 1999 and
1998 except for the following: Illsley Bourbonnais, for which the balance sheets
as of January 31, 2000 and 1999 are combined with those of TMP as of
December 31, 1999 and 1998, respectively; Business Technologies Ltd. ("BTL"),
for which the balance sheets as of July 31, 1999 and 1998 are combined with
those of TMP as of December 31, 1998 and 1998, respectively; HW Group PLC
("HW"), for which the balance sheet as of March 31, 1999 is combined with that
of TMP as of December 31, 1998.
The supplemental consolidated statements of income (loss) combine the
results of TMP for the three months ended March 31, 2000 and 1999 with those of
the Second Quarter 2000 Mergers and each year in the three year period ended
December 31, 1999 with those of the First Half Mergers all for the same periods
except for the following: Illsley Bourbonnais, for which the statements of
income (loss) for the years ended January 31, 2000, 1999 and 1998 are included
in the statements of income (loss) for the years ended December 31, 1999, 1998
and 1997, respectively; BTL, for which the statements of income (loss) for the
years ended July 31, 1999, 1998 and 1997 are included in the statements of
income (loss) for the years ended December 31, 1999, 1998 and 1997,
respectively; HW, for which the statements of income (loss) for the years ended
March 31, 1999 and 1998 are included in the statements of income (loss) for the
years ended December 31, 1998 and 1997, respectively.
The results of Illsley Bourbonnais for the month ended January 31, 2000 are
included in both the supplemental consolidated statement of income (loss) for
the year ended December 31, 1999 and in the supplemental consolidated condensed
statement of income (loss) for the three months ended March 31, 2000. Therefore
the following amounts have been included in both periods: (a) commissions and
fees of $1,019 and (b) net income of $285, with no impact on earnings per share.
Additionally, due to immateriality, the results of BTL for the period August 1,
1999 through December 31, 1999 have not been included in the supplemental
consolidated statement of income (loss) for the year ended December 31, 1999
because the results of BTL for its fiscal year ended July 31, 1999 were included
in the supplemental consolidated condensed statement of income (loss) for the
year ended December 31, 1999, including commissions and fees of $314 and net
income $50. BTL's results for the three months ended March 31, 2000 were
included
F-8
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION (CONTINUED)
in the supplemental consolidated condensed statement of income (loss) for the
three months ended March 31, 2000. In addition, the results of HW, for the three
months ended March 31, 1999 are included in the supplemental consolidated
statements of income (loss) in both years ended December 31, 1999 and 1998, and
the effects on both periods on (a) commissions and fees was $11,075, (b) net
income was $1,893 and (c) diluted earnings per share was $0.02.
In addition, for the period April 1, 1999 through March 31, 2000 the Company
completed 22 acquisitions using the purchase method of accounting. Given the
significant number of acquisitions affecting the periods presented, the results
of operations from period to period may not necessarily be comparable.
Furthermore, results of operations for the interim periods are not necessarily
indicative of annual results.
Amounts charged to clients for Temporary Contracting services are reported
net of the costs paid to the temporary contractor. The details for such amounts
are:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Temporary Contracting revenue........................... $121,571 $107,709
Temporary Contracting costs............................. 95,943 87,245
-------- --------
Temporary Contracting, billings and commissions and
fees.................................................. $ 25,628 $ 20,464
======== ========
</TABLE>
On January 27, 2000, in connection with its third public offering, the
Company issued an aggregate of, on a post-split basis, 8,000,000 shares of
common stock at a purchase price of $77 5/16 per share. The offering was
completed in February 2000. The net proceeds from this offering were $594.2
million, and approximately $82 million was used to pay down debt on the
Company's credit line. The remainder is being invested in short and medium term
interest bearing instruments until used for acquisitions, strategic equity
investments and general corporate purposes.
Basic earnings per share assumes no dilution, and is computed by dividing
income available to common and Class B common stockholders by the weighted
average number of common and Class B common shares outstanding during each
period. Diluted earnings per share reflect, in periods in which they have a
dilutive effect, the effect of common shares issuable upon exercise of stock
options and warrants, and contingent shares, based on the treasury stock method
of computing such effects.
F-9
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION (CONTINUED)
A reconciliation of shares used in calculating basic and diluted earnings
per common and Class B common share follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Basic..................................................... 92,399 83,065
Effect of assumed conversion of options................... 7,916 *
------- -------
Diluted................................................... 100,315 83,065
======= =======
</TABLE>
------------------------
* Effect of the conversion of stock options is anti-dilutive. The number of
options is approximately 3,755.
NOTE 2--NATURE OF BUSINESS AND CREDIT RISK
The Company operates in five business segments: Interactive (including
Monster.com-SM- and MonsterMoving.com-SM-), Recruitment Advertising, Selection &
Temporary Contracting, Executive Search and Yellow Page Advertising, which now
also includes full service interactive advertising and marketing technology
services through IN2. The Company's commissions and fees are earned from the
following activities: (i) advertisements placed on its career and other
websites, (ii) resume and other database access, (iii) executive placement
services, (iv) mid-level employee selection and temporary contracting services,
(v) selling and placing recruitment advertising and related services,
(vi) resume screening services and (vii) selling and placing Yellow Page
Advertising and related services. These services are provided to a large number
of customers in many different industries. The Company operates principally
throughout North America, the United Kingdom, Continental Europe and the
Asia-Pacific Region (primarily Australia and New Zealand).
F-10
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 3--BUSINESS COMBINATIONS
ACQUISITIONS ACCOUNTED FOR USING THE POOLING OF INTERESTS METHOD
During the period of April 1, 2000 through June 30, 2000, the Company
completed the following mergers which provided for the exchange of all of the
outstanding stock of each entity for a total of 3,117,169 shares of TMP common
stock. Such transactions were accounted for as poolings of interests.
<TABLE>
<CAPTION>
NUMBER OF TMP
ENTITY BUSINESS SEGMENT GEOGRAPHIC REGION ACQUISITION DATE SHARES ISSUED
------ --------------------- ----------------- ------------------ -------------
<S> <C> <C> <C> <C>
System One Services,
Inc.................... Selection & Temporary North America April 3, 2000 1,022,257
Contracting
GTR Advertising.......... Recruitment North America April 4, 2000 54,041
Advertising
Virtual Relocation.com, Interactive North America May 9, 2000 947,916
Inc....................
Business Technologies
Ltd.................... Interactive United Kingdom May 17, 2000 205,703
Simpatix, Inc............ Interactive North America May 31, 2000 152,500
Rollo Associates, Inc.... Executive Search North America May 31, 2000 110,860
Web Technology Partners,
Inc.................... Interactive North America May 31, 2000 623,892
</TABLE>
F-11
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 3--BUSINESS COMBINATIONS (CONTINUED)
Commissions and fees, net income (loss) applicable to common and Class B
common stockholders and net income (loss) per common and Class B common share of
the combining companies are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
COMMISSIONS AND FEES:
TMP, as previously reported on Form 10-Q for the period
ended March 31 $244,003 $182,059
System One Services, Inc.................................. 9,431 7,017
GTR Advertising........................................... 799 787
Virtual Relocation.com, Inc............................... 663 155
Business Technologies Ltd................................. 244 197
Simpatix, Inc............................................. 111 (11)
Rollo Associates, Inc..................................... 812 767
Web Technology Partners, Inc.............................. 1,347 551
-------- --------
TMP, as restated............................................ $257,410 $191,522
======== ========
NET INCOME (LOSS) APPLICABLE TO COMMON AND CLASS B COMMON
STOCKHOLDERS:
TMP, as previously reported on Form 10-Q for the period
ended March 31 $ 7,386 $ (46)
System One Services, Inc.................................. (2,684) (689)
GTR Advertising........................................... 126 147
Virtual Relocation.com, Inc............................... (2,402) (359)
Business Technologies Ltd................................. 74 29
Simpatix, Inc............................................. (114) (149)
Rollo Associates, Inc..................................... 417 271
Web Technology Partners, Inc.............................. 247 93
-------- --------
TMP, as restated............................................ $ 3,050 $ (703)
======== ========
NET INCOME (LOSS) PER COMMON AND CLASS B COMMON SHARE:
Basic
TMP, as previously reported on Form 10-Q for the period
ended March 31............................................ $ 0.08 $ --
TMP, as restated............................................ $ 0.03 $ (0.01)
Diluted
TMP, as previously reported on Form 10-Q for the period
ended March 31............................................ $ 0.08 $ --
TMP, as restated............................................ $ 0.03 $ (0.01)
</TABLE>
MERGER & INTEGRATION COSTS INCURRED WITH POOLING OF INTERESTS TRANSACTIONS
Merger and integration costs are expenses incurred in connection with
business combinations accounted for under the pooling of interests method of
accounting. In general, merger costs are comprised of transaction costs (such as
advisory, legal and accounting fees, printing costs and costs incurred for the
subsequent registration of shares in connection with the transactions) and stay
bonuses. Integration costs
F-12
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 3--BUSINESS COMBINATIONS (CONTINUED)
are those associated with the elimination of redundant facilities and personnel,
integration of the operations of the pooled entities and acceleration of
benefits and separation pay in accordance with pre-existing contractual change
in control provisions.
In connection with pooling of interests transactions completed prior to
March 31, 2000, the Company expensed merger and integration costs of $8,674. Of
this amount $3,607 is for merger costs and $5,067 is for integration costs. The
merger costs for the period ended March 31, 2000 consist of (a) $2,323 of non-
cash employee stay bonuses and (b) $1,284 of transaction related costs,
including legal, accounting, printing and advisory fees and the costs incurred
for the subsequent registration of shares issued in the acquisitions. The $5,067
of integration costs consist of: (a) $2,544 for assumed obligations of closed
facilities, (b) $2,871 for consolidation of acquired facilities and (c) $121 for
severance, relocation and other employee costs, partially offset by a $469
recovery of a reserve for receivables. See schedule of Accrued Integration and
Restructuring Costs in the section below.
During the three months ended March 31, 1999, the Company expensed merger
and integration costs of $4,687 which were related to the pooling of interests
transactions with Johnson, Smith & Knisely Inc., The Consulting Group
(International) Limited, and Morgan & Banks Limited, and are comprised of
transactions costs and the amortization of employee stay bonuses.
ACQUISITIONS ACCOUNTED FOR USING THE PURCHASE METHOD
In addition to the pooling of interests transactions discussed above, in the
three month period ended March 31, 2000, the Company completed four acquisitions
using the purchase method of accounting, two Selection & Temporary Contracting
firms and two Recruitment Advertising firms. The total amount of cash paid for
these acquisitions was approximately $14.4 million. In addition, the Company
issued 247,098 shares of common stock in connection with certain of the above
mentioned acquisitions. Operations of these businesses have been included in the
consolidated financial statements from their acquisition dates.
The summarized unaudited pro forma results of operations set forth below for
the three month periods ended March 31, 2000 and 1999 and the year ended
December 31, 1999 assume the acquisitions in 2000 and 1999 occurred as of the
beginning of the year of acquisition and the beginning of the preceding year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------------- ------------
2000 1999 1999
-------- -------- ------------
<S> <C> <C> <C>
Commissions and fees........................................ $258,540 $204,670 $907,657
Net income (loss) applicable to common and Class B common
stockholders.............................................. $ 3,163 $ 238 $ (6,245)
Net income (loss) per common and Class B common share:
Basic..................................................... $ 0.03 $ -- $ (0.08)
Diluted................................................... $ 0.03 $ -- $ (0.08)
</TABLE>
F-13
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 3--BUSINESS COMBINATIONS (CONTINUED)
The unaudited pro forma results of operations are not necessarily indicative
of what actually would have occurred if the acquisitions had been completed at
the beginning of each of the periods presented, nor are the results of
operations necessarily indicative of the results that will be attained in the
future.
ACCRUED INTEGRATION AND RESTRUCTURING COSTS
In connection with its acquisitions, the Company formulated plans to
integrate the operations of the acquired companies. Such plans involve the
closure of certain offices of such companies and the elimination of redundant
management and employees. The objectives of the plans are to take advantage of
the Company's existing operating infrastructure and efficiencies or to develop
efficiencies from the infrastructure of the acquired companies, and to create a
single brand in the related markets in which the Company operates.
In connection with such plans, in the three months ended March 31, 2000, the
Company (i) expensed, as part of merger and integration expenses, $5,067, for
companies acquired in transactions accounted for as poolings of interests and
(ii) increased goodwill by $1,078 for companies acquired in transactions
accounted for under the purchase method. In addition, in 1999 LAI formulated
plans to close its London, England and Hong Kong offices. In connection with
these office closings, LAI charged earnings for the quarter ended March 31, 1999
for $2,789 and established restructuring reserves.
These costs and liabilities include:
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
BALANCE --------------------- -------------------------- BALANCE
DECEMBER 31, CHARGED TO APPLIED AGAINST MARCH 31,
1999 GOODWILL EXPENSED RELATED ASSET PAYMENTS 2000
------------ ---------- -------- --------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Assumed obligations on closed leased
facilities........................ $ 9,564 $ -- $2,544 $ -- $(1,408) $10,700(a)
Consolidation of acquired
facilities........................ 8,715 141 2,871 -- (927) 10,800(b)
Contracted lease payments exceeding
current market costs.............. 562 -- -- -- (33) 529(c)
Severance, relocation and other
employee costs.................... 954 937 121 -- (462) 1,550(d)
Provision for uncollectible
receivables....................... -- -- (469) 469 -- --
Pension obligations................. 1,658 -- -- -- -- 1,658(e)
------- ------ ------ ---- ------- -------
Total............................... $21,453 $1,078 $5,067 $469 $(2,830) $25,237
======= ====== ====== ==== ======= =======
</TABLE>
------------------------
(a) Accrued liabilities for surplus property in the amount of $10,700 as of
March 31, 2000 relate to leased office locations of acquired companies that
were either unutilized prior to the acquisition date or will be closed by
December 31, 2000 in connection with the restructuring plans. The amount is
based on the present value of minimum future lease obligations, net of
estimated sublease income.
F-14
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 3--BUSINESS COMBINATIONS (CONTINUED)
(b) Other costs associated with the closure or consolidation of existing offices
of acquired companies in the amount of $10,800 as of March 31, 2000 relate
to termination costs of contracts relating to billing systems, external
reporting systems and other contractual arrangements with third parties.
(c) Above market lease costs in the amount of $529 as of March 31, 2000 relate
to the present value of contractual lease payments in excess of current
market lease rates.
(d) Estimated employee severance and relocation expenses and other employee
costs in the amount of $1,550 as of March 31, 2000 relate 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 redundant management
and administrative personnel at corporate headquarters. As of March 31,
2000, the accrual related to approximately 50 employees, senior management,
sales, service and administrative personnel. During the quarter ended March
31, 2000, payments of $462 were made for severance and charged against the
reserve.
(e) Pension obligations in the amount of $1,658 were assumed in connection with
the acquisition of Austin Knight.
The Company continues to evaluate and assess the impact of duplicate
responsibilities and office locations. Pursuant to the conclusions reached by
the Emerging Issues Task Force ("EITF") of the FASB in EITF Issues No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)," and
No. 95-3, "Recognition of Liabilities in Connection with a Purchase Business
Combination," in connection with the finalization of preliminary plans relating
to purchased entities, additions to restructuring reserves within one year of
the date of acquisition are treated as additional purchase price but costs
incurred resulting from plan revisions made after the first year will be charged
to operations in the period in which they occur.
F-15
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 4--SEGMENT AND GEOGRAPHIC DATA
The Company is engaged in five lines of business based primarily on the
reporting of senior management to the Chief Operating Officer: Interactive
(including Monster.com(sm) and MonsterMoving.com(sm)), Recruitment Advertising,
Selection & Temporary Contracting, Executive Search and Yellow Page Advertising,
which now also includes full service interactive advertising services provided
by IN2. Operations are conducted in several geographic regions: North America,
the Asia-Pacific Region (primarily Australia and New Zealand), the United
Kingdom and Continental Europe. The following is a summary of the Company's
operations by business segment and by geographic region, for the three months
ended March 31, 2000 and 1999. Overhead is allocated based on retroactively
restated commissions and fees.
<TABLE>
<CAPTION>
INTERACTIVE SELECTION &
--------------------------------------- RECRUITMENT TEMPORARY EXECUTIVE
INFORMATION BY BUSINESS SEGMENT MONSTER.COM(SM) MONSTERMOVING.COM(SM) ADVERTISING CONTRACTING SEARCH
------------------------------- --------------- --------------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Three months ended
March 31, 2000
Commissions and fees:
Traditional sources.............. $ -- $ -- $46,513 $77,816 $39,007
Interactive...................... 58,061 2,073 5,782 2,468 --
------- ------- ------- ------- -------
Total commissions and fees....... 58,061 2,073 52,295 80,284 39,007
------- ------- ------- ------- -------
Operating expenses:
Salaries & related, office &
general, marketing & promotion,
and overhead................... -- -- 40,467 77,950 38,241
Interactive (a).................. 48,288 4,609 4,816 1,820 --
Merger & integration............. -- 75 143 5,739 2,533
Amortization of intangibles...... 60 7 1,277 933 274
------- ------- ------- ------- -------
Total operating expenses........... 48,348 4,691 46,703 86,442 41,048
------- ------- ------- ------- -------
Operating income (loss):
Traditional sources.............. -- -- 4,626 (6,806) (2,041)
Interactive...................... 9,713 (2,618) 966 648 --
------- ------- ------- ------- -------
Total operating income (loss)...... $ 9,713 $(2,618) $ 5,592 $(6,158) $(2,041)
======= ======= ======= ======= =======
Total other income, net............ * * * * *
Income before provision for income
taxes, minority interests and
equity in losses of affiliates... * * * * *
<CAPTION>
YELLOW
PAGE
INFORMATION BY BUSINESS SEGMENT ADVERTISING TOTAL
------------------------------- ----------- --------
<S> <C> <C>
Three months ended
March 31, 2000
Commissions and fees:
Traditional sources.............. $23,300 $186,636
Interactive...................... 2,390 70,774
------- --------
Total commissions and fees....... 25,690 257,410
------- --------
Operating expenses:
Salaries & related, office &
general, marketing & promotion,
and overhead................... 17,820 174,478
Interactive (a).................. 2,548 62,081
Merger & integration............. 184 8,674
Amortization of intangibles...... 1,084 3,635
------- --------
Total operating expenses........... 21,636 248,868
------- --------
Operating income (loss):
Traditional sources.............. 4,212 (9)
Interactive...................... (158) 8,551
------- --------
Total operating income (loss)...... $ 4,054 8,542
=======
Total other income, net............ * 1,707
--------
Income before provision for income
taxes, minority interests and
equity in losses of affiliates... * $ 10,249
========
</TABLE>
------------------------------
(a) Is comprised of salaries & related, office & general, marketing & promotion
and allocated overhead.
* Not allocated.
F-16
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 4--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
INTERACTIVE SELECTION &
--------------------------------------- RECRUITMENT TEMPORARY EXECUTIVE
INFORMATION BY BUSINESS SEGMENT MONSTER.COM(SM) MONSTERMOVING.COM(SM) ADVERTISING CONTRACTING SEARCH
------------------------------- --------------- --------------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Three months ended
March 31, 1999
Commissions and fees:
Traditional sources.............. $ -- $ -- $46,425 $57,433 $ 41,513
Interactive...................... 16,446 1,081 2,826 1,322 --
------- ------ ------- ------- --------
Total commissions and fees......... 16,446 1,081 49,251 58,755 41,513
------- ------ ------- ------- --------
Operating expenses:
Salaries & related, office &
general, marketing & promotion,
and overhead................... -- -- 38,145 52,600 49,250
Interactive (a).................. 17,980 1,475 1,623 1,073 --
Merger & integration............. -- -- 79 2,483 2,125
Restructuring.................... -- -- -- -- 2,789
Amortization of intangibles...... 58 3 1,693 489 210
------- ------ ------- ------- --------
Total operating expenses........... 18,038 1,478 41,540 56,645 54,374
------- ------ ------- ------- --------
Operating income (loss):
Traditional sources.............. -- -- 6,508 1,861 (12,861)
Interactive...................... (1,592) (397) 1,203 249 --
------- ------ ------- ------- --------
Total operating income (loss)...... $(1,592) $ (397) $ 7,711 $ 2,110 $(12,861)
======= ====== ======= ======= ========
Total other expense, net........... : * * * *
Loss before (benefit) for income
taxes, minority interests and
equity in losses of affiliates... * * * * *
<CAPTION>
YELLOW
PAGE
INFORMATION BY BUSINESS SEGMENT ADVERTISING TOTAL
------------------------------- ----------- --------
<S> <C> <C>
Three months ended
March 31, 1999
Commissions and fees:
Traditional sources.............. $23,795 $169,166
Interactive...................... 681 22,356
------- --------
Total commissions and fees......... 24,476 191,522
------- --------
Operating expenses:
Salaries & related, office &
general, marketing & promotion,
and overhead................... 15,905 155,900
Interactive (a).................. 532 22,683
Merger & integration............. -- 4,687
Restructuring.................... -- 2,789
Amortization of intangibles...... 636 3,089
------- --------
Total operating expenses........... 17,073 189,148
------- --------
Operating income (loss):
Traditional sources.............. 7,254 2,762
Interactive...................... 149 (388)
------- --------
Total operating income (loss)...... $ 7,403 2,374
=======
Total other expense, net........... * (3,673)
--------
Loss before (benefit) for income
taxes, minority interests and
equity in losses of affiliates... * $ (1,299)
========
</TABLE>
------------------------------
(a) Is comprised of salaries & related, office & general, marketing & promotion
and allocated overhead.
* Not allocated.
F-17
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 4--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
ASIA- UNITED CONTINENTAL
INFORMATION BY GEOGRAPHIC REGION NORTH AMERICA PACIFIC KINGDOM EUROPE TOTAL
-------------------------------- ------------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Three months ended
March 31, 2000
Commissions and fees................... $147,486 $42,601 $37,017 $30,306 $257,410
Income (loss) before income taxes,
minority interests and equity in
losses of affiliates................. $ 7,966 $ 3,458 $(4,897) $ 3,722 $ 10,249
Three months ended
March 31, 1999
Commissions and fees................... $103,124 $35,743 $32,467 $20,188 $191,522
Income (loss) before income taxes,
minority interests and equity in
losses of affiliates................. $(14,319) $ 3,172 $ 4,979 $ 4,869 $ (1,299)
</TABLE>
NOTE 5--SUBSEQUENT EVENTS
During May and June 2000, the Company entered into merger agreements whereby
it acquired all of the outstanding shares of a mid-market Selection firm located
in the Netherlands and MoveCentral, Inc., located in the U.S., which will become
part of MonsterMoving.com(sm). These transactions were completed using the
purchase method of accounting, with the aggregate purchase price of
$24.9 million paid with 51,906 shares and approximately $21.8 million in cash.
F-18
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
We have audited the accompanying supplemental consolidated balance sheets of
TMP Worldwide Inc. and Subsidiaries (the "Company") as of December 31, 1999 and
1998, and the related supplemental consolidated statements of income (loss),
comprehensive income (loss), stockholders' equity (deficit) and cash flows for
each of the three years in the period ended December 31, 1999. The supplemental
consolidated financial statements give retroactive effect to the mergers of the
Company with HW Group PLC on February 16, 2000; Microsurf, Inc. on February 16,
2000; Burlington Wells, Inc. on February 29, 2000; Illsley Bourbonnais on March
1, 2000; System One Services, Inc. on April 3, 2000; GTR Advertising on April 4,
2000; Virtual Relocation.com, Inc. on May 9, 2000; Business Technologies Ltd. on
May 17, 2000; Simpatix, Inc. on May 31, 2000; Rollo Associates, Inc. on May 31,
2000; and Web Technology Partners, Inc. on May 31, 2000, which have been
accounted for as poolings of interests as described in Notes 1 and 5 to the
supplemental consolidated financial statements. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the financial statements of Morgan & Banks Limited as of December 31, 1998 and
for the years ended December 31, 1998 and March 31, 1998 which were combined
with the Company's financial statements as of December 31, 1998 and for each of
the two years in the period ended December 31, 1998, which financial statements
reflect total assets of approximately $52.3 million as of December 31, 1998 and
total commissions & fees of approximately $255.4 million and $235.8 million for
the years ended December 31, 1998 and March 31, 1998, respectively. Those
financial statements were audited by another auditor whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for Morgan & Banks Limited, is based solely on the report of the other auditor.
We did not audit the financial statements of LAI Worldwide, Inc. and
subsidiaries as of February 28, 1999 and for each of the two years in the period
ended February 28, 1999 which were combined with the Company's financial
statements as of December 31, 1998 and for each of the two years in the period
ended December 31, 1998, which financial statements reflect total assets of
approximately $103.8 million as of February 28, 1999 and total commissions &
fees of approximately $61.8 million and $86.8 million for each of the two years
in the period ended February 28, 1999, respectively. Those financial statements
were audited by another auditor whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for LAI Worldwide, Inc.
and subsidiaries, is based solely on the report of the other auditor. We did not
audit the consolidated financial statements of System One Services, Inc. and
subsidiaries as of December 31, 1999 and 1998 and for each of the three years in
the period ended December 31, 1999 which were combined with the Company's
financial statements as of December 31, 1999 and 1998 and for each of the three
years in the period ended December 31, 1999, which financial statements reflect
total assets of approximately $56.6 million and $46.6 million as of December 31,
1999 and 1998 and total commissions and fees of $15.5 million, $23.2 million and
$33.6 million for each of the three years in the period ended December 31, 1999.
Those financial statements were audited by another auditor whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for System One Services, Inc. and subsidiaries is based solely on the report of
the other auditor.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
F-19
<PAGE>
In our opinion, based on our audits and the reports of the other auditors,
the supplemental consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TMP Worldwide Inc.
and Subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, after giving retroactive effect to the mergers referred to
above, in conformity with generally accepted accounting principles.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
New York, New York
June 26, 2000
F-20
<PAGE>
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS
OF MORGAN & BANKS LIMITED
SCOPE
We have audited the financial statements of Morgan & Banks Limited for the
financial years ended 31 December 1998 and 31 March 1998. The financial
statements include the consolidated accounts of the economic entity, comprising
the company and the entities it controlled at the year's end or from time to
time during the financial year. The company's directors are responsible for the
preparation and presentation of these financial statements and the information
they contain. We have conducted an independent audit of the financial statements
and the information they contain in order to express an opinion on them to the
members of the company.
Our audit has been conducted in accordance with Australian Auditing
Standards, which are substantially the same as generally accepted auditing
standards in the United States of America, to provide reasonable assurance as to
whether the financial statements are free of material misstatement. Our
procedures included examination, on a test basis, of evidence supporting the
amounts and other disclosures in the financial statements, and the evaluation of
accounting policies and significant accounting estimates. These procedures have
been undertaken to form an opinion as to whether, in all material respects, the
financial statements are presented fairly in accordance with Australian
Accounting Standards and other mandatory professional reporting requirements and
statutory requirements so as to present a view which is consistent with our
understanding of the company's and the economic entity's financial position and
the results of its operations and its cash flows.
The audit opinion expressed in this report has been formed on the above
basis.
AUDIT OPINION
In our opinion, the financial statements of Morgan & Banks Limited are
properly drawn up:
(a) so as to give a true and fair view of the state of affairs as at 31
December 1998, the profit for the financial years ended on 31 December
1998 and 31 March 1998 and the cash flows for the nine month period ended
31 December 1998, and the year ended 31 March 1998, of the company and
the economic entity;
(b) in accordance with applicable Australian Accounting Standards and other
mandatory professional reporting requirements.
<TABLE>
<S> <C>
/s/ PANNELL KERR FORSTER /s/ A.P. WHITING
-------------------------------------------- --------------------------------------------
Pannell Kerr Forster A.P. Whiting
Chartered Accountants PARTNER
New South Wales Partnership
SYDNEY, 15 APRIL 1999
</TABLE>
F-21
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To LAI Worldwide, Inc.:
We have audited the consolidated balance sheet of LAI Worldwide, Inc. (a
Florida corporation) and subsidiaries as of February 28, 1999, and the related
consolidated statements of operations, stockholders' equity, comprehensive
income and cash flows for each of the two years in the period ended February 28,
1999 (not presented separately herein). 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 auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the financial position of LAI Worldwide, Inc. and
subsidiaries as of February 28, 1999, and the results of their operations and
their cash flows for each of the two years in the period ended February 28,
1999, in conformity with accounting principles generally accepted in the United
States.
ARTHUR ANDERSEN LLP
Tampa, Florida
April 7, 1999
F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
System One Services, Inc.:
We have audited the consolidated balance sheets of System One Services, Inc. and
subsidiaries (the "Company") as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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, such consolidated financial statements (not presented separately
herein) present fairly, in all material respects, the financial position of the
Company as of December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1999
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Tampa, Florida
February 4, 2000
F-23
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
---------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 64,599 $ 79,868
Accounts receivable, net.................................. 462,595 380,240
Work-in-process........................................... 25,632 19,300
Prepaid and other......................................... 60,019 38,572
---------- --------
Total current assets.................................... 612,845 517,980
Property and equipment, net................................. 80,839 81,986
Deferred income taxes....................................... 25,237 9,114
Intangibles, net............................................ 311,873 266,544
Other assets................................................ 22,434 20,057
---------- --------
$1,053,228 $895,681
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 364,951 $287,828
Accrued expenses and other current liabilities............ 134,838 117,165
Accrued integration and restructuring costs............... 21,453 16,747
Deferred commissions and fees............................. 72,298 15,736
Deferred income taxes..................................... -- 3,671
Current portion of long-term debt......................... 11,068 16,267
---------- --------
Total current liabilities............................... 604,608 457,414
Long-term debt, less current portion........................ 100,098 146,722
Other long-term liabilities................................. 30,726 25,852
---------- --------
Total liabilities......................................... 735,432 629,988
---------- --------
Minority interests.......................................... 9 509
---------- --------
Stockholders' equity:
Preferred stock, $.001 par value, authorized 800,000
shares; issued and outstanding: none.................... -- --
Common stock, $.001 par value, authorized 200,000,000
shares; issued and outstanding: 81,359,671 and
77,231,265, shares, respectively........................ 81 77
Class B common stock, $.001 par value, authorized
39,000,000 shares; issued and outstanding: 4,762,000
shares.................................................. 5 5
Additional paid-in capital................................ 367,857 291,075
Other comprehensive loss.................................. (4,899) (3,627)
Unamortized stock-based compensation...................... -- (2,732)
Deficit................................................... (45,257) (19,614)
---------- --------
Total stockholders' equity.............................. 317,787 265,184
---------- --------
$1,053,228 $895,681
========== ========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-24
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Commissions and fees........................................ $869,207 $744,517 $610,762
-------- -------- --------
Operating expenses:
Salaries & related........................................ 496,926 430,316 344,956
Office & general.......................................... 205,165 184,905 160,027
Marketing & promotion..................................... 74,647 29,737 13,665
Merger & integration...................................... 63,054 22,412 --
Restructuring............................................. 2,789 3,543 --
Amortization of intangibles............................... 12,532 11,070 6,913
CEO special bonus......................................... -- 1,250 1,500
-------- -------- --------
Total operating expenses.................................. 855,113 683,233 527,061
-------- -------- --------
Operating income............................................ 14,094 61,284 83,701
-------- -------- --------
Other income (expense):
Interest expense.......................................... (21,288) (18,596) (14,523)
Interest income........................................... 8,361 5,720 4,021
Other, net................................................ (2,906) (2,057) 814
-------- -------- --------
(15,833) (14,933) (9,688)
-------- -------- --------
Income (loss) before provision for income taxes, minority
interests and equity in losses of affiliates.............. (1,739) 46,351 74,013
Provision for income taxes.................................. 6,908 16,884 22,805
-------- -------- --------
Income (loss) before minority interests and equity in losses
of affiliates............................................. (8,647) 29,467 51,208
Minority interests.......................................... 107 28 296
Equity in losses of unconsolidated affiliates............... (300) (396) (33)
-------- -------- --------
Net income (loss)........................................... (9,054) 29,043 50,879
Preferred stock dividends................................... -- -- (123)
-------- -------- --------
Net income (loss) applicable to common and Class B common
stockholders.............................................. $ (9,054) $ 29,043 $ 50,756
======== ======== ========
Net income (loss) per common and Class B common share:
Basic..................................................... $ (0.11) $ 0.36 $ 0.67
======== ======== ========
Diluted................................................... $ (0.11) $ 0.35 $ 0.66
======== ======== ========
Weighted average shares outstanding:
Basic..................................................... 84,250 81,638 75,857
======== ======== ========
Diluted................................................... 84,250 83,494 77,134
======== ======== ========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-25
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income (loss)........................................... $ (9,054) $29,043 $50,879
Foreign currency translation adjustment..................... (1,272) (2,343) (4,174)
-------- ------- -------
Comprehensive income (loss)................................. $(10,326) $26,700 $46,705
======== ======= =======
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-26
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK, COMMON STOCK,
$.001 PAR VALUE $.001 PAR VALUE ADDITIONAL OTHER UNAMORTIZED
--------------------- --------------------- PAID-IN COMPREHENSIVE STOCK-BASED
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME (LOSS) COMPENSATION
---------- -------- ---------- -------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997........... 43,101,486 $43 29,575,082 $30 $128,503 $ 2,890 $ --
Issuance of common stock for
purchase of minority interest
in subsidiary.................. 123,696 -- -- -- 1,000 -- --
Issuance of common stock in
connection with acquisitions... 367,394 -- -- -- 9,286 -- --
Conversion of Class B shares..... 2,400,000 3 (2,400,000) (3)
Public offerings of pooled
companies...................... 1,839,271 2 -- -- 26,717 -- --
Other issuance of common stock by
pooled company................. 66,314 -- -- -- 4,307 -- --
Issuance of common stock......... 4,800,000 5 -- -- 51,164 -- --
Issuance of common stock in
connection with the exercise of
options........................ 209,242 -- -- -- 659 -- --
Tax benefit of stock options
exercised...................... -- -- -- -- 175 -- --
Issuance of common stock for
matching contribution to 401(k)
plan........................... 87,096 -- -- -- 555 -- --
Capital contribution from
Principal Stockholder re: CEO
bonus and other................ -- -- -- -- 1,775 -- --
Foreign currency translation
adjustment..................... -- -- -- -- -- (4,174) --
Dividends and redemption premium
preferred stock................ -- -- -- -- -- -- --
Dividends declared by pooled
companies...................... -- -- -- -- -- -- --
Net income....................... -- -- -- -- -- -- --
---------- --- ---------- --- -------- ------- ----
Balance, December 31, 1997......... 52,994,499 $53 27,175,082 $27 $224,141 $(1,284) $ --
========== === ========== === ======== ======= ====
<CAPTION>
TOTAL
STOCKHOLDERS'
DEFICIT EQUITY
-------- -------------
<S> <C> <C>
Balance, January 1, 1997........... $(46,939) $ 84,527
Issuance of common stock for
purchase of minority interest
in subsidiary.................. -- 1,000
Issuance of common stock in
connection with acquisitions... -- 9,286
Conversion of Class B shares..... --
Public offerings of pooled
companies...................... -- 26,719
Other issuance of common stock by
pooled company................. -- 4,307
Issuance of common stock......... -- 51,169
Issuance of common stock in
connection with the exercise of
options........................ -- 659
Tax benefit of stock options
exercised...................... -- 175
Issuance of common stock for
matching contribution to 401(k)
plan........................... -- 555
Capital contribution from
Principal Stockholder re: CEO
bonus and other................ -- 1,775
Foreign currency translation
adjustment..................... -- (4,174)
Dividends and redemption premium
preferred stock................ (123) (123)
Dividends declared by pooled
companies...................... (30,664) (30,664)
Net income....................... 50,879 50,879
-------- --------
Balance, December 31, 1997......... $(26,847) $196,090
======== ========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-27
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK, COMMON STOCK,
$.001 PAR VALUE $.001 PAR VALUE ADDITIONAL OTHER UNAMORTIZED
--------------------- ---------------------- PAID-IN COMPREHENSIVE STOCK-BASED
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME (LOSS) COMPENSATION
---------- -------- ----------- -------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997........ 52,994,499 $53 27,175,082 $27 $224,141 $(1,284) $ --
Issuance of common stock in
connection with the exercise
of options.................... 419,898 1 -- -- 1,494 -- --
Tax benefit of stock options
exercised..................... -- -- -- -- 407 -- --
Capital contribution from
Principal Stockholder re: CEO
bonus and other............... -- -- -- -- 1,250 -- --
Issuance of common stock in
connection with
acquisitions.................. 402,812 -- -- -- 5,546 -- --
Issuance of compensatory
options....................... -- -- -- -- 295 -- --
Issuance of common stock by
pooled companies.............. 1,005,712 1 -- -- 46,042 -- --
Repurchase and cancellation of
common stock.................. (574,704) (1) -- -- (668) -- --
Conversion of Class B shares.... 22,413,082 22 (22,413,082) (22) -- -- --
Issuance of common stock for
compensation.................. 515,420 1 -- -- 11,941 -- (3,308)
Issuance of common stock for
matching contribution to
401(k) plan................... 54,546 -- -- -- 627 -- --
Amortization of stock based
compensation.................. -- -- -- -- -- -- 576
Pooled companies' earnings
included in both current and
previous years................ -- -- -- -- -- -- --
Pooled company's losses,
excluded from statement of
income (loss)................. -- -- -- -- -- -- --
Foreign currency translation
adjustment.................... -- -- -- -- -- (2,343) --
Dividends declared by pooled
companies..................... -- -- -- -- -- -- --
Net income...................... -- -- -- -- -- -- --
---------- --- ----------- --- -------- ------- -------
Balance, December 31, 1998........ 77,231,265 $77 4,762,000 $ 5 $291,075 $(3,627) $(2,732)
========== === =========== === ======== ======= =======
<CAPTION>
TOTAL
STOCKHOLDERS'
DEFICIT EQUITY
-------- -------------
<S> <C> <C>
Balance, December 31, 1997........ $(26,847) $196,090
Issuance of common stock in
connection with the exercise
of options.................... -- 1,495
Tax benefit of stock options
exercised..................... -- 407
Capital contribution from
Principal Stockholder re: CEO
bonus and other............... -- 1,250
Issuance of common stock in
connection with
acquisitions.................. -- 5,546
Issuance of compensatory
options....................... -- 295
Issuance of common stock by
pooled companies.............. -- 46,043
Repurchase and cancellation of
common stock.................. -- (669)
Conversion of Class B shares.... -- --
Issuance of common stock for
compensation.................. -- 8,634
Issuance of common stock for
matching contribution to
401(k) plan................... -- 627
Amortization of stock based
compensation.................. -- 576
Pooled companies' earnings
included in both current and
previous years................ (3,182) (3,182)
Pooled company's losses,
excluded from statement of
income (loss)................. 873 873
Foreign currency translation
adjustment.................... -- (2,343)
Dividends declared by pooled
companies..................... (19,501) (19,501)
Net income...................... 29,043 29,043
-------- --------
Balance, December 31, 1998........ $(19,614) $265,184
======== ========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-28
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK, COMMON STOCK,
$.001 PAR VALUE $.001 PAR VALUE ADDITIONAL OTHER UNAMORTIZED
--------------------- --------------------- PAID-IN COMPREHENSIVE STOCK-BASED
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME (LOSS) COMPENSATION
---------- -------- ---------- -------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998......... 77,231,265 $77 4,762,000 $ 5 $291,075 $(3,627) $(2,732)
Issuance of common stock in
connection with the exercise of
options........................ 2,230,990 2 -- -- 19,044 -- --
Tax benefit of stock options
exercised...................... -- -- -- -- 11,869 -- --
Issuance of common stock in
connection with acquisitions... 928,619 1 -- -- 24,275 -- --
Issuance of compensatory
options........................ -- -- -- -- 680 -- --
Issuance of common stock for
matching contribution to 401(k)
plan........................... 42,954 -- -- -- 902 -- --
Forfeiture of stock-based
compensation due to departure
of employees of pooled
entity......................... -- -- -- -- (1,033) -- 1,033
Issuance of common stock for
employee stay bonuses.......... 462,772 1 -- -- 7,048 -- --
Issuance of common stock for
purchase of minority
interest....................... 38,862 -- -- -- 1,210 -- --
Tax benefit in connection with
taxable pooling of interests... -- -- -- -- 6,400 -- --
Public offering of shares........ 424,209 -- -- -- 6,387 -- --
Accelerated vesting of stock
based compensation............. -- -- -- -- -- -- 1,699
Pooled companies' losses included
in both current and previous
years.......................... -- -- -- -- -- -- --
Foreign currency translation
adjustment..................... -- -- -- -- -- (1,272) --
Dividends declared by pooled
companies...................... -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- --
---------- --- ---------- --- -------- ------- -------
Balance, December 31, 1999......... 81,359,671 $81 4,762,000 $ 5 $367,857 $(4,899)
$ ---
========== === ========== === ======== =======
=======
<CAPTION>
TOTAL
STOCKHOLDERS'
DEFICIT EQUITY
-------- -------------
<S> <C> <C>
Balance, December 31, 1998......... $(19,614) $265,184
Issuance of common stock in
connection with the exercise of
options........................ -- 19,046
Tax benefit of stock options
exercised...................... -- 11,869
Issuance of common stock in
connection with acquisitions... -- 24,276
Issuance of compensatory
options........................ -- 680
Issuance of common stock for
matching contribution to 401(k)
plan........................... -- 902
Forfeiture of stock-based
compensation due to departure
of employees of pooled
entity......................... -- --
Issuance of common stock for
employee stay bonuses.......... -- 7,049
Issuance of common stock for
purchase of minority
interest....................... -- 1,210
Tax benefit in connection with
taxable pooling of interests... -- 6,400
Public offering of shares........ -- 6,387
Accelerated vesting of stock
based compensation............. -- 1,699
Pooled companies' losses included
in both current and previous
years.......................... 1,941 1,941
Foreign currency translation
adjustment..................... -- (1,272)
Dividends declared by pooled
companies...................... (18,530) (18,530)
Net loss......................... (9,054) (9,054)
-------- --------
Balance, December 31, 1999......... $(45,257) $317,787
======== ========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-29
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (9,054) $ 29,043 $ 50,879
----------- ----------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization of property and
equipment............................................. 26,987 22,564 16,301
Amortization of intangibles............................. 12,532 11,070 6,913
Amortization of deferred compensation in connection with
employee stay bonuses................................. 7,489 4,358 --
Provision for doubtful accounts......................... 14,527 6,394 4,211
Net loss on disposal and write-off of fixed assets...... 12,118 2,907 --
Common stock issued for matching contribution to 401(k)
plan and employee stay bonuses........................ 7,950 8,939 627
Provision (benefit) for deferred income taxes........... (4,831) (1,307) 6,393
CEO bonus and indemnity payment......................... -- 1,250 1,775
Minority interests and other............................ 243 330 19
Effect of pooled companies' losses (earnings) included
in more than one period............................... 1,941 (3,182) --
Effect of pooled company excluded from the periods
presented............................................. -- 873 --
Changes in assets and liabilities, net of effects from
purchases of businesses:
Increase in accounts receivable, net.................. (85,434) (19,269) (30,560)
Increase in work-in-process, prepaid and other........ (15,790) (14,971) (5,116)
Increase in deferred commissions and fees............. 56,762 7,464 4,036
Increase in accounts payable, accrued expenses and
other current liabilities........................... 70,080 15,703 6,960
----------- ----------- ---------
Total adjustments......................................... 104,574 43,123 11,559
----------- ----------- ---------
Net cash provided by operating activities............. 95,520 72,166 62,438
----------- ----------- ---------
Cash flows from investing activities:
Payments pursuant to notes and advances to Principal
Stockholder............................................. -- -- (3,064)
Repayments from Principal Stockholder..................... -- -- 14,477
Capital expenditures...................................... (42,982) (35,116) (33,191)
Payments for purchases of businesses, net of cash
acquired................................................ (28,010) (36,979) (83,660)
Purchases of short and long term investments.............. (150) (38,271) --
Sales of short term investments........................... 101 39,047 --
Investment in life insurance, net......................... (38) (1,985) (1,797)
Proceeds from sale of assets.............................. 9,749 648 78
Cash paid for non-compete agreements...................... (101) -- --
Advances by pooled entities to officers and affiliates.... (140) (1,207) (2,210)
----------- ----------- ---------
Net cash used in investing activities................. (61,571) (73,863) (109,367)
----------- ----------- ---------
Cash flows from financing activities:
Payments on capitalized leases............................ (3,492) (4,010) (2,975)
Borrowings under line of credit and proceeds from issuance
of long-term debt....................................... 1,308,315 1,055,594 741,919
Repayments under line of credit and principal payments on
long-term debt.......................................... (1,358,383) (1,055,582) (707,040)
Net proceeds from stock issuance.......................... 6,387 46,043 77,888
Cash received from the exercise of employee stock
options................................................. 19,046 1,495 659
Repurchase of common stock................................ -- -- (77)
Redemption of minority interest and preferred stock
(including premium)..................................... (2,000) -- (5,238)
Dividends on preferred stock.............................. -- -- (123)
Capital contribution from former owner of pooled
company................................................. 194 13 15
Dividends paid by pooled companies........................ (18,530) (21,453) (29,415)
----------- ----------- ---------
Net cash provided by (used in) financing activities... (48,463) 22,100 75,613
----------- ----------- ---------
Effect of exchange rate changes on cash..................... (755) (165) (303)
----------- ----------- ---------
Net increase (decrease) in cash and cash equivalents........ (15,269) 20,238 28,381
Cash and cash equivalents, beginning of year................ 79,868 59,630 31,249
----------- ----------- ---------
Cash and cash equivalents, end of year...................... $ 64,599 $ 79,868 $ 59,630
=========== =========== =========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
F-30
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION
TMP Worldwide Inc. ("TMP" or the "Company") is the successor to businesses
formerly conducted by TMP Worldwide Inc. and subsidiaries ("Old TMP"), Worldwide
Classified Inc. and subsidiaries ("WCI"), McKelvey Enterprises, Inc. and
subsidiaries ("MEI") and certain other entities under the control of Andrew J.
McKelvey (the "Principal Stockholder"). Immediately prior to the reorganization,
the Principal Stockholder owned 100% of the common stock of MEI (which owned
approximately 86% of the common stock of Old TMP) and approximately 33% of the
common stock of WCI. In addition to his approximately 33% ownership of WCI, the
Principal Stockholder had voting proxy on the remaining outstanding shares of
WCI.
WCI was organized in 1993 to sell Recruitment Advertising. On December 9,
1996, Old TMP, which sells Yellow Page Advertising, merged into MEI. Thereafter,
WCI merged into MEI, MEI then merged into Telephone Marketing Programs
Incorporated and MEI acquired the outstanding minority interest of a subsidiary
(the "1996 Mergers"). Concurrent with the 1996 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
542,556 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 $7.00 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 7,169,580 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 $7.00 per share. The minority stockholders of Old TMP had
received compensation in lieu of their share of earnings of Old TMP in exchange
for waiving their rights to such earnings, and WCI and the MEI subsidiary had
cumulative losses. Accordingly, no amounts were attributable to these minority
interests in the accompanying consolidated financial statements.
In addition, in 1996, the Principal Stockholder sold or contributed to the
Company his majority interests, and in one case a 49% interest, in five
companies primarily engaged in yellow page and Internet-based advertising. Due
to the element of common control of these companies, all of these transactions
have been accounted for in a manner similar to a pooling of interests and each
of the five companies has been included in the accompanying consolidated
financial statements from their respective dates of acquisition by the Principal
Stockholder.
For the period April 1, 1998 through December 31, 1999, the Company
completed 20 mergers which were accounted for as poolings of interests. The
seven that the Company completed prior to April 1, 1999 are Johnson, Smith &
Knisely Inc. ("JSK"), TASA Holding AG ("TASA"), Stackig, Inc. ("Stackig"),
Recruitment Solutions Inc., Sunquest L.L.C. d.b.a. The SMART Group and The
Consulting Group (International) Limited ("TCG"), in 1998 (the "1998 Mergers");
and Morgan & Banks Limited ("M&B")
F-31
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
in January 1999: (the "M&B Merger"). In connection with these mergers, the
Company issued 17,578,910 shares of our common stock in exchange for all of the
outstanding common stock of these seven companies. From April 1, 1999 to June
30, 1999, the Company completed pooling of interests mergers (the "Second
Quarter 1999 Mergers") with six companies Interquest, Pty. Limited
("Interquest"), LIDA Advertising Inc. ("LIDA"), Maes & Lunau ("M&L"), IN2, Inc.
("IN2"), Lemming & LeVan, Inc. ("L&L"), and Yellow Pages Unlimited, Inc.
("YPU"), (the "Second Quarter 1999 Pooled Companies") (the "Second Quarter 1999
Mergers"). In connection with the Second Quarter 1999 Mergers the Company issued
a total of 1,800,480 shares of TMP common stock in exchange for all of the
outstanding stock of the Second Quarter 1999 Pooled Companies. In addition, from
July 1, 1999 through September 30, 1999, the Company completed pooling of
interests mergers (the "Third Quarter 1999 Mergers") with five companies,
Cameron-Newell Advertising, Inc. ("CNA"), Brook Street Bureau (QLD) Pty Ltd,
("Brook St."), LAI Worldwide, Inc. ("LAI"), Fox Advertising Inc. ("Fox") and
Lampen Group Limited ("Lampen") ("the Third Quarter 1999 Pooled Companies"). In
connection with the Third Quarter 1999 Mergers the Company issued a total of
4,306,914 shares of TMP common stock in exchange for all of the outstanding
stock of the Third Quarter 1999 Pooled Companies. From October 1, 1999 through
December 31, 1999, the Company completed mergers with two companies, Highland
Search Group L.L.C. ("Highland") and TMC S.r.l. ("Amrop Italy") (the "Fourth
Quarter 1999 Pooled Companies"), which provided for the exchange of all of the
outstanding stock of such companies for a total of 1,517,226 shares of TMP
common stock and which were accounted for as poolings of interests (the "Fourth
Quarter 1999 Mergers").
The consolidated financial statements of the Company reflect the effect of
the 1996 Mergers, the 1998 Mergers, the M & B Merger, the Second Quarter 1999
Mergers, the Third Quarter 1999 Mergers and the Fourth Quarter 1999 Mergers,
because such mergers have been accounted for as poolings of interests (see Note
5). As a result, the financial position, statements of income (loss),
comprehensive income (loss) and cash flows included herein are presented as if
the combining companies had been consolidated for all periods presented. The
consolidated statements of stockholders' equity reflect the accounts of TMP as
if the additional common stock issued in connection with the 1998 and 1999
Mergers had been issued for all periods presented.
During the period of January 1, 2000 through June 30, 2000, the Company
completed mergers with eleven companies which were accounted for as poolings of
interests (the "First Half 2000 Mergers"): HW Group PLC; Microsurf, Inc.;
Burlington Wells, Inc.; Illsley Bourbonnais; System One Services, Inc.; GTR
Advertising; Virtual Relocation.com, Inc.; Business Technologies, Ltd.;
Simpatix, Inc.; Rollo Associates, Inc.; and Web Technology Partners, Inc. In
connection with these mergers, the Company issued 4,816,292 shares of TMP common
stock in exchange for all the outstanding common stock of these eleven
companies.
Consequently, the Company's consolidated financial statements have been
retroactively restated as of December 31, 1999 and 1998 and for each of the
three years in the period ended December 31, 1999, to reflect the consummation
of the 1996 Mergers, the 1998 Mergers, the M&B Merger, the Second Quarter 1999
Mergers, the Third Quarter 1999 Mergers, the Fourth Quarter 1999 Mergers and the
First Half 2000 Mergers because such mergers have been accounted for as poolings
of interests (see Note 5). As a result, the financial position, and statements
of income (loss), comprehensive income (loss) and cash flows are presented as if
the combining companies had been consolidated for all periods presented. In
addition, the consolidated statements of stockholders' equity reflect the
accounts of TMP as if the additional common
F-32
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
stock issued in connection with each of the aforementioned combinations included
in the First Half 2000 Mergers had been issued in the periods when each of the
related companies had issued shares and for the amounts that reflect the
exchange ratios of the mergers. In accordance with generally accepted accounting
principles, the supplemental consolidated financial statements will become the
historical financial statements of the Company upon issuance of the financial
statements for the period that includes the consummation of the First Half 2000
Mergers.
In the supplemental consolidated balance sheets, the balance sheets of TMP
as of March 31, 2000 has been combined with those of the Second Quarter 2000
Mergers and those as of December 31, 1999 and 1998 have been combined with those
of the First Half 2000 Mergers all as of March 31, 2000 and December 31, 1999
and 1998 except for the following: Illsley Bourbonnais, for which the balance
sheets as of January 31, 2000 and 1999 are combined with those of TMP as of
December 31, 1999 and 1998, respectively; Business Technologies Ltd. ("BTL"),
for which the balance sheets as of July 31, 1999 and 1998 are combined with
those of TMP as of December 31, 1998 and 1998, respectively; HW Group PLC
("HW"), for which the balance sheet as of March 31, 1999 is combined with that
of TMP as of December 31, 1998.
The supplemental consolidated statements of income (loss) combine the
results of TMP for the three months ended March 31, 2000 and 1999 with those of
the Second Quarter 2000 Mergers and each year in the three year period ended
December 31, 1999 with those of the First Half Mergers all for the same periods
except for the following: Illsley Bourbonnais, for which the statements of
income (loss) for the years ended January 31, 2000, 1999 and 1998 are included
in the statements of income (loss) for the years ended December 31, 1999, 1998
and 1997, respectively; BTL, for which the statements of income (loss) for the
years ended July 31, 1999, 1998 and 1997 are included in the statements of
income (loss) for the years ended December 31, 1999, 1998 and 1997,
respectively; HW, for which the statements of income (loss) for the years ended
March 31, 1999 and 1998 are included in the statements of income (loss) for the
years ended December 31, 1998 and 1997, respectively.
Furthermore, the results of Illsley Bourbonnais for the month ended January
31, 2000 are included in both the supplemental consolidated statements of income
(loss) for the year ended December 31, 1999 and in the supplemental consolidated
condensed statement of income (loss) for the three months ended March 31, 2000.
Therefore the following amounts have been included in both periods: (a)
commissions & fees of $1,019 and (b) net income of $285, with no impact on
earnings per share. Additionally, due to immateriality, the results of BTL for
the period August 1, 1999 through December 31, 1999 have not been included in
the supplemental consolidated condensed statement of income (loss) for the year
ended December 31, 1999 because the results of BTL for its fiscal year ended
July 31, 1999 were included in the supplemental consolidated condensed statement
of income (loss) for the year ended December 31, 1999, including commissions and
fees of $314 and net income of $50. BTL's results for the three months ended
March 31, 2000 were included in the supplemental consolidated condensed
statement of income (loss) for the three months ended March 31, 2000. In
addition, the results of HW, for the three months ended March 31, 1999 are
included in the supplemental consolidated statements of income (loss) in both
years ended December 31, 1999 and 1998, and the effects on both periods on (a)
commissions and fees was $11,075, (b) net income was $1,893 and (c) diluted
earnings per share was $0.02.
F-33
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 these affiliates.
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 commissions & fees 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.................................. 5-32
Furniture and equipment..................................... 3-10
Capitalized software costs.................................. 3-5
Computed equipment.......................................... 3-7
Transportation equipment.................................... 3-18
</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. Impairment losses have been recorded as
Merger and Integration Costs (see Note 5).
F-34
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 other comprehensive loss account in stockholders' equity. Gains
and losses resulting from foreign currency transactions are included in other
income (expense).
COMMISSIONS AND FEES RECOGNITION AND WORK-IN-PROCESS
The Company earns fees for the placement of advertisements on the Internet,
primarily its careers Web site, Monster.com(sm). Such website related fees are
recognized over the length of the advertising agreement, typically one to six
months. The amounts not recognized are reported on the balance sheet as deferred
commissions and fees. The Company also derives commissions and fees for
advertisements placed in telephone directories, newspapers and other media, plus
associated fees for related services. Commissions and fees are generally
recognized upon placement date for newspapers and other media and on publication
close date for yellow page advertisements. The Company also earns fees for
Executive Search services. Commissions and fees are recognized as clients are
billed. Billings begin with the client's acceptance of a contract. A retainer
equal to 33( 1/)(3)% of a candidate's first year estimated annual cash
compensation is billed in equal installments over three consecutive months (at
which time, in general, the retainer has been substantially earned). A final
invoice is issued in the event that the candidate's actual compensation package
exceeds the original estimate. For Selection, a fee equal to between 20% and 30%
of a candidate's first year estimated annual cash compensation is billed in
equal installments over three consecutive months (the average length of time
needed to successfully complete an assignment). Temporary Contracting commission
and fees are recorded when earned.
The amounts charged to clients for Temporary Contracting services are
reported after deducting the costs of the temporary contractors. The details for
such amounts are (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Temporary contracting Revenue............................... $471,588 $394,077 $313,595
Temporary contracting Costs................................. 379,666 318,155 253,658
-------- -------- --------
Temporary contracting Billings/Commissions and fees......... $ 91,922 $ 75,922 $ 59,937
======== ======== ========
</TABLE>
The Company's quarterly commissions and fees are affected by the cyclical
nature of its operating segments. The timing of yellow page directory closings
is currently concentrated in the third quarter. However, yellow page publishers
may change the timing of directory publications which may have an effect on the
Company's quarterly results. The Company's Yellow Page Advertising results are
also affected by commissions earned for volume placements for the year, which
are typically reported in the fourth quarter. Amounts reported in the three
months ended December 31, 1999, 1998 and 1997 for commissions on volume
placements were $0.1 million, $0.9 million and $2.2 million, respectively. The
Company's quarterly commissions and fees for Recruitment Advertising are
typically highest in the first quarter and lowest in
F-35
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 commissions and fees,
principally for yellow page advertisements, are deferred (recorded as
work-in-process in the accompanying consolidated balance sheets) and are
subsequently charged to expense when the directories are closed for publication
and the related commission is recognized as income.
INCOME TAXES
The provision for income taxes is computed on the pretax income (loss) based
on the current tax law. Deferred income taxes are recognized for the tax
consequences in future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates.
NATURE OF BUSINESS AND CREDIT RISK
The Company operates in five business segments: Interactive (including
Monster.com(SM) and MonsterMoving.com(SM)), Relocation Services, Recruitment
Advertising, Selection & Temporary Contracting, Executive Search and Yellow
Pages Advertising which now also includes full service interactive advertising
and marketing technology services through IN2. The Company's commissions and
fees are earned from the following activities: (a) advertisements placed on its
careers and other websites, (b) resume and other database access, (c) executive
placement services, (d) mid level employee selection and temporary contracting
services, (e) selling and placing recruitment advertising and related services,
(f) resume screening services and (g) selling and placing Yellow Page
Advertising and related services. These services are provided to a large number
of customers in many different industries. The Company operates principally
throughout North America, the United Kingdom, Continental Europe and the
Asia/Pacific Region (primarily Australia and New Zealand).
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable. The Company
performs continuing credit evaluations of its customers and does not require
collateral. For the most part, the Company has not experienced significant
losses related to receivables from individual customers or groups of customers
in any particular industry or geographic area.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable and accounts payable approximate fair
value because of the immediate or short-term maturity of these financial
instruments.
The carrying amount reported for long-term debt approximates fair value
because, in general, the interest on the underlying instruments fluctuates with
market rates.
F-36
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company accounts for its stock option awards under the intrinsic value
based method of accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Under the intrinsic value based
method, compensation cost is the excess, if any, of the quoted market price of
the stock at grant date or other measurement date over the amount an employee
must pay to acquire the stock. The Company makes pro forma disclosures of net
income and earnings per share as if the fair value based method of accounting
had been applied as required by SFAS No. 123, "Accounting for Stock-Based
Compensation."
EARNINGS PER SHARE
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. The Company's Board of
Directors authorized a 2-for-1 split of its common stock in the form of a stock
dividend, effective February 29, 2000. All shares and per share amounts in the
accompanying consolidated financials statements have been restated to give
effect to the stock split.
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, 1999:
Basic....................................................... 84,250
Effect of assumed conversion of stock options............... *
------
Diluted..................................................... 84,250
======
December 31, 1998:
Basic....................................................... 81,638
Effect of assumed conversion of stock options............... 1,856
------
Diluted..................................................... 83,494
======
December 31, 1997:
Basic....................................................... 75,857
Effect of assumed conversion of stock options............... 1,277
------
Diluted..................................................... 77,134
======
</TABLE>
------------------------
* Effect of the conversion of stock options outstanding is anti-dilutive. The
number of options is approximately 4,307.
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.
F-37
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
Comprehensive income is defined to include all changes in equity except
those resulting from investments by owners and distributions to owners. The
Company's only other item of comprehensive income (loss) is foreign currency
translation adjustments.
POSTRETIREMENT BENEFITS
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which standardizes the
disclosure requirements for pensions and other postretirement benefits. The
adoption of SFAS No. 132 in 1998 did not have a material impact on the Company's
financial statement disclosures.
CAPITALIZED SOFTWARE COSTS
The Company capitalizes certain incurred software development costs in
accordance with, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position No. 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). Costs
incurred during the application-development stage for software bought and
further customized by outside vendors for the Company's use and software
developed by a vendor for the Company's proprietary use have been capitalized.
Costs incurred for the Company's own personnel who are directly associated with
software development are capitalized. Capitalized software costs are being
amortized over periods of 3 to 5 years.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which had an initial adoption
date by the Company of January 1, 2000. During the second quarter of 1999, the
FASB postponed the adoption date of SFAS No. 133 until January 1, 2001. The FASB
further amended SFAS No. 133 in June 2000. SFAS No. 133 requires that all
derivative financial instruments be recorded on the consolidated balance sheets
at their fair value. Changes in the fair value of derivatives will be recorded
each period in earnings or other comprehensive earnings, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. Gains and losses on derivative instruments reported in
other comprehensive earnings will be reclassified as earnings in the periods in
which earnings are affected by the hedged item. The Company does not expect the
adoption of this statement to have a significant impact on the Company's results
of operations, financial position or cash flows.
In 1999, the SEC issued Staff Accounting Bulletin No. 101 dealing with
revenue recognition which is effective in the fourth quarter of 2000. The
Company does not expect its adoption to have a material effect on the Company's
financial statements.
In 2000, the Emerging Issues Task Force ("EITF") of the FASB issued EITF
Issue No. 00-2, "Website Development Costs," which established guidelines for
accounting for website development costs and is effective for quarters beginning
after June 30, 2000. Although the Company is still evaluating its impact, the
Company does not believe its adoption will have a significant effect on its
financial statements.
F-38
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL 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,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Trade................................................... $476,688 $386,021
Earned commissions(a)................................... 11,422 12,811
-------- --------
488,110 398,832
Less: Allowance for doubtful accounts................... 25,515 18,592
-------- --------
Accounts receivable, net................................ $462,595 $380,240
======== ========
</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, 1999 and 1998 are recorded
as accounts receivable of $66,648 and $67,955, respectively, and the related
advertising costs are recorded as accounts payable of $55,226 and $55,144,
respectively.
NOTE 4--PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Capitalized software costs................................ $25,352 $16,301
Buildings and improvements................................ 1,323 1,168
Furniture and equipment................................... 78,813 85,503
Leasehold improvements.................................... 24,328 19,593
Transportation equipment.................................. 5,956 12,018
Computer equipment........................................ 39,493 22,286
------- -------
175,265 156,869
Less: Accumulated depreciation and amortization........... 94,426 74,883
------- -------
Property and equipment, net............................... $80,839 $81,986
======= =======
</TABLE>
Property and equipment includes equipment under capital leases at December
31, 1999 and 1998 with a cost of $8,032 and $13,726, respectively, and
accumulated amortization of $6,000 and $7,084 respectively.
F-39
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS COMBINATIONS
ACQUISITIONS ACCOUNTED FOR USING THE POOLING OF INTERESTS METHOD
During the period of January 1, 1999 through December 31, 1999, the Company
completed the following mergers which provided for the exchange of all of the
outstanding stock of each entity for shares of TMP stock and are accounted for
as poolings of interests (See Note 1):
<TABLE>
<CAPTION>
GEOGRAPHIC NUMBER OF TMP
ENTITY BUSINESS SEGMENT REGION ACQUISITION DATE SHARES ISSUED
------ ------------------------------ -------------- ---------------- -------------
<S> <C> <C> <C> <C>
Morgan & Banks Limited........ Selection & Temporary Asia-Pacific January 28, 1999 10,296,582
Contracting
Interquest Pty Limited........ Selection & Temporary Asia-Pacific April 30, 1999 353,390
Contracting
LIDA Advertising, Inc......... Yellow Page Advertising North America May 19, 1999 225,212
Maes & Lunau.................. Executive Search Europe May 20, 1999 220,000
IN2, Inc...................... Yellow Page Advertising North America May 28, 1999 578,062
Lemming & Levan, Inc.......... Executive Search North America May 28, 1999 245,816
Yellow Pages Unlimited, Inc... Yellow Page Advertising North America May 28, 1999 178,000
Cameron-Newell Advertising,
Inc......................... Recruitment Advertising North America August 2, 1999 840,000
Brook St. Bureau Pty, Ltd..... Selection & Temporary Asia-Pacific August 3, 1999 261,800
Contracting
LAI Worldwide, Inc............ Executive Search North America August 26, 1999 2,119,642
Fox Advertising, Inc.......... Yellow Page Advertising North America August 30, 1999 259,280
Lampen Group Limited.......... Selection & Temporary Asia-Pacific & August 31, 1999 826,192
Contracting United Kingdom
Highland Search Group Executive Search North America October 21, 1999 1,398,666
L.L.C.......................
TMC S.r.l. ("Amrop Italy").... Executive Search Europe October 27, 1999 118,560
</TABLE>
The effects on the Company's financial statements as of December 31, 1998
and 1997 and for the years then ended of mergers accounted for as poolings of
interests consummated during the year ended December 31, 1999 are reflected in
the Company's financial statements as of December 31, 1998 and 1997 and for the
years then ended as previously reported on the Company's Form 10-K for the year
ended December 31, 1999.
During the period of January 1, 2000 through June 30, 2000, the Company
completed the following mergers which provided for the exchange of all of the
outstanding stock of each entity for shares of TMP stock and are accounted for
as poolings of interests (See Note 1):
<TABLE>
<CAPTION>
GEOGRAPHIC NUMBER OF TMP
ENTITY BUSINESS SEGMENT REGION ACQUISITION DATE SHARES ISSUED
------ ----------------------------- -------------- ------------------ -------------
<S> <C> <C> <C> <C>
HW Group PLC................. Selection & Temporary United Kingdom February 16, 2000 715,769
Contracting
Microsurf, Inc............... Interactive North America February 16, 2000 684,462
Burlington Wells, Inc........ Selection & Temporary North America February 29, 2000 52,190
Contracting
Illsley Bourbonnais.......... Executive Search North America March 1, 2000 246,702
System One Services, Inc..... Selection & Temporary North America April 3, 2000 1,022,257
Contracting
GTR Advertising.............. Recruitment Advertising North America April 4, 2000 54,041
Virtual Relocation.com, Interactive North America May 9, 2000 947,916
Inc........................
Business Technologies Ltd.... Interactive United Kingdom May 17, 2000 205,703
Simpatix, Inc................ Interactive North America May 31, 2000 152,500
Rollo Associates, Inc........ Executive Search North America May 31, 2000 110,860
Web Technology Partners, Interactive North America May 31, 2000 623,892
Inc........................
</TABLE>
F-40
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS COMBINATIONS (CONTINUED)
The effects of the First Half 2000 Mergers accounted for as poolings of
interest transactions are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
COMMISSIONS AND FEES:
TMP, as previously reported on Form 10-K for the year ended
December 31, 1999........................................... $765,805 $657,486 $541,828
HW Group PLC.............................................. 41,708 46,774 37,915
Microsurf, Inc............................................ 5,040 1,543 260
Burlington Wells, Inc..................................... 2,705 2,101 1,390
Illsley Bourbonnais....................................... 7,997 5,568 7,007
System One Services, Inc.................................. 33,573 23,212 15,454
GTR Advertising........................................... 2,961 2,943 2,316
Virtual Relocation.com, Inc............................... 1,353 168 15
Business Technologies Ltd................................. 786 352 --
Simpatix, Inc............................................. 37 (5) --
Rollo Associates, Inc..................................... 3,597 2,599 2,382
Web Technology Partners, Inc.............................. 3,645 1,776 2,195
-------- -------- --------
TMP, as restated............................................ $869,207 $744,517 $610,762
======== ======== ========
NET INCOME (LOSS) APPLICABLE TO COMMON AND CLASS B COMMON
SHAREHOLDERS:
TMP, as previously reported on Form 10-K for the year ended
December 31, 1999........................................... $ (7,405) $ 20,542 $ 41,831
HW Group PLC.............................................. (3,664) 4,458 2,956
Microsurf, Inc............................................ 509 283 (84)
Burlington Wells, Inc..................................... 336 309 220
Illsley Bourbonnais....................................... 4,313 3,192 3,904
System One Services, Inc.................................. (82) 168 868
GTR Advertising........................................... 123 229 128
Virtual Relocation.com, Inc............................... (2,922) (480) (35)
Business Technologies Ltd................................. 111 65 --
Simpatix, Inc............................................. (552) (473) (212)
Rollo Associates, Inc..................................... 301 679 742
Web Technology Partners, Inc.............................. (122) 71 438
-------- -------- --------
TMP, as restated............................................ $ (9,054) $ 29,043 $ 50,756
======== ======== ========
</TABLE>
<TABLE>
<S> <C> <C> <C>
NET INCOME (LOSS) PER COMMON AND CLASS B COMMON
SHAREHOLDERS:
Basic
TMP, as previously reported on Form 10-K for the period
ended December 31, 1999................................... $ (0.09) $ 0.27 $ 0.58
TMP, as restated............................................ $ (0.11) $ 0.36 $ 0.67
Diluted
TMP, as previously reported on Form 10-K for the period
ended December 31, 1999................................... $ (0.09) $ 0.26 $ 0.57
TMP, as restated............................................ $ (0.11) $ 0.35 $ 0.66
</TABLE>
F-41
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS COMBINATIONS (CONTINUED)
MERGER & INTEGRATION COSTS INCURRED WITH POOLING OF INTERESTS TRANSACTIONS
In connection with pooling of interests transactions completed during 1999,
the Company expensed merger & integration costs of which $16,792 was expensed in
the fourth quarter and $63,054 was expensed for the twelve months ended December
31, 1999. Of this amount $27,442 is for merger costs and $35,612 is for
integration costs.
The merger costs for the year ended December 31, 1999 consist of (1) $5,944
of non-cash employee stay bonuses, which include (a) $4,826 for the amortization
of $16,437 recorded as prepaid compensation and a corresponding long-term
liability, being expensed over the course of a year from the date of grant for
TMP shares set aside for key personnel of acquired companies who must remain
employees of the Company for a full year in order to earn such shares, (b) $351
which is related to an option grant to employees of a pooled company and which
represents the difference between the option price and the stock price on the
day the options were granted and (c) $767 for TMP shares given to key personnel
of a pooled company as employee stay bonuses, (2) $2,466 paid in cash to key
personnel of pooled companies as employee stay bonuses, (3) $12,606 of
transaction related costs, including legal, accounting, printing and advisory
fees and the costs incurred for the subsequent registration of shares issued in
the acquisitions and (4) $6,426 in severance costs for managers of pooled
companies. The $35,612 of integration costs consist of: (a) $9,221 for assumed
obligations of closed facilities, (b) $20,392 for consolidation of acquired
facilities, (c) $3,172 for severance, relocation and other employee costs and
(d) a $2,827 provision for uncollectible accounts receivable. See schedule in
Accrued Integration and Restructuring Costs below.
In connection with the pooling of interests transactions completed during
1998, the Company expensed merger related costs of $22,412. The $22,412 of
merger costs for the year ended December 31, 1998 consists of (1) $11,934 of
non-cash employee stay bonuses, which included (a) $3,622 for the amortization
of $5,986, recorded as prepaid compensation and a corresponding long-term
liability, being expensed over the eighteen months from April 1, 1998 to
September 30, 1999 for TMP shares set aside for key personnel of JSK and TCG who
must remain employees of the Company for a full year in order to earn such
shares and (b) $8,312 for TMP shares to key personnel of TASA, JSK, Stackig, the
SMART Group, Recruitment Solutions and TCG as employee stay bonuses and (2)
$1,461 of stay bonuses paid as cash to key personnel of the Pooled Companies and
(3) $9,017 of transaction related costs, including legal, accounting and
advisory fees and the costs incurred for the subsequent registration of shares
issued in the acquisitions.
ACQUISITIONS ACCOUNTED FOR USING THE PURCHASE METHOD
In addition to the pooling of interests transactions discussed above, the
Company has acquired 55 businesses (primarily Recruitment Advertising
businesses) between January 1, 1997 and December 31, 1999 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
which had commissions & fees of approximately $47,600 for the year ended
September 30, 1996. The total amount of cash paid and promissory notes and
Common Stock of the Company issued for these acquisitions was approximately
$59,030, $34,168 and $98,100 for 1999, 1998 and 1997, respectively. The shares
of common stock issued by the Company in connection with certain of the above
mentioned acquisitions were 928,619, 402,812 and 367,394 for 1999, 1998 and
1997, respectively. These acquisitions have been accounted for under the
purchase method of
F-42
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS COMBINATIONS (CONTINUED)
accounting and accordingly, operations of these businesses have been included in
the consolidated financial statements from their acquisition dates.
On February 27, 1998, LAI completed the acquisition of Ward Howell
International, Inc. ("WHI"). The purchase price was approximately $19,500
including $7,600 in notes payable and approximately $3,050 in LAI common stock.
The remaining $8,850 of the purchase consideration was payable to the former WHI
stockholders as of February 28, 1998 and is accrued for in the accompanying
balance sheets. The acquisition was accounted for as a purchase with goodwill
being recognized for the excess of the purchase amount over the fair market
value of the assets acquired.
On January 2, 1998, LAI acquired Chartwell Partners International, Inc.
("CPI"). The acquisition cost was approximately $3,100 and consisted of
approximately $1,400 in cash, a $1,250 convertible subordinated note payable and
$400 of LAI common stock. The acquisition was accounted for as a purchase with
goodwill being recognized for the excess of the purchase amount over the fair
value of the assets acquired. The convertible subordinated note is payable in
three equal installments, plus accrued interest and bears interest at 6.75%. The
subordinated note is convertible into shares of common stock at each anniversary
at prices specified in the asset purchase agreement.
The summarized unaudited pro forma results of operations set forth below for
the years ended December 31, 1999 and 1998 assume the acquisitions in 1999 and
1998 occurred as of the beginning of the year of acquisition and the beginning
of the preceding year.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Total commissions and fees.............................. $887,723 $793,982
Net income (loss) applicable to common and Class B
common stockholders................................... $ (8,578) $ 29,762
Net income (loss) per common and Class B common share:
Basic................................................. $ (0.10) $ 0.36
Diluted............................................... $ (0.10) $ 0.35
</TABLE>
The unaudited pro forma results of operations are not necessarily indicative
of what actually would have occurred if the acquisitions had been completed at
the beginning of each of the years presented, nor are the results of operations
necessarily indicative of the results that will be attained in the future.
ACCRUED INTEGRATION AND RESTRUCTURING COSTS
Pursuant to the conclusions reached by the Emerging Issues Task Force
("EITF") of the FASB in EITF Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)," and No. 95-3, "Recognition of
Liabilities in Connection with a Purchase Business Combination," in connection
with the acquisitions and mergers made in 1997, 1998 and 1999, the Company
formulated plans to integrate the operations of such companies. Such plans
involve the closure of certain offices of the acquired and merged companies and
the termination of certain management and employees. The objectives of the plans
are to eliminate redundant facilities and personnel, and to create a single
brand in the related markets in which the Company operates.
In connection therewith the Company expensed $35,612 in 1999, relating to
integration activities which are included in merger and integration expenses. In
addition, in 1999 LAI formulated plans to close
F-43
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS COMBINATIONS (CONTINUED)
its London England and Hong Kong offices. In connection with these office
closings, LAI charged earnings for the year ended December 31, 1999 and 1998 for
$2,789 and $3,543, respectively. These costs and liabilities include:
<TABLE>
<CAPTION>
DEDUCTIONS
ADDITIONS --------------------------
BALANCE --------------------- APPLIED BALANCE
DECEMBER 31, CHARGED TO AGAINST RELATED DECEMBER 31,
1998 GOODWILL EXPENSED ASSET PAYMENTS 1999
------------ ---------- -------- --------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Assumed obligations on closed leased
facilities................................... $ 9,590 $ 705 $ 9,737 $ (1,872) $ (8,596) $ 9,564(a)
Consolidation of acquired facilities........... 2,745 1,317 21,427 (6,704) (10,070) 8,715(b)
Contracted lease payments exceeding current
market costs................................. 707 -- -- -- (145) 562(c)
Severance, relocation and other employee
costs........................................ 1,952 1,359 4,410 (1,780) (4,987) 954(d)
Provision for uncollectible receivable......... -- -- 2,827 (2,827) -- --
Pension obligations............................ 1,753 -- -- -- (95) 1,658(e)
------- ------ ------- -------- -------- -------
Total.......................................... $16,747 $3,381 $38,401 $(13,183) $(23,893) $21,453
======= ====== ======= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
DEDUCTIONS
ADDITIONS --------------------------
BALANCE --------------------- APPLIED BALANCE
DECEMBER 31, CHARGED TO AGAINST RELATED DECEMBER 31,
1997 GOODWILL EXPENSED ASSET PAYMENTS 1998
------------ ---------- -------- --------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Assumed obligations on closed leased
facilities................................... $ 7,830 $ 767 $ 2,423 $ -- $ (1,430) $ 9,590
Consolidation of acquired facilities........... 2,521 5,720 -- -- (5,496) 2,745
Contracted lease payments exceeding current
market costs................................. 783 73 -- -- (149) 707
Severance, relocation and other employee
costs........................................ 4,017 3,357 1,120 -- (6,542) 1,952
Provision for uncollectible receivable......... -- -- -- -- -- --
Pension obligations............................ 1,650 103 -- -- -- 1,753
------- ------- ------- -------- -------- -------
Total.......................................... $16,801 $10,020 $ 3,543 $ -- $(13,617) $16,747
======= ======= ======= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
DEDUCTIONS
ADDITIONS --------------------------
BALANCE --------------------- APPLIED BALANCE
DECEMBER 31, CHARGED TO AGAINST RELATED DECEMBER 31,
1996 GOODWILL EXPENSED ASSET PAYMENTS 1997
------------ ---------- -------- --------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Assumed obligations on closed leased
facilities................................... $ -- $ 8,002 $ -- $ -- $ (172) $ 7,830
Consolidation of acquired facilities........... -- 2,521 -- -- -- 2,521
Contracted lease payments exceeding current
market costs................................. -- 1,473 -- -- (690) 783
Severance, relocation and other employee
costs........................................ -- 4,017 -- -- -- 4,017
Provision for uncollectible receivable......... -- -- -- -- -- --
Pension obligations............................ -- 1,650 -- -- -- 1,650
------- ------- ------- -------- -------- -------
Total.......................................... $ -- $17,663 $ -- $ -- $ (862) $16,801
======= ======= ======= ======== ======== =======
</TABLE>
------------------------------
(a) Accrued liabilities for surplus property in the amount of $9,564 as of
December 31, 1999 relate to 28 leased office locations of the acquired
companies that were either unutilized prior to the acquisition date or will
be closed by December 31, 2000 in connection with the integration plans. The
amount is based on the present value of minimum future lease obligations,
net of estimated sublease income.
F-44
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS COMBINATIONS (CONTINUED)
(b) Other costs associated with the consolidation of existing offices of
acquired companies in the amount of $8,715 as of December 31, 1999 relate to
termination costs of contracts relating to billing systems, external
reporting systems and other contractual arrangements with third parties.
(c) Above market lease costs in the amount of $562 as of December 31, 1999
relate to the present value of contractual lease payments in excess of
current market lease rates.
(d) Estimated severance payments, employee relocation expenses and other
employee costs in the amount of $954 as of December 31, 1999 relate 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 corporate headquarters
and administrative personnel. As of December 31, 1999 the accrual related to
approximately 48 employees including senior management, sales, service and
administrative personnel. During the year ended December 31, 1999, payments
of $4,987 were made to 43 members of senior management and employees for
severance and charged against the reserve.
(e) Pension obligations in the amount of $1,658 were assumed in connection with
the acquisition of Austin Knight.
The Company continues to evaluate and assess the impact of duplicate
responsibilities and office locations. In connection with the finalization of
preliminary plans relating to purchased entities, additions to restructuring
reserves within one year of the date of acquisition are treated as additional
purchase price; costs incurred resulting from plan revisions made after the
first year will be charged to operations in the period in which they occur.
NOTE 6--INTANGIBLES, NET
Intangibles, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- AMORTIZATION
1999 1998 PERIOD (YEARS)
-------- -------- --------------
<S> <C> <C> <C>
Client lists, net of accumulated amortization of $6,349 and
$5,709, respectively...................................... $ 14,376 $ 9,981 5 to 30
Covenants not to compete, net of accumulated amortization of
$2,905 and $2,551, respectively........................... 1,880 2,080 2 to 6
Excess of cost of investments over fair value of net assets
acquired, net of accumulated amortization of $31,096 and
$20,903, respectively..................................... 295,336 254,059 5 to 30
Other, net of accumulated amortization of $2,206 and $2,060,
respectively.............................................. 281 424 4 to 10
-------- --------
$311,873 $266,544
======== ========
</TABLE>
NOTE 7--SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes amounted to the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest......................................... $15,884 $14,264 $14,519
Income taxes..................................... 13,287 13,136 15,818
</TABLE>
F-45
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 7--SUPPLEMENTAL CASH FLOW INFORMATION (CONTINUED)
In conjunction with business acquisitions, the Company used cash as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Fair value of assets acquired, excluding cash... $47,044 $50,365 $156,182
Less: Liabilities assumed and created upon
acquisition................................... (19,034) (13,386) (72,522)
------- ------- --------
Net cash paid................................... $28,010 $36,979 $ 83,660
======= ======= ========
Capital lease obligations incurred.............. $ 75 $ 217 $ 5,884
======= ======= ========
</TABLE>
NOTE 8--FINANCING AGREEMENT
The Company obtains its primary financing from a financial institution under
a five year financing agreement as amended and restated on June 27, 1996,
further amended on November 14, 1997, and amended and restated again on November
5, 1998 (the "Agreement"). Subsequent to the five year term, which expires on
November 4, 2003, the Agreement provides for one year extensions subject to bank
approval unless terminated by either party at least 90 days prior to expiration
of the initial term or any renewal term. The Agreement, as amended, provides for
borrowings of up to $185,000 at the Company's choice of either (1) the higher of
(a) prime rate or (b) Federal Funds rate less ( 1)/(2) of 1% or (2) LIBOR plus a
margin determined by the ratio of the Company's debt to earnings before
interest, taxes, depreciation and amortization (EBITDA) as defined in the
Agreement. At December 31, 1999 the margin equaled 0.75%. Borrowings under the
Agreement are based on 90% of eligible accounts receivable, which are amounts
billed under 120 days old and amounts to be billed as defined in the Agreement.
Substantially all of the assets of the Company are pledged as collateral for
borrowings under the Agreement. The Agreement contains certain covenants which
restrict, among other things, the ability of the Company to borrow, pay
dividends, acquire businesses, guarantee debts of others and lend funds to
affiliated companies and contains criteria on the maintenance of certain
financial statement amounts and ratios, all as defined in the Agreement. The
Agreement also provides for a fee on any unused portion of the commitment based
upon a rate determined by the ratio of the Company's debt to EBITDA. At December
31, 1999, this rate equaled 0.20%. In addition, the Agreement provides for a
declining termination fee of $1,000, $500, $0 for the annual periods ended
November 5, 1999, 2000, and 2001, respectively. The outstanding principal under
this agreement as of December 31, 1999 is approximately $91.2 million of which
$17.2 million is reflected as a reduction to accounts receivable and $15.3
million is for letters of credit. See Notes 9 and 17.
At December 31, 1999, the prime rate, Federal funds rate and one month LIBOR
were 8.50%, 5.50% and 5.82% respectively, and borrowings outstanding were at a
weighted average interest rate of 6.57%.
F-46
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 9--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Borrowings under financing agreement (see Note 8)........... $ 58,664 $ 97,720
Borrowings under other financing agreements, interest
payable at rates varying from 5.0% to 9.2%, and
collateralized by assets in certain foreign countries..... 9,717 8,251
Notes payable to former WHI stockholders dated February 27,
1998, payable in three equal annual installments plus
accrued interest bearing interest at 5.0%................. 1,324 4,892
Convertible subordinated promissory note issued by LAI in
connection with an acquisition, dated January 2, 1998,
payable in three equal annual installments plus accrued
interest, bearing interest at 6.75%, and convertible into
shares of common stock at each anniversary date at prices
specified in the asset purchase agreement................. 417 833
Senior subordinated promissory note issued by System One
with interest at 16% with 11% paid quarterly and 5%
deferred and recorded as part of the principal amount due,
payable in varying installments through 2006.............. 18,164 --
Line of credit collateralized by System One's assets, due
December 2001............................................. 10,738 13,550
Other acquisition notes payable, non-interest bearing,
interest imputed at 6.7% to 8.0%, in varying installments
through 2001.............................................. 3,511 8,121
Capitalized lease obligations, payable with interest from 9%
to 15%, in varying installments through 2001 (see Note
14)....................................................... 8,267 9,203
Term note payable, maturing February 1999................... -- 10,000
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..................... -- 7,557
Notes payable, in varying monthly installments maturing
through 2001, with interest at rates ranging from 6.5% to
9.5%...................................................... 364 2,862
-------- --------
111,166 162,989
Less: Current portion....................................... 11,068 16,267
-------- --------
$100,098 $146,722
======== ========
</TABLE>
F-47
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 9--LONG-TERM DEBT (CONTINUED)
Long-term debt matures as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
2001........................................................ $ 19,997
2002........................................................ 1,333
2003........................................................ 59,998*
2004........................................................ 6,852
Thereafter.................................................. 12,645
--------
$100,825**
========
</TABLE>
------------------------
* Of this amount, $58,664 is subject to one year extensions subsequent to
2003. See Note 8.
** Includes $727 of original issue discount, which is shown net in the
consolidated balance sheet as of December 31, 1999.
NOTE 10--MINORITY INTERESTS
In connection with an acquisition in 1990, a subsidiary of the Company
issued 88,425 shares of nonvoting convertible 10% cumulative preferred stock in
exchange for 176,850 shares (58%) of the outstanding common stock of the
acquired company held by the acquired company's employee stock ownership trust.
These shares were redeemed in January 1997 for a total of $3,133, which included
a redemption premium of $133.
NOTE 11--REDEEMABLE PREFERRED STOCK
During 1991, the Company sold 200,000 shares of 10.5% 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 12--STOCKHOLDERS' EQUITY
(A) COMMON AND CLASS B COMMON STOCK
Common and Class B common stock have identical rights except that each share
of Class B common stock is entitled to ten votes and is convertible, at any
time, at the option of the stockholder into one share of common stock.
Effective February 29, 2000, a 2-for-1 stock split in the form of a stock
dividend was paid. All share and per share amounts in the accompanying
consolidated financial statements have been restated to give effect to the stock
split.
(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
F-48
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
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 1,800,000 shares (amended to 6,000,000 on April 27, 1998) of the common
stock of the Company. The Stock Option Plan permits the granting of options to
officers, employees and consultants of the Company, its subsidiaries and
affiliates.
Under the Stock Option Plan, the exercise price of an incentive stock option
must be at least equal to 100% of the fair market value of the common stock on
the date of grant (110% of the fair market value in the case of options granted
to employees who hold more than ten percent of the voting power of the Company's
capital stock on the date of grant). The exercise price of a nonqualified stock
option must be not less than the par value of a share of the common stock on the
date of grant. The term of an incentive or nonqualified stock option is not to
exceed ten years (five years in the case of an incentive stock option granted to
a ten percent holder). The Stock Option Plan provides that the maximum option
grant which may be made to an executive officer in any calendar year is 90,000
shares (amended to 300,000 on June 25, 1997). At December 31, 1999,
approximately 2,008,451 options were exercisable and 1,625,742 options are
available for future grants.
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 360,000 shares of common stock may be granted to
nonemployee directors. Options granted under the Directors' Plan do not qualify
as incentive stock options within the meaning of Section 422 of the Code. The
Directors' Plan provides for an automatic grant to each of the Company's
nonemployee directors of an option to purchase 22,500 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. At
December 31, 1999, approximately 104,740 options were exercisable and 170,000
options were available for future grants
In December 1998, the Company also adopted, subject to stockholder approval,
a long-term incentive plan (the "1999 Plan"), pursuant to which stock options,
stock appreciation rights, restricted stock and other equity based awards may be
granted. Stock options which may be granted may be incentive stock options and
nonqualified stock options within the meaning of the Code. The total number of
shares of the common stock of the Company which may be granted under the 1999
Plan is the sum of 30,000,000 and the number of shares available for new awards
under the Stock Option Plan. At December 31, 1999, approximately 1,138,556
options were exercisable and 17,427,886 options are available for future grants.
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 fair
value for these options was estimated at the date of grant using the Black-
Scholes option pricing model with the following weighted average assumptions;
risk-free interest rates of approximately 6.1%, 4.6% and 6.5% in 1999, 1998 and
1997, respectively; volatility factor of the expected market price of the
Company's common stock of 46%, 24% and 27% in 1999, 1998 and 1997, respectively;
F-49
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
a weighted average expected life of the options of 8 years in 1999, 1998 and
1997; and no dividend yield in 1999, 1998 and 1997.
Under the accounting provisions of SFAS 123, the Company's net income (loss)
and net income (loss) per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income (loss) applicable to common and Class B common
stockholders.............................................. $(41,874) $22,066 $46,628
Net income (loss) per common and Class B common share
Basic..................................................... $ (0.50) $ 0.27 $ 0.61
Diluted................................................... $ (0.50) $ 0.26 $ 0.60
</TABLE>
A summary of the status of the Company's fixed stock option plans as of
December 31, 1999, 1998 and 1997, and changes during the years ending on those
dates is presented.
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------- -------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- -------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year........................ 8,615,402 $12.12 5,659,600 $ 9.76 1,685,457 $3.93
Granted....................... 10,724,025 30.53 4,088,951 18.10 4,593,711 11.36
Exercised..................... (2,323,242) 8.75 (488,224) 3.60 (218,670) 4.17
Forfeited/cancelled........... (1,058,843) 20.50 (644,925) 35.83 (400,898) 6.59
---------- --------- ---------
Outstanding at end of year.... 15,957,342 $24.43 8,615,402 $12.12 5,659,600 $9.76
========== ========= =========
Options exercisable at
year-end.................... 3,251,747 $12.16 768,594 $10.03 377,712 $3.63
========== ========= =========
Weighted average fair value of
options granted during the
year........................ $18.74 $ 5.86 $3.28
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999.
<TABLE>
<CAPTION>
WEIGHTED NUMBER WEIGHTED AVERAGE NUMBER
AVERAGE OUTSTANDING AT REMAINING EXERCISABLE AT
EXERCISE PRICE DECEMBER 31, 1999 CONTRACTUAL LIFE(YEARS) DECEMBER 31, 1999
--------------------- ----------------- ----------------------- -----------------
<S> <C> <C> <C>
0.6$0 to $10.00.... 2,717,510 7.0 1,855,625
10.01 to 20.00.... 3,354,182 8.6 939,662
20.01 to 26.00.... 5,334,754 9.5 338,680
26.01 to 50.00.... 4,531,930 9.7 102,680
50.01 to 81.38.... 18,966 8.0 15,100
---------- ---------
15,957,342 3,251,747
========== =========
</TABLE>
F-50
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES
The components of income (loss) before the provision (benefit) for income
taxes, minority interests and equity in losses of affiliates are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Domestic........................................ $(14,995) $ 7,707 $27,198
Foreign......................................... 13,256 38,644 46,815
-------- ------- -------
Total income (loss) before provision (benefit)
for income taxes, minority interests and
equity in losses of affiliates................ $ (1,739) $46,351 $74,013
======== ======= =======
</TABLE>
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current tax provision:
U.S. Federal................................... $ 276 $ 1,073 $ 3,556
State and local................................ 1,062 1,611 3,037
Foreign........................................ 10,401 15,507 9,819
------- ------- -------
Total current.................................... 11,739 18,191 16,412
------- ------- -------
Deferred tax provision (benefit):
U.S. Federal................................... (1,110) 2,719 2,178
State and local................................ (1,258) (639) 550
Foreign........................................ (2,463) (3,387) 3,665
------- ------- -------
Total deferred................................... (4,831) (1,307) 6,393
------- ------- -------
Total provision.................................. $ 6,908 $16,884 $22,805
======= ======= =======
</TABLE>
F-51
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to the Company's
deferred tax asset (liability) are below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Current deferred tax assets (liabilities):
Earned commissions..................................... $ (4,945) $(5,124)
Allowance for doubtful accounts........................ 8,241 6,699
Work-in-process........................................ (5,668) (5,224)
Prepaid and other...................................... (121) (692)
Accrued expenses and other liabilities................. 6,699 9
Accrued compensation................................... 2,746 (418)
Tax loss carryforwards................................. 3,405 1,079
-------- -------
Total current deferred tax asset (liability)............. 10,357 (3,671)
-------- -------
Noncurrent deferred tax assets (liabilities):
Property and equipment................................. (2,143) (2,299)
Intangibles............................................ 12,753 (1,344)
Accrued expenses and other liabilities................. 639 3,768
Accrued rent........................................... 430 499
Deferred compensation.................................. 3,899 3,213
Tax loss carryforwards................................. 20,611 8,405
Valuation allowance.................................... (10,952) (3,128)
-------- -------
Total noncurrent deferred tax asset...................... 25,237 9,114
-------- -------
Net deferred tax asset................................... $ 35,594 $ 5,443
======== =======
</TABLE>
At December 31, 1999, the Company has net operating loss carryforwards for
U.S. Federal tax purposes of approximately $50 million which expire through 2019
and operating loss carryfowards in the United Kingdom and Australia of
approximately $8.3 million and $1.3 million, respectively. The Company has
concluded that, based on expected future results, the future reversals of
existing taxable temporary differences, the tax benefits derived from the
exercise of nonqualified employee stock options, the amortization of benefits
from taxable poolings and the loss carryforwards of certain subsidiaries, which
are only usable by such subsidiary, there is no reasonable assurance that the
entire tax benefit can be used. Accordingly, a valuation allowance has been
established. The deferred tax benefits from taxable poolings and the tax
benefits derived from the exercise of nonqualified stock options, net of the
valuation allowance, were recorded as additional paid-in capital.
F-52
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED)
The provision for income taxes differs from the amount computed using the
Federal statutory income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Provision (benefit) at Federal statutory rate.... $ (500) $16,221 $24,956
State income taxes, net of Federal income tax
effect......................................... (347) 672 1,945
Nondeductible expenses(1)........................ 9,151 5,462 1,429
Nondeductible special charge..................... 438 510
---
Foreign income taxes at other than the Federal
statutory rate................................. (199) (1,656) 583
Profits of pooled entities taxed directly to
owners......................................... (2,883) (3,774) (5,719)
Increase in valuation allowance of pooled
entities....................................... 1,109 173 12
Other............................................ 577 (652) (911)
------- ------- -------
Income tax provision............................. $ 6,908 $16,884 $22,805
======= ======= =======
</TABLE>
------------------------
(1) Primarily due to nondeductible (i) merger costs of $12.5 million, $6.9
million and $0, respectively which at the Federal statutory rate would have
equated to a tax benefit of $4.4 million, $2.4 million and $0, respectively,
(ii) amortization of intangible assets and (iii) meals & entertainment
expenses.
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, 1999, the
cumulative amount of reinvested earnings was approximately $26.0 million.
F-53
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases its facilities and certain equipment under operating
leases and certain equipment under capital leases. Future minimum lease
commitments under both noncancellable operating leases and capital leases at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
2000...................................................... $4,298 $ 45,260
2001...................................................... 2,561 43,921
2002...................................................... 1,356 36,891
2003...................................................... 894 31,145
2004...................................................... 9 27,275
Thereafter................................................ -- 101,536
------ --------
9,118 $286,028
========
Less: Amount representing interest........................ 851
------
Present value of minimum lease payments................... 8,267
Less: Current portion..................................... 4,298
------
$3,969
======
</TABLE>
Rent and related expenses under operating leases amounted to $44,471,
$30,619, and $26,861 for the years ended December 31, 1999, 1998 and 1997,
respectively.
In February 2000 the Company signed a lease to occupy 84,342 square feet
located at 205 Hudson Street, New York, New York to house the Interactive
operations of its Recruitment Advertising division and Yellow Page division,
which includes IN2. The lease will commence upon the completion of a work order
and expires in 2010. Monthly payments under the new lease will be $170,441
through August 31, 2005 and $198,555 through the remainder of the lease and will
escalate during the terms of the lease. This space allows for the future
expansion of these and other Interactive operations of the Company.
(B) CONSULTING, EMPLOYMENT AND NON-COMPETE AGREEMENTS
The Company has entered into various consulting, employment and non-compete
agreements with certain management personnel, executive search consultants 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.
The Company has entered into an amended employment agreement with Andrew J.
McKelvey, effective November 15, 1996, 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
the expiration of the then current term. The agreement also provides that
Mr. McKelvey will serve as Chairman of the Board and CEO of the Company and will
be nominated for election as a director during all periods of his employment.
Under the agreement, Mr. McKelvey is entitled to a base salary of $1,500 per
year and until November 1998, when his agreement was amended, was
F-54
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--COMMITMENTS AND CONTINGENCIES (CONTINUED)
entitled to mandatory quarterly bonuses of $375. Mr. McKelvey waived such
bonuses. On May 1, 1999, the Company and Mr. McKelvey further amended the
employment agreement to provide for an annual base salary of $500 and an annual
bonus, based on exceeding earnings per share targets, not to exceed $500.
Mr. McKelvey was paid $834 in 1999. Under the agreement, Mr. McKelvey may
terminate his employment upon 90 days' prior written notice for any reason. The
agreement also provides that in the event Mr. McKelvey's employment is
terminated by the Company prior to its expiration for reasons other than for
"cause," the Company shall pay Mr. McKelvey his base salary for the remaining
term of the agreement at the times it would have been payable had he remained
employed. The agreement further provides that in the event of Mr. McKelvey's
voluntary resignation, termination of his employment by the Company for cause or
nonrenewal of the agreement, Mr. McKelvey shall not be entitled to any
severance, and in the event of his disability or death he or his estate shall be
paid his base salary for a period of 180 days after any such termination at the
times it would have been payable had he remained employed. The agreement also
contains confidentially provisions, whereby Mr. McKelvey agrees not to disclose
any confidential information regarding the Company and its affiliates.
Such agreements provide for the following aggregate annual payments:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
2000........................................................ $11,009
2001........................................................ 7,596
2002........................................................ 2,863
2003........................................................ 1,956
2004........................................................ 1,290
Thereafter.................................................. 1,098
-------
$25,812
=======
</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 $1,175, $924 and $813 for the years
ended December 31, 1999, 1998 and 1997, respectively. LAI maintains a defined
contribution profit sharing plan covering substantially all employees. In August
1998, the plan was amended to add a 401(k) savings and company matching feature.
LAI profit sharing and matching contributions are discretionary and are funded
annually as approved by the LAI Board of Directors. For the years ended December
31, 1999 and 1998, as reported herein, employer matching contributions for LAI
amounted to $437 and $1,600, respectively. Effective January 1, 2000, LAI
employees began contributing to the TMP plan. The LAI plan will be combined with
TMP's plan during 2000.
Outside of the United States, the Company has employee benefit plans in the
countries in which it operates. The cost of these plans amounted to $6,234,
$5,102 and $4,438 for the years ended December 31, 1999, 1998 and 1997,
respectively.
LAI has deferred compensation agreements with 58 employees and former
employees. Under the terms of the agreements, employees are eligible to make
annual elections, on calendar year basis, to defer
F-55
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--COMMITMENTS AND CONTINGENCIES (CONTINUED)
a portion of their compensation. This compensation, together with accrued
interest, is paid upon termination of the agreements, as defined. Effective
January 1, 1999, the plan was amended to prohibit future deferrals of
compensation to the plan. The present value of the obligation is recorded as a
long-term liability in the accompanying consolidated balance sheets and was
$9,786 at December 31, 1999. Interest is earned on deferred amounts at a rate
determined annually by LAI (6.25% at December 31, 1999).
(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.
M & B has had proceedings issued against it in New Zealand for an amount of
$3,400. These proceedings relate to the acquisition of the claimant's business
in New Zealand prior to Morgan & Banks New Zealand Limited becoming a controlled
entity of the M & B group. The parties have engaged in significant discovery.
The directors of M & B are of the opinion that the claim is without substance
and, accordingly, the action is being vigorously defended.
(E) AOL MARKETING AGREEMENT
On December 1, 1999, the Company entered into a content and marketing
arrangement with America Online, Inc. Pursuant to this arrangement, the
Company's flagship Interactive property, Monster.com(sm), for the payment of
$100 million over four years, would be the exclusive provider of career search
services in the United States and Canada for four years to AOL members,
currently over 21 million, across seven AOL properties, including the AOL
Service, AOL Canada, Compuserve, ICQ, AOL.com, Netscape and Digital City. The
$100 million will be expensed pro rata over the four year life of the agreement
pursuant to the number of impressions contracted per year as a percent of the
total impressions anticipated over the life of the agreement.
(F) 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, 1999 is
approximately $6,200 based on the formula.
NOTE 15--RELATED PARTY TRANSACTIONS
(A) The Company charged management and other fees to affiliates for services
provided of approximately $1,257, $651 and $788 for the years ended December 31,
1999, 1998, and 1997, respectively. Such fees are reflected as a reduction of
salaries and related costs in the accompanying consolidated statements of
operations.
F-56
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 15--RELATED PARTY TRANSACTIONS (CONTINUED)
(B) 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 31, 1997 at
which time the arrangement was terminated.. The Company also entered into
three-year employment and consulting agreements with the two other stockholders
of the agency and granted them the right to convert their agency shares into
Company shares after an initial public offering. That conversion right, as
amended, provided that those two stockholders may convert 25% of the agency's
stock into unregistered common stock of the Company with a total value of $1,000
as of the effective date of conversion. The conversion was exercised in February
1997 and 123,696 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.
(C) The Company leases an office from an entity in which the Principal
Stockholder and other stockholders have a 90% ownership interest. Annual rent
expense under the lease, which expires in the year 2004, amounts to
approximately $554.
(D) Beginning in June 1999, the Company periodically used the services of an
aircraft from a company owned by the Principal Stockholder, and in connection
therewith, $215 was paid through December 1999.
NOTE 16--SEGMENT AND GEOGRAPHIC DATA
The Company operates in five business segments: Interactive (including
Monster.com(sm) and MonsterMoving.com(sm)), Recruitment Advertising, Selection &
Temporary Contracting, Executive Search and Yellow Pages Advertising which now
also includes full service interactive advertising and marketing technology
services through IN2. Operations are conducted in several geographic regions:
North America, the Asia/Pacific Region (primarily Australia and New Zealand),
the United Kingdom and Continental Europe. The following is a summary of the
Company's operations by business segment and by geographic region, for the years
ended December 31, 1999, 1998 and 1997. Overhead is allocated based on
retroactively restated commissions and fees.
F-57
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 16--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
INTERACTIVE SELECTION & YELLOW
--------------------------------------- RECRUITMENT TEMPORARY EXECUTIVE PAGE
INFORMATION BY BUSINESS SEGMENT MONSTER.COM(SM) MONSTERMOVING.COM(SM) ADVERTISING CONTRACTING SEARCH ADVERTISING
------------------------------- --------------- --------------------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1999
Commissions and fees:
Traditional sources......... $ -- $ -- $181,228 $269,008 $173,277 $101,294
Interactive................. 112,323 6,393 13,352 6,447 -- 5,885
-------- ------- -------- -------- -------- --------
Total commissions and fees.... 112,323 6,393 194,580 275,455 173,277 107,179
-------- ------- -------- -------- -------- --------
Operating expenses:
Salaries & related costs,
office & general expenses
and CEO bonus............. -- -- 158,643 236,225 173,004 61,649
Interactive expenses(a)..... 102,303 8,645 11,475 9,358 9,573 5,863
Merger & integration costs... -- -- 13,442 10,082 36,791 2,739
Restructuring charges....... -- -- -- -- 2,789 --
Amortization of
intangibles............... 236 17 6,226 2,538 971 2,544
-------- ------- -------- -------- -------- --------
Total operating expenses...... 102,539 8,662 189,786 258,203 223,128 72,795
-------- ------- -------- -------- -------- --------
Operating income (loss):
Traditional sources......... -- -- 2,917 20,163 (40,278) 34,362
Interactive................. 9,784 (2,269) 1,877 (2,911) (9,573) 22
-------- ------- -------- -------- -------- --------
Total operating income
(loss)....................... $ 9,784 $(2,269) $ 4,794 $ 17,252 $(49,851) $ 34,384
======== ======= ======== ======== ======== ========
Total other expense, net...... * * * * * *
Loss before provision for
income taxes, minority
interests and equity in losses
of affiliates................ * * * * * *
Total assets.................. $ 96,636 $ 6,052 $412,188 $232,793 $ 90,547 $215,012
======== ======= ======== ======== ======== ========
<CAPTION>
INFORMATION BY BUSINESS SEGMENT TOTAL
------------------------------- ----------
<S> <C>
Year ended December 31, 1999
Commissions and fees:
Traditional sources......... $ 724,807
Interactive................. 144,400
----------
Total commissions and fees.... 869,207
----------
Operating expenses:
Salaries & related costs,
office & general expenses
and CEO bonus............. 629,521
Interactive expenses(a)..... 147,217
Merger & integration costs... 63,054
Restructuring charges....... 2,789
Amortization of
intangibles............... 12,532
----------
Total operating expenses...... 855,113
----------
Operating income (loss):
Traditional sources......... 17,164
Interactive................. (3,070)
----------
Total operating income
(loss)....................... 14,094
Total other expense, net...... (15,833)
----------
Loss before provision for
income taxes, minority
interests and equity in losses
of affiliates................ $ (1,739)
==========
Total assets.................. $1,053,228
==========
</TABLE>
------------------------------
a Is comprised of salaries & related, office & general, marketing & promotion
and allocated overhead.
* Not allocated.
F-58
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 16--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
INTERACTIVE SELECTION &
--------------------------------------- RECRUITMENT TEMPORARY EXECUTIVE
INFORMATION BY BUSINESS SEGMENT MONSTER.COM(SM) MONSTERMOVING.COM(SM) ADVERTISING CONTRACTING SEARCH
------------------------------- --------------- --------------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998
Total commissions and fees:
Traditional sources.............. $ -- $ -- $180,774 $208,028 $195,268
Interactive...................... 48,544 1,711 2,436 245 --
------- ------ -------- -------- --------
Total commissions and fees......... 48,544 1,711 183,210 208,273 195,268
------- ------ -------- -------- --------
Operating expenses:
Salaries & related costs, office
& general expenses and CEO
special bonus.................. -- -- 161,572 181,462 184,993
Interactive expenses(a).......... 49,014 1,931 1,977 68 --
Merger & integration costs....... -- -- 2,004 9,445 10,367
Restructuring charges............ -- -- -- 3,543
---
Amortization of intangibles...... 234 10 5,626 1,331 965
------- ------ -------- -------- --------
Total operating expenses........... 49,248 1,941 171,179 192,306 199,868
------- ------ -------- -------- --------
Operating income (loss):
Traditional sources.............. -- -- 11,572 15,790 (4,600)
Interactive...................... (704) (230) 459 177 --
------- ------ -------- -------- --------
Total operating income (loss)...... $ (704) $ (230) $ 12,031 $ 15,967 $ (4,600)
======= ====== ======== ======== ========
Total other expense, net........... * * * * *
Income before provision for income
taxes, minority interests and
equity in losses of affiliates... * * * * *
Total assets....................... $35,927 $ 424 $263,191 $148,828 $148,894
======= ====== ======== ======== ========
<CAPTION>
YELLOW
PAGE
INFORMATION BY BUSINESS SEGMENT ADVERTISING TOTAL
------------------------------- ----------- --------
<S> <C> <C>
Year ended December 31, 1998
Total commissions and fees:
Traditional sources.............. $106,455 $690,525
Interactive...................... 1,056 53,992
-------- --------
Total commissions and fees......... 107,511 744,517
-------- --------
Operating expenses:
Salaries & related costs, office
& general expenses and CEO
special bonus.................. 64,431 592,458
Interactive expenses(a).......... 760 53,750
Merger & integration costs....... 596 22,412
Restructuring charges............ 3,543
---
Amortization of intangibles...... 2,904 11,070
-------- --------
Total operating expenses........... 68,691 683,233
-------- --------
Operating income (loss):
Traditional sources.............. 38,524 61,286
Interactive...................... 296 (2)
-------- --------
Total operating income (loss)...... $ 38,820 61,284
========
Total other expense, net........... * (14,933)
--------
Income before provision for income
taxes, minority interests and
equity in losses of affiliates... * $ 46,351
========
Total assets....................... $298,417 $895,681
======== ========
</TABLE>
------------------------------
(a) Is comprised of salaries & related, office & general, marketing & promotion
and allocated overhead.
* Not allocated.
F-59
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 16--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
INTERACTIVE SELECTION &
--------------------------------------- RECRUITMENT TEMPORARY EXECUTIVE
INFORMATION BY BUSINESS SEGMENT MONSTER.COM(SM) MONSTERMOVING.COM(SM) ADVERTISING CONTRACTING SEARCH
------------------------------- --------------- --------------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Total commissions and fees:
Traditional sources............. $ -- $ -- $136,758 $180,016 $168,107
Interactive..................... 18,974 275 2,206 -- --
------- ----- -------- -------- --------
Commissions and fees.............. 18,974 275 138,964 180,016 168,107
------- ----- -------- -------- --------
Operating expenses:
Salaries & related costs, office
& general expenses and CEO
bonus......................... -- -- 125,073 157,901 143,335
Interactive expenses(a)......... 25,237 399 1,793 -- --
Amortization of intangibles..... 167 3 3,850 593 157
------- ----- -------- -------- --------
Total operating expenses.......... 25,404 402 130,716 158,494 143,492
------- ----- -------- -------- --------
Operating income (loss):
Traditional sources............. -- -- 7,835 21,522 24,615
Interactive..................... (6,430) (127) 413 -- --
------- ----- -------- -------- --------
Total operating income (loss)..... $(6,430) $(127) $ 8,248 $ 21,522 $ 24,615
======= ===== ======== ======== ========
Total other expense, net.......... * * * * *
Income before provision for income
taxes, minority interests and
equity in losses of
affiliates...................... * * * * *
Total assets...................... $14,565 $ 98 $252,109 $141,230 $137,203
======= ===== ======== ======== ========
<CAPTION>
YELLOW
PAGE
INFORMATION BY BUSINESS SEGMENT ADVERTISING TOTAL
------------------------------- ----------- --------
<S> <C> <C>
Year ended December 31, 1997
Total commissions and fees:
Traditional sources............. $103,941 $588,822
Interactive..................... 485 21,940
-------- --------
Commissions and fees.............. 104,426 610,762
-------- --------
Operating expenses:
Salaries & related costs, office
& general expenses and CEO
bonus......................... 66,059 492,368
Interactive expenses(a)......... 351 27,780
Amortization of intangibles..... 2,143 6,913
-------- --------
Total operating expenses.......... 68,553 527,061
-------- --------
Operating income (loss):
Traditional sources............. 35,739 89,711
Interactive..................... 134 (6,010)
-------- --------
Total operating income (loss)..... $ 35,873 83,701
========
Total other expense, net.......... * (9,688)
--------
Income before provision for income
taxes, minority interests and
equity in losses of
affiliates...................... * $ 74,013
========
Total assets...................... $259,311 $804,516
======== ========
</TABLE>
------------------------------
(a) Is comprised of salaries & related, office & general, marketing & promotion
and allocated overhead.
* Not allocated.
F-60
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 16--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
ASIA- UNITED CONTINENTAL
INFORMATION BY GEOGRAPHIC REGION NORTH AMERICA PACIFIC KINGDOM EUROPE TOTAL
-------------------------------- ------------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999
Commissions and fees.................. $483,466 $161,643 $132,594 $91,504 $869,207
Income (loss) before taxes, minority
interests and equity in earnings of
affiliates.......................... (5,407) 9,042 (9,712) 4,338 (1,739)
Long-lived assets..................... 166,203 38,283 108,797 79,429 392,712
Year ended December 31, 1998
Commissions and fees.................. $419,370 $131,906 $135,571 $57,670 $744,517
Income before taxes, minority
interests and equity in earnings of
affiliates.......................... 26,301 16,085 2,211 1,754 46,351
Long-lived assets..................... 156,867 32,918 110,656 48,089 348,530
Year ended December 31, 1997
Commissions and fees.................. $353,103 $113,620 $120,654 $23,385 $610,762
Income before taxes, minority
interests and equity in earnings of
affiliates.......................... 40,896 17,560 11,015 4,542 74,013
Long-lived assets..................... 144,121 33,054 101,094 21,844 300,113
</TABLE>
NOTE 17--SUBSEQUENT EVENTS
On February 2, 2000, the Company completed a follow-on public offering of an
aggregate of 8,000,000 shares of common stock at a purchase price of $77 5/16
per share. The public offering was managed by Morgan Stanley & Co. Incorporated,
Goldman, Sachs & Co., Salomon Smith Barney Inc., Deutsche Bank Securities Inc.,
PaineWebber Incorporated, and U.S. Bancorp Piper Jaffray Inc. Net proceeds from
this offering were $594.2 million and $82 million was used to pay down debt on
the Company's credit line. The remainder will be used for strategic equity
investments and general corporate purposes.
On February 16, 2000 the Company completed its previously announced
acquisition of the HW Group PLC ("HW") whereby the Company acquired all of the
outstanding stock of HW in a stock for stock transaction and issued
approximately 716,000 shares of TMP common stock. HW is a recruitment
consultancy firm based in the UK specializing in the financial and legal markets
with a presence in executive, information technology and international
recruitment disciplines. HW places both permanent and contract professional
staff across a broad range of sectors and clients. This transaction has been
accounted for as a poolings of interests in February and March 2000.
Effective February 29, 2000, a 2-for-1 stock split, in the form of a stock
dividend was paid. All share and per share amounts in the accompanying
consolidated financial statements have been restated to give effect to the stock
split.
F-61
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
The audits referred to in our report dated June 26, 2000, relating to the
supplemental consolidated financial statements of TMP Worldwide Inc. and
Subsidiaries, included the audits of the supplemental consolidated financial
statement schedule listed in the accompanying index. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the supplemental consolidated
financial statement schedule based upon our audits. We did not audit the
financial statement schedule of LAI Worldwide, Inc. and subsidiaries which was
combined with the Company's supplemental financial statement schedule. That
financial statement schedule was audited by another auditor whose report has
been furnished to us, and our opinion, insofar as it relates to the amounts
included for LAI Worldwide, Inc., and subsidiaries is based solely on the report
of the other auditor.
In our opinion, based on our audits and the report of the other auditor, the
supplemental consolidated financial statement schedule presents fairly, in all
material respects, the information set forth therein.
<TABLE>
<S> <C>
/s/ BDO SEIDMAN, LLP
---------------------------------------------
BDO Seidman, LLP
New York, New York
June 26, 2000
</TABLE>
F-62
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To LAI Worldwide, Inc.:
We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of LAI Worldwide, Inc.
(not presented separately herein) and have issued our report thereon dated April
7, 1999. Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements and supplementary data is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule, as it pertains to the 1997 and
1998 data related to LAI Worldwide, Inc., has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Tampa, Florida
April 7, 1999
F-63
<PAGE>
SUPPLEMENTAL SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C ADDITIONS COLUMN D COLUMN E
-------- ------------ ----------------------- ---------- ----------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTIONS PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
------------ ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended December 31, 1997.......... $10,132 $ 4,211 $ 3,326(1) $ 3,128 $14,541
Year ended December 31, 1998.......... $14,541 $ 6,394 $ 1,780 $ 4,123 $18,592
Year ended December 31, 1999.......... $18,592 $14,527 $ 283 $ 7,887 $25,515
Accrued integration and restructuring
reserves
Year ended December 31, 1997.......... $ -- $ -- $17,663 $ 862 $16,801
Year ended December 31, 1998.......... $16,801 $ 3,543 $10,020 $13,617 $16,747
Year ended December 31, 1999.......... $16,747 $38,401 $ 3,381 $37,076 $21,453
</TABLE>
------------------------
(1) Initial reserves of acquired companies.
F-64
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
<TABLE>
<S> <C> <C>
TMP WORLDWIDE INC.
(REGISTRANT)
By: /s/ BART CATALANE
-----------------------------------------
Bart Catalane
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
Dated: July 21, 2000
</TABLE>
F-65
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
23.1 Consent of BDO Seidman, LLP.
23.2 Consent of Pannell Kerr Forster.
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of Deloitte & Touche LLP.
27 Restated Financial Data Schedules
</TABLE>
<TABLE>
<C> <S>
27.1 Three months ended March 31, 2000.
27.2 Three months ended March 31, 1999.
27.3 Year ended December 31, 1999.
27.4 Year ended December 31, 1998.
27.5 Year ended December 31, 1997.
</TABLE>
