<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 15, 2000
REGISTRATION NO. 333-41996
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
TMP WORLDWIDE INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7311 13-3906555
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
</TABLE>
--------------------------
622 THIRD AVENUE
NEW YORK, NEW YORK 10017
(212) 351-7000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------
ANDREW J. MCKELVEY
CHAIRMAN OF THE BOARD AND CEO
TMP WORLDWIDE INC.
622 THIRD AVENUE
NEW YORK, NEW YORK 10017
(212) 351-7000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
Copies of all communications, including all communications sent to the agent for
service, should be sent to:
GREGG BERMAN, ESQ.
FULBRIGHT & JAWORSKI L.L.P.
666 FIFTH AVENUE
NEW YORK, NEW YORK 10103
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SHARES AMOUNT TO BE AGGREGATE PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.001 par value per share...... 3,319,736 (1) $259,058,855 $68,392(2)
</TABLE>
(1) The price is estimated in accordance with Rule 457(c) under the Securities
Act of 1933, as amended, solely for the purpose of calculating the
registration fee and (i) is $78.25, the average of the high and low prices
of the Common Stock of TMP Worldwide Inc. as reported by The Nasdaq Stock
Market on July 17, 2000 with respect to 3,234,851 registered shares and
(ii) is $69.88, the average of the high and low prices of the Common Stock
of TMP Worldwide Inc. as reported by The Nasdaq Stock Market September 11,
2000 with respect to 84,885 registered shares.
(2) $66,826 of the registration fee has previously been paid.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 15, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
TMP WORLDWIDE INC.
2,553,504 SHARES OF COMMON STOCK
------------------------
The stockholders of TMP Worldwide Inc. ("TMP" or the "Company") listed in
this prospectus are offering and selling an aggregate of 2,553,504 shares of
TMP's common stock under this prospectus. These selling stockholders obtained
their shares of TMP stock in connection with TMP's acquisitions of companies
owned by these selling stockholders. TMP will not receive any part of the
proceeds from the sale by the selling stockholders.
------------------------
The selling stockholders may offer their TMP stock through public or private
transactions, on or off the United States exchanges, at prevailing market prices
or at privately negotiated prices.
TMP Worldwide Inc.'s common stock trades on the Nasdaq National Market under
the ticker symbol "TMPW." On September 13, 2000, the closing sale price of one
share of TMP's stock was $73.36.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT YOU SHOULD CONSIDER BEFORE YOU INVEST IN THE SHARES BEING SOLD WITH THIS
PROSPECTUS.
---------------------
THE TMP STOCK OFFERED OR SOLD UNDER THIS PROSPECTUS HAS NOT BEEN APPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAVE THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is September , 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Our Company................................................. 3
Summary Consolidated Financial Information.................. 7
Special Note Regarding Forward-Looking Information.......... 9
Risk Factors................................................ 9
Use of Proceeds............................................. 16
Dividend Policy............................................. 16
Price Range of Common Stock................................. 16
Selected Consolidated Financial Information................. 17
Management's Discussion and Analysis of Financial Condition
and Results
of Operations............................................. 19
Business.................................................... 37
Management.................................................. 47
Certain Transactions........................................ 53
Principal Stockholders...................................... 54
Selling Stockholders........................................ 56
Description of Capital Stock................................ 63
Plan of Distribution........................................ 65
Legal Opinion............................................... 65
Experts..................................................... 66
Index to Financial Statements............................... F-1
</TABLE>
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934 and we file reports, proxy statements and other information with the
SEC. Such reports, proxy statements and other information filed by us may be
inspected and copied at the public reference facilities maintained by the SEC at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the SEC's regional offices at Seven World Trade Center, 13th Floor, New York,
New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material may be obtained from the Public Reference Section of the
SEC at Room 1024. Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. In addition, material filed by us can be inspected at
the offices of the NASDAQ National Market at 1735 K Street, N.W., Washington,
D.C. 20006-1506.
We have filed with the SEC a Registration Statement on Form S-1 under the
Securities Act of 1933 with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedule filed as a part thereof, as permitted by
the rules and regulations of the SEC. For further information with respect to
TMP and the Common Stock, reference is hereby made to such Registration
Statement, including the exhibits and schedule filed as a part thereof.
Statements contained in this Prospectus as to the contents of any contract or
other documents referred to herein are not necessarily complete and where such
contract or other document is an exhibit to the Registration Statement, each
such statement is qualified in all respects by the provisions of such exhibit,
to which reference is hereby made for a full statement of the provisions
thereof. The Registration Statement, including the exhibits filed as a part
thereof, may be inspected without charge at the public reference facilities
maintained by the SEC as set forth in the preceding paragraph. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our
SEC filings are also available to the public from our website at www.tmp.com or
at the SEC's website at http:// www.sec.gov.
2
<PAGE>
OUR COMPANY
THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH THE OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS. AS USED IN THIS PROSPECTUS, "GROSS BILLINGS"
REFERS TO BILLINGS FOR ADVERTISING PLACED ON THE INTERNET, ON OUR CAREER WEB
SITES, IN NEWSPAPERS AND IN TELEPHONE DIRECTORIES BY OUR CLIENTS, AND ASSOCIATED
FEES FOR RELATED SERVICES AND FEES FOR SEARCH AND SELECTION AND TEMPORARY
CONTRACTING SERVICES. WE EARN COMMISSIONS BASED ON A PERCENTAGE OF THE BILLING
FOR MEDIA ADVERTISING PURCHASED IN TRADITIONAL MEDIA AS WELL AS ON THIRD PARTY
WEB SITES AT A RATE ESTABLISHED BY THE RELATED PUBLISHER AND ASSOCIATED FEES FOR
RELATED SERVICES. AS A RESULT, THE TRENDS IN OUR GROSS BILLINGS DIRECTLY AFFECT
OUR COMMISSIONS AND FEES.
DURING THE PERIOD OF JANUARY 1, 2000 THROUGH MARCH 31, 2000, WE AND OUR
SUBSIDIARIES 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, WE 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 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 QUARTER 2000 MERGERS AND THE
SECOND QUARTER 2000 MERGERS (COLLECTIVELY, THE "FIRST HALF 2000 MERGERS"), AS IF
THE COMBINING COMPANIES HAD BEEN CONSOLIDATED FOR ALL PERIODS PRESENTED. THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30,
1999 HAVE BEEN RETROACTIVELY RESTATED TO REFLECT THE FIRST HALF 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 AND
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY REFLECT OUR ACCOUNTS
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.
IN THE CONSOLIDATED CONDENSED BALANCE SHEET AND THE CONSOLIDATED BALANCE
SHEETS, THE BALANCE SHEETS OF TMP AS OF JUNE 30, 2000 AND DECEMBER 31, 1999 AND
1998 HAVE BEEN COMBINED WITH THOSE OF THE FIRST HALF 2000 MERGERS, ALL AS OF
JUNE 30, 2000 AND DECEMBER 31, 1999 AND 1998, RESPECTIVELY 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,
1999 AND
3
<PAGE>
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 CONSOLIDATED STATEMENTS OF INCOME (LOSS) COMBINE THE RESULTS OF TMP FOR
THE SIX MONTHS ENDED JUNE 30, 1999 AND EACH YEAR IN THE THREE YEAR PERIOD ENDED
DECEMBER 31, 1999 WITH THOSE OF THE FIRST HALF 2000 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 CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IN THE CONSOLIDATED CONDENSED STATEMENT OF INCOME (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 2000. THEREFORE, THE FOLLOWING AMOUNTS HAVE
BEEN INCLUDED IN BOTH PERIODS: (A) COMMISSIONS AND FEES OF $1.0 MILLION AND (B)
NET INCOME OF $285 THOUSAND, 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 THOUSAND, IN COMMISSIONS AND FEES AND $50
THOUSAND, IN NET INCOME HAVE NOT BEEN INCLUDED IN THE 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 OUR CONSOLIDATED
STATEMENT OF INCOME (LOSS) FOR THE YEAR ENDED DECEMBER 31, 1999. IN ADDITION,
THE RESULTS OF HW, FOR THE THREE MONTHS ENDED MARCH 31, 1999 ARE INCLUDED IN THE
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
$11.1 MILLION, (B) NET INCOME WAS $1.9 MILLION AND (C) DILUTED EARNINGS PER
SHARE WAS $0.02. ALL AMOUNTS REFERRED TO BELOW REFLECT THE AMOUNTS DISCLOSED IN
OUR MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS AND OUR CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND OUR
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED HEREIN UNLESS OTHERWISE INDICATED.
"WE," "US" AND "OUR," WHEN USED IN THIS PROSPECTUS, REFER TO TMP WORLDWIDE INC.
AND ITS SUBSIDIARIES.
We have built Monster.com(SM) (http://www.monster.com) into the Internet's
leading career destination portal. We are also one of the world's largest
recruitment advertising agencies and one of the world's largest executive search
and selection firms. In addition to offering these career solutions, we are the
world's largest yellow page advertising agency. We have more than 31,000
clients, including over 90 of the Fortune 100 and over 480 of the Fortune 500
companies.
Job seekers look to manage their careers through us by posting their resumes
on Monster.com(SM), by searching Monster.com's(SM) database of over 415,000 paid
job postings, either directly or through the use of customized job search
agents, and by utilizing our extensive career resources. In addition, employers
who are our clients, look to us to help them find the right employee, whether
they are searching for an entry level candidate or a CEO, which we refer to as
our "intern to CEO" strategy. We believe the Internet offers a substantial
opportunity for us to grow our revenue. We believe our growth will primarily
come from strengthening our leadership position in the online recruitment
market, which is estimated by Forrester Research to grow from $411 million in
1999 to $3.2 billion in 2004, with additional revenue growth opportunities from
the $8 billion executive search and selection market, the $13 billion global
recruitment advertising market, the $130 billion temporary contracting market
and the more than $100 billion which third parties estimate corporations spend
on unassisted recruiting activities. Our strategies to address this opportunity
are to:
- continue to promote the Monster.com(SM) brand through online and
traditional advertising and select alliances or affiliations
- leverage our more than 5,100 client service, marketing and creative
personnel to expand Monster.com(SM)
- continue to pursue strategic acquisitions
4
<PAGE>
OUR SERVICES
MONSTER.COM(SM). Monster.com(SM) (http://www.monster.com), the flagship of
our Internet properties, is the nucleus of our intern to CEO strategy. In July
2000:
- Neilson I/Pro reported that Monster.com(SM) attracted more than 15.3
million visitors who spent an average of over 16.0 minutes per visit
- Media Metrix reported that 5.8% of the U.S. Internet population visited
Monster.com(SM) and that an average of 31.1 unique pages were viewed by
each visitor
- Based on Media Metrix statistics, Monster.com(SM) reported a power ranking
of 180.4 (reach of 5.8 multiplied by average page views of 31.1), compared
to 29.9 for its closest competitor and 105.2 for its six closest
competitors combined
We believe that the power ranking is significant because, by taking into
account reach and page views, it indicates the products' recognition by and
usefulness to job seekers. As a result, through Monster.com(SM), our clients
have access to over 4.7 million unique resumes of which 3.3 million are active,
and our resume database is growing by an average of more than 13,000 resumes
daily. To attract job seekers to Monster.com(SM), we continue to refine and
refresh the site by introducing value-added features. For example, we have
3.6 million job search agents, which allow our job seekers to express their
specific job preferences and receive e-mail notification of job matches, and
8.7 million My Monster job seeker accounts, which allow job seekers to manage
their careers online. We have also recently introduced Monster Talent Market,
which allows independent contractor professionals to offer their services to the
highest bidder. We believe our clients have recognized the value of online
recruitment, as evidenced by the more than 415,000 paid job postings currently
on Monster.com(SM).
We continually look for ways to drive and retain site traffic. To that end,
in December 1999, we entered into a content and marketing agreement with America
Online, Inc. ("AOL") whereby, for the payment of $100 million over four years,
Monster.com(SM) will be the exclusive provider for four years in the United
States and Canada of career search services to 21 million AOL users across seven
AOL brands: AOL, AOL Canada, Compuserve, ICQ, AOL.com, Netscape and Digital
City. We believe that this agreement has the potential to drive a substantial
amount of increased traffic and new users to Monster.com-SM-. We also customize
Monster.com(SM), in both language and content, for other countries. Currently,
local versions of Monster.com(SM) operate in Canada, the United Kingdom, the
Netherlands, Australia, Belgium, France, Singapore, New Zealand, Hong Kong,
Germany and Ireland. For the six months ended June 30, 2000, Monster.com(SM)
generated approximately $136.4 million in gross billings and $135.0 million in
commissions and fees. Our total Internet gross billings and Internet commissions
and fees for this period were $183.2 million and $163.0 million, respectively,
reflecting the inclusion of commissions and fees from MonsterMoving.com, which
were $4.2 million, and from Internet related services from our traditional
recruitment and yellow page advertising clients, as well as from searches for
permanent employees and temporary contracting services identified and screened
through the Internet, which were $12.7 million, $5.0 million and $6.2 million,
respectively.
RECRUITMENT ADVERTISING. We prospect talent for our clients through
traditional recruiting programs that sell, market and brand employers to job
seekers searching for entry level positions to positions paying up to $100,000,
annually. We provide a broad range of recruitment advertising services
including:
- planning and producing advertising campaigns
- media research, planning and buying in both traditional media and on the
Internet
- planning and executing on-campus recruitment programs
EXECUTIVE SEARCH. We offer an advanced and comprehensive range of executive
search services aimed at identifying the appropriate executive for our clients.
Our executive search service identifies senior executives who typically earn in
excess of $250,000 annually. We entered the executive search field in 1998
because recruitment and online advertising traditionally did not target the
senior executive candidate.
5
<PAGE>
SELECTION AND TEMPORARY CONTRACTING. The mid-market selection business
fills a critical niche in our "intern to CEO" strategy by identifying for our
clients those professionals, below the CEO level, who typically earn between
$50,000 and $150,000. We believe that Monster.com-SM- is an excellent resource
for serving this market and we are building a large database of mid-market
resumes. We have also identified a suite of products geared toward this market
which seek to predict whether a candidate will be successful in a given role.
Temporary contracting supplements our selection services. We place employees,
ranging from executives to clerical workers, in temporary situations for as
little as one day to over 12 months. Contractors can be used for emergency
support or to complement the skills of a client's own staff. Temporary
contracting can also be linked to permanent placement with the client employing
a "try before you buy" strategy.
YELLOW PAGE ADVERTISING. We develop yellow page marketing programs for
national accounts, which are clients who sell products or services in multiple
markets. The national segment of the U.S. yellow page advertising market was
approximately $2.0 billion in 1999. During the period of 1990 through 1999, the
market grew at a compound annual rate of approximately 6.4%. Yellow page
advertising is a complex process involving the creation of effective imagery and
message, and the development of media plans which evaluate approximately 7,000
yellow page directories, of which our larger accounts utilize over 2,000.
Coordinating the placement of advertisements in this number of directories
requires an extensive effort at the local level, and our yellow page sales,
marketing and customer service staff of approximately 850 people provides an
important competitive advantage in marketing and executing yellow page
advertising programs.
We take a proactive approach to yellow page advertising by undertaking
original research on the efficacy of the medium, and by working to quantify the
effectiveness of individual advertising campaigns. We also have a rigorous
quality assurance program designed to ensure client satisfaction. We believe
that this program has enabled us to maintain a yellow page client retention
rate, year to year, in excess of 90%.
MONSTERMOVING.COM. Through recent acquisitions, we have begun to capitalize
on the relationship between recruitment and relocation. By featuring information
that addresses the entire moving process, such as mortgages, insurance,
utilities and education, we offer our clients the ability to research a
prospective move online. We are combining these tools into a Moving Center which
will be integrated into Monster.com-SM-, thus extending the Monster.com-SM-
brand into the moving services marketplace.
For the year ended December 31, 1999 and the six months ended June 30, 2000,
respectively, our gross billings were $1.972 billion and $1.152 billion, total
commissions and fees were $869.2 million and $558.1 million, net income (loss)
was $(9.1) million and $11.6 million and EBITDA was $57.8 million and
$52.3 million.
Our executive offices are located at 622 Third Avenue, New York, New York
10017, our telephone number is (212)-351-7000 and our Internet address is
http://www.tmpw.com.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Commissions and fees....................... $343,584 $447,605 $610,762 $744,517 $869,207 $402,090 $558,137
Operating expenses:
Salaries & related....................... 197,068 258,389 344,956 430,316 496,926 241,430 308,638
Office & general......................... 95,817 123,891 160,027 184,905 205,165 98,649 127,883
Marketing & promotion.................... 5,079 8,414 13,665 29,737 74,647 29,564 67,702
Merger & integration..................... -- -- -- 22,412 63,054 11,454 22,323
Restructuring............................ -- -- -- 3,543 2,789 2,789 --
Amortization of intangibles.............. 3,410 4,786 6,913 11,070 12,532 6,167 7,540
Special compensation and CEO bonus(1).... -- 52,019 1,500 1,250 -- -- --
Total operating expenses................... 301,374 447,499 527,061 683,233 855,113 390,053 534,086
Operating income........................... 42,210 106 83,701 61,284 14,094 12,037 24,051
Other income (expense):
Interest income (expense), net(2)........ (10,475) (14,573) (10,502) (12,876) (12,927) (6,226) 7,290
Other, net............................... (816) (341) 814 (2,057) (2,906) (1,511) (582)
Income (loss) before provision (benefit)
for income taxes, minority interests and
equity in earnings (losses) of
affiliates............................... 30,919 (14,808) 74,013 46,351 (1,739) 4,300 30,759
Provision (benefit) for income taxes....... 10,499 11,478 22,805 16,884 6,908 1,488 19,528
Net income (loss) applicable to common and
Class B common stockholders.............. 19,124 (27,399) 50,756 29,043 (9,054) 2,505 11,555
Net income (loss) per common and Class B
common share:
Basic.................................... $ 0.30 $ (0.43) $ 0.67 $ 0.36 $ (0.11) $ 0.03 $ 0.12
Diluted.................................. $ 0.30 $ (0.43) $ 0.66 $ 0.35 $ (0.11) $ 0.03 $ 0.11
Weighted average shares outstanding:
Basic.................................... 63,071 64,198 75,857 81,638 84,250 83,380 94,048
Diluted.................................. 64,337 64,198 77,134 83,494 84,250 87,318 101,078
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------ ---------------------
1995 1996 1997 1998 1999 1999 2000
-------- ---------- ---------- ---------- ---------- -------- ----------
(IN THOUSANDS, EXCEPT NUMBER OF EMPLOYEES AND OFFICES)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Gross Billings:
Interactive (3)...... $ 392 $ 7,099 $ 23,023 $ 60,705 $ 162,772 $ 56,804 $ 183,230
Recruitment
Advertising........ 239,365 381,089 659,467 869,302 831,624 426,820 444,455
Selection & Temporary
Contracting (4).... 108,124 142,750 181,332 209,227 271,910 124,445 168,321
Executive Search..... 101,521 127,893 168,107 195,268 173,558 84,230 87,352
Yellow Page
Advertising........ 442,287 466,230 497,848 520,129 532,258 257,112 268,869
-------- ---------- ---------- ---------- ---------- -------- ----------
Total Gross Billings... $891,689 $1,125,061 $1,529,777 $1,854,631 $1,972,122 $949,411 $1,152,227
======== ========== ========== ========== ========== ======== ==========
Total operating
expenses as a
percentage of
commissions and
fees................. 87.7% 100.0% 86.3% 91.8% 98.4% 97.0% 95.7%
Number of employees.... 2,973 4,315 6,139 6,895 7,212 6,762 8,241
Number of offices...... 143 191 253 298 304 292 290
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------ JUNE 30,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets........................ $280,584 $347,185 $479,635 $517,980 $ 612,845 $1,137,037
Current liabilities................... 272,701 341,875 440,787 457,414 604,608 669,125
Total assets.......................... 383,989 520,109 804,516 895,681 1,053,228 1,643,239
Long-term liabilities, less current
portion............................. 94,110 104,585 167,208 172,574 130,824 37,457
Minority interests.................... 3,639 3,705 431 509 9 --
Redeemable preferred stock............ 2,000 2,000 -- -- -- --
Total stockholders' equity............ 11,539 67,944 196,090 265,184 317,787 936,657
</TABLE>
--------------------------
(1) Special compensation consists of a non-cash, non-recurring charge of
approximately $52.0 million for special management compensation in 1996
resulting from the issuance of approximately 7.2 million shares of Common
Stock of the Company to stockholders of predecessor companies of the Company
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 of the company and,
accordingly, were not considered to have made substantive investments for
their minority shares. The CEO bonus for the year ended December 31, 1997
and the year ended December 31, 1998 consists of a mandatory bonus of $375
thousand per quarter payable to Andrew J. McKelvey, the Company's CEO and
Principal Stockholder, as provided for in the Principal Stockholder's then
existing employment agreement. Receipt of these bonus amounts was
permanently waived by the Principal Stockholder, and accordingly, since they
were not paid, are also accounted for as a contribution to Additional
Paid-in Capital.
(2) Interest expense for 1996 includes a $2.6 million non-cash, non-recurring
charge to reflect the exercise of a warrant issued in connection with the
Company's financing agreement.
(3) 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.
(4) Amounts for temporary contracting are reported net of the costs paid to the
temporary contractor.
8
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
This prospectus includes or incorporates forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. You can identify these forward-looking
statements by our use of the words "believes," "anticipates," "plans,"
"expects," "may," "will," "would," "intends," "estimates," and similar
expressions, whether in the negative or affirmative. We cannot guarantee that we
actually will achieve these plans, intentions or expectations. Actual results or
events could differ materially from the plans, intentions and expectations
disclosed in the forward-looking statements we make. We have included important
factors in the cautionary statements in this prospectus, particularly under the
heading "Risk Factors," that we believe could cause our actual results to differ
materially from the forward-looking statements that we make. The forward-looking
statements do not reflect the potential impact of any future acquisitions,
mergers or dispositions. We do not assume any obligation to update any
forward-looking statement we make.
RISK FACTORS
BEFORE YOU INVEST IN OUR COMMON STOCK, YOU SHOULD BE AWARE THAT THERE ARE
VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CONSIDER CAREFULLY
THESE RISK FACTORS TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED IN THIS
PROSPECTUS BEFORE YOU DECIDE TO PURCHASE SHARES OF OUR COMMON STOCK.
WE MAY NOT BE ABLE TO MANAGE OUR GROWTH
Our business has grown rapidly in recent periods. As an example, we
completed 93 mergers and acquisitions from January 1, 1997 through June 30,
2000. We entered the executive search field in 1998 and we believe that our
acquisition of LAI Worldwide, Inc. has made us one of the largest executive
search firms in the world. This growth of our business has placed a significant
strain on our management and operations. Our expansion has resulted, and is
expected in the future to result, in substantial growth in the number of our
employees. In addition, this growth is expected to result in increased
responsibility for both existing and new management personnel and incremental
strain on our existing operations, financial and management information systems.
Our success depends to a significant extent on the ability of our executive
officers and other members of senior management to operate effectively both
independently and as a group. If we are not able to manage existing or
anticipated growth, our business, financial condition and operating results will
be materially adversely affected.
OUR SUCCESS DEPENDS ON THE VALUE OF OUR BRANDS, PARTICULARLY MONSTER.COM(SM)
Our success depends on our brands and their value. Our business would be
adversely affected if we were unable to adequately protect our brand names,
particularly Monster.com(SM). We are also susceptible to others imitating our
products, particularly Monster.com(SM), and infringing our intellectual property
rights. We may not be able to successfully protect our intellectual property
rights, upon which we are materially dependent. In addition, the laws of many
foreign countries do not protect intellectual property rights to the same extent
as the laws of the United States. Imitation of our products, particularly
Monster.com(SM), or infringement of our intellectual property rights could
diminish the value of our brands or otherwise adversely affect our revenues.
TRADITIONAL MEDIA IS IMPORTANT TO US
A substantial portion of our total commissions and fees comes from designing
and placing recruitment advertisements in traditional media such as newspapers
and trade publications. This business constituted approximately 20.8% and 17.1%
of our total commissions and fees for the year ended December 31, 1999 and the
six months ended June 30, 2000, respectively. We also receive a substantial
portion of our commissions and fees from placing advertising in yellow page
directories. This business constituted approximately 11.7% and 8.3% of total
commissions and fees for the year ended December 31, 1999 and
9
<PAGE>
the six months ended June 30, 2000, respectively. We cannot assure you that the
total commissions and fees we receive in the future will equal the total
commissions and fees which we have received in the past.
In addition, new media, like the Internet, may cause yellow page directories
and other forms of traditional media to become less desirable forms of
advertising media. If we are not able to generate Internet advertising fees to
offset any decrease in commissions from traditional media, our business,
financial condition and operating results will be materially adversely affected.
WE FACE RISKS RELATING TO DEVELOPING TECHNOLOGY, INCLUDING THE INTERNET
The market for Internet products and services is characterized by rapid
technological developments, frequent new product introductions and evolving
industry standards. The emerging character of these products and services and
their rapid evolution will require our continuous improvement in performance,
features and reliability of our Internet content, particularly in response to
competitive offerings. We cannot assure you that we will be successful in
responding quickly, cost effectively and sufficiently to these developments. In
addition, the widespread adoption of new Internet technologies or standards
could require us to make substantial expenditures to modify or adapt our Web
sites and services. This could affect our business, financial condition and
operating results. New Internet services or enhancements which we have offered
or may offer in the future may contain design flaws or other defects that could
require expensive modifications or result in a loss of client confidence. Any
disruption in Internet access or in the Internet generally could have a material
adverse effect on our business, financial condition and operating results.
WE ARE VULNERABLE TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS BROUGHT AGAINST
US BY OTHERS
Successful intellectual property infringement claims against us could result
in monetary liability or a material disruption in the conduct of our business.
We cannot be certain that our products, content and brand names do not or will
not infringe valid patents, copyrights or other intellectual property rights
held by third parties. We expect that infringement claims in our markets will
increase in number as more participants enter the markets. We may be subject to
legal proceedings and claims from time to time relating to the intellectual
property of others in the ordinary course of our business. We may incur
substantial expenses in defending against these third party infringement claims,
regardless of their merit.
COMPUTER VIRUSES MAY CAUSE OUR SYSTEMS TO INCUR DELAYS OR INTERRUPTIONS
Computer viruses may cause our systems to incur delays or other service
interruptions and could damage our reputation and have a material adverse effect
on our business, financial condition and operating results. The inadvertent
transmission of computer viruses could expose us to a material risk of loss or
litigation and possible liability. Moreover, if a computer virus affecting our
system is highly publicized, our reputation could be materially damaged and our
visitor traffic may decrease.
Internet users can freely navigate and instantly switch among a large number
of Web sites, many of which offer original content. It is difficult for us to
distinguish our content and attract users. In addition, many other Web sites
offer very specific, highly targeted content. These sites could have greater
appeal than our sites to particular groups within our target audience.
WE FACE RISKS ASSOCIATED WITH OUR ACQUISITION STRATEGY
We expect our growth to continue, in part, by acquiring businesses. The
success of this strategy depends upon several factors, including:
- the continued availability of financing;
10
<PAGE>
- our ability to identify and acquire businesses on a cost-effective basis;
- our ability to integrate acquired personnel, operations, products and
technologies into our organization effectively; and
- our ability to retain and motivate key personnel and to retain the clients
of acquired firms.
We cannot assure you that financing for acquisitions will be available on
terms we find acceptable, or that we will be able to identify or consummate new
acquisitions, or manage and integrate our recent or future expansions
successfully. Any inability to do so would materially adversely affect our
business, financial condition and operating results. We also cannot assure you
that we will be able to sustain the rates of growth that we have experienced in
the past.
OUR MARKETS ARE HIGHLY COMPETITIVE
The markets for our services are highly competitive. They are characterized
by pressures to:
- reduce prices;
- incorporate new capabilities and technologies; and
- accelerate job completion schedules.
Furthermore, we face competition from a number of sources. These sources
include:
- national and regional advertising agencies;
- Internet portals;
- specialized and integrated marketing communication firms;
- traditional media companies;
- executive search firms; and
- search and selection firms.
In addition, many advertising agencies and publications have started either
to internally develop or acquire new media capabilities, including Internet. We
are also competing with established companies that provide integrated
specialized services like Web advertising services or Web site design, and are
technologically proficient. Many of our competitors or potential competitors
have long operating histories, and some may have greater financial, management,
technological development, sales, marketing and other resources than we do. In
addition, our ability to maintain our existing clients and attract new clients
depends to a large degree on the quality of our services and our reputation
among our clients and potential clients.
We have no significant proprietary technology that would preclude or inhibit
competitors from entering the online advertising, executive search, recruitment
advertising, or yellow page advertising markets. We cannot assure you that
existing or future competitors will not develop or offer services and products
which provide significant performance, price, creative or other advantages over
our services. This could have a material adverse effect on our business,
financial condition and operating results.
OUR OPERATING RESULTS FLUCTUATE FROM QUARTER TO QUARTER
Our quarterly operating results have fluctuated in the past and may
fluctuate in the future. These fluctuations are a result of a variety of
factors, including:
- the timing of acquisitions;
- the timing of yellow page directory closings, the largest number of which
currently occur in the third quarter; and
11
<PAGE>
- the receipt of additional commissions from yellow page publishers for
achieving a specified volume of advertising, which are typically reported
in the fourth quarter.
Generally our quarterly commissions and fees earned from recruitment
advertising tend to be highest in the first quarter and lowest in the fourth
quarter. Additionally, recruitment advertising commissions and fees tend to be
more cyclical than yellow page commissions and fees. To the extent that a
significant percentage of our commissions and fees are derived from recruitment
advertising, our operating results may be subject to increased cyclicality.
EFFECT OF GLOBAL ECONOMIC FLUCTUATIONS
Demand for our services is significantly affected by the general level of
economic activity in the regions and industries in which we operate. When
economic activity slows, many companies hire fewer permanent employees.
Therefore, a significant economic downturn, especially in regions or industries
where our operations are heavily concentrated, could have a material adverse
effect on our business, financial condition and operating results. Further, we
may face increased pricing pressures during such periods. There can be no
assurance that during these periods our results of operations will not be
adversely affected.
WE DEPEND ON OUR CONSULTANTS
The success of our executive search business depends upon our ability to
attract and retain consultants who possess the skills and experience necessary
to fulfill our clients' executive search needs. Competition for qualified
consultants is intense. We believe that we have been able to attract and retain
highly qualified, effective consultants as a result of our reputation and our
performance-based compensation system. Consultants have the potential to earn
substantial bonuses based on the amount of revenue they generate by:
- obtaining executive search assignments;
- executing search assignments; and
- assisting other consultants to obtain or complete executive search
assignments.
Bonuses represent a significant proportion of consultants' total
compensation. Any diminution of our reputation could impair our ability to
retain existing or attract additional qualified consultants. Our inability to
attract and retain qualified consultants could have a material adverse effect on
our executive search business, financial condition and operating results.
OUR CONSULTANTS MAY DEPART WITH EXISTING EXECUTIVE SEARCH CLIENTS
The success of our executive search business depends upon the ability of our
consultants to develop and maintain strong, long-term relationships with
clients. Usually, one or two consultants have primary responsibility for a
client relationship. When a consultant leaves an executive search firm and joins
another, clients that have established relationships with the departing
consultant may move their business to the consultant's new employer. The loss of
one or more clients is more likely to occur if the departing consultant enjoys
widespread name recognition or has developed a reputation as a specialist in
executing searches in a specific industry or management function. Historically,
we have not experienced significant problems in this area. However, a failure to
retain our most effective consultants or maintain the quality of service to
which our clients are accustomed could have a material adverse effect on our
business, financial condition and operating results. Also, the ability of a
departing consultant to move business to his or her new employer could have a
material adverse effect on our business, financial condition and operating
results.
12
<PAGE>
WE FACE RISKS MAINTAINING OUR PROFESSIONAL REPUTATION AND BRAND NAME
Our ability to secure new executive search engagements and hire qualified
professionals is highly dependent upon our overall reputation and brand name
recognition as well as the individual reputations of our professionals. We
obtain a majority of our new engagements from existing clients or from referrals
by existing clients. Therefore, the dissatisfaction of any client could have a
disproportionate, adverse impact on our ability to secure new engagements. Any
factor that diminishes our reputation or the reputation of any of our personnel
could make it more difficult for us to compete successfully for both new
engagements and qualified consultants. This could have an adverse effect on our
executive search business, financial condition and operating results.
WE FACE RESTRICTIONS IMPOSED BY BLOCKING ARRANGEMENTS
Either by agreement with clients or for marketing or client relationship
purposes, executive search firms frequently refrain, for a specified period of
time, from recruiting certain employees of a client, and possibly other entities
affiliated with such client, when conducting executive searches on behalf of
other clients. This is known as a "blocking" arrangement. Blocking arrangements
generally remain in effect for one or two years following completion of an
assignment. The actual duration and scope of any blocking arrangement, including
whether it covers all operations of a client and its affiliates or only certain
divisions of a client, generally depends on such factors as:
- the length of the client relationship;
- the frequency with which the executive search firm has been engaged to
perform executive searches for the client; and
- the number of assignments the executive search firm has generated or
expects to generate from the client.
Some of our executive search clients are recognized as industry leaders and/or
employ a significant number of qualified executives who are potential candidates
for other companies in that client's industry. Blocking arrangements with a
client of this nature, or the awareness by a client's competitors of such an
arrangement, may make it difficult for us to obtain executive search assignments
from, or to fulfill executive search assignments for, competitors while
employees of that client may not be solicited. As our client base grows,
particularly in our targeted business sectors, blocking arrangements
increasingly may impede our growth or ability to attract and serve new clients.
This could have an adverse effect on our executive search business, results of
operations and financial condition.
WE FACE RISKS RELATING TO OUR FOREIGN OPERATIONS
We conduct operations in various foreign countries, including Australia,
Belgium, Canada, France, Germany, Japan, the Netherlands, New Zealand,
Singapore, Spain and the United Kingdom. For the year ended December 31, 1999
and the six months ended June 30, 2000, approximately 46.5% and 44.4% of our
total commissions and fees were earned outside of the United States. Such
amounts are collected in the local currency. In addition, we generally pay
operating expenses in the corresponding local currency. Therefore, we are at
risk for exchange rate fluctuations between such local currencies and the
dollar. We do not conduct any significant hedging activities.
We are also subject to taxation in foreign jurisdictions. In addition,
transactions between us and our foreign subsidiaries may be subject to United
States and foreign withholding taxes. Applicable tax rates in foreign
jurisdictions differ from those of the United States, and change periodically.
The extent, if any, to which we will receive credit in the United States for
taxes we pay in foreign jurisdictions will depend upon the application of
limitations set forth in the Internal Revenue Code of 1986, as well as the
provisions of any tax treaties which may exist between the United States and
such foreign jurisdictions.
13
<PAGE>
Other risks inherent in transacting foreign operations include changes in
applicable laws and regulatory requirements, tariffs and other trade barriers
and political instability.
WE DEPEND ON OUR KEY PERSONNEL
Our continued success will depend to a significant extent on our senior
management, including Andrew J. McKelvey, our Chairman of the Board and CEO. The
loss of the services of Mr. McKelvey or of one or more key employees could have
a material adverse effect on our business, financial condition and operating
results. In addition, if one or more key employees join a competitor or form a
competing company, the resulting loss of existing or potential clients could
have a material adverse effect on our business, financial condition and
operating results. If we were to lose a key employee, we cannot assure you that
we would be able to prevent the unauthorized disclosure or use of our
procedures, practices, new product development or client lists.
WE ARE CONTROLLED BY A PRINCIPAL STOCKHOLDER
Andrew J. McKelvey beneficially owns all of our outstanding Class B common
stock and a number of shares of our common stock, which together with his Class
B common stock ownership represents more than half of the combined voting power
of all classes of our voting stock. Mr. McKelvey can direct the election of all
of the members of our board. He can also exercise a controlling influence over
our business and affairs. This includes any determinations with respect to
mergers or other business combinations, the acquisition or disposition of our
assets, whether or not we incur indebtedness, the issuance of any additional
common stock or other equity securities and the payment of dividends with
respect to common stock. Similarly, Mr. McKelvey may determine matters submitted
to a vote of our stockholders without the consent of our other stockholders and
he has the power to prevent a change of control.
EFFECTS OF ANTI-TAKEOVER PROVISIONS COULD INHIBIT OUR ACQUISITION
Some of the provisions of our certificate of incorporation, bylaws and
Delaware law could, together or separately:
- discourage potential acquisition proposals;
- delay or prevent a change in control; and
- limit the price that investors might be willing to pay in the future for
shares of our common stock.
In particular, our board of directors may issue up to 800,000 shares of
preferred stock with rights and privileges that might be senior to our common
stock, without the consent of the holders of the common stock. Our certificate
of incorporation and bylaws provide, among other things, for advance notice of
stockholder proposals and director nominations.
THERE MAY BE VOLATILITY IN OUR STOCK PRICE
The market for our common stock has, from time to time, experienced extreme
price and volume fluctuations. Factors such as announcements of variations in
our quarterly financial results and fluctuations in advertising commissions and
fees, including the percentage of our commissions and fees derived from
Internet-based services and products could cause the market price of our common
stock to fluctuate significantly. Further, due to the volatility of the stock
market generally, the price of our common stock could fluctuate for reasons
unrelated to our operating performance.
The market price of our common stock is based in large part on professional
securities analysts' expectations that our business will continue to grow and
that we will achieve certain levels of net income. If our financial performance
in a particular quarter does not meet the expectations of securities analysts,
this may adversely affect the views of those securities analysts concerning our
growth potential and future financial performance. If the securities analysts
who regularly follow our common stock lower their ratings
14
<PAGE>
of our common stock or lower their projections for our future growth and
financial performance, the market price of our common stock is likely to drop
significantly.
WE FACE RISKS ASSOCIATED WITH GOVERNMENT REGULATION
As an advertising agency which creates and places print and Internet
advertisements, we are subject to Sections 5 and 12 of the U.S. Federal Trade
Commission Act. These sections regulate advertising in all media, including the
Internet, and require advertisers and advertising agencies to have
substantiation for advertising claims before disseminating advertisements. The
FTC Act prohibits the dissemination of false, deceptive, misleading, and unfair
advertising, and grants the Federal Trade Commission enforcement powers to
impose and seek civil penalties, consumer redress, injunctive relief and other
remedies upon advertisers and advertising agencies which disseminate prohibited
advertisements. Advertising agencies like us are subject to liability under the
FTC Act if the agency actively participated in creating the advertisement, and
knew or had reason to know that the advertising was false or deceptive.
In the event that any advertising that we have created is found to be false,
deceptive or misleading, the FTC Act could potentially subject us to liability.
The fact that the FTC has recently brought several actions charging deceptive
advertising via the Internet, and is actively seeking new cases involving
advertising via the Internet, indicates that the FTC Act could pose a somewhat
higher risk of liability to the advertising distributed via the Internet. The
FTC has never brought any actions against us.
In addition, we cannot assure you that other current or new government laws
and regulations, or the application of existing laws and regulations will not:
- subject us to significant liabilities;
- significantly dampen growth in Internet usage;
- prevent us from offering certain Internet content or services; or
- otherwise have a material adverse effect on our business, financial
condition and operating results.
WE HAVE NEVER PAID DIVIDENDS
We currently intend to retain earnings, if any, to support our growth
strategy. We do not anticipate paying dividends on our stock in the foreseeable
future. In addition, payment of dividends on our stock is restricted by our
financing agreement.
15
<PAGE>
USE OF PROCEEDS
TMP will not receive any proceeds from the sale of shares of TMP stock by
the selling stockholders.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our stock. We currently
anticipate that all future earnings will be retained by TMP to support our
growth strategy. Accordingly, we do not anticipate paying cash dividends on our
stock for the foreseeable future. The payment of any future dividends will be at
the discretion of our Board of Directors and will depend upon, among other
things, future earnings, operations, capital requirements, our general financial
condition, contractual restrictions and general business conditions. Our
financing agreement restricts the payment of dividends on our stock.
PRICE RANGE OF COMMON STOCK
Our stock is quoted on the Nasdaq National Market under the ticker symbol
"TMPW." The stock was initially offered to the public on December 12, 1996 at
$7.00 per share. The following table sets forth for the periods indicated the
high and low reported closing sale prices per share for our stock as reported by
Nasdaq. Effective February 29, 2000, a 2-for-1 stock split in the form of a
stock dividend was paid, the share and per share amounts set forth in this
section have been retroactively restated to give effect to the stock split.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 2000 HIGH LOW
----------------------------- ---------------- ----------------
<S> <C> <C>
First Quarter............................................ $ 92.38 $ 60.00
Second Quarter........................................... $ 78.25 $ 49.13
Third Quarter (through September 13)..................... $ 84.75 $ 64.81
<CAPTION>
YEAR ENDING DECEMBER 31, 1999 HIGH LOW
----------------------------- ---------------- ----------------
<S> <C> <C>
First Quarter............................................ $ 34.94 $ 19.50
Second Quarter........................................... $ 44.69 $ 21.50
Third Quarter............................................ $ 32.81 $ 22.06
Fourth Quarter........................................... $ 80.15 $ 25.00
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 HIGH LOW
---------------------------- ---------------- ----------------
<S> <C> <C>
First Quarter............................................ $ 16.31 $ 10.62
Second Quarter........................................... $ 17.44 $ 12.75
Third Quarter............................................ $ 19.44 $ 13.94
Fourth Quarter........................................... $ 21.00 $ 10.25
</TABLE>
There were approximately 1,800 stockholders of record of our Common Stock on
September 13, 2000. On September 13, 2000, the last reported sale price of our
stock as reported by Nasdaq was $73.36.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial information set forth below as of
December 31, 1999 and 1998 and for the three years in the period ended
December 31, 1999 has been derived from TMP's audited consolidated financial
statements included elsewhere in this prospectus. The selected consolidated
information with respect to the Company's financial position as of December 31,
1997 has been derived from TMP's audited consolidated balance sheet as of
December 31, 1997 not included herein. The selected consolidated financial
information set forth below as of December 31, 1996 and 1995 and for the two
years ended December 31, 1996 has been derived from our unaudited consolidated
financial statements which are not included in this prospectus. The selected
consolidated financial data as of June 30, 2000 and for the six months ended
June 30, 2000 and 1999 has been derived from TMP's unaudited consolidated
condensed financial statements, and in the opinion of TMP's management, has been
prepared on the same basis as the audited consolidated financial statements and
include all normal recurring adjustments necessary for a fair presentation of
the financial information. The results for the six months ended June 30, 2000
are not necessarily indicative of future results. The following financial
information should be read in conjunction with TMP's consolidated financial
statements and related notes thereto and TMP's consolidated condensed financial
statements and related notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
prospectus. The Other Data presented below has not been audited.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Commissions and fees....................... $343,584 $447,605 $610,762 $744,517 $869,207 $402,090 $558,137
Operating expenses:
Salaries & related....................... 197,068 258,389 344,956 430,316 496,926 241,430 308,638
Office & general......................... 95,817 123,891 160,027 184,905 205,165 98,649 127,883
Marketing & promotion.................... 5,079 8,414 13,665 29,737 74,647 29,564 67,702
Merger & integration..................... -- -- -- 22,412 63,054 11,454 22,323
Restructuring............................ -- -- -- 3,543 2,789 2,789 --
Amortization of intangibles.............. 3,410 4,786 6,913 11,070 12,532 6,167 7,540
Special compensation and CEO bonus(1).... -- 52,019 1,500 1,250 -- -- --
Total operating expenses................... 301,374 447,499 527,061 683,233 855,113 390,053 534,086
Operating income........................... 42,210 106 83,701 61,284 14,094 12,037 24,051
Other income (expense):
Interest income (expense), net(2)........ (10,475) (14,573) (10,502) (12,876) (12,927) (6,226) 7,290
Other, net............................... (816) (341) 814 (2,057) (2,906) (1,511) (582)
Income (loss) before provision (benefit)
for income taxes, minority interests and
equity in earnings (losses) of
affiliates............................... 30,919 (14,808) 74,013 46,351 (1,739) 4,300 30,759
Provision (benefit) for income taxes....... 10,499 11,478 22,805 16,884 6,908 1,488 19,528
Net income (loss) applicable to common and
Class B common stockholders.............. 19,124 (27,399) 50,756 29,043 (9,054) 2,505 11,555
Net income (loss) per common and Class B
common share:
Basic.................................... $ 0.30 $ (0.43) $ 0.67 $ 0.36 $ (0.11) $ 0.03 $ 0.12
Diluted.................................. $ 0.30 $ (0.43) $ 0.66 $ 0.35 $ (0.11) $ 0.03 $ 0.11
Weighted average shares outstanding:
Basic.................................... 63,071 64,198 75,857 81,638 84,250 83,380 94,048
Diluted.................................. 64,337 64,198 77,134 83,494 84,250 87,318 101,078
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------ ---------------------
1995 1996 1997 1998 1999 1999 2000
-------- ---------- ---------- ---------- ---------- -------- ----------
(IN THOUSANDS, EXCEPT NUMBER OF EMPLOYEES AND OFFICES)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Gross Billings:
Interactive (3)...... $ 392 $ 7,099 $ 23,023 $ 60,705 $ 162,772 $ 56,804 $ 183,230
Recruitment
Advertising........ 239,365 381,089 659,467 869,302 831,624 426,820 444,455
Selection & Temporary
Contracting (4).... 108,124 142,750 181,332 209,227 271,910 124,445 168,321
Executive Search..... 101,521 127,893 168,107 195,268 173,558 84,230 87,352
Yellow Page
Advertising........ 442,287 466,230 497,848 520,129 532,258 257,112 268,869
-------- ---------- ---------- ---------- ---------- -------- ----------
Total Gross Billings... $891,689 $1,125,061 $1,529,777 $1,854,631 $1,972,122 $949,411 $1,152,227
======== ========== ========== ========== ========== ======== ==========
Total operating
expenses as a
percentage of
commissions and
fees................. 87.7% 100.0% 86.3% 91.8% 98.4% 97.0% 95.7%
Number of employees.... 2,973 4,315 6,139 6,895 7,212 6,762 8,241
Number of offices...... 143 191 253 298 304 292 290
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------ JUNE 30,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets........................ $280,584 $347,185 $479,635 $517,980 $ 612,845 $1,137,037
Current liabilities................... 272,701 341,875 440,787 457,414 604,608 669,125
Total assets.......................... 383,989 520,109 804,516 895,681 1,053,228 1,643,239
Long-term liabilities, less current
portion............................. 94,110 104,585 167,208 172,574 130,824 37,457
Minority interests.................... 3,639 3,705 431 509 9 --
Redeemable preferred stock............ 2,000 2,000 -- -- -- --
Total stockholders' equity............ 11,539 67,944 196,090 265,184 317,787 936,657
</TABLE>
--------------------------
(1) Special compensation consists of a non-cash, non-recurring charge of
approximately $52.0 million for special management compensation in 1996
resulting from the issuance of approximately 7.2 million shares of Common
Stock of the Company to stockholders of predecessor companies of the Company
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 of the company and,
accordingly, were not considered to have made substantive investments for
their minority shares. The CEO bonus for the year ended December 31, 1997
and the year ended December 31, 1998 consists of a mandatory bonus of $375
thousand per quarter payable to Andrew J. McKelvey, the Company's CEO and
Principal Stockholder, as provided for in the Principal Stockholder's then
existing employment agreement. Receipt of these bonus amounts was
permanently waived by the Principal Stockholder, and accordingly, since they
were not paid, are also accounted for as a contribution to Additional
Paid-in Capital.
(2) Interest expense for 1996 includes a $2.6 million non-cash, non-recurring
charge to reflect the exercise of a warrant issued in connection with the
Company's financing agreement.
(3) 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.
(4) Amounts for temporary contracting are reported net of the costs paid to the
temporary contractor.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO, THE CONSOLIDATED FINANCIAL STATEMENTS AND THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF THE COMPANY APPEARING ELSEWHERE
IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL
INFORMATION, FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THE FORWARD LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE
DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS.
ALL AMOUNTS REFERRED TO BELOW REFLECT THE AMOUNTS DISCLOSED IN THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND 1998 AND FOR EACH
OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 AND THE CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS AS OF JUNE 30, 2000 AND FOR THE SIX MONTHS ENDED
JUNE 30, 2000 AND 1999 INCLUDED ELSEWHERE IN THIS PROSPECTUS.
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 interest (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", collectively with the
First Quarter 2000 Mergers, the "First Half 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 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 Quarter 2000 Mergers and the
Second Quarter 2000 Mergers (collectively, the "First Half 2000 Mergers"), as if
the combining companies had been consolidated for all periods presented. The
consolidated condensed financial statements for the six months ended June 30,
1999 have been retroactively restated to reflect the First Half 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 and
consolidated condensed statements of stockholders' equity
19
<PAGE>
reflect our accounts 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.
In the consolidated condensed balance sheets and the consolidated balance
sheets, the balance sheets of TMP as of June 30, 2000 and December 31, 1999 and
1998 have been combined with those of the First Half 2000 Mergers all as of
June 30, 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, 1999 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 consolidated statements of income (loss) combine the results of TMP for
the six months ended June 30, 1999 and each year in the three year period ended
December 31, 1999 with those of the First Half 2000 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 consolidated statements of income (loss) for the year ended
December 31, 1999 and in the consolidated condensed statement of income (loss)
for the six months ended June 30, 2000. Therefore, the following amounts have
been included in both periods: (a) commissions and fees of $1.0 million and (b)
net income of $285 thousand, 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 thousand, in commissions and fees and $50
thousand, in net income have not been included in the 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 our consolidated
statement of income (loss) for the year ended December 31, 1999. In addition,
the results of HW, for the three months ended March 31, 1999 are included in the
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
$11.1 million, (b) net income was $1.9 million and (c) diluted earnings per
share was $0.02.
OVERVIEW
TMP Worldwide Inc. ("TMP" or the "Company"), through its flagship
Interactive product, Monster-Registered Trademark-.com (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 is the leading global career
portal on the Web with over 15.3 million unique visits per month as of
July 2000 per Nielson I/Pro. The Monster.com 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.
20
<PAGE>
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
June 30, 2000 we completed 64 such acquisitions, with estimated annual gross
billings of approximately $495 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 the First
Half 2000 Pooled Companies (the "First Half 2000 Mergers"). Accordingly, the
consolidated financial statements as of December 31, 1999 and 1998 and for each
of the three years in 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
consolidated condensed financial statements for the six months ended June 30,
1999 have been retroactively restated as if the First Half 2000 Mergers had been
consolidated for all periods presented.
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;
- 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'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 and we believe that these additional relocation services will be highly
valued by Monster.com's audience and customer base.
MonsterMoving.com, currently through the individual properties we acquired
in 2000 (primarily Virtual Relocation.com, Inc. and Microsurf, Inc.), is already
one of the Internet's most comprehensive
21
<PAGE>
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, which is scheduled to be launched as a new site in the
third quarter of 2000, will be directly accessible to Monster.com's large base
of consumer traffic through URL links and promotions on Monster.com. In
addition, the cross-selling of MonsterMoving.com'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.
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. Through the use of Monster.com, 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. 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
17.3% by June 30, 2000. 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 $163.0 million for the six months
ended June 30, 2000, an increase of $112.3 million or 221.7% over the same
period of 1999, which had Interactive commissions and fees of $50.7 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 up 2.2%
at $95.6 million for the six months ended June 30, 2000 versus $93.5 million for
the same period of 1999 reflecting modest growth in traditional billings of
4.1%.
22
<PAGE>
Selection & Temporary Contracting commissions and fees were $165.8 million, up
$43.1 million or 35.1% from $122.7 million for the same period ended June 30,
1999. The increase reflects the greater demand for professional level and
information service technology employees worldwide, particularly in mid-level
management positions (annual salaries ranging from $75,000 to $150,000), the
resumption of strong demand for temporary employees in Australia, and European
acquisitions accounted for as purchases. Executive Search commissions and fees
were $87.4 million for the six months ended June 30, 2000, an increase of
$3.2 million or 3.7% from $84.2 million for the comparable six months of 1999,
reflecting strong global demand for senior executive positions. Yellow Page
Advertising billings increased 4.6% to $268.9 million for the six month period
ended June 30, 2000 and commissions and fees decreased 9.0% to $46.4 million for
the six months of 2000 compared to $51.0 million for the prior year period,
reflecting substantially reduced commissions paid by publishers and the effects
of higher discounts for certain large clients. Total commissions and fees as a
percent of related billings for the six months ended June 30, 2000 were 48.4% as
compared to 42.4% for the prior year period. The higher percentage reflects
increased sales volume for Interactive, Executive Search, and Selection &
Temporary Contracting, where the Company retains greater portions of the amounts
billed.
Based on our consolidated results for the periods ended June 30, 2000 and
1999, 44.4% and 47.7% respectively, of our consolidated commissions and fees are
attributable to clients outside the U.S.
23
<PAGE>
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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ ---------------------
1997 1998 1999 1999 2000
---------- ---------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
GROSS BILLINGS:
Interactive(1).................... $ 23,023 $ 60,705 $ 162,772 $ 56,804 $ 183,230
Recruitment Advertising........... 659,467 869,302 831,624 426,820 444,455
Selection & Temporary
Contracting(2).................. 181,332 209,227 271,910 124,445 168,321
Executive Search.................. 168,107 195,268 173,558 84,230 87,352
Yellow Page Advertising........... 497,848 520,129 532,258 257,112 268,869
---------- ---------- ---------- -------- ----------
Total............................... $1,529,777 $1,854,631 $1,972,122 $949,411 $1,152,227
========== ========== ========== ======== ==========
COMMISSIONS AND FEES:
Interactive(1).................... $ 21,940 $ 53,992 $ 144,400 $ 50,675 $ 163,030
Recruitment Advertising........... 136,758 180,774 181,228 93,527 95,553
Selection & Temporary
Contracting(2).................. 180,016 208,028 269,008 122,707 165,821
Executive Search.................. 168,107 195,268 173,277 84,199 87,352
Yellow Page Advertising........... 103,941 106,455 101,294 50,982 46,381
---------- ---------- ---------- -------- ----------
Total............................... $ 610,762 $ 744,517 $ 869,207 $402,090 $ 558,137
========== ========== ========== ======== ==========
COMMISSIONS AND FEES AS A PERCENTAGE
OF GROSS BILLINGS:
Interactive(1).................... 95.3% 88.9% 88.7% 89.2% 89.0%
Recruitment Advertising........... 20.7% 20.8% 21.8% 21.9% 21.5%
Selection & Temporary
Contracting(2).................. 99.3% 99.4% 98.9% 98.6% 98.5%
Executive Search.................. 100.0% 100.0% 99.8% 100.0% 100.0%
Yellow Page Advertising........... 20.9% 20.5% 19.0% 19.8% 17.3%
Total............................... 39.9% 40.1% 44.1% 42.4% 48.4%
EBITDA(3)........................... $ 107,400 $ 96,795 $ 57,789 $ 31,123 $ 52,291
Cash provided by (used in) operating
activities........................ $ 62,438 $ 72,166 $ 95,520 $ 12,575 $ (8,243)
Cash used in investing activities... $ (109,367) $ (73,863) $ (61,571) $(36,825) $ (65,782)
Cash provided by (used in) financing
activities........................ $ 75,613 $ 22,100 $ (48,463) $ 9,073 $ 521,374
Effect of exchange rate changes on
cash.............................. $ (303) $ (165) $ (755) $ 294 $ (503)
</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 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.
24
<PAGE>
EBITDA for the indicated periods is calculated as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income (loss)............................. $ 50,879 $29,043 $(9,054) $ 2,505 $11,555
Interest (income) expense, net................ 10,502 12,876 12,927 6,226 (7,290)
Income tax expense (benefit).................. 22,805 16,884 6,908 1,488 19,528
Depreciation and amortization................. 23,214 37,992 47,008 20,904 28,498
-------- ------- ------- ------- -------
EBITDA........................................ $107,400 $96,795 $57,789 $31,123 $52,291
======== ======= ======= ======= =======
</TABLE>
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
Gross billings for the six months ended June 30, 2000 were
$1,152.2 million, an increase of $202.8 million or 21.4% from $949.4 million for
the six months ended June 30, 1999. Total commissions and fees for the six
months ended June 30, 2000 were $558.1 million, an increase of $156.0 million or
38.8% from $402.1 million for the comparable period in 1999. Interactive
commissions and fees for the six months ended June 30, 2000 were
$163.0 million, an increase of $112.3 million or 221.7% compared with
$50.7 million for the six months ended June 30, 1999. The increase in
Interactive commissions and fees from the June 1999 period to the June 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'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 increased 2.2% to $95.6 million for the six months ended
June 30, 2000 compared to $93.5 million for the first six months of 1999. This
increase reflects moderate growth in traditional billings related to publisher
price increases for help-wanted advertisements placed in newspapers partially
offset by migration of traditional business to the Internet. Accordingly,
Interactive recruitment commissions and fees, which is included in the
Interactive number above, increased 125.2% to $12.7 million for the six months
ended June 30, 2000 from $5.6 million for the comparable 1999 period.
Selection & Temporary Contracting commissions and fees were $165.8 million, up
$43.1 million or 35.1% from $122.7 million for the period ended June 30, 1999.
The increase reflects a strong global labor market and the resulting increased
demand for professional level and information service technology employees
worldwide, the resumption of strong demand for temporary employees in Australia
and acquisitions accounted for as purchases in Europe. Executive Search
commissions and fees were $87.4 million for the six months ended June 30, 2000,
an increase of $3.2 million or 3.7% from $84.2 million for the comparable six
months of 1999, reflecting the strong labor market and demand for senior
executive positions, partially offset by 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 $46.4 million for the six
months ended June 30, 2000, a decrease of $4.6 million or 9.0% from
$51.0 million for the comparable six months of 1999. This decrease was due to
substantially reduced commissions paid by publishers and the effects of higher
discounts for certain large clients.
Operating expenses for the six months ended June 30, 2000 were
$534.1 million, compared with $390.1 million for the same period in 1999, an
increase of $144.0 million or 36.9%. The increase is primarily due to
$67.2 million in higher salaries and related costs due to organic growth and
acquisitions accounted for as purchases, $38.1 million in marketing and
promotion expenses, primarily related to Monster.com and $29.3 million in office
and general expenses. As a percent of commissions and fees operating expenses
were 95.7% for the six months ended June 30, 2000 compared with 97.0% for the
comparable 1999 period.
25
<PAGE>
Salaries and related expenses for the six months ended June 30, 2000 were
$308.6 million, compared with $241.4 million for the same period in 1999. The
increase of $67.2 million or 27.8% is primarily due to organic growth in
Interactive and Selection & Temporary Contracting operations and acquisitions
accounted for as purchases. 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 60.0% for the six
months ended June 30, 1999 to 55.3% for the six months ended June 30, 2000.
Office and general expenses for the six months ended June 30, 2000 were
$127.9 million, compared with $98.6 million for the same period in 1999. The
increase of $29.3 million or 29.6% reflects organic growth in both Interactive
and Selection & Temporary Contracting operations, and higher bad debt reserves,
which reflects the $202.8 million increase in gross billings for the six months
ended June 30, 2000 over the same period last year, 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 24.5% to 22.9%.
Marketing and promotion expenses for the six months ended June 30, 2000 were
$67.7 million or 12.1% of commissions and fees, compared with $29.6 million or
7.4% of commissions and fees for the same period in 1999. The increase of
$38.1 million or 129.0% is primarily due to higher marketing costs for
Monster.com and reflects the Company's plan to increase the promotion of
Monster.com with funds provided from increased revenues. The six months 2000
expenses include a pro rata charge pursuant to the content and marketing
agreement with America Online, Inc. ("AOL") whereby Monster.com, 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 reflect costs incurred in connection with
acquisitions and accounted for as poolings of interests and reflect integration
of their operations. Such costs were anticipated and factored into the prices
paid for these companies. For the six months ended June 30, 2000 merger and
integration costs were $22.3 million compared with $11.5 million for the same
period in 1999, an increase of $10.8 million or 94.9%. The $22.3 million is
comprised of $9.3 million for integration, $3.5 million for debt settlement
costs pursuant to change in control provisions of a pooled company's existing
loan, $4.6 million for the amortization of employee stay bonuses, payable in
stock, and $4.9 million in transaction related costs such as legal, accounting,
advisory fees and costs to register the shares issued in the transactions. The
$11.5 million for the six months ended June 30, 1999 is comprised of
$5.5 million in transaction related costs, including legal, accounting, printing
and advisory fees and the costs incurred for the subsequent registration of
shares issued in the acquisitions, $2.3 million for the amortization of non-cash
employee stay bonuses, $2.1 million in separation pay for the chief operating
officer of an acquired company and $1.6 million of office and staff integration
costs.
Restructuring charges for the six months ended June 30, 1999 were
$2.8 million. 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 six months ended
June 30, 2000 was $24.1 million, an increase of $12.1 million or 99.8% from
$12.0 million for the comparable period in 1999.
Net interest income for the six months ended June 30, 2000 was
$7.3 million, compared with a net interest expense of $6.2 million for the
comparable 1999 period, an improvement of $13.5 million or 217.1%. 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,
26
<PAGE>
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 six months ended June 30, 2000 were $19.5 million on
pre-tax profit of $30.8 million, compared with a tax of $1.5 million on pre-tax
profit of $4.3 million for the six months of 1999. The increase of
$18.0 million reflects the higher pretax profit in the six months ended
June 30, 2000. In addition, in each period the provision reflects 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 is affected by profits and losses 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 six months ended
June 30, 2000 was a $324,000 loss compared with a profit of $107,000 for the six
months ended June 30, 1999.
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 $200,000 for the six months ended June 30, 1999.
As a result of all of the above, the net income available to common and
Class B common stockholders for the six months ended June 30, 2000 was
$11.6 million, an increase of $9.1 million from the net income of $2.5 million
for the six months ended June 30, 1999. On a diluted per share basis, the net
income available to common and Class B common stockholders for the six months
ended June 30, 2000 was $0.11, compared to a net income of $0.03 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 Holding AG, 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.
27
<PAGE>
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 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
28
<PAGE>
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.
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
29
<PAGE>
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 (a) $3.6 million for the amortization of TMP shares set aside for key
personnel of Johnson, Smith & Knisely Inc. and The Consulting Group
(International) Limited, 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, Inc. 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.
30
<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, (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 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 six months ended June 30, 2000
was $8.2 million and net cash provided by operating activities for the six
months ended June 30, 1999 was $12.6 million. The increase in cash used in
operating activities of $20.8 million for 2000 over 1999 was primarily
attributable to (i) $50.3 million due to increases in accounts receivable for
the 2000 period over the 1999 period, related mostly to growth at Monster.com,
Selection & Temporary Contracting and Recruitment Advertising
(ii) $25.5 million resulting from decreases in cash from accounts payable and
accrued liabilities and (iii) $1.8 million due to the effects of higher earnings
from pooled companies in both the current and previous period, partially offset
by (i) $28.2 million increase in earnings after adjusting for non-cash items
(ii) $18.8 million resulting from increases in deferred commissions and fees,
primarily at Monster.com and (iii) $9.8 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.
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
31
<PAGE>
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 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 $52.3 million for the six months ended June 30, 2000, an increase
of $21.2 million or 68.0% from $31.1 million for the six months ended June 30,
1999. The increase primarily reflects, for the 2000 period, a $12.0 million
increase in operating profits and $7.6 million more in depreciation and
amortization costs. As a percentage of commissions and fees, EBITDA increased to
9.4% for the six months ended June 30, 2000 as compared with 7.7% for the six
months ended June 30, 1999. The higher percent reflects the improved operating
margins (including the effects of merger and integration costs), which were 4.0%
and 2.8% 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 six months ended June 30, 2000
and 1999 was $65.8 million and $36.8 million, respectively. The $29.0 million
increase in cash used in 2000 compared to 1999 was due to a $14.5 million
increase in payments for business acquisitions and $14.5 million for capital
expenditures, primarily leasehold improvements and 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
32
<PAGE>
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.
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 six months ended June 30,
2000 and June 30, 1999 provided net cash of $521.3 million and $9.1 million,
respectively. The change of $512.2 million resulted primarily from
$594.2 million in net proceeds from our follow-on common stock offering and a
$12.6 million increase in cash received from the exercise of employee stock
options, partially offset by net repayments in the 2000 period of $88.1 million
against credit facilities and capitalized lease obligations compared with a net
increase in credit facilities and capitalized lease obligations of $7.2 million
in the prior year period.
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 June 30, 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 June 30, 2000, approximately $156.1 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 $12.2 million for our
operations in Australia, New Zealand, France, Belgium, and Italy, of which
approximately $3.6 million was unused at June 30, 2000.
Cash and cash equivalents at June 30, 2000 were $511.4 million, an increase
of $446.8 million from $64.6 million at December 31, 1999, and were
$446.4 million higher than the June 30, 1999 balance of $65.0 million.
33
<PAGE>
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 June 30, 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 will provide us with sufficient
liquidity to meet our current foreseeable cash needs.
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.
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
34
<PAGE>
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 six months ended June 30, 2000 and the years ended December
31, 1999 and 1998 (in millions, except share and per share amounts).
<TABLE>
<CAPTION>
2000 THREE MONTHS ENDED
--------------------------
MARCH 31, JUNE 30,
--------- --------
<S> <C> <C>
Commissions and fees:
Interactive............................................... $ 70.8 $ 92.2
Recruitment Advertising................................... 46.5 49.1
Selection & Temporary Contracting......................... 77.8 88.0
Executive Search.......................................... 39.0 48.3
Yellow Page Advertising................................... 23.3 23.1
-------- --------
Total commissions and fees.................................. $ 257.4 $ 300.7
======== ========
Operating income............................................ $ 8.5 $ 15.5
Net income applicable to common and Class B common
stockholders.............................................. $ 3.1 $ 8.5
Net income per common and Class B common share:
Basic..................................................... $ 0.03 $ 0.09
Diluted................................................... $ 0.03 $ 0.08
Weighted average shares outstanding (in thousands):
Basic..................................................... 92,399 95,614
Diluted................................................... 100,315 102,100
</TABLE>
<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>
35
<PAGE>
<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.
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 $28.9 million, including $18.3 million reflected as a reduction to
accounts receivable and $7.7 million for letters of credit, as of June 30, 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 six
months ended June 30, 2000 approximately 44.4% 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 six months ended June 30, 2000, due to the
strengthening of the U.S. dollar, the Company had an exchange loss of
$37.9 million, primarily attributable to the strengthening of the U.S. dollar
against the Australian dollar.
36
<PAGE>
BUSINESS
We have built Monster.com(sm) (http://www.monster.com) into the Internet's
leading career destination portal. We are the world's largest recruitment
advertising agency and one of the world's largest executive search and selection
firms. In addition to offering these career solutions, we are the world's
largest yellow page advertising agency. We have more than 31,000 clients,
including over 90 of the Fortune 100 and over 480 of the Fortune 500 companies.
INDUSTRY OVERVIEW
INTERACTIVE. The Internet is an increasingly significant global medium for
communications, content and commerce. Growth in Internet usage has been fueled
by a number of factors, including the availability of a growing number of useful
products and services, the large and growing installed base of personal
computers in the workplace and home, advances in the performance and speed of
personal computers and modems, improvements in network infrastructure, easier
and cheaper access to the Internet and increased awareness of the Internet among
businesses and consumers.
The increasing functionality, accessibility and overall usage of the
Internet and online services have made them an attractive commercial medium.
Thousands of companies have created corporate websites that feature information
about their product offerings and advertise employment opportunities. Through
the web, Internet content providers are able to deliver timely, personalized
content in a manner not possible through traditional media. Internet content can
be continuously updated, distributed to a large number of consumers on a
real-time basis, and accessed by users at any time. Industry publications
indicate that the historical and projected adoption of online/Internet services
represents a faster rate of penetration than occurred with traditional media,
such as radio, broadcast television and cable television.
For job seekers, online recruiting can provide the ability to rapidly and
more easily build, update and distribute their resumes, conduct job searches and
gather information about employers. Online recruiting can also help to reduce
the time of a job search by permitting job seekers to define their specific job
needs and be contacted automatically when desired jobs become available. Online
recruiting is also proving to be attractive to employers because online job
advertisements can be accessed by job seekers anywhere in the world at anytime
and more cost effectively than print media. Forrester Research estimates that
online spending by employers for recruitment will grow from $411 million in 1999
to $3.2 billion in 2004.
THE RECRUITMENT ADVERTISING MARKET. Recruitment advertising traditionally
consists of creating and placing recruitment advertisements in the classified
advertising sections of newspapers. While the recruitment advertising market has
historically been cyclical, during the period of 1990 through 1998, the U.S.
market grew at a compound annual rate of approximately 13%. Classified
readership by job seekers has remained constant over the last ten years and
approximately 85% of companies use newspapers to attract potential employees.
The services provided by recruitment advertising agencies can be complex and
range from the design and placement of classified advertisements to the creation
of comprehensive image campaigns which internationally "brand" a client as a
quality employer. Further, shortages of qualified employees in many industries,
particularly in the technology area, have increased the need for recruitment
advertising agencies to expand the breadth of their service offerings to effect
national and sometimes global recruitment campaigns. For the year ended
December 31, 1998, global spending (billings) in the recruitment classified
advertisement section of newspapers was approximately $13 billion. Agencies
which place recruitment classified advertising are paid commissions generally
equal to 15% of recruitment advertising placed in newspapers and earn fees for
providing additional recruitment services.
EXECUTIVE SEARCH. The market for executive search firms is generally
separated into two broad categories: retained executive search firms and
contingency executive search firms. Retained executive search firms service
their clients' senior management needs by acting in an ongoing client-consultant
relationship to actively identify, evaluate, assess and recommend to the client
suitable candidates for senior level positions. Retained search firms are
generally engaged on an exclusive basis and paid a contractually
37
<PAGE>
agreed-to fee. Contingency executive search firms typically do not focus on the
senior executives and are generally paid a percentage of the hired candidate's
salary only when a candidate is successfully placed with the client. Contingency
firms are generally not hired on an exclusive basis and do not focus on the
assessment, evaluation or recommendation of a candidate other than to determine
if the candidate's resume qualifies him/her for the position. We provide
executive search services on a retained basis. Our executive search service
identifies senior executives who typically earn in excess of $250,000 annually.
SELECTION AND TEMPORARY CONTRACTING. The mid-market selection business
identifies for our clients those professionals, below the CEO level, who
typically earn between $50,000 and $150,000. We have identified a suite of
products geared towards this market which seek to predict whether a candidate
will be successful in a given role. Temporary contracting supplements our
selection services. According to the Staffing Industry Report, the United States
temporary staffing industry grew from approximately $29 billion in revenue in
1993 to approximately $62 billion in revenue in 1998. In addition, third party
sources estimate the worldwide temporary staffing market at more than
$130 billion. The temporary staffing industry has experienced significant growth
in response to the changing work environment. These changes are a result of
increasing automation that has resulted and we believe will continue to result
in shorter technological cycles, and global competitive pressures. Many
employers responded to these challenges by turning to temporary and contract
personnel to keep personnel costs variable, achieve maximum flexibility,
outsource highly specialized skills, and avoid the negative effect of layoffs.
We believe fundamental changes in the employer-employee relationship continue to
occur, with employers developing increasingly stringent criteria for permanent
employees, while moving toward project-oriented temporary and contract hiring.
THE YELLOW PAGE ADVERTISING MARKET. Yellow page directories have been
published in the U.S. since at least the 1890's and, traditionally, have been
published almost exclusively by telephone utilities. In the early 1980's, due in
part to telephone deregulation, independent companies began publishing an
increasing number of directories. Currently, approximately 7,000 yellow page
directories are published annually by 200 publishers and, in the U.S., many
cities with populations in excess of 80,000 are served by multiple directories.
The percentage of adults who use the yellow pages has remained relatively
constant over the last ten years at over 56%, and such readers consult the
yellow pages approximately two times weekly. Accordingly, yellow page
directories continue to be a highly effective advertising medium.
For the year ended December 31, 1999, total spending on yellow page
advertisements in the U.S. was $12.7 billion. Of this amount, approximately
$10.7 billion was spent by local accounts and approximately $2.0 billion was
spent by national accounts. As those terms are used in the yellow page industry,
"local" refers to an advertisement solicited by a yellow page publisher's own
sales staff and "national" refers to an advertisement that is placed by an
advertising agency and that meets certain criteria specified by the publisher.
Local accounts are typically merchants who primarily conduct their business
within the geographic area served by the publisher's directories.
The national account market, which is the client base that we service,
consists of companies that sell products or services in multiple markets. Most
national accounts use independent advertising agencies to design and implement
their yellow page advertising programs to create a consistent brand image and
compelling message, to develop an effective media plan and to execute the
placement of the advertising at the local level. Agencies which place national
advertising are paid commissions by yellow page publishers. The market has grown
each year since 1981. During the period of 1990 through 1999, the market has
grown at a compound average rate of approximately 6.4%.
OUR CAREER SOLUTIONS
"INTERN TO CEO" MIGRATION TO INTERACTIVE. We believe that our growth in the
career solutions area will continue to come from our Interactive properties,
through our leadership position at Monster.com(sm), combined with additional
online growth opportunities from the recruitment advertising and executive
38
<PAGE>
search and selection markets and by capturing increasing shares of budgets
previously spent by corporations on unassisted recruiting activities.
MONSTER.COM(sm) Monster.com(sm) (http://www.monster.com), the flagship of
our Interactive properties, is the nucleus of our "Intern to CEO" strategy. For
the six months ended June 30, 2000, Monster.com(sm)'s gross billings and
commissions and fees were $136.4 million and $135.0 million, respectively, and
our total Interactive gross billings and commissions and fees were
$183.2 million and $163.0 million, respectively.
Based on experience with our clients, we believe that only 20% to 30% of
open job positions are advertised using traditional print media. We also believe
that online solutions will significantly expand the recruitment advertising
market because of their global reach and continuous availability. Furthermore,
online advertising is extremely cost effective when compared to other
traditional recruitment methods such as print media. Our Interactive recruitment
services have been actively marketed since May 1995 and Monster.com(sm) was one
of the first 1,000 commercial web sites out of more than 158 million which
currently exist.
According to Nielson I/PRO, Monster.com(sm) had approximately 15.3 million
visits (the gross number of occasions on which a user looked up a site) in
July 2000 with the average length of each visit exceeding sixteen minutes. Media
Metrix reported that for July 2000, 5.8% of the U.S. Internet population visited
Monster.com(sm). In addition, for this month, an average of 31.1 unique pages
were viewed by each visitor, resulting in a power ranking of 180.4 (reach of 5.8
multiplied by average page views of 31.1) compared to 29.9 for its nearest
competitor and 105.2 for its six closest competitors combined. We believe that
the power ranking is significant because, by taking into account reach and page
views, it indicates Monster.com(sm)'s usefulness and recognition.
Monster.com(sm) allows users to create their own personalized career page,
My Monster. Using My Monster, job seekers can store their resumes, cover letters
and job applications and create multiple Job Search Agents. They can also track
how many times their resume has been viewed by employers. My Monster is at the
center of the Monster.com(sm) job seeker experience, with over 8.7 million job
seeker accounts as of July 2000. Monster.com(sm)'s Job Search Agent continuously
seeks to find the desired job for the job seeker. Job seekers can sign up for
this free service on the site by creating a simple personal profile indicating
the industry and location in which they want to work and any job-specific
keywords. The Job Search Agent then continually scans the entire Monster.com(sm)
job database for opportunities that match the requirements and delivers the
leads to job seekers' desktops, even while they are off-line. As of July 2000,
Monster.com(sm) contained over 3.6 million Job Search Agent profiles and its
resume database contained over 4.7 million resumes of which 3.3 million are
active, and is growing by an average of more than 13,000 resumes daily. Job
seekers post their resumes free of charge in a confidential searchable
access-restricted database. This database can be searched, using keyword
searches, by employers who pay for the service. Job seekers can search
Monster.com(sm)'s database of employment opportunities by location, job
category, industry and/or keyword. Keyword searches allow a user to enter
specific keywords to match skills, job titles or other requirements. We have
also introduced Monster Talent Market which allows independent contractor
professionals to offer their services to the highest bidder.
As of July 2000, Monster.com(sm) listed approximately 415,000 paid postings
from clients such as Adecco, Blockbuster Entertainment Inc., Dell Computer
Corporation, McDonald's and Procter & Gamble Co.
We also have developed private label applications of our Interactive
products. For example, we adapted Monster.com(sm) technology to create for
Fidelity Investments a database of jobs which resides, through a hyper-link, on
the Fidelity home page. The search features have the look, feel and ease of use
associated with Monster.com(sm) while appearing to the user as a seamless part
of the Fidelity site. We intend to continue to market private label products as
a way to increase the size of our databases.
39
<PAGE>
To attract the maximum amount of traffic to our websites, we intend to
continue to develop additional value-added content, while developing strategic
alliances with other on-line content providers. For example, we recently entered
into a content and marketing arrangement with America Online, Inc., pursuant to
which Monster.com(sm) for the payment of $100 million would be the exclusive
provider of career search services in the United States and Canada for four
years to over 21 million AOL members across seven AOL properties: AOL, AOL
Canada, Compuserve, ICQ, AOL.com, Netscape and Digital City. We believe that
this agreement has the potential to drive a substantial amount of increased
traffic and new users to Monster.com(sm.) See "Risk Factors--Potential impact of
third-party litigation on our agreement with AOL."
In addition to the U.S., Monster.com(sm) has been customized, in language
and content, for Canada, the U.K., the Netherlands, Australia, Belgium, France,
Singapore, New Zealand, Hong Kong, Germany and Ireland.
MONSTERMOVING.COM. Through recent acquisitions, we have begun to capitalize
on the relationship between recruitment and relocation. By featuring information
that addresses the entire moving process, such as mortgages, insurance,
utilities and education, we offer our clients the ability to research a
prospective move online. We are combining these tools into a Moving Center which
will be integrated into Monster.com-SM-, thus extending the Monster.com-SM-
brand into the moving services marketplace.
RECRUITMENT ADVERTISING. We entered the recruitment advertising business in
1993 and have expanded this business through acquisitions and internal growth.
For the six months ended June 30, 2000, we had recruitment advertising gross
billings of $444.5 million and recruitment advertising commissions and fees of
$95.6 million. In addition to our worldwide offices, we maintain relationships
with unaffiliated agencies throughout the world to further enhance our ability
to reach qualified job candidates. As a full service agency, we offer our
clients comprehensive recruitment advertising services including creation and
placement of classified advertising, development of employer image campaigns,
creation of collateral materials such as recruiting brochures and implementation
of alternative recruitment programs such as job fairs, employee referral
programs and campus recruiting. We specialize in designing recruitment
advertising campaigns for clients in high growth industries and in industries
with high employee turnover rates. Further, we believe that as employers find it
more difficult to attract qualified employees, they will increasingly seek out
agencies that can implement national and, in some cases, global recruitment
strategies.
Our task in formulating and implementing a global recruitment advertising
program is to design the creative elements of the campaign and to select the
appropriate media and/or other recruitment methods. This is done in the context
of the client's staffing parameters, which generally include skill requirements,
job location and advertising budget. In addition, while executing a given
campaign, we will often undertake basic research with respect to demographic
profiles of selected geographic areas to assist the client in developing an
appropriate overall strategy.
We have historically found that the strongest recruitment advertising
campaigns "brand" the client's image, demonstrate the client's unique selling
points and stress the client's employee benefits and corporate culture.
Effectively differentiating one employer from another has become particularly
important in the technology and healthcare sectors where there is an acute
shortage of qualified job candidates. The success of the campaign may depend on
whether an organization is seen as sufficiently distinct from its competitors.
After completing the design of an advertisement's creative elements, we
develop an appropriate media plan. Typically, a variety of media is used,
including newspapers, trade journals, the Internet, outdoor/transit media,
direct mail, radio and television. If we recommend use of newspapers, we may
recommend certain newspapers or editions of a particular newspaper which are
targeted to a specific demographic segment of the population. We may also
recommend a variety of advertisement sizes and vary the frequency with which an
advertisement appears.
40
<PAGE>
After an advertisement is placed, we conduct extensive customer analysis to
assure satisfaction, including monitoring the effectiveness of the chosen media.
As an example, for a transportation client, we analyzed cost-per-response,
cost-per-application and cost-per-hire data for over a dozen media vehicles
running in approximately 30 markets in an effort to determine the return on
investment of each media vehicle. Our Recruitment Advertising Division also
maintains a quality assurance program for its larger clients which involves
formal creative reviews by our clients as well as soliciting client feedback.
In the U.S., we receive commissions generally equal to 15% of recruitment
advertising gross billings. Outside of the U.S., where, collectively, we derive
the majority of our recruitment advertising commissions and fees, our commission
rates for recruitment advertising vary, ranging from approximately 10% in
Australia to 15% in Canada and the United Kingdom. We also earn fees from
value-added services such as design, research and other creative and
administrative services which resulted in aggregate commissions and fees equal
to approximately 4% of recruitment advertising gross billings for the six months
ended June 30, 2000. In addition, interactive commissions and fees earned by
this division were $12.7 million for the six months ended June 30, 2000.
EXECUTIVE SEARCH. Traditionally, recruitment and online advertising does
not target the senior executive. Therefore, in order to expand the range of
services we offer to our recruitment advertising clients, we entered the
executive search field. We currently have 30 executive search offices in 15
countries. We believe that our expansion into the executive search field will
enable us to attract and service new major clients because we can now market
ourselves as a full service firm that can accommodate all of our clients'
employment and recruitment advertising needs. For the six months ended June 30,
2000, Executive Search gross billings and commissions and fees were
$87.4 million and $87.4 million, respectively.
Our retained executive search process typically targets senior level
executives (those earning over $250,000, annually) and includes the following
steps:
- a TMP Executive Search consultant interviews the client in order to
analyze the senior executive position that needs to be filled, the general
environment of the client's work place and the character and quality of
candidates that have successfully performed as an executive of the client;
- our consultant then prepares a written synopsis of the position to be
filled in order to attract a suitable, qualified, successful candidate;
- the synopsis is then forwarded to other recruiters in order to assist with
the search for a candidate that fits the criteria set forth in the
synopsis;
- a pool of suitable candidates is gathered and the consultants begin to
schedule interviews;
- the candidates are then interviewed and analyzed by the consultants on our
premises to determine if the candidate meets the requisite experience and
potential cultural fit outlined by the consultant and the client;
- reports of the most suitable candidates are prepared by the consultant and
presented to the client, who then chooses the candidates to be met;
- the consultant then organizes a mutually convenient time and place for the
client to personally meet and interview such candidates;
- the consultant will follow up with the successful candidate to obtain any
supplemental information needed or requested by the client, including
references and other documentary materials; and
- the consultant then assists the client in structuring and negotiating the
final compensation package and other benefits for the hired executive
based on all relevant factors researched by the consultant, including
industry comparisons, the experience levels of the executive and future
trends.
41
<PAGE>
SELECTION AND TEMPORARY CONTRACTING. Candidates for mid-level positions,
the search for whom we term "selection," are normally attracted by classified
advertising or chosen through a computerized database file search, as opposed to
the detailed search process used for senior executives. We screen and interview
applicants prior to providing the client with a short list. Upon acceptance of
the short list of suitable candidates, the client then proceeds to interview the
selected candidates. The next steps in the process include reference checking,
negotiation of an offer, confirmation of acceptances and start date, and
performance follow-up at the end of one and three months.
For assignments involving mid-level executives we have developed and are
introducing a process which is designed to evaluate a person's capacity to
perform in a current or future role. It can be used for internal and external
candidates and is based on the premise that if the requirements for an
individual job are thoroughly understood, it is possible to develop testing
protocols which assess and predict a candidate's ability to succeed in a
specific position. Tools and exercises include aptitude testing, job
simulations, behavioral and situational interviews, leadership and team
exercises, group discussions, role plays and work sample tests. The goals of the
Selection process are to put the right people in the right job, boosting both
individual job satisfaction and productivity.
We provide temporary contract employees in Australia, New Zealand, the
United Kingdom and the United States. These employees range from executives to
clerical workers. The demand for contract employee services was created by
organizations' need for flexible work forces with the types of skills required
to meet their particular circumstances in a changing market.
We place qualified executives, professionals, clerical and trade labor in
temporary positions, or for specific short term projects. Contractors can be
used for emergency support or to complement the skills of a client's core,
permanent staff. Contracting can be linked to the permanent placement, with the
client employing a "try before you buy" strategy. The period for the contracting
assignment can vary from as little as one day to over 12 months.
In addition to the more general contracting assignments, we provide
executives on a contract basis with our Australian clients, whereby a specific
task is managed by us but staffed by contract executives.
For the six months ended June 30, 2000, gross billings were $168.3 million,
commissions and fees were $165.8 million and the related gross revenue, before
deducting the costs of temporary contractors, was $353.6 million. In addition,
Interactive commissions and fees were $6.2 million.
OUR YELLOW PAGES BUSINESS
We entered the yellow page advertising business in 1967 and have grown to
become the largest yellow page advertising agency in the world based on gross
billings. For the six months ended June 30, 2000, we had yellow page advertising
gross billings and commissions and fees of $268.9 million and $46.4 million,
respectively. This division also generated $5.0 million of interactive
commissions and fees. In addition, during 1999, this division acquired IN2 in a
pooling of interests transaction. IN2 is a state of the art, online marketing
agency and technology company based in New York City. As our clients, including
our yellow page clients, migrate portions of their business to the Web, IN2 will
provide them with complete interactive marketing solutions and it will continue
to expand its own interactive client base and develop technology solutions. This
acquisition also marked the establishment of two new business units within our
Yellow Pages Advertising Division--Interactive Direct Marketing and Interactive
Technologies.
CREATING AND PLACING DIRECTORY ADVERTISEMENTS. There are currently
approximately 7,000 yellow page directories in the U.S. Each has a separate
closing date for accepting advertisements and one or more of these closings
occur on every working day of the year. The steps involved in placing an
advertisement are numerous and can take as long as nine months.
The first step in the process is the formulation of the advertising
program's creative elements including illustrations, advertising copy, slogans
and other elements which are designed to attract a
42
<PAGE>
potential customer's attention. To assess the effectiveness of a proposed
campaign, we generally undertake extensive research to determine which
alternatives best reach the client's target market. This research typically
includes focus group testing and the running of split-run advertisements. Focus
group testing involves forming groups of potential customers and gauging their
reaction to a variety of potential advertisements. Split-run testing measures
the results of specific campaigns by placing more than one version of an
advertisement in various editions of the same yellow page directory. By using
multiple phone numbers and various monitoring methods, we can then determine
which advertisements generate the most effective response.
After designing an advertising program, we create a media plan which targets
client's customer base in a cost-effective manner. We analyze targeted
directories to determine circulation, rate of usage and demographic profile. We
then recommend advertisements ranging from a full page to as little as a one
line listing. For some of our larger yellow page advertising clients,
advertisements are placed in over 2,000 directories.
To ensure client satisfaction, we maintain an extensive quality control
program. Account teams have frequent in-person client contact as well as formal
annual creative reviews. We also solicit feedback through client interviews,
written surveys and other methods consisting of focus groups made up of yellow
page users and yellow page user pollings. The principal aims of this program are
client retention and sales growth. We believe our focus on customer service has
enabled us to maintain our client retention rate, year to year, in excess of
90%.
In addition to traditional advertising, we offer to our clients a variety of
services ranging from managing the maintenance and installation of telephone
lines for branch locations to the staffing and operation of fulfillment centers
which respond to toll-free calls requesting product brochures and other
information. While beyond the typical scope of services provided by an
advertising agency, these ancillary services are designed to further integrate
us into client processes for the mutual benefit of both parties.
CLIENTS. Our yellow page clients generally determine the content of their
advertising programs on a centralized basis. Placement of the advertising,
however, requires an extensive local selling and quality control effort because
many of our clients are franchisors or manufacturers who are dependent upon
franchisees or independent dealers for distribution. The participation of
franchisees and dealers in the yellow page program is discretionary and must be
solicited at the local level. As an example of the scale of this task, in 1999,
we visited or had contact with over half a million individual store locations.
We have a yellow page sales, marketing and customer service staff of
approximately 850 people to implement this local effort. We believe the size and
breadth of this staff, its local client relationships and its databases of
client branch locations, franchisors and dealers provide us with a strong
competitive advantage in executing the yellow page programs of existing clients.
We believe these resources are critical in marketing our services to potential
new clients and in marketing and executing our Interactive-based service
offerings.
SALES AND MARKETING
At December 31, 1999, we had more than 5,100 employees focused on our sales,
marketing and customer service efforts worldwide. Our sales, marketing and
customer service staff is divided into two groups: (i) new business generation
(approximately 400 employees) and (ii) existing client relationship maintenance
and improvement (approximately 4,700 employees). Within each group, we maintain
separate sales and marketing staffs for our Interactive business, Recruitment
Advertising business and Yellow Page business. In addition to specializing by
product, each group is accountable for, and incentivized to, cross sell our
other products. Our Interactive sales staff has targeted our recruitment
advertising and yellow page clients to capitalize on the additional services
that our Interactive products can cost effectively provide to such clients. In
addition to pursuing cross-selling opportunities within our existing client
base, each product sales force also designs targeted selling campaigns for
potential new clients. We assign a
43
<PAGE>
marketing manager to our clients in order to work closely with the client to
develop and design the appropriate marketing and advertising campaign. Our
customer service representative works closely with the marketing manager and the
client to implement the marketing and advertising campaign, evaluate the
effectiveness of the campaign and monitor client satisfaction levels.
At December 31, 1999, we had 95 sales, marketing and customer service
offices located in the United States and 137 offices in the rest of the world.
We also maintained relationships with 7 international recruitment advertising
agencies throughout the world, further enhancing our ability to reach qualified
job candidates.
PROPERTIES
Substantially all of our offices are located in leased premises.
Our principal office is located at 622 Third Avenue, New York, New York,
where along with the New York Executive Search and Selection & Temporary
Contracting Divisions, we occupy approximately 104,000 square feet of space
under a lease expiring in July 2015. Monthly payments under the lease currently
are approximately $416,000 and escalate during the term of the lease.
We also have leases covering local offices throughout the United States and
in the foreign countries where we have operations.
All leased space is considered to be adequate for the operation of our
business, and no difficulties are foreseen in meeting any future space
requirements.
CLIENTS
At December 31, 1999, we had more than 31,000 clients, including more than
90 of the Fortune 100 companies and more than 480 of the Fortune 500 companies.
Our clients include: The Allstate Corporation, AT&T Corp., CVS Corporation, Ford
Motor Company, GTE Corporation, Hewlett-Packard Company, The Home Depot, Inc.,
MCI Worldcom, Inc., Merck & Co., Inc., Mobil Corporation, Morgan Stanley Dean
Witter, Motorola, Inc., Sears, Roebuck and Co., Sprint Corporation, and United
Parcel Service, Inc. No one client accounts for more than 5% of our total annual
commissions and fees.
COMPETITION
The markets for our services and products are highly competitive and are
characterized by pressure to reduce prices, incorporate new capabilities and
technologies, and accelerate job completion schedules.
We face competition from a number of sources. These sources include national
and regional advertising agencies, media companies, as well as specialized and
integrated marketing communication firms. Many advertising agencies and media
companies have started to either internally develop or acquire new media
capabilities. New boutique businesses that provide integrated or specialized
services (such as advertising services or website design) and are
technologically proficient, especially in the new media arena, are also
competing with us. Many of our competitors or potential competitors have long
operating histories, and some have greater financial, management, technological,
development, sales, marketing and other resources than do we. In addition, our
ability to maintain our existing clients and generate new clients depends to a
significant degree on the quality of our services, pricing and our reputation
among our clients and potential clients.
INTELLECTUAL PROPERTY
Our success and ability to compete is dependent in part on the protection of
our original content for the Internet and on the goodwill associated with our
trademarks, trade names, service marks and other proprietary rights. We rely on
copyright laws to protect the original content that we develop for the
44
<PAGE>
Internet. In addition, we rely on Federal trademark laws to provide additional
protection for the appearance of our Internet sites. A substantial amount of
uncertainty exists concerning the application of copyright laws to the Internet,
and there can be no assurance that existing laws will provide adequate
protection for our original content. In addition, because copyright laws do not
prohibit independent development of similar content, there can be no assurance
that copyright laws will provide any competitive advantage to us.
We also assert common law protection on certain names and marks that we have
used in connection with our business activities.
We rely on trade secret and copyright laws to protect the proprietary
technologies that we have developed to manage and improve our Internet sites and
advertising services, but there can be no assurance that such laws will provide
sufficient protection to us, that others will not develop technologies that are
similar or superior to ours, or that third parties will not copy or otherwise
obtain and use our technologies without authorization. We have filed patent
applications with respect to certain of our software systems, methods and
related technologies, but there can be no assurance that such applications will
be granted or that any future patents will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide us with a
competitive advantage. In addition, we rely on certain technology licensed from
third parties, and may be required to license additional technology in the
future, for use in managing our Internet sites and providing related services to
users and advertising customers. Our ability to generate fees from Internet
commerce may also depend on data encryption and authentication technologies that
we may be required to license from third parties. There can be no assurance that
these third party technology licenses will be available or will continue to be
available to us on acceptable commercial terms or at all. The inability to enter
into and maintain any of these technology licenses could have a material adverse
effect on our business, financial condition and operating results.
Policing unauthorized use of our proprietary technology and other
intellectual property rights could entail significant expense and could be
difficult or impossible, particularly given the global nature of the Internet
and the fact that the laws of other countries may afford us little or no
effective protection of our intellectual property. In addition, there can be no
assurance that third parties will not bring claims of copyright or trademark
infringement against us or claim that our use of certain technologies violates a
patent. We anticipate an increase in patent infringement claims involving
Internet-related technologies as the number of products and competitors in this
market grows and as related patents are issued. Further, there can be no
assurance that third parties will not claim that we have misappropriated their
creative ideas or formats or otherwise infringed upon their proprietary rights
in connection with our Internet content. Any claims of infringement, with or
without merit, could be time consuming to defend, result in costly litigation,
divert management attention, require us to enter into costly royalty or
licensing arrangements or prevent us from using important technologies or
methods, any of which could have a material adverse effect on our business,
financial condition or operating results.
GOVERNMENT REGULATION
As an advertising agency which creates and places print and Internet
advertisements, we are subject to Sections 5 and 12 of the Federal Trade
Commission Act (the "FTC Act") which regulate advertising in all media,
including the Internet, and require advertisers and advertising agencies to have
substantiation for advertising claims before disseminating advertisements. The
FTC Act prohibits the dissemination of false, deceptive, misleading, and unfair
advertising, and grants the Federal Trade Commission ("FTC") enforcement powers
to impose and seek civil penalties, consumer redress, injunctive relief and
other remedies upon advertisers and advertising agencies which disseminate
prohibited advertisements. Advertising agencies are subject to liability under
the FTC Act if the agency actively participated in creating the advertisement,
and knew or had reason to know that the advertising was false or deceptive.
45
<PAGE>
In the event that any advertising created by us was found to be false,
deceptive or misleading, the FTC Act could potentially subject us to liability.
The fact that the FTC has recently brought several actions charging deceptive
advertising via the Internet, and is actively seeking new cases involving
advertising via the Internet, indicates that the FTC Act could pose a somewhat
higher risk of liability to the advertising distributed via the Internet. The
FTC has never brought any actions against us.
There can be no assurance that other current or new government laws and
regulations, or the application of existing laws and regulations, will not
subject us to significant liabilities, significantly dampen growth in Internet
usage, prevent us from offering certain Internet content or services or
otherwise cause a material adverse effect on our business, financial condition
or operating results.
EMPLOYEES
At December 31, 1999, we employed approximately 6,400 people, of whom
approximately 3,300 were client services personnel, approximately 400 were sales
and marketing personnel, approximately 1,100 were Executive Search and Selection
and Temporary Contracting personnel and approximately 300 were creative and
graphics personnel. The remainder of our personnel are information systems,
financial and administrative personnel. Our employees are not represented by a
labor union or a collective bargaining agreement. We regard our employee
relations as generally excellent.
COMPANY HISTORY
We are the successor to the businesses formerly conducted by TMP
Worldwide Inc. and subsidiaries ("Old TMP"), Worldwide Classified Inc. and
subsidiaries ("WCI") and McKelvey Enterprises, Inc. and subsidiaries, the chief
executive officer of which was Andrew J. McKelvey. On December 9, 1996, Old TMP
merged into McKelvey Enterprises, Inc. Thereafter, WCI merged into McKelvey
Enterprises, Inc. and McKelvey Enterprises, Inc. then merged into Telephone
Marketing Programs Incorporated. Such mergers are collectively referred to as
the "1996 Mergers." In addition, Mr. McKelvey sold or contributed his interest
in five other entities to the Company. Pursuant to the 1996 Mergers, Telephone
Marketing Programs Incorporated changed its name to TMP Worldwide Inc.
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 included herein have been
retroactively restated to give effect to the stock split.
46
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY PERSONNEL
The executive officers, directors and key personnel of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- --------
<S> <C> <C>
Andrew J. McKelvey.......... 65 Chairman of the Board, CEO and Director
Thomas G. Collison.......... 60 Vice Chairman and Secretary
James J. Treacy............. 42 Chief Operating Officer, Executive Vice President and
Director
Paul M. Camara.............. 52 Executive Vice President--Creative/Sales/Marketing
Jeffrey C. Taylor........... 39 Chief Executive Officer--TMP Interactive
Andrew R. Banks............. 48 CEO--Selection and Temporary Contracting
Peter Dolphin............... 53 CEO--Recruitment Advertising
Stuart J. McKelvey.......... 33 CEO--Yellow Page Advertising
Steven B. Potter............ 45 CEO--Executive Search
George R. Eisele............ 64 Executive Vice President of TMP Worldwide Direct and
Director
Bart W. Catalane............ 43 Senior Vice President and Chief Financial Officer
Myron F. Olesnyckyj......... 39 Vice President--General Counsel
Michael Kaufman............. 54 Director
John Swann.................. 63 Director
Ronald J. Kramer............ 41 Director
</TABLE>
Andrew J. McKelvey founded the Company in 1967, and has served as Chairman
of the Board and CEO since that time. Mr. McKelvey has a B.A. from Westminster
College. Mr. McKelvey was a member of the Board of Directors of the Yellow Page
Publishers Association and the Association of Directory Marketing from 1994
through September 1996. Mr. McKelvey is the father of Stuart J. McKelvey.
Thomas G. Collison joined the Company in February 1977 as Controller.
Subsequently, he was named Vice President--Finance; Senior Vice President;
Executive Vice President and Chief Financial Officer and, in March 1996, Vice
Chairman. Mr. Collison received a B.S. from Fordham University.
James J. Treacy joined the Company in June 1994 as chief executive officer
of the Recruitment Advertising Division. In April 1996, Mr. Treacy was named
Executive Vice President--Finance and Strategy. In February 1998, Mr. Treacy, in
addition to his then current position, was named to the position of Chief
Operating Officer. In September, 1998, Mr. Treacy was named a director. Prior to
joining the Company, Mr. Treacy was Senior Vice President--Western Hemisphere
Treasurer for the WPP Group USA, Inc. Prior thereto, Mr. Treacy was a corporate
officer of the Ogilvy Group Inc. Mr. Treacy received a B.B.A from Siena College
and an M.B.A. from St. John's University.
Paul M. Camara joined the Company in February 1970. Mr. Camara was elected
as a Vice President of the Company in 1978 and as a Senior Vice President in
1987. He was named to his current position in April 1996. Mr. Camara received a
B.A. from the University of Massachusetts--Dartmouth.
Jeffrey C. Taylor joined the Company in November 1995. Mr. Taylor was
founder and president of Adion, Inc., a recruitment advertising firm, from May
1989 until its purchase by the Company in November 1995. Mr. Taylor founded The
Monster Board-SM- in April 1994. He attended the University of Massachusetts.
Mr. Taylor graduated from the Executive M.B.A. (OPM) program at the Harvard
Business School in August 1999.
47
<PAGE>
Andrew R. Banks joined the Company in July 1999 at his current position
following the Company's acquisition of Morgan & Banks Limited ("M&B"). From 1985
until February 1999, Mr. Banks was Joint Managing Director of M&B, a recruitment
agency headquartered in Australia.
Peter Dolphin joined the Company in January 1996 as Chairman of the
Company's U.K. operations. Mr. Dolphin was one of the three founding partners of
Moxon, Dolphin & Kerby, a London-based recruitment advertising agency founded in
1976, where he was a Director of the firm until its purchase by the Company in
January 1996. In January 1997, Mr. Dolphin was appointed as the Managing
Director of the Company's European operations and in July 1999 to his current
position. He studied at the City of London University, where he graduated with a
Business Studies qualification.
Stuart J. McKelvey joined Monster.com-SM- as a project manager in March 1996
and became a senior project manager in October 1996. He was named to his current
position in March 1998. Mr. McKelvey holds a B.A. from Stetson University.
Stuart J. McKelvey is the son of Andrew J. McKelvey.
Steven B. Potter joined the Company in October 1999 at his current position
upon the Company's merger with Highland Search Group L.L.C. ("Highland"). From
August 1995 until October 1999, Mr. Potter was Managing Partner and co-founder
of Highland, an executive search boutique specializing in financial services.
Prior to that, Mr. Potter spent 14 years with Russel Reynolds Associates, Inc.,
where he most recently headed the global banking and merchant banking practices
and, beginning in 1992, served as a member of the Executive Committee.
Mr. Potter is a 1977 graduate of Yale University.
George R. Eisele joined the Company in 1976, and has been Executive Vice
President of TMP Worlwide Direct, the Company's Yellow Page Advertising
Division, since 1989, and a director of the Company since September 1987.
Bart W. Catalane joined the Company in June 1999 as Senior Vice President
and Chief Financial Officer. Prior to joining the Company, from January 1999 to
May 1999, Mr. Catalane was Executive Vice President and Chief Financial Officer
of ABC's Broadcasting Division, a unit of The Walt Disney Company. Prior to
that, Mr. Catalane was Executive Vice President and Chief Financial Officer of
the ABC Radio Division from June 1996 to December 1998 and Executive Vice
President of the ABC Radio Networks from August 1989 to May 1996. Mr. Catalane
is a 1978 graduate of Fairfield University in Connecticut and earned an M.B.A.
from Babson College in Wellesley, Massachusetts in 1980.
Myron F. Olesnyckyj joined the Company in June 1994. From September 1986
through May 1994, Mr. Olesnyckyj was associated with Fulbright & Jaworski L.L.P.
and predecessor firms. Mr. Olesnyckyj holds a B.S.F.S. from Georgetown
University's School of Foreign Service and a J.D. from the University of
Pennsylvania Law School.
Michael Kaufman has been a director of the Company since October 1997. Mr.
Kaufman is President of SBC/Prodigy Transition. Mr. Kaufman previously served as
President and CEO of Pacific Bell's Consumer's Market Group. Prior thereto,
Mr. Kaufman was the President and CEO of Pacific Bell Communications, a
subsidiary of SBC Communications Inc., and from 1993 through April 1997 he was
the regional president for the Central and West Texas market area of
Southwestern Bell Telephone. Mr. Kaufman holds a B.A. and an M.B.A. from the
University of Wisconsin.
John Swann has been a director of the Company since September 1996. In 1995,
Mr. Swann founded Cactus Digital Imaging Systems, Ltd., Canada's largest
supplier of electronically produced large format color prints.
Ronald J. Kramer has been a director of the Company since February 2000. Mr.
Kramer has been a managing director of Wasserstein Perella & Co., Inc. since
July 1999. Prior thereto, Mr. Kramer was the Chairman and CEO of Ladenburg
Thalmann Group Inc. and had been employed there for more than the last five
years. Mr. Kramer is also a director of Griffon Corporation, Lakes Gaming and
New Valley Corporation.
48
<PAGE>
The Board of Directors has a Compensation Committee charged with
recommending to the Board the compensation for the Company's executives and
administering the Company's stock option and benefit plans. The Compensation
Committee is currently composed of Messrs. Kramer and Kaufman. The Board of
Directors also has an Audit Committee charged with recommending to the Board the
appointment of independent auditors of the Company, as well as discussing and
reviewing, with the independent auditors, the scope of the annual audit and
results thereof. The Audit Committee is currently composed of Messrs. Kramer and
Kaufman. The Board of Directors also has a Strategy Committee charged with
recommending to the Board strategic plans. The Strategy Committee is currently
composed of Messrs. Kramer and Kaufman. Finally, the Board of Directors has an
Executive Committee which is empowered to act on behalf of the whole Board. The
Executive Committee is currently composed of Messrs. McKelvey and Treacy.
DIRECTOR COMPENSATION
Directors who are full time employees of the Company receive no additional
compensation for their services as a director. Each of the Company's
non-employee directors receives $15,000 per year for services rendered as a
director, plus a per meeting fee of $5,000 for each meeting of the board of
directors or a committee of the board of directors attended in person after the
fifth such meeting attended in person, plus reimbursement of expenses incurred
in connection with his or her duties as director.
The Company has adopted the 1996 Stock Option Plan for Non-Employee
Directors (the "Directors' Plan"), pursuant to which options to acquire a
maximum aggregate of 360,000 shares of Common Stock may be granted to
non-employee directors. Pursuant to the Directors' Plan, each of
Messrs. Kaufman and Swann, its non-employee directors, was granted an option to
purchase 22,500 shares of Common Stock at a purchase price per share equal to
the fair market value of the Common Stock on the date of such director's
election to the Board of Directors ($11.81 in the case of Mr. Kaufman and $7.00
in the case of Mr. Swann). The options have a ten-year term and become
exercisable as determined by the Compensation Committee. The options may be
exercised by payment in cash, check or shares of Common Stock.
Pursuant to the 1999 Plan, each new non-employee director of the Company
will be automatically granted an option to purchase 22,500 shares of Common
Stock upon his or her commencement of service as a non-employee director.
Accordingly, Mr. Kramer received such option in February 2000, at an exercise
price equal to the fair market value of the Common Stock on the date of grant.
In addition, each non-employee director of the Company will automatically be
granted an option to purchase 5,000 shares of Common Stock under the 1999 Plan
on the day following each Annual Meeting of Stockholders that occurs at least
one year after the first anniversary of the date he or she first became a
non-employee director. Automatic option grants will have a ten-year term and an
exercise price equal to the fair market value of the Common Stock on the date of
grant. Options granted to non-employee directors upon their commencement of
service will be 50% vested on the date of grant and will generally become fully
vested on the first anniversary of the date of grant. Options granted to
non-employee directors on an annual basis will generally become 50% vested on
each of the first two anniversaries of the date of grant. The Company will no
longer make grants under the Directors' Plan.
EXECUTIVE COMPENSATION
The following table sets forth information concerning all cash and non-cash
compensation paid or to be paid by the Company as well as certain other
compensation awarded, earned by and paid, during the fiscal years indicated, to
the Chief Executive Officer and each of the four other most highly compensated
executive officers of the Company for such periods in all capacities in which
they served.
49
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------------- ---------------------------
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
-------------------------------- -------- ---------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Andrew J. McKelvey,............. 1999 $ 833,364 -- $21,874(1) -- --
Chairman of the Board and CEO 1998 1,500,000 -- 21,395(1) -- --
1997 1,500,031 -- 23,111(1) -- --
James J. Treacy,................ 1999 329,576 $ 35,000 3,200(2) 400,000 --
Chief Operating Officer and 1998 231,100 35,000 3,200(2) 150,000 --
Executive Vice President-- 1997 211,531 50,000 3,200(2) 143,332 --
Finance and Strategy
Jeffrey C. Taylor,.............. 1999 400,000 112,500 67,375(3) 2,000,300 --
CEO of TMP Interactive 1998 401,314 50,000 20,000(3) 200,000 --
1997 217,196 100,000 20,000(3) 82,250 --
Paul M. Camara,................. 1999 359,148 -- 3,200(2) 500,000 --
Executive Vice President-- 1998 225,031 -- 3,200(2) 200,000 --
Creative/Sales/Marketing 1997 225,030 52,680 3,200(2) 48,500 --
Thomas G. Collison,............. 1999 207,031 -- 3,200(2) 60,000 --
Vice Chairman and Secretary 1998 207,031 -- 3,200(2) 10,000 --
1997 207,031 50,320 3,200(2) 37,668 --
</TABLE>
------------------------
(1) $3,200 represents matching contributions made to the Company's 401(k) Plan
in each of 1999, 1998 and 1997 and $18,674, $18,195 and $19,911 represents
lease payments for an automobile in 1999, 1998 and 1997, respectively.
(2) Represents matching contributions made to the Company's 401(k) Plan.
(3) $3,200 represents matching contributions made to the Company's 401(k) Plan
in each of 1999, 1998 and 1997 and $16,800 represents lease payments for an
automobile in each of 1999, 1998 and 1997 and $47,375 represents
Mr. Taylor's 1999 commission compensation.
50
<PAGE>
STOCK OPTIONS
The following table sets forth certain summary information concerning
individual grants of stock options made during the year ended December 31, 1999
to each of the Company's executive officers named in the Summary Compensation
Table.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS EXERCISE STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM(2)
OPTIONS EMPLOYEES PRICE PER EXPIRATION -----------------------------
NAME GRANTED IN 1999(1) SHARE DATE 5% 10%
---- ---------- ---------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Andrew J. McKelvey......... -- -- -- -- -- --
James J. Treacy............ 400,000 5.7% $22.063 08/05/09 $37,435,607 $64,837,086
Jeffrey C. Taylor.......... 2,000,300 28.7% (3) (3) 184,385,482 321,414,426
Paul M. Camara............. 500,000 7.2% $22.063 08/05/09 46,794,509 81,046,357
Thomas G. Collison......... 60,000 0.9% (4) (4) 5,214,091 9,324,340
</TABLE>
------------------------
(1) In December 1999, the Company's Board of Directors granted the indicated
options. The indicated percentages are based on 6,942,880 options granted in
1999 under the 1999 Long Term Incentive Plan and 30,000 options granted in
April 1999 under the 1996 Stock Option Plan and do not include 3,405,100
options which are a result of the conversion of options of companies
acquired by TMP.
(2) These amounts represent assumed rates of appreciation in the price of the
Company's Common Stock during the term of the option in accordance with
rates specified in applicable federal securities regulations. Actual gains,
if any, or stock option exercises, will depend on the future price of the
Common Stock and overall stock market conditions. The Company's stock price,
as reported by the Nasdaq National Market on December 31, 1999, was $71.00
per share.
(3) Mr. Taylor was granted options to purchase 2,000,000 shares of the Company's
Common Stock on July 30, 1999 at an exercise price per share of $23.47.
These options expire on July 30, 2009. Mr. Taylor was also granted options
to purchase 300 shares of the Company's Common Stock on December 1, 1999 at
an exercise price per share of $47.50. These options expire on December 1,
2009.
(4) Mr. Collison was granted options to purchase 50,000 shares of the Company's
Common Stock on October 18, 1999 at a per share exercise price of $25.00,
these options expire on October 18, 2009. Mr. Collison was granted options
to purchase 10,000 shares of the Company's Common Stock on December 1, 1999
at a per share exercise price of $47.50, these options expire on
December 1, 2009.
The following table sets forth at December 31, 1999 the number of securities
underlying unexercised options and the value of unexercised options held by each
of the executive officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT YEAR END OPTIONS AT YEAR END(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Andrew J. McKelvey......................... -- -- -- --
James J. Treacy............................ 175,832 517,500 $11,084,341 $ 26,368,281
Jeffrey C. Taylor.......................... 254,186 2,130,564 15,547,477 102,908,601
Paul M. Camara............................. 93,000 655,500 5,648,469 33,452,375
Thomas G. Collison......................... 34,168 72,500 2,183,159 3,284,200
</TABLE>
------------------------
(1) Computed based upon the difference between the Stock Option exercise price
and $71.00, the closing price of the Company's Common Stock on December 31,
1999.
51
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into an amended employment agreement with Andrew J.
McKelvey, effective as of 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 $1,500,000 per
year and until November 1998, when his agreement was amended, was entitled to
mandatory quarterly bonuses of $375,000. Mr. McKelvey waived such bonuses.
Mr. McKelvey was paid $833,364 in 1999. On May 1, 1999, the Company and
Mr. McKelvey further amended the employment agreement to provide for an annual
base salary of $500,000 and an annual bonus, based on exceeding earnings per
share targets, not to exceed $500,000. 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 confidentiality provisions, whereby Mr. McKelvey agrees not to disclose
any confidential information regarding the Company and its affiliates.
The Company has entered into a second amended employment agreement with
James J. Treacy, effective as of October 1, 1999, for an indefinite term on an
at-will basis. The agreement provides that either party may terminate the
agreement for any reason. Pursuant to the agreement, Mr. Treacy will serve as
Chief Operating Officer and Executive Vice President, Finance and Strategy of
the Company for a base salary in 1999 of $475,000 and an annual bonus equivalent
to a percentage, ranging from 25% to 50%, of his salary if certain goals
mutually agreed upon by Mr. Treacy and the Chief Executive Officer are attained
by Mr. Treacy and/or the Company. The agreement provides that in the event
Mr. Treacy is terminated for "cause" or voluntarily resigns, he shall not be
entitled to any severance, and in the event Mr. Treacy is terminated by reason
of his death, disability or for other reasons, he or his estate shall be
entitled to his base salary and minimum annual bonus for a period of one year
after the effective date of his termination payable at the times they would have
been payable had he remained employed, less income earned by him from the
performance of any personal services during such period. The agreement provides
that in the event Mr. Treacy's employment is terminated by death all of his
options shall become fully vested and exercisable for the shorter of one year or
the balance of the term provided in the stock option agreement. The agreement
contains confidentiality provisions, whereby Mr. Treacy agrees not to disclose
any confidential information regarding the Company and its affiliates, as well
as nonsolicitation provisions which prohibit Mr. Treacy from soliciting any
active or prospective accounts of the Company or its affiliates for a period of
one year following termination.
The Company's subsidiary, TMP Interactive Inc., entered into a second
amended and restated employment agreement with Jeffrey C. Taylor, effective as
of August 28, 1998, for a term ending December 31, 2001. That agreement provides
for automatic renewal for successive one year terms unless either party notifies
the other to the contrary at least 60 days prior to its expiration. The
agreement provides that Mr. Taylor will serve as Chief Executive Officer of TMP
Interactive Inc. and currently provides Mr. Taylor with a base salary of
$400,000 per year and annual bonuses of at least $100,000 per year based on
formulae mutually agreed to by the parties. Under the agreement, Mr. Taylor may
terminate his employment upon written notice for certain material alterations in
his responsibilities, duties, and authorities or upon 90 days' prior written
notice for any reason. The agreement provides that in the event
52
<PAGE>
Mr. Taylor's employment is terminated by TMP Interactive Inc. prior to its
expiration for reasons other than cause or is terminated by Mr. Taylor for
certain material alterations in his responsibilities, duties and authorities,
TMP Interactive Inc. shall pay Mr. Taylor his base salary and his annual bonus
from the preceding year or, if not yet issued a minimum of $100,000 and all of
Mr. Taylor's options to purchase TMP stock shall become fully vested and
Mr. Taylor and his immediate family shall be provided with specified insurance
for a period of one year. The agreement also provides that in the event of
Mr. Taylor's voluntary resignation, termination of his employment by TMP
Interactive Inc. for "cause" or non-renewal of the agreement, Mr. Taylor 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 and certain other benefits for a
period of 90 days at the times they would have been payable had he remained
employed. The agreement contains confidentiality provisions, whereby Mr. Taylor
agrees not to disclose any confidential information regarding TMP
Interactive Inc. and its affiliates, as well as non-competition provisions. The
non-competition covenants generally survive the termination or expiration of
Mr. Taylor's employment for two years, provided that in certain circumstances
TMP Interactive Inc. must pay Mr. Taylor one-half of his base salary, one-half
of his $75,000 minimum annual bonus, medical benefits and an additional payment
of $19,792 per month for the duration of the non-competition obligation.
Mr. Taylor's agreement also prohibits him from soliciting or servicing customers
or prospective customers of TMP Interactive Inc. and its affiliates for a period
of two years following the termination or expiration of his employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On September 16, 1996, the Company's Board of Directors established a
Compensation Committee, which currently consists of Messrs. Kramer and Kaufman
to recommend compensation for the Company's executives and to administer the
Company's stock option and other benefit plans. Prior to September 16, 1996, all
matters concerning executive officer compensation were addressed by the entire
Board of Directors. In February 2000 and in October 1997, respectively,
Mr. Kramer and Mr. Kaufman received stock options to purchase 22,500 shares and
22,500 shares of Common Stock, respectively, at an exercise price of $63.07 per
share and $11.81 per share, respectively, equal to the fair market value on the
date of grant.
CERTAIN TRANSACTIONS
Messrs. McKelvey, Eisele, Camara and Collison have approximately 69.4%, 10%,
5% and 5% interests, respectively, in International Drive, L.P., the lessor of
the Company's 48,000 square foot office in Mt. Olive, New Jersey. This lease
runs through December 2004 and the Company's rent for this space is $46,200 per
month. Mr. McKelvey has a 49% interest in TPH & AJM, a partnership, the lessor
of the office occupied by Telephone Directory Advertising, Inc., an entity in
which the Company has a 48.92% interest. This lease runs through June 2000 and
Telephone Directory Advertising, Inc.'s rent for this space is currently $9,286
per month.
On January 1, 1996, TMP Worldwide Communications Inc., the Company's
Canadian recruitment advertising subsidiary, entered into a management agreement
with TMPW Canada Inc., a recruitment advertising company owned by Mr. Swann,
pursuant to which TMP Worldwide Communications Inc. provides management services
in exchange for a percentage of the billings of TMPW Canada Inc. which is agreed
to from time to time. The agreement has no stated term but is terminable by
either party on 30 days' notice. For the years ended December 31, 1999, 1998 and
1997, TMPW Canada Inc. paid approximately $396,000, $537,000, and $294,000,
respectively to TMP Worldwide Communications Inc. for management services.
Beginning in June 1999, the Company periodically used the service of an
aircraft from a company owned by Mr. McKelvey, and in connection therewith,
$215,000 was paid through December 31, 1999.
The Company believes that all transactions with the aforementioned directors
and executive officers were made on terms no less favorable to the Company than
would have been obtained from unaffiliated third parties and were approved or
ratified by the entire Board, including disinterested directors.
53
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of August 31, 2000 (except as
otherwise noted in the footnotes), regarding the beneficial ownership determined
in accordance with the rules of the Securities and Exchange Commission, which
generally attribute beneficial ownership of securities to persons who possess
sole or shared voting power and/or investment power with respect to those
securities, of the Company's Common Stock by: (i) each person known by the
Company to own beneficially more than five percent (5%) of the Company's
outstanding Common Stock; (ii) each director of the Company; (iii) each
executive officer named in the Summary Compensation Table (see
"Management--Executive Compensation"); and (iv) all directors and executive
officers of the Company as a group. Except as otherwise specified, the named
beneficial owner has the sole voting and investment power over the shares
listed.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP OF PERCENTAGE OF
COMMON STOCK/CLASS B PERCENTAGE OF CLASS B
NAME OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK COMMON STOCK
------------------------ ----------------------- ------------- -------------
<S> <C> <C> <C>
Andrew J. McKelvey(1)......................... 26,479,663 27.3% 100%
Thomas G. Collison(2)......................... 245,988 * --
James J. Treacy(3)............................ 704,544 * --
Jeffrey C. Taylor(4).......................... 459,911 * --
Paul M. Camara(5)............................. 294,190 * --
George R. Eisele(6)........................... 153,860 * --
Ronald J. Kramer(7)........................... 5,625 * --
Michael Kaufman(8)............................ 25,000 * --
John Swann(9)................................. 24,240 * --
All directors and executive officers as a
group (11 persons)(10)...................... 28,428,877 29.3% 100%
Putnam Investments, Inc.(11).................. 5,644,512 5.8% --
Janus Capital Corporation(12)................. 9,256,870 9.5% --
</TABLE>
------------------------
* Less than 1%
(1) Includes 4,762,000 shares of Class B Common Stock which are convertible, on
a share for share basis, into Common Stock. Each share of Class B Common
Stock has ten votes per share. Also includes 4,115 shares of Common Stock
owned by Mr. McKelvey's wife, 200 shares of Common Stock owned by
Mr. McKelvey's daughter and 902 shares of Common Stock held by TMP's 401(k)
Plan. Mr. McKelvey disclaims beneficial ownership of the shares owned by his
wife.
(2) Includes 902 shares of Common Stock held by TMP's 401(k) Plan and 59,168
shares of Common Stock issuable upon the exercise of options which are
exercisable within 60 days of August 31, 2000.
(3) Includes 600 shares of Common Stock owned by Mr. Treacy's daughters, 902
shares of Common Stock held by TMP's 401(k) Plan, and 175,832 shares of
Common Stock issuable upon the exercise of options which are exercisable
within 60 days of August 31, 2000.
(4) Includes 902 shares of Common Stock held by TMP's 401(k) Plan and 281,341
shares of Common Stock issuable upon the exercise of options which are
exercisable within 60 days of August 31, 2000.
(5) Includes 902 shares of Common Stock held by TMP's 401(k) Plan and 93,000
shares of Common Stock issuable upon the exercise of options which are
exercisable within 60 days of August 31, 2000.
(6) Includes 762 shares of Common Stock held by TMP's 401(k) Plan and 1,000
shares of Common Stock issuable upon the exercise of options which are
exercisable within 60 days of August 31, 2000.
(7) Consists of 5,625 shares of Common Stock issuable upon the exercise of
options which are exercisable within 60 days of August 31, 2000.
54
<PAGE>
(8) Consists of 25,000 shares of Common Stock issuable upon the exercise of
options which are exercisable within 60 days of August 31, 2000.
(9) Consists of 24,240 shares of Common Stock issuable upon the exercise of
options which are exercisable within 60 days of August 31, 2000.
(10) Includes 4,762,000 shares of Class B Common Stock, which are convertible on
a share for share basis, into Common Stock, 5,272 shares held by TMP's
401(k) plan and 22,970,943 shares of Common Stock beneficially owned. Also
includes 690,662 shares subject to options which are exercisable within
60 days of August 31, 2000.
(11) Putnam Investments, Inc. may be deemed to beneficially own 5,644,512 shares
of our Common Stock which are held of record by clients of Putnam
Investments, Inc. Putnam Investments, Inc. does not have sole voting or
dispositive power with respect to any of the shares and has shared voting
power with respect to 117,300 shares and shared dispositive power with
respect to 5,644,512 shares. Information with respect to Putnam
Investments, Inc. has been derived from their Schedule 13G dated
February 18, 2000 as filed with the Securities and Exchange Commission.
(12) Janus Capital Corporation may be deemed to beneficially own 9,256,870
shares of our Common Stock which are held of record by clients of Janus
Capital Corporation. Janus Capital Corporation does not have sole voting or
dispositive power with respect to any of the shares and has shared voting
power with respect to 9,256,870 shares and shared dispositive power with
respect to 9,256,870 shares. Information with respect to Janus Capital
Corporation has been derived from their Schedule 13G dated January 11, 2000
as filed with the Securities and Exchange Commission.
55
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth information as of September 14, 2000, except
as otherwise noted, with respect to the number of shares of Common Stock
beneficially owned or to be acquired by each of the selling stockholders and
assumes that all shares subject to vesting schedules and conditions have vested.
The shares offered hereby were acquired by the selling stockholders from TMP
pursuant to the acquisition of or merger with companies owned by such selling
stockholders or pursuant to stock bonus arrangements entered into in connection
therewith. No selling stockholder owns more than one percent of the outstanding
Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK
BENEFICIALLY OWNED OF COMMON STOCK BENEFICIALLY OWNED
SELLING STOCKHOLDER PRIOR TO OFFERING REGISTERED HEREIN AFTER OFFERING (1)
------------------- ------------------ ----------------- ------------------
<S> <C> <C> <C>
704803 Ontario Limited........................ 49,428 49,428 0
1064066 Ontario Limited....................... 9,330 9,330 0
1132766 Ontario Inc........................... 149 149 0
1220669 Ontario Limited....................... 100,679 100,679 0
1223402 Ontario Inc........................... 154 154 0
1365074 Ontario Inc........................... 4,929 4,929 0
86 Burchell Trust (Mike)...................... 50 50 0
86 Burschell Trust (Ed Jr.)................... 50 50 0
1201 Venture Investments...................... 166 166 0
Mark David Abbott............................. 244 85 159
ABS Capital Partners II, L.P.................. 103,429 103,429 0
Brad Ackerman................................. 1,363 1,022 341
Gordon Arthur Ross Adam....................... 59,555 59,555 0
Jurgen Adler.................................. 13,810 13,810 0
Russell B. Aldrich............................ 1,664 1,664 0
Alex. Brown Exchange Fund, L.P. .............. 4,011 4,011 0
Anita M. Ames................................. 14 5 9
Kristi Anderson............................... 2,812 2,812 0
James P. Angelini............................. 2,862 2,147 715
Arab Investment and Management................ 4,011 4,011 0
Arthur Anton Trust............................ 3,812 2,109 1,703
Arts Shareholders Limited Partnership......... 301 301 0
Rick B. Aspros................................ 273 205 68
Paul Atkinson................................. 59,555 59,555 0
AV Williams Trust FBO Jennie.................. 201 201 0
AV Williams Trust............................. 201 201 0
John S. Baran................................. 409 182 227
Gregory H. Barnhill........................... 41 41 0
Christopher H. Bartlett II.................... 60 60 0
Batza 1980 Trust.............................. 40 40 0
Michael Batza................................. 361 361 0
Kent T. Baum.................................. 41 41 0
Harris Berenholz.............................. 458 4 454
James K. Bergdoll, as Trustee under
Irrevocable Trust dated 10/25/96 for the
benefit of Daniel J. Byrnes................. 32,247 32,247 0
James K. Bergdoll, as Trustee under
Irrevocable Trust dated 10/25/96 for the
benefit of Kathryn L. Byrnes................ 32,247 32,247 0
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK
BENEFICIALLY OWNED OF COMMON STOCK BENEFICIALLY OWNED
SELLING STOCKHOLDER PRIOR TO OFFERING REGISTERED HEREIN AFTER OFFERING (1)
------------------- ------------------ ----------------- ------------------
<S> <C> <C> <C>
James K. Bergdoll, as Trustee under
Irrevocable Trust dated 10/25/96 for the
benefit of Kristin L. Byrnes................ 32,247 32,247 0
Bertrand Berullier............................ 13,080 13,080 0
Charles K. Blandin Foundation................. 100 100 0
Charles K. Blandin Residuary Trust............ 902 902 0
Robert S. Blank............................... 1,616 404 1,212
Boca Partners, LLC............................ 602 602 0
George B. Bolton.............................. 80 80 0
William P. Boume.............................. 41 41 0
Chris Bowen................................... 1,723 431 1,292
William B. Boyd............................... 41 41 0
Walter W. Brewster............................ 80 80 0
Briles & Fujii DMD, PC 401(k)................. 5,450 4,088 1,362
Christopher H.G. Brown........................ 12,630 12,630 0
Peggy L. Buchenroth........................... 2,272 2,272 0
Bunting Family II, LLC........................ 3,209 3,209 0
Matt Buonomano................................ 6,891 1,723 5,168
Edward Burchell............................... 201 201 0
Randall T. Byrnes............................. 5,480 5,480 0
Edward L. Cahill.............................. 60 60 0
California Public Employees'.................. 20,055 20,055 0
Jeffry Canin.................................. 101 101 0
Paul Canniff.................................. 504 504 0
Revocable Trust of Tadhg Canniffe and
Bernadette Canniffe dated March 11, 1998.... 37,789 37,789 0
Capital Science Partners, Ltd................. 647 162 485
Michael J. Carney............................. 13,819 13,819 0
Cavan Consulting Limited...................... 12,227 12,227 0
Hillary Cecil................................. 1,616 404 1,212
Steven Chanin................................. 970 243 727
Ishmael Chawla................................ 3,185 796 2,389
Joe Childs.................................... 4,595 1,149 3,446
Hyundeok Chung................................ 1,247 312 935
Brett D. Clifford............................. 41 41 0
Paul J. Cohen................................. 954 715 239
Marco A. Coleman.............................. 273 205 68
Douglas S. Collat............................. 60 60 0
Commonwealth of Pennsylvania Public........... 16,043 16,043 0
David Concordia............................... 4,307 1,077 3,230
Robert F. Conroy.............................. 40 40 0
Robert Cook................................... 401 401 0
Cruttenden Roth Incorporated.................. 4,327 3,245 1,082
CSR Defined Benefit Pension Plan.............. 1,616 404 1,212
Clinton R. Daly............................... 40 40 0
William Dausch................................ 20 20 0
Mike B. Davey................................. 40 40 0
Paul Davis.................................... 163 163 0
Dr. Armin Deuter.............................. 5,280 5,280 0
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK
BENEFICIALLY OWNED OF COMMON STOCK BENEFICIALLY OWNED
SELLING STOCKHOLDER PRIOR TO OFFERING REGISTERED HEREIN AFTER OFFERING (1)
------------------- ------------------ ----------------- ------------------
<S> <C> <C> <C>
Dinte Resources, Inc.......................... 172 43 129
Peter Dion.................................... 3,812 2,109 1,703
Eileen T. Donahue............................. 2,079 2,079 0
Jay C. Doraiswami and Valli K. Doraiswami, as
Trustees of the Doraiswami Family Trust..... 29,754 29,754 0
Thomas U. Dudley II........................... 40 40 0
Jaymie A. Durnan.............................. 688 172 516
EDN Equities.................................. 1,003 1,003 0
Mary S. Emmerling and David E. Emmerling
JTWROS...................................... 37 37 0
Enterprise International Holding Ltd.,
Inc. ....................................... 802 802 0
EPIC Relocation, LLC.......................... 5,450 4,088 1,362
Jonathan E. Farber............................ 241 241 0
Andrew Feller................................. 60 15 45
Barry Flamm................................... 862 216 646
Pamela Flores................................. 803 803 0
George R. Floyd............................... 40 40 0
Edward Foehl.................................. 627 470 157
Kenneth T. Folkman............................ 13,819 13,819 0
Fort Pond Bay Co., LLC........................ 27,247 20,435 6,812
Fox Ventures Inc. ............................ 12,104 12,104 0
Ivy T. Fradin................................. 40 40 0
Barbara Frank................................. 1,616 404 1,212
Marc J. Fratello.............................. 2,957 2,957 0
Bonnie Bershad Freundlich..................... 324 81 243
Laura Freundlich.............................. 324 81 243
James F. Freundlich........................... 55,877 13,969 41,908
Richard L. Freundlich......................... 5,854 39 5,815
William T. Freeman............................ 2,808 2,808 0
Jennie Ping Fu................................ 1,364 1,364 0
Peter Gadinas................................. 3,089 2,067 1,022
Andrew Gelina................................. 6,891 1,723 5,168
General Electric Capital Assurance Company.... 3,026 3,026 0
John D. Gentry................................ 1,616 404 1,212
Bethany George................................ 2,812 2,812 0
Bruna M. Giammarco Non resident Trust......... 57,680 57,680 0
John P. Giammarco, as Trustee of the Giammarco
Irrevocable GST Trust dated March 26,
1998........................................ 14,601 14,601 0
Elaine S. Gilde............................... 1,600 400 1,200
Jack Gill..................................... 252 252 0
Margaret Gilmore.............................. 11,496 11,496 0
Susan Golob................................... 1,723 431 1,292
Steven Goode.................................. 970 243 727
Steve Goretti................................. 6,891 1,723 5,168
Gary J. Goulski............................... 200 70 130
Granite Assets LLC............................ 361 361 0
Granite Assets LLC "B"........................ 141 141 0
Robert C. Greco............................... 202 202 0
Jonathon E. Greenleaf......................... 364 127 237
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK
BENEFICIALLY OWNED OF COMMON STOCK BENEFICIALLY OWNED
SELLING STOCKHOLDER PRIOR TO OFFERING REGISTERED HEREIN AFTER OFFERING (1)
------------------- ------------------ ----------------- ------------------
<S> <C> <C> <C>
Jeffrey A. Greiner as custodian for Carolyn
Greiner under the Ohio Gifts to Minors
Act......................................... 2,972 2,972 0
Jeffrey A. Greiner............................ 16,483 16,483 0
Susan Greiner................................. 2,972 2,972 0
Daniel Gross and Associates Pension Plan...... 2,263 566 1,697
Carl Grossman................................. 442 111 331
Grove Street Capital LLC...................... 3,143 3,143 0
Thomas W. Guard............................... 325 325 0
GVI, LLC...................................... 923 923 0
Richard T. Hale............................... 40 40 0
Richard E. Halperin........................... 2,294 574 1,720
Donald B. Hebb, Jr. .......................... 27 27 0
Hebb Family Limited Partnership............... 1,112 1,112 0
Richard H. Holden Jr. ........................ 60 60 0
Christopher L. Holter......................... 40 40 0
Thomas Holzchen............................... 13,810 13,810 0
Devora Hosseinof.............................. 508 508 0
Robert E. Howard IV........................... 60 60 0
Alan Michael Hughes........................... 19,591 19,591 0
Ideal Associates.............................. 401 401 0
John P. Imlay, Jr............................. 98 98 0
Imperial Credit Corp. ........................ 101 101 0
Inacom Corp................................... 2,285 2,285 0
Invemed Associates, Inc....................... 47,676 35,757 11,919
Michael Jaharis............................... 22,059 13,544 8,515
Francis J. Jamison, Jr. ...................... 40 40 0
Jeremy Jeach.................................. 504 504 0
JMI Investments 1992 LP....................... 2,005 2,005 0
Paul Johnson.................................. 1,818 1,818 0
Reinhard Junker............................... 5,280 5,280 0
Kadila Holdings, Inc.......................... 15,936 10,827 5,109
Howard T. Kamisky............................. 40 40 0
Douglas Kaplan................................ 33 8 25
Kenneth Karl Kelly III........................ 1,364 1,364 0
Peter Kelly................................... 48,401 48,401 0
Cristina H. Kepner............................ 4,490 3,241 1,249
Keswick Private Fund I, L.L.C. ............... 401 401 0
Robert S. Killerbrew, Jr. .................... 40 40 0
Jennie V. Kjos................................ 955 717 238
Dr. Thomas Kleine............................. 5,280 5,280 0
Lisa Knight................................... 4,862 4,862 0
Jeffrey Kolber................................ 1,364 1,364 0
Reinhard Kolvenbach........................... 13,810 13,810 0
David Kowalick................................ 370 370 0
Kranzlin Family LLC........................... 40 40 0
Dr. Gerhard Kratz............................. 5,280 5,280 0
Eric Krauss................................... 2,584 646 1,938
John A. Kryzanowski........................... 40 40 0
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK
BENEFICIALLY OWNED OF COMMON STOCK BENEFICIALLY OWNED
SELLING STOCKHOLDER PRIOR TO OFFERING REGISTERED HEREIN AFTER OFFERING (1)
------------------- ------------------ ----------------- ------------------
<S> <C> <C> <C>
Revocable Trust of Ankesh Kumar and Abha Kumar
dated April 19, 1998........................ 37,975 37,975 0
Steven Kyriakos............................... 8,117 6,088 2,029
Dean Kyriakos................................. 132,633 99,475 33,158
Landmark Co-Investment Partners, LP........... 86,500 64,875 21,625
Bruce Langone................................. 2,272 1,704 568
John A. Lechner............................... 40 40 0
John Peter Lee................................ 2,000 2,000 0
Linehan Foundation............................ 40 40 0
Linehan 1982 Trust............................ 60 60 0
Earl Linehan.................................. 716 716 0
Michael Linehan............................... 60 60 0
Lion Investments, L.P......................... 180,748 180,748 0
Lipitz Family L.P. ........................... 80 80 0
Tom Litle..................................... 8,614 2,154 6,460
Brent M. Lockwood............................. 40 40 0
Lornes B.V.................................... 51,906 51,906 0
Loyola College of Maryland.................... 2,056 2,056 0
Mark A. Ludwick............................... 244 85 159
Marcelo MacKinlay............................. 12,155 12,155 0
Frank G. Magdlen.............................. 545 409 136
Management Resources International Holding
B.V......................................... 23,817 23,817 0
Suzanne Manzler............................... 200 70 130
Yvonne V. Marsh............................... 459 115 344
Stefan Martens................................ 13,810 13,810 0
Charles E. Mather IV.......................... 382 96 286
Anthony M. May................................ 60 60 0
Mayfair Management Services, S.A. ............ 802 802 0
Brian McCabe.................................. 2,725 2,044 681
James T. McGibbon............................. 156 42 114
James Mc Leod................................. 200 70 130
Juan Jose Pol Mendez.......................... 16,840 16,840 0
Lorna F. Meyer................................ 40 40 0
Lucinda Sandford Mezey........................ 40 40 0
Stephen R. Mickelberg......................... 1,616 404 1,212
Peggy J. Miller............................... 44,588 32,691 11,897
Stephen T. Mitchell........................... 40 40 0
Frank G. Moscow............................... 221 166 55
Rudolf Muller................................. 13,810 13,810 0
Kapil Nanda................................... 101 101 0
Norwest Bank Minnesota, N.A. ................. 402 402 0
Suzanne D. Olsen.............................. 818 614 204
James Z. O'Leary.............................. 221 166 55
Florencio Barranco Ortega..................... 39,338 39,338 0
John H. Park.................................. 1,090 818 272
Paulson Investment Co, Inc.................... 45,412 34,059 11,353
Charles LF Paulson............................ 909 682 227
Chester LF & Jacqueline Paulson............... 9,083 6,812 2,271
Erick JC Paulson.............................. 909 682 227
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK
BENEFICIALLY OWNED OF COMMON STOCK BENEFICIALLY OWNED
SELLING STOCKHOLDER PRIOR TO OFFERING REGISTERED HEREIN AFTER OFFERING (1)
------------------- ------------------ ----------------- ------------------
<S> <C> <C> <C>
Stuart A. Peschka............................. 273 205 68
Harold W. Pote................................ 1,142 286 856
Michael J. Pratt and Jean V. Pratt, Joint
Tenants..................................... 1,147 287 860
Margaret-Mary V. Preston...................... 40 40 0
Mike A. Pruett................................ 2,658 1,994 664
Thomas Reichwein.............................. 13,810 13,810 0
William F. Rienhoff IV........................ 40 40 0
Ulrich P. Reiter.............................. 32,884 32,884 0
Rhode Island Employees' Retirement System..... 2,005 2,005 0
Arnold Richman................................ 401 401 0
Allen Roberts................................. 33 8 25
Robert S. Rollo............................... 18,678 18,678 0
Robert Stone Rollo and Kimberlee Dockson Rollo
TTEE UAO 6/8/90 (Restarted 5/20/97)......... 55,430 55,430 0
Rooster Investment Company LLC................ 3,232 808 2,424
Richard A. Rosee.............................. 80 80 0
Harold R. Ross................................ 100 100 0
William R. Rothe.............................. 40 40 0
John C. Rudder................................ 11,988 11,988 0
Dr. Christoph Rummel.......................... 13,810 13,810 0
Jeffrey G. Rupp............................... 40 40 0
S. Lawrence Rusoff............................ 647 162 485
Clint W. Sager II............................. 1,216 426 790
Pedro Garcia-Cano Salgado..................... 15,602 15,602 0
Timothy Sandborn.............................. 954 715 239
Alicia E. Santos.............................. 324 81 243
Gonzalo Santos................................ 52,936 13,234 39,702
Olivia Santos................................. 2,941 735 2,206
Steven E. Schaedel............................ 608 213 395
Sandra Schoem................................. 5,031 1,258 3,773
Claus Schulmeister............................ 13,810 13,810 0
Randy Schwartz................................ 1,182 1,182 0
Jill A. Shaw.................................. 40 40 0
Jason N. Sheh................................. 50 50 0
Bernard J. Sheinfeld.......................... 7,412 7,412 0
Adam Shelnut.................................. 1,338 468 870
Jennifer Shenbaum............................. 1,205 1,205 0
Isabelle M. Sherman........................... 334,044 114,315 219,729
Mark A. Sherman............................... 275,844 56,115 219,729
Silicon Valley Bancshares..................... 101 101 0
Smith Family Unitrust, L.P. No. 1............. 2,005 2,005 0
Baldwin Smith, Jr............................. 2,272 1,704 568
Raymond W. Smith.............................. 3,232 808 2,424
South Ferry #2, L.P. ......................... 2,005 2,005 0
John A. Spilman............................... 30 30 0
Dr. Dieter Spori.............................. 5,280 5,280 0
Stephens & Company............................ 252 252 0
William G. Stewart............................ 60 60 0
Mary Ellen Sutherland......................... 1,147 287 860
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK
BENEFICIALLY OWNED OF COMMON STOCK BENEFICIALLY OWNED
SELLING STOCKHOLDER PRIOR TO OFFERING REGISTERED HEREIN AFTER OFFERING (1)
------------------- ------------------ ----------------- ------------------
<S> <C> <C> <C>
Thomas W. Sutton.............................. 40 40 0
B. Scott Taylor............................... 112,633 79,475 33,158
Thomas L. Teague.............................. 4,543 3,407 1,136
Technology Gateway Partnership, LP............ 30,276 22,707 7,569
The Brentwood Group, Ltd...................... 49 36 13
The Samuel Lewis Green Trust.................. 236 59 177
George Thompson............................... 909 682 227
Jim Thornton.................................. 1,664 1,664 0
Timberline Venture Partners, LP............... 96,853 72,640 24,213
Richard E. Timbers............................ 22,814 22,814 0
William J. Tyne............................... 100 100 0
Daniel Valladares............................. 3,321 3,321 0
Leiven VanMarcke.............................. 647 162 485
VanRam Associates International N.V........... 73,414 73,414 0
Vantagepoint Venture Partners III, L.P. ...... 222 222 0
Vantagepoint Venture Partners (Q.) III,
L.P. ....................................... 1,795 1,795 0
Joseph R. Vicente............................. 3,186 3,186 0
Mark Villilo.................................. 1,800 1,800 0
Peter Vlachos................................. 10,624 7,218 3,406
David Waage................................... 1,000 1,000 0
Walter F. Wagner.............................. 3,633 3,633 0
Frank L. Walters, Jr. ........................ 40 40 0
Timothy T. Weglicki........................... 157 157 0
Weglicki Trust--Class B....................... 52 52 0
Weglicki Trust--Class C....................... 254 254 0
Byron L. West................................. 18,359 18,359 0
Curt Whitehead................................ 6,891 1,723 5,168
Mark Whittington.............................. 147 147 0
Don Willis.................................... 6,891 1,723 5,168
Wolfson Equities.............................. 1,003 1,003 0
Caesar Wong................................... 273 205 68
Woodbank Capital.............................. 26 26 0
WS Investment Company 99A..................... 25 25 0
Yarmuth Dion, Inc............................. 18,247 11,435 6,812
David Croy Drysdale Young..................... 67,002 67,002 0
M.D. Young.................................... 252 252 0
</TABLE>
------------------------
(1) Assumes that all shares offered by each selling stockholder are sold in this
offering.
62
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Certificate of Incorporation of the Company provides the Company with
the authority to issue 1,500,000,000 shares of Common Stock, 39,000,000 shares
of Class B Common Stock, 200,000 shares of 10.5% Cumulative Preferred Stock and
800,000 shares of Preferred Stock. No shares of Preferred Stock are outstanding.
The 10.5% Cumulative Preferred Stock was redeemed and no shares are outstanding.
COMMON STOCK AND CLASS B COMMON STOCK
DIVIDENDS Each share of Common Stock and Class B Common Stock is entitled
to dividends if, as and when dividends may be declared by the Board of Directors
of the Company and paid. Under the Delaware General Corporation Law, the Company
may declare and pay dividends only out of its surplus, or in case there shall be
no such surplus, out of its net profits for the fiscal year in which the
dividend is declared and/or the preceding year. No dividends may be declared,
however, if the capital of the Company has been diminished by depreciation,
losses or otherwise to an amount less than the aggregate amount of capital
represented by any issued and outstanding stock having a preference on
distribution. Dividends must be paid on both the Common Stock and the Class B
Common Stock at any time that dividends are paid on either. Any dividend so
declared and payable in cash, capital stock of the Company (other than Common
Stock or Class B Common Stock) or other property will be paid equally, share for
share, on the Class B Common Stock and Common Stock. Dividends and distributions
payable in shares of Class B Common Stock may be paid only on shares of Class B
Common Stock, and dividends and distributions payable in shares of Common Stock
may be paid only on shares of Common Stock. If a dividend or distribution
payable in Common Stock is made on the Common Stock, the Company must also make
a simultaneous dividend or distribution on the the Class B Common Stock.
Pursuant to any such dividend or distribution, each share of Class B Common
Stock will receive a number of shares of Class B Common Stock equal to the
number of shares of Common Stock payable on each share of Common Stock.
VOTING RIGHTS Each share of Common Stock is entitled to one vote and each
share of Class B Common Stock is entitled to ten votes on all matters. Except as
described below, the Common Stock and the Class B Common Stock vote together as
a single class on all matters presented for a vote of the stockholders,
including the election of directors. The holders of a majority of the
outstanding shares of Common Stock or Class B Common Stock, voting as separate
classes, must approve certain amendments affecting shares of such class.
Specifically, if there is any proposal to amend the Certificate of Incorporation
in a manner that would increase or decrease the number of authorized shares of
Common Stock or Class B Common Stock, increase or decrease the par value of the
shares of Common Stock or Class B Common Stock or alter or change the powers,
preferences, or special rights of the shares of Common Stock or Class B Common
Stock so as to affect them adversely, such an amendment must be approved by a
majority of the outstanding shares of the affected class, voting separately as a
class. In addition, any merger or consolidation in which each share of Common
Stock receives consideration that is not of the same type or is less than the
amount of the consideration to be received by each share of Class B Common
Stock, other than consideration payable in securities which provide each share
of Class B Common Stock with the number of votes that is no more than ten times
the number of votes provided each share of Common Stock, must be approved by a
majority of the outstanding shares of Common Stock, voting separately as a
class. Shares of Common Stock and Class B Common Stock do not have cumulative
voting rights.
TERMS OF CONVERSION. Each share of Class B Common Stock is convertible at
any time, at the option of and without cost to the stockholder, into one share
of Common Stock. If at any time (i) the outstanding shares of Class B Common
Stock represent less than 15% of the combined voting power of issued and
outstanding shares of Common Stock and Class B Common Stock, or (ii) the Board
of Directors and the holder of a majority of the outstanding shares of Class B
Common Stock approve the conversion of all of the Class B Common Stock into
Common Stock, or (iii) the holder of a majority of the outstanding shares of
Class B Common Stock dies, then each outstanding share of Class B Common Stock
shall be converted automatically into one share of Common Stock without any
action by the holder. In the event of such a
63
<PAGE>
conversion, certificates formerly representing outstanding shares of Class B
Common Stock will thereafter be deemed to represent an equal number of shares of
Common Stock.
LIQUIDATION RIGHTS. In the event of the liquidation, dissolution or winding
up of the Company, holders of the shares of Common Stock and Class B Common
Stock are entitled to share equally, share for share, in the assets available
for distribution.
OTHER. Additional shares of Class B Common Stock may only be issued upon
stock splits of, or stock dividends on, the existing Class B Common Stock. No
stockholder of the Company has preemptive or other rights to subscribe for
additional shares of the Company.
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more series as
determined by the Board of Directors. The Board of Directors is authorized to
issue the shares of Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividends rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, without further vote or action by
the stockholders. The issuance of such Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the voting and other
rights of the holders of Common Stock, including the loss of voting control to
others. The Company currently has no plan to issue any shares of such Preferred
Stock.
DELAWARE ANTI-TAKEOVER LAW
Under Section 203 of the Delaware General Corporation Law (the "Delaware
Anti-Takeover Law"), certain "business combinations" between a Delaware
corporation whose stock generally is publicly traded or held of record by more
than 2,000 stockholders and any person acquiring 15% or more of the voting stock
of such Delaware corporation (an "interested stockholder") are prohibited for a
three-year period following the time that such stockholder became an interested
stockholder, unless (i) either the business combination or the transaction which
resulted in the stockholder becoming an "interested stockholder" was approved by
the board of directors of the corporation prior to the time the other party to
the business combination became an interested stockholder, (ii) upon
consummation of the the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock owned
by directors who are also officers and stock held in employee stock plans in
which the employees do not have a right to determine confidentially whether to
tender or vote stock held by the plan), or (iii) the business combination was
approved by the board of directors of the corporation and authorized by 66 2/3%
of the voting stock which the interested stockholder did not own. The
corporation may opt out of the effect of this statement by (i) including a
provision to such effect in the corporation's original certificate of
incorporation, (ii) amendment to the corporation's bylaws made by the board of
directors within 90 days after the effective date of the statute or
(iii) amendment of the corporation's certificate of incorporation or bylaws
approved by holders of a majority of the shares entitled to vote; provided that
such amendment shall generally not take effect until 12 months after its
adoption and shall not effect any business combination with interested
stockholders which are effected during such 12 months. The three-year
prohibition does not apply to certain business combinations proposed by an
interested stockholder following the announcement or notification of certain
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors. The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an interested
stockholder, transactions with an interested stockholder involving the assets or
stock of
64
<PAGE>
the corporation or its majority-owned subsidiaries and transactions which
increase an interested stockholder's percentage ownership of stock. The term
"interested stockholder" is defined generally as a stockholder who becomes the
beneficial owner of 15% or more of a Delaware corporation's voting stock.
Section 203 could have the effect of delaying, deferring or preventing a change
in control of the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that directors of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of a director's duty of loyalty to the Company or
its stockholders, (ii) for acts of omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derives an improper personal benefit. Moreover, the provisions do not
apply to claims against a director for violations of certain laws, including
federal securities laws. If the Delaware General Corporation Law is amended to
authorize the further elimination or limitation of directors' liability, then
the liability of directors of the Company shall automatically be limited to the
fullest extent provided by law. The Company's Bylaws also contain provisions to
indemnify the directors and officers of the Company to the fullest extent
permitted by the Delaware General Corporation Law. In addition, the Company has
entered into indemnification agreements with its current directors. These
provisions and agreements may have the practical effect in certain cases of
eliminating the ability of stockholders to collect monetary damages from
directors. The Company believes that these contractual agreements and the
provisions in its Certificate of Incorporation and Bylaws are necessary to
attract and retain qualified persons as directors and officers.
TRANSFER AGENT
The Transfer Agent for the Common Stock is The Bank of New York.
PLAN OF DISTRIBUTION
The selling stockholders named herein (or pledgees, donees, transferees or
other successors-in-interest selling shares received from a named selling
stockholder as a gift, partnership, distribution or other non-sale-related
transfer after the date of this prospectus) may offer their shares at various
times in one or more transactions on the Nasdaq National Market, in special
offerings, exchange distributions, secondary distributions, negotiated
transactions, or a combination of such. They may sell at market prices at the
time of sale, at prices related to the market price or at negotiated prices. The
selling stockholders may use broker-dealers to sell their shares. If this
happens, broker-dealers will either receive discounts or commissions from the
selling stockholders, or they will receive commissions from purchasers of shares
for whom they acted as agents. Compensation as to a particular broker-dealer
might be in excess of customary commissions and will be in amounts to be
negotiated in connection with the sale. Broker-dealers or agents and the selling
stockholders may be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act in connection with sales of the shares.
Accordingly, any such commission, discount or concession received by them and
any profit on the resale of the shares purchased by them may be deemed to be
underwriting discounts or commissions under the Securities Act. Because selling
stockholders may be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act, the selling stockholders will be subject to
the prospectus delivery requirements of the Securities Act. In addition, any
securities covered by this prospectus which qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under Rule 144 rather than
pursuant to this prospectus.
LEGAL OPINION
For the purpose of this offering, our outside counsel, Fulbright & Jaworski
L.L.P., New York, New York 10103, is giving its opinion on the validity of the
shares.
65
<PAGE>
EXPERTS
The consolidated financial statements and schedule and the consolidated
financial statements and schedule of the Company included herein have been
audited by BDO Seidman, LLP, independent certified public accountants, to the
extent and for the periods set forth in their reports included herein, and are
included herein in reliance upon such reports given upon the authority of said
firm as experts in accounting and auditing.
The financial statements of Baumgartner & Partner Personalberatung GmbH
included herein have been audited by BDO International GmbH,
Wirtschaftsprufungsgesellschaft, to the extent and for the periods set forth in
their report included herein, and are included herein in reliance upon such
report given upon the authority of said firm as experts in accounting and
auditing.
The financial statements of Rich, Gardner & Associates, Ltd. included herein
have been audited by BDO Seidman, LLP, independent certified public accountants,
to the extent and for the periods set forth in their report included herein, and
are included herein in reliance upon such report given upon the authority of
said firm as experts in accounting and auditing.
The consolidated balance sheets of Morgan & Banks Limited as of
December 31, 1998 and the consolidated statements of operations and
stockholders' equity for the year ended December 31, 1998 and the year ended
March 31, 1998 and the statements of cash flows for the nine months ended
December 31, 1998 and the year ended March 31, 1998, included in the Company's
financial statements as of December 31, 1998 and for the year ended
December 31, 1998 are included in reliance on the report of Pannell Kerr
Forster, independent auditors, given upon the authority of that firm as experts
in accounting and auditing.
The consolidated financial statements and schedule of LAI Worldwide, Inc. as
of February 28, 1999 and for each of the two years in the period ended
February 28, 1999 (not presented separately herein) have been audited by Arthur
Andersen LLP, independent certified public accountants, as indicated in their
reports with respect thereto which are included herein, in reliance upon the
authority of said firm as experts in giving said reports.
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 (not presented separately herein) have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report which has been included herein in reliance upon such report given upon
their authority as experts in accounting and auditing.
The consolidated financial statements of QD Group Limited as of
30 September 1999 and 1998 and for each of the two years then ended included
herein have been audited by Arthur Andersen, independent chartered accountants,
as indicated in their report with respect thereto and are included herein in
reliance upon the authority of said firm as experts in giving said report.
The financial statements of MoveCentral, Inc. as of December 31, 1999 and
1998 and for the years then ended, included herein have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report dated
February 25, 2000 with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.
The financial statements of Stratascape, Inc. as of December 31, 1998 and
December 31, 1999 included herein have been audited by Finck, Rudnick & Company
to the extent and for the periods set forth in their reports included herein,
and are included herein in reliance upon such reports given upon the authority
of said firm as experts in accounting and auditing.
66
<PAGE>
INDEX TO FINANCIAL STATEMENTS
TMP WORLDWIDE INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE NO.
-----------------------
<S> <C>
Consolidated Condensed Financial Statements (unaudited):
Balance sheet as of June 30, 2000......................... F-4
Statements of income for the six months ended June 30,
2000 and 1999........................................... F-5
Statements of comprehensive income (loss) for the six
months ended June 30, 2000 and 1999..................... F-6
Statement of stockholders' equity for the six months ended
June 30, 2000........................................... F-7
Statements of cash flows for the six months ended
June 30, 2000 and 1999.................................. F-8
Notes to consolidated condensed financial statements...... F-9
Report of Independent Certified Public Accountants.......... F-19
Independent Auditor's Report to the Members of Morgan &
Banks Limited............................................. F-20
Report of Independent Certified Public Accountants (with
respect to LAI Worldwide, Inc.)........................... F-21
Independent Auditors' Report (with respect to System One
Services, Inc.)........................................... F-22
Consolidated Financial Statements:
Balance sheets as of December 31, 1999 and 1998........... F-23
Statements of income (loss) for the years ended December
31, 1999, 1998 and 1997................................. F-24
Statements of comprehensive income (loss) for the years
ended December 31, 1999, 1998 and 1997.................. F-25
Statements of stockholders' equity for the years ended
December 31, 1999, 1998 and 1997........................ F-26
Statements of cash flows for the years ended December 31,
1999, 1998 and 1997..................................... F-29
Notes to consolidated financial statements................ F-30
BAUMGARTNER & PARTNER PERSONALBERATUNG GMBH
Independent Auditors' Report................................ F-61
Balance sheet as of December 31, 1999....................... F-62
Statement of income for the year ended December 31, 1999.... F-63
Statement of stockholders' equity for the year ended
December 31, 1999......................................... F-64
Statement of comprehensive income (loss) for the year ended
December 31, 1999......................................... F-65
Statement of cash flows for the year ended December 31,
1999...................................................... F-66
Notes to financial statements............................... F-67
QD GROUP LIMITED
Consolidated profit and loss account for the six months
ended 30 June 2000 and 30 June 1999 (unaudited)........... F-71
Consolidated balance sheet as at 30 June 2000 and 30 June
1999 (unaudited).......................................... F-72
Consolidated cash flow statement for the six months ended
30 June 2000 and 30 June 1999 (unaudited)................. F-73
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
-----------------------
<S> <C>
Notes to the financial statements (unaudited)............... F-74
Auditors' report............................................ F-79
Consolidated profit and loss account for the year ended
30 September 1999 and 30 September 1998................... F-80
Consolidated balance sheet as at 30 September 1999 and
30 September 1998......................................... F-81
Company balance sheet as at 30 September 1999 and
30 September 1998......................................... F-82
Consolidated cash flow statement as at 30 September 1999 and
30 September 1998......................................... F-83
Notes to the accounts....................................... F-84
MOVECENTRAL, INC.
Statements of income (loss) for the period ended June 19,
2000 and the six months ended June 30, 1999 (unaudited)... F-102
Statements of cash flows for the period ended June 19, 2000
and the six months ended
June 30, 1999 (unaudited)................................. F-103
Notes to financial statements (unaudited)................... F-104
Report of Independent Public Accountants.................... F-105
Balance sheets as of December 31, 1999 and 1998............. F-106
Statements of operations for the years ended December 31,
1999 and 1998............................................. F-107
Statements of shareholders' equity (deficit) for the years
ended December 31, 1999 and 1998.......................... F-108
Statements of cash flows for the years ended December 31,
1999 and 1998............................................. F-109
Notes to financial statements............................... F-110
RICH, GARDNER & ASSOCIATES, LTD. (information as of
June 30, 2000 and for the six months ended June 30, 2000
and 1999 is unaudited)
Report of Independent Certified Public Accountants.......... F-115
Balance Sheets as of December 31, 1999 and 1998 and
June 30, 2000............................................. F-116
Statements of income for the years ended December 31, 1999
and 1998 and the six
months ended June 30, 2000 and 1999....................... F-117
Statements of members' equity for the years ended
December 31, 1999 and 1998 and
the six months ended June 30, 2000........................ F-118
Statements of cash flows for the years ended December 31,
1999 and 1998 and the six
months ended June 30, 2000 and 1999....................... F-119
Notes to financial statements............................... F-120
STRATASCAPE, INC.
Balance sheet as of June 30, 2000 (unaudited)............... F-123
Statements of income for the six months ended June 30, 2000
and 1999 (unaudited)...................................... F-124
Statement of retained earnings for the six months ended June
30, 2000 (unaudited)...................................... F-125
Statements of cash flows for the six months ended June 30,
2000 and 1999 (unaudited)................................. F-126
Notes to the financial statements (unaudited)............... F-127
Independent Auditors' Report................................ F-129
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
-----------------------
<S> <C>
Balance sheets as of December 31, 1999 and 1998............. F-130
Statements of income for the years ended December 31, 1999
and 1998.................................................. F-131
Statement of retained earnings for the years ended
December 31, 1999 and 1998................................ F-132
Statements of cash flows for the years ended December 31,
1999 and 1998............................................. F-133
Notes to the financial statements........................... F-134
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)............................................... F-137
Pro forma condensed consolidated balance sheet as of
June 30, 2000............................................. F-138
Pro forma condensed consolidated statement of income (loss)
for the six months ended June 30, 2000.................... F-139
Pro forma condensed consolidated statement of income (loss)
for the twelve months ended December 31, 1999............. F-140
Pro forma condensed consoldiated statement of income (loss)
for twelve months ended December 31, 1998................. F-141
Pro forma condensed consolidated statement of income (loss)
for the twelve months ended December 31, 1997............. F-142
</TABLE>
F-3
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
2000
----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 511,445
Accounts receivable, net.................................. 539,897
Work-in-process........................................... 26,970
Prepaid and other......................................... 58,725
----------
Total current assets.................................. 1,137,037
Property and equipment, net................................. 98,352
Intangibles, net............................................ 374,658
Deferred income taxes....................................... 11,103
Other assets................................................ 22,089
----------
$1,643,239
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 325,640
Accrued expenses and other current liabilities............ 209,320
Accrued integration and restructuring costs............... 21,850
Deferred commissions and fees............................. 104,174
Current portion of long term debt......................... 8,141
----------
Total current liabilities............................. 669,125
Long term debt, less current portion........................ 15,139
Other long-term liabilities................................. 22,318
----------
Total liabilities..................................... 706,582
----------
Minority interests.......................................... --
----------
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: 91,204,907 shares....... 91
Class B common stock, $.001 par value, authorized
39,000,000 shares; issued and outstanding: 4,762,000
shares.................................................. 5
Additional paid-in capital................................ 1,017,899
Other comprehensive loss.................................. (42,836)
Deficit................................................... (38,502)
----------
Total stockholders' equity.................................. 936,657
----------
$1,643,239
==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-4
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Commissions and fees........................................ $558,137 $402,090
-------- --------
Operating expenses:
Salaries & related........................................ 308,638 241,430
Office & general.......................................... 127,883 98,649
Marketing & promotion..................................... 67,702 29,564
Merger & integration...................................... 22,323 11,454
Restructuring............................................. -- 2,789
Amortization of intangibles............................... 7,540 6,167
-------- --------
Total operating expenses................................ 534,086 390,053
-------- --------
Operating income............................................ 24,051 12,037
-------- --------
Other income (expense):
Interest income (expense), net............................ 7,290 (6,226)
Other, net................................................ (582) (1,511)
-------- --------
6,708 (7,737)
-------- --------
Income before provision for income taxes, minority interests
and equity in losses of affiliates........................ 30,759 4,300
Provision for income taxes.................................. 19,528 1,488
-------- --------
Income before minority interests and equity in losses of
affiliates................................................ 11,231 2,812
Minority interests.......................................... (324) 107
Equity in losses of affiliates.............................. -- (200)
-------- --------
Net income applicable to common and Class B common
stockholders.............................................. $ 11,555 $ 2,505
======== ========
Net income per common and Class B common share:
Basic..................................................... $ 0.12 $ 0.03
======== ========
Diluted................................................... $ 0.11 $ 0.03
======== ========
Weighted average shares outstanding:
Basic..................................................... 94,048 83,380
======== ========
Diluted................................................... 101,078 87,318
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-5
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Net income.................................................. $ 11,555 $2,505
Foreign currency translation adjustment..................... (37,937) 579
-------- ------
Comprehensive income (loss)................................. $(26,382) $3,084
======== ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-6
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK, COMMON STOCK,
$.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...... 1,332,397 1 -- -- 19,781 -- -- 19,782
Tax benefit from the
exercise of stock
options.................. -- -- -- -- 7,828 -- -- 7,828
Issuance of common stock in
connection with
acquisitions............. 428,864 1 -- -- 26,000 -- -- 26,001
Issuance of common stock
for matching contribution
to 401(k) plan........... 14,399 -- -- -- 1,023 -- -- 1,023
Issuance of common stock
for employee stay
bonuses.................. 22,702 -- -- -- 553 -- -- 553
Other issuance of common
stock of pooled
entities................. 46,874 -- -- -- 627 -- -- 627
Foreign currency
translation adjustment... -- -- -- -- -- (37,937) -- (37,937)
Pooled company earnings
included in both current
and previous periods..... -- -- -- -- -- -- (285) (285)
Dividends declared by
pooled companies......... -- -- -- -- -- -- (4,515) (4,515)
Net income................. -- -- -- -- -- -- 11,555 11,555
---------- --- --------- --- ---------- -------- -------- --------
Balance, June 30, 2000..... 91,204,907 $91 4,762,000 $ 5 $1,017,899 $(42,836) $(38,502) $936,657
========== === ========= === ========== ======== ======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-7
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 11,555 $ 2,505
--------- ---------
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization........................... 28,498 20,904
Provision for doubtful accounts......................... 13,800 2,695
Common stock issued for matching contribution to 401(k)
plan and employee stay bonuses........................ 1,576 902
(Gain) loss on disposal & write-down of fixed assets.... -- 2,801
Provision for deferred income taxes..................... 4,955 (2,277)
Minority interests and other............................ -- 4,372
Effect of pooled companies included in more than one
period................................................ (285) 1,465
Changes in assets and liabilities, net of effects of
purchases of businesses:
Increase in accounts receivable, net.................. (85,772) (35,438)
(Increase) decrease in work-in-process, prepaid and
other............................................... 7,228 (2,608)
Increase in deferred commissions and fees............. 31,335 12,522
Decrease in accounts payable and accrued
liabilities......................................... (21,133) 4,732
--------- ---------
Total adjustments....................................... (19,798) 10,070
--------- ---------
Net cash provided by (used in) operating activities... (8,243) 12,575
--------- ---------
Cash flows from investing activities:
Capital expenditures.................................... (32,410) (17,990)
Payments for purchases of businesses, net of cash
acquired.............................................. (33,372) (18,835)
--------- ---------
Net cash used in investing activities................. (65,782) (36,825)
--------- ---------
Cash flows from financing activities:
Borrowings under line of credit and proceeds from
issuance of debt...................................... 137,083 599,888
Repayments under line of credit and principal payments
on debt............................................... (223,015) (590,171)
Net proceeds from issuance of common stock.............. 594,238 --
Cash received from the exercise of employee stock
options............................................... 19,782 7,163
Other................................................... (59) (241)
Dividends paid by pooled entities....................... (4,515) (5,100)
Payments on capitalized leases.......................... (2,140) (2,466)
--------- ---------
Net cash provided by financing activities............. 521,374 9,073
--------- ---------
Effect of exchange rate changes on cash..................... (503) 294
--------- ---------
Net increase (decrease) in cash and cash equivalents........ 446,846 (14,883)
Cash and cash equivalents, beginning of period.............. 64,599 79,868
--------- ---------
Cash and cash equivalents, end of period.................... $ 511,445 $ 64,985
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-8
<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
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," collectively, with the
First Quarter 2000 Mergers, the "First Half 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 condensed statements have been retroactively
restated for the six months ended June 30, 1999 to reflect the First Half 2000
Mergers. As a result, the financial position, and
F-9
<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)
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 condensed statements 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 when each of the
related companies had issued their shares and for the amounts that reflect the
exchange ratios of the mergers.
In addition, for the period July 1, 1999 through June 30, 2000 the Company
completed 20 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>
SIX MONTHS ENDED
JUNE 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Temporary Contracting revenue........................... $241,131 $226,753
Temporary Contracting costs............................. 187,738 181,910
-------- --------
Temporary Contracting, billings and commissions and
fees.................................................. $ 53,393 $ 44,843
======== ========
</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.
A reconciliation of shares used in calculating basic and diluted earnings
per common and Class B common share follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Basic..................................................... 94,048 83,380
Effect of assumed conversion of options................... 7,030 3,938
------- -------
Diluted................................................... 101,078 87,318
======= =======
</TABLE>
F-10
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
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. 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).
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 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 per common and Class B common share of the
combining companies are as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
1999
-----------
<S> <C>
COMMISSIONS AND FEES:
TMP, as previously reported on Form 10-K for the year ended
December 31, 1999........................................... $355,150
HW Group, PLC............................................. 21,303
Microsurf, Inc. .......................................... 2,208
Burlington Wells, Inc..................................... 821
Illsley Bourbonnais....................................... 2,730
System One Services, Inc.................................. 14,558
GTR Advertising........................................... 1,561
Virtual Relocation.com, Inc............................... 501
Business Technologies Ltd................................. 394
Simpatix, Inc............................................. (7)
Rollo Associates, Inc..................................... 1,605
Web Technology Partners, Inc.............................. 1,266
--------
TMP, as restated............................................ $402,090
========
NET INCOME APPLICABLE TO COMMON AND CLASS B COMMON
STOCKHOLDERS:
TMP, as previously reported on Form 10-K for the year ended
December 31, 1999........................................... $ 930
HW Group, PLC............................................. 205
Microsurf, Inc. .......................................... 828
Burlington Wells, Inc..................................... 265
Illsley Bourbonnais....................................... 1,372
System One Services, Inc.................................. (920)
GTR Advertising........................................... 374
Virtual Relocation.com, Inc............................... (884)
Business Technologies Ltd................................. 56
Simpatix, Inc............................................. (241)
Rollo Associates, Inc..................................... 594
Web Technology Partners, Inc.............................. (74)
--------
TMP, as restated............................................ $ 2,505
========
</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 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
June 30, 2000, the Company expensed merger and integration costs of $22,323. Of
this amount $13,062 is for merger costs and $9,261 is for integration costs. The
merger costs for the period ended June 30, 2000 consist of (a) $3,548 for
payments made in connection with the repayment of debt of a pooled company
pursuant to change in control provision of such debt, (b) $4,634 of non-cash
employee stay bonuses and (c) $4,880 of transaction related costs, including
legal, accounting, printing and advisory fees and the costs incurred for the
subsequent registration of shares issued in the mergers. The $9,261 of
integration costs consist of: (a) $4,424 for assumed obligations of closed
facilities, (b) $5,010 for consolidation of acquired facilities and (c) $488 for
severance, relocation and other employee costs, partially offset by a $661
recovery of a reserve for receivables. See schedule of Accrued Integration and
Restructuring Costs in the section below.
During the six months ended June 30, 1999, the Company expensed merger and
integration costs of $11,454 which were comprised of $5,449 of transaction
costs, $2,280 for the amortization of employee stay bonuses payable in TMP
common stock, $2,100 in separation costs for the Chief Operating Officer of an
acquired company and $1,625 for integration costs.
ACQUISITIONS ACCOUNTED FOR USING THE PURCHASE METHOD
In addition to the pooling of interests transactions discussed above, in the
six month period ended June 30, 2000, the Company completed nine acquisitions
using the purchase method of accounting, five Selection & Temporary Contracting
firms, two Recruitment Advertising firms and two Interactive firms for
MonsterMoving.com-SM- business. The total amount of cash paid for these
acquisitions was approximately $36.1 million. In addition, the Company issued
352,575 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 six month periods ended June 30, 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>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------------- ------------
2000 1999 1999
-------- -------- ------------
<S> <C> <C> <C>
Commissions and fees........................................ $563,462 $434,907 $923,183
Net income (loss) applicable to common and Class B common
stockholders.............................................. $ 10,816 $ 2,970 $ (9,068)
Net income (loss) per common and Class B common share:
Basic..................................................... $ 0.11 $ 0.04 $ (0.11)
Diluted................................................... $ 0.11 $ 0.03 $ (0.11)
</TABLE>
F-13
<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)
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 six months ended June 30, 2000, the
Company (i) expensed, as part of merger and integration expenses, $9,261, for
companies acquired in transactions accounted for as poolings of interests and
(ii) increased goodwill by $2,516 for companies acquired in transactions
accounted for under the purchase method.
These costs and liabilities include:
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
BALANCE --------------------- -------------------------- BALANCE
DECEMBER 31, CHARGED TO APPLIED AGAINST JUNE 30,
1999 GOODWILL EXPENSED RELATED ASSET PAYMENTS 2000
------------ ---------- -------- --------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Assumed obligations on closed
leased facilities................ $ 9,564 $ 327 $4,424 $ -- $ (3,189) $11,126(a)
Consolidation of acquired
facilities....................... 8,715 243 5,010 -- (6,007) 7,961(b)
Contracted lease payments exceeding
current market costs............. 562 -- -- -- (70) 492(c)
Severance, relocation and other
employee costs................... 954 1,586 488 -- (2,415) 613(d)
Provision for uncollectible
receivables...................... -- -- (661) 661 --
Pension obligations................ 1,658 -- -- -- 1,658(e)
------- ------ ------ ---- -------- -------
Total.............................. $21,453 $2,156 $9,261 $661 $(11,681) $21,850
======= ====== ====== ==== ======== =======
</TABLE>
------------------------
(a) Accrued liabilities for surplus property in the amount of $11,126 as of
June 30, 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 $7,961 as of June 30, 2000 relate to
termination costs of contracts relating to billing systems, external
reporting systems and other contractual arrangements with third parties.
F-14
<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)
(c) Above market lease costs in the amount of $492 as of June 30, 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 $613 as of June 30, 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 June 30, 2000,
the accrual related to approximately 50 employees, senior management, sales,
service and administrative personnel. During the six-months ended June 30,
2000, payments of $2,415 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 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 six month
periods ended June 30, 2000 and 1999. Overhead is allocated based on
retroactively restated commissions and fees.
<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>
Six months ended
June 30, 2000
Commissions and fees:
Traditional sources........... $ -- $ -- $ 95,553 165,821 87,352 46,381
Interactive................... 134,966 4,158 12,717 6,179 -- 5,010
-------- ------- -------- -------- ------- -------
Total commissions and fees.... 134,966 4,158 108,270 172,000 87,352 51,391
-------- ------- -------- -------- ------- -------
Operating expenses:
Salaries & related, office &
general, marketing &
promotion, and overhead..... -- -- 83,945 160,969 79,915 37,419
Interactive (a)............... 111,718 10,002 11,064 5,022 -- 4,169
Merger & integration.......... 122 787 1,133 13,763 5,654 864
Amortization of intangibles... 164 56 3,376 1,389 388 2,167
-------- ------- -------- -------- ------- -------
Total operating expenses........ 112,004 10,845 99,518 181,143 85,957 44,619
-------- ------- -------- -------- ------- -------
Operating income (loss):
Traditional sources........... -- -- 7,099 (10,300) 1,395 5,931
Interactive................... 22,962 (6,687) 1,653 1,157 -- 841
-------- ------- -------- -------- ------- -------
Total operating income (loss)... $ 22,962 $(6,687) $ 8,752 (9,143) 1,395 6,772
======== ======= ======== ======== ======= =======
Total other income, net......... * * * * * *
Income before provision for
income taxes, minority
interests and equity in losses
of affiliates................. * * * * * *
<CAPTION>
INFORMATION BY BUSINESS SEGMENT TOTAL
------------------------------- --------
<S> <C>
Six months ended
June 30, 2000
Commissions and fees:
Traditional sources........... 395,107
Interactive................... 163,030
--------
Total commissions and fees.... 558,137
--------
Operating expenses:
Salaries & related, office &
general, marketing &
promotion, and overhead..... 362,248
Interactive (a)............... 141,975
Merger & integration.......... 22,323
Amortization of intangibles... 7,540
--------
Total operating expenses........ 534,086
--------
Operating income (loss):
Traditional sources........... 4,125
Interactive................... 19,926
--------
Total operating income (loss)... 24,051
Total other income, net......... 6,708
--------
Income before provision for
income taxes, minority
interests and equity in losses
of affiliates................. $ 30,759
========
</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 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 & 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>
Six months ended
June 30, 1999
Commissions and fees:
Traditional sources.......... $ -- $ -- $93,527 $122,707 $ 84,199 $50,982
Interactive.................. 37,632 2,709 5,647 3,035 -- 1,652
------- ------ ------- -------- -------- -------
Total commissions and fees..... 37,632 2,709 99,174 125,742 84,199 52,634
------- ------ ------- -------- -------- -------
Operating expenses:
Salaries & related, office &
general, marketing &
promotion, and overhead.... -- -- 80,750 109,126 89,144 32,286
Interactive (a).............. 37,914 2,818 4,858 2,460 8,823 1,464
Merger & integration......... -- -- 198 4,787 6,439 30
Restructuring................ -- -- -- -- 2,789 --
Amortization of
intangibles................ 121 6 3,235 1,029 470 1,306
------- ------ ------- -------- -------- -------
Total operating expenses....... 38,035 2,824 89,041 117,402 107,665 35,086
------- ------ ------- -------- -------- -------
Operating income (loss):
Traditional sources.......... -- -- 9,344 7,765 (14,643) 17,360
Interactive.................. (403) (115) 789 575 (8,823) 188
------- ------ ------- -------- -------- -------
Total operating income
(loss)....................... $ (403) $ (115) $10,133 $ 8,340 $(23,466) $17,548
======= ====== ======= ======== ======== =======
Total other expense, net....... * * * * * *
Income before provision for
income taxes, minority
interests and equity in
losses of affiliates......... * * * * * *
<CAPTION>
INFORMATION BY BUSINESS SEGMENT TOTAL
------------------------------- --------
<S> <C>
Six months ended
June 30, 1999
Commissions and fees:
Traditional sources.......... $351,415
Interactive.................. 50,675
--------
Total commissions and fees..... 402,090
--------
Operating expenses:
Salaries & related, office &
general, marketing &
promotion, and overhead.... 311,306
Interactive (a).............. 58,337
Merger & integration......... 11,454
Restructuring................ 2,789
Amortization of
intangibles................ 6,167
--------
Total operating expenses....... 390,053
--------
Operating income (loss):
Traditional sources.......... 19,826
Interactive.................. (7,789)
--------
Total operating income
(loss)....................... 12,037
Total other expense, net....... (7,737)
--------
Income before provision for
income taxes, minority
interests and equity in
losses of affiliates......... $ 4,300
========
</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 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>
SIX MONTHS ENDED JUNE 30, 2000
Commissions and fees......................... $325,174 $90,812 $75,309 $66,842 $558,137
Income (loss) before income taxes, minority
interests and equity in losses of
affiliates................................. $ 24,605 $ 8,804 $(8,921) $ 6,271 $ 30,759
SIX MONTHS ENDED JUNE 30, 1999
Commissions and fees......................... $218,392 $77,829 $64,056 $41,813 $402,090
Income (loss) before income taxes, minority
interests and equity in losses of
affiliates................................. $(12,542) $ 9,248 $ 256 $ 7,338 $ 4,300
</TABLE>
F-18
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of TMP
Worldwide Inc. and Subsidiaries (the "Company") as of December 31, 1999 and
1998, and the related 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. 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.
In our opinion, based on our audits and the reports of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of TMP Worldwide Inc. and Subsidiaries
as of December 31, 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, in
conformity with generally accepted accounting principles.
/s/ BDO SEIDMAN, LLP
---------------------------------------------------------------------------
BDO SEIDMAN, LLP
New York, New York
June 26, 2000
F-19
<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-20
<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-21
<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
Tampa, Florida
February 4, 2000
F-22
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
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 consolidated financial statements.
F-23
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(IN THOUSANDS, EXCEPT 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 consolidated financial statements.
F-24
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
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 consolidated financial statements.
F-25
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
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 consolidated financial statements.
F-26
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
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 earnings,
excluded from statement of
operations.................... -- -- -- -- -- -- --
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 earnings,
excluded from statement of
operations.................... 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 consolidated financial statements.
F-27
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
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 consolidated financial statements.
F-28
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
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 consolidated financial statements.
F-29
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION
TMP Worldwide Inc. ("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-30
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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-31
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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 the consolidated balance sheets, the balance sheets of TMP as of
June 30, 2000 and December 31, 1999 and 1998 have been combined with those of
the First Half 2000 Mergers, all as of June 30, 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, 1999 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 consolidated statements of income (loss)
combine the results of TMP for the six months ended June 30, 1999 and each year
in the three year period ended December 31, 1999 with those of the First Half
2000 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 consolidated statements of income (loss) for
the year ended December 31, 1999 and in the consolidated condensed statement of
income (loss) for the six months ended June 30, 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 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 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 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 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.
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.
F-32
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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).
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).
F-33
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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.
F-34
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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."
F-35
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
F-36
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
POSTRETIREMENT BENEFITS
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postetirement 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 Securities and Exchange Commission 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-37
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 3--ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
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-38
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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-39
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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-40
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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-41
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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-42
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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-43
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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-44
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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-45
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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-46
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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-47
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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-48
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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>
$0.60 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-49
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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-50
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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-51
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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-52
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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-53
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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-54
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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-55
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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 Page 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-56
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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...... * * * * * *
Income 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)
----------
Income 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-57
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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-58
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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-59
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO 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 (loss) 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-60
<PAGE>
INDEPENDENT AUDITORS' REPORT
BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH
SINDELFINGEN, GERMANY
We have audited the accompanying balance sheet of Baumgartner + Partner
Personalberatung GmbH as of December 31, 1999 and the related statements of
income, comprehensive income (loss), stockholders' equity and cash flows for the
year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America and Germany. 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
audit provides 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 Baumgartner + Partner
Personalberatung GmbH as of December 31, 1999, and the results of its operations
and its cash flows for the year then ended, in conformity with generally
accepted accounting principles of the United States of America.
Frankfurt am Main, Germany, June 20, 2000
BDO International GmbH
Wirtschaftsprufungsgesellschaft
/s/ Klaus-Juergen Rudolph/Michael Follner
F-61
<PAGE>
BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH
SINDELFINGEN
BALANCE SHEET
DECEMBER 31, 1999
US DOLLARS
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. 4,952
Trade accounts receivable, net of allowance for doubtful
accounts USD 96,021..................................... 2,282,856
Receivable from parent.................................... 292,461
Work in progress.......................................... 678,523
Prepaid expenses and other current assets................. 324,823
---------
TOTAL CURRENT ASSETS.................................. 3,583,615
---------
NON-CURRENT ASSETS
Cash surrender value of life insurances................... 429,054
Property and equipment, net............................... 411,718
---------
TOTAL NON-CURRENT ASSETS.............................. 840,772
---------
TOTAL ASSETS........................................ 4,424,387
---------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... 401,703
Accrued expenses.......................................... 2,549,657
Payables to affiliated company............................ 887,031
Payroll tax............................................... 200,610
Customers deposits........................................ 117,069
Other current liabilities................................. 29,422
---------
TOTAL CURRENT LIABILITIES............................. 4,185,492
---------
NON CURRENT LIABILITIES
Deferred compensation..................................... 161,543
---------
STOCKHOLDER'S EQUITY
Common stock.............................................. 87,771
Accumulated other comprehensive (loss).................... (10,419)
---------
TOTAL EQUITY.......................................... 77,352
---------
TOTAL LIABILITIES AND EQUITY........................ 4,424,387
=========
</TABLE>
See accompanying notes to financial statements.
F-62
<PAGE>
BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH
SINDELFINGEN
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1999
US DOLLARS
<TABLE>
<S> <C>
COMMISSIONS AND FEES........................................ 14,662,488
----------
Salary and related.......................................... 9,073,046
Office and general.......................................... 2,203,195
Marketing and promotion..................................... 611,692
----------
OPERATING EXPENSES.......................................... 11,887,933
----------
OPERATING INCOME............................................ 2,774,555
Other income, net........................................... 286,867
----------
INCOME BEFORE INTEREST AND TAXES............................ 3,061,422
Interest income (expense), net.............................. 1,575
----------
INCOME BEFORE TAXES......................................... 3,062,997
Income taxes................................................ 510,645
----------
NET INCOME BEFORE PROFIT TRANSFER........................... 2,552,352
Profit transfer to parent................................... 2,552,352
----------
NET INCOME TRANSFERRED TO RESERVES.......................... --
==========
</TABLE>
See accompanying notes to financial statements.
F-63
<PAGE>
BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH
SINDELFINGEN
STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1999
US DOLLARS
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMMON COMPREHENSIVE
TOTAL STOCK INCOME (LOSS)
-------- -------- -----------------
<S> <C> <C> <C>
Balances at January 1, 1999................................ 89,660 87,771 1,889
Foreign currency translation adjustment.................... (12,308) -- (12,308)
------- ------ -------
Balances at December 31, 1999.............................. 77,352 87,771 (10,419)
======= ====== =======
</TABLE>
See accompanying notes to financial statements.
F-64
<PAGE>
BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH
SINDELFINGEN
STATEMENT OF COMPREHENSIVE INCOME (LOSS)
YEAR ENDED DECEMBER 31, 1999
US DOLLARS
<TABLE>
<S> <C>
Net income before profit transfer........................... 2,552,352
Foreign currency translation adjustment..................... (12,308)
---------
Comprehensive income before profit transfer................. 2,540,044
Profit transfer to parent................................... 2,552,352
---------
(12,308)
=========
</TABLE>
See accompanying notes to financial statements.
F-65
<PAGE>
BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH
SINDELFINGEN
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
US DOLLARS
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income before profit transfer........................... 2,552,352
Adjustments to reconcile net income with net cash provided
by operating activities:
Depreciation and amortization............................. 169,567
Gain on sale of assets.................................... (87)
Changes in assets and liabilities:
Trade receivables....................................... (191,252)
Work in progress........................................ (148,759)
Prepaid expenses and other current assets............... 39,314
Accounts payable and payables to affiliated companies... (1,820,826)
Deferred compensation................................... 32,128
Accrued expenses, payroll taxes, customer deposits and
other current liabilities............................. (463,221)
----------
NET CASH PROVIDED BY OPERATING ACTIVITIES............... 169,216
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of equipment....................... 94
Acquisitions of property and equipment.................... (183,451)
Increase of cash surrender values of life insurance....... (95,829)
----------
NET CASH USED IN INVESTING ACTIVITIES................... (279,186)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in receivables from shareholders................. 2,610,764
Profit transfer to parent................................. (2,552,352)
----------
NET CASH PROVIDED BY FINANCING ACTIVITIES............... 58,412
----------
NET DECREASE IN CASH AND CASH EQUIVALENTS............... (51,558)
Effect of exchange rate changes on cash................... 51,851
Cash and cash equivalents at beginning of year............ 4,659
----------
Cash and cash equivalents at end of year.................. 4,952
==========
Supplementary cash flow information:
Interest paid............................................. 912
==========
Taxes paid................................................ 9,164
==========
</TABLE>
See accompanying notes to financial statements.
F-66
<PAGE>
BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH
SINDELFINGEN
NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999
THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) THE COMPANY
The financial statements include Baumgartner + Partner Personalberatung GmbH
("the Company"), Sindelfingen. The Company is active in executive search,
personnel consulting and media services primarily in Germany.
B) AUDIT SCOPE
The Company prepares its statutory financial statements in accordance with
German Commercial Code and German Limited Liability Companies Act (Gesetz
betreffend die Gesellschaften mit beschrankter Haftung) which are the basis of
generally accepted accounting principles ("GAAP") in Germany. GAAP in Germany
varies in certain significant respects from those in the United States.
Financial statements in accordance with US-GAAP have been prepared after
examining potential differences between German-GAAP and US-GAAP. The principal
difference between German-GAAP and US-GAAP for the Company relates to revenue
recognition and the related income tax effect which results in an increase in
net income before profit transfer of approximately USD 155,313.
C) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The financial statements of the Company have been
prepared in accordance with US-GAAP.
USE OF ESTIMATES: The preparation of the financial statements requires the
Company's management to make estimates and assumptions regarding the amounts of
receivables, liabilities and provisions and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
sales and expenses during the reported period. Actual results may differ from
those estimates.
REVENUE RECOGNITION AND WORK IN PROGRESS: The Company's revenues are
derived principally from services rendered to clients for search and selection
of employees. Revenues are recognized in general in three stages: The first
portion (between 25% and 40%) of the agreed total is invoiced at the time of
contract signing, the second portion (between 25% and 40%) approximately ten
weeks later and the remainder upon completion of the project, which approximates
when services are rendered. Work-in-progress is estimated at the lower of
production costs and net realizable value. Work-in-progress shows the difference
between production costs incurred and revenues already recognized for each
project. The production costs are estimated for every single project based on
the selling price of the project without considering costs that cannot be
capitalized, such as selling expenses.
CASH AND CASH EQUIVALENTS: All highly liquid investments with an original
maturity of three months or less are considered to be cash equivalents.
TRADE ACCOUNTS RECEIVABLES: Trade accounts receivables are shown in the
balance sheet with their net realizable value after the respective revenues have
been recognized, net of provisions of USD 96,021.
PROPERTY AND EQUIPMENT: Property and equipment is valued at acquisition
cost and depreciated over their estimated useful lives ranging from 3 to
8 years using the straight line method.
F-67
<PAGE>
BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH
SINDELFINGEN
NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999
(CONTINUED)
LONG-LIVED ASSETS: Long-lived assets, such as 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 those assets. When any
such impairment exists, the related assets will be written down to fair value.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS: The Company has presented
its financial statements in US-Dollars. The financial position and results of
operations are determined using local currency as functional currency. Assets
and liabilities are translated at the exchange rate in effect at 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 equity. Gains and losses resulting from foreign
currency transactions are included in other income (expense).
CREDIT RISK: Financial instruments, which potentially subject the Company
to concentrations of credit risk are primarily accounts receivable. The Company
performs continuing evaluations of its customers and does not require
collateral. 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
balance sheet for cash and cash equivalents, accounts receivable and accounts
payable approximate fair value because of the immediate or short-term maturity
of those financial instruments.
COMPREHENSIVE INCOME (LOSS): Comprehensive income (loss) is defined to
include all changes in equity except those resulting from investments by owners
and distributions to owners. The Company's only item of other comprehensive
income (loss) is the foreign currency translation adjustment.
CAPITALIZED SOFTWARE COSTS: The Company capitalizes certain incurred
software development costs in accordance with the American Institute of
Certified Public Accountants ("AICPA") Statement of Position No. 98-1,
"Accounting for the Cost of Computer Software Developed or Obtained for Internal
Use". 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 the vendor for the Company's proprietary use have been
capitalized. Capitalized software costs are amortized over a period of 4 years.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1998, the Financial
Accounting Standards Board issued the Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivatives and Hedging Activities",
which establishes accounting and reporting standards for derivative financial
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging activities.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. The Company does not expect the adoption of this statement
to have significant impact on the Company's results of operations or financial
position.
ADVERTISING COSTS: Advertising costs are expensed as incurred. Such costs
are included in selling, general and administrative expenses.
F-68
<PAGE>
BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH
SINDELFINGEN
NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999
(CONTINUED)
PROPERTY AND EQUIPMENT
Property and Equipment consist of the following at December 31, 1999:
<TABLE>
<CAPTION>
US DOLLARS
----------
<S> <C>
Property and Equipment
Software, acquired from others............................ 66,300
Technical equipment....................................... 104,087
Office equipment.......................................... 765,416
-------
935,803
Less accumulated depreciation............................. 524,085
-------
411,718
=======
</TABLE>
ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 1999:
<TABLE>
<CAPTION>
US DOLLARS
----------
<S> <C>
Employee bonuses............................................ 1,518,115
Directors' bonus............................................ 704,402
Vacation.................................................... 111,952
Other....................................................... 215,188
---------
2,549,657
=========
</TABLE>
NON-CURRENT LIABILITIES
Non-current liabilities comprise deferred compensation of employees based on
individual deferred compensation agreements. The accrual for the deferred
compensation is based on the German "Teilwert" method which does not materially
differ from US-GAAP.
RELATED PARTY TRANSACTIONS
The following transactions with the related parties of
Baumgartner + Partner Personalsberatung GmbH have been reflected in the
financial statements for the year ended December 31, 1999:
<TABLE>
<CAPTION>
US DOLLARS
----------
<S> <C>
Profit transfer to parent................................... 2,552,352
Charge for trade income tax................................. 510,645
Receivable from parent...................................... 292,461
Payables to affiliated company.............................. 887,031
</TABLE>
Profit transfer to parent arises from the profit and loss pooling agreement
between the Company and its parent, Karl Baumgartner + Partner Consulting
GmbH & Co. KG.
The charge for trade income tax arises because the parent company pays the
trade income tax on the earnings of the Company and charges it back to the
Company.
F-69
<PAGE>
BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH
SINDELFINGEN
NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999
(CONTINUED)
Receivable from shareholder is from Karl Baumgartner + Partner Consulting
GmbH & Co KG for services of cash management, profit distribution, trade tax
recharge and VAT payments.
Payable to affiliated company is between Baumgartner + Partner
Unternehmensberatung GmbH and the Company for charges of rent, recharged
salaries and others.
INCOME TAXES
The income of the Company is transferred by a profit and loss pooling
agreement contract ("Ergebnisabfuhrungsvertrag") to its shareholder Karl
Baumgartner + Partner Consulting GmbH & Co. KG. Between the Company and its
shareholder exists a fiscal unity ("Organschaft") for trade-tax and
corporation-tax. Therefore, only the shareholder has to pay taxes on the
consolidated income. The shareholder recharges to the Company the trade tax that
would have to be paid on the income of the Company.
The shareholder is a limited partnership and has therefore only to pay the
trade income tax. The partners of the parent company will have to pay income tax
on their individual part of the income after trade income tax of the
partnership. These individual income tax payments are not shown in the financial
statements of the partnership.
COMMITMENTS AND CONTINGENCIES
OPERATING LEASES:
In 1999 the Company recorded lease expenses for company cars of USD 302,834
and expenses for the leasing of office equipment of USD 70,845.
The leasing commitments at December 31, 1999 are as follows (in US-Dollars):
<TABLE>
<CAPTION>
2000 2001 2002 TOTAL
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Office space lease..................................... 618,195 618,195 528,984 1,765,374
Other lease contracts.................................. 253,759 253,759 253,759 761,277
</TABLE>
SUBSEQUENT EVENT
All of the shares in Karl Baumgartner + Partner Consulting GmbH & Co.
KG--the shareholder of the Company--have been transferred from the former owners
to TMP Worldwide Inc. ("TMP") on February 10, 2000 in exchange for approximately
$10 million in cash and 169,764 shares of unregistered TMP common stock.
In connection with the transfer of shares to TMP the Company had to pay an
additional compensation of USD 386,760 to an employee of Baumgartner terminated
as a result of the acquisition. The Company did not accrue for this payment in
the financial statements as at December 31, 1999.
F-70
<PAGE>
QD GROUP LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED 30 JUNE 2000 AND 30 JUNE 1999
<TABLE>
<CAPTION>
2000 2000
CONTINUING DISCONTINUED
NOTES BUSINESSES BUSINESSES 2000 1999
-------- ---------- ------------ -------- --------
L'000'S L'000'S L'000'S L'000'S
<S> <C> <C> <C> <C> <C>
TURNOVER........................................ 2 10,752 9 10,761 7,361
Cost of sales................................... (2,172) (64) (2,236) (1,878)
------ --- ------ ------
GROSS PROFIT/(LOSS)............................. 8,580 (55) 8,525 5,483
Net operating expenses.......................... (6,747) (15) (6,762) (5,020)
------ --- ------ ------
OPERATING PROFIT/(LOSS)......................... 1,833 (70) 1,763 463
------ ------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION... 1,763 463
Tax on profit on ordinary activities............ 3 (529) (180)
------ ------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION.... 1,234 283
====== ======
</TABLE>
The attached notes to the financial statements form an integral part of these
financial statements.
F-71
<PAGE>
QD GROUP LIMITED
CONSOLIDATED BALANCE SHEET
AS AT 30 JUNE 2000 AND 30 JUNE 1999
<TABLE>
<CAPTION>
NOTES 2000 1999
--------- -------- --------
L'000'S L'000'S
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets............................................. 4 917 822
Investments................................................. 5 936 900
----- -----
1,853 1,722
----- -----
CURRENT ASSETS
Debtors..................................................... 4,545 3,862
Cash at bank and in hand.................................... 2,196 1,608
----- -----
6,741 5,470
Creditors................................................... 3,277 3,392
----- -----
NET ASSETS.................................................. 5,317 3,800
===== =====
CAPITAL AND RESERVES
Called-up share capital..................................... 50 50
Share premium account....................................... 31 31
Capital redemption reserve.................................. 1 1
Profit and loss account..................................... 5,235 3,714
----- -----
EQUITY SHAREHOLDERS' FUNDS.................................. 5,317 3,796
Minority interests--equity.................................. -- 4
----- -----
TOTAL CAPITAL AND RESERVES.................................. 5,317 3,800
===== =====
</TABLE>
The attached notes to the financial statements form an integral part of these
financial statements.
F-72
<PAGE>
QD GROUP LIMITED
CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2000 AND 30 JUNE 1999
<TABLE>
<CAPTION>
2000 1999
NOTES L'000'S L'000'S
-------- -------- --------
<S> <C> <C> <C>
NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES......... 6 1,146 (363)
----- ----
TAXATION
UK corporation tax paid..................................... (118) (110)
----- ----
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENTS
Purchase of tangible fixed assets........................... (200) (115)
Sale of tangible fixed assets............................... 14 6
----- ----
FINANCING................................................... (186) (109)
Repayment of loan........................................... (24) (24)
Capital element of finance lease repayments................. (82) (82)
----- ----
(106) (106)
----- ----
INCREASE/(DECREASE) IN CASH IN THE PERIOD................... 736 (688)
===== ====
</TABLE>
The attached notes to the financial statements form an integral part of these
financial statements.
F-73
<PAGE>
QD GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
1 BASIS OF PRESENTATION
The consolidated condensed interim financial statements included herein have
been prepared according to accounting principles generally accepted in the
United Kingdom (UK GAAP). These principles differ in certain respects from those
generally accepted in the United States (US GAAP). The significant areas of
difference are shown in note 7.
The financial statements have been prepared without audit, pursuant to the
rules and regulations of the US 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 Group
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 Group's annual report for
the year ended September 30, 1999. The Group follows the same accounting
policies in preparation of interim reports.
2 ANALYSIS BY GEOGRAPHICAL AREA/BUSINESS SEGMENT
Turnover is generated wholly from the group's principal activities.
The analysis of the group's turnover by destination and origin is set out
below:
<TABLE>
<CAPTION>
2000 1999
L'000'S L'000'S
-------- --------
<S> <C> <C>
TURNOVER
United Kingdom.............................................. 9,218 6,957
Europe...................................................... 557 122
Far East.................................................... 898 136
Rest of the World........................................... 88 146
------ -----
10,761 7,361
====== =====
</TABLE>
The analysis of the group's turnover by business segment is set out below:
<TABLE>
<CAPTION>
2000 1999
L'000'S L'000'S
-------- --------
<S> <C> <C>
TURNOVER
Recruitment................................................. 10,176 6,432
Business services........................................... 576 355
Discontinued businesses..................................... 9 574
------ -----
10,761 7,361
====== =====
</TABLE>
F-74
<PAGE>
QD GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3 TAXATION
<TABLE>
<CAPTION>
2000 1999
L'000'S L'000'S
-------- --------
<S> <C> <C>
UK corporation tax
Current @ 30% (1999:30.5%).................................. 529 180
=== ===
</TABLE>
4 TANGIBLE FIXED ASSETS
The net book values as at 30 June 2000 are summarised below:
<TABLE>
<CAPTION>
L'000'S
--------
<S> <C>
Computers................................................... 520
Motor vehicles.............................................. 37
Fixtures, fittings and equipment............................ 360
---
TOTAL NET BOOK VALUE AT 30 JUNE 2000........................ 917
===
</TABLE>
5 FIXED ASSET INVESTMENTS
<TABLE>
<CAPTION>
ESOT INVESTMENT
IN OWN ORDINARY
SHARES
L'000'S
---------------
<S> <C>
At 30 June 2000............................................. 936
===
</TABLE>
6 RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW/(OUTFLOW) FROM OPERATING
ACTIVITIES
<TABLE>
<CAPTION>
2000 1999
L'000'S L'000'S
-------- --------
<S> <C> <C>
Operating profit............................................ 1,763 463
Depreciation................................................ 210 180
Profit on sale of tangible fixed assets..................... (7) (14)
Increase in debtors......................................... (817) (1,507)
(Decrease)/increase in creditors............................ (3) 515
----- ------
Net cash inflow/(outflow) from operating activities......... 1,146 (363)
===== ======
</TABLE>
7 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The consolidated financial statements are prepared in conformity with
generally accepted accounting principles in the United Kingdom ("UK GAAP") which
differ in certain respects from those generally
F-75
<PAGE>
QD GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
7 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
accepted in the United States ("US GAAP"). The significant areas of difference
affecting the financial statements of the Group are described below:
RECONCILIATIONS
The following is a summary of the material adjustments to net income and
shareholders' equity which would have been required if US GAAP had been applied
instead of UK GAAP:
<TABLE>
<CAPTION>
2000 1999
NOTE L'000'S L'000'S
-------- -------- --------
<S> <C> <C> <C>
NET INCOME IN ACCORDANCE WITH UK GAAP................. 1,234 283
ADJUSTMENT TO CONFORM WITH US GAAP
Deferred taxation..................................... (b) 20 (35)
----- ------
NET INCOME IN ACCORDANCE WITH US GAAP................. 1,254 248
===== ======
</TABLE>
<TABLE>
<CAPTION>
2000 1999
L'000'S L'000'S
-------- --------
<S> <C> <C> <C>
SHAREHOLDERS' FUNDS IN ACCORDANCE WITH UK GAAP........ 5,317 3,800
ADJUSTMENTS TO CONFORM WITH US GAAP
Reclassification of investment held by ESOT........... (936) (900)
Deferred tax liability................................ (22) (35)
----- -----
Shareholders' funds in accordance with US GAAP........ 4,359 2,865
===== =====
</TABLE>
A) DISCONTINUED OPERATIONS
The effect of discontinued operations on the 1999 results were as follows:
<TABLE>
<CAPTION>
CONTINUING DISCONTINUED
BUSINESSES BUSINESSES TOTAL
L'000'S L'000'S L'000'S
---------- ------------ --------
<S> <C> <C> <C>
TURNOVER...................................... 6,787 574 7,361
Cost of sales................................. (1,459) (419) (1,878)
------ ---- ------
Gross profit.................................. 5,328 155 5,483
Net operating expenses........................ (4,478) (542) (5,020)
------ ---- ------
OPERATING PROFIT.............................. 850 (387) 463
====== ==== ======
</TABLE>
F-76
<PAGE>
QD GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
7 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
Net liabilities of discontinued operations
<TABLE>
<CAPTION>
2000 1999
L'000'S L'000'S
-------- --------
<S> <C> <C>
Fixed assets................................................ -- 28
Debtors..................................................... 32 166
Cash........................................................ 3 66
Creditors................................................... (1,155) (1,005)
------ ------
(1,120) (745)
====== ======
</TABLE>
B) INCOME TAXES
Under UK GAAP, the Group provides for deferred taxation using the partial
liability method on all timing differences to the extent that it is considered
probable that the liabilities will crystallise in the foreseeable future.
Deferred tax assets are recognised to the extent that they are recoverable
without replacement in the foreseeable future.
Under US GAAP, income taxes are accounted for under Statement of Financial
Accounting Standard ("SFAS") No. 109, "Accounting for Income Taxes." In
accordance with SFAS No. 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax basis of
assets and liabilities and are measured using enacted tax rates and laws that
are expected to be in effect when the difference is reversed. The effect on
deferred income tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Income before the provision for taxes consisted of the following:
<TABLE>
<CAPTION>
2000 1999
L'000'S L'000'S
-------- --------
<S> <C> <C>
Domestic.................................................... 1,467 609
Foreign..................................................... 296 (146)
----- ----
INCOME BEFORE INCOME TAXES UNDER US GAAP.................... 1,763 463
===== ====
</TABLE>
C) EMPLOYEE SHARE OWNERSHIP TRUST
Under UK GAAP, shares in the company which are held by the ESOT are shown as
fixed asset investments and the related dividends receivable and gain or loss on
sale of shares are included in operating income. Under US GAAP, the shares held
by the ESOT are shown as treasury shares and the dividends and gains or losses
on sales of shares are not recognised.
F-77
<PAGE>
QD GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
7 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
D) CASH FLOWS
Set out below is a summary consolidated statement of cash flows for the
Group under US GAAP.
<TABLE>
<CAPTION>
2000 1999
L'000'S L'000'S
-------- --------
<S> <C> <C>
Net cash provided by/(used in) operating activities......... 1,028 (473)
Net cash used in investing activities....................... (186) (109)
Net cash used in financing activities....................... (106) (106)
----- -----
NET DECREASE IN CASH UNDER US GAAP.......................... 736 (688)
===== =====
</TABLE>
F-78
<PAGE>
AUDITORS' REPORT
TO THE SHAREHOLDERS OF QD GROUP LIMITED
We have audited the financial statements on pages F-80 to F-101 which have
been prepared under the historical cost convention and accounting policies set
out on pages F-84 and F-85.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The company's directors are responsible for the preparation of the financial
statements in accordance with applicable United Kingdom law and accounting
standards. Our responsibilities, as independent auditors, are established in the
United Kingdom by statute, the Auditing Practices Board and by our profession's
ethical guidance.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
United Kingdom Auditing Practices Board, which are substantially consistent with
generally accepted auditing standards in the United States. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the circumstances of the company and of the group, consistently applied and
adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the
state of affairs of the company and of the group as at 30 September 1998 and
1999 and of the group's profits and cash flows for the two years then ended and
have been properly prepared in accordance with the Companies Act 1985.
Certain accounting practices of the Group used in preparing the accompanying
financial statements conform with generally accepted accounting principles in
the United Kingdom, but do not conform with accounting principles generally
accepted in the United States. A description of these differences and the
adjustments required to conform the financial statements to accounting
principles generally accepted in the United States are set forth in note 26.
Arthur Andersen
Chartered Accountants and Registered Auditors
20 Old Bailey
London
EC4M 7AN
5 April 2000 (except with respect to note 26 which is as of 14 July 2000).
F-79
<PAGE>
QD GROUP LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
<TABLE>
<CAPTION>
1999 1999
CONTINUING DISCONTINUED
NOTES BUSINESSES BUSINESSES 1999 1998
-------- ----------- ------------- ----------- ----------
L L L L
<S> <C> <C> <C> <C> <C>
TURNOVER.......................... 2 13,141,901 1,196,080 14,337,981 11,900,838
Cost of sales..................... (2,428,478) (919,624) (3,348,102) (2,303,809)
---------- --------- ----------- ----------
GROSS PROFIT...................... 10,713,423 276,456 10,989,879 9,597,029
Net operating expenses............ (9,584,757) (936,495) (10,521,252) (8,701,664)
Other income...................... 3 125,219 -- 125,219 60,494
---------- --------- ----------- ----------
OPERATING PROFIT.................. 1,253,885 (660,039) 593,846 955,859
Interest receivable............... 72,458 108,575
Interest payable.................. 7 (11,456) (3,651)
----------- ----------
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION................. 4 654,848 1,060,783
Tax on profit on ordinary
activities...................... 8 (254,262) (328,842)
----------- ----------
PROFIT ON ORDINARY ACTIVITIES
AFTER TAXATION.................. 400,586 731,941
Minority interests................ 19 3,658 5,292
----------- ----------
PROFIT FOR THE FINANCIAL YEAR..... 9 404,244 737,233
Dividends--equity shareholders.... 10 (200,000) (400,000)
----------- ----------
RETAINED PROFIT FOR THE FINANCIAL
YEAR............................ 17 204,244 337,233
=========== ==========
</TABLE>
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
<TABLE>
<S> <C> <C> <C> <C> <C>
PROFIT FOR THE FINANCIAL YEAR........... 404,244 737,233
Loss on currency translation............ (8,873) --
----------- ----------
TOTAL RECOGNISED GAINS AND LOSSES....... 395,371 737,233
=========== ==========
</TABLE>
The attached notes to the accounts form an integral part of these financial
statements.
F-80
<PAGE>
QD GROUP LIMITED
CONSOLIDATED BALANCE SHEET
AS AT 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
<TABLE>
<CAPTION>
NOTES 1999 1998
--------- ---------- ----------
L L
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets............................................ 11 949,816 736,470
Investments................................................ 12 894,200 900,300
---------- ----------
1,844,016 1,636,770
---------- ----------
CURRENT ASSETS
Debtors.................................................... 13 4,131,727 3,084,443
Cash at bank and in hand................................... 1,289,810 2,039,693
---------- ----------
5,421,537 5,124,136
CREDITORS: amounts falling due within one year............. 14 (3,231,327) (3,185,562)
---------- ----------
NET CURRENT ASSETS......................................... 2,190,210 1,938,574
---------- ----------
TOTAL ASSETS LESS CURRENT LIABILITIES...................... 4,034,226 3,575,344
CREDITORS: amounts falling due after more than one year.... 15 (267,169) --
---------- ----------
NET ASSETS................................................. 3,767,057 3,575,344
========== ==========
CAPITAL AND RESERVES
Called-up share capital.................................... 16 49,806 49,806
Share premium account...................................... 17 30,895 30,895
Capital redemption reserve................................. 17 944 944
Profit and loss account.................................... 17 3,685,412 3,490,041
---------- ----------
EQUITY SHAREHOLDERS' FUNDS................................. 18 3,767,057 3,571,686
Minority interests--equity................................. 19 -- 3,658
---------- ----------
TOTAL CAPITAL AND RESERVES................................. 3,767,057 3,575,344
========== ==========
</TABLE>
The attached notes to the accounts form an integral part of these financial
statements.
F-81
<PAGE>
QD GROUP LIMITED
COMPANY BALANCE SHEET
AS AT 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
<TABLE>
<CAPTION>
NOTES 1999 1998
--------- ---------- ----------
L L
<S> <C> <C> <C>
FIXED ASSETS
Investments................................................ 12 941,818 931,287
---------- ----------
CURRENT ASSETS
Debtors.................................................... 13 9,082,608 2,291,624
Cash at bank and in hand................................... 842,060 1,711,028
---------- ----------
9,924,668 4,002,652
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR............. 14 (5,843,394) (3,033,297)
---------- ----------
Net current assets......................................... 4,081,274 969,355
---------- ----------
NET ASSETS................................................. 5,023,092 1,900,642
========== ==========
CAPITAL AND RESERVES
Called-up share capital.................................... 16 49,806 49,806
Share premium account...................................... 17 30,895 30,895
Capital redemption reserve................................. 17 944 944
Profit and loss account.................................... 17 4,941,447 1,818,997
---------- ----------
EQUITY SHAREHOLDERS' FUNDS................................. 5,023,092 1,900,642
========== ==========
</TABLE>
The financial statements were approved by the Board on 5 April 2000.
GD Quarry
Director
The attached notes to the accounts form an integral part of these financial
statements.
F-82
<PAGE>
QD GROUP LIMITED
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
<TABLE>
<CAPTION>
NOTES 1999 1998
-------- -------- ---------
L L
<S> <C> <C> <C>
NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES......... 20 (265,434) 1,770,844
-------- ---------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received........................................... 72,458 108,575
Interest paid............................................... (2,648) (5,227)
Interest element of finance lease rental payments........... (8,808) --
-------- ---------
61,002 103,348
TAXATION
UK corporation tax paid..................................... (581,455) (401,708)
ACT repayment............................................... 100,000 163,733
-------- ---------
(481,455) (237,975)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENTS
Purchase of tangible fixed assets........................... (12,877) (634,175)
Purchase of investments..................................... -- (67,100)
Sale of tangible fixed assets............................... 52,355 62,148
-------- ---------
39,478 (639,127)
EQUITY DIVIDENDS PAID....................................... -- (397,885)
-------- ---------
Cash (outflow)/inflow before financing...................... (646,409) 599,205
FINANCING
New loan.................................................... 175,750 --
Repayment of loan........................................... (64,563) --
Capital element of finance lease rental payments............ (214,661) --
-------- ---------
CASH OUTFLOW FROM FINANCING................................. (103,474) --
-------- ---------
(DECREASE)/INCREASE IN CASH IN THE YEAR..................... 21 (749,883) 599,205
======== =========
</TABLE>
The attached notes to the accounts form an integral part of these financial
statements.
F-83
<PAGE>
QD GROUP LIMITED
NOTES TO THE ACCOUNTS
FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
1 ACCOUNTING POLICIES
The principal accounting policies are summarised below:
A) BASIS OF ACCOUNTING
The accounts have been prepared under the historical cost convention and in
accordance with applicable accounting standards.
B) BASIS OF CONSOLIDATION
The consolidated accounts include the accounts of the company and all its
subsidiary undertakings. The results of subsidiaries acquired or disposed of
during the year are included in the consolidated profit and loss account from
the date of their acquisition or up to the date of their disposal. Intra-group
sales and profits are eliminated on consolidation.
C) TANGIBLE FIXED ASSETS
Tangible fixed assets are stated at cost less depreciation.
Depreciation is calculated so as to write off the cost of tangible fixed
assets less their estimated residual values, on a straight line basis, over the
expected useful economic lives of the assets concerned. The principal annual
rates used for this purpose are:
<TABLE>
<S> <C> <C>
Motor vehicles.............................................. -- 25%
Computers................................................... -- 33%
Fixtures, fittings and equipment............................ -- 20%
</TABLE>
D) FINANCE AND OPERATING LEASES
Costs in respect of operating leases are charged on a straight line basis
over the lease term. Where fixed assets are financed by leasing agreements,
which transfer to the company substantially all the benefits and risks of
ownership, the assets are treated as if they had been purchased outright and are
included in tangible fixed assets. The capital element of the leasing
commitments is shown as obligations under finance leases. The lease rentals are
treated as consisting of capital and interest elements. The capital element is
applied to reduce the outstanding obligations and the interest element is
charged against profit in proportion to the reducing capital element
outstanding. Assets held under finance leases are depreciated over the shorter
of the lease term and their useful lives.
E) FOREIGN CURRENCIES
Assets and liabilities expressed in foreign currencies at the balance sheet
date are translated into sterling at rates of exchange prevailing at the end of
the financial year. Transactions carried out during the year are translated at
the rate of exchange ruling at the date of the transaction. The results of
overseas operations are translated at the average rates of exchange during the
year and their balance sheets at the rates ruling at the balance sheet date.
Exchange differences arising on translation of the opening net assets and
results of overseas operations are dealt with through reserves. All other
exchange differences are included in the profit and loss account in the year in
which they arise.
F-84
<PAGE>
QD GROUP LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
1 ACCOUNTING POLICIES (CONTINUED)
F) TURNOVER
Turnover, which excludes value added tax and trade discounts, represents the
invoiced value of services supplied. Turnover is recognised at the date the
recruit commences employment, the date instructions for an advertising campaign
have been confirmed, when certain discrete stages of management consultancy
assignments have been completed, when conferences are actually held, or when
publications are issued.
G) DEFERRED TAXATION
Tax deferred or accelerated is accounted for in respect of all material
timing differences to the extent that it is probable that a liability or asset
will crystallise.
H) PENSION SCHEME ARRANGEMENTS
The company operates a defined contribution pension scheme. The fund is
administered by pension fund managers. Pension costs are accounted for on the
basis of charging the profit and loss account with the pension costs payable in
the year. The company provides no other post retirement benefits to its
employees.
I) EMPLOYEE SHARE OWNERSHIP TRUSTS
The company is deemed to have control of the assets, liabilities, income and
costs of The Quarry Dougall Employee Share Ownership Trust (ESOT). The ordinary
shares held by the ESOT are included in fixed asset investments and written down
to the option price over the minimum period of service to which the conditions
attached to the shares relate. No dividends have been waived in respect of these
shares and the dividends receivable are set off against the administrative costs
of running the ESOT.
2 ANALYSIS BY GEOGRAPHICAL AREA/BUSINESS SEGMENT
Turnover is generated wholly from the group's principal activities.
The analysis of the group's turnover by destination and origin is set out
below:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
L L
<S> <C> <C>
TURNOVER
United Kingdom....................................... 12,619,873 10,236,245
Europe............................................... 525,573 34,820
Far East............................................. 814,192 1,120,667
Rest of the World.................................... 378,343 509,106
---------- ----------
14,337,981 11,900,838
========== ==========
</TABLE>
F-85
<PAGE>
QD GROUP LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
2 ANALYSIS BY GEOGRAPHICAL AREA/BUSINESS SEGMENT (CONTINUED)
The analysis of the group's turnover by business segment is set out below:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
L L
<S> <C> <C>
TURNOVER
Recruitment.......................................... 11,862,403 10,947,035
Training and development............................. 243,835 837,858
Business services.................................... 1,035,663 115,945
Discontinued businesses.............................. 1,196,080 --
---------- ----------
14,337,981 11,900,838
========== ==========
</TABLE>
3 OTHER INCOME
<TABLE>
<CAPTION>
1999 1998
-------- --------
L L
<S> <C> <C>
Dividends receivable....................................... 74,433 60,494
Provision no longer required............................... 50,786 --
------- ------
125,219 60,494
======= ======
</TABLE>
4 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
Profit on ordinary activities before taxation is stated after
charging/(crediting):
<TABLE>
<CAPTION>
1999 1998
-------- --------
L L
<S> <C> <C>
Depreciation of tangible fixed assets
-owned.................................................... 195,478 170,928
-leased................................................... 165,818 10,275
Auditors' remuneration.................................... 17,675 14,500
Operating lease rental for
-office equipment......................................... 7,827 12,108
-land and buildings....................................... 297,936 247,054
Profit on disposal of tangible fixed assets............... (20,026) (14,140)
Profit on disposal of fixed asset investments............. (3,600) (77,710)
Exchange (gains)/ losses.................................. (18,319) 23,345
</TABLE>
F-86
<PAGE>
QD GROUP LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
5 DIRECTORS' EMOLUMENTS AND TRANSACTIONS
<TABLE>
<CAPTION>
1999 1998
-------- --------
L L
<S> <C> <C>
Directors' emoluments..................................... 335,000 335,000
Benefits in kind.......................................... 9,535 9,535
Contributions to defined contribution pension scheme...... 9,323 9,323
Emoluments of the highest paid director:
Remuneration.............................................. 344,535 344,535
Contributions to a defined contribution pension scheme.... 9,323 9,323
</TABLE>
There is 1 (1998: 1) director in the defined contribution pension scheme.
DIRECTORS' TRANSACTIONS
During the year, Gareth Quarry let a villa owned by him to employees of the
group. The rents due to him were at commercial rates and were settled by Quarry
Dougall Recruitment Limited. Rents amounting to L6,736 were payable by the
company for the year ended 30 September 1999 (1998: L9,274). During the year he
also let a property for use as a training facility and as office premises for QD
Conferencing Limited. Rents amounting to L2,500 were payable by the company for
the year ended 30 September 1999 (1998: L10,000).
6 EMPLOYEE INFORMATION
The average number of persons employed by the company during the year was:
<TABLE>
<CAPTION>
1999 1998
NUMBER NUMBER
-------- --------
<S> <C> <C>
Selling and marketing....................................... 94 77
Administration.............................................. 58 40
--- ---
152 117
=== ===
</TABLE>
Employment costs--all employees including executive directors:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
L L
<S> <C> <C>
-wages and salaries.................................... 6,476,404 4,958,982
-social security costs................................. 535,962 376,633
-pension costs......................................... 56,744 54,406
--------- ---------
7,069,110 5,390,021
========= =========
</TABLE>
F-87
<PAGE>
QD GROUP LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
7 INTEREST PAYABLE
<TABLE>
<CAPTION>
1999 1998
-------- --------
L L
<S> <C> <C>
Bank loans and overdrafts................................... 2,648 381
Finance leases.............................................. 8,808 3,270
------ -----
11,456 3,651
====== =====
</TABLE>
8 TAXATION
<TABLE>
<CAPTION>
1999 1998
-------- --------
L L
<S> <C> <C>
UK corporation tax
Current @ 30.5% (1998: 31%)............................... 260,025 170,366
(Over)/under provision in respect of prior years.......... (55,025) 59,642
Overseas taxation......................................... 49,262 98,834
------- -------
254,262 328,842
======= =======
</TABLE>
9 PROFIT FOR THE FINANCIAL YEAR
As permitted by section 230 of the Companies Act 1985, the holding company's
profit and loss account has not been included in these financial statements. The
profit for the financial year dealt with in the accounts of the holding company
was L3,322,450 (1998: L165,776).
10 DIVIDENDS--EQUITY SHAREHOLDERS
<TABLE>
<CAPTION>
1999 1998
-------- --------
L L
<S> <C> <C>
Interim dividend declared of L0.23 per share (1998: L0.47)
Founder shares............................................ 142,194 284,388
Ordinary shares........................................... 57,806 115,612
------- -------
200,000 400,000
======= =======
</TABLE>
F-88
<PAGE>
QD GROUP LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
11 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FIXTURES,
MOTOR FITTINGS AND
COMPUTERS VEHICLES EQUIPMENT TOTAL
--------- -------- ------------ ---------
L L L L
<S> <C> <C> <C> <C>
COST
At 1 October 1998................... 576,927 256,444 465,773 1,299,144
Additions........................... 386,886 17,286 193,099 597,271
Disposals........................... -- (83,187) (705) (83,892)
------- ------- ------- ---------
At 30 September 1999................ 963,813 190,543 658,167 1,812,523
======= ======= ======= =========
DEPRECIATION
At 1 October 1998................... 133,030 134,188 295,456 562,674
Charge for year..................... 244,364 49,817 67,115 361,296
Disposals........................... -- (60,558) (705) (61,263)
------- ------- ------- ---------
At 30 September 1999................ 377,394 123,447 361,866 862,707
======= ======= ======= =========
NET BOOK VALUE
At 30 September 1999................ 586,419 67,096 296,301 949,816
======= ======= ======= =========
At 30 September 1998................ 443,897 122,256 170,317 736,470
======= ======= ======= =========
</TABLE>
The net book value of computers includes L408,306 (1998: Lnil) in respect of
assets held under finance leases, comprising cost of L584,399 (including
L356,725 accrued at 30 September 1998) less depreciation of L176,093 (including
L10,275 on the accrued assets at 30 September 1998).
12 FIXED ASSET INVESTMENTS
<TABLE>
<CAPTION>
ESOT INVESTMENT
IN OWN ORDINARY
SHARES
---------------
L
<S> <C>
GROUP
At 1 October 1998........................................... 900,300
Disposals................................................... (6,100)
-------
At 30 September 1999........................................ 894,200
=======
</TABLE>
<TABLE>
<CAPTION>
ESOT
INVESTMENT INTEREST
IN OWN ORDINARY IN GROUP
SHARES UNDERTAKING TOTAL
--------------- ----------- --------
L L L
<S> <C> <C> <C>
COMPANY
At 1 October 1998......................... 900,300 30,987 931,287
Additions................................. -- 16,631 16,631
Disposals................................. (6,100) -- (6,100)
------- ------ -------
At 30 September 1999...................... 894,200 47,618 941,818
======= ====== =======
</TABLE>
EMPLOYEE SHARE OWNERSHIP TRUST
An Employee Share Ownership Trust (ESOT) was established on 30 March 1990.
At 30 September 1999, the ESOT held 132,000 20p ordinary shares at a cost of
L894,200 (1998: 133,220 ordinary shares
F-89
<PAGE>
QD GROUP LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
12 FIXED ASSET INVESTMENTS (CONTINUED)
at a cost of L900,300). The ESOT is a discretionary trust for the benefit of
employees (including certain directors).
SUBSIDIARY UNDERTAKINGS
<TABLE>
<CAPTION>
PROPORTION OF
NOMINAL VALUE OF
SHARES HELD
NAME OF COMPANY AND COUNTRY OF DESCRIPTION OF --------------------
INCORPORATION AND OPERATION SHARES HELD GROUP COMPANY PRINCIPAL ACTIVITY
------------------------------------ ------------------ -------- --------- ------------------------------------
% %
<S> <C> <C> <C> <C>
Quarry Dougall Recruitment Limited Ordinary L1 shares 100 100 Recruitment and advertising services
(England and Wales) for the legal profession
QD Consulting Group Limited Ordinary L1 shares 100 100 Recruitment and advertising services
(England and Wales) for the legal profession, retail,
sales, marketing, banking and
finance sectors, career counselling
and outplacement services
Quarry Dougall Recruitment North Ordinary L1 shares 85 0.2 Recruitment and advertising services
Limited (England and Wales) for the legal profession
The Quarry Dougall Employee Ordinary 20p 100 100 Settlement to facilitate the
Share Ownership Trust shares in the acquisition of shares by employees
(England and Wales) company of the company
QD Conferencing Limited (England and Ordinary L1 shares 87.5 87.5 Provision of conferences for the
Wales) legal profession, retail, sales,
marketing, banking and finance
sectors
New City Media Limited Ordinary L1 shares 90 90 Production of various publications
(England and Wales) and yearbooks for the legal
profession
QD Asia Limited Ordinary HK$10 100 100 Recruitment and advertising services
(Hong Kong) Shares for the legal sector in
Asia-Pacific. The company commenced
trading on 23 February 1999
QD Technology Limited Ordinary L1 shares 90 90 Recruitment and advertising services
(England and Wales) for the information technology
sector
QD Legal Consulting GmbH Ordinary 1DM 100 100 Recruitment and advertising services
(Germany) shares for the legal profession in Germany
JuVe Verlag Fur Juristische Ordinary 1DM 90 90 Production of various publications
Information GmbH Shares and yearbooks for the legal
(Germany) profession in Germany
</TABLE>
All the above companies operate principally in their country of
incorporation or settlement. Quarry Dougall Recruitment Limited also operates in
Canada and operated in Hong Kong until 22 February 1999 when the trade was
transferred to QD Asia Limited.
The group has incentivised key managers through deemed minority interests
which would become payable in shares or cash following a crystallising event.
Had the event taken place at the year end the directors believe that the amount
payable would not have materially affected the accounts.
F-90
<PAGE>
QD GROUP LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
13 DEBTORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
GROUP COMPANY
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
L L L L
<S> <C> <C> <C> <C>
Trade debtors..................................... 3,703,587 2,758,727 -- --
Dividend receivable from subsidiary undertaking... -- -- 3,223,935 --
Amounts owed by group undertakings................ -- -- 5,757,085 2,089,363
Other debtors..................................... 205,187 129,114 101,588 102,261
Prepayments and accrued income.................... 222,953 96,602 -- --
ACT recoverable................................... -- 100,000 -- 100,000
--------- --------- --------- ---------
4,131,727 3,084,443 9,082,608 2,291,624
========= ========= ========= =========
</TABLE>
14 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
GROUP COMPANY
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
L L L L
<S> <C> <C> <C> <C>
Obligations under finance leases.................. 164,340 -- -- --
Term loan......................................... 49,416 -- -- --
Trade creditors................................... 1,255,395 1,155,003 -- --
Amounts owed to group undertakings................ -- -- 5,621,860 2,826,883
Corporation tax................................... 235,208 562,401 21,534 204,299
Other taxes and social security................... 533,402 386,901 -- --
Dividends payable................................. 200,000 2,115 200,000 2,115
Accruals and deferred income...................... 793,566 1,079,142 -- --
--------- --------- --------- ---------
3,231,327 3,185,562 5,843,394 3,033,297
========= ========= ========= =========
</TABLE>
F-91
<PAGE>
QD GROUP LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
15 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
GROUP
-------------------
1999 1998
-------- --------
L L
<S> <C> <C>
FINANCE LEASES
- between one and two years............................. 164,319 --
- between two and five years............................ 41,079 --
------- -------
205,398 --
------- -------
TERM LOAN
- between one and two years............................. 49,416 --
- between two and five years............................ 12,355 --
------- -------
61,771 --
------- -------
TOTAL BORROWINGS INCLUDING FINANCE LEASES
- between one and two years............................. 213,735 --
- between two and five years............................ 53,434 --
------- -------
267,169 --
On demand or within one year.............................. 213,756 --
------- -------
480,925 --
======= =======
</TABLE>
16 CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
ORDINARY FOUNDER ORDINARY FOUNDER
SHARES OF SHARES OF SHARES OF SHARES OF
20P EACH 0.1P EACH 20P EACH 0.1P EACH
1999 1999 1998 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
AUTHORISED
- value........................................... L100,000 L 750 L100,000 L 750
- number.......................................... 500,000 750,000 500,000 750,000
ALLOTTED, CALLED UP AND FULLY PAID
- value........................................... L 49,200 L 606 L 49,200 L 606
- number.......................................... 246,000 605,123 246,000 605,123
</TABLE>
The founder shares of 0.1p each rank PARI PASSU with the ordinary shares of
20p each.
At 30 September 1999, options over 40,000 (1998: 100,000) ordinary shares of
20p each had been granted at L3 per share and over a further 4,000 (1998: 4,000)
ordinary shares of 20p each had been granted at L10 per share. The options are
exercisable on a crystallising event as a result of which there is a change of
control in the company. The option periods expire on 16 December 2001 and 21
October 2003 respectively.
F-92
<PAGE>
QD GROUP LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
17 SHARE PREMIUM ACCOUNT AND RESERVES
<TABLE>
<CAPTION>
SHARE CAPITAL PROFIT
PREMIUM REDEMPTION AND LOSS
ACCOUNT RESERVE ACCOUNT TOTAL
--------- ---------- --------- ---------
L L L L
<S> <C> <C> <C> <C>
GROUP
At 1 October 1998................................. 30,895 944 3,490,041 3,521,880
Foreign exchange adjustment....................... -- -- (8,873) (8,873)
Retained profit for the year...................... -- -- 204,244 204,244
--------- --------- --------- ---------
At 30 September 1999.............................. 30,895 944 3,685,412 3,717,251
========= ========= ========= =========
COMPANY
At 1 October 1998................................. 30,895 944 1,818,997 1,850,836
Retained profit for the year...................... -- -- 3,122,450 3,122,450
--------- --------- --------- ---------
At 30 September 1999.............................. 30,895 944 4,941,447 4,973,286
========= ========= ========= =========
</TABLE>
18 RECONCILIATION OF MOVEMENT IN GROUP SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1999 1998
--------- ---------
L L
<S> <C> <C>
Profit for the financial year.......................... 404,244 737,233
Loss on currency translation........................... (8,873) --
Dividends.............................................. (200,000) (400,000)
--------- ---------
Net additions to shareholders' funds................... 195,371 337,233
Opening shareholders' funds............................ 3,571,686 3,234,453
--------- ---------
Closing shareholders' funds............................ 3,767,057 3,571,686
========= =========
</TABLE>
19 MINORITY INTERESTS
<TABLE>
<CAPTION>
1999 1998
-------- --------
L L
<S> <C> <C>
At 1 October 1998........................................... 3,658 127
Share of loss for the year.................................. (3,658) (5,292)
Minority interest in reserves............................... -- 6,503
Minority interest in share capital.......................... -- 2,320
------ ------
At 30 September 1999........................................ -- 3,658
====== ======
</TABLE>
F-93
<PAGE>
QD GROUP LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
20 RECONCILIATION OF OPERATING PROFIT TO NET CASH (OUTFLOW)/INFLOW FROM
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1999 1998
---------- ---------
L L
<S> <C> <C>
Operating profit...................................... 593,846 955,859
Depreciation.......................................... 361,296 181,203
Profit on sale of tangible fixed assets............... (20,026) (14,140)
Profit on sale of investments......................... (3,600) (77,710)
Increase in debtors................................... (1,147,284) (968,314)
(Decrease)/increase in creditors...................... (49,666) 1,618,123
Bonus paid as shares.................................. -- 67,000
Decrease in minority interest......................... -- 8,823
---------- ---------
Net cash (outflow)/inflow from operating activities... (265,434) 1,770,844
========== =========
</TABLE>
21 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
<TABLE>
<CAPTION>
L L
-------- ----------
<S> <C> <C>
Decrease in net cash in the period.......................... (749,883)
Cash outflow from increase in debt and lease financing...... 103,474
--------
Change in net debt resulting from cash flows................ (646,409)
New finance leases.......................................... (584,399)
----------
Movement in net debt in the period.......................... (1,230,808)
Net funds at 1 October 1998................................. 2,039,693
----------
Net funds at 30 September 1999.............................. 808,885
==========
</TABLE>
22 ANALYSIS OF CHANGES IN NET DEBT
<TABLE>
<CAPTION>
AT AT
1 OCTOBER NON CASH 30 SEPTEMBER
1998 CASH FLOWS FLOW CHANGES 1999
--------- ---------- ------------ ------------
L L L L
<S> <C> <C> <C> <C>
Cash in hand and at bank........................ 2,039,693 (749,883) -- 1,289,810
Debt due within one year........................ -- (49,416) -- (49,416)
Debt due after more than one year............... -- (61,771) -- (61,771)
Finance leases.................................. -- 214,661 (584,399) (369,738)
--------- -------- -------- ---------
2,039,693 (646,409) (584,399) 808,885
========= ======== ======== =========
</TABLE>
F-94
<PAGE>
QD GROUP LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
23 FINANCIAL COMMITMENTS
GROUP
The group no longer holds non-cancellable operating leases for office
equipment. The group leases certain properties on short and long term leases.
The rents payable under these leases, which are subject to renegotiation at
various intervals specified in the leases and in respect of which the group pays
all insurance, maintenance and repairs, in the next year are as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
L L
<S> <C> <C>
Date of lease termination:
Within one year........................................ 205,009 216,631
In two to five years................................... 539,680 858,071
More than five years................................... 313,650 --
--------- ---------
1,058,339 1,074,702
========= =========
</TABLE>
Other capital commitments:
The group had no contracted capital commitments at the year end (1998:
L300,000).
24 PENSION OBLIGATIONS
The group participates in a defined contribution pension scheme. The assets
of the scheme are held separately from those of the group. The total pension
cost for the year was L56,744 (1998: L54,406).
25 CONTINGENT LIABILITIES
The group has incentivised key management through deemed minority interests
which would become payable in shares or cash following a crystallising event.
Had the event taken place at the year end, the directors believe that the amount
payable would not have been significant.
26 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The consolidated financial statements are prepared in conformity with
generally accepted accounting principles in the UK ("UK GAAP") which differ in
certain respects from those generally accepted in the
F-95
<PAGE>
QD GROUP LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
26 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
United States ("US GAAP"). The significant areas of difference affecting the
financial statements of the Group are described below:
RECONCILIATIONS
The following is a summary of the material adjustments to net income and
shareholders' equity which would have been required if US GAAP had been applied
instead of UK GAAP:
<TABLE>
<CAPTION>
NOTE 1999 1998
-------- --------- ---------
L L
<S> <C> <C> <C>
NET INCOME IN ACCORDANCE WITH UK GAAP....................... 404,244 737,233
ADJUSTMENTS TO CONFORM WITH US GAAP
Dividends receivable on shares held by ESOT................. (a) (74,433) (60,494)
Profit on sale of shares held by ESOT....................... (a) (3,600) (77,710)
Deferred tax (charge)/benefit............................... (c) (69,156) 16,773
--------- ---------
NET INCOME IN ACCORDANCE WITH US GAAP....................... 257,055 615,802
========= =========
</TABLE>
<TABLE>
<CAPTION>
1999 1998
--------- ---------
L L
<S> <C> <C> <C>
SHAREHOLDERS' FUNDS IN ACCORDANCE WITH UK GAAP.............. 3,767,057 3,571,686
ADJUSTMENTS TO CONFORM WITH US GAAP
Dividends proposed but not approved or paid................. (d) 125,567 --
Reclassification of investment held by ESOT................. (a) (894,200) (900,300)
Deferred tax asset.......................................... (c) -- 16,773
Deferred tax liability...................................... (c) (52,383) --
--------- ---------
SHAREHOLDERS' FUNDS IN ACCORDANCE WITH US GAAP.............. 2,946,041 2,688,159
========= =========
</TABLE>
A) EMPLOYEE SHARE OWNERSHIP TRUST
Under UK GAAP, shares in the company which are held by the ESOT are shown as
fixed asset investments and the related dividends receivable and gain or loss on
sale of shares are included in operating income. Under US GAAP, the shares held
by the ESOT are shown as treasury shares and the dividends and gains or losses
on sales of shares are not recognised.
F-96
<PAGE>
QD GROUP LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
26 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
B) DISCONTINUED OPERATIONS
The effect of discontinued operations on the 1998 results were as follows:
<TABLE>
<CAPTION>
CONTINUING DISCONTINUED
BUSINESSES BUSINESSES TOTAL
---------- ------------ ----------
L L L
<S> <C> <C> <C>
TURNOVER................................................. 11,345,155 555,683 11,900,838
Cost of sales............................................ (1,872,541) (431,268) (2,303,809)
---------- ---------- ----------
Gross profit............................................. 9,472,614 124,415 9,597,029
Net operating expenses................................... (8,067,016) (634,648) (8,701,664)
Other income............................................. 60,494 -- 60,494
---------- ---------- ----------
OPERATING PROFIT......................................... 1,466,092 (510,233) 955,859
========== ========== ==========
</TABLE>
NET LIABILITIES OF DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
1999 1998
---------- --------
L L
<S> <C> <C>
Tangible assets........................................ 29,438 35,399
Debtors................................................ 946,698 47,121
Cash at bank........................................... 48,132 5,927
Creditors: amounts falling due within one year......... (1,962,813) (597,680)
---------- --------
Net liabilities........................................ (938,545) (509,233)
========== ========
</TABLE>
C) INCOME TAXES
Under UK GAAP, the Group provides for deferred taxation using the partial
liability method on all timing differences to the extent that it is considered
probable that the liabilities will crystallise in the foreseeable future.
Deferred tax assets are recognised to the extent that they are recoverable
without replacement in the foreseeable future.
Under US GAAP, income taxes are accounted for under Statement of Financial
Accounting Standard ("SFAS") No. 109, "Accounting for Income Taxes." In
accordance with SFAS No. 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax basis of
assets and liabilities and are measured using enacted tax rates and laws that
are expected to be in effect when the difference is reversed. The effect on
deferred income tax assets and liabilities of a change in tax rates is
recognised in income in the period that includes the enactment date.
F-97
<PAGE>
QD GROUP LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
26 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
Income before the provision for taxes consisted of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
L L
<S> <C> <C>
Domestic.................................................. 571,521 439,349
Foreign................................................... 5,294 483,230
------- -------
INCOME/(LOSS) BEFORE INCOME TAXES UNDER US GAAP........... 576,815 922,579
======= =======
</TABLE>
The following table reconciles the income tax provision/(benefit) at the
United Kingdom statutory rate to that in the financial statements:
<TABLE>
<CAPTION>
1999 1998
-------- --------
L L
<S> <C> <C>
Taxes computed at 30.5% (1998: 31%)....................... 175,929 285,999
Permanent differences..................................... 42,806 33,947
Prior years' adjustments.................................. 35,527 8,896
Deferred tax charge (benefit)............................. 69,156 (16,773)
------- -------
Income tax charge......................................... 323,418 312,069
======= =======
</TABLE>
Details of the provision for income taxes in the consolidated statements of
operations are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
L L
<S> <C> <C>
CURRENT TAXES
Domestic.................................................. 205,000 230,008
Foreign................................................... 49,262 98,834
------- -------
Total current............................................. 254,262 328,842
DEFERRED TAX (BENEFIT)
Domestic.................................................. 69,156 (16,773)
Foreign................................................... -- --
------- -------
Total deferred............................................ 69,156 (16,773)
------- -------
TOTAL PROVISION FOR INCOME TAXES.......................... 323,418 312,069
======= =======
</TABLE>
The components of the Group's deferred tax assets and liabilities under US
GAAP are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
L L
<S> <C> <C>
CURRENT DEFERRED TAX ASSET................................ -- 16,773
CURRENT DEFERRED TAX LIABILITIES.......................... (40,678) --
NON-CURRENT DEFERRED TAX LIABILITIES...................... (11,705) --
------- -------
NET DEFERRED TAX (LIABILITIES)/ASSETS..................... (52,383) 16,773
======= =======
</TABLE>
F-98
<PAGE>
QD GROUP LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
26 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
All of the Group's deferred tax assets and liabilities relate to temporary
differences in accounting and tax depreciation of tangible fixed assets.
D) DIVIDENDS
Under UK GAAP, the Group recognises a liability in respect of dividends when
proposed. Under US GAAP, dividends are only recognised when dividends are
approved or paid.
<TABLE>
<CAPTION>
1999 1998
-------- --------
L L
<S> <C> <C>
Amount of dividends approved or paid following US GAAP.... -- 397,885
Amount of dividends proposed following UK GAAP............ 200,000 400,000
</TABLE>
E) STATEMENT OF CASH FLOWS
Under UK GAAP, cash flows are presented separately for operating activities,
return on investments and servicing of finance, taxation, capital investment and
financial investments, equity dividends and financing activities. Cash and cash
equivalents represents cash in hand and deposits repayable on demand with any
qualifying financial institution, less overdrafts from any qualifying financial
institution repayable on demand. Deposits are repayable on demand if they can be
withdrawn at any time without notice and without penalty or if a maturity or
period of notice of not more than 24 hours or one working day has been agreed.
Cash includes cash in hand and deposits denominated in foreign currencies.
Liquid resources are current asset investments held as readily disposable stores
of value. A readily disposable investment is one that is disposable by the
reporting entity without curtailing or disrupting its business; and is either
readily convertible into known amounts of cash at or close to its carrying
amount, or traded in an active market.
Under US GAAP, cash flows are reported as operating activities, investing
activities and financing activities. Cash flow from taxation and returns on
investments and servicing of finance would, with the exceptions of dividends
paid, be included in operating activities. The payment of dividends would be
included under financing activities. Cash and cash equivalents represents all
highly liquid investments with original maturities of three months or less. Cash
and cash equivalent balances consist of deposits with banks and financial
institutions, which are unrestricted as to withdrawal or use.
Set out below is a summary consolidated statement of cash flows for the
Group under US GAAP.
<TABLE>
<CAPTION>
1999 1998
-------- ---------
L L
<S> <C> <C>
Net cash (used in)/provided by operating activities..... (685,887) 1,636,795
Net cash provided by/(used in) investing activities..... 39,478 (572,027)
Net cash used in financing activities................... (103,474) (465,563)
-------- ---------
Net (decrease)/increase in cash under US GAAP........... (749,883) 599,205
======== =========
</TABLE>
F-99
<PAGE>
QD GROUP LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
26 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
F) FIXED ASSETS
Under UK GAAP, fixed assets are assessed for impairment when there is some
indication that the carrying value of a fixed asset may exceed its recoverable
amount. Impairment is determined and measured by comparing the carrying value of
the fixed asset with its recoverable amount. The recoverable amount is the
higher of the amounts that can be obtained from selling the fixed asset (net
realisable value) or using the fixed asset (value in use which is normally
determined by reference to discounted cash flows).
Under US GAAP, the determination of whether an impairment has occurred is by
reference to undiscounted cash flows. If this indicates an impairment the
writedown is based upon the fair value of the asset which is usually determined
by reference to discounted cash flows. As a result impairment writedowns are
less likely to be recognised under US GAAP.
The Group has not recorded any fixed asset impairments under UK or US GAAP
during the years ended 30 September 1999 and 1998.
G) USE OF ESTIMATES
The preparation of financial statements in conformity with both US and UK
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
H) FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Group to a concentration
of credit risk consist of cash and cash equivalents and accounts receivable. The
Group performs ongoing credit evaluations of customers and generally does not
require collateral on accounts receivable. The Group maintains allowances for
potential credit losses and such losses have been within management's
expectations. The allowances were L65,000 and L43,726 at 30 September 1999 and
1998 respectively.
The fair market value of cash and cash equivalents, accounts receivable and
debt instruments at 30 September 1999 and 1998 approximate their carrying
amounts because of their short maturity.
I) NEW ACCOUNTING PRONOUNCEMENTS
In June 1998 the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or a liability
measured at its fair value. The statement also requires that changes in the
derivative's fair value be recognised currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows gains and losses on a derivative to offset related results on the hedged
item in the income statement, and requires that a Group formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal
years beginning after 15
F-100
<PAGE>
QD GROUP LIMITED
NOTES TO THE ACCOUNTS (CONTINUED)
FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
26 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
June 2000 and cannot be applied retroactively. The Group does not expect the
impact of this new statement on its balance sheet or income statement to be
material.
In March 2000, Emerging Issues Task Force issued EITF 00-02 "Accounting for
Web Site Development Costs." EITF 00-02 requires that certain costs incurred by
a company in developing its own website be capitalised and that certain other
costs should be expensed as incurred. The Group has not incurred significant
costs in developing its own website.
F-101
<PAGE>
MOVECENTRAL, INC.
STATEMENTS OF LOSS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
PERIOD ENDED ENDED
JUNE 19, JUNE 30,
2000 1999
------------ ----------
<S> <C> <C>
Revenue..................................................... $ 1,726,278 $2,038,971
----------- ----------
Operating Expenses:
Labor and related benefits................................ 2,021,703 748,111
Depreciation and amortization............................. 133,522 87,800
General and administrative................................ 2,465,544 1,372,439
----------- ----------
Total operating expenses................................ 4,620,769 2,208,350
----------- ----------
Operating loss.......................................... (2,894,491) (169,379)
Interest and Other Expense, net............................. 67,075 32,891
----------- ----------
Net loss................................................ $(2,961,566) $ (202,270)
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-102
<PAGE>
MOVECENTRAL, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
PERIOD ENDED ENDED
JUNE 19, JUNE 30,
2000 1999
------------ ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss.................................................. $(2,961,566) $(202,270)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization........................... 133,522 87,800
Changes in operating assets and liabilities--
Accounts receivable................................... 209,194 (985,461)
Supplies.............................................. 41,003 (16,807)
Prepaid expenses and other assets..................... (678,606) (13,669)
Accounts payable and accrued expenses................. (238,343) (73,855)
Deferred revenue...................................... 241,096 879,771
----------- ---------
Net cash used in operating activities............... (3,253,700) (324,491)
----------- ---------
Cash Flows from Investing Activities:
Capital expenditures...................................... (368,829) (7,355)
Loan receivable from employee............................. 112,210 (995)
----------- ---------
Net cash used in investing activities............... (256,619) (8,350)
----------- ---------
Cash Flows from Financing Activities:
Repayments of long-term debt.............................. -- (78,662)
Cash overdraft............................................ -- 161,803
Advance from TMP Worldwide Inc. .......................... 3,500,000 --
Net advances from affiliates.............................. 83,506 299,132
----------- ---------
Net cash provided by financing activities........... 3,583,506 382,273
----------- ---------
Net Increase (Decrease) in Cash............................. 73,187 (49,432)
Cash, beginning of year..................................... 259 49,432
----------- ---------
Cash, end of year........................................... $ 73,446 $ --
=========== =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for--
Interest................................................ $ 1,623 $ 29,256
=========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-103
<PAGE>
MOVECENTRAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 19, 2000
(UNAUDITED)
(1) NATURE OF BUSINESS
MoveCentral, Inc., a Massachusetts Subchapter S corporation (the Company),
formerly Before You Move, Inc., provides database and direct marketing programs
targeting the consumer relocation market. These services include address change
notification, assistance with scheduling various relocation services, specialty
publishing and Internet-based services. The Company operates in North America.
(2) INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation have
been included. Operating results for the six-month period ended June 30, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
(3) SUBSEQUENT EVENT
On June 19, 2000, the Company entered into a Stock Purchase Agreement (the
"Agreement") with TMP Worldwide Inc. ("TMP"), whereby TMP purchased all of the
outstanding shares of the Company in exchange for approximately $20,000,000 in
cash. The acquisition will be accounted under the purchase method of accounting.
Under the terms of the Agreement, the Company will become a wholly-owned
subsidiary of TMP.
F-104
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
MoveCentral, Inc.:
We have audited the accompanying balance sheets of MoveCentral, Inc.,
formerly Before You Move, Inc. (a Massachusetts Subchapter S corporation) as of
December 31, 1999 and 1998 and the related statements of operations,
shareholders' equity (deficit) and cash flows for the years then ended. 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 MoveCentral, Inc. as of
December 31, 1999 and 1998 and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 25, 2000
F-105
<PAGE>
MOVECENTRAL, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 259 $ 49,432
Accounts receivable....................................... 377,211 161,259
Supplies.................................................. 77,561 68,543
Prepaid postage........................................... 48,576 18,518
Other current assets...................................... 4,336 14,762
---------- ---------
Total current assets.................................. 507,943 312,514
Property and Equipment:
Furniture and office equipment............................ 200,410 197,522
Computer equipment and software costs..................... 497,304 259,540
Motor vehicles............................................ -- 15,292
Leasehold improvements.................................... 46,790 46,790
---------- ---------
744,504 519,144
Less -- Accumulated depreciation and amortization........... 279,684 157,886
---------- ---------
Total property and equipment, net..................... 464,820 361,258
---------- ---------
Loan Receivable from Employee............................... 109,710 100,000
Other Assets, net........................................... -- 138,201
---------- ---------
Total assets.......................................... $1,082,473 $ 911,973
========== =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable.......................................... $ 300,184 $ 22,232
Accrued expenses.......................................... 390,107 539,689
Deferred revenue.......................................... 142,100 133,973
Due to affiliates......................................... 613,080 377,387
---------- ---------
Total current liabilities............................. 1,445,471 1,073,281
Long-term Liabilities....................................... -- 78,662
Commitments and Contingencies (Note 5)
Shareholders' Deficit:
Common stock, $0.01 par value --
Authorized -- 200,000 shares
Issued and outstanding -- 107,941 shares................ 1,079 1,079
Paid-in capital........................................... 365,421 142,921
Accumulated deficit....................................... (729,498) (383,970)
---------- ---------
Total shareholders' deficit........................... (362,998) (239,970)
---------- ---------
Total liabilities and shareholders' deficit........... $1,082,473 $ 911,973
========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-106
<PAGE>
MOVECENTRAL, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Revenue..................................................... $4,583,829 $5,843,371
---------- ----------
Operating Expenses:
Labor and related benefits................................ 2,240,993 1,965,284
Depreciation and amortization............................. 275,291 199,486
General and administrative................................ 2,358,577 1,792,667
---------- ----------
Total operating expenses.............................. 4,874,861 3,957,437
---------- ----------
Operating (loss) income............................... (291,032) 1,885,934
Interest and Other Expense (Income), net.................... 54,496 (96,951)
---------- ----------
Net (loss) income..................................... $ (345,528) $1,982,885
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-107
<PAGE>
MOVECENTRAL, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
RETAINED TOTAL
ADDITIONAL EARNINGS SHAREHOLDERS'
COMMON PAID-IN (ACCUMULATED EQUITY
STOCK CAPITAL DEFICIT) (DEFICIT)
-------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1997....................... $1,079 $142,921 $ 558,479 $ 702,479
------ -------- ----------- -----------
Net income..................................... -- -- 1,982,885 1,982,885
Dividend paid to shareholders.................. -- -- (2,925,334) (2,925,334)
------ -------- ----------- -----------
Balance, December 31, 1998....................... 1,079 142,921 (383,970) (239,970)
------ -------- ----------- -----------
Net loss....................................... -- -- (345,528) (345,528)
Additional capital contribution................ -- 222,500 -- 222,500
------ -------- ----------- -----------
Balance, December 31, 1999....................... $1,079 $365,421 $ (729,498) $ (362,998)
====== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-108
<PAGE>
MOVECENTRAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net (loss) income......................................... $(345,528) $1,982,885
Adjustments to reconcile net income (loss) to net cash
provided by
(used in) operating activities --
Depreciation and amortization........................... 275,291 199,486
Changes in operating assets and liabilities --
Accounts receivable................................... (215,952) 504,969
Supplies.............................................. (9,018) 94,935
Prepaid expenses...................................... (19,632) 57,851
Accounts payable and accrued expenses................. 128,370 65,313
Deferred revenue...................................... 8,127 (904,777)
--------- ----------
Net cash (used in) provided by operating
activities........................................ (178,342) 2,000,662
--------- ----------
Cash Flows from Investing Activities:
Capital expenditures...................................... (240,652) (112,628)
Loan receivable from employee............................. (9,710) (100,000)
--------- ----------
Net cash used in investing activities............... (250,362) (212,628)
--------- ----------
Cash Flows from Financing Activities:
Additional capital contribution........................... 222,500 --
Repayments of long-term term debt......................... (78,662) (401,250)
Net advances from affiliates.............................. 235,693 1,537,982
Dividends paid to shareholders............................ -- (2,925,334)
--------- ----------
Net cash provided by (used in) financing
activities........................................ 379,531 (1,788,602)
--------- ----------
Net Decrease in Cash........................................ (49,173) (568)
Cash, beginning of year..................................... 49,432 50,000
--------- ----------
Cash, end of year........................................... $ 259 $ 49,432
========= ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for--Interest................... $ 24,751 $ 41,515
========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-109
<PAGE>
MOVECENTRAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1--NATURE OF BUSINESS
MoveCentral, Inc., a Massachusetts Subchapter S corporation (the Company),
formerly Before You Move, Inc., provides database and direct marketing programs
targeting the consumer relocation market. These services include address change
notification, assistance with scheduling various relocation services, specialty
publishing and Internet-based services. The Company operates in North America.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Certain software development,
implementation and testing costs relating to internal-use software are accounted
for in accordance with Statement of Position (SOP) 98-1, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. This
treatment includes the capitalization of both external direct costs and
payroll-related costs for employees who are directly associated with and who
devote time to the internal-use computer software project. Assets are
depreciated on either a straight-line or an accelerated basis over the following
useful lives:
<TABLE>
<CAPTION>
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
-------------------- --------------------------
<S> <C>
Furniture and office equipment.............................. 5-10 years
Computer equipment and software costs....................... 18 months-7 years
Motor vehicles.............................................. 5 years
Leasehold improvements...................................... Lesser of term of lease or
useful life of asset
</TABLE>
Maintenance and repairs are charged to expense when incurred; renewals and
improvements are capitalized.
OTHER ASSETS
Other assets consisted of covenants not to compete related to the
acquisition of the outstanding stock of the Company by certain stockholders of
Cross Country Automotive Services, Inc., an affiliate (see Note 3). The Company
amortized the covenants not to compete on a straight-line basis over the term of
the agreements, which expired December 31, 1999. Amortization expense was
approximately $138,000 for the years ended December 31, 1999 and 1998. Certain
of the former shareholders are receiving their noncompete payments over three
years, beginning April 30, 1997. At December 31, 1999 and 1998, the Company has
accrued $78,669 and $393,309, respectively, related to these payments, of which
$78,669 is due during the year ending December 31, 2000.
F-110
<PAGE>
MOVECENTRAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCRUED EXPENSES
Accrued expenses as of December 31, 1999 and 1998 consist of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Accrued bonuses......................................... $159,900 $141,608
Accrued non-compete payments............................ 80,131 314,648
Accrued compensation.................................... 56,452 14,010
Other accrued expenses.................................. 93,624 69,423
-------- --------
$390,107 $539,689
======== ========
</TABLE>
REVENUE RECOGNITION AND DEFERRED REVENUE
Revenue is recognized from services when services are performed. Deferred
revenue arises from payments received in advance of services.
INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under these provisions, the entity does not pay
federal or state corporate income taxes on its taxable income. Instead, the
shareholders are liable for income taxes. Therefore, no provision for income
taxes has been made.
COMPREHENSIVE INCOME
In 1998, the Company adopted SFAS No. 130, REPORTING COMPREHENSIVE INCOME,
which establishes standards for the reporting and display of comprehensive
income and other comprehensive income items. In general, comprehensive income
combines net income and other changes in equity during the year from nonowner
sources. The adoption of this statement had no impact on total stockholders'
equity for the years ended December 31, 1999 and 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash, accounts receivable and accounts payable
approximate fair value because of the short-term nature of these instruments.
Management believes that estimating the fair value of amounts due to related
parties and from employees is not practicable.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. This statement established accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts and for hedging
activities) be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedging accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a
F-111
<PAGE>
MOVECENTRAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
company must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. SFAS No. 133 is effective for fiscal
years beginning after June 15, 2000. SFAS No. 133 cannot be applied
retroactively. The Company does not anticipate that the adoption of this new
standard will have a material impact on the Company's fiscal position or results
of operations.
RECLASSIFICATIONS
Certain amounts in the prior-year financial statements have been
reclassified to conform to the current year's presentation.
NOTE 3--RELATED PARTY TRANSACTIONS
Certain shareholders of the Company are also shareholders of affiliated
companies. The Company outsources certain human resources and accounting
services to affiliated companies. The Company is also charged a management fee
from an affiliate for services provided to the Company. For the years ended
December 31, 1999 and 1998, the Company was charged $388,747 and $463,816,
respectively, by affiliates for these services.
To the extent the Company has available cash reserves or requirements,
amounts are loaned to or from affiliates. As of December 31, 1999 and 1998,
$613,080 and $377,887, respectively, was due to affiliates. Interest is charged
at 8% on outstanding borrowings. For the year ended December 31, 1999, the
Company recorded net interest expense of $39,553 and for the year ended
December 31, 1998, the Company recorded $158,920 in net interest income. Cross
Country Automotive Services, Inc., has agreed to continue to provide financial
support when necessary to the Company.
The Company has advanced an employee $100,000 in return for a note bearing
interest at 6%. Thirty percent of any performance bonus received by the employee
must be used to pay down the note. Any unpaid principal and interest will become
due on June 1, 2003 or termination of employment. As of December 31, 1999,
$109,710 was outstanding for principal and interest.
NOTE 4--EMPLOYEE BENEFITS
The Company participates in the Cross Country Automotive Services, Inc. and
Affiliates Salary Reduction/Profit Sharing Plan under the provisions of
Section 401(k) of the Internal Revenue Code. The plan covers all employees who
have completed one full year of service with the Company. The Company, at its
option, may contribute additional amounts to the plan based on each employee's
contribution. Matching contribution expense was $9,849 and $11,297,
respectively, for the years ended December 31, 1999 and 1998.
NOTE 5--COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases facilities under a long-term, noncancelable real estate
lease agreement expiring in 2002. The agreement provides for fixed minimum
rental payments and the payment of utilities, real estate taxes, insurance and
repairs. The lease also contains various fixed increases in rent. Rent expense
was $158,407 and $155,791, respectively, for the years ended December 31, 1999
and 1998.
F-112
<PAGE>
MOVECENTRAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 5--COMMITMENTS AND CONTINGENCIES (CONTINUED)
The future minimum annual rental commitments under this long-term,
noncancelable lease is as follows:
<TABLE>
<CAPTION>
FISCAL YEARS AMOUNT
------------ --------
<S> <C>
2000........................................................ $145,260
2001........................................................ 146,928
2002........................................................ 24,488
--------
$316,676
========
</TABLE>
EMPLOYMENT AGREEMENTS
Several employees of the Company have employment agreements that provide for
bonuses if certain criteria are met and provide for these individuals to receive
a percentage of the proceeds over a certain threshold from a sale or initial
public offering of the Company.
Several former key employees of the Company had employment agreements that
contained incentive bonus awards. The awards were paid over the period
January 1, 1997 to December 31, 1999. The awards were based on percentages of
the Company's two highest annual earnings, before interest, taxes, depreciation
and amortization, during the period from January 1, 1994 to December 31, 1996.
As of December 31, 1998 the Company had accrued $86,608 for these awards, all of
which was paid during the year ending December 31, 1999.
LEGAL PROCEEDINGS
The Company is subject to various legal proceedings that arise in the
ordinary course of business. Based on the opinion of the Company's legal
counsel, management believes that the amount of ultimate liability with respect
to these actions will not be material to the financial position or results of
operations of the Company.
NOTE 6--SEGMENT INFORMATION
Operating segments represent the Company's products that are evaluated
regularly by key management in assessing performance and resource allocation.
The Company has determined that its reportable segments consist of its Address
Express, MoveCentral.com and MoveNow! Magazine products.
Address Express provides customer retention through a direct mail
change-of-address notification service. The Company charges the corporate
sponsors a fee, either on a fixed-price or per mailed kit basis, generally
subject to an annual minimum.
MoveCentral.com provides customers with online products through three Web
subsites. The Web subsites allow corporate customers access to consumer
demographic data and direct access to the customer on a real-time basis. The Web
sites offer an online version of Address Express, access to various how-to
articles, utilities pertaining to the moving process, and e-commerce for
services needed in connection with a move.
F-113
<PAGE>
MOVECENTRAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 6--SEGMENT INFORMATION (CONTINUED)
MoveNow! Magazine is a magazine produced by the Company to offer consumers
informative editorial articles, helpful hints, advertisements and
direct-response checks and coupons, all relative to relocating.
The segments follow the same accounting policies described in Note 2,
Summary of Significant Accounting Policies, except the Company does not allocate
centrally incurred administrative costs. These costs are presented as corporate
expenses below. The Company does not track assets, depreciation and amortization
or capital expenditures by segment, therefore such information is not presented.
The Company's statement of operations on a segment basis for the years ended
December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Revenue:
Address Express.................................. $ 3,713,373 $ 5,841,346
MoveCentral.com.................................. 738,733 2,025
MoveNow! Magazine................................ 131,723 --
----------- -----------
4,583,829 5,843,371
Operating expenses:
Address Express.................................. 1,266,295 1,578,769
MoveCentral.com.................................. 714,889 105,243
MoveNow! Magazine................................ 620,001 16,667
Corporate........................................ 2,273,676 2,256,758
----------- -----------
4,874,861 3,957,437
Operating income (loss):
Address Express.................................. 2,447,078 4,262,577
MoveCentral.com.................................. 23,844 (103,218)
MoveNow! Magazine................................ (488,278) (16,667)
Corporate........................................ (2,273,676) (2,256,758)
----------- -----------
(291,032) 1,885,934
Interest income.................................... 9,833 158,920
Interest expense................................... (64,329) (61,969)
----------- -----------
Net income (loss).................................. $ (345,528) $ 1,982,885
=========== ===========
</TABLE>
NOTE 7--SIGNIFICANT CUSTOMERS
Revenues from one customer for the year ended December 31, 1999 was
approximately $3,000,000, which accounted for 65.4% of total revenue for the
year. Revenues from two customers for the year ended December 31, 1998 were
approximately $3,800,000 and $650,000, which accounted for 65.5% and 11.1%,
respectively, of total revenue for the year.
F-114
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Members of
Rich, Gardner & Associates, Ltd.
Atlanta, Georgia
We have audited the accompanying balance sheets of Rich, Gardner &
Associates, Ltd. (an S Corporation) as of December 31, 1999 and 1998, and the
related statements of income, changes in members' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Rich, Gardner &
Associates, Ltd. (an S Corporation) as of December 31, 1999 and 1998, and the
results of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ BDO SEIDMAN, LLP
--------------------------------------
BDO SEIDMAN, LLP
August 11, 2000, except for Note 8 for
which the date is August 31, 2000
Milwaukee, Wisconsin
F-115
<PAGE>
RICH, GARDNER & ASSOCIATES, LTD.
(AN S CORPORATION)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998 JUNE 30, 2000
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents (Note 2)..................... $ 15,760 $ 11,018 $1,040,569
Accounts receivable, net of allowance for doubtful
accounts of $160,000 at December 31, 1999 and
June 30, 2000 and $35,000 at December 31, 1998 (Note
3)................................................... 2,477,949 2,017,818 1,497,818
Prepaid expenses and other current assets.............. 16,965 1,880 12,000
---------- ---------- ----------
Total current assets..................................... 2,510,674 2,030,716 2,550,387
Property and equipment, net
(Notes 2 and 4)........................................ 155,899 151,505 149,620
Other assets............................................. 57,293 48,697 57,293
---------- ---------- ----------
Total assets............................................. $2,723,866 $2,230,918 $2,757,300
========== ========== ==========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Accounts payable and accrued expenses.................. $ 39,492 $ 101,680 $ 78,232
Accrued media payable.................................. 535,886 374,145 667,953
---------- ---------- ----------
Total current liabilities................................ 575,378 475,825 746,185
Commitments and contingency
(Notes 5 and 6)........................................
Members' equity
Common stock, $1 par value; 100,000 shares authorized;
1,000 shares issued and outstanding.................. 1,000 1,000 1,000
Retained earnings........................................ 2,147,488 1,754,093 2,010,115
---------- ---------- ----------
Total members' equity.................................... 2,148,488 1,755,093 2,011,115
---------- ---------- ----------
Total liabilities and members' equity.................... $2,723,866 $2,230,918 $2,757,300
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-116
<PAGE>
RICH, GARDNER & ASSOCIATES, LTD.
(AN S CORPORATION)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------- -----------------------
1999 1998 2000 1999
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Commissions and fees (Notes 2 and 7).......... $2,710,487 $2,618,847 $1,245,692 $1,202,335
---------- ---------- ---------- ----------
Operating expenses
Compensation and other benefits............. 1,157,516 1,188,284 596,480 662,926
Marketing and promotion..................... 35,344 54,868 21,485 23,318
General and administrative.................. 923,243 846,980 371,864 289,114
---------- ---------- ---------- ----------
2,116,103 2,090,132 989,829 975,358
---------- ---------- ---------- ----------
Income from operations........................ 594,384 528,715 255,863 226,977
Other income, net............................. 68,011 65,868 39,764 27,677
---------- ---------- ---------- ----------
Net income.................................... $ 662,395 $ 594,583 $ 295,627 $ 254,654
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-117
<PAGE>
RICH, GARDNER & ASSOCIATES, LTD.
(AN S CORPORATION)
STATEMENTS OF MEMBERS' EQUITY
<TABLE>
<S> <C>
BALANCE, January 1, 1998.................................... $1,932,510
Distributions (Note 2).................................... (772,000)
Net income................................................ 594,583
----------
BALANCE, December 31, 1998.................................. 1,755,093
Distributions (Note 2).................................... (269,000)
Net income................................................ 662,395
----------
BALANCE, December 31, 1999.................................. 2,148,488
Distributions (Note 2) (Unaudited)........................ (433,000)
Net income (Unaudited).................................... 295,627
----------
BALANCE, June 30, 2000 (Unaudited).......................... $2,011,115
==========
</TABLE>
See accompanying notes to financial statements.
F-118
<PAGE>
RICH, GARDNER & ASSOCIATES, LTD.
(AN S CORPORATION)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------- -----------------------
1999 1998 2000 1999
--------- --------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................... $ 662,395 $ 594,583 $ 295,627 $ 254,654
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for bad debt...................... 125,000 35,000 35,000 35,000
Depreciation and amortization............... 50,582 46,777 27,217 22,423
Changes in operating assets and liabilities:
(Increase) decrease in accounts
receivable.............................. (585,131) 390,018 945,131 233,914
(Increase) decrease in prepaid expenses
and other current assets................ (15,085) 200 4,965 (2,241)
Increase in other assets.................. (8,596) (13,415) -- --
Increase (decrease) in accounts payable
and accrued expenses.................... (62,188) (111,085) 38,740 439,416
Increase (decrease) in accrued media
payable................................. 161,741 (104,451) 132,067 262,683
--------- --------- ---------- ----------
Cash provided by operating activities........... 328,718 837,627 1,478,747 1,245,849
--------- --------- ---------- ----------
INVESTING ACTIVITY
Purchase of property and equipment............ (54,976) (69,559) (20,938) (14,923)
--------- --------- ---------- ----------
FINANCING ACTIVITY
Distributions of income....................... (269,000) (772,000) (433,000) (184,000)
--------- --------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... 4,742 (3,932) 1,024,809 1,046,926
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD........................................ 11,018 14,950 15,760 11,018
--------- --------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD........ $ 15,760 $ 11,018 $1,040,569 $1,057,944
========= ========= ========== ==========
</TABLE>
See accompanying notes to financial statements
F-119
<PAGE>
RICH, GARDNER & ASSOCIATES, LTD.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Rich, Gardner & Associates, Ltd. (the "Company") was organized in 1985 as a
full-service recruitment advertising and employee communications agency. The
Company is located in and conducts business primarily in Atlanta, Georgia and is
one of the largest independent recruitment agencies in the nation. The Company's
services encompass the entire realm of recruitment advertising and employee
communications, including internet strategies, newspaper advertising, trade
publication campaigns, campus recruitment, career fairs, collateral materials,
diversity programs, employee referral programs, open house/conventions, direct
mail, outdoor advertising, and application response management.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation have
been included. Operating results for the six-month period ended June 30, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The company earns commissions and fees for the placement of advertisements
on the Internet, in newspapers and other media. Revenue is recognized upon
placement date for newspapers and other media.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
CREDIT RISK
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.
F-120
<PAGE>
RICH, GARDNER & ASSOCIATES, LTD.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at historical cost. Property and equipment
is depreciated utilizing the straight-line method over the estimated useful
lives of 3 to 7 years. Expenditures for repairs and maintenance are charged to
expenses as incurred.
INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under those provisions, the Company does not pay
federal corporate income taxes on its taxable income. Instead the stockholders
are liable for federal income taxes on their respective share of the Company's
taxable income. The state of Georgia does not assess state corporate income
taxes against the taxable income of S corporations. The election was effective
for the tax year beginning October 25, 1985.
DISTRIBUTION OF EARNINGS
The Company distributes earnings to its stockholders' based upon the
Company's taxable income on a cash basis.
3. ACCOUNTS RECEIVABLE
Accounts receivable consists entirely of trade receivables. Earned revenue
receivable representing fees on advertisements that have been published but not
billed as of December 31, 1999 and 1998 are not material.
4. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Computer equipment and related software................. $288,197 $241,582
Office furniture and fixtures........................... 40,900 33,324
Machinery and equipment................................. 125,603 124,818
-------- --------
454,700 399,724
Less: Accumulated depreciation and amortization......... 298,801 248,219
-------- --------
$155,899 $151,505
======== ========
</TABLE>
For the years ended December 31, 1999 and 1998, depreciation and
amortization expense amounted to $50,582 and $46,777, respectively.
F-121
<PAGE>
RICH, GARDNER & ASSOCIATES, LTD.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. COMMITMENTS
OPERATING LEASES
The Company leases office space under a month-to-month operating lease with
a related party. This lease is subject to escalations for increases in real
estate taxes and other expenses. The Company also leases autos and office
equipment under operating leases.
At December 31, 1999, the future minimum lease commitments for these
obligations are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
2000........................................................ $25,791
2001........................................................ 21,392
2002........................................................ 12,173
2003........................................................ 2,002
-------
$61,358
=======
</TABLE>
Rent expense under operating leases was $146,625 and $184,408 for the years
ended December 31, 1999 and 1998, respectively.
6. 401(K) PLAN
The Company has a 401(k) plan. The Company's contribution is discretionary,
and the Company's annual contribution for 1999 and 1998 was $7,898 and $9,483,
respectively.
7. MAJOR CUSTOMER
During 1998, the Company had commissions from one customer of approximately
$255,000 or approximately 10% of commissions. Accounts receivable to this
customer at December 31, 1998 was approximately $31,000. There was no major
customer for the year ended December 31, 1999.
8. SUBSEQUENT EVENT
On August 31, 2000 all of the outstanding ownership interests of the Company
were exchanged for $3.3 million of TMP Worldwide, Inc. common stock in a merger
transaction to be accounted for as a pooling of interests.
F-122
<PAGE>
STRATASCAPE, INC.
BALANCE SHEET
AS OF JUNE 30, 2000
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable....................................... $1,883,278
Unbilled receivables...................................... 628,785
Other current assets...................................... 7,321
----------
TOTAL CURRENT ASSETS.................................... 2,519,384
----------
FIXED ASSETS, NET........................................... 21,070
----------
OTHER ASSETS:
Deposits.................................................. 24,032
----------
TOTAL OTHER ASSETS...................................... 24,032
----------
TOTAL ASSETS.......................................... $2,564,485
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $1,921,401
Accrued liabilities....................................... 220,602
Cash overdraft............................................ 49,687
Deferred franchise taxes.................................. 5,450
Note payable -- current portion........................... 1,942
----------
TOTAL CURRENT LIABILITIES............................... 2,199,082
LONG TERM LIABILITIES:
Notes payable............................................. 2,623
----------
TOTAL LIABILITIES....................................... 2,201,706
SHAREHOLDERS' EQUITY
Common stock -- 1,500 shares authorized
200 shares issued and outstanding....................... 10,000
Retained earnings......................................... 352,780
----------
TOTAL LIABILITIES AND EQUITY............................ $2,564,485
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-123
<PAGE>
STRATASCAPE, INC.
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Revenues.................................................... $8,440,872 $3,940,960
Direct costs................................................ 6,420,772 2,991,255
---------- ----------
Gross profit.............................................. 2,020,100 949,705
General and administrative.................................. 605,046 378,746
---------- ----------
Income from operations.................................... 1,415,054 570,959
Other income (expense)
Interest income, net...................................... 125 271
Loss on disposal of assets................................ (4,317) --
---------- ----------
Net income before franchise tax........................... 1,410,863 571,230
Provision for California franchise tax...................... 21,200 14,004
---------- ----------
Net income................................................ $1,389,663 $ 557,226
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-124
<PAGE>
STRATASCAPE, INC.
STATEMENT OF RETAINED EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<S> <C>
Balance, at beginning of year............................... $ 513,117
Net income for the year to date............................. 1,389,663
Cash dividends.............................................. (1,550,000)
----------
Balance, at June 30, 2000................................... $ 352,780
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-125
<PAGE>
STRATASCAPE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
2000 1999
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 1,389,663 $ 557,226
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 9,875 20,364
Loss on disposal of fixed assets...................... 4,317 --
Deferred franchise tax benefit........................ (4,194) (4,250)
(Increase) decrease in current assets:
Accounts receivable................................... (690,366) (425,881)
Unbilled receivables.................................. (244,071) (225,615)
Other current assets.................................. 9,345 (500)
Increase (decrease) in current liabilities:
Accounts payable...................................... 1,001,182 815,482
Accrued salaries and related payroll taxes............ (24,464) 37,838
Accrued paid time off................................. 10,746 9,277
Commissions payable................................... 114,761 44,422
Customer deposit...................................... -- 20,000
Other current liabilities............................. (19,497) 10,402
----------- ----------
Net cash provided by operating activities........... 1,557,297 858,765
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment.................................. (3,865) (16,976)
Increase in deposits...................................... (10,000) (3,445)
----------- ----------
Net cash used by investing activities............... (13,865) (20,421)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends............................................ (1,550,000) (600,000)
Cash overdraft............................................ 8,165 (41,417)
Repayments on long-term debt.............................. (1,597) --
----------- ----------
Net cash used by financing activities............... (1,543,432) (641,417)
----------- ----------
Net decrease in cash...................................... -- 196,927
Cash, at beginning of year................................ -- --
----------- ----------
Cash, at end of period.................................... $ -- $ 196,927
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest.............. $ 404 $ --
Cash paid during the period for franchise tax......... $ 44,891 $ 5,541
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-126
<PAGE>
STRATASCAPE, INC.
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION
The financial statements have been prepared in accordance with generally
accepted accounting principles and, in management's opinion, include all normal
recurring adjustments necessary for a fair statement of results for the interim
period. Certain information and note disclosures normally included in the annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted; however, the Company believes that
the disclosures made are adequate to keep the information presented from being
misleading.
CASH AND CASH EQUIVALENT
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity date of three
months or less to be cash equivalents.
REVENUE RECOGNITION
Revenues are recognized on fixed price/per hour contracts as the work is
performed. Costs include labor and any other costs related to performance of a
job.
CONCENTRATION OF CREDIT RISK
The Company's exposure to concentration of credit risk consists primarily of
its accounts receivable. Such credit risk is considered by management to be
limited due to the Company's customer base, collection history, and the fact
that it has never incurred any credit losses. For these reasons, there is no
allowance for doubtful accounts at June 30, 2000. Accounts receivable account
for 98% of the balance sheet assets as of June 30, 2000, including $628,765 in
unbilled receivables.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
the double declining and straight line methods over the estimated useful lives
of the assets, which range from 5 to 7 years.
<TABLE>
<S> <C>
At June 30, 2000, fixed assets consist of:
Computer software & equipment............................. $ 57,549
Leasehold improvements.................................... 12,767
Other property & equipment................................ 37,492
--------
107,808
Less accumulated depreciation and amortization............ (86,738)
--------
Fixed assets, net......................................... $ 21,070
========
</TABLE>
Depreciation and amortization expense charged to operations for the period
ended June 30, 2000 was $9,875.
F-127
<PAGE>
STRATASCAPE, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The shareholders have consented to the Company's election to be treated as
an "S corporation" for Federal and California income tax purposes. Under this
election, the income or loss of the Company is reported on the shareholders'
individual income tax returns. Consequently, there are no provisions for Federal
or California income taxes in the accompanying financial statements. The Company
is, however, subject to California franchise tax at the rate of 1.5% on the
income of the Corporation.
The Company's franchise tax expense consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- --------
<S> <C> <C> <C>
Six months ended June 30, 2000................... $25,394 $(4,194) $21,200
======= ======= =======
Six months ended June 30, 1999................... $18,254 $(4,250) $14,004
======= ======= =======
</TABLE>
The franchise tax effects of differences in timing when revenues and
expenses are reflected in accordance with regular accounting practices and when
they are recognized for franchise tax purposes are shown in the balance sheet as
deferred franchise taxes. The deferred franchise tax liability is primarily the
result of the Company's use of the cash method of accounting for franchise tax
purposes.
F-128
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Stratascape, Inc.
We have audited the accompanying balance sheet of Stratascape, Inc. (an S
corporation) as of December 31, 1999 and 1998 and the related statements of
income, retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence assessing
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 Stratascape, Inc. as of
December 31, 1999 and 1998 and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles.
August 24, 2000
/s/ FINCK, RUDNICK & COMPANY
--------------------------------------
FINCK, RUDNICK & COMPANY
Menlo Park, California
F-129
<PAGE>
STRATASCAPE, INC.
BALANCE SHEETS
(SEE ACCOUNTANTS' AUDIT REPORT)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
---------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable....................................... $1,192,912 $511,684
Unbilled receivables...................................... 384,714 119,589
Other current assets...................................... 16,666 1,085
---------- --------
TOTAL CURRENT ASSETS.................................. 1,594,292 632,357
---------- --------
FIXED ASSETS, NET........................................... 31,396 29,840
---------- --------
OTHER ASSETS:
Deposits.................................................. 14,032 7,402
---------- --------
Total other assets...................................... 14,032 7,402
---------- --------
Total assets.......................................... $1,639,720 $669,599
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft............................................ $ 41,522 $ 41,417
Note payable, current portion............................. 1,942 --
Accounts payable.......................................... 913,061 193,627
Accrued franchise taxes................................... 22,391 --
Deferred franchise taxes.................................. 9,644 6,147
Accrued liabilities....................................... 123,821 31,801
---------- --------
TOTAL CURRENT LIABILITIES............................... 1,112,381 272,992
COMMITMENTS
NOTE PAYABLE, LESS CURRENT PORTION.......................... 4,221 --
---------- --------
TOTAL LIABILITIES..................................... 1,116,602 272,992
SHAREHOLDERS' EQUITY
Common stock--1,500 shares authorized 200 shares issued
and outstanding......................................... 10,000 10,000
Retained earnings......................................... 513,118 386,607
---------- --------
TOTAL LIABILITIES AND EQUITY.......................... $1,639,720 $669,599
========== ========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-130
<PAGE>
STRATASCAPE, INC.
STATEMENTS OF INCOME
(SEE ACCOUNTANTS' AUDIT REPORT)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------
1999 1998
----------- ----------
<S> <C> <C>
Revenues.................................................... $10,456,092 $3,537,152
Direct costs................................................ 7,872,208 2,549,630
----------- ----------
Gross Profit.......................................... 2,583,884 987,522
General and administrative.................................. 919,046 522,549
----------- ----------
Income from operations................................ 1,664,838 464,973
Other income (expense)
Interest Income........................................... 875 554
Interest Expense.......................................... (256) (3)
Loss on sale of assets.................................... -- (144)
----------- ----------
Net income before income tax.............................. 1,665,457 465,380
Provision for California franchise tax...................... 31,116 2,814
----------- ----------
Net income................................................ $ 1,634,341 $ 462,566
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-131
<PAGE>
STRATASCAPE, INC.
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(SEE ACCOUNTANTS' AUDIT REPORT)
<TABLE>
<S> <C>
Balance, at January 1, 1998................................. $ 276,268
Net income for the year..................................... 462,566
Cash dividends.............................................. (352,227)
-----------
Balance, at December 31, 1998............................... 386,607
Net income for the year..................................... 1,634,341
Cash dividends.............................................. (1,507,830)
-----------
Balance, at December 31, 1999............................... $ 513,118
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-132
<PAGE>
STRATASCAPE, INC.
STATEMENTS OF CASH FLOWS
(SEE ACCOUNTANTS' AUDIT REPORT)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998
----------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income................................................ $1,634,341 $ 462,566
Adjustments to reconcile net income to net cash provided
by (used by) operating activities:
Depreciation and amortization........................... 40,725 23,231
Deferred taxes.......................................... 3,497 1,950
(Increase) decrease in current assets:
Accounts receivable..................................... (561,639) (122,308)
Unbilled receivables.................................... (384,714) (119,589)
Employee advances....................................... (915) 56,742
Prepaids................................................ (14,666) --
Increase (decrease) in current liabilities:
Accounts payable........................................ 779,211 106,348
Accrued salaries and related payroll taxes.............. (27,346) (25,885)
Other current liabilities............................... 81,979 2,311
---------- ---------
Net Cash Provided by (Used by) Operating Activities... 1,550,473 385,366
---------- ---------
Cash Flows From Investing Activities:
Acquisition of equipment.................................. (35,678) (24,520)
Increase in deposits...................................... (6,630) (500)
---------- ---------
Net Cash Used by Investing Activities................. (42,308) (25,020)
---------- ---------
Cash Flows From Financing Activities:
Cash dividends............................................ (1,507,830) (352,227)
Cash overdraft............................................ 105 41,417
Repayments on long-term debt.............................. (440) (50,000)
---------- ---------
Net Cash Used by Financing Activities................. (1,508,165) (360,810)
---------- ---------
Net increase (decrease) in cash........................... -- (464)
Cash, at beginning of year................................ -- 464
---------- ---------
Cash, at end of year...................................... $ -- $ --
========== =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for interest.................. $ 256 $ 3
Franchise tax paid...................................... $ 5,568 $ 864
Note payable incurred for use of equipment.............. $ 6,603 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-133
<PAGE>
STRATASCAPE, INC.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
(SEE ACCOUNTANTS' AUDIT REPORT)
1. ORGANIZATION AND BUSINESS
Stratascape, Inc. (a California S Corporation) was organized on June 6,
1996. The Company is in the business of providing technical staff to high tech
companies in the San Francisco Bay area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity date of three
months or less to be cash equivalents.
REVENUE RECOGNITION
Revenues are earned on fixed price/per hour contracts as the work is
performed. Costs include labor and any other costs related to performance of a
job.
CONCENTRATION OF CREDIT RISK
The Company's exposure to concentration of credit risk consists primarily of
its accounts receivable. Such credit risk is considered by management to be
limited due to the Company's customer base, collection history, and the fact
that it has never incurred any credit losses. For these reasons, there is no
allowance for doubtful accounts at December 31, 1999 or 1998. Accounts
receivable account for 96% and 94%, respectively, of the balance sheet assets as
of December 31, 1999 and 1998 and includes $384,714 and $119,589, respectively,
of accounts unbilled.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
the double declining and straight line methods over the estimated useful lives
of the assets, which range from 5 to 7 years.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Computer software & equipment......................... $ 75,146 $ 53,149
Leasehold improvements................................ 12,767 12,767
Other assets.......................................... 39,212 18,928
-------- --------
127,125 84,844
Less accumulated depreciation and amortization........ (95,729) (55,004)
-------- --------
Fixed assets, net..................................... $ 31,396 $ 29,840
======== ========
</TABLE>
INCOME TAXES
The shareholders have consented to the Company's election to be treated as
an "S Corporation" for Federal and California income tax purposes. Under this
election, the income or loss of the Company is reported on the shareholders'
individual income tax returns. Consequently, there are no provisions for
F-134
<PAGE>
STRATASCAPE, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
(SEE ACCOUNTANTS' AUDIT REPORT)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Federal or California income taxes in the accompanying financial statements. The
Company is, however, subject to California franchise tax at the rate of 1.5% on
the income of the Corporation.
The Company's franchise tax expense consists of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, CURRENT DEFERRED TOTAL
----------------------- -------- -------- --------
<S> <C> <C> <C>
1999............................................. $27,619 $3,497 $31,116
======= ====== =======
1998............................................. $ 864 $1,950 $ 2,814
======= ====== =======
</TABLE>
The franchise tax effects of differences in the tax basis of assets and
liabilities and their financial reporting amounts are shown in the balance sheet
as deferred franchise taxes. The deferred franchise tax liability is primarily
the result of the Company's use of the cash method for income tax purposes.
3. ACCRUED LIABILITIES
Accrued liabilities, consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1999 1998
-------- -------
<S> <C> <C>
Accrued salaries and taxes payable....................... $ 70,654 $29,512
Commissions payable...................................... 38,705 --
Paid time off accrual.................................... 7,305 --
Other current liabilities................................ 7,157 2,311
-------- -------
Total accrued liabilities................................ $123,821 $31,823
======== =======
</TABLE>
4. COMMITMENTS
The Company leases office space under two non-cancelable operating leases
which expire in January, 2003. Rent expense for the year ended December 31, 1999
and 1998 amounted to $33,960 and $48,613, respectively.
In addition to the above mentioned leases, the Company also has operating
leases for a copier which expires in October, 2002. Minimum future rental
payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------
<S> <C>
2000........................................................ $ 65,642
2001........................................................ 71,472
2002........................................................ 71,220
2003........................................................ 5,830
--------
$214,164
========
</TABLE>
F-135
<PAGE>
STRATASCAPE, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
(SEE ACCOUNTANTS' AUDIT REPORT)
5. LONG TERM DEBT
LINE OF CREDIT
The Company maintains a $100,000 line of credit arrangement with a bank
which matures March 31, 2001. The proceeds of the line of credit are to be used
for short-term operating cash needs. The arrangement carries interest at the
bank's reference rate plus 2.625%. At December 31, 1999 and 1998, there were no
borrowings under the arrangement. See Note 6.
NOTE PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------
<S> <C>
Note Payable to Greentree Vendor Services, due May 30,
2002. The terms of the note require monthly payments
of principal plus interest payable at 15.6954%...... $ 6,163
Less: current maturities included in current
liabilities..................................... (1,942)
-------
$ 4,221
=======
</TABLE>
Borrowing under the note is secured by a first priority security interest in
the Gateway Server.
Minimum future principal loan payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------
<S> <C>
2000........................................................ $1,942
2001........................................................ 3,109
2002........................................................ 1,112
------
$6,163
======
</TABLE>
6. SUBSEQUENT EVENTS
(a) Line of Credit
The Company closed the credit line on August 16, 2000.
(b) Merger with TMP Worldwide, Inc. ("TMP")
In August 2000, the Company entered into a letter of intent which
provided for all of the outstanding common stock of the Company to be
exchanged for 311,978 shares of TMP stock in a transaction to be
accounted for as a pooling of interests.
F-136
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following Pro Forma Condensed Consolidated Financial Information
reflects financial information with respect to (i) the acquisition, effective
January 1, 2000, by TMP Worldwide Inc. and subsidiaries ("TMP" or the "Company")
of all the outstanding stock of Baumgartner & Partner Personalberatung GmbH
("Baumgartner") for a purchase price of approximately $20 million which includes
169,764 TMP shares and $10 million in cash, (ii) the acquisition, effective June
19, 2000, of all of the outstanding stock of MoveCentral, Inc. ("MoveCentral")
for a purchase price of $20.0 million in cash, (iii) the acquisition, effective
September 5, 2000, by TMP of all the outstanding stock of QD Group Limited ("QD
Group") for a purchase price of approximately $58.9 million, consisting of
approximately $15.9 million in cash, $12.2 million in seller notes, payable over
two years plus interest at LIBOR plus 0.5% and approximately $30.8 million in
TMP stock, representing 475,853 shares of TMP common stock, (iv) the
acquisition, effective August 31, 2000, by TMP of all the outstanding stock of
Rich, Gardner & Associates, Ltd. ("RG") for a purchase price of $3.3 million,
consisting of 43,535 shares of TMP common stock, and (v) the acquisition,
effective August 31, 2000, by TMP of all the outstanding stock of Stratascape,
Inc. ("Stratascape") for a purchase price of $24.0 million, consisting of
311,978 shares of TMP common stock. The acquisitions of Baumgartner, MoveCentral
and QD Group will be accounted for under the purchase method and the
acquisitions of RG and Stratascape will be accounted for as poolings of
interests. The Unaudited Pro Forma Condensed Consolidated Financial Information
is derived from the consolidated financial statements and the consolidated
condensed financial statements of TMP included herein and the historical
financial statements of Baumgartner, MoveCentral, QD Group, RG and Stratascape
included herein.
The Unaudited Pro Forma Condensed Consolidated Statements of Income (Loss)
for the six months ended June 30, 2000 and for the year ended December 31, 1999
give effect to the acquisition of Baumgartner, MoveCentral and QD Group as if
they had occurred on January 1, 1999 and of RG and Stratascape as if they had
occured on January 1, 1997. The consolidated financial statements of QD Group
were translated from British pounds to U.S. dollars at the rate of 1.60 and 1.63
with respect to the June 2000 and December 1999 statements of income (loss),
respectively. The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
June 30, 2000, assumes that the acquisitions of QD Group, RG and Stratascape
occurred as of this date and British pounds were translated to U.S. dollars at
the rate of 1.60. The Baumgartner and MoveCentral acquisitions occurred prior to
June 30, 2000, and, accordingly are already reflected in TMP's balance sheet.
For purposes of the unaudited pro forma financial statements, TMP's
consolidated condensed balance sheet as of June 30, 2000 and the consolidated
condensed statement of income for the six months then ended and the consolidated
statement of income (loss) for the year ended December 31, 1999 have been
combined with the balance sheet of QD Group, RG and Stratascape as of June 30,
2000 and their statements of operations for the six months ended June 30, 2000
and for the year ended December 31, 1999, respectively, except for QD Group for
which the year ended September 30, 1999 is combined with that of TMP for the
year ended December 31, 1999. With respect to the statements of income (loss)
for the six months ended June 30, 2000 and the year ended December 31, 1999,
those of TMP have been combined with those of MoveCentral for the period ended
June 19, 2000 and the year ended December 31, 1999, respectively, and with that
of Baumgartner for only the year ended December 31, 1999 since the acquisition
was effective as of January 1, 2000.
The Unaudited Pro Forma Condensed Consolidated Financial Information gives
effect to the acquisitions of Baumgartner, MoveCentral and QD Group based upon
actual allocation of the purchase price, and includes all adjustments described
in the notes thereto. The pro forma adjustments are based on certain assumptions
that TMP's management believes are reasonable under the circumstances and do not
reflect any potential cost savings. The Unaudited Pro Forma Condensed
Consolidated Information is not necessarily indicative of the results that would
have been reported if such events had occurred on the date specified nor is it
intended to project TMP's results of operations or financial position for any
future period or date. The Unaudited Pro Forma Condensed Consolidated
Information set forth should be read in conjunction with the audited
consolidated financial statements of TMP as of December 31, 1999 and 1998 and
for the three years in the period ended December 31, 1999, the audited financial
statements of Baumgartner and MoveCentral as of and for the years ended
December 31, 1999 and 1998, QD Group as of and for the years ended
September 30, 1999 and 1998 and RG and Stratascape as of December 31, 1999 and
1998 and for the years then ended, the unaudited consolidated condensed
financial statements of TMP as of June 30, 2000 and for the six months ended
June 30, 2000 and 1999, the unaudited financial statements as of June 30, 2000
and for the six months ended June 30, 2000 and 1999 for QD Group, RG and
Stratascape and the unaudited financial statements for the period of January 1,
2000 through June 19, 2000 and the six months ended June 30, 1999 for
MoveCentral, all included herein.
F-137
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
QD GROUP
TMP BUSINESSES
WORLDWIDE QD GROUP NOT
INC. LIMITED ACQUIRED RG STRATASCAPE
---------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents..................... $ 511,445 $ 3,323 $ (39) $1,040 $ --
Account receivable, net....................... 539,897 6,254 (577) 1,498 2,512
Due from affiliates........................... -- -- 4,864 -- --
Prepaid and other............................. 58,725 625 (5) 12 7
Work-in-process............................... 26,970 -- -- -- --
---------- ------- ------ ------ ------
Total current assets........................ 1,137,037 10,202 4,243 2,550 2,519
Property and equipment, net................... 98,352 1,388 (93) 150 21
Intangibles, net.............................. 374,658 -- -- -- --
Other assets.................................. 33,192 1,417 -- 57 24
---------- ------- ------ ------ ------
Total Assets................................ $1,643,239 $13,007 $4,150 $2,757 $2,564
========== ======= ====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.............................. $ 325,640 $ 1,282 $ (73) $ 78 $1,921
Accrued expenses and other current
liabilities................................. 209,320 1,819 (197) 668 276
Accrued integration and restructuring costs... 21,850 -- -- -- --
Deferred commissions and fees................. 104,174 1,322 (70) -- --
Current portion of long term debt............. 8,141 313 -- -- --2
---------- ------- ------ ------ ------
Total current liabilities................... 669,125 4,736 (340) 746 2,199
Long term debt, less current portion............ 15,139 224 -- -- 3
Other long-term liabilities..................... 22,318 -- -- -- --
---------- ------- ------ ------ ------
Total Liabilities........................... 706,582 4,960 (340) 746 2,202
---------- ------- ------ ------ ------
Stockholders' equity
Common stock.................................. 91 71 (44) 1 10
Class B common stock.......................... 5 -- -- -- --
Additional paid-in capital.................... 1,017,899 47 -- -- --
Other comprehensive loss...................... (42,836) (62) 18 -- --
Retained earnings (deficit)................... (38,502) 7,991 4,516 2,010 352
---------- ------- ------ ------ ------
Total stockholders' equity...................... 936,657 8,047 4,490 2,011 362
---------- ------- ------ ------ ------
Total Liabilities & Stockholders' Equity.... $1,643,239 $13,007 $4,150 $2,757 $2,564
========== ======= ====== ====== ======
<CAPTION>
ADJUSTMENTS TOTAL
----------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents..................... $ (15,917 )(a) $ 499,852
Account receivable, net....................... -- 549,584
Due from affiliates........................... (4,584)(b) 280
Prepaid and other............................. (33)(b) 59,331
Work-in-process............................... -- 26,970
--------- ----------
Total current assets........................ (20,534) 1,136,017
Property and equipment, net................... -- 99,818
Intangibles, net.............................. 52,396 (c) 427,054
Other assets.................................. (1,417)(b) 33,273
--------- ----------
Total Assets................................ $ 30,445 $1,696,162
========= ==========
LIABILITIES
AND
STOCKHOLDERS'
LIABI EQUITY
Current liabilities
Accounts payable.............................. $ -- $ 328,848
Accrued expenses and other current
liabilities................................. -- 211,886
Accrued integration and restructuring costs... -- 21,850
Deferred commissions and fees................. -- 105,426
Current portion of long term debt............. 12,141 (a) 20,597
--------- ----------
Total current liabilities................... 12,141 688,607
Long term debt, less current portion............ -- 15,366
Other long-term liabilities..................... -- 22,318
--------- ----------
Total Liabilities........................... 12,141 726,291
--------- ----------
Stockholders' equity
Common stock.................................. (37)(d) 92
Class B common stock.......................... -- 5
Additional paid-in capital.................... 30,804 (a) 1,051,112
2,362 (f)
Other comprehensive loss...................... 44 (e) (42,836)
Retained earnings (deficit)................... (12,507)(e) (38,502)
(2,362)(f)
--------- ----------
Total stockholders' equity...................... 18,304 969,871
--------- ----------
Total Liabilities & Stockholders' Equity.... $ 30,445 $1,696,162
========= ==========
</TABLE>
----------------------------------
(a) Adjustment reflects aggregate purchase price of $58.9 million, consisting of
476 shares of TMP stock valued at $30.8 million issued to QD Group
shareholders, and an additional $28.1 million payable in cash and seller
notes.
(b) Amounts reflect the write off for QD Group of an intercompany receivable for
businesses not acquired of $4,584, the elimination of an investment in QD
Group shares held by an ESOT in the amount of $1,417 as required by U.S.
GAAP and the effect of providing deferred taxes in accordance with U.S. GAAP
in the amount of $33.
(c) Amount represents goodwill recorded for the excess of cost over the fair
value of net assets acquired in the QD Group Limited transaction.
<TABLE>
<S> <C>
Purchase price.............................................. $58.9 million
Net assets of QD Group Limited.............................. (8.0) million
Effect of excluded business................................. (4.5) million
Effect of U.S. GAAP......................................... 1.4 million
Write off of amounts due from businesses not acquired....... 4.6 million
-------------
Goodwill.................................................... $52.4 million
=============
</TABLE>
(d) Represents the par value of 356 shares of TMP stock issued in connection
with the mergers of RG and Stratascape plus 476 issued in connection with
the purchase QD Group offset by the elimination of the net par value of the
common shares of these three companies.
(e) To eliminate other comprehensive loss of $44 and retained earnings of
$12,507 of QD Group, including amounts for business not acquired.
(f) To reclassify the retained earnings of RG and Stratascape.
F-138
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
QD GROUP
TMP BUSINESSES
WORLDWIDE, QD GROUP NOT MOVE
INC. LIMITED ACQUIRED RG STRATASCAPE CENTRAL ADJUSTMENTS TOTAL
---------- -------- ---------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commissions and fees............ $558,137 $13,049 $ (92) $1,246 $2,020 $ 1,726 $ -- $576,086
-------- ------- ------- ------ ------ ------- ------- --------
Operating expenses:
Salaries & related............ 308,638 7,389 (876) 596 459 2,022 -- 318,228
Office & general.............. 127,883 2,873 (1,048) 372 146 2,599 -- 132,825
Marketing & promotion......... 67,702 952 (22) 21 -- -- -- 68,653
Merger & integration.......... 22,323 -- -- -- -- -- -- 22,323
Amortization of intangibles... 7,540 -- -- -- -- -- 1,364(a) 8,904
-------- ------- ------- ------ ------ ------- ------- --------
Total operating expenses.... 534,086 11,214 (1,946) 989 605 4,621 1,364 550,933
-------- ------- ------- ------ ------ ------- ------- --------
Operating income (loss)......... 24,051 1,835 1,854 257 1,415 (2,895) (1,364) 25,153
Total other income
(expense), net............ 6,708 913 (818) 39 (4) (67) (398)(b) 6,373
-------- ------- ------- ------ ------ ------- ------- --------
Income (loss) before provision
(benefit) for income taxes and
minority interests............ 30,759 2,748 1,036 296 1,411 (2,962) (1,762) 31,526
Provision (benefit) for income
taxes......................... 19,528 825 263 -- 21 -- (628)(c) 20,009
-------- ------- ------- ------ ------ ------- ------- --------
Income (loss) before minority
interests..................... 11,231 1,923 773 296 1,390 (2,962) (1,134) 11,516
Minority interests.............. (324) -- -- -- -- -- -- (324)
-------- ------- ------- ------ ------ ------- ------- --------
Net income (loss) applicable to
common and Class B common
stockholders.................. $ 11,555 $ 1,923 $ 773 $ 296 $1,390 $(2,962) $(1,134) $ 11,840
======== ======= ======= ====== ====== ======= ======= ========
Net income (loss) per common and
Class B common share:
Basic......................... $ 0.12 $ 0.12
======== ========
Diluted....................... $ 0.11 $ 0.12
======== ========
Weighted average shares
outstanding:
Basic......................... 94,048 95,382(d)
======== ========
Diluted....................... 101,078 102,412(d)
======== ========
</TABLE>
------------------------------
(a) Adjustment reflects amortization expense, calculated on goodwill of
$52.4 million and $19.6 million related to the acquisitions of QD Group and
MoveCentral, respectively based on an estimated useful life of 30 and
20 years, respectively.
(b) Adjustment to record interest at 6.55% on $12.2 million in seller notes
issued in connection with the acquisition of QD Group.
(c) Adjustment to provide for taxes at 38% of companies taxed at the shareholder
level, which include RG, MoveCentral and Stratascape, and to record the tax
benefit at 38% of $398 in interest expense.
(d) Weighted average shares outstanding reflects the effect of the issuance of
(i) 476 shares and the presumed issuance of 245 shares relating to the
funding of $15.9 million in cash both paid in connection with the
acquisition of QD Group, (ii) the issuance of 312 shares in connection with
the acquisition of Stratascape, (iii) the issuance of 44 shares for the
acquisition of RG, and (iv) the presumed issuance of 257 shares relating to
the funding of $20.0 million in cash paid in connection with the acquisition
of MoveCentral. Shares presumed to be issued were considered to be
outstanding from January 1, 2000 through January 27, 2000, the date of TMP's
following offering.
F-139
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
QD GROUP
BUSINESSES
TMP NOT
WORLDWIDE QD GROUP ACQUIRED
INC. LIMITED (A) RG STRATASCAPE ADJUSTMENTS SUB-TOTAL
--------- --------- ---------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Commissions and fees............... $869,207 $20,925 $(3,294) $2,710 $2,583 $ 139 (b) $892,270
-------- ------- ------- ------ ------ ------- --------
Operating expenses:
Salaries & related............... 496,926 11,697 (2,897) 1,158 613 36 (b) 507,533
Office & general................. 205,165 6,518 (2,792) 923 306 123 (c) 210,243
Marketing & promotion............ 74,647 1,769 (53) 35 -- -- 76,398
Merger & Integration............. 63,054 -- -- -- -- -- 63,054
Restructuring.................... 2,789 -- -- -- -- -- 2,789
Amortization of intangibles 12,532 -- -- -- -- 1,746 (d) 14,278
-------- ------- ------- ------ ------ ------- --------
Total operating expenses....... 855,113 19,984 (5,742) 2,116 919 1,905 874,295
-------- ------- ------- ------ ------ ------- --------
Operating income (loss)............ 14,094 941 2,448 594 1,664 (1,766) 17,975
Total other income (expense),
net.......................... (15,833) 116 -- 68 1 (795)(e) (16,443)
-------- ------- ------- ------ ------ ------- --------
Income (loss) before provision
(benefit) for income taxes,
minority interests and equity in
losses of affiliates............. (1,739) 1,057 2,448 662 1,665 (2,561) 1,532
Provision (benefit) for income
taxes............................ 6,908 410 379 31 726 (f) 8,454
-------- ------- ------- ------ ------ ------- --------
Income (loss) before minority
interest and equity in losses of
affiliates....................... (8,647) 647 2,069 662 1,634 (3,287) (6,922)
Minority interests................. 107 -- -- -- -- -- 107
Equity in losses of affiliates..... (300) -- -- -- -- -- (300)
-------- ------- ------- ------ ------ ------- --------
Net income (loss) applicable to
common and Class B common
stockholders $ (9,054) $ 647 $ 2,069 $ 662 $1,634 $(3,287) $ (7,329)
======== ======= ======= ====== ====== ======= ========
Net income (loss) per common and
Class B common share:
Basic............................ $ (0.11)
========
Diluted.......................... $ (0.11)
========
Weighted average shares
outstanding:
Basic.............................. 84,250
========
Diluted............................ 84,250
========
<CAPTION>
MOVE
BAUMGARTNER CENTRAL ADJUSTMENTS TOTAL
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Commissions and fees............... $14,662 $4,584 $ -- $911,516
------- ------ ------- --------
Operating expenses:
Salaries & related............... 9,073 2,241 -- 518,847
Office & general................. 2,203 2,634 -- 215,080
Marketing & promotion............ 612 -- -- 77,010
Merger & Integration............. -- -- -- 63,054
Restructuring.................... -- -- -- 2,789
Amortization of intangibles -- -- 1,747 (g) 16,025
------- ------ ------- --------
Total operating expenses....... 11,888 4,875 1,747 892,805
------- ------ ------- --------
Operating income (loss)............ 2,774 (291) (1,747) 18,711
Total other income (expense),
net.......................... 289 (55) -- (16,209)
------- ------ ------- --------
Income (loss) before provision
(benefit) for income taxes,
minority interests and equity in
losses of affiliates............. 3,063 (346) (1,747) 2,502
Provision (benefit) for income
taxes............................ 511 -- (468 )(h) 8,497
------- ------ --------
Income (loss) before minority
interest and equity in losses of
affiliates....................... 2,552 (346) (1,279) (5,995)
Minority interests................. -- -- -- 107
Equity in losses of affiliates..... -- -- -- (300)
------- ------ ------- --------
Net income (loss) applicable to
common and Class B common
stockholders $ 2,552 $ (346) $(1,279) $ (6,402)
======= ====== ======= ========
Net income (loss) per common and
Class B common share:
Basic............................ $ (0.07)
========
Diluted.......................... $ (0.07)
========
Weighted average shares
outstanding:
Basic.............................. 85,924 (i)
========
Diluted............................ 85,924 (i)
========
</TABLE>
----------------------------------
(a) Adjustments reflect income and expense balances of certain businesses of QD
Group which will not be acquired by the Company. TMP has agreed to acquire
QD Group's base selection business, excluding certain media divisions from
the transaction.
(b) Adjustments reflect commissions for job searches in progress and applicable
expenses to conform with TMP's accounting policies.
(c) Adjustment reflects the reversal of dividend income relating to QD Group
shares held by an ESOT, as required by U.S. GAAP.
(d) Amount reflects goodwill amortization expense for the acquisition of QD
Group, calculated based on a 30 year estimated useful life.
(e) Adjustment to record interest expense at 6.55% on $12.2 million in seller
notes issued in connection with the acquisition of QD Group.
(f) Amount reflects tax effect, at 38%, of commissions recorded for job searches
in progress and applicable expenses (see note (b)), as well as to record
deferred tax expense of $144 to conform QD to U.S. GAAP, plus tax at 38% for
RG and Stratascape, for which income was taxed at the shareholder level, and
the tax benefit at 38% for the interest expense adjustment (see note (e)).
(g) Adjustment reflects goodwill amortization expense in connection with the
acquisition of Baumgartner and MoveCentral of $765 and $982, respectively,
calculated based on 30 and 20 year estimated useful lives, respectively.
(h) Adjustment for taxes at 38% for MoveCentral, which was taxed at the
shareholder level, and the tax benefit at 44% for the amortization expense
on Baumgartner (see Note (g)).
(i) Weighted average shares outstanding reflects the effect of the issuance of:
(i) 476 shares and the presumed issuance of 245 shares relating to the
funding of $15.9 million in cash both paid in connection with the
acquisition of QD Group, (ii) the issuance of 170 shares and the presumed
issuance of 170 shares relating to the funding of $10 million in cash paid
both for the acquisition of Baumgartner, (iii) the issuance of 312 shares
for the acquisition of Stratascape (iv) the issuance of 44 shares for the
acquisition of RG and, (v) the presumed issuance of 257 shares relating to
the funding of $20.0 million in cash paid in connection with the acquisition
of MoveCentral.
F-140
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP
WORLDWIDE
INC. RG STRATASCAPE ADJUSTMENTS TOTAL
--------- ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Commissions and fees........................ $744,517 $2,619 $987 $ -- $748,123
-------- ------ ---- ----- --------
Operating expenses:
Salaries & related........................ 430,316 1,188 304 -- 431,808
Office & general.......................... 184,905 847 219 -- 185,971
Merger & integration costs................ 22,412 -- -- -- 22,412
Amortization of intangibles............... 11,070 -- -- -- 11,070
Marketing and promotion................... 29,737 55 -- -- 29,792
Restructuring............................. 3,543 -- -- -- 3,543
CEO special bonus......................... 1,250 -- -- -- 1,250
-------- ------ ---- ----- --------
Total operating expenses................ 683,233 2,090 523 -- 685,846
-------- ------ ---- ----- --------
Operating income............................ 61,284 529 464 -- 62,277
Total other income (expense), net....... (14,933) 66 1 -- (14,866)
-------- ------ ---- ----- --------
Income (loss) before provision for income
taxes, minority interests and equity in
losses of affiliates...................... 46,351 595 465 -- 47,411
Provision for income taxes.................. 16,884 -- 3 403 (a) 17,290
-------- ------ ---- ----- --------
Income (loss) before minority interests and
equity in losses of affiliates............ 29,467 595 462 (403) 30,121
Minority interests.......................... 28 -- -- -- 28
Equity in losses of affiliates.............. (396) -- -- -- (396)
-------- ------ ---- ----- --------
Net income (loss) applicable to common and
Class B common stockholders............... $ 29,043 $ 595 $462 $(403) $ 29,697
======== ====== ==== ===== ========
Net income (loss) per common and Class B
common share:
Basic..................................... $ 0.36 $ 0.36
======== ========
Diluted................................... $ 0.35 $ 0.35
======== ========
Weighted average shares outstanding:
Basic..................................... 81,638 81,994 (b)
======== ========
Diluted................................... 83,494 83,850 (b)
======== ========
</TABLE>
------------------------
(a) To record tax at 38% of pooled entities' earnings which were taxed at the
shareholder level.
(b) Gives effect to the additional shares and options issued in connection with
the mergers, including the weighted average basic and diluted shares
outstanding for the periods, which were 44 and 312 for RG and Stratascape,
respectively.
F-141
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TMP
WORLDWIDE
INC. RICH GARDNER STRATASCAPE ADJUSTMENTS TOTAL
--------- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Commissions and fees........................ $610,762 $2,609 $ 639 $ -- $614,010
-------- ------ ------ ----- --------
Operating expenses:
Salaries & related........................ 344,956 1,002 181 -- 346,139
Office & general.......................... 160,027 410 147 -- 160,584
Amortization of intangibles............... 6,913 145 -- -- 7,058
Marketing & promotion..................... 13,665 -- -- -- 13,665
CEO special bonus......................... 1,500 -- -- -- 1,500
-------- ------ ------ ----- --------
Total operating expenses................ 527,061 1,557 328 -- 528,946
-------- ------ ------ ----- --------
Operating income............................ 83,701 1,052 311 -- 85,064
Total other income (expense), net....... (9,688) 74 -- -- (9,614)
-------- ------ ------ ----- --------
Income before provision for income taxes,
minority interests and equity in losses of
affiliates................................ 74,013 1,126 311 -- 75,450
Provision for income taxes.................. 22,805 -- 1 546 (a) 23,352
-------- ------ ------ ----- --------
Income before minority interests and equity
in losses of affiliates................... 51,208 1,126 310 (546) 52,098
Minority interests.......................... 296 -- -- -- 296
Equity in losses of affiliates.............. (33) -- -- -- (33)
-------- ------ ------ ----- --------
Net income applicable to common and Class B
common stockholders....................... 50,879 1,126 310 (546) 51,769
Preferred stock dividends................... (123) -- -- -- (123)
-------- ------ ------ ----- --------
Net income (loss) per common and Class B
common share.............................. $ 50,756 $1,126 $ 310 $(546) $ 51,646
======== ====== ====== ===== ========
Net income (loss) per common and Class B
common share:
Basic..................................... $ 0.67 $ 0.68
======== ========
Diluted................................... $ 0.66 $ 0.67
======== ========
Weighted average shares outstanding:
Basic..................................... 75,857 76,213 (b)
======== ========
Diluted................................... 77,134 77,490 (b)
======== ========
</TABLE>
------------------------
(a) To record tax at 38% of pooled entities' earnings which were taxed at the
shareholder level.
(b) Gives effect to the additional shares and options issued in connection with
the mergers, including the weighted average basic and diluted shares
outstanding for the periods, which were 44 and 312 for RG and Stratascape,
respectively.
F-142
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses payable by the Registrant in connection with the issuance and
distribution of the securities being registered (other than underwriting
accounts and commissions) are estimated to be as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 68,392.00
Accountants' Fees and Expenses.............................. 20,000.00
Legal Fees and Expenses..................................... 20,000.00
Printer fees................................................ 20,000.00
Miscellaneous............................................... 21,608.00
-----------
Total....................................................... $150,000.00
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware permits
indemnification of directors, officers and employees of a corporation under
certain conditions and subject to certain limitations. Article VI of the By-Laws
of the Registrant contains provision for the indemnification of directors,
officers and employees within the limitations permitted by Section 145. In
addition, the Company has entered into Indemnity Agreements with its directors
and officers which provide the maximum indemnification allowed by Section 145.
The Company's officers and directors are insured against losses arising from any
claim against them as such for wrongful acts or omissions, subject to certain
limitations.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
1. On August 26, 1997, we issued 270,056 shares of our common stock in a
private placement transaction pursuant to Regulation S promulgated under the
Securities Act of 1933, as amended, in connection with the acquisition of Austin
Knight Limited and its subsidiaries.
2. On May 6, 1998, we issued 1,542,706 shares of our common stock in a
private placement transaction pursuant to Section 4(2) of the Securities Act of
1933, as amended, in exchange for all of the outstanding shares of Johnson,
Smith & Knisely Inc.
3. On August 31, 1998, we issued 3,407,788 shares of our common stock in a
private placement transaction pursuant to Regulation S promulgated under the
Securities Act of 1933, as amended, in exchange for all of the outstanding
shares of TASA Holding AG.
4. On September 30, 1998, we issued 1,014,164 shares of our common stock in
a private placement transaction pursuant to Section 4(2) of the Securities Act
of 1933, as amended, in exchange for all of the outstanding shares of
Stackig Inc.
5. On October 2, 1998, we issued 208,084 shares of our common stock in a
private placement transaction pursuant to Section 4(2) of the Securities Act of
1933, as amended, in exchange for all of the outstanding shares of Recruitment
Solutions, Inc.
6. On November 2, 1998, we issued 619,404 shares of our common stock in a
private placement transaction pursuant to Section 4(2) of the Securities Act of
1933, as amended, in exchange for all of the outstanding units in SunQuest, LLC
d/b/a The SMART Group.
II-1
<PAGE>
7. On December 2, 1998, we issued 493,212 shares of our common stock in a
private placement transaction pursuant to Regulation S promulgated under the
Securities Act of 1933, as amended, in exchange for all of the outstanding
shares of The Consulting Group (International) Limited.
8. On January 28, 1999, we issued 10,296,582 shares of our common stock
pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, in
exchange for all of the outstanding shares of Morgan & Banks Limited.
9. On March 5, 1999, we issued 146,828 shares of our common stock in a
private placement transaction pursuant to Regulation S promulgated under the
Securities Act of 1933, as amended, in exchange for all of the outstanding stock
of Van Ram Associates International B.V.
10. On April 30, 1999, we issued 353,390 shares of our common stock in a
private placement transaction pursuant to Regulation S promulgated under the
Securities Act of 1933, as amended, in exchange for all of the outstanding
shares of Interquest Pty Limited.
11. On May 19, 1999, we issued 225,212 shares of our common stock in a
private placement transaction pursuant to Section 4(2) of the Securities Act of
1933, as amended, in exchange for all of the outstanding shares of LIDA
Advertising, Inc.
12. On May 20, 1999, we issued 220,000 shares of our common stock in a
private placement transaction pursuant to Regulation S of the Securities Act of
1933, as amended, in exchange for all of the outstanding shares of Maes & Lunau.
13. On May 28, 1999 we issued 578,062 shares of our common stock in a
private placement transaction pursuant to Section 4(2) of the Securities Act of
1933, as amended, in exchange for all of the outstanding shares of IN2, Inc.
14. On May 28, 1999, we issued 245,816 shares of our common stock in a
private placement transaction pursuant to Section 4(2) of the Securities Act of
1933, as amended, in exchange for all of the outstanding shares of Lemming &
Levan, Inc.
15. On May 28, 1999, we issued 178,000 shares of our common stock in a
private placement transaction pursuant to Section 4(2) of the Securities Act of
1933, as amended, in exchange for all of the outstanding shares of Yellow Pages
Unlimited, Inc.
16. On August 2, 1999, we issued 840,000 shares of our common stock in a
private placement transaction pursuant to Section 4(2) of the Securities Act of
1933, as amended, in exchange for all of the outstanding shares of
Cameron-Newell Adversting, Inc.
17. On August 3, 1999, we issued 261,800 shares of our common stock in a
private placement transaction pursuant to Regulation S promulgated under the
Securities Act of 1933, as amended, in exchange for all of the outstanding
shares of Brook Street Bureau Pty, Ltd.
18. On August 30, 1999, we issued 259,280 shares of our common stock in a
private placement transaction pursuant to Section 4(2) of the Securities Act of
1933, as amended, in exchange for all of the outstanding shares of Fox
Advertising, Inc.
19. On August 31, 1999, we issued 826,192 shares of our common stock in a
private placement transaction pursuant to Regulation S promulgated of the
Securities Act of 1933, as amended, in exchange for all of the outstanding
shares of Lampen Group Limited.
20. On October 21, 1999, we issued 1,398,666 shares of our common stock in
a private placement transaction pursuant to Section 4(2) of the Securities Act
of 1933, as amended, in exchange for all of the outstanding units of Highland
Search Group, LLC.
II-2
<PAGE>
21. On October 27, 1999, we issued 118,560 shares of our common stock in a
private placement transaction pursuant to Regulation S promulgated under the
Securities Act of 1933, as amended, in exchange for all of the outstanding stock
of TMC S.r.l.
22. On February 10, 2000, we issued 169,764 shares of our common stock in a
private placement transaction pursuant to Regulation S promulgated under the
Securities Act of 1933, as amended, in exchange for all of the outstanding stock
in Baumgartner & Partner GmbH & Co. KG.
23. On February 16, 2000, we issued 715,769 shares of our common stock
pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, in
exchange for all of the outstanding stock of HW Group PLC.
24. On February 16, 2000, we issued 689,090 shares of our common stock in a
private placement transaction pursuant to Section 4(2) of the Securities Act of
1933, as amended, in exchange for all of the outstanding stock of Mircrosurf,
Inc., and in connection with issuances of stock related stay bonuses.
25. On February 29, 2000, we issued 52,190 shares of our common stock in a
private placement transaction pursuant to Section 4(2) of the Securities Act of
1933, as amended, in exchange for all of the outstanding stock in Burlington
Wells, Inc., Burlington Wells Information Systems, Inc. and Burlington Wells
South Florida, Inc.
26. On February 29, 2000, we issued 54,940 shares of our common stock in a
private placement transaction pursuant to Regulation S promulgated under the
Securities Act of 1933, as amended, in exchange for all of the outstanding stock
in Medios Publicitaros Activos MPS, S.A.
27. On March 1, 2000, we issued 246,702 shares of our common stock in a
private placement transaction pursuant to Regulation S promulgated under the
Securities Act of 1933, as amended, in exchange for all of the outstanding stock
of 577139 Ontario Ltd., d/b/a Illsley Bourbannais.
28. On March 21, 2000, we issued 13,080 shares of our common stock in a
private placement transaction pursuant to Regulation S promulgated under the
Securities Act of 1933, as amended, in exchange for all of the outstanding stock
in Curriculum S.A., Kerguelen, S.A. and Syntagme, S.A. (collectively, the
"Curriculum Group").
29. On April 3, 2000, we issued 1,022,257 shares of our common stock in a
private placement transaction pursuant to Section 4(2) of the Securities Act of
1933, as amended, in exchange for all of the outstanding stock in System One
Services, Inc.
30. On April 4, 2000 we issued 54,041 shares of our common stock in a
private placement transaction pursuant to Section 4(2) of the Securities Act of
1933, as amended, in exchange for all of the outstanding stock in GTR
Advertising, Inc.
31. On May 9, 2000 we issued 947,916 shares of our common stock in a
private placement transaction pursuant to Section 4(2) of the Securities Act of
1933, as amended, in exchange for all of the outstanding stock in Virtual
Relocation.com, Inc.
32. On May 12, 2000 we issued 51,906 shares of our common stock in a
private placement transaction pursuant to Regulation S promulgated under the
Securities Act of 1933, as amended, in exchange for all of the outstanding
shares of NIBO Holding B.V.
33. On May 17, 2000 we issued 205,703 shares of our common stock in a
private placement transaction pursuant to Regulation S promulgated under the
Securities Act of 1933, as amended, in exchange for all of the outstanding
shares of Business Technologies Limited.
34. On May 31, 2000 we issued 164,833 shares of our common stock in a
private placement transaction pursuant to Section 4(2) of the Securities Act of
1933, as amended, in exchange for all of the outstanding shares of Simpatix
Inc., and in connection with issuances of stock related stay bonuses.
II-3
<PAGE>
35. On May 31, 2000 we issued 623,892 shares of our common stock in a
private placement transaction pursuant to Section 4(2) of the Securities Act of
1933, as amended, in exchange for all of the outstanding shares of Web
Technology Partners, Inc.
36. On May 31, 2000 we issued 144,601 shares of our common stock in a
private placement pursuant to Section 4(2) of the Securities Act of 1933, as
amended, in exchange for all of the outstanding shares of Rollo Associates,
Inc., and in connection with issuances of stock related stay bonuses.
37. On June 5, 2000 we issued 23,817 shares of our common stock in a
private placement transaction pursuant to Regulation S promulgated under the
Securities Act of 1933, as amended, in exchange for all of the outstanding
shares of Management Resources International B.V.
38. On August 31, 2000 we issued 43,535 shares of our common stock in a
private placement transaction pursuant to Section 4(2) of the Securities Act of
1933, as amended, in exchange for all of the outstanding shares of Rich, Gardner
& Associates, Ltd.
39. On August 31, 2000 we issued 311,978 shares of our common stock in a
private placement transaction pursuant to Section 4(2) of the Securities Act of
1933, as amended, in an exchange for all of the issued and outstanding shares of
Stratascape, Inc.
40. On September 4, 2000 we issued 475,853 shares of our common stock in a
private placement transaction pursuant to Regulation S promulgated under the
Securities Act of 1933 as amended, in exchange for all of the outstanding shares
of QD Group Limited.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
2.1 Scheme Implementation Agreement, dated August 17, 1998,
between Morgan & Banks Limited and TMP Worldwide Inc.****
2.2 Agreement and Plan of Merger, dated as of March 11, 1999, by
and among TMP Worldwide Inc., TMP Florida Acquisition Corp.
and LAI Worldwide, Inc.*******
3.1 Certificate of Incorporation.***
3.2 Bylaws.***
4.1 Form of Common Stock Certificate.***
5.1 Opinion of Fulbright & Jaworski L.L.P. regarding legality.
10.1 Form of Employee Confidentiality and Non-Solicitation
Agreement.***
10.2 Form on Indemnification Agreement.***
10.3 1996 Stock Option Plan.***
10.4 Form of Stock Option Agreement under 1996 Stock Option
Plan.***
10.5 1996 Stock Option Plan for Non-Employee Directors.***
10.6 Form of Stock Option Agreement under 1996 Stock Option Plan
for Non-Employee Directors.***
10.7 Lease, dated as of October 31, 1978, between Telephone
Marketing Programs, Inc. and PDC Realty Inc. as agent for
MRI Broadway Rental, Inc., as modified by modifications
dated January, 1979 and June 20, 1999.***
10.8 Amendment and Restated Accounts Receivable Management and
Security Agreement, dated as of June 27, 1996, between TMP
Worldwide, Inc. and BNY Financial Corporation as amended by
Amendment No. 1 to Amended and Restated Accounts Receivable
Management and Security Agreement, dated as of August 29,
1996.***
10.9 Lease Agreement, dated as of June 1, 1996 by and between TPH
and AJM, a partnership, and Telephone Directory Advertising,
Inc.***
10.10 Agreement, dated as of March 17, 1998, between TMP Worldwide
Inc. and George Eisele, as amended by Amendment 1 to
Agreement, dated as of September 5, 1996.***
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.11 Management Agreement, dated as of January 1, 1996, between
Cala Services Inc. and Cala H.R.C. Ltd.***
10.12 Lease Agreement, dated May 15, 1993, between 12800 Riverside
Drive Corporation and TMP Worldwide Inc. as amended by
Amendment No. 1 to Lease Agreement, dated June 1, 1993.**
10.13 Indenture, dated April 29, 1998, between International
Drive, L.P. and Telephone Marketing Programs, Inc.***
10.14 Amended and Restated Employment Agreement, dated as of
September 11, 1996, between TMP Interactive Inc. and Jeffrey
C. Taylor.***
10.15 Second Amended and Restated Employment Agreement, dated
November 2, 1999, by and among TMP Worldwide, Inc., TMP
Interactive Inc. and Jeffrey C. Taylor.+++++
10.16 Amendment No. 1 to the Employment Agreement, dated
October 21, 1996, between TMP Worldwide Inc. and James J.
Treacy.+
10.17 Amendment No. 2 to Employment Agreement between TMP
Worldwide Inc. and James J. Treacy, effective as of
October 1, 1999.*****
10.18 Amendment No. 1 to Employment Agreement, dated November 15,
1998, between TMP Worldwide Inc. and Andrew J. McKelvey.+
10.19 Amendment No. 2 to Employment Agreement, dated May 1, 1999,
between TMP Worldwide Inc. and Andrew J. McKelvey.++++
10.20 Warrant Agreement, dated October 13, 1993, between TMP
Worldwide Inc. and BNY Financial Corporation, as amended by
an amendment dated December 31, 1995.***
10.21 Form of Option Agreement, dated as of January 1, 1995,
relating to options issued to shareholders and/or principals
of Kidd, Schneider & Dersch, Inc.***
10.22 Amendment No. 3 to Amended and Restated Accounts Receivable
Management and Security Agreement, dated as of May 15, 1997,
between BNY Financial Corporation and TMP Worldwide Inc.**
10.23 Management Agreement, dated June 1, 1997, between Dir-Ad
Services Inc./Les Services Dir-Ad Inc. and TMP Worldwide
Ltd.**
10.24 Third Amended and Restated Accounts Receivable Management
and Security Agreement, dated as of November 5, 1998,
between BNY Financial Corporation and TMP Worldwide Inc.+
10.25 Amendment No. 1 to Third Amended and Restated Accounts
Receivable Management and Security Agreement.******
10.26 Amendment No. 2 to Third Amended and Restated Accounts
Receivable Management and Security Agreement.******
10.27 Content License and Interactive Marketing Agreement, dated
as of December 1, 1999, between America Online, Inc. and TMP
Interactive Inc.*****
10.28 Indenture of Lease, dated December 13, 1999, between the 622
Building Company LLC and TMP Worldwide Inc.*****
10.29 Warranty and Indemnity Agreement, dated July 18, 2000,
relating to the entire issued share capital of QD Group
Limited, between Mr. G. Quarry and TMP Worldwide Inc.*
10.30 Agreement and Plan of Merger, dated August 31, 2000, by and
among TMP Worldwide Inc., Rich, Gardner & Associates, Ltd.,
Fred Rich and Furman Gardner.
10.31 Stock Purchase Agreement, dated August 31, 2000, by and
among TMP Worldwide Inc., Stratascape, Inc. and the
shareholders listed on Schedule A thereto.
21 Subsidiaries of the Company.**
23.1 Consent of Fulbright & Jaworski L.L.P. (included in 5.1).
23.2 Consent of BDO Seidman, LLP.
23.3 Consent of Pannell Kerr and Forster.
23.4 Consent of Arthur Andersen LLP.
23.5 Consent of BDO International GmbH.
23.6 Consent of Deloitte & Touche LLP.
23.7 Consent of Arthur Andersen.
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S>
23.8 Consent of BDO Seidman, LLP.
23.9 Consent of Finck, Rudnick & Company.
23.10 Consent of Arthur Andersen LLP.
24 Power of Attorney.*
</TABLE>
(b) Financial Statements and Schedules
The following financial statement schedules are filed herewith:
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants.......... S-1
Report of Independent Certified Public Accountants (with
respect to LAI Worldwide, Inc.)............................ S-2
Schedule II--Valuation and Qualifying accounts for the years
ended December 31, 1999, 1998 and 1997..................... S-3
</TABLE>
All other schedules are omitted because they are not required or are not
applicable or the information is included in the financial statements or notes
thereto.
------------------------
<TABLE>
<S> <C>
* Previously filed.
** Incorporated by reference to Exhibits to the Registration
Statement on Form S-1 (Registration No. 333-31657).
*** Incorporated by reference to Exhibits to the Registration
Statement on Form S-1 (Registration No. 333-12471).
**** Incorporated by reference to Exhibits to the Registration
Statement on Form S-3 (Registration No. 333-63499).
***** Incorporated by reference to Exhibits to the Registration
Statement on Form S-3 (Registration No. 333-93065).
****** Incorporated by reference to Exhibits to the Registration
Statements on Form S-3 (Registration No. 333-82531).
******* Incorporated by reference to Exhibits to the Registration
Statement on Form S-4 (Registration No. 333-82531).
+ Incorporated by reference to Exhibits to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1998 (Registration No. 000-21571).
++ Incorporated by reference to Exhibits to the Company's
Annual Report on Form 10-K/A for the year ended
December 31, 1997 (Registration No. 000-21571).
+++ Incorporated by reference to Exhibits to the Company's
Current Report on Form 8-K dated March 17, 1999.
++++ Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 1999
(Commission File No 000-21571).
+++++ Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended September 30,
1999 (Commission File No 000-21571).
</TABLE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
II-6
<PAGE>
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement; notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement of
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering;
(4) To file a post-effective amendment to the Registration Statement to
include any financial statements required by Rule 3-19.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person of the Registrant in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on September 15, 2000.
<TABLE>
<S> <C> <C>
TMP WORLDWIDE INC.
By: /s/ ANDREW J. MCKELVEY
-----------------------------------------
Andrew J. McKelvey
CHAIRMAN AND CEO
</TABLE>
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ANDREW J. MCKELVEY Chairman, CEO and Director
------------------------------------------- (PRINCIPAL EXECUTIVE September 15, 2000
Andrew J. McKelvey OFFICER)
/s/ JAMES J. TREACY Executive Vice President,
------------------------------------------- Chief Operating Officer September 15, 2000
James J. Treacy and Director
/s/ BART W. CATALANE Chief Financial Officer
------------------------------------------- (PRINCIPAL FINANCIAL AND September 15, 2000
Bart W. Catalane ACCOUNTING OFFICER)
*
------------------------------------------- Director September 15, 2000
George R. Eisele
*
------------------------------------------- Director September 15, 2000
Michael Kaufman
*
------------------------------------------- Director September 15, 2000
John Swann
*
------------------------------------------- Director September 15, 2000
Ronald J. Kramer
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ JAMES J. TREACY
--------------------------------------
James J. Treacy
ATTORNEY-IN-FACT
</TABLE>
II-8
<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
consolidated financial statements of TMP Worldwide Inc. and Subsidiaries,
included the audits of the 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 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 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
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>
S-1
<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 Item 16(b) of the
index of exhibits and financial statement schedules 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
S-2
<PAGE>
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(1) $ 4,123 $18,592
Year ended December 31, 1999.......... $18,592 $14,527 $ 283(1) $ 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.
S-3
