SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
---------------------
FORM 10-Q
|X| Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2000
|_| Transition Report Pursuant to
Section 13 or 15(d) of the
Securities Exchange Act of 1934
for the Transition Period from
_______ to _______.
-----------------------
Commission File Number: 000-21571
TMP WORLDWIDE INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3906555
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1633 Broadway, 33rd Floor, New York, New York 10019
(Address of principal executive offices) (Zip Code)
(212) 977-4200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Class Outstanding on May 10, 2000
----- ---------------------------
Common Stock............................... 89,848,920
Class B Common Stock....................... 4,762,000
================================================================================
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets --
March 31, 2000 and December 31, 1999....................... 2
Consolidated Condensed Statements of Income (Loss) --
Three Months Ended March 31, 2000 and 1999................. 3
Consolidated Condensed Statements of Comprehensive Income
(Loss) -- Three Months Ended March 31, 2000 and 1999....... 4
Consolidated Condensed Statement of Stockholders' Equity --
Three Months Ended March 31, 2000.......................... 5
Consolidated Condensed Statements of Cash Flows --
Three Months Ended March 31, 2000 and 1999................. 6
Notes to Consolidated Condensed Financial Statements........... 7-14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 15-21
Item 3. Quantitative and Qualitative Disclosures about Market Risk .... 21
PART II OTHER INFORMATION
Item 2(c). Changes in Securities and Use of Proceeds...................... 22
Item 6. Exhibits and Reports on Form 8-K............................... 22
Signature...................................................... 23
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................... $ 515,743 $ 55,005
Accounts receivable, net .................................................... 485,550 435,363
Work-in-process ............................................................. 23,321 25,631
Prepaid and other ........................................................... 79,056 59,176
----------- -----------
Total current assets ................................................... 1,103,670 575,175
Property and equipment, net ...................................................... 83,789 77,850
Intangibles, net ................................................................. 297,030 267,436
Other assets ..................................................................... 37,186 47,573
----------- -----------
$ 1,521,675 $ 968,034
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................... $ 270,620 $ 352,524
Accrued expenses and other liabilities ..................................... 197,241 124,375
Accrued integration and restructuring costs ................................ 25,237 21,453
Deferred commissions & fees ................................................ 84,678 71,736
Current portion of long term debt .......................................... 8,751 11,038
----------- -----------
Total current liabilities .............................................. 586,527 581,126
Long term debt, less current portion ............................................. 19,956 71,162
Other long-term liabilities ...................................................... 27,297 29,962
----------- -----------
Total liabilities ...................................................... 633,780 682,250
----------- -----------
Minority interests ............................................................... 52 9
----------- -----------
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: 87,396,356 and 78,320,777
shares, respectively ................................................. 87 78
Class B common stock, $.001 par value, authorized 39,000,000 shares;
issued and outstanding: 4,762,000 .................................... 5 5
Additional paid-in capital ................................................. 965,437 332,682
Other comprehensive loss ................................................... (39,084) (5,068)
Deficit .................................................................... (38,602) (41,922)
----------- -----------
Total stockholders' equity ....................................................... 887,843 285,775
----------- -----------
$ 1,521,675 $ 968,034
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS)
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
--------- ---------
<S> <C> <C>
Commissions & fees ....................................................................... $ 244,003 $ 182,059
--------- ---------
Operating expenses:
Salaries & related .................................................................. 136,469 109,059
Office & general .................................................................... 55,027 51,085
Marketing & promotion ............................................................... 28,286 9,884
Merger & integration ................................................................ 8,674 4,687
Restructuring ....................................................................... -- 2,789
Amortization of intangibles ......................................................... 3,351 2,828
--------- ---------
Total operating expenses ........................................................ 231,807 180,332
--------- ---------
Operating income ................................................................ 12,196 1,727
--------- ---------
Other income (expense):
Interest income (expense) net ....................................................... 2,794 (2,560)
Other, net .......................................................................... (87) 290
--------- ---------
Total other income (expense), net ............................................... 2,707 (2,270)
--------- ---------
Income (loss) before provision (benefit) for income taxes, minority
interests and equity in losses of affiliates .................................... 14,903 (543)
Provision (benefit) for income taxes ..................................................... 7,598 (696)
--------- ---------
Income before minority interests and equity in losses of affiliates ...................... 7,305 153
Minority interests ....................................................................... (81) 99
Equity in losses of affiliates ........................................................... -- (100)
--------- ---------
Net income (loss) applicable to common and Class B common stockholders ................... $ 7,386 $ (46)
========= =========
Net income per common and Class B common share:
Basic ........................................................................... $ 0.08 $ --
Diluted ......................................................................... $ 0.08 $ --
Weighted average shares outstanding:
Basic ........................................................................... 89,282 80,350
Diluted ......................................................................... 96,882 80,350
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
Three Months Ended March 31,
----------------------------
2000 1999
-------- --------
Net income (loss) .................................. $ 7,386 $ (46)
Foreign currency translation adjustment ............ (34,016) 2,154
-------- --------
Comprehensive income (loss) ........................ $(26,630) $ 2,108
======== ========
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Class B Other
Common Stock, Common Stock, Additional Compre-
$.001 par value $.001 par value Paid-in hensive
Shares Amount Shares Amount Capital Loss
---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999
(as reported on Form 10-K) .................... 76,621,654 $ 77 4,762,000 $ 5 $ 329,003 $ (5,068)
Effect of First Quarter 2000
Mergers (see Note 3) .......................... 1,699,123 1 -- -- 3,679 --
---------- ---------- --------- ---------- ---------- ----------
Balance, December 31, 1999
(restated) .................................... 78,320,777 78 4,762,000 5 332,682 (5,068)
Issuance of common stock in connection with
January 27, 2000 offering ..................... 8,000,000 8 -- -- 594,230 --
Issuance of common stock in connection with
the exercise of options ....................... 739,633 1 -- -- 12,009 --
Tax benefit from the exercise of
stock options ................................. -- -- -- -- 5,443 --
Issuance of common stock in connection with
acquisitions .................................. 320,512 -- -- -- 19,977 --
Issuance of common stock for matching
contribution to 401(k) plan ................... 15,434 -- -- -- 1,096 --
Foreign currency translation
adjustment .................................... -- -- -- -- -- (34,016)
Dividends declared by pooled
companies ..................................... -- -- -- -- -- --
Net income ...................................... -- -- -- -- -- --
---------- ---------- --------- ---------- ---------- ----------
Balance, March 31, 2000 ......................... 87,396,356 $ 87 4,762,000 $ 5 $ 965,437 $ (39,084)
========== ========== ========= ========== ========== ==========
<CAPTION>
Total
Stockholders'
Deficit Equity
---------- ----------
<S> <C> <C>
Balance, December 31, 1999
(as reported on Form 10-K) .................... $ (43,502) $ 280,515
Effect of First Quarter 2000
Mergers (see Note 3) .......................... 1,580 5,260
---------- ----------
Balance, December 31, 1999
(restated) .................................... (41,922) 285,775
Issuance of common stock in connection with
January 27, 2000 offering ..................... -- 594,238
Issuance of common stock in connection with
the exercise of options ....................... -- 12,010
Tax benefit from the exercise of
stock options ................................. -- 5,443
Issuance of common stock in connection with
acquisitions .................................. -- 19,977
Issuance of common stock for matching
contribution to 401(k) plan ................... -- 1,096
Foreign currency translation
adjustment .................................... -- (34,016)
Dividends declared by pooled
companies ..................................... (4,066) (4,066)
Net income ...................................... 7,386 7,386
---------- ----------
Balance, March 31, 2000 ......................... $ (38,602) $ 887,843
========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ....................................................................... $ 7,386 $ (46)
--------- ---------
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization ....................................................... 13,556 10,008
Provision for doubtful accounts ..................................................... 3,756 1,353
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 (1,887)
Minority interests and other ........................................................ (81) 285
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 ................................................ (55,845) (21,824)
(Increase) decrease in work-in-process, prepaid and other ........................... (11,647) 3,355
Increase in deferred commissions & fees ............................................. 12,942 2,513
Decrease in accounts payable and accrued liabilities ................................ (28,544) (4,020)
--------- ---------
Total adjustments .............................................................. (62,075) (13,136)
--------- ---------
Net cash used in operating activities .......................................... (54,689) (13,182)
--------- ---------
Cash flows from investing activities:
Capital expenditures ................................................................ (17,537) (9,870)
Payments for purchases of businesses, net of cash acquired .......................... (12,078) (12,030)
--------- ---------
Net cash used in investing activities ......................................... (29,615) (21,900)
--------- ---------
Cash flows from financing activities:
Borrowings under line of credit and proceeds from issuance of debt .................. 111,626 306,647
Repayments under line of credit and principal payments on debt ...................... (166,233) (296,219)
Net proceeds from issuance of common stock .......................................... 594,238 --
Cash received from the exercise of employee stock options ........................... 12,010 5,855
Dividends paid by pooled entities ................................................... (4,066) (3,064)
Payments on capitalized leases ...................................................... (1,070) (1,090)
--------- ---------
Net cash provided by financing activities ...................................... 546,505 12,129
--------- ---------
Effect of exchange rate changes on cash ...................................................... (1,463) 670
--------- ---------
Net increase (decrease) in cash and cash equivalents ......................................... 460,738 (22,283)
Cash and cash equivalents, beginning of period ............................................... 55,005 78,367
--------- ---------
Cash and cash equivalents, end of period ..................................................... $ 515,743 $ 56,084
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
NOTE 1-BASIS OF PRESENTATION
The consolidated condensed interim financial statements 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
consolidated condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1999. 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>
Nature of Number of
Entity Operations Acquisition Date TMP Shares Issued
------ ---------- ---------------- -----------------
<S> <C> <C> <C> <C>
HW Group PLC Search & Selection February 16, 2000 715,769
Microsurf, Inc. Directional Marketing\Relocation February 16, 2000 684,462
Burlington Wells, Inc. Search & Selection February 29, 2000 52,190
Illsley Bourbonnais Search & Selection March 1, 2000 246,702
</TABLE>
Accordingly, the consolidated condensed financial statements included
herein as of December 31, 1999 and for the 1999 period have been retroactively
restated to reflect the First 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 consolidated statement of stockholders'
equity reflect the accounts of TMP as if the additional common stock issued in
connection with these mergers had been issued for all periods presented.
Furthermore, the results of Illsley Bourbonnais for the month ended January 31,
2000 are included in both the consolidated statement of stockholders' equity for
the year ended December 31, 1999 and the consolidated statement of operations
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.
Furthermore, 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.
7
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share amounts)
(unaudited)
NOTE 1-BASIS OF PRESENTATION (continued)
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 ................................. $98,361 $87,755
Temporary Contracting costs ................................... 78,627 71,737
------- -------
Temporary Contracting, billings and commissions & fees ........ $19,734 $16,018
======= =======
</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 $85 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 shareholders by the weighted
average number of common and Class B common shares outstanding during each
period. Diluted earnings per share reflect, in periods in which they have a
dilutive effect, the effect of common shares issuable upon exercise of stock
options and warrants, and contingent shares, based on the treasury method of
computing such effects.
A reconciliation of shares used in calculating basic and diluted earnings
per common and Class B common share follows:
Three Months Ended March 31,
----------------------------
2000 1999
------ ------
(in thousands)
Basic .......................................... 89,282 80,350
Effect of assumed conversion of options ........ 7,600 *
------ ------
Diluted ........................................ 96,882 80,350
====== ======
* Effect would be antidilutive.
NOTE 2-NATURE OF BUSINESS AND CREDIT RISK
The Company operates in five business segments: Interactive, Recruitment
Advertising, Search & Selection, Temporary Contracting and Directional
Marketing, which has primarily been Yellow Pages Advertising but now also
includes full service interactive advertising and marketing technology services
through IN2 and interactive relocation services. The Company's commissions and
fees are earned from the following activities: (a) advertisements placed on its
career and other websites, (b) resume and other database access, (c) executive
and mid-level search and selection services, (d) 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).
8
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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 January 1, 2000 through March 31, 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 1,699,123 shares of TMP common
stock and which were accounted for as poolings of interests. The effect on the
various components of stockholders' equity at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Common Stock,
Region $.001 par value Additional Retained Total
Of --------------- Paid-In Earnings Stockholders'
Entity Operations Shares Amount Capital (Deficit) Equity
------ ---------- ------ ------ ------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
HW Group PLC United Kingdom 715,769 $1 $3,676 $ (217) $3,460
Microsurf, Inc. North America 684,462 -- -- (1,180) (1,180)
Burlington Wells, Inc. North America 52,190 -- 3 103 106
Illsley Bourbonnais North America 246,702 -- -- 2,874 2,874
--------- --- ------ ------ ------
Total at December 31, 1999 1,699,123 $1 $3,679 $1,580 $5,260
========= === ====== ====== ======
</TABLE>
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, 1999
--------------
<S> <C>
Commissions and fees
TMP, as previously reported on Form 10-K for the year ended December 31, 1999 .............. $ 169,006
HW Group PLC ............................................................................... 11,076
Microsurf, Inc. ............................................................................ 926
Burlington Wells, Inc. ..................................................................... 164
Illsley Bourbonnais ........................................................................ 887
---------
TMP, as restated ........................................................................... $ 182,059
=========
Net income (loss) applicable to common and Class B common stockholders
TMP, as previously reported on Form 10-K, for the year ended December 31, 1999 ............. $ (2,319)
HW Group PLC ............................................................................... 1,894
Microsurf, Inc. ............................................................................ (4)
Burlington Wells, Inc. ..................................................................... 103
Illsley Bourbonnais ........................................................................ 280
---------
TMP, as restated ........................................................................... $ (46)
=========
Net income (loss) per common and Class B common share
TMP, as previously reported on Form 10-K, for the year ended December 31, 1999
Basic ................................................................................... $ (0.03)
Diluted ................................................................................. $ (0.03)
Restated:
Basic ................................................................................... $ --
Diluted ................................................................................. $ --
</TABLE>
9
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share amounts)
(unaudited)
NOTE 3-BUSINESS COMBINATIONS (continued)
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 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.
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 Search & Selection
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 & fees ............................................... $244,981 $193,934 $856,329
Net income (loss) applicable to common and Class
B common stockholders ......................................... $ 7,495 $ 637 $ (4,708)
Net income (loss) per common and Class B common share:
Basic ......................................................... $ 0.08 $ -- $ (0.06)
Diluted ....................................................... $ 0.08 $ -- $ (0.06)
</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 periods presented, nor are the results
of operations necessarily indicative of the results that will be attained in the
future.
10
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share amounts)
(unaudited)
NOTE 3-BUSINESS COMBINATIONS (continued)
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
(b) 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
--------- ----------
Applied
Balance against Balance
December 31, Charged to related March 31,
1999 goodwill Expensed 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.
(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 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.
11
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share amounts)
(unaudited)
NOTE 3-BUSINESS COMBINATIONS (continued)
(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 but costs incurred resulting from plan revisions made after the
first year will be charged to operations in the period in which they occur.
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,
Recruitment Advertising, Search & Selection, Temporary Contracting and
Directional Marketing (which primarily includes Yellow Page Advertising, but
also includes full service interactive advertising services provided by IN2 and
interactive relocation services). 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.
<TABLE>
<CAPTION>
Recruitment Search & Temporary Directional
Information by business segment Interactive Advertising Selection Contracting Marketing Total
- ------------------------------- ----------- ----------- --------- ----------- --------- -----
For the three months ended
March 31, 2000
<S> <C> <C> <C> <C> <C> <C>
Commissions & fees
Traditional sources ............................... $ -- $ 45,714 $ 86,846 $ 19,734 $ 23,300 $175,594
Interactive ....................................... 56,359 5,782 2,177 291 3,800 68,409
-------- -------- -------- -------- -------- --------
Commissions & fees ........................................ 56,359 51,496 89,023 20,025 27,100 244,003
-------- -------- -------- -------- -------- --------
Operating expenses:
Salaries & related, office & general,
marketing & promotion, and overhead ............... -- 39,650 86,828 17,982 17,820 162,280
Interactive (a) ................................... 47,074 4,816 1,742 78 3,792 57,502
Merger & integration .............................. -- 143 7,823 449 259 8,674
Amortization of intangibles ....................... 60 1,277 904 26 1,084 3,351
-------- -------- -------- -------- -------- --------
Total operating expenses .................................. 47,134 45,886 97,297 18,535 22,955 231,807
-------- -------- -------- -------- -------- --------
Operating income (loss):
Traditional sources ............................... -- 4,644 (8,709) 1,277 4,137 1,349
Interactive ....................................... 9,225 966 435 213 8 10,847
-------- -------- -------- -------- -------- --------
Operating income (loss) ................................... $ 9,225 $ 5,610 $ (8,274) $ 1,490 $ 4,145 12,196
======== ======== ======== ======== ======== ========
Total other income, net.................................... * * * * * 2,707
--------
Income before provision for income taxes, minority
interests and equity in losses of affiliates............... * * * * * $ 14,903
========
</TABLE>
- ----------
(a) Is comprised of salaries & related, office & general, marketing &
promotion and overhead.
* Not allocated.
12
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share amounts)
(unaudited)
NOTE 4-SEGMENT AND GEOGRAPHIC DATA (continued)
<TABLE>
<CAPTION>
Recruitment Search & Temporary Directional
Information by business segment Interactive Advertising Selection Contracting Marketing Total
- ------------------------------- ----------- ----------- --------- ----------- --------- -----
For the three months ended
March 31, 1999
<S> <C> <C> <C> <C> <C> <C>
Net commissions & fees
Traditional sources .............................. $ -- $ 45,639 $ 75,143 $ 16,018 $ 23,795 $160,595
Interactive ...................................... 15,709 2,826 830 492 1,607 21,464
-------- -------- -------- -------- -------- --------
Net commissions & fees ................................... 15,709 48,465 75,973 16,510 25,402 182,059
-------- -------- -------- -------- -------- --------
Operating expenses:
Salaries & related, office & general,
marketing & promotion, and overhead .............. -- 38,063 80,536 13,843 16,205 148,647
Interactive (a) .................................. 17,221 1,623 908 165 1,464 21,381
Merger & integration ............................. -- 79 4,608 -- -- 4,687
Restructuring .................................... -- -- 2,789 -- -- 2,789
Amortization of intangibles ...................... 58 1,693 415 26 636 2,828
-------- -------- -------- -------- -------- --------
Total operating expenses ................................. 17,279 41,458 89,256 14,034 18,305 180,332
-------- -------- -------- -------- -------- --------
Operating income (loss):
Traditional sources .............................. -- 5,804 (13,205) 2,149 6,954 1,702
Interactive ...................................... (1,570) 1,203 (78) 327 143 25
-------- -------- -------- -------- -------- --------
Operating income (loss) .................................. $ (1,570) $ 7,007 $(13,283) $ 2,476 $ 7,097 1,727
======== ======== ======== ======== ======== ========
Total other expense, net.................................. * * * * * (2,270)
--------
Loss before provision for income taxes, minority
interests and equity in losses of affiliates.............. * * * * * $ (543)
========
</TABLE>
- ----------
(a) Is comprised of salaries & related, office & general, marketing &
promotion and overhead.
* Not allocated.
<TABLE>
<CAPTION>
Asia/ United Continental
Information by geographic region North America Pacific Kingdom Europe Total
- -------------------------------- ------------- ------- ------- ------ -----
<S> <C> <C> <C> <C> <C>
March 31, 2000
Total commissions & fees ................... $ 134,323 $ 42,601 $ 36,773 $ 30,306 $ 244,003
Income (loss) before income taxes,
minority interests and equity
in losses of affiliates ............... $ 12,694 $ 3,458 $ (4,971) $ 3,722 $ 14,903
March 31, 1999
Total commissions & fees ................... $ 93,858 $ 35,743 $ 32,270 $ 20,188 $ 182,059
Income (loss) before income taxes,
minority interests and equity
in losses of affiliates ............... $ (13,525) $ 3,172 $ 4,941 $ 4,869 $ (543)
</TABLE>
13
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share amounts)
(unaudited)
NOTE 5-SUBSEQUENT EVENTS
From April 1, 2000 through May 12, 2000, the Company entered into merger
agreements by which it acquired all of the outstanding shares of three companies
which are being accounted for as poolings of interests. These companies were
paid for with 2,024,214 shares of TMP common stock and approximately $726 was
paid to certain dissenting shareholders who chose to receive cash in lieu of
shares. Furthermore, 94,885 shares of TMP common stock are being reserved for
options which have been converted from outstanding options to purchase one of
the company's common stock. One of the companies is engaged in recruitment
advertising business, one is a mid-market selection business specializing in the
recruitment of information technology/telecommunications and engineering
professionals and the third company is a comprehensive provider of interactive
relocation information, services and analytical tools.
Additionally, during May 2000, the Company entered into an agreement
whereby it acquired all of the outstanding shares of a mid-market selection firm
located in the Netherlands. This transaction was completed using the purchase
method of accounting, with the total purchase price of $5.1 million paid with
51,906 shares and approximately $1.5 million in cash.
14
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Statements in this Quarterly Report on Form 10-Q concerning our 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 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 Search & Selection 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 relocation 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
March 2000 per Nielson I/Pro. The Monster.com(SM) global network consists of
local language and content sites in the United States, United Kingdom,
Australia, Canada (French and English), the Netherlands, Belgium, New Zealand,
France, Singapore and Hong Kong.
A substantial part of our growth in Recruitment Advertising, Search &
Selection and Yellow Page Advertising has been achieved through acquisitions.
For the period January 1, 1997 through March 31, 2000, we completed 79
acquisitions, including eight completed during the three months ended March 31,
2000. Of the acquisitions completed during 2000, four are being accounted for as
poolings of interests (the "First Quarter 2000 Pooled Companies"). Approximately
1.7 million shares of our common stock were issued in exchange for all of the
outstanding common stock of the First Quarter 2000 Pooled Companies (the "First
Quarter 2000 Mergers"). Accordingly, the consolidated financial statements for
the 1999 period included herein have been retroactively restated as if the First
Quarter 2000 Pooled Companies had been consolidated for all periods presented.
In addition, for the period January 1, through March 31, 2000, we completed four
acquisitions which were accounted for using the purchase method, with estimated
annual gross billings of approximately $44.4 million. Given the significant
number of acquisitions affecting the periods presented, the results of
operations from period to period may not necessarily be comparable.
Gross billings refer to billings for advertising placed on the Internet,
in newspapers and telephone directories by our clients, and associated fees for
related services. In addition, Search & Selection fees and fees for related
services, 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
15
<PAGE>
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 business are derived from:
o job postings and access to the resume database and related services
delivered via the Internet, primarily our own Web site,
Monster.com(SM);
o searches for permanent and temporary employees, at the executive and
professional levels, and related services conducted through the
Internet;
o Internet advertising services provided to our Yellow Page
Advertising clients;
o 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
o online relocation services.
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.
Search & Selection offers an advanced and comprehensive range of services
aimed at identifying the appropriate professional or executive from mid-level to
CEO for our clients. Executive search identifies senior executives who typically
earn in excess of $250,000 annually, while selection identifies mid-level
professionals or executives, who typically earn between $75,000 and $150,000,
annually. Our specialized Search & Selection services include identification of
candidates, competence measurement, assessment of candidate/company cultural fit
and transaction negotiation and closure. We believe that our Search & Selection
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 and Search & Selection, we believe that we can accommodate all of
our clients' employee recruitment needs.
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. However, due to reductions in commission
rates by the publishers and higher discounts granted to us by clients, the rate
has declined and for 1999 was approximately 19% and is expected to decline to
approximately 17% to 18% by the middle of 2000. In general, publishers consider
orders renewed unless actively canceled. In addition to base commissions,
certain yellow pages publishers pay increased commissions for volume placement
by advertising agencies. We typically recognize this additional commission, if
any, in the fourth quarter when it is certain that such commission has been
earned. No such amounts were reported in the fourth quarter of 1999.
Interactive commissions and fees were $68.4 million for the quarter ended
March 31, 2000, an increase of $46.9 million over the first quarter of 1999
which had commissions and fees of $21.5 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.
TMP's Internet operations also reported an operating profit of $10.8 million for
the first quarter ended March 31, 2000, representing an operating margin of
15.9%. Search & Selection commissions and fees increased 15.6% to $86.8 million
for the first quarter ended March 31, 2000 compared to $75.1 million for the
same prior year period, reflecting continued strong demand for permanent
professional employees worldwide, particularly in mid-level management positions
(annual salaries ranging from $75,000 to $150,000). In addition, Temporary
Contracting commissions and fees increased 23.2% to $19.7 million for the first
quarter of 2000
16
<PAGE>
versus $16.0 million for the same period last year, reflecting the resumption of
strong demand for temporary staffing in Australia, particularly in the
information technology sector. Recruitment Advertising commissions and fees were
flat at $45.7 million for the quarter ended March 31, 2000 versus $45.6 million
for the first quarter of 1999, resulting from only modest growth in traditional
media billings, a 2.3% increase, which reflects increased hiring needs, offset
by a reduced level of higher margin collateral services for the quarter. Yellow
Page Advertising billings increased 11.0% to $133.2 million for the quarter
ended March 31, 2000. However, 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, reflecting substantially reduced commissions paid by publishers and
the effects of higher discounts paid to certain large clients. Total commissions
and fees as a percent of related billings for the first quarter ended March 31,
2000 were 45.7% as compared to 40.8% for the prior year period. The higher
percentage reflects increased sales volume for Interactive and Search &
Selection, where the Company retains greater portions of the amounts billed.
Based on our consolidated results for the periods ended March 31, 2000 and
1999, 47%, and 50%, respectively, of our consolidated commissions & fees were
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 March 31,
----------------------------
2000 1999
---- ----
(dollars in thousands)
<S> <C> <C> <C>
GROSS BILLINGS:
Interactive(1) ......................................................... $ 78,019 $ 24,017
Recruitment Advertising ................................................ 214,746 210,002
Search & Selection ..................................................... 88,316 76,384
Temporary Contracting(2) ............................................... 19,734 16,018
Yellow Page Advertising ................................................ 133,175 120,011
--------- ---------
Total .................................................................. $ 533,990 $ 446,432
========= =========
COMMISSIONS AND FEES:
Interactive(1) ......................................................... $ 68,409 $ 21,464
Recruitment Advertising ................................................ 45,714 45,639
Search & Selection ..................................................... 86,846 75,143
Temporary Contracting(2) ............................................... 19,734 16,018
Yellow Page Advertising ................................................ 23,300 23,795
--------- ---------
Total .................................................................. $ 244,003 $ 182,059
========= =========
COMMISSIONS AND FEES AS A PERCENTAGE OF GROSS BILLINGS
Interactive(1) ......................................................... 87.7% 89.4%
Recruitment Advertising ................................................ 21.3% 21.7%
Search & Selection ..................................................... 98.3% 98.4%
Temporary Contracting(2) ............................................... 100.0% 100.0%
Yellow Page Advertising ................................................ 17.5% 19.8%
Total commissions and fees ............................................. 45.7% 40.8%
EBITDA(3) .............................................................. $ 25,746 $ 11,826
Cash used in operating activities ...................................... $ (54,689) $ (13,182)
Cash used in investing activities ...................................... $ (29,615) $ (21,900)
Cash provided by financing activities .................................. $ 546,505 $ 12,129
Effect of exchange rate changes on cash ................................ $ (1,463) $ 670
</TABLE>
- ----------
(1) Represents fees earned in connection with recruitment, yellow page and
other advertisements placed on the Internet and employment searches and
temporary contracting services sourced through the Internet.
17
<PAGE>
(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 expenditure and working
capital requirements and is one of the measures which determines our
ability to borrow under our credit facility. EBITDA should not be
considered in isolation or as a substitute for operating income, cash
flows from operating activities and other income or cash flow statement
data prepared in accordance with generally accepted accounting principles
or as a measure of our profitability or liquidity. EBITDA for the
indicated periods is calculated as follows:
Three Months Ended March 31,
----------------------------
2000 1999
---- ----
(in thousands)
Net income (loss) ..................... $ 7,386 $ (46)
Interest (income) expense, net ........ (2,794) 2,560
Income tax expense (benefit) .......... 7,598 (696)
Depreciation & amortization ........... 13,556 10,008
-------- --------
EBITDA ................................ $ 25,746 $ 11,826
======== ========
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 $534.0
million, an increase of $87.6 million or 19.6% from $446.4 million for the three
months ended March 31, 1999. Total commissions and fees for the three months
ended March 31, 2000 were $244.0 million, an increase of $61.9 million or 34.0%
from $182.1 million for the comparable period in 1999. Interactive commissions
and fees for the three months ended March 31, 2000 were $68.4 million, an
increase of $46.9 million or 218.7% compared with $21.5 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 migration of our traditional businesses to the Internet.
Recruitment Advertising commissions and fees were flat at $45.7 million for the
three months ended March 31, 2000 versus $45.6 million for the first quarter of
1999 reflecting modest growth in traditional billings of 2.3% and a reduced
amount of higher margin collateral work. Search & Selection commissions and fees
were $86.8 million for the three months ended March 31, 2000, an increase of
$11.7 million or 15.6% from $75.1 million for the comparable three months of
1999, due primarily to increased demand for permanent professional employees
worldwide, which contributed to organic growth, and acquisitions in Europe.
Temporary Contracting commissions and fees were $19.7 million, up $3.7 million
or 23.2% from $16.0 million for the period ended March 31, 1999. The increase
reflects the resumption of strong demand for temporary staffing in Australia,
particularly in the information technology sector. 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 $231.8
million, compared with $180.3 million for the same period in 1999, an increase
of $51.5 million or 28.5%. The increase is primarily due $27.4 million in higher
salaries and related costs due to organic growth and acquisitions, and $18.4
million in marketing and promotion expenses primarily related to
Monster.com(SM).
Salaries and related costs for the three months ended March 31, 2000 were
$136.5 million, compared with $109.1 million for the same period in 1999. The
increase of $27.4 million or 25.1% is primarily due to organic growth in Search
& Selection, Interactive and Temporary Contracting operations and acquisitions.
Because the growth in total commissions and fees outpaced the growth in salaries
and related expenses, salary and related expenses as a percent of commissions
and fees declined from 59.9% to 55.9%. This decline in expenses as a percent of
commissions and fees is primarily due to the organic growth mentioned above.
18
<PAGE>
Office and general expenses for the three months ended March 31, 2000 were
$55.0 million compared with $51.1 million for the same period in 1999, an
increase of $3.9 million or 7.7%. The increase reflects organic growth in
Interactive, Search & Selection and 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 28.1% to
22.6%. 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 & 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 $28.3 million or 11.6% of commissions and fees, compared with $9.9 million
or 5.4% of commissions and fees for the same period in 1999. The increase of
$18.4 million or 186.2% is primarily due to higher marketing costs for
Monster.com(SM) and reflect the Company's plan to increase the promoting 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, would be the exclusive provider of
career search services in the U.S. and Canada to AOL members across 7 AOL
properties, AOL, 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 $12.2 million, an increase of $10.5 million or 606.2% from
$1.7 million for the comparable period in 1999.
Net interest income for the three months ended March 31, 2000 was $2.8
million, compared with a net interest expense of $2.6 million for the comparable
1999 period, an improvement of $5.4 million or 209.1%. 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 $7.6
million on pre-tax profit of $14.9 million, compared with a tax benefit of $0.7
million on pre-tax loss of $0.5 million the first quarter of 1999. The increase
of $8.3 million reflects the higher pretax profit in the three months ended
March 31, 2000. In addition, the provisions reflect expenses that are not tax
deductible; these are primarily related to merger costs from pooling of
interests transactions and amortization of intangible assets. For both periods
the provision is benefited by profits from certain pooled entities which 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.
Equity in losses of unconsolidated subsidiaries, 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 $7.4
million, an increase of $7.4 million from the net loss of $46,000 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 $0.08, compared to a breakeven position for the comparable
1999 period.
19
<PAGE>
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 and (d) capital leases. 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 $85 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 $54.7 million, and $13.2 million, respectively. The
increase in cash used in operating activities of $41.5 million for 2000 over
1999 was primarily due to (a) a $34.0 million greater increase in accounts
receivable for the 2000 period over the 1999 period, related mostly to
recruitment and Interactive operations (b) a $24.5 million greater decrease in
cash from accounts payable and accrued liabilities and (c) a $15.0 million
greater increase 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 (a) a $17.0
million increase in earnings after adjusting for non-cash items (b) a $10.4
million greater increase in deferred commissions & fees and (c) a $4.6 million
smaller decrease from the effects of including losses from pooled companies in
both the current and previous period.
EBITDA was $25.7 million for the first quarter ended March 31, 2000, an
increase of $13.9 million or 117.7% from $11.8 million for the first quarter
ended March 31, 1999. The increase primarily reflects, for the 2000 period, a
$10.5 million increase in operating profits, $3.5 million more in depreciation
and amortization costs. As a percentage of commissions and fees, EBITDA
increased to 10.6% for the first quarter ended March 31, 2000 as compared with
6.5% for the first quarter ended March 31, 1999. The higher percent reflects the
improved operating margins, which were 5.0% and 0.9% of commissions and fees for
the 2000 and 1999 periods, respectively.
Net cash used in investing activities for the first quarters ended March
31, 2000 and 1999 was $29.6 million and $21.9 million, respectively. The $7.7
million increase in cash used in 2000 compared to 1999 was due to an increase in
capital expenditures.
We estimate that our expenditures for computer equipment and software,
furniture and fixtures, and leasehold improvements will be approximately $60 -
$70 million for the year ended 2000.
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 $546.5 million and
$12.1 million, respectively. The change of $534.4 million resulted primarily
from $594.2 million in proceeds from our follow-on common stock offering and a
$6.1 million increase in cash received from the exercise of employee stock
options, partially offset by net repayments in the 2000 period of $55.7 million
against credit facilities and capitalized lease obligations compared with a net
borrowing of $9.3 million in the prior year period.
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, as defined in the agreement, is sufficient to allow
draw down of the entire amount. In addition, we have lines of credit aggregating
$19.1 million for our operations in Australia, New Zealand, France, Belgium and
the Netherlands of which approximately $10.7 million was unused at March 31,
2000.
Cash and cash equivalents at March 31, 2000 were $515.7 million, an
increase of $460.7 million from $55.0 million at December 31, 1999, and were
$459.6 million higher than the March 31, 1999 balance of $56.1 million.
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
20
<PAGE>
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 for at least the next year.
However, if we determine that conditions are favorable, we would consider
additional corporate equity or debt transactions.
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. 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.
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 three months ended March
31, 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's primary market risks include fluctuations in interest rates,
variability in interest rate spread relationships (i.e., prime to LIBOR spreads)
and exchange rate variability. Substantially all of the Company's debt relates
to a five-year financing agreement with an outstanding principal balance of
approximately $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 a margin specified in the agreement, and is thus subject
to market risk in the form of fluctuations in interest rates. The Company does
not trade in derivative financial instruments.
The Company also conducts operations in various foreign countries,
including Australia, Belgium, Canada, China, France, Germany, Italy, Japan, the
Netherlands, New Zealand, Singapore, Spain, and the United Kingdom. For the
period ended March 31, 2000 approximately 47% 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 $34.0 million, primarily
attributable to the strengthening of the U.S. dollar against the Australian
dollar.
21
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
Item 2(c). Changes in Securities and Use of Proceeds
(i) On January 31, 2000, we issued 9,314 shares of our common stock in a
private placement transaction in exchange for all of the outstanding membership
interests of Human Factors Group, Limited Liability Company, an Ohio limited
liability company. Such securities were issued pursuant to the exemption
contained in Section 4(2) of the Securities Act, as amended (the "Act").
(ii) On February 10, 2000, we issued 169,764 shares of our common stock in
a private placement transaction in exchange for all of the outstanding limited
partnership interests of Baumgartner & Partner Consulting GmbH & Co. KG, a
German corporation. Such securities were issued pursuant to the exemption
contained in Regulation S promulgated under the Act.
(iii) On February 16, 2000, we issued 715,769 shares of our common stock
in exchange for all of the outstanding stock of HW Group PLC, a corporation
organized under the laws of the United Kingdom. Such securities were issued
pursuant Section 3(a)(10) of the Act.
(iv) On February 16, 2000, we issued 684,462 shares of our common stock in
a private placement transaction in exchange for all of the outstanding common
stock of Microsurf, Inc., a Delaware corporation. Such securities were issued
pursuant to the exemption contained in Section 4(2) of the Act.
(v) On February 29, 2000, we issued 54,940 shares of our common stock in a
private placement transaction in exchange for all of the outstanding stock of
Medios Publicitaros Activos MPA, S.A., a Spanish corporation. Such securities
were issued pursuant to the exemption contained in Regulation S promulgated
under the Act.
(vi) On February 29, 2000, we issued 52,190 shares of our common stock in
a private placement transaction in exchange for all of the outstanding stock of
Burlington Wells, Inc., Burlington Wells Information Systems, Inc. and
Burlington Wells South Florida, Inc., each a Florida corporation. Such
securities were issued pursuant to the exemption contained in Section 4(2) of
the Act.
(vii) On March 1, 2000, we issued 246,702 shares of our common stock in a
private placement transaction in exchange for all of the outstanding stock of
577139 Ontario Ltd., d/b/a/ Illsley Bourbonnais, a Canadian corporation. Such
securities were issued pursuant to the exemption contained in Regulation S
promulgated under the Act.
(viii) On March 1, 2000, we issued 73,414 shares of our common stock in a
private placement transaction in final payment of our acquisition of all of the
outstanding stock of VanRam Associates International N.V., a corporation
organized under the laws of Belgium. Such securities were issued pursuant to the
exemption contained in Regulation S promulgated under the Act.
(ix) On March 21, 2000, we issued 13,080 shares of our common stock in a
private placement transaction in exchange for all of the outstanding stock of
Curriculum S.A., Kerguelen, S.A., and Syntagme, S.A. (collectively, the
"Curriculum Group"), each a corporation organized under the laws of France. Such
securities were issued pursuant to the exemption contained in Regulation S
promulgated under the Act.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as a part of this report:
27.1 Financial Data Schedule
27.2 Financial Data Schedule
(b) (i) The Company's Current Report on Form 8-K, dated January 11, 2000,
relating to pending litigation.
All other items of this report are inapplicable.
22
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TMP WORLDWIDE INC.
---------------------------------------------
(Registrant)
Date: May 12, 2000 /s/ Bart Catalane
---------------------------------------------
Bart Catalane
Chief Financial Officer
(Principal Financial and Accounting Officer)
23
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