Back to GetFilings.com

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q

COMMISSION FILE NUMBER: 000-21571

TMP WORLDWIDE INC.
(Exact name of registrant as specified in its charter)

622 Third Avenue, 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 ý    No o

        Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). Yes ý    No. o

        Indicate the number of shares outstanding of each of the issuer's class of common stock, as of the latest practicable date.

TMP WORLDWIDE INC.

INDEX

2

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

TMP WORLDWIDE INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)

See accompanying notes to consolidated condensed financial statements.

3

TMP WORLDWIDE INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

See accompanying notes to consolidated condensed financial statements.

4

TMP WORLDWIDE INC.

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)

See accompanying notes to consolidated condensed financial statements.

5

TMP WORLDWIDE INC.

CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except per share amounts)
(unaudited)

See accompanying notes to consolidated condensed financial statements.

6

TMP WORLDWIDE INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

See accompanying notes to consolidated condensed financial statements.

7

TMP WORLDWIDE INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(in thousands, except per share amounts)
(unaudited)

NOTE 1—DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

        TMP Worldwide Inc. ("TMP" or the "Company"), founded in 1967, is a global provider of career solutions. The Company, through its flagship Interactive product, Monster® (www.monster.com), is the global leader in online career management. TMP is also one of the world's largest recruitment advertising agencies through its Advertising & Communications division, the world's largest yellow pages advertising agency through its Directional Marketing division and a leading provider of online moving services through Monstermoving^SM.com (www.monstermoving.com), one of the world's largest selection and temporary contracting agencies through its eResourcing division and a premier Executive Search firm.

Basis of Presentation

        The consolidated condensed interim financial statements included herein are unaudited and have been prepared by the Company, 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 accounting principles generally accepted in the United States 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 normal recurring adjustments that, in the opinion of management, are necessary for fair presentation of the information contained herein. It is suggested that these consolidated condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. The Company adheres to the same accounting policies in preparation of interim financial statements. As permitted under generally accepted accounting principles, interim accounting for certain expenses, including income taxes and selected marketing and promotion costs are based on full year assumptions. Such amounts are expensed in full in the year incurred. For interim financial reporting purposes, income taxes are recorded based upon estimated annual income tax rates. Marketing and promotion expenses, specific to our Monster segment, are recorded for interim financial reporting purposes in proportion to actual commissions and fees as a percent of estimated annual commissions and fees for the Monster segment which are adjusted during interim periods as our forecasts for such commissions and fees change.

        The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. During the third quarter of 2002, the Company re-evaluated the need for bonus accruals, the level of its allowance for doubtful accounts and other accruals. As a result, during the third quarter ended September 30, 2002, the Company reduced bonus accruals by approximately $5.4 million, allowance for doubtful accounts by approximately $1.5 million and general accruals by approximately $1.4 million, all of which were accrued during the first six months of 2002.

        Financial instruments which potentially subject the Company to concentrations of credit risk are primarily cash and accounts receivable. The Company performs continuing credit evaluations of its customers and does not require collateral. The Company has not experienced significant losses related to receivables from individual customers or groups of customers in any particular industry or

8

geographic area. In addition, the Company invests in short-term commercial paper rated P1 by Moody's or A1 by Standard & Poors or better.

        During the nine months ended September 30, 2002, the Company completed one acquisition using the purchase method of accounting. In addition, for the period January 1, 2001 through December 31, 2001, the Company completed 35 acquisitions using the purchase method of accounting. Given the number of acquisitions affecting the prior year period, 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.

        The amounts charged to clients for temporary contracting services are reported in gross billings and commissions and fees after deducting the costs of the temporary contractors. The details for such amounts for both traditional and interactive operations are:

Recently Issued Accounting Pronouncements

        In July 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 146, Accounting for Restructuring Costs ("SFAS 146"). SFAS 146 applies to costs associated with an exit activity (including restructuring) or with a disposal of long-lived assets. Those activities can include eliminating or reducing product lines, terminating employees and contracts, and relocating plant facilities or personnel. Under SFAS 146, a company will record a liability for a cost associated with an exit or disposal activity when that liability is incurred and can be measured at fair value. SFAS 146 will require a company to disclose information about its exit and disposal activities, the related costs, and changes in those costs in the notes to the interim and annual financial statements that include the period in which an exit activity is initiated and in any subsequent period until the activity is completed. SFAS 146 is effective prospectively for exit or disposal activities initiated after December 31, 2002, with earlier adoption encouraged. Under SFAS 146, a company may not restate its previously issued financial statements and the new Statement grandfathers the accounting for liabilities that a company had previously recorded under Emerging Issues Task Force Issue No. 94-3.

9

NOTE 2—ACCOUNTING CHANGES

        In June 2001, the FASB issued SFAS No. 141, Business Combinations ("SFAS 141"), and SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141 eliminates the pooling of interests method of accounting for all business combinations initiated after June 30, 2001 and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. The Company adopted SFAS 141 as of July 1, 2001.

        As of January 1, 2002, the Company adopted SFAS 142, which addresses the financial accounting and reporting standards for the acquisition of intangible assets outside of a business combination and for goodwill and other intangible assets subsequent to their acquisition. This accounting standard requires that goodwill and indefinite-lived intangible assets are no longer amortized but tested for impairment on an annual basis, or more frequently if circumstances warrant. The provisions of the standard also require the completion of a transitional impairment test in the year of adoption, with any impairment identified upon initial implementation treated as a cumulative effect of a change in accounting principle.

        In conjunction with the implementation of the new accounting standards for goodwill, the Company has completed the transitional goodwill impairment review. The impairment review is based on a discounted cash flow approach that uses the Company's estimates of future market share, revenues and costs for each reporting unit as well as appropriate discount rates. As a result of the adoption of SFAS 142, the Company recorded a non-cash impairment charge of $448,374 ($428,374, net of tax) to reduce the carrying value of its goodwill. The impairment charge has been reflected as a cumulative effect of accounting change, net of tax, in the accompanying consolidated condensed statement of operations.

        A summary of changes in the Company's goodwill during the nine months ended September 30, 2002, by business segment is as follows:

(a)

In the nine months ended September 30, 2002, the business of Sale Search Rekrytering & Urval i Stockholm AB, a July 2001, acquisition was moved from the Company's eResourcing division to its Monster division as a result of a regional consolidation.

(b)

In the nine months ended September 30, 2002, the business of USMotivation, Inc. a September 2001 acquisition, was moved from the Company's Advertising & Communications division to its Directional Marketing division as a result of management realignment. In addition, goodwill existing as of December 31, 2001 and any subsequent impairments that related to our Monstermoving product, are now combined with those of Directional Marketing.

(c)

Goodwill as of December 31, 2001 is shown net of accumulated amortization of $68,738.

10

        As of September 30, 2002 and December 31, 2001, the Company's intangible assets consisted of the following:

        Amortization expense for the three and nine months ended September 30, 2002 was $750 and $2,441, respectively. Amortization expense for each of the five succeeding years is estimated to be approximately $3 million to $4 million per year.

        SFAS 142 also requires purchased intangible assets other than goodwill to be amortized over their useful lives unless these lives are determined to be indefinite. In accordance with SFAS 142, the Company ceased amortizing goodwill effective January 1, 2002.

        The following tables present a reconciliation of net income and earnings per share for the three and nine months ended September 30, 2002 and 2001, adjusted to exclude goodwill amortization for the 2001 periods (net of taxes) as follows:

11

NOTE 3—EARNINGS PER SHARE

        Basic earnings per share does not include the effects of potentially dilutive stock options and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the effects of common shares issuable upon exercise of employee stock options for periods in which the options' exercise price is lower than the Company's average share price for the period.

12

        A reconciliation of shares used in calculating the Company's weighted average basic and diluted earnings per common and Class B common share is as follows:

*

Certain stock options were excluded from the computation of earnings per share due to their antidilutive effect. The weighted average number of such options is approximately 16,563 and 5,268 for the three months ended September 30, 2002 and 2001, respectively, and 18,881 and 2,208 for the nine months ended September 30, 2002 and 2001, respectively.

13

NOTE 4—BUSINESS COMBINATIONS

Acquisitions Accounted for using the Purchase Method

        In September 2002, the Company's Directional Marketing division acquired Moving.com for cash of $2.9 million and 396 shares of common stock valued at approximately $4.4 million. Moving.com is a leading relocation resource on the Internet and offers a wide variety of moving solutions to different users. The acquisition of Moving.com was made to enhance the Company's Monstermoving product offerings and give its users additional access to a premier network of relocation service providers. The Company has initially recorded approximately $6.5 million of goodwill and $0.8 million of trademarks in connection with the acquisition and is still in the process of refining its purchase price allocation. During the year ended December 31, 2001, the Company completed 35 acquisitions using the purchase method of accounting.

        The summarized unaudited pro forma results of operations set forth below for the nine month period ended September 30, 2001 and the year ended December 31, 2001 assume the acquisitions in 2001 occurred as of the beginning of 2001 and apply the accounting rules that were in effect at the date of acquisition. As of January 1, 2002, in accordance with SFAS 142, the amortization of goodwill has ceased. As a result, $15,143 and $20,470 of goodwill amortization expense, net of tax, that will not continue in future periods, is included in the pro forma results for the nine months ended September 30, 2001 and the year ended December 31, 2001, respectively.

        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.

Merger & Integration Costs Incurred with Pooling of Interests Transactions

        In connection with pooling of interests transactions, the Company recorded merger & integration costs of $10,748 for the nine months ended September 30, 2002. Of this amount, the Company realized a $324 benefit relating to merger costs and $11,072 relates to integration costs.

        The merger benefits of $324 for the nine months ended September 30, 2002 consist primarily of the reversal of previously accrued costs, partially offset by transaction related costs that were recorded in the beginning of 2002. The $11,072 of integration costs are shown in the "Expensed" column in the schedule of Accrued Integration and Restructuring Costs below.

14

        In connection with pooling of interests transactions, the Company expensed merger & integration costs of $61,934 for the nine months ended September 30, 2001. Of this amount $18,644 is for merger costs and $43,290 is for integration costs.

        The merger costs of $18,644 for the nine months ended September 30, 2001 consist of (1) $1,405 of non-cash employee stay bonuses, including amortization of $806, which relates to $1,864 recorded as a prepaid compensation and a corresponding long term liability, expensed over the course of a year from the date of grant for TMP shares set aside for key personnel of acquired companies who now have remained employees of the Company for a full year and now have earned such shares, (2) $1,126 paid in cash to key personnel of pooled companies as employee stay bonuses, (3) $9,043 of transaction related costs, including legal, accounting, printing and advisory fees and the costs incurred for the subsequent registration of shares issued in the acquisitions and (4) $7,070 in severance costs for managers and staff of pooled companies. The $43,290 of integration costs consist of: (a) $7,982 for assumed lease obligations of closed facilities, (b) $25,004 for consolidation of acquired facilities and associated write-offs and (c) $10,304 for severance, relocations and other employee costs.

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 offices 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 cross-selling platform in the related markets in which the Company operates. Accrued integration and restructuring charges are not associated with the business reorganization initiatives that the Company announced in the second quarter of 2002 (see Note 5).

        In connection with plans to integrate operations of acquired companies, during the nine months ended September 30, 2002, the Company (i) expensed, as part of merger and integration expenses, $11,072 for companies acquired in transactions accounted for as poolings of interests and (ii) increased goodwill by $5,807 for companies acquired in transactions accounted for under the purchase method. These costs and liabilities include:

15

(a)

Accrued liabilities for surplus property in the amount of $16,770 as of September 30, 2002 relate to 67 leased office locations of acquired companies that were either underutilized prior to the acquisition date or will be closed by the Company in connection with acquisition-related 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 $11,066 as of September 30, 2002 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 $290 as of September 30, 2002 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 $870 as of September 30, 2002 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 September 30, 2002, the accrual related to approximately 52 employees including senior management, sales, service and administrative personnel. During the nine months ended September 30, 2002, payments of $8,843 were made to 373 employees for severance and charged against the reserve.

(e)

Pension obligations in the amount of $288 relate to the Company's acquisition of Austin Knight Ltd.

        The Company continues to evaluate and assess the impact of duplicate responsibilities and office locations. In connection with the finalization of preliminary plans relating to purchased entities, additions to acquisition-related 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.

16

NOTE 5—BUSINESS REORGANIZATION AND OTHER SPECIAL CHARGES

        In the second quarter of 2002, the Company announced a reorganization initiative to further streamline its operations, lower its cost structure, integrate businesses previously acquired and improve its return on capital. This reorganization program includes a workforce reduction, consolidation of excess facilities, restructuring of certain business functions and other special charges, primarily for exiting activities that are no longer part of the Company's strategic plan.

        As a result of the reorganization initiative, the Company recorded business reorganization and other special charges of $2,597 and $117,017 classified as a component of operating expenses, for the three and nine months ended September 30, 2002, respectively. Information relating to the business reorganization and other special charges is as follows:

Workforce Reduction

        In the second and third quarters of 2002, the Company incurred business reorganization costs to reduce its global workforce by approximately 1,000 employees. As a result, the Company recorded a workforce reduction charge of $37,492 for the nine months ended September 30, 2002, primarily relating to severance and fringe benefits.

Consolidation of Excess Facilities and Other Special Charges

        During the nine months ended September 30, 2002, the Company recorded charges of $79,525 relating to consolidation of excess facilities, write-down of investments, professional fees and other charges. Consolidation of excess facilities includes: (a) $45,865 relating to future lease obligations, non-cancelable lease costs and other contractual arrangements with third parties net of estimated sublease income, and (b) $14,593 for fixed asset write-offs related to property and equipment that was disposed of or removed from operations including leasehold improvements, computer equipment, software and furniture and fixtures. The Company also recorded $9,742 for the write-down of investments in and loans to certain businesses that are no longer considered to be part of TMP's strategic plan. Professional fees and other charges, primarily related to workforce reduction and the items above, were $9,325.

        A summary of the business reorganization costs and other special charges is outlined as follows:

17

NOTE 6—SEGMENT AND GEOGRAPHIC DATA

        The Company operates in five business segments: Monster®, Advertising & Communications, Directional Marketing, eResourcing and Executive Search. Operations are conducted in the following geographic regions: North America, the Asia/Pacific Region (primarily Australia and New Zealand), the United Kingdom and Continental Europe.

        Segment information is presented in accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). This standard is based on a management approach which requires segmentation based upon the Company's internal organization and disclosure of revenue and operating income based upon internal accounting methods. The Company's financial reporting systems present various data for management to run the business, including internal profit and loss statements prepared on a basis not consistent with generally accepted accounting principles. Corporate level operating expenses are allocated to the segments and are included in the operating results below. Assets are not allocated to segments for internal reporting purposes.

        The Company has structured its operations to encourage the cross-selling of its services, specifically those of Monster. As a result, fees for products and services sold by other operating segments on behalf of Monster are included in the commissions and fees of the Monster operating segment. Excluding fees from the agency/media relationship between our Advertising & Communications and Monster divisions, fees from cross-selling were $10.2 million and $27.7 million, respectively for the three and nine months ended September 30, 2002 and $11.8 million and $27.8 million, respectively for the three and nine months ended September 30, 2001. In addition, the Company's Advertising & Communications division recognizes commissions from the agency/media relationship on the sale of Monster products to its clients. For the three months ended September 30, 2002 and 2001, these commissions were $4.5 million and $1.7 million, respectively and for the nine months ended September 30, 2002 and 2001, these commissions were $9.4 million and $6.2 million, respectively.

        In the third quarter of 2002, the Company changed the composition of its segments to reflect the internal reorganization of Monstermoving and Directional Marketing. As a result, the operations of Monstermoving are now combined with those of Directional Marketing and prior period disclosures have been restated for consistent presentation.

        During the nine months ended September 30, 2002, the Company moved the business of USMotivation, a September 2001 acquisition, from its Advertising and Communications segment to its Directional Marketing segment as a result of a management realignment. As a result, the operations of USMotivation are included in the Directional Marketing results below from January 1, 2002. For the three and nine months ended September 30, 2002 USMotivation reported commission and fees of $3.0 million and $9.9 million respectively and operating income of $0.6 million and $1.9 million respectively. Prior periods have been restated for consistent presentation. For the three and nine months ended September 30, 2001, USMotivation reported commissions and fees of $0.3 million and an operating loss of $0.2 million.

        The following is a summary of the Company's operations by business segment and by geographic region, for the three and nine month periods ended September 30, 2002 and 2001.

18