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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 000-21571
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TMP WORLDWIDE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 13-3906555
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
1633 BROADWAY, 33RD FLOOR, NEW YORK, NEW YORK 10019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
(212)977-4200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.001 per share
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes _X_ No ____
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $7,554,200,144 as of the close of business on
March 24, 2000.
The number of shares of Common Stock, $.001 par value, outstanding as of
March 24, 2000 was approximately 92,124,392.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be used in
connection with its Annual Meeting of Stockholders to be held on June 14, 2000
are incorporated by reference into Part III of this report.
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ITEM 1. 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.
Job seekers look to manage their careers through us by posting their resumes
on Monster.com(sm), by searching Monster.com(sm)'s database of over 383,000 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
OUR SERVICES
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. In
January 2000:
- Nielson I/Pro reported that Monster.com(sm) attracted more than
14 million visits with an average of over 15 minutes spent per visit
- Media Metrix reported that 5.3% of the U.S. Internet population visited
Monster.com(sm), reaching more than two and a half times as many unique
visitors as its closest competitor, and that an average of 29.8 unique
pages were viewed by each visitor
- Based on Media Metrix statistics, of all the time spent at online career
sites by online career site users, 54% of that time was spent at
Monster.com(sm) compared to 13% for its closest competitor. (These
percentages were based on the number of unique visitors multiplied by the
minutes spent per month on all career websites).
- Based on Media Metrix statistics, Monster.com(sm) reported a power ranking
of 157.9 (reach of 5.3 multiplied by average page views of 29.8), compared
to 36.0 for its closest competitor and 107.8 for its seven 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. Through Monster.com(sm), our clients have access to
over 3.2 million unique resumes of which over 2.2 million are active, and our
resume database is growing by an average of more than 10,000 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 2.5 million job
search agents, which allow our job seekers to express their specific job
preferences and
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receive e-mail notification of job matches, and 6.6 million My Monster job
seeker accounts, which allow our job seekers to manage their careers online. We
have also introduced Monster Talent Market, which allows independent
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 383,000 paid job postings currently on Monster.com(sm).
Although Monster.com(sm) had 2.0 million more unique visitors than its
nearest competitor in January 2000, as reported by Media Metrix, we continually
look for ways to drive and retain site traffic. In December 1999, we entered
into a content and marketing agreement with America Online, Inc. whereby, for
the payment of $100 million over four years, Monster.com(sm) would be the
exclusive provider for four years in the United States and Canada of career
search services to over 21 million AOL users across seven AOL brands: AOL, AOL
Canada, Compuserve, ICQ, AOL.com, Netscape and Digital City. (Please see "--Risk
Factors--Potential impact of third-party litigation on our agreement with AOL.")
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 and New
Zealand. For the year ended December 31, 1999, Monster.com(sm) generated
approximately $108.1 million in gross billings and $107.9 million in commissions
and fees. Our total Interactive gross billings and Interactive commissions and
fees for this period were $151.6 million and $133.5 million, respectively, and
includes amounts from Interactive related services from our traditional
recruitment advertising 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 $13.3 million, $5.9 million,
$5.0 million and $1.5 million, respectively.
RECRUITMENT ADVERTISING. We prospect talent for our clients through
recruiting programs that sell, market and brand employers to job seekers
searching for entry level positions to positions paying up to $100,000,
annually. As a full service agency 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
- designing and implementing interactive recruitment solutions
- internal employee communications and special events
- planning and executing on-campus recruitment programs
EXECUTIVE SEARCH AND SELECTION. We offer an advanced and comprehensive
range of search and selection services aimed at identifying the appropriate
professional or executive from mid-level to CEO for our clients. Executive
search identifies senior executives, those who typically earn in excess of
$250,000 annually and selection identifies mid-level professionals or
executives, who typically earn between $70,000 and $150,000, annually. We
entered the executive search field in 1998 because recruitment and online
advertising traditionally did not target the senior executive candidate. Our
specialized executive search and selection services include:
- identification of candidates
- competence measurement
- assessment of candidate/company cultural fit
- transaction negotiation and closure
With the expansion of our executive search services, we believe that we can
now accommodate all of our clients' employee recruitment needs. We also believe
that by providing this wide range of services to
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our clients we will once again add content and traffic to Monster.com(sm) and
broaden the universe of both job seekers and employers who use Monster.com(sm).
YELLOW PAGE ADVERTISING. We develop 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 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%. Directory 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 along with alternative
media programs, requires an extensive effort at the local level, and our yellow
pages sales, marketing and customer service staff of approximately 850 people
provides an important competitive advantage in marketing and executing
directory-based marketing programs.
We take a proactive approach to directory-based marketing 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%. In addition, during 1999, we acquired IN2,
Inc. ("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 their key business to the
Web, IN2 will provide them with complete online 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 Page Advertising Division--Interactive Direct Marketing
and Interactive Technologies.
FINANCIAL SUMMARY. For the year ended December 31, 1999, our consolidated
gross billings were $1.9 billion, commissions and fees were $765.8 million, net
loss was $7.4 million (net income of $39.0 million excluding the $46.4 million
after tax effect of merger and integration costs and restructuring charges) and
EBITDA was $49.2 million ($107.6 million after excluding the effect of merger
and integration costs and restructuring charges).
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
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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.
THE EXECUTIVE SEARCH AND SELECTION MARKET. 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 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. We also provide search
services on a retained or a contingency basis to identify for our clients the
mid-level professional, those who earn from $70,000 to $150,000, annually. We
refer to this as "selection".
THE TEMPORARY CONTRACTING MARKET. 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. Our gross revenue for temporary contracting
was $319.9 million for the year ended December 31, 1999. However, temporary
contracting commissions and fees reflect the net of (i) gross revenue reduced by
(ii) the cost of the temporary contractors. 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
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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
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 year ended December 31, 1999, Monster.com(sm)'s gross billings and
commissions and fees were $108.1 million and $107.9 million, respectively, and
our total Interactive gross billings and commissions and fees were
$151.6 million and $133.5 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 14 million
visits (the gross number of occasions on which a user looked up a site) in
January 2000 with the average length of each visit exceeding fifteen minutes.
Media Metrix reported that for January 2000, 5.3% of the U.S. Internet
population visited Monster.com(sm). In addition, for this month, an average of
29.8 unique pages were viewed by each visitor, resulting in a power ranking of
157.9 (reach of 5.3 multiplied by average page views of 29.8) compared to 36.0
for its nearest competitor and 107.8 for its seven 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 6.6 million job
seeker accounts as of March 24, 2000. Monster.com(sm)'s Job Search Agent
continuously seeks to find the desired
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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 March 24, 2000, Monster.com(sm) contained
over 2.5 million Job Search Agent profiles and its resume database contained
over 3.2 million resumes of which 2.2 million are active, and is growing by an
average of more than 10,000 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 March 24, 2000, Monster.com(sm) listed approximately 383,000 jobs 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.
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 and New Zealand.
RECRUITMENT ADVERTISING. We entered the recruitment advertising business in
1993 and have expanded this business through acquisitions and internal growth.
For the year ended December 31, 1999, we had recruitment advertising gross
billings of $811.8 million and recruitment advertising commissions and fees of
$178.1 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
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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.
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 year ended
December 31, 1999. In addition, interactive commissions and fees earned by this
division were $13.4 million for the year ended December 31, 1999.
EXECUTIVE SEARCH AND SELECTION. Traditionally, recruitment and online
advertising does not target the senior or mid-level 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 55 executive
search offices in 25 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 year ended
December 31, 1999, Executive Search and Selection gross billings and commissions
and fees were $298.9 million and $295.7 million, respectively. In addition,
Interactive commissions and fees earned by this division were $5.0 million for
the year ended December 31, 1999.
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;
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- 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.
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.
TEMPORARY CONTRACTING. We provide temporary contract employees in
Australia, New Zealand and the United Kingdom. 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 year ended December 31, 1999, gross billings were $57.1 million,
commissions and fees were $57.1 million and the related revenue, before
deducting the costs of temporary contractors, was $319.9 million. In addition,
Interactive commissions and fees were $1.5 million.
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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 year ended December 31, 1999 we had yellow page advertising
gross billings and commissions and fees of $532.3 million and $101.3 million,
respectively. This division also generated $5.9 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 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.
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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 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.
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.
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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 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.
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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.
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
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.
For the period April 1, 1998 through December 31, 1999, we completed 20
mergers which were accounted for as poolings of interests. The seven that we
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") in January 1999 (the "M&B Merger"). In connection with these mergers, we
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, we 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"). In connection with the Second Quarter 1999
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Mergers we 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, we 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, we 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, we 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 to the Company's Consolidated Financial Statements included elsewhere
herein). As a result, the financial position, results of operations, and
statements of 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
mergers that occurred during 1998 and 1999 had been issued for all periods
presented.
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.
RISK FACTORS
WE MAY NOT BE ABLE TO MANAGE OUR GROWTH
Our business has grown rapidly in recent periods. As an example, we
completed 71 mergers and acquisitions from January 1, 1997 through December 31,
1999. 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.
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THE ACCEPTANCE AND EFFECTIVENESS OF INTERNET ADVERTISING IS UNPROVEN
Use of the Internet by consumers is at an early stage of development, and
market acceptance of the Internet as a medium for information, entertainment,
commerce and advertising remains subject to a high level of uncertainty. Most of
our clients have only limited experience with the Internet as an advertising
medium and have not devoted a significant portion of their advertising budgets
to Internet-based advertising in the past. There can be no assurance that
advertisers will allocate or continue to allocate portions of their budgets to
Internet-based advertising. If Internet-based advertising is not widely accepted
by our clients, our business, financial condition and operating results,
including our expected rate of commissions and fees growth, will be materially
adversely affected. Although we generated Interactive gross billings of
$151.6 million and commissions and fees of $133.5 million for the year ended
December 31, 1999, our Interactive gross billings and commissions and fees as a
percentage of total gross billings and total commissions and fees for the year
ended December 31, 1999 were 8.2% and 17.4%, respectively, and we cannot assure
you that we will generate substantial Interactive-based commissions and fees in
the future.
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 DEPEND ON TRADITIONAL MEDIA
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 23.3% of our
total commissions and fees for the year ended December 31, 1999. We also receive
a substantial portion of our commissions and fees from placing advertising in
yellow page directories. This business constituted approximately 13.2% of total
commissions and fees for the year ended December 31, 1999. 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 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 in the United States or abroad. 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
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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.
POTENTIAL IMPACT OF THIRD-PARTY LITIGATION ON OUR AGREEMENT WITH AOL
On December 1, 1999, Monster.com(sm) entered into a content and marketing
agreement with AOL pursuant to which, for the payment of $100 million over four
years, Monster.com(sm) would be the exclusive provider for four years in the
United States and Canada of career search services to over 21 million AOL users
across seven AOL brands: AOL, AOL Canada, Compuserve, ICQ, AOL.com, Netscape and
Digital City.
Subsequent to this date, Digital City, Inc. ("DCI"), a subsidiary of AOL,
sent notice of termination of an advertising agreement with HotJobs.com.,
pursuant to which, among other things, HotJobs could purchase certain
advertisements from DCI and promote its content on DCI (the "HotJobs
Agreement"). By its terms, the HotJobs Agreement was to terminate on
November 14, 2000. HotJobs objected to the termination and on December 20, 1999,
commenced a lawsuit against DCI asking, among other things, that the Court
compel DCI to perform its obligations under the HotJobs Agreement and enjoin DCI
from entering into an exclusive agreement with any competitor of HotJobs. On
December 30, 1999, HotJobs filed a motion for temporary and permanent injunction
with the Court seeking such relief. By order dated March 8, 2000 (the "Order")
the Virginia State Court directed DCI to comply with the terms of the HotJobs
Agreement. On March 17, 2000, the same Court denied DCI's motion to stay
enforcement of the Order pending its appeal. We have been advised that DCI, on
March 23, 2000, filed an appeal of the Order with the Virginia Supreme Court. By
press release dated March 17, 2000, AOL reiterated its full commitment to its
long-term relationship with Monster.com(sm).
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 MAY NOT ACCEPT OUR INTERNET CONTENT
Our future growth depends in part on our ability to attract Internet users
who are valuable to our advertising clients. This in turn depends on our ability
to deliver original and compelling services to these Internet users. We cannot
assure you that our content will be attractive to enough Internet users to
generate material advertising commissions and fees. We also cannot assure you
that we will be able to anticipate, monitor and successfully respond to rapidly
changing consumer tastes and preferences to continue to attract a sufficient
number of Internet users to our Web sites.
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;
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- 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; and
- executive search & 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 and
selection, 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
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- 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. Executive search and selection fees also tend to be lowest in the
fourth quarter. Additionally, recruitment advertising commissions and fees and
executive search and selection fees are more cyclical than yellow page
advertising commissions and fees. To the extent that a significant percentage of
our commissions and fees are derived from recruitment advertising and executive
search and selection, 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.
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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 OFF-LIMITS 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 an "off-limits" arrangement. Off-limits
arrangements generally remain in effect for one or two years following
completion of an assignment. The actual duration and scope of any off-limits
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. Off-limits
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, off-limits
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. In 1999 approximately 46% 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.
19
<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 approximately 21.8 million shares of our common stock, which together
represent approximately 51.4% 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, fluctuations in commissions and fees from our
traditional advertising and executive search and selection businesses and 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
20
<PAGE>
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 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 CASH DIVIDENDS
We currently intend to retain earnings, if any, to support our growth
strategy. We do not anticipate paying cash dividends on our stock in the
foreseeable future. In addition, payment of cash dividends on our stock is
restricted by our financing agreement.
21
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers 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
George R. Eisele.......................... 63 Executive Vice President of TMP Worldwide
Direct and Director
Bart W. Catalane.......................... 43 Senior Vice President and Chief Financial
Officer
Myron F. Olesnyckyj....................... 38 Vice President--General Counsel
</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 Pages
Publishers Association and the Association of Directory Marketing from 1994
through September 1996.
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.
George R. Eisele joined the Company in 1976, and has been Executive Vice
President of TMP Worldwide 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
22
<PAGE>
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.
ITEM 2. PROPERTIES
Substantially all of our offices are located in leased premises.
Our principal office is located at 1633 Broadway, New York, New York, where
we occupy approximately 44,000 square feet of space under a lease expiring in
June 2004. Monthly payments under the lease currently are approximately $108,000
and escalate during the term of the lease. The Company plans to move its
principal office to 622 Third Avenue, New York, NY, where, along with its New
York Executive Search and Selection operations, it will occupy 104,000 square
feet under a 15 year 8 month lease beginning in July 2000 and expiring in 2015.
Monthly payments under the new lease will be $416,000 and will 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.
ITEM 3. LEGAL PROCEEDINGS
We are involved in various legal proceedings that are incidental to the
conduct of our business. We are not involved in any pending or threatened legal
proceedings which we believe could reasonably be expected to have a material
adverse effect on our financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
23
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Our stock is quoted on the Nasdaq National Market under the ticker symbol
"TMPW." 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.
<TABLE>
<CAPTION>
YEAR ENDED 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.............................................. $80.19 $25.00
</TABLE>
<TABLE>
<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 1,765 stockholders of record of our common stock on
March 24, 2000. On March 24, 2000, the last reported sale price of our stock as
reported by Nasdaq was $82.00.
DIVIDENDS
The Company has never paid cash dividends on its common stock and does not
anticipate paying any cash dividends on its common stock in the foreseeable
future; it intends to retain its earnings to finance the expansion of its
business and for general corporate purposes. Any payment of dividends will be at
the discretion of the Company's Board of Directors and will depend upon the
earnings, financial condition, capital requirements, level of indebtedness,
contractual restrictions with respect to payment of dividends and other factors.
The Company's revolving credit agreement restricts the payment of dividends
without the prior written consent of the lenders.
ISSUANCE OF UNREGISTERED SECURITIES
On October 21, 1999, we issued 1,398,666 shares of our common stock to the
former members of Highland Search Group L.L.C., a Delaware Limited Liability
Company, in a private placement transaction. Furthermore, throughout October and
November 1999, we committed to issue an aggregate of 320,240 shares of our
common stock to the employees of Highland Search Group L.L.C. in a private
placement transaction. These securities were issued pursuant to the exemption
contained in Section 4(2) of the Securities Act of 1933, as amended (the "Act").
On October 27, 1999, we issued 118,560 shares of our common stock to the
former stockholders of TMC S.r.l., an Italian corporation, in a private
placement transaction. These securities were issued pursuant to the exemption
contained in Regulation S promulgated under the Act.
On November 18, 1999, we issued 22,176 shares of our common stock to the
former stockholders of Cowles Mitchell Beadon, a New Zealand corporation, in a
private placement transaction. These securities were issued pursuant to the
exemption contained in Regulation S promulgated under the Act.
On November 23, 1999, we issued 36,892 shares of our common stock to the
former stockholders of Cepec Consulting Limited, a company incorporated under
the laws of the United Kingdom, in a private placement transaction. These
securities were issued pursuant to the exemption contained in Regulation S
promulgated under the Act.
24
<PAGE>
On November 24, 1999, we issued 11,252 shares of our common stock to the
former stockholders of AZ Consultores S.L., a Spanish corporation, in a private
placement transaction. These securities were issued pursuant to the exemption
contained in Regulation S promulgated under the Act.
On December 1, 1999, we issued 40,000 shares of our common stock to the
former stockholders of Postal Works, a New York general partnership, in a
private placement transaction. These securities were issued pursuant to the
exemption contained in Section 4(2) of the Act.
On December 10, 1999, we issued 9,878 shares of our common stock to the
former stockholders of Fox Advertising Inc., a Texas corporation, in a private
placement transaction. These securities were issued pursuant to the exemption
contained in Section 4(2) of the Act.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Commissions and fees...................... $765,805 $657,486 $541,828 $399,039 $304,961
Operating expenses:
Salaries & related...................... 436,255 382,689 310,168 232,249 175,710
Office & general........................ 179,580 165,538 140,657 108,199 83,893
Marketing & promotion................... 64,874 24,666 12,167 6,992 4,364
Merger & integration.................... 63,054 22,412 -- -- --
Restructuring........................... 2,789 3,543 -- -- --
Amortization of intangibles............. 11,430 10,185 6,866 4,732 3,363
Special compensation and CEO bonus(1)... -- 1,250 1,500 52,019 --
Total operating expenses.................. 757,982 610,283 471,358 404,191 267,330
Operating income (loss)................... 7,823 47,203 70,470 (5,152) 37,631
Other income (expense):
Interest expense, net(2)................ (8,803) (9,828) (8,443) (14,358) (10,345)
Other, net.............................. (568) (2,042) 821 (370) (860)
Income (loss) before provision for income
taxes, minority interests and equity in
earnings (losses) of affiliates......... (1,548) 35,333 62,848 (19,880) 26,426
Provision for income taxes................ 5,450 14,367 20,565 11,058 10,031
Net income (loss) applicable to common and
Class B common stockholders............. (7,405) 20,542 41,831 (32,051) 15,099
Net income (loss) per common and Class B
common share:
Basic................................... $ (0.09) $ 0.27 $ 0.58 $ (0.52) $ 0.25
Diluted................................. $ (0.09) $ 0.26 $ 0.57 $ (0.52) $ 0.24
Weighted average shares outstanding:
Basic................................... 79,836 77,472 72,666 61,908 61,024
Diluted................................. 79,836 79,278 73,908 61,908 62,254
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- --------
(IN THOUSANDS, EXCEPT NUMBER OF EMPLOYEES AND OFFICES)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Gross Billings:
Interactive (3)................... $ 151,623 $ 56,666 $ 20,553 $ 6,939 $ 392
Recruitment Advertising........... 811,836 849,563 642,872 369,979 228,984
Executive Search and Selection.... 298,861 277,304 244,153 194,848 152,707
Temporary Contracting (4)......... 57,138 46,989 41,285 29,210 20,052
Yellow Page Advertising........... 532,258 520,129 497,848 466,230 442,287
---------- ---------- ---------- ---------- --------
Total Gross Billings................ $1,851,716 $1,750,651 $1,446,711 $1,067,206 $844,422
========== ========== ========== ========== ========
Total operating expenses as a
percentage of commissions and
fees.............................. 99.0% 92.8% 87.0% 101.3% 87.7%
Number of employees................. 6,409 6,278 5,651 3,910 2,652
Number of offices................... 256 254 213 161 118
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets............................ $556,879 $475,082 $444,144 $321,761 $264,244
Current liabilities....................... 564,974 431,443 414,278 320,038 261,018
Total assets.............................. 944,655 802,535 721,066 475,519 364,996
Long-term liabilities, less current
portion................................. 99,157 141,833 139,912 84,519 93,877
Minority interests........................ 9 509 431 3,705 3,608
Redeemable preferred stock................ -- -- -- 2,000 2,000
Total stockholders' equity................ 280,515 228,750 166,445 65,257 4,493
</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 consist 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. See Note 14(B) to the Company's Consolidated Financial
Statements included elsewhere herein.
(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 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.
26
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements in this Annual Report on Form 10-K concerning our business
outlook or future economic performance, anticipated profitability, gross
billings, commissions and fees, expenses or other financial items and statements
concerning assumptions made or exceptions as to any future events, conditions,
performance or other matters are "forward-looking statements" as that term is
defined under the federal securities laws. Forward-looking statements are
subject to risks, uncertainties and other factors which would cause actual
results to differ materially from those stated in such statements. (Please see
"Business--Risk Factors" for more information).
OVERVIEW
A substantial part of our growth in Recruitment Advertising, Yellow Page
Advertising and Executive Search and Selection has been achieved through
acquisitions. For the period January 1, 1997 through December 31, 1999, we
completed 51 acquisitions which were accounted for under the purchase method and
which had estimated annual gross billings of approximately $429 million, based
on annual gross billings for the fiscal year immediately preceding the
respective acquisition. Given the significant number of acquisitions in each of
the periods presented, the results of operations from period to period may not
necessarily be comparable. In addition, for the period April 1, 1998 through
December 31, 1999, we completed 20 mergers which were accounted for as poolings
of interests.
Of the pooling of interests mergers, the seven 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") in January 1999
(the "M&B Merger"). In connection with these mergers, we 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, we 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"). In connection with the Second Quarter 1999 Mergers we 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. From July 1, 1999
through September 30, 1999, we 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 we 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, we 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 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 to the Company's
Financial Statements included elsewhere herein). As a result, the Company's
financial position, results of operations, and statements of comprehensive
income (loss) and cash flows 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
27
<PAGE>
with such mergers had been issued for all periods presented. In addition, the
results of Brook St. for the six months ended June 30, 1999 and the results of
LAI for the two months ended February 28, 1999 are included in the Consolidated
Statements of Operations for both the year ended December 31, 1998 and the year
ended December 31, 1999. Therefore this results in the inclusion of the
following amounts in both periods of (a) commissions & fees of $11.1 million and
(b) a net loss of $3.8 million or $(0.10) per diluted share.
Gross billings refer to billings for advertising placed on the Internet, in
newspapers and telephone directories by our clients, and associated fees for
related services, fees earned for search and selection and related services, and
net fees from temporary contracting services. 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 businesses directly impact the
commissions and fees earned, because, for Recruitment Advertising and Yellow
Page Advertising, 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. Publishers and third party Web sites
typically bill us for the advertising purchased on the web site and we in turn
bill our clients for this amount. Generally, the payment terms with yellow page
advertising clients require payment to us prior to the date payment is due to
publishers. The payment terms with recruitment advertising clients typically
require payment when payment is due to publishers. Historically, we have not
experienced substantial problems with unpaid accounts.
Commissions and fees related to our Interactive business are derived from:
- job postings and access to the resume database and related services
delivered via the Internet, primarily our own Web site, Monster.com(sm);
- 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;
- Searches for permanent employees and selection services conducted through
the Internet; and
- Internet advertising services provided to our yellow page advertising
clients.
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, 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.
Through our executive search and selection services, we identify and screen
candidates for hiring based on criteria established by our clients. We entered
the executive search business in 1998 by acquiring JSK, the 12th largest
executive search firm in the U.S. according to Kennedy Publications, an official
ranking service for the search industry, TASA, an international executive search
firm, both of which were accounted for as poolings of interests, and five
regional European firms, including TCG, whose acquisition was accounted for as a
pooling of interests. In the first quarter of 1999 we merged with M&B, the
largest mid level selection firm in Australia, in a pooling of interests
transaction and acquired two European executive search and selection firms (one
with operations in eastern Europe and one in Belgium). In the second quarter of
1999, in pooling of interests transactions, we merged with three companies with
executive search and selection operations, M&L in the Netherlands, L&L in the
United States and Interquest in Australia. In the third quarter of 1999, in a
pooling of interests transaction, we merged with LAI, the 5th largest executive
search firm in the U.S. (according to Hunt-Scanlon Publishing, Inc., a
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publication that follows the executive search industry). In the fourth quarter
of 1999, in pooling of interests transactions, we merged with Highland, based in
the United States, and Amrop Italy. We provide executive search services on a
retained basis whereby we are generally paid a contractually agreed-to fee.
In addition, we expanded our temporary contracting services in Australia,
New Zealand and the United Kingdom with the additions of Brook St. and Lampen,
which also have selection operations in those regions. In general, we bill our
temporary contracting clients for the cost of the temporary contract employees
plus a profit margin for providing the service. Commissions and fees for
temporary contracting, however, are reported in our financial statements net of
the costs of the temporary contractors.
We design and execute yellow page advertising, receiving an effective
commission rate from directory publishers which historically approximated 20% of
yellow page advertising gross billings. However, due to reductions in commission
rates by the publishers and higher discounts granted by us to clients, the rate
has declined and for 1999 is approximately 19% and is expected to decline to
approximately 17% to 18% by the middle of 2000. In general, publishers consider
orders renewed unless formally canceled. In addition to base commissions,
certain yellow pages publishers pay increased commissions for volume placement
by advertising agencies. We typically recognize this additional commission, if
any, in the fourth quarter when it is certain that such commission has been
earned. The amounts reported in the fourth quarters of 1999, 1998 and 1997 were
$0.1 million, $0.9 million and $2.2 million, respectively and reflect a phasing
out of such incentives by the publishers.
Interactive commissions and fees increased from $19.5 million in 1997 to
$133.5 million in 1999 reflecting an increase in the acceptance of our
Interactive products by existing and new clients and the effect of increased
sales and marketing activities. Recruitment Advertising commissions and fees
increased from $134.3 million in 1997 to $178.1 million in 1999 as a result of
acquisitions made from January 1, 1997 through December 31, 1999, which are
included in our financial statements using the purchase method of accounting
from their respective dates of acquisition, and organic growth. Executive Search
and Selection commissions and fees grew from $242.8 million in 1997 to
$295.7 million in 1999 primarily as a result of increased demand for permanent
professional employees worldwide, particularly in mid-level management positions
(annual salaries ranging from $75,000 - $150,000). Temporary Contracting
commissions and fees increased from $41.3 million in 1997 to $57.1 million in
1999, reflecting a greater demand for executive and information technology
temporary contract personnel. Yellow Page Advertising commissions and fees
decreased from $103.9 million in 1997 to $101.3 million in 1999, 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. We are continuously monitoring the marketplace for opportunities
to expand our presence in recruitment advertising on the Internet, executive
search and selection, temporary contracting and yellow page advertising and
intend to continue our acquisition strategy to supplement our internal growth
and the expansion of our businesses.
Based on our consolidated results for the years ended December 31, 1999,
1998 and 1997, 46%, 44%, and 42%, respectively, of our consolidated commissions
and fees were attributable to clients outside the U.S.
Our total operating expenses have increased significantly since 1997
primarily as a result of acquisitions and added expenses to support gross
billings growth for our Interactive, recruitment advertising and executive
search and selection businesses and marketing and promotion for our Interactive
business.
Salaries and related costs increased $126.1 million to $436.3 million for
the year ended December 31, 1999 from $310.2 million for the year ended
December 31, 1997, a 40.7% increase, supporting a $405.0 million or a 28.0%
increase in gross billings over the same period. When measured as a percent of
gross billings, salaries and related costs for the year ended December 31, 1999
were 23.6%, compared to
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21.4% for the comparable 1997 period. Salaries and related costs include total
payroll and associated benefits as well as payroll taxes, sales commissions,
recruitment fees and training costs.
Office and general expenses increased $38.9 million to $179.6 million for
the year ended December 31, 1999 from $140.7 million for the year ended
December 31, 1997, a 27.7% increase. This increase is due primarily to increased
costs needed to support the increased gross billings and the expansion of
Interactive, Recruitment Advertising and Executive Search and Selection offices
through acquisitions in the U.S., Europe and the Asia Pacific region. When
measured as a percent of gross billings, office and general expenses for the
year ended December 31, 1999 were 9.7%, flat with the comparable 1997 period.
This cost category includes expenses for office operations, market research for
yellow page advertising clients and fees paid to our primary lending institution
for its services in the processing and collection of payments for accounts
receivable, gains or losses from the sale of operating assets, and costs
associated with legal settlements.
Marketing and promotion costs increased 433.2% or $52.7 million to
$64.9 million from $12.2 million as a result of spending to promote the growth
of our Interactive business. When measured as a percent of gross billings,
marketing and promotion expenses for the year ended December 31, 1999 were 3.5%,
a substantial increase from 0.8% for the comparable 1997 period.
Merger and integration costs are expenses incurred in connection with
business combinations accounted for under the pooling of interests method of
accounting. In general, these 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), stay
bonuses, costs to eliminate redundant facilities and personnel, costs to
integrate operations of the pooled entities and acceleration of benefits and
separation pay in accordance with pre-existing contractual change in control
provisions.
For the year ended December 31, 1999, we expensed merger and integration
costs of $63.1 million compared with $22.4 million for the same period in 1998,
an increase of $40.7 million or 181.3%. These costs are related to the 1998
Mergers and the mergers that occurred during 1999. The increase of
$40.7 million primarily resulted from the pooling of interests transactions that
occurred in the quarter ended September 30, 1999, including the merger with LAI,
and the planned integration of such companies. The increase is due to:
(1) $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 (2) $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 (3) $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 with our 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 earnings per share is
$(0.53) and $(0.21) for the year ended December 31, 1999 and 1998, respectively.
We expect to incur additional integration costs in connection with the Third
Quarter 1999 Mergers in future periods. These costs will be primarily related to
severance and will be recorded when the associated integration plans are
finalized. Furthermore, we will incur merger and integration costs associated
with the Fourth Quarter 1999 Mergers, including amortization of the cost of
320,240 shares of our common stock that were issued as stay bonuses to certain
key employees of Highland and that will vest one year from the date of grant.
For the year ended December 31, 1998, we expensed merger and integration
costs of $22.4 million in connection with the 1998 Mergers and the M&B Merger.
These costs consist of (1) $11.9 million of non-cash employee stay bonuses,
(2) $1.5 million of stay bonuses paid as cash to key personnel of the 1998
Pooled Companies and (3) $9.0 million of transaction related costs, including
legal, accounting and advisory fees and the costs incurred for the subsequent
registration of shares issued in the mergers
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<PAGE>
Restructuring charges for the year ended December 31, 1999 were
$2.8 million compared to $3.5 million for the prior year or, on an after tax
basis, $(0.02) and $(0.03) per diluted share, respectively. These charges relate
to LAI's closing of its London and Hong Kong offices, and include the write-off
of leasehold improvements and fixed assets, severance benefits and costs for
consolidation of facilities related to the restructuring.
Amortization of intangibles includes amortization of acquisition related
charges, including the costs in excess of fair market value of net assets of
business acquisitions accounted for under the purchase method and capitalized
costs for non-compete arrangements with the principals of acquired companies.
This acquisition related amortization was $11.4 million, $10.2 million and
$6.9 million for the years ended December 31, 1999, 1998 and 1997, respectively.
The special CEO bonus for the years ended December 31, 1998 and 1997 of
$1.3 million and $1.5 million reflects non-cash charges, recorded in compliance
with Staff Accounting Bulletin No. 79 ("SAB 79"), for a bonus mandated by Andrew
J. McKelvey's employment contract, even though such bonus was irrevocably
waived. The contractual obligation to pay such bonus was eliminated as of
November 1998.
Net interest expense includes interest: (i) on loans made by our primary
lender under our financing agreement with such lender, (ii) to certain vendors,
(iii) on capitalized lease obligations, (iv) on net amounts payable to the
holders of seller financed notes and (v) on a term loan related to the purchase
of certain transportation equipment.
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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>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
GROSS BILLINGS:
Interactive(1)........................................... $ 151,623 $ 56,666 $ 20,553
Recruitment Advertising.................................. 811,836 849,563 642,872
Executive Search and Selection........................... 298,861 277,304 244,153
Temporary Contracting(2)................................. 57,138 46,989 41,285
Yellow Page Advertising.................................. 532,258 520,129 497,848
---------- ---------- ----------
Total.................................................... $1,851,716 $1,750,651 $1,446,711
========== ========== ==========
COMMISSIONS AND FEES:
Interactive(1)........................................... $ 133,539 $ 50,158 $ 19,470
Recruitment Advertising.................................. 178,141 177,774 134,291
Executive Search and Selection........................... 295,693 276,110 242,841
Temporary Contracting(2)................................. 57,138 46,989 41,285
Yellow Page Advertising.................................. 101,294 106,455 103,941
---------- ---------- ----------
Total.................................................... $ 765,805 $ 657,486 $ 541,828
========== ========== ==========
COMMISSIONS AND FEES AS A PERCENTAGE OF GROSS BILLINGS:
Interactive(1)........................................... 88.1% 88.5% 94.7%
Recruitment Advertising.................................. 21.9% 20.9% 20.9%
Executive Search and Selection........................... 98.9% 99.6% 99.5%
Temporary Contracting(2)................................. 100.0% 100.0% 100.0%
Yellow Page Advertising.................................. 19.0% 20.5% 20.9%
Total.................................................... 41.4% 37.6% 37.5%
EBITDA(3)................................................ $ 49,240 $ 79,075 $ 92,420
Cash provided by operating activities.................... $ 93,832 $ 63,617 $ 51,251
Cash used in investing activities........................ $ (58,798) $ (66,519) $ (89,726)
Cash provided by (used in) financing activities.......... $ (50,761) $ 20,093 $ 65,524
Effect of exchange rate changes on cash.................. $ (950) $ (7) $ (298)
</TABLE>
- ------------------------
(1) Represents fees earned in connection with recruitment, yellow page and other
advertisements placed on the Internet and employment searches and temporary
contracting services sourced through the Internet.
(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
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<PAGE>
prepared in accordance with generally accepted accounting principles or as a
measure of our profitability or liquidity. EBITDA for the indicated periods
is calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
EBITDA CALCULATION 1999 1998 1997
- ------------------ -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income (loss)........................................... $(7,405) $20,542 $41,954
Interest expense, net....................................... 8,803 9,828 8,443
Income tax expense.......................................... 5,450 14,367 20,565
Depreciation and amortization............................... 42,392 34,338 21,458
------- ------- -------
EBITDA...................................................... $49,240 $79,075 $92,420
======= ======= =======
</TABLE>
THE YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
Gross billings for the year ended December 31, 1999 were $1,851.7 million, a
net increase of $101.0 million or 5.8% from $1,750.7 million for the year ended
December 31, 1998. Total commissions & fees for the year ended December 31, 1999
were $765.8 million, an increase of $108.3 million or 16.5% from $657.5 million
for the year ended December 31, 1998. Interactive commissions & fees for the
year ended December 31, 1999 were $133.5 million, an increase of 166.2% or
$83.3 million as compared with $50.2 million for the year ended December 31,
1998. This increase in Interactive commissions & 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 & fees of
$178.1 million for the year ended December 31, 1999 were virtually flat compared
with $177.8 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. Executive Search and Selection
commissions & fees were $295.7 million, an increase of $19.6 million or 7.1%
from $276.1 million for the comparable year of 1998, due primarily to
acquisitions and growth in continental Europe, offset by a decline in executive
search due to a loss of consultants, as anticipated, at LAI and TASA, which
resulted from the merger & integration of these companies. Temporary Contracting
commissions & fees were $57.1 million, up $10.1 million or 21.6% from
$47.0 million for the period ended December 31, 1998. TMP's temporary
contracting operations are primarily conducted in Australia and New Zealand. The
21.6% increase reflects an increase in the number of contractors placed,
particularly information technology personnel and executives, which have higher
margins than general and support staff. Yellow Page Advertising commissions &
fees were $101.3 million for the year ended December 31, 1999, a decrease of
$5.2 million or 4.8% from $106.5 million for the year ended December 31, 1998,
reflecting substantially reduced commission rates and year-end incentives paid
by publishers and the effects of higher discounts for certain clients offset, in
part, by the benefits from higher gross billings, internal growth and
acquisitions.
Operating expenses for the year ended December 31, 1999 were $758.0 million
compared with $610.3 million for the same period in 1998. The increase of
$147.7 million or 24.2% is due to $53.6 million more in salary and related
costs, an increase of $40.7 million in merger & integration costs related to
mergers accounted for as poolings of interests, $40.2 million more in marketing
and promotion expenses to support our expanding Interactive operations, and
$14.1 million more in office and general expenses.
Salaries and related costs for the year ended December 31, 1999 were
$436.3 million or 57.0% of total commissions & fees, compared with
$382.7 million or 58.2% of total commissions & fees for the same period in 1998.
The increase of $53.6 million or 14.0% is primarily due to increased staff for
the expansion
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<PAGE>
of our Interactive operations, especially Monster.com(sm), and acquisitions in
Executive Search and Selection.
Office and general expenses for the year ended December 31, 1999 were
$179.6 million or 23.4% of total commissions & fees, compared with
$165.5 million or 25.2% of commissions & fees for the same period in 1998. The
increase of $14.1 million or 8.5% 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 $40.2 million to $64.9 million
for the year ended December 31, 1999 from $24.7 million for the year ended
December 31, 1998, a 163.0% 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 due to:
(1) $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 resulting from a loss of executive
search consultants, (2) $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 (3) $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 earnings per
share is $(0.53) and $(0.21) 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, on an after tax basis $(0.03) per diluted share for the year
ended December 31, 1998. These charges relate to LAI's closing of its London and
Hong Kong offices. 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 $39.4 million or 83.4% to $7.8 million from $47.2 million for the
comparable period last year.
Net interest expense for the year ended December 31, 1999 was $8.8 million,
a decrease of $1.0 million or 10.4% from $9.8 million for the same period in
1998, reflecting lower interest rates and borrowing costs resulting from the
amended and restated financing agreement entered into on November 5, 1998 and
lower borrowings.
Taxes on income for the year ended December 31, 1999 were $5.5 million on a
$1.5 million pretax loss compared with a tax expense of $14.4 million on a
$35.3 million pretax profit. The provisions reflect expenses that are not tax
deductible; these are primarily related to merger costs from pooling of
interests transactions and amortization of intangible assets. For both periods
the provision is benefited by profits from Highland and certain other pooled
entities which were not taxed at the corporate level prior to the 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 $0.09 per
diluted share, a decrease of $0.35 per share or 134.6% from the net income of
$0.26 per diluted share for the comparable 1998 period.
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<PAGE>
THE YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
Gross billings for the year ended December 31, 1998 were $1,750.7 million, a
$304.0 million or 21.0% increase when compared to gross billings of
$1,446.7 million for the year ended December 31, 1997. This increase in gross
billings resulted primarily from acquisitions in Recruitment Advertising and
growth in our Executive Search & Selection and Interactive businesses.
Total commissions & fees for the year ended December 31, 1998 were
$657.5 million, an increase of $115.7 million or 21.3% from $541.8 million for
the year ended December 31, 1997. Interactive commissions & fees for the year
ended December 31, 1998 were $50.2 million, an increase of 157.6% or
$30.7 million from $19.5 million for the year ended December 31, 1997. The
increase in Interactive commissions & 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 & fees were $177.8 million for the
year ended December 31, 1998 compared with $134.3 million for the year ended
December 31, 1997, an increase of $43.5 million or 32.4%. This increase was
primarily due to (1) acquisitions, which contributed approximately
$25.1 million, and (2) 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 and Selection commissions & fees were
$276.1 million compared with $242.8 million for the year ended December 31,
1997, an increase of $33.3 million or 13.7%, due primarily to acquisitions and
increased business from existing clients and new clients. Temporary Contracting
commissions & fees increased to $47.0 million from $41.3 million, an increase of
$5.7 million or 13.8%. This increase is primarily due to a greater number of
temporary contract workers placed during 1998 as compared with the prior period,
and reflects growth in the executive temporary contracting business, and to a
lesser extent growth for clerical and support staff. Yellow Page Advertising
commissions & 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.
Total operating expenses for the year ended December 31, 1998 were
$610.3 million, compared with $471.4 million for 1997. The increase of
$138.9 million or 29.5% is due primarily to acquisitions and internal growth,
together with the addition of $22.4 million for merger & 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.
Salaries and related costs for the year ended December 31, 1998 were
$382.7 million or 58.2% of total commissions & fees, compared with
$310.2 million or 57.2% of total commissions & fees for the same period in 1997,
representing an increase of $72.5 million or 23.4%. This increase reflects
acquisitions in Executive Search and Selection and Recruitment Advertising and
growth in Interactive operations.
Office and general expenses increased $24.8 million to $165.5 million for
the year ended December 31, 1998, as compared with $140.7 million for the prior
period primarily due to acquisitions and other expenses to grow our Interactive
businesses. As a percent of total commissions & fees, office and general
expenses decreased to 25.2% for the year ended December 31, 1998 from 26.0% for
the year ended December 31, 1997.
Marketing and promotion expenses increased $12.5 million to $24.7 million
for the year ended December 31, 1998 from $12.2 million for the year ended
December 31, 1997, a 102.7% increase due to increased marketing for our
Interactive operations, especially Monster.com(sm).
In connection with the 1998 Mergers and the M&B Merger, we expensed
merger & integration costs of $22.4 million for the year ended December 31,
1998, consisting of (1) $11.9 million of non-cash employee stay bonuses, which
included (a) $3.6 million for the amortization for TMP shares set aside for
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<PAGE>
key personnel of JSK and TCG, who must remain employees for a full year in order
to earn such shares and (b) $8.3 million for TMP shares to key personnel of TASA
and Stackig as employee stay bonuses, (2) $1.5 million of stay bonuses paid as
cash to key personnel of one of the companies merged in 1998 and
(3) $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 $(0.21) per diluted share. (See Notes 1 and 5 to the
Company's Consolidated Financial Statements included elsewhere herein.)
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 to significantly curtail the operations of its international office
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 $10.2 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 & fees, amortization of intangibles was 1.5% and
1.3% for the year ended December 31, 1998 and 1997, respectively.
As a result of all of the above, operating income decreased $23.3 million to
$47.2 million for the year ended December 31, 1998 as compared with operating
income of $70.5 million for the year ended December 31, 1997 and, as a percent
of total commissions & fees, operating income decreased to 7.2% from 13.0%.
Net interest expense increased $1.4 million to $9.8 million for the year
ended December 31, 1998 as compared to $8.4 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 10.8% for
the year ended December 31, 1998 compared with 10.4% for the year ended
December 31, 1997.
Taxes on income decreased $6.2 million to $14.4 million for the year ended
December 31, 1998 from $20.6 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 1998 Mergers and the M&B
Merger.
For the year ended December 31, 1998, equity in losses of 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 $20.5 million for the year ended December 31,
1998, or $0.26 per diluted share, compared with net income of $41.8 million, or
$0.57 per diluted share for the year ended December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements have been to fund (i) acquisitions,
(ii) working capital, (iii) capital expenditures and (iv) marketing and
development of our Interactive business. Our working capital requirements are
generally higher in the quarters ending March 31 and June 30 during which
payments to the major yellow page directory publishers are at their highest
levels. We have met our liquidity needs over the last three years through
(a) funds provided by operating activities, (b) equity offerings, (c) long-term
borrowings and (d) capital leases. 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 received from the initial
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<PAGE>
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. LAI completed its initial public offering
of common stock on July 1, 1997. The proceeds of $25.4 million, net of
underwriters' discounts and other offering costs, were used to repay outstanding
indebtedness under LAI's credit facilities, finance business acquisitions and
provide additional working capital. In 1998, LAI received $41.6 million in net
proceeds from its second public offering. 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. In February, 2000 we completed our third public offering, which
resulted in net proceeds of $595.3 million of which $82 million was used to pay
down debt on the Company's credit line. (See Note 17 to the Company's
Consolidated Financial Statements included elsewhere herein.)
Net cash provided by operating activities for the years ended December 31,
1999, 1998 and 1997 was $93.8 million, $63.6 million and $51.3 million,
respectively. The increase in cash of $30.2 million from operating activities
for 1999 over 1998 was primarily due to (a) the net increase in funds from a
$48.9 million greater increase in deferred revenue, primarily from
Monster.com(sm), for the 1999 period over the 1998 period, (b) a $7.0 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) a
$13.2 million net increase in the use of funds from increases in accounts
receivable over increases in accounts payable, accrued expenses and other
liabilities, for the 1999 period over the 1998 period, (ii) a $2.0 million
increase in work-in-process and prepaid and other assets and (iii) a
$10.5 million decline in earnings after adjusting for non-cash items. The
increase in cash of $12.3 million from operating activities for 1998 over 1997
was primarily due to an increase of $17.9 million in accounts payable, accrued
expenses and other current liabilities, a $12.9 million increase in depreciation
and amortization costs, $8.3 million for the utilization of our common stock to
pay bonuses, a decrease of $7.3 million in accounts receivable, $2.9 million
from the net loss on disposal of fixed assets and a $3.2 million increase in
deferred revenue, partially offset by decreases in net income of $21.4 million,
$7.9 million in deferred income taxes and $10.7 million in work-in-process,
prepaid and other assets. 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 $10.1 million, with a corresponding increase to intangible assets, and
reduced by payments of $13.6 million, leaving a restructuring reserve at
December 31, 1998 of $16.7 million. (See Note 5 to the Company's Consolidated
Financial Statements included elsewhere herein.)
EBITDA was $49.2 million for the year ended December 31, 1999, a decrease of
$29.9 million or 37.7% from $79.1 million for the year ended December 31, 1998.
The decrease primarily reflects, for the 1999 period, a $39.4 million decrease
in operating profits partially offset by $8.1 million more in depreciation and
amortization costs and $8.9 million less in income taxes. As a percentage of
commissions & fees, EBITDA decreased to 6.4% for the year ended December 31,
1999 as compared with 12.0% for the year ended December 31, 1998. The lower
percent reflects the increase in merger & integration and restructuring costs,
which were 8.6% and 3.9% of commissions & fees for the 1999 and 1998 periods,
respectively. EBITDA was $79.1 million for the year ended December 31, 1998, a
decrease of $13.3 million from $92.4 million for the year ended December 31,
1997. As a percentage of total commissions and fees, EBITDA decreased to 12.0%
for the year ended December 31, 1998 from 17.1% 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 2.7% of total
37
<PAGE>
commissions and fees for the year ended December 31, 1998, offset, in part, by
increased depreciation and amortization of $12.9 million.
Net cash used in investing activities for the years ended December 31, 1999,
1998 and 1997 was $58.8 million, $66.5 million and $89.7 million, respectively.
The decrease in 1999 of $7.7 million as compared to 1998 was primarily due to an
increase of $9.1 million received from the sale of transportation equipment and
$4.6 million less used for business acquisitions, partially offset by
$8.4 million more in capital expenditures. The $23.2 million decrease in 1998 as
compared with 1997 was primarily due to $34.1 million less in payments for
acquisitions, reflecting the use of company stock to make acquisitions of
businesses, offset in part by $0.4 million more in capital expenditures and
during 1997 our receipt of a net $11.4 million from the Principal Stockholder
and certain other stockholders, who repaid borrowings with funds received
primarily from their sale of shares included with our second public offering.
Payments for businesses acquired using the purchase method of accounting,
excluding $5.5 million in TMP stock, were $28.2 million in 1999, $32.8 million
in 1998 and $66.9 million in 1997, of which $47.2 million was for Austin Knight.
Capital expenditures, primarily for computer equipment and software and
furniture and fixtures, were $40.3 million, $31.9 million and $31.6 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 purchase and provide additional operating funds.
We estimate that our expenditures for computer equipment and software,
furniture and fixtures and leasehold improvements will be approximately
$60 million for the year ended 2000.
Our financing activities include equity offerings, borrowings and repayments
under our bank financing agreements and issuance of and payments on
(i) installment notes, principally to finance acquisitions, (ii) capital leases
and (iii) equipment. Our financing activities for the year ended December 31,
1999 used net cash of $50.8 million and provided $20.1 million and
$65.5 million for the years ended December 31, 1998 and 1997, respectively. The
change of $70.9 million from 1998 to 1999 resulted primarily from $41.6 million
in proceeds from a common stock offering by LAI in the 1998 period and an
increase in net repayments in the 1999 period to $57.2 million against credit
facilities and capitalized lease obligations compared with total net repayments
of $6.7 million in the prior year period, offset in part by a $16.9 million
increase in cash received from the exercise of employee stock options and a
$4.3 million decline in dividends paid by pooled companies in the 1999 period
from the 1998 period. The change of $45.4 million from 1997 to 1998 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 TMP's 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.
As of December 31, 1999, we had a $185 million committed line of credit from
our primary lender, of which there was $91.2 million outstanding, including
$17.2 million reflected as a reduction to accounts receivable and $15.3 million
for letters of credit. The balance available under such facility was
approximately $93.8 million, of which $82 million was repaid with proceeds from
our February 2000 offering of our common stock. Our current interest rate under
the agreement is LIBOR plus 75 basis points. In addition, we had secured lines
of credit aggregating $20.4 million for our operations in Australia, France,
Belgium, Italy and the Netherlands of which approximately $10.7 million was
unused at December 31, 1999. We believe that we will be able to fund our
short-term cash needs through funds from operations, our credit
38
<PAGE>
facilities in the United States, the United Kingdom, Canada and Australia and,
to a lesser extent, equipment leases. The borrowings are secured by a lien on
substantially all of our assets. In addition, the financing agreement contains
certain covenants which restrict, among other things, our ability 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.
Cash and cash equivalents at December 31, 1999 were $56.8 million, a
decrease of $16.7 million from $73.5 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 $5.3 million at December 31, 1999.
We intend to continue our acquisition strategy and marketing and promotion
of our Interactive business through the use of operating profits, borrowings
against our long-term debt facility and seller financed notes. We believe that
our anticipated cash flow from operations, as well as the availability of funds
under our existing financing agreements and access to public equity and debt
markets, will provide us with liquidity to meet our current foreseeable cash
needs for at least the next year. In fact, 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. Net proceeds from this
offering were $595.3 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. However, if we determine that
conditions are favorable, we would consider additional corporate equity or debt
transactions.
In addition, the Company entered into a content and marketing agreement with
America Online Inc. whereby Monster.com(sm), for the payment of $100 million
over four years, would be the exclusive provider of career search services in
the U.S. and Canada. (See--"Risk Factors--Potential impact of third-party
litigation on our agreement with AOL" and Note 14 to the Company's Consolidated
Financial Statements included elsewhere herein.)
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" ("SFAS No. 133"), which
establishes accounting and reporting standards for derivative 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. We do not expect the adoption of this statement to have a
significant impact on our results of operations, financial position or cash
flows.
YEAR 2000 ISSUE
We completed our Year 2000 software program conversions and compliance
programs during the fourth quarter of 1999. The total external costs for such
programs were approximately $3.0 million. Subsequent to December 31, 1999, 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
39
<PAGE>
directory publications which may have an effect on our quarterly results. Our
yellow page advertising results are also affected by commissions earned for
volume placements for the year, which are typically reported in the fourth
quarter. Our quarterly commissions and fees for recruitment advertising are
typically highest in the first quarter and lowest in the fourth quarter;
however, the cyclicality in the economy and our clients' employment needs have
an overriding impact on our quarterly results in recruitment advertising.
Moreover, our recruitment advertising acquisition activity has had more of an
impact on our recently reported quarterly results than any other factor. (See
Note 2 to the Company's Consolidated Financial Statements included elsewhere
herein.)
40
<PAGE>
The following table sets forth summary quarterly unaudited financial
information for the years ended December 31, 1999 and 1998. Amounts have been
restated to reflect the effect of the retroactive restatement for business
combinations completed in 1999 and accounted for as poolings of interests.
<TABLE>
<CAPTION>
1999 QUARTERS
-------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- ----------- ------------- ------------
(IN MILLIONS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Commissions and fees:
Interactive................................ $ 20.5 $ 25.8 $ 36.7 $ 50.6
Recruitment Advertising.................... 45.6 46.3 43.0 43.2
Executive Search and Selection............. 66.3 70.2 82.7 76.5
Temporary Contracting...................... 12.8 16.6 15.5 12.2
Yellow Page Advertising.................... 23.8 27.2 28.5 21.8
------- ------ ------ ------
Total commissions and fees................... $ 169.0 $186.1 $206.4 $204.3
======= ====== ====== ======
Operating income (loss)...................... $ (1.2) $ 7.4 $ (2.4) $ 4.0
Net income (loss) applicable to common and
Class B common stockholders................ $ (2.3) $ 3.2 $ (5.8) $ (2.5)
Net income (loss) per common and Class B
common share:
Basic...................................... $ (0.03) $ 0.04 $(0.07) $(0.03)
Diluted.................................... $ (0.03) $ 0.04 $(0.07) $(0.03)
Weighted average shares outstanding (in thousands):
Basic...................................... 78,646 79,752 79,984 80,564
Diluted.................................... 78,646 83,192 79,984 80,564
</TABLE>
<TABLE>
<CAPTION>
1998 QUARTERS
-------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
(IN MILLIONS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Commissions and fees:
Interactive..................................... $ 8.0 $ 11.0 $ 13.7 $ 17.5
Recruitment Advertising......................... 45.8 q]45.7 qq]42.4 43.9
Executive Search and Selection.................. 69.9 74.0 70.9 61.3
Temporary Contracting........................... 5.6 13.6 13.8 14.0
Yellow Page Advertising......................... 23.3 27.1 32.1 23.9
------ ------ ------ ------
Total commissions and fees........................ $152.6 $171.4 $172.9 $160.6
====== ====== ====== ======
Operating income (loss)........................... $ 17.2 $ 21.2 $ 15.7 $ (6.9)
Net income (loss) applicable to common and Class B
common stockholders............................. $ 9.7 $ 11.6 $ 7.9 $ (8.7)
Net income (loss) per common and Class B common
share:
Basic........................................... $ 0.13 $ 0.15 $ 0.10 $(0.11)
Diluted......................................... $ 0.12 $ 0.15 $ 0.10 $(0.11)
Weighted average shares outstanding (in
thousands):
Basic........................................... 76,842 77,496 77,622 77,714
Diluted......................................... 79,470 79,612 79,940 77,714
</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.
41
<PAGE>
ITEM 7A. 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 $91.2 million, including $17.2 million reflected as a reduction to
accounts receivable and $15.3 million is for letters of credit, as of
December 31, 1999. Interest on the outstanding balance is charged based on a
variable interest rate related to the higher of the prime rate, Federal Funds
rate less 1/2 of 1% or LIBOR plus a margin specified in the agreement, and is
thus subject to market risk in the form of fluctuations in interest rates. The
Company does not trade in derivative financial instruments.
The Company also conducts operations in various foreign countries, including
Australia, Belgium, Canada, France, Germany, Japan, the Netherlands, New
Zealand, Singapore, Spain and the United Kingdom. For the year ended
December 31, 1999, approximately 46% of our commissions and fees were earned
outside of the U.S. and collected in local currency. In addition, we generally
pay operating expenses in the corresponding local currency and 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of TMP Worldwide Inc. and
Subsidiaries are filed as part of this report.
TMP WORLDWIDE INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Report of Independent Certified Public Accountants.......... 43
Independent Auditor's Report to the Members of Morgan &
Banks Limited............................................. 44
Report of Independent Certified Public Accountants (with
respect to LAI)........................................... 45
Consolidated Financial Statements:
Balance sheets as of December 31, 1999 and 1998........... 46
Statements of operations for the years ended December 31,
1999, 1998 and 1997..................................... 47
Statements of stockholders' equity for the years ended
December 31, 1999, 1998 and 1997........................ 48-50
Statements of comprehensive income (loss) for the years
ended December 31, 1999, 1998 and 1997.................. 51
Statements of cash flows for the years ended December 31,
1999, 1998 and 1997..................................... 52
Notes to consolidated financial statements................ 53-82
Report of Independent Certified Public Accountants.......... 87
Report of Independent Certified Public Accountants (with
respect to LAI)........................................... 88
Schedule II--Valuation and qualifying accounts for the years
ended December 31, 1999, 1998 and 1997.................... 89
</TABLE>
All other schedules are omitted because the required information is either
inapplicable or is included in the consolidated financial statements or the
notes thereto.
42
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of TMP
Worldwide Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, comprehensive income (loss),
stockholders' equity 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 for the applicable years, 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 for the applicable years, 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.
<TABLE>
<S> <C>
/s/ BDO SEIDMAN, LLP
-------------------------------
BDO SEIDMAN, LLP
</TABLE>
New York, New York
March 7, 2000
43
<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>
44
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To LAI Worldwide, Inc:
We have audited the consolidated balance sheets 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. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 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 1998, 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 generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Tampa, Florida
April 7, 1999
45
<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................................. $ 56,823 $ 73,500
Accounts receivable, net.................................. 420,005 350,091
Work-in-process........................................... 21,725 18,569
Current deferred income taxes............................. 12,185 --
Prepaid and other......................................... 46,141 32,922
-------- --------
Total current assets.................................. 556,879 475,082
Property and equipment, net................................. 72,377 73,752
Deferred income taxes....................................... 27,350 11,618
Intangibles, net............................................ 267,436 222,866
Other assets................................................ 20,613 19,217
-------- --------
$944,655 $802,535
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $347,786 $271,664
Accrued expenses and other current liabilities............ 112,989 106,906
Accrued integration and restructuring costs............... 21,453 16,747
Deferred revenue.......................................... 71,736 15,650
Deferred income taxes..................................... -- 4,241
Current portion of long-term debt......................... 11,010 16,235
-------- --------
Total current liabilities............................. 564,974 431,443
Long-term debt, less current portion........................ 71,161 123,106
Other long-term liabilities................................. 27,996 18,727
-------- --------
Total liabilities..................................... 664,131 573,276
-------- --------
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-76,621,654 and 73,185,694
shares, respectively.................................... 77 73
Class B common stock, $.001 par value, authorized
39,000,000 shares; issued and outstanding-4,762,000..... 5 5
Additional paid-in capital................................ 329,003 262,360
Other comprehensive loss.................................. (5,068) (3,074)
Unamortized stock-based compensation...................... -- (2,732)
Deficit................................................... (43,502) (27,882)
-------- --------
Total stockholders' equity............................ 280,515 228,750
-------- --------
$944,655 $802,535
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
46
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Commissions and fees........................................ $765,805 $657,486 $541,828
-------- -------- --------
Operating expenses:
Salaries & related........................................ 436,255 382,689 310,168
Office & general.......................................... 179,580 165,538 140,657
Marketing & promotion..................................... 64,874 24,666 12,167
Merger & integration...................................... 63,054 22,412 --
Restructuring............................................. 2,789 3,543 --
Amortization of intangibles............................... 11,430 10,185 6,866
CEO special bonus......................................... -- 1,250 1,500
-------- -------- --------
Total operating expenses.............................. 757,982 610,283 471,358
-------- -------- --------
Operating income...................................... 7,823 47,203 70,470
-------- -------- --------
Other income (expense):
Interest expense.......................................... (17,012) (15,480) (12,449)
Interest income........................................... 8,209 5,652 4,006
Other, net................................................ (568) (2,042) 821
-------- -------- --------
(9,371) (11,870) (7,622)
-------- -------- --------
Income (loss) before provision for income taxes, minority
interests and equity in losses of affiliates.............. (1,548) 35,333 62,848
Provision for income taxes.................................. 5,450 14,367 20,565
-------- -------- --------
Income (loss) before minority interests and equity in losses
of affiliates............................................. (6,998) 20,966 42,283
Minority interests.......................................... 107 28 296
Equity in losses of affiliates.............................. (300) (396) (33)
-------- -------- --------
Net income (loss)........................................... (7,405) 20,542 41,954
Preferred stock dividends................................... -- -- (123)
-------- -------- --------
Net income (loss) applicable to common and Class B common
stockholders.............................................. $ (7,405) $ 20,542 $ 41,831
======== ======== ========
Net income (loss) per common and Class B common share:
Basic..................................................... $ (0.09) $ 0.27 $ 0.58
======== ======== ========
Diluted................................................... $ (0.09) $ 0.26 $ 0.57
======== ======== ========
Weighted average shares outstanding:
Basic..................................................... 79,836 77,472 72,666
======== ======== ========
Diluted................................................... 79,836 79,278 73,908
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
47
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS B OTHER
COMMON STOCK, COMMON STOCK, COMPREHEN-
$.001 PAR VALUE $.001 PAR VALUE ADDITIONAL SIVE UNAMORTIZED
--------------------- ---------------------- PAID-IN INCOME STOCK-BASED
SHARES AMOUNT SHARES AMOUNT CAPITAL (LOSS) COMPENSATION DEFICIT
---------- -------- ----------- -------- ---------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1997................ 40,792,162 $41 29,575,082 $ 30 $112,705 $ 2,890 -- $(50,408)
Issuance of common
stock in connection
with the exercise of
options............. 209,242 -- -- -- 659 -- -- --
Tax benefit of stock
options exercised... -- -- -- -- 175 -- -- --
Capital contribution
from Principal
Stockholder re: CEO
bonus and other..... -- -- -- -- 1,775 -- -- --
Issuance of common
stock in connection
with business
combinations........ 270,056 -- -- -- 3,136 -- -- --
Issuance of common
stock for purchase
of an equity
interest in
subsidiary.......... 123,696 -- -- -- 1,000 -- -- --
Conversion of Class B
shares to shares of
common stock........ 2,400,000 2 (2,400,000) (2) -- -- -- --
Issuance of common
stock............... 4,800,000 5 -- -- 51,164 -- -- --
Issuance of common
stock for matching
contribution to
401(k) plan......... 87,096 -- -- -- 555 -- -- --
Initial public
offering of pooled
entity.............. 607,660 1 -- -- 24,627 -- -- --
Other issuance of
common stock of
pooled entity....... 66,314 -- -- -- 4,307 -- -- --
Foreign currency
translation
adjustment.......... -- -- -- -- -- (4,055) -- --
Dividend and
redemption premium
on preferred
stock............... -- -- -- -- -- -- -- (123)
Dividends declared by
pooled companies.... -- -- -- -- -- -- -- (23,993)
Net income............ -- -- -- -- -- -- -- 41,954
---------- --- ----------- ---- -------- ------- ------- --------
Balance, December 31,
1997................ 49,356,226 $49 27,175,082 $ 28 $200,103 $(1,165) -- $(32,570)
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance, January 1,
1997................ $ 65,258
Issuance of common
stock in connection
with the exercise of
options............. 659
Tax benefit of stock
options exercised... 175
Capital contribution
from Principal
Stockholder re: CEO
bonus and other..... 1,775
Issuance of common
stock in connection
with business
combinations........ 3,136
Issuance of common
stock for purchase
of an equity
interest in
subsidiary.......... 1,000
Conversion of Class B
shares to shares of
common stock........ --
Issuance of common
stock............... 51,169
Issuance of common
stock for matching
contribution to
401(k) plan......... 555
Initial public
offering of pooled
entity.............. 24,628
Other issuance of
common stock of
pooled entity....... 4,307
Foreign currency
translation
adjustment.......... (4,055)
Dividend and
redemption premium
on preferred
stock............... (123)
Dividends declared by
pooled companies.... (23,993)
Net income............ 41,954
--------
Balance, December 31,
1997................ $166,445
</TABLE>
48
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS B OTHER
COMMON STOCK, COMMON STOCK, COMPREHEN-
$.001 PAR VALUE $.001 PAR VALUE ADDITIONAL SIVE UNAMORTIZED
--------------------- ---------------------- PAID-IN INCOME STOCK-BASED
SHARES AMOUNT SHARES AMOUNT CAPITAL (LOSS) COMPENSATION DEFICIT
---------- -------- ----------- -------- ---------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1997................ 49,356,226 $49 27,175,082 $ 28 $200,103 $(1,165) -- $(32,570)
Issuance of common
stock in connection
with the exercise of
options............. 419,898 -- -- -- 1,494 -- -- --
Issuance of common
stock in connection
with business
combinations........ 402,812 -- -- -- 5,546 -- -- --
Issuance of
compensatory
options............. -- -- -- -- 295 -- -- --
Redemption of common
stock............... (574,704) (1) -- -- (667) -- -- --
Issuance of common
stock for matching
contribution to
401(k) plan......... 54,546 -- -- -- 627 -- -- --
Conversion of Class B
common shares to
common shares....... 22,413,082 23 (22,413,082) (23) -- -- -- --
Issuance of common
stock for employee
stay bonuses........ 443,558 1 -- -- 8,311 -- -- --
Foreign currency
translation
adjustment.......... -- -- -- -- -- (1,909) -- --
Capital contribution
by Principal
Stockholder re: CEO
bonus............... -- -- -- -- 1,250 -- -- --
Second public offering
of common stock by
pooled entity....... 598,414 1 -- -- 41,364 -- -- --
Issuance of common
stock for
stock-based
compensation of
pooled entity....... 71,862 -- -- -- 3,630 -- $(3,308) --
Tax benefit of stock
options exercised... -- -- -- -- 407 -- -- --
Amortization of stock-
based compensation
of pooled entity.... -- -- -- -- -- -- 576 --
Earnings of companies
pooled in second
quarter of 1999
included in both
December 31, 1997
and 1998 income
statements.......... -- -- -- -- -- -- -- (3,182)
Pooled company's
earnings from August
1, 1997 to December
31, 1997 excluded
from 1997 statement
of operations....... -- -- -- -- -- -- -- 873
Dividends declared by
pooled companies.... -- -- -- -- -- -- -- (13,545)
Net income............ -- -- -- -- -- -- -- 20,542
---------- --- ----------- ---- -------- ------- ------- --------
Balance, December 31,
1998................ 73,185,694 $73 4,762,000 $ 5 $262,360 $(3,074) $(2,732) $(27,882)
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance, December 31,
1997................ $166,445
Issuance of common
stock in connection
with the exercise of
options............. 1,494
Issuance of common
stock in connection
with business
combinations........ 5,546
Issuance of
compensatory
options............. 295
Redemption of common
stock............... (668)
Issuance of common
stock for matching
contribution to
401(k) plan......... 627
Conversion of Class B
common shares to
common shares....... --
Issuance of common
stock for employee
stay bonuses........ 8,312
Foreign currency
translation
adjustment.......... (1,909)
Capital contribution
by Principal
Stockholder re: CEO
bonus............... 1,250
Second public offering
of common stock by
pooled entity....... 41,365
Issuance of common
stock for
stock-based
compensation of
pooled entity....... 322
Tax benefit of stock
options exercised... 407
Amortization of stock-
based compensation
of pooled entity.... 576
Earnings of companies
pooled in second
quarter of 1999
included in both
December 31, 1997
and 1998 income
statements.......... (3,182)
Pooled company's
earnings from August
1, 1997 to December
31, 1997 excluded
from 1997 statement
of operations....... 873
Dividends declared by
pooled companies.... (13,545)
Net income............ 20,542
--------
Balance, December 31,
1998................ $228,750
</TABLE>
49
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS B OTHER
COMMON STOCK, COMMON STOCK, COMPREHEN-
$.001 PAR VALUE $.001 PAR VALUE ADDITIONAL SIVE UNAMORTIZED
--------------------- ---------------------- PAID-IN INCOME STOCK-BASED
SHARES AMOUNT SHARES AMOUNT CAPITAL (LOSS) COMPENSATION DEFICIT
---------- -------- ----------- -------- ---------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1998................ 73,185,694 $73 4,762,000 $ 5 $262,360 $(3,074) $(2,732) $(27,882)
Issuance of common
stock in connection
with the exercise of
options............. 2,087,212 2 -- -- 18,406 -- -- --
Issuance of common
stock in connection
with business
combinations........ 804,160 1 -- -- 21,662 -- -- --
Issuance of
compensatory
options............. -- -- -- -- 179 -- -- --
Tax benefit from the
exercise of stock
options............. -- -- -- -- 11,869 -- -- --
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 -- -- --
Foreign currency
translation
adjustment.......... -- -- -- -- -- (1,994) -- --
Accelerated vesting of
stock-based
compensation by
pooled entity....... -- -- -- -- -- -- 1,699 --
Pooled company
earnings included in
both current and
previous years...... -- -- -- -- -- -- -- 3,784
Tax benefit in
connection with
taxable pooling of
interests........... -- -- -- -- 6,400 -- -- --
Dividends declared by
pooled companies.... -- -- -- -- -- -- -- (11,999)
Net loss.............. -- -- -- -- -- -- -- (7,405)
---------- --- ----------- ---- -------- ------- ------- --------
Balance, December 31,
1999................ 76,621,654 $77 4,762,000 $ 5 $329,003 $(5,068) -- $(43,502)
========== === =========== ==== ======== ======= ======= ========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance, December 31,
1998................ $228,750
Issuance of common
stock in connection
with the exercise of
options............. 18,408
Issuance of common
stock in connection
with business
combinations........ 21,663
Issuance of
compensatory
options............. 179
Tax benefit from the
exercise of stock
options............. 11,869
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
Foreign currency
translation
adjustment.......... (1,994)
Accelerated vesting of
stock-based
compensation by
pooled entity....... 1,699
Pooled company
earnings included in
both current and
previous years...... 3,784
Tax benefit in
connection with
taxable pooling of
interests........... 6,400
Dividends declared by
pooled companies.... (11,999)
Net loss.............. (7,405)
--------
Balance, December 31,
1999................ $280,515
========
</TABLE>
See accompanying notes to consolidated financial statements.
50
<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)........................................... $(7,405) $20,542 $41,954
Foreign currency translation adjustment..................... (1,994) (1,909) (4,055)
------- ------- -------
Comprehensive income (loss)................................. $(9,399) $18,633 $37,899
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
51
<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)......................................... $ (7,405) $ 20,542 $ 41,954
---------- ---------- --------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization of property and
equipment............................................. 23,509 19,802 14,592
Amortization of intangibles............................. 11,430 10,185 6,866
Amortization of deferred compensation in connection with
employee stay bonuses................................. 7,453 4,351 --
Provision for doubtful accounts......................... 13,966 6,139 4,047
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........... (6,114) (1,709) 6,243
CEO bonus and indemnity payment......................... -- 1,250 1,775
Minority interests and other............................ 107 250 (298)
Effect of pooled companies' earnings included in more
than one period....................................... 3,784 (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.................... (74,077) (16,099) (23,381)
Increase in work-in-process, prepaid and other.......... (16,257) (14,318) (3,666)
Increase in deferred revenue............................ 56,037 7,159 3,925
Increase (decrease) in accounts payable, accrued
expenses and other current liabilities................ 61,331 16,528 (1,433)
---------- ---------- --------
Total adjustments..................................... 101,237 43,075 9,297
---------- ---------- --------
Net cash provided by operating activities............. 93,832 63,617 51,251
---------- ---------- --------
Cash flows from investing activities:
Payments pursuant to notes and advances to Principal
Stockholder............................................. -- -- (3,064)
Repayments from Principal Stockholder..................... -- -- 14,477
Capital expenditures...................................... (40,349) (31,934) (31,574)
Payments for purchases of businesses, net of cash
acquired................................................ (28,210) (32,845) (66,901)
Purchases of short term investments....................... -- (38,271) --
Sales of short term investments........................... -- 39,047 --
Investment in life insurance, net......................... -- (1,968) (1,787)
Proceeds from sale of assets.............................. 9,761 659 78
Advances by pooled entities to officers and affiliates.... -- (1,207) (955)
---------- ---------- --------
Net cash used in investing activities................. (58,798) (66,519) (89,726)
---------- ---------- --------
Cash flows from financing activities:
Payments on capitalized leases............................ (3,810) (3,355) (2,751)
Borrowings under line of credit and proceeds from issuance
of long-term debt....................................... 1,290,311 1,052,097 724,268
Repayments under line of credit and principal payments on
long-term debt.......................................... (1,343,671) (1,055,439) (705,172)
Net proceeds from stock issuance.......................... -- 41,563 76,600
Cash received from the exercise of employee stock
options................................................. 18,408 1,494 846
Repurchase of common stock................................ -- -- (77)
Redemption of minority interest and preferred stock
(including premium)..................................... -- -- (5,238)
Dividends on preferred stock.............................. -- -- (123)
Dividends paid by pooled companies........................ (11,999) (16,267) (22,829)
---------- ---------- --------
Net cash provided by (used in) financing activities... (50,761) 20,093 65,524
---------- ---------- --------
Effect of exchange rate changes on cash..................... (950) (7) (298)
---------- ---------- --------
Net increase (decrease) in cash and cash equivalents........ (16,677) 17,184 26,751
Cash and cash equivalents, beginning of year................ 73,500 56,316 29,565
---------- ---------- --------
Cash and cash equivalents, end of year...................... $ 56,823 $ 73,500 $ 56,316
========== ========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
52
<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 December 1996
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 sold yellow page advertising services, 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")
53
<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"). 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 have been retroactively
restated to 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, results
of operations, and statements of 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 these mergers had been issued for all periods
presented.
In addition, the results of Brook St. for the six months ended June 30, 1999
and the results of LAI for the two months ended February 28, 1999 are included
in the Consolidated Statements of Operations for both the year ended
December 31, 1998 and the year ended December 31, 1999. Therefore this results
in the inclusion of the following amounts in both periods of (a) commissions &
fees of $11.1 million and (b) a net loss of $3.8 million or $(0.10) per diluted
share.
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.
54
<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 and amortization are
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
Computer 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).
55
<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 & FEES RECOGNITION AND WORK-IN-PROCESS
The Company earns fees for the placement of advertisements on the Internet,
primarily its career 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
revenue. The Company also derives commissions & 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 and
mid-level selection services. Commissions & fees are recognized as clients are
billed. Billings begin with the client's acceptance of a contract. For search, 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 & fees are recorded when earned.
The amounts charged to clients for Temporary Contracting services are
reported net of 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................. $319,856 $258,393 $227,627
Temporary Contracting costs................... 262,718 211,404 186,342
-------- -------- --------
Temporary Contracting billings/commissions &
fees........................................ $ 57,138 $ 46,989 $ 41,285
======== ======== ========
</TABLE>
The Company's quarterly commissions & 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 & 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 & 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.
56
<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, Recruitment
Advertising, Executive Search and Selection, Temporary Contracting and Yellow
Page Advertising. The Company earns fees for advertisements placed on its
Internet websites, commission income for selling and placing recruitment and
yellow page advertising to a large number of customers in many different
industries, fees for executive and mid-level selection services, and
commissions & fees in connection with the providing of temporary contracting
services. The Company operates principally throughout North America, the United
Kingdom, Continental Europe and the Asia Pacific Region.
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. 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" ("APB 25"). 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" ("SFAS 123").
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
57
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
a 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 financial 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....................................................... 79,836
Effect of assumed exercise of stock options................. *
------
Diluted..................................................... 79,836
======
December 31, 1998:
Basic....................................................... 77,472
Effect of assumed exercise of stock options................. 1,806
------
Diluted..................................................... 79,278
======
December 31, 1997:
Basic....................................................... 72,666
Effect of assumed exercise of stock options................. 1,242
------
Diluted..................................................... 73,908
======
</TABLE>
- ------------------------
* Effect of the conversion of stock options outstanding is anti-dilutive. The
number of options is approximately 15,658.
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 item of comprehensive income (loss) is foreign currency
translation adjustments.
POST RETIREMENT BENEFITS
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which standardizes the disclosure
requirements for pensions and other postretirement benefits. The adoption of
SFAS No. 132 in 1998 did not have a material impact on the Company's financial
statement disclosures.
CAPITALIZED SOFTWARE COSTS
The Company capitalizes certain incurred software development costs in
accordance with the American Institute of Certified Public Accountants ("AICPA")
Statement of Position No. 98-1, "Accounting for
58
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the 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
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS No. 133"), which establishes accounting and reporting
standards for derivative 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 a significant impact on the Company's results of
operations or financial position.
NOTE 3--ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Trade................................................... $432,898 $355,166
Earned commissions(a)................................... 11,422 12,811
-------- --------
444,320 367,977
Less: Allowance for doubtful accounts................... 24,315 17,886
-------- --------
Accounts receivable, net.............................. $420,005 $350,091
======== ========
</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.
59
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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................................ $23,670 $15,037
Buildings and improvements................................ 1,323 1,168
Furniture and equipment................................... 71,559 79,243
Leasehold improvements.................................... 22,861 18,483
Computer equipment........................................ 34,961 17,625
Transportation equipment.................................. 2,573 9,576
------- -------
156,947 141,132
Less: Accumulated depreciation and amortization........... 84,570 67,380
------- -------
Property and equipment, net........................... $72,377 $73,752
======= =======
</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.
60
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS COMBINATIONS
COMBINATIONS 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>
NATURE OF REGION OF NUMBER OF TMP
ENTITY OPERATIONS OPERATIONS ACQUISITION DATE SHARES ISSUED
- ------ ------------------------- ------------------------- ----------------- -------------
<S> <C> <C> <C> <C>
Morgan & Banks Limited... Executive Search and Asia/Pacific Region January 28, 1999 10,296,582
Selection and Temporary
Contracting
Interquest Pty Limited... Executive Search and Asia/Pacific Region April 30, 1999 353,390
Selection
LIDA Advertising, Inc.... Yellow Page Advertising North America May 19, 1999 225,212
Maes & Lunau............. Executive Search and Continental Europe May 20, 1999 220,000
Selection
IN2, Inc................. Yellow Page Advertising North America May 28, 1999 578,062
Lemming & Levan, Inc..... Executive Search and North America May 28, 1999 245,816
Selection
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, Executive Search and Asia/Pacific Region August 3, 1999 261,800
Ltd.................... Selection and Temporary
Contracting
LAI Worldwide, Inc....... Executive Search and North America August 26, 1999 2,119,642
Selection
Fox Advertising, Inc..... Yellow Page Advertising North America August 30, 1999 259,280
Lampen Group Limited..... Executive Search and Asia/Pacific Region & August 31, 1999 826,192
Selection and Temporary United Kingdom
Contracting
Highland Search Group Executive Search and North America October 21, 1999 1,398,666
L.L.C.................. Selection
TMC S.r.l. ("Amrop Executive Search and Continental Europe October 27, 1999 118,560
Italy")................ Selection
</TABLE>
61
<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 aforementioned poolings of interest transactions are
summarized below:
<TABLE>
<CAPTION>
AS REPORTED
ON FORM 10-K
FOR THE YEAR ENDED RESTATED TO REFLECT THE
DECEMBER 31, 1998 1999 POOLINGS
------------------ -----------------------
<S> <C> <C>
Commissions & fees
1998................................................... $406,769 $657,486
1997................................................... $319,535 $541,828
Net income applicable to common and Class B common
stockholders...........................................
1998................................................... $ 4,250 $ 20,542
1997................................................... $ 10,677 $ 41,831
Net income per common and Class B common share--1998.....
Basic.................................................. $ 0.07 $ 0.27
Diluted................................................ $ 0.07 $ 0.26
Net income per common and Class B common share--1997.....
Basic.................................................. $ 0.19 $ 0.58
Diluted................................................ $ 0.19 $ 0.57
</TABLE>
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
62
<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)
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 51 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. The total amount of cash paid and promissory notes and common
stock of the Company issued for these acquisitions was approximately $56,442,
$30,668 and $74,500 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 804,160, 402,812 and 270,056 for 1999, 1998 and 1997,
respectively. These acquisitions have been accounted for under the purchase
method of accounting and accordingly, operations of these businesses have been
included in the consolidated financial statements from their acquisition dates.
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.................................. $782,077 $701,556
Net income (loss) applicable to common and Class B common
stockholders.............................................. $ (7,480) $ 19,811
Net income (loss) per common and Class B common share:......
Basic..................................................... $ (0.09) $ 0.25
Diluted................................................... $ (0.09) $ 0.25
</TABLE>
63
<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 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
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 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>
ADDITIONS DEDUCTIONS
------------------- ------------------------
BALANCE CHARGED APPLIED BALANCE
DECEMBER 31, TO AGAINST DECEMBER 31,
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 GOODWILL EXPENSED RELATED ASSET PAYMENTS 1999
- ------------------------------------ ------------- -------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
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
receivables................... -- -- 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>
ADDITIONS DEDUCTIONS
------------------- ------------------------
BALANCE CHARGED APPLIED BALANCE
DECEMBER 31, TO AGAINST DECEMBER 31,
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 GOODWILL EXPENSED RELATED ASSET PAYMENTS 1998
- ------------------------------------ ------------- -------- -------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
64
<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)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Pension obligations............. 1,650 103 -- -- -- 1,753
------- ------- ------- -------- -------- -------
Total........................... $16,801 $10,020 $ 3,543 $ -- $(13,617) $16,747
======= ======= ======= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
------------------- ------------------------
BALANCE CHARGED APPLIED BALANCE
DECEMBER 31, TO AGAINST DECEMBER 31,
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 GOODWILL EXPENSED RELATED ASSET PAYMENTS 1997
- ------------------------------------ ------------- -------- -------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
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
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 minimum future lease obligations, net of estimated
sublease income.
(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 locations as well as
duplicate corporate headquarters management 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.
65
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 6--INTANGIBLES, NET
Intangibles, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, AMORTIZATION
------------------- PERIOD
1999 1998 (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 $2,888 and $2,551,
respectively.............................. 1,796 2,080 3 to 6
Excess of cost of investments over fair
value of net assets acquired, net of
accumulated amortization of $29,092 and
$19,990, respectively..................... 251,046 210,464 10 to 30
Other, net of accumulated amortization of
$2,065 and $1,931, respectively........... 218 341 4 to 10
-------- --------
$267,436 $222,866
======== ========
</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......................................... $12,760 $11,642 $13,739
Income taxes..................................... 11,270 14,671 14,902
</TABLE>
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... $44,327 $46,033 $129,126
Less: Liabilities assumed and created upon
acquisition................................... 16,117 13,188 62,225
------- ------- --------
Net cash paid................................... $28,210 $32,845 $ 66,901
======= ======= ========
Capital lease obligations incurred.............. $ 75 $ 217 $ 5,874
======= ======= ========
</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
66
<PAGE>
TMP WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 8--FINANCING AGREEMENT (CONTINUED)
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%.
67
<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
Other acquisition notes payable, noninterest 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)............................................... 8,235 9,156
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%................................................ 303 2,811
------- --------
82,171 139,341
Less: Current portion.................................... 11,010 16,235
------- --------
$71,161 $123,106
======= ========
</TABLE>
68
<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........................................................ $ 9,224
2002........................................................ 1,333
2003........................................................ 59,998*
2004........................................................ 556
Thereafter.................................................. 50
-------
$71,161
=======
</TABLE>
- ------------------------
* Of this amount, $58,664 is subject to one year extensions subsequent to
November, 2003. See Note 8.
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 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
69
<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)
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 1,806,666 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 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 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;
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.
70
<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)
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.................. $(40,068) $ 15,637 $ 39,532
Net income (loss) per common and Class B
common share
Basic........................................ $ (0.50) $ 0.20 $ 0.54
Diluted...................................... $ (0.50) $ 0.20 $ 0.53
</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 AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- ---------------- --------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year.... 8,411,122 $11.87 5,483,174 $ 9.75 1,562,006 $ 4.18
Granted................ 10,377,980 31.20 3,991,950 17.70 4,525,980 11.15
Exercised.............. (2,087,212) 8.88 (427,438) 4.03 (209,242) 4.33
Forfeited/cancelled.... (1,043,544) 20.31 (636,564) 35.61 (395,570) 6.48
---------- --------- ---------
Outstanding at end of
year................. 15,658,346 $24.52 8,411,122 $11.87 5,483,174 $ 6.66
========== ========= =========
Options exercisable at
year-end............. 3,049,962 $11.23 686,248 $ 9.60 316,926 $ 4.22
========== ========= =========
Weighted average fair
value of options
granted during the
year................. $17.30 $ 5.86 $ 3.28
</TABLE>
71
<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)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------------------------
RANGE OF NUMBER WEIGHTED AVERAGE NUMBER
WEIGHTED AVERAGE OUTSTANDING AT REMAINING EXERCISABLE AT
EXERCISE PRICE DECEMBER 31, 1999 CONTRACTUAL LIFE (YEARS) DECEMBER 31, 1999
- ------------------------- ----------------- ------------------------ -----------------
<S> <C> <C> <C>
$2.00 to $10.00.......... 2,494,546 7.0 1,806,198
10.01 to 20.00.......... 3,430,630 8.4 939,662
20.01 to 26.00.......... 5,334,754 9.5 186,322
26.01 to 50.00.......... 4,379,450 9.9 102,680
50.01 to 81.38.......... 18,966 8.0 15,100
---------- ---------
15,658,346 3,049,962
========== =========
</TABLE>
NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES
The components of income (loss) before the provision (benefit) for income
taxes, minority interests and equity in earnings (losses) of affiliates are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Domestic........................................ $(13,476) $ 6,583 $34,539
Foreign......................................... 11,928 28,750 28,309
-------- ------- -------
Total income (loss) before provision for income
taxes, minority interests and equity in losses
of
affiliates.................................... $ (1,548) $35,333 $62,848
======== ======= =======
</TABLE>
The provision 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..................................... $ 120 $ 1,124 $ 3,326
State and local.................................. 1,043 1,607 2,823
Foreign.......................................... 10,401 13,345 8,173
------- ------- -------
Total current................................ 11,564 16,076 14,322
------- ------- -------
Deferred tax provision (benefit):
U.S. Federal..................................... (1,151) 2,379 2,053
State and local.................................. (1,266) (684) 525
Foreign.......................................... (3,697) (3,404) 3,665
------- ------- -------
Total deferred............................... (6,114) (1,709) 6,243
------- ------- -------
Total provision.............................. $ 5,450 $14,367 $20,565
======= ======= =======
</TABLE>
72
<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 presented 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........................... 8,130 6,630
Work-in-process........................................... (5,668) (5,224)
Prepaid and other......................................... (121) (692)
Accrued expenses and other liabilities.................... 9,289 (122)
Accrued compensation...................................... 2,746 (418)
Tax loss carryforwards.................................... 2,754 709
------- -------
Total current deferred tax asset (liability).......... 12,185 (4,241)
------- -------
Noncurrent deferred tax assets (liabilities):
Property and equipment.................................... (1,954) (2,146)
Intangibles............................................... 14,069 (541)
Accrued expenses and other liabilities.................... 45 4,080
Accrued rent.............................................. 430 499
Deferred compensation..................................... 3,899 3,213
Tax loss carryforwards.................................... 20,611 8,405
Valuation allowance....................................... (9,750) (1,892)
------- -------
Total noncurrent deferred tax asset................... 27,350 11,618
------- -------
Net deferred tax asset.................................... $39,535 $ 7,377
======= =======
</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 carryforwards 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 useable 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.
73
<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.... $ (542) $12,365 $21,160
State income taxes, net of Federal income tax
effect......................................... (223) 634 1,845
Nondeductible expenses(1)........................ 7,081 5,316 1,206
Nondeductible special charge..................... -- 438 510
Foreign income taxes at other than the Federal
statutory rate................................. (334) (1,387) 721
Profits of pooled entities taxed directly to
owners......................................... (923) (2,428) (4,146)
Other............................................ 391 (571) (731)
------- ------- -------
Income tax provision............................. $ 5,450 $14,367 $20,565
======= ======= =======
</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 $26,000.
74
<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...................................................... $4,281 $ 41,328
2001...................................................... 2,545 40,755
2002...................................................... 1,352 34,384
2003...................................................... 894 29,184
2004...................................................... 9 25,982
Thereafter................................................ -- 99,060
------ --------
9,081 $270,693
========
Less: Amount representing interest 846
------
Present value of minimum lease payments................... 8,235
Less: Current portion..................................... 4,281
------
$3,954
======
</TABLE>
Rent and related expenses under operating leases amounted to $42,392,
$28,825, and $25,619 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 term 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 entitled to
mandatory quarterly bonuses of $375. Mr. McKelvey waived such bonuses. On
May 1, 1999, the
75
<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)
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 non-renewal 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........................................................ $ 8,457
2001........................................................ 5,455
2002........................................................ 1,741
2003........................................................ 1,765
2004........................................................ 1,290
Thereafter.................................................. 1,098
-------
$19,806
=======
</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 $962, $867 and $762 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
were 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.
76
<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)
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 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: AOL, 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.
77
<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)
Such fees are reflected as a reduction of salaries and related costs in the
accompanying consolidated statements of operations.
(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 is engaged in five lines of business based on the reporting of
senior management to the Chief Operating Officer: Interactive, Recruitment
Advertising, Executive Search and Selection, Temporary Contracting and Yellow
Page Advertising. Operations are conducted in several geographic regions: North
America, the Asia/Pacific Region (primarily in Australia, New Zealand, and
Japan), the United Kingdom
78
<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)
and Continental Europe. The following is a summary of the Company's operations
by business segment and by geographic segment, as of and for the years ended
December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
EXECUTIVE
RECRUITMENT SEARCH & TEMPORARY YELLOW PAGE
INFORMATION BY BUSINESS SEGMENT INTERACTIVE ADVERTISING SELECTION CONTRACTING ADVERTISING TOTAL
- ------------------------------- ----------- ----------- --------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
For the year ended December 31, 1999
Commissions & fees:
Traditional sources................ $ -- $178,141 $295,693 $57,138 $101,294 $632,266
Interactive........................ 107,855 13,352 4,968 1,479 5,885 133,539
------- -------- -------- ------- -------- --------
Commissions & fees................... 107,855 191,493 300,661 58,617 107,179 765,805
------- -------- -------- ------- -------- --------
Operating expenses:
Salaries & related, office &
general, marketing & promotion
and CEO bonus.................... -- 155,895 289,058 41,019 61,649 547,621
Interactive(a)..................... 96,819 11,475 17,703 1,228 5,863 133,088
Merger & integration............... -- 13,442 44,435 2,438 2,739 63,054
Restructuring...................... -- -- 2,789 -- -- 2,789
Amortization of intangibles........ 236 6,226 2,307 117 2,544 11,430
------- -------- -------- ------- -------- --------
Total operating expenses............. 97,055 187,038 356,292 44,802 72,795 757,982
------- -------- -------- ------- -------- --------
Operating income (loss):
Traditional sources................ -- 2,578 (42,896) 13,564 34,362 7,608
Interactive........................ 10,800 1,877 (12,735) 251 22 215
------- -------- -------- ------- -------- --------
Operating income (loss).............. $10,800 $ 4,455 $(55,631) $13,815 $ 34,384 7,823
======= ======== ======== ======= ========
Total other expense, net............. * * * * * (9,371)
--------
Loss before provision for income
taxes, minority interests and
equity in losses of affiliates..... * * * * * $ (1,548)
========
Total Assets......................... $94,540 $409,001 $177,660 $48,442 $215,012 $944,655
======= ======== ======== ======= ======== ========
</TABLE>
- ------------------------
(a) Is comprised of salaries & related, office & general and marketing &
promotion expenses.
* Not allocated.
79
<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>
EXECUTIVE YELLOW
RECRUITMENT SEARCH & TEMPORARY PAGE
INFORMATION BY BUSINESS SEGMENT INTERACTIVE ADVERTISING SELECTION CONTRACTING ADVERTISING TOTAL
- ------------------------------- ----------- ----------- --------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
For the year ended December 31, 1998
Commissions & fees:
Traditional sources................ $ -- $177,774 $276,110 $46,989 $106,455 $607,328
Interactive........................ 46,421 2,436 245 -- 1,056 50,158
------- -------- -------- ------- -------- --------
Commissions & fees................... 46,421 180,210 276,355 46,989 107,511 657,486
------- -------- -------- ------- -------- --------
Operating expenses:
Salaries & related, office &
general, marketing & promotion
and CEO special bonus............ -- 160,925 253,127 36,107 75,679 525,838
Interactive(a)..................... 45,586 1,917 63 -- 739 48,305
Merger & integration............... -- 2,004 19,812 -- 596 22,412
Restructuring...................... -- -- 3,543 -- -- 3,543
Amortization of intangibles........ 234 5,626 1,318 103 2,904 10,185
------- -------- -------- ------- -------- --------
Total operating expenses............. 45,820 170,472 277,863 36,210 79,918 610,283
------- -------- -------- ------- -------- --------
Operating income (loss):
Traditional sources................ -- 9,219 (1,690) 10,779 27,276 45,584
Interactive........................ 601 519 182 -- 317 1,619
------- -------- -------- ------- -------- --------
Operating income (loss).............. $ 601 $ 9,738 $ (1,508) $10,779 $ 27,593 47,203
======= ======== ======== ======= ========
Total other expense, net............. * * * * * (11,870)
--------
Income before provision for income
taxes, minority interests and
equity in losses of affiliates..... * * * * * $ 35,333
========
Total Assets......................... $34,682 $259,862 $174,763 $34,811 $298,417 $802,535
======= ======== ======== ======= ======== ========
</TABLE>
- ------------------------
(a) Is comprised of salaries & related, office & general and marketing &
promotion expenses.
* Not allocated.
80
<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>
EXECUTIVE
RECRUITMENT SEARCH & TEMPORARY YELLOW PAGE
INFORMATION BY BUSINESS SEGMENT INTERACTIVE ADVERTISING SELECTION CONTRACTING ADVERTISING TOTAL
- ------------------------------- ----------- ----------- --------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
For the year ended December 31, 1997
Commissions & fees:
Traditional sources................ $ -- $134,291 $242,841 $41,285 $103,941 $522,358
Interactive........................ 16,779 2,206 -- -- 485 19,470
------- -------- -------- ------- -------- --------
Commissions & fees................... 16,779 136,497 242,841 41,285 104,426 541,828
------- -------- -------- ------- -------- --------
Operating expenses:
Salaries & related, office &
general, marketing & promotion
and CEO bonus.................... -- 122,024 210,628 31,290 75,714 439,656
Interactive(a)..................... 22,818 1,678 -- -- 340 24,836
Amortization of intangibles........ 167 3,850 582 124 2,143 6,866
------- -------- -------- ------- -------- --------
Total operating expenses............. 22,985 127,552 211,210 31,414 78,197 471,358
------- -------- -------- ------- -------- --------
Operating income (loss):
Traditional sources................ -- 8,417 31,631 9,871 26,084 76,003
Interactive........................ (6,206) 528 -- -- 145 (5,533)
------- -------- -------- ------- -------- --------
Operating income (loss).............. $(6,206) $ 8,945 $ 31,631 $ 9,871 $ 26,229 70,470
======= ======== ======== ======= ========
Total other expense, net............. * * * * * (7,622)
--------
Income before provision for income
taxes, minority interests and
equity in losses of affiliates..... * * * * * $ 62,848
========
Total Assets......................... $13,928 $249,774 $165,794 $32,259 $259,311 $721,066
======= ======== ======== ======= ======== ========
</TABLE>
- ------------------------
(a) Is comprised of salaries & related, office & general and marketing &
promotion expenses.
* Not allocated.
<TABLE>
<CAPTION>
ASIA/PACIFIC UNITED CONTINENTAL
INFORMATION BY GEOGRAPHIC REGION: NORTH AMERICA REGION KINGDOM EUROPE TOTAL
- --------------------------------- ------------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
December 31, 1999
Total commissions & fees..................... $422,558 $161,643 $90,100 $91,504 $765,805
Income (loss) before taxes, minority
interests and equity in losses of
affiliates................................. (7,077) 9,042 (7,851) 4,338 (1,548)
Long-lived assets............................ 134,348 38,283 87,753 79,429 339,813
December 31, 1998
Total commissions & fees..................... $379,465 $131,906 $88,445 $57,670 $657,486
Income (loss) before taxes, minority
interests and equity in losses of
affiliates................................. 21,985 16,085 (4,491) 1,754 35,333
Long-lived assets............................ 126,172 32,918 89,439 48,089 296,618
</TABLE>
81
<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/PACIFIC UNITED CONTINENTAL
INFORMATION BY GEOGRAPHIC REGION: NORTH AMERICA REGION KINGDOM EUROPE TOTAL
- --------------------------------- ------------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
December 31, 1997
Total commissions & fees..................... $322,084 $113,620 $82,739 $23,385 $541,828
Income before taxes, minority interests and
equity in earnings of affiliates........... 34,333 17,560 6,413 4,542 62,848
Long-lived assets............................ 116,798 33,054 81,721 21,844 253,417
</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 $595.3 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 pooling of interests. The Company has also consummated other
business combinations to be accounted for as 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.
82
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The information set forth under the caption "Proposal No. 1--Election of
Directors" in the Company's definitive Proxy Statement to be used in connection
with the 2000 Annual Meeting of Stockholders is incorporated herein by
reference.
EXECUTIVE OFFICERS
See "Part I--Executive Officers of the Company."
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" in the
Company's definitive Proxy Statement to be used in connection with the 2000
Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Principal Stockholders" in the
Company's definitive Proxy Statement to be used in connection with the 2000
Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the captions "Compensation Committee
Interlocks and Insider Participation" and "Certain Transactions" in the
Company's definitive Proxy Statement to be used in connection with the 2000
Annual Meeting of Stockholders is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K
(A) DOCUMENT LIST
1. FINANCIAL STATEMENTS
The financial statements of the Company filed herewith are set forth in
Part II, Item 8 of this Report.
2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule and opinion thereon are filed as
a part of this Report:
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
83
<PAGE>
3. EXHIBITS REQUIRED BY SECURITIES AND EXCHANGE COMMISSION REGULATION S-K
(a) The following exhibits are filed as part of this report or are
incorporated herein by reference (Exhibit Nos. 10.1, 10.3, 10.4, 10.5,
10.6, 10.14, 10.15, 10.16, 10.17, 10.18 and 10.19 are management
contracts, compensatory plans or arrangements):
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<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.**
10.1 Form of Employee Confidentiality and Non-Solicitation
Agreement.**
10.2 Form of 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, 1991.**
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.**
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, 1988, 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**
</TABLE>
84
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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.****
21 Subsidiaries of the Company*
23.1 Consent of BDO Seidman, LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Pannell Kerr and Forster
27 Year Ended Financial Data Schedule Year Ended December 31,
1999
</TABLE>
(b) Reports on Form 8-K.
(i) The Company's Current Report on Form 8-K, dated December 1, 1999, which
includes the supplemental consolidated condensed financial statements and the
supplemental consolidated financial
85
<PAGE>
statements relating to this restatement of the Company's consolidated financial
statements as of September 30, 1999 and December 31, 1998 and 1997 and for the
nine months ended September 30, 1999 and 1998 and for each of the three years in
the period ended December 31, 1998 to reflect the mergers with Highland Search
Group L.L.C. on October 21, 1999 and TMC S.r.L. on October 27, 1999, which are
being accounted for as poolings of interests.
(ii) The Company's Current Report on Form 8-K, dated October 21, 1999
relating to the announcement of the acquisition of the Highland Search Group
L.L.C.
(c) Exhibits.
See (3)(a)above.
- ------------------------
* 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 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 Setpember 30, 1999. (Commission File No
000-21571)
86
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
The audits referred to in our report dated March 7, 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 for 1997 and 1998 is based
solely on the report of the other auditor.
In our opinion, based on our audits and the report of the 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
</TABLE>
New York, New York
March 7, 2000
87
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To LAI Worldwide, Inc:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of LAI Worldwide, Inc. and have issued our
report thereon dated April 7, 1999. Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule listed in the index in Item 14 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 financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Tampa, Florida
April 7, 1999
88
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C--
COLUMN A COLUMN B ADDITIONS COLUMN D COLUMN E
-------- ------------- ------------------------- ----------- ---------
BALANCE
BALANCE AT CHARGED TO CHARGED TO 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...................... $ 9,653 $ 4,047 $ 3,326(1) $ 3,117 $13,909
Year ended December 31,
1998...................... $13,909 $ 6,139 $ 1,780(1) $ 3,942 $17,886
Year ended December 31,
1999...................... $17,886 $13,966 $ 283(1) $ 7,820 $24,315
Accrued integration and
restructuring costs
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 companies acquired in purchase business combinations.
89
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
<TABLE>
<S> <C> <C>
TMP WORLDWIDE INC.
By: /s/ ANDREW J. MCKELVEY
-----------------------------------------
Andrew J. McKelvey
CHAIRMAN OF THE BOARD AND CEO
</TABLE>
March 29, 2000
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ANDREW J. MCKELVEY Chairman of the Board, CEO and
------------------------------------------- Director (principal March 29, 2000
Andrew J. McKelvey executive officer)
/s/ JAMES J. TREACY Executive Vice President,
------------------------------------------- Chief Operating Officer and March 29, 2000
James J. Treacy Director
/s/ BART CATALANE Chief Financial Officer
------------------------------------------- (principal financial and March 29, 2000
Bart Catalane accounting officer)
/s/ GEORGE R. EISELE
------------------------------------------- Director March 29, 2000
George R. Eisele
/s/ RON KRAMER
------------------------------------------- Director March 29, 2000
Ron Kramer
/s/ MICHAEL KAUFMAN
------------------------------------------- Director March 29, 2000
Michael Kaufman
/s/ JOHN SWANN
------------------------------------------- Director March 29, 2000
John Swann
</TABLE>
90
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TMP Worldwide Inc.
New York, New York
We hereby consent to the incorporation by reference in the previously filed
Registration Statements (Nos. 333-81843, 333-63631, 333-50699 and 333-18937) of
TMP Worldwide Inc. and Subsidiaries of our reports dated March 7, 2000, relating
to the consolidated financial statements and schedule of TMP Worldwide Inc. and
Subsidiaries appearing in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.
<TABLE>
<S> <C>
/s/ BDO SEIDMAN, LLP
-------------------------------
BDO SEIDMAN, LLP
</TABLE>
New York, New York
March 27, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K, in the Company's
previously filed Registration Statement File Nos. 333-81843, 333-63631,
333-50699, and 333-18937.
<TABLE>
<S> <C>
/s/ ARTHUR ANDERSEN LLP
-------------------------------
ARTHUR ANDERSEN LLP
</TABLE>
Tampa, Florida,
March 24, 2000
<PAGE>
EXHIBIT 23.3
The Board of Directors
Morgan & Banks Limited
Level 11, Grosvenor Place
225 George Street
SYDNEY, NSW 2000
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We hereby consent to the incorporation by reference in previously filed
Registration Statements (No. 333-81843, 333-63631, 333-50699, and 333-18937) of
TMP Worldwide Inc. and Subsidiaries of our report dated April 15, 1999, relating
to the consolidated balance sheets of Morgan & Banks Limited as at December 31,
1998, the consolidated profit and loss statements for the years ended
December 31, 1998 and March 31, 1998 and cash flow statements for the nine month
period ended December 31, 1998 and the year ended March 31, 1998.
Sydney Australia
March 27, 2000
/s/ PANNELL KERR FORSTER
- -------------------------------------
PANNELL KERR FORSTER
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