10-Q 1 a10-q.txt FORM 10-Q -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ------------------------ FORM 10-Q /X/ QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER: 000-21571 ------------------------ TMP WORLDWIDE INC. (Exact name of registrant as specified in its charter) DELAWARE 13-3906555 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.)
622 THIRD AVENUE, 39TH FLOOR, NEW YORK, NEW YORK 10017 (Address of principal executive offices) (Zip Code) (212) 351-7000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate the number of shares outstanding of each of the issuer's class of common stock, as of the latest practicable date.
CLASS OUTSTANDING ON AUGUST 11, 2000 ----- ------------------------------ Common Stock....................................... 91,381,902 Class B Common Stock............................... 4,762,000
-------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TMP WORLDWIDE INC. AND SUBSIDIARIES INDEX
PAGE NO. -------- PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Balance Sheets--June 30, 2000 and December 31, 1999......................................... 2 Consolidated Condensed Statements of Income--Three Months and Six Months Ended June 30, 2000 and 1999............... 3 Consolidated Condensed Statements of Comprehensive Income (Loss)--Three Months and Six Months Ended June 30, 2000 and 1999.................................................. 4 Consolidated Condensed Statement of Stockholders' Equity--Six Months Ended June 30, 2000.................... 5 Consolidated Condensed Statements of Cash Flows--Six Months Ended June 30, 2000 and 1999.............................. 6 Notes to Consolidated Condensed Financial Statements........ 7-19 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 20-30 Item 3. Quantitative and Qualitative Disclosures about Market Risk...................................................... 30 PART II OTHER INFORMATION Item 2(c). Changes in Securities and Use of Proceeds................... 31 Item 4. Submission of Matters to a Vote of Security-Holders......... 31-32 Item 6. Exhibits and Reports on Form 8-K............................ 32 Signature................................................... 33
TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31, 2000 1999 ----------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................. $ 511,445 $ 64,599 Accounts receivable, net.................................. 539,897 462,595 Work-in-process........................................... 26,970 25,632 Prepaid and other......................................... 58,725 60,019 ---------- ---------- Total current assets.................................. 1,137,037 612,845 Property and equipment, net............................... 98,352 80,839 Intangibles, net.......................................... 374,658 311,873 Deferred income taxes..................................... 11,103 25,237 Other assets.............................................. 22,089 22,434 ---------- ---------- $1,643,239 $1,053,228 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 325,640 $ 364,951 Accrued expenses and other current liabilities............ 209,320 134,838 Accrued integration and restructuring costs............... 21,850 21,453 Deferred commissions and fees............................. 104,174 72,298 Current portion of long term debt......................... 8,141 11,068 ---------- ---------- Total current liabilities............................. 669,125 604,608 Long term debt, less current portion...................... 15,139 100,098 Other long-term liabilities............................... 22,318 30,735 ---------- ---------- Total liabilities..................................... 706,582 735,441 ---------- ---------- Stockholders' equity: Preferred stock, $.001 par value, authorized 800,000 shares; issued and outstanding: none.................... -- -- Common stock, $.001 par value, authorized 200,000,000 shares; issued and outstanding: 91,204,907 and 81,359,671 shares....................................... 91 81 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.................................. 1,017,899 367,857 Other comprehensive loss.................................... (42,836) (4,899) Deficit..................................................... (38,502) (45,257) ---------- ---------- Total stockholders' equity.................................. 936,657 317,787 ---------- ---------- $1,643,239 $1,053,228 ========== ==========
See accompanying notes to consolidated condensed financial statements. 2 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Commissions and fees................................ $300,727 $210,568 $558,137 $402,090 -------- -------- -------- -------- Operating expenses: Salaries & related................................ 162,613 126,499 308,638 241,430 Office & general.................................. 66,698 45,183 127,883 98,649 Marketing & promotion............................. 38,353 19,378 67,702 29,564 Merger & integration.............................. 13,649 6,767 22,323 11,454 Restructuring..................................... -- -- -- 2,789 Amortization of intangibles....................... 3,905 3,078 7,540 6,167 -------- -------- -------- -------- Total operating expenses.......................... 285,218 200,905 534,086 390,053 -------- -------- -------- -------- Operating income.................................... 15,509 9,663 24,051 12,037 -------- -------- -------- -------- Other income (expense): Interest income (expense), net.................... 5,496 (2,723) 7,290 (6,226) Other, net........................................ (495) (1,341) (582) (1,511) -------- -------- -------- -------- 5,001 (4,064) 6,708 (7,737) -------- -------- -------- -------- Income before provision for income taxes, minority interests and equity in losses of affiliates...... 20,510 5,599 30,759 4,300 Provision for income taxes.......................... 12,248 2,283 19,528 1,488 -------- -------- -------- -------- Income before minority interests and equity in losses of affiliates.............................. 8,262 3,316 11,231 2,812 Minority interests.................................. (243) 8 (324) 107 Equity in losses of affiliates...................... -- (100) -- (200) -------- -------- -------- -------- Net income applicable to common and Class B common stockholders...................................... $ 8,505 $ 3,208 $ 11,555 $ 2,505 ======== ======== ======== ======== Net income per common and Class B common share: Basic............................................. $ 0.09 $ 0.04 $ 0.12 $ 0.03 ======== ======== ======== ======== Diluted........................................... $ 0.08 $ 0.04 $ 0.11 $ 0.03 ======== ======== ======== ======== Weighted average shares outstanding: Basic............................................. 95,614 84,166 94,048 83,380 ======== ======== ======== ======== Diluted........................................... 102,100 88,268 101,078 87,318 ======== ======== ======== ========
See accompanying notes to consolidated condensed financial statements. 3 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 2000 1999 -------- -------- Net income.................................................. $ 11,555 $ 2,505 Foreign currency translation adjustment..................... (37,937) 579 -------- ------- Comprehensive income (loss)................................. $(26,382) $ 3,084 ======== =======
THREE MONTHS ENDED JUNE 30, ------------------- 2000 1999 -------- -------- Net income.................................................. $ 8,505 $ 3,208 Foreign currency translation adjustment..................... (4,358) (1,691) -------- ------- Comprehensive income........................................ $ 4,147 $ 1,517 ======== =======
See accompanying notes to consolidated condensed financial statements. 4 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, January 1, 2000..... 81,359,671 $ 81 4,762,000 $ 5 $ 367,857 $ (4,899) $(45,257) Issuance of common stock in connection with a pubic offering completed February 2, 2000........... 8,000,000 8 -- -- 594,230 -- -- Issuance of common stock in connection with the exercise of options........ 1,332,397 1 -- -- 19,781 -- -- Tax benefit from the exercise of stock options........... -- -- -- -- 7,828 -- -- Issuance of common stock in connection with acquisitions............... 428,864 1 -- -- 26,000 -- -- Issuance of common stock for matching contribution to 401(k) plan................ 14,399 -- -- -- 1,023 -- -- Issuance of common stock in for employee stay bonuses.................... 22,702 -- -- -- 553 -- -- Other issuance of common stock of pooled entities... 46,874 -- -- -- 627 -- -- Foreign currency translation adjustment................. -- -- -- -- -- (37,937) -- Pooled company earnings included in both current and previous periods....... -- -- -- -- -- -- (285) Dividends declared by pooled companies.................. -- -- -- -- -- -- (4,515) Net income................... -- -- -- -- -- -- 11,555 ---------- --------- --------- ------ ---------- -------- -------- Balance, June 30, 2000....... 91,204,907 $ 91 4,762,000 $ 5 $1,017,899 $(42,836) $(38,502) ========== ========= ========= ====== ========== ======== ======== TOTAL STOCKHOLDERS' EQUITY ------------- Balance, January 1, 2000..... $317,787 Issuance of common stock in connection with a pubic offering completed February 2, 2000........... 594,238 Issuance of common stock in connection with the exercise of options........ 19,782 Tax benefit from the exercise of stock options........... 7,828 Issuance of common stock in connection with acquisitions............... 26,001 Issuance of common stock for matching contribution to 401(k) plan................ 1,023 Issuance of common stock in for employee stay bonuses.................... 553 Other issuance of common stock of pooled entities... 627 Foreign currency translation adjustment................. (37,937) Pooled company earnings included in both current and previous periods....... (285) Dividends declared by pooled companies.................. (4,515) Net income................... 11,555 -------- Balance, June 30, 2000....... $936,657 ========
See accompanying notes to consolidated condensed financial statements. 5 TMP WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------- 2000 1999 --------- --------- Cash flows from operating activities: Net income................................................ $ 11,555 $ 2,505 --------- --------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization........................... 28,498 20,904 Provision for doubtful accounts......................... 13,800 2,695 Common stock issued for matching contribution to 401(k) plan and employee stay bonuses........................ 1,576 902 Loss on disposal & write-down of fixed assets........... -- 2,801 Provision (benefit) for deferred income taxes........... 4,955 (2,277) Minority interests and other............................ -- 4,372 Effect of pooled companies included in more than one period................................................ (285) 1,465 Changes in assets and liabilities, net of effects of purchases of businesses: Increase in accounts receivable, net.................... (85,772) (35,438) (Increase) decrease in work-in-process, prepaid and other................................................. 7,228 (2,608) Increase in deferred commissions and fees............... 31,335 12,522 Increase (decrease) in accounts payable, accrued expenses and other current liabilities................ (21,133) 4,732 --------- --------- Total adjustments..................................... (19,798) 10,070 --------- --------- Net cash provided by (used in) operating activities... (8,243) 12,575 --------- --------- Cash flows from investing activities: Capital expenditures...................................... (32,410) (17,990) Payments for purchases of businesses, net of cash acquired................................................ (33,372) (18,835) --------- --------- Net cash used in investing activities................. (65,782) (36,825) --------- --------- Cash flows from financing activities: Borrowings under line of credit and proceeds from issuance of debt................................................. 137,083 599,888 Repayments under line of credit and principal payments on debt.................................................... (223,015) (590,171) Net proceeds from issuance of common stock................ 594,238 -- Cash received from the exercise of employee stock options................................................. 19,782 7,163 Other..................................................... (59) (241) Dividends paid by pooled entities......................... (4,515) (5,100) Payments on capitalized leases............................ (2,140) (2,466) --------- --------- Net cash provided by financing activities............. 521,374 9,073 --------- --------- Effect of exchange rate changes on cash..................... (503) 294 --------- --------- Net increase (decrease) in cash and cash equivalents........ 446,846 (14,883) Cash and cash equivalents, beginning of period.............. 64,599 79,868 --------- --------- Cash and cash equivalents, end of period.................... $ 511,445 $ 64,985 ========= =========
See accompanying notes to consolidated condensed financial statements. 6 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 (i) the consolidated 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 filed on Form 8-K dated July 21, 2000. 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 interest (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", collectively with the First Quarter 2000 Mergers, the "First Half 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
7 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) The Company's consolidated financial statements have been retroactively restated as of June 30, 1999 and for the six months ended June 30, 1999 to reflect the First Half 2000 Mergers. As a result, the financial position, and statements of income, 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 reflects the accounts of TMP as if the additional common stock issued in connection with these mergers had been issued for all periods when each of the related companies had issued their shares and for the amounts that reflect the exchange ratios of the mergers. In addition, for the period July 1, 1999 through June 30, 2000 the Company completed 20 acquisitions using the purchase method of accounting. Given the significant number of acquisitions affecting the periods presented, the results of operations from period to period may not necessarily be comparable. Furthermore, results of operations for the interim periods are not necessarily indicative of annual results. Amounts charged to clients for Temporary Contracting services are reported net of the costs paid to the temporary contractor. The details for such amounts are:
SIX MONTHS ENDED JUNE 30, ------------------- 2000 1999 -------- -------- Temporary Contracting revenue........................... $241,131 $226,753 Temporary Contracting costs............................. 187,738 181,910 -------- -------- Temporary Contracting, billings and commissions and fees.................................................. $ 53,393 $ 44,843 ======== ========
THREE MONTHS ENDED JUNE 30, ------------------- 2000 1999 -------- -------- Temporary Contracting revenue........................... $119,560 $119,044 Temporary Contracting costs............................. 91,795 94,665 -------- -------- Temporary Contracting, billings and commissions and fees.................................................. $ 27,765 $ 24,379 ======== ========
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, based on the treasury stock method of computing such effects and contingent shares. 8 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) A reconciliation of shares used in calculating basic and diluted earnings per common and Class B common share follows:
SIX MONTHS ENDED JUNE 30, ------------------- 2000 1999 -------- -------- (IN THOUSANDS) Basic...................................................... 94,048 83,380 Effect of assumed conversion of options.................... 7,030 3,938 ------- ------ Diluted.................................................... 101,078 87,318 ======= ======
THREE MONTHS ENDED JUNE 30, ------------------- 2000 1999 -------- -------- (IN THOUSANDS) Basic...................................................... 95,614 84,166 Effect of assumed conversion of options.................... 6,486 4,102 ------- ------ Diluted.................................................... 102,100 88,268 ======= ======
NOTE 2--NATURE OF BUSINESS AND CREDIT RISK The Company operates in five business segments: Interactive (including Monster-Registered Trademark-.com and MonsterMoving.com(sm)), Recruitment Advertising, Selection & Temporary Contracting, Executive Search and Yellow Page Advertising. The Company's commissions and fees are earned from the following activities: (i) advertisements placed on its career and other websites, (ii) resume and other database access, (iii) executive placement services, (iv) mid-level employee selection and temporary contracting services, (v) selling and placing recruitment advertising and related services, (vi) resume screening services and (vii) selling and placing Yellow Page Advertising and related services. These services are provided to a large number of customers in many different industries. The Company operates principally throughout North America, the United Kingdom, Continental Europe and the Asia-Pacific Region (primarily Australia and New Zealand). 9 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 3--BUSINESS COMBINATIONS ACQUISITIONS ACCOUNTED FOR USING THE POOLING OF INTERESTS METHOD During the period of 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, Selection & North America April 3, 2000 1,022,257 Inc...................... Temporary 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 Interactive United Kingdom May 17, 2000 205,703 Ltd...................... 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......................
10 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 3--BUSINESS COMBINATIONS (CONTINUED) Commissions and fees, net income (loss) applicable to common and Class B common stockholders and net income per common and Class B common share of the combining companies are as follows:
THREE MONTHS SIX MONTHS ENDED ENDED JUNE 30, JUNE 30, 1999 1999 ------------ ----------- COMMISSIONS AND FEES: TMP, as previously reported on Form 10-K for the year ended December 31, 1999........................................... $186,144 $355,150 HW Group, PLC............................................. 10,228 21,303 Microsurf, Inc. .......................................... 1,282 2,208 Burlington Wells, Inc..................................... 656 821 Illsley Bourbonnais....................................... 1,843 2,730 System One Services, Inc.................................. 7,541 14,558 GTR Advertising........................................... 774 1,561 Virtual Relocation.com, Inc............................... 346 501 Business Technologies Ltd................................. 197 394 Simpatix, Inc............................................. 4 (7) Rollo Associates, Inc..................................... 838 1,605 Web Technology Partners, Inc.............................. 715 1,266 -------- -------- TMP, as restated............................................ $210,568 $402,090 ======== ======== NET INCOME APPLICABLE TO COMMON AND CLASS B COMMON STOCKHOLDERS: TMP, as previously reported on Form 10-K for the year ended December 31, 1999........................................... $ 3,249 $ 930 HW Group, PLC............................................. (1,688) 205 Microsurf, Inc. .......................................... 832 828 Burlington Wells, Inc..................................... 161 265 Illsley Bourbonnais....................................... 1,092 1,372 System One Services, Inc.................................. (231) (920) GTR Advertising........................................... 175 374 Virtual Relocation.com, Inc............................... (525) (884) Business Technologies Ltd................................. 27 56 Simpatix, Inc............................................. (92) (241) Rollo Associates, Inc..................................... 323 594 Web Technology Partners, Inc.............................. (115) (74) -------- -------- TMP, as restated............................................ $ 3,208 $ 2,505 ======== ========
11 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)
THREE MONTHS SIX MONTHS ENDED ENDED JUNE 30, JUNE 30, 1999 1999 ------------ ----------- NET INCOME PER COMMON AND CLASS B COMMON SHARE: TMP, as previously reported on Form 10-K for the year ended December 31, 1999 Basic..................................................... $ 0.04 $ 0.01 Diluted................................................... $ 0.04 $ 0.01 TMP, as restated Basic..................................................... $ 0.04 $ 0.03 Diluted................................................... $ 0.04 $ 0.03
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 June 30, 2000, the Company expensed merger and integration costs of $22,323. Of this amount $13,062 is for merger costs and $9,261 is for integration costs. The merger costs for the period ended June 30, 2000 consist of (a) $3,548 for payments made in connection with the repayment of debt of a pooled company pursuant to change in control provisions of such debt, (b) $4,634 of non-cash employee stay bonuses and (c) $4,880 of transaction related costs, including legal, accounting, printing, advisory fees and the costs incurred for the subsequent registration of shares issued in the mergers. The $9,261 of integration costs consists of (a) $4,424 for assumed obligations of closed facilities, (b) $5,010 for consolidation of acquired facilities and (c) $488 for severance, relocation and other employee costs, partially offset by a $661 recovery of a reserve for receivables. See schedule of Accrued Integration and Restructuring Costs in the section below. During the six months ended June 30, 1999, the Company expensed merger and integration costs of $11,454 which were comprised of $5,449 of transaction costs, $2,280 for the amortization of employee stay bonuses payable in TMP common stock., $2,100 in separation costs for the Chief Operating Officer of an acquired company and $1,625 for integration costs, ACQUISITIONS ACCOUNTED FOR USING THE PURCHASE METHOD In addition to the pooling of interests transactions discussed above, in the six month period ended June 30, 2000, the Company completed nine acquisitions using the purchase method of accounting, five 12 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) Selection & Temporary Contracting firms, two Recruitment Advertising firms and two Interactive firms for the MonsterMoving.com(sm) business. The total amount of cash paid for these acquisitions was approximately $36.1 million. In addition, the Company issued 352,575 shares of common stock in connection with certain of the above mentioned acquisitions. Operations of these businesses have been included in the consolidated financial statements from their acquisition dates. The summarized unaudited pro forma results of operations set forth below for the six month periods ended June 30, 2000 and 1999 and the year ended December 31, 1999 assume the acquisitions in 2000 and 1999 occurred as of the beginning of the year of acquisition and the beginning of the preceding year.
SIX MONTHS ENDED JUNE 30, YEAR ENDED ------------------- DECEMBER 31, 2000 1999 1999 -------- -------- ------------ Commissions and fees........................................ $563,462 $434,907 $923,183 Net income (loss) applicable to common and Class B common stockholders.............................................. $ 10,816 $ 2,970 $ (9,068) Net income (loss) per common and Class B common share: Basic..................................................... $ 0.11 $ 0.04 $ (0.11) Diluted................................................... $ 0.11 $ 0.03 $ (0.11)
The unaudited pro forma results of operations are not necessarily indicative of what actually would have occurred if the acquisitions had been completed at the beginning of each of the periods presented, nor are the results of operations necessarily indicative of the results that will be attained in the future. ACCRUED INTEGRATION AND RESTRUCTURING COSTS In connection with its acquisitions, the Company formulated plans to integrate the operations of the acquired companies. Such plans involve the closure of certain offices of such companies and the elimination of redundant management and employees. The objectives of the plans are to take advantage of the Company's existing operating infrastructure and efficiencies or to develop efficiencies from the infrastructure of the acquired companies, and to create a single brand in the related markets in which the Company operates. In connection with such plans, in the six months ended June 30, 2000, the Company (i) expensed, as part of merger and integration expenses, $9,261, for companies acquired in transactions accounted for as 13 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) poolings of interests and (ii) increased goodwill by $2,156 for companies acquired in transactions accounted for under the purchase method. These costs and liabilities include:
ADDITIONS DEDUCTIONS BALANCE ---------------------- --------------------------- BALANCE DECEMBER 31, CHARGED TO APPLIED AGAINST JUNE 30, 1999 GOODWILL EXPENSED RELATED ASSET PAYMENTS 2000 ------------ ---------- --------- --------------- --------- -------- Assumed obligations on closed leased facilities.................................. $ 9,564 $ 327 $4,424 $ -- $(3,189) $11,126(a) Consolidation of acquired facilities.......... 8,715 243 5,010 -- (6,007) 7,961(b) Contracted lease payments exceeding current market costs................................ 562 -- -- -- (70) 492(c) Severance, relocation and other employee costs....................................... 954 1,586 488 -- (2,415) 613(d) Provision for uncollectible receivables....... -- -- (661) 661 -- -- Pension obligations........................... 1,658 -- -- -- -- 1,658(e) ------- ------ ------ ---- ------- ------- Total......................................... $21,453 $2,156 $9,261 $661 $11,681 $21,850 ======= ====== ====== ==== ======= =======
------------------------------ (a) Accrued liabilities for surplus property in the amount of $11,126 as of June 30, 2000 relate to leased office locations of acquired companies that were either unutilized prior to the acquisition date or will be closed by December 31, 2000 in connection with the restructuring plans. The amount is based on the present value of minimum future lease obligations, net of estimated sublease income. (b) Other costs associated with the closure or consolidation of existing offices of acquired companies in the amount of $7,961 as of June 30, 2000 relate to termination costs of contracts relating to billing systems, external reporting systems and other contractual arrangements with third parties. (c) Above market lease costs in the amount of $492 as of June 30, 2000 relate to the present value of contractual lease payments in excess of current market lease rates. (d) Estimated employee severance and relocation expenses and other employee costs in the amount of $613 as of June 30, 2000 relate to estimated severance for terminated employees at closed locations, costs associated with employees transferred to continuing offices and other related costs. Employee groups affected include sales, service, administrative and management personnel at duplicate locations as well as redundant management and administrative personnel at corporate headquarters. As of June 30, 2000, the accrual related to approximately 50 employees, senior management, sales, service and administrative personnel. During the six months ended June 30, 2000, payments of $2,415 were made for severance and charged against the reserve. (e) Pension obligations in the amount of $1,658 were assumed in connection with the acquisition of Austin Knight. The Company continues to evaluate and assess the impact of duplicate responsibilities and office locations. Pursuant to the conclusions reached by the Emerging Issues Task Force ("EITF") of the FASB in EITF Issues No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)," and No. 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination," in connection with the finalization of preliminary plans relating to purchased entities, additions to restructuring reserves within one year of the date of acquisition are treated as additional purchase price but costs incurred resulting from plan revisions made after the first year will be charged to operations in the period in which they occur. 14 TMP WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED) NOTE 4--SEGMENT AND GEOGRAPHIC DATA The Company is engaged in five lines of business based primarily on the reporting of senior management to the Chief Operating Officer: Interactive (including Monster-Registered Trademark-.com and MonsterMoving.com(sm)), Recruitment Advertising, Selection & Temporary Contracting, Executive Search and Yellow Page Advertising, which now also includes full service interactive advertising services provided by IN2. Operations are conducted in several geographic regions: North America, Asia-Pacific (primarily Australia and New Zealand), the United Kingdom and Continental Europe. The following is a summary of the Company's operations by business segment and by geographic region, for the six month and three month periods ended June 30, 2000 and 1999. Overhead is allocated based on retroactively restated commissions and fees.
INTERACTIVE SELECTION & INFORMATION BY BUSINESS --------------------------------------------------------- RECRUITMENT TEMPORARY EXECUTIVE SEGMENT MONSTER-REGISTERED TRADEMARK-.COM MONSTERMOVING.COM(SM) ADVERTISING CONTRACTING SEARCH ----------------------- --------------------------------- --------------------- ----------- ----------- --------- SIX MONTHS ENDED JUNE 30, 2000 Commissions and fees: Traditional sources..... $ -- $ -- $95,553 $165,821 $ 87,352 Interactive............. 134,966 4,158 12,717 6,179 -- ------- ------- ------- -------- -------- Total commissions and fees.................. 134,966 4,158 108,270 172,000 87,352 ------- ------- ------- -------- -------- Operating expenses: Salaries & related, office & general, marketing & promotion, and overhead.......... -- -- 83,945 160,969 79,915 Interactive (a)......... 111,718 10,002 11,064 5,022 -- Merger & integration.... 122 787 1,133 13,763 5,654 Amortization of intangibles........... 164 56 3,376 1,389 388 ------- ------- ------- -------- -------- Total operating expenses.............. 112,004 10,845 99,518 181,143 85,957 ------- ------- ------- -------- -------- Operating income (loss): Traditional sources..... -- -- 7,099 (10,300) 1,395 Interactive............. 22,962 (6,687) 1,653 1,157 -- ------- ------- ------- -------- -------- Total operating income (loss)................ $22,962 $(6,687) $ 8,752 $ (9,143) $ 1,395 ======= ======= ======= ======== ======== Total other income, net................... * * * * * Income before provision for income taxes, minority interests and equity in losses of affiliates............ * * * * * YELLOW INFORMATION BY BUSINESS PAGE SEGMENT ADVERTISING TOTAL ----------------------- ----------- -------- SIX MONTHS ENDED JUNE 30, 2000 Commissions and fees: Traditional sources..... $46,381 $395,107 Interactive............. 5,010 163,030 ------- -------- Total commissions and fees.................. 51,391 558,137 ------- -------- Operating expenses: Salaries & related, office & general, marketing & promotion, and overhead.......... 37,419 362,248 Interactive (a)......... 4,169 141,975 Merger & integration.... 864 22,323 Amortization of intangibles........... 2,167 7,540 ------- -------- Total operating expenses.............. 44,619 534,086 ------- -------- Operating income (loss): Traditional sources..... 5,931 4,125 Interactive............. 841 19,926 ------- -------- Total operating income (loss)................ $ 6,772 24,051 ======= Total other income, net................... * 6,708 -------- Income before provision for income taxes, minority interests and equity in losses of affiliates............ * $ 30,759 ========
------------------------------ (a) Is comprised of salaries & related, office & general, marketing & promotion and allocated overhead. * Not allocated. 15 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)
INTERACTIVE SELECTION & INFORMATION BY BUSINESS --------------------------------------------------------- RECRUITMENT TEMPORARY EXECUTIVE SEGMENT MONSTER-REGISTERED TRADEMARK-.COM MONSTERMOVING.COM(SM) ADVERTISING CONTRACTING SEARCH ----------------------- --------------------------------- --------------------- ----------- ----------- --------- SIX MONTHS ENDED JUNE 30, 1999 Commissions and fees: Traditional sources..... $ -- $ -- $93,527 $122,707 $ 84,199 Interactive............. 37,632 2,709 5,647 3,035 -- ------- ------- ------- -------- -------- Total commissions and fees.................. 37,632 2,709 99,174 125,742 84,199 ------- ------- ------- -------- -------- Operating expenses: Salaries & related, office & general, marketing & promotion, and overhead.......... -- -- 80,750 109,126 89,144 Interactive (a)......... 37,914 2,818 4,858 2,460 8,823 Merger & integration.... -- -- 198 4,787 6,439 Restructuring........... -- -- -- -- 2,789 Amortization of intangibles........... 121 6 3,235 1,029 470 ------- ------- ------- -------- -------- Total operating expenses.............. 38,035 2,824 89,041 117,402 107,665 ------- ------- ------- -------- -------- Operating income (loss): Traditional sources..... -- -- 9,344 7,765 (14,643) Interactive............. (403) (115) 789 575 (8,823) ------- ------- ------- -------- -------- Total operating income (loss)................ $ (403) $ (115) $10,133 $ 8,340 $(23,466) ======= ======= ======= ======== ======== Total other expense, net................... * * * * * Income before provision for income taxes, minority interests and equity in losses of affiliates............ * * * * * YELLOW INFORMATION BY BUSINESS PAGE SEGMENT ADVERTISING TOTAL ----------------------- ----------- -------- SIX MONTHS ENDED JUNE 30, 1999 Commissions and fees: Traditional sources..... $50,982 $351,415 Interactive............. 1,652 50,675 ------- -------- Total commissions and fees.................. 52,634 402,090 ------- -------- Operating expenses: Salaries & related, office & general, marketing & promotion, and overhead.......... 32,286 311,306 Interactive (a)......... 1,464 58,337 Merger & integration.... 30 11,454 Restructuring........... -- 2,789 Amortization of intangibles........... 1,306 6,167 ------- -------- Total operating expenses.............. 35,086 390,053 ------- -------- Operating income (loss): Traditional sources..... 17,360 19,826 Interactive............. 188 (7,789) ------- -------- Total operating income (loss)................ $17,548 12,037 ======= Total other expense, net................... * (7,737) -------- Income before provision for income taxes, minority interests and equity in losses of affiliates............ * $ 4,300 ========
------------------------------ (a) Is comprised of salaries & related, office & general, marketing & promotion and allocated overhead. * Not allocated. 16 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)
INTERACTIVE SELECTION & INFORMATION BY BUSINESS --------------------------------------------------------- RECRUITMENT TEMPORARY EXECUTIVE SEGMENT MONSTER-REGISTERED TRADEMARK-.COM MONSTERMOVING.COM(SM) ADVERTISING CONTRACTING SEARCH ----------------------- --------------------------------- --------------------- ----------- ----------- --------- THREE MONTHS ENDED JUNE 30, 2000 Commissions and fees: Traditional sources..... $ -- $ -- $49,040 $ 88,005 $48,345 Interactive............. 76,905 2,085 6,935 3,711 -- ------- ------- ------- -------- ------- Total commissions and fees.................. 76,905 2,085 55,975 91,716 48,345 ------- ------- ------- -------- ------- Operating expenses: Salaries & related, office & general, marketing & promotion, and overhead.......... -- -- 43,478 83,019 41,674 Interactive (a)......... 63,430 5,393 6,248 3,202 -- Merger & integration.... 122 712 990 8,024 3,121 Amortization of intangibles........... 104 49 2,099 456 114 ------- ------- ------- -------- ------- Total operating expenses.............. 63,656 6,154 52,815 94,701 44,909 ------- ------- ------- -------- ------- Operating income (loss): Traditional sources..... -- -- 2,473 (3,494) 3,436 Interactive............. 13,249 (4,069) 687 509 -- ------- ------- ------- -------- ------- Total operating income (loss)................ $13,249 $(4,069) $ 3,160 $ (2,985) $ 3,436 ------- ------- ------- -------- ------- Total other income, net................... * * * * * Income before provision for income taxes, minority interests and equity in losses of affiliates............ * * * * * YELLOW INFORMATION BY BUSINESS PAGE SEGMENT ADVERTISING TOTAL ----------------------- ----------- -------- THREE MONTHS ENDED JUNE 30, 2000 Commissions and fees: Traditional sources..... $23,081 $208,471 Interactive............. 2,620 92,256 ------- -------- Total commissions and fees.................. 25,701 300,727 ------- -------- Operating expenses: Salaries & related, office & general, marketing & promotion, and overhead.......... 19,599 187,770 Interactive (a)......... 1,621 79,894 Merger & integration.... 680 13,649 Amortization of intangibles........... 1,083 3,905 ------- -------- Total operating expenses.............. 22,983 285,218 ------- -------- Operating income (loss): Traditional sources..... 1,719 4,134 Interactive............. 999 11,375 ------- -------- Total operating income (loss)................ $ 2,718 15,509 ------- Total other income, net................... * 5,001 -------- Income before provision for income taxes, minority interests and equity in losses of affiliates............ * $ 20,510 ========
------------------------------ (a) Is comprised of salaries & related, office & general, marketing & promotion and allocated overhead. * Not allocated. 17 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)
INTERACTIVE SELECTION & INFORMATION BY BUSINESS --------------------------------------------------------- RECRUITMENT TEMPORARY EXECUTIVE SEGMENT MONSTER-REGISTERED TRADEMARK-.COM MONSTERMOVING.COM(SM) ADVERTISING CONTRACTING SEARCH ----------------------- --------------------------------- --------------------- ----------- ----------- --------- THREE MONTHS ENDED JUNE 30, 1999 Commissions and fees: Traditional sources..... $ -- $ -- $47,102 $ 65,274 $ 42,686 Interactive............. 21,186 1,628 2,821 1,713 -- ------- ------- ------- -------- -------- Total commissions and fees.................. 21,186 1,628 49,923 66,987 42,686 ------- ------- ------- -------- -------- Operating expenses: Salaries & related, office & general, marketing & promotion, and overhead.......... -- -- 42,605 56,526 39,894 Interactive (a)......... 19,934 1,343 3,235 1,387 8,823 Merger & integration.... -- -- 119 2,304 4,314 Amortization of intangibles........... 63 3 1,542 540 260 ------- ------- ------- -------- -------- Total operating expenses.............. 19,997 1,346 47,501 60,757 53,291 ------- ------- ------- -------- -------- Operating income (loss): Traditional sources..... -- -- 2,836 5,904 (1,782) Interactive............. 1,189 282 (414) 326 (8,823) ------- ------- ------- -------- -------- Total operating income (loss)................ $ 1,189 $ 282 $ 2,422 $ 6,230 $(10,605) ======= ======= ======= ======== ======== Total other expense, net................... * * * * * Income before provision for income taxes, minority interests and equity in losses of affiliates............ * * * * * YELLOW INFORMATION BY BUSINESS PAGE SEGMENT ADVERTISING TOTAL ----------------------- ----------- -------- THREE MONTHS ENDED JUNE 30, 1999 Commissions and fees: Traditional sources..... $27,187 $182,249 Interactive............. 971 28,319 ------- -------- Total commissions and fees.................. 28,158 210,568 ------- -------- Operating expenses: Salaries & related, office & general, marketing & promotion, and overhead.......... 16,381 155,406 Interactive (a)......... 932 35,654 Merger & integration.... 30 6,767 Amortization of intangibles........... 670 3,078 ------- -------- Total operating expenses.............. 18,013 200,905 ------- -------- Operating income (loss): Traditional sources..... 10,106 17,064 Interactive............. 39 (7,401) ------- -------- Total operating income (loss)................ $10,145 9,663 ======= Total other expense, net................... * (4,064) -------- Income before provision for income taxes, minority interests and equity in losses of affiliates............ * $ 5,599 ========
------------------------------ (a) Is comprised of salaries & related, office & general, marketing & promotion and allocated overhead. - Not allocated. 18 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)
UNITED CONTINENTAL INFORMATION BY GEOGRAPHIC REGION NORTH AMERICA ASIA-PACIFIC KINGDOM EUROPE TOTAL -------------------------------- ------------- ------------ -------- ----------- -------- SIX MONTHS ENDED JUNE 30, 2000 Commissions and fees................... $325,174 $90,812 $75,309 $66,842 $558,137 Income (loss) before income taxes, minority interests and equity in losses of affiliates................. $ 24,605 $ 8.804 $(8,921) $ 6,271 $ 30,759 SIX MONTHS ENDED JUNE 30, 1999 Commissions and fees................... $218,392 $77,829 $64,056 $41,813 $402,090 Income (loss) before income taxes, minority interests and equity in losses of affiliates................. $(12,542) $ 9,248 $ 256 $ 7,338 $ 4,300
UNITED CONTINENTAL INFORMATION BY GEOGRAPHIC REGION NORTH AMERICA ASIA-PACIFIC KINGDOM EUROPE TOTAL -------------------------------- ------------- ------------ -------- ----------- -------- THREE MONTHS ENDED JUNE 30, 2000 Commissions and fees................. $177,688 $48,211 $38,292 $36,536 $300,727 Income (loss) before income taxes, minority interests and equity in losses of affiliates............... $ 16,639 $ 5,346 $(4,024) $ 2,549 $ 20,510 THREE MONTHS ENDED JUNE 30, 1999 Commissions and fees................. $115,268 $42,086 $31,589 $21,625 $210,568 Income (loss) before income taxes, minority interests and equity in losses of affiliates............... $ 1,777 $ 6,076 $(4,723) $ 2,469 $ 5,599
19 TMP WORLDWIDE INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q CONCERNING OUR BUSINESS OUTLOOK OR FUTURE ECONOMIC PERFORMANCE, ANTICIPATED PROFITABILITY, GROSS BILLINGS, COMMISSIONS AND FEES, EXPENSES OR OTHER FINANCIAL ITEMS AND STATEMENTS CONCERNING ASSUMPTIONS MADE OR EXCEPTIONS AS TO ANY FUTURE EVENTS, CONDITIONS, PERFORMANCE OR OTHER MATTERS ARE "FORWARD-LOOKING STATEMENTS" AS THAT TERM IS DEFINED UNDER THE FEDERAL SECURITIES LAWS. FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES, AND OTHER FACTORS WHICH WOULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE STATED IN SUCH STATEMENTS. SUCH RISKS, UNCERTAINTIES AND FACTORS INCLUDE, BUT ARE NOT LIMITED TO, (I) WE MAY NOT BE ABLE TO MANAGE OUR GROWTH, (II) OUR SUCCESS DEPENDS ON THE VALUE OF OUR BRANDS, PARTICULARLY MONSTER-REGISTERED TRADEMARK-.COM, (III) THE ACCEPTANCE AND EFFECTIVENESS OF INTERNET ADVERTISING IS UNPROVEN, (IV) WE FACE RISKS RELATING TO DEVELOPING TECHNOLOGY, INCLUDING THE INTERNET, (V) WE DEPEND ON TRADITIONAL MEDIA, (VI) WE ARE VULNERABLE TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS BROUGHT AGAINST US BY OTHERS, (VII) WE HAVE NEVER PAID CASH DIVIDENDS, (VIII) COMPUTER VIRUSES MAY CAUSE OUR SYSTEMS TO INCUR DELAYS OR INTERRUPTIONS, (IX) INTERNET USERS MAY NOT ACCEPT OUR INTERNET CONTENT, (X) WE FACE RISKS ASSOCIATED WITH OUR ACQUISITION STRATEGY, (XI) OUR MARKETS ARE HIGHLY COMPETITIVE, (XII) OUR OPERATING RESULTS FLUCTUATE FROM QUARTER TO QUARTER, (XIII) THE EFFECT OF GLOBAL ECONOMIC FLUCTUATIONS, (XIV) WE DEPEND ON OUR CONSULTANTS, (XV) OUR CONSULTANTS MAY DEPART WITH EXISTING EXECUTIVE SEARCH CLIENTS, (XVI) WE FACE RISKS MAINTAINING OUR PROFESSIONAL REPUTATION AND BRAND NAME, (XVII) WE FACE RESTRICTIONS IMPOSED BY OFF-LIMITS ARRANGEMENTS, (XVIII) WE FACE RISKS RELATING TO OUR FOREIGN OPERATIONS, (XIX) WE DEPEND ON OUR KEY PERSONNEL, (XX) WE ARE CONTROLLED BY A PRINCIPAL STOCKHOLDER, (XXI) THE EFFECTS OF ANTI-TAKEOVER PROVISIONS COULD INHIBIT OUR ACQUISITION, (XXII) THERE MAY BE VOLATILITY IN OUR STOCK PRICE AND (XXIII) WE FACE RISKS ASSOCIATED WITH GOVERNMENT REGULATION. OVERVIEW TMP Worldwide Inc. ("TMP" or the "Company"), through its flagship Interactive product, Monster-Registered Trademark-.com (www.monster.com), is the on-line recruitment leader. TMP is also the world's largest Recruitment Advertising agency network, one of the world's largest Executive Search, Selection and Temporary Contracting agencies, the world's largest Yellow Pages Advertising agency, a provider of full service interactive advertising and interactive marketing technology services, and a provider of online moving services. Our Interactive growth is attributable to increased sales of our Internet products, expansion of our Interactive businesses into certain European countries, migration of our traditional businesses to the Internet and the addition of new Interactive services. Monster.com is the leading global career portal on the Web with over 15.2 million unique visits per month as of June 2000 per Nielson I/Pro. The Monster.com global network consists of local language and content sites in the United States, Canada (French and English), United Kingdom, Ireland, France, Germany, the Netherlands, Belgium, Australia, New Zealand, Singapore and Hong Kong. A substantial part of our growth in Recruitment Advertising, Selection & Temporary Contracting and Yellow Page Advertising has been achieved through acquisitions accounted for as purchases. For the period January 1, 1997 through June 30, 2000 we completed 64 such acquisitions, with estimated annual gross billings of approximately $495 million. Given the significant number of acquisitions affecting the periods presented, the results of operations from period to period may not necessarily be comparable. Furthermore, during the six months ended June 30, 2000, we completed eleven mergers that are being accounted for as poolings of interests (the "First Half 2000 Pooled Companies"). During the period of January 1, 2000 through March 31, 2000, we consummated mergers with HW Group PLC, Microsurf, Inc., Burlington Wells, Inc., and Illsley Bourbonnais. During the period of April 1, 2000 through June 30, 2000, 20 we consummated mergers with System One Services, Inc., GTR Advertising, Virtual Relocation.com, Inc., Business Technologies Ltd., Simpatix, Inc., Rollo Associates, Inc., and Web Technology Partners, Inc. (the "Second Quarter 2000 Mergers"). 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"). The financial statements as of and for the quarters ended June 30, 1999 have been retroactively restated as if the First Half 2000 Mergers had been consolidated from January 1, 1999. Gross billings refers to billings for advertising placed on the Internet, in newspapers and telephone directories by our clients, and associated fees for related services. In addition, Executive Search fees, Selection fees, and net fees from Temporary Contracting services are also part of gross billings. Gross billings for Recruitment Advertising and Yellow Page Advertising are not included in our consolidated financial statements because they include a substantial amount of funds that are collected from our clients but passed through to publishers for advertisements. However, the trends in gross billings in these two segments directly impact the commissions and fees earned because, for these segments, we earn commissions based on a percentage of the media advertising purchased at a rate established by the related publisher. We also earn associated fees for related services; such amounts are also included in gross billings. Publishers and third party websites typically bill us for the advertising purchased and we in turn bill our clients for this amount and retain a commission. Generally, the payment terms for Yellow Page Advertising clients require payment to us prior to the date payment is due to the publishers. The payment terms with Recruitment Advertising clients typically require payment when payment is due to publishers. Historically, we have not experienced substantial problems with unpaid accounts. Commissions and fees related to our Interactive businesses are derived from: - job postings and access to the resume database and related services delivered via the Internet, primarily our own Web site, www.monster.com; - searches for permanent and temporary employees, at the executive and professional levels, and related services conducted through the Internet; - Internet advertising services provided to our Yellow Page Advertising clients; - the providing of interactive advertising services and technologies, which allow advertisers to measure and track sales, repeat traffic and other key statistics to enable such advertisers to greatly reduce costs, while driving only the most qualified users to their web sites; and - online moving services, primarily on our own Web site, www.monstermoving.com(sm). MonsterMoving.com(sm) (www.monstermoving.com) provides important relocation information and services to Monster.com's job seeker and employer community, which averages over 3.9 million unique visitors and over 15.2 million unique visits per month. According to the U.S. Census Department 1997 Study, approximately 20% of the general U.S. population is relocating at any point in time and we believe that these additional relocation services will be highly valued by Monster.com's audience and customer base. MonsterMoving.com, currently through the individual properties 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, which is scheduled to be launched as a new site in the third quarter of 2000, will be directly accessible to Monster.com's large base of consumer traffic through URL links and promotions on Monster.com. In addition, the cross-selling of MonsterMoving.com's services has started with the Company's other divisions and will provide an important new advertising venue for moving-related clients, 21 particularly in the Yellow Page Advertising division, where over 30% of our Yellow Page revenues are derived from the moving services industry, including van lines, truck rentals and home services. For Recruitment Advertising placements in the U.S., publisher commissions historically average 15% of recruitment advertising gross billings. We also earn fees from related services such as campaign development and design, retention and referral programs, resume screening, brochures and other collateral services, research and other creative and administrative services. Outside of the U.S., where, collectively, we derive the majority of our Recruitment Advertising commissions and fees, our commission rates for recruitment advertising vary, historically ranging from approximately 10% in Australia to 15% in Canada and the United Kingdom. Executive Search offers an advanced and comprehensive range of services aimed at identifying the appropriate senior executive for our clients. Such senior executives typically earn in excess of $250,000 annually. Our specialized services include identification of candidates, competence measurement, assessment of candidate/company cultural fit and transaction negotiation and closure. Selection & Temporary Contracting offers placement services for executives and professionals in mid-level and temporary positions, as well as for specific short-term projects. Our Selection business provides services similar to our Executive Search business, and focuses on mid-level professionals or executives, who typically earn between $75,000 and $150,000, annually. Our Temporary Contracting business provides contract employees primarily in Australia, New Zealand, the United Kingdom and the U.S. We believe that our Executive Search and Selection & Temporary Contracting services are helping to broaden the universe of both job seekers and employers who utilize Monster.com. Through the use of Monster.com, Recruitment Advertising, Selection & Temporary Contracting and Executive Search, we believe that we can accommodate all of our clients' employee recruitment needs, which is our "Intern to CEO" strategy. We design and execute Yellow Page Advertising, receiving an effective commission rate from directory publishers which historically approximated 20% of Yellow Page Advertising gross billings. However, due to reductions in commission rates by the publishers and higher discounts provided to clients, the rate has declined and for 1999 was approximately 19% and has declined to approximately 17.3% by June 30, 2000. In addition to base commissions, certain yellow pages publishers pay increased commissions for volume placement by advertising agencies. We typically recognize this additional commission, if any, in the fourth quarter when it is certain that such commission has been earned. No such amounts were reported in the fourth quarter of 1999 due to the aggressive objectives set by the publishers, and the Company does not foresee achieving these aggressive goals in the future. Interactive commissions and fees were $163.0 million for the six months ended June 30, 2000, an increase of $112.3 million or 221.7% over the same period of 1999, which had Interactive commissions and fees of $50.7 million. This growth reflects an increase in the acceptance of our Interactive products and services by existing and new clients and the effect of increased sales and marketing activities. Recruitment Advertising commissions and fees were up 2.2% at $95.6 million for the six months ended June 30, 2000 versus $93.5 million for the same period of 1999 reflecting modest growth in traditional billings of 4.1%. Selection & Temporary Contracting commissions and fees were $165.8 million, up $43.1 million or 35.1% from $122.7 million for the same period ended June 30, 1999. The increase reflects the greater demand for professional level and information service technology employees worldwide, particularly in mid-level management positions (annual salaries ranging from $75,000 to $150,000), the resumption of strong demand for temporary employees in Australia, and European acquisitions accounted for as purchases. Executive Search commissions and fees were $87.4 million for the six months ended June 30, 2000, an increase of $3.2 million or 3.7% from $84.2 million for the comparable six months of 1999, reflecting strong global demand for senior executive positions. Yellow Page Advertising billings increased 4.6% to $268.9 million for the six month period ended June 30, 2000 and commissions and fees decreased 9.0% to 22 $46.4 million for the six months of 2000 compared to $51.0 million for the prior year period, reflecting substantially reduced commissions paid by publishers and the effects of higher discounts for certain large clients. Total commissions and fees as a percent of related billings for the six months ended June 30, 2000 were 48.4% as compared to 42.4% for the prior year period. The higher percentage reflects increased sales volume for Interactive, Executive Search, and Selection & Temporary Contracting, where the Company retains greater portions of the amounts billed. Based on our consolidated results for the periods ended June 30, 2000 and 1999, 44.4% and 47.7% respectively, of our consolidated commissions and fees are attributable to clients outside the U.S. 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 SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- ---------------------- 2000 1999 2000 1999 -------- -------- ---------- -------- (IN THOUSANDS) GROSS BILLINGS: Interactive(1)........................... $102,771 $ 31,820 $ 183,230 $ 56,804 Recruitment Advertising.................. 224,900 211,835 444,455 426,820 Selection & Temporary Contracting(2)..... 89,035 65,803 168,321 124,445 Executive Search......................... 48,345 42,686 87,352 84,230 Yellow Page Advertising.................. 135,694 137,101 268,869 257,112 -------- -------- ---------- -------- Total...................................... $600,745 $489,245 $1,152,227 $949,411 ======== ======== ========== ======== COMMISSIONS AND FEES: Interactive(1)........................... $ 92,256 $ 28,319 $ 163,030 $ 50,675 Recruitment Advertising.................. 49,040 47,102 95,553 93,527 Selection & Temporary Contracting(2)..... 88,005 65,274 165,821 122,707 Executive Search......................... 48,345 42,686 87,352 84,199 Yellow Page Advertising.................. 23,081 27,187 46,381 50,982 -------- -------- ---------- -------- Total...................................... $300,727 $210,568 $ 558,137 $402,090 ======== ======== ========== ======== COMMISSIONS AND FEES AS A PERCENTAGE OF GROSS BILLINGS: Interactive(1)........................... 89.8% 89.0% 89.0% 89.2% Recruitment Advertising.................. 21.8% 22.2% 21.5% 21.9% Selection & Temporary Contracting(2)..... 98.8% 99.2% 98.5% 98.6% Executive Search......................... 100.0% 100.0% 100.0% 100.0% Yellow Page Advertising.................. 17.0% 19.8% 17.3% 19.8% Total...................................... 50.1% 43.0% 48.4% 42.4% EBITDA(3).................................. $ 29,545 $ 18,572 $ 52,291 $ 31,123 Cash provided by (used in) operating activities............................... $ 49,119 $ 25,598 $ (8,243) $ 12,575 Cash used in investing activities.......... $(35,437) $(14,652) $ (65,782) $(36,825) Cash provided by (used in) financing activities............................... $(23,728) $ (4,708) $ 521,374 $ 9,073 Effect of exchange rate changes on cash.... $ 960 $ (376) $ (503) $ 294
------------------------ (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. 23 (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. EBITDA for the indicated periods is calculated as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- (IN THOUSANDS) Net income.............................................. $ 8,505 $ 3,208 $11,555 $ 2,505 Interest (income) expense, net.......................... (5,496) 2,723 (7,290) 6,226 Income tax expense...................................... 12,248 2,283 19,528 1,488 Depreciation and amortization........................... 14,288 10,358 28,498 20,904 ------- ------- ------- ------- EBITDA.................................................. $29,545 $18,572 $52,291 $31,123 ======= ======= ======= =======
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999 Gross billings for the six months ended June 30, 2000 were $1,152.2 million, an increase of $202.8 million or 21.4% from $949.4 million for the six months ended June 30, 1999. Total commissions and fees for the six months ended June 30, 2000 were $558.1 million, an increase of $156.0 million or 38.8% from $402.1 million for the comparable period in 1999. Interactive commissions and fees for the six months ended June 30, 2000 were $163.0 million, an increase of $112.3 million or 221.7% compared with $50.7 million for the six months ended June 30, 1999. The increase in Interactive commissions and fees from the June 1999 period to the June 2000 period is due to: (i) an increasing acceptance of our Interactive services and products from existing clients, new clients and Internet users, (ii) the benefits of Monster.com's marketing campaign, (iii) increases in the services and content available on our websites, (iv) expansion into certain European markets, (v) price increases on certain products, and (vi) the continuing migration of our traditional businesses to the Internet. Recruitment Advertising commissions and fees increased 2.2% to $95.6 million for the six months ended June 30, 2000 compared to $93.5 million for the first six months of 1999. This increase reflects moderate growth in traditional billings related to publisher price increases for help-wanted advertisements placed in newspapers partially offset by migration of traditional business to the Internet. Accordingly, Interactive recruitment commissions and fees, which is included in the Interactive number above, increased 125.2% to $12.7 million for the six months ended June 30, 2000 from $5.6 million for the comparable 1999 period. Selection & Temporary Contracting commissions and fees were $165.8 million, up $43.1 million or 35.1% from $122.7 million for the period ended June 30, 1999. The increase reflects a strong global labor market and the resulting increased demand for professional level and information service technology employees worldwide, the resumption of strong demand for temporary employees in Australia and acquisitions accounted for as purchases in Europe. Executive Search commissions and fees were $87.4 million for the six months ended June 30, 2000, an increase of $3.2 million or 3.7% from $84.2 million for the comparable six months of 1999, reflecting the strong labor market and demand for senior executive positions, partially offset by the decrease, as anticipated, in consultants at LAI (many of whom would have been deemed redundant as a result of the merger) in the second quarter of 1999, in anticipation of the merger with TMP. Yellow Page Advertising commissions and fees were $46.4 million for the six months ended June 30, 2000, a decrease of $4.6 million 24 or 9.0% from $51.0 million for the comparable six months of 1999. This decrease was due to substantially reduced commissions paid by publishers and the effects of higher discounts for certain large clients. Operating expenses for the six months ended June 30, 2000 were $534.1 million, compared with $390.1 million for the same period in 1999, an increase of $144.0 million or 36.9%. The increase is primarily due to $67.2 million in higher salaries and related costs due to organic growth and acquisitions accounted for as purchases, $38.1 million in marketing and promotion expenses, primarily related to Monster.com and $29.3 million in office and general expenses. As a percent of commissions and fees operating expenses were 95.7% for the six months ended June 30, 2000 compared with 97.0% for the comparable 1999 period. Salaries and related expenses for the six months ended June 30, 2000 were $308.6 million, compared with $241.4 million for the same period in 1999. The increase of $67.2 million or 27.8% is primarily due to organic growth in Interactive and Selection & Temporary Contracting operations and acquisitions accounted for as purchases. Because the growth in total commissions and fees outpaced the growth in salaries and related expenses, salary and related expenses as a percent of commissions and fees declined from 60.0% for the six months ended June 30, 1999 to 55.3% for the six months ended June 30, 2000. Office and general expenses for the six months ended June 30, 2000 were $127.9 million, compared with $98.6 million for the same period in 1999. The increase of $29.3 million or 29.6% reflects organic growth in both Interactive and Selection & Temporary Contracting operations, and higher bad debt reserves, which reflects the $202.8 million increase in gross billings for the six months ended June 30, 2000 over the same period last year, partially offset by savings through consolidation of back offices and support functions in Recruitment and Yellow Pages Advertising. Because the growth in total commissions and fees outpaced the growth in office and general expenses, office and general expenses as a percent of commissions and fees declined from 24.5% to 22.9%. Marketing and promotion expenses for the six months ended June 30, 2000 were $67.7 million or 12.1% of commissions and fees, compared with $29.6 million or 7.4% of commissions and fees for the same period in 1999. The increase of $38.1 million or 129.0% is primarily due to higher marketing costs for Monster.com and reflects the Company's plan to increase the promotion of Monster.com with funds provided from increased revenues. The six months 2000 expenses include a pro rata charge pursuant to the content and marketing agreement with America Online, Inc. ("AOL") whereby Monster.com, for the payment of $100 million over four years, is the exclusive provider of career search services in the U.S. and Canada to AOL members across seven AOL properties, including the AOL Service, AOL Canada, Compuserve, ICQ, AOL.com, Netscape and Digital City. Merger and integration costs reflect costs incurred in connection with acquisitions and accounted for as poolings of interests and reflect integration of their operations. Such costs were anticipated and factored into the prices paid for these companies. For the six months ended June 30, 2000 merger and integration costs were $22.3 million compared with $11.5 million for the same period in 1999, an increase of $10.8 million or 94.9%. The $22.3 million is comprised of $9.3 million for integration, $3.5 million for debt settlement costs pursuant to change in control provisions of a pooled company's existing loan, $4.6 million for the amortization of employee stay bonuses, payable in stock, and $4.9 million in transaction related costs such as legal, accounting, advisory fees and costs to register the shares issued in the transactions. The $11.5 million for the six months ended June 30, 1999 is comprised of $5.5 million in transaction related costs, including legal, accounting, printing and advisory fees and the costs incurred for the subsequent registration of shares issued in the acquisitions, $2.3 million for the amortization of non-cash employee stay bonuses, $2.1 million in separation pay for the chief operating officer of an acquired company and $1.6 million of office and staff integration costs. Restructuring charges for the six months ended June 30, 1999 were $2.8 million. These charges relate to LAI's closing of its London and Hong Kong offices prior to LAI's merger with TMP. These charges include $0.5 million for the write-off of leasehold improvements and fixed assets, $1.3 million for severance 25 benefits payable to 24 employees, and $1.0 million for consolidation of facilities related to the restructuring. As a result of the above, operating income for the six months ended June 30, 2000 was $24.1 million, an increase of $12.1 million or 99.8% from $12.0 million for the comparable period in 1999. Net interest income for the six months ended June 30, 2000 was $7.3 million, compared with a net interest expense of $6.2 million for the comparable 1999 period, an improvement of $13.5 million or 217.1%. This improvement primarily reflects the investing of net proceeds from the Company's February 2000 follow-on offering after a significant portion of existing long-term debt was repaid with a portion of such proceeds. The Company completed the follow-on public offering of 4.0 million (8.0 million, adjusted for the February 29, 2000 2-for-1 stock split) shares of common stock on February 2, 2000. The net proceeds raised by the Company totaled $594.2 million. Taxes on income for the six months ended June 30, 2000 were $19.5 million on pre-tax profit of $30.8 million, compared with a tax of $1.5 million on pre-tax profit of $4.3 million for the six months of 1999. The increase of $18.0 million reflects the higher pretax profit in the six months ended June 30, 2000. In addition, in each period the provision reflects expenses that are not tax deductible; these are primarily related to merger costs from pooling of interests transactions and amortization of certain intangible assets. Also for both periods the provision is affected by profits and losses from certain pooled entities that were not taxed at the corporate level prior to their merger with TMP. Minority interests in consolidated earnings for the six months ended June 30, 2000 was a $324,000 loss compared with a profit of $107,000 for the six months ended June 30, 1999. Equity in losses of unconsolidated affiliates, which reflected losses associated with the real estate advertising company in which the Company holds a minority interest, was $200,000 for the six months ended June 30, 1999. As a result of all of the above, the net income available to common and Class B common stockholders for the six months ended June 30, 2000 was $11.6 million, an increase of $9.1 million from the net income of $2.5 million for the six months ended June 30, 1999. On a diluted per share basis, the net income available to common and Class B common stockholders for the six months ended June 30, 2000 was $0.11, compared to a net income of $0.03 for the comparable 1999 period. THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1999 Gross billings for the three months ended June 30, 2000 were $600.7 million, an increase of $111.5 million or 22.8% from $489.2 million for the three months ended June 30, 1999. Total commissions and fees for the three months ended June 30, 2000 were $300.7 million, an increase of $90.1 million or 42.8% from $210.6 million for the comparable period in 1999. Interactive commissions and fees for the three months ended June 30, 2000 were $92.3 million, an increase of $64.0 million or 225.8% compared with $28.3 million for the three months ended June 30, 1999. The increase in Interactive commissions and fees from the June 1999 period to the June 2000 period is due to: (i) an increasing acceptance of our Interactive services and products from existing clients, new clients and Internet users, (ii) the benefits of Monster.com's marketing campaign, (iii) increases in the services and content available on our websites, (iv) expansion into certain European markets, (v) price increases on certain products, and (vi) the continuing migration of our traditional businesses to the Internet. Recruitment Advertising commissions and fees increased 4.1% to $49.0 million for the three months ended June 30, 2000 compared to $47.1 million for the second quarter of 1999, reflecting growth in traditional billings of 6.2% despite migration of recruitment advertising to the Internet. Accordingly, Interactive recruitment commissions and fees, included in the Interactive number above, increased 145.8% to $6.9 million for the three months ended June 30, 2000 from $2.8 million for the comparable 1999 period. Selection & Temporary Contracting commissions and fees were $88.0 million, up $22.7 million or 34.8% from $65.3 million for the 26 period ended June 30, 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 and acquisitions. Executive Search commissions and fees were $48.3 million for the three months ended June 30, 2000, an increase of $5.6 million or 13.3% from $42.7 million for the comparable three months of 1999, reflecting strong global demand for senior executive positions. Yellow Page Advertising commissions and fees were $23.1 million for the three months ended June 30, 2000, a decrease of $4.1 million or 15.1% from $27.2 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 for certain large clients. Operating expenses for the three months ended June 30, 2000 were $285.2 million, compared with $200.9 million for the same period in 1999, an increase of $84.3 million or 42.0%. The increase is primarily due to $36.1 million in higher salaries and related costs due to organic growth and acquisitions accounted for as purchases, $21.5 million in office and general expenses, and $19.0 million in marketing and promotion expenses, primarily related to Monster.com. As a percent of commissions and fees operating expenses were 94.8% for the three months ended June 30, 2000 compared with 95.4% for the comparable 1999 period. Salaries and related expenses for the three months ended June 30, 2000 were $162.6 million, compared with $126.5 million for the same period in 1999. The increase of $36.1 million or 28.5% is primarily due to acquisitions accounted for as purchases and organic growth in Interactive and Selection & Temporary Contracting operations. Salary and related expenses as a percent of commissions and fees declined from 60.1% for the three months ended June 30, 1999 to 54.1% for the three months ended June 30, 2000, primarily due to the organic growth mentioned above. Office and general expenses for the three months ended June 30, 2000 were $66.7 million compared with $45.2 million for the same period in 1999, an increase of $21.5 million or 47.6%. The increase reflects organic growth in both Interactive and Selection & Temporary Contracting operations and higher bad debt reserves which reflects the $111.5 million increase in gross billings for the three months ended June 30, 2000 over the same period last year, partially offset by savings through consolidation of back offices and support functions in Recruitment, Executive Search and Yellow Pages Advertising. Office and general expenses as a percent of commissions and fees increased from 21.5% to 22.2%. This increase in expenses as a percent of commissions & fees is primarily due to higher bad debt reserve, partially offset by the organic growth and cost reductions mentioned above. Marketing and promotion expenses for the three months ended June 30, 2000 were $38.4 million or 12.8% of commissions and fees, compared with $19.4 million or 9.2% of commissions and fees for the same period in 1999. The increase of $19.0 million or 97.9% is primarily due to higher marketing costs for Monster.com and reflects the Company's plan to increase the promotion of Monster.com with funds provided from increased revenues. The second quarter 2000 expenses include a pro rata charge pursuant to the content and marketing agreement with America Online, Inc. ("AOL") whereby Monster.com, for the payment of $100 million over four years, is the exclusive provider of career search services in the U.S. and Canada to AOL members across seven AOL properties, including the AOL Service, AOL Canada, Compuserve, ICQ, AOL.com, Netscape and Digital City. Merger and integration costs reflect costs incurred with acquisitions accounted for as poolings of interests and reflect integration of their operations. For the three months ended June 30, 2000 merger and integration costs were $13.6 million compared with $6.8 million for the same period in 1999, an increase of $6.8 million or 101.7%. Included in the 2000 amount was $4.2 million for integration costs, $3.6 million in transaction costs, $3.5 million of debt settlement costs pursuant to change in control provisions of the loan in connection with an acquisition and $2.3 million for the amortization of employee stay bonuses payable in stock in connection with certain of the acquisitions. The merger and integration costs of $6.8 million for the three months ended June 30, 1999 are primarily comprised of $2.3 million in transaction costs, 27 $2.1 million in separation pay for the chief operating officer of an acquired company, $1.6 million in integration costs and $0.8 million for the amortization of employee stay bonuses which is payable in stock in connection with certain of the acquisitions. As a result of the above, operating income for the three months ended June 30, 2000 was $15.5 million, an increase of $5.8 million or 60.5% from $9.7 million for the comparable period in 1999. Net interest income for the three months ended June 30, 2000 was $5.5 million, compared with a net interest expense of $2.7 million for the comparable 1999 period, an improvement of $8.2 million or 301.8%. 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 June 30, 2000 were $12.2 million on pre-tax profit of $20.5 million, compared with a tax of $2.3 million on pre-tax profit of $5.6 million for the second quarter of 1999. The increase of $9.9 million reflects the higher pretax profit in the three months ended June 30, 2000. In addition, in each quarter the provision reflects expenses that are not tax deductible; these are primarily related to merger costs from pooling of interests transactions and amortization of certain intangible assets. Also for both periods the provision is affected by profits and losses from certain pooled entities that were not taxed at the corporate level prior to their merger with TMP. Minority interests in consolidated earnings for the three months ended June 30, 2000 was a $243,000 loss compared with a profit of $8,000 for the three months ended June 30, 1999. Equity in losses of unconsolidated affiliates, which reflected losses associated with the real estate advertising company in which the Company holds a minority interest, was $100,000 for the three months ended June 30, 1999. As a result of all of the above, the net income available to common and Class B common stockholders for the three months ended June 30, 2000 was $8.5 million, an increase of $5.3 million from the net income of $3.2 million for the three months ended June 30, 1999. On a diluted per share basis, the net income available to common and Class B common stockholders for the three months ended June 30, 2000 was $0.08, compared to a net income of $0.04 for the comparable 1999 period. 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 $82 million was used to pay down debt on the Company's credit line. The remainder is being invested in short and medium term interest bearing instruments until used for acquisitions, strategic equity investments and general corporate purposes. Net cash used in operating activities for the six months ended June 30, 2000 was $8.2 million and net cash provided by operating activities for the six months ended June 30, 1999 was $12.6 million. The increase in cash used in operating activities of $20.8 million for 2000 over 1999 was primarily attributable to (i) $50.3 million due to increases in accounts receivable for the 2000 period over the 1999 period, related mostly to growth at Monster.com, Selection & Temporary Contracting and Recruitment Advertising 28 (ii) $25.5 million resulting from decreases in cash from accounts payable and accrued liabilities and (iii) $1.8 million due to the effects of higher earnings from pooled companies in both the current and previous period, partially offset by (i) $28.2 million increase in earnings after adjusting for non-cash items (ii) $18.8 million resulting from increases in deferred commissions and fees, primarily at Monster.com and (iii) $9.8 million related to increases in the use of funds for work-in-process and prepaid and other assets for the 2000 period over the 1999 period. EBITDA was $52.3 million for the six months ended June 30, 2000, an increase of $21.2 million or 68.0% from $31.1 million for the six months ended June 30, 1999. The increase primarily reflects, for the 2000 period, a $12.0 million increase in operating profits and $7.6 million more in depreciation and amortization costs. As a percentage of commissions and fees, EBITDA increased to 9.4% for the six months ended June 30, 2000 as compared with 7.7% for the six months ended June 30, 1999. The higher percent reflects the improved operating margins (including the effects of merger and integration costs), which were 4.0% and 2.8% of commissions and fees for the 2000 and 1999 periods, respectively. Net cash used in investing activities for the six months ended June 30, 2000 and 1999 was $65.8 million and $36.8 million, respectively. The $29.0 million increase in cash used in 2000 compared to 1999 was due to a $14.5 million increase in payments for business acquisitions and $14.5 million for capital expenditures, primarily leasehold improvements and computer equipment and software for the expansion of the Company's global technology infrastructure. We estimate that our expenditures for computer equipment and software, furniture and fixtures, and leasehold improvements will be approximately $70 to $80 million for the year ended December 31, 2000. Our financing activities include equity offerings, borrowings and repayments under our bank financing agreements and borrowings for and payments on (i) installment notes, principally to finance acquisitions, (ii) capital leases and (iii) equipment. Our financing activities for the six months ended June 30, 2000 and June 30, 1999 provided net cash of $521.3 million and $9.1 million, respectively. The change of $512.2 million resulted primarily from $594.2 million in net proceeds from our follow-on common stock offering and a $12.6 million increase in cash received from the exercise of employee stock options, partially offset by net repayments in the 2000 period of $88.1 million against credit facilities and capitalized lease obligations compared with a net increase in credit facilities and capitalized lease obligations of $7.2 million in the prior year period. At June 30, 2000, we had a $185 million committed line of credit from our primary lender pursuant to a revolving credit agreement expiring November 5, 2003. Of such line, at June 30, 2000, approximately $156.1 million was unused and accounts receivable is sufficient to allow drawdown of the entire amount. Our current interest rate under the agreement is LIBOR plus 50 basis points. In addition, we had secured lines of credit aggregating $12.2 million for our operations in Australia, New Zealand, France, Belgium, and Italy, of which approximately $3.6 million was unused at June 30, 2000. Cash and cash equivalents at June 30, 2000 were $511.4 million, an increase of $446.8 million from $64.6 million at December 31, 1999, and were $446.4 million higher than the June 30, 1999 balance of $65.0 million. We intend to continue our acquisition strategy and the marketing and promotion of our Interactive businesses through the use of cash-on-hand, operating profits, issuance of additional shares of our common stock, borrowings against our long-term debt facility and seller financed notes. We believe that our anticipated cash flow from operations, cash-on-hand, as well as the availability of funds under our existing financing agreements will provide us with sufficient liquidity to meet our current foreseeable cash needs. RECENT ACCOUNTING PRONOUNCEMENTS During 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," 29 which had an initial adoption date by the Company of January 1, 2000. During the second quarter of 1999, the FASB postponed the adoption date of SFAS No. 133 until January 1, 2001. The FASB further amended SFAS No. 133 in June 2000. SFAS No. 133 requires that all derivative financial instruments be recorded on the consolidated balance sheets at their fair value. Changes in the fair value of derivatives will be recorded each period in earnings or other comprehensive earnings, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Gains and losses on derivative instruments reported in other comprehensive earnings will be reclassified as earnings in the periods in which earnings are affected by the hedged item. The Company does not expect the adoption of this statement to have a significant impact on the Company's results of operations, financial position or cash flows. In 1999, the SEC issued Staff Accounting Bulletin No. 101 dealing with revenue recognition which is effective in the fourth quarter of 2000. The Company does not expect its adoption to have a material effect on the Company's financial statements. In 2000, the Emerging Issues Task Force ("EITF") of the FASB issued EITF Issue No. 00-2, "Website Development Costs," which established guidelines for accounting for website development costs and is effective for quarters beginning after June 30, 2000. Although the Company is still evaluating its impact, the Company does not believe its adoption will have a significant effect on its financial statements. YEAR 2000 ISSUE We completed our Year 2000 software program conversions and compliance programs during the fourth quarter of 1999. The total external costs for such programs were approximately $3.0 million. Through the six months ended June 30, 2000 we have not experienced any Year 2000 problems either internally or from outside sources. We have no reason to believe that Year 2000 failures will materially affect us in the future. However, since it may take several additional months before it is known whether we or third party suppliers, vendors or customers may have undergone Year 2000 problems, no assurances can be given that we will not experience losses or disruptions due to Year 2000 computer-related problems. We will continue to monitor the operation of our computers and microprocessor-based devices for any Year 2000 problems. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risks include fluctuations in interest rates, variability in interest rate spread relationships (i.e., prime to LIBOR spreads) and exchange rate variability. Substantially all of the Company's debt relates to a five-year financing agreement with an outstanding principal balance of approximately $28.9 million, including $18.3 million reflected as a reduction to accounts receivable and $7.7 million for letters of credit, as of June 30, 2000. Interest on the outstanding balance is charged based on a variable interest rate related to the higher of the prime rate, Federal Funds rate less 1/2 of 1% or LIBOR plus 50 basis points as specified in the agreement, and is thus subject to market risk in the form of fluctuations in interest rates. The Company does not trade in derivative financial instruments. The Company also conducts operations in various foreign countries, including Australia, Belgium, Canada, China, France, Germany, Italy, Japan, the Netherlands, New Zealand, Singapore, Spain, and the United Kingdom. For the six months ended June 30, 2000 approximately 44.4% of our commissions and fees were earned outside the United States and collected in local currency and related operating expenses were also paid in such corresponding local currency. Accordingly, we will be subject to increased risk for exchange rate fluctuations between such local currencies and the dollar. We do not conduct any significant hedging activities. The financial statements of the Company's non-U.S. subsidiaries are translated into U.S. dollars using current rates of exchange, with gains or losses included in the cumulative translation adjustment account, a component of stockholders' equity. During the six months of 2000, due to the strengthening of the U.S. dollar, the Company had an exchange loss of $37.9 million, primarily attributable to the strengthening of the U.S. dollar against the Australian dollar. 30 PART II OTHER INFORMATION ITEM 2(C). CHANGES IN SECURITIES AND USE OF PROCEEDS 1. 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. 2. 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. 3. 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. 4. 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. 5. 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. 6. 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. 7. 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. 8. On May 31, 2000 we issued 144,601 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 Rollo Associates, Inc., and in connection with issuances of stock related stay bonuses. 9. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS (a) The annual meeting of Stockholders was held on June 14, 2000. (b) The following directors were elected at the Annual Meeting and received the vote indicated:
FOR WITHELD ----------- -------- Andrew J. McKelvey................................... 122,750,255 532,889 George Eisele........................................ 122,745,493 537,652 Michael Kaufman...................................... 122,873,836 409,309 James J. Treacy...................................... 122,750,344 532,801 John Swann........................................... 122,746,568 536,577 Ronald J. Kramer..................................... 122,875,294 407,851
31 (c) The adoption of the Amendment to the Company's Certificate of Incorporation was approved by the vote indicated: For: ....................................................... 60,789,956 Against: ................................................... 14,858,405 Abstain: ................................................... 14,784
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed as a part of this report: 27.1 Financial Data Schedule - June 30, 2000 27.2 Financial Data Schedule - June 30, 1999 (b) (i) The Company's Current Report of Form 8-K, filed June 30, 2000, relating to the Company's acquisition of MoveCentral, Inc. All other items of this report are inapplicable. 32 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on it behalf by the undersigned thereunto duly authorized. TMP WORLDWIDE INC. (REGISTRANT) Dated: August 14, 2000 By: /s/ BART CATALANE ----------------------------------------- Bart Catalane Chief Financial Officer (Principal Financial and Accounting Officer)
33