S-1 1 s-1.txt S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 2000 REGISTRATION NO. 333- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------------- TMP WORLDWIDE INC. (Exact name of registrant as specified in its charter) DELAWARE 7311 13-3906555 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification incorporation or organization) Classification Code Number) Number)
-------------------------- 1633 BROADWAY NEW YORK, NEW YORK 10019 (212) 977-4200 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------------------ ANDREW J. MCKELVEY CHAIRMAN OF THE BOARD AND CEO TMP WORLDWIDE INC. 1633 BROADWAY NEW YORK, NEW YORK 10019 (212) 977-4200 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------------ Copies of all communications, including all communications sent to the agent for service, should be sent to: GREGG BERMAN, ESQ. FULBRIGHT & JAWORSKI L.L.P. 666 FIFTH AVENUE NEW YORK, NEW YORK 10103 -------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. /X/ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / ------------------ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / ------------------ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ------------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF SHARES AMOUNT TO BE AGGREGATE PRICE AGGREGATE AMOUNT OF TO BE REGISTERED REGISTERED PER UNIT (1) OFFERING PRICE REGISTRATION FEE Common Stock, $.001 par value per share...... 3,234,851 $78.25 $253,127,091 $66,826
(1) The price is estimated in accordance with Rule 457(c) under the Securities Act of 1933, as amended, solely for the purpose of calculating the registration fee and is $78.25, the average of the high and low prices of the Common Stock of TMP Worldwide Inc. as reported by The Nasdaq Stock Market on July 17, 2000. ------------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED JULY 21, 2000 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. TMP WORLDWIDE INC. 3,234,851 SHARES OF COMMON STOCK ------------------------ The stockholders of TMP Worldwide Inc. ("TMP" or the "Company") listed in this prospectus are offering and selling an aggregate of 3,234,851 shares of TMP's common stock under this prospectus. These selling stockholders obtained their shares of TMP stock in connection with TMP's acquisitions of companies owned by these selling stockholders. TMP will not receive any part of the proceeds from the sale by the selling stockholders. ------------------------ The selling stockholders may offer their TMP stock through public or private transactions, on or off the United States exchanges, at prevailing market prices or at privately negotiated prices. TMP Worldwide Inc.'s common stock trades on the Nasdaq National Market under the ticker symbol "TMPW." On July 17, 2000, the closing sale price of one share of TMP's stock was $79.50. ------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER BEFORE YOU INVEST IN THE SHARES BEING SOLD WITH THIS PROSPECTUS. --------------------- THE TMP STOCK OFFERED OR SOLD UNDER THIS PROSPECTUS HAS NOT BEEN APPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAVE THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ The date of this Prospectus is July , 2000 TABLE OF CONTENTS
PAGE -------- Available Information....................................... 2 Our Company................................................. 3 Summary Consolidated Financial Information.................. 7 Special Note Regarding Forward Looking Information.......... 11 Risk Factors................................................ 11 Recent Developments......................................... 17 Use of Proceeds............................................. 17 Dividend Policy............................................. 18 Price Range of Common Stock................................. 18 Selected Supplemental Consolidated Financial Information.... 19 Supplemental Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 21 Selected Consolidated Financial Information................. 39 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 41 Business.................................................... 57 Management.................................................. 67 Certain Transactions........................................ 73 Principal Stockholders...................................... 74 Selling Stockholders........................................ 76 Description of Capital Stock................................ 81 Plan of Distribution........................................ 83 Legal Opinion............................................... 83 Experts..................................................... 84 Index to Financial Statements............................... F-1
AVAILABLE INFORMATION We are subject to the informational requirements of the Securities Exchange Act of 1934 and we file reports, proxy statements and other information with the SEC. Such reports, proxy statements and other information filed by us may be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may be obtained from the Public Reference Section of the SEC at Room 1024. Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, material filed by us can be inspected at the offices of the NASDAQ National Market at 1735 K Street, N.W., Washington, D.C. 20006-1506. We have filed with the SEC a Registration Statement on Form S-1 under the Securities Act of 1933 with respect to the Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedule filed as a part thereof, as permitted by the rules and regulations of the SEC. For further information with respect to TMP and the Common Stock, reference is hereby made to such Registration Statement, including the exhibits and schedule filed as a part thereof. Statements contained in this Prospectus as to the contents of any contract or other documents referred to herein are not necessarily complete and where such contract or other document is an exhibit to the Registration Statement, each such statement is qualified in all respects by the provisions of such exhibit, to which reference is hereby made for a full statement of the provisions thereof. The Registration Statement, including the exhibits filed as a part thereof, may be inspected without charge at the public reference facilities maintained by the SEC as set forth in the preceding paragraph. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public from our website at www.tmp.com or at the SEC's website at http:// www.sec.gov. 2 OUR COMPANY THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS. AS USED IN THIS PROSPECTUS, "GROSS BILLINGS" REFERS TO BILLINGS FOR ADVERTISING PLACED ON THE INTERNET, ON OUR CAREER WEB SITES, IN NEWSPAPERS AND IN TELEPHONE DIRECTORIES BY OUR CLIENTS, AND ASSOCIATED FEES FOR RELATED SERVICES AND FEES FOR SEARCH AND SELECTION AND TEMPORARY CONTRACTING SERVICES. WE EARN COMMISSIONS BASED ON A PERCENTAGE OF THE BILLING FOR MEDIA ADVERTISING PURCHASED IN TRADITIONAL MEDIA AS WELL AS ON THIRD PARTY WEB SITES AT A RATE ESTABLISHED BY THE RELATED PUBLISHER AND ASSOCIATED FEES FOR RELATED SERVICES. AS A RESULT, THE TRENDS IN OUR GROSS BILLINGS DIRECTLY AFFECT OUR COMMISSIONS AND FEES. DURING THE PERIOD OF JANUARY 1, 2000 THROUGH MARCH 31, 2000, WE AND OUR SUBSIDIARIES CONSUMMATED MERGERS WITH THE FOLLOWING COMPANIES IN TRANSACTIONS THAT PROVIDED FOR THE EXCHANGE OF ALL OF THE OUTSTANDING STOCK OF EACH ENTITY FOR A TOTAL OF 1,699,123 SHARES OF TMP COMMON STOCK. SUCH TRANSACTIONS WERE ACCOUNTED FOR AS POOLINGS OF INTERESTS (THE "FIRST QUARTER 2000 MERGERS"):
NUMBER OF ENTITY BUSINESS SEGMENT ACQUISITION DATE TMP SHARES ISSUED ------ --------------------------------- ----------------- ----------------- HW GROUP PLC.............. SELECTION & TEMPORARY CONTRACTING FEBRUARY 16, 2000 715,769 MICROSURF, INC............ INTERACTIVE FEBRUARY 16, 2000 684,462 BURLINGTON WELLS, INC..... SELECTION & TEMPORARY CONTRACTING FEBRUARY 29, 2000 52,190 ILLSLEY BOURBONNAIS....... EXECUTIVE SEARCH MARCH 1, 2000 246,702
DURING THE PERIOD OF APRIL 1, 2000 THROUGH JUNE 30, 2000, WE CONSUMMATED MERGERS WITH THE FOLLOWING COMPANIES IN TRANSACTIONS THAT PROVIDED FOR THE EXCHANGE OF ALL OF THE OUTSTANDING STOCK OF EACH ENTITY FOR A TOTAL OF 3,117,169 SHARES OF TMP COMMON STOCK. SUCH TRANSACTIONS WERE ACCOUNTED FOR AS POOLINGS OF INTERESTS (THE "SECOND QUARTER 2000 MERGERS"):
NUMBER OF ENTITY BUSINESS SEGMENT ACQUISITION DATE TMP SHARES ISSUED ------ --------------------------------- ----------------- ----------------- SYSTEM ONE SERVICES, INC..................... SELECTION & TEMPORARY CONTRACTING APRIL 3, 2000 1,022,257 GTR ADVERTISING........... RECRUITMENT ADVERTISING APRIL 4, 2000 54,041 VIRTUAL RELOCATION.COM, INC..................... INTERACTIVE MAY 9, 2000 947,916 BUSINESS TECHNOLOGIES LTD..................... INTERACTIVE MAY 17, 2000 205,703 SIMPATIX, INC............. INTERACTIVE MAY 31, 2000 152,500 ROLLO ASSOCIATES, INC..... EXECUTIVE SEARCH MAY 31, 2000 110,860 WEB TECHNOLOGY PARTNERS, INC..................... INTERACTIVE MAY 31, 2000 623,892
OUR (A) CONSOLIDATED FINANCIAL STATEMENTS AS FILED IN OUR ANNUAL REPORT ON FORM 10-K AND INCLUDED ELSEWHERE IN THIS PROSPECTUS HAVE BEEN RETROACTIVELY RESTATED AS OF DECEMBER 31, 1999 AND 1998 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999, TO REFLECT THE CONSUMMATION OF THE FIRST QUARTER 2000 MERGERS AND THE SECOND QUARTER 2000 MERGERS (COLLECTIVELY, THE "FIRST HALF 2000 MERGERS") AND (B) CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AS FILED IN OUR QUARTERLY REPORT ON FORM 10-Q AND INCLUDED ELSEWHERE HAVE BEEN RETROACTIVELY RESTATED AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 IN THIS PROSPECTUS AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 TO REFLECT THE CONSUMMATION OF THE SECOND QUARTER 2000 MERGERS. ACCORDINGLY, THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS INCLUDED HEREIN AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 HAVE BEEN RETROACTIVELY RESTATED TO REFLECT THE FIRST HALF 2000 MERGERS, AS IF THE COMBINING COMPANIES HAD BEEN CONSOLIDATED FOR ALL PERIODS PRESENTED. THE SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 HAVE BEEN RETROACTIVELY RESTATED TO REFLECT THE SECOND QUARTER 2000 MERGERS, AS IF THE COMBINING COMPANIES HAD BEEN CONSOLIDATED FOR ALL PERIODS PRESENTED. AS A RESULT, THE FINANCIAL POSITION, AND STATEMENTS OF INCOME (LOSS), COMPREHENSIVE INCOME (LOSS) AND CASH FLOWS ARE PRESENTED AS IF THE COMBINING COMPANIES HAD BEEN CONSOLIDATED FOR ALL PERIODS PRESENTED. IN ADDITION, THE SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY REFLECT OUR ACCOUNTS AS IF THE ADDITIONAL COMMON STOCK ISSUED IN CONNECTION WITH EACH OF THE AFOREMENTIONED COMBINATIONS INCLUDED IN THE FIRST HALF 2000 MERGERS HAD BEEN ISSUED FOR ALL PERIODS WHEN EACH OF THE RELATED COMPANIES HAD ISSUED SHARES AND FOR THE AMOUNTS THAT REFLECT THE EXCHANGE RATIOS OF THE MERGERS. IN ACCORDANCE 3 WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS WILL BECOME THE HISTORICAL FINANCIAL STATEMENTS OF THE COMPANY UPON ISSUANCE OF THE FINANCIAL STATEMENTS FOR THE PERIOD THAT INCLUDES THE CONSUMMATION OF THE SECOND QUARTER 2000 MERGERS. IN THE SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS, THE BALANCE SHEETS OF TMP AS OF MARCH 31, 2000 HAVE BEEN COMBINED WITH THOSE OF THE SECOND QUARTER 2000 MERGERS, AND THOSE AS OF DECEMBER 31, 1999 AND 1998 HAVE BEEN COMBINED WITH THOSE OF THE FIRST HALF 2000 MERGERS ALL AS OF MARCH 31, 2000 AND DECEMBER 31, 1999 AND 1998 EXCEPT FOR THE FOLLOWING: ILLSLEY BOURBONNAIS, FOR WHICH THE BALANCE SHEETS AS OF JANUARY 31, 2000 AND 1999 ARE COMBINED WITH THOSE OF TMP AS OF DECEMBER 31, 1999 AND 1998, RESPECTIVELY; BUSINESS TECHNOLOGIES LTD. ("BTL"), FOR WHICH THE BALANCE SHEETS AS OF JULY 31, 1999 AND 1998 ARE COMBINED WITH THOSE OF TMP AS OF DECEMBER 31, 1999 AND 1998, RESPECTIVELY; HW GROUP PLC ("HW"), FOR WHICH THE BALANCE SHEET AS OF MARCH 31, 1999 IS COMBINED WITH THAT OF TMP AS OF DECEMBER 31, 1998. THE SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME (LOSS) COMBINE THE RESULTS OF TMP FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 WITH THOSE OF THE SECOND QUARTER 2000 MERGERS AND EACH YEAR IN THE THREE YEAR PERIOD ENDED DECEMBER 31, 1999 WITH THOSE OF THE FIRST HALF 2000 MERGERS ALL FOR THE SAME PERIODS EXCEPT FOR THE FOLLOWING: ILLSLEY BOURBONNAIS, FOR WHICH THE STATEMENTS OF INCOME (LOSS) FOR THE YEARS ENDED JANUARY 31, 2000, 1999 AND 1998 ARE INCLUDED IN THE STATEMENTS OF INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997, RESPECTIVELY; BTL, FOR WHICH THE STATEMENTS OF INCOME (LOSS) FOR THE YEARS ENDED JULY 31, 1999, 1998 AND 1997 ARE INCLUDED IN THE STATEMENTS OF INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997, RESPECTIVELY; HW, FOR WHICH THE STATEMENTS OF INCOME (LOSS) FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 ARE INCLUDED IN THE STATEMENTS OF INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, RESPECTIVELY. THE RESULTS OF ILLSLEY BOURBONNAIS FOR THE MONTH ENDED JANUARY 31, 2000 ARE INCLUDED IN BOTH THE SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE YEAR ENDED DECEMBER 31, 1999 AND IN THE SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENT OF INCOME (LOSS) FOR THE THREE MONTHS ENDED MARCH 31, 2000. THEREFORE, THE FOLLOWING AMOUNTS HAVE BEEN INCLUDED IN BOTH PERIODS: (A) COMMISSIONS AND FEES OF $1.0 MILLION AND (B) NET INCOME OF $285 THOUSAND, WITH NO IMPACT ON NET INCOME (LOSS) PER SHARE. ADDITIONALLY, DUE TO IMMATERIALITY, THE RESULTS OF BTL FOR THE PERIOD AUGUST 1, 1999 THROUGH DECEMBER 31, 1999 OF $314 THOUSAND, IN COMMISSIONS AND FEES AND $50 THOUSAND, IN NET INCOME HAVE NOT BEEN INCLUDED IN THE SUPPLEMENTAL CONSOLIDATED STATEMENT OF INCOME (LOSS) FOR THE YEAR ENDED DECEMBER 31, 1999 BECAUSE THE RESULTS OF BTL FOR THE FISCAL YEAR ENDED JULY 31, 1999 WERE COMBINED WITH OUR CONSOLIDATED STATEMENT OF INCOME (LOSS) FOR THE YEAR ENDED DECEMBER 31, 1999. IN ADDITION, THE RESULTS OF HW, FOR THE THREE MONTHS ENDED MARCH 31, 1999 ARE INCLUDED IN THE SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME (LOSS) IN BOTH YEARS ENDED DECEMBER 31, 1999 AND 1998, AND THE EFFECTS ON BOTH PERIODS ON (A) COMMISSIONS AND FEES WAS $11.1 MILLION, (B) NET INCOME WAS $1.9 MILLION AND (C) DILUTED EARNINGS PER SHARE WAS $0.02. ALL AMOUNTS REFERRED TO BELOW REFLECT THE AMOUNTS DISCLOSED IN OUR SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND OUR SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND OUR SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS INCLUDED HEREIN UNLESS OTHERWISE INDICATED. "WE," "US" AND "OUR," WHEN USED IN THIS PROSPECTUS, REFER TO TMP WORLDWIDE INC. AND ITS SUBSIDIARIES. We have built Monster.com(SM) (http://www.monster.com) into the Internet's leading career destination portal. We are also one of the world's largest recruitment advertising agencies and one of the world's largest executive search and selection firms. In addition to offering these career solutions, we are the world's largest yellow page advertising agency. We have more than 31,000 clients, including over 90 of the Fortune 100 and over 480 of the Fortune 500 companies. Job seekers look to manage their careers through us by posting their resumes on Monster.com(SM), by searching Monster.com's(SM) database of over 395,000 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 4 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 Internet properties, is the nucleus of our intern to CEO strategy. In May 2000: - Neilson I/Pro reported that Monster.com(SM) attracted more than 15.2 million visitors who spent an average of over 16.0 minutes per visit - Media Metrix reported that 5.2% of the U.S. Internet population visited Monster.com(SM) and that an average of 38.1 unique pages were viewed by each visitor - Based on Media Metrix statistics, Monster.com(SM) reported a power ranking of 198.1 (reach of 5.2 multiplied by average page views of 38.1), compared to 23.6 for its closest competitor and 109.3 for its six closest competitors combined We believe that the power ranking is significant because, by taking into account reach and page views, it indicates the products' recognition by and usefulness to job seekers. As a result, through Monster.com(SM), our clients have access to over 4.2 million unique resumes of which 2.9 million are active, and our resume database is growing by an average of more than 13,000 resumes daily. To attract job seekers to Monster.com(SM), we continue to refine and refresh the site by introducing value-added features. For example, we have 3.2 million job search agents, which allow our job seekers to express their specific job preferences and receive e-mail notification of job matches, and 8.1 million My Monster job seeker accounts, which allow job seekers to manage their careers online. We have also recently introduced Monster Talent Market, which allows independent contractor professionals to offer their services to the highest bidder. We believe our clients have recognized the value of online recruitment, as evidenced by the more than 395,000 paid job postings currently on Monster.com(SM). Although Monster.com(SM) had 213,000 more unique visitors than its nearest competitor in May 2000, as reported by Media Metrix, we continually look for ways to drive and retain site traffic. To that end, in December 1999, we entered into a content and marketing agreement with America Online, Inc. ("AOL") whereby, for the payment of $100 million over four years, Monster.com(SM) will be the exclusive provider for four years in the United States and Canada of career search services to 21 million AOL users across seven AOL brands: AOL, AOL Canada, Compuserve, ICQ, AOL.com, Netscape and Digital City. We believe that this agreement has the potential to drive a substantial amount of increased traffic and new users to Monster.com-SM-. We also customize Monster.com(SM), in both language and content, for other countries. Currently, local versions of Monster.com(SM) operate in Canada, the United Kingdom, the Netherlands, Australia, Belgium, France, Singapore, New Zealand, Hong Kong, Germany and Ireland. For the three months ended March 31, 2000, Monster.com(SM) generated approximately $58.9 million in gross billings and $58.1 million in commissions and fees. Our total Internet gross billings and Internet commissions and fees for this period were $80.4 million and $70.8 million, respectively, reflecting the inclusion of amounts from Internet related services from our traditional recruitment and yellow page advertising clients, as well as from searches for permanent employees and temporary contracting services identified and screened through the Internet, which were $5.8 million, $2.4 million, $2.1 million and $2.4 million, respectively. 5 RECRUITMENT ADVERTISING. We prospect talent for our clients through traditional recruiting programs that sell, market and brand employers to job seekers searching for entry level positions to positions paying up to $100,000, annually. We provide a broad range of recruitment advertising services including: - planning and producing advertising campaigns - media research, planning and buying in both traditional media and on the Internet - planning and executing on-campus recruitment programs EXECUTIVE SEARCH. We offer an advanced and comprehensive range of executive search services aimed at identifying the appropriate executive for our clients. Our executive search service identifies senior executives who typically earn in excess of $250,000 annually. We entered the executive search field in 1998 because recruitment and online advertising traditionally did not target the senior executive candidate. SELECTION AND TEMPORARY CONTRACTING. The mid-market selection business fills a critical niche in our "intern to CEO" strategy by identifying for our clients those professionals, below the CEO level, who typically earn between $50,000 and $150,000. We believe that Monster.com-SM- is an excellent resource for serving this market and we are building a large database of mid-market resumes. We have also identified a suite of products geared toward this market which seek to predict whether a candidate will be successful in a given role. Temporary contracting supplements our selection services. We place employees, ranging from executives to clerical workers, in temporary situations for as little as one day to over 12 months. Contractors can be used for emergency support or to complement the skills of a client's own staff. Temporary contracting can also be linked to permanent placement with the client employing a "try before you buy" strategy. YELLOW PAGE ADVERTISING. We develop yellow page marketing programs for national accounts, which are clients who sell products or services in multiple markets. The national segment of the U.S. yellow page advertising market was approximately $2.0 billion in 1999. During the period of 1990 through 1999, the market grew at a compound annual rate of approximately 6.4%. Yellow page advertising is a complex process involving the creation of effective imagery and message, and the development of media plans which evaluate approximately 7,000 yellow page directories, of which our larger accounts utilize over 2,000. Coordinating the placement of advertisements in this number of directories requires an extensive effort at the local level, and our yellow page sales, marketing and customer service staff of approximately 850 people provides an important competitive advantage in marketing and executing yellow page advertising programs. We take a proactive approach to yellow page advertising by undertaking original research on the efficacy of the medium, and by working to quantify the effectiveness of individual advertising campaigns. We also have a rigorous quality assurance program designed to ensure client satisfaction. We believe that this program has enabled us to maintain a yellow page client retention rate, year to year, in excess of 90%. MONSTERMOVING.COM. Through recent acquisitions, we have begun to capitalize on the relationship between recruitment and relocation. By featuring information that addresses the entire moving process, such as mortgages, insurance, utilities and education, we offer our clients the ability to research a prospective move online. We are combining these tools into a Moving Center which will be integrated into Monster.com-SM-, thus extending the Monster.com-SM- brand into the moving services marketplace. For the year ended December 31, 1999 and the three months ended March 31, 2000, respectively, our gross billings were $1.972 billion and $551.5 million, total commissions and fees were $869.2 million and $257.4 million, net income (loss) was $(9.1) million and $3.1 million and EBITDA was $57.8 million and $22.7 million. Our executive offices are located at 1633 Broadway, New York, New York 10019, our telephone number is (212) 977-4200 and our Internet address is http://www.tmpw.com. In August 2000, our executive offices will be located at 622 Third Avenue, New York, New York 10017 and our telephone number will be 1-888-325-5867. 6 SUMMARY CONSOLIDATED FINANCIAL INFORMATION SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ---------------------------------------------------- ------------------- 1999 1998 1997 1996 1995 2000 1999 -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) SUPPLEMENTAL STATEMENT OF OPERATIONS DATA: Commissions and fees....................... $869,207 $744,517 $610,762 $447,605 $343,584 $257,410 $191,522 Operating expenses: Salaries & related....................... 496,926 430,316 344,956 258,389 197,068 146,025 114,931 Office & general......................... 205,165 184,905 160,027 123,891 95,817 61,185 53,466 Marketing & promotion.................... 74,647 29,737 13,665 8,414 5,079 29,349 10,186 Merger & integration..................... 63,054 22,412 -- -- -- 8,674 4,687 Restructuring............................ 2,789 3,543 -- -- -- -- 2,789 Amortization of intangibles.............. 12,532 11,070 6,913 4,786 3,410 3,635 3,089 Special compensation and CEO bonus(1).... -- 1,250 1,500 52,019 -- -- -- Total operating expenses................... 855,113 683,233 527,061 447,499 301,374 248,868 189,148 Operating income........................... 14,094 61,284 83,701 106 42,210 8,542 2,374 Other income (expense): Interest income (expense), net(2)........ (12,927) (12,876) (10,502) (14,573) (10,475) 1,794 (3,503) Other, net............................... (2,906) (2,057) 814 (341) (816) (87) (170) Income (loss) before provision (benefit) for income taxes, minority interests and equity in earnings (losses) of affiliates............................... (1,739) 46,351 74,013 (14,808) 30,919 10,249 (1,299) Provision (benefit) for income taxes....... 6,908 16,884 22,805 11,478 10,499 7,280 (795) Net income (loss) applicable to common and Class B common stockholders.............. (9,054) 29,043 50,756 (27,399) 19,124 3,050 (703) Net income (loss) per common and Class B common share: Basic.................................... $ (0.11) $ 0.36 $ 0.67 $ (0.43) $ 0.30 $ 0.03 $ (0.01) Diluted.................................. $ (0.11) $ 0.35 $ 0.66 $ (0.43) $ 0.30 $ 0.03 $ (0.01) Weighted average shares outstanding: Basic.................................... 84,250 81,638 75,857 64,198 63,071 92,399 83,065 Diluted.................................. 84,250 83,494 77,134 64,198 64,337 100,315 83,065
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THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------------------------------------ ------------------- 1999 1998 1997 1996 1995 2000 1999 ---------- ---------- ---------- ---------- -------- -------- -------- (IN THOUSANDS, EXCEPT NUMBER OF EMPLOYEES AND OFFICES) SUPPLEMENTAL OTHER DATA: Gross Billings: Interactive (3)........ $ 162,772 $ 60,705 $ 23,023 $ 7,099 $ 392 $ 80,459 $ 24,984 Recruitment Advertising.......... 831,624 869,302 659,467 381,089 239,365 219,555 214,985 Selection & Temporary Contracting (4)...... 271,910 209,227 181,332 142,750 108,124 79,286 41,544 Executive Search....... 173,558 195,268 168,107 127,893 101,521 39,007 58,642 Yellow Page Advertising.......... 532,258 520,129 497,848 466,230 442,287 133,175 120,011 ---------- ---------- ---------- ---------- -------- -------- -------- Total Gross Billings..... $1,972,122 $1,854,631 $1,529,777 $1,125,061 $891,689 $551,482 $460,166 ========== ========== ========== ========== ======== ======== ======== Total operating expenses as a percentage of commissions and fees... 98.4% 91.8% 86.3% 100.0% 87.7% 96.7% 98.8% Number of employees...... 7,212 6,895 6,139 4,315 2,973 8,241 6,538 Number of offices........ 304 298 253 191 143 290 286
DECEMBER 31, ------------------------------------------------------ MARCH 31, 1999 1998 1997 1996 1995 2000 ---------- -------- -------- -------- -------- ---------- (IN THOUSANDS) SUPPLEMENTAL BALANCE SHEET DATA: Current assets........................ $ 612,845 $517,980 $479,635 $347,185 $280,584 $1,137,580 Current liabilities................... 604,608 457,414 440,787 341,875 272,701 612,544 Total assets.......................... 1,053,228 895,681 804,516 520,109 383,989 1,604,977 Long-term liabilities, less current portion............................. 130,824 172,574 167,208 104,585 94,110 76,697 Minority interests.................... 9 509 431 3,705 3,639 52 Redeemable preferred stock............ -- -- -- 2,000 2,000 -- Total stockholders' equity............ 317,787 265,184 196,090 67,944 11,539 915,684
-------------------------- (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. (2) Interest expense for 1996 includes a $2.6 million non-cash, non-recurring charge to reflect the exercise of a warrant issued in connection with the Company's financing agreement. (3) Represents fees earned in connection with recruitment, yellow page and other advertisements placed on the Internet, interactive moving services and employment searches and temporary contracting services sourced through the Internet. (4) Amounts for temporary contracting are reported net of the costs paid to the temporary contractor. 8 SELECTED CONSOLIDATED FINANCIAL INFORMATION
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ---------------------------------------------------- ------------------- 1999 1998 1997 1996 1995 2000 1999 -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Commissions and fees...................... $765,805 $657,486 $541,828 $399,039 $304,961 $244,003 $182,059 Operating expenses: Salaries & related...................... 436,255 382,689 310,168 232,249 175,710 136,469 109,059 Office and general...................... 179,580 165,538 140,657 108,199 83,893 55,027 51,085 Marketing & promotion................... 64,874 24,666 12,167 6,992 4,364 28,286 9,884 Merger & integration.................... 63,054 22,412 -- -- -- 8,674 4,687 Restructuring........................... 2,789 3,543 -- -- -- -- 2,789 Amortization of intangibles............. 11,430 10,185 6,866 4,732 3,363 3,351 2,828 Special compensation and CEO bonus(1)... -- 1,250 1,500 52,019 -- -- -- Total operating expenses.................. 757,982 610,283 471,358 404,191 267,330 231,807 180,332 Operating income (loss)................... 7,823 47,203 70,470 (5,152) 37,631 12,196 1,727 Other income (expense): Interest expense, net (2)............... (8,803) (9,828) (8,443) (14,358) (10,345) 2,794 (2,560) Other, net.............................. (568) (2,042) 821 (370) (860) (87) 290 Income (loss) before provision (benefit) for income taxes, minority interests and equity in earnings (losses) of affiliates.............................. (1,548) 35,333 62,848 (19,880) 26,426 14,903 (543) Provision (benefit) for income taxes...... 5,450 14,367 20,565 11,058 10,031 7,598 (696) Net income (loss) applicable to common and Class B common stockholders............. (7,405) 20,542 41,831 (32,051) 15,099 7,386 (46) Net income (loss) per common and Class B common share: Basic................................... $ (0.09) $ 0.27 $ 0.58 $ (0.52) $ 0.25 $ 0.08 $ -- Diluted................................. $ (0.09) $ 0.26 $ 0.57 $ (0.52) $ 0.24 $ 0.08 $ -- Weighted average shares outstanding: Basic................................... 79,836 77,472 72,666 61,908 61,024 89,282 80,350 Diluted................................. 79,836 79,278 73,908 61,908 62,254 96,882 80,350
9
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, -------------------------------------------------------------- ----------------------- 1999 1998 1997 1996 1995 2000 1999 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXECEPT NUMBER OF EMPLOYEES AND OFFICES) OTHER DATA: Gross Billings: Interactive (3)................ $ 151,623 $ 56,666 $ 20,553 $ 6,939 $ 392 $ 78,019 $ 24,017 Recruitment Advertising........ 811,836 849,563 642,872 369,979 228,984 214,746 210,002 Executive Search and Selection.................... 298,861 277,304 244,153 194,848 152,707 88,316 76,384 Temporary Contracting (4)...... 57,138 46,989 41,285 29,210 20,052 19,734 16,018 Yellow Page Advertising........ 532,258 520,129 497,848 466,230 442,287 133,175 120,011 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Gross Billings............. $1,851,716 $1,750,651 $1,446,711 $1,067,206 $ 844,422 $ 533,990 $ 446,432 ========== ========== ========== ========== ========== ========== ========== Total operating expenses as a percentage of commissions and fees........................... 99.0% 92.8% 87.0% 101.3% 87.7% 95.0% 99.1% Number of employees.............. 6,409 6,278 5,651 3,910 2,652 7,782 5,921 Number of offices................ 256 254 213 161 118 267 241
DECEMBER 31, MARCH 31, -------------------------------------------------------------- ---------- 1999 1998 1997 1996 1995 2000 ---------- ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) BALANCE SHEET DATA: Current assets............................ $ 556,879 $ 475,082 $ 444,144 $ 321,761 $ 264,244 $1,103,670 Current liabilities....................... 564,974 431,443 414,278 320,038 261,018 586,527 Total assets.............................. 944,655 802,535 721,066 475,519 364,996 1,521,675 Long-term liabilities, less current portion................................. 99,157 141,833 139,912 84,519 93,877 47,253 Minority interests........................ 9 509 431 3,705 3,608 52 Redeemable preferred stock................ -- -- -- 2,000 2,000 -- Total stockholders' equity................ 280,515 228,750 166,445 65,257 4,493 887,843
-------------------------- (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. 10 SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION This prospectus includes or incorporates forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by our use of the words "believes," "anticipates," "plans," "expects," "may," "will," "would," "intends," "estimates," and similar expressions, whether in the negative or affirmative. We cannot guarantee that we actually will achieve these plans, intentions or expectations. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements in this prospectus, particularly under the heading "Risk Factors," that we believe could cause our actual results to differ materially from the forward-looking statements that we make. The forward-looking statements do not reflect the potential impact of any future acquisitions, mergers or dispositions. We do not assume any obligation to update any forward-looking statement we make. RISK FACTORS BEFORE YOU INVEST IN OUR COMMON STOCK, YOU SHOULD BE AWARE THAT THERE ARE VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CONSIDER CAREFULLY THESE RISK FACTORS TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE YOU DECIDE TO PURCHASE SHARES OF OUR COMMON STOCK. WE MAY NOT BE ABLE TO MANAGE OUR GROWTH Our business has grown rapidly in recent periods. As an example, we completed 85 mergers and acquisitions from January 1, 1997 through May 31, 2000. We entered the executive search field in 1998 and we believe that our acquisition of LAI Worldwide, Inc. has made us one of the largest executive search firms in the world. This growth of our business has placed a significant strain on our management and operations. Our expansion has resulted, and is expected in the future to result, in substantial growth in the number of our employees. In addition, this growth is expected to result in increased responsibility for both existing and new management personnel and incremental strain on our existing operations, financial and management information systems. Our success depends to a significant extent on the ability of our executive officers and other members of senior management to operate effectively both independently and as a group. If we are not able to manage existing or anticipated growth, our business, financial condition and operating results will be materially adversely affected. OUR SUCCESS DEPENDS ON THE VALUE OF OUR BRANDS, PARTICULARLY MONSTER.COM(SM) Our success depends on our brands and their value. Our business would be adversely affected if we were unable to adequately protect our brand names, particularly Monster.com(SM). We are also susceptible to others imitating our products, particularly Monster.com(SM), and infringing our intellectual property rights. We may not be able to successfully protect our intellectual property rights, upon which we are materially dependent. In addition, the laws of many foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Imitation of our products, particularly Monster.com(SM), or infringement of our intellectual property rights could diminish the value of our brands or otherwise adversely affect our revenues. TRADITIONAL MEDIA IS IMPORTANT TO US A substantial portion of our total commissions and fees comes from designing and placing recruitment advertisements in traditional media such as newspapers and trade publications. This business constituted approximately 20.9% and 18.1% of our total commissions and fees for the year ended December 31, 1999 and the three months ended March 31, 2000, respectively. We also receive a substantial portion of our commissions and fees from placing advertising in yellow page directories. This business constituted approximately 11.7% and 9.1% of total commissions and fees for the year ended December 31, 1999 and the three months ended March 31, 2000, respectively. We cannot assure you that the total commissions and fees we receive in the future will equal the total commissions and fees which we have received in the past. 11 In addition, new media, like the Internet, may cause yellow page directories and other forms of traditional media to become less desirable forms of advertising media. If we are not able to generate Internet advertising fees to offset any decrease in commissions from traditional media, our business, financial condition and operating results will be materially adversely affected. WE FACE RISKS RELATING TO DEVELOPING TECHNOLOGY, INCLUDING THE INTERNET The market for Internet products and services is characterized by rapid technological developments, frequent new product introductions and evolving industry standards. The emerging character of these products and services and their rapid evolution will require our continuous improvement in performance, features and reliability of our Internet content, particularly in response to competitive offerings. We cannot assure you that we will be successful in responding quickly, cost effectively and sufficiently to these developments. In addition, the widespread adoption of new Internet technologies or standards could require us to make substantial expenditures to modify or adapt our Web sites and services. This could affect our business, financial condition and operating results. New Internet services or enhancements which we have offered or may offer in the future may contain design flaws or other defects that could require expensive modifications or result in a loss of client confidence. Any disruption in Internet access or in the Internet generally could have a material adverse effect on our business, financial condition and operating results. WE ARE VULNERABLE TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS BROUGHT AGAINST US BY OTHERS Successful intellectual property infringement claims against us could result in monetary liability or a material disruption in the conduct of our business. We cannot be certain that our products, content and brand names do not or will not infringe valid patents, copyrights or other intellectual property rights held by third parties. We expect that infringement claims in our markets will increase in number as more participants enter the markets. We may be subject to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of our business. We may incur substantial expenses in defending against these third party infringement claims, regardless of their merit. POTENTIAL IMPACT OF THIRD-PARTY LITIGATION ON OUR AGREEMENT WITH AOL On December 1, 1999, Monster.com entered into a content and marketing agreement with AOL pursuant to which, for the payment of $100 million over four years. Monster.com will be the exclusive provider for four years in the United States and Canada of career search services to 21 million AOL users across seven AOL brands: AOL, AOL Canada, Compuserve, ICQ, AOL.com, Netscape and Digital City. 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, which was denied. 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 12 operating results. The inadvertent transmission of computer viruses could expose us to a material risk of loss or litigation and possible liability. Moreover, if a computer virus affecting our system is highly publicized, our reputation could be materially damaged and our visitor traffic may decrease. Internet users can freely navigate and instantly switch among a large number of Web sites, many of which offer original content. It is difficult for us to distinguish our content and attract users. In addition, many other Web sites offer very specific, highly targeted content. These sites could have greater appeal than our sites to particular groups within our target audience. WE FACE RISKS ASSOCIATED WITH OUR ACQUISITION STRATEGY We expect our growth to continue, in part, by acquiring businesses. The success of this strategy depends upon several factors, including: - the continued availability of financing; - our ability to identify and acquire businesses on a cost-effective basis; - our ability to integrate acquired personnel, operations, products and technologies into our organization effectively; and - our ability to retain and motivate key personnel and to retain the clients of acquired firms. We cannot assure you that financing for acquisitions will be available on terms we find acceptable, or that we will be able to identify or consummate new acquisitions, or manage and integrate our recent or future expansions successfully. Any inability to do so would materially adversely affect our business, financial condition and operating results. We also cannot assure you that we will be able to sustain the rates of growth that we have experienced in the past. OUR MARKETS ARE HIGHLY COMPETITIVE The markets for our services are highly competitive. They are characterized by pressures to: - reduce prices; - incorporate new capabilities and technologies; and - accelerate job completion schedules. Furthermore, we face competition from a number of sources. These sources include: - national and regional advertising agencies; - Internet portals; - specialized and integrated marketing communication firms; - traditional media companies; - executive search firms; and - search and selection firms. In addition, many advertising agencies and publications have started either to internally develop or acquire new media capabilities, including Internet. We are also competing with established companies that provide integrated specialized services like Web advertising services or Web site design, and are technologically proficient. Many of our competitors or potential competitors have long operating histories, and some may have greater financial, management, technological development, sales, marketing and other resources than we do. In addition, our ability to maintain our existing clients and attract new clients depends to a large degree on the quality of our services and our reputation among our clients and potential clients. We have no significant proprietary technology that would preclude or inhibit competitors from entering the online advertising, executive search, recruitment advertising, or yellow page advertising markets. We cannot assure you that existing or future competitors will not develop or offer services and products which provide significant performance, price, creative or other advantages over our services. This could have a material adverse effect on our business, financial condition and operating results. 13 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 - the receipt of additional commissions from yellow page publishers for achieving a specified volume of advertising, which are typically reported in the fourth quarter. Generally our quarterly commissions and fees earned from recruitment advertising tend to be highest in the first quarter and lowest in the fourth quarter. Additionally, recruitment advertising commissions and fees tend to be more cyclical than yellow page commissions and fees. To the extent that a significant percentage of our commissions and fees are derived from recruitment advertising, our operating results may be subject to increased cyclicality. EFFECT OF GLOBAL ECONOMIC FLUCTUATIONS Demand for our services is significantly affected by the general level of economic activity in the regions and industries in which we operate. When economic activity slows, many companies hire fewer permanent employees. Therefore, a significant economic downturn, especially in regions or industries where our operations are heavily concentrated, could have a material adverse effect on our business, financial condition and operating results. Further, we may face increased pricing pressures during such periods. There can be no assurance that during these periods our results of operations will not be adversely affected. WE DEPEND ON OUR CONSULTANTS The success of our executive search business depends upon our ability to attract and retain consultants who possess the skills and experience necessary to fulfill our clients' executive search needs. Competition for qualified consultants is intense. We believe that we have been able to attract and retain highly qualified, effective consultants as a result of our reputation and our performance-based compensation system. Consultants have the potential to earn substantial bonuses based on the amount of revenue they generate by: - obtaining executive search assignments; - executing search assignments; and - assisting other consultants to obtain or complete executive search assignments. Bonuses represent a significant proportion of consultants' total compensation. Any diminution of our reputation could impair our ability to retain existing or attract additional qualified consultants. Our inability to attract and retain qualified consultants could have a material adverse effect on our executive search business, financial condition and operating results. OUR CONSULTANTS MAY DEPART WITH EXISTING EXECUTIVE SEARCH CLIENTS The success of our executive search business depends upon the ability of our consultants to develop and maintain strong, long-term relationships with clients. Usually, one or two consultants have primary responsibility for a client relationship. When a consultant leaves an executive search firm and joins another, clients that have established relationships with the departing consultant may move their business to the consultant's new employer. The loss of one or more clients is more likely to occur if the departing consultant enjoys widespread name recognition or has developed a reputation as a specialist in executing searches in a specific industry or management function. Historically, we have not experienced significant problems in this area. However, a failure to retain our most effective consultants or maintain the quality of service to which our clients are accustomed could have a material adverse effect on our business, financial condition and operating results. Also, the ability of a departing consultant to move business to his or her 14 new employer could have a material adverse effect on our business, financial condition and operating results. WE FACE RISKS MAINTAINING OUR PROFESSIONAL REPUTATION AND BRAND NAME Our ability to secure new executive search engagements and hire qualified professionals is highly dependent upon our overall reputation and brand name recognition as well as the individual reputations of our professionals. We obtain a majority of our new engagements from existing clients or from referrals by existing clients. Therefore, the dissatisfaction of any client could have a disproportionate, adverse impact on our ability to secure new engagements. Any factor that diminishes our reputation or the reputation of any of our personnel could make it more difficult for us to compete successfully for both new engagements and qualified consultants. This could have an adverse effect on our executive search business, financial condition and operating results. WE FACE RESTRICTIONS IMPOSED BY BLOCKING ARRANGEMENTS Either by agreement with clients or for marketing or client relationship purposes, executive search firms frequently refrain, for a specified period of time, from recruiting certain employees of a client, and possibly other entities affiliated with such client, when conducting executive searches on behalf of other clients. This is known as a "blocking" arrangement. Blocking arrangements generally remain in effect for one or two years following completion of an assignment. The actual duration and scope of any blocking arrangement, including whether it covers all operations of a client and its affiliates or only certain divisions of a client, generally depends on such factors as: - the length of the client relationship; - the frequency with which the executive search firm has been engaged to perform executive searches for the client; and - the number of assignments the executive search firm has generated or expects to generate from the client. Some of our executive search clients are recognized as industry leaders and/or employ a significant number of qualified executives who are potential candidates for other companies in that client's industry. Blocking arrangements with a client of this nature, or the awareness by a client's competitors of such an arrangement, may make it difficult for us to obtain executive search assignments from, or to fulfill executive search assignments for, competitors while employees of that client may not be solicited. As our client base grows, particularly in our targeted business sectors, blocking arrangements increasingly may impede our growth or ability to attract and serve new clients. This could have an adverse effect on our executive search business, results of operations and financial condition. WE FACE RISKS RELATING TO OUR FOREIGN OPERATIONS We conduct operations in various foreign countries, including Australia, Belgium, Canada, France, Germany, Japan, the Netherlands, New Zealand, Singapore, Spain and the United Kingdom. For the year ended December 31, 1999 and the three months ended March 31, 2000, approximately 46.5% and 44.6% 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. 15 Other risks inherent in transacting foreign operations include changes in applicable laws and regulatory requirements, tariffs and other trade barriers and political instability. WE DEPEND ON OUR KEY PERSONNEL Our continued success will depend to a significant extent on our senior management, including Andrew J. McKelvey, our Chairman of the Board and CEO. The loss of the services of Mr. McKelvey or of one or more key employees could have a material adverse effect on our business, financial condition and operating results. In addition, if one or more key employees join a competitor or form a competing company, the resulting loss of existing or potential clients could have a material adverse effect on our business, financial condition and operating results. If we were to lose a key employee, we cannot assure you that we would be able to prevent the unauthorized disclosure or use of our procedures, practices, new product development or client lists. WE ARE CONTROLLED BY A PRINCIPAL STOCKHOLDER Andrew J. McKelvey beneficially owns all of our outstanding Class B common stock and a number of shares of our common stock, which together with his Class B common stock ownership represents more than half of the combined voting power of all classes of our voting stock. Mr. McKelvey can direct the election of all of the members of our board. He can also exercise a controlling influence over our business and affairs. This includes any determinations with respect to mergers or other business combinations, the acquisition or disposition of our assets, whether or not we incur indebtedness, the issuance of any additional common stock or other equity securities and the payment of dividends with respect to common stock. Similarly, Mr. McKelvey may determine matters submitted to a vote of our stockholders without the consent of our other stockholders and he has the power to prevent a change of control. EFFECTS OF ANTI-TAKEOVER PROVISIONS COULD INHIBIT OUR ACQUISITION Some of the provisions of our certificate of incorporation, bylaws and Delaware law could, together or separately: - discourage potential acquisition proposals; - delay or prevent a change in control; and - limit the price that investors might be willing to pay in the future for shares of our common stock. In particular, our board of directors may issue up to 800,000 shares of preferred stock with rights and privileges that might be senior to our common stock, without the consent of the holders of the common stock. Our certificate of incorporation and bylaws provide, among other things, for advance notice of stockholder proposals and director nominations. THERE MAY BE VOLATILITY IN OUR STOCK PRICE The market for our common stock has, from time to time, experienced extreme price and volume fluctuations. Factors such as announcements of variations in our quarterly financial results and fluctuations in advertising commissions and fees, including the percentage of our commissions and fees derived from Internet-based services and products could cause the market price of our common stock to fluctuate significantly. Further, due to the volatility of the stock market generally, the price of our common stock could fluctuate for reasons unrelated to our operating performance. The market price of our common stock is based in large part on professional securities analysts' expectations that our business will continue to grow and that we will achieve certain levels of net income. If our financial performance in a particular quarter does not meet the expectations of securities analysts, this may adversely affect the views of those securities analysts concerning our growth potential and future financial performance. If the securities analysts who regularly follow our common stock lower their ratings 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. 16 WE FACE RISKS ASSOCIATED WITH GOVERNMENT REGULATION As an advertising agency which creates and places print and Internet advertisements, we are subject to Sections 5 and 12 of the U.S. Federal Trade Commission Act. These sections regulate advertising in all media, including the Internet, and require advertisers and advertising agencies to have substantiation for advertising claims before disseminating advertisements. The FTC Act prohibits the dissemination of false, deceptive, misleading, and unfair advertising, and grants the Federal Trade Commission enforcement powers to impose and seek civil penalties, consumer redress, injunctive relief and other remedies upon advertisers and advertising agencies which disseminate prohibited advertisements. Advertising agencies like us are subject to liability under the FTC Act if the agency actively participated in creating the advertisement, and knew or had reason to know that the advertising was false or deceptive. In the event that any advertising that we have created is found to be false, deceptive or misleading, the FTC Act could potentially subject us to liability. The fact that the FTC has recently brought several actions charging deceptive advertising via the Internet, and is actively seeking new cases involving advertising via the Internet, indicates that the FTC Act could pose a somewhat higher risk of liability to the advertising distributed via the Internet. The FTC has never brought any actions against us. In addition, we cannot assure you that other current or new government laws and regulations, or the application of existing laws and regulations will not: - subject us to significant liabilities; - significantly dampen growth in Internet usage; - prevent us from offering certain Internet content or services; or - otherwise have a material adverse effect on our business, financial condition and operating results. WE HAVE NEVER PAID DIVIDENDS We currently intend to retain earnings, if any, to support our growth strategy. We do not anticipate paying dividends on our stock in the foreseeable future. In addition, payment of dividends on our stock is restricted by our financing agreement. RECENT DEVELOPMENTS On July 18, 2000, we announced plans to acquire QD Group Limited ("QD Group"), an international legal recruitment specialist which is based in London. QD Group consists of a network of 20 owned and affiliated offices across Asia, Europe and North America. The acquisition will be accounted for as a purchase. Please see the consolidated financial statements of QD Group as of March 31, 2000 and September 30, 1999 and 1998 and for the three months ended March 31, 2000 and 1999 and for each of the two years in the period ended September 30, 1999 and "Unaudited Pro Forma Condensed Consolidated Financial Information" included elsewhere in this prospectus. USE OF PROCEEDS TMP will not receive any proceeds from the sale of shares of TMP stock by the selling stockholders. 17 DIVIDEND POLICY We have never declared or paid any cash dividends on our stock. We currently anticipate that all future earnings will be retained by TMP to support our growth strategy. Accordingly, we do not anticipate paying cash dividends on our stock for the foreseeable future. The payment of any future dividends will be at the discretion of our Board of Directors and will depend upon, among other things, future earnings, operations, capital requirements, our general financial condition, contractual restrictions and general business conditions. Our financing agreement restricts the payment of dividends on our stock. PRICE RANGE OF COMMON STOCK Our stock is quoted on the Nasdaq National Market under the ticker symbol "TMPW." The stock was initially offered to the public on December 12, 1996 at $7.00 per share. The following table sets forth for the periods indicated the high and low reported closing sale prices per share for our stock as reported by Nasdaq. Effective February 29, 2000, a 2-for-1 stock split in the form of a stock dividend was paid, the share and per share amounts set forth in this section have been retroactively restated to give effect to the stock split.
YEAR ENDING DECEMBER 31, 2000 HIGH LOW ----------------------------- -------- -------- First Quarter............................................. $ 92.38 $ 60.00 Second Quarter............................................ $ 78.25 $ 49.13 Third Quarter (through July 17, 2000)..................... $ 79.50 $ 69.63 YEAR ENDING DECEMBER 31, 1999 HIGH LOW ----------------------------- -------- -------- First Quarter............................................. $ 34.94 $ 19.50 Second Quarter............................................ $ 44.69 $ 21.50 Third Quarter............................................. $ 32.81 $ 22.06 Fourth Quarter............................................ $ 80.15 $ 25.00 YEAR ENDED DECEMBER 31, 1998 HIGH LOW ---------------------------- -------- -------- First Quarter............................................. $ 16.31 $ 10.62 Second Quarter............................................ $ 17.44 $ 12.75 Third Quarter............................................. $ 19.44 $ 13.94 Fourth Quarter............................................ $ 21.00 $ 10.25
There were approximately 1,400 stockholders of record of our Common Stock on July 17, 2000. On July 17, 2000, the last reported sale price of our stock as reported by Nasdaq was $79.50. 18 SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION The selected supplemental consolidated financial information set forth below as of December 31, 1999 and 1998 and for the three years in the period ended December 31, 1999 has been derived from TMP's audited supplemental consolidated financial statements included elsewhere in this prospectus. The selected supplemental consolidated information with respect to the Company's financial position as of December 31, 1997 has been derived from TMP's audited supplemental consolidated balance sheet as of December 31, 1997 not included herein. The selected supplemental consolidated financial information set forth below as of December 31, 1996 and 1995 and for the two years ended December 31, 1996 has been derived from our unaudited supplemental consolidated financial statements which are not included in this prospectus. The selected supplemental consolidated financial data as of March 31, 2000 and for the three months ended March 31, 1999 and 2000 has been derived from TMP's unaudited supplemental consolidated condensed financial statements, and in the opinion of TMP's management, has been prepared on the same basis as the audited supplemental consolidated financial statements and include all normal recurring adjustments necessary for a fair presentation of the financial information. The results for the three months ended March 31, 2000 are not necessarily indicative of future results. The following financial information should be read in conjunction with TMP's supplemental consolidated financial statements and related notes thereto and TMP's supplemental consolidated condensed financial statements and related notes thereto and "Supplemental Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The Other Data presented below has not been audited.
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ---------------------------------------------------- ------------------- 1999 1998 1997 1996 1995 2000 1999 -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) SUPPLEMENTAL STATEMENT OF OPERATIONS DATA: Commissions and fees....................... $869,207 $744,517 $610,762 $447,605 $343,584 $257,410 $191,522 Operating expenses: Salaries & related....................... 496,926 430,316 344,956 258,389 197,068 146,025 114,931 Office & general......................... 205,165 184,905 160,027 123,891 95,817 61,185 53,466 Marketing & promotion.................... 74,647 29,737 13,665 8,414 5,079 29,349 10,186 Merger & integration..................... 63,054 22,412 -- -- -- 8,674 4,687 Restructuring............................ 2,789 3,543 -- -- -- -- 2,789 Amortization of intangibles.............. 12,532 11,070 6,913 4,786 3,410 3,635 3,089 Special compensation and CEO bonus(1).... -- 1,250 1,500 52,019 -- -- -- Total operating expenses................... 855,113 683,233 527,061 447,499 301,374 248,868 189,148 Operating income........................... 14,094 61,284 83,701 106 42,210 8,542 2,374 Other income (expense): Interest income (expense), net(2)........ (12,927) (12,876) (10,502) (14,573) (10,475) 1,794 (3,503) Other, net............................... (2,906) (2,057) 814 (341) (816) (87) (170) Income (loss) before provision (benefit) for income taxes, minority interests and equity in earnings (losses) of affiliates............................... (1,739) 46,351 74,013 (14,808) 30,919 10,249 (1,299) Provision (benefit) for income taxes....... 6,908 16,884 22,805 11,478 10,499 7,280 (795) Net income (loss) applicable to common and Class B common stockholders.............. (9,054) 29,043 50,756 (27,399) 19,124 3,050 (703) Net income (loss) per common and Class B common share: Basic.................................... $ (0.11) $ 0.36 $ 0.67 $ (0.43) $ 0.30 $ 0.03 $ (0.01) Diluted.................................. $ (0.11) $ 0.35 $ 0.66 $ (0.43) $ 0.30 $ 0.03 $ (0.01) Weighted average shares outstanding: Basic.................................... 84,250 81,638 75,857 64,198 63,071 92,399 83,065 Diluted.................................. 84,250 83,494 77,134 64,198 64,337 100,315 83,065
19
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------------------------------------ ------------------- 1999 1998 1997 1996 1995 2000 1999 ---------- ---------- ---------- ---------- -------- -------- -------- (IN THOUSANDS, EXCEPT NUMBER OF EMPLOYEES AND OFFICES) SUPPLEMENTAL OTHER DATA: Gross Billings: Interactive (3)........ $ 162,772 $ 60,705 $ 23,023 $ 7,099 $ 392 $ 80,459 $ 24,984 Recruitment Advertising.......... 831,624 869,302 659,467 381,089 239,365 219,555 214,985 Selection & Temporary Contracting (4)...... 271,910 209,227 181,332 142,750 108,124 79,286 41,544 Executive Search....... 173,558 195,268 168,107 127,893 101,521 39,007 58,642 Yellow Page Advertising.......... 532,258 520,129 497,848 466,230 442,287 133,175 120,011 ---------- ---------- ---------- ---------- -------- -------- -------- Total Gross Billings..... $1,972,122 $1,854,631 $1,529,777 $1,125,061 $891,689 $551,482 $460,166 ========== ========== ========== ========== ======== ======== ======== Total operating expenses as a percentage of commissions and fees... 98.4% 91.8% 86.3% 100.0% 87.7% 96.7% 98.8% Number of employees...... 7,212 6,895 6,139 4,315 2,973 8,241 6,538 Number of offices........ 304 298 253 191 143 290 286
DECEMBER 31, ------------------------------------------------------ MARCH 31, 1999 1998 1997 1996 1995 2000 ---------- -------- -------- -------- -------- ---------- (IN THOUSANDS) SUPPLEMENTAL BALANCE SHEET DATA: Current assets........................ $ 612,845 $517,980 $479,635 $347,185 $280,584 $1,137,580 Current liabilities................... 604,608 457,414 440,787 341,875 272,701 612,544 Total assets.......................... 1,053,228 895,681 804,516 520,109 383,989 1,604,977 Long-term liabilities, less current portion............................. 130,824 172,574 167,208 104,585 94,110 76,697 Minority interests.................... 9 509 431 3,705 3,639 52 Redeemable preferred stock............ -- -- -- 2,000 2,000 -- Total stockholders' equity............ 317,787 265,184 196,090 67,944 11,539 915,684
-------------------------- (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. (2) Interest expense for 1996 includes a $2.6 million non-cash, non-recurring charge to reflect the exercise of a warrant issued in connection with the Company's financing agreement. (3) Represents fees earned in connection with recruitment, yellow page and other advertisements placed on the Internet, interactive moving services and employment searches and temporary contracting services sourced through the Internet. (4) Amounts for temporary contracting are reported net of the costs paid to the temporary contractor. 20 SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS AND THE SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF THE COMPANY APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS. ALL AMOUNTS REFERRED TO BELOW REFLECT THE AMOUNTS DISCLOSED IN THE COMPANY'S SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND 1998 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 AND THE SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 INCLUDED ELSEWHERE IN THIS PROSPECTUS. During the period of January 1, 2000 through March 31, 2000, TMP Worldwide Inc. and subsidiaries ("TMP" or the "Company") consummated mergers with the following companies in transactions that provided for the exchange of all of the outstanding stock of each entity for a total of 1,699,123 shares of TMP common stock. Such transactions were accounted for as poolings of interests (the "First Quarter 2000 Mergers"):
NUMBER OF ENTITY BUSINESS SEGMENT ACQUISITION DATE TMP SHARES ISSUED ------ --------------------------------- ----------------- ----------------- HW Group PLC............ Selection & Temporary Contracting February 16, 2000 715,769 Microsurf, Inc.......... Interactive February 16, 2000 684,462 Burlington Wells, Selection & Temporary Contracting February 29, 2000 52,190 Inc................... Illsley Bourbonnais..... Executive Search March 1, 2000 246,702
During the period of April 1, 2000 through June 30, 2000, the Company consummated mergers with the following companies in transactions that provided for the exchange of all of the outstanding stock of each entity for a total of 3,117,169 shares of TMP common stock. Such transactions were accounted for as poolings of interests (the "Second Quarter 2000 Mergers"):
NUMBER OF ENTITY BUSINESS SEGMENT ACQUISITION DATE TMP SHARES ISSUED ------ --------------------------------- ----------------- ----------------- System One Services, Inc................... Selection & Temporary Contracting April 3, 2000 1,022,257 GTR Advertising......... Recruitment Advertising April 4, 2000 54,041 Virtual Relocation.com, Inc................... Interactive May 9, 2000 947,916 Business Technologies Ltd................... Interactive May 17, 2000 205,703 Simpatix, Inc........... Interactive May 31, 2000 152,500 Rollo Associates, Inc... Executive Search May 31, 2000 110,860 Web Technology Partners, Inc................... Interactive May 31, 2000 623,892
The Company's consolidated financial statements have been retroactively restated (a) as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999, to reflect the consummation of the First Quarter 2000 Mergers and the Second Quarter 2000 Mergers (collectively, the "First Half 2000 Mergers") and (b) as of March 31, 2000 and 1999 and for the three months ended March 31, 2000 and 1999 to reflect the consummation of the Second Quarter 2000 Mergers. Accordingly, the supplemental consolidated financial statements included herein as of December 31, 1999 and 1998 and for the three years in the period ended December 31, 1999 have been retroactively restated to reflect the First Half 2000 Mergers, as if the combining companies had been consolidated for all periods presented. The 21 supplemental consolidated condensed financial statements as of March 31, 2000 and for the three months ended March 31, 2000 and 1999 have been retroactively restated to reflect the Second Quarter 2000 Mergers, as if the combining companies had been consolidated for all periods presented. As a result, the financial position, and statements of income (loss), comprehensive income (loss) and cash flows are presented as if the combining companies had been consolidated for all periods presented. In addition, the supplemental consolidated statements of stockholders' equity reflect the accounts of TMP as if the additional common stock issued in connection with each of the aforementioned combinations included in the First Half 2000 Mergers had been issued for all periods when each of the related companies had issued shares and for the amounts that reflect the exchange ratios of the mergers. In accordance with generally accepted accounting principles, the supplemental consolidated financial statements will become the historical financial statements of the Company upon issuance of the financial statements for the period that includes the consummation of the Second Quarter 2000 Mergers. In the supplemental consolidated balance sheets, the balance sheets of TMP as of March 31, 2000 have been combined with those of the Second Quarter 2000 Mergers, and those as of December 31, 1999 and 1998 have been combined with those of the First Half 2000 Mergers all as of March 31, 2000 and December 31, 1999 and 1998 except for the following: Illsley Bourbonnais, for which the balance sheets as of January 31, 2000 and 1999 are combined with those of TMP as of December 31, 1999 and 1998, respectively; Business Technologies Ltd. ("BTL"), for which the balance sheets as of July 31, 1999 and 1998 are combined with those of TMP as of December 31, 1999 and 1998, respectively; HW Group PLC ("HW"), for which the balance sheet as of March 31, 1999 is combined with that of TMP as of December 31, 1998. The supplemental consolidated statements of income (loss) combine the results of TMP for the three months ended March 31, 2000 and 1999 with those of the Second Quarter 2000 Mergers and each year in the three year period ended December 31, 1999 with those of the First Half 2000 Mergers all for the same periods except for the following: Illsley Bourbonnais, for which the statements of income (loss) for the years ended January 31, 2000, 1999 and 1998 are included in the statements of income (loss) for the years ended December 31, 1999, 1998 and 1997, respectively; BTL, for which the statements of income (loss) for the years ended July 31, 1999, 1998 and 1997 are included in the statements of income (loss) for the years ended December 31, 1999, 1998 and 1997, respectively; HW, for which the statements of income (loss) for the years ended March 31, 1999 and 1998 are included in the statements of income (loss) for the years ended December 31, 1998 and 1997, respectively. The results of Illsley Bourbonnais for the month ended January 31, 2000 are included in both the supplemental consolidated statements of income (loss) for the year ended December 31, 1999 and in the supplemental consolidated condensed statement of income (loss) for the three months ended March 31, 2000. Therefore the following amounts have been included in both periods: (a) commissions and fees of $1.0 million and (b) net income of $285 thousand, with no impact on net income (loss) per share. Additionally, due to immateriality, the results of BTL for the period August 1, 1999 through December 31, 1999 of $314 thousand in commissions and fees and $50 thousand in net income have not been included in the supplemental consolidated statement of income (loss) for the year ended December 31, 1999 because the results of BTL for the fiscal year ended July 31, 1999 were combined with the supplemental consolidated statement of income (loss) of TMP for the year ended December 31, 1999. In addition, the results of HW, for the three months ended March 31, 1999 are included in the supplemental consolidated statements of income (loss) in both years ended December 31, 1999 and 1998, and the effects on both periods on (a) commissions and fees was $11.1 million, (b) net income was $1.9 million and (c) diluted earnings per share was $0.02. The supplemental consolidated financial statements, including the notes thereto, should be read in conjunction with TMP's historical consolidated financial statements included elsewhere herein. 22 OVERVIEW We, through our flagship Interactive product, Monster.com(sm) (www.monster.com), are the on-line recruitment leader. We are also one of the world's largest Recruitment Advertising agency networks, one of the world's largest Executive Search, Selection and Temporary Contracting agencies, the world's largest Yellow Pages Advertising agency, a provider of full service interactive advertising and interactive marketing technology services, and a provider of online moving services. Our Interactive growth is attributable to increased sales of our Internet products, expansion of our Interactive businesses into certain European countries, migration of our traditional businesses to the Internet and the addition of new Interactive services. Monster.com(sm) is the leading global career portal on the Web with over 15.2 million unique visits per month as of May 2000 per Nielson I/Pro. The Monster.com(sm) global network consists of local language and content sites in the United States, Canada (French and English), United Kingdom, Ireland, France, Germany, the Netherlands, Belgium, Australia, New Zealand, Singapore and Hong Kong. A substantial part of our growth in Recruitment Advertising, Selection & Temporary Contracting and Yellow Page Advertising has been achieved through acquisitions accounted for as purchases. For the period January 1, 1997 through March 31, 2000 we completed 59 such acquisitions, with estimated annual gross billings of approximately $480.4 million. Given the significant number of acquisitions affecting the periods presented, the results of operations from period to period may not necessarily be comparable. Furthermore, during the six months ended June 30, 2000, we completed eleven mergers that are being accounted for as poolings of interests (the "First Half 2000 Pooled Companies"). Approximately 4.8 million shares of our common stock were issued in exchange for all of the outstanding common stock of the First Half 2000 Pooled Companies (the "First Half 2000 Mergers"). Accordingly, the supplemental consolidated financial statements as of December 31, 1999 and 1998 and for each of the three years in the periods ended December 31, 1999, 1998 and 1997 included herein have been retroactively restated as if the First Half 2000 Pooled Companies had been consolidated for all periods presented, and the supplemental consolidated condensed financial statements as of and for the three months ended March 31, 2000 and 1999 have been retroactively restated as if the Second Quarter Pooled Companies had been consolidated from January 1, 2000 and 1999. Gross billings refers to billings for advertising placed on the Internet, in newspapers and telephone directories by our clients, and associated fees for related services. In addition, Executive Search fees, Selection fees, and net fees from Temporary Contracting services are also part of gross billings. Gross billings for Recruitment Advertising and Yellow Page Advertising are not included in our consolidated financial statements because they include a substantial amount of funds that are collected from our clients but passed through to publishers for advertisements. However, the trends in gross billings in these two segments directly impact the commissions and fees earned because, for these segments, we earn commissions based on a percentage of the media advertising purchased at a rate established by the related publisher. We also earn associated fees for related services; such amounts are also included in gross billings. Publishers and third party websites typically bill us for the advertising purchased and we in turn bill our clients for this amount and retain a commission. Generally, the payment terms for Yellow Page Advertising clients require payment to us prior to the date payment is due to the publishers. The payment terms with Recruitment Advertising clients typically require payment when payment is due to publishers. Historically, we have not experienced substantial problems with unpaid accounts. Commissions and fees related to our Interactive businesses are derived from: - job postings and access to the resume database and related services delivered via the Internet, primarily our own Web site, Monster.com(sm); - searches for permanent and temporary employees, at the executive and professional levels, and related services conducted through the Internet; 23 - Internet advertising services provided to our Yellow Page Advertising clients; - the providing of interactive advertising services and technologies, which allow advertisers to measure and track sales, repeat traffic and other key statistics to enable such advertisers to greatly reduce costs, while driving only the most qualified users to their web sites and - online moving services, primarily on our own Web site, MonsterMoving.com-SM-. MonsterMoving.com-SM- (www.monstermoving.com) provides important relocation information and services to Monster.com-SM-'s job seeker and employer community, which averages over 3.9 million unique visitors and over 15.2 million unique visits per month. According to the U.S. Census Department 1997 Study, approximately 20% of the general U.S. population is relocating at any point in time. As a result, we believe the correlation of moving and changing jobs makes this percentage even higher and, therefore, that these additional relocation services will be highly valued by Monster.com's audience and customer base. MonsterMoving.com-SM-, currently through the individual properties the Company acquired in 2000 (primarily Virtual Relocation.com, Inc. and Microsurf, Inc.), is already one of the Internet's most comprehensive providers of moving-related analytical tools, and features information that addresses the entire relocation process. This information includes new residence listings, community maps, education summaries, mortgage quotes, moving quotes, insurance quotes, address and utility change services, and home repair and maintenance information. MonsterMoving.com-SM-, which is scheduled to be launched as a new site in the third quarter of 2000, will be directly accessible to Monster.com-SM-'s large base of consumer traffic through URL links and promotions on Monster.com. In addition, the cross-selling of MonsterMoving.com-SM-'s services has started with the Company's other divisions and will provide an important new advertising venue for moving-related clients, particularly in the Yellow Page Advertising division, where over 30% of our Yellow Page revenues are derived from the moving services industry, including van lines, truck rentals and home services. For Recruitment Advertising placements in the U.S., publisher commissions historically average 15% of recruitment advertising gross billings. We also earn fees from related services such as campaign development and design, retention and referral programs, resume screening, brochures and other collateral services, research and other creative and administrative services. Outside of the U.S., where, collectively, we derive the majority of our Recruitment Advertising commissions and fees, our commission rates for recruitment advertising vary, historically ranging from approximately 10% in Australia to 15% in Canada and the United Kingdom. Executive Search offers an advanced and comprehensive range of services aimed at identifying the appropriate senior executive for our clients. Such senior executives typically earn in excess of $250,000 annually. Our specialized services include identification of candidates, competence measurement, assessment of candidate/company cultural fit and transaction negotiation and closure. Selection & Temporary Contracting offers placement services for executives and professionals in mid-level and temporary positions, as well as for specific short-term projects. Our Selection business provides services similar to our Executive Search business, and focuses on mid-level professionals or executives, who typically earn between $75,000 and $150,000, annually. Our Temporary Contracting business provides contract employees primarily in Australia, New Zealand, the United Kingdom and the U.S. We believe that our Executive Search and Selection & Temporary Contracting services are helping to broaden the universe of both job seekers and employers who utilize Monster.com(sm). Through the use of Monster.com(sm), Recruitment Advertising, Selection & Temporary Contracting and Executive Search, we believe that we can accommodate all of our clients' employee recruitment needs, which is our "Intern to CEO" strategy. 24 We design and execute Yellow Page Advertising, receiving an effective commission rate from directory publishers which historically approximated 20% of Yellow Page Advertising gross billings. Gross billings increased $34.5 million or 6.9% to $532.3 million in 1999 from $497.8 million in 1997. However, due to reductions in commission rates by the publishers and higher discounts provided to clients, the rate has declined and for 1999 was approximately 19% and has declined to approximately 17.5% by March 31, 2000. Consequently, commissions and fees declined $2.6 million or 2.5% to $101.3 million in 1999 from $103.9 million in 1997. In addition to base commissions, certain yellow pages publishers pay increased commissions for volume placement by advertising agencies. We typically recognize this additional commission, if any, in the fourth quarter when it is certain that such commission has been earned. No such amounts were reported in the fourth quarter of 1999 due to the aggressive objectives set by the publishers, and the Company does not foresee achieving these aggressive goals in the future. Interactive commissions and fees were $70.8 million for the quarter ended March 31, 2000, an increase of $48.4 million or 216.6% over the first quarter of 1999, which had Interactive commissions and fees of $22.4 million. This growth reflects an increase in the acceptance of our Interactive products and services by existing and new clients and the effect of increased sales and marketing activities. Recruitment Advertising commissions and fees were flat at $46.5 million for the three months ended March 31, 2000 versus $46.4 million for the first quarter of 1999 reflecting modest growth in traditional billings of 0.2% and a reduced amount of higher margin collateral work. Selection & Temporary Contracting commissions and fees were $77.8 million, up $20.4 million or 35.5% from $57.4 million for the period ended March 31, 1999. The increase reflects the increased demand for professional level employees worldwide, particularly in mid-level management positions (annual salaries ranging from $75,000 to $150,000) and the resumption of strong demand for temporary employees in Australia, particularly in the information technology sector. Executive Search commissions and fees were $39.0 million for the three months ended March 31, 2000, a decrease of $2.5 million or 6.0% from $41.5 million for the comparable three months of 1999, due primarily to the decrease, as anticipated, in consultants at LAI Worldwide, Inc. ("LAI") (many of whom would have been deemed redundant as a consequence of the merger), in the second quarter of 1999, in anticipation of the merger with TMP. Yellow Page Advertising billings increased 11.0% to $133.2 million for the quarter ended March 31, 2000. However, Yellow Page Advertising commissions and fees decreased 2.1% to $23.3 million for the first quarter of 2000 compared to $23.8 million for the prior year period, reflecting substantially reduced commissions paid by publishers and the effects of higher discounts provided to certain large clients. Total commissions and fees as a percent of related billings for the first quarter ended March 31, 2000 were 46.7% as compared to 41.6% for the prior year period. The higher percentage reflects increased sales volume for Interactive and Selection & Temporary Contracting, where the Company retains greater portions of the amounts billed. Based on our consolidated results for the periods ended March 31, 2000 and 1999, 44.6%, and 48.0%, respectively, of our consolidated commissions and fees are attributable to clients outside the U.S. 25 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.
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------------ ------------------- 1997 1998 1999 1999 2000 ---------- ---------- ---------- -------- -------- (IN THOUSANDS) GROSS BILLINGS: Interactive(1)...................... $ 23,023 $ 60,705 $ 162,772 $ 24,984 $ 80,459 Recruitment Advertising............. 659,467 869,302 831,624 214,985 219,555 Selection & Temporary Contracting(2).................... 181,332 209,227 271,910 58,642 79,286 Executive Search.................... 168,107 195,268 173,558 41,544 39,007 Yellow Page Advertising............. 497,848 520,129 532,258 120,011 133,175 ---------- ---------- ---------- -------- -------- Total................................. $1,529,777 $1,854,631 $1,972,122 $460,166 $551,482 ========== ========== ========== ======== ======== COMMISSIONS AND FEES: Interactive(1)...................... $ 21,940 $ 53,992 $ 144,400 $ 22,356 $ 70,774 Recruitment Advertising............. 136,758 180,774 181,228 46,425 46,513 Selection & Temporary Contracting(2).................... 180,016 208,028 269,008 57,433 77,816 Executive Search.................... 168,107 195,268 173,277 41,513 39,007 Yellow Page Advertising............. 103,941 106,455 101,294 23,795 23,300 ---------- ---------- ---------- -------- -------- Total................................. $ 610,762 $ 744,517 $ 869,207 $191,522 $257,410 ========== ========== ========== ======== ======== COMMISSIONS AND FEES AS A PERCENTAGE OF GROSS BILLINGS: Interactive(1)...................... 95.3% 88.9% 88.7% 89.5% 88.0% Recruitment Advertising............. 20.7% 20.8% 21.8% 21.6% 21.2% Selection & Temporary Contracting(2).................... 99.3% 99.4% 98.9% 97.9% 98.1% Executive Search.................... 100.0% 100.0% 99.8% 99.9% 100.0% Yellow Page Advertising............. 20.9% 20.5% 19.0% 19.8% 17.5% Total................................. 39.9% 40.1% 44.1% 41.6% 46.7% EBITDA(3)............................. $ 107,400 $ 96,795 $ 57,789 $ 12,551 $ 22,746 Cash provided by (used in) operating activities.......................... $ 62,438 $ 72,166 $ 95,520 $(13,023) $(57,362) Cash used in investing activities..... $ (109,367) $ (73,863) $ (61,571) $(22,173) $(30,345) Cash provided by (used in) financing activities.......................... $ 75,613 $ 22,100 $ (48,463) $ 13,781 $545,102 Effect of exchange rate changes on cash................................ $ (303) $ (165) $ (755) $ 670 $ (1,463)
------------------------ (1) Represents fees earned in connection with recruitment, yellow page and other advertisements placed on the Internet, interactive moving services and employment searches and temporary contracting services sourced through the Internet. (2) Amounts for temporary contracting are reported net of the costs paid to the temporary contractor. (3) Earnings before interest, income taxes, depreciation and amortization. EBITDA is presented to provide additional information about our ability to meet our future debt service, capital expenditures and working capital requirements and is one of the measures which determines our ability to borrow under our credit facility. EBITDA should not be considered in isolation or as a substitute for operating income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of our profitability or liquidity. 26 EBITDA for the indicated periods is calculated as follows:
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------ ------------------- 1997 1998 1999 1999 2000 -------- -------- -------- -------- -------- (IN THOUSANDS) Net income (loss)............................. $ 50,879 $29,043 $(9,054) $ (703) $ 3,050 Interest (income) expense, net................ 10,502 12,876 12,927 3,503 (1,794) Income tax expense (benefit).................. 22,805 16,884 6,908 (795) 7,280 Depreciation and amortization................. 23,214 37,992 47,008 10,546 14,210 -------- ------- ------- ------- ------- EBITDA........................................ $107,400 $96,795 $57,789 $12,551 $22,746 ======== ======= ======= ======= =======
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1999 Gross billings for the three months ended March 31, 2000 were $551.5 million, an increase of $91.3 million or 19.8% from $460.2 million for the three months ended March 31, 1999. Total commissions and fees for the three months ended March 31, 2000 were $257.4 million, an increase of $65.9 million or 34.4% from $191.5 million for the comparable period in 1999. Interactive commissions and fees for the three months ended March 31, 2000 were $70.8 million, an increase of $48.4 million or 216.6% compared with $22.4 million for the three months ended March 31, 1999. The increase in Interactive commissions and fees from the March 1999 period to the March 2000 period is due to: (i) an increasing acceptance of our Interactive services and products from existing clients, new clients and Internet users, (ii) the benefits of Monster.com(sm)'s marketing campaign, (iii) increases in the services and content available on our websites, (iv) expansion into certain European markets, (v) price increases on certain products, and (vi) the continuing migration of our traditional businesses to the Internet. Recruitment Advertising commissions and fees were flat at $46.5 million for the three months ended March 31, 2000 versus $46.4 million for the first quarter of 1999 reflecting modest growth in traditional billings of 0.2% due to migration of recruitment advertising to the Internet and a reduced amount of higher margin collateral work. Selection & Temporary Contracting commissions and fees were $77.8 million, up $20.4 million or 35.5% from $57.4 million for the period ended March 31, 1999. The increase reflects the increased demand for professional level employees worldwide and the resumption of strong demand for temporary employees in Australia, particularly in the information technology sector. Executive Search commissions and fees were $39.0 million for the three months ended March 31, 2000, a decrease of $2.5 million or 6.0% from $41.5 million for the comparable three months of 1999, due primarily to the decrease, as anticipated, in consultants at LAI (many of whom would have been deemed redundant as a result of the merger), in the second quarter of 1999, in anticipation of the merger with TMP. Yellow Page Advertising commissions and fees were $23.3 million for the three months ended March 31, 2000, a decrease of $0.5 million or 2.1% from $23.8 million for the comparable three months of 1999. This decrease was due to substantially reduced commissions paid by publishers and the effects of higher discounts paid to certain large clients. Operating expenses for the three months ended March 31, 2000 were $248.9 million, compared with $189.1 million for the same period in 1999, an increase of $59.8 million or 31.6%. The increase is primarily due $31.1 million in higher salaries and related costs due to organic growth and acquisitions accounted for as purchases, and $19.1 million in marketing and promotion expenses, primarily related to Monster.com(sm). Salaries and related expenses for the three months ended March 31, 2000 were $146.0 million, compared with $114.9 million for the same period in 1999. The increase of $31.1 million or 27.1% is primarily due to acquisitions accounted for as purchases and organic growth in Interactive and Selection & Temporary Contracting operations. Because the growth in total commissions and fees outpaced the growth in salaries and related expenses, salary and related expenses as a percent of commissions and fees declined from 60.0% to 56.7%. This decline in expenses as a percent of commissions and fees is primarily due to the organic growth mentioned above. 27 Office and general expenses for the three months ended March 31, 2000 were $61.2 million compared with $53.5 million for the same period in 1999, an increase of $7.7 million or 14.4%. The increase reflects organic growth in Interactive, and Selection & Temporary Contracting operations, partially offset by savings through consolidation of back offices and support functions in Recruitment and Yellow Pages Advertising. Because the growth in total commissions and fees outpaced the growth in office and general expenses, office and general expenses as a percent of commissions and fees declined from 27.9% to 23.8%. This decline in expenses as a percent of commissions & fees is primarily due to the organic growth mentioned above as well as cost reductions in Recruitment and Yellow Pages Advertising, where commissions and fees remained relatively unchanged from the March 1999 quarter to the March 2000 quarter. Marketing and promotion expenses for the three months ended March 31, 2000 were $29.3 million or 11.4% of commissions and fees, compared with $10.2 million or 5.3% of commissions and fees for the same period in 1999. The increase of $19.1 million or 188.1% is primarily due to higher marketing costs for Monster.com(sm) and reflects the Company's plan to increase the promotion of Monster.com(sm) with funds provided from increased revenues. The first quarter 2000 expenses include a pro rata charge pursuant to the content and marketing agreement with America Online, Inc. ("AOL") whereby Monster.com(sm), for the payment of $100 million over four years, is the exclusive provider of career search services in the U.S. and Canada to AOL members across seven AOL properties, including the AOL Service, AOL Canada, Compuserve, ICQ, AOL.com, Netscape and Digital City. Merger and integration costs for the three months ended March 31, 2000 were $8.7 million compared with $4.7 million for the same period in 1999, an increase of $4.0 million or 85.1%. The majority of the $8.7 million relates to the acquisition of HW Group PLC in 2000. Also included in the 2000 amount was $2.3 million for the amortization of employee stay bonuses payable in stock in connection with certain of the acquisitions consummated in 1999 and accounted for as poolings of interests. The majority of the $4.7 million for the three months ended March 31, 1999 related to the Morgan & Banks Ltd. pooling of interests transaction, completed during the first quarter of 1999. Also included in the 1999 amount was $1.5 million for the amortization of employee stay bonuses which is payable in stock in connection with certain of the acquisitions completed in 1998 and accounted for as poolings of interests. As a result of the above, operating income for the three months ended March 31, 2000 was $8.5 million, an increase of $6.1 million or 259.8% from $2.4 million for the comparable period in 1999. Net interest income for the three months ended March 31, 2000 was $1.8 million, compared with a net interest expense of $3.5 million for the comparable 1999 period, an improvement of $5.3 million or 151.2%. This improvement primarily reflects the investing of net proceeds from the Company's February 2000 follow-on offering after a significant portion of existing long-term debt was repaid with a portion of such proceeds. The Company completed the follow-on public offering of 4.0 million (8.0 million, adjusted for the February 29, 2000 2-for-1 stock split) shares of common stock on February 2, 2000. The net proceeds raised by the Company totaled $594.2 million. Taxes on income for the three months ended March 31, 2000 were $7.3 million on pre-tax profit of $10.2 million, compared with a tax benefit of $0.8 million on pre-tax loss of $1.3 million the first quarter of 1999. The increase of $8.1 million reflects the higher pretax profit in the three months ended March 31, 2000. In addition, in each quarter the provision and benefit reflect expenses that are not tax deductible; these are primarily related to merger costs from pooling of interests transactions and amortization of certain intangible assets. Also for both periods the provision and benefit is benefited by profits from certain pooled entities that were not taxed at the corporate level prior to their merger with TMP. Minority interests in consolidated earnings for the three months ended March 31, 2000 was an $81,000 loss compared with a profit of $99,000 for the three months ended March 31, 1999. 28 Equity in losses of unconsolidated affiliates, which reflected losses associated with the real estate advertising company in which the Company holds a minority interest, was $100,000 for the three months ended March 31, 1999. As a result of all of the above, the net income available to common and Class B common stockholders for the three months ended March 31, 2000 was $3.1 million, an increase of $3.8 million from the net loss of $0.7 million for the three months ended March 31, 1999. On a diluted per share basis, the net income available to common and Class B common stockholders for the three months ended March 31, 2000 was $0.03, compared to a net loss of $0.01 for the comparable 1999 period. THE YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998 Gross billings for the year ended December 31, 1999 were $1,972.1 million, a net increase of $117.5 million or 6.3% from $1,854.6 million for the year ended December 31, 1998. Commissions and fees for the year ended December 31, 1999 were $869.2 million, an increase of $124.7 million or 16.7% from $744.5 million for the year ended December 31, 1998. Interactive commissions and fees for the year ended December 31, 1999 were $144.4 million, an increase of 167.4% or $90.4 million as compared with $54.0 million for the year ended December 31, 1998. This increase in Interactive commissions and fees is due to: (i) an increasing acceptance of our Interactive services and products from existing clients, new clients and Internet users, (ii) the benefits of Monster.com(sm)'s marketing campaign, (iii) increases in the services and content available on our Websites, (iv) expansion into certain European markets and (v) price increases on certain products. Recruitment Advertising commissions and fees of $181.2 million for the year ended December 31, 1999 were virtually flat compared with $180.8 million for the year ended December 31, 1998, reflecting reduced billings due to lower volume of help-wanted advertisements placed in newspapers and a loss of business in the Asia-Pacific Region, offset by substantial reductions in client discounts and increased ancillary services in North America and an increase in business in Europe. Selection & Temporary Contracting commissions and fees were $269.0 million, up $61.0 million or 29.3% from $208.0 million for the period ended December 31, 1998, due primarily to organic growth in selection services in Australia and Continental Europe and in temporary contracting operations. The increase in Temporary Contracting reflects an increase in the number of contractors placed, particularly information technology personnel and executives, which have higher margins than general and support staff. Executive Search commissions and fees were $173.3 million, a decrease of $22.0 million or 11.3% from $195.3 million for the comparable year of 1998, due primarily to a loss of consultants, as anticipated, at LAI and TASA Holding AG, which resulted from the merger and integration of these companies. Yellow Page Advertising commissions and fees were $101.3 million for the year ended December 31, 1999, a decrease of $5.2 million or 4.8% from $106.5 million for the year ended December 31, 1998, reflecting substantially reduced commission rates and year-end incentives paid by publishers and the effects of higher discounts for certain clients offset, in part by the benefits from higher gross billings, internal growth and acquisitions. Operating expenses for the year ended December 31, 1999 were $855.1 million compared with $683.2 million for same period in 1998. The increase of $171.9 million or 25.2% is due to increases of $66.6 million in salary and related costs, $40.7 million in merger and integration costs related to mergers accounted for as poolings of interests, $44.9 million in marketing and promotion expenses primarily to support Monster.com(sm) and $20.3 million in office and general expenses. Salaries and related costs for the year ended December 31, 1999 were $496.9 million or 57.2% of total commissions and fees, compared with $430.3 million or 57.8% of total commissions and fees for the same period in 1998. The increase of $66.6 million or 15.5% is primarily due to increased staff for the expansion of our Interactive operations, especially Monster.com(sm), and acquisitions accounted for as purchases in Selection & Temporary Contracting. Office and general expenses for the year ended December 31, 1999 were $205.2 million or 23.6% of total commissions and fees, compared with $184.9 million or 24.8% of commissions and fees for the same 29 period in 1998. The increase of $20.3 million or 11.0% is primarily due to acquisitions and higher costs for our Interactive operations, partially offset by reductions in expenses for the Yellow Page Advertising and Recruitment Advertising businesses due to improved efficiencies. Marketing and promotion expenses increased $44.9 million to $74.6 million for the year ended December 31, 1999 from $29.7 million for the year ended December 31, 1998, a 151.0% increase due to increased spending to promote Monster.com(sm). Merger and integration costs for the year ended December 31, 1999 were $63.1 million compared with $22.4 million for the same period in 1998 an increase of $40.7 million or 181.3%. This increase primarily resulted from the pooling of interests transactions that occurred during the year ended December 31, 1999 and the planned integration of such companies and is comprised of: (i) $32.5 million of office integration costs, which include the closing of excess leased facilities, the write-off of fixed assets which will not be used in the future and a reserve for the effect, after reduction for related compensation, of uncollectible search fees recorded as a result of a loss of executive search consultants, (ii) $9.6 million for separation pay and accelerated vesting of employee stock and stock option grants, both in accordance with pre-existing contractual change in control provisions and (iii) $3.6 million more of transaction related costs, which include legal, accounting, printing and advisory fees and the costs incurred for the subsequent registration of shares issued in the transactions, partially offset by $5.0 million less for employee stay bonuses paid primarily with TMP shares and options to certain key personnel of the merged companies. Approximately $24.1 million of the $63.1 million are non-cash charges. The after tax effect of these charges on diluted net income (loss) per share is $(0.53) and $(0.20) for the year ended December 31, 1999 and 1998, respectively. Restructuring charges for the year ended December 31, 1999 were $2.8 million or, on an after tax basis, $(0.02) per diluted share, compared with $3.5 million or $(0.03) per diluted share on an after tax basis for the year ended December 31, 1998. These charges relate to LAI's closing of its London and Hong Kong offices prior to LAI's merger with TMP. These charges include $0.5 million for the write-off of leasehold improvements and fixed assets, $1.3 million for severance benefits payable to 24 employees, and $1.0 million for consolidation of facilities related to the restructuring. As a result of the above, operating income for the year ended December 31, 1999 decreased $47.2 million or 77.0% to $14.1 million from $61.3 million for the comparable period in 1998. Net interest expense was $12.9 million for each of the years ended December 31, 1999 and 1998. The effects of lower interest rates and borrowing costs in 1999, resulting from the amended and restated financing agreement entered into on November 5, 1998, were offset by increased borrowings and interest expense of pooled companies. Taxes on income for the year ended December 31, 1999 were $6.9 million on a $1.7 million pretax loss, compared with a tax expense of $16.9 million on a $46.4 million pretax profit for the year ended December 31, 1998. Although there is a loss for the 1999 period, there is a tax expense because certain expenses are not tax deductible. Such expenses are primarily related to merger costs from pooling of interests transactions and amortization of intangible assets. The tax charge in each period benefited from profits of certain pooled entities whose earnings were not taxed at the corporate level prior to their merger with TMP. As a result of all of the above, the net loss applicable to common and Class B common stockholders for the year ended December 31, 1999 was $0.11 per diluted share, a decrease of $0.46 per diluted share or 131.4% from the net income of $0.35 per diluted share for the comparable 1998 period. 30 THE YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997 Gross billings for the year ended December 31, 1998 were $1,854.6 million, an increase of $324.8 million or 21.2% as compared to gross billings of $1,529.8 million for the year ended December 31, 1997. This increase in gross billings resulted primarily from acquisitions in Recruitment Advertising and organic growth in our Interactive, Selection & Temporary Contracting and Executive Search businesses. Total commissions and fees for the year ended December 31, 1998 were $744.5 million, an increase of $133.7 million or 21.9% from $610.8 million for the year ended December 31, 1997. Interactive commissions and fees for the year ended December 31, 1998 were $54.0 million, an increase of 146.1% or $32.1 million from $21.9 million for the year ended December 31, 1997. The increase in Interactive commissions and fees is due to (i) an increasing acceptance of our Interactive services and products from existing clients and Internet users, (ii) the benefits of Monster.com(sm)'s marketing campaign, (iii) increases in the service and content available on our websites, (iv) expansion into certain European markets and (v) price increases on certain products. Recruitment Advertising commissions and fees were $180.8 million for the year ended December 31, 1998 compared with $136.8 million for the year ended December 31, 1997, an increase of $44.0 million or 32.2%. This increase was primarily due to (a) acquisitions, which contributed approximately $25.1 million and (b) approximately $21.4 million from increased client spending and new clients partially offset by client losses and a decrease in foreign currency translation rates, which had a negative effect of approximately $3.0 million. Executive Search commissions and fees were $195.3 million compared with $168.1 million for the year ended December 31, 1997, an increase of $27.2 million or 16.2%, due primarily to strong organic growth due to increased demand for executive management employees worldwide. Selection & Temporary Contracting commissions and fees were $208.0 million, an increase of $28.0 million or 15.6% from $180.0 million for the year ended December 31, 1997. This increase is primarily due to acquisitions of selection firms in Continental Europe, a greater number of temporary contract workers placed during 1998 as compared with the prior period, growth in the executive temporary contracting business. Yellow Page Advertising commissions and fees were $106.5 million for the year ended December 31, 1998 compared with $103.9 million for the year ended December 31, 1997, an increase of 2.4% or $2.6 million due primarily to acquisitions accounted for as purchases. Total operating expenses for the year ended December 31, 1998 were $683.2 million, compared with $527.1 million for 1997. The increase of $156.1 million or 29.6% is due primarily to acquisitions and internal growth, together with the addition of $22.4 million for merger and integration costs related to pooling of interests transactions and $3.5 million in restructuring charges for the closing of LAI's London, England and Hong Kong offices prior to LAI's merger with TMP. Salaries and related costs for the year ended December 31, 1998 were $430.3 million or 57.8% of total commissions and fees, compared with $345.0 million or 56.5% of total commissions and fees for the same period in 1997, representing an increase of $85.3 million or 24.7%. This increase reflects acquisitions in Executive Search and Recruitment Advertising and growth in Interactive operations. Office and general expenses increased $24.9 million to $184.9 million for the year ended December 31, 1998, as compared with $160.0 million for the prior period primarily due to acquisitions accounted for as purchases and other expenses to grow our Interactive businesses. As a percent of total commissions and fees, office and general expenses decreased to 24.8% for the year ended December 31, 1998 from 26.2% for the year ended December 31, 1997. Marketing and promotion expenses increased $16.0 million to $29.7 million for the year ended December 31, 1998 from $13.7 million for the year ended December 31, 1997, a 117.6% increase due to increased marketing for our interactive operations, especially Monster.com(sm). In connection with the mergers completed during 1998 and the merger with Morgan & Banks Limited completed in January 1999, we expensed merger and integration costs of $22.4 million for the year ended December 31, 1998, consisting of (i) $11.9 million of non-cash employee stay bonuses, which included 31 (a) $3.6 million for the amortization of TMP shares set aside for key personnel of Johnson, Smith & Knisely Inc. and The Consulting Group (International) Limited, who must remain employees for a full year in order to earn such shares and (b) $8.3 million for TMP shares to key personnel of TASA and Stackig, Inc. as employee stay bonuses, (ii) $1.5 million of stay bonuses paid as cash to key personnel of one of the companies merged in 1998 and (iii) $9.0 million of transaction related costs, including fees for legal, accounting and advisory services and the costs incurred for the subsequent registration of shares issued in the acquisitions. The after tax effect of this charge is $16.7 million or $(0.20) per diluted share. Restructuring charges for the year ended December 31, 1998 were $3.5 million or, on an after tax basis, $(0.03) per diluted share and relate to LAI's plan prior to its merger with TMP to significantly curtail the operations of its international offices in London, England. These charges include $1.1 million for severance, and $2.4 million for the write-off of leasehold improvements and other costs to close these facilities. Amortization of intangibles was $11.1 million for the year ended December 31, 1998 compared to $6.9 million for the year ended December 31, 1997. The increase is due to our continued growth through acquisitions. As a percentage of total commissions and fees, amortization of intangibles was 1.5% and 1.1% for the years ended December 31, 1998 and 1997, respectively. As a result of all of the above, operating income decreased $22.4 million to $61.3 million for the year ended December 31, 1998 as compared with operating income of $83.7 million for the year ended December 31, 1997 and, as a percent of total commissions and fees, operating income decreased to 8.2% from 13.7%. Net interest expense increased $2.4 million to $12.9 million for the year ended December 31, 1998 as compared to $10.5 million for the year ended December 31, 1997, reflecting a net increase in debt as a result of acquisitions and capital expenditures. In addition, our effective interest rate was 11.2% for the year ended December 31, 1998 compared with 10.8% for the year ended December 31, 1997. Taxes on income decreased $5.9 million to $16.9 million for the year ended December 31, 1998 from $22.8 million for the year ended December 31, 1997 primarily due to lower pre-tax income. The 1998 amount reflects the inability to deduct for tax, certain costs associated with the mergers completed during 1998 and the merger with Morgan & Banks Limited completed in 1999 which were accounted for as poolings of interests. For the year ended December 31, 1998, equity in losses of unconsolidated affiliates was $396, reflecting losses at our minority owned real estate advertising affiliate, as compared with a $33 loss for the same period in 1997. Minority interests in consolidated earnings for the year ended December 31, 1998 were $28 compared with $296 for the year ended December 31, 1997. As a result of all of the above, the net income applicable to common and Class B common stockholders was $29.0 million for the year ended December 31, 1998, or $0.35 per diluted share, compared with net income applicable to common and Class B common stockholders of $50.8 million, or $0.66 per diluted share for the year ended December 31, 1997. LIQUIDITY AND CAPITAL RESOURCES Our principal capital requirements have been to fund (i) acquisitions, (ii) working capital, (iii) capital expenditures and (iv) marketing and development of our Interactive business. Our working capital requirements are generally higher in the quarters ending March 31 and June 30 during which payments to the major yellow page directory publishers are at their highest levels. We have met our liquidity needs over the last three years through (a) funds provided by operating activities, (b) equity offerings, (c) long-term borrowings, (d) capital leases and (e) vendor financing in 1996. In December 1996, we completed our initial public offering of an aggregate of 8,294,816 shares of Common Stock at a purchase price of $7.00 per share in an underwritten public offering managed by Morgan Stanley & Co. Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation and Ladenburg Thalmann & Co. Inc. In the initial public 32 offering, certain stockholders sold an additional aggregate of 1,305,184 shares of Common Stock. The net proceeds that we received from the initial public offering of $50.8 million were used to repay debt and, in early 1997, to pay down accounts payable and to redeem preferred stock. In September 1997, we completed a second public offering of an aggregate of 4,800,000 shares of Common Stock at a purchase price of $11.50 per share in an underwritten public offering managed by Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., BT Alex Brown Incorporated, Montgomery Securities and Ladenburg Thalmann & Co. Inc. In addition, certain stockholders sold an aggregate of 3,200,000 shares of common stock in such offering. Our net proceeds from this offering of $63.4 million, including net repayment of borrowings of $12.2 million paid to us by certain stockholders, were used to repay debt. In 1998, LAI received $41.6 million in net proceeds from its second public offering managed by Robert W. Baird & Co. Incorporated, The Robinson-Humphrey Company, LLC and J.C. Bradford & Co. Such proceeds were used to support its international expansion, support enhancements to its technology-based infrastructure, acquire two executive search companies and provide additional working capital. On January 27, 2000, in connection with its third public offering, the Company issued an aggregate of, on a post split basis, 8,000,000 shares of common stock at a purchase price of $77 5/16 per share in an underwritten public offering managed by Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., Salomon Smith Barney, Deutsche Bank Securities, Inc., Paine Webber Incorporated and U.S. Bancorp Piper Jaffrey, Inc. The offering was completed in February 2000. The net proceeds from this offering were $594.2 million, and approximately $82 million was used to pay down debt on the Company's credit line. The remainder is being invested in short and medium term interest bearing instruments until used for acquisitions, strategic equity investments and general corporate purposes. Net cash used in operating activities for the first quarter ended March 31, 2000 and 1999 was $57.4 million, and $13.0 million, respectively. The increase in cash used in operating activities of $44.4 million for 2000 over 1999 was primarily attributable to (i) $34.1 million due to increases in accounts receivable for the 2000 period over the 1999 period, related mostly to growth in Recruitment Advertising and Interactive operations (ii) $26.0 million resulting from decreases in cash from accounts payable and accrued liabilities and (iii) $15.2 million related to increases in the use of funds for work-in-process and prepaid and other assets for the 2000 period over the 1999 period, partially offset by (i) $16.0 million increase in earnings after adjusting for non-cash items (ii) $10.3 million resulting from increases in deferred commissions and fees and (iii) $4.6 million due to the effects of higher losses from pooled companies in both the current and previous period. Net cash provided by operating activities for the years ended December 31, 1999, 1998 and 1997 was $95.5 million, $72.2 million and $62.4 million, respectively. The increase in cash of $23.3 million from operating activities for 1999 over 1998 was primarily due to (i) the net increase in funds from a $49.3 million greater increase in deferred commissions and fees, primarily for Monster.com(sm), for the 1999 period over the 1998 period, (ii) a $5.1 million effect from inclusion of losses in 1999 and profits in 1998 from companies accounted for as poolings of interests, in both the current period and the previous year, because of overlapping reporting periods reduced by (i) an $11.8 million net increase in the use of funds from increases in accounts receivable over increases in accounts payable, accrued expenses and other liabilities, for the 1999 period over the 1998 period, (ii) a $0.8 million increase in work-in-process and prepaid and other assets and (iii) a $17.5 million decline in earnings after adjusting for non-cash items. The increase in cash of $9.8 million from operating activities for 1998 over 1997 was primarily due to an increase of $8.7 million in accounts payable, accrued expenses and other current liabilities, a $10.4 million increase in depreciation and amortization costs, $8.3 million for the utilization of our common stock to pay bonuses, a decrease of $11.3 million in accounts receivable, $2.9 million from the net loss on disposal of fixed assets, a $3.4 million increase in deferred commissions and fees, a $4.4 million increase in amortization of deferred compensation and a $2.2 million increase in provision for doubtful accounts, partially offset by decreases in net income of $21.8 million, $8.0 million in deferred income taxes, $9.9 million in work-in-process, prepaid and other assets, and a decrease of $2.3 million from the effects of including losses from pooled companies in both the current and previous period. In addition, in 1998 we paid 33 approximately $13.6 million for restructuring. Such amount was applied against a reserve set up during 1997 in connection with acquisitions accounted for using the purchase method. This reserve was increased in 1998 by a $3.5 million charge to earnings and by a $10.1 million charge to intangible assets, and reduced by payments of $13.6 million, leaving a restructuring reserve at December 31, 1998 of $16.7 million. EBITDA was $22.7 million for the first quarter ended March 31, 2000, an increase of $10.1 million or 81.2% from $12.6 million for the first quarter ended March 31, 1999. The increase primarily reflects, for the 2000 period, a $6.1 million increase in operating profits, $3.7 million more in depreciation and amortization costs and $8.1 million in taxes offset by a $5.3 million decrease in interest expense. As a percentage of commissions and fees, EBITDA increased to 8.8% for the first quarter ended March 31, 2000 as compared with 6.6% for the first quarter ended March 31, 1999. The higher percent reflects the improved operating margins, which were 3.3% and 1.2% of commissions and fees for the 2000 and 1999 periods, respectively. EBITDA was $57.8 million for the year ended December 31, 1999, a decrease of $39.0 million or 40.3% from $96.8 million for the year ended December 31, 1998. The decrease primarily reflects, for the 1999 period, a $47.2 million decrease in operating profits and $10.0 million less in income taxes, partially offset by $9.0 million more in depreciation and amortization costs. As a percentage of commissions and fees, EBITDA decreased to 6.6% for the year ended December 31, 1999 as compared with 13.0% for the year ended December 31, 1998. The lower percent reflects the increase in merger & integration and restructuring costs, which were 7.3% and 3.0% of commissions and fees for the 1999 and 1998 periods, respectively. EBITDA was $96.8 million for the year ended December 31, 1998, a decrease of $10.6 million from $107.4 million for the year ended December 31, 1997. As a percentage of total commissions and fees, EBITDA decreased to 13.0% for the year ended December 31, 1998 from 17.6% for the year ended December 31, 1997. The decrease resulted primarily from the $18.0 million charge for merger costs ($22.4 million less $4.4 million in amortization of deferred compensation), which was 2.4% of total commissions and fees for the year ended December 31, 1998, offset, in part, by increased depreciation and amortization of $14.8 million. Net cash used in investing activities for the first quarters ended March 31, 2000 and 1999 was $30.3 million and $22.2 million, respectively. The $8.1 million increase in cash used in 2000 compared to 1999 was due to an increase in capital expenditures, primarily computer equipment and software for the expansion of the Company's global technology infrastructure. Net cash used in investing activities for the years ended December 31, 1999, 1998 and 1997 was $61.6 million, $73.9 million and $109.4 million, respectively. The decrease in 1999 of $12.3 million as compared to 1998 was primarily due to $9.1 million received from the sale of fixed assets and $9.0 million less used for business acquisitions, partially offset by $7.9 million more in capital expenditures. The $35.5 million decrease in 1998 as compared with 1997 was primarily due to $46.7 million less in payments for acquisitions, reflecting the use of company stock to make acquisitions of businesses, offset in part by $1.9 million more in capital expenditures and during 1997 our receipt of a net $11.4 million from the Principal Stockholder and certain other stockholders, who repaid borrowings with funds received primarily from their sale of shares included with our second public offering. Payments for businesses acquired using the purchase method of accounting, excluding $5.5 million in TMP stock, were $37.0 million in 1998 and $83.7 million in 1997, of which $47.2 million was for Austin Knight. Capital expenditures, primarily for computer equipment and furniture and fixtures, were $43.0 million, $35.1 million and $33.2 million for the years ended December 31, 1999, 1998 and 1997, respectively. In addition, in 1997, we acquired certain transportation equipment and made capital improvements for a total of $6.8 million, and simultaneously entered into a $7.8 million financing agreement to fund the purchases and provide additional operating funds. We estimate that our expenditures for computer equipment and software, furniture and fixtures, and leasehold improvements will be approximately $70 to $80 million for the year ended December 31, 2000. 34 Our financing activities include equity offerings, borrowings and repayments under our bank financing agreements and borrowings for and payments on (i) installment notes, principally to finance acquisitions, (ii) capital leases and (iii) equipment. Our financing activities for the first quarters ended March 31, 2000 and March 31, 1999 provided net cash of $545.1 million and $13.8 million, respectively. The change of $531.3 million resulted primarily from $594.2 million in net proceeds from our follow-on common stock offering and a $6.4 million increase in cash received from the exercise of employee stock options, partially offset by net repayments in the 2000 period of $57.4 million against credit facilities and capitalized lease obligations compared with a net increase in credit facilities and capitalized lease obligations of $11.6 million in the prior year period. Our financing activities for the year ended December 31, 1999 used net cash of $48.5 million but provided $22.1 million and $75.6 million for the years ended December 31, 1998 and 1997. The change of $70.6 million in 1999 compared to 1998 resulted primarily from $41.6 million in proceeds from common stock offerings (primarily by LAI) in the 1998 period and an increase in net repayments in the 1999 period to $53.6 million against credit facilities and capitalized lease obligations compared with total net repayments of $4.0 million in the prior year period, offset in part by a $17.6 million increase in cash received from the exercise of employee stock options and a $2.9 million decline in dividends paid by pooled companies in the 1999 period. The change of $53.5 million in 1998 compared to 1997 was primarily due to LAI's initial public offering for net proceeds of $25.4 million and TMP's second public offering of 4,800,000 shares of Common Stock for net proceeds of $51.2 million in the third quarter of 1997 compared with net proceeds of $41.6 million from LAI's follow-on offering in 1998. With a portion of the proceeds received from our initial public offering in January 1997, we redeemed all of the shares of the cumulative preferred stock issued by a subsidiary, reported as a minority interest, and our previously issued preferred stock for approximately $3.1 million and $2.1 million, respectively. Such redemptions included approximately $100,000 each of premiums. In November, 1998 and 1997 we amended our financing agreement with our primary lender to provide for borrowings, under a revolving credit facility, of a minimum of $175 million. In May 1999 we increased this amount to $185 million. This facility is used to finance our acquisitions and for working capital requirements. At March 31, 2000, we had a $185 million committed line of credit from our primary lender pursuant to a revolving credit agreement expiring November 5, 2003. Of such line, at March 31, 2000, approximately $161.3 million was unused and accounts receivable is sufficient to allow drawdown of the entire amount. Our current interest rate under the agreement is LIBOR plus 50 basis points. In addition, we had secured lines of credit aggregating $19.1 million for our operations in Australia, New Zealand, France, Belgium, Italy and the Netherlands, of which approximately $10.7 million was unused at March 31, 2000. Cash and cash equivalents at March 31, 2000 were $520.5 million, an increase of $455.9 million from $64.6 million at December 31, 1999, and were $461.4 million higher than the March 31, 1999 balance of $59.1 million. Cash and cash equivalents at December 31, 1999 were $64.6 million, an increase of $15.3 million from $79.9 million at December 31, 1998. Part of our acquisition strategy is to pay, over time, a portion of the purchase price of certain acquisitions through seller financed notes. Accordingly, such notes are included in long-term debt, are generally payable over five years and totaled approximately $7.2 million at March 31, 2000. We intend to continue our acquisition strategy and the marketing and promotion of our Interactive businesses through the use of cash-on-hand, operating profits, issuance of additional shares of our common stock, borrowings against our long-term debt facility and seller financed notes. We believe that our anticipated cash flow from operations, cash-on-hand, as well as the availability of funds under our existing financing agreements and further access to public equity and debt markets, will provide us with sufficient liquidity to meet our current foreseeable cash needs. 35 RECENT ACCOUNTING PRONOUNCEMENTS During 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which had an initial adoption date by the Company of January 1, 2000. During the second quarter of 1999, the FASB postponed the adoption date of SFAS No. 133 until January 1, 2001. The FASB further amended SFAS No. 133 in June 2000. SFAS No. 133 requires that all derivative financial instruments be recorded on the consolidated balance sheets at their fair value. Changes in the fair value of derivatives will be recorded each period in earnings or other comprehensive earnings, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Gains and losses on derivative instruments reported in other comprehensive earnings will be reclassified as earnings in the periods in which earnings are affected by the hedged item. The Company does not expect the adoption of this statement to have a significant impact on the Company's results of operations, financial position or cash flows. In 1999, the SEC issued Staff Accounting Bulletin No. 101 dealing with revenue recognition which is effective in the fourth quarter of 2000. The Company does not expect its adoption to have a material effect on its financial statements. In 2000, the Emerging Issues Task Force ("EITF") of the FASB issued EITF Issue No. 00-2, "Website Development Costs" which established guidelines for accounting for website development costs and is effective for quarters beginning after June 30, 2000. Although the Company is still evaluating its impact, the Company does not believe its adoption will have a significant effect on its financial statements. YEAR 2000 ISSUE We completed our Year 2000 software program conversions and compliance programs during the fourth quarter of 1999. The total external costs for such programs were approximately $3.0 million. Through the three months ended March 31, 2000 we have not experienced any Year 2000 problems either internally or from outside sources. We have no reason to believe that Year 2000 failures will materially affect us in the future. However, since it may take several additional months before it is known whether we or third party suppliers, vendors or customers may have undergone Year 2000 problems, no assurances can be given that we will not experience losses or disruptions due to Year 2000 computer-related problems. We will continue to monitor the operation of our computers and microprocessor-based devices for any Year 2000 problems. FLUCTUATIONS OF QUARTERLY RESULTS Our quarterly commissions and fees are affected by the timing of yellow page directory closings which currently have a concentration in the third quarter. Yellow page publishers may change the timing of directory publications which may have an effect on our quarterly results. Our Yellow Page advertising results are also affected by commissions earned for volume placements for the year, which are typically reported in the fourth quarter. Our quarterly commissions and fees for recruitment advertising are typically highest in the first quarter and lowest in the fourth quarter; however, the cyclical nature of the economy and our clients' employment needs have an overriding impact on our quarterly results in Recruitment Advertising, Selection & Temporary Contracting and Executive Search. Moreover, our Recruitment Advertising acquisition activity has had more of an impact on our recently reported quarterly results than any other factor. The following table sets forth summary quarterly unaudited financial information for the three months ended March 31, 2000 and the years ended December 31, 1999 and 1998. Amounts have been retroactively restated for the First Half 2000 Mergers except for the three months ended March 31, 2000 and 1999, which have previously been presented to reflect the First Quarter 2000 Mergers and herein are 36 being retroactively restated to reflect the Second Quarter 2000 Mergers (in millions, except share and per share amounts).
THREE MONTHS ENDED MARCH 31, 2000 ------------------ Commissions and fees: Interactive............................................... $ 70.8 Recruitment Advertising................................... 46.5 Selection & Temporary Contracting......................... 77.8 Executive Search.......................................... 39.0 Yellow Page Advertising................................... 23.3 ------- Total commissions and fees.................................. $ 257.4 ======= Operating income............................................ $ 8.5 Net income applicable to common and Class B common stockholders.............................................. $ 3.1 Net income per common and Class B common share: Basic..................................................... $ 0.03 Diluted................................................... $ 0.03 Weighted average shares outstanding (in thousands): Basic..................................................... 92,399 Diluted................................................... 100,315
1999 THREE MONTHS ENDED --------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, --------- -------- ------------- ------------ Commissions and fees: Interactive..................................... $ 22.4 $ 28.3 $ 40.2 $ 53.5 Recruitment Advertising......................... 46.4 47.1 43.8 43.9 Selection & Temporary Contracting............... 57.4 65.3 74.7 71.6 Executive Search................................ 41.5 42.7 47.8 41.3 Yellow Page Advertising......................... 23.8 27.2 28.5 21.8 ------ ------ ------ ------ Total commissions and fees........................ $191.5 $210.6 $235.0 $232.1 ====== ====== ====== ====== Operating income (loss)........................... $ 2.4 $ 9.6 $ 2.0 $ 0.1 Net income (loss) applicable to common and Class B common stockholders............................. $ (0.7) $ 3.2 $ (4.2) $ (7.4) Net income (loss) per common and Class B common share: Basic........................................... $(0.01) $ 0.04 $(0.05) $(0.09) Diluted......................................... $(0.01) $ 0.04 $(0.05) $(0.09) Weighted average shares outstanding (in thousands): Basic........................................... 83,065 84,166 84,398 84,978 Diluted......................................... 83,065 88,268 84,398 84,978
37
1998 THREE MONTHS ENDED --------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, --------- -------- ------------- ------------ Commissions and fees: Interactive..................................... $ 8.7 $ 11.8 $ 14.6 $ 18.9 Recruitment Advertising......................... 46.4 46.4 43.1 44.9 Selection & Temporary Contracting............... 43.9 53.5 53.5 57.1 Executive Search................................ 50.0 54.4 51.6 39.3 Yellow Page Advertising......................... 23.3 27.1 32.1 23.9 ------ ------ ------ ------ Total commissions and fees........................ $172.3 $193.2 $194.9 $184.1 ====== ====== ====== ====== Operating income (loss)........................... $ 20.4 $ 24.6 $ 18.6 $ (2.3) Net income (loss) applicable to common and Class B common stockholders............................. $ 11.4 $ 13.8 $ 9.5 $ (5.7) Net income (loss) per common and Class B common share: Basic........................................... $ 0.14 $ 0.17 $ 0.12 $(0.07) Diluted......................................... $ 0.14 $ 0.16 $ 0.11 $(0.07) Weighted average shares outstanding (in thousands): Basic........................................... 81,008 81,662 81,788 81,880 Diluted......................................... 83,686 83,828 84,156 81,880
Earnings (loss) per share calculations for each quarter include the weighted average effect for the quarter; therefore, the sum of the quarters may not equal the full year earnings (loss) per share amount, which reflects the weighted average effect on an annual basis. In addition, diluted earnings per share calculations for each quarter include the effect of stock options and warrants, when dilutive to the quarter. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risks include fluctuations in interest rates, variability in interest rate spread relationships (i.e., prime to LIBOR spreads) and exchange rate variability. Substantially all of the Company's debt relates to a five-year financing agreement with an outstanding principal balance of approximately $23.7 million, including $8.0 million reflected as a reduction to accounts receivable and $11.1 million for letters of credit, as of March 31, 2000. Interest on the outstanding balance is charged based on a variable interest rate related to the higher of the prime rate, Federal Funds rate less 1/2 of 1% or LIBOR plus 50 basis points as specified in the agreement, and is thus subject to market risk in the form of fluctuations in interest rates. The Company does not trade in derivative financial instruments. The Company also conducts operations in various foreign countries, including Australia, Belgium, Canada, China, France, Germany, Italy, Japan, the Netherlands, New Zealand, Singapore, Spain, and the United Kingdom. For the period ended March 31, 2000 approximately 42.7% of our commissions and fees were earned outside the United States and collected in local currency, and related operating expenses were also paid in such corresponding local currency. Accordingly, we will be subject to increased risk for exchange rate fluctuations between such local currencies and the dollar. We do not conduct any significant hedging activities. The financial statements of the Company's non-U.S. subsidiaries are translated into U.S. dollars using current rates of exchange, with gains or losses included in the cumulative translation adjustment account, a component of stockholders' equity. During the first quarter of 2000, due to the strengthening of the U.S. dollar, the Company had an exchange loss of $33.6 million, primarily attributable to the strengthening of the U.S. dollar against the Australian dollar. 38 SELECTED CONSOLIDATED FINANCIAL INFORMATION The following selected consolidated financial information with respect to the Company's financial position as of December 31, 1999 and 1998 and its results of operations for each of the three years in the period ended December 31, 1999, has been derived from the audited consolidated financial statements of the Company included elsewhere in this prospectus. The selected consolidated financial information with respect to the Company's financial condition as of December 31, 1997 has been derived from the audited consolidated balance sheet of the Company not included herein. The selected consolidated financial information as of December 31, 1996 and 1995 and for the years then ended have been derived from the unaudited consolidated financial statements of the Company. The selected consolidated financial information with respect to the Company's financial position as of March 31, 2000 and 1999 and results of operations for the three months then ended have been derived from the unaudited consolidated financial statements of the Company included elsewhere in this prospectus which, in the opinion of management of the Company, have been prepared on the same basis as the audited financial statements and include all normal and recurring adjustments necessary for a fair presentation of the information set forth therein. The results for the three months ended March 31, 2000 are not necessarily indicative of future results. The selected consolidated financial information presented below should be read in conjunction with the consolidated financial statements of the Company and notes thereto, the consolidated condensed financial statements and related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus. The Other Data presented below has not been audited.
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ---------------------------------------------------- ------------------- 1999 1998 1997 1996 1995 2000 1999(5) -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Commissions and fees...................... $765,805 $657,486 $541,828 $399,039 $304,961 $244,003 $182,059 Operating expenses: Salaries & related...................... 436,255 382,689 310,168 232,249 175,710 136,469 109,059 Office and general...................... 179,580 165,538 140,657 108,199 83,893 55,027 51,085 Marketing & promotion................... 64,874 24,666 12,167 6,992 4,364 28,286 9,884 Merger & integration.................... 63,054 22,412 -- -- -- 8,674 4,687 Restructuring........................... 2,789 3,543 -- -- -- -- 2,789 Amortization of intangibles............. 11,430 10,185 6,866 4,732 3,363 3,351 2,828 Special compensation and CEO bonus(1)... -- 1,250 1,500 52,019 -- -- -- Total operating expenses.................. 757,982 610,283 471,358 404,191 267,330 231,807 180,332 Operating income (loss)................... 7,823 47,203 70,470 (5,152) 37,631 12,196 1,727 Other income (expense): Interest income (expense), net (2)...... (8,803) (9,828) (8,443) (14,358) (10,345) 2,794 (2,560) Other, net.............................. (568) (2,042) 821 (370) (860) (87) 290 Income (loss) before provision (benefit) for income taxes, minority interests and equity in earnings (losses) of affiliates.............................. (1,548) 35,333 62,848 (19,880) 26,426 14,903 (543) Provision (benefit) for income taxes...... 5,450 14,367 20,565 11,058 10,031 7,598 (696) Net income (loss) applicable to common and Class B common stockholders............. (7,405) 20,542 41,831 (32,051) 15,099 7,386 (46) Net income (loss) per common and Class B common share: Basic................................... $ (0.09) $ 0.27 $ 0.58 $ (0.52) $ 0.25 $ 0.08 $ -- Diluted................................. $ (0.09) $ 0.26 $ 0.57 $ (0.52) $ 0.24 $ 0.08 $ -- Weighted average shares outstanding: Basic................................... 79,836 77,472 72,666 61,908 61,024 89,282 80,350 Diluted................................. 79,836 79,278 73,908 61,908 62,254 96,882 80,350
39
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, -------------------------------------------------------------- ----------------------- 1999 1998 1997 1996 1995 2000 1999(5) ---------- ---------- ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXECEPT NUMBER OF EMPLOYEES AND OFFICES) OTHER DATA: Gross Billings: Interactive (3)................ $ 151,623 $ 56,666 $ 20,553 $ 6,939 $ 392 $ 78,019 $ 24,017 Recruitment Advertising........ 811,836 849,563 642,872 369,979 228,984 214,746 210,002 Executive Search and Selection.................... 298,861 277,304 244,153 194,848 152,707 88,316 76,384 Temporary Contracting (4)...... 57,138 46,989 41,285 29,210 20,052 19,734 16,018 Yellow Page Advertising........ 532,258 520,129 497,848 466,230 442,287 133,175 120,011 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Gross Billings............. $1,851,716 $1,750,651 $1,446,711 $1,067,206 $ 844,422 $ 533,990 $ 446,432 ========== ========== ========== ========== ========== ========== ========== Total operating expenses as a percentage of commissions and fees........................... 99.0% 92.8% 87.0% 101.3% 87.7% 95.0% 99.1% Number of employees.............. 6,409 6,278 5,651 3,910 2,652 7,782 5,921 Number of offices................ 256 254 213 161 118 267 241
DECEMBER 31, MARCH 31, -------------------------------------------------------------- ---------- 1999 1998 1997 1996 1995 2000 ---------- ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) BALANCE SHEET DATA: Current assets............................ $ 556,879 $ 475,082 $ 444,144 $ 321,761 $ 264,244 $1,103,670 Current liabilities....................... 564,974 431,443 414,278 320,038 261,018 586,527 Total assets.............................. 944,655 802,535 721,066 475,519 364,996 1,521,675 Long-term liabilities, less current portion................................. 99,157 141,833 139,912 84,519 93,877 47,253 Minority interests........................ 9 509 431 3,705 3,608 52 Redeemable preferred stock................ -- -- -- 2,000 2,000 -- Total stockholders' equity................ 280,515 228,750 166,445 65,257 4,493 887,843
-------------------------- (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 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. (5) Restated to reflect the results of operations of the First Quarter 2000 Mergers. 40 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE CONSOLIDATED FINANCIAL STATEMENTS AND THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF THE COMPANY APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS. ALSO SEE "SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS". ALL AMOUNTS REFERRED TO BELOW REFLECT THE AMOUNTS DISCLOSED IN THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND 1998 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 AS FILED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K AND THE COMPANY'S CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 AS FILED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q WHICH ARE INCLUDED ELSEWHERE IN THIS PROSPECTUS. THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 HAVE BEEN RESTATED TO REFLECT THE FIRST QUARTER 2000 MERGERS. OVERVIEW We, through our flagship Interactive product, Monster.com(SM) (www.monster.com), are the on-line recruitment leader. We are also the world's largest Recruitment Advertising agency network, one of the world's largest Search & Selection agencies, the world's largest Yellow Pages Advertising agency, a provider of full service interactive advertising and interactive marketing technology services, and a provider of online relocation services. Our Interactive growth is attributable to increased sales of our Internet products, expansion of our Interactive businesses into certain European countries, migration of our traditional businesses to the Internet and the addition of new Interactive services. Monster.com(SM) is the leading global career portal on the Web with over 15.2 million unique visits per month as of May 2000 per Nielson I/Pro. The Monster.com(SM) global network consists of local language and content sites in the United States, United Kingdom, Australia, Canada (French and English), the Netherlands, Belgium, New Zealand, France, Singapore and Hong Kong. A substantial part of our growth in Recruitment Advertising, Search & Selection and Yellow Page Advertising has been achieved through acquisitions. For the period January 1, 1997 through March 31, 2000, we completed 79 acquisitions, including eight completed during the three months ended March 31, 2000. Of the acquisitions completed during 2000, four are being accounted for as poolings of interests (the "First Quarter 2000 Pooled Companies"). Approximately 1.7 million shares of our common stock were issued in exchange for all of the outstanding common stock of the First Quarter 2000 Pooled Companies (the "First Quarter 2000 Mergers"). Accordingly, the consolidated financial statements for the three months ended March 31, 1999 included herein have been retroactively restated as if the First Quarter 2000 Pooled Companies had been consolidated for the three months ended March 31, 1999. In addition, for the period January 1, through March 31, 2000, we completed four acquisitions which were accounted for using the purchase method, with estimated annual gross billings of approximately $44.4 million. Given the significant number of acquisitions affecting the periods presented, the results of operations from period to period may not necessarily be comparable. 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: 41 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 as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999 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. 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 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. In addition, Executive Search and Selection & Temporary Contracting fees and fees for related trends in gross billings in these two segments directly impact the commissions and fees earned because, for these segments, we earn commissions based on a percentage of the media advertising purchased at a rate established by the related publisher. We also earn associated fees for related services; such amounts are also included in gross billings. Publishers and third party websites typically bill us for the advertising purchased and we in turn bill our clients for this amount and retain a commission. Generally, the payment terms for Yellow Page Advertising clients require payment to us prior to the date payment is due to the publishers. The payment terms with Recruitment Advertising clients typically require payment when payment is due to publishers. Historically, we have not experienced substantial problems with unpaid accounts. Commissions and fees related to our Interactive business are derived from: - job postings and access to the resume database and related services delivered via the Internet, primarily our own Web site, Monster.com(SM); - searches for permanent and temporary employees, at the executive and professional levels, and related services conducted through the Internet; - Internet advertising services provided to our Yellow Page Advertising clients; - the providing of interactive advertising services and technologies, which allow advertisers to measure and track sales, repeat traffic and other key statistics to enable such advertisers to greatly reduce costs, while driving only the most qualified users to their web sites and 42 - online relocation services. For Recruitment Advertising placements in the U.S., publisher commissions historically average 15% of recruitment advertising gross billings. We also earn fees from related services such as campaign development and design, retention and referral programs, resume screening, brochures and other collateral services, research and other creative and administrative services. Outside of the U.S., where, collectively, we derive the majority of our Recruitment Advertising commissions and fees, our commission rates for recruitment advertising vary, historically ranging from approximately 10% in Australia to 15% in Canada and the United Kingdom. Search & Selection offers an advanced and comprehensive range of services aimed at identifying the appropriate professional or executive from mid-level to CEO for our clients. Executive search identifies senior executives who typically earn in excess of $250,000 annually, while selection identifies mid-level professionals or executives, who typically earn between $75,000 and $150,000, annually. Our specialized Search & Selection services include identification of candidates, competence measurement, assessment of candidate/company cultural fit and transaction negotiation and closure. We believe that our Search & Selection services are helping to broaden the universe of both job seekers and employers who utilize Monster.com(SM). Through the use of Monster.com(SM), Recruitment Advertising and Search & Selection, we believe that we can accommodate all of our clients' employee recruitment needs. We design and execute Yellow Page Advertising, receiving an effective commission rate from directory publishers which historically approximated 20% of Yellow Page Advertising gross billings. However, due to reductions in commission rates by the publishers and higher discounts granted to us by clients, the rate has declined and for 1999 was approximately 19% and has declined to approximately 17.5% since the middle of 2000. In general, publishers consider orders renewed unless actively canceled. In addition to base commissions, certain yellow pages publishers pay increased commissions for volume placement by advertising agencies. We typically recognize this additional commission, if any, in the fourth quarter, when it is certain that such commission has been earned. No such amounts were reported in the fourth quarter of 1999. Interactive commissions and fees were $68.4 million for the quarter ended March 31, 2000, an increase of $46.9 million over the first quarter of 1999 which had commissions and fees of $21.5 million. This growth reflects an increase in the acceptance of our Interactive products and services by existing and new clients and the effect of increased sales and marketing activities. TMP's Internet operations also reported an operating profit of $10.8 million for the first quarter ended March 31, 2000, representing an operating margin of 15.9%. Search & Selection commissions and fees increased 15.6% to $86.8 million for the first quarter ended March 31, 2000 compared to $75.1 million for the same prior year period, reflecting continued strong demand for permanent professional employees worldwide, particularly in mid-level management positions (annual salaries ranging from $75,000 to $150,000). In addition, Temporary Contracting commissions and fees increased 23.2% to $19.7 million for the first quarter of 2000 versus $16.0 million for the same period last year, reflecting the resumption of strong demand for temporary staffing in Australia, particularly in the information technology sector. Recruitment Advertising commissions and fees were flat at $45.7 million for the quarter ended March 31, 2000 versus $45.6 million for the first quarter of 1999, resulting from only modest growth in traditional media billings, a 2.3% increase, which reflects increased hiring needs, offset by a reduced level of higher margin collateral services for the quarter. Yellow Page Advertising billings increased 11.0% to $133.2 million for the quarter ended March 31, 2000. However, commissions and fees decreased 2.1% to $23.3 million for the first quarter of 2000 compared to $23.8 million for the prior year period, reflecting substantially reduced commissions paid by publishers and the effects of higher discounts paid to certain large clients. Total commissions and fees as a percent of related billings for the first quarter ended March 31, 2000 were 45.7% as compared to 40.8% for the prior year period. The higher percentage reflects increased sales volume for Interactive and Search & Selection, where the Company retains greater portions of the amounts billed. 43 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 periods ended March 31, 2000 and 1999, 47%, and 50%, respectively, of our consolidated commissions & fees were attributable to clients outside the U.S. 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 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. 44 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. 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 45 amounts payable to the holders of seller financed notes and (v) on a term loan related to the purchase of certain transportation equipment. 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.
THREE MONTHS YEAR ENDED DECEMBER 31, ENDED MARCH 31, ------------------------------------ ------------------- 1999 1998 1997 2000 1999 ---------- ---------- ---------- -------- -------- (IN THOUSANDS) GROSS BILLINGS: Interactive(1)........................................... $ 151,623 $ 56,666 $ 20,553 $ 78,019 $ 24,017 Recruitment Advertising.................................. 811,836 849,563 642,872 214,746 210,002 Executive Search and Selection........................... 298,861 277,304 244,153 88,316 76,384 Temporary Contracting(2)................................. 57,138 46,989 41,285 19,734 16,018 Yellow Page Advertising.................................. 532,258 520,129 497,848 133,175 120,011 ---------- ---------- ---------- -------- -------- Total.................................................... $1,851,716 $1,750,651 $1,446,711 $533,990 $446,432 ========== ========== ========== ======== ======== COMMISSIONS AND FEES: Interactive(1)........................................... $ 133,539 $ 50,158 $ 19,470 $ 68,409 $ 21,464 Recruitment Advertising.................................. 178,141 177,774 134,291 45,714 45,639 Executive Search and Selection........................... 295,693 276,110 242,841 86,846 75,143 Temporary Contracting(2)................................. 57,138 46,989 41,285 19,734 16,018 Yellow Page Advertising.................................. 101,294 106,455 103,941 23,300 23,795 ---------- ---------- ---------- -------- -------- Total.................................................... $ 765,805 $ 657,486 $ 541,828 $244,003 $182,059 ========== ========== ========== ======== ======== COMMISSIONS AND FEES AS A PERCENTAGE OF GROSS BILLINGS: Interactive(1)........................................... 88.1% 88.5% 94.7% 87.7% 89.4% Recruitment Advertising.................................. 21.9% 20.9% 20.9% 21.3% 21.7% Executive Search and Selection........................... 98.9% 99.6% 99.5% 98.3% 98.4% Temporary Contracting(2)................................. 100.0% 100.0% 100.0% 100.0% 100.0% Yellow Page Advertising.................................. 19.0% 20.5% 20.9% 17.5% 19.8% Total.................................................... 41.4% 37.6% 37.5% 45.7% 40.8% EBITDA(3)................................................ $ 49,240 $ 79,075 $ 92,420 $ 25,746 $ 11,826 Cash provided by operating activities.................... $ 93,832 $ 63,617 $ 51,251 $(54,689) $(13,182) Cash used in investing activities........................ $ (58,798) $ (66,519) $ (89,726) $(29,615) $(21,900) Cash provided by (used in) financing activities.......... $ (50,761) $ 20,093 $ 65,524 $546,505 $ 12,129 Effect of exchange rate changes on cash.................. $ (950) $ (7) $ (298) $ (1,463) $ 670
------------------------ (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 expenditure and working capital requirements and is one of the measures which determines our ability to borrow under our credit facility. EBITDA should not be considered in isolation or as a substitute for operating income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of our profitability or liquidity. EBITDA for the indicated periods is calculated as follows:
THREE MONTHS YEAR ENDED DECEMBER 31, ENDED MARCH 31, ------------------------------ ------------------- EBITDA CALCULATION 1999 1998 1997 2000 1999 ------------------ -------- -------- -------- -------- -------- (IN THOUSANDS) Net income (loss).................................. $(7,405) $20,542 $41,954 $ 7,386 $ (46) Interest (income) expense, net..................... 8,803 9,828 8,443 (2,794) 2,560 Income tax expense (benefit)....................... 5,450 14,367 20,565 7,598 (696) Depreciation and amortization...................... 42,392 34,338 21,458 13,556 10,008 ------- ------- ------- ------- ------- EBITDA............................................. $49,240 $79,075 $92,420 $25,746 $11,826 ======= ======= ======= ======= =======
46 THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1999 Gross billings for the three months ended March 31, 2000 were $534.0 million, an increase of $87.6 million or 19.6% from $446.4 million for the three months ended March 31, 1999. Total commissions and fees for the three months ended March 31, 2000 were $244.0 million, an increase of $61.9 million or 34.0% from $182.1 million for the comparable period in 1999. Interactive commissions and fees for the three months ended March 31, 2000 were $68.4 million, an increase of $46.9 million or 218.7% compared with $21.5 million for the three months ended March 31, 1999. The increase in Interactive commissions and fees from the March 1999 period to the March 2000 period is due to: (i) an increasing acceptance of our Interactive services and products from existing clients, new clients and Internet users, (ii) the benefits of Monster.com(SM)'s marketing campaign, (iii) increases in the services and content available on our websites, (iv) expansion into certain European markets, (v) price increases on certain products, and (vi) the migration of our traditional businesses to the Internet. Recruitment Advertising commissions and fees were flat at $45.7 million for the three months ended March 31, 2000 versus $45.6 million for the first quarter of 1999 reflecting modest growth in traditional billings of 2.3% and a reduced amount of higher margin collateral work. Search & Selection commissions and fees were $86.9 million for the three months ended March 31, 2000, an increase of $11.8 million or 15.7% from $75.1 million for the comparable three months of 1999, due primarily to increased demand for permanent professional employees worldwide, which contributed to organic growth, and acquisitions in Europe. Temporary Contracting commissions and fees were $19.7 million, up $3.7 million or 23.2% from $16.0 million for the period ended March 31, 1999. The increase reflects the resumption of strong demand for temporary staffing in Australia, particularly in the information technology sector. Yellow Page Advertising commissions and fees were $23.3 million for the three months ended March 31, 2000, a decrease of $0.5 million or 2.1% from $23.8 million for the comparable three months of 1999. This decrease was due to substantially reduced commissions paid by publishers and the effects of higher discounts paid to certain large clients. Operating expenses for the three months ended March 31, 2000 were $231.8 million, compared with $180.3 million for the same period in 1999, an increase of $51.5 million or 28.5%. The increase is primarily due $27.4 million in higher salaries and related costs due to organic growth and acquisitions, and $18.4 million in marketing and promotion expenses primarily related to Monster.com(SM). Salaries and related costs for the three months ended March 31, 2000 were $136.5 million, compared with $109.1 million for the same period in 1999. The increase of $27.4 million or 25.1% is primarily due to organic growth in Search & Selection, Interactive and Temporary Contracting operations and acquisitions. Because the growth in total commissions and fees outpaced the growth in salaries and related expenses, salary and related expenses as a percent of commissions and fees declined from 59.9% to 55.9%. This decline in expenses as a percent of commissions and fees is primarily due to the organic growth mentioned above. Office and general expenses for the three months ended March 31, 2000 were $55.0 million compared with $51.1 million for the same period in 1999, an increase of $3.9 million or 7.7%. The increase reflects organic growth in Interactive, Search & Selection and Temporary Contracting operations, partially offset by savings through consolidation of back offices and support functions in Recruitment and Yellow Pages Advertising. Because the growth in total commissions and fees outpaced the growth in office and general expenses, office and general expenses as a percent of commissions and fees declined from 28.1% to 22.6%. This decline in expenses as a percent of commissions & fees is primarily due to the organic growth mentioned above as well as cost reductions in Recruitment and Yellow Pages Advertising, where commissions & fees remained relatively unchanged from the March 1999 quarter to the March 2000 quarter. Marketing and promotion expenses for the three months ended March 31, 2000 were $28.3 million or 11.6% of commissions and fees, compared with $9.9 million or 5.4% of commissions and fees for the same period in 1999. The increase of $18.4 million or 186.2% is primarily due to higher marketing costs for Monster.com(SM) and reflect the Company's plan to increase the promoting of Monster.com(SM) with funds provided from increased revenues. The first quarter 2000 expenses include a pro rata charge pursuant to 47 the content and marketing agreement with America Online, Inc. ("AOL") whereby Monster.com(SM), for the payment of $100 million over four years, would be the exclusive provider of career search services in the U.S. and Canada to AOL members across 7 AOL properties, AOL, AOL Canada, Compuserve, ICQ, AOL.com, Netscape and Digital City. Merger and integration costs for the three months ended March 31, 2000 were $8.7 million compared with $4.7 million for the same period in 1999, an increase of $4.0 million or 85.1%. The majority of the $8.7 million relates to the acquisition of HW Group PLC in 2000. Also included in the 2000 amount was $2.3 million for the amortization of employee stay bonuses payable in stock in connection with certain of the acquisitions consummated in 1999 and accounted for as poolings of interests. The majority of the $4.7 million for the three months ended March 31, 1999 related to the Morgan & Banks Ltd. pooling of interests transaction, completed during the first quarter of 1999. Also included in the 1999 amount was $1.5 million for the amortization of employee stay bonuses which is payable in stock in connection with certain of the acquisitions completed in 1998 and accounted for as poolings of interests. As a result of the above, operating income for the three months ended March 31, 2000 was $12.2 million, an increase of $10.5 million or 606.2% from $1.7 million for the comparable period in 1999. Net interest income for the three months ended March 31, 2000 was $2.8 million, compared with a net interest expense of $2.6 million for the comparable 1999 period, an improvement of $5.4 million or 209.1%. This improvement primarily reflects the investing of net proceeds from the Company's February 2000 follow-on offering after a significant portion of existing long-term debt was repaid with a portion of such proceeds. The Company completed the follow-on public offering of 4.0 million (8.0 million, adjusted for the February 29, 2000 2-for-1 stock split) shares of common stock on February 2, 2000. The net proceeds raised by the Company totaled $594.2 million. Taxes on income for the three months ended March 31, 2000 were $7.6 million on pre-tax profit of $14.9 million, compared with a tax benefit of $0.7 million on pre-tax loss of $0.5 million the first quarter of 1999. The increase of $8.3 million reflects the higher pretax profit in the three months ended March 31, 2000. In addition, the provisions reflect expenses that are not tax deductible; these are primarily related to merger costs from pooling of interests transactions and amortization of intangible assets. For both periods the provision is benefited by profits from certain pooled entities which were not taxed at the corporate level prior to their merger with TMP. Minority interests in consolidated earnings for the three months ended March 31, 2000 was an $81,000 loss compared with a profit of $99,000 for the three months ended March 31, 1999. Equity in losses of unconsolidated subsidiaries, which reflected losses associated with the real estate advertising company in which the Company holds a minority interest, was $100,000 for the three months ended March 31, 1999. As a result of all of the above, the net income available to common and Class B common stockholders for the three months ended March 31, 2000 was $7.4 million, an increase of $7.4 million from the net loss of $46,000 for the three months ended March 31, 1999. On a diluted per share basis, the net income available to common and Class B common stockholders for the three months ended March 31, 2000 was $0.08, compared to a break even position for the comparable 1999. 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 48 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 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 49 $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. 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 50 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 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. 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. 51 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. On January 27, 2000, in connection with its third public offering, the Company issued an aggregate of, on a post-split basis, 8,000,000 shares of common stock at a purchase price of $77 5/16 per share. The offering was completed in February 2000. The net proceeds from this offering were $594.2 million, and approximately $85 million was used to pay down debt on the Company's credit line. The remainder is being invested in short and medium term interest bearing instruments until used for acquisitions, strategic equity investments and general corporate purposes. Net cash used in operating activities for the first quarter ended March 31, 2000 and 1999 was $54.7 million, and $13.2 million, respectively. The increase in cash used in operating activities of $41.5 million for 2000 over 1999 was primarily due to (a) a $34.0 million greater increase in accounts receivable for the 2000 period over the 1999 period, related mostly to recruitment and Interactive operations (b) a $24.5 million greater decrease in cash from accounts payable and accrued liabilities and (c) a $15.0 million greater increase in the use of funds for work-in-process and prepaid and other assets for the 2000 period over the 1999 period, partially offset by (a) a $17.0 million increase in earnings after adjusting for non-cash items (b) a $10.4 million greater increase in deferred commissions & fees and (c) a $4.6 million smaller decrease from the effects of including losses from pooled companies in both the current and previous period. 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 52 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. EBITDA was $25.7 million for the first quarter ended March 31, 2000, an increase of $13.9 million or 117.7% from $11.8 million for the first quarter ended March 31, 1999. The increase primarily reflects, for the 2000 period, a $10.5 million increase in operating profits, $3.5 million more in depreciation and amortization costs. As a percentage of commissions and fees, EBITDA increased to 10.6% for the first quarter ended March 31, 2000 as compared with 6.5% for the first quarter ended March 31, 1999. The higher percent reflects the improved operating margins, which were 5.0% and 0.9% of commissions and fees for the 2000 and 1999 periods, respectively. 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 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 first quarters ended March 31, 2000 and 1999 was $29.6 million and $21.9 million, respectively. The $7.7 million increase in cash used in 2000 compared to 1999 was due to an increase in capital expenditures. 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. 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 53 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. Our financing activities for the first quarters ended March 31, 2000 and March 31, 1999 provided net cash of $546.5 million and $12.1 million, respectively. The change of $534.4 million resulted primarily from $594.2 million in proceeds from our follow-on common stock offering and a $6.1 million increase in cash received from the exercise of employee stock options, partially offset by net repayments in the 2000 period of $55.7 million against credit facilities and capitalized lease obligations compared with a net borrowing of $9.3 million in the prior year period. At March 31, 2000, we had a $185 million committed line of credit from our primary lender pursuant to a revolving credit agreement expiring November 5, 2003. Of such line, at March 31, 2000, approximately $161.3 million was unused and accounts receivable, as defined in the agreement, is sufficient to allow draw down of the entire amount. In addition, we have lines of credit aggregating $19.1 million for our operations in Australia, New Zealand, France, Belgium and the Netherlands of which approximately $10.7 million was unused at March 31, 2000. Cash and cash equivalents at March 31, 2000 were $515.7 million, an increase of $460.7 million from $55.0 million at December 31, 1999, and were $459.6 million higher than the March 31, 1999 balance of $56.1 million. 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 and $7.2 million at March 31, 2000. We intend to continue our acquisition strategy and the marketing and promotion of our Interactive businesses through the use of cash-on-hand, operating profits, issuance of additional shares of our common stock, borrowings against our long-term debt facility and seller financed notes. We believe that our anticipated cash flow from operations, cash-on-hand, as well as the availability of funds under our existing financing agreements and further access to public equity and debt markets, will provide us with sufficient liquidity to meet our current foreseeable cash needs for at least the next year. 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".) 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 54 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. The following table sets forth summary quarterly unaudited financial information for the three months ended March 31, 2000 and the years ended December 31, 1999 and 1998.
2000 QUARTER 1999 QUARTER MARCH 31, MARCH 31,* ----------------------- ----------------------- (IN MILLIONS, EXCEPT PER SHARE AND SHARE AMOUNT) Commissions and fees: Interactive.............................. $ 68.4 $ 21.5 Recruitment Advertising.................. 45.7 45.6 Executive Search and Selection........... 86.9 75.1 Temporary Contracting.................... 19.7 16.0 Yellow Page Advertising.................. 23.3 23.8 ------- ------ Total commissions and fees................. $ 244.0 $182.0 ======= ====== Operating income........................... $ 12.2 1.7 Net income (loss) applicable to common and Class B common stockholders................ $ 7.4 (.1) Net income (loss) per common and Class B common share: Basic.................................... $ .08 $ -- Diluted.................................. $ .08 $ -- Weighted average shares outstanding (in thousands): Basic.................................... 89,282 80,350 Diluted.................................. 96,882 80,350
------------------------ * Restated to reflect the results of operations of the First Quarter 2000 Mergers. 55
1999 QUARTERS --------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, --------- -------- ------------- ------------ (IN MILLIONS, EXCEPT PER SHARE AND SHARE AMOUNTS) 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
1998 QUARTERS --------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, --------- -------- ------------- ------------ (IN MILLIONS, EXCEPT PER SHARE AND SHARE AMOUNTS) Commissions and fees: Interactive..................................... $ 8.0 $ 11.0 $ 13.7 $ 17.5 Recruitment Advertising......................... 45.8 45.7 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
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. 56 BUSINESS We have built Monster.com(sm) (http://www.monster.com) into the Internet's leading career destination portal. We are the world's largest recruitment advertising agency and one of the world's largest executive search and selection firms. In addition to offering these career solutions, we are the world's largest yellow page advertising agency. We have more than 31,000 clients, including over 90 of the Fortune 100 and over 480 of the Fortune 500 companies. INDUSTRY OVERVIEW INTERACTIVE. The Internet is an increasingly significant global medium for communications, content and commerce. Growth in Internet usage has been fueled by a number of factors, including the availability of a growing number of useful products and services, the large and growing installed base of personal computers in the workplace and home, advances in the performance and speed of personal computers and modems, improvements in network infrastructure, easier and cheaper access to the Internet and increased awareness of the Internet among businesses and consumers. The increasing functionality, accessibility and overall usage of the Internet and online services have made them an attractive commercial medium. Thousands of companies have created corporate websites that feature information about their product offerings and advertise employment opportunities. Through the web, Internet content providers are able to deliver timely, personalized content in a manner not possible through traditional media. Internet content can be continuously updated, distributed to a large number of consumers on a real-time basis, and accessed by users at any time. Industry publications indicate that the historical and projected adoption of online/Internet services represents a faster rate of penetration than occurred with traditional media, such as radio, broadcast television and cable television. For job seekers, online recruiting can provide the ability to rapidly and more easily build, update and distribute their resumes, conduct job searches and gather information about employers. Online recruiting can also help to reduce the time of a job search by permitting job seekers to define their specific job needs and be contacted automatically when desired jobs become available. Online recruiting is also proving to be attractive to employers because online job advertisements can be accessed by job seekers anywhere in the world at anytime and more cost effectively than print media. Forrester Research estimates that online spending by employers for recruitment will grow from $411 million in 1999 to $3.2 billion in 2004. THE RECRUITMENT ADVERTISING MARKET. Recruitment advertising traditionally consists of creating and placing recruitment advertisements in the classified advertising sections of newspapers. While the recruitment advertising market has historically been cyclical, during the period of 1990 through 1998, the U.S. market grew at a compound annual rate of approximately 13%. Classified readership by job seekers has remained constant over the last ten years and approximately 85% of companies use newspapers to attract potential employees. The services provided by recruitment advertising agencies can be complex and range from the design and placement of classified advertisements to the creation of comprehensive image campaigns which internationally "brand" a client as a quality employer. Further, shortages of qualified employees in many industries, particularly in the technology area, have increased the need for recruitment advertising agencies to expand the breadth of their service offerings to effect national and sometimes global recruitment campaigns. For the year ended December 31, 1998, global spending (billings) in the recruitment classified advertisement section of newspapers was approximately $13 billion. Agencies which place recruitment classified advertising are paid commissions generally equal to 15% of recruitment advertising placed in newspapers and earn fees for providing additional recruitment services. EXECUTIVE SEARCH. The market for executive search firms is generally separated into two broad categories: retained executive search firms and contingency executive search firms. Retained executive search firms service their clients' senior management needs by acting in an ongoing client-consultant relationship to actively identify, evaluate, assess and recommend to the client suitable candidates for senior level positions. Retained search firms are generally engaged on an exclusive basis and paid a contractually 57 agreed-to fee. Contingency executive search firms typically do not focus on the senior executives and are generally paid a percentage of the hired candidate's salary only when a candidate is successfully placed with the client. Contingency firms are generally not hired on an exclusive basis and do not focus on the assessment, evaluation or recommendation of a candidate other than to determine if the candidate's resume qualifies him/her for the position. We provide executive search services on a retained basis. Our executive search service identifies senior executives who typically earn in excess of $250,000 annually. SELECTION AND TEMPORARY CONTRACTING. The mid-market selection business identifies for our clients those professionals, below the CEO level, who typically earn between $50,000 and $150,000. We have identified a suite of products geared towards this market which seek to predict whether a candidate will be successful in a given role. Temporary contracting supplements our selection services. According to the Staffing Industry Report, the United States temporary staffing industry grew from approximately $29 billion in revenue in 1993 to approximately $62 billion in revenue in 1998. In addition, third party sources estimate the worldwide temporary staffing market at more than $130 billion. The temporary staffing industry has experienced significant growth in response to the changing work environment. These changes are a result of increasing automation that has resulted and we believe will continue to result in shorter technological cycles, and global competitive pressures. Many employers responded to these challenges by turning to temporary and contract personnel to keep personnel costs variable, achieve maximum flexibility, outsource highly specialized skills, and avoid the negative effect of layoffs. We believe fundamental changes in the employer-employee relationship continue to occur, with employers developing increasingly stringent criteria for permanent employees, while moving toward project-oriented temporary and contract hiring. THE YELLOW PAGE ADVERTISING MARKET. Yellow page directories have been published in the U.S. since at least the 1890's and, traditionally, have been published almost exclusively by telephone utilities. In the early 1980's, due in part to telephone deregulation, independent companies began publishing an increasing number of directories. Currently, approximately 7,000 yellow page directories are published annually by 200 publishers and, in the U.S., many cities with populations in excess of 80,000 are served by multiple directories. The percentage of adults who use the yellow pages has remained relatively constant over the last ten years at over 56%, and such readers consult the yellow pages approximately two times weekly. Accordingly, yellow page directories continue to be a highly effective advertising medium. For the year ended December 31, 1999, total spending on yellow page advertisements in the U.S. was $12.7 billion. Of this amount, approximately $10.7 billion was spent by local accounts and approximately $2.0 billion was spent by national accounts. As those terms are used in the yellow page industry, "local" refers to an advertisement solicited by a yellow page publisher's own sales staff and "national" refers to an advertisement that is placed by an advertising agency and that meets certain criteria specified by the publisher. Local accounts are typically merchants who primarily conduct their business within the geographic area served by the publisher's directories. The national account market, which is the client base that we service, consists of companies that sell products or services in multiple markets. Most national accounts use independent advertising agencies to design and implement their yellow page advertising programs to create a consistent brand image and compelling message, to develop an effective media plan and to execute the placement of the advertising at the local level. Agencies which place national advertising are paid commissions by yellow page publishers. The market has grown each year since 1981. During the period of 1990 through 1999, the market has grown at a compound average rate of approximately 6.4%. OUR CAREER SOLUTIONS "INTERN TO CEO" MIGRATION TO INTERACTIVE. We believe that our growth in the career solutions area will continue to come from our Interactive properties, through our leadership position at Monster.com(sm), combined with additional online growth opportunities from the recruitment advertising and executive 58 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 three months ended March 31, 2000, Monster.com(sm)'s gross billings and commissions and fees were $58.9 million and $58.1 million, respectively, and our total Interactive gross billings and commissions and fees were $80.5 million and $70.8 million, respectively. Based on experience with our clients, we believe that only 20% to 30% of open job positions are advertised using traditional print media. We also believe that online solutions will significantly expand the recruitment advertising market because of their global reach and continuous availability. Furthermore, online advertising is extremely cost effective when compared to other traditional recruitment methods such as print media. Our Interactive recruitment services have been actively marketed since May 1995 and Monster.com(sm) was one of the first 1,000 commercial web sites out of more than 158 million which currently exist. According to Nielson I/PRO, Monster.com(sm) had approximately 15.2 million visits (the gross number of occasions on which a user looked up a site) in May 2000 with the average length of each visit exceeding sixteen minutes. Media Metrix reported that for May 2000, 5.2% of the U.S. Internet population visited Monster.com(sm). In addition, for this month, an average of 38.1 unique pages were viewed by each visitor, resulting in a power ranking of 198.1 (reach of 5.2 multiplied by average page views of 38.1) compared to 23.6 for its nearest competitor and 109.3 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 8.1 million job seeker accounts as of May 2000. Monster.com(sm)'s Job Search Agent continuously seeks to find the desired job for the job seeker. Job seekers can sign up for this free service on the site by creating a simple personal profile indicating the industry and location in which they want to work and any job-specific keywords. The Job Search Agent then continually scans the entire Monster.com(sm) job database for opportunities that match the requirements and delivers the leads to job seekers' desktops, even while they are off-line. As of May 2000, Monster.com(sm) contained over 3.2 million Job Search Agent profiles and its resume database contained over 4.2 million resumes of which 2.9 million are active, and is growing by an average of more than 13,000 resumes daily. Job seekers post their resumes free of charge in a confidential searchable access-restricted database. This database can be searched, using keyword searches, by employers who pay for the service. Job seekers can search Monster.com(sm)'s database of employment opportunities by location, job category, industry and/or keyword. Keyword searches allow a user to enter specific keywords to match skills, job titles or other requirements. We have also introduced Monster Talent Market which allows independent contractor professionals to offer their services to the highest bidder. As of May 2000, Monster.com(sm) listed approximately 395,000 paid postings from clients such as Adecco, Blockbuster Entertainment Inc., Dell Computer Corporation, McDonald's and Procter & Gamble Co. We also have developed private label applications of our Interactive products. For example, we adapted Monster.com(sm) technology to create for Fidelity Investments a database of jobs which resides, through a hyper-link, on the Fidelity home page. The search features have the look, feel and ease of use associated with Monster.com(sm) while appearing to the user as a seamless part of the Fidelity site. We intend to continue to market private label products as a way to increase the size of our databases. 59 To attract the maximum amount of traffic to our websites, we intend to continue to develop additional value-added content, while developing strategic alliances with other on-line content providers. For example, we recently entered into a content and marketing arrangement with America Online, Inc., pursuant to which Monster.com(sm) for the payment of $100 million would be the exclusive provider of career search services in the United States and Canada for four years to over 21 million AOL members across seven AOL properties: AOL, AOL Canada, Compuserve, ICQ, AOL.com, Netscape and Digital City. We believe that this agreement has the potential to drive a substantial amount of increased traffic and new users to Monster.com(sm.) See "Risk Factors--Potential impact of third-party litigation on our agreement with AOL." In addition to the U.S., Monster.com(sm) has been customized, in language and content, for Canada, the U.K., the Netherlands, Australia, Belgium, France, Singapore, New Zealand, Hong Kong, Germany and Ireland. MONSTERMOVING.COM. Through recent acquisitions, we have begun to capitalize on the relationship between recruitment and relocation. By featuring information that addresses the entire moving process, such as mortgages, insurance, utilities and education, we offer our clients the ability to research a prospective move online. We are combining these tools into a Moving Center which will be integrated into Monster.com-SM-, thus extending the Monster.com-SM- brand into the moving services marketplace. RECRUITMENT ADVERTISING. We entered the recruitment advertising business in 1993 and have expanded this business through acquisitions and internal growth. For the three months ended March 31, 2000, we had recruitment advertising gross billings of $219.6 million and recruitment advertising commissions and fees of $46.5 million. In addition to our worldwide offices, we maintain relationships with unaffiliated agencies throughout the world to further enhance our ability to reach qualified job candidates. As a full service agency, we offer our clients comprehensive recruitment advertising services including creation and placement of classified advertising, development of employer image campaigns, creation of collateral materials such as recruiting brochures and implementation of alternative recruitment programs such as job fairs, employee referral programs and campus recruiting. We specialize in designing recruitment advertising campaigns for clients in high growth industries and in industries with high employee turnover rates. Further, we believe that as employers find it more difficult to attract qualified employees, they will increasingly seek out agencies that can implement national and, in some cases, global recruitment strategies. Our task in formulating and implementing a global recruitment advertising program is to design the creative elements of the campaign and to select the appropriate media and/or other recruitment methods. This is done in the context of the client's staffing parameters, which generally include skill requirements, job location and advertising budget. In addition, while executing a given campaign, we will often undertake basic research with respect to demographic profiles of selected geographic areas to assist the client in developing an appropriate overall strategy. We have historically found that the strongest recruitment advertising campaigns "brand" the client's image, demonstrate the client's unique selling points and stress the client's employee benefits and corporate culture. Effectively differentiating one employer from another has become particularly important in the technology and healthcare sectors where there is an acute shortage of qualified job candidates. The success of the campaign may depend on whether an organization is seen as sufficiently distinct from its competitors. After completing the design of an advertisement's creative elements, we develop an appropriate media plan. Typically, a variety of media is used, including newspapers, trade journals, the Internet, outdoor/transit media, direct mail, radio and television. If we recommend use of newspapers, we may recommend certain newspapers or editions of a particular newspaper which are targeted to a specific demographic segment of the population. We may also recommend a variety of advertisement sizes and vary the frequency with which an advertisement appears. 60 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 three months ended March 31, 2000. In addition, interactive commissions and fees earned by this division were $5.8 million for the three months ended March 31, 2000. EXECUTIVE SEARCH. Traditionally, recruitment and online advertising does not target the senior executive. Therefore, in order to expand the range of services we offer to our recruitment advertising clients, we entered the executive search field. We currently have 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 three months ended March 31, 2000, Executive Search gross billings and commissions and fees were $39.0 million and $39.0 million, respectively. Our retained executive search process typically targets senior level executives (those earning over $250,000, annually) and includes the following steps: - a TMP Executive Search consultant interviews the client in order to analyze the senior executive position that needs to be filled, the general environment of the client's work place and the character and quality of candidates that have successfully performed as an executive of the client; - our consultant then prepares a written synopsis of the position to be filled in order to attract a suitable, qualified, successful candidate; - the synopsis is then forwarded to other recruiters in order to assist with the search for a candidate that fits the criteria set forth in the synopsis; - a pool of suitable candidates is gathered and the consultants begin to schedule interviews; - the candidates are then interviewed and analyzed by the consultants on our premises to determine if the candidate meets the requisite experience and potential cultural fit outlined by the consultant and the client; - reports of the most suitable candidates are prepared by the consultant and presented to the client, who then chooses the candidates to be met; - the consultant then organizes a mutually convenient time and place for the client to personally meet and interview such candidates; - the consultant will follow up with the successful candidate to obtain any supplemental information needed or requested by the client, including references and other documentary materials; and - the consultant then assists the client in structuring and negotiating the final compensation package and other benefits for the hired executive based on all relevant factors researched by the consultant, including industry comparisons, the experience levels of the executive and future trends. 61 SELECTION AND TEMPORARY CONTRACTING. Candidates for mid-level positions, the search for whom we term "selection," are normally attracted by classified advertising or chosen through a computerized database file search, as opposed to the detailed search process used for senior executives. We screen and interview applicants prior to providing the client with a short list. Upon acceptance of the short list of suitable candidates, the client then proceeds to interview the selected candidates. The next steps in the process include reference checking, negotiation of an offer, confirmation of acceptances and start date, and performance follow-up at the end of one and three months. For assignments involving mid-level executives we have developed and are introducing a process which is designed to evaluate a person's capacity to perform in a current or future role. It can be used for internal and external candidates and is based on the premise that if the requirements for an individual job are thoroughly understood, it is possible to develop testing protocols which assess and predict a candidate's ability to succeed in a specific position. Tools and exercises include aptitude testing, job simulations, behavioral and situational interviews, leadership and team exercises, group discussions, role plays and work sample tests. The goals of the Selection process are to put the right people in the right job, boosting both individual job satisfaction and productivity. We provide temporary contract employees in Australia, New Zealand, the United Kingdom and the United States. These employees range from executives to clerical workers. The demand for contract employee services was created by organizations' need for flexible work forces with the types of skills required to meet their particular circumstances in a changing market. We place qualified executives, professionals, clerical and trade labor in temporary positions, or for specific short term projects. Contractors can be used for emergency support or to complement the skills of a client's core, permanent staff. Contracting can be linked to the permanent placement, with the client employing a "try before you buy" strategy. The period for the contracting assignment can vary from as little as one day to over 12 months. In addition to the more general contracting assignments, we provide executives on a contract basis with our Australian clients, whereby a specific task is managed by us but staffed by contract executives. For the three months ended March 31, 2000, gross billings were $79.3 million, commissions and fees were $77.8 million and the related revenue, before deducting the costs of temporary contractors, was $172.7 million. In addition, Interactive commissions and fees were $2.5 million. OUR YELLOW PAGES BUSINESS We entered the yellow page advertising business in 1967 and have grown to become the largest yellow page advertising agency in the world based on gross billings. For the three months ended March 31, 2000 we had yellow page advertising gross billings and commissions and fees of $133.2 million and $23.3 million, respectively. This division also generated $2.4 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 62 potential customer's attention. To assess the effectiveness of a proposed campaign, we generally undertake extensive research to determine which alternatives best reach the client's target market. This research typically includes focus group testing and the running of split-run advertisements. Focus group testing involves forming groups of potential customers and gauging their reaction to a variety of potential advertisements. Split-run testing measures the results of specific campaigns by placing more than one version of an advertisement in various editions of the same yellow page directory. By using multiple phone numbers and various monitoring methods, we can then determine which advertisements generate the most effective response. After designing an advertising program, we create a media plan which targets client's customer base in a cost-effective manner. We analyze targeted directories to determine circulation, rate of usage and demographic profile. We then recommend advertisements ranging from a full page to as little as a one line listing. For some of our larger yellow page advertising clients, advertisements are placed in over 2,000 directories. To ensure client satisfaction, we maintain an extensive quality control program. Account teams have frequent in-person client contact as well as formal annual creative reviews. We also solicit feedback through client interviews, written surveys and other methods consisting of focus groups made up of yellow page users and yellow page user pollings. The principal aims of this program are client retention and sales growth. We believe our focus on customer service has enabled us to maintain our client retention rate, year to year, in excess of 90%. In addition to traditional advertising, we offer to our clients a variety of services ranging from managing the maintenance and installation of telephone lines for branch locations to the staffing and operation of fulfillment centers which respond to toll-free calls requesting product brochures and other information. While beyond the typical scope of services provided by an advertising agency, these ancillary services are designed to further integrate us into client processes for the mutual benefit of both parties. CLIENTS. Our yellow page clients generally determine the content of their advertising programs on a centralized basis. Placement of the advertising, however, requires an extensive local selling and quality control effort because many of our clients are franchisors or manufacturers who are dependent upon franchisees or independent dealers for distribution. The participation of franchisees and dealers in the yellow page program is discretionary and must be solicited at the local level. As an example of the scale of this task, in 1999, we visited or had contact with over half a million individual store locations. We have a yellow page sales, marketing and customer service staff of approximately 850 people to implement this local effort. We believe the size and breadth of this staff, its local client relationships and its databases of client branch locations, franchisors and dealers provide us with a strong competitive advantage in executing the yellow page programs of existing clients. We believe these resources are critical in marketing our services to potential new clients and in marketing and executing our Interactive-based service offerings. SALES AND MARKETING At December 31, 1999, we had more than 5,100 employees focused on our sales, marketing and customer service efforts worldwide. Our sales, marketing and customer service staff is divided into two groups: (i) new business generation (approximately 400 employees) and (ii) existing client relationship maintenance and improvement (approximately 4,700 employees). Within each group, we maintain separate sales and marketing staffs for our Interactive business, Recruitment Advertising business and Yellow Page business. In addition to specializing by product, each group is accountable for, and incentivized to, cross sell our other products. Our Interactive sales staff has targeted our recruitment advertising and yellow page clients to capitalize on the additional services that our Interactive products can cost effectively provide to such clients. In addition to pursuing cross-selling opportunities within our existing client base, each product sales force also designs targeted selling campaigns for potential new clients. We assign a 63 marketing manager to our clients in order to work closely with the client to develop and design the appropriate marketing and advertising campaign. Our customer service representative works closely with the marketing manager and the client to implement the marketing and advertising campaign, evaluate the effectiveness of the campaign and monitor client satisfaction levels. At December 31, 1999, we had 95 sales, marketing and customer service offices located in the United States and 137 offices in the rest of the world. We also maintained relationships with 7 international recruitment advertising agencies throughout the world, further enhancing our ability to reach qualified job candidates. PROPERTIES Substantially all of our offices are located in leased premises. Our principal office is located at 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. 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. 64 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. 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 65 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 and Temporary Contracting personnel and approximately 300 were creative and graphics personnel. The remainder of our personnel are information systems, financial and administrative personnel. Our employees are not represented by a labor union or a collective bargaining agreement. We regard our employee relations as generally excellent. COMPANY HISTORY We are the successor to the businesses formerly conducted by TMP Worldwide Inc. and subsidiaries ("Old TMP"), Worldwide Classified Inc. and subsidiaries ("WCI") and McKelvey Enterprises, Inc. and subsidiaries, the chief executive officer of which was Andrew J. McKelvey. On December 9, 1996, Old TMP merged into McKelvey Enterprises, Inc. Thereafter, WCI merged into McKelvey Enterprises, Inc. and McKelvey Enterprises, Inc. then merged into Telephone Marketing Programs Incorporated. Such mergers are collectively referred to as the "1996 Mergers." In addition, Mr. McKelvey sold or contributed his interest in five other entities to the Company. Pursuant to the 1996 Mergers, Telephone Marketing Programs Incorporated changed its name to TMP Worldwide Inc. Effective February 29, 2000 a 2-for-1 stock split in the form of a stock dividend was paid. All share and per share amounts included herein have been retroactively restated to give effect to the stock split. 66 MANAGEMENT EXECUTIVE OFFICERS, DIRECTORS AND KEY PERSONNEL The executive officers, directors and key personnel of the Company are as follows:
NAME AGE POSITION ---- -------- -------- 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 Michael Kaufman............. 54 Director John Swann.................. 63 Director Ronald J. Kramer............ 41 Director
Andrew J. McKelvey founded the Company in 1967, and has served as Chairman of the Board and CEO since that time. Mr. McKelvey has a B.A. from Westminster College. Mr. McKelvey was a member of the Board of Directors of the Yellow Page Publishers Association and the Association of Directory Marketing from 1994 through September 1996. 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 Worlwide Direct, the Company's Yellow Page Advertising Division, since 1989, and a director of the Company since September 1987. 67 Bart W. Catalane joined the Company in June 1999 as Senior Vice President and Chief Financial Officer. Prior to joining the Company, from January 1999 to May 1999, Mr. Catalane was Executive Vice President and Chief Financial Officer of ABC's Broadcasting Division, a unit of The Walt Disney Company. Prior to that, Mr. Catalane was Executive Vice President and Chief Financial Officer of the ABC Radio Division from June 1996 to December 1998 and Executive Vice President of the ABC Radio Networks from August 1989 to May 1996. Mr. Catalane is a 1978 graduate of Fairfield University in Connecticut and earned an M.B.A. from Babson College in Wellesley, Massachusetts in 1980. Myron F. Olesnyckyj joined the Company in June 1994. From September 1986 through May 1994, Mr. Olesnyckyj was associated with Fulbright & Jaworski L.L.P. and predecessor firms. Mr. Olesnyckyj holds a B.S.F.S. from Georgetown University's School of Foreign Service and a J.D. from the University of Pennsylvania Law School. Michael Kaufman has been a director of the Company since October 1997. Mr. Kaufman is President of SBC/Prodigy Transition. Mr. Kaufman previously served as President and CEO of Pacific Bell's Consumer's Market Group. Prior thereto, Mr. Kaufman was the President and CEO of Pacific Bell Communications, a subsidiary of SBC Communications Inc., and from 1993 through April 1997 he was the regional president for the Central and West Texas market area of Southwestern Bell Telephone. Mr. Kaufman holds a B.A. and an M.B.A. from the University of Wisconsin. John Swann has been a director of the Company since September 1996. In 1995, Mr. Swann founded Cactus Digital Imaging Systems, Ltd., Canada's largest supplier of electronically produced large format color prints. Ronald J. Kramer has been a director of the Company since February 2000. Mr. Kramer has been a managing director of Wasserstein Perella & Co., Inc. since July 1999. Prior thereto, Mr. Kramer was the Chairman and CEO of Ladenburg Thalmann Group Inc. and had been employed there for more than the last five years. Mr. Kramer is also a director of Griffon Corporation, Lakes Gaming and New Valley Corporation. The Board of Directors has a Compensation Committee charged with recommending to the Board the compensation for the Company's executives and administering the Company's stock option and benefit plans. The Compensation Committee is currently composed of Messrs. Kramer and Kaufman. The Board of Directors also has an Audit Committee charged with recommending to the Board the appointment of independent auditors of the Company, as well as discussing and reviewing, with the independent auditors, the scope of the annual audit and results thereof. The Audit Committee is currently composed of Messrs. Kramer and Kaufman. The Board of Directors also has a Strategy Committee charged with recommending to the Board strategic plans. The Strategy Committee is currently composed of Messrs. Kramer and Kaufman. Finally, the Board of Directors has an Executive Committee which is empowered to act on behalf of the whole Board. The Executive Committee is currently composed of Messrs. McKelvey and Treacy. DIRECTOR COMPENSATION Directors who are full time employees of the Company receive no additional compensation for their services as a director. Each of the Company's non-employee directors receives $15,000 per year for services rendered as a director, plus a per meeting fee of $5,000 for each meeting of the board of directors or a committee of the board of directors attended in person after the fifth such meeting attended in person, plus reimbursement of expenses incurred in connection with his or her duties as director. The Company has adopted the 1996 Stock Option Plan for Non-Employee Directors (the "Directors' Plan"), pursuant to which options to acquire a maximum aggregate of 360,000 shares of Common Stock may be granted to non-employee directors. Pursuant to the Directors' Plan, each of Messrs. Kaufman and Swann, its non-employee directors, was granted an option to purchase 22,500 shares of Common Stock at a 68 purchase price per share equal to the fair market value of the Common Stock on the date of such director's election to the Board of Directors ($11.81 in the case of Mr. Kaufman and $7.00 in the case of Mr. Swann). The options have a ten-year term and become exercisable as determined by the Compensation Committee. The options may be exercised by payment in cash, check or shares of Common Stock. Pursuant to the 1999 Plan, each new non-employee director of the Company will be automatically granted an option to purchase 22,500 shares of Common Stock upon his or her commencement of service as a non-employee director. Accordingly, Mr. Kramer received such option in February 2000, at an exercise price equal to the fair market value of the Common Stock on the date of grant. In addition, each non-employee director of the Company will automatically be granted an option to purchase 5,000 shares of Common Stock under the 1999 Plan on the day following each Annual Meeting of Stockholders that occurs at least one year after the first anniversary of the date he or she first became a non-employee director. Automatic option grants will have a ten-year term and an exercise price equal to the fair market value of the Common Stock on the date of grant. Options granted to non-employee directors upon their commencement of service will be 50% vested on the date of grant and will generally become fully vested on the first anniversary of the date of grant. Options granted to non-employee directors on an annual basis will generally become 50% vested on each of the first two anniversaries of the date of grant. The Company will no longer make grants under the Directors' Plan. EXECUTIVE COMPENSATION The following table sets forth information concerning all cash and non-cash compensation paid or to be paid by the Company as well as certain other compensation awarded, earned by and paid, during the fiscal years indicated, to the Chief Executive Officer and each of the four other most highly compensated executive officers of the Company for such periods in all capacities in which they served. 69 SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS ----------------------------------------------- --------------------------- OTHER SECURITIES ALL ANNUAL UNDERLYING OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION -------------------------------- -------- ---------- -------- ------------ ------------ ------------ Andrew J. McKelvey,............. 1999 $ 833,364 -- $21,874(1) -- -- Chairman of the Board and CEO 1998 1,500,000 -- 21,395(1) -- -- 1997 1,500,031 -- 23,111(1) -- -- James J. Treacy,................ 1999 329,576 $ 35,000 3,200(2) 400,000 -- Chief Operating Officer and 1998 231,100 35,000 3,200(2) 150,000 -- Executive Vice President-- 1997 211,531 50,000 3,200(2) 143,332 -- Finance and Strategy Jeffrey C. Taylor,.............. 1999 400,000 112,500 67,375(3) 2,000,300 -- CEO of TMP Interactive 1998 401,314 50,000 20,000(3) 200,000 -- 1997 217,196 100,000 20,000(3) 82,250 -- Paul M. Camara,................. 1999 359,148 -- 3,200(2) 500,000 -- Executive Vice President-- 1998 225,031 -- 3,200(2) 200,000 -- Creative/Sales/Marketing 1997 225,030 52,680 3,200(2) 48,500 -- Thomas G. Collison,............. 1999 207,031 -- 3,200(2) 60,000 -- Vice Chairman and Secretary 1998 207,031 -- 3,200(2) 10,000 -- 1997 207,031 50,320 3,200(2) 37,668 --
------------------------ (1) $3,200 represents matching contributions made to the Company's 401(k) Plan in each of 1999, 1998 and 1997 and $18,674, $18,195 and $19,911 represents lease payments for an automobile in 1999, 1998 and 1997, respectively. (2) Represents matching contributions made to the Company's 401(k) Plan. (3) $3,200 represents matching contributions made to the Company's 401(k) Plan in each of 1999, 1998 and 1997 and $16,800 represents lease payments for an automobile in each of 1999, 1998 and 1997 and $47,375 represents Mr. Taylor's 1999 commission compensation. 70 STOCK OPTIONS The following table sets forth certain summary information concerning individual grants of stock options made during the year ended December 31, 1999 to each of the Company's executive officers named in the Summary Compensation Table.
INDIVIDUAL GRANTS ----------------------------------- POTENTIAL REALIZABLE VALUE AT NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF SECURITIES OPTIONS EXERCISE STOCK PRICE APPRECIATION FOR UNDERLYING GRANTED TO OR BASE OPTION TERM(2) OPTIONS EMPLOYEES PRICE PER EXPIRATION ----------------------------- NAME GRANTED IN 1999(1) SHARE DATE 5% 10% ---- ---------- ---------- --------- ---------- ------------- ------------- Andrew J. McKelvey......... -- -- -- -- -- -- James J. Treacy............ 400,000 5.7% $22.063 08/05/09 $37,435,607 $64,837,086 Jeffrey C. Taylor.......... 2,000,300 28.7% (3) (3) 184,385,482 321,414,426 Paul M. Camara............. 500,000 7.2% $22.063 08/05/09 46,794,509 81,046,357 Thomas G. Collison......... 60,000 0.9% (4) (4) 5,214,091 9,324,340
------------------------ (1) In December 1999, the Company's Board of Directors granted the indicated options. The indicated percentages are based on 6,942,880 options granted in 1999 under the 1999 Long Term Incentive Plan and 30,000 options granted in April 1999 under the 1996 Stock Option Plan and do not include 3,405,100 options which are a result of the conversion of options of companies acquired by TMP. (2) These amounts represent assumed rates of appreciation in the price of the Company's Common Stock during the term of the option in accordance with rates specified in applicable federal securities regulations. Actual gains, if any, or stock option exercises, will depend on the future price of the Common Stock and overall stock market conditions. The Company's stock price, as reported by the Nasdaq National Market on December 31, 1999, was $71.00 per share. (3) Mr. Taylor was granted options to purchase 2,000,000 shares of the Company's Common Stock on July 30, 1999 at an exercise price per share of $23.47. These options expire on July 30, 2009. Mr. Taylor was also granted options to purchase 300 shares of the Company's Common Stock on December 1, 1999 at an exercise price per share of $47.50. These options expire on December 1, 2009. (4) Mr. Collison was granted options to purchase 50,000 shares of the Company's Common Stock on October 18, 1999 at a per share exercise price of $25.00, these options expire on October 18, 2009. Mr. Collison was granted options to purchase 10,000 shares of the Company's Common Stock on December 1, 1999 at a per share exercise price of $47.50, these options expire on December 1, 2009. The following table sets forth at December 31, 1999 the number of securities underlying unexercised options and the value of unexercised options held by each of the executive officers named in the Summary Compensation Table:
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT YEAR END OPTIONS AT YEAR END(1) --------------------------- --------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ------------- ----------- ------------- Andrew J. McKelvey......................... -- -- -- -- James J. Treacy............................ 175,832 517,500 $11,084,341 $ 26,368,281 Jeffrey C. Taylor.......................... 254,186 2,130,564 15,547,477 102,908,601 Paul M. Camara............................. 93,000 655,500 5,648,469 33,452,375 Thomas G. Collison......................... 34,168 72,500 2,183,159 3,284,200
------------------------ (1) Computed based upon the difference between the Stock Option exercise price and $71.00, the closing price of the Company's Common Stock on December 31, 1999. 71 EMPLOYMENT AGREEMENTS The Company has entered into an amended employment agreement with Andrew J. McKelvey, effective as of November 15, 1996, for a term ending on November 14, 2001. The agreement provides for automatic renewal for successive one year terms unless either party notifies the other to the contrary at least 90 days prior to the expiration of the then current term. The agreement also provides that Mr. McKelvey will serve as Chairman of the Board and CEO of the Company and will be nominated for election as a director during all periods of his employment. Under the agreement, Mr. McKelvey is entitled to a base salary of $1,500,000 per year and until November 1998, when his agreement was amended, was entitled to mandatory quarterly bonuses of $375,000. Mr. McKelvey waived such bonuses. Mr. McKelvey was paid $833,364 in 1999. On May 1, 1999, the Company and Mr. McKelvey further amended the employment agreement to provide for an annual base salary of $500,000 and an annual bonus, based on exceeding earnings per share targets, not to exceed $500,000. Under the agreement, Mr. McKelvey may terminate his employment upon 90 days' prior written notice for any reason. The agreement also provides that in the event Mr. McKelvey's employment is terminated by the Company prior to its expiration for reasons other than for "cause," the Company shall pay Mr. McKelvey his base salary for the remaining term of the agreement at the times it would have been payable had he remained employed. The agreement further provides that in the event of Mr. McKelvey's voluntary resignation, termination of his employment by the Company for cause or nonrenewal of the agreement, Mr. McKelvey shall not be entitled to any severance, and in the event of his disability or death he or his estate shall be paid his base salary for a period of 180 days after any such termination at the times it would have been payable had he remained employed. The agreement also contains confidentiality provisions, whereby Mr. McKelvey agrees not to disclose any confidential information regarding the Company and its affiliates. The Company has entered into a second amended employment agreement with James J. Treacy, effective as of October 1, 1999, for an indefinite term on an at-will basis. The agreement provides that either party may terminate the agreement for any reason. Pursuant to the agreement, Mr. Treacy will serve as Chief Operating Officer and Executive Vice President, Finance and Strategy of the Company for a base salary in 1999 of $475,000 and an annual bonus equivalent to a percentage, ranging from 25% to 50%, of his salary if certain goals mutually agreed upon by Mr. Treacy and the Chief Executive Officer are attained by Mr. Treacy and/or the Company. The agreement provides that in the event Mr. Treacy is terminated for "cause" or voluntarily resigns, he shall not be entitled to any severance, and in the event Mr. Treacy is terminated by reason of his death, disability or for other reasons, he or his estate shall be entitled to his base salary and minimum annual bonus for a period of one year after the effective date of his termination payable at the times they would have been payable had he remained employed, less income earned by him from the performance of any personal services during such period. The agreement provides that in the event Mr. Treacy's employment is terminated by death all of his options shall become fully vested and exercisable for the shorter of one year or the balance of the term provided in the stock option agreement. The agreement contains confidentiality provisions, whereby Mr. Treacy agrees not to disclose any confidential information regarding the Company and its affiliates, as well as nonsolicitation provisions which prohibit Mr. Treacy from soliciting any active or prospective accounts of the Company or its affiliates for a period of one year following termination. The Company's subsidiary, TMP Interactive Inc., entered into a second amended and restated employment agreement with Jeffrey C. Taylor, effective as of August 28, 1998, for a term ending December 31, 2001. That agreement provides for automatic renewal for successive one year terms unless either party notifies the other to the contrary at least 60 days prior to its expiration. The agreement provides that Mr. Taylor will serve as Chief Executive Officer of TMP Interactive Inc. and currently provides Mr. Taylor with a base salary of $400,000 per year and annual bonuses of at least $100,000 per year based on formulae mutually agreed to by the parties. Under the agreement, Mr. Taylor may terminate his employment upon written notice for certain material alterations in his responsibilities, duties, and authorities or upon 90 days' prior written notice for any reason. The agreement provides that in the event 72 Mr. Taylor's employment is terminated by TMP Interactive Inc. prior to its expiration for reasons other than cause or is terminated by Mr. Taylor for certain material alterations in his responsibilities, duties and authorities, TMP Interactive Inc. shall pay Mr. Taylor his base salary and his annual bonus from the preceding year or, if not yet issued a minimum of $100,000 and all of Mr. Taylor's options to purchase TMP stock shall become fully vested and Mr. Taylor and his immediate family shall be provided with specified insurance for a period of one year. The agreement also provides that in the event of Mr. Taylor's voluntary resignation, termination of his employment by TMP Interactive Inc. for "cause" or non-renewal of the agreement, Mr. Taylor shall not be entitled to any severance, and in the event of his disability or death he or his estate shall be paid his base salary and certain other benefits for a period of 90 days at the times they would have been payable had he remained employed. The agreement contains confidentiality provisions, whereby Mr. Taylor agrees not to disclose any confidential information regarding TMP Interactive Inc. and its affiliates, as well as non-competition provisions. The non-competition covenants generally survive the termination or expiration of Mr. Taylor's employment for two years, provided that in certain circumstances TMP Interactive Inc. must pay Mr. Taylor one-half of his base salary, one-half of his $75,000 minimum annual bonus, medical benefits and an additional payment of $19,792 per month for the duration of the non-competition obligation. Mr. Taylor's agreement also prohibits him from soliciting or servicing customers or prospective customers of TMP Interactive Inc. and its affiliates for a period of two years following the termination or expiration of his employment. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION On September 16, 1996, the Company's Board of Directors established a Compensation Committee, which currently consists of Messrs. Kramer and Kaufman to recommend compensation for the Company's executives and to administer the Company's stock option and other benefit plans. Prior to September 16, 1996, all matters concerning executive officer compensation were addressed by the entire Board of Directors. In February 2000 and in October 1997, respectively, Mr. Kramer and Mr. Kaufman received stock options to purchase 22,500 shares and 22,500 shares of Common Stock, respectively, at an exercise price of $63.07 per share and $11.81 per share, respectively, equal to the fair market value on the date of grant. CERTAIN TRANSACTIONS Messrs. McKelvey, Eisele, Camara and Collison have approximately 69.4%, 10%, 5% and 5% interests, respectively, in International Drive, L.P., the lessor of the Company's 48,000 square foot office in Mt. Olive, New Jersey. This lease runs through December 2004 and the Company's rent for this space is $46,200 per month. Mr. McKelvey has a 49% interest in TPH & AJM, a partnership, the lessor of the office occupied by Telephone Directory Advertising, Inc., an entity in which the Company has a 48.92% interest. This lease runs through June 2000 and Telephone Directory Advertising, Inc.'s rent for this space is currently $9,286 per month. On January 1, 1996, TMP Worldwide Communications Inc., the Company's Canadian recruitment advertising subsidiary, entered into a management agreement with TMPW Canada Inc., a recruitment advertising company owned by Mr. Swann, pursuant to which TMP Worldwide Communications Inc. provides management services in exchange for a percentage of the billings of TMPW Canada Inc. which is agreed to from time to time. The agreement has no stated term but is terminable by either party on 30 days' notice. For the years ended December 31, 1999, 1998 and 1997, TMPW Canada Inc. paid approximately $396,000, $537,000, and $294,000, respectively to TMP Worldwide Communications Inc. for management services. Beginning in June 1999, the Company periodically used the service of an aircraft from a company owned by Mr. McKelvey, and in connection therewith, $215,000 was paid through December 31, 1999. The Company believes that all transactions with the aforementioned directors and executive officers were made on terms no less favorable to the Company than would have been obtained from unaffiliated third parties and were approved or ratified by the entire Board, including disinterested directors. 73 PRINCIPAL STOCKHOLDERS The following table sets forth information as of June 30, 2000 (except as otherwise noted in the footnotes), regarding the beneficial ownership determined in accordance with the rules of the Securities and Exchange Commission, which generally attribute beneficial ownership of securities to persons who possess sole or shared voting power and/or investment power with respect to those securities, of the Company's Common Stock by: (i) each person known by the Company to own beneficially more than five percent (5%) of the Company's outstanding Common Stock; (ii) each director of the Company; (iii) each executive officer named in the Summary Compensation Table (see "Management--Executive Compensation"); and (iv) all directors and executive officers of the Company as a group. Except as otherwise specified, the named beneficial owner has the sole voting and investment power over the shares listed.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP OF PERCENTAGE OF COMMON STOCK/CLASS B PERCENTAGE OF CLASS B NAME OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK COMMON STOCK ------------------------ ----------------------- --------------------- ------------- Andrew J. McKelvey(1)......................... 26,506,963 27.6% 100% Thomas G. Collison(2)......................... 240,988 * -- James J. Treacy(3)............................ 704,544 * -- Jeffrey C. Taylor(4).......................... 459,009 * -- Paul M. Camara(5)............................. 294,190 * -- George R. Eisele(6)........................... 153,860 * -- Ronald J. Kramer(7)........................... 5,625 * -- Michael Kaufman(8)............................ 25,000 * -- John Swann(9)................................. 24,240 * -- All directors and executive officers as a group (11 persons)(10)...................... 28,487,619 29.7% 100% Putnam Investments, Inc.(11).................. 5,644,512 5.9% -- Janus Capital Corporation(12)................. 9,256,870 9.6% --
------------------------ * Less than 1% (1) Includes 4,762,000 shares of Class B Common Stock which are convertible, on a share for share basis, into Common Stock. Each share of Class B Common Stock has ten votes per share. Also includes 4,115 shares of Common Stock owned by Mr. McKelvey's wife, 200 shares of Common Stock owned by Mr. McKelvey's daughter and 902 shares of Common Stock held by TMP's 401(k) Plan. Mr. McKelvey disclaims beneficial ownership of the shares owned by his wife. (2) Includes 902 shares of Common Stock held by TMP's 401(k) Plan and 34,168 shares of Common Stock issuable upon the exercise of options which are exercisable within 60 days of June 30, 2000. (3) Includes 600 shares of Common Stock owned by Mr. Treacy's daughters, 902 shares of Common Stock held by TMP's 401(k) Plan, and 175,832 shares of Common Stock issuable upon the exercise of options which are exercisable within 60 days of June 30, 2000. (4) Includes 902 shares of Common Stock held by TMP's 401(k) Plan and 379,600 shares of Common Stock issuable upon the exercise of options which are exercisable within 60 days of June 30, 2000. (5) Includes 902 shares of Common Stock held by TMP's 401(k) Plan and 93,000 shares of Common Stock issuable upon the exercise of options which are exercisable within 60 days of June 30, 2000. (6) Includes 762 shares of Common Stock held by TMP's 401(k) Plan and 1,000 shares of Common Stock issuable upon the exercise of options which are exercisable within 60 days of June 30, 2000. (7) Consists of 5,625 shares of Common Stock issuable upon the exercise of options which are exercisable within 60 days of June 30, 2000. 74 (8) Consists of 25,000 shares of Common Stock issuable upon the exercise of options which are exercisable within 60 days of June 30, 2000. (9) Consists of 24,240 shares of Common Stock issuable upon the exercise of options which are exercisable within 60 days of June 30, 2000. (10) Includes 4,762,000 shares of Class B Common Stock, which are convertible on a share for share basis, into Common Stock, 5,272 shares held by TMP's 401(k) plan and 5,065 shares beneficially owned. Also includes 810,965 shares subject to options which are exercisable within 60 days of June 30, 2000. (11) Putnam Investments, Inc. may be deemed to beneficially own 5,644,512 shares of our Common Stock which are held of record by clients of Putnam Investments, Inc. Putnam Investments, Inc. does not have sole voting or dispositive power with respect to any of the shares and has shared voting power with respect to 117,300 shares and shared dispositive power with respect to 5,644,512 shares. Information with respect to Putnam Investments, Inc. has been derived from their Schedule 13G dated February 18, 2000 as filed with the Securities and Exchange Commission. (12) Janus Capital Corporation may be deemed to beneficially own 9,256,870 shares of our Common Stock which are held of record by clients of Janus Capital Corporation. Janus Capital Corporation does not have sole voting or dispositive power with respect to any of the shares and has shared voting power with respect to 9,256,870 shares and shared dispositive power with respect to 9,256,870 shares. Information with respect to Janus Capital Corporation has been derived from their Schedule 13G dated January 11, 2000 as filed with the Securities and Exchange Commission. 75 SELLING STOCKHOLDERS The following table sets forth information as of June 30, 2000, except as otherwise noted, with respect to the number of shares of Common Stock beneficially owned or to be acquired by each of the selling stockholders and assumes that all shares subject to vesting schedules and conditions have vested. The shares offered hereby were acquired by the selling stockholders from TMP pursuant to the acquisition of or merger with companies owned by such selling stockholders or pursuant to stock bonus arrangements entered into in connection therewith. No selling stockholder owns more than one percent of the outstanding Common Stock.
NUMBER OF SHARES NUMBER OF SHARES OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK BENEFICIALLY OWNED OF COMMON STOCK BENEFICIALLY OWNED SELLING STOCKHOLDER PRIOR TO OFFERING REGISTERED HEREIN AFTER OFFERING (1) ------------------- ------------------ ----------------- ------------------ 704803 Ontario Limited........................ 49,428 49,428 0 928652 Ontario Inc............................ 25,113 25,113 0 1064066 Ontario Limited....................... 12,330 12,330 0 1132766 Ontario Inc........................... 149 149 0 1220669 Ontario Limited....................... 100,679 100,679 0 1223402 Ontario Inc........................... 154 154 0 1365074 Ontario Inc........................... 4,929 4,929 0 Mark David Abbott............................. 244 85 159 ABS Capital Partners II, L.P.................. 235,065 235,065 0 Brad Ackerman................................. 1,363 1,022 341 Gordon Arthur Ross Adam....................... 59,555 59,555 0 Jurgen Adler.................................. 6,905 6,905 0 Anita M. Ames................................. 14 5 9 Kristi Anderson............................... 2,812 2,812 0 James P. Angelini............................. 2,862 2,147 715 Arthur Anton Trust............................ 6,812 5,109 1,703 Rick B. Aspros................................ 273 205 68 Paul Atkinson................................. 59,555 59,555 0 A. Phillip Auerbach........................... 921 230 691 Lauren Bakewell............................... 91,301 22,825 68,476 John S. Baran................................. 909 682 227 Harris Berenholz.............................. 1,818 1,364 454 James K. Bergdoll, as Trustee under Irrevocable Trust dated 10/25/96 for the benefit of Daniel J. Byrnes................. 32,247 32,247 0 James K. Bergdoll, as Trustee under Irrevocable Trust dated 10/25/96 for the benefit of Kathryn L. Byrnes................ 32,247 32,247 0 James K. Bergdoll, as Trustee under Irrevocable Trust dated 10/25/96 for the benefit of Kristin L. Byrnes................ 32,247 32,247 0 Bertrand Berullier............................ 13,080 13,080 0 Robert S. Blank............................... 1,616 404 1,212 Chris Bowen................................... 1,723 431 1,292 Briles & Fujii DMD, PC 401(k)................. 5,450 4,088 1,362 Christopher H.G. Brown........................ 13,819 13,819 0 Peggy L. Buchenroth........................... 2,272 2,272 0 Matt Buonomano................................ 6,891 1,723 5,168 Randall T. Byrnes............................. 5,480 5,480 0
76
NUMBER OF SHARES NUMBER OF SHARES OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK BENEFICIALLY OWNED OF COMMON STOCK BENEFICIALLY OWNED SELLING STOCKHOLDER PRIOR TO OFFERING REGISTERED HEREIN AFTER OFFERING (1) ------------------- ------------------ ----------------- ------------------ Revocable Trust of Tadhg Canniffe and Bernadette Canniffe dated March 11, 1998.... 37,789 37,789 0 Capital Science Partners, Ltd................. 647 162 485 Mark Carbrey.................................. 25,840 6,460 19,380 Michael J. Carney............................. 13,819 13,819 0 Cavan Consulting Limited...................... 12,227 12,227 0 Hillary Cecil................................. 1,616 404 1,212 Steven Chanin................................. 970 243 727 Ishmael Chawla................................ 3,185 796 2,389 Joe Childs.................................... 4,595 1,149 3,446 Hyundeok Chung................................ 1,247 312 935 Paul J. Cohen................................. 954 715 239 Marco A. Coleman.............................. 273 205 68 Columbia Internet Services, Inc............... 74,303 55,727 18,576 David Concordia............................... 4,307 1,077 3,230 Cruttenden Roth Incorporated.................. 4,327 3,245 1,082 CSR Defined Benefit Pension Plan.............. 1,616 404 1,212 Kelly Marie Davis............................. 909 682 227 Paul Davis.................................... 163 163 0 Dr. Armin Deuter.............................. 2,640 2,640 0 Dinte Resources, Inc.......................... 172 43 129 Peter Dion.................................... 6,812 5,109 1,703 Eileen T. Donahue............................. 2,079 2,079 0 Jay C. Doraiswami and Valli K. Doraiswami, as Trustees of the Doraiswami Family Trust..... 29,754 29,754 0 Jaymie A. Durnan.............................. 688 172 516 EPIC Relocation, LLC.......................... 5,450 4,088 1,362 Andrew Feller................................. 60 15 45 Barry Flamm................................... 862 216 646 Pamela Flores................................. 803 803 0 Edward Foehl.................................. 627 470 157 Kenneth T. Folkman............................ 13,819 13,819 0 Fort Pond Bay Co., LLC........................ 27,247 20,435 6,812 Marc J. Fratello.............................. 3,957 3,957 0 Bonnie Bershad Freundlich..................... 324 81 243 Laura Freundlich.............................. 324 81 243 James F. Freundlich........................... 55,877 13,969 41,908 Richard L. Freundlich......................... 7,754 1,939 5,815 William T. Freeman............................ 4,808 4,808 0 Barbara Frank................................. 1,616 404 1,212 Peter Gadinas................................. 4,089 3,067 1,022 Andrew Gelina................................. 6,891 1,723 5,168 John D. Gentry................................ 1,616 404 1,212 Bethany George................................ 2,812 2,812 0 Bruna M. Giammarco Non resident Trust......... 57,680 57,680 0 John P. Giammarco, as Trustee of the Giammarco Irrevocable GST Trust dated March 26, 1998........................................ 14,601 14,601 0 Elaine S. Gilde............................... 1,600 400 1,200 Margaret Gilmore.............................. 11,496 11,496 0
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NUMBER OF SHARES NUMBER OF SHARES OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK BENEFICIALLY OWNED OF COMMON STOCK BENEFICIALLY OWNED SELLING STOCKHOLDER PRIOR TO OFFERING REGISTERED HEREIN AFTER OFFERING (1) ------------------- ------------------ ----------------- ------------------ Susan Golob................................... 1,723 431 1,292 Steven Goode.................................. 970 243 727 Steve Goretti................................. 6,891 1,723 5,168 Gary J. Goulski............................... 200 70 130 Jonathon E. Greenleaf......................... 364 127 237 Jeffrey A. Greiner as custodian for Carolyn Greiner under the Ohio Gifts to Minors Act......................................... 2,972 2,972 0 Jeffrey A. Greiner............................ 16,483 16,483 0 Susan Greiner................................. 2,972 2,972 0 Daniel Gross and Associates Pension Plan...... 2,263 566 1,697 Carl Grossman................................. 442 111 331 Grove Street Capital LLC...................... 3,143 3,143 0 Thomas W. Guard............................... 325 325 0 Richard E. Halperin........................... 2,294 574 1,720 Thomas Holzchen............................... 6,905 6,905 0 Alan Michael Hughes........................... 19,591 19,591 0 John P. Imlay, Jr............................. 4,867 4,867 0 Inacom Corp................................... 114,240 114,240 0 Invemed Associates, Inc....................... 47,676 35,757 11,919 Michael Jaharis............................... 34,059 25,544 8,515 Paul Johnson.................................. 1,818 1,818 0 Reinhard Junker............................... 2,640 2,640 0 Kadila Holdings, Inc.......................... 20,436 15,327 0 Douglas Kaplan................................ 33 8 25 Kenneth Karl Kelly III........................ 1,364 1,364 0 Peter Kelly................................... 48,401 48,401 0 Cristina H. Kepner............................ 4,998 3,749 1,249 Joseph Kestenbaum............................. 1,616 404 1,212 Jennie V. Kjos................................ 955 717 238 Dr. Thomas Kleine............................. 2,640 2,640 0 Lisa Knight................................... 4,862 4,862 0 Jeffrey Kolber................................ 1,364 1,364 0 Reinhard Kolvenbach........................... 6,905 6,905 0 Dr. Gerhard Kratz............................. 2,640 2,640 0 Eric Krauss................................... 2,584 646 1,938 Kriskel Inc................................... 366 366 0 Revocable Trust of Ankesh Kumar and Abha Kumar dated April 19, 1998........................ 37,975 37,975 0 Steven Kyriakos............................... 8,117 6,088 2,029 Dean Kyriakos................................. 132,633 99,475 33,158 Landmark Co-Investment Partners, LP........... 86,500 64,875 21,625 Bruce Langone................................. 2,272 1,704 568 John Peter Lee................................ 2,000 2,000 0 Lion Investments, L.P......................... 350,748 350,748 0 Tom Litle..................................... 8,614 2,154 6,460 Robert S. London.............................. 10,813 8,110 2,703 Lornes B.V.................................... 51,906 51,906 0 Mark A. Ludwick............................... 244 85 159 Marcelo MacKinlay............................. 12,155 12,155 0
78
NUMBER OF SHARES NUMBER OF SHARES OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK BENEFICIALLY OWNED OF COMMON STOCK BENEFICIALLY OWNED SELLING STOCKHOLDER PRIOR TO OFFERING REGISTERED HEREIN AFTER OFFERING (1) ------------------- ------------------ ----------------- ------------------ Frank G. Magdlen.............................. 545 409 136 Management Resources International Holding B.V......................................... 23,817 23,817 0 Suzanne Manzler............................... 200 70 130 Yvonne V. Marsh............................... 459 115 344 Stefan Martens................................ 6,905 6,905 0 Charles E. Mather IV.......................... 382 96 286 Brian McCabe.................................. 2,725 2,044 681 James T. McGibbon............................. 456 342 114 James Mc Leod................................. 200 70 130 Juan Jose Pol Mendez.......................... 16,840 16,840 0 Stephen R. Mickelberg......................... 1,616 404 1,212 Peggy J. Miller............................... 47,588 35,691 11,897 John F. Mills................................. 324 81 243 Frank G. Moscow............................... 221 166 55 Rudolf Muller................................. 6,905 6,905 0 Suzanne D. Olsen.............................. 818 614 204 James Z. O'Leary.............................. 221 166 55 Florencio Barranco Ortega..................... 39,338 39,338 0 John H. Park.................................. 1,090 818 272 Paulson Investment Co, Inc.................... 45,412 34,059 11,353 Charles LF Paulson............................ 909 682 227 Chester LF & Jacqueline Paulson............... 9,083 6,812 2,271 Erick JC Paulson.............................. 909 682 227 Stuart A. Peschka............................. 273 205 68 Jennie Ping Fu................................ 1,364 1,364 0 Harold W. Pote................................ 1,142 286 856 Michael J. Pratt and Jean V. Pratt, Joint Tenants..................................... 1,147 287 860 Mike A. Pruett................................ 2,658 1,994 664 Thomas Reichwein.............................. 6,905 6,905 0 Ulrich P. Reiter.............................. 16,442 16,442 0 Allen Roberts................................. 33 8 25 Robert S. Rollo............................... 74,108 74,108 0 Rooster Investment Company LLC................ 3,232 808 2,424 John C. Rudder................................ 17,988 17,988 0 Dr. Christoph Rummel.......................... 6,905 6,905 0 S. Lawrence Rusoff............................ 647 162 485 Clint W. Sager II............................. 1,216 426 790 Pedro Garcia-Cano Salgado..................... 15,602 15,602 0 Alphonse J. San Clemente...................... 219,465 54,866 164,599 Alphonse P. San Clemente...................... 8,958 2,240 6,718 Andrew San Clemente........................... 219,465 54,866 164,599 Alicia E. Santos.............................. 324 81 243 Gonzalo Santos................................ 52,936 13,234 39,702 Olivia Santos................................. 2,941 735 2,206 Timothy Sandborn.............................. 954 715 239 Steven E. Schaedel............................ 608 213 395 Sandra Schoem................................. 5,031 1,258 3,773 Claus Schulmeister............................ 6,905 6,905 0 Randy Schwartz................................ 2,182 2,182 0
79
NUMBER OF SHARES NUMBER OF SHARES OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK BENEFICIALLY OWNED OF COMMON STOCK BENEFICIALLY OWNED SELLING STOCKHOLDER PRIOR TO OFFERING REGISTERED HEREIN AFTER OFFERING (1) ------------------- ------------------ ----------------- ------------------ Bernard J. Sheinfeld.......................... 7,412 7,412 0 Adam Shelnut.................................. 1,338 468 870 Jennifer Shenbaum............................. 1,205 1,205 0 Isabelle M. Sherman........................... 338,044 118,315 219,729 Mark A. Sherman............................... 338,044 118,315 219,729 Baldwin Smith, Jr............................. 2,272 1,704 568 Raymond W. Smith.............................. 3,232 808 2,424 Dr. Dieter Spori.............................. 2,640 2,640 0 Mary Ellen Sutherland......................... 1,147 287 860 B. Scott Taylor............................... 132,633 99,475 33,158 Thomas L. Teague.............................. 4,543 3,407 1,136 Technology Gateway Partnership, LP............ 30,276 22,707 7,569 The Brentwood Group, Ltd...................... 49 36 13 The Guide Fund II LP.......................... 32,438 24,329 8,109 The Samuel Lewis Green Trust.................. 236 59 177 George Thompson............................... 909 682 227 Timberline Venture Partners, LP............... 96,853 72,640 24,213 Richard E. Timbers............................ 29,814 29,814 0 Daniel Valladares............................. 3,321 3,321 0 Leiven VanMarcke.............................. 647 162 485 VanRam Associates International N.V........... 73,414 73,414 0 Joseph R. Vicente............................. 6,186 6,186 0 Mark Villilo.................................. 1,800 1,800 0 Peter Vlachos................................. 13,624 10,218 3,406 David Waage................................... 1,114 1,114 0 Wachovia Securities, Inc...................... 8,374 2,931 5,443 Walter F. Wagner.............................. 3,633 3,633 0 John Wallace.................................. 24,310 24,310 0 Byron L. West................................. 18,359 18,359 0 Curt Whitehead................................ 6,891 1,723 5,168 Mark Whittington.............................. 7,301 7,301 0 Don Willis.................................... 6,891 1,723 5,168 Caesar Wong................................... 273 205 68 Yarmuth Dion, Inc............................. 27,247 20,435 6,812 David Croy Drysdale Young..................... 67,002 67,002 0
------------------------ (1) Assumes that all shares offered by each selling stockholder are sold in this offering. 80 DESCRIPTION OF CAPITAL STOCK The Certificate of Incorporation of the Company provides the Company with the authority to issue 1,500,000,000 shares of Common Stock, 39,000,000 shares of Class B Common Stock, 200,000 shares of 10.5% Cumulative Preferred Stock and 800,000 shares of Preferred Stock. No shares of Preferred Stock are outstanding. The 10.5% Cumulative Preferred Stock was redeemed and no shares are outstanding. COMMON STOCK AND CLASS B COMMON STOCK DIVIDENDS Each share of Common Stock and Class B Common Stock is entitled to dividends if, as and when dividends may be declared by the Board of Directors of the Company and paid. Under the Delaware General Corporation Law, the Company may declare and pay dividends only out of its surplus, or in case there shall be no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding year. No dividends may be declared, however, if the capital of the Company has been diminished by depreciation, losses or otherwise to an amount less than the aggregate amount of capital represented by any issued and outstanding stock having a preference on distribution. Dividends must be paid on both the Common Stock and the Class B Common Stock at any time that dividends are paid on either. Any dividend so declared and payable in cash, capital stock of the Company (other than Common Stock or Class B Common Stock) or other property will be paid equally, share for share, on the Class B Common Stock and Common Stock. Dividends and distributions payable in shares of Class B Common Stock may be paid only on shares of Class B Common Stock, and dividends and distributions payable in shares of Common Stock may be paid only on shares of Common Stock. If a dividend or distribution payable in Common Stock is made on the Common Stock, the Company must also make a simultaneous dividend or distribution on the the Class B Common Stock. Pursuant to any such dividend or distribution, each share of Class B Common Stock will receive a number of shares of Class B Common Stock equal to the number of shares of Common Stock payable on each share of Common Stock. VOTING RIGHTS Each share of Common Stock is entitled to one vote and each share of Class B Common Stock is entitled to ten votes on all matters. Except as described below, the Common Stock and the Class B Common Stock vote together as a single class on all matters presented for a vote of the stockholders, including the election of directors. The holders of a majority of the outstanding shares of Common Stock or Class B Common Stock, voting as separate classes, must approve certain amendments affecting shares of such class. Specifically, if there is any proposal to amend the Certificate of Incorporation in a manner that would increase or decrease the number of authorized shares of Common Stock or Class B Common Stock, increase or decrease the par value of the shares of Common Stock or Class B Common Stock or alter or change the powers, preferences, or special rights of the shares of Common Stock or Class B Common Stock so as to affect them adversely, such an amendment must be approved by a majority of the outstanding shares of the affected class, voting separately as a class. In addition, any merger or consolidation in which each share of Common Stock receives consideration that is not of the same type or is less than the amount of the consideration to be received by each share of Class B Common Stock, other than consideration payable in securities which provide each share of Class B Common Stock with the number of votes that is no more than ten times the number of votes provided each share of Common Stock, must be approved by a majority of the outstanding shares of Common Stock, voting separately as a class. Shares of Common Stock and Class B Common Stock do not have cumulative voting rights. TERMS OF CONVERSION. Each share of Class B Common Stock is convertible at any time, at the option of and without cost to the stockholder, into one share of Common Stock. If at any time (i) the outstanding shares of Class B Common Stock represent less than 15% of the combined voting power of issued and outstanding shares of Common Stock and Class B Common Stock, or (ii) the Board of Directors and the holder of a majority of the outstanding shares of Class B Common Stock approve the conversion of all of the Class B Common Stock into Common Stock, or (iii) the holder of a majority of the outstanding shares of Class B Common Stock dies, then each outstanding share of Class B Common Stock shall be converted automatically into one share of Common Stock without any action by the holder. In the event of such a 81 conversion, certificates formerly representing outstanding shares of Class B Common Stock will thereafter be deemed to represent an equal number of shares of Common Stock. LIQUIDATION RIGHTS. In the event of the liquidation, dissolution or winding up of the Company, holders of the shares of Common Stock and Class B Common Stock are entitled to share equally, share for share, in the assets available for distribution. OTHER. Additional shares of Class B Common Stock may only be issued upon stock splits of, or stock dividends on, the existing Class B Common Stock. No stockholder of the Company has preemptive or other rights to subscribe for additional shares of the Company. PREFERRED STOCK The Preferred Stock may be issued from time to time in one or more series as determined by the Board of Directors. The Board of Directors is authorized to issue the shares of Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividends rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series, without further vote or action by the stockholders. The issuance of such Preferred Stock may have the effect of delaying, deferring or preventing a change in control of the Company without further action by the stockholders and may adversely affect the voting and other rights of the holders of Common Stock, including the loss of voting control to others. The Company currently has no plan to issue any shares of such Preferred Stock. DELAWARE ANTI-TAKEOVER LAW Under Section 203 of the Delaware General Corporation Law (the "Delaware Anti-Takeover Law"), certain "business combinations" between a Delaware corporation whose stock generally is publicly traded or held of record by more than 2,000 stockholders and any person acquiring 15% or more of the voting stock of such Delaware corporation (an "interested stockholder") are prohibited for a three-year period following the time that such stockholder became an interested stockholder, unless (i) either the business combination or the transaction which resulted in the stockholder becoming an "interested stockholder" was approved by the board of directors of the corporation prior to the time the other party to the business combination became an interested stockholder, (ii) upon consummation of the the transaction that made it an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the commencement of the transaction (excluding voting stock owned by directors who are also officers and stock held in employee stock plans in which the employees do not have a right to determine confidentially whether to tender or vote stock held by the plan), or (iii) the business combination was approved by the board of directors of the corporation and authorized by 66 2/3% of the voting stock which the interested stockholder did not own. The corporation may opt out of the effect of this statement by (i) including a provision to such effect in the corporation's original certificate of incorporation, (ii) amendment to the corporation's bylaws made by the board of directors within 90 days after the effective date of the statute or (iii) amendment of the corporation's certificate of incorporation or bylaws approved by holders of a majority of the shares entitled to vote; provided that such amendment shall generally not take effect until 12 months after its adoption and shall not effect any business combination with interested stockholders which are effected during such 12 months. The three-year prohibition does not apply to certain business combinations proposed by an interested stockholder following the announcement or notification of certain extraordinary transactions involving the corporation and a person who had not been an interested stockholder during the previous three years or who became an interested stockholder with the approval of a majority of the corporation's directors. The term "business combination" is defined generally to include mergers or consolidations between a Delaware corporation and an interested stockholder, transactions with an interested stockholder involving the assets or stock of 82 the corporation or its majority-owned subsidiaries and transactions which increase an interested stockholder's percentage ownership of stock. The term "interested stockholder" is defined generally as a stockholder who becomes the beneficial owner of 15% or more of a Delaware corporation's voting stock. Section 203 could have the effect of delaying, deferring or preventing a change in control of the Company. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Company's Certificate of Incorporation provides that directors of the Company shall not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of a director's duty of loyalty to the Company or its stockholders, (ii) for acts of omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derives an improper personal benefit. Moreover, the provisions do not apply to claims against a director for violations of certain laws, including federal securities laws. If the Delaware General Corporation Law is amended to authorize the further elimination or limitation of directors' liability, then the liability of directors of the Company shall automatically be limited to the fullest extent provided by law. The Company's Bylaws also contain provisions to indemnify the directors and officers of the Company to the fullest extent permitted by the Delaware General Corporation Law. In addition, the Company has entered into indemnification agreements with its current directors. These provisions and agreements may have the practical effect in certain cases of eliminating the ability of stockholders to collect monetary damages from directors. The Company believes that these contractual agreements and the provisions in its Certificate of Incorporation and Bylaws are necessary to attract and retain qualified persons as directors and officers. TRANSFER AGENT The Transfer Agent for the Common Stock is The Bank of New York. PLAN OF DISTRIBUTION The selling stockholders named herein (or pledgees, donees, transferees or other successors-in-interest selling shares received from a named selling stockholder as a gift, partnership, distribution or other non-sale-related transfer after the date of this prospectus) may offer their shares at various times in one or more transactions on the Nasdaq National Market, in special offerings, exchange distributions, secondary distributions, negotiated transactions, or a combination of such. They may sell at market prices at the time of sale, at prices related to the market price or at negotiated prices. The selling stockholders may use broker-dealers to sell their shares. If this happens, broker-dealers will either receive discounts or commissions from the selling stockholders, or they will receive commissions from purchasers of shares for whom they acted as agents. Compensation as to a particular broker-dealer might be in excess of customary commissions and will be in amounts to be negotiated in connection with the sale. Broker-dealers or agents and the selling stockholders may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act in connection with sales of the shares. Accordingly, any such commission, discount or concession received by them and any profit on the resale of the shares purchased by them may be deemed to be underwriting discounts or commissions under the Securities Act. Because selling stockholders may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act, the selling stockholders will be subject to the prospectus delivery requirements of the Securities Act. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than pursuant to this prospectus. LEGAL OPINION For the purpose of this offering, our outside counsel, Fulbright & Jaworski L.L.P., New York, New York 10103, is giving its opinion on the validity of the shares. 83 EXPERTS The supplemental consolidated financial statements and schedule and the consolidated financial statements and schedule of the Company included herein have been audited by BDO Seidman, LLP, independent certified public accountants, to the extent and for the periods set forth in their reports included herein, and are included herein in reliance upon such reports given upon the authority of said firm as experts in accounting and auditing. The financial statements of Baumgartner & Partner Personalberatung GmbH included herein have been audited by BDO International GmbH, Wirtschaftsprufungsgesellschaft, to the extent and for the period set forth in their report included herein, and are included herein in reliance upon such report given upon the authority of said firm as experts in accounting and auditing. The consolidated balance sheets of Morgan & Banks Limited as of December 31, 1998 and the consolidated statements of operations and stockholders' equity for the year ended December 31, 1998 and the year ended March 31, 1998 and the statements of cash flows for the nine months ended December 31, 1998 and the year ended March 31, 1998, included in the Company's financial statements as of December 31, 1998 and for the year ended December 31, 1998 are included in reliance on the report of Pannell Kerr Forster, independent auditors, given upon the authority of that firm as experts in accounting and auditing. The consolidated financial statements and schedule of LAI Worldwide, Inc. (not presented separately herein) have been audited by Arthur Andersen LLP, independent certified public accountants, as indicated in their reports with respect thereto which are included herein, in reliance upon the authority of said firm as experts in giving said reports. The consolidated financial statements of System One Services, Inc. and subsidiaries as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999 (not presented separately herein) have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report which has been included herein in reliance upon such report given upon their authority as experts in accounting and auditing. The consolidated financial statements of QD Group Limited as of 30 September 1999 and 1998 and for each of the two years then ended included herein have been audited by Arthur Andersen, independent chartered accountants, as indicated in their report with respect thereto and are included herein in reliance upon the authority of said firm as experts in giving said report. 84 INDEX TO FINANCIAL STATEMENTS TMP WORLDWIDE INC. AND SUBSIDIARIES
PAGE NO. -------- Supplemental Consolidated Condensed Financial Statements (unaudited): Balance sheet as of March 31, 2000........................ F-4 Statements of income (loss) for the three months ended March 31, 2000 and 1999................................. F-5 Statements of comprehensive income (loss) for the three months ended March 31, 2000 and 1999.................... F-6 Statement of stockholders' equity for the three months ended March 31, 2000.................................... F-7 Statements of cash flows for the three months ended March 31, 2000 and 1999....................................... F-8 Notes to supplemental consolidated condensed financial statements.............................................. F-9 Report of Independent Certified Public Accountants.......... F-20 Independent Auditor's Report to the Members of Morgan & Banks Limited............................................. F-22 Report of Independent Certified Public Accountants (with respect to LAI Worldwide, Inc.)........................... F-23 Independent Auditors' Report (with respect to System One Services, Inc.)........................................... F-24 Supplemental Consolidated Financial Statements: Balance sheets as of December 31, 1999 and 1998........... F-25 Statements of income (loss) for the years ended December 31, 1999, 1998 and 1997................................. F-26 Statements of comprehensive income (loss) for the years ended December 31, 1999, 1998 and 1997.................. F-27 Statements of stockholders' equity for the years ended December 31, 1999, 1998 and 1997........................ F-28 Statements of cash flows for the years ended December 31, 1999, 1998 and 1997..................................... F-31 Notes to supplemental consolidated financial statements... F-32 Consolidated Condensed Financial Statements (unaudited): Balance sheets as of March 31, 2000 and December 31, 1999...................................................... F-63 Statements of income (loss) for the three months ended March 31, 2000 and 1999................................. F-64 Statements of comprehensive income (loss) for the three months ended March 31, 2000 and 1999.................... F-65 Statement of stockholders' equity for the three months ended March 31, 2000.................................... F-66 Statements of cash flows for the three months ended March 31, 2000 and 1999....................................... F-67 Notes to consolidated condensed financial statements...... F-68
F-1
PAGE NO. -------- Report of Independent Certified Public Accountants.......... F-77 Independent Auditor's Report to the Members of Morgan & Banks Limited............................................. F-78 Report of Independent Certified Public Accountants (with respect to LAI Worldwide, Inc.)........................... F-79 Consolidated Financial Statements: Balance sheets as of December 31, 1999 and 1998........... F-80 Statements of operations for the years ended December 31, 1999, 1998 and 1997..................................... F-81 Statements of comprehensive income (loss) for the years ended December 31, 1999, 1998 and 1997.................. F-82 Statements of stockholders' equity for the years ended December 31, 1999, 1998 and 1997........................ F-83 Statements of cash flows for the years ended December 31, 1999, 1998 and 1997..................................... F-86 Notes to consolidated financial statements................ F-87
BAUMGARTNER & PARTNER PERSONALBERATUNG GMBH Independent Auditors' Report................................ F-117 Balance sheet as of December 31, 1999....................... F-118 Statement of income for the year ended December 31, 1999.... F-119 Statement of stockholders' equity for the year ended December 31, 1999......................................... F-120 Statement of comprehensive income (loss) for the year ended December 31, 1999......................................... F-121 Statement of cash flows for the year ended December 31, 1999...................................................... F-122 Notes to financial statements............................... F-123 QD GROUP LIMITED Consolidated profit and loss account for the three months ended 31 March 2000 and 31 March 1999 (unaudited)......... F-127 Consolidated balance sheet as at 31 March 2000 and 31 March 1999 (unaudited).......................................... F-128 Consolidated cash flow statement for the three months ended 31 March 2000 and 31 March 1999 (unaudited)............... F-129 Notes to the financial statements (unaudited)............... F-130 Auditors' report............................................ F-135 Consolidated profit and loss account for the year ended 30 September 1999 and 30 September 1998................... F-136 Consolidated balance sheet as at 30 September 1999 and 30 September 1998......................................... F-137 Company balance sheet as at 30 September 1999 and 30 September 1998......................................... F-138 Consolidated cash flow statement as at 30 September 1999 and 30 September 1998......................................... F-139 Notes to the accounts....................................... F-140
F-2 PRO FORMA CONDENSED CONSOLIDATED INFORMATION (UNAUDITED)
PAGE NO. -------- Pro forma condensed consolidated balance sheet as of March 31, 2000.................................................. F-158 Pro forma condensed consolidated statement of income (loss) for the three months ended March 31, 2000................. F-159 Pro forma condensed consoldiated statement of income (loss) for the year ended December 31, 1999...................... F-160
F-3 TMP WORLDWIDE INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED CONDENSED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
MARCH 31, 2000 ---------- ASSETS Current assets: Cash and cash equivalents................................. $ 520,531 Accounts receivable, net.................................. 511,670 Work-in-process........................................... 23,321 Prepaid and other......................................... 82,058 ---------- Total current assets.................................. 1,137,580 Property and equipment, net................................. 87,379 Intangibles, net............................................ 341,085 Deferred income taxes....................................... 26,742 Other assets................................................ 12,191 ---------- $1,604,977 ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 281,964 Accrued expenses and other current liabilities............ 210,944 Accrued integration and restructuring costs............... 25,237 Deferred commissions and fees............................. 85,536 Current portion of long term debt......................... 8,863 ---------- Total current liabilities............................. 612,544 Long term debt, less current portion........................ 19,956 Other long-term liabilities................................. 56,741 ---------- Total liabilities..................................... 689,241 ---------- Minority interests.......................................... 52 ---------- Stockholders' equity: Preferred stock, $.001 par value, authorized 800,000 shares; issued and outstanding: none.................... -- Common stock, $.001 par value, authorized 200,000,000 shares; issued and outstanding: 90,486,634 shares....... 90 Class B common stock, $.001 par value, authorized 39,000,000 shares; issued and outstanding: 4,762,000 shares.................................................. 5 Additional paid-in capital................................ 1,000,949 Other comprehensive loss.................................. (38,478) Deficit................................................... (46,882) ---------- Total stockholders' equity.................................. 915,684 ---------- $1,604,977 ==========
See accompanying notes to supplemental consolidated condensed financial statements. F-4 TMP WORLDWIDE INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------- 2000 1999 -------- -------- Commissions and fees........................................ $257,410 $191,522 -------- -------- Operating expenses: Salaries & related........................................ 146,025 114,931 Office & general.......................................... 61,185 53,466 Marketing & promotion..................................... 29,349 10,186 Merger & integration...................................... 8,674 4,687 Restructuring............................................. -- 2,789 Amortization of intangibles............................... 3,635 3,089 -------- -------- Total operating expenses................................ 248,868 189,148 -------- -------- Operating income............................................ 8,542 2,374 -------- -------- Other income (expense): Interest income (expense), net............................ 1,794 (3,503) Other, net................................................ (87) (170) -------- -------- 1,707 (3,673) -------- -------- Income (loss) before provision (benefit) for income taxes, minority interests and equity in losses of affiliates..... 10,249 (1,299) Provision (benefit) for income taxes........................ 7,280 (795) -------- -------- Income (loss) before minority interests and equity in losses of affiliates............................................. 2,969 (504) Minority interests.......................................... (81) 99 Equity in losses of affiliates.............................. -- (100) -------- -------- Net income (loss) applicable to common and Class B common stockholders.............................................. $ 3,050 $ (703) ======== ======== Net income (loss) per common and Class B common share: Basic..................................................... $ 0.03 $ (0.01) ======== ======== Diluted................................................... $ 0.03 $ (0.01) ======== ======== Weighted average shares outstanding: Basic..................................................... 92,399 83,065 ======== ======== Diluted................................................... 100,315 83,065 ======== ========
See accompanying notes to supplemental consolidated condensed financial statements. F-5 TMP WORLDWIDE INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------- 2000 1999 -------- -------- Net income (loss)........................................... $ 3,050 $ (703) Foreign currency translation adjustment..................... (33,579) 2,270 -------- ------ Comprehensive income (loss)................................. $(30,529) $1,567 ======== ======
See accompanying notes to supplemental consolidated condensed financial statements. F-6 TMP WORLDWIDE INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
CLASS B COMMON STOCK, COMMON STOCK, $.001 PAR VALUE $.001 PAR VALUE ADDITIONAL OTHER TOTAL --------------------- -------------------- PAID-IN COMPREHENSIVE STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL LOSS DEFICIT EQUITY ---------- -------- --------- -------- ---------- ------------- -------- ------------- Balance, January 1, 2000... 81,359,671 $81 4,762,000 $ 5 $ 367,857 $ (4,899) $(45,257) $317,787 Issuance of common stock in connection with a pubic offering completed February 2, 2000......... 8,000,000 8 -- -- 594,230 -- -- 594,238 Issuance of common stock in connection with the exercise of options...... 788,142 1 -- -- 12,329 -- -- 12,330 Tax benefit from the exercise of stock options.................. -- -- -- -- 5,443 -- -- 5,443 Issuance of common stock in connection with acquisitions............. 323,387 -- -- -- 19,994 -- -- 19,994 Issuance of common stock for matching contribution to 401(k) plan........... 15,434 -- -- -- 1,096 -- -- 1,096 Foreign currency translation adjustment... -- -- -- -- -- (33,579) -- (33,579) Pooled company earnings included in both current and previous periods..... -- -- -- -- -- -- (285) (285) Dividends declared by pooled companies......... -- -- -- -- -- -- (4,390) (4,390) Net income................. -- -- -- -- -- -- 3,050 3,050 ---------- --- --------- --- ---------- -------- -------- -------- Balance, March 31, 2000.... 90,486,634 $90 4,762,000 $ 5 $1,000,949 $(38,478) $(46,882) $915,684 ========== === ========= === ========== ======== ======== ========
See accompanying notes to supplemental consolidated condensed financial statements. F-7 TMP WORLDWIDE INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, --------------------- 2000 1999 --------- --------- Cash flows from operating activities: Net income (loss)......................................... $ 3,050 $ (703) --------- --------- Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization........................... 14,210 10,546 Provision for doubtful accounts......................... 7,061 1,401 Common stock issued for matching contribution to 401(k) plan.................................................. 1,096 902 (Gain) loss on disposal & write-down of fixed assets.... (26) 1,060 Provision for deferred income taxes..................... 3,003 (1,927) Minority interests and other............................ (408) 679 Effect of pooled companies included in more than one period................................................ (285) (4,881) Changes in assets and liabilities, net of effects of purchases of businesses: Increase in accounts receivable, net.................. (57,944) (23,879) (Increase) decrease in work-in-process, prepaid and other............................................... (11,823) 3,392 Increase in deferred commissions and fees............. 12,838 2,513 Decrease in accounts payable and accrued liabilities......................................... (28,134) (2,126) --------- --------- Total adjustments....................................... (60,412) (12,320) --------- --------- Net cash used in operating activities................. (57,362) (13,023) --------- --------- Cash flows from investing activities: Capital expenditures.................................... (18,394) (10,125) Other................................................... 140 (18) Payments for purchases of businesses, net of cash acquired.............................................. (12,091) (12,030) --------- --------- Net cash used in investing activities................. (30,345) (22,173) --------- --------- Cash flows from financing activities: Borrowings under line of credit and proceeds from issuance of debt...................................... 117,662 324,647 Repayments under line of credit and principal payments on debt............................................... (173,960) (311,946) Net proceeds from issuance of common stock.............. 594,238 1,440 Cash received from the exercise of employee stock options............................................... 12,330 5,939 Other................................................... 295 30 Redemption of preferred stock........................... -- (2,000) Dividends paid by pooled entities....................... (4,390) (3,236) Payments on capitalized leases.......................... (1,073) (1,093) --------- --------- Net cash provided by financing activities............. 545,102 13,781 --------- --------- Effect of exchange rate changes on cash..................... (1,463) 670 --------- --------- Net increase (decrease) in cash and cash equivalents........ 455,932 (20,745) Cash and cash equivalents, beginning of period.............. 64,599 79,868 --------- --------- Cash and cash equivalents, end of period.................... $ 520,531 $ 59,123 ========= =========
See accompanying notes to supplemental consolidated condensed financial statements. F-8 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 1--BASIS OF PRESENTATION The supplemental consolidated condensed interim financial statements included herein have been prepared by TMP Worldwide Inc. ("TMP" or the "Company") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These statements reflect all adjustments, consisting of normal recurring adjustments that, in the opinion of management, are necessary for fair presentation of the information contained herein. It is suggested that these supplemental consolidated condensed financial statements be read in conjunction with (i) the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999 and (ii) the supplemental consolidated financial statements included elsewhere herein. The Company follows the same accounting policies in preparation of interim reports. During the period of January 1, 2000 through March 31, 2000, the Company consummated mergers with the following companies in transactions that provided for the exchange of all of the outstanding stock of each entity for a total of 1,699,123 shares of TMP common stock. Such transactions were accounted for as poolings of interests (the "First Quarter 2000 Mergers"):
NUMBER OF ENTITY BUSINESS SEGMENT ACQUISITION DATE TMP SHARES ISSUED ------ --------------------------------- ----------------- ----------------- HW Group PLC................... Selection & Temporary Contracting February 16, 2000 715,769 Microsurf, Inc................. Interactive February 16, 2000 684,462 Burlington Wells, Inc.......... Selection & Temporary Contracting February 29, 2000 52,190 Illsley Bourbonnais............ Executive Search March 1, 2000 246,702
During the period of April 1, 2000 through June 30, 2000, the Company consummated mergers with the following companies in transactions that provided for the exchange of all of the outstanding stock of each entity for a total of 3,117,169 shares of TMP common stock. Such transactions were accounted for as poolings of interests (the "Second Quarter 2000 Mergers"):
NUMBER OF ENTITY BUSINESS SEGMENT ACQUISITION DATE TMP SHARES ISSUED ------ --------------------------------- ----------------- ----------------- System One Services, Inc....... Selection & Temporary Contracting April 3, 2000 1,022,257 GTR Advertising................ Recruitment Advertising April 4, 2000 54,041 Virtual Relocation.com, Inc.... Interactive May 9, 2000 947,916 Business Technologies Ltd...... Interactive May 17, 2000 205,703 Simpatix, Inc.................. Interactive May 31, 2000 152,500 Rollo Associates, Inc.......... Executive Search May 31, 2000 110,860 Web Technology Partners, Inc.......................... Interactive May 31, 2000 623,892
F-9 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 1--BASIS OF PRESENTATION (CONTINUED) The Company's consolidated financial statements have been retroactively restated as of March 31, 2000 and 1999 and for the three months ended March 31, 2000 and 1999 to reflect the Second Quarter 2000 Mergers. As a result, the financial position, and statements of income (loss), comprehensive income (loss) and cash flows are presented as if the combining companies had been consolidated for all periods presented. In addition, the consolidated statements of stockholders' equity reflect the accounts of TMP as if the additional common stock issued in connection with with these mergers had been issued for all periods when each of the related companies had issued their shares and for the amounts that reflect the exchange ratios of the mergers. In accordance with generally accepted accounting principles, the supplemental consolidated financial statements will become the historical financial statements of the Company upon issuance of the financial statements for the period that includes the consummation of the Second Quarter 2000 Mergers. The results of Illsley Bourbonnais for the month ended January 31, 2000 are included in both the supplemental consolidated statement of income (loss) for the year ended December 31, 1999 and in the supplemental consolidated condensed statement of income (loss) for the three months ended March 31, 2000. Therefore the following amounts have been included in both periods: (a) commissions and fees of $1,019 and (b) net income of $285, with no impact on earnings per share. Additionally, due to immateriality, the results of Business Technologies Ltd. ("BTL") for the period August 1, 1999 through December 31, 1999 have not been included in the supplemental consolidated statement of income (loss) for the year ended December 31, 1999 because the results of BTL for its fiscal year ended July 31, 1999 were included in the supplemental consolidated condensed statement of income (loss) for the year ended December 31, 1999, including commissions and fees of $314 and net income $50. BTL's results for the three months ended March 31, 2000 were included in the supplemental consolidated condensed statement of income (loss) for the three months ended March 31, 2000. In addition, the results of HW Group Ltd., for the three months ended March 31, 1999 are included in the supplemental consolidated statements of income (loss) in both years ended December 31, 1999 and 1998, and the effects on both periods on (a) commissions and fees was $11,075, (b) net income was $1,893 and (c) diluted earnings per share was $0.02. In addition, for the period April 1, 1999 through March 31, 2000 the Company completed 22 acquisitions using the purchase method of accounting. Given the significant number of acquisitions affecting the periods presented, the results of operations from period to period may not necessarily be comparable. Furthermore, results of operations for the interim periods are not necessarily indicative of annual results. F-10 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 1--BASIS OF PRESENTATION (CONTINUED) Amounts charged to clients for Temporary Contracting services are reported net of the costs paid to the temporary contractor. The details for such amounts are:
THREE MONTHS ENDED MARCH 31, ------------------- 2000 1999 -------- -------- Temporary Contracting revenue........................... $121,571 $107,709 Temporary Contracting costs............................. 95,943 87,245 -------- -------- Temporary Contracting, billings and commissions and fees.................................................. $ 25,628 $ 20,464 ======== ========
On January 27, 2000, in connection with its third public offering, the Company issued an aggregate of, on a post-split basis, 8,000,000 shares of common stock at a purchase price of $77 5/16 per share. The offering was completed in February 2000. The net proceeds from this offering were $594.2 million, and approximately $82 million was used to pay down debt on the Company's credit line. The remainder is being invested in short and medium term interest bearing instruments until used for acquisitions, strategic equity investments and general corporate purposes. Basic earnings per share assumes no dilution, and is computed by dividing income available to common and Class B common stockholders by the weighted average number of common and Class B common shares outstanding during each period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the effect of common shares issuable upon exercise of stock options and warrants, and contingent shares, based on the treasury stock method of computing such effects. A reconciliation of shares used in calculating basic and diluted earnings per common and Class B common share follows:
THREE MONTHS ENDED MARCH 31, ------------------- 2000 1999 -------- -------- (IN THOUSANDS) Basic..................................................... 92,399 83,065 Effect of assumed conversion of options................... 7,916 * ------- ------- Diluted................................................... 100,315 83,065 ======= =======
------------------------ * Effect of the conversion of stock options is anti-dilutive. The number of options is approximately 3,755. NOTE 2--NATURE OF BUSINESS AND CREDIT RISK The Company operates in five business segments: Interactive (including Monster.com-SM- and MonsterMoving.com-SM-), Recruitment Advertising, Selection & Temporary Contracting, Executive Search and Yellow Page Advertising, which now also includes full service interactive advertising and marketing technology services through IN2. The Company's commissions and fees are earned from the following F-11 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 2--NATURE OF BUSINESS AND CREDIT RISK (CONTINUED) activities: (i) advertisements placed on its career and other websites, (ii) resume and other database access, (iii) executive placement services, (iv) mid-level employee selection and temporary contracting services, (v) selling and placing recruitment advertising and related services, (vi) resume screening services and (vii) selling and placing Yellow Page Advertising and related services. These services are provided to a large number of customers in many different industries. The Company operates principally throughout North America, the United Kingdom, Continental Europe and the Asia-Pacific Region (primarily Australia and New Zealand). NOTE 3--BUSINESS COMBINATIONS ACQUISITIONS ACCOUNTED FOR USING THE POOLING OF INTERESTS METHOD During the period of April 1, 2000 through June 30, 2000, the Company completed the following mergers which provided for the exchange of all of the outstanding stock of each entity for a total of 3,117,169 shares of TMP common stock. Such transactions were accounted for as poolings of interests.
NUMBER OF TMP ENTITY BUSINESS SEGMENT GEOGRAPHIC REGION ACQUISITION DATE SHARES ISSUED ------ --------------------- ----------------- ------------------ ------------- System One Services, Inc.................... Selection & Temporary North America April 3, 2000 1,022,257 Contracting GTR Advertising.......... Recruitment North America April 4, 2000 54,041 Advertising Virtual Relocation.com, Interactive North America May 9, 2000 947,916 Inc.................... Business Technologies Ltd.................... Interactive United Kingdom May 17, 2000 205,703 Simpatix, Inc............ Interactive North America May 31, 2000 152,500 Rollo Associates, Inc.... Executive Search North America May 31, 2000 110,860 Web Technology Partners, Inc.................... Interactive North America May 31, 2000 623,892
F-12 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 3--BUSINESS COMBINATIONS (CONTINUED) Commissions and fees, net income (loss) applicable to common and Class B common stockholders and net income (loss) per common and Class B common share of the combining companies are as follows:
THREE MONTHS ENDED MARCH 31, ------------------- 2000 1999 -------- -------- COMMISSIONS AND FEES: TMP, as previously reported on Form 10-Q for the period ended March 31 $244,003 $182,059 System One Services, Inc.................................. 9,431 7,017 GTR Advertising........................................... 799 787 Virtual Relocation.com, Inc............................... 663 155 Business Technologies Ltd................................. 244 197 Simpatix, Inc............................................. 111 (11) Rollo Associates, Inc..................................... 812 767 Web Technology Partners, Inc.............................. 1,347 551 -------- -------- TMP, as restated............................................ $257,410 $191,522 ======== ======== NET INCOME (LOSS) APPLICABLE TO COMMON AND CLASS B COMMON STOCKHOLDERS: TMP, as previously reported on Form 10-Q for the period ended March 31 $ 7,386 $ (46) System One Services, Inc.................................. (2,684) (689) GTR Advertising........................................... 126 147 Virtual Relocation.com, Inc............................... (2,402) (359) Business Technologies Ltd................................. 74 29 Simpatix, Inc............................................. (114) (149) Rollo Associates, Inc..................................... 417 271 Web Technology Partners, Inc.............................. 247 93 -------- -------- TMP, as restated............................................ $ 3,050 $ (703) ======== ======== NET INCOME (LOSS) PER COMMON AND CLASS B COMMON SHARE: Basic TMP, as previously reported on Form 10-Q for the period ended March 31............................................ $ 0.08 $ -- TMP, as restated............................................ $ 0.03 $ (0.01) Diluted TMP, as previously reported on Form 10-Q for the period ended March 31............................................ $ 0.08 $ -- TMP, as restated............................................ $ 0.03 $ (0.01)
MERGER & INTEGRATION COSTS INCURRED WITH POOLING OF INTERESTS TRANSACTIONS Merger and integration costs are expenses incurred in connection with business combinations accounted for under the pooling of interests method of accounting. In general, merger costs are comprised of transaction costs (such as advisory, legal and accounting fees, printing costs and costs incurred for the subsequent registration of shares in connection with the transactions) and stay bonuses. Integration costs F-13 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 3--BUSINESS COMBINATIONS (CONTINUED) are those associated with the elimination of redundant facilities and personnel, integration of the operations of the pooled entities and acceleration of benefits and separation pay in accordance with pre-existing contractual change in control provisions. In connection with pooling of interests transactions completed prior to March 31, 2000, the Company expensed merger and integration costs of $8,674. Of this amount $3,607 is for merger costs and $5,067 is for integration costs. The merger costs for the period ended March 31, 2000 consist of (a) $2,323 of non- cash employee stay bonuses and (b) $1,284 of transaction related costs, including legal, accounting, printing and advisory fees and the costs incurred for the subsequent registration of shares issued in the acquisitions. The $5,067 of integration costs consist of: (a) $2,544 for assumed obligations of closed facilities, (b) $2,871 for consolidation of acquired facilities and (c) $121 for severance, relocation and other employee costs, partially offset by a $469 recovery of a reserve for receivables. See schedule of Accrued Integration and Restructuring Costs in the section below. During the three months ended March 31, 1999, the Company expensed merger and integration costs of $4,687 which were related to the pooling of interests transactions with Johnson, Smith & Knisely Inc., The Consulting Group (International) Limited, and Morgan & Banks Limited, and are comprised of transactions costs and the amortization of employee stay bonuses. ACQUISITIONS ACCOUNTED FOR USING THE PURCHASE METHOD In addition to the pooling of interests transactions discussed above, in the three month period ended March 31, 2000, the Company completed four acquisitions using the purchase method of accounting, two Selection & Temporary Contracting firms and two Recruitment Advertising firms. The total amount of cash paid for these acquisitions was approximately $14.4 million. In addition, the Company issued 247,098 shares of common stock in connection with certain of the above mentioned acquisitions. Operations of these businesses have been included in the consolidated financial statements from their acquisition dates. The summarized unaudited pro forma results of operations set forth below for the three month periods ended March 31, 2000 and 1999 and the year ended December 31, 1999 assume the acquisitions in 2000 and 1999 occurred as of the beginning of the year of acquisition and the beginning of the preceding year.
THREE MONTHS ENDED YEAR ENDED MARCH 31, DECEMBER 31, ------------------- ------------ 2000 1999 1999 -------- -------- ------------ Commissions and fees........................................ $258,540 $204,670 $907,657 Net income (loss) applicable to common and Class B common stockholders.............................................. $ 3,163 $ 238 $ (6,245) Net income (loss) per common and Class B common share: Basic..................................................... $ 0.03 $ -- $ (0.08) Diluted................................................... $ 0.03 $ -- $ (0.08)
F-14 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 3--BUSINESS COMBINATIONS (CONTINUED) The unaudited pro forma results of operations are not necessarily indicative of what actually would have occurred if the acquisitions had been completed at the beginning of each of the periods presented, nor are the results of operations necessarily indicative of the results that will be attained in the future. ACCRUED INTEGRATION AND RESTRUCTURING COSTS In connection with its acquisitions, the Company formulated plans to integrate the operations of the acquired companies. Such plans involve the closure of certain offices of such companies and the elimination of redundant management and employees. The objectives of the plans are to take advantage of the Company's existing operating infrastructure and efficiencies or to develop efficiencies from the infrastructure of the acquired companies, and to create a single brand in the related markets in which the Company operates. In connection with such plans, in the three months ended March 31, 2000, the Company (i) expensed, as part of merger and integration expenses, $5,067, for companies acquired in transactions accounted for as poolings of interests and (ii) increased goodwill by $1,078 for companies acquired in transactions accounted for under the purchase method. In addition, in 1999 LAI formulated plans to close its London, England and Hong Kong offices. In connection with these office closings, LAI charged earnings for the quarter ended March 31, 1999 for $2,789 and established restructuring reserves. These costs and liabilities include:
ADDITIONS DEDUCTIONS BALANCE --------------------- -------------------------- BALANCE DECEMBER 31, CHARGED TO APPLIED AGAINST MARCH 31, 1999 GOODWILL EXPENSED RELATED ASSET PAYMENTS 2000 ------------ ---------- -------- --------------- -------- --------- Assumed obligations on closed leased facilities........................ $ 9,564 $ -- $2,544 $ -- $(1,408) $10,700(a) Consolidation of acquired facilities........................ 8,715 141 2,871 -- (927) 10,800(b) Contracted lease payments exceeding current market costs.............. 562 -- -- -- (33) 529(c) Severance, relocation and other employee costs.................... 954 937 121 -- (462) 1,550(d) Provision for uncollectible receivables....................... -- -- (469) 469 -- -- Pension obligations................. 1,658 -- -- -- -- 1,658(e) ------- ------ ------ ---- ------- ------- Total............................... $21,453 $1,078 $5,067 $469 $(2,830) $25,237 ======= ====== ====== ==== ======= =======
------------------------ (a) Accrued liabilities for surplus property in the amount of $10,700 as of March 31, 2000 relate to leased office locations of acquired companies that were either unutilized prior to the acquisition date or will be closed by December 31, 2000 in connection with the restructuring plans. The amount is based on the present value of minimum future lease obligations, net of estimated sublease income. F-15 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 3--BUSINESS COMBINATIONS (CONTINUED) (b) Other costs associated with the closure or consolidation of existing offices of acquired companies in the amount of $10,800 as of March 31, 2000 relate to termination costs of contracts relating to billing systems, external reporting systems and other contractual arrangements with third parties. (c) Above market lease costs in the amount of $529 as of March 31, 2000 relate to the present value of contractual lease payments in excess of current market lease rates. (d) Estimated employee severance and relocation expenses and other employee costs in the amount of $1,550 as of March 31, 2000 relate to estimated severance for terminated employees at closed locations, costs associated with employees transferred to continuing offices and other related costs. Employee groups affected include sales, service, administrative and management personnel at duplicate locations as well as redundant management and administrative personnel at corporate headquarters. As of March 31, 2000, the accrual related to approximately 50 employees, senior management, sales, service and administrative personnel. During the quarter ended March 31, 2000, payments of $462 were made for severance and charged against the reserve. (e) Pension obligations in the amount of $1,658 were assumed in connection with the acquisition of Austin Knight. The Company continues to evaluate and assess the impact of duplicate responsibilities and office locations. Pursuant to the conclusions reached by the Emerging Issues Task Force ("EITF") of the FASB in EITF Issues No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)," and No. 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination," in connection with the finalization of preliminary plans relating to purchased entities, additions to restructuring reserves within one year of the date of acquisition are treated as additional purchase price but costs incurred resulting from plan revisions made after the first year will be charged to operations in the period in which they occur. F-16 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 4--SEGMENT AND GEOGRAPHIC DATA The Company is engaged in five lines of business based primarily on the reporting of senior management to the Chief Operating Officer: Interactive (including Monster.com(sm) and Monster Moving.com(sm)), Recruitment Advertising, Selection & Temporary Contracting, Executive Search and Yellow Page Advertising, which now also includes full service interactive advertising services provided by IN2. Operations are conducted in several geographic regions: North America, the Asia-Pacific Region (primarily Australia and New Zealand), the United Kingdom and Continental Europe. The following is a summary of the Company's operations by business segment and by geographic region, for the three months ended March 31, 2000 and 1999. Overhead is allocated based on retroactively restated commissions and fees.
INTERACTIVE SELECTION & YELLOW ---------------------------------------- RECRUITMENT TEMPORARY EXECUTIVE PAGE INFORMATION BY BUSINESS SEGMENT MONSTER.COM(SM) MONSTER MOVING.COM(SM) ADVERTISING CONTRACTING SEARCH ADVERTISING ------------------------------- --------------- ---------------------- ----------- ----------- --------- ----------- Three months ended March 31, 2000 Commissions and fees: Traditional sources.......... $ -- $ -- $46,513 $77,816 $39,007 $23,300 Interactive.................. 58,061 2,073 5,782 2,468 -- 2,390 ------- ------- ------- ------- ------- ------- Total commissions and fees... 58,061 2,073 52,295 80,284 39,007 25,690 ------- ------- ------- ------- ------- ------- Operating expenses: Salaries & related, office & general, marketing & promotion, and overhead.... -- -- 40,467 77,950 38,241 17,820 Interactive (a).............. 48,288 4,609 4,816 1,820 -- 2,548 Merger & integration......... -- 75 143 5,739 2,533 184 Amortization of intangibles................ 60 7 1,277 933 274 1,084 ------- ------- ------- ------- ------- ------- Total operating expenses....... 48,348 4,691 46,703 86,442 41,048 21,636 ------- ------- ------- ------- ------- ------- Operating income (loss): Traditional sources.......... -- -- 4,626 (6,806) (2,041) 4,212 Interactive.................. 9,713 (2,618) 966 648 -- (158) ------- ------- ------- ------- ------- ------- Total operating income (loss)....................... $ 9,713 $(2,618) $ 5,592 $(6,158) $(2,041) $ 4,054 ======= ======= ======= ======= ======= ======= Total other income, net........ * * * * * * Income before provision for income taxes, minority interests and equity in losses of affiliates......... * * * * * * INFORMATION BY BUSINESS SEGMENT TOTAL ------------------------------- -------- Three months ended March 31, 2000 Commissions and fees: Traditional sources.......... $186,636 Interactive.................. 70,774 -------- Total commissions and fees... 257,410 -------- Operating expenses: Salaries & related, office & general, marketing & promotion, and overhead.... 174,478 Interactive (a).............. 62,081 Merger & integration......... 8,674 Amortization of intangibles................ 3,635 -------- Total operating expenses....... 248,868 -------- Operating income (loss): Traditional sources.......... (9) Interactive.................. 8,551 -------- Total operating income (loss)....................... 8,542 Total other income, net........ 1,707 -------- Income before provision for income taxes, minority interests and equity in losses of affiliates......... $ 10,249 ========
------------------------------ (a) Is comprised of salaries & related, office & general, marketing & promotion and allocated overhead. * Not allocated. F-17 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 4--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
INTERACTIVE SELECTION & YELLOW ---------------------------------------- RECRUITMENT TEMPORARY EXECUTIVE PAGE INFORMATION BY BUSINESS SEGMENT MONSTER.COM(SM) MONSTERMOVING.COM(SM) ADVERTISING CONTRACTING SEARCH ADVERTISING ------------------------------- --------------- ---------------------- ----------- ----------- --------- ----------- Three months ended March 31, 1999 Commissions and fees: Traditional sources.......... $ -- $ -- $46,425 $57,433 $ 41,513 $23,795 Interactive.................. 16,446 1,081 2,826 1,322 -- 681 ------- ------ ------- ------- -------- ------- Total commissions and fees..... 16,446 1,081 49,251 58,755 41,513 24,476 ------- ------ ------- ------- -------- ------- Operating expenses: Salaries & related, office & general, marketing & promotion, and overhead.... -- -- 38,145 52,600 49,250 15,905 Interactive (a).............. 17,980 1,475 1,623 1,073 -- 532 Merger & integration......... -- -- 79 2,483 2,125 -- Restructuring................ -- -- -- -- 2,789 -- Amortization of intangibles................ 58 3 1,693 489 210 636 ------- ------ ------- ------- -------- ------- Total operating expenses....... 18,038 1,478 41,540 56,645 54,374 17,073 ------- ------ ------- ------- -------- ------- Operating income (loss): Traditional sources.......... -- -- 6,508 1,861 (12,861) 7,254 Interactive.................. (1,592) (397) 1,203 249 -- 149 ------- ------ ------- ------- -------- ------- Total operating income (loss)....................... $(1,592) $ (397) $ 7,711 $ 2,110 $(12,861) $ 7,403 ======= ====== ======= ======= ======== ======= Total other expense, net....... : * * * * * Loss before (benefit) for income taxes, minority interests and equity in losses of affiliates......... * * * * * * INFORMATION BY BUSINESS SEGMENT TOTAL ------------------------------- -------- Three months ended March 31, 1999 Commissions and fees: Traditional sources.......... $169,166 Interactive.................. 22,356 -------- Total commissions and fees..... 191,522 -------- Operating expenses: Salaries & related, office & general, marketing & promotion, and overhead.... 155,900 Interactive (a).............. 22,683 Merger & integration......... 4,687 Restructuring................ 2,789 Amortization of intangibles................ 3,089 -------- Total operating expenses....... 189,148 -------- Operating income (loss): Traditional sources.......... 2,762 Interactive.................. (388) -------- Total operating income (loss)....................... 2,374 Total other expense, net....... (3,673) -------- Loss before (benefit) for income taxes, minority interests and equity in losses of affiliates......... $ (1,299) ========
------------------------------ (a) Is comprised of salaries & related, office & general, marketing & promotion and allocated overhead. * Not allocated. F-18 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 4--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
ASIA- UNITED CONTINENTAL INFORMATION BY GEOGRAPHIC REGION NORTH AMERICA PACIFIC KINGDOM EUROPE TOTAL -------------------------------- ------------- -------- -------- ----------- -------- Three months ended March 31, 2000 Commissions and fees................... $147,486 $42,601 $37,017 $30,306 $257,410 Income (loss) before income taxes, minority interests and equity in losses of affiliates................. $ 7,966 $ 3,458 $(4,897) $ 3,722 $ 10,249 Three months ended March 31, 1999 Commissions and fees................... $103,124 $35,743 $32,467 $20,188 $191,522 Income (loss) before income taxes, minority interests and equity in losses of affiliates................. $(14,319) $ 3,172 $ 4,979 $ 4,869 $ (1,299)
NOTE 5--SUBSEQUENT EVENTS During May and June 2000, the Company entered into merger agreements whereby it acquired all of the outstanding shares of a mid-market Selection firm located in the Netherlands and MoveCentral, Inc., located in the U.S. and which will become part of MonsterMoving.com(sm). These transactions were completed using the purchase method of accounting, with the aggregate purchase price of $24.9 million paid with 51,906 shares and approximately $21.8 million in cash. F-19 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TMP Worldwide Inc. New York, New York We have audited the accompanying supplemental consolidated balance sheets of TMP Worldwide Inc. and Subsidiaries (the "Company") as of December 31, 1999 and 1998, and the related supplemental consolidated statements of income (loss), comprehensive income (loss), stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1999. The supplemental consolidated financial statements give retroactive effect to the mergers of the Company with HW Group PLC on February 16, 2000; Microsurf, Inc. on February 16, 2000; Burlington Wells, Inc. on February 29, 2000; Illsley Bourbonnais on March 1, 2000; System One Services, Inc. on April 3, 2000; GTR Advertising on April 4, 2000; Virtual Relocation.com, Inc. on May 9, 2000; Business Technologies Ltd. on May 17, 2000; Simpatix, Inc. on May 31, 2000; Rollo Associates, Inc. on May 31, 2000; and Web Technology Partners, Inc. on May 31, 2000, which have been accounted for as poolings of interests as described in Notes 1 and 5 to the supplemental consolidated financial statements. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Morgan & Banks Limited as of December 31, 1998 and for the years ended December 31, 1998 and March 31, 1998 which were combined with the Company's financial statements as of December 31, 1998 and for each of the two years in the period ended December 31, 1998, which financial statements reflect total assets of approximately $52.3 million as of December 31, 1998 and total commissions & fees of approximately $255.4 million and $235.8 million for the years ended December 31, 1998 and March 31, 1998, respectively. Those financial statements were audited by another auditor whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Morgan & Banks Limited, is based solely on the report of the other auditor. We did not audit the financial statements of LAI Worldwide, Inc. and subsidiaries as of February 28, 1999 and for each of the two years in the period ended February 28, 1999 which were combined with the Company's financial statements as of December 31, 1998 and for each of the two years in the period ended December 31, 1998, which financial statements reflect total assets of approximately $103.8 million as of February 28, 1999 and total commissions & fees of approximately $61.8 million and $86.8 million for each of the two years in the period ended February 28, 1999, respectively. Those financial statements were audited by another auditor whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for LAI Worldwide, Inc. and subsidiaries, is based solely on the report of the other auditor. We did not audit the consolidated financial statements of System One Services, Inc. and subsidiaries as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999 which were combined with the Company's financial statements as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999, which financial statements reflect total assets of approximately $56.6 million and $46.6 million as of December 31, 1999 and 1998 and total commissions and fees of $15.5 million, $23.2 million and $33.6 million for each of the three years in the period ended December 31, 1999. Those financial statements were audited by another auditor whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for System One Services, Inc. and subsidiaries is based solely on the report of the other auditor. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. F-20 In our opinion, based on our audits and the reports of the other auditors, the supplemental consolidated financial statements referred to above present fairly, in all material respects, the financial position of TMP Worldwide Inc. and Subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, after giving retroactive effect to the mergers referred to above, in conformity with generally accepted accounting principles. /s/ BDO SEIDMAN, LLP --------------------------------------------------------------------------- BDO SEIDMAN, LLP New York, New York June 26, 2000 F-21 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. /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
F-22 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To LAI Worldwide, Inc.: We have audited the consolidated balance sheet of LAI Worldwide, Inc. (a Florida corporation) and subsidiaries as of February 28, 1999, and the related consolidated statements of operations, stockholders' equity, comprehensive income and cash flows for each of the two years in the period ended February 28, 1999 (not presented separately herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of LAI Worldwide, Inc. and subsidiaries as of February 28, 1999, and the results of their operations and their cash flows for each of the two years in the period ended February 28, 1999, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Tampa, Florida April 7, 1999 F-23 INDEPENDENT AUDITORS' REPORT To the Stockholders System One Services, Inc.: We have audited the consolidated balance sheets of System One Services, Inc. and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements (not presented separately herein) present fairly, in all material respects, the financial position of the Company as of December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Certified Public Accountants Tampa, Florida February 4, 2000 F-24 TMP WORLDWIDE INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31, --------------------- 1999 1998 ---------- -------- ASSETS Current assets: Cash and cash equivalents................................. $ 64,599 $ 79,868 Accounts receivable, net.................................. 462,595 380,240 Work-in-process........................................... 25,632 19,300 Prepaid and other......................................... 60,019 38,572 ---------- -------- Total current assets.................................... 612,845 517,980 Property and equipment, net................................. 80,839 81,986 Deferred income taxes....................................... 25,237 9,114 Intangibles, net............................................ 311,873 266,544 Other assets................................................ 22,434 20,057 ---------- -------- $1,053,228 $895,681 ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 364,951 $287,828 Accrued expenses and other current liabilities............ 134,838 117,165 Accrued integration and restructuring costs............... 21,453 16,747 Deferred commissions and fees............................. 72,298 15,736 Deferred income taxes..................................... -- 3,671 Current portion of long-term debt......................... 11,068 16,267 ---------- -------- Total current liabilities............................... 604,608 457,414 Long-term debt, less current portion........................ 100,098 146,722 Other long-term liabilities................................. 30,726 25,852 ---------- -------- Total liabilities......................................... 735,432 629,988 ---------- -------- Minority interests.......................................... 9 509 ---------- -------- Stockholders' equity: Preferred stock, $.001 par value, authorized 800,000 shares; issued and outstanding: none.................... -- -- Common stock, $.001 par value, authorized 200,000,000 shares; issued and outstanding: 81,359,671 and 77,231,265, shares, respectively........................ 81 77 Class B common stock, $.001 par value, authorized 39,000,000 shares; issued and outstanding: 4,762,000 shares.................................................. 5 5 Additional paid-in capital................................ 367,857 291,075 Other comprehensive loss.................................. (4,899) (3,627) Unamortized stock-based compensation...................... -- (2,732) Deficit................................................... (45,257) (19,614) ---------- -------- Total stockholders' equity.............................. 317,787 265,184 ---------- -------- $1,053,228 $895,681 ========== ========
See accompanying notes to supplemental consolidated financial statements. F-25 TMP WORLDWIDE INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME (LOSS) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Commissions and fees........................................ $869,207 $744,517 $610,762 -------- -------- -------- Operating expenses: Salaries & related........................................ 496,926 430,316 344,956 Office & general.......................................... 205,165 184,905 160,027 Marketing & promotion..................................... 74,647 29,737 13,665 Merger & integration...................................... 63,054 22,412 -- Restructuring............................................. 2,789 3,543 -- Amortization of intangibles............................... 12,532 11,070 6,913 CEO special bonus......................................... -- 1,250 1,500 -------- -------- -------- Total operating expenses.................................. 855,113 683,233 527,061 -------- -------- -------- Operating income............................................ 14,094 61,284 83,701 -------- -------- -------- Other income (expense): Interest expense.......................................... (21,288) (18,596) (14,523) Interest income........................................... 8,361 5,720 4,021 Other, net................................................ (2,906) (2,057) 814 -------- -------- -------- (15,833) (14,933) (9,688) -------- -------- -------- Income (loss) before provision for income taxes, minority interests and equity in losses of affiliates.............. (1,739) 46,351 74,013 Provision for income taxes.................................. 6,908 16,884 22,805 -------- -------- -------- Income (loss) before minority interests and equity in losses of affiliates............................................. (8,647) 29,467 51,208 Minority interests.......................................... 107 28 296 Equity in losses of unconsolidated affiliates............... (300) (396) (33) -------- -------- -------- Net income (loss)........................................... (9,054) 29,043 50,879 Preferred stock dividends................................... -- -- (123) -------- -------- -------- Net income (loss) applicable to common and Class B common stockholders.............................................. $ (9,054) $ 29,043 $ 50,756 ======== ======== ======== Net income (loss) per common and Class B common share: Basic..................................................... $ (0.11) $ 0.36 $ 0.67 ======== ======== ======== Diluted................................................... $ (0.11) $ 0.35 $ 0.66 ======== ======== ======== Weighted average shares outstanding: Basic..................................................... 84,250 81,638 75,857 ======== ======== ======== Diluted................................................... 84,250 83,494 77,134 ======== ======== ========
See accompanying notes to supplemental consolidated financial statements. F-26 TMP WORLDWIDE INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Net income (loss)........................................... $ (9,054) $29,043 $ 50,879 Foreign currency translation adjustment..................... (1,272) (2,343) (4,174) -------- ------- -------- Comprehensive income (loss)................................. $(10,326) $26,700 $(46,705) ======== ======= ========
See accompanying notes to supplemental consolidated financial statements. F-27 TMP WORLDWIDE INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
CLASS B COMMON STOCK, COMMON STOCK, $.001 PAR VALUE $.001 PAR VALUE ADDITIONAL OTHER UNAMORTIZED --------------------- --------------------- PAID-IN COMPREHENSIVE STOCK-BASED SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME (LOSS) COMPENSATION ---------- -------- ---------- -------- ---------- ------------- ------------ Balance, January 1, 1997........... 43,101,486 $43 29,575,082 $30 $128,503 $ 2,890 $ -- Issuance of common stock for purchase of minority interest in subsidiary.................. 123,696 -- -- -- 1,000 -- -- Issuance of common stock in connection with acquisitions... 367,394 -- -- -- 9,286 -- -- Conversion of Class B shares..... 2,400,000 3 (2,400,000) (3) Public offerings of pooled companies...................... 1,839,271 2 -- -- 26,717 -- -- Other issuance of common stock by pooled company................. 66,314 -- -- -- 4,307 -- -- Issuance of common stock......... 4,800,000 5 -- -- 51,164 -- -- Issuance of common stock in connection with the exercise of options........................ 209,242 -- -- -- 659 -- -- Tax benefit of stock options exercised...................... -- -- -- -- 175 -- -- Issuance of common stock for matching contribution to 401(k) plan........................... 87,096 -- -- -- 555 -- -- Capital contribution from Principal Stockholder re: CEO bonus and other................ -- -- -- -- 1,775 -- -- Foreign currency translation adjustment..................... -- -- -- -- -- (4,174) -- Dividends and redemption premium preferred stock................ -- -- -- -- -- -- -- Dividends declared by pooled companies...................... -- -- -- -- -- -- -- Net income....................... -- -- -- -- -- -- -- ---------- --- ---------- --- -------- ------- ---- Balance, December 31, 1997......... 52,994,499 $53 27,175,082 $27 $224,141 $(1,284) $ -- ========== === ========== === ======== ======= ==== TOTAL STOCKHOLDERS' DEFICIT EQUITY -------- ------------- Balance, January 1, 1997........... $(46,939) $ 84,527 Issuance of common stock for purchase of minority interest in subsidiary.................. -- 1,000 Issuance of common stock in connection with acquisitions... -- 9,286 Conversion of Class B shares..... -- Public offerings of pooled companies...................... -- 26,719 Other issuance of common stock by pooled company................. -- 4,307 Issuance of common stock......... -- 51,169 Issuance of common stock in connection with the exercise of options........................ -- 659 Tax benefit of stock options exercised...................... -- 175 Issuance of common stock for matching contribution to 401(k) plan........................... -- 555 Capital contribution from Principal Stockholder re: CEO bonus and other................ -- 1,775 Foreign currency translation adjustment..................... -- (4,174) Dividends and redemption premium preferred stock................ (123) (123) Dividends declared by pooled companies...................... (30,664) (30,664) Net income....................... 50,879 50,879 -------- -------- Balance, December 31, 1997......... $(26,847) $196,090 ======== ========
See accompanying notes to supplemental consolidated financial statements. F-28 TMP WORLDWIDE INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
CLASS B COMMON STOCK, COMMON STOCK, $.001 PAR VALUE $.001 PAR VALUE ADDITIONAL OTHER UNAMORTIZED --------------------- ---------------------- PAID-IN COMPREHENSIVE STOCK-BASED SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME (LOSS) COMPENSATION ---------- -------- ----------- -------- ---------- ------------- ------------ Balance, December 31, 1997........ 52,994,499 $53 27,175,082 $27 $224,141 $(1,284) $ -- Issuance of common stock in connection with the exercise of options.................... 419,898 1 -- -- 1,494 -- -- Tax benefit of stock options exercised..................... -- -- -- -- 407 -- -- Capital contribution from Principal Stockholder re: CEO bonus and other............... -- -- -- -- 1,250 -- -- Issuance of common stock in connection with acquisitions.................. 402,812 -- -- -- 5,546 -- -- Issuance of compensatory options....................... -- -- -- -- 295 -- -- Issuance of common stock by pooled companies.............. 1,005,712 1 -- -- 46,042 -- -- Repurchase and cancellation of common stock.................. (574,704) (1) -- -- (668) -- -- Conversion of Class B shares.... 22,413,082 22 (22,413,082) (22) -- -- -- Issuance of common stock for compensation.................. 515,420 1 -- -- 11,941 -- (3,308) Issuance of common stock for matching contribution to 401(k) plan................... 54,546 -- -- -- 627 -- -- Amortization of stock based compensation.................. -- -- -- -- -- -- 576 Pooled companies' earnings included in both current and previous years................ -- -- -- -- -- -- -- Pooled company's earnings, excluded from statement of operations.................... -- -- -- -- -- -- -- Foreign currency translation adjustment.................... -- -- -- -- -- (2,343) -- Dividends declared by pooled companies..................... -- -- -- -- -- -- -- Net income...................... -- -- -- -- -- -- -- ---------- --- ----------- --- -------- ------- ------- Balance, December 31, 1998........ 77,231,265 $77 4,762,000 $ 5 $291,075 $(3,627) $(2,732) ========== === =========== === ======== ======= ======= TOTAL STOCKHOLDERS' DEFICIT EQUITY -------- ------------- Balance, December 31, 1997........ $(26,847) $196,090 Issuance of common stock in connection with the exercise of options.................... -- 1,495 Tax benefit of stock options exercised..................... -- 407 Capital contribution from Principal Stockholder re: CEO bonus and other............... -- 1,250 Issuance of common stock in connection with acquisitions.................. -- 5,546 Issuance of compensatory options....................... -- 295 Issuance of common stock by pooled companies.............. -- 46,043 Repurchase and cancellation of common stock.................. -- (669) Conversion of Class B shares.... -- -- Issuance of common stock for compensation.................. -- 8,634 Issuance of common stock for matching contribution to 401(k) plan................... -- 627 Amortization of stock based compensation.................. -- 576 Pooled companies' earnings included in both current and previous years................ (3,182) (3,182) Pooled company's earnings, excluded from statement of operations.................... 873 873 Foreign currency translation adjustment.................... -- (2,343) Dividends declared by pooled companies..................... (19,501) (19,501) Net income...................... 29,043 29,043 -------- -------- Balance, December 31, 1998........ $(19,614) $265,184 ======== ========
See accompanying notes to supplemental consolidated financial statements. F-29 TMP WORLDWIDE INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
CLASS B COMMON STOCK, COMMON STOCK, $.001 PAR VALUE $.001 PAR VALUE ADDITIONAL OTHER UNAMORTIZED --------------------- --------------------- PAID-IN COMPREHENSIVE STOCK-BASED SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME (LOSS) COMPENSATION ---------- -------- ---------- -------- ---------- ------------- ------------ Balance, December 31, 1998......... 77,231,265 $77 4,762,000 $ 5 $291,075 $(3,627) $(2,732) Issuance of common stock in connection with the exercise of options........................ 2,230,990 2 -- -- 19,044 -- -- Tax benefit of stock options exercised...................... -- -- -- -- 11,869 -- -- Issuance of common stock in connection with acquisitions... 928,619 1 -- -- 24,275 -- -- Issuance of compensatory options........................ -- -- -- -- 680 -- -- Issuance of common stock for matching contribution to 401(k) plan........................... 42,954 -- -- -- 902 -- -- Forfeiture of stock-based compensation due to departure of employees of pooled entity......................... -- -- -- -- (1,033) -- 1,033 Issuance of common stock for employee stay bonuses.......... 462,772 1 -- -- 7,048 -- -- Issuance of common stock for purchase of minority interest....................... 38,862 -- -- -- 1,210 -- -- Tax benefit in connection with taxable pooling of interests... -- -- -- -- 6,400 -- -- Public offering of shares........ 424,209 -- -- -- 6,387 -- -- Accelerated vesting of stock based compensation............. -- -- -- -- -- -- 1,699 Pooled companies' losses included in both current and previous years.......................... -- -- -- -- -- -- -- Foreign currency translation adjustment..................... -- -- -- -- -- (1,272) -- Dividends declared by pooled companies...................... -- -- -- -- -- -- -- Net loss......................... -- -- -- -- -- -- -- ---------- --- ---------- --- -------- ------- ------- Balance, December 31, 1999......... 81,359,671 $81 4,762,000 $ 5 $367,857 $(4,899) $ --- ========== === ========== === ======== ======= ======= TOTAL STOCKHOLDERS' DEFICIT EQUITY -------- ------------- Balance, December 31, 1998......... $(19,614) $265,184 Issuance of common stock in connection with the exercise of options........................ -- 19,046 Tax benefit of stock options exercised...................... -- 11,869 Issuance of common stock in connection with acquisitions... -- 24,276 Issuance of compensatory options........................ -- 680 Issuance of common stock for matching contribution to 401(k) plan........................... -- 902 Forfeiture of stock-based compensation due to departure of employees of pooled entity......................... -- -- Issuance of common stock for employee stay bonuses.......... -- 7,049 Issuance of common stock for purchase of minority interest....................... -- 1,210 Tax benefit in connection with taxable pooling of interests... -- 6,400 Public offering of shares........ -- 6,387 Accelerated vesting of stock based compensation............. -- 1,699 Pooled companies' losses included in both current and previous years.......................... 1,941 1,941 Foreign currency translation adjustment..................... -- (1,272) Dividends declared by pooled companies...................... (18,530) (18,530) Net loss......................... (9,054) (9,054) -------- -------- Balance, December 31, 1999......... $(45,257) $317,787 ======== ========
See accompanying notes to supplemental consolidated financial statements. F-30 TMP WORLDWIDE INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------------- 1999 1998 1997 ----------- ----------- --------- Cash flows from operating activities: Net income (loss)......................................... $ (9,054) $ 29,043 $ 50,879 ----------- ----------- --------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization of property and equipment............................................. 26,987 22,564 16,301 Amortization of intangibles............................. 12,532 11,070 6,913 Amortization of deferred compensation in connection with employee stay bonuses................................. 7,489 4,358 -- Provision for doubtful accounts......................... 14,527 6,394 4,211 Net loss on disposal and write-off of fixed assets...... 12,118 2,907 -- Common stock issued for matching contribution to 401(k) plan and employee stay bonuses........................ 7,950 8,939 627 Provision (benefit) for deferred income taxes........... (4,831) (1,307) 6,393 CEO bonus and indemnity payment......................... -- 1,250 1,775 Minority interests and other............................ 243 330 19 Effect of pooled companies' losses (earnings) included in more than one period............................... 1,941 (3,182) -- Effect of pooled company excluded from the periods presented............................................. -- 873 -- Changes in assets and liabilities, net of effects from purchases of businesses: Increase in accounts receivable, net.................. (85,434) (19,269) (30,560) Increase in work-in-process, prepaid and other........ (15,790) (14,971) (5,116) Increase in deferred commissions and fees............. 56,762 7,464 4,036 Increase in accounts payable, accrued expenses and other current liabilities........................... 70,080 15,703 6,960 ----------- ----------- --------- Total adjustments......................................... 104,574 43,123 11,559 ----------- ----------- --------- Net cash provided by operating activities............. 95,520 72,166 62,438 ----------- ----------- --------- Cash flows from investing activities: Payments pursuant to notes and advances to Principal Stockholder............................................. -- -- (3,064) Repayments from Principal Stockholder..................... -- -- 14,477 Capital expenditures...................................... (42,982) (35,116) (33,191) Payments for purchases of businesses, net of cash acquired................................................ (28,010) (36,979) (83,660) Purchases of short and long term investments.............. (150) (38,271) -- Sales of short term investments........................... 101 39,047 -- Investment in life insurance, net......................... (38) (1,985) (1,797) Proceeds from sale of assets.............................. 9,749 648 78 Cash paid for non-compete agreements...................... (101) -- -- Advances by pooled entities to officers and affiliates.... (140) (1,207) (2,210) ----------- ----------- --------- Net cash used in investing activities................. (61,571) (73,863) (109,367) ----------- ----------- --------- Cash flows from financing activities: Payments on capitalized leases............................ (3,492) (4,010) (2,975) Borrowings under line of credit and proceeds from issuance of long-term debt....................................... 1,308,315 1,055,594 741,919 Repayments under line of credit and principal payments on long-term debt.......................................... (1,358,383) (1,055,582) (707,040) Net proceeds from stock issuance.......................... 6,387 46,043 77,888 Cash received from the exercise of employee stock options................................................. 19,046 1,495 659 Repurchase of common stock................................ -- -- (77) Redemption of minority interest and preferred stock (including premium)..................................... (2,000) -- (5,238) Dividends on preferred stock.............................. -- -- (123) Capital contribution from former owner of pooled company................................................. 194 13 15 Dividends paid by pooled companies........................ (18,530) (21,453) (29,415) ----------- ----------- --------- Net cash provided by (used in) financing activities... (48,463) 22,100 75,613 ----------- ----------- --------- Effect of exchange rate changes on cash..................... (755) (165) (303) ----------- ----------- --------- Net increase (decrease) in cash and cash equivalents........ (15,269) 20,238 28,381 Cash and cash equivalents, beginning of year................ 79,868 59,630 31,249 ----------- ----------- --------- Cash and cash equivalents, end of year...................... $ 64,599 $ 79,868 $ 59,630 =========== =========== =========
See accompanying notes to supplemental consolidated financial statements. F-31 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION TMP Worldwide Inc. ("TMP" or the "Company") is the successor to businesses formerly conducted by TMP Worldwide Inc. and subsidiaries ("Old TMP"), Worldwide Classified Inc. and subsidiaries ("WCI"), McKelvey Enterprises, Inc. and subsidiaries ("MEI") and certain other entities under the control of Andrew J. McKelvey (the "Principal Stockholder"). Immediately prior to the reorganization, the Principal Stockholder owned 100% of the common stock of MEI (which owned approximately 86% of the common stock of Old TMP) and approximately 33% of the common stock of WCI. In addition to his approximately 33% ownership of WCI, the Principal Stockholder had voting proxy on the remaining outstanding shares of WCI. WCI was organized in 1993 to sell Recruitment Advertising. On December 9, 1996, Old TMP, which sells Yellow Page Advertising, merged into MEI. Thereafter, WCI merged into MEI, MEI then merged into Telephone Marketing Programs Incorporated and MEI acquired the outstanding minority interest of a subsidiary (the "1996 Mergers"). Concurrent with the 1996 Mergers, Telephone Marketing Programs Incorporated changed its name to TMP Worldwide Inc. Due to the control of these companies by the Principal Stockholder, the companies have been consolidated on a retroactive basis in a manner similar to a pooling of interests, the interests previously owned by the Principal Stockholder are carried at predecessor basis, and in December 1996 (i) goodwill in the amount of approximately $1.6 million was recorded for the issuance of 542,556 shares of common stock of the Company to Old TMP stockholders who had been previously issued shares of Old TMP in exchange for their minority interests in certain operating subsidiaries in which they were original owners and, accordingly, were considered to have made a substantive investment, and is based on an initial public offering price of $7.00 per share, less approximately $2.2 million previously recorded on the issuance of these shares, and (ii) special compensation in the amount of approximately $52.0 million was recorded for the issuance of 7,169,580 shares of common stock of the Company to Old TMP, WCI and the MEI subsidiary stockholders in exchange for their shares in those companies which they had received for nominal or no consideration, as employees or as management of businesses financed substantially by the Principal Stockholder and, accordingly, were not considered to have made substantive investments for their minority shares, and is based on an initial public offering price of $7.00 per share. The minority stockholders of Old TMP had received compensation in lieu of their share of earnings of Old TMP in exchange for waiving their rights to such earnings, and WCI and the MEI subsidiary had cumulative losses. Accordingly, no amounts were attributable to these minority interests in the accompanying consolidated financial statements. In addition, in 1996, the Principal Stockholder sold or contributed to the Company his majority interests, and in one case a 49% interest, in five companies primarily engaged in yellow page and Internet-based advertising. Due to the element of common control of these companies, all of these transactions have been accounted for in a manner similar to a pooling of interests and each of the five companies has been included in the accompanying consolidated financial statements from their respective dates of acquisition by the Principal Stockholder. For the period April 1, 1998 through December 31, 1999, the Company completed 20 mergers which were accounted for as poolings of interests. The seven that the Company completed prior to April 1, 1999 are Johnson, Smith & Knisely Inc. ("JSK"), TASA Holding AG ("TASA"), Stackig, Inc. ("Stackig"), Recruitment Solutions Inc., Sunquest L.L.C. d.b.a. The SMART Group and The Consulting Group (International) Limited ("TCG"), in 1998 (the "1998 Mergers"); and Morgan & Banks Limited ("M&B") F-32 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED) in January 1999: (the "M&B Merger"). In connection with these mergers, the Company issued 17,578,910 shares of our common stock in exchange for all of the outstanding common stock of these seven companies. From April 1, 1999 to June 30, 1999, the Company completed pooling of interests mergers (the "Second Quarter 1999 Mergers") with six companies Interquest, Pty. Limited ("Interquest"), LIDA Advertising Inc. ("LIDA"), Maes & Lunau ("M&L"), IN2, Inc. ("IN2"), Lemming & LeVan, Inc. ("L&L"), and Yellow Pages Unlimited, Inc. ("YPU"), (the "Second Quarter 1999 Pooled Companies") (the "Second Quarter 1999 Mergers"). In connection with the Second Quarter 1999 Mergers the Company issued a total of 1,800,480 shares of TMP common stock in exchange for all of the outstanding stock of the Second Quarter 1999 Pooled Companies. In addition, from July 1, 1999 through September 30, 1999, the Company completed pooling of interests mergers (the "Third Quarter 1999 Mergers") with five companies, Cameron-Newell Advertising, Inc. ("CNA"), Brook Street Bureau (QLD) Pty Ltd, ("Brook St."), LAI Worldwide, Inc. ("LAI"), Fox Advertising Inc. ("Fox") and Lampen Group Limited ("Lampen") ("the Third Quarter 1999 Pooled Companies"). In connection with the Third Quarter 1999 Mergers the Company issued a total of 4,306,914 shares of TMP common stock in exchange for all of the outstanding stock of the Third Quarter 1999 Pooled Companies. From October 1, 1999 through December 31, 1999, the Company completed mergers with two companies, Highland Search Group L.L.C. ("Highland") and TMC S.r.l. ("Amrop Italy") (the "Fourth Quarter 1999 Pooled Companies"), which provided for the exchange of all of the outstanding stock of such companies for a total of 1,517,226 shares of TMP common stock and which were accounted for as poolings of interests (the "Fourth Quarter 1999 Mergers"). The consolidated financial statements of the Company reflect the effect of the 1996 Mergers, the 1998 Mergers, the M & B Merger, the Second Quarter 1999 Mergers, the Third Quarter 1999 Mergers and the Fourth Quarter 1999 Mergers, because such mergers have been accounted for as poolings of interests (see Note 5). As a result, the financial position, statements of income (loss), comprehensive income (loss) and cash flows included herein are presented as if the combining companies had been consolidated for all periods presented. The consolidated statements of stockholders' equity reflect the accounts of TMP as if the additional common stock issued in connection with the 1998 and 1999 Mergers had been issued for all periods presented. During the period of January 1, 2000 through June 30, 2000, the Company completed mergers with eleven companies which were accounted for as poolings of interests (the "First Half 2000 Mergers"): HW Group PLC; Microsurf, Inc.; Burlington Wells, Inc.; Illsley Bourbonnais; System One Services, Inc.; GTR Advertising; Virtual Relocation.com, Inc.; Business Technologies, Ltd.; Simpatix, Inc.; Rollo Associates, Inc.; and Web Technology Partners, Inc. In connection with these mergers, the Company issued 4,816,292 shares of TMP common stock in exchange for all the outstanding common stock of these eleven companies. Consequently, the Company's consolidated financial statements have been retroactively restated as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999, to reflect the consummation of the 1996 Mergers, the 1998 Mergers, the M&B Merger, the Second Quarter 1999 Mergers, the Third Quarter 1999 Mergers, the Fourth Quarter 1999 Mergers and the First Half 2000 Mergers because such mergers have been accounted for as poolings of interests (see Note 5). As a result, the financial position, and statements of income (loss), comprehensive income (loss) and cash flows are presented as if the combining companies had been consolidated for all periods presented. In addition, the consolidated statements of stockholders' equity reflect the accounts of TMP as if the additional common F-33 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED) stock issued in connection with each of the aforementioned combinations included in the First Half 2000 Mergers had been issued in the periods when each of the related companies had issued shares and for the amounts that reflect the exchange ratios of the mergers. In accordance with generally accepted accounting principles, the supplemental consolidated financial statements will become the historical financial statements of the Company upon issuance of the financial statements for the period that includes the consummation of the First Half 2000 Mergers. In the supplemental consolidated balance sheets, the balance sheets of TMP as of March 31, 2000 have been combined with those of the Second Quarter 2000 Mergers, and those as of December 31, 1999 and 1998 have been combined with those of the First Half 2000 Mergers all as of March 31, 2000 and December 31, 1999 and 1998 except for the following: Illsley Bourbonnais, for which the balance sheets as of January 31, 2000 and 1999 are combined with those of TMP as of December 31, 1999 and 1998, respectively; Business Technologies Ltd. ("BTL"), for which the balance sheets as of July 31, 1999 and 1998 are combined with those of TMP as of December 31, 1999 and 1998, respectively; HW Group PLC ("HW"), for which the balance sheet as of March 31, 1999 is combined with that of TMP as of December 31, 1998. The supplemental consolidated statements of income (loss) combine the results of TMP for the three months ended March 31, 2000 and 1999 with those of the Second Quarter 2000 Mergers and each year in the three year period ended December 31, 1999 with those of the First Half 2000 Mergers all for the same periods except for the following: Illsley Bourbonnais, for which the statements of income (loss) for the years ended January 31, 2000, 1999 and 1998 are included in the statements of income (loss) for the years ended December 31, 1999, 1998 and 1997, respectively; BTL for which the statements of income (loss) for the years ended July 31, 1999, 1998 and 1997 are included in the statements of income (loss) for the years ended December 31, 1999, 1998 and 1997, respectively; HW for which the statements of income (loss) for the years ended March 31, 1999 and 1998 are included in the statements of income (loss) for the years ended December 31, 1998 and 1997, respectively. Furthermore, the results of Illsley Bourbonnais for the month ended January 31, 2000 are included in both the supplemental consolidated statements of income (loss) for the year ended December 31, 1999 and in the supplemental consolidated condensed statement of income (loss) for the three months ended March 31, 2000. Therefore the following amounts have been included in both periods: (a) commissions & fees of $1,019 and (b) net income of $285, with no impact on earnings per share. Additionally, due to immateriality, the results of BTL for the period August 1, 1999 through December 31, 1999 have not been included in the supplemental consolidated condensed statement of income (loss) for the year ended December 31, 1999 because the results of BTL for its fiscal year ended July 31, 1999 were included in the supplemental consolidated condensed statement of income (loss) for the year ended December 31, 1999, including commissions and fees of $314 and net income of $50. BTL's results for the three months ended March 31, 2000 were included in the supplemental consolidated condensed statement of income (loss) for the three months ended March 31, 2000. In addition, the results of HW, for the three months ended March 31, 1999 are included in the supplemental consolidated statements of income (loss) in both years ended December 31, 1999 and 1998, and the effects on both periods on (a) commissions and fees was $11,075, (b) net income was $1,893 and (c) diluted earnings per share was $0.02. F-34 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and all of its wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Investments in unconsolidated affiliates are accounted for using the equity method when the Company owns at least 20% but no more than 50% of such affiliates. Under the equity method, the Company records its proportionate share of profits and losses based on its percentage interest in these affiliates. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of commissions & fees and expenses during the reporting period. Actual results could differ from those estimates. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed primarily using the straight-line method over the following estimated useful lives:
YEARS -------- Buildings and improvements.................................. 5-32 Furniture and equipment..................................... 3-10 Capitalized software costs.................................. 3-5 Computed equipment.......................................... 3-7 Transportation equipment.................................... 3-18
Leasehold improvements are amortized over their estimated useful lives or the lives of the related leases, whichever is shorter. INTANGIBLES Intangibles represent acquisition costs in excess of the fair value of net tangible assets of businesses purchased and consist primarily of the value of ongoing client relationships and goodwill. These costs are being amortized over periods ranging from three to thirty years on a straight-line basis. LONG-LIVED ASSETS Long-lived assets, such as ongoing client relationships, goodwill and property and equipment, are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows resulting from the use of these assets. When any such impairment exists, the related assets will be written down to fair value. Impairment losses have been recorded as Merger and Integration Costs (see Note 5). F-35 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS The financial position and results of operations of the Company's foreign subsidiaries are determined using local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rate in effect at each year-end. Income statement accounts are translated at the average rate of exchange prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are included in the other comprehensive loss account in stockholders' equity. Gains and losses resulting from foreign currency transactions are included in other income (expense). COMMISSIONS AND FEES RECOGNITION AND WORK-IN-PROCESS The Company earns fees for the placement of advertisements on the Internet, primarily its careers Web site, Monster.com(sm). Such website related fees are recognized over the length of the advertising agreement, typically one to six months. The amounts not recognized are reported on the balance sheet as deferred commissions and fees. The Company also derives commissions and fees for advertisements placed in telephone directories, newspapers and other media, plus associated fees for related services. Commissions and fees are generally recognized upon placement date for newspapers and other media and on publication close date for yellow page advertisements. The Company also earns fees for Executive Search services. Commissions and fees are recognized as clients are billed. Billings begin with the client's acceptance of a contract. A retainer equal to 33( 1/)(3)% of a candidate's first year estimated annual cash compensation is billed in equal installments over three consecutive months (at which time, in general, the retainer has been substantially earned). A final invoice is issued in the event that the candidate's actual compensation package exceeds the original estimate. For Selection, a fee equal to between 20% and 30% of a candidate's first year estimated annual cash compensation is billed in equal installments over three consecutive months (the average length of time needed to successfully complete an assignment). Temporary Contracting commission and fees are recorded when earned. The amounts charged to clients for Temporary Contracting services are reported after deducting the costs of the temporary contractors. The details for such amounts are (in thousands):
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Temporary contracting Revenue............................... $471,588 $394,077 $313,595 Temporary contracting Costs................................. 379,666 318,155 253,658 -------- -------- -------- Temporary contracting Billings/Commissions and fees......... $ 91,922 $ 75,922 $ 59,937 ======== ======== ========
The Company's quarterly commissions and fees are affected by the cyclical nature of its operating segments. The timing of yellow page directory closings is currently concentrated in the third quarter. However, yellow page publishers may change the timing of directory publications which may have an effect on the Company's quarterly results. The Company's Yellow Page Advertising results are also affected by commissions earned for volume placements for the year, which are typically reported in the fourth quarter. Amounts reported in the three months ended December 31, 1999, 1998 and 1997 for commissions on volume placements were $0.1 million, $0.9 million and $2.2 million, respectively. The Company's quarterly commissions and fees for Recruitment Advertising are typically highest in the first quarter and lowest in F-36 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) the fourth quarter; however, the cyclicality in the economy and the Company's clients' employment needs have an overriding impact on the Company's quarterly results in Recruitment Advertising. Direct operating costs incurred that relate to future commissions and fees, principally for yellow page advertisements, are deferred (recorded as work-in-process in the accompanying consolidated balance sheets) and are subsequently charged to expense when the directories are closed for publication and the related commission is recognized as income. INCOME TAXES The provision for income taxes is computed on the pretax income (loss) based on the current tax law. Deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates. NATURE OF BUSINESS AND CREDIT RISK The Company operates in five business segments: Interactive (including Monster.com(SM) and MonsterMoving.com(SM)), Relocation Services, Recruitment Advertising, Selection & Temporary Contracting, Executive Search and Yellow Pages Advertising which now also includes full service interactive advertising and marketing technology services through IN2. The Company's commissions and fees are earned from the following activities: (a) advertisements placed on its careers and other websites, (b) resume and other database access, (c) executive placement services, (d) mid level employee selection and temporary contracting services, (e) selling and placing recruitment advertising and related services, (f) resume screening services and (g) selling and placing Yellow Page Advertising and related services. These services are provided to a large number of customers in many different industries. The Company operates principally throughout North America, the United Kingdom, Continental Europe and the Asia/Pacific Region (primarily Australia and New Zealand). Financial instruments which potentially subject the Company to concentrations of credit risk are primarily accounts receivable. The Company performs continuing credit evaluations of its customers and does not require collateral. For the most part, the Company has not experienced significant losses related to receivables from individual customers or groups of customers in any particular industry or geographic area. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments. The carrying amount reported for long-term debt approximates fair value because, in general, the interest on the underlying instruments fluctuates with market rates. F-37 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) STOCK-BASED COMPENSATION The Company accounts for its stock option awards under the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at grant date or other measurement date over the amount an employee must pay to acquire the stock. The Company makes pro forma disclosures of net income and earnings per share as if the fair value based method of accounting had been applied as required by SFAS No. 123, "Accounting for Stock-Based Compensation." EARNINGS PER SHARE Basic earnings per share includes no dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the effect of common shares issuable upon exercise of stock options and warrants. The Company's Board of Directors authorized a 2-for-1 split of its common stock in the form of a stock dividend, effective February 29, 2000. All shares and per share amounts in the accompanying consolidated financials statements have been restated to give effect to the stock split. A reconciliation of shares used in calculating basic and diluted earnings per common and Class B common share follows (in thousands): December 31, 1999: Basic....................................................... 84,250 Effect of assumed conversion of stock options............... * ------ Diluted..................................................... 84,250 ====== December 31, 1998: Basic....................................................... 81,638 Effect of assumed conversion of stock options............... 1,856 ------ Diluted..................................................... 83,494 ====== December 31, 1997: Basic....................................................... 75,857 Effect of assumed conversion of stock options............... 1,277 ------ Diluted..................................................... 77,134 ======
------------------------ * Effect of the conversion of stock options outstanding is anti-dilutive. The number of options is approximately 4,307. STATEMENTS OF CASH FLOWS For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments and other short-term investments with an initial maturity of three months or less to be cash equivalents. F-38 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) COMPREHENSIVE INCOME Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. The Company's only other item of comprehensive income (loss) is foreign currency translation adjustments. POSTRETIREMENT BENEFITS In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postetirement Benefits," which standardizes the disclosure requirements for pensions and other postretirement benefits. The adoption of SFAS No. 132 in 1998 did not have a material impact on the Company's financial statement disclosures. CAPITALIZED SOFTWARE COSTS The Company capitalizes certain incurred software development costs in accordance with, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position No. 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). Costs incurred during the application-development stage for software bought and further customized by outside vendors for the Company's use and software developed by a vendor for the Company's proprietary use have been capitalized. Costs incurred for the Company's own personnel who are directly associated with software development are capitalized. Capitalized software costs are being amortized over periods of 3 to 5 years. EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS During 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which had an initial adoption date by the Company of January 1, 2000. During the second quarter of 1999, the FASB postponed the adoption date of SFAS No. 133 until January 1, 2001. The FASB further amended SFAS No. 133 in June 2000. SFAS No. 133 requires that all derivative financial instruments be recorded on the consolidated balance sheets at their fair value. Changes in the fair value of derivatives will be recorded each period in earnings or other comprehensive earnings, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Gains and losses on derivative instruments reported in other comprehensive earnings will be reclassified as earnings in the periods in which earnings are affected by the hedged item. The Company does not expect the adoption of this statement to have a significant impact on the Company's results of operations, financial position or cash flows. In 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 dealing with revenue recognition which is effective in the fourth quarter of 2000. The Company does not expect its adoption to have a material effect on the Company's financial statements. In 2000, the Emerging Issues Task Force ("EITF") of the FASB issued EITF Issue No. 00-2, "Website Development Costs," which established guidelines for accounting for website development costs and is effective for quarters beginning after June 30, 2000. Although the Company is still evaluating its impact, the Company does not believe its adoption will have a significant effect on its financial statements. F-39 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 3--ACCOUNTS RECEIVABLE, NET Accounts receivable, net consists of the following:
DECEMBER 31, ------------------- 1999 1998 -------- -------- Trade................................................... $476,688 $386,021 Earned commissions(a)................................... 11,422 12,811 -------- -------- 488,110 398,832 Less: Allowance for doubtful accounts................... 25,515 18,592 -------- -------- Accounts receivable, net................................ $462,595 $380,240 ======== ========
------------------------ (a) Earned commissions receivable represent commissions on advertisements that have not been published, and relate to yellow page advertisements only. Upon publication of the related yellow page directories, the earned commissions plus the related advertising cost at December 31, 1999 and 1998 are recorded as accounts receivable of $66,648 and $67,955, respectively, and the related advertising costs are recorded as accounts payable of $55,226 and $55,144, respectively. NOTE 4--PROPERTY AND EQUIPMENT, NET Property and equipment, net consists of the following:
DECEMBER 31, ------------------- 1999 1998 -------- -------- Capitalized software costs................................ $25,352 $16,301 Buildings and improvements................................ 1,323 1,168 Furniture and equipment................................... 78,813 85,503 Leasehold improvements.................................... 24,328 19,593 Transportation equipment.................................. 5,956 12,018 Computer equipment........................................ 39,493 22,286 ------- ------- 175,265 156,869 Less: Accumulated depreciation and amortization........... 94,426 74,883 ------- ------- Property and equipment, net............................... $80,839 $81,986 ======= =======
Property and equipment includes equipment under capital leases at December 31, 1999 and 1998 with a cost of $8,032 and $13,726, respectively, and accumulated amortization of $6,000 and $7,084 respectively. F-40 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 5--BUSINESS COMBINATIONS ACQUISITIONS ACCOUNTED FOR USING THE POOLING OF INTERESTS METHOD During the period of January 1, 1999 through December 31, 1999, the Company completed the following mergers which provided for the exchange of all of the outstanding stock of each entity for shares of TMP stock and are accounted for as poolings of interests (See Note 1):
GEOGRAPHIC NUMBER OF TMP ENTITY BUSINESS SEGMENT REGION ACQUISITION DATE SHARES ISSUED ------ ------------------------------ -------------- ---------------- ------------- Morgan & Banks Limited........ Selection & Temporary Asia-Pacific January 28, 1999 10,296,582 Contracting Interquest Pty Limited........ Selection & Temporary Asia-Pacific April 30, 1999 353,390 Contracting LIDA Advertising, Inc......... Yellow Page Advertising North America May 19, 1999 225,212 Maes & Lunau.................. Executive Search Europe May 20, 1999 220,000 IN2, Inc...................... Yellow Page Advertising North America May 28, 1999 578,062 Lemming & Levan, Inc.......... Executive Search North America May 28, 1999 245,816 Yellow Pages Unlimited, Inc... Yellow Page Advertising North America May 28, 1999 178,000 Cameron-Newell Advertising, Inc......................... Recruitment Advertising North America August 2, 1999 840,000 Brook St. Bureau Pty, Ltd..... Selection & Temporary Asia-Pacific August 3, 1999 261,800 Contracting LAI Worldwide, Inc............ Executive Search North America August 26, 1999 2,119,642 Fox Advertising, Inc.......... Yellow Page Advertising North America August 30, 1999 259,280 Lampen Group Limited.......... Selection & Temporary Asia-Pacific & August 31, 1999 826,192 Contracting United Kingdom Highland Search Group Executive Search North America October 21, 1999 1,398,666 L.L.C....................... TMC S.r.l. ("Amrop Italy").... Executive Search Europe October 27, 1999 118,560
The effects on the Company's financial statements as of December 31, 1998 and 1997 and for the years then ended of mergers accounted for as poolings of interests consummated during the year ended December 31, 1999 are reflected in the Company's financial statements as of December 31, 1998 and 1997 and for the years then ended as previously reported on the Company's Form 10-K for the year ended December 31, 1999. During the period of January 1, 2000 through June 30, 2000, the Company completed the following mergers which provided for the exchange of all of the outstanding stock of each entity for shares of TMP stock and are accounted for as poolings of interests (See Note 1):
GEOGRAPHIC NUMBER OF TMP ENTITY BUSINESS SEGMENT REGION ACQUISITION DATE SHARES ISSUED ------ ----------------------------- -------------- ------------------ ------------- HW Group PLC................. Selection & Temporary United Kingdom February 16, 2000 715,769 Contracting Microsurf, Inc............... Interactive North America February 16, 2000 684,462 Burlington Wells, Inc........ Selection & Temporary North America February 29, 2000 52,190 Contracting Illsley Bourbonnais.......... Executive Search North America March 1, 2000 246,702 System One Services, Inc..... Selection & Temporary North America April 3, 2000 1,022,257 Contracting GTR Advertising.............. Recruitment Advertising North America April 4, 2000 54,041 Virtual Relocation.com, Interactive North America May 9, 2000 947,916 Inc........................ Business Technologies Ltd.... Interactive United Kingdom May 17, 2000 205,703 Simpatix, Inc................ Interactive North America May 31, 2000 152,500 Rollo Associates, Inc........ Executive Search North America May 31, 2000 110,860 Web Technology Partners, Interactive North America May 31, 2000 623,892 Inc........................
F-41 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 5--BUSINESS COMBINATIONS (CONTINUED) The effects of the First Half 2000 Mergers accounted for as poolings of interest transactions are summarized below:
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- COMMISSIONS AND FEES: TMP, as previously reported on Form 10-K for the year ended December 31, 1999........................................... $765,805 $657,486 $541,828 HW Group PLC.............................................. 41,708 46,774 37,915 Microsurf, Inc............................................ 5,040 1,543 260 Burlington Wells, Inc..................................... 2,705 2,101 1,390 Illsley Bourbonnais....................................... 7,997 5,568 7,007 System One Services, Inc.................................. 33,573 23,212 15,454 GTR Advertising........................................... 2,961 2,943 2,316 Virtual Relocation.com, Inc............................... 1,353 168 15 Business Technologies Ltd................................. 786 352 -- Simpatix, Inc............................................. 37 (5) -- Rollo Associates, Inc..................................... 3,597 2,599 2,382 Web Technology Partners, Inc.............................. 3,645 1,776 2,195 -------- -------- -------- TMP, as restated............................................ $869,207 $744,517 $610,762 ======== ======== ======== NET INCOME (LOSS) APPLICABLE TO COMMON AND CLASS B COMMON SHAREHOLDERS: TMP, as previously reported on Form 10-K for the year ended December 31, 1999........................................... $ (7,405) $ 20,542 $ 41,831 HW Group PLC.............................................. (3,664) 4,458 2,956 Microsurf, Inc............................................ 509 283 (84) Burlington Wells, Inc..................................... 336 309 220 Illsley Bourbonnais....................................... 4,313 3,192 3,904 System One Services, Inc.................................. (82) 168 868 GTR Advertising........................................... 123 229 128 Virtual Relocation.com, Inc............................... (2,922) (480) (35) Business Technologies Ltd................................. 111 65 -- Simpatix, Inc............................................. (552) (473) (212) Rollo Associates, Inc..................................... 301 679 742 Web Technology Partners, Inc.............................. (122) 71 438 -------- -------- -------- TMP, as restated............................................ $ (9,054) $ 29,043 $ 50,756 ======== ======== ========
NET INCOME (LOSS) PER COMMON AND CLASS B COMMON SHAREHOLDERS: Basic TMP, as previously reported on Form 10-K for the period ended December 31, 1999................................... $ (0.09) $ 0.27 $ 0.58 TMP, as restated............................................ $ (0.11) $ 0.36 $ 0.67 Diluted TMP, as previously reported on Form 10-K for the period ended December 31, 1999................................... $ (0.09) $ 0.26 $ 0.57 TMP, as restated............................................ $ (0.11) $ 0.35 $ 0.66
F-42 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 5--BUSINESS COMBINATIONS (CONTINUED) MERGER & INTEGRATION COSTS INCURRED WITH POOLING OF INTERESTS TRANSACTIONS In connection with pooling of interests transactions completed during 1999, the Company expensed merger & integration costs of which $16,792 was expensed in the fourth quarter and $63,054 was expensed for the twelve months ended December 31, 1999. Of this amount $27,442 is for merger costs and $35,612 is for integration costs. The merger costs for the year ended December 31, 1999 consist of (1) $5,944 of non-cash employee stay bonuses, which include (a) $4,826 for the amortization of $16,437 recorded as prepaid compensation and a corresponding long-term liability, being expensed over the course of a year from the date of grant for TMP shares set aside for key personnel of acquired companies who must remain employees of the Company for a full year in order to earn such shares, (b) $351 which is related to an option grant to employees of a pooled company and which represents the difference between the option price and the stock price on the day the options were granted and (c) $767 for TMP shares given to key personnel of a pooled company as employee stay bonuses, (2) $2,466 paid in cash to key personnel of pooled companies as employee stay bonuses, (3) $12,606 of transaction related costs, including legal, accounting, printing and advisory fees and the costs incurred for the subsequent registration of shares issued in the acquisitions and (4) $6,426 in severance costs for managers of pooled companies. The $35,612 of integration costs consist of: (a) $9,221 for assumed obligations of closed facilities, (b) $20,392 for consolidation of acquired facilities, (c) $3,172 for severance, relocation and other employee costs and (d) a $2,827 provision for uncollectible accounts receivable. See schedule in Accrued Integration and Restructuring Costs below. In connection with the pooling of interests transactions completed during 1998, the Company expensed merger related costs of $22,412. The $22,412 of merger costs for the year ended December 31, 1998 consists of (1) $11,934 of non-cash employee stay bonuses, which included (a) $3,622 for the amortization of $5,986, recorded as prepaid compensation and a corresponding long-term liability, being expensed over the eighteen months from April 1, 1998 to September 30, 1999 for TMP shares set aside for key personnel of JSK and TCG who must remain employees of the Company for a full year in order to earn such shares and (b) $8,312 for TMP shares to key personnel of TASA, JSK, Stackig, the SMART Group, Recruitment Solutions and TCG as employee stay bonuses and (2) $1,461 of stay bonuses paid as cash to key personnel of the Pooled Companies and (3) $9,017 of transaction related costs, including legal, accounting and advisory fees and the costs incurred for the subsequent registration of shares issued in the acquisitions. ACQUISITIONS ACCOUNTED FOR USING THE PURCHASE METHOD In addition to the pooling of interests transactions discussed above, the Company has acquired 55 businesses (primarily Recruitment Advertising businesses) between January 1, 1997 and December 31, 1999 including, on August 26, 1997, all of the outstanding stock of Austin Knight Limited and subsidiaries ("Austin Knight") for approximately $47,200 net of approximately $11,500 of cash acquired relating to the sale, in July 1997, of real property by Austin Knight which had commissions & fees of approximately $47,600 for the year ended September 30, 1996. The total amount of cash paid and promissory notes and Common Stock of the Company issued for these acquisitions was approximately $59,030, $34,168 and $98,100 for 1999, 1998 and 1997, respectively. The shares of common stock issued by the Company in connection with certain of the above mentioned acquisitions were 928,619, 402,812 and 367,394 for 1999, 1998 and 1997, respectively. These acquisitions have been accounted for under the purchase method of F-43 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 5--BUSINESS COMBINATIONS (CONTINUED) accounting and accordingly, operations of these businesses have been included in the consolidated financial statements from their acquisition dates. On February 27, 1998, LAI completed the acquisition of Ward Howell International, Inc. ("WHI"). The purchase price was approximately $19,500 including $7,600 in notes payable and approximately $3,050 in LAI common stock. The remaining $8,850 of the purchase consideration was payable to the former WHI stockholders as of February 28, 1998 and is accrued for in the accompanying balance sheets. The acquisition was accounted for as a purchase with goodwill being recognized for the excess of the purchase amount over the fair market value of the assets acquired. On January 2, 1998, LAI acquired Chartwell Partners International, Inc. ("CPI"). The acquisition cost was approximately $3,100 and consisted of approximately $1,400 in cash, a $1,250 convertible subordinated note payable and $400 of LAI common stock. The acquisition was accounted for as a purchase with goodwill being recognized for the excess of the purchase amount over the fair value of the assets acquired. The convertible subordinated note is payable in three equal installments, plus accrued interest and bears interest at 6.75%. The subordinated note is convertible into shares of common stock at each anniversary at prices specified in the asset purchase agreement. The summarized unaudited pro forma results of operations set forth below for the years ended December 31, 1999 and 1998 assume the acquisitions in 1999 and 1998 occurred as of the beginning of the year of acquisition and the beginning of the preceding year.
YEAR ENDED DECEMBER 31, ------------------- 1999 1998 -------- -------- Total commissions and fees.............................. $887,723 $793,982 Net income (loss) applicable to common and Class B common stockholders................................... $ (8,578) $ 29,762 Net income (loss) per common and Class B common share: Basic................................................. $ (0.10) $ 0.36 Diluted............................................... $ (0.10) $ 0.35
The unaudited pro forma results of operations are not necessarily indicative of what actually would have occurred if the acquisitions had been completed at the beginning of each of the years presented, nor are the results of operations necessarily indicative of the results that will be attained in the future. ACCRUED INTEGRATION AND RESTRUCTURING COSTS Pursuant to the conclusions reached by the Emerging Issues Task Force ("EITF") of the FASB in EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)," and No. 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination," in connection with the acquisitions and mergers made in 1997, 1998 and 1999, the Company formulated plans to integrate the operations of such companies. Such plans involve the closure of certain offices of the acquired and merged companies and the termination of certain management and employees. The objectives of the plans are to eliminate redundant facilities and personnel, and to create a single brand in the related markets in which the Company operates. In connection therewith the Company expensed $35,612 in 1999, relating to integration activities which are included in merger and integration expenses. In addition, in 1999 LAI formulated plans to close F-44 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 5--BUSINESS COMBINATIONS (CONTINUED) its London England and Hong Kong offices. In connection with these office closings, LAI charged earnings for the year ended December 31, 1999 and 1998 for $2,789 and $3,543, respectively. These costs and liabilities include:
DEDUCTIONS ADDITIONS -------------------------- BALANCE --------------------- APPLIED BALANCE DECEMBER 31, CHARGED TO AGAINST RELATED DECEMBER 31, 1998 GOODWILL EXPENSED ASSET PAYMENTS 1999 ------------ ---------- -------- --------------- -------- ------------ YEAR ENDED DECEMBER 31, 1999 Assumed obligations on closed leased facilities................................... $ 9,590 $ 705 $ 9,737 $ (1,872) $ (8,596) $ 9,564(a) Consolidation of acquired facilities........... 2,745 1,317 21,427 (6,704) (10,070) 8,715(b) Contracted lease payments exceeding current market costs................................. 707 -- -- -- (145) 562(c) Severance, relocation and other employee costs........................................ 1,952 1,359 4,410 (1,780) (4,987) 954(d) Provision for uncollectible receivable......... -- -- 2,827 (2,827) -- -- Pension obligations............................ 1,753 -- -- -- (95) 1,658(e) ------- ------ ------- -------- -------- ------- Total.......................................... $16,747 $3,381 $38,401 $(13,183) $(23,893) $21,453 ======= ====== ======= ======== ======== =======
DEDUCTIONS ADDITIONS -------------------------- BALANCE --------------------- APPLIED BALANCE DECEMBER 31, CHARGED TO AGAINST RELATED DECEMBER 31, 1997 GOODWILL EXPENSED ASSET PAYMENTS 1998 ------------ ---------- -------- --------------- -------- ------------ YEAR ENDED DECEMBER 31, 1998 Assumed obligations on closed leased facilities................................... $ 7,830 $ 767 $ 2,423 $ -- $ (1,430) $ 9,590 Consolidation of acquired facilities........... 2,521 5,720 -- -- (5,496) 2,745 Contracted lease payments exceeding current market costs................................. 783 73 -- -- (149) 707 Severance, relocation and other employee costs........................................ 4,017 3,357 1,120 -- (6,542) 1,952 Provision for uncollectible receivable......... -- -- -- -- -- -- Pension obligations............................ 1,650 103 -- -- -- 1,753 ------- ------- ------- -------- -------- ------- Total.......................................... $16,801 $10,020 $ 3,543 $ -- $(13,617) $16,747 ======= ======= ======= ======== ======== =======
DEDUCTIONS ADDITIONS -------------------------- BALANCE --------------------- APPLIED BALANCE DECEMBER 31, CHARGED TO AGAINST RELATED DECEMBER 31, 1996 GOODWILL EXPENSED ASSET PAYMENTS 1997 ------------ ---------- -------- --------------- -------- ------------ YEAR ENDED DECEMBER 31, 1997 Assumed obligations on closed leased facilities................................... $ -- $ 8,002 $ -- $ -- $ (172) $ 7,830 Consolidation of acquired facilities........... -- 2,521 -- -- -- 2,521 Contracted lease payments exceeding current market costs................................. -- 1,473 -- -- (690) 783 Severance, relocation and other employee costs........................................ -- 4,017 -- -- -- 4,017 Provision for uncollectible receivable......... -- -- -- -- -- -- Pension obligations............................ -- 1,650 -- -- -- 1,650 ------- ------- ------- -------- -------- ------- Total.......................................... $ -- $17,663 $ -- $ -- $ (862) $16,801 ======= ======= ======= ======== ======== =======
------------------------------ (a) Accrued liabilities for surplus property in the amount of $9,564 as of December 31, 1999 relate to 28 leased office locations of the acquired companies that were either unutilized prior to the acquisition date or will be closed by December 31, 2000 in connection with the integration plans. The amount is based on the present value of minimum future lease obligations, net of estimated sublease income. F-45 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 5--BUSINESS COMBINATIONS (CONTINUED) (b) Other costs associated with the consolidation of existing offices of acquired companies in the amount of $8,715 as of December 31, 1999 relate to termination costs of contracts relating to billing systems, external reporting systems and other contractual arrangements with third parties. (c) Above market lease costs in the amount of $562 as of December 31, 1999 relate to the present value of contractual lease payments in excess of current market lease rates. (d) Estimated severance payments, employee relocation expenses and other employee costs in the amount of $954 as of December 31, 1999 relate to estimated severance for terminated employees at closed locations, costs associated with employees transferred to continuing offices and other related costs. Employee groups affected include sales, service, administrative and management personnel at duplicate corporate headquarters and administrative personnel As of December 31, 1999 the accrual related to approximately 48 employees including senior management, sales, service and administrative personnel. During the year ended December 31, 1999, payments of $4,987 were made to 43 members of senior management and employees for severance and charged against the reserve. (e) Pension obligations in the amount of $1,658 were assumed in connection with the acquisition of Austin Knight. The Company continues to evaluate and assess the impact of duplicate responsibilities and office locations. In connection with the finalization of preliminary plans relating to purchased entities, additions to restructuring reserves within one year of the date of acquisition are treated as additional purchase price; costs incurred resulting from plan revisions made after the first year will be charged to operations in the period in which they occur. NOTE 6--INTANGIBLES, NET Intangibles, net consists of the following:
DECEMBER 31, ------------------- AMORTIZATION 1999 1998 PERIOD (YEARS) -------- -------- -------------- Client lists, net of accumulated amortization of $6,349 and $5,709, respectively...................................... $ 14,376 $ 9,981 5 to 30 Covenants not to compete, net of accumulated amortization of $2,905 and $2,551, respectively........................... 1,880 2,080 2 to 6 Excess of cost of investments over fair value of net assets acquired, net of accumulated amortization of $31,096 and $20,903, respectively..................................... 295,336 254,059 5 to 30 Other, net of accumulated amortization of $2,206 and $2,060, respectively.............................................. 281 424 4 to 10 -------- -------- $311,873 $266,544 ======== ========
NOTE 7--SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest and income taxes amounted to the following:
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Interest......................................... $15,884 $14,264 $14,519 Income taxes..................................... 13,287 13,136 15,818
F-46 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 7--SUPPLEMENTAL CASH FLOW INFORMATION (CONTINUED) In conjunction with business acquisitions, the Company used cash as follows:
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Fair value of assets acquired, excluding cash... $47,044 $50,365 $156,182 Less: Liabilities assumed and created upon acquisition................................... (19,034) (13,386) (72,522) ------- ------- -------- Net cash paid................................... $28,010 $36,979 $ 83,660 ======= ======= ======== Capital lease obligations incurred.............. $ 75 $ 217 $ 5,884 ======= ======= ========
NOTE 8--FINANCING AGREEMENT The Company obtains its primary financing from a financial institution under a five year financing agreement as amended and restated on June 27, 1996, further amended on November 14, 1997, and amended and restated again on November 5, 1998 (the "Agreement"). Subsequent to the five year term, which expires on November 4, 2003, the Agreement provides for one year extensions subject to bank approval unless terminated by either party at least 90 days prior to expiration of the initial term or any renewal term. The Agreement, as amended, provides for borrowings of up to $185,000 at the Company's choice of either (1) the higher of (a) prime rate or (b) Federal Funds rate less ( 1)/(2) of 1% or (2) LIBOR plus a margin determined by the ratio of the Company's debt to earnings before interest, taxes, depreciation and amortization (EBITDA) as defined in the Agreement. At December 31, 1999 the margin equaled 0.75%. Borrowings under the Agreement are based on 90% of eligible accounts receivable, which are amounts billed under 120 days old and amounts to be billed as defined in the Agreement. Substantially all of the assets of the Company are pledged as collateral for borrowings under the Agreement. The Agreement contains certain covenants which restrict, among other things, the ability of the Company to borrow, pay dividends, acquire businesses, guarantee debts of others and lend funds to affiliated companies and contains criteria on the maintenance of certain financial statement amounts and ratios, all as defined in the Agreement. The Agreement also provides for a fee on any unused portion of the commitment based upon a rate determined by the ratio of the Company's debt to EBITDA. At December 31, 1999, this rate equaled 0.20%. In addition, the Agreement provides for a declining termination fee of $1,000, $500, $0 for the annual periods ended November 5, 1999, 2000, and 2001, respectively. The outstanding principal under this agreement as of December 31, 1999 is approximately $91.2 million of which $17.2 million is reflected as a reduction to accounts receivable and $15.3 million is for letters of credit. See Notes 9 and 17. At December 31, 1999, the prime rate, Federal funds rate and one month LIBOR were 8.50%, 5.50% and 5.82% respectively, and borrowings outstanding were at a weighted average interest rate of 6.57%. F-47 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 9--LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, ------------------- 1999 1998 -------- -------- Borrowings under financing agreement (see Note 8)........... $ 58,664 $ 97,720 Borrowings under other financing agreements, interest payable at rates varying from 5.0% to 9.2%, and collateralized by assets in certain foreign countries..... 9,717 8,251 Notes payable to former WHI stockholders dated February 27, 1998, payable in three equal annual installments plus accrued interest bearing interest at 5.0%................. 1,324 4,892 Convertible subordinated promissory note issued by LAI in connection with an acquisition, dated January 2, 1998, payable in three equal annual installments plus accrued interest, bearing interest at 6.75%, and convertible into shares of common stock at each anniversary date at prices specified in the asset purchase agreement................. 417 833 Senior subordinated promissory note issued by System One with interest at 16% with 11% paid quarterly and 5% deferred and recorded as part of the principal amount due, payable in varying installments through 2006.............. 18,164 -- Line of credit collateralized by System One's assets, due December 2001............................................. 10,738 13,550 Other acquisition notes payable, non-interest bearing, interest imputed at 6.7% to 8.0%, in varying installments through 2001.............................................. 3,511 8,121 Capitalized lease obligations, payable with interest from 9% to 15%, in varying installments through 2001 (see Note 14)....................................................... 8,267 9,203 Term note payable, maturing February 1999................... -- 10,000 Term note payable in sixty consecutive monthly installments from July 1997 through June 2002, collateralized by transportation equipment and with interest at 8.43% for the first 36 months. Thereafter the interest rate will be based on two year U.S. Treasury Notes..................... -- 7,557 Notes payable, in varying monthly installments maturing through 2001, with interest at rates ranging from 6.5% to 9.5%...................................................... 364 2,862 -------- -------- 111,166 162,989 Less: Current portion....................................... 11,068 16,267 -------- -------- $100,098 $146,722 ======== ========
F-48 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 9--LONG-TERM DEBT (CONTINUED) Long-term debt matures as follows:
DECEMBER 31, 1999 ------------ 2001........................................................ $ 19,997 2002........................................................ 1,333 2003........................................................ 59,998* 2004........................................................ 6,852 Thereafter.................................................. 12,645 -------- $100,825** ========
------------------------ * Of this amount, $58,664 is subject to one year extensions subsequent to 2003. See Note 8. ** Includes $727 of original issue discount, which is shown net in the consolidated balance sheet as of December 31, 1999. NOTE 10--MINORITY INTERESTS In connection with an acquisition in 1990, a subsidiary of the Company issued 88,425 shares of nonvoting convertible 10% cumulative preferred stock in exchange for 176,850 shares (58%) of the outstanding common stock of the acquired company held by the acquired company's employee stock ownership trust. These shares were redeemed in January 1997 for a total of $3,133, which included a redemption premium of $133. NOTE 11--REDEEMABLE PREFERRED STOCK During 1991, the Company sold 200,000 shares of 10.5% nonvoting cumulative preferred stock ($10.00 par value) to the Company's profit sharing plan for $2,000. These shares were redeemed in January 1997 for a total of $2,105, which included a redemption premium of $105. NOTE 12--STOCKHOLDERS' EQUITY (A) COMMON AND CLASS B COMMON STOCK Common and Class B common stock have identical rights except that each share of Class B common stock is entitled to ten votes and is convertible, at any time, at the option of the stockholder into one share of common stock. Effective February 29, 2000, a 2-for-1 stock split in the form of a stock dividend was paid. All share and per share amounts in the accompanying consolidated financial statements have been restated to give effect to the stock split. (B) STOCK OPTIONS In January 1996, the Company's Board of Directors (the "Board") adopted the 1996 Employee Stock Option Plan (the "Stock Option Plan"), which provides for the issuance of both incentive stock options F-49 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified stock options, to purchase an aggregate of up to 1,800,000 shares (amended to 6,000,000 on April 27, 1998) of the common stock of the Company. The Stock Option Plan permits the granting of options to officers, employees and consultants of the Company, its subsidiaries and affiliates. Under the Stock Option Plan, the exercise price of an incentive stock option must be at least equal to 100% of the fair market value of the common stock on the date of grant (110% of the fair market value in the case of options granted to employees who hold more than ten percent of the voting power of the Company's capital stock on the date of grant). The exercise price of a nonqualified stock option must be not less than the par value of a share of the common stock on the date of grant. The term of an incentive or nonqualified stock option is not to exceed ten years (five years in the case of an incentive stock option granted to a ten percent holder). The Stock Option Plan provides that the maximum option grant which may be made to an executive officer in any calendar year is 90,000 shares (amended to 300,000 on June 25, 1997). At December 31, 1999, approximately 2,008,451 options were exercisable and 1,625,742 options are available for future grants. In January 1996, the Company also adopted a stock option plan for nonemployee directors (the "Directors' Plan"), pursuant to which options to acquire a maximum aggregate of 360,000 shares of common stock may be granted to nonemployee directors. Options granted under the Directors' Plan do not qualify as incentive stock options within the meaning of Section 422 of the Code. The Directors' Plan provides for an automatic grant to each of the Company's nonemployee directors of an option to purchase 22,500 shares of common stock on the date of such director's initial election or appointment to the Board. The options will have an exercise price of 100% of the fair market value of the common stock on the date of grant, have a ten-year term and become exercisable in accordance with a vesting schedule determined by the Board of Directors. At December 31, 1999, approximately 104,740 options were exercisable and 170,000 options were available for future grants In December 1998, the Company also adopted, subject to stockholder approval, a long-term incentive plan (the "1999 Plan"), pursuant to which stock options, stock appreciation rights, restricted stock and other equity based awards may be granted. Stock options which may be granted may be incentive stock options and nonqualified stock options within the meaning of the Code. The total number of shares of the common stock of the Company which may be granted under the 1999 Plan is the sum of 30,000,000 and the number of shares available for new awards under the Stock Option Plan. At December 31, 1999, approximately 1,138,556 options were exercisable and 17,427,886 options are available for future grants. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net income and earnings per share is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS 123. The fair value for these options was estimated at the date of grant using the Black- Scholes option pricing model with the following weighted average assumptions; risk-free interest rates of approximately 6.1%, 4.6% and 6.5% in 1999, 1998 and 1997, respectively; volatility factor of the expected market price of the Company's common stock of 46%, 24% and 27% in 1999, 1998 and 1997, respectively; F-50 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED) a weighted average expected life of the options of 8 years in 1999, 1998 and 1997; and no dividend yield in 1999, 1998 and 1997. Under the accounting provisions of SFAS 123, the Company's net income (loss) and net income (loss) per share would have been reduced to the pro forma amounts indicated below:
1999 1998 1997 -------- -------- -------- Net income (loss) applicable to common and Class B common stockholders.............................................. $(41,874) $22,066 $46,628 Net income (loss) per common and Class B common share Basic..................................................... $ (0.50) $ 0.27 $ 0.61 Diluted................................................... $ (0.50) $ 0.26 $ 0.60
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.
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 --------------------------- -------------------------- -------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ---------- -------------- --------- -------------- --------- -------------- Outstanding at beginning of year........................ 8,615,402 $12.12 5,659,600 $ 9.76 1,685,457 $3.93 Granted....................... 10,724,025 30.53 4,088,951 18.10 4,593,711 11.36 Exercised..................... (2,323,242) 8.75 (488,224) 3.60 (218,670) 4.17 Forfeited/cancelled........... (1,058,843) 20.50 (644,925) 35.83 (400,898) 6.59 ---------- --------- --------- Outstanding at end of year.... 15,957,342 $24.43 8,615,402 $12.12 5,659,600 $9.76 ========== ========= ========= Options exercisable at year-end.................... 3,251,747 $12.16 768,594 $10.03 377,712 $3.63 ========== ========= ========= Weighted average fair value of options granted during the year........................ $18.74 $ 5.86 $3.28
The following table summarizes information about stock options outstanding at December 31, 1999.
WEIGHTED NUMBER WEIGHTED AVERAGE NUMBER AVERAGE OUTSTANDING AT REMAINING EXERCISABLE AT EXERCISE PRICE DECEMBER 31, 1999 CONTRACTUAL LIFE(YEARS) DECEMBER 31, 1999 --------------------- ----------------- ----------------------- ----------------- $0.60 to$10.00.... 2,717,510 7.0 1,855,625 10.01 to 20.00.... 3,354,182 8.6 939,662 20.01 to 26.00.... 5,334,754 9.5 338,680 26.01 to 50.00.... 4,531,930 9.7 102,680 50.01 to 81.38.... 18,966 8.0 15,100 ---------- --------- 15,957,342 3,251,747 ========== =========
F-51 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES The components of income (loss) before the provision (benefit) for income taxes, minority interests and equity in losses of affiliates are as follows:
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Domestic........................................ $(14,995) $ 7,707 $27,198 Foreign......................................... 13,256 38,644 46,815 -------- ------- ------- Total income (loss) before provision (benefit) for income taxes, minority interests and equity in losses of affiliates................ $ (1,739) $46,351 $74,013 ======== ======= =======
The provision (benefit) for income taxes is as follows:
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Current tax provision: U.S. Federal................................... $ 276 $ 1,073 $ 3,556 State and local................................ 1,062 1,611 3,037 Foreign........................................ 10,401 15,507 9,819 ------- ------- ------- Total current.................................... 11,739 18,191 16,412 ------- ------- ------- Deferred tax provision (benefit): U.S. Federal................................... (1,110) 2,719 2,178 State and local................................ (1,258) (639) 550 Foreign........................................ (2,463) (3,387) 3,665 ------- ------- ------- Total deferred................................... (4,831) (1,307) 6,393 ------- ------- ------- Total provision.................................. $ 6,908 $16,884 $22,805 ======= ======= =======
F-52 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED) The tax effects of temporary differences that give rise to the Company's deferred tax asset (liability) are below:
DECEMBER 31, ------------------- 1999 1998 -------- -------- Current deferred tax assets (liabilities): Earned commissions..................................... $ (4,945) $(5,124) Allowance for doubtful accounts........................ 8,241 6,699 Work-in-process........................................ (5,668) (5,224) Prepaid and other...................................... (121) (692) Accrued expenses and other liabilities................. 6,699 9 Accrued compensation................................... 2,746 (418) Tax loss carryforwards................................. 3,405 1,079 -------- ------- Total current deferred tax asset (liability)............. 10,357 (3,671) -------- ------- Noncurrent deferred tax assets (liabilities): Property and equipment................................. (2,143) (2,299) Intangibles............................................ 12,753 (1,344) Accrued expenses and other liabilities................. 639 3,768 Accrued rent........................................... 430 499 Deferred compensation.................................. 3,899 3,213 Tax loss carryforwards................................. 20,611 8,405 Valuation allowance.................................... (10,952) (3,128) -------- ------- Total noncurrent deferred tax asset...................... 25,237 9,114 -------- ------- Net deferred tax asset................................... $ 35,594 $ 5,443 ======== =======
At December 31, 1999, the Company has net operating loss carryforwards for U.S. Federal tax purposes of approximately $50 million which expire through 2019 and operating loss carryfowards in the United Kingdom and Australia of approximately $8.3 million and $1.3 million, respectively. The Company has concluded that, based on expected future results, the future reversals of existing taxable temporary differences, the tax benefits derived from the exercise of nonqualified employee stock options, the amortization of benefits from taxable poolings and the loss carryforwards of certain subsidiaries, which are only usable by such subsidiary, there is no reasonable assurance that the entire tax benefit can be used. Accordingly, a valuation allowance has been established. The deferred tax benefits from taxable poolings and the tax benefits derived from the exercise of nonqualified stock options, net of the valuation allowance, were recorded as additional paid-in capital. F-53 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 13--PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED) The provision for income taxes differs from the amount computed using the Federal statutory income tax rate as follows:
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Provision (benefit) at Federal statutory rate.... $ (500) $16,221 $24,956 State income taxes, net of Federal income tax effect......................................... (347) 672 1,945 Nondeductible expenses(1)........................ 9,151 5,462 1,429 Nondeductible special charge..................... 438 510 --- Foreign income taxes at other than the Federal statutory rate................................. (199) (1,656) 583 Profits of pooled entities taxed directly to owners......................................... (2,883) (3,774) (5,719) Increase in valuation allowance of pooled entities....................................... 1,109 173 12 Other............................................ 577 (652) (911) ------- ------- ------- Income tax provision............................. $ 6,908 $16,884 $22,805 ======= ======= =======
------------------------ (1) Primarily due to nondeductible (i) merger costs of $12.5 million, $6.9 million and $0, respectively which at the Federal statutory rate would have equated to a tax benefit of $4.4 million, $2.4 million and $0, respectively, (ii) amortization of intangible assets and (iii) meals & entertainment expenses. Provision has not been made for U.S. or additional foreign taxes on undistributed earnings of foreign subsidiaries. Such earnings have been and will continue to be reinvested but could become subject to additional tax if they were remitted as dividends, or were loaned to the Company or a U.S. affiliate, or if the Company should sell its stock in the foreign subsidiaries. It is not practicable to determine the amount of additional tax, if any, that might be payable on the foreign earnings; however, the Company believes that foreign tax credits would substantially offset any U.S. tax. At December 31, 1999, the cumulative amount of reinvested earnings was approximately $26.0 million. F-54 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 14--COMMITMENTS AND CONTINGENCIES (A) LEASES The Company leases its facilities and certain equipment under operating leases and certain equipment under capital leases. Future minimum lease commitments under both noncancellable operating leases and capital leases at December 31, 1999 are as follows:
CAPITAL OPERATING LEASES LEASES -------- --------- 2000...................................................... $4,298 $ 45,260 2001...................................................... 2,561 43,921 2002...................................................... 1,356 36,891 2003...................................................... 894 31,145 2004...................................................... 9 27,275 Thereafter................................................ -- 101,536 ------ -------- 9,118 $286,028 ======== Less: Amount representing interest........................ 851 ------ Present value of minimum lease payments................... 8,267 Less: Current portion..................................... 4,298 ------ $3,969 ======
Rent and related expenses under operating leases amounted to $44,471, $30,619, and $26,861 for the years ended December 31, 1999, 1998 and 1997, respectively. In February 2000 the Company signed a lease to occupy 84,342 square feet located at 205 Hudson Street, New York, New York to house the Interactive operations of its Recruitment Advertising division and Yellow Page division, which includes IN2. The lease will commence upon the completion of a work order and expires in 2010. Monthly payments under the new lease will be $170,441 through August 31, 2005 and $198,555 through the remainder of the lease and will escalate during the terms of the lease. This space allows for the future expansion of these and other Interactive operations of the Company. (B) CONSULTING, EMPLOYMENT AND NON-COMPETE AGREEMENTS The Company has entered into various consulting, employment and non-compete agreements with certain management personnel, executive search consultants and former owners of acquired businesses. These agreements are generally two to five years in length, with one for a term of fifteen years and two providing aggregate annual lifetime payments of approximately $135. The Company has entered into an amended employment agreement with Andrew J. McKelvey, effective November 15, 1996, for a term ending on November 14, 2001. The agreement provides for automatic renewal for successive one year terms unless either party notifies the other to the contrary at least 90 days prior to the expiration of the then current term. The agreement also provides that Mr. McKelvey will serve as Chairman of the Board and CEO of the Company and will be nominated for election as a director during all periods of his employment. Under the agreement, Mr. McKelvey is entitled to a base salary of $1,500 per year and until November 1998, when his agreement was amended, was F-55 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 14--COMMITMENTS AND CONTINGENCIES (CONTINUED) entitled to mandatory quarterly bonuses of $375. Mr. McKelvey waived such bonuses. On May 1, 1999, the Company and Mr. McKelvey further amended the employment agreement to provide for an annual base salary of $500 and an annual bonus, based on exceeding earnings per share targets, not to exceed $500. Mr. McKelvey was paid $834 in 1999. Under the agreement, Mr. McKelvey may terminate his employment upon 90 days' prior written notice for any reason. The agreement also provides that in the event Mr. McKelvey's employment is terminated by the Company prior to its expiration for reasons other than for "cause," the Company shall pay Mr. McKelvey his base salary for the remaining term of the agreement at the times it would have been payable had he remained employed. The agreement further provides that in the event of Mr. McKelvey's voluntary resignation, termination of his employment by the Company for cause or nonrenewal of the agreement, Mr. McKelvey shall not be entitled to any severance, and in the event of his disability or death he or his estate shall be paid his base salary for a period of 180 days after any such termination at the times it would have been payable had he remained employed. The agreement also contains confidentially provisions, whereby Mr. McKelvey agrees not to disclose any confidential information regarding the Company and its affiliates. Such agreements provide for the following aggregate annual payments:
DECEMBER 31, 1999 ------------ 2000........................................................ $11,009 2001........................................................ 7,596 2002........................................................ 2,863 2003........................................................ 1,956 2004........................................................ 1,290 Thereafter.................................................. 1,098 ------- $25,812 =======
(C) EMPLOYEE BENEFIT PLANS The Company has a 401(k) profit sharing plan covering all eligible employees. Employer matching contributions, which are a maximum of 2% of payroll of participating employees, amounted to $1,175, $924 and $813 for the years ended December 31, 1999, 1998 and 1997, respectively. LAI maintains a defined contribution profit sharing plan covering substantially all employees. In August 1998, the plan was amended to add a 401(k) savings and company matching feature. LAI profit sharing and matching contributions are discretionary and are funded annually as approved by the LAI Board of Directors. For the years ended December 31, 1999 and 1998, as reported herein, employer matching contributions for LAI amounted to $437 and $1,600, respectively. Effective January 1, 2000, LAI employees began contributing to the TMP plan. The LAI plan will be combined with TMP's plan during 2000. Outside of the United States, the Company has employee benefit plans in the countries in which it operates. The cost of these plans amounted to $6,234, $5,102 and $4,438 for the years ended December 31, 1999, 1998 and 1997, respectively. LAI has deferred compensation agreements with 58 employees and former employees. Under the terms of the agreements, employees are eligible to make annual elections, on calendar year basis, to defer F-56 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 14--COMMITMENTS AND CONTINGENCIES (CONTINUED) a portion of their compensation. This compensation, together with accrued interest, is paid upon termination of the agreements, as defined. Effective January 1, 1999, the plan was amended to prohibit future deferrals of compensation to the plan. The present value of the obligation is recorded as a long-term liability in the accompanying consolidated balance sheets and was $9,786 at December 31, 1999. Interest is earned on deferred amounts at a rate determined annually by LAI (6.25% at December 31, 1999). (D) LITIGATION The Company is subject to various claims, suits and complaints arising in the ordinary course of business. Although the outcome of these legal matters cannot be determined, it is the opinion of management that the final resolution of these matters will not have a material adverse effect on the Company's financial condition, operations or liquidity. M & B has had proceedings issued against it in New Zealand for an amount of $3,400. These proceedings relate to the acquisition of the claimant's business in New Zealand prior to Morgan & Banks New Zealand Limited becoming a controlled entity of the M & B group. The parties have engaged in significant discovery. The directors of M & B are of the opinion that the claim is without substance and, accordingly, the action is being vigorously defended. (E) AOL MARKETING AGREEMENT On December 1, 1999, the Company entered into a content and marketing arrangement with America Online, Inc. Pursuant to this arrangement, the Company's flagship Interactive property, Monster.com(sm), for the payment of $100 million over four years, would be the exclusive provider of career search services in the United States and Canada for four years to AOL members, currently over 21 million, across seven AOL properties, including the AOL Service, AOL Canada, Compuserve, ICQ, AOL.com, Netscape and Digital City. The $100 million will be expensed pro rata over the four year life of the agreement pursuant to the number of impressions contracted per year as a percent of the total impressions anticipated over the life of the agreement. (F) OTHER (i) The Company is contingently liable on a note of the Principal Stockholder in the amount of approximately $1,600. (ii) The majority stockholder of an unconsolidated equity investee has an agreement which requires the Company to purchase his interest, based on a formula value, upon death. The value of his shares at December 31, 1999 is approximately $6,200 based on the formula. NOTE 15--RELATED PARTY TRANSACTIONS (A) The Company charged management and other fees to affiliates for services provided of approximately $1,257, $651 and $788 for the years ended December 31, 1999, 1998, and 1997, respectively. Such fees are reflected as a reduction of salaries and related costs in the accompanying consolidated statements of operations. F-57 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 15--RELATED PARTY TRANSACTIONS (CONTINUED) (B) In January 1994, the Company acquired a 50% interest in an agency selling real estate advertising. In connection with this acquisition, the Company agreed to provide the agency with certain office and administrative services which amounted to $321 for the nine months ended September 31, 1997 at which time the arrangement was terminated.. The Company also entered into three-year employment and consulting agreements with the two other stockholders of the agency and granted them the right to convert their agency shares into Company shares after an initial public offering. That conversion right, as amended, provided that those two stockholders may convert 25% of the agency's stock into unregistered common stock of the Company with a total value of $1,000 as of the effective date of conversion. The conversion was exercised in February 1997 and 123,696 shares of common stock were issued to these stockholders pursuant to the above agreement. Simultaneously, the Company transferred to such stockholders 50% of its interest in the agency, thus retaining a 25% interest and terminated its obligation to provide office and administrative services effective October 1, 1997. (C) The Company leases an office from an entity in which the Principal Stockholder and other stockholders have a 90% ownership interest. Annual rent expense under the lease, which expires in the year 2004, amounts to approximately $554. (D) Beginning in June 1999, the Company periodically used the services of an aircraft from a company owned by the Principal Stockholder, and in connection therewith, $215 was paid through December 1999. NOTE 16--SEGMENT AND GEOGRAPHIC DATA The Company operates in five business segments: Interactive (including Monster.com(sm) and MonsterMoving.com(sm)), Recruitment Advertising, Selection & Temporary Contracting, Executive Search and Yellow Page Advertising which now also includes full service interactive advertising and marketing technology services through IN2. Operations are conducted in several geographic regions: North America, the Asia/Pacific Region (primarily Australia and New Zealand), the United Kingdom and Continental Europe. The following is a summary of the Company's operations by business segment and by geographic region, for the years ended December 31, 1999, 1998 and 1997. Overhead is allocated based on retroactively restated commissions and fees. F-58 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 16--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
INTERACTIVE SELECTION & YELLOW --------------------------------------- RECRUITMENT TEMPORARY EXECUTIVE PAGE INFORMATION BY BUSINESS SEGMENT MONSTER.COM(SM) MONSTERMOVING.COM(SM) ADVERTISING CONTRACTING SEARCH ADVERTISING ------------------------------- --------------- --------------------- ----------- ----------- --------- ----------- Year ended December 31, 1999 Commissions and fees: Traditional sources......... $ -- $ -- $181,228 $269,008 $173,277 $101,294 Interactive................. 112,323 6,393 13,352 6,447 -- 5,885 -------- ------- -------- -------- -------- -------- Total commissions and fees.... 112,323 6,393 194,580 275,455 173,277 107,179 -------- ------- -------- -------- -------- -------- Operating expenses: Salaries & related costs, office & general expenses and CEO bonus............. -- -- 158,643 236,225 173,004 61,649 Interactive expenses(a)..... 102,303 8,645 11,475 9,358 9,573 5,863 Merger & integration costs... -- -- 13,442 10,082 36,791 2,739 Restructuring charges....... -- -- -- -- 2,789 -- Amortization of intangibles............... 236 17 6,226 2,538 971 2,544 -------- ------- -------- -------- -------- -------- Total operating expenses...... 102,539 8,662 189,786 258,203 223,128 72,795 -------- ------- -------- -------- -------- -------- Operating income (loss): Traditional sources......... -- -- 2,917 20,163 (40,278) 34,362 Interactive................. 9,784 (2,269) 1,877 (2,911) (9,573) 22 -------- ------- -------- -------- -------- -------- Total operating income (loss)....................... $ 9,784 $(2,269) $ 4,794 $ 17,252 $(49,851) $ 34,384 ======== ======= ======== ======== ======== ======== Total other expense, net...... * * * * * * Income before provision for income taxes, minority interests and equity in losses of affiliates................ * * * * * * Total assets.................. $ 96,636 $ 6,052 $412,188 $232,793 $ 90,547 $215,012 ======== ======= ======== ======== ======== ======== INFORMATION BY BUSINESS SEGMENT TOTAL ------------------------------- ---------- Year ended December 31, 1999 Commissions and fees: Traditional sources......... $ 724,807 Interactive................. 144,400 ---------- Total commissions and fees.... 869,207 ---------- Operating expenses: Salaries & related costs, office & general expenses and CEO bonus............. 629,521 Interactive expenses(a)..... 147,217 Merger & integration costs... 63,054 Restructuring charges....... 2,789 Amortization of intangibles............... 12,532 ---------- Total operating expenses...... 855,113 ---------- Operating income (loss): Traditional sources......... 17,164 Interactive................. (3,070) ---------- Total operating income (loss)....................... 14,094 Total other expense, net...... (15,833) ---------- Income before provision for income taxes, minority interests and equity in losses of affiliates................ $ (1,739) ========== Total assets.................. $1,053,228 ==========
------------------------------ (a) Is comprised of salaries & related, office & general, marketing & promotion and allocated overhead. * Not allocated. F-59 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 16--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
INTERACTIVE SELECTION & --------------------------------------- RECRUITMENT TEMPORARY EXECUTIVE INFORMATION BY BUSINESS SEGMENT MONSTER.COM(SM) MONSTERMOVING.COM(SM) ADVERTISING CONTRACTING SEARCH ------------------------------- --------------- --------------------- ----------- ----------- --------- Year ended December 31, 1998 Total commissions and fees: Traditional sources................ $ -- $ -- $180,774 $208,028 $195,268 Interactive........................ 48,544 1,711 2,436 245 -- ------- ------ -------- -------- -------- Total commissions and fees........... 48,544 1,711 183,210 208,273 195,268 ------- ------ -------- -------- -------- Operating expenses: Salaries & related costs, office & general expenses and CEO special bonus............................ -- -- 161,572 181,462 184,993 Interactive expenses(a)............ 49,014 1,931 1,977 68 -- Merger & integration costs......... -- -- 2,004 9,445 10,367 Restructuring charges.............. -- -- -- 3,543 --- Amortization of intangibles........ 234 10 5,626 1,331 965 ------- ------ -------- -------- -------- Total operating expenses............. 49,248 1,941 171,179 192,306 199,868 ------- ------ -------- -------- -------- Operating income (loss): Traditional sources................ -- -- 11,572 15,790 (4,600) Interactive........................ (704) (230) 459 177 -- ------- ------ -------- -------- -------- Total operating income (loss)........ $ (704) $ (230) $ 12,031 $ 15,967 $ (4,600) ======= ====== ======== ======== ======== Total other expense, net............. * * * * * Income before provision for income taxes, minority interests and equity in losses of affiliates..... * * * * * Total assets......................... $35,927 $ 424 $263,191 $148,828 $148,894 ======= ====== ======== ======== ======== YELLOW PAGE INFORMATION BY BUSINESS SEGMENT ADVERTISING TOTAL ------------------------------- ----------- -------- Year ended December 31, 1998 Total commissions and fees: Traditional sources................ $106,455 $690,525 Interactive........................ 1,056 53,992 -------- -------- Total commissions and fees........... 107,511 744,517 -------- -------- Operating expenses: Salaries & related costs, office & general expenses and CEO special bonus............................ 64,431 592,458 Interactive expenses(a)............ 760 53,750 Merger & integration costs......... 596 22,412 Restructuring charges.............. 3,543 --- Amortization of intangibles........ 2,904 11,070 -------- -------- Total operating expenses............. 68,691 683,233 -------- -------- Operating income (loss): Traditional sources................ 38,524 61,286 Interactive........................ 296 (2) -------- -------- Total operating income (loss)........ $ 38,820 61,284 ======== Total other expense, net............. * (14,933) -------- Income before provision for income taxes, minority interests and equity in losses of affiliates..... * $ 46,351 ======== Total assets......................... $298,417 $895,681 ======== ========
------------------------------ (a) Is comprised of salaries & related, office & general, marketing & promotion and allocated overhead. * Not allocated. F-60 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 16--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
INTERACTIVE SELECTION & --------------------------------------- RECRUITMENT TEMPORARY EXECUTIVE INFORMATION BY BUSINESS SEGMENT MONSTER.COM(SM) MONSTERMOVING.COM(SM) ADVERTISING CONTRACTING SEARCH ------------------------------- --------------- --------------------- ----------- ----------- --------- Year ended December 31, 1997 Total commissions and fees: Traditional sources............... $ -- $ -- $136,758 $180,016 $168,107 Interactive....................... 18,974 275 2,206 -- -- ------- ----- -------- -------- -------- Commissions and fees................ 18,974 275 138,964 180,016 168,107 ------- ----- -------- -------- -------- Operating expenses: Salaries & related costs, office & general expenses and CEO bonus.. -- -- 125,073 157,901 143,335 Interactive expenses(a)........... 25,237 399 1,793 -- -- Amortization of intangibles....... 167 3 3,850 593 157 ------- ----- -------- -------- -------- Total operating expenses............ 25,404 402 130,716 158,494 143,492 ------- ----- -------- -------- -------- Operating income (loss): Traditional sources............... -- -- 7,835 21,522 24,615 Interactive....................... (6,430) (127) 413 -- -- ------- ----- -------- -------- -------- Total operating income (loss)....... $(6,430) $(127) $ 8,248 $ 21,522 $ 24,615 ======= ===== ======== ======== ======== Total other expense, net............ * * * * * Income before provision for income taxes, minority interests and equity in losses of affiliates.... * * * * * Total assets........................ $14,565 $ 98 $252,109 $141,230 $137,203 ======= ===== ======== ======== ======== YELLOW PAGE INFORMATION BY BUSINESS SEGMENT ADVERTISING TOTAL ------------------------------- ----------- -------- Year ended December 31, 1997 Total commissions and fees: Traditional sources............... $103,941 $588,822 Interactive....................... 485 21,940 -------- -------- Commissions and fees................ 104,426 610,762 -------- -------- Operating expenses: Salaries & related costs, office & general expenses and CEO bonus.. 66,059 492,368 Interactive expenses(a)........... 351 27,780 Amortization of intangibles....... 2,143 6,913 -------- -------- Total operating expenses............ 68,553 527,061 -------- -------- Operating income (loss): Traditional sources............... 35,739 89,711 Interactive....................... 134 (6,010) -------- -------- Total operating income (loss)....... $ 35,873 83,701 ======== Total other expense, net............ * (9,688) -------- Income before provision for income taxes, minority interests and equity in losses of affiliates.... * $ 74,013 ======== Total assets........................ $259,311 $804,516 ======== ========
------------------------------ (a) Is comprised of salaries & related, office & general, marketing & promotion and allocated overhead. * Not allocated. F-61 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 16--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
ASIA- UNITED CONTINENTAL INFORMATION BY GEOGRAPHIC REGION NORTH AMERICA PACIFIC KINGDOM EUROPE TOTAL -------------------------------- ------------- --------- -------- ----------- -------- Year ended December 31, 1999 Commissions and fees.................. $483,466 $161,643 $132,594 $91,504 $869,207 Income (loss) before taxes, minority interests and equity in earnings of affiliates.......................... (5,407) 9,042 (9,712) 4,338 (1,739) Long-lived assets..................... 166,203 38,283 108,797 79,429 392,712 Year ended December 31, 1998 Commissions and fees.................. $419,370 $131,906 $135,571 $57,670 $744,517 Income (loss) before taxes, minority interests and equity in earnings of affiliates.......................... 26,301 16,085 2,211 1,754 46,351 Long-lived assets..................... 156,867 32,918 110,656 48,089 348,530 Year ended December 31, 1997 Commissions and fees.................. $353,103 $113,620 $120,654 $23,385 $610,762 Income before taxes, minority interests and equity in earnings of affiliates.......................... 40,896 17,560 11,015 4,542 74,013 Long-lived assets..................... 144,121 33,054 101,094 21,844 300,113
NOTE 17--SUBSEQUENT EVENTS On February 2, 2000, the Company completed a follow-on public offering of an aggregate of 8,000,000 shares of common stock at a purchase price of $77 5/16 per share. The public offering was managed by Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., Salomon Smith Barney Inc., Deutsche Bank Securities Inc., PaineWebber Incorporated, and U.S. Bancorp Piper Jaffray Inc. Net proceeds from this offering were $594.2 million and $82 million was used to pay down debt on the Company's credit line. The remainder will be used for strategic equity investments and general corporate purposes. On February 16, 2000 the Company completed its previously announced acquisition of the HW Group PLC ("HW") whereby the Company acquired all of the outstanding stock of HW in a stock for stock transaction and issued approximately 716,000 shares of TMP common stock. HW is a recruitment consultancy firm based in the UK specializing in the financial and legal markets with a presence in executive, information technology and international recruitment disciplines. HW places both permanent and contract professional staff across a broad range of sectors and clients. This transaction has been accounted for as a poolings of interests in February and March 2000. Effective February 29, 2000, a 2-for-1 stock split, in the form of a stock dividend was paid. All share and per share amounts in the accompanying consolidated financial statements have been restated to give effect to the stock split. F-62 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
MARCH 31, DECEMBER 31, 2000 1999 ---------- ------------ ASSETS Current assets: Cash and cash equivalents................................. $ 515,743 $ 55,005 Accounts receivable, net.................................. 485,550 435,363 Work-in-process........................................... 23,321 25,631 Prepaid and other......................................... 79,056 59,176 ---------- -------- Total current assets.................................... 1,103,670 575,175 Property and equipment, net................................. 83,789 77,850 Intangibles, net............................................ 297,030 267,436 Other assets................................................ 37,186 47,573 ---------- -------- $1,521,675 $968,034 ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 270,620 $352,524 Accrued expenses and other liabilities.................... 197,241 124,375 Accrued integration and restructuring costs............... 25,237 21,453 Deferred commissions & fees............................... 84,678 71,736 Current portion of long term debt......................... 8,751 11,038 ---------- -------- Total current liabilities............................... 586,527 581,126 Long term debt, less current portion........................ 19,956 71,162 Other long-term liabilities................................. 27,297 29,962 ---------- -------- Total liabilities....................................... 633,780 682,250 ---------- -------- Minority interests.......................................... 52 9 ---------- -------- Stockholders' equity: Preferred stock, $.001 par value, authorized 800,000 shares; issued and outstanding: none.................. -- -- Common stock, $.001 par value, authorized 200,000,000 shares; issued and outstanding: 87,396,356 and 78,320,777 shares, respectively....................... 87 78 Class B common stock, $.001 par value, authorized 39,000,000 shares; issued and outstanding: 4,762,000............................................. 5 5 Additional paid-in capital.............................. 965,437 332,682 Other comprehensive loss................................ (39,084) (5,068) Deficit................................................. (38,602) (41,922) ---------- -------- Total stockholders' equity.................................. 887,843 285,775 ---------- -------- $1,521,675 $968,034 ========== ========
See accompanying notes to consolidated condensed financial statements. F-63 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------- 2000 1999 -------- -------- Commissions & fees.......................................... $244,003 $182,059 -------- -------- Operating expenses: Salaries & related........................................ 136,469 109,059 Office & general.......................................... 55,027 51,085 Marketing & promotion..................................... 28,286 9,884 Merger & integration...................................... 8,674 4,687 Restructuring............................................. -- 2,789 Amortization of intangibles............................... 3,351 2,828 -------- -------- Total operating expenses................................ 231,807 180,332 -------- -------- Operating income........................................ 12,196 1,727 -------- -------- Other income (expense): Interest income (expense) net............................. 2,794 (2,560) Other, net................................................ (87) 290 -------- -------- Total other income (expense), net....................... 2,707 (2,270) -------- -------- Income (loss) before provision (benefit) for income taxes, minority interests and equity in losses of affiliates..... 14,903 (543) Provision (benefit) for income taxes........................ 7,598 (696) -------- -------- Income before minority interests and equity in losses of affiliates................................................ 7,305 153 Minority interests.......................................... (81) 99 Equity in losses of affiliates.............................. -- (100) -------- -------- Net income (loss) applicable to common and Class B common stockholders.............................................. $ 7,386 $ (46) ======== ======== Net income per common and Class B common share: Basic..................................................... $ 0.08 $ -- Diluted................................................... $ 0.08 $ -- Weighted average shares outstanding: Basic..................................................... 89,282 80,350 Diluted................................................... 96,882 80,350
See accompanying notes to consolidated condensed financial statements. F-64 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------- 2000 1999 -------- -------- Net income (loss)........................................... $ 7,386 $ (46) Foreign currency translation adjustment..................... (34,016) 2,154 -------- ------ Comprehensive income (loss)................................. $(26,630) $2,108 ======== ======
See accompanying notes to consolidated condensed financial statements. F-65 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
CLASS B COMMON STOCK, COMMON STOCK, $.001 PAR VALUE $.001 PAR VALUE ADDITIONAL OTHER ---------------------- -------------------- PAID-IN COMPREHENSIVE SHARES AMOUNT SHARES AMOUNT CAPITAL LOSS DEFICIT ---------- --------- --------- -------- ---------- -------------- -------- Balance, December 31, 1999 (as reported on Form 10-K)...................... 76,621,654 $ 77 4,762,000 $5 $329,003 $ (5,068) $(43,502) Effect of First Quarter 2000 Mergers (see Note 3)....... 1,699,123 1 -- -- 3,679 -- 1,580 ---------- --------- --------- -- -------- -------- -------- Balance, December 31, 1999 (restated)................. 78,320,777 78 4,762,000 5 332,682 (5,068) (41,922) Issuance of common stock in connection with January 27, 2000 offering.............. 8,000,000 8 -- -- 594,230 -- -- Issuance of common stock in connection with the exercise of options........ 739,633 1 -- -- 12,009 -- -- Tax benefit from the exercise of stock options........... -- -- -- -- 5,443 -- -- Issuance of common stock in connection with acquisitions............... 320,512 -- -- -- 19,977 -- -- Issuance of common stock for matching contribution to 401(k) plan................ 15,434 -- -- -- 1,096 -- -- Foreign currency translation adjustment................. -- -- -- -- -- (34,016) -- Dividends declared by pooled companies.................. -- -- -- -- -- -- (4,066) Net income................... -- -- -- -- -- -- 7,386 ---------- --------- --------- -- -------- -------- -------- Balance, March 31, 2000...... 87,396,356 $ 87 4,762,000 $5 $965,437 $(39,084) $(38,602) ========== ========= ========= == ======== ======== ======== TOTAL STOCKHOLDERS' EQUITY ------------- Balance, December 31, 1999 (as reported on Form 10-K)...................... $280,515 Effect of First Quarter 2000 Mergers (see Note 3)....... 5,260 -------- Balance, December 31, 1999 (restated)................. 285,775 Issuance of common stock in connection with January 27, 2000 offering.............. 594,238 Issuance of common stock in connection with the exercise of options........ 12,010 Tax benefit from the exercise of stock options........... 5,443 Issuance of common stock in connection with acquisitions............... 19,977 Issuance of common stock for matching contribution to 401(k) plan................ 1,096 Foreign currency translation adjustment................. (34,016) Dividends declared by pooled companies.................. (4,066) Net income................... 7,386 -------- Balance, March 31, 2000...... $887,843 ========
See accompanying notes to consolidated condensed financial statements. F-66 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, --------------------- 2000 1999 --------- --------- Cash flows from operating activities: Net income (loss)......................................... $ 7,386 $ (46) --------- --------- Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization........................... 13,556 10,008 Provision for doubtful accounts......................... 3,756 1,353 Common stock issued for matching contribution to 401(k) plan.................................................. 1,096 902 (Gain) loss on disposal & write-down of fixed assets.... (26) 1,060 Provision for deferred income taxes..................... 3,003 (1,887) Minority interests and other............................ (81) 285 Effect of pooled companies included in more than one period................................................ (285) (4,881) Changes in assets and liabilities, net of effects of purchases of businesses: Increase in accounts receivable, net.................... (55,845) (21,824) (Increase) decrease in work-in-process, prepaid and other................................................. (11,647) 3,355 Increase in deferred commissions & fees................. 12,942 2,513 Decrease in accounts payable and accrued liabilities.... (28,544) (4,020) --------- --------- Total adjustments..................................... (62,075) (13,136) --------- --------- Net cash used in operating activities................. (54,689) (13,182) --------- --------- Cash flows from investing activities: Capital expenditures...................................... (17,537) (9,870) Payments for purchases of businesses, net of cash acquired................................................ (12,078) (12,030) --------- --------- Net cash used in investing activities................. (29,615) (21,900) --------- --------- Cash flows from financing activities: Borrowings under line of credit and proceeds from issuance of debt................................................. 111,626 306,647 Repayments under line of credit and principal payments on debt.................................................... (166,233) (296,219) Net proceeds from issuance of common stock................ 594,238 -- Cash received from the exercise of employee stock options................................................. 12,010 5,855 Dividends paid by pooled entities......................... (4,066) (3,064) Payments on capitalized leases............................ (1,070) (1,090) --------- --------- Net cash provided by financing activities............. 546,505 12,129 --------- --------- Effect of exchange rate changes on cash..................... (1,463) 670 --------- --------- Net increase (decrease) in cash and cash equivalents........ 460,738 (22,283) Cash and cash equivalents, beginning of period.............. 55,005 78,367 --------- --------- Cash and cash equivalents, end of period.................... $ 515,743 $ 56,084 ========= =========
See accompanying notes to consolidated condensed financial statements. F-67 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 1--BASIS OF PRESENTATION The consolidated condensed interim financial statements included herein have been prepared by TMP Worldwide Inc. ("TMP" or the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These statements reflect all adjustments, consisting of normal recurring adjustments that, in the opinion of management, are necessary for fair presentation of the information contained herein. It is suggested that these consolidated condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. The Company follows the same accounting policies in preparation of interim reports. During the period of January 1, 2000 through March 31, 2000, the Company consummated mergers with the following companies in transactions that provided for the exchange of all of the outstanding stock of each entity for a total of 1,699,123 shares of TMP common stock. Such transactions were accounted for as poolings of interests (the "First Quarter 2000 Mergers"):
NUMBER OF ENTITY NATURE OF OPERATIONS ACQUISITION DATE TMP SHARES ISSUED ------ -------------------- ---------------- ----------------- HW Group PLC................ Search & Selection February 16, 2000 715,769 Microsurf, Inc.............. Yellow Page Advertising February 16, 2000 684,462 Burlington Wells, Inc....... Search & Selection February 29, 2000 52,190 Illsley Bourbonnais......... Search & Selection March 1, 2000 246,702
Accordingly, the consolidated condensed financial statements included herein as of December 31, 1999 and for the 1999 period have been retroactively restated to reflect the First Quarter 2000 Mergers as if the combining companies had been consolidated for all periods presented. As a result, the financial position, and statements of income (loss), comprehensive income (loss) and cash flows are presented as if the combining companies had been consolidated for all periods presented. In addition, the consolidated statement of stockholders' equity reflect the accounts of TMP as if the additional common stock issued in connection with these mergers had been issued for all periods presented. Furthermore, the results of Illsley Bourbonnais for the month ended January 31, 2000 are included in both the consolidated statement of stockholders' equity for the year ended December 31, 1999 and the consolidated statement of operations for the three months ended March 31, 2000. Therefore the following amounts have been included in both periods: (a) commissions & fees of $1,019 and (b) net income of $285. Furthermore, for the period April 1, 1999 through March 31, 2000 the Company completed 22 acquisitions using the purchase method of accounting. Given the significant number of acquisitions affecting the periods presented, the results of operations from period to period may not necessarily be comparable. Furthermore, results of operations for the interim periods are not necessarily indicative of annual results. F-68 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 1--BASIS OF PRESENTATION (CONTINUED) Amounts charged to clients for Temporary Contracting services are reported net of the costs paid to the temporary contractor. The details for such amounts are:
THREE MONTHS ENDED MARCH 31, ------------------- 2000 1999 -------- -------- Temporary Contracting revenue............................... $98,361 $87,755 Temporary Contracting costs................................. 78,627 71,737 ------- ------- Temporary Contracting, billings and commissions & fees...... $19,734 $16,018 ======= =======
On January 27, 2000, in connection with its third public offering, the Company issued an aggregate of, on a post-split basis, 8,000,000 shares of common stock at a purchase price of $77 5/16 per share. The offering was completed in February 2000. The net proceeds from this offering were $594.2 million, and approximately $85 million was used to pay down debt on the Company's credit line. The remainder is being invested in short term interest bearing instruments until used for acquisitions, strategic equity investments and general corporate purposes. Basic earnings per share assumes no dilution, and is computed by dividing income available to common and Class B common shareholders by the weighted average number of common and Class B common shares outstanding during each period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the effect of common shares issuable upon exercise of stock options and warrants, and contingent shares, based on the treasury method of computing such effects. A reconciliation of shares used in calculating basic and diluted earnings per common and Class B common share follows:
THREE MONTHS ENDED MARCH 31, ------------------- 2000 1999 -------- -------- (IN THOUSANDS) Basic....................................................... 89,282 80,350 Effect of assumed conversion of options..................... 7,600 * ------ ------ Diluted..................................................... 96,882 80,350 ====== ======
* Effect would be antidilutive. NOTE 2--NATURE OF BUSINESS AND CREDIT RISK The Company operates in five business segments: Interactive, Recruitment Advertising, Search & Selection, Temporary Contracting and Yellow Page Advertising, which now also includes full service interactive advertising and marketing technology services through IN2 and interactive relocation services. The Company's commissions and fees are earned from the following activities: (a) advertisements placed on its career and other websites, (b) resume and other database access, (c) executive and mid-level search and selection services, (d) temporary contracting services, (e) selling and placing recruitment advertising and related services, (f) resume screening services and (g) selling and placing Yellow Page Advertising and related services. These services are provided to a large number of customers in many different industries. F-69 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 2--NATURE OF BUSINESS AND CREDIT RISK (CONTINUED) The Company operates principally throughout North America, the United Kingdom, Continental Europe and the Asia/Pacific Region (primarily Australia and New Zealand). NOTE 3--BUSINESS COMBINATIONS ACQUISITIONS ACCOUNTED FOR USING THE POOLING OF INTERESTS METHOD During the period of January 1, 2000 through March 31, 2000, the Company completed the following mergers which provided for the exchange of all of the outstanding stock of each entity for a total of 1,699,123 shares of TMP common stock and which were accounted for as poolings of interests. The effect on the various components of stockholders' equity at December 31, 1999 are as follows:
COMMON STOCK, $.001 PAR VALUE ADDITIONAL RETAINED TOTAL --------------------- PAID-IN EARNINGS STOCKHOLDERS' ENTITY REGION OF OPERATIONS SHARES AMOUNT CAPITAL (DEFICIT) EQUITY ----------------------- ----------------------- ---------- -------- ---------- --------- ------------- HW Group PLC........... United Kingdom 715,769 $ 1 $3,676 $ (217) $ 3,460 Microsurf, Inc......... North America 684,462 -- -- (1,180) (1,180) Burlington Wells, North America Inc.................. 52,190 -- 3 103 106 Illsley Bourbonnais.... North America 246,702 -- -- 2,874 2,874 ----------------------- ---------- ------ ------ ------- ------- Total at December 31, 1999............... 1,699,123 $ 1 $3,679 $ 1,580 $ 5,260 ========== ====== ====== ======= =======
F-70 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 3--BUSINESS COMBINATIONS (CONTINUED) Commissions and fees, net income (loss) applicable to common and Class B common stockholders and net income (loss) per common and Class B common share of the combining companies are as follows:
THREE MONTHS ENDED MARCH 31, 1999 ------------------ COMMISSIONS AND FEES TMP, as previously reported on Form 10-K for the year ended December 31, 1999......................................... $169,006 HW Group PLC................................................ 11,076 Microsurf, Inc.............................................. 926 Burlington Wells, Inc....................................... 164 Illsley Bourbonnais......................................... 887 -------- TMP, as restated............................................ $182,059 -------- NET INCOME (LOSS) APPLICABLE TO COMMON AND CLASS B COMMON STOCKHOLDERS TMP, as previously reported on Form 10-K, for the year ended December 31, 1999......................................... $ (2,319) HW Group PLC................................................ 1,894 Microsurf, Inc.............................................. (4) Burlington Wells, Inc....................................... 103 Illsley Bourbonnais......................................... 280 -------- TMP, as restated............................................ $ (46) -------- NET INCOME (LOSS) PER COMMON AND CLASS B COMMON SHARE TMP, as previously reported on Form 10-K, for the year ended December 31, 1999 Basic..................................................... $ (0.03) Diluted................................................... $ (0.03) Restated: Basic..................................................... $ -- Diluted................................................... $ --
MERGER & INTEGRATION COSTS INCURRED WITH POOLING OF INTERESTS TRANSACTIONS Merger and integration costs are expenses incurred in connection with business combinations accounted for under the pooling of interests method of accounting. In general, merger costs are comprised of transaction costs (such as advisory, legal and accounting fees, printing costs and costs incurred for the subsequent registration of shares in connection with the transactions) and stay bonuses. Integration costs are those associated with the elimination of redundant facilities and personnel, integration of the operations of the pooled entities and acceleration of benefits and separation pay in accordance with pre-existing contractual change in control provisions. In connection with pooling of interests transactions completed prior to March 31, 2000, the Company expensed merger and integration costs of $8,674. Of this amount $3,607 is for merger costs and $5,067 is for integration costs. The merger costs for the period ended March 31, 2000 consist of (a) $2,323 of non-cash employee stay bonuses and (b) $1,284 of transaction related costs, including legal, accounting, printing and advisory fees and the costs incurred for the subsequent registration of shares issued in the acquisitions. The $5,067 of integration costs consist of: (a) $2,544 for assumed obligations of closed facilities, (b) $2,871 for consolidation of acquired facilities and (c) $121 for severance, relocation and other F-71 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 3--BUSINESS COMBINATIONS (CONTINUED) employee costs, partially offset by a $469 recovery of a reserve for receivables. See schedule of Accrued Integration and Restructuring Costs in the section below. ACQUISITIONS ACCOUNTED FOR USING THE PURCHASE METHOD In addition to the pooling of interests transactions discussed above, in the three month period ended March 31, 2000, the Company completed four acquisitions using the purchase method of accounting, two Search & Selection firms and two Recruitment Advertising firms. The total amount of cash paid for these acquisitions was approximately $14.4 million. In addition, the Company issued 247,098 shares of common stock in connection with certain of the above mentioned acquisitions. Operations of these businesses have been included in the consolidated financial statements from their acquisition dates. The summarized unaudited pro forma results of operations set forth below for the three month periods ended March 31, 2000 and 1999 and the year ended December 31, 1999 assume the acquisitions in 2000 and 1999 occurred as of the beginning of the year of acquisition and the beginning of the preceding year.
THREE MONTHS ENDED MARCH 31, YEAR ENDED ------------------- DECEMBER 31, 2000 1999 1999 -------- -------- ------------ Commissions & fees.......................................... $244,981 $193,934 $856,329 Net income (loss) applicable to common and Class B common stockholders.............................................. $ 7,495 $ 637 $ (4,708) Net income (loss) per common and Class B common share: Basic..................................................... $ 0.08 $ -- $ (0.06) Diluted................................................... $ 0.08 $ -- $ (0.06)
The unaudited pro forma results of operations are not necessarily indicative of what actually would have occurred if the acquisitions had been completed at the beginning of each of the periods presented, nor are the results of operations necessarily indicative of the results that will be attained in the future. ACCRUED INTEGRATION AND RESTRUCTURING COSTS In connection with its acquisitions, the Company formulated plans to integrate the operations of the acquired companies. Such plans involve the closure of certain offices of such companies and the elimination of redundant management and employees. The objectives of the plans are to take advantage of the Company's existing operating infrastructure and efficiencies or to develop efficiencies from the infrastructure of the acquired companies, and to create a single brand in the related markets in which the Company operates. In connection with such plans, in the three months ended March 31, 2000, the Company (i) expensed, as part of merger and integration expenses, $5,067, for companies acquired in transactions accounted for as poolings of interests and (ii) increased goodwill by $1,078 for companies acquired in transactions accounted for under the purchase method. In addition, in 1999 LAI Worldwide, Inc. ("LAI") formulated plans to close its London, England and Hong Kong offices. In connection with these office closings, LAI F-72 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 3--BUSINESS COMBINATIONS (CONTINUED) charged earnings for the quarter ended March 31, 1999 for $2,789 and established restructuring reserves. These costs and liabilities include:
ADDITIONS DEDUCTIONS BALANCE --------------------- -------------------------- BALANCE DECEMBER 31, CHARGED TO APPLIED AGAINST MARCH 31, 1999 GOODWILL EXPENSED RELATED ASSET PAYMENTS 2000 ------------ ---------- -------- --------------- -------- --------- Assumed obligations on closed leased facilities................ $ 9,564 $ -- $2,544 $ -- $(1,408) $ 10,700(a) Consolidation of acquired facilities....................... 8,715 141 2,871 -- (927) 10,800(b) Contracted lease payments exceeding current market costs............. 562 -- -- -- (33) 529(c) Severance, relocation and other employee costs................... 954 937 121 -- (462) 1,550(d) Provision for uncollectible receivables...................... -- -- (469) 469 -- -- Pension obligations................ 1,658 -- -- -- -- 1,658(e) ------- ------ ------ ---- ------- --------- Total............................ $21,453 $1,078 $5,067 $469 $(2,830) $ 25,237 ======= ====== ====== ==== ======= =========
------------------------ (a) Accrued liabilities for surplus property in the amount of $10,700 as of March 31, 2000 relate to leased office locations of acquired companies that were either unutilized prior to the acquisition date or will be closed by December 31, 2000 in connection with the restructuring plans. The amount is based on the present value of minimum future lease obligations, net of estimated sublease income. (b) Other costs associated with the closure or consolidation of existing offices of acquired companies in the amount of $10,800 as of March 31, 2000 relate to termination costs of contracts relating to billing systems, external reporting systems and other contractual arrangements with third parties. (c) Above market lease costs in the amount of $529 as of March 31, 2000 relate to the present value of contractual lease payments in excess of current market lease rates. (d) Estimated employee severance and relocation expenses and other employee costs in the amount of $1,550 as of March 31, 2000 relate to estimated severance for terminated employees at closed locations, costs associated with employees transferred to continuing offices and other related costs. Employee groups affected include sales, service, administrative and management personnel at duplicate locations as well as redundant management and administrative personnel at corporate headquarters. As of March 31, 2000, the accrual related to senior management, sales, service and administrative personnel. During the quarter ended March 31, 2000, payments of $462 were made for severance and charged against the reserve. (e) Pension obligations in the amount of $1,658 were assumed in connection with the acquisition of Austin Knight. The Company continues to evaluate and assess the impact of duplicate responsibilities and office locations. In connection with the finalization of preliminary plans relating to purchased entities, additions to restructuring reserves within one year of the date of acquisition are treated as additional purchase price but costs incurred resulting from plan revisions made after the first year will be charged to operations in the period in which they occur. F-73 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 4--SEGMENT AND GEOGRAPHIC DATA The Company is engaged in five lines of business based primarily on the reporting of senior management to the Chief Operating Officer: Interactive, Recruitment Advertising, Search & Selection, Temporary Contracting and Yellow Page Advertising (which now also includes full service interactive advertising services provided by IN2 and interactive relocation services). Operations are conducted in several geographic regions: North America, the Asia/Pacific Region (primarily Australia and New Zealand), the United Kingdom and Continental Europe. The following is a summary of the Company's operations by business segment and by geographic region, for the three months ended March 31, 2000 and 1999.
RECRUITMENT SEARCH & TEMPORARY YELLOW PAGE INFORMATION BY BUSINESS SEGMENT INTERACTIVE ADVERTISING SELECTION CONTRACTING ADVERTISING TOTAL ------------------------------- ----------- ----------- --------- ----------- ----------- -------- FOR THE THREE MONTHS ENDED MARCH 31, 2000 Commissions & fees Traditional sources............... $ -- $45,714 $86,846 $19,734 $23,300 $175,594 Interactive....................... 56,359 5,782 2,177 291 3,800 68,409 ------ ------- ------- ------- ------- -------- Commissions & fees.................. 56,359 51,496 89,023 20,025 27,100 244,003 ------ ------- ------- ------- ------- -------- Operating expenses: Salaries & related, office & general, marketing & promotion, and overhead.................... -- 39,650 86,828 17,982 17,820 162,280 Interactive (a)................... 47,074 4,816 1,742 78 3,792 57,502 Merger & integration.............. -- 143 7,823 449 259 8,674 Amortization of intangibles....... 60 1,277 904 26 1,084 3,351 ------ ------- ------- ------- ------- -------- Total operating expenses............ 47,134 45,886 97,297 18,535 22,955 231,807 ------ ------- ------- ------- ------- -------- Operating income (loss): Traditional sources............... -- 4,644 (8,709) 1,277 4,137 1,349 Interactive....................... 9,225 966 435 213 8 10,847 ------ ------- ------- ------- ------- -------- Operating income (loss)............. $9,225 $ 5,610 $(8,274) $ 1,490 $ 4,145 12,196 ====== ======= ======= ======= ======= ======== Total other income, net............. * * * * * 2,707 -------- Income before provision for income taxes, minority interests and equity in losses of affiliates.... * * * * * $ 14,903 ========
------------------------ (a) Is comprised of salaries & related, office & general, marketing & promotion and overhead. * Not allocated. F-74 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 4--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
RECRUITMENT SEARCH & TEMPORARY YELLOW PAGE INFORMATION BY BUSINESS SEGMENT INTERACTIVE ADVERTISING SELECTION CONTRACTING ADVERTISING TOTAL ------------------------------- ----------- ----------- --------- ----------- ----------- -------- FOR THE THREE MONTHS ENDED MARCH 31, 1999 Net commissions & fees Traditional sources................ $ -- $45,639 $ 75,143 $16,018 $23,795 $160,595 Interactive........................ 15,709 2,826 830 492 1,607 21,464 ------- ------- -------- ------- ------- -------- Net commissions & fees............... 15,709 48,465 75,973 16,510 25,402 182,059 ------- ------- -------- ------- ------- -------- Operating expenses: Salaries & related, office & general, marketing & promotion, and overhead..................... -- 38,063 80,536 13,843 16,205 148,647 Interactive (a).................... 17,221 1,623 908 165 1,464 21,381 Merger & integration............... -- 79 4,608 -- -- 4,687 Restructuring...................... -- -- 2,789 -- -- 2,789 Amortization of intangibles........ 58 1,693 415 26 636 2,828 ------- ------- -------- ------- ------- -------- Total operating expenses............. 17,279 41,458 89,256 14,034 18,305 180,332 ------- ------- -------- ------- ------- -------- Operating income (loss): Traditional sources................ -- 5,804 (13,205) 2,149 6,954 1,702 Interactive........................ (1,570) 1,203 (78) 327 143 25 ------- ------- -------- ------- ------- -------- Operating income (loss).............. $(1,570) $ 7,007 $(13,283) $ 2,476 $ 7,097 1,727 ======= ======= ======== ======= ======= ======== Total other expense, net............. * * * * * (2,270) -------- Loss before provision for income taxes, minority interests and equity in losses of affiliates..... * * * * * $ (543) ========
------------------------ (a) Is comprised of salaries & related, office & general, marketing & promotion and overhead. * Not allocated. F-75 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 4--SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
ASIA/ UNITED CONTINENTAL INFORMATION BY GEOGRAPHIC REGION NORTH AMERICA PACIFIC KINGDOM EUROPE TOTAL -------------------------------- ------------- -------- -------- ----------- -------- MARCH 31, 2000 Total commissions & fees............... $134,323 $42,601 $36,773 $30,306 $244,003 Income (loss) before income taxes, minority interests and equity in losses of affiliates................. $ 12,694 $ 3,458 $(4,971) $ 3,722 $ 14,903 MARCH 31, 1999 Total commissions & fees............... $ 93,858 $35,743 $32,270 $20,188 $182,059 Income (loss) before income taxes, minority interests and equity in losses of affiliates................. $(13,525) $ 3,172 $ 4,941 $ 4,869 $ (543)
NOTE 5-SUBSEQUENT EVENTS From April 1, 2000 through May 12, 2000, the Company entered into merger agreements by which it acquired all of the outstanding shares of three companies which are being accounted for as poolings of interests. These companies were paid for with 2,024,214 shares of TMP common stock and approximately $726 was paid to certain dissenting shareholders who chose to receive cash in lieu of shares. Furthermore, 94,885 shares of TMP common stock are being reserved for options which have been converted from outstanding options to purchase one of the company's common stock. One of the companies is engaged in recruitment advertising business, one is a mid-market selection business specializing in the recruitment of information technology/telecommunications and engineering professionals and the third company is a comprehensive provider of interactive relocation information, services and analytical tools. Additionally, during May 2000, the Company entered into a merger agreement whereby it acquired all of the outstanding shares of a mid-market selection firm located in the Netherlands. This transaction was completed using the purchase method of accounting, with the total purchase price of $5.1 million paid with 51,906 shares and approximately $1.5 million in cash. F-76 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 income (loss), 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. /s/ BDO SEIDMAN, LLP ------------------------------- BDO SEIDMAN, LLP
New York, New York March 7, 2000 F-77 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. /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
F-78 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To LAI Worldwide, Inc.: We have audited the consolidated balance sheet of LAI Worldwide, Inc. (a Florida corporation) and subsidiaries as of February 28, 1999, and the related consolidated statements of operations, stockholders' equity, comprehensive income and cash flows for each of the two years in the period ended February 28, 1999 (not presented separately herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of LAI Worldwide, Inc. and subsidiaries as of February 28, 1999, and the results of their operations and their cash flows for each of the two years in the period ended February 28, 1999, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Tampa, Florida April 7, 1999 F-79 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31, ------------------- 1999 1998 -------- -------- 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 ======== ========
See accompanying notes to consolidated financial statements. F-80 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- 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 ======== ======== ========
See accompanying notes to consolidated financial statements. F-81 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- 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 ======= ======= =======
F-82 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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 ---------- -------- ----------- -------- ---------- ----------- ------------- -------- 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) TOTAL STOCKHOLDERS' EQUITY ------------- 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
F-83 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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 ---------- -------- ----------- -------- ---------- ----------- ------------- -------- 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) TOTAL STOCKHOLDERS' EQUITY ------------- 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
F-84 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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 ---------- -------- ----------- -------- ---------- ----------- ------------- -------- 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) ========== === =========== ==== ======== ======= ======= ======== TOTAL STOCKHOLDERS' EQUITY ------------- 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 ========
See accompanying notes to consolidated financial statements. F-85 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ---------------------------------- 1999 1998 1997 ---------- ---------- -------- 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 ========== ========== ========
See accompanying notes to consolidated financial statements. F-86 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") F-87 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. F-88 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:
YEARS -------- Buildings and improvements.................................. 5-32 Furniture and equipment..................................... 3-10 Capitalized software costs.................................. 3- 5 Computer equipment.......................................... 3- 7 Transportation equipment.................................... 3-18
Leasehold improvements are amortized over their estimated useful lives or the lives of the related leases, whichever is shorter. INTANGIBLES Intangibles represent acquisition costs in excess of the fair value of net tangible assets of businesses purchased and consist primarily of the value of ongoing client relationships and goodwill. These costs are being amortized over periods ranging from three to thirty years on a straight-line basis. LONG-LIVED ASSETS Long-lived assets, such as ongoing client relationships, goodwill and property and equipment, are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows resulting from the use of these assets. When any such impairment exists, the related assets will be written down to fair value. Impairment losses have been recorded as Merger and Integration Costs (See Note 5). FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS The financial position and results of operations of the Company's foreign subsidiaries are determined using local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rate in effect at each year-end. Income statement accounts are translated at the average rate of exchange prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are included in the other comprehensive loss account in stockholders' equity. Gains and losses resulting from foreign currency transactions are included in other income (expense). F-89 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):
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- 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 ======== ======== ========
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. F-90 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 F-91 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): 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 ======
------------------------ * 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 F-92 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:
DECEMBER 31, ------------------- 1999 1998 -------- -------- 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 ======== ========
------------------------ (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. F-93 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:
DECEMBER 31, ------------------- 1999 1998 -------- -------- 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 ======= =======
Property and equipment includes equipment under capital leases at December 31, 1999 and 1998 with a cost of $8,032 and $13,726, respectively, and accumulated amortization of $6,000 and $7,084, respectively. F-94 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):
NATURE OF REGION OF NUMBER OF TMP ENTITY OPERATIONS OPERATIONS ACQUISITION DATE SHARES ISSUED ------ ------------------------- ------------------------- ----------------- ------------- 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
F-95 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:
AS REPORTED ON FORM 10-K FOR THE YEAR ENDED RESTATED TO REFLECT THE DECEMBER 31, 1998 1999 POOLINGS ------------------ ----------------------- 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
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 F-96 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.
YEAR ENDED DECEMBER 31, ------------------- 1999 1998 -------- -------- 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
F-97 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:
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 ------------------------------------ ------------- -------- -------- ------------- -------- ------------- 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 ======= ======= ======= ======== ======== =======
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 ------------------------------------ ------------- -------- -------- ------------- -------- ------------ 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 Pension obligations............. 1,650 103 -- -- -- 1,753 ------- ------- ------- -------- -------- ------- Total........................... $16,801 $10,020 $ 3,543 $ -- $(13,617) $16,747 ======= ======= ======= ======== ======== =======
F-98 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 5--BUSINESS COMBINATIONS (CONTINUED)
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 ------------------------------------ ------------- -------- -------- ------------- -------- ------------ 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 ==== ======= ==== ==== ===== =======
------------------------ (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. F-99 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:
DECEMBER 31, AMORTIZATION ------------------- PERIOD 1999 1998 (YEARS) -------- -------- ------------ 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 ======== ========
NOTE 7--SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest and income taxes amounted to the following:
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Interest......................................... $12,760 $11,642 $13,739 Income taxes..................................... 11,270 14,671 14,902
In conjunction with business acquisitions, the Company used cash as follows:
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- 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 ======= ======= ========
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 F-100 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%. F-101 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:
DECEMBER 31, ------------------- 1999 1998 -------- -------- 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 ======= ========
F-102 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:
DECEMBER 31, 1999 ------------ 2001........................................................ $ 9,224 2002........................................................ 1,333 2003........................................................ 59,998* 2004........................................................ 556 Thereafter.................................................. 50 ------- $71,161 =======
------------------------ * 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 F-103 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. F-104 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:
1999 1998 1997 -------- -------- -------- 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
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.
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 ----------------------------- ---------------------------- ---------------------------- WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ---------- ---------------- --------- ---------------- --------- ---------------- 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
F-105 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
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 ------------------------- ----------------- ------------------------ ----------------- $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 ========== =========
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:
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- 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 ======== ======= =======
The provision for income taxes is as follows:
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- 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 ======= ======= =======
F-106 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:
DECEMBER 31, ------------------- 1999 1998 -------- -------- 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 ======= =======
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. F-107 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:
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- 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 ======= ======= =======
------------------------ (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. F-108 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:
CAPITAL OPERATING LEASES LEASES -------- --------- 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 ======
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 F-109 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:
DECEMBER 31, 1999 ------------ 2000........................................................ $ 8,457 2001........................................................ 5,455 2002........................................................ 1,741 2003........................................................ 1,765 2004........................................................ 1,290 Thereafter.................................................. 1,098 ------- $19,806 =======
(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. F-110 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. Such fees are reflected as a reduction of salaries and related costs in the accompanying consolidated statements of operations. F-111 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 15--RELATED PARTY TRANSACTIONS (CONTINUED) (B) In January 1994, the Company acquired a 50% interest in an agency selling real estate advertising. In connection with this acquisition, the Company agreed to provide the agency with certain office and administrative services which amounted to $321 for the nine months ended September 31, 1997 at which time the arrangement was terminated. The Company also entered into three-year employment and consulting agreements with the two other stockholders of the agency and granted them the right to convert their agency shares into Company shares after an initial public offering. That conversion right, as amended, provided that those two stockholders may convert 25% of the agency's stock into unregistered common stock of the Company with a total value of $1,000 as of the effective date of conversion. The conversion was exercised in February 1997 and 123,696 shares of common stock were issued to these stockholders pursuant to the above agreement. Simultaneously, the Company transferred to such stockholders 50% of its interest in the agency, thus retaining a 25% interest and terminated its obligation to provide office and administrative services effective October 1, 1997. (C) The Company leases an office from an entity in which the Principal Stockholder and other stockholders have a 90% ownership interest. Annual rent expense under the lease, which expires in the year 2004, amounts to approximately $554. (D) Beginning in June 1999, the Company periodically used the services of an aircraft from a company owned by the Principal Stockholder, and in connection therewith, $215 was paid through December 1999. NOTE 16--SEGMENT AND GEOGRAPHIC DATA The Company 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 F-112 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.
EXECUTIVE RECRUITMENT SEARCH & TEMPORARY YELLOW PAGE INFORMATION BY BUSINESS SEGMENT INTERACTIVE ADVERTISING SELECTION CONTRACTING ADVERTISING TOTAL ------------------------------- ----------- ----------- --------- ----------- ----------- ----- 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 ======= ======== ======== ======= ======== ========
------------------------ (a) Is comprised of salaries & related, office & general and marketing & promotion expenses. * Not allocated. F-113 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)
EXECUTIVE YELLOW RECRUITMENT SEARCH & TEMPORARY PAGE INFORMATION BY BUSINESS SEGMENT INTERACTIVE ADVERTISING SELECTION CONTRACTING ADVERTISING TOTAL ------------------------------- ----------- ----------- --------- ----------- ----------- ----- 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 ======= ======== ======== ======= ======== ========
------------------------ (a) Is comprised of salaries & related, office & general and marketing & promotion expenses. * Not allocated. F-114 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)
EXECUTIVE RECRUITMENT SEARCH & TEMPORARY YELLOW PAGE INFORMATION BY BUSINESS SEGMENT INTERACTIVE ADVERTISING SELECTION CONTRACTING ADVERTISING TOTAL ------------------------------- ----------- ----------- --------- ----------- ----------- -------- 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 ======= ======== ======== ======= ======== ========
------------------------ (a) Is comprised of salaries & related, office & general and marketing & promotion expenses. * Not allocated.
ASIA/PACIFIC UNITED CONTINENTAL INFORMATION BY GEOGRAPHIC REGION: NORTH AMERICA REGION KINGDOM EUROPE TOTAL --------------------------------- ------------- ------------ -------- ----------- -------- 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
F-115 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)
ASIA/PACIFIC UNITED CONTINENTAL INFORMATION BY GEOGRAPHIC REGION: NORTH AMERICA REGION KINGDOM EUROPE TOTAL --------------------------------- ------------- ------------ -------- ----------- -------- 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
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. F-116 INDEPENDENT AUDITORS' REPORT BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH SINDELFINGEN, GERMANY We have audited the accompanying balance sheet of Baumgartner + Partner Personalberatung GmbH as of December 31, 1999 and the related statements of income, comprehensive income (loss), stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in the United States of America and Germany. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly in all material respects, the financial position of Baumgartner + Partner Personalberatung GmbH as of December 31, 1999, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles of the United States of America. Frankfurt am Main, Germany, June 20, 2000 BDO International GmbH Wirtschaftsprufungsgesellschaft /s/ Klaus-Juergen Rudolph/Michael Follner F-117 BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH SINDELFINGEN BALANCE SHEET DECEMBER 31, 1999 US DOLLARS ASSETS CURRENT ASSETS Cash and cash equivalents................................. 4,952 Trade accounts receivable, net of allowance for doubtful accounts USD 96,021..................................... 2,282,856 Receivable from parent.................................... 292,461 Work in progress.......................................... 678,523 Prepaid expenses and other current assets................. 324,823 --------- TOTAL CURRENT ASSETS.................................. 3,583,615 --------- NON-CURRENT ASSETS Cash surrender value of life insurances................... 429,054 Property and equipment, net............................... 411,718 --------- TOTAL NON-CURRENT ASSETS.............................. 840,772 --------- TOTAL ASSETS........................................ 4,424,387 --------- LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Accounts payable.......................................... 401,703 Accrued expenses.......................................... 2,549,657 Payables to affiliated company............................ 887,031 Payroll tax............................................... 200,610 Customers deposits........................................ 117,069 Other current liabilities................................. 29,422 --------- TOTAL CURRENT LIABILITIES............................. 4,185,492 --------- NON CURRENT LIABILITIES Deferred compensation..................................... 161,543 --------- STOCKHOLDER'S EQUITY Common stock.............................................. 87,771 Accumulated other comprehensive (loss).................... (10,419) --------- TOTAL EQUITY.......................................... 77,352 --------- TOTAL LIABILITIES AND EQUITY........................ 4,424,387 =========
See accompanying notes to financial statements. F-118 BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH SINDELFINGEN STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1999 US DOLLARS COMMISSIONS AND FEES........................................ 14,662,488 ---------- Salary and related.......................................... 9,073,046 Office and general.......................................... 2,203,195 Marketing and promotion..................................... 611,692 ---------- OPERATING EXPENSES.......................................... 11,887,933 ---------- OPERATING INCOME............................................ 2,774,555 Other income, net........................................... 286,867 ---------- INCOME BEFORE INTEREST AND TAXES............................ 3,061,422 Interest income (expense), net.............................. 1,575 ---------- INCOME BEFORE TAXES......................................... 3,062,997 Income taxes................................................ 510,645 ---------- NET INCOME BEFORE PROFIT TRANSFER........................... 2,552,352 Profit transfer to parent................................... 2,552,352 ---------- NET INCOME TRANSFERRED TO RESERVES.......................... -- ==========
See accompanying notes to financial statements. F-119 BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH SINDELFINGEN STATEMENT OF STOCKHOLDERS' EQUITY YEAR ENDED DECEMBER 31, 1999 US DOLLARS
ACCUMULATED OTHER COMMON COMPREHENSIVE TOTAL STOCK INCOME (LOSS) -------- -------- ----------------- Balances at January 1, 1999................................ 89,660 87,771 1,889 Foreign currency translation adjustment.................... (12,308) -- (12,308) ------- ------ ------- Balances at December 31, 1999.............................. 77,352 87,771 (10,419) ======= ====== =======
See accompanying notes to financial statements. F-120 BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH SINDELFINGEN STATEMENT OF COMPREHENSIVE INCOME (LOSS) YEAR ENDED DECEMBER 31, 1999 US DOLLARS Net income before profit transfer........................... 2,552,352 Foreign currency translation adjustment..................... (12,308) --------- Comprehensive income before profit transfer................. 2,540,044 Profit transfer to parent................................... 2,552,352 --------- (12,308) =========
See accompanying notes to financial statements. F-121 BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH SINDELFINGEN STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1999 US DOLLARS CASH FLOWS FROM OPERATING ACTIVITIES Net income before profit transfer........................... 2,552,352 Adjustments to reconcile net income with net cash provided by operating activities: Depreciation and amortization............................. 169,567 Gain on sale of assets.................................... (87) Changes in assets and liabilities: Trade receivables....................................... (191,252) Work in progress........................................ (148,759) Prepaid expenses and other current assets............... 39,314 Accounts payable and payables to affiliated companies... (1,820,826) Deferred compensation................................... 32,128 Accrued expenses, payroll taxes, customer deposits and other current liabilities............................. (463,221) ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES............... 169,216 ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from the sale of equipment....................... 94 Acquisitions of property and equipment.................... (183,451) Increase of cash surrender values of life insurance....... (95,829) ---------- NET CASH USED IN INVESTING ACTIVITIES................... (279,186) ---------- CASH FLOWS FROM FINANCING ACTIVITIES Decrease in receivables from shareholders................. 2,610,764 Profit transfer to parent................................. (2,552,352) ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES............... 58,412 ---------- NET DECREASE IN CASH AND CASH EQUIVALENTS............... (51,558) Effect of exchange rate changes on cash................... 51,851 Cash and cash equivalents at beginning of year............ 4,659 ---------- Cash and cash equivalents at end of year.................. 4,952 ========== Supplementary cash flow information: Interest paid............................................. 912 ========== Taxes paid................................................ 9,164 ==========
See accompanying notes to financial statements. F-122 BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH SINDELFINGEN NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999 THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A) THE COMPANY The financial statements include Baumgartner + Partner Personalberatung GmbH ("the Company"), Sindelfingen. The Company is active in executive search, personnel consulting and media services primarily in Germany. B) AUDIT SCOPE The Company prepares its statutory financial statements in accordance with German Commercial Code and German Limited Liability Companies Act (Gesetz betreffend die Gesellschaften mit beschrankter Haftung) which are the basis of generally accepted accounting principles ("GAAP") in Germany. GAAP in Germany varies in certain significant respects from those in the United States. Financial statements in accordance with US-GAAP have been prepared after examining potential differences between German-GAAP and US-GAAP. The principal difference between German-GAAP and US-GAAP for the Company relates to revenue recognition and the related income tax effect which results in an increase in net income before profit transfer of approximately USD 155,313. C) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION: The financial statements of the Company have been prepared in accordance with US-GAAP. USE OF ESTIMATES: The preparation of the financial statements requires the Company's management to make estimates and assumptions regarding the amounts of receivables, liabilities and provisions and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of sales and expenses during the reported period. Actual results may differ from those estimates. REVENUE RECOGNITION AND WORK IN PROGRESS: The Company's revenues are derived principally from services rendered to clients for search and selection of employees. Revenues are recognized in general in three stages: The first portion (between 25% and 40%) of the agreed total is invoiced at the time of contract signing, the second portion (between 25% and 40%) approximately ten weeks later and the remainder upon completion of the project, which approximates when services are rendered. Work-in-progress is estimated at the lower of production costs and net realizable value. Work-in-progress shows the difference between production costs incurred and revenues already recognized for each project. The production costs are estimated for every single project based on the selling price of the project without considering costs that cannot be capitalized, such as selling expenses. CASH AND CASH EQUIVALENTS: All highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. TRADE ACCOUNTS RECEIVABLES: Trade accounts receivables are shown in the balance sheet with their net realizable value after the respective revenues have been recognized, net of provisions of USD 96,021. PROPERTY AND EQUIPMENT: Property and equipment is valued at acquisition cost and depreciated over their estimated useful lives ranging from 3 to 8 years using the straight line method. F-123 BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH SINDELFINGEN NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999 (CONTINUED) LONG-LIVED ASSETS: Long-lived assets, such as property and equipment, are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows resulting from the use of those assets. When any such impairment exists, the related assets will be written down to fair value. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS: The Company has presented its financial statements in US-Dollars. The financial position and results of operations are determined using local currency as functional currency. Assets and liabilities are translated at the exchange rate in effect at year-end. Income statement accounts are translated at the average rate of exchange prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are included in the other comprehensive loss account in equity. Gains and losses resulting from foreign currency transactions are included in other income (expense). CREDIT RISK: Financial instruments, which potentially subject the Company to concentrations of credit risk are primarily accounts receivable. The Company performs continuing evaluations of its customers and does not require collateral. The Company has not experienced significant losses related to receivables from individual customers or groups of customers in any particular industry or geographic area. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amounts reported in the balance sheet for cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the immediate or short-term maturity of those financial instruments. COMPREHENSIVE INCOME (LOSS): Comprehensive income (loss) is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. The Company's only item of other comprehensive income (loss) is the foreign currency translation adjustment. CAPITALIZED SOFTWARE COSTS: The Company capitalizes certain incurred software development costs in accordance with the American Institute of Certified Public Accountants ("AICPA") Statement of Position No. 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use". Costs incurred during the application-development stage for software bought and further customized by outside vendors for the Company's use and software developed by the vendor for the Company's proprietary use have been capitalized. Capitalized software costs are amortized over a period of 4 years. EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1998, the Financial Accounting Standards Board issued the Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivatives and Hedging Activities", which establishes accounting and reporting standards for derivative financial instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company does not expect the adoption of this statement to have significant impact on the Company's results of operations or financial position. ADVERTISING COSTS: Advertising costs are expensed as incurred. Such costs are included in selling, general and administrative expenses. F-124 BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH SINDELFINGEN NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999 (CONTINUED) PROPERTY AND EQUIPMENT Property and Equipment consist of the following at December 31, 1999:
US DOLLARS ---------- Property and Equipment Software, acquired from others............................ 66,300 Technical equipment....................................... 104,087 Office equipment.......................................... 765,416 ------- 935,803 Less accumulated depreciation............................. 524,085 ------- 411,718 =======
ACCRUED EXPENSES Accrued expenses consist of the following at December 31, 1999:
US DOLLARS ---------- Employee bonuses............................................ 1,518,115 Directors' bonus............................................ 704,402 Vacation.................................................... 111,952 Other....................................................... 215,188 --------- 2,549,657 =========
NON-CURRENT LIABILITIES Non-current liabilities comprise deferred compensation of employees based on individual deferred compensation agreements. The accrual for the deferred compensation is based on the German "Teilwert" method which does not materially differ from US-GAAP. RELATED PARTY TRANSACTIONS The following transactions with the related parties of Baumgartner + Partner Personalsberatung GmbH have been reflected in the financial statements for the year ended December 31, 1999:
US DOLLARS ---------- Profit transfer to parent................................... 2,552,352 Charge for trade income tax................................. 510,645 Receivable from parent...................................... 292,461 Payables to affiliated company.............................. 887,031
Profit transfer to parent arises from the profit and loss pooling agreement between the Company and its parent, Karl Baumgartner + Partner Consulting GmbH & Co. KG. The charge for trade income tax arises because the parent company pays the trade income tax on the earnings of the Company and charges it back to the Company. F-125 BAUMGARTNER + PARTNER PERSONALBERATUNG GMBH SINDELFINGEN NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999 (CONTINUED) Receivable from shareholder is from Karl Baumgartner + Partner Consulting GmbH & Co KG for services of cash management, profit distribution, trade tax recharge and VAT payments. Payable to affiliated company is between Baumgartner + Partner Unternehmensberatung GmbH and the Company for charges of rent, recharged salaries and others. INCOME TAXES The income of the Company is transferred by a profit and loss pooling agreement contract ("Ergebnisabfuhrungsvertrag") to its shareholder Karl Baumgartner + Partner Consulting GmbH & Co. KG. Between the Company and its shareholder exists a fiscal unity ("Organschaft") for trade-tax and corporation-tax. Therefore, only the shareholder has to pay taxes on the consolidated income. The shareholder recharges to the Company the trade tax that would have to be paid on the income of the Company. The shareholder is a limited partnership and has therefore only to pay the trade income tax. The partners of the parent company will have to pay income tax on their individual part of the income after trade income tax of the partnership. These individual income tax payments are not shown in the financial statements of the partnership. COMMITMENTS AND CONTINGENCIES OPERATING LEASES: In 1999 the Company recorded lease expenses for company cars of USD 302,834 and expenses for the leasing of office equipment of USD 70,845. The leasing commitments at December 31, 1999 are as follows (in US-Dollars):
2000 2001 2002 TOTAL -------- -------- -------- --------- Office space lease..................................... 618,195 618,195 528,984 1,765,374 Other lease contracts.................................. 253,759 253,759 253,759 761,277
SUBSEQUENT EVENT All of the shares in Karl Baumgartner + Partner Consulting GmbH & Co. KG--the shareholder of the Company--have been transferred from the former owners to TMP Worldwide Inc. ("TMP") on February 10, 2000 in exchange for approximately $10 million in cash and 169,764 shares of unregistered TMP common stock. In connection with the transfer of shares to TMP the Company had to pay an additional compensation of USD 386,760 to an employee of Baumgartner terminated as a result of the acquisition. The Company did not accrue for this payment in the financial statements as at December 31, 1999. F-126 QD GROUP LIMITED CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE THREE MONTHS ENDED 31 MARCH 2000 AND 31 MARCH 1999
2000 2000 CONTINUING DISCONTINUED NOTES BUSINESSES BUSINESSES 2000 1999 -------- ---------- ------------ ---------- ---------- L L L L TURNOVER................................ 2 4,405,369 6,073 4,411,442 3,190,594 Cost of sales........................... (192,455) (41,916) (234,371) (317,439) ---------- ------- ---------- ---------- GROSS PROFIT/(LOSS)..................... 4,212,914 (35,843) 4,177,071 2,873,155 Net operating expenses.................. (2,921,242) (5,988) (2,927,230) (2,544,948) ---------- ------- ---------- ---------- OPERATING PROFIT/(LOSS)................. 1,291,672 (41,831) 1,249,841 328,207 ---------- ---------- PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION.............................. 1,249,841 328,207 Tax on profit on ordinary activities.... 3 (374,952) (87,511) ---------- ---------- PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION.............................. 874,889 240,696 ========== ==========
The attached notes to the financial statements form an integral part of these financial statements. F-127 QD GROUP LIMITED CONSOLIDATED BALANCE SHEET AS AT 31 MARCH 2000 AND 31 MARCH 1999
NOTES 2000 1999 --------- --------- --------- L L FIXED ASSETS Tangible assets............................................. 4 952,825 870,732 Investments................................................. 5 894,200 900,300 --------- --------- 1,847,025 1,771,032 --------- --------- CURRENT ASSETS Debtors..................................................... 4,194,186 3,401,132 Cash at bank and in hand.................................... 1,434,298 1,977,056 --------- --------- 5,628,484 5,378,188 Creditors................................................... 3,125,535 3,459,631 --------- --------- NET ASSETS.................................................. 4,349,974 3,689,589 ========= ========= CAPITAL AND RESERVES Called-up share capital..................................... 49,806 49,806 Share premium account....................................... 30,895 30,895 Capital redemption reserve.................................. 944 944 Profit and loss account..................................... 4,268,328 3,604,288 --------- --------- EQUITY SHAREHOLDERS' FUNDS.................................. 4,349,973 3,685,933 Minority interests--equity.................................. -- 3,656 --------- --------- TOTAL CAPITAL AND RESERVES.................................. 4,349,973 3,689,589 ========= =========
The attached notes to the financial statements form an integral part of these financial statements. F-128 QD GROUP LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE THREE MONTHS ENDED 31 MARCH 2000 AND 31 MARCH 1999
2000 1999 NOTES L L -------- -------- -------- NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES......... 6 154,333 (165,829) -------- -------- TAXATION UK corporation tax paid..................................... -- -- -------- -------- CAPITAL EXPENDITURE AND FINANCIAL INVESTMENTS Purchase of tangible fixed assets........................... (140,565) (106,451) Sale of tangible fixed assets............................... 14,250 6,321 -------- -------- FINANCING................................................... (126,315) (100,130) Repayment of loan........................................... (12,354) (12,354) Capital element of finance lease repayments................. (41,080) (41,080) -------- -------- (53,434) (53,434) -------- -------- DECREASE IN CASH IN THE PERIOD.............................. (25,416) (319,393) -------- --------
The attached notes to the financial statements form an integral part of these financial statements. F-129 QD GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS 1 BASIS OF PRESENTATION The consolidated condensed interim financial statements included herein have been prepared according to accounting principles generally accepted in the United Kingdom (UK GAAP). These principles differ in certain respects from those generally accepted in the United States (US GAAP). The significant areas of difference are shown in note 6. The financial statements have been prepared without audit, pursuant to the rules and regulations of the US Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Group believes that the disclosures are adequate to make the information presented not misleading. These statements reflect all adjustments, consisting of normal recurring adjustments that, in the opinion of management, are necessary for fair presentation of the information contained herein. It is suggested that these consolidated condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Group's annual report for the year ended September 30, 1999. The Group follows the same accounting policies in preparation of interim reports. 2 ANALYSIS BY GEOGRAPHICAL AREA/BUSINESS SEGMENT Turnover is generated wholly from the group's principal activities. The analysis of the group's turnover by destination and origin is set out below:
2000 1999 L L --------- --------- TURNOVER United Kingdom......................................... 3,683,477 2,971,369 Europe................................................. 211,986 35,225 Far East............................................... 481,236 126,000 Rest of the World...................................... 34,743 58,000 --------- --------- 4,411,442 3,190,594 ========= =========
The analysis of the group's turnover by business segment is set out below:
2000 1999 L L --------- --------- TURNOVER Recruitment............................................ 4,211,912 2,828,700 Business services...................................... 193,457 98,918 Discontinued businesses................................ 6,073 262,976 --------- --------- 4,411,442 3,190,594 ========= =========
F-130 QD GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 3 TAXATION
2000 1999 L L -------- -------- UK corporation tax Current @ 30% (1999:30.5%)................................. 374,952 87,511 ======= ======
4 TANGIBLE FIXED ASSETS The net book values as at 31 March 2000 are summarised below:
L -------- Computers................................................... 3,051 Motor vehicles.............................................. 58,935 Fixtures, fittings and equipment............................ 890,839 ------- TOTAL NET BOOK VALUE AT 31 MARCH 2000....................... 952,825 =======
5 FIXED ASSET INVESTMENTS
ESOT INVESTMENT IN OWN ORDINARY SHARES L --------------- At 31 March 2000............................................ 894,200 =======
6 RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES
2000 1999 L L --------- ---------- Operating profit...................................... 1,249,841 328,207 Depreciation.......................................... 84,407 89,237 Profit on sale of tangible fixed assets............... (6,898) (14,375) Increase in debtors................................... (579,071) (1,045,915) (Decrease)/increase in creditors...................... (593,946) 477,017 --------- ---------- Net cash inflow/(outflow) from operating activities... 154,333 (165,829) ========= ==========
7 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The consolidated financial statements are prepared in conformity with generally accepted accounting principles in the United Kingdom ("UK GAAP") which differ in certain respects from those generally F-131 QD GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 7 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) accepted in the United States ("US GAAP"). The significant areas of difference affecting the financial statements of the Group are described below: RECONCILIATIONS The following is a summary of the material adjustments to net income and shareholders' equity which would have been required if US GAAP had been applied instead of UK GAAP:
2000 1999 NOTE L L -------- -------- -------- NET INCOME IN ACCORDANCE WITH UK GAAP............... 874,889 240,696 ADJUSTMENT TO CONFORM WITH US GAAP Deferred taxation................................... (b) 10,002 (14,935) ------- ------- NET INCOME IN ACCORDANCE WITH US GAAP............... 884,891 225,761 ------- -------
2000 1999 L L --------- --------- SHAREHOLDERS' FUNDS IN ACCORDANCE WITH UK GAAP... 4,349,973 3,689,589 ADJUSTMENTS TO CONFORM WITH US GAAP Reclassification of investment held by ESOT...... (c) (894,200) (900,300) Dividends receivable on shares held by ESOT...... (c) (345,130) (270,697) Profit on sale of shares held by ESOT............ (c) (81,310) (77,710) Deferred tax liability........................... (b) (32,379) (13,096) --------- --------- Shareholders' funds in accordance with US GAAP... 2,996,954 2,427,786 --------- ---------
A) DISCONTINUED OPERATIONS The effect of discontinued operations on the 1999 results were as follows:
CONTINUING DISCONTINUED BUSINESSES BUSINESSES TOTAL L L L ---------- ------------ ---------- TURNOVER.................................. 2,691,884 498,710 3,190,594 Cost of sales............................. (70,393) (247,046) (317,439) ---------- -------- ---------- Gross profit.............................. 2,621,491 251,664 2,873,155 Net operating expenses.................... (2,221,549) (323,399) (2,544,948) ---------- -------- ---------- OPERATING PROFIT.......................... 399,942 (71,735) 328,207 ---------- -------- ----------
F-132 QD GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 7 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) Net liabilities of discontinued operations
2000 1999 L L ---------- ---------- Fixed assets......................................... -- 31,034 Debtors.............................................. 49,640 244,510 Cash................................................. 2,172 481,583 Creditors............................................ (1,144,193) (1,384,456) ---------- ---------- (1,092,381) (627,329) ========== ==========
B) INCOME TAXES Under UK GAAP, the Group provides for deferred taxation using the partial liability method on all timing differences to the extent that it is considered probable that the liabilities will crystallise in the foreseeable future. Deferred tax assets are recognised to the extent that they are recoverable without replacement in the foreseeable future. Under US GAAP, income taxes are accounted for under Statement of Financial Accounting Standard ("SFAS") No. 109, "Accounting for Income Taxes." In accordance with SFAS No. 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the difference is reversed. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Income before the provision for taxes consisted of the following:
2000 1999 L L --------- -------- Domestic................................................ 867,213 483,937 Foreign................................................. 382,628 (155,730) --------- -------- INCOME BEFORE INCOME TAXES UNDER US GAAP................ 1,249,841 328,207 ========= ========
C) EMPLOYEE SHARE OWNERSHIP TRUST Under UK GAAP, shares in the company which are held by the ESOT are shown as fixed asset investments and the related dividends receivable and gain or loss on sale of shares are included in operating income. Under US GAAP, the shares held by the ESOT are shown as treasury shares and the dividends and gains or losses on sales of shares are not recognised. F-133 QD GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 7 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) D) CASH FLOWS Set out below is a summary consolidated statement of cash flows for the Group under US GAAP.
2000 1999 L L -------- -------- Net cash provided by/(used in) operating activities..... 154,333 (165,829) Net cash used in investing activities................... (126,315) (100,130) Net cash used in financing activities................... (53,434) (53,434) -------- -------- NET DECREASE IN CASH UNDER US GAAP...................... (25,416) (319,393) ======== ========
F-134 AUDITORS' REPORT TO THE SHAREHOLDERS OF QD GROUP LIMITED We have audited the financial statements on pages F-136 to F-156 which have been prepared under the historical cost convention and accounting policies set out on pages F-140 and F-141. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The company's directors are responsible for the preparation of the financial statements in accordance with applicable United Kingdom law and accounting standards. Our responsibilities, as independent auditors, are established in the United Kingdom by statute, the Auditing Practices Board and by our profession's ethical guidance. BASIS OF OPINION We conducted our audit in accordance with Auditing Standards issued by the United Kingdom Auditing Practices Board, which are substantially consistent with generally accepted auditing standards in the United States. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the company and of the group, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. OPINION In our opinion the financial statements give a true and fair view of the state of affairs of the company and of the group as at 30 September 1998 and 1999 and of the group's profits and cash flows for the two years then ended and have been properly prepared in accordance with the Companies Act 1985. Certain accounting practices of the Group used in preparing the accompanying financial statements conform with generally accepted accounting principles in the United Kingdom, but do not conform with accounting principles generally accepted in the United States. A description of these differences and the adjustments required to conform the financial statements to accounting principles generally accepted in the United States are set forth in note 26. Arthur Andersen Chartered Accountants and Registered Auditors 20 Old Bailey London EC4M 7AN 5 April 2000 (except with respect to note 26 which is as of 14 July 2000). F-135 CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
1999 1999 CONTINUING DISCONTINUED NOTES BUSINESSES BUSINESSES 1999 1998 -------- ----------- ------------- ----------- ---------- L L L L TURNOVER.......................... 2 13,141,901 1,196,080 14,337,981 11,900,838 Cost of sales..................... (2,428,478) (919,624) (3,348,102) (2,303,809) ---------- --------- ----------- ---------- GROSS PROFIT...................... 10,713,423 276,456 10,989,879 9,597,029 Net operating expenses............ (9,584,757) (936,495) (10,521,252) (8,701,664) Other income...................... 3 125,219 -- 125,219 60,494 ---------- --------- ----------- ---------- OPERATING PROFIT.................. 1,253,885 (660,039) 593,846 955,859 Interest receivable............... 72,458 108,575 Interest payable.................. 7 (11,456) (3,651) ----------- ---------- PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION................. 4 654,848 1,060,783 Tax on profit on ordinary activities...................... 8 (254,262) (328,842) ----------- ---------- PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION.................. 400,586 731,941 Minority interests................ 19 3,658 5,292 ----------- ---------- PROFIT FOR THE FINANCIAL YEAR..... 9 404,244 737,233 Dividends--equity shareholders.... 10 (200,000) (400,000) ----------- ---------- RETAINED PROFIT FOR THE FINANCIAL YEAR............................ 17 204,244 337,233 ----------- ----------
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES PROFIT FOR THE FINANCIAL YEAR........... 404,244 737,233 Loss on currency translation............ (8,873) -- ----------- ---------- TOTAL RECOGNISED GAINS AND LOSSES....... 395,371 737,233 ----------- ----------
The attached notes to the accounts form an integral part of these financial statements. F-136 CONSOLIDATED BALANCE SHEET AS AT 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
NOTES 1999 1998 --------- ---------- ---------- L L FIXED ASSETS Tangible assets............................................ 11 949,816 736,470 Investments................................................ 12 894,200 900,300 ---------- ---------- 1,844,016 1,636,770 ---------- ---------- CURRENT ASSETS Debtors.................................................... 13 4,131,727 3,084,443 Cash at bank and in hand................................... 1,289,810 2,039,693 ---------- ---------- 5,421,537 5,124,136 CREDITORS: amounts falling due within one year............. 14 (3,231,327) (3,185,562) ---------- ---------- NET CURRENT ASSETS......................................... 2,190,210 1,938,574 ---------- ---------- TOTAL ASSETS LESS CURRENT LIABILITIES...................... 4,034,226 3,575,344 CREDITORS: amounts falling due after more than one year.... 15 (267,169) -- ---------- ---------- NET ASSETS................................................. 3,767,057 3,575,344 ========== ========== CAPITAL AND RESERVES Called-up share capital.................................... 16 49,806 49,806 Share premium account...................................... 17 30,895 30,895 Capital redemption reserve................................. 17 944 944 Profit and loss account.................................... 17 3,685,412 3,490,041 ---------- ---------- EQUITY SHAREHOLDERS' FUNDS................................. 18 3,767,057 3,571,686 Minority interests--equity................................. 19 -- 3,658 ---------- ---------- TOTAL CAPITAL AND RESERVES................................. 3,767,057 3,575,344 ========== ==========
The attached notes to the accounts form an integral part of these financial statements. F-137 COMPANY BALANCE SHEET AS AT 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
NOTES 1999 1998 --------- ---------- ---------- L L FIXED ASSETS Investments................................................ 12 941,818 931,287 ---------- ---------- CURRENT ASSETS Debtors.................................................... 13 9,082,608 2,291,624 Cash at bank and in hand................................... 842,060 1,711,028 ---------- ---------- 9,924,668 4,002,652 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR............. 14 (5,843,394) (3,033,297) ---------- ---------- Net current assets......................................... 4,081,274 969,355 ---------- ---------- NET ASSETS................................................. 5,023,092 1,900,642 ========== ========== CAPITAL AND RESERVES Called-up share capital.................................... 16 49,806 49,806 Share premium account...................................... 17 30,895 30,895 Capital redemption reserve................................. 17 944 944 Profit and loss account.................................... 17 4,941,447 1,818,997 ---------- ---------- EQUITY SHAREHOLDERS' FUNDS................................. 5,023,092 1,900,642 ========== ==========
The financial statements were approved by the Board on 5 April 2000. GD Quarry Director The attached notes to the accounts form an integral part of these financial statements. F-138 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998
NOTES 1999 1998 -------- -------- --------- L L NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES......... 20 (265,434) 1,770,844 -------- --------- RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received........................................... 72,458 108,575 Interest paid............................................... (2,648) (5,227) Interest element of finance lease rental payments........... (8,808) -- -------- --------- 61,002 103,348 TAXATION UK corporation tax paid..................................... (581,455) (401,708) ACT repayment............................................... 100,000 163,733 -------- --------- (481,455) (237,975) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENTS Purchase of tangible fixed assets........................... (12,877) (634,175) Purchase of investments..................................... -- (67,100) Sale of tangible fixed assets............................... 52,355 62,148 -------- --------- 39,478 (639,127) EQUITY DIVIDENDS PAID....................................... -- (397,885) -------- --------- Cash (outflow)/inflow before financing...................... (646,409) 599,205 FINANCING New loan.................................................... 175,750 -- Repayment of loan........................................... (64,563) -- Capital element of finance lease rental payments............ (214,661) -- -------- --------- CASH OUTFLOW FROM FINANCING................................. (103,474) -- -------- --------- (DECREASE)/INCREASE IN CASH IN THE YEAR..................... 21 (749,883) 599,205 ======== =========
The attached notes to the accounts form an integral part of these financial statements. F-139 NOTES TO THE ACCOUNTS FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 1 ACCOUNTING POLICIES The principal accounting policies are summarised below: A) BASIS OF ACCOUNTING The accounts have been prepared under the historical cost convention and in accordance with applicable accounting standards. B) BASIS OF CONSOLIDATION The consolidated accounts include the accounts of the company and all its subsidiary undertakings. The results of subsidiaries acquired or disposed of during the year are included in the consolidated profit and loss account from the date of their acquisition or up to the date of their disposal. Intra-group sales and profits are eliminated on consolidation. C) TANGIBLE FIXED ASSETS Tangible fixed assets are stated at cost less depreciation. Depreciation is calculated so as to write off the cost of tangible fixed assets less their estimated residual values, on a straight line basis, over the expected useful economic lives of the assets concerned. The principal annual rates used for this purpose are: Motor vehicles.............................................. -- 25% Computers................................................... -- 33% Fixtures, fittings and equipment............................ -- 20%
D) FINANCE AND OPERATING LEASES Costs in respect of operating leases are charged on a straight line basis over the lease term. Where fixed assets are financed by leasing agreements, which transfer to the company substantially all the benefits and risks of ownership, the assets are treated as if they had been purchased outright and are included in tangible fixed assets. The capital element of the leasing commitments is shown as obligations under finance leases. The lease rentals are treated as consisting of capital and interest elements. The capital element is applied to reduce the outstanding obligations and the interest element is charged against profit in proportion to the reducing capital element outstanding. Assets held under finance leases are depreciated over the shorter of the lease term and their useful lives. E) FOREIGN CURRENCIES Assets and liabilities expressed in foreign currencies at the balance sheet date are translated into sterling at rates of exchange prevailing at the end of the financial year. Transactions carried out during the year are translated at the rate of exchange ruling at the date of the transaction. The results of overseas operations are translated at the average rates of exchange during the year and their balance sheets at the rates ruling at the balance sheet date. Exchange differences arising on translation of the opening net assets and results of overseas operations are dealt with through reserves. All other exchange differences are included in the profit and loss account in the year in which they arise. F-140 NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 1 ACCOUNTING POLICIES (CONTINUED) F) TURNOVER Turnover, which excludes value added tax and trade discounts, represents the invoiced value of services supplied. Turnover is recognised at the date the recruit commences employment, the date instructions for an advertising campaign have been confirmed, when certain discrete stages of management consultancy assignments have been completed, when conferences are actually held, or when publications are issued. G) DEFERRED TAXATION Tax deferred or accelerated is accounted for in respect of all material timing differences to the extent that it is probable that a liability or asset will crystallise. H) PENSION SCHEME ARRANGEMENTS The company operates a defined contribution pension scheme. The fund is administered by pension fund managers. Pension costs are accounted for on the basis of charging the profit and loss account with the pension costs payable in the year. The company provides no other post retirement benefits to its employees. I) EMPLOYEE SHARE OWNERSHIP TRUSTS The company is deemed to have control of the assets, liabilities, income and costs of The Quarry Dougall Employee Share Ownership Trust (ESOT). The ordinary shares held by the ESOT are included in fixed asset investments and written down to the option price over the minimum period of service to which the conditions attached to the shares relate. No dividends have been waived in respect of these shares and the dividends receivable are set off against the administrative costs of running the ESOT. 2 ANALYSIS BY GEOGRAPHICAL AREA/BUSINESS SEGMENT Turnover is generated wholly from the group's principal activities. The analysis of the group's turnover by destination and origin is set out below:
1999 1998 ---------- ---------- L L TURNOVER United Kingdom....................................... 12,619,873 10,236,245 Europe............................................... 525,573 34,820 Far East............................................. 814,192 1,120,667 Rest of the World.................................... 378,343 509,106 ---------- ---------- 14,337,981 11,900,838 ========== ==========
F-141 NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 2 ANALYSIS BY GEOGRAPHICAL AREA/BUSINESS SEGMENT (CONTINUED) The analysis of the group's turnover by business segment is set out below:
1999 1998 ---------- ---------- L L TURNOVER Recruitment.......................................... 11,862,403 10,947,035 Training and development............................. 243,835 837,858 Business services.................................... 1,035,663 115,945 Discontinued businesses.............................. 1,196,080 -- ---------- ---------- 14,337,981 11,900,838 ========== ==========
3 OTHER INCOME
1999 1998 -------- -------- L L Dividends receivable....................................... 74,433 60,494 Provision no longer required............................... 50,786 -- ------- ------ 125,219 60,494 ======= ======
4 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION Profit on ordinary activities before taxation is stated after charging/(crediting):
1999 1998 -------- -------- L L Depreciation of tangible fixed assets -owned.................................................... 195,478 170,928 -leased................................................... 165,818 10,275 Auditors' remuneration.................................... 17,675 14,500 Operating lease rental for -office equipment......................................... 7,827 12,108 -land and buildings....................................... 297,936 247,054 Profit on disposal of tangible fixed assets............... (20,026) (14,140) Profit on disposal of fixed asset investments............. (3,600) (77,710) Exchange (gains)/ losses.................................. (18,319) 23,345 ======= =======
F-142 NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 5 DIRECTORS' EMOLUMENTS AND TRANSACTIONS
1999 1998 -------- -------- L L Directors' emoluments..................................... 335,000 335,000 Benefits in kind.......................................... 9,535 9,535 Contributions to defined contribution pension scheme...... 9,323 9,323 ======= ======= Emoluments of the highest paid director: Remuneration.............................................. 344,535 344,535 Contributions to a defined contribution pension scheme.... 9,323 9,323 ======= =======
There is 1 (1998: 1) director in the defined contribution pension scheme. DIRECTORS' TRANSACTIONS During the year, Gareth Quarry let a villa owned by him to employees of the group. The rents due to him were at commercial rates and were settled by Quarry Dougall Recruitment Limited. Rents amounting to L6,736 were payable by the company for the year ended 30 September 1999 (1998: L9,274). During the year he also let a property for use as a training facility and as office premises for QD Conferencing Limited. Rents amounting to L2,500 were payable by the company for the year ended 30 September 1999 (1998: L10,000). 6 EMPLOYEE INFORMATION The average number of persons employed by the company during the year was:
1999 1998 NUMBER NUMBER -------- -------- Selling and marketing....................................... 94 77 Administration.............................................. 58 40 --- --- 152 117 === ===
Employment costs--all employees including executive directors:
1999 1998 --------- --------- L L -wages and salaries.................................... 6,476,404 4,958,982 -social security costs................................. 535,962 376,633 -pension costs......................................... 56,744 54,406 --------- --------- 7,069,110 5,390,021 ========= =========
F-143 NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 7 INTEREST PAYABLE
1999 1998 -------- -------- L L Bank loans and overdrafts................................... 2,648 381 Finance leases.............................................. 8,808 3,270 ------ ----- 11,456 3,651 ====== =====
8 TAXATION
1999 1998 -------- -------- L L UK corporation tax Current @ 30.5% (1998: 31%)............................... 260,025 170,366 (Over)/under provision in respect of prior years.......... (55,025) 59,642 Overseas taxation......................................... 49,262 98,834 ------- ------- 254,262 328,842 ======= =======
9 PROFIT FOR THE FINANCIAL YEAR As permitted by section 230 of the Companies Act 1985, the holding company's profit and loss account has not been included in these financial statements. The profit for the financial year dealt with in the accounts of the holding company was L3,322,450 (1998: L165,776). 10 DIVIDENDS--EQUITY SHAREHOLDERS
1999 1998 -------- -------- L L Interim dividend declared of L0.23 per share (1998: L0.47) Founder shares............................................ 142,194 284,388 Ordinary shares........................................... 57,806 115,612 ------- ------- 200,000 400,000 ======= =======
F-144 NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 11 TANGIBLE FIXED ASSETS
FIXTURES, MOTOR FITTINGS AND COMPUTERS VEHICLES EQUIPMENT TOTAL --------- -------- ------------ --------- L L L L COST At 1 October 1998................... 576,927 256,444 465,773 1,299,144 Additions........................... 386,886 17,286 193,099 597,271 Disposals........................... -- (83,187) (705) (83,892) ------- ------- ------- --------- At 30 September 1999................ 963,813 190,543 658,167 1,812,523 ======= ======= ======= ========= DEPRECIATION At 1 October 1998................... 133,030 134,188 295,456 562,674 Charge for year..................... 244,364 49,817 67,115 361,296 Disposals........................... -- (60,558) (705) (61,263) ------- ------- ------- --------- At 30 September 1999................ 377,394 123,447 361,866 862,707 ======= ======= ======= ========= NET BOOK VALUE At 30 September 1999................ 586,419 67,096 296,301 949,816 ======= ======= ======= ========= At 30 September 1998................ 443,897 122,256 170,317 736,470 ======= ======= ======= =========
The net book value of computers includes L408,306 (1998: Lnil) in respect of assets held under finance leases, comprising cost of L584,399 (including L356,725 accrued at 30 September 1998) less depreciation of L176,093 (including L10,275 on the accrued assets at 30 September 1998). 12 FIXED ASSET INVESTMENTS
ESOT INVESTMENT IN OWN ORDINARY SHARES --------------- L GROUP At 1 October 1998........................................... 900,300 Disposals................................................... (6,100) ------- At 30 September 1999........................................ 894,200 =======
ESOT INVESTMENT INTEREST IN OWN ORDINARY IN GROUP SHARES UNDERTAKING TOTAL --------------- ----------- -------- L L L COMPANY At 1 October 1998......................... 900,300 30,987 931,287 Additions................................. -- 16,631 16,631 Disposals................................. (6,100) -- (6,100) ------- ------ ------- At 30 September 1999...................... 894,200 47,618 941,818 ======= ====== =======
EMPLOYEE SHARE OWNERSHIP TRUST An Employee Share Ownership Trust (ESOT) was established on 30 March 1990. At 30 September 1999, the ESOT held 132,000 20p ordinary shares at a cost of L894,200 (1998: 133,220 ordinary shares at a cost of L900,300). The ESOT is a discretionary trust for the benefit of employees (including certain directors). F-145 NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 12 FIXED ASSET INVESTMENTS (CONTINUED) SUBSIDIARY UNDERTAKINGS
PROPORTION OF NOMINAL VALUE OF SHARES HELD NAME OF COMPANY AND COUNTRY OF DESCRIPTION OF -------------------- INCORPORATION AND OPERATION SHARES HELD GROUP COMPANY PRINCIPAL ACTIVITY ------------------------------------ ------------------ -------- --------- ------------------------------------ % % Quarry Dougall Recruitment Limited Ordinary L1 shares 100 100 Recruitment and advertising services (England and Wales) for the legal profession QD Consulting Group Limited Ordinary L1 shares 100 100 Recruitment and advertising services (England and Wales) for the legal profession, retail, sales, marketing, banking and finance sectors, career counselling and outplacement services Quarry Dougall Recruitment North Ordinary L1 shares 85 0.2 Recruitment and advertising services Limited (England and Wales) for the legal profession The Quarry Dougall Employee Ordinary 20p 100 100 Settlement to facilitate the Share Ownership Trust shares in the acquisition of shares by employees (England and Wales) company of the company QD Conferencing Limited (England and Ordinary L1 shares 87.5 87.5 Provision of conferences for the Wales) legal profession, retail, sales, marketing, banking and finance sectors New City Media Limited Ordinary L1 shares 90 90 Production of various publications (England and Wales) and yearbooks for the legal profession QD Asia Limited Ordinary HK$10 100 100 Recruitment and advertising services (Hong Kong) Shares for the legal sector in Asia-Pacific. The company commenced trading on 23 February 1999 QD Technology Limited Ordinary L1 shares 90 90 Recruitment and advertising services (England and Wales) for the information technology sector QD Legal Consulting GmbH Ordinary 1DM 100 100 Recruitment and advertising services (Germany) shares for the legal profession in Germany JuVe Verlag Fur Juristische Ordinary 1DM 90 90 Production of various publications Information GmbH Shares and yearbooks for the legal (Germany) profession in Germany
All the above companies operate principally in their country of incorporation or settlement. Quarry Dougall Recruitment Limited also operates in Canada and operated in Hong Kong until 22 February 1999 when the trade was transferred to QD Asia Limited. The group has incentivised key managers through deemed minority interests which would become payable in shares or cash following a crystallising event. Had the event taken place at the year end the directors believe that the amount payable would not have materially affected the accounts. F-146 NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 13 DEBTORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
GROUP COMPANY --------------------- --------------------- 1999 1998 1999 1998 --------- --------- --------- --------- L L L L Trade debtors..................................... 3,703,587 2,758,727 -- -- Dividend receivable from subsidiary undertaking... -- -- 3,223,935 -- Amounts owed by group undertakings................ -- -- 5,757,085 2,089,363 Other debtors..................................... 205,187 129,114 101,588 102,261 Prepayments and accrued income.................... 222,953 96,602 -- -- ACT recoverable................................... -- 100,000 -- 100,000 --------- --------- --------- --------- 4,131,727 3,084,443 9,082,608 2,291,624 ========= ========= ========= =========
14 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
GROUP COMPANY --------------------- --------------------- 1999 1998 1999 1998 --------- --------- --------- --------- L L L L Obligations under finance leases.................. 164,340 -- -- -- Term loan......................................... 49,416 -- -- -- Trade creditors................................... 1,255,395 1,155,003 -- -- Amounts owed to group undertakings................ -- -- 5,621,860 2,826,883 Corporation tax................................... 235,208 562,401 21,534 204,299 Other taxes and social security................... 533,402 386,901 -- -- Dividends payable................................. 200,000 2,115 200,000 2,115 Accruals and deferred income...................... 793,566 1,079,142 -- -- --------- --------- --------- --------- 3,231,327 3,185,562 5,843,394 3,033,297 ========= ========= ========= =========
F-147 NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 15 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
GROUP ------------------- 1999 1998 -------- -------- L L FINANCE LEASES - between one and two years............................. 164,319 -- - between two and five years............................ 41,079 -- ------- ------- 205,398 -- ------- ------- TERM LOAN - between one and two years............................. 49,416 -- - between two and five years............................ 12,355 -- ------- ------- 61,771 -- ------- ------- TOTAL BORROWINGS INCLUDING FINANCE LEASES - between one and two years............................. 213,735 -- - between two and five years............................ 53,434 -- ------- ------- 267,169 -- On demand or within one year.............................. 213,756 -- ------- ------- 480,925 -- ======= =======
16 CALLED UP SHARE CAPITAL
ORDINARY FOUNDER ORDINARY FOUNDER SHARES OF SHARES OF SHARES OF SHARES OF 20P EACH 0.1P EACH 20P EACH 0.1P EACH 1999 1999 1998 1998 --------------- --------------- --------------- --------------- AUTHORISED - value........................................... L100,000 L 750 L100,000 L 750 - number.......................................... 500,000 750,000 500,000 750,000 --------------- --------------- --------------- --------------- ALLOTTED, CALLED UP AND FULLY PAID - value........................................... L 49,200 L 606 L 49,200 L 606 --------------- --------------- --------------- --------------- - number.......................................... 246,000 605,123 246,000 605,123 --------------- --------------- --------------- ---------------
The founder shares of 0.1p each rank PARI PASSU with the ordinary shares of 20p each. At 30 September 1999, options over 40,000 (1998: 100,000) ordinary shares of 20p each had been granted at L3 per share and over a further 4,000 (1998: 4,000) ordinary shares of 20p each had been granted at L10 per share. The options are exercisable on a crystallising event as a result of which there is a change of control in the company. The option periods expire on 16 December 2001 and 21 October 2003 respectively. F-148 NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 17 SHARE PREMIUM ACCOUNT AND RESERVES
SHARE CAPITAL PROFIT PREMIUM REDEMPTION AND LOSS ACCOUNT RESERVE ACCOUNT TOTAL --------- ---------- --------- --------- L L L L GROUP At 1 October 1998................................. 30,895 944 3,490,041 3,521,880 Foreign exchange adjustment....................... -- -- (8,873) (8,873) Retained profit for the year...................... -- -- 204,244 204,244 --------- --------- --------- --------- At 30 September 1999.............................. 30,895 944 3,685,412 3,717,251 ========= ========= ========= ========= COMPANY At 1 October 1998................................. 30,895 944 1,818,997 1,850,836 Retained profit for the year...................... -- -- 3,122,450 3,122,450 --------- --------- --------- --------- At 30 September 1999.............................. 30,895 944 4,941,447 4,973,286 ========= ========= ========= =========
18 RECONCILIATION OF MOVEMENT IN GROUP SHAREHOLDERS' FUNDS
1999 1998 --------- --------- L L Profit for the financial year.......................... 404,244 737,233 Loss on currency translation........................... (8,873) -- Dividends.............................................. (200,000) (400,000) --------- --------- Net additions to shareholders' funds................... 195,371 337,233 Opening shareholders' funds............................ 3,571,686 3,234,453 --------- --------- Closing shareholders' funds............................ 3,767,057 3,571,686 ========= =========
19 MINORITY INTERESTS
1999 1998 -------- -------- L L At 1 October 1998........................................... 3,658 127 Share of loss for the year.................................. (3,658) (5,292) Minority interest in reserves............................... -- 6,503 Minority interest in share capital.......................... -- 2,320 ------ ------ At 30 September 1999........................................ -- 3,658 ====== ======
F-149 NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 20 RECONCILIATION OF OPERATING PROFIT TO NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES
1999 1998 ---------- --------- L L Operating profit...................................... 593,846 955,859 Depreciation.......................................... 361,296 181,203 Profit on sale of tangible fixed assets............... (20,026) (14,140) Profit on sale of investments......................... (3,600) (77,710) Increase in debtors................................... (1,147,284) (968,314) (Decrease)/increase in creditors...................... (49,666) 1,618,123 Bonus paid as shares.................................. -- 67,000 Decrease in minority interest......................... -- 8,823 ---------- --------- Net cash (outflow)/inflow from operating activities... (265,434) 1,770,844 ========== =========
21 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
L L -------- ---------- Decrease in net cash in the period.......................... (749,883) Cash outflow from increase in debt and lease financing...... 103,474 -------- Change in net debt resulting from cash flows................ (646,409) New finance leases.......................................... (584,399) ---------- Movement in net debt in the period.......................... (1,230,808) Net funds at 1 October 1998................................. 2,039,693 ---------- Net funds at 30 September 1999.............................. 808,885 ==========
22 ANALYSIS OF CHANGES IN NET DEBT
AT AT 1 OCTOBER NON CASH 30 SEPTEMBER 1998 CASH FLOWS FLOW CHANGES 1999 --------- ---------- ------------ ------------ L L L L Cash in hand and at bank........................ 2,039,693 (749,883) -- 1,289,810 Debt due within one year........................ -- (49,416) -- (49,416) Debt due after more than one year............... -- (61,771) -- (61,771) Finance leases.................................. -- 214,661 (584,399) (369,738) --------- -------- -------- --------- 2,039,693 (646,409) (584,399) 808,885 ========= ======== ======== =========
23 FINANCIAL COMMITMENTS GROUP The group no longer holds non-cancellable operating leases for office equipment. The group leases certain properties on short and long term leases. The rents payable under these leases, which are subject to F-150 NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 23 FINANCIAL COMMITMENTS (CONTINUED) renegotiation at various intervals specified in the leases and in respect of which the group pays all insurance, maintenance and repairs, in the next year are as follows:
1999 1998 --------- --------- L L Date of lease termination: Within one year........................................ 205,009 216,631 In two to five years................................... 539,680 858,071 More than five years................................... 313,650 -- --------- --------- 1,058,339 1,074,702 ========= =========
Other capital commitments: The group had no contracted capital commitments at the year end (1998: L300,000). 24 PENSION OBLIGATIONS The group participates in a defined contribution pension scheme. The assets of the scheme are held separately from those of the group. The total pension cost for the year was L56,744 (1998: L54,406). 25 CONTINGENT LIABILITIES The group has incentivised key management through deemed minority interests which would become payable in shares or cash following a crystallising event. Had the event taken place at the year end, the directors believe that the amount payable would not have been significant. 26 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The consolidated financial statements are prepared in conformity with generally accepted accounting principles in the UK ("UK GAAP") which differ in certain respects from those generally accepted in the F-151 NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 26 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) United States ("US GAAP"). The significant areas of difference affecting the financial statements of the Group are described below: RECONCILIATIONS The following is a summary of the material adjustments to net income and shareholders' equity which would have been required if US GAAP had been applied instead of UK GAAP:
NOTE 1999 1998 -------- --------- --------- L L NET INCOME IN ACCORDANCE WITH UK GAAP....................... 404,244 737,233 ADJUSTMENTS TO CONFORM WITH US GAAP Dividends receivable on shares held by ESOT................. (a) (74,433) (60,494) Profit on sale of shares held by ESOT....................... (a) (3,600) (77,710) Deferred tax (charge)/benefit............................... (c) (69,156) 16,773 --------- --------- NET INCOME IN ACCORDANCE WITH US GAAP....................... 257,055 615,802 ========= =========
1999 1998 --------- --------- L L SHAREHOLDERS' FUNDS IN ACCORDANCE WITH UK GAAP.............. 3,767,057 3,571,686 ADJUSTMENTS TO CONFORM WITH US GAAP Dividends proposed but not approved or paid................. (d) 200,000 -- Reclassification of investment held by ESOT................. (a) (894,200) (900,300) Dividends receivable on shares held by ESOT................. (a) (345,130) (270,697) Profit on sale of shares held by ESOT....................... (a) (81,310) (77,710) Deferred tax asset.......................................... (c) -- 16,773 Deferred tax liability...................................... (c) (52,383) -- --------- --------- SHAREHOLDERS' FUNDS IN ACCORDANCE WITH US GAAP.............. 2,594,034 2,339,752 ========= =========
A) EMPLOYEE SHARE OWNERSHIP TRUST Under UK GAAP, shares in the company which are held by the ESOT are shown as fixed asset investments and the related dividends receivable and gain or loss on sale of shares are included in operating income. Under US GAAP, the shares held by the ESOT are shown as treasury shares and the dividends and gains or losses on sales of shares are not recognised. F-152 NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 26 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) B) DISCONTINUED OPERATIONS The effect of discontinued operations on the 1998 results were as follows:
CONTINUING DISCONTINUED BUSINESSES BUSINESSES TOTAL L L L ---------- ------------ ---------- L L TURNOVER................................................. 11,345,155 555,683 11,900,838 Cost of sales............................................ (1,872,541) (431,268) (2,303,809) ---------- ---------- ---------- Gross profit............................................. 9,472,614 124,415 9,597,029 Net operating expenses................................... (8,067,016) (634,648) (8,701,664) Other income............................................. 60,494 -- 60,494 ---------- ---------- ---------- OPERATING PROFIT......................................... 1,466,092 (510,233) 955,859 ---------- ---------- ----------
NET LIABILITIES OF DISCONTINUED OPERATIONS
1999 1998 ---------- -------- L L Tangible assets........................................ 29,438 35,399 Debtors................................................ 946,698 47,121 Cash at bank........................................... 48,132 5,927 Creditors: amounts falling due within one year......... (1,962,813) (597,680) ---------- -------- Net liabilities........................................ (938,545) (509,233) ========== ========
C) INCOME TAXES Under UK GAAP, the Group provides for deferred taxation using the partial liability method on all timing differences to the extent that it is considered probable that the liabilities will crystallise in the foreseeable future. Deferred tax assets are recognised to the extent that they are recoverable without replacement in the foreseeable future. Under US GAAP, income taxes are accounted for under Statement of Financial Accounting Standard ("SFAS") No. 109, "Accounting for Income Taxes." In accordance with SFAS No. 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the difference is reversed. The effect on deferred income tax assets and liabilities of a change in tax rates is recognised in income in the period that includes the enactment date. F-153 NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 26 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) Income before the provision for taxes consisted of the following:
1999 1998 -------- -------- L L Domestic.................................................. 571,521 439,349 Foreign................................................... 5,294 483,230 ------- ------- INCOME/(LOSS) BEFORE INCOME TAXES UNDER US GAAP........... 576,815 922,579 ======= =======
The following table reconciles the income tax provision/(benefit) at the United Kingdom statutory rate to that in the financial statements:
1999 1998 -------- -------- L L Taxes computed at 30.5% (1998: 31%)....................... 175,929 285,999 Permanent differences..................................... 42,806 33,947 Prior years' adjustments.................................. 35,527 8,896 Deferred tax charge (benefit)............................. 69,156 (16,773) ------- ------- Income tax charge......................................... 323,418 312,069 ======= =======
Details of the provision for income taxes in the consolidated statements of operations are as follows:
1999 1998 -------- -------- L L CURRENT TAXES Domestic.................................................. 205,000 230,008 Foreign................................................... 49,262 98,834 ------- ------- Total current............................................. 254,262 328,842 DEFERRED TAX (BENEFIT) Domestic.................................................. 69,156 (16,773) Foreign................................................... -- -- ------- ------- Total deferred............................................ 69,156 (16,773) ------- ------- TOTAL PROVISION FOR INCOME TAXES.......................... 323,418 312,069 ======= =======
The components of the Group's deferred tax assets and liabilities under US GAAP are as follows:
1999 1998 -------- -------- L L CURRENT DEFERRED TAX ASSET................................ -- 16,773 CURRENT DEFERRED TAX LIABILITIES.......................... (40,678) -- NON-CURRENT DEFERRED TAX LIABILITIES...................... (11,705) -- ------- ------- NET DEFERRED TAX (LIABILITIES)/ASSETS..................... (52,383) 16,773 ======= =======
All of the Group's deferred tax assets and liabilities relate to temporary differences in accounting and tax depreciation of tangible fixed assets. F-154 NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 26 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) D) DIVIDENDS Under UK GAAP, the Group recognises a liability in respect of dividends when proposed. Under US GAAP, dividends are only recognised when dividends are approved or paid.
1999 1998 -------- -------- L L Amount of dividends approved or paid following US GAAP.... -- 397,885 Amount of dividends proposed following UK GAAP............ 200,000 400,000
E) STATEMENT OF CASH FLOWS Under UK GAAP, cash flows are presented separately for operating activities, return on investments and servicing of finance, taxation, capital investment and financial investments, equity dividends and financing activities. Cash and cash equivalents represents cash in hand and deposits repayable on demand with any qualifying financial institution, less overdrafts from any qualifying financial institution repayable on demand. Deposits are repayable on demand if they can be withdrawn at any time without notice and without penalty or if a maturity or period of notice of not more than 24 hours or one working day has been agreed. Cash includes cash in hand and deposits denominated in foreign currencies. Liquid resources are current asset investments held as readily disposable stores of value. A readily disposable investment is one that is disposable by the reporting entity without curtailing or disrupting its business; and is either readily convertible into known amounts of cash at or close to its carrying amount, or traded in an active market. Under US GAAP, cash flows are reported as operating activities, investing activities and financing activities. Cash flow from taxation and returns on investments and servicing of finance would, with the exceptions of dividends paid, be included in operating activities. The payment of dividends would be included under financing activities. Cash and cash equivalents represents all highly liquid investments with original maturities of three months or less. Cash and cash equivalent balances consist of deposits with banks and financial institutions, which are unrestricted as to withdrawal or use. Set out below is a summary consolidated statement of cash flows for the Group under US GAAP.
1999 1998 -------- --------- L L Net cash (used in)/provided by operating activities..... (685,887) 1,636,795 Net cash provided by/(used in) investing activities..... 39,478 (572,027) Net cash used in financing activities................... (103,474) (465,563) -------- --------- Net (decrease)/increase in cash under US GAAP........... (749,883) 599,205 ======== =========
F) FIXED ASSETS Under UK GAAP, fixed assets are assessed for impairment when there is some indication that the carrying value of a fixed asset may exceed its recoverable amount. Impairment is determined and measured by comparing the carrying value of the fixed asset with its recoverable amount. The recoverable amount is the higher of the amounts that can be obtained from selling the fixed asset (net realisable value) or using the fixed asset (value in use which is normally determined by reference to discounted cash flows). F-155 NOTES TO THE ACCOUNTS (CONTINUED) FOR THE YEARS ENDED 30 SEPTEMBER 1999 AND 30 SEPTEMBER 1998 26 SUMMARY OF RELEVANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) Under US GAAP, the determination of whether an impairment has occurred is by reference to undiscounted cash flows. If this indicates an impairment the writedown is based upon the fair value of the asset which is usually determined by reference to discounted cash flows. As a result impairment writedowns are less likely to be recognised under US GAAP. The Group has not recorded any fixed asset impairments under UK or US GAAP during the years ended 30 September 1999 and 1998. G) USE OF ESTIMATES The preparation of financial statements in conformity with both US and UK GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. H) FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Group to a concentration of credit risk consist of cash and cash equivalents and accounts receivable. The Group performs ongoing credit evaluations of customers and generally does not require collateral on accounts receivable. The Group maintains allowances for potential credit losses and such losses have been within management's expectations. The allowances were L65,000 and L43,726 at 30 September 1999 and 1998 respectively. The fair market value of cash and cash equivalents, accounts receivable and debt instruments at 30 September 1999 and 1998 approximate their carrying amounts because of their short maturity. I) NEW ACCOUNTING PRONOUNCEMENTS In June 1998 the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or a liability measured at its fair value. The statement also requires that changes in the derivative's fair value be recognised currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows gains and losses on a derivative to offset related results on the hedged item in the income statement, and requires that a Group formally document, designate and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning after 15 June 2000 and cannot be applied retroactively. The Group does not expect the impact of this new statement on its balance sheet or income statement to be material. In March 2000, Emerging Issues Task Force issued EITF 00-02 "Accounting for Web Site Development Costs." EITF 00-02 requires that certain costs incurred by a company in developing its own website be capitalised and that certain other costs should be expensed as incurred. The Group has not incurred significant costs in developing its own website. F-156 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION The following Pro Forma Condensed Consolidated Financial Information reflects financial information with respect to (i) the acquisition effective January 1, 2000 by TMP Worldwide Inc. and subsidiaries ("TMP" or the "Company") of all the outstanding stock of Baumgartner & Partner Personalberatung GmbH ("Baumgartner") for a purchase price of approximately $20 million which includes 169,764 TMP shares and $10 million in cash, which is assumed to have been funded by the issuance of an additional 169,764 TMP shares in a public offering consummated in February 2000 by TMP and (ii) the probable acquisition by TMP of all the outstanding stock of QD Group Limited ("QD Group") for a purchase price of approximately $67.4 million, consisting of approximately $30.2 million in cash and approximately $37.2 million in TMP stock, estimated to be approximately 476,000 shares of TMP common stock based on a market price of $77.90 per share on July 17, 2000. Both acquisitions will be accounted for under the purchase method. The unaudited Pro Forma Condensed Consolidated Financial Information is derived from the supplemental consolidated financial statements and the supplemental consolidated condensed financial statements of TMP included herein and the audited historical financial statements of Baumgartner and QD Group included herein. The unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 1999 gives effect to the acquisition of Baumgartner and QD Group as if they had occurred on January 1, 1999. The financial statements of QD Group were translated from British pounds to U.S. dollars at the rate of 1.60 and 1.63 with respect to the March 2000 and December 1999 statement of operations, respectively. The unaudited Pro Forma Condensed Consolidated Balance Sheet for March 31, 2000, assumes that the acquisition of QD Group occurred as of this date and British pounds were translated to U.S. dollars at the rate of 1.60. The Baumgartner acquisition occurred prior to March 31, 2000, and, accordingly is already reflected in TMP's balance sheet. For purposes of the unaudited pro forma financial statements TMP's supplemental consolidated condensed balance sheet as of March 31, 2000 and the supplemental consolidated condensed statement of income (loss) for the three months then ended and the supplemental consolidated statement of income (loss) for the year ended December 31, 1999 have been combined with the QD Group's consolidated balance sheet as of March 31, 2000 and its consolidated statements of operations for the three months ended March 31, 2000 and for the year ended September 30, 1999, respectively. The unaudited Pro Forma Condensed Consolidated Financial Information gives effect to the acquisitions of Baumgartner and QD Group based upon actual allocation of the purchase price, and includes all adjustments described in the notes thereto. The pro forma adjustments are based on certain assumptions that TMP's management believes are reasonable under the circumstances and do not reflect any potential cost savings. The unaudited Pro Forma Condensed Consolidated Information is not necessarily indicative of the results that would have been reported if such events had occurred on the date specified nor is it intended to project TMP's results of operations or financial position for any future period or date. The unaudited Pro Forma Condensed Consolidated Information set forth should be read in conjunction with TMP's audited supplemental consolidated financial statements for the year ended December 31, 1999 and the supplemental consolidated condensed financial statements for the three months ended March 31, 2000 included herein and the audited financial statements of Baumgartner as of and for the year ended December 31, 1999 and of QD Group as of and for the year ended September 30, 1999 included herein. F-157 TMP WORLDWIDE INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET MARCH 31, 2000 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
TMP WORLDWIDE QD GROUP BUSINESSES PRO FORMA INC. LIMITED NOT ACQUIRED ADJUSTMENTS COMBINED ---------- ----------- ------------ ----------- ---------- ASSETS Current assets: Cash and cash equivalents................... $ 520,531 $ 2,294 $ (14) $(30,234)(a) $ 492,577 Accounts receivable, net.................... 511,670 5,912 (550) -- 517,032 Work-in-process............................. 23,321 -- -- -- 23,321 Prepaid and other........................... 82,058 798 -- -- 82,856 ---------- ------- ------ -------- ---------- Total current assets...................... 1,137,580 9,004 (564) (30,234) 1,115,786 Property and equipment, net................... 87,379 1,526 (102) -- 88,803 Intangibles, net.............................. 341,085 -- -- 62,881 (b) 403,966 Other assets.................................. 38,933 1,430 4,558 (6,066)(c) 38,855 ---------- ------- ------ -------- ---------- $1,604,977 $11,960 $3,892 $ 26,581 $1,647,410 ========== ======= ====== ======== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................ $ 281,964 $ 1,597 $ 59 $ -- $ 283,620 Accrued expenses and other liabilities...... 210,944 2,741 246 -- 213,931 Accrued integration and restructuring costs..................................... 25,237 -- -- -- 25,237 Deferred commissions & fees................. 85,536 -- -- -- 85,536 Current portion of long term debt........... 8,863 331 -- -- 9,194 ---------- ------- ------ -------- ---------- Total current liabilities................. 612,544 4,669 305 -- 617,518 Long term debt, less current portion.......... 19,956 331 -- -- 20,287 Other long-term liabilities................... 56,741 -- -- -- 56,741 ---------- ------- ------ -------- ---------- Total liabilities......................... 689,241 5,000 305 -- 694,546 ---------- ------- ------ -------- ---------- Minority interests............................ 52 -- -- -- 52 ---------- ------- ------ -------- ---------- Stockholders' equity: Common stock................................ 90 -- -- -- 90 Class B common stock........................ 5 -- -- -- 5 Equity of QD Group Limited.................. -- 6,960 3,587 (10,547)(b) 0 Additional paid-in-capital.................. 1,000,949 -- -- 37,128 (a) 1,038,077 Other comprehensive loss.................... (38,478) -- -- -- (38,478) Deficit..................................... (46,882) -- -- -- (46,882) ---------- ------- ------ -------- ---------- Total stockholders' equity................ 915,684 6,960 3,587 26,581 952,812 ---------- ------- ------ -------- ---------- $1,604,977 $11,960 $3,892 $ 26,581 $1,647,410 ========== ======= ====== ======== ==========
------------------------------ (a) Adjustment reflects aggregate purchase price of $67.4 million, consisting of 476,000 shares of TMP stock valued at $37.2 million issued to QD Group shareholders, and an additional $30.2 million payable in cash. (b) Amount represents goodwill recorded for the excess of cost over the fair value of net assets acquired in the QD Group Limited transaction. Purchase price.............................................. $67.4 million Net assets of QD Group Limited.............................. (7.0) million Effect of excluded business................................. (3.6) million Effect of U.S. GAAP......................................... 1.5 million Write off of amounts due from businesses not acquired....... 4.6 million ------------- Goodwill.................................................... $62.9 million =============
(c) Amounts reflect the write off of an intercompany receivable for businesses not acquired of $4,584, the elimination of an investment in QD Group shares held by an ESOT in the amount of $1,430 as required by U.S. GAAP and the effect of providing deferred taxes in accordance with U.S. GAAP in the amount of $52. F-158 TMP WORLDWIDE INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
TMP QD BUSINESSES WORLDWIDE GROUP NOT PRO FORMA INC. LIMITED ACQUIRED ADJUSTMENTS COMBINED --------- -------- ---------- ----------- --------- Commissions and fees....................... $257,410 $6,845 $ (11) $ -- $264,244 -------- ------ ----- ------- -------- Operating expenses: Salaries & related....................... 146,025 3,265 (293) 148,997 Office & general......................... 61,185 1,156 (222) 62,119 Marketing & promotion.................... 29,349 613 (13) 29,949 Merger & integration..................... 8,674 8,674 Amortization of intangibles.............. 3,635 529(a) 4,164 -------- ------ ----- ------- -------- Total operating expenses............. 248,868 5,034 (528) 529 253,903 -------- ------ ----- ------- -------- Operating income (loss).................... 8,542 1,811 517 (529) 10,341 -------- ------ ----- ------- -------- Other income (expense): Interest income (expense), net........... 1,794 13 -- 1,807 Other, net............................... (87) 171 (110) (26) -------- ------ ----- ------- -------- Total other income (expense), net.... 1,707 184 (110) 1,781 -------- ------ ----- ------- -------- Income (loss) before provision for income taxes and minority interests............. 10,249 1,995 407 (529) 12,122 Provision for income taxes................. 7,280 598 91 -- 7,969 -------- ------ ----- ------- -------- Income (loss) before minority interests and equity in losses of affiliates........... 2,969 1,397 316 (529) 4,153 Minority interests......................... (81) -- -- -- (81) -------- ------ ----- ------- -------- Net income (loss) applicable to common and Class B common stockholders.............. $ 3,050 $1,397 $ 316 $ (529) $ 4,234 ======== ====== ===== ======= ======== Net income per common and Class B common share: Basic.................................. $ 0.03 $ 0.05 ======== ======== Diluted................................ $ 0.03 $ 0.04 ======== ======== Weighted average shares outstanding: Basic.................................. 92,399 92,875 (b) ======== ======== Diluted................................ 100,315 100,791 (b) ======== ========
------------------------ (a) Adjustment reflects goodwill amortization expense, calculated based on 30 year estimated useful life. (b) Weighted average shares outstanding reflects the effect of the issuance of 476,000 shares in connection with the probable acquisition of QD Group as well as the issuance of 169,764 shares and the presumed issuance of 169,764 shares relating to the funding of $10 million in cash paid for the acquisition of Baumgartner. F-159 TMP WORLDWIDE INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
QD GROUP TMP BUSINESSES ADJUSTMENTS WORLDWIDE QD GROUP NOT -------------------------- INC. LIMITED ACQUIRED(A) BAUMGARTNER QD GROUP BAUMGARTNER TOTAL --------- -------- ----------- ----------- ---------- ------------ -------- Commissions and fees........ $869,207 $20,925 $(3,294) $14,662 $ 139 (b) $ -- $901,639 -------- ------- ------- ------- ------- ------- -------- Operating expenses: Salaries & related........ 496,926 11,697 (2,897) 9,073 36 (b) -- 514,835 Office & general.......... 205,165 6,518 (2,792) 2,203 123 (c) -- 211,217 Marketing & promotion..... 74,647 1,769 (53) 612 -- -- 76,975 Merger & integration...... 63,054 -- -- -- -- -- 63,054 Restructuring............. 2,789 -- -- -- -- -- 2,789 Amortization of intangibles............. 12,532 -- -- -- 2,114 (d) 765 (f) 15,411 -------- ------- ------- ------- ------- ------- -------- Total operating expenses................ 855,113 19,984 (5,742) 11,888 2,273 765 884,281 -------- ------- ------- ------- ------- ------- -------- Operating income............ 14,094 941 2,448 2,774 (2,134) (765) 17,358 -------- ------- ------- ------- ------- ------- -------- Other income (expense): Interest income (expense), net..................... (12,927) 116 -- 2 -- -- (12,522) Other, net................ (2,906) -- -- 287 -- -- (2,906) -------- ------- ------- ------- ------- ------- -------- Total other income (expense), net.......... (15,833) 116 -- 289 -- -- (15,428) -------- ------- ------- ------- ------- ------- -------- Income (loss) before provision (benefit) for income taxes, minority interests and equity in losses of affiliates...... (1,739) 1,057 2,448 3,063 (2,134) (765) 1,930 Provision (benefit) for income taxes.............. 6,908 410 379 511 144 (e) (337)(f) 8,015 -------- ------- ------- ------- ------- ------- -------- Income (loss) before minority interests and equity in losses of affiliates................ (8,647) 647 2,069 2,552 (2,278) (428) (6,085) Minority interests.......... 107 -- -- -- -- -- 107 Equity in losses of affiliates................ (300) -- -- -- -- -- (300) -------- ------- ------- ------- ------- ------- -------- Net income (loss) applicable to common and Class B common stockholders....... $ (9,054) $ 647 $ 2,069 $ 2,552 $(2,278) $ (428) $ (6,492) ======== ======= ======= ======= ======= ======= ======== Net income (loss) per common and Class B common share: Basic..................... $ (0.11) $ (0.08) Diluted................... $ (0.11) $ (0.08) Weighted average shares outstanding: Basic..................... 84,250 85,066 (g) Diluted................... 84,250 85,066 (g)
---------------------------------- (a) Adjustments reflect income and expense balances of certain businesses of QD Group which will not be acquired by the Company. TMP has agreed to acquire QD Group's base selection business, excluding certain media divisions from the transaction. (b) Adjustments reflect commissions for job searches in progress and applicable expenses to conform with TMP's accounting policies. (c) Adjustment reflects the reversal of dividend income relating to QD Group shares held by an ESOT as required by U.S. GAAP. (d) Amount reflects goodwill amortization expense for the acquisition of QD Group, calculated based on a 30 year estimated useful life. (e) Amount reflects tax effect of commissions recorded for job searches in progress and applicable expenses (see note (b)), as well as to record deferred tax expense to conform to U.S. GAAP. (f) Amount reflects goodwill amortization expense for acquisition of Baumgartner, calculated based on 30 year estimated useful life, and the related tax benefit. (g) Weighted average shares outstanding reflects the effect of the issuance of 476,000 shares in connection with the acquisition of QD Group as well as the issuance of 169,764 shares and the presumed issuance of 169,764 shares relating to the funding of $10 million in cash paid for the acquisition of Baumgartner. F-160 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The expenses payable by the Registrant in connection with the issuance and distribution of the securities being registered (other than underwriting accounts and commissions) are estimated to be as follows: SEC Registration Fee........................................ $ 66,826.00 Accountants' Fees and Expenses.............................. 20,000.00 Legal Fees and Expenses..................................... 20,000.00 Printer fees................................................ 20,000.00 Miscellaneous............................................... 23,174.00 ----------- Total....................................................... $150,000.00 ===========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the General Corporation Law of Delaware permits indemnification of directors, officers and employees of a corporation under certain conditions and subject to certain limitations. Article VI of the By-Laws of the Registrant contains provision for the indemnification of directors, officers and employees within the limitations permitted by Section 145. In addition, the Company has entered into Indemnity Agreements with its directors and officers which provide the maximum indemnification allowed by Section 145. The Company's officers and directors are insured against losses arising from any claim against them as such for wrongful acts or omissions, subject to certain limitations. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES 1. On August 26, 1997, we issued 270,056 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in connection with the acquisition of Austin Knight Limited and its subsidiaries. 2. On May 6, 1998, we issued 1,542,706 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Johnson, Smith & Knisely Inc. 3. On August 31, 1998, we issued 3,407,788 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of TASA Holding AG. 4. On September 30, 1998, we issued 1,014,164 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Stackig Inc. 5. On October 2, 1998, we issued 208,084 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Recruitment Solutions, Inc. 6. On November 2, 1998, we issued 619,404 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding units in SunQuest, LLC d/b/a The SMART Group. II-1 7. On December 2, 1998, we issued 493,212 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of The Consulting Group (International) Limited. 8. On January 28, 1999, we issued 10,296,582 shares of our common stock pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Morgan & Banks Limited. 9. On March 5, 1999, we issued 146,828 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding stock of Van Ram Associates International B.V. 10. On April 30, 1999, we issued 353,390 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Interquest Pty Limited. 11. On May 19, 1999, we issued 225,212 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of LIDA Advertising, Inc. 12. On May 20, 1999, we issued 220,000 shares of our common stock in a private placement transaction pursuant to Regulation S of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Maes & Lunau. 13. On May 28, 1999 we issued 578,062 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of IN2, Inc. 14. On May 28, 1999, we issued 245,816 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Lemming & Levan, Inc. 15. On May 28, 1999, we issued 178,000 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Yellow Pages Unlimited, Inc. 16. On August 2, 1999, we issued 840,000 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Cameron-Newell Adversting, Inc. 17. On August 3, 1999, we issued 261,800 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Brook Street Bureau Pty, Ltd. 18. On August 30, 1999, we issued 259,280 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Fox Advertising, Inc. 19. On August 31, 1999, we issued 826,192 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Lampen Group Limited. 20. On October 21, 1999, we issued 1,398,666 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding units of Highland Search Group, LLC. II-2 21. On October 27, 1999, we issued 118,560 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding stock of TMC S.r.l. 22. On February 10, 2000, we issued 169,764 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding stock in Baumgartner & Partner GmbH & Co. KG. 23. On February 16, 2000, we issued 715,769 shares of our common stock pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, in exchange for all of the outstanding stock of HW Group PLC. 24. On February 16, 2000, we issued 689,090 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding stock of Mircrosurf, Inc., and in connection with issuances of stock related stay bonuses. 25. On February 29, 2000, we issued 52,190 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding stock in Burlington Wells, Inc., Burlington Wells Information Systems, Inc. and Burlington Wells South Florida, Inc. 26. On February 29, 2000, we issued 54,940 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding stock in Medios Publicitaros Activos MPS, S.A. 27. On March 1, 2000, we issued 246,702 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding stock of 577139 Ontario Ltd., d/b/a Illsley Bourbannais. 28. On March 21, 2000, we issued 13,080 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding stock in Curriculum S.A., Kerguelen, S.A. and Syntagme, S.A. (collectively, the "Curriculum Group"). 29. On April 3, 2000, we issued 1,022,257 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding stock in System One Services, Inc. 30. On April 4, 2000 we issued 54,041 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding stock in GTR Advertising, Inc. 31. On May 9, 2000 we issued 947,916 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding stock in Virtual Relocation.com, Inc. 32. On May 12, 2000 we issued 51,906 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of NIBO Holding B.V. 33. On May 17, 2000 we issued 205,703 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Business Technologies Limited. 34. On May 31, 2000 we issued 164,833 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Simpatix Inc., and in connection with issuances of stock related stay bonuses. II-3 35. On May 31, 2000 we issued 623,892 shares of our common stock in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Web Technology Partners, Inc. 36. On May 31, 2000 we issued 144,601 shares of our common stock in a private placement pursuant to Section 4(2) of the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Rollo Associates, Inc., and in connection with issuances of stock related stay bonuses. 37. On June 5, 2000 we issued 23,817 shares of our common stock in a private placement transaction pursuant to Regulation S promulgated under the Securities Act of 1933, as amended, in exchange for all of the outstanding shares of Management Resources International B.V. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits 2.1 Scheme Implementation Agreement, dated August 17, 1998, between Morgan & Banks Limited and TMP Worldwide Inc.*** 2.2 Agreement and Plan of Merger, dated as of March 11, 1999, by and among TMP Worldwide Inc., TMP Florida Acquisition Corp. and LAI Worldwide, Inc.****** 3.1 Certificate of Incorporation.** 3.2 Bylaws.** 4.1 Form of Common Stock Certificate.** 5.1 Opinion of Fulbright & Jaworski L.L.P. regarding legality. 10.1 Form of Employee Confidentiality and Non-Solicitation Agreement.** 10.2 Form on Indemnification Agreement.** 10.3 1996 Stock Option Plan.** 10.4 Form of Stock Option Agreement under 1996 Stock Option Plan.** 10.5 1996 Stock Option Plan for Non-Employee Directors.** 10.6 Form of Stock Option Agreement under 1996 Stock Option Plan for Non-Employee Directors.** 10.7 Lease, dated as of October 31, 1978, between Telephone Marketing Programs, Inc. and PDC Realty Inc. as agent for MRI Broadway Rental, Inc., as modified by modifications dated January, 1979 and June 20, 1999.** 10.8 Amendment and Restated Accounts Receivable Management and Security Agreement, dated as of June 27, 1996, between TMP Worldwide, Inc. and BNY Financial Corporation as amended by Amendment No. 1 to Amended and Restated Accounts Receivable Management and Security Agreement, dated as of August 29, 1996.** 10.9 Lease Agreement, dated as of June 1, 1996 by and between TPH and AJM, a partnership, and Telephone Directory Advertising, Inc.** 10.10 Agreement, dated as of March 17, 1998, between TMP Worldwide Inc. and George Eisele, as amended by Amendment 1 to Agreement, dated as of September 5, 1996.** 10.11 Management Agreement, dated as of January 1, 1996, between Cala Services Inc. and Cala H.R.C. Ltd.** 10.12 Lease Agreement, dated May 15, 1993, between 12800 Riverside Drive Corporation and TMP Worldwide Inc. as amended by Amendment No. 1 to Lease Agreement, dated June 1, 1993.** 10.13 Indenture, dated April 29, 1998, between International Drive, L.P. and Telephone Marketing Programs, Inc.** 10.14 Amended and Restated Employment Agreement, dated as of September 11, 1996, between TMP Interactive Inc. and Jeffrey C. Taylor.** 10.15 Second Amended and Restated Employment Agreement, dated November 2, 1999, by and among TMP Worldwide, Inc., TMP Interactive Inc. and Jeffrey C. Taylor.+++++
II-4 10.16 Amendment No. 1 to the Employment Agreement, dated October 21, 1996, between TMP Worldwide Inc. and James J. Treacy.+ 10.17 Amendment No. 2 to Employment Agreement between TMP Worldwide Inc. and James J. Treacy, effective as of October 1, 1999.**** 10.18 Amendment No. 1 to Employment Agreement, dated November 15, 1998, between TMP Worldwide Inc. and Andrew J. McKelvey.+ 10.19 Amendment No. 2 to Employment Agreement, dated May 1, 1999, between TMP Worldwide Inc. and Andrew J. McKelvey.++++ 10.20 Warrant Agreement, dated October 13, 1993, between TMP Worldwide Inc. and BNY Financial Corporation, as amended by an amendment dated December 31, 1995.** 10.21 Form of Option Agreement, dated as of January 1, 1995, relating to options issued to shareholders and/or principals of Kidd, Schneider & Dersch, Inc.** 10.22 Amendment No. 3 to Amended and Restated Accounts Receivable Management and Security Agreement, dated as of May 15, 1997, between BNY Financial Corporation and TMP Worldwide Inc.* 10.23 Management Agreement, dated June 1, 1997, between Dir-Ad Services Inc./Les Services Dir-Ad Inc. and TMP Worldwide Ltd.* 10.24 Third Amended and Restated Accounts Receivable Management and Security Agreement, dated as of November 5, 1998, between BNY Financial Corporation and TMP Worldwide Inc.+ 10.25 Amendment No. 1 to Third Amended and Restated Accounts Receivable Management and Security Agreement.***** 10.26 Amendment No. 2 to Third Amended and Restated Accounts Receivable Management and Security Agreement.***** 10.27 Content License and Interactive Marketing Agreement, dated as of December 1, 1999, between America Online, Inc. and TMP Interactive Inc.**** 10.28 Indenture of Lease, dated December 13, 1999, between the 622 Building Company LLC and TMP Worldwide Inc.**** 10.29 Warranty and Indemnity Agreement, dated July 18, 2000, relating to the entire issued share capital of QD Group Limited, between Mr. G. Quarry and TMP Worldwide Inc. 21 Subsidiaries of the Company.* 23.1 Consent of Fulbright & Jaworski L.L.P. (included in 5.1). 23.2 Consent of BDO Seidman, LLP. 23.3 Consent of Pannell Kerr and Forster. 23.4 Consent of Arthur Andersen LLP. 23.5 Consent of BDO International GmbH. 23.6 Consent of Deloitte & Touche LLP. 23.7 Consent of Arthur Andersen. 24 Power of Attorney (on signature page). 27.1 Restated Financial Data Schedule Three Months Ended March 31, 2000. 27.2 Restated Financial Data Schedule Three Months Ended March 31, 1999. 27.3 Restated Financial Data Schedule Year Ended December 31, 1999. 27.4 Restated Financial Data Schedule Year Ended December 31, 1998. 27.5 Restated Financial Data Schedule Year Ended December 31, 1997.
II-5 (b) Financial Statements and Schedules The following financial statement schedules are filed herewith: Report of Independent Certified Public Accountants.......... S-1 Report of Independent Certified Public Accountants (with respect to LAI Worldwide, Inc.)............................ S-2 Schedule II--Valuation and Qualifying accounts for the years ended December 31, 1999, 1998 and 1997..................... S-3 Report of Independent Certified Public Accountants.......... S-4 Report of Independent Certified Public Accountants (with respect to LAI Worldwide, Inc.)...................... S-5 Supplemental Schedule II--Valuation and Qualifying accounts for the years ended December 31, 1999, 1998 and 1997....... S-6
All other schedules are omitted because they are not required or are not applicable or the information is included in the financial statements or notes thereto. ------------------------ * Incorporated by reference to Exhibits to the Registration Statement on Form S-1 (Registration No. 333-31657). ** Incorporated by reference to Exhibits to the Registration Statement on Form S-1 (Registration No. 333-12471). *** Incorporated by reference to Exhibits to the Registration Statement on Form S-3 (Registration No. 333-63499). **** Incorporated by reference to Exhibits to the Registration Statement on Form S-3 (Registration No. 333-93065). ***** Incorporated by reference to Exhibits to the Registration Statements on Form S-3 (Registration No. 333-82531). ****** Incorporated by reference to Exhibits to the Registration Statement on Form S-4 (Registration No. 333-82531). + Incorporated by reference to Exhibits to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998 (Registration No. 000-21571). ++ Incorporated by reference to Exhibits to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1997 (Registration No. 000-21571). +++ Incorporated by reference to Exhibits to the Company's Current Report on Form 8-K dated March 17, 1999. ++++ Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1999 (Commission File No 000-21571). +++++ Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999 (Commission File No 000-21571).
ITEM 17. UNDERTAKINGS. (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; II-6 (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement of any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; (4) To file a post-effective amendment to the Registration Statement to include any financial statements required by Rule 3-19. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person of the Registrant in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on July 21, 2000. TMP WORLDWIDE INC. By: /s/ ANDREW J. MCKELVEY ----------------------------------------- Andrew J. McKelvey CHAIRMAN AND CEO
POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Andrew J. McKelvey and James J. Treacy, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and his name, place and stead, and in any and all capacities, to sign any and all amendments to this Registration Statement (including post-effective amendments), and to file the same, and any subsequent Registration Statement for the same offering which may be filed under Rule 462(b), with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorneys-in-fact and agents, and each of them, full power and authority to do and perform such and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute of substitutes, may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ ANDREW J. MCKELVEY Chairman, CEO and Director ------------------------------------------- (PRINCIPAL EXECUTIVE July 21, 2000 Andrew J. McKelvey OFFICER) /s/ JAMES J. TREACY Executive Vice President, ------------------------------------------- Chief Operating Officer and July 21, 2000 James J. Treacy Director /s/ BART W. CATALANE Chief Financial Officer ------------------------------------------- (PRINCIPAL FINANCIAL AND July 21, 2000 Bart W. Catalane ACCOUNTING OFFICER) /s/ GEORGE R. EISELE ------------------------------------------- Director July 21, 2000 George R. Eisele /s/ MICHAEL KAUFMAN ------------------------------------------- Director July 21, 2000 Michael Kaufman /s/ JOHN SWANN ------------------------------------------- Director July 21, 2000 John Swann /s/ RONALD J. KRAMER ------------------------------------------- Director July 21, 2000 Ronald J. Kramer
II-8 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 other auditor, the consolidated financial statement schedule presents fairly, in all material respects, the information set forth therein. /s/ BDO SEIDMAN, LLP ------------------------------- BDO SEIDMAN, LLP New York, New York March 7, 2000
S-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To LAI Worldwide, Inc.: We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of LAI Worldwide, Inc. (not presented separately herein) and have issued our report thereon dated April 7, 1999. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 16(b) of the index of exhibits and financial statement schedules is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule, as it pertains to the 1997 and 1998 data related to LAI Worldwide, Inc., has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Tampa, Florida April 7, 1999
S-2 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
COLUMN C-- COLUMN COLUMN A COLUMN B ADDITIONS COLUMN D E -------- ------------ ----------------------- ---------- -------- BALANCE BALANCE AT CHARGED TO CHARGED TO AT BEGINNING OF COSTS AND OTHER END OF DESCRIPTIONS PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ------------ ------------ ---------- ---------- ---------- -------- 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
------------------------ (1) Initial reserves of companies acquired in purchase business combinations. S-3 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TMP Worldwide Inc. New York, New York The audits referred to in our report dated June 26, 2000, relating to the supplemental consolidated financial statements of TMP Worldwide Inc. and Subsidiaries, included the audits of the supplemental consolidated financial statement schedule listed in the accompanying index. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the supplemental consolidated financial statement schedule based upon our audits. We did not audit the financial statement schedule of LAI Worldwide, Inc. and subsidiaries which was combined with the Company's financial statement schedule. That financial statement schedule was audited by another auditor whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for LAI Worldwide, Inc., and subsidiaries is based solely on the report of the other auditor. In our opinion, based on our audits and the report of the other auditor, the supplemental consolidated financial statement schedule presents fairly, in all material respects, the information set forth therein. /s/ BDO SEIDMAN, LLP --------------------------------------------- BDO Seidman, LLP New York, New York June 26, 2000
S-4 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To LAI Worldwide, Inc.: We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of LAI Worldwide, Inc. (not presented separately herein) and have issued our report thereon dated April 7, 1999. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 16(b) of the index of exhibits and financial statement schedules is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule, as it pertains to the 1997 and 1998 data related to LAI Worldwide, Inc., has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Tampa, Florida April 7, 1999 S-5 SUPPLEMENTAL SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
COLUMN A COLUMN B COLUMN C ADDITIONS COLUMN D COLUMN E -------- ------------ ----------------------- ---------- ---------- BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING OF COSTS AND OTHER END OF DESCRIPTIONS PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ------------ ------------ ---------- ---------- ---------- ---------- Allowance for doubtful accounts Year ended December 31, 1997.......... $10,132 $ 4,211 $ 3,326(1) $ 3,128 $14,541 Year ended December 31, 1998.......... $14,541 $ 6,394 $ 1,780(1) $ 4,123 $18,592 Year ended December 31, 1999.......... $18,592 $14,527 $ 283(1) $ 7,887 $25,515 Accrued integration and restructuring reserves Year ended December 31, 1997.......... $ -- $ -- $17,663 $ 862 $16,801 Year ended December 31, 1998.......... $16,801 $ 3,543 $10,020 $13,617 $16,747 Year ended December 31, 1999.......... $16,747 $38,401 $ 3,381 $37,076 $21,453
------------------------ (1) Initial reserves of acquired companies. S-6