1
===============================================================================================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1999
OR
[ ] 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: 0-22645
LAMALIE ASSOCIATES,LAI WORLDWIDE, INC.
(Exact name of Registrant as specified in its charter)
FLORIDA 59-2776441FLORIDA 59-3547281
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 PARK AVENUE, SUITE 3100
NEW YORK, NEW YORK 10166-0136
(212) 953-7900
(Address, including zip code, and telephone number
including area code, of Registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, par value $.01 per share, Preferred Stock Purchase Rights
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.10 K. [ ]
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant on May 11, 1998 (assuming24, 1999,(7,361,053 shares, assuming
solely for these purposes that all directors, executive officers and 10% or
greater stockholders are affiliates), based on the closing price of the Common
Stock on the Nasdaq National Market as of such date, was approximately
$94,062,320.$43,246,186.
The number of shares of the Registrant's Common Stock outstanding as of May 11, 199824,
1999, was approximately 5,672,416.
DOCUMENTS INCORPORATED BY REFERENCE
There is incorporated by reference in Part II and Part III of this Annual
Report on Form 10-K certain of the information contained in the Registrant's
proxy statement for its annual meeting of stockholders to be held July 7, 1998,
which will be filed by the Registrant within 120 days after February 28, 1998.
================================================================================8,016,571.
===============================================================================
2
TABLE OF CONTENTS
PART I.
Item 1. Business....................................................Business 3
Item 2. Properties.................................................. 12Properties 9
Item 3. Legal Proceedings........................................... 12Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders......... 13Holders 9
PART II.
Item 5. Market for the Registrant's Common Equity and Related 139
Stockholder Matters.........................................Matters
Item 6. Selected Consolidated Financial Data........................ 14Data 10
Item 7. Management's Discussion and Analysis of Financial Condition 1511
and Results of Operations...................................Operations
Item 7A. Quantitative and Qualitative Disclosures about Market 22
Risk........................................................Risk 19
Item 8. Financial Statements and Supplementary Data................. 22Data 19
Item 9. Changes in and Disagreements withon Accountants on Accounting 2219
and Financial Disclosure....................................Disclosure
PART III.
Item 10. Directors and Executive Officers of the Registrant.......... 22Registrant 20
Item 11. Executive Compensation...................................... 22Compensation 24
Item 12. Security Ownership of Certain Beneficial Owners and 22
Management..................................................31
Management
Item 13. Certain Relationships and Related Transactions.............. 22Transactions 33
PART IV.
Item 14. Exhibits, Financial Statement Schedule,Schedules, and Reports on Form 22
8-K.........................................................
Signatures.................................................................... 4034
8-K
Signatures 58
Financial Statement Schedules................................................. 42Schedules 61
2
3
PART I
ITEM 1. BUSINESS
GENERAL
LAI is one of the largest and fastest growingWorldwide, Inc. ("LAI") provides executive search firms in the
world. LAI provides consulting
services aimed specifically at solving its clients' leadership needs by
identifying, evaluating and recommending qualified candidates for senior level
positions. The Company, which conducts business
under the name "LAI Ward Howell,"LAI principally serves Fortune 500 and large private companies. LAI
provides executive search services exclusively on a retained basis, and charges
a fee typically equal to one-third of the first year cash compensation for the
position being filled.
LAI has developed a knowledge-based search practice organized around
eightfive industry groups and one functional group. The industry groups execute
searches for clients in the following business sectors: automotive; communications,
entertainment and technology; consumer products and
services; energy and natural
resources; financial services; health care and pharmaceuticals; industrial; and
insurance and risk management.technology. The functional group executes searches for specific functional
positions, including board of directors, human resources and legal. These
practice groups enable LAI's consultants to better understand each client's
business strategy and industry and position LAI as a consulting partner to its
clients.
LAI's clients are amongMERGER AGREEMENT WITH TMP WORLDWIDE, INC.
Effective as of March 11, 1999, LAI entered into an Agreement and Plan
of Merger (the "Merger Agreement") with TMP Worldwide Inc. ("TMP"), pursuant to
which TMP is to acquire LAI in a pooling of interests transaction.
Under the most prominent companies in their
industriesterms of the Merger Agreement, each share of LAI stock will
be exchanged for 0.1321 shares of TMP common stock, assuming that the TMP
average share price for the 20 days ending on the 2nd day prior to closing is
between $42.00 and include General Motors, Lucent Technologies, PepsiCo, Enron,
Lehman Brothers, Bristol-Myers Squibb, AlliedSignal and Prudential. LAI's fee
revenue has grown from $21.1$64.00 per share. Should the 20-day average share price of
TMP stock fall below $42.00 per share, unless TMP elects to terminate the
acquisition, the exchange ratio will be adjusted to that obtained by dividing
$5.55 by TMP's 20-day average stock price measured prior to closing. Should
TMP's 20-day average share price exceed $64.00 per share, the exchange ratio
will be adjusted to that obtained by dividing $8.45 by TMP's 20-day average
stock price measured prior to closing, but not below that which would provide
LAI shareholders with a fraction of a TMP share equal to $5.55. Based on the
exchange ratio of 0.1321, TMP expects to issue approximately 1.2 million
in fiscal 1994shares, including the effect of options. The Merger Agreement is subject to
$61.8 million in fiscal
1998, representing a compound annual growth rate of approximately 31%. This
growth rate compares favorably with the approximately 22% average compound
annual growth rate experiencedcustomary closing conditions, including approval by LAI's nine largest competitors duringstockholders.
REORGANIZATION
Effective at the close of business on December 31, 1998, Lamalie
Associates, Inc., a Florida corporation ("Lamalie"), reorganized into a holding
company structure and began doing business under the name of the new holding
company, LAI Worldwide, Inc. The reorganization was intended to provide greater
flexibility for international and domestic expansion, broaden the alternatives
available for future financing and generally provide for greater administrative
and operational flexibility. In certain respects, the new holding company is
the successor to Lamalie, which became a wholly owned subsidiary of the new
holding company in the reorganization. In the reorganization, each share of
Lamalie common stock outstanding immediately prior to the reorganization was
converted into one share of the new holding company's common stock. As a
result, persons who were Lamalie stockholders before the reorganization now
hold common stock of LAI Worldwide, Inc. Prior to the reorganization, Lamalie's
common stock traded on the Nasdaq Stock Market under the ticker symbol "LAIX."
After the reorganization, the new holding company's common stock continues to
trade on the Nasdaq Stock Market under the same period.
RECENT ACQUISITIONSticker
3
4
symbol "LAIX." As used herein, unless the context otherwise requires,
references to "LAI" are intended to refer to Lamalie and its consolidated
subsidiaries with respect to events occurring prior to the effectiveness of the
reorganization, and to the new holding company, LAI recently completed two acquisitions which have significantly expandedWorldwide, Inc., and its
consolidated subsidiaries with respect to events occurring from and after the
Company's practice group coverage, provided broader geographic reach and
enhancedeffectiveness of the Company's competitive position. On February 27, 1998, LAI completed
the acquisition of Ward Howell International, Inc. ("WHI"), which was the ninth
largest executive search firm in the United States with fee revenue of $26.5
million for the year ended December 31, 1997. On January 2, 1998, LAI completed
the acquisition of Chartwell Partners International, Inc. ("CPI"), a prominent
executive search firm based in California specializing primarily in the
financial services industry. CPI had fee revenue of $3.4 million for the year
ended December 31, 1997. The acquisitions of WHI and CPI strengthened LAI's
existing practice groups, particularly in the areas of financial services,
health care and technology, and added new practice groups in the areas of
automotive, insurance, and media and entertainment. These acquisitions also have
expanded the Company's domestic office network, adding six new offices and
providing an active presence on the West Coast with offices in Los Angeles, San
Francisco and Phoenix. On a pro forma combined basis assuming the Company's
acquisitions of WHI and CPI were completed on March 1, 1997, LAI's fee revenue
for fiscal 1998 was $91.7 million.reorganization.
EXECUTIVE SEARCH INDUSTRY OVERVIEW
Executive search represents a $6.5 billion global market and is generally separated into two broad fee-based
categories: retained search firms and contingency search firms. Retained search
firms fulfill their clients' senior leadership needs by identifying,
evaluating, assessing and recommending qualified candidates for senior level
positions, typically with annual cash compensation of $100,000 and above.
Contingency search firms, on the other hand, focus primarily on mid-level
positions with annual cash compensation of less than $150,000. Both types of
firms normally are paid a fee for their services equal to approximately
one-third of the guaranteed first year cash compensation for the position being
filled.
Retained search firms currently serve the majority of the Fortune 500
companies as well as numerous other organizations, including government
agencies, professional organizations and fast-growing entrepreneurial
companies. Retained search firms are compensated for an assignment whether or
not they are successful in placing a
3
4 recommended candidate. Contingency search
firms also serve large corporations; however, their primary focus is on small
and medium sized companies. Unlike retained search firms, contingency search
firms are not compensated for an assignment unless they successfully complete a
search and place a recommended candidate.
According to Kennedy Information, a leading industry publication,
revenue in the executive search industry historically has been divided almost
evenly between retained and contingency search firms; however, retained search
firms are estimated to employ only one-third of the consultants in the
industry. Thus, the average fee revenue per consultant for retained firms is
substantially higher than for contingency firms. Moreover, the predictable
revenue stream associated with a retained search enables a retained firm, such
as LAI, to devote more personnel and greater resources to an assignment than a
contingency search firm whose revenue is not assured. LAI believes this
difference in payment structure enables retained search firms to provide
clients with more value-added consulting services than contingency search
firms.
The executive search industry has experienced consistent growth over the
past 20 years. Global executive search industry revenue has grown at a 17%
compound annual growth rate from approximately $3.5 billion in 1993 to
approximately $6.5 billion in 1997. Kennedy Information expects industry growth
to continue at a 15% annual rate, with revenue projected to reach $10.0 billion
by the year 2000.
GLOBAL EXECUTIVE SEARCH INDUSTRY REVENUE GRAPH
The global executive search industry is highly fragmented, consisting of
more than 4,000 firms. In 1997, more than 80% of retained firms and
approximately 90% of contingency firms generated fewer than $2 million in
revenues. The top ten search firms, all of which operate on a retained basis,
accounted for approximately 11% of global industry revenue in 1997. However,
Kennedy Information predicts that these top ten firms will increase their market
share at an accelerating rate as they continue to offer clients increased
geographic reach, broader industry coverage, greater industry expertise and more
sophisticated technology and research support.
LAI believes that a number of trends have caused and will continue to cause
the executive search industry to experience significant growth. These trends
include:
4
5
Greater Demand for Managers with Broad Leadership Skills. Many companies
are facing a rapidly changing business environment due to an increase in
domestic and international competition, an increase in deregulation and more
widespread use of technology. The need to respond to this dynamic environment
and remain competitive has caused many companies to set higher standards for
their senior level executives. As these standards become more stringent, more
companies are looking outside their organizations to fill positions
traditionally reserved for internal candidates. The process of identifying and
evaluating executives is becoming increasingly difficult and, as a result, a
growing number of companies are relying on executive search firms to solve their
senior management and leadership needs. According to a study published in 1997
by Coopers & Lybrand HR Advisory Group, nearly two-thirds of the companies
surveyed reported using executive search professionals to recruit and hire
senior level executives.
Rapid Growth in Outsourcing. Many companies are outsourcing non-core
activities to reduce costs and increase efficiencies. These organizations often
engage independent, third party specialists to provide many non-revenue
generating functions that were previously performed in-house. Among the
functions most commonly outsourced are human resource and personnel functions,
including executive recruitment and hiring.
Growth of Multinational Business. The expansion of companies abroad and
the integration of global markets has created a growing demand for international
search capabilities. Consultants located in the country in which a position is
to be filled are often better able to identify candidates and execute searches
due to their familiarity with the local business community and culture and
available pool of executive candidates. Likewise, consultants located in the
country from which the search is originated often will better understand the
client's business strategy and recruitment needs. Executive search firms have
responded by forming affiliations with executive search firms in foreign
countries and by directly acquiring or opening foreign offices. LAI believes
that the ability to complete executive searches on a worldwide basis is an
important factor in attracting and retaining multinational clients.
Increase in Executive Turnover. In the past, it was common for executives
to spend an entire career with one or two organizations. However, in today's
rapidly changing business environment, executives often advance their careers by
working for a number of different organizations in various geographic locations.
Executive turnover has been particularly high in such growth industries as
health care and technology. This increase in executive turnover has intensified
the competition for highly qualified executives and forced many companies to
recruit executives on a more frequent basis.
Increase in Executive Compensation Levels. Compensation levels for
executives have increased considerably over the past several decades. According
to a study published in 1997 by William M. Mercer, Incorporated, the average
annual cash compensation for chief financial, chief executive and chief
operating officers grew at compound annual growth rates of 5.7%, 4.2% and 3.1%,
respectively, between 1992 and 1996. This increase in executive compensation,
among other factors, has caused many companies to be more rigorous in their
hiring practices, often retaining an executive search firm to assist in the
identification and evaluation of qualified candidates. In addition, because fees
for executive search firms are based on the compensation levels for positions
they are engaged to fill, higher executive compensation has translated into
higher executive search fees.
BUSINESS STRATEGY
LAI's objective is to be a global leader in providing comprehensive
consulting services aimed specifically at solving its clients' senior
leadership needs. The key elements of LAI's business strategy include:
Attract, Motivate and Retain High Quality Search Consultants. LAI
has been
successful in attracting, motivatingseeks to attract, motivate and retainingretain highly productive executive search
consultants as a result of its premium reputation, performance-based
consultant compensation and stock incentive plans. The Company'sconsultants. LAI's compensation system is primarily based on consultant
performance, which is measured by the amount of fee revenue each consultant
generates.
Management believes that its
performance-based compensation system is among the most competitive in the
industry. LAI's ability to attract talented consultants is demonstrated by the
large number of consultants who previously held senior level positions with
leading companies in LAI's targeted4
5 6
industry sectors. In addition, LAI believes its status as a public company
provides it with a strong competitive advantage in attracting and retaining
highly qualified consultants through ownership of Common Stock and participation
in the Company's stock incentive plans. The Company believes that equity
ownership by its consultants fosters a team-oriented working environment and
aligns the interests of its consultants with its investors. The Company has
experienced an average annual turnover rate among its consultants of less than
8% over the last five fiscal years.
Build on Knowledge-Based Practice Groups. LAI believes a thorough
understanding of both its clients and the industries in which they operate are
among the most significant factors in obtaining and completing search
assignments. Accordingly, LAI has developed a knowledge-based search practice
organized around eightfive industry groups and one functional group. The industry
groups execute searches for clients in the following business sectors: automotive; communications, entertainment and technology;(1)
consumer products and services; energy and natural resources;(2) financial services; health care(3) healthcare and
pharmaceuticals; (4) industrial; and insurance and risk management.(5) technology. The functional group
executes searches for specific functional positions, including board of
directors, human resources and legal. Each practice group is coordinated under
the direction of a Practice Group Leader who establishes the marketing and
search strategies for that practice group. LAI intends to continue to build its
existing and expand into new practice groups by (i) hiring consultants with
substantial experience and significant client relationships in the Company's
targeted industry sectors and (ii) completing strategic acquisitions. The
acquisitions of WHI and CPI strengthened LAI's existing practice groups,
particularly in the areas of financial services, health care and technology, and
added new practice groups in the areas of automotive, insurance, and media and
entertainment.
Build Long-Term, Consultative Relationships. LAI strives to develop
long-term relationships by becoming a consulting partner with its clients. To
position itself as a consulting partner, the CompanyLAI works closely with clients to gain
an in-depth understanding of their unique organizational structure, history,
operations, culture, strategic objectives and leadership needs. In addition,
the Company'sLAI's focus on knowledge-based practice groups enables its consultants to
provide more specialized and efficient service to LAI's clients.
Each of LAI's 30 largest clients, based on fiscal 1998 fee revenue, had been a
client for an average of approximately seven years as of February 28, 1998. More
than 65% of the Company's fiscal 1998 fee revenue was attributable to companies
for which LAI conducted one or more searches during the prior two fiscal years.
Capitalize on Research and Technology. LAI believes that its
industryindustrial specialization and technological capabilities enable it to consistently provide
superiorperform
comprehensive research and, ultimately, deliver higherhigh quality search results to
its clients.
LAI's 116 associates, researchers and IT professionals provide timely
industry, company and compensation information to consultants using numerous
information sources. LAI also maintains a proprietary database containing
professional information on more than 100,000 executive candidates. Consultants
can query this database on a variety of attributes, including demographic
information, work experience, compensation and personal interview results. LAI's
wide area computer network provides remote document sharing and data search
capabilities, groupware features and real-time updates on ongoing search
engagements.
ReduceSERVICES
Executive Search Cycle Times. LAI believes that the ability to reduce the
time required to perform a search ("cycle time") will be a key differentiating
factor among executive search firms in the future. In an effort to reduce its
average cycle time, LAI is investing in technology upgrades, refining its
research process, strengthening its knowledge-based practice groups and closely
evaluating each step of the placement process. Reduced cycle times would enable
LAI's consultants to complete more assignments in a given period of time,
resulting in increased client satisfaction, higher fee revenue per consultant
and enhanced profitability.
6
7
GROWTH STRATEGY
LAI has competed successfully in the executive search industry and has
capitalized on the growing demand for executive search services. LAI's fee
revenue has increased from $21.1 million in fiscal 1994 to $61.8 million in
fiscal 1998, representing a compound annual growth rate of 31%. On a pro forma
basis assuming the acquisitions of WHI and CPI were completed on March 1, 1997,
LAI's fee revenue was $91.7 million in fiscal 1998. LAI's growth has been
achieved by increasing the number of consultants at existing offices, improving
fee revenue per consultant, opening new offices and successfully executing and
integrating strategic acquisitions. LAI intends to continue to extend the reach,
breadth and penetration of its services both domestically and internationally
through internal and external growth. The key elements of LAI's growth strategy
include:
Leverage Existing and Develop New Client Relationships. LAI intends to
increase fee revenue by obtaining additional search engagements from existing
clients and by developing relationships with new clients. LAI focuses on
accounts from which it obtains, or believes it can obtain, a significant number
of search assignments ("focused accounts"). LAI invests significant resources in
its focused accounts to better understand their business strategies and culture
and eventually position the Company as a consulting partner to its clients.
Accordingly, LAI emphasizes long-term relationships with its clients, rather
than one-time projects or assignments. Consultants also spend substantial time
marketing LAI's services to carefully selected prospective clients within their
practice groups. Search assignments often are awarded after a small number of
search firms are invited to make presentations to a prospective client's senior
management or Board of Directors. In fiscal 1998, LAI obtained search
engagements from a majority of the presentations in which it participated. The
Company attributes its success to its knowledge-based practice groups and
consultative approach as well as the premium reputation LAI has developed.
Expand Existing and Selectively Open New Offices. LAI has added and
intends to continue adding experienced, highly qualified executive search
consultants to its practice. The Managing Partner of each office is responsible
for recruiting new consultants to LAI, and a significant factor in determining
the Managing Partner's compensation is the success of these efforts. During
fiscal 1998, LAI added a net total of 12 consultants to new and existing
offices, excluding consultants added in connection with the acquisitions of WHI
and CPI. LAI also continually evaluates the desirability of opening new offices.
Since early 1997, the Company has opened offices in Boston, Massachusetts;
Stamford, Connecticut; Pittsburgh, Pennsylvania; Austin, Texas and London,
England.
Consolidate Fragmented Industry; Leverage Public Company Status. LAI
believes that acquisitions provide an efficient, cost-effective method to
increase the Company's number of consultants, expand its client base, strengthen
and expand its practice group coverage and broaden its geographic reach. Given
the highly fragmented nature of the executive search industry, the Company
believes numerous acquisition opportunities exist. In addition, LAI believes its
status as the only U.S. based publicly traded company focused exclusively on
executive search makes it an attractive consolidation partner and provides it
with an acquisition currency and the financial flexibility to effectively pursue
this aspect of its growth strategy. LAI completed two acquisitions in fiscal
1998 and is actively pursuing additional acquisitions in strategic locations
throughout the world.
Penetrate International Markets. Revenue in the global executive search
industry has grown at a 17% compound annual growth rate from approximately $3.5
billion in 1993 to approximately $6.5 billion in 1997 and includes more than
4,000 search firms. The industry is expected to continue to grow at a 15% annual
rate with global revenue projected to reach $10.0 billion by the year 2000. LAI
believes that global search fulfillment capabilities are critical to attracting
and retaining multinational clients. Historically, LAI has offered its clients
global search fulfillment capabilities through its membership in Amrop
International, an international alliance of independent search firms. However,
to better leverage its knowledge-based expertise and technological capabilities,
capitalize on its existing relationships with multinational clients and ensure
the quality and consistency of its services, LAI recently initiated an
international strategy of directly owning offices in major business and
financial centers around the world. In May 1998, LAI opened an office in London,
England and is currently targeting other major markets in which to establish
offices. In international
7
8
markets where LAI does not own an office, it will continue to provide clients
with search fulfillment capabilities by using existing and developing new
referral relationships with executive search firms located in those markets.
Through these referral relationships, LAI executes domestic search assignments
on behalf of non-U.S. executive search firms and refers to such firms
international search assignments for LAI's domestic clients.
Since continuing as a member of Amrop International was incompatible with
the Company's international expansion strategy, LAI announced its withdrawal
from Amrop International in May 1998. Searches derived from membership in Amrop
International accounted for approximately 3% of LAI's fiscal 1998 fee revenue.
However, LAI has built strong referral relationships with many Amrop members
throughout the world and expects to maintain these relationships to continue
providing clients with global search fulfillment capabilities in markets where
LAI does not directly own an office. LAI believes that its global search
capabilities will be enhanced by its strategy of direct ownership of
international offices.
SERVICESServices. LAI provides executive search services
exclusively on a retained search
basis principally for Fortune 500 and large private
companies. The CompanyLAI typically is retained to identify candidates to fill its
clients' senior leadership positions, which range from brand managers and
controllers to chief operating and chief executive officers. The average first
year cash compensation of positions for which LAI conducted searches in fiscal
19981999 was approximately $226,000.$210,000.
LAI serves its clients in a consultative capacity by (i) assessing the
client's existing management capabilities, corporate culture and business
strategies, (ii) evaluating the client's industry position and major
competition, (iii) determining the relevant business experience, skills and
personal characteristics that a qualified candidate should possess, (iv)
identifying, contacting and interviewing potential candidates, (v) developing
detailed candidate reports and making recommendations to the client regarding
the most qualified candidates, (vi) advising the client with respect to
appropriate compensation and benefits and (vii) monitoring the quality of its
search procedures with client surveys and other client feedback mechanisms.
In providing high quality executive search services, the CompanyLAI uses a
team-oriented approach rather than relying on the reputation of a few key
consultants. Each of LAI's consultants is expected to develop and maintain an
expertise in one or two industries and build long-term relationships with a
limited number of clients. To maintain a high level of quality on a consistent
basis, consultants employ LAI's standard executive search process for each new
search assignment, regardless of how similar the parameters of the new search
may be to other search assignments previously conducted by LAI. At the start of
each search assignment, LAI and its client jointly develop detailed candidate
and job specifications and establish a search strategy that targets specific
industries and companies that are expected to produce the most appropriate
candidates. LAI's consultants and research staff then contact potential
candidates, distribute job specifications and client promotional materials,
conduct extensive telephone and personal interviews, and check references of
those candidates who appear most qualified for the position. Because most
candidates are successfully employed and not seeking to change jobs, initial
contact must be conducted discreetly.
5
6
After meeting with job candidates, LAI submits to the client
confidential candidate reports regarding those candidates who LAI believes are
the most qualified. Each report contains a detailed business history of the
candidate, results of LAI's preliminary reference checks and LAI's assessment
of the candidate's relevant business experience, qualifications, personal
characteristics and suitability. LAI then assists in the introduction of
selected candidates to the client and administers the interview process. When
the client is ready to extend an employment offer, LAI facilitates the
negotiation of employment terms and the transition by the candidate to the
employ of the client.
Selection Services. In early fiscal 2000, LAI has also recently begun to providelaunched a new service
offering, known as "selection services," to complement its core executive
search practice. Selection services typically involvesTermed LAIcompass.com ("Compass"), this business focuses on
searches for mid-to senior-level positionsmid-level executives with cash compensation in the $75,000$70,000 to
$125,000$140,000 range, frequently for a client
seeking to filland specializes in completing multiple positions under a single
search engagement.
LAI's approach to selection services is similar to its other 8
9
executive
searches, in that search consultants evaluateprofile the needs of each client and
develop appropriate job specifications and profiles. However, selection
services frequently differs from other executive searches in the way the
successful jobdesired candidate is located. In traditional executive search, LAI
identifiesattributes. Compass utilizes
several methods to identify candidates, including print and seeks out specific candidates who ordinarily are not actively
looking to change jobs. In a selection services engagement, by contrast, LAI
invites inquiries from interested candidates in response to a job posting
advertised either in print, such as in The Wall Street Journal, or on the
Internet
advertising, research, data mining and then evaluates, analyzes and ranks the candidates based on
inquiries and responses received. The Company supplements this data with highly
focused research, using LAI's proprietary database and other information
sources.extensive professional network. To
expand and manage selection services more efficiently, the Company
recently licensedCompass utilizes an
Internet-based software program. This software will enable
LAIInternet based registration site allowing candidates to use the Internet to advertise job opportunities, solicit responsesprovide relevant
biographical and
gather relevant employment histories from interested candidates; search, sort
and evaluatecomplete an assessment profile that
is considered against the predetermined job profiles. This process, coupled
with follow-up interviews conducted by Compass consultants, optimizes the
resulting database;"fit" with a prospective employer. With the exception of the personal
interview, the entire process is intended to be conducted on-line, allowing for
maximum efficiency in completing assignments regardless of the number of
positions the employer desires to fill. Compass is a particularly effective
recruiting solution for companies launching new service offerings, expanding
existing operations, or for start-up companies needing to get their sales force
and pre-select interested candidates based
on pre-determined criteria. Job candidates will also be able to complete job
applications on-line, submit writing samples and complete skill assessment
worksheets.
Similar to traditional executive searches, LAI'sother critical resources in place quickly.
Compass's fee for selection services is usually based on a percentage of the
first year cash compensation for each position filled, thoughin addition to the
overall volume and complexity of the positions being filled. Compass's lower
cost structure and overall efficiencies gained through technology allow for a
profit margin consistent with LAI despite the lower salary level positions
which are being filled. In addition, selection services engagements may include other minimum
or contingent fee provisions. Although the average first year cash compensation
for the position being filled is typically less for a selection services
engagement than for LAI's core executive search practice, the Company can
achieve lower costs and higher profit margins on selection services because
these engagements involve multiple assignments of the same type and are less
labor intensive. The volume and efficiencies typically associated with selection
services provide LAI with an opportunity to enhance both total fee revenue and
average fee revenue per consultant. In addition, offering selection services
providesallow LAI's consultants
with the ability to cross-selladdress a new service offering
tomuch broader range of human resource needs for both new and
existing clients. To date, revenues from selection services has not been
significant.
In May 1999, LAI entered into a four-year co-operative advertising
arrangement with TMP, a leading provider of Internet based recruitment
solutions including Monster.com. The arrangement is documented in two letter
agreements providing for (1) a direct link from the Monster.com home page to
LAIcompass.com, (2) TMP's appointment of LAIcompass.com as the exclusive
provider of TMP's online candidate assessment activities for mid-level
managerial positions, (3) LAI's listing on Monster.com of LAI's search
assignments for mid-level positions paying annual base salaries between $70,000
and $140,000 and (4) LAI providing for $10 million in television and print
advertising in May and June 1999 to promote its relationship with Monster.com
and the availability of the link to LAIcompass.com at Monster.com. After an
initial five-month period, either party may terminate the arrangement. If the
arrangement is terminated, TMP is required to reimburse LAI for substantially
all of the advertising expenses incurred under the terms of the agreement.
TMP's obligations are secured by an irrevocable standby letter of credit.
6
7
MARKETING AND CLIENTS
The Company's marketing strategy includes three primary components:
capitalize on its knowledge-based practice groups and long-term client
relationships; penetrate the domestic market through its regional office
structure and the international market through direct ownership of offices in
major business and financial centers around the world; and implement a global
branding program. LAI believes that its industry specialization and
technological capabilities enable it to consistently provide superior research
and, ultimately, deliver higher quality search results to its clients.
Knowledge-Based Practice Groups. LAI has developed a knowledge-based
search practice organized around eightfive industry groups and one functional group.
The industry groups execute searches for clients in the following business
sectors: automotive; communications, entertainment and technology; consumer products and services; energy and natural resources; financial services; health care and
pharmaceuticals; industrial; and insurance and risk management.technology. The functional group executes
searches for specific functional positions, including board of directors, human
resources and legal. Each practice group is coordinated by a Practice Group
Leader who is responsible for developing new business and maintaining a high
standard of service in that practice group. To achieve these objectives, each
group's Practice Group Leader (i) establishes the marketing and search strategies for
the particular practice group, (ii) identifies focused accounts and targets
clients within that practice group's business sector and (iii) facilitates and
assists the marketing activities of other consultants in the practice group.
Each Practice Group Leader has substantial industry expertise, frequently
having held one or more executive positions in the group's business sector
prior to becoming a search consultant. Additionally, LAI's Practice Group
Leaders have an average of approximately 1314 years of experience in the
executive search industry.
9
10
The following table sets forth certain information regarding LAI's practice
groups. The companies listed in this table are clients with which the Company
anticipates having a continuing significant relationship in the future and
includes both (i) companies that are either the largest or among the largest
clients in the indicated practice group based on the Company's pro forma fiscal
1998 fee revenue received from such clients and (ii) companies that have been
clients for several years or more.
- -----------------------------------------------------------------------------------------------
% OF PRO FORMA
FISCAL 1998
PRACTICE GROUP FEE REVENUE(1) SELECTED CLIENTS
- -----------------------------------------------------------------------------------------------
Financial Services 24.5% Banc One, Banco Santander, Lehman
Brothers, Societe Generale
- -----------------------------------------------------------------------------------------------
Communications, Entertainment and 20.4 America Online, GTE, IBM, Lucent
Technology Technologies
- -----------------------------------------------------------------------------------------------
Health Care and Pharmaceuticals 14.3 Bristol-Myers Squibb, Columbia/HCA,
Schering-Plough, PhyMatrix
- -----------------------------------------------------------------------------------------------
Consumer Products and Services 10.8 Grand Metropolitan, Home Depot, Kohler,
PepsiCo
- -----------------------------------------------------------------------------------------------
Industrial 9.0 AlliedSignal, Cooper Industries,
General Electric, Georgia Pacific
- -----------------------------------------------------------------------------------------------
Insurance and Risk Management 6.7 Equitable, Prudential, Zurich Kemper
- -----------------------------------------------------------------------------------------------
Energy and Natural Resources 6.5 Amerada Hess, Enron, Pennzoil
- -----------------------------------------------------------------------------------------------
Automotive 3.7 B.F. Goodrich, General Motors
- -----------------------------------------------------------------------------------------------
Functional (Board of Directors, 4.1 Eastman Chemical, Gillette, Lockheed
Human Resources, Legal) Martin, Waste Management
- -----------------------------------------------------------------------------------------------
- ---------------
(1) Includes LAI, WHI and CPI fee revenue for their fiscal years ended February
28, 1998, December 31, 1997 and December 31, 1997, respectively.
LAI's practice groups enable its consultants to better understand each
client's business strategy and industry and position LAI as a consulting
partner to its clients. LAI emphasizes long-term relationships with clients,
rather than one-time projects or assignments. Each of LAI's 30 largest clients,
based on LAI's fiscal 19981999 fee revenue, had been a client for an average of
approximately sevennine years as of February 28, 1998.1999. In addition, more than 65%approximately
60% of the Company'sLAI's fiscal 19981999 fee revenue was attributable to companies for which
LAI conducted one or more searches during the prior two fiscal years.
Domestic and International Offices. To complement its knowledge-based practice groups, the CompanyLAI has
established 17 domestic offices and one
international office in cities that are key business centers for one or more of
the Company'sLAI's practice groups. Each major office is run by a Managing Partner who has
complete fiscal responsibility for that office. The Managing Partner's
principal responsibilities include overseeing day-to-day operational and
administrative matters at the local office level, providing assistance to
consultants in that office, assuring quality control in business development
and search execution, and hiring and supervising office personnel and serving on an
internal operations committee.personnel. While
compensation for other consultants is based primarily on individual
performance, compensation for Managing Partners are generally paid a base salary plus bonus
which is based
largely on the profitability of their respective local office, as well
as on their ability to successfully recruit highly qualified consultants to
LAI. Since consultants have greater opportunities to develop relationships with
clients and prospective clients in close geographic proximity, they normally
focus on, but do not limit their efforts to, clients in the region served by
their particular office. Over time, consultants seek to establish deep roots in
the community and develop strong links with local business, government and
cultural leaders. LAI's
domestic offices are located in Atlanta, Austin (Texas), Barrington (Illinois),
Boston, Chicago, Cleveland, Dallas, Encino (California), Houston, Lake Geneva
(Wisconsin), Los Angeles, New York, Phoenix, Pittsburgh, San Francisco, Stamford
and Tampa. In addition, LAI has an office located in London, England.
10
11
Branding Initiatives. The Company historically has relied primarily on
client referrals and the efforts of its consultants, particularly its Practice
Leaders, to market the Company's services. More recently, LAI also has
implemented a global branding program to supplement the marketing efforts of the
Company's consultants. The global branding program is designed to significantly
increase LAI's visibility. The program involves (i) strengthening LAI's
reputation in cities where LAI offices are located through local event
sponsorship, board participation and local public relations, (ii) enhancing
LAI's reputation in the industries served by the Company's knowledge-based
practice groups through trade journal advertising, targeted mailings, and
participation in industry associations and conferences and (iii) building both a
national and global reputation through news releases, participation in industry
forums and issuance of specialized reports.
Blocking Arrangements. Either by agreement with clients or for
marketing or client relations purposes, executive search firms frequently
refrain from recruiting employees of a client, and possibly other entities
affiliated with that client, for a specified period of time (a "blocking"
arrangement). LAI actively manages its blocking arrangements and seeks to
mitigate any adverse effects of blocking by strengthening its long-term
relationships with focused accounts, shortening the length of the off-limits
period and by resisting requests for blocking arrangements with clients who do
not engage LAI for multiple assignments. Additionally, in recent years market
conditions and industry practices have resulted in blocking arrangements that
are becoming narrower in scope and shorter in duration.
7
8
RESEARCH AND TECHNOLOGY
LAI believes that its industry specialization and technological
capabilities enable it to consistently provide superiorperform comprehensive research and, ultimately,
deliver higherhigh quality search results to its clients. Search consultants must
understand a client's industry, competitors and business strategies and be able
to readily identify the universe of most qualified executive candidates. LAI's
116133 associates, researchers and IT professionals support the Company'sLAI's consultants by,
among other things, gathering and analyzing information obtained from numerous
electronic databases, trade journals and directories, the Internet and other
sources. LAI also maintains a proprietary database containing professional
information on more than 100,000 executive candidates. Consultants can query
this database on a variety of attributes, including demographic information,
work experience, compensation and personal interview results. LAI's wide area
computer network provides remote document sharing and data search capabilities,
groupware features and real-time updates on ongoing search engagements. LAI is
committed to continually upgrading its proprietary database and other
information sources to enable LAI's consultants to retrieve relevant
information quickly and efficiently.
The Company's support functions, including its research department, are
coordinated from its Tampa, Florida office. In the search process, the principal function of LAI's research
department is to support the Company's consultants by gathering and analyzing information on
the industries and companies expected to produce the most qualified candidates.
LAI's research professionals also support the Company'sLAI's business development activities
by providing target lists, data on past LAI searches and information on
companies and executives in target industries. LAI's researchers typically have
had professional research or library training and experience prior to joining
LAI, and many have undergraduate and graduate degrees in such fields as library
science. LAI's research staff is organized by practice group, with most
researchers specializing in one or two specific industries. Unlike many of its competitors,
LAI researchers do not work exclusively for particular executive search
consultants. LAI believes its
focused approach facilitates the development of specialized expertise, promotes
a consistent culture and cooperation across the firm and standardizes
communication and training.
PROFESSIONAL STAFF AND EMPLOYEES
At April 30, 1998,February 28, 1999, LAI had 386408 full time employees, of which 114119
were executive search consultants, 116133 were associates, researchers or IT
professionals and 156 were administrative and support staff. LAI has never been
a party to any collective bargaining agreement and considers relations with its
employees to be good.
LAI's search professionals are categorized either as consultants,
consisting of partners and principals, or as associates. Associates are junior
search professionals who generally do not directly execute search
11
12 assignments,
but assist partners and principals by performing research and other functions.
After several years of experience and satisfactory performance, an associate
will be considered for promotion to the position of principal. If a principal
continues to develop and generate revenue, the principal will be offered the
opportunity to advance to the position of partner. Promotions depend on a
variety of factors, including productivity and business development. As a
matter of corporate philosophy, LAI strives to hire as associates only those
individuals it believes have the potential to become productive consultants.
LAI's consultants (excluding those who joined LAI in connection with the
recent acquisitions of WHI and CPI) have been employed by the Company for an
average of approximately four years. LAI has experienced an average annual
turnover rate among its consultants of less than 8% over the last five fiscal
years. At April 30, 1998, there were 94 partners, 20 principals and 41
associates. Most of LAI's consultants held senior level positions with leading
companies in LAI's targeted industry sectors and had experience in the executive
search business prior to joining LAI. LAI's consultants have, on average,
approximately 11 years of experience in the executive search industry.
LAI has been able to attract and retain some of the most productive
executive search consultants in the industry as a result of its premium
reputation, performance-based consultant compensation system and stock incentive
plans. The Company believes the salaries, commissions, bonuses and profit
sharing it pays to its consultants are among the industry's highest as a
percentage of fee revenue generated. Although consultants are paid base
salaries, a significant portion of most consultants' compensation consists of
incentive compensation that is dependent primarily upon the amount of fee
revenue they generate.
COMPETITION
The executive search industry is highly competitive. It is estimated
that there are more than 4,000 executive search firms worldwide. There are
relatively few barriers to entry and new competitors frequently enter the
market. While LAI faces competition to some degree from all firms in the
industry, the CompanyLAI believes its most direct competition comes from other retained search firms. In
particular, LAI competes with the largestlarge firms
in the industry: Heidrick &
Struggles, Inc., Korn/Ferry International, SpencerStuart & Associates, Russell
Reynolds Associates, Inc. and Egon Zehnder International.industry. To a lesser extent, LAI also faces competition from smaller
boutique or specialty firms that may compete in certain regional
8
9
or functional markets and from in-house human resource departments of clients
and prospective clients. Some of LAI's competitors possess greater resources
and name recognition than LAI. Each firm with which LAI competes is also a
competitor in seeking to attract the most productive search consultants. In
the Company'sLAI's experience, the executive search business is more quality-sensitive than
price-sensitive. As a result, LAI competes on the level of service it offers,
reflected by its knowledge-based practice groups and individual client focus,
and, ultimately, the quality of its search results.
ITEM 2. PROPERTIES
The CompanyLAI leases all of its office locations. As of February 28, 1998,
the Company1999, LAI
leased an aggregate of approximately 155,186193,000 square feet of office space under
leases calling for future minimum lease payments, net of sublease income, of
approximately $23.2$41.9 million and with remaining terms of between one and nineup to 15 years (exclusive
of renewal options exercisable by LAI). LAI believes that its facilities are
adequate for its current needs and that it will not have difficulty leasing
additional office space to satisfy anticipated future needs.
ITEM 3. LEGAL PROCEEDINGS
From time to time the CompanyLAI has been involved in litigation incidental to
its business. LAI currently is not a party to any litigation the adverse
resolution of which, in management's opinion, would be likely to have a
material adverse effect on the Company'sLAI's business, financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year ended February 28, 1998.
12
131999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company'sLAI's Common Stock is traded on theThe Nasdaq NationalStock Market under the
symbol "LAIX."
The following table sets forth, for the periods indicated, the range
of high and low closing sale prices for the Common Stock, as reported on theThe
Nasdaq NationalStock Market since trading began on July 2, 1997, in connection with
the
Company'sLAI's initial public offering, at $12.00 per share, under the symbol LAIX.
HIGH LOW
------- -------
FISCAL YEAR 1998:
Second Quarter (from July 2, 1997).......................... $21.250 $15.875
Third Quarter...............................................Quarter 22.875 17.750
Fourth Quarter..............................................Quarter 21.250 16.375
FISCAL YEAR 1999:
First Quarter $23.250 $18.750
Second Quarter 19.813 5.938
Third Quarter 8.938 4.875
Fourth Quarter 8.188 5.719
FISCAL YEAR 2000:
First Quarter (through May 11, 1998)........................ $23.250 $19.50024, 1999) $ 5.813 $10.00
9
10
On May 11, 1998,24, 1999, the last reported sales price of the Common Stock on
the Nasdaq National Market was $20.00$5.875 per share. As of May 11, 1998,24, 1999, there were
approximately 145167 holders of record of the Common Stock and approximately 2,000
beneficial holders of the Common Stock.
LAI has not paid dividends since the beginning of fiscal 1997 and does
not intend to pay any cash dividends for the foreseeable future but instead
intends to retain earnings, if any, for the future operation and expansion of
LAI's business. Any determination to pay dividends in the future will be at the
discretion of the Company'sLAI's Board of Directors and will be dependent upon LAI's results
of operations, financial condition, contractual restrictions, restrictions
imposed by applicable law and other factors deemed relevant by the Board of
Directors. Moreover, the Company'sLAI's credit facilities prohibit payment of dividends
without the consent of the lender.
During the fiscal year ended February 28, 1998, the CompanyLAI issued 25,707189,677 and
189,67725,707 shares of its Common Stock, without registration under the Securities
Act of 1933 (the "Securities Act"), to consultants in connection with the acquisitions of WHIWard
Howell International, Inc. ("WHI") and CPI, respectively. The CompanyChartwell Partners International, Inc.
("CPI"), respectively, to the former stockholders of such companies. LAI
believes that all such transactions were exempt from registration pursuant to
Section 4(2) and/or Rule 701506 under the Securities Act.
On July 8, 1997, the Company completed its initial public offering under a
Registration Statement on Form S-1 effective July 1, 1997 (Securities and
Exchange Commission file number 333-26027) covering 2.3 million shares of its
Common Stock. Net proceeds from the offering were approximately $24.7 million,
of which approximately $3.9 million was used to repay all outstanding
indebtedness under the Company's credit facilities, approximately $9.7 million
was paid in connection with the Company's acquisitions of WHI and CPI and the
balance was used for general corporate purposes including working capital.
13
14
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial and other data of
LAI for fiscal years ended February 19941995 through 19981999 and as of the last day of
each of those fiscal years. The Statement of Operations Data for, and Balance
Sheet Data as of the end of, fiscal 1995 through 1998,1999, are derived from the
audited Consolidated Financial Statements of the Company. The Statement of Operations
and Other Data for, and Balance Sheet Data as of the end of, fiscal 1994 are
derived from the unaudited Consolidated Financial Statements of the Company and,
in the opinion of management, include all adjustments (consisting of normal and
recurring adjustments) necessary to present fairly the results of operations and
financial position of the Company for such periods and as of such dates.LAI. The financial data shown
below should be read in conjunction with the Consolidated Financial Statements
and Notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Report.
YEAR ENDED FEBRUARY 28 OR 29,
--------------------------------------------------------------
PRO
FORMA
1994 1995 1996 1997 1998 1998(1)
-------- -------- -------- -------- -------- --------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
1995 1996 1997 1998 1999
------- -------- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
Fee revenue, net............................. $ 21,144net $ 28,262 $ 35,088 $ 46,437 $ 61,803 $91,730$ 86,811
Compensation and benefits.................... 17,725benefits 23,991 30,693 39,928 46,513 69,05366,897
General and administrative expenses.......... 2,080expenses 2,333 4,467 6,685 8,680 13,7368,663 21,628
Goodwill amortization -- -- -- 17 776
Restructuring charges -- -- -- -- 3,543
-------- -------- -------- -------- --------
-------
Operating income (loss).................... 1,339 1,938 (72) (176) 6,610 8,941
Net interest(6,033)
Other income (expense)................ 14 (6) (40) (376) 197 (649)248
-------- -------- -------- -------- --------
-------
Income (loss) before provision for income taxes.................................... 1,353taxes 1,932 (112) (552) 6,807 8,292
Provision for(5,785)
income taxes................... 97taxes
Income tax expense (benefit) 671 90 15 2,927 3,807(1,547)
-------- -------- -------- -------- --------
-------
Net income (loss)................... $ 1,256 $ 1,261 $ (202) $ (567) $ 3,880 $ 4,485(4,238)
======== ======== ========= ======== ========
======== =======
Diluted earnings per share................... $ 0.82
========
Pro forma net income (loss)(2)............... per common and
common equivalent share $ 7850.82 $ 1,121 $ (202) $ (567) $ 3,880 $ 4,485(0.58)
========= ========
======== ======== ======== ======== =======
Pro forma diluted earnings per share......... $ 0.90
=======
Diluted weightedweighed average common and common
equivalent shares outstanding................................outstanding 4,751 4,9617,346
10
11
OTHER DATA:
Number of consultants employed as of
fiscal year end................................... 38end 46 54 62 111 119
Average fee revenue per consultant
employed during entire fiscal year.................. $602,000year $689,000 $706,000 $740,000 $989,000 $782,000
Average cash compensation of
positions filled (3)........................................ $172,000(1) $180,000 $196,000 $226,000 $226,000 $226,000
$210,000
AS OF FEBRUARY 28 OR 29,
----------------------------------------------
1994----------------------------------------------------------
1995 1996 1997 1998 ------ ------- ------- ------- -------1999
-------- -------- --------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital (deficit)................................... $1,723 $ 1,439 $ (485) $ 617 $ 9,81510,301 $ 41,133
Total assets................................................ 9,885assets 12,193 18,300 25,561 88,916 103,823
Total long-term debt........................................ 264debt 143 63 2,037 9,125 5,907
Total stockholders' equity.................................. 2,121equity 2,325 2,509 2,627 35,471 73,560
- ----------------------------------------
(1) The unaudited pro forma financial information for the year ended February
28, 1998 (i) reflects the results of operations of LAI as if the
acquisitions of WHI and CPI were completed on March 1, 1997, (ii) assumes
that the WHI and CPI consultants were paid according to the LAI consultant
compensation plan, the effect of which was to decrease compensation and
benefits expense and increase operating income by approximately $3.6
million, (iii) reflects an increase in goodwill amortization and a decrease
in net interest income as a result of the two acquisitions and (iv) was
prepared using the historical audited financial statements of WHI and CPI
for the year ended December 31, 1997.
(2) For periods prior to November 1, 1994, the Company had elected to be taxed
as an S corporation for federal and certain state income tax purposes. The
pro forma net income (loss) for each period shown reflects a provision for
income taxes as if the Company were a C corporation for income tax purposes
during such periods at an assumed effective tax rate of 42%.
(3) Represents the average first year cash compensation of positions for
which LAI conducted searches during the fiscal year.
14
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following presentation of management's discussion and analysis of
the
Company'sLAI's financial condition and results of operations should be read in
conjunction with the Company'sLAI's Consolidated Financial Statements, the Notes thereto and
other financial information included herein.
OVERVIEW
LAI is one of the largest and fastest growing executive search firms in the
world. The Company derives substantially all of its revenue from fees for
professional services which are billed exclusively on a retained basis. LAI's
fees typically equal one-third of the anticipated first year cash compensation
for the positionsposition being filled. If the actual compensation package for a
successfully placed candidate varies from the amount anticipated at the time of
the engagement, an appropriate adjustment may be made to LAI's search fee. The
CompanyLAI
recognizes fee revenue as clients are billed, generally over a 60 to 90 day
period following the acceptance of a search assignment. In addition, clients
usually are required to reimburse LAI for out-of-pocket expenses incurred in theand
other service charges related to its search process.
LAI's fee revenue has grown from $21.1$28.2 million in fiscal 19941995 to $61.8$86.8
million in fiscal 1998,1999, representing a compound annual growth rate of
approximately 31%32%. LAI's fee revenue for fiscal 1998, on a pro forma combined
basis assuming the acquisitions of WHI and CPI were completed on March 1, 1997,
was $91.7 million. This growth has been achieved by (i) increasing the number of
consultants at existing offices, (ii) improving fee revenue per consultant and
(iii) opening and acquiring new offices. Since its initial public offering on
July 1, 1997,consultants. In the Company has completed two acquisitions, which added a net
total of six offices and 37 consultants. See "-- Acquisitions." The Company also
opened new offices in Boston, Massachusetts and Stamford, Connecticut in fiscal 1997, and in Pittsburgh, Pennsylvania in fiscal 1998. Including acquisitions,
the Company added a net total of 65 consultants during the three-year periodyears ended February 28, 1998, representing a 141%the increase to its consulting staff.
Fee revenue per consultant employed for an entirewas
principally the result of hiring new consultants. In fiscal year1999, the increase
was approximately
$706,000, $740,000 and $989,000 forprincipally the result of consultants added in connection with two
acquisitions effected in the fourth quarter of fiscal 1996, 1997 and 1998, respectively.
This improvement was due to greater consultant productivity, an increased mix of
more senior level executive searches and to an overall rise in executive
compensation. The average first year cash compensation of positions for which
LAI conducted searches in fiscal 1996, 1997 and 1998 was approximately $196,000,
$226,000, and $226,000, respectively.1998.
The largest component of the Company'sLAI's operating expenses consists of
compensation and benefits paid to its executive search consultants, executive
officers and administrative and support personnel. LAI believes it has been able
to attract and retain some of the most productive executive search consultants
in the industry as a result of its premium reputation, its performance-based
consultant compensation system and its status as a public company, which
provides consultants with the opportunity to build wealth through direct equity
ownership and participation in the Company's stock incentive plans. Compensation
and benefits expense represented approximately 75.3% of fee revenue in fiscal
1998. The Company believes the compensation and benefits it pays to its
consultants, as a percentage of fee revenue generated, is among the highest in
the industry.
General and administrative
expenses consist of occupancy expense associated with the Company'sLAI's leased premises,
costs associated with the Company'sLAI's investments in information technology and marketing
and other general office expenses.
11
12
INTERNATIONAL OPERATIONS
During the first and second quarters of fiscal 1999, LAI benefits from the reduced costs associated with locating a
majority of its administrative support operations in Tampa, Florida. In
addition, the Company believes that all of its systems are year 2000 compliant.
ACQUISITIONS
As part offocused its
growth strategy on international expansion, opening offices in London, England
and Wanchai, Hong Kong. This expansion involved the Company expects to continue to pursue
strategic acquisitions as an efficient way to increase its numberhiring of 15 executive
search consultants expand its client base, strengthen and expand its practice group
coverage47 support staff, principally in London. LAI also signed
exclusivity and broaden its geographic reachconfidentiality letter agreements in both domestic and international
markets. Since its initial
15
16
public offering on July 1, 1997,December 1998 with Futura
Beteiligungs GmbH, the Company completed two acquisitions, which
were recorded under the purchase methodmajority owner of accounting. The Company amortizes
goodwill over 30 years.
WHI Acquisition. LAI completed the acquisitionNeumann Holding AG, one of WHI on February 27,
1998. WHI was the ninthEurope's
largest executive search firmand assessment consulting firms. The parties entered
into preliminary talks about the possibility of LAI acquiring Futura. These
talks were terminated in March 1999 when LAI signed the United StatesMerger Agreement with
fee revenue of $26.5 millionTMP.
Due to economic conditions and the inherent difficulties in
establishing start-up operations, revenues for the year endedLondon and Hong Kong offices
were less than projected, resulting in substantial losses from LAI's
international business segment. See Note 10 to the accompanying Consolidated
Financial Statements. As a result, in December 31, 1997. WHI's fee
revenue grew at1998, LAI decided to
significantly reduce the size and scope of its London office. In connection
with this downsizing, a 21.5% compound annual growth rate from $10.0restructuring charge of approximately $3.5 million in 1992was
recorded which included write-downs of abandoned assets, severance benefits
payable to $26.5 million in 1997. LAI acquired WHI for approximately $19.5 million. The
purchase consideration consisted of (i) approximately $8.8 million in cash, (ii)
$7.6 million in subordinated promissory notes payable over three years, accruing
interest oninternational employees whose positions were eliminated, and legal
and other costs directly related to the unpaid balance atrestructuring. See Note 2 to the
rate of 5.0% per annum and (iii)
approximately 190,000 shares of Common Stock.
CPI Acquisition.accompanying Consolidated Financial Statements.
In March 1999, LAI completed a second review of its international
operations and assessed the acquisition of CPI on January 2, 1998.
CPI was a prominent executive search firm based in California that specialized
primarily in the financial services industry. CPI's fee revenue was $3.4 million
for the year ended December 31, 1997. The Company acquired CPI for approximately
$3.1 million. The purchase consideration consisted of (i) approximately $1.4
million in cash, (ii) a convertible subordinated promissory noteimpact of the Company
in the principal amount of $1.25 million payable over three years, accruing
interest on the unpaid balance at the rate of 6.75% per annum and convertible
into shares of Common Stock at each anniversary date at the prices specified in
the asset purchase agreement and (iii) approximately 26,000 shares of Common
Stock.
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information for the year ended February
28, 1998 reflects the results of operations of LAI assuming the acquisitions of
WHI and CPI were completed on March 1, 1997. The historical audited financial
statements of WHI and CPI for the year ended December 31, 1997 were used in
preparing the unaudited pro forma financial information.
The unaudited pro forma financial information assumes that the WHI and CPI
consultants were paid according to LAI's consultant compensation plan, which
decreased compensation and benefits expense and increased operating income by
approximately $3.6 million. The unaudited pro forma financial information also
reflects an increase in goodwill amortization of approximately $810,000 and a
decrease in net interest income of approximately $960,000actions taken as a result of the
decision made in December 1998. LAI determined that projections for revenues
from international operations were not being met. Consistent with its
previously stated intentions to prevent further operating losses from
international operations in fiscal 2000, LAI determined to immediately enact a
plan of closure for its two acquisitions. The unaudited pro forma financial information does not reflect (i)
expected cost savingsinternational offices. In accordance with this
plan, both the London and Hong Kong offices were closed during the first
quarter of fiscal 2000. LAI expects that the office closures will result in
further restructuring charges which maywill be achieved through facilities, technology and
general and administrative integration or (ii) expected costsrecorded in the first quarter of
planned
upgrades to WHI's and CPI's management information systems. Such items are not
reflected because they are not factually determinable or estimable.fiscal 2000.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
statement of operations data as a percentage of fee revenue:
PERCENTAGE OF FEE REVENUE
-----------------------------------------------------------
YEAR ENDED
FEBRUARY 28,
OR 29,
---------------------
1996--------------------------------------
1997 1998 ----- ----- -----1999
--------- -------- --------
Fee revenue, net............................................net 100.0% 100.0% 100.0%
Compensation and benefits................................... 87.5benefits 86.0 75.3 77.1
General and administrative expenses......................... 12.7expenses 14.4 14.0 ----- ----- -----24.9
Goodwill amortization -- -- 0.9
Restructuring charges -- -- 4.1
-------- -------- --------
Operating income (loss)..................................... (0.2) (0.4) 10.7 Net interest(7.0)
Other income (expense)............................... (0.1) (0.8) 0.3 ----- ----- -----0.3
-------- -------- --------
Income (loss) before provision for income taxes............. (0.3)taxes (1.2) 11.0 Provision for income taxes.................................. 0.3(6.7)
Income tax expense (benefit) -- 4.7 ----- ----- -----(1.8)
-------- -------- --------
Net income (loss)........................................... (0.6)% (1.2)% 6.3% ===== ===== =====(4.9)%
======== ======== ========
1612
1713
FISCAL 1999 COMPARED WITH FISCAL 1998
Fee revenue, net. LAI's fee revenue increased $25.0 million, or 40.5%,
to $86.8 million for fiscal 1999 from $61.8 million for fiscal 1998.
LAI's domestic revenue increased $21.6 million, or 35.0%, to $83.4
million for fiscal 1999 from $61.8 million for fiscal 1998. This increase is
attributable to an increase in the number of consultants. During fiscal 1999,
LAI employed an average of 116 consultants domestically as compared to an
average of 78 consultants during fiscal 1998. This increase was primarily due
to the net addition of 34 consultants in connection with the acquisitions of
WHI and CPI in the fourth quarter of fiscal 1998.
As of the end of fiscal 1999, LAI employed a total of 110 consultants
domestically. During fiscal 1999, LAI experienced turnover of approximately
17%, which was higher than LAI has typically experienced. LAI is uncertain
whether this trend will continue.
The average revenue per consultant employed for a full year decreased
20.9%, to $782,000, for fiscal 1999 from $989,000 for fiscal 1998. The average
first-year cash compensation of positions for which LAI conducted searches
decreased 7.1% to $210,000 for fiscal 1999 from $226,000 for fiscal 1998.
LAI commenced international operations in May 1998, with the opening
of its London, England office. For fiscal 1999, international operations
accounted for 3.9% of total revenue.
Compensation and benefits. Compensation and benefits increased $20.4
million, or 43.8%, to $66.9 million for fiscal 1999 from $46.5 million for
fiscal 1998. As a percentage of fee revenue, compensation and benefits
increased to 77.1% for fiscal 1999 from 75.3% for fiscal 1998.
Domestic compensation and benefits increased $12.9 million, or 27.7%,
to $59.4 million for fiscal 1999 from $46.5 million for fiscal 1998. As a
percentage of domestic fee revenue, domestic compensation and benefits
decreased to 71.2% for fiscal 1999 from 75.3% for fiscal 1998. This decrease
was due to lower discretionary compensation and a decrease in cash compensation
paid to consultants in connection with LAI's adoption of a revised compensation
plan for consultants effective December 1, 1998.
International compensation and benefits accounted for 11.2% of total
compensation and benefits expense for fiscal 1999. In order to attract
qualified executive search consultants, and consistent with industry practice,
LAI generally provides for new consultants to be paid under a compensation
system with much higher fixed salaries for a specified transitional period.
After the end of the transitional period, consultants are generally paid based
on a formula applied to their productivity. The higher fixed salaries resulted
in compensation and benefits as a percentage of revenue for international
operations being higher than LAI typically experiences domestically.
General and administrative expenses. General and administrative
expenses increased $12.9 million to $21.6 million for fiscal 1999 from $8.7
million for fiscal 1998. As a percentage of fee revenue, general and
administrative expenses increased to 24.9% for fiscal 1999 from 14.0% for
fiscal 1998.
Domestic general and administrative expenses increased $8.1 million,
or 93.6%, to $16.8 million for fiscal 1999 from $8.7 million for fiscal 1998.
As a percentage of domestic fee revenue, domestic general and administrative
expenses increased to 20.1% for fiscal 1999 from 14.0 % for fiscal 1998. This
change was primarily due to increases in the following areas: travel and
meeting expenses, legal and consulting fees, occupancy expenses, and IT costs.
The increase in travel and meeting expenses related to conferences designed to
focus marketing efforts within practice group areas, provide post-acquisition
13
14
cultural integration, and train new consultants. These expenses were higher
than LAI has typically experienced due to the significant number of new
employees hired in connection with acquisitions in the fourth quarter of fiscal
1998. Legal and consulting fees increased due to LAI's merger and acquisition
activities and the holding company reorganization. See "Business --
Reorganization." Occupancy costs and IT expenses increased primarily as a
result of the eight offices and 110 employees added since 1998.
International general and administrative expenses accounted for 22.5%
of total Company general and administrative expenses for fiscal 1999. General
and administrative expenses as a percentage of revenues was substantially
higher than initially anticipated for international operations due to revenues
being generated at levels less than originally planned.
Goodwill amortization. Goodwill amortization was $776,000 for fiscal
1999 as compared to $17,000 for fiscal 1998. This change was a result of
goodwill acquired in connection with two acquisitions during the fourth quarter
of fiscal 1998.
Restructuring charges. Restructuring charges were $3.5 million in
fiscal 1999 and relate to the significant reduction of LAI's international
operations undertaken during the fourth quarter of fiscal 1999. See Note 2 to
the accompanying Consolidated Financial Statements.
Operating income (loss). LAI experienced an operating loss of $6.0
million in fiscal 1999 as compared to operating income of $6.6 million in
fiscal 1998. This decrease was primarily due to operating losses and
restructuring charges experienced in connection with LAI's international
operations.
Other income (expense). Other income increased $51,000, or 25.9%, to
$248,000 for fiscal 1999 from $197,000 for fiscal 1998. This increase was the
result of earnings associated with investment of the net proceeds from the
secondary public offering in June 1998. These earnings were partially offset by
an increase in interest expense related to notes payable issued in connection
with acquisitions completed during the fourth quarter of fiscal 1998 and
foreign currency transaction losses associated with LAI's international
operations.
Income tax expense (benefit). The effective income tax rate for fiscal
1999 of 26.7% varied from the statutory rate of 34.0% due to state and foreign
income tax effects and the non-deductibility of certain expenses, including
goodwill amortization, premiums on key person life insurance policies, and a
portion of meals and entertainment. LAI's United Kingdom subsidiary was treated
as a branch operation for tax purposes.
FISCAL 1998 COMPARED WITH FISCAL 1997
Fee revenue.revenue, net. Fee revenue increased $15.4 million, or 33.1%, to
$61.8 million for fiscal 1998 from $46.4 million for fiscal 1997. The increase
in fee revenue was primarily a result of an increase in the number of
consultants and an increase in the average fee revenue per consultant. At the
end of fiscal 1998, the CompanyLAI employed a total of 111 consultants, which represents a
net increase of 49 consultants since the beginning of fiscal 1998 and reflects
the 37 consultants added in connection with the acquisitions of WHI on February
27, 1998 and CPI on January 2, 1998. The average fee revenue per consultant
employed for the entirety of the periods being compareda full year increased 33.6% to $989,000 infor fiscal 1998 from
$740,000 infor fiscal 1997.
Compensation and benefits. Compensation and benefits increased $6.6
million, or 16.5%, to $46.5 million for fiscal 1998 from $39.9 million for
fiscal 1997. The increase was primarily due to compensation and benefits
associated with the growth in the number of consultants and the increase in fee
revenue per consultant. As a percentage of fee revenue, compensation and
benefits decreased to 75.3% for fiscal 1998 from 86.0% for fiscal 1997
primarily due to a decrease in cash compensation paid to
14
15
consultants in connection with the Company'sLAI's adoption of a revised compensation plan
for consultants effective March 1, 1997. The decrease in compensation and
benefits as a percentage of fee revenue also was due to spreading compensation
and benefits for LAI's administrative and support staff, which are primarily
fixed, over a greater fee revenue base.
General and administrative expenses. General and administrative
expenses increased $2.0 million, or 29.8%, to $8.7 million for fiscal 1998 from
$6.7 million for fiscal 1997. These changes were the result of additional
infrastructure costs related to business expansion, including increased
occupancy and IT expenses. As a percentage of fee revenue, general and
administrative expenses decreased to 14.0% for fiscal 1998 from 14.4% for
fiscal 1997.
Goodwill amortization. Goodwill amortization was $17,000 for fiscal
1998 compared to no amortization for fiscal 1997. This change was the result of
goodwill acquired in connection with two acquisitions during the fourth quarter
of fiscal 1998.
Operating income (loss). Operating income was $6.6 million for fiscal
1998, as compared to a loss of $176,000 for fiscal 1997. This change was
primarily the result of an increase in fee revenue and decreases in
compensation and benefits and general and administrative expenses as a
percentage of fee revenue.
Net interestOther income (expense). The CompanyLAI received net interest income of $197,000
for fiscal 1998, as compared to net interest expense incurred of $376,000 for
fiscal 1997. This change was a result of the CompanyLAI repaying all outstanding
indebtedness under its credit facilities with proceeds from the issuance of
Common Stock during its initial public offering, as well as investment earnings
from the remaining net proceeds.
Provision for income taxes.Income tax expense (benefit). The effective tax rate for fiscal 1998
of 43.0% varied from the statutory rate of 34.0% due to state and local income taxes and
becausethe non-deductibility of certain expenses, including a portion of meals,
entertainment and dues expense and premiums on keyperson life insurance
policies, are
non-deductible for income tax purposes.
FISCAL 1997 COMPARED WITH FISCAL 1996
Fee revenue. Fee revenue increased $11.3 million, or 32.3%, to $46.4
million for fiscal 1997 from $35.1 million for fiscal 1996. The increase in fee
revenue was primarily a result of an increase in the number of consultants and
an increase in the average fee revenue per consultant. At the end of fiscal
1997, the Company employed a total of 62 consultants, which represents a net
increase of 8 consultants since the beginning of fiscal 1997. The average fee
revenue per consultant employed for the entirety of the periods being compared
increased 4.8% to $740,000 in fiscal 1997 from $706,000 in fiscal 1996. The
average first year cash compensation of positions for which LAI conducted
searches increased by 15.3% to $226,000 in fiscal 1997 from $196,000 in fiscal
1996. During fiscal 1997, LAI opened two new offices, which generated
approximately $1.7 million of fee revenue.
Compensation and benefits. Compensation and benefits increased $9.2
million, or 30.1%, to $39.9 million for fiscal 1997 from $30.7 million for
fiscal 1996. The increase was primarily due to compensation and benefits
associated with the growth in the number of consultants and the increase in fee
revenue per consultant. As a percentage of fee revenue, compensation and
benefits decreased to 86.0% for fiscal 1997 from
17
18
87.5% for fiscal 1996 primarily due to spreading compensation and benefits for
LAI's administrative and support staff, which are primarily fixed, over a
greater fee revenue base.
General and administrative expenses. General and administrative expenses
increased $2.2 million, or 49.7%, to $6.7 million for fiscal 1997 from $4.5
million for fiscal 1996. As a percentage of fee revenue, general and
administrative expenses increased to 14.4% for fiscal 1997 from 12.7% for fiscal
1996. These increases were primarily due to increases in occupancy costs
associated with lease renewals at three of LAI's offices and the opening of two
new offices in Stamford, Connecticut and Boston, Massachusetts, as well as an
increase in marketing expenses to implement a program to enhance LAI's name
recognition.
Operating income (loss). Operating loss increased $104,000 to $176,000 for
fiscal 1997 from $72,000 for fiscal 1996, and as a percentage of fee revenue to
0.4% for fiscal 1997 from 0.2% for fiscal 1996. These increases were primarily
due to the increase in general and administrative expenses, partially offset by
lower compensation and benefits as a percentage of fee revenue.
Net interest income (expense). Net interest expense increased $336,000 to
$376,000 for fiscal 1997 from $40,000 for fiscal 1996. The increase constitutes
interest expense on indebtedness incurred to fund leasehold improvements at two
of LAI's offices, as well as interest on compensation deferred pursuant to the
Company's deferred compensation plan.
Provision for income taxes. The effective tax rate for fiscal 1997 of
(2.8)% varied from the statutory rate of 35.0% due to state and local income
taxes and because certain expenses, including a portion of meals, entertainment
and dues expense and premiums on keyperson life insurance policies, are
non-deductible for income tax purposes.policies.
UNAUDITED QUARTERLY RESULTS
The following table sets forth certain unaudited quarterly operating
information of the CompanyLAI for fiscal 19971998 and fiscal 1998.1999. This information has been
prepared on the same basis as the audited Consolidated Financial Statements
contained elsewhere in this Report and, in the opinion of management, includes
all adjustments, consisting solely of normal and recurring adjustments,
necessary for the fair presentation of the information for the periods
presented. The financial data shown below should be read in conjunction with
the Consolidated Financial Statements and Notes thereto. Results for any
previous fiscal quarter are not necessarily indicative of results for the full
year or for any future quarter.
QUARTER ENDED
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28, MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28,
1996 1996 1996 1997 1997 1997 1997 1998 -------- ---------- ------------ ------------ -------- ---------- ------------ ------------
(IN THOUSANDS)1998 1998 1998 1999
---- ---- ---- ---- ---- ---- ---- ----
Fee revenue, net..... $11,107 $11,506 $11,706 $12,118net $13,725 $16,773 $15,349 $15,956 $23,494 $24,179 $23,311 $15,827
Operating income (loss)............. 131 216 (200) (323) 1,377 1,745 1,701 1,787 2,253 2,298 780 (11,364)
Net income (loss).... (5) 8 (244) (326) 702 1,016 1,056 1,106 1,197 1,172 11 (6,618)
15
16
LIQUIDITY AND CAPITAL RESOURCES
The CompanyLAI relies primarily upon cash flows from operations and available
borrowings under its credit facilities to finance its operations. During fiscal
1996, 1997, 1998 and 1998,1999, cash flows fromprovided by (used in) operations were
$1.6 million, $(653,000)
and, $2.9 million and $(15.8) million, respectively. In fiscal 1999,
cash used in operations included a decrease in accrued compensation of
approximately $12.3 million not anticipated to recur in fiscal 2000. To provide
for additional liquidity, during fiscal
1998 the Company obtained a commitment letter forLAI maintains credit facilities providing for maximum
borrowings of $15.0 million. In May 1998, this commitment was
increased to $25.0 million. Borrowings under this facility will bear interest at
variable rates.
See Note 4 to Consolidated Financial Statements.
Capital expenditures totaled approximately $2.5 million, $1.8 million, $2.2 million
and $2.2$6.9 million for fiscal 1996, 1997, 1998 and 1998,1999, respectively. These
expenditures consisted primarily of purchases of office equipment, upgrades to
information systems and leasehold improvements. Investments in whole life
insurance policies intended to fund the Company'sLAI's deferred compensation plan were $779,000, $1.0
million, $2.1 and $2.1$2.0 million in fiscal 1996, 1997, 1998 and 1998,1999, respectively.
18
19Cash provided by financing activities was approximately $38.3 million
during fiscal 1999, including $41.4 million from the sale of Common Stock in
LAI's secondary offering. Cash provided by financing activities was
approximately $23.6 million during fiscal 1998, including $24.7$25.4 million from
the sale of Common Stock in the
Company'sLAI's initial public offering. During fiscal 1998
the CompanyLAI issued $8.8 million of subordinated debt in connection with the WHI and CPI
acquisitions. Cash provided by financing activities was approximately $2.7
million during fiscal 1997, which included $1.7 million of net borrowings under
a term loan and $926,000 in proceeds from sales of Common Stock (net of Common
Stock repurchases) to newly hired and promoted consultants as part of LAI's
strategy to increase the breadth of stock ownership among its consultants.
During fiscal
1996, cash provided by financing activities was approximately $416,000,
consisting primarily of proceeds from sales of Common Stock (net of Common Stock
repurchases) to newly hired and promoted consultants.
The CompanyLAI believes that funds from operations, its expanded credit
facilities and availability of equity capital will be sufficient to meet its
anticipated working capital, capital expenditure, debt repayment and general
corporate requirements on both a short-term and long-term basis.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130 requires that an enterprise (a)
classifyall items that are
required to be recognized under accounting standards as components of other
comprehensive income by their naturebe reported in a financial statement and (b) displaythat is displayed
with the accumulated balance ofsame prominence as other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position.statements. LAI has implemented
SFAS 130 is effective for financial statements for periods beginning after December 15, 1997. Management
believes the effect of adopting SFAS 130 would not have a material impact on the
accompanying consolidated financial statements.year ended February 28, 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131
requires that a
public business enterpriseestablishes standards for the way companies report financial and descriptive information about its reportable operating
segments. SFAS 131 is effective for fiscal years
beginning after December 15, 1997. Management has not yet determinedsegments including the effect
of adopting SFAS 131.
If February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure
about Pension and Other Post Retirement Benefits" ("SFAS 132"). SFAS 132 revises
employers'related disclosures about pension and other post retirement benefit plans.
SFAS 132 is effective for fiscal years beginning after December 15, 1997;
earlier application is encouraged. Managementthe different economic
environments in which it operates. LAI has implemented SFAS 132131 for the year
ended February 28, 1998.1999.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal UseUse" ("SOP 98-1"). SOP 98-1
provides guidance for capitalizing and expensing the costs of computer software
developed or obtained for internal use. SOP 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. LAI has
implemented SOP 98-1 for the year ended February 28, 1999.
16
17
In June 1998, The FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 established
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It requires that
entities recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. SFAS 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
1999. Management believes the effect of adopting SOP 98-1SFAS 133 would not have a
material impact on the accompanying consolidated financial statements.
YEAR 2000 COMPLIANCE
LAI has completed its assessment of its internal systems and believes
that the cost to ensure all internal systems are Year 2000 compliant and to
make necessary enhancements will not be material. LAI has also completed its
assessment of issues related to its third-party vendors' states of Year 2000
readiness and the potential impact, if any, of any lack of readiness on LAI's
operations. Based on its assessment, LAI does not expect to be materially
affected by any non-compliant third-party vendors. Nevertheless, LAI has
identified alternate vendors during its assessment. LAI believes that costs
associated with Year 2000 compliance will not have a material impact on LAI's
financial statements.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
The discussion above and other portions of this document contain some
forward-looking statements. Forward-looking statements also may be included in
other written and oral statements made or released by the CompanyLAI and its
representatives. You can identify forward-looking statements by the fact that
they do not relate strictly to historical or current facts. They may include
words such as "anticipate," "estimate," "expect," "project," "intend," "plan,"
"believe" and other words and terms of similar meaning. Forward-looking
statements describe our expectations today of what we believe is most likely to
occur or reasonably achievable in the future, but they do not predict or assure
any future occurrence and may turn out to be wrong. In particular, forward
looking statements in this document include those regarding the Company'sLAI's business
strategy and its growth and expansion plans and strategies. Forward-looking
statements are subject to both known and unknown risks and uncertainties and
can be affected by inaccurate assumptions the CompanyLAI might make. Consequently, no
forward-looking statement can be guaranteed. Actual future results may vary
19
20
materially. The CompanyLAI does not undertake any obligation to publicly update any
forward-looking statements to reflect new information or future events or
occurrences.
The CompanyLAI wishes to caution readers that, in addition to the business,
economic and legal factors that affect executive search firms generally, as
well as other important factors included elsewhere in this document, described
in other documents filed with the Securities and Exchange Commission or
otherwise publicly disclosed, the important factors discussed below could
affect the
Company'sLAI's actual results and could cause future events or circumstances to
differ materially from those expressed in any forward-looking statements made
by or on behalf of the Company.LAI. Other factors besides those discussed here could also
affect the Company'sLAI's actual results.
Dependence on Attracting and Retaining Qualified Executive Search
Consultants. LAI's success depends upon its ability to attract and retain
qualified executive search consultants who possess the skills and experience
necessary to fulfill its clients' executive search needs. Competition for
qualified consultants is intense and many firms in LAI's industry have
experienced high consultant turnover rates. There can be no assurance that LAI
will continue to be successful in identifying and hiring consultants with
substantial experience and established client relationships. The majority of
LAI's executive search consultants are not subject to any employment,
non
competitionnon-competition or similar agreement. LAI's consultant turnover in fiscal 1999
was higher than had been experienced in prior years. Any continuing impairment
17
18
of LAI's ability to retain existing or attract additional qualified consultants
could have a material adverse effect on LAI's business, financial condition and
results of operations.
Portability of Client Relationships. LAI's success depends upon the
ability of its executive search consultants to develop and maintain strong,
long-term relationships with its clients. When a consultant leaves one search
firm and joins another, clients that have established relationships with the
departing consultant may move their business to the consultant's new employer.
The failure to retain its most productive consultants or maintain the quality
of service to which its clients are accustomed, and the ability of a departing
consultant to move business to his or her new employer, could have a material
adverse effect on LAI's business, financial condition and results of
operations.
Growth Through Acquisitions. AProposed Acquisition by TMP. The Merger Agreement between LAI and TMP
restricts to some degree the manner in which LAI currently operates its
business. Since the execution of the Merger Agreement, LAI's senior management
has focused its efforts on taking those steps believed by management necessary
to successfully close the acquisition. In addition, the Merger Agreement's
terms require LAI to obtain TMP's approval before entering into certain
transactions. As a result, since mid-March, management has worked more to
preserve its current professional staff and existing client base rather than
promote growth of its professional staff or client roster. Prior to the
execution of the Merger Agreement, these had each been key componentelements of LAI's
growth strategyoperating strategy. LAI is obligated under the Merger Agreement to acquire executive search firms that expanduse its best
reasonable efforts to obtain the breadthapproval of its practice groupsstockholders and strategically extendto work
towards the Company's geographic presence, including
internationally. There cansuccessful consummation of the transactions contemplated by the
Merger Agreement. Despite LAI's best efforts, the acquisition might not be
no assurance thatapproved by LAI's stockholders or, even if approved by LAI's stockholders,
might not close for some other reason. If the acquisition fails to close,
regardless of the reason, LAI will continue to
successfully identify suitable acquisition candidates and complete acquisitions
on terms beneficial to the Company andcould be adversely affected as it refocuses its
stockholders.
Management of Growth. The Company currently is experiencing rapid growth
that could strain the Company's managerial, financial, administrativebusiness and operational resources. Toefforts on operating as an independent company. In
addition, the uncertainty in the marketplace regarding the completion of the
acquisition may adversely affect LAI's near term ability to attract, hire and
retain qualified search consultants and to compete effectively managefor search
assignments.
Difficulties in Managing Growth. During the three fiscal years ended
February 28, 1999, LAI has grown rapidly both in terms of the number of
consultants and the volume of its business. The number of consultants increased
principally as the result of new hires in fiscal 1997 and fiscal 1998. In
fiscal 1999, the number of consultants increased principally as the result of
two acquisitions effected in the fourth quarter of fiscal 1998. After
experiencing losses in its international operations in fiscal 1999, LAI
determined to significantly reduce the pace of its growth efforts and to
suspend its international expansion activities. The reduction in the Company mayrate of
growth could adversely affect LAI's ability to attract and retain qualified
search consultants or secure new search assignments from current or new
clients.
First Quarter Charge. In the fourth quarter of fiscal 1999, LAI
substantially curtailed its international operations, particularly in its
London office. Certain restructuring charges associated with these actions are
reflected in LAI's 1999 financial statements. In March 1999, after a second
review of the results of and prospects for international operations, LAI closed
its international offices. Restructuring charges for these closures will be
required to improve its internal operational processes and controls, expand its
technological andreflected in LAI's first quarter financial systems, assimilate divergent corporate cultures of
acquired executive search firms, eliminate or consolidate redundant
capabilities, and maintain the consistency and high quality of its services.
There can be no assurance that LAI can continue to successfully manage its
growth.statements.
Competition. The executive search industry is extremely competitive
and highly fragmented. There can be no assurance that LAI will be able to
continue to compete effectively with existing or potential competitors or that
significant clients or prospective clients of LAI will not decide to perform
search services using in-house personnel.
Blocking Arrangements. Executive search firms frequently agree to
refrain, for a specified period of time, from recruiting employees of a client
and possibly affiliates of such client, when conducting searches on behalf of
other clients (a "blocking" arrangement). As LAI's client base grows and as LAI
18
19
acquires additional executive search firms, blocking arrangements increasingly
may impede LAI's growth or its ability to attract and serve new clients, which
could have a material adverse effect on LAI's business, financial condition and
results of operations.
Risks of International Operations. LAI recently opened an office in
London, England and is pursuing further international expansion. LAI is subject
to certain risks that are inherent in conducting international business, such as
exposure to currency fluctuations, difficulties in integrating and standardizing
operational
20
21
procedures and corporate cultures, potentially adverse tax consequences,
difficulties in staffing and managing foreign operations and the burden of
complying with a wide variety of foreign laws and regulations. There can be no
assurance that one or more of such risks will not have a material adverse effect
on the Company's business, financial condition and
results of operations.
Reliance on Information Processing Systems. LAI's success depends in
large part upon its ability to gather, store, retrieve and process substantial
amounts of information. To achieve its operational goals and to remain
competitive, LAI believes that it must continue to automate its search
execution process and further improve its information processing system. If LAI
does not maintain an information processing system that provides the
capabilities necessary for LAI to compete effectively, LAI's business,
financial condition and results of operations could be materially adversely
affected.
Year 2000 Compliance Issues. LAI's situation regarding Year 2000
issues is discussed in "Management's Discussion and Analysis of Results of
Operations -- Year 2000 Compliance."
Development of LAI Compass.com. In April 1999, launched LAI
Compass.com ("Compass"), an Internet based selection and assessment system
principally serving positions in the $70,000 to $140,000 annual salary range.
LAI anticipates expending significant amounts of its financial and personnel
resources to fully implement Compass. LAI has not previously derived a
significant portion of its revenues or profits from search activities in the
selection salary range and LAI had no previous experience with Internet based
evaluation and assessment software of the type utilized by LAI Compass. The
Website and software have been developed in cooperation with a third party. LAI
may not be successful in developing and implementing Compass. For additional
information regarding LAI Compass, see "Business -- Services."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company will be required to include additional disclosures regarding
certain quantitative and qualitative information about market risk exposures
beginningLAI does not have any material exposure associated with the fiscal year ending February 28, 1999.activities in
derivative financial instruments, other financial instruments or derivative
commodity instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements, including Notes thereto and certain reports on
portions thereof by independent certified public accountants (collectively,
"Financial Statements"), are included in this Report beginning on Page 2438 and
are incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
NoneNone.
19
20
PART III
The information called for by Item 10 through 13, below, of this Report has
been omitted in accordance with the General Instructions to Form 10-K
promulgated by the Securities and Exchange Commission (the "Commission"). The
Registrant will file with the Commission in June 1998, pursuant to Regulation
14A, a definitive proxy statement relating to the Registrant's Annual Meeting of
Stockholders on July 7, 1998 (the "Proxy Statement"), to elect directors,
approve the Registrant's 1998 Omnibus Stock and Incentive Plan and ratify the
appointment of Arthur Andersen LLP as the Registrant's firm of independent
certified public accountants for the fiscal year ending February 28, 1999. The
information required by these Items will be included in the Proxy Statement and
is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
InformationEXECUTIVE OFFICERS
The following table sets forth certain information regarding LAI's executive
officers.
NAME AGE POSITIONS
- ---- --- ---------
Robert L. Pearson 60 Chairman of the Board of Directors and
Chief Executive Officer
Patrick J. McDonnell 55 President and Chief Operating Officer, Director
Philip R. Albright 29 Vice President and Chief Financial Officer
Richard L. Baird 42 Corporate Vice President and President LAI Compass, Inc.
DIRECTORS
The following table sets forth certain information regarding LAI's directors.
NAME AGE POSITIONS
- ---- --- ---------
Robert L. Pearson (2) 60 Chairman of the Board of Directors and
Chief Executive Officer
Patrick J. McDonnell (3) 55 President and Chief Operating Officer, Director
Joe D. Goodwin (3) 53 Executive Vice President, Director
Roderick C. Gow (1) 51 Executive Vice President, Director
John F. Johnson (2) 57 Senior Chairman of the Board of Directors
Neal L. Maslan (3) 58 Senior Partner, Director
John S. Rothschild (1) 46 Executive Vice President, Director
Ray J. Groves (2) 63 Director
Richard W. Pogue (1) 71 Director
John C. Pope (3) 50 Director
- -----------------------
(1) Term expires in 1999.
(2) Term expires in 2000.
(3) Term expires in 2001.
LAI's directors are divided into three classes elected for three-year
terms, which are staggered so that the term of one class of directors expires
each year.
Robert L. Pearson joined LAI in 1984 and was named Chairman of the
Board of Directors in 1998 in addition to behis duties as Chief Executive
Officer. Mr. Pearson served as President and Chief Executive Officer and as a
Director of LAI from 1995 until 1998. Prior to joining LAI, Mr. Pearson
20
21
served as Executive Director with Russell Reynolds Associates, Inc. from 1982
until 1984. He owned and was President of Pearson, Inc., an equipment
manufacturing company, from 1971 until 1982; was Vice President, Corporate
Finance, of R. J. Financial Corporation, a financial services holding company,
from 1968 until 1970; and was an engagement manager and management consultant
with McKinsey & Company, Inc. from 1964 until 1968. Mr. Pearson holds an M.S.
in Industrial Management from Massachusetts Institute of Technology and a
B.S.E.E. from Michigan State University.
Patrick J. McDonnell joined LAI in 1998 as President and Chief
Operating Officer. Previously, Mr. McDonnell was the Global Assurance Leader at
PricewaterhouseCoopers since it was created through the merger of Price
Waterhouse and Coopers & Lybrand in 1997. Before that he had spent nearly three
decades with Coopers & Lybrand where, since 1993, he was Vice Chairman,
Business Assurance. Previous positions with Coopers & Lybrand included Vice
Chairman for the firm's Midwest region, Vice Chairman for client service and
relationship management, Chairman of the firm's international accounting and
audit board, Managing Partner for the firm's Hartford, CT and Chicago, IL
offices, and Engagement Partner for a variety of worldwide clients. Mr.
McDonnell holds a Master's Degree in Business Administration from the
University of Michigan and a Bachelor's Degree in Business from the University
of Notre Dame.
Philip R. Albright joined LAI in 1997 and was appointed Chief
Financial Officer in 1999. Mr. Albright was named LAI's Vice President-Finance
and Chief Accounting Officer in 1998. He joined LAI as Controller. Mr.
Albright, a certified public accountant, was employed by Arthur Andersen LLP
from 1992 until 1997. He holds a M.Acc. and a B.S.Acc. from the University of
Florida.
Richard L. Baird joined LAI in 1998 as corporate Vice President and
President of LAI Compass, Inc., a wholly owned subsidiary of LAI Worldwide.
Prior to joining LAI, Mr. Baird was Operations Leader-Americas, for Audit and
Business Advisory Services at PricewaterhouseCoopers. Before that, he spent 17
years with Coopers & Lybrand where, since 1993, he was Human Resources Partner,
National Business Assurance, responsible for providing human resources and
operational support. Mr. Baird received his Bachelor of Arts degree from Albion
College.
Joe D. Goodwin joined LAI in 1991, and was named Executive Vice
President and Regional Managing Partner of LAI's Southeast Region in 1998. Mr.
Goodwin has been a Director since July 1997 and served as Managing Partner of
LAI's Atlanta and Tampa offices from 1992 until 1998. Mr. Goodwin held various
positions, including Partner and Managing Director, with Spencer Stuart &
Associates from 1982 until 1991. Mr. Goodwin also held various executive
positions with McKinnis & Goodwin, an executive search firm, from 1979 until
1982; with Burger King Corporation from 1978 until 1979; and with Xerox
Corporation from 1969 until 1978. Mr. Goodwin holds a B.S. in Commerce and
Business Administration from the University of Alabama.
Roderick C. Gow joined LAI in 1995, and was named Executive Vice
President and Regional Managing Partner of LAI's Northeast Region in 1998. Mr.
Gow has been a Director since July 1997 and served as Managing Partner of LAI's
New York office from 1995 until 1998. Mr. Gow held various positions, including
Managing Director, with Russell Reynolds Associates, Inc., an executive search
firm, from 1983 until 1991 and then again from 1994 until 1995. Mr. Gow was
Chief Executive Officer of GKR Group, an executive search firm based in the
Proxy StatementUnited Kingdom, from 1991 until 1994; was Vice President with Barclays Bank Plc
from 1978 until 1983; and prior to that time served with the British Army. Mr.
Gow holds an M.A. and a B.A. from Trinity College, Cambridge University.
John F. Johnson joined LAI in 1976 and was named Senior Chairman of
the Board of Directors in 1998. Mr. Johnson served as Chairman of the Board
from 1995 until 1998. He previously served as Executive Vice President and
President and Chief Executive Officer of LAI, as well as Chairman of
21
22
Amrop International. Mr. Johnson held various positions, including Manager of
Organization and Manpower, with General Electric Company from 1967 until 1976;
and Industrial Relations Analyst with Ford Motor Company from 1964 until 1967.
Mr. Johnson holds an M.B.A. from Columbia University and a B.A. in Economics
from Tufts University.
Neal L. Maslan joined LAI in February 1998 in connection with the
acquisition by LAI of Ward Howell International, Inc. ("WHI"). Mr. Maslan was
elected a Director of LAI in September 1998 and has served as a Senior Partner
and Leader of the Health Care and Pharmaceuticals Practice Group since joining
LAI. Mr. Maslan was an executive search consultant with WHI specializing in
senior-level health care search from 1988 until 1998. Previously, Mr. Maslan
was Vice President of Paul R. Ray & Company: Senior Vice President of American
Medical International, Inc.; Executive Vice President of Hyatt Corporation and
Executive Vice President of Cenco Hospital and Convalescent Homes Corporation.
Mr. Maslan earned a Master's degree from Yale University and a Bachelor's
degree from the University of Virginia.
John S. Rothschild joined LAI in 1996, and was named Executive Vice
President and Leader of the Technology Practice Group in 1998. Mr. Rothschild
has been a Director since July 1997 and Managing Partner of LAI's Chicago
office since 1996. Mr. Rothschild held various positions, including Partner and
Director, with Heidrick & Struggles, Inc., an executive search firm, from 1989
until 1996. Mr. Rothschild held positions, including National Director, Human
Resources and Director, Human Resources Consulting Practice, with Grant
Thornton from 1981 until 1989. He served in various executive positions with
American Hospital Supply Corporation from 1978 until 1981; and with GATX
Corporation from 1975 until 1978. Mr. Rothschild holds an M.S. in Industrial
Relations from Loyola University and a B.A. in Political Science from Lake
Forest College.
Ray J. Groves has been a Director since July 1997. Mr. Groves served
as Chairman and Chief Executive Officer of Ernst & Young, an international
accounting and financial consulting firm, for 17 years prior to his retirement
in 1994. Mr. Groves also serves as Chairman of Legg Mason Merchant Banking,
Inc., and as a Director of Allegheny Teledyne, Incorporated, American Water
Works Company, Inc., Consolidated Natural Gas Company, Electronic Data Systems
Corporation, Marsh & McLennan Companies, Inc. and RJR Nabisco, Inc. Mr. Groves
holds a B.S. from The Ohio State University.
Richard W. Pogue served as an advisor to LAI's Board of Directors from
1995 until he became a Director in July 1997. Mr. Pogue has served as Senior
Advisor to Dix & Eaton, a public relations firm, since 1994. Mr. Pogue held
various positions with the law firm of Jones, Day, Reavis & Pogue, from 1957
until retiring from his position as Senior Partner in 1994. Mr. Pogue also
serves as a Director of Derlan Industries Ltd., Continental Airlines, Inc., IT
Group, M.A. Hanna Company, Rotek Incorporated, KeyCorp and TRW Inc. Mr. Pogue
holds a Law degree from the University of Michigan and a Bachelor's degree from
Cornell University.
John C. Pope served as an advisor to LAI's Board of Directors from
1995 until he became a Director in July 1997. Mr. Pope held various positions,
including President and Chief Operating Officer, of UAL Corporation, owner of
United Airlines, from 1988 until his retirement in 1994. Prior to that time Mr.
Pope spent 11 years with AMR Corporation in various financial capacities,
including Chief Financial Officer. Mr. Pope also serves as Chairman of the
Board of Directors of MotivePower Industries, Incorporated and as a Director of
Federal Mogul Corporation, Medaphis Corporation, Wallace Computer Services,
Inc., Waste Management, Inc. and Dollar Thrifty Automotive Group, Inc. He holds
an M.B.A from Harvard Business School and a Bachelor's degree from Yale
University.
22
23
COMMITTEES OF THE BOARD OF DIRECTORS
LAI's Board of Directors has the following standing committees:
Compensation and Management Development Committee. The Compensation
and Management Development Committee (the "Compensation Committee") is
responsible for establishing and recommending to the Board of Directors LAI's
compensation philosophy, including general compensation, severance and change
in control arrangements for consultants, Managing Partners, Practice Group
Leaders and executive officers. The Compensation Committee also establishes and
recommends to the Board of Directors LAI's stock option philosophy, including
granting of awards under all equity-based incentive plans and recommendations
for adoption of new plans. The Compensation Committee sets executive officer
compensation, including annual reviews, and negotiates and approves all
executive officer employment agreements. The Compensation Committee reviews all
existing compensation plans and programs and all amendments thereto, and
recommends the adoption of any new plans. In addition, the Compensation
Committee reviews and coordinates with the full Board of Directors LAI's senior
leadership structure and helps to identify personnel for the next generation of
LAI's leadership. The Compensation Committee's three members are Messrs.
Groves, Pogue and Pope (Chairman), all of whom are "Non-Employee Directors," as
defined under the heading
"Management"Securities Exchange Act of 1934.
Audit Committee. The Audit Committee is hereby incorporatedresponsible for reviewing with
management the financial controls, accounting and audit and reporting
activities of LAI. The Audit Committee annually recommends to the Board of
Directors LAI's independent auditors, meets with the independent auditors
before and after the annual audit to review the results of the audit and the
performance of management in implementing the auditors' recommendations,
reviews significant changes in accounting practices and LAI's implementation of
new accounting rules and evaluates annual audit fees. In addition, the Audit
Committee reviews each Annual Report on Form 10-K, including a review of LAI's
financial statements and the related management's discussion and analysis of
financial condition and results of operations. The Audit Committee's three
members are Messrs. Groves (Chairman), Pogue and Pope, all of whom are
Non-Employee Directors.
Nominating and Corporate Governance Committee. The Nominating and
Corporate Governance Committee is responsible for recommending to the Board of
Directors management's nominees for election to the Board of Directors. This
Committee establishes criteria for qualification and selection of directors,
establishes Board Committees by referencefunction, size and responsibilities and
recommends the same to the Board of Directors for adoption and membership
determination, and coordinates responses to stockholder proposals in
conjunction with management and counsel. The Nominating and Corporate
Governance Committee's four members are Messrs. Johnson, Pearson, Pogue and
Pope.
Executive Committee. The Executive Committee has been granted
authority, subject to the limitations specified in the Florida Business
Corporation Act, to act in the place and stead of the full Board of Directors,
including when it is inconvenient or impossible to convene a meeting of the
full Board or when specific tasks have been assigned to the Executive
Committee. The Executive Committee's four members are Messrs. Johnson, Pearson,
Pogue and Pope.
23
24
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to LAI's initial public offering, the Board of Directors did not
have a Compensation Committee and the functions of the Compensation Committee
previously had been performed by the entire Board of Directors. Since
completion of the Initial Public Offering in July 1997, the Compensation
Committee's three members have been Messrs. Groves, Pogue and Pope (Chairman),
all of whom are Non-Employee Directors. See -"Committees of the Board of
Directors -- Compensation and Management Development Committee."
DIRECTOR COMPENSATION
Non-Employee Directors receive $1,000 for each meeting of the Board of
Directors attended and $1,000 for each meeting of a committee of the Board of
Directors attended. Non-Employee Directors who serve as Chairman of a committee
of the Board of Directors receive an additional $500 for each meeting chaired.
In addition, Non-Employee Directors receive an annual retainer fee of $12,000,
paid quarterly. Non-Employee Directors may make an annual election to defer
receipt of all or a portion of the retainer and meeting fees and to have such
deferral credited in the form of either cash or "units," the value of which is
based on the value of LAI's Common Stock, in accordance with LAI's Directors'
Deferral Plan (the "Directors' Deferral Plan"). Directors who opt for the stock
unit alternative receive a 25% premium in initial value. Fees deferred under
the cash deferral alternative earn interest as determined under the Directors'
Deferral Plan. Directors also are reimbursed for reasonable travel expenses to
and from meetings of the Board of Directors and committees. Directors who are
employees of LAI do not receive compensation for serving as Directors.
LAI grants to each Non-Employee Director, upon initial appointment to
the Board of Directors, a stock option to purchase 5,000 shares of Common Stock
pursuant to LAI's Non-Employee Directors' Stock Plan (the "Directors' Stock
Plan"). In addition, as of the date of each annual meeting of LAI's
stockholders, LAI grants to each Non-Employee Director who is then reelected or
who is continuing as a member of the Board of Directors a stock option to
purchase 5,000 shares of Common Stock. The exercise price of each such stock
option is equal to the closing price of Common Stock on the date the stock
option is granted. Stock options issued under the Directors' Stock Plan
generally vest fully on the first anniversary of the date of grant and expire
after ten years. Stock options to purchase an aggregate of up to 30,000 shares
of Common Stock are outstanding under the Directors' Stock Plan, and an
aggregate of 80,000 shares of Common Stock (including the shares covered by
such outstanding stock options) are reserved for issuance under the Directors'
Stock Plan.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Several option grants and other transactions, exclusively pursuant to
LAI's previously disclosed stock-based incentive and benefit arrangements and
not involving any market transactions, were not timely reported as required
under Section 16(a) of the Securities Exchange Act, including one form by each
of the following directors and officers relating to the indicated above.number of
transactions: Messrs. Baird, Maslan and McDonnell, one transaction, and also
Mr. Baird's initial report upon becoming an officer; Messrs. Groves, Pogue and
Pope, two transactions; Messrs. Goodwin, Gow, Johnson, Pearson and Rothschild,
three transactions; Mr. Albright, four transactions. See "Executive
Compensation -- Summary Compensation Table," "Executive Compensation -- Option
Grants Table" and -- Director Compensation."
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation for fiscal 1997, 1998 and 1999 of LAI's executive officers during
such periods (the "Named Executive Officers," as defined under applicable
Securities and Exchange Commission rules).
24
25
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
----------------------------
AWARDS
----------------------------
ANNUAL COMPENSATION SHARES OF
FISCAL --------------------------------------- RESTRICTED COMMON STOCK
------ OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) AWARDS($) OPTIONS(#) COMPENSATION( )
- --------------------------- ---- ------ ------- --------------- -------- -------------- ---------------
Robert L. Pearson 1999 $525,000 $ -- $ 9,235 $ -- 67,900 (4) $ --
Chief Executive Officer 1998 525,000 420,240 8,526 364,189 (5) 97,000 (6) 12,800
1997 250,000 902,238 8,465 -- -- 22,500
Patrick J. McDonnell 1999 208,333 535,417 (7) -- -- 200,000 --
President and Chief
Operating Officer
Philip R. Albright 1999 138,077 35,000 2,840 -- 42,000 (8) --
Chief Financial Officer
Richard L. Baird 1999 93,461 100,000 (9) -- -- 100,000 --
President of
LAI Compass, Inc.
John S. Rothschild (10) 1999 150,000 496,000 24,383 -- 17,500 (11) --
Executive Vice President
Joe D. Goodwin (10) 1999 150,000 411,360 26,262 -- 24,500 (11) --
Executive Vice President
- ---------------
(1) Consists of performance-based bonuses based upon individual
achievement and LAI financial performance for the indicated fiscal
years.
(2) Consists of above-market interest on deferred compensation, fees for
professional tax services, payments for participation in certain
management team meetings, payments for unused sick time and life
insurance premiums.
(3) Consists of contributions made by LAI to its Profit Sharing Plan.
See -- "Incentive and Benefit Plans."
(4) These options were issued pursuant to LAI's Option Exchange Program
approved by the Compensation Committee of the Board of Directors on
October 8, 1998. Mr. Pearson exchanged all of his eligible outstanding
options for new options at an exercise price exceeding the market
price on the date of grant at a ratio of 70 new shares for every 100
shares exchanged. Of the new options granted, 10,500 are subject to a
new three-year cliff vesting schedule. The remaining 57,400 options
retain the original six year vesting schedule or price performance
criteria. See Note 8 to the accompanying Consolidated Financial
Statements for more information on the Option Exchange Program.
(5) On April 15, 1998, LAI granted Mr. Pearson 16,939 shares of restricted
Common Stock in lieu of a portion of the compensation he earned in
fiscal 1998. Such shares vest 25% over the four years after the grant
date and may be subject to forfeiture upon termination of his
employment under certain circumstances.
(6) These options were exchanged pursuant to the Option Exchange Program.
See footnote 4.
(7) Consists of sign on bonus of $525,000 and pro rata installments of a
$25,000 bonus paid pursuant to the terms of Mr. McDonnell's employment
agreement. See - "Executive Employment Arrangements."
(8) Of this amount, 7,000 options were issued pursuant to LAI's Option
Exchange Program approved by the Compensation Committee of the Board
of Directors on October 8, 1998. Mr. Albright exchanged his eligible
outstanding options which had been granted originally in April 1998
for new options at an exercise price exceeding the market price on the
date of grant at a ratio of 70 new shares for every 100 shares
exchanged and subject to a new three year cliff vesting schedule. See
Note 8 to the accompanying Consolidated Financial Statements for more
information on the Option Exchange Program.
(9) Consists of sign on benefit paid pursuant to the terms of Mr. Baird's
employment agreement. See "Executive Employment Arrangements."
(10) Currently and at February 28, 1999, LAI's executive officers (within
the meaning of Securities and Exchange Commission Rule 3b7 under the
Securities Act of 1934) consisted of Messrs. Pearson, McDonnell,
Albright and Baird. Messrs. Rothschild and Goodwin were not executive
officers at February 28, 1999. Information regarding compensation of
Messrs. Rothschild and Goodwin is included as required by Section
402(a)(3)(iii) of Securities and Exchange Commission Regulation S-K.
(11) These options were issued pursuant to LAI's Option Exchange Program
approved by the Compensation Committee of the Board of Directors on
October 8, 1998. The individuals exchanged all their eligible
outstanding options, including options which had been granted
originally in July 1998, for new options at an exercise price
exceeding the market price on the date of grant at a ratio of 70 new
shares for every 100 shares exchanged and subject to a new three year
cliff vesting schedule. See Note 8 to the accompanying Consolidated
Financial Statements for more information on the Option Exchange
Program.
25
26
OPTION GRANTS TABLE
The following table shows information concerning outstanding stock
options granted during fiscal 1999 for the Named Executive Officers.
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR(1) ($/SH) DATE 5%($) 10%($)
- ----- ------- ------------ ------ ---- ----- ------
Robert L. Pearson 10,500 (2) .92% $ 10.00 10/8/2008 $ 10,448 $ 78,831
57,400 (2) 5.06% 10.00 7/29/2007 57,115 430,946
Patrick J. McDonnell 200,000 17.62% 5.625 10/7/2008 707,506 1,792,960
Philip R. Albright (3) 5,000 0.44% 5.625 10/7/2008 17,688 44,824
7,000 (2) 0.62% 10.00 10/8/2008 6,965 52,554
30,000 2.64% 6.25 2/1/2009 117,918 298,827
Richard L. Baird 100,000 8.81% 8.939 11/9/2008 562,106 1,424,487
John S. Rothschild (4) 17,500 (2) 1.54% 10.00 10/8/2008 17,413 131,386
Joe D. Goodwin (4) 24,500 (2) 2.16% 10.00 10/8/2008 24,378 183,940
- ---------------
(1) Options originally granted in fiscal 1999 which were exchanged
pursuant to LAI's Option Exchange Program during fiscal 1999 are
excluded from the total options granted to employees for purposes of
this calculation.
(2) These options were issued pursuant to LAI's Option Exchange Program
approved by the Compensation Committee of the Board of Directors on
October 8, 1998. The individuals exchanged all or a portion of
eligible outstanding options for new options at an exercise price
exceeding the market price on date of grant at a ratio of 70 new
shares for every 100 shares exchanged. See footnotes 4, 7 and 10 to
"Summary Compensation Table" above and Note 8 to the accompanying
Consolidated Financial Statements for more information on the Option
Exchange Program.
(3) Excludes 10,000 options granted on April 15, 1998, at an exercise
price of $21.50 which were exchanged pursuant to the Option Exchange
Program on October 8, 1998.
(4) Excludes 25,000 options granted on July 7, 1998, at an exercise price
of $18.25 which were exchanged pursuant to the Option Exchange Program
on October 8, 1998.
OPTION EXERCISES AND YEAR-END VALUE TABLE
No stock options were exercised by any of LAI's directors or executive
officers during fiscal 1999. The following table shows information concerning
values as of the end of fiscal 1999 of stock options to purchase shares of
Common Stock held by each Named Executive Officer.
NUMBER OF VALUE OF IN-THE-MONEY
OPTIONS EXERCISABLE/ OPTIONS EXERCISABLE/
NAME UNEXERCISABLE (#) UNEXERCISABLE ($) (1)
- ---------------------- ---------------------- ----------------------
Robert L. Pearson -0-/ 67,900 -0-/ $ -0-
Patrick J. McDonnell -0-/ 200,000 -0-/ 350,000
Philip R. Albright 2,500/ 49,500 -0-/ 42,500
Richard L. Baird -0-/ 100,000 -0-/ -0-
John S. Rothschild -0-/ 17,500 -0-/ -0-
Joe D. Goodwin -0-/ 24,500 -0-/ -0-
- ---------------
(1) No value has been ascribed to exercisable or unexercisable options
outstanding for which the exercise price exceeds the closing price of
LAI's stock on February 26, 1999.
26
27
INCENTIVE AND BENEFIT PLANS
1997 and 1998 Omnibus Stock and Incentive Plans. LAI has two stock
option and incentive plans, the 1997 Omnibus Stock and Incentive Plan (the
"1997 Employee Stock Plan") and the 1998 Omnibus Stock and Incentive Plan (the
"1998 Employee Stock Plan" and, collectively, the "Employee Stock Plans").
Under the Employee Stock Plans, incentive stock options, nonqualified stock
options, stock appreciation rights, performance units, performance shares,
restricted stock, restricted stock units and stock not subject to restrictions
may be granted from time to time upon hiring of new personnel, as incentive
compensation or to reward employees for outstanding performance; however, such
incentives are not routinely granted as part of annual consultant compensation,
which continues to be includedpredominantly cash-based. The Compensation Committee
administers the Employee Stock Plans and determines all awards granted
thereunder. The exercise price of a stock option granted may be less than the
market price of Common Stock on the date of grant. Generally, incentive stock
options, nonqualified stock options, restricted stock and restricted stock
units vest each year beginning on the first anniversary of the date of grant at
20-25% per year and expire after 10 years. The Compensation Committee may
condition awards upon satisfaction of performance targets. Up to 950,000 shares
of Common Stock may be issued under the 1997 Employee Stock Plan, including, as
of April 30, 1999, up to 666,215 shares upon exercise of stock options already
granted and outstanding under the 1997 Employee Stock Plan. Up to 1,500,000
shares of Common Stock may be issued under the 1998 Employee Stock Plan,
including, as of April 30, 1999, 160,173 shares of Common Stock already issued
and outstanding as restricted stock awards and up to 872,673 additional shares
upon exercise of stock options already granted and outstanding under the 1998
Employee Stock Plan.
Profit Sharing Plan. LAI maintains a profit sharing plan (the "Profit
Sharing Plan"), a defined contribution plan established pursuant to and under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Each year, the Board of Directors determines the amount that LAI will
contribute to the Profit Sharing Plan for that plan year. Such contributions
are allocated to participants' accounts in proportion to their total
compensation, subject to limitations imposed by the Code. During the second
quarter of fiscal 1999, the Profit Sharing Plan was amended to include a cash
or deferred arrangement feature that qualifies for deferred tax treatment under
Section 401(k) of the Code, pursuant to which participants may make elective
contributions of up to 15% of their compensation, as defined in the Proxy StatementProfit
Sharing Plan. Each year, the Board of Directors will determine the amount that
LAI will contribute to the Profit Sharing Plan as a matching contribution on
participants' elective contributions. Participants' elective contributions will
be 100% vested at all times, while LAI's contributions will vest 25% per year
after completion of one year of service. Participants may elect among several
investment vehicles selected by the plan administrator as to how their accounts
under the headings
"Management,Profit Sharing Plan will be invested, including LAI's Common Stock.
Deferred Compensation Plan. LAI maintains a deferred compensation plan
(the "Deferred Compensation Plan") for its executive employees. The Board of
Directors or a Committee appointed by the Board determines the persons eligible
to participate in the Deferred Compensation Plan, although historically all
consultants have been eligible to participate. Under the terms of the Deferred
Compensation Plan, eligible participants may elect, on a calendar year basis,
to defer a specified amount or percentage of their compensation for payment at
a specified future date or upon termination of employment with or retirement
from LAI, as directed by each participant. Effective January 1, 1999, the
Deferred Compensation Plan was amended to prohibit further deferrals of
compensation. LAI pays interest on amounts deferred under the Deferred
Compensation Plan at a rate, currently 6.25% per annum, established each year
by the Board of Directors in its discretion. Participants are fully vested in
their accounts. LAI does not match employee contributions to the Deferred
Compensation Plan. See Note 7 to the accompanying Consolidated Financial
Statements.
27
28
1997 Employee Stock Purchase Plan. LAI maintains the 1997 Employee
Stock Purchase Plan (the "ESPP"). Under the ESPP, which is intended to qualify
under the provisions of Section 423 of the Code, eligible employees are given
the right to purchase shares of Common Stock generally two times a year. The
per share purchase price under the ESPP is 85% of the market price of the
Common Stock immediately prior to the first day of each exercise period or,
during the first exercise period, 85% of the lesser of the market price
immediately prior to the first day of such exercise period or the market price
at the close of such period. During each exercise period, an eligible employee
will be entitled to purchase up to that number of shares of Common Stock the
aggregate purchase price of which under the ESPP does not exceed 3% of the
employee's annual compensation. As of February 28, 1999, an aggregate of
200,000 shares of Common Stock has been reserved for issuance under the ESPP,
of which 42,586 shares have been issued. Shares issued under the ESPP may be
newly issued shares or shares purchased by LAI in the open market. The second
purchase window for calendar year 1999 will be suspended due to the merger
agreement with TMP. See "Business-Merger Agreement with TMP Worldwide, Inc."
"CompensationEXECUTIVE EMPLOYMENT ARRANGEMENTS
LAI has entered into employment agreements with each of the persons
currently serving as executive officers, Messrs. Pearson, McDonnell, Baird and
Albright.
Robert L. Pearson. LAI and Mr. Pearson entered into his employment
agreement in 1997, engaging Mr. Pearson to act as LAI's Chief Executive
Officer. The current term of Mr. Pearson's agreement expires February 28, 2002;
however, the agreement provides that, on the last day of each February, the
term of Mr. Pearson's employment shall be extended for an additional one year
period, such that the remaining term of the agreement is restored annually to
three years, unless either LAI or Mr. Pearson gives notice not less than 90
days prior to any extension date of an intention not to extend. Under his
employment agreement, Mr. Pearson is entitled to receive an annual base salary
of not less than $525,000, and is eligible to earn annual incentive bonuses
based upon such plans and criteria as may be established from time to time by
the Compensation Committee. Under the plan currently in effect, Mr. Pearson is
eligible to earn a target bonus equal to 80% of his base salary and a maximum
bonus equal to 160% of his base salary.
Mr. Pearson may terminate his employment agreement upon 90 days prior
written notice. Mr. Pearson is entitled to receive certain severance benefits
if his employment is terminated by LAI "without good cause" or by Mr. Pearson
following a "change of control" (each as defined in the employment agreement).
In the event of termination "without good cause," Mr. Pearson will receive his
base salary for the remainder of the unexpired term of the employment agreement
(not to exceed 36 months) or 24 months, whichever is greater, and an amount
equal to not less than the target bonus for the year of termination multiplied
by the number of years and fractions thereof in the unexpired term of the
agreement or, if greater, two. Mr. Pearson may terminate the agreement during
the 60 day period commencing six months after a "change of control," whereupon
he would be entitled to receive a lump sum payment equal to three times his
annual base salary plus an amount not less than three times the target bonus
for the year of termination. The agreement requires LAI to use its good faith
efforts, during the term, to nominate Mr. Pearson to LAI's Board of Directors.
Mr. Pearson has agreed to not compete with LAI during the term of his
employment and, if his employment is terminated by LAI without good cause or
following a change of control, for so long as he continues to receive payments
under the agreement.
28
29
In addition, upon any termination of Mr. Pearson's employment "without
good cause" or following a "change of control," all vesting or performance
requirements with respect to any stock options or other similar equity-based
compensation awards shall be deemed to have been satisfied. With respect to any
payments under his employment agreement upon death, disability, or termination
"without good cause" or following a "change of control", Mr. Pearson would
receive additional cash payments in an amount necessary to pay any federal
excise taxes. Mr. Pearson's employment agreement is also subject to voluntary
termination by Mr. Pearson or termination by LAI "for cause."
Patrick J. McDonnell. LAI and Mr. McDonnell entered into his
employment agreement in September 1998, engaging Mr. McDonnell as LAI's Chief
Operating Officer. The current term of Mr. McDonnell's agreement expires
September 14, 2001; however, the agreement provides that, on September 15, 2001
(and each succeeding September 15th), the term of Mr. McDonnell's employment
shall be extended for an additional one year period, such that the remaining
term of the agreement is then two years, unless either LAI or Mr. McDonnell
gives notice not less than 90 days prior to any extension date of an intention
not to extend. Under his employment agreement, Mr. McDonnell is entitled to
receive an annual base salary of not less than $500,000, and is eligible to
earn annual incentive bonuses based upon such plans and criteria as may be
established from time to time by the Compensation Committee. Under the plan
currently in effect, Mr. McDonnell is eligible to earn a target bonus equal to
65% of his base salary and a maximum bonus equal to 120% of his base salary.
The agreement requires LAI to pay a $25,000 bonus to Mr. McDonnell in equal pro
rata installments during the first year of his employment.
Mr. McDonnell may terminate his employment agreement upon 90 days
prior written notice. Mr. McDonnell is entitled to receive certain severance
benefits if his employment is terminated by LAI "without good cause" or by Mr.
McDonnell following a "change of control" (each as defined in the employment
agreement). In the event of termination "without good cause," Mr. McDonnell
will receive his base salary for two years after termination and an amount
payable over the two years equal to two times the target bonus for the year of
termination. Mr. McDonnell may terminate the agreement during the 60 day period
commencing six months after a "change of control," whereupon he would be
entitled to receive a lump sum payment equal to two times his annual base
salary plus an amount not less than two times the target bonus for the year of
termination. Mr. McDonnell has agreed to not compete with LAI during the term
of his employment and, if his employment is terminated by LAI without good
cause or following a change of control, for so long as he continues to receive
payments under the agreement.
In connection with the negotiation of his employment agreement, the
Compensation Committee Report"awarded Mr. McDonnell stock options to purchase 200,000
shares of LAI Common Stock with an initial exercise price of $5.625 per share.
LAI also paid Mr. McDonnell a cash sign on bonus of $525,000. If before
September 15, 2001 Mr. McDonnell voluntarily terminates his employment or LAI
terminates his employment for "good cause," Mr. McDonnell must repay part or
all of the sign on bonus, as follows: (1) if termination is between September
15, 1998 and "Stock Performance Graph"September 14, 1999, 100% of the sign on bonus; (2) if termination
is hereby incorporatedbetween September 15, 1999 and September 15, 2000, 66 2/3% of the sign on
bonus and (3) if termination is between September 15, 2000 and September 14,
2001, 33 1/3% of the sign on bonus. In addition, under the employment
agreement, LAI is required to provide Mr. McDonnell with a $1 million life
insurance policy.
In addition, upon any termination of Mr. McDonnell's employment
"without good cause" or following a "change of control," all vesting or
performance requirements with respect to any stock options or other similar
equity-based compensation awards shall be deemed to have been satisfied. With
respect to any payments under his employment agreement upon death, disability,
or termination "without good cause" or following a "change of control", Mr.
McDonnell would receive additional cash payments in an amount necessary to pay
any federal excise taxes. Mr. McDonnell's employment agreement is also subject
to voluntary termination by referenceMr. McDonnell or termination by LAI "for cause."
29
30
Philip R. Albright. LAI and Mr. Albright entered into his employment
agreement effective February 1, 1999, engaging Mr. Albright as indicated above.LAI's Chief
Financial Officer. The agreement provides for an at will employment
relationship. Under his employment agreement, Mr. Albright is entitled to
receive an annual base salary of not less than $175,000, and is eligible to
earn annual incentive bonuses based upon such plans and criteria as may be
established from time to time by the Compensation Committee. Under the plan
currently in effect, Mr. Albright is eligible to earn a target bonus equal to
65% of his base salary and a maximum bonus equal to 120% of his base salary.
The agreement required LAI to pay a $30,000 bonus to Mr. Albright upon
execution.
In connection with the negotiation of his employment agreement, the
Compensation Committee awarded Mr. Albright stock options to purchase 30,000
shares of LAI Common Stock with an initial exercise price of $6.25 per share.
In addition, under his employment agreement, LAI is required to provide Mr.
Albright with a $1 million life insurance policy. During fiscal 1999, the
Compensation Committee also awarded Mr. Albright stock options to purchase
7,000 shares of LAI common stock with an exercise price of $10.00 per share
(after giving effect to participation in the Option Exchange Program). Such
options are subject to a three-year cliff vesting schedule.
Mr. Albright is entitled to receive certain severance benefits if his
employment is terminated by LAI for any reason other than "good cause" or by
Mr. Albright following a "change of control" (each as defined in the employment
agreement). In the event of termination by LAI other than for "good cause," Mr.
Albright will receive a cash payment equal to the sum of one year's base salary
and the target bonus for the year of termination.
In addition, upon any termination of Mr. Albright's employment
"without good cause" or following a "change of control," all vesting or
performance requirements with respect to any stock options or other similar
equity-based compensation awards shall be deemed to have been satisfied. With
respect to any payments under his employment agreement upon death, disability,
or termination "without good cause" or following a "change of control", Mr.
Albright would receive additional cash payments in an amount necessary to pay
any federal excise taxes.
Richard L. Baird. LAI and Mr. Baird entered into his employment
agreement effective November 9, 1998, engaging Mr. Baird as an LAI Executive
Vice President and as President of LAI Compass, Inc., the selection services
subsidiary. The current term of Mr. Baird's agreement expires November 8, 2000;
however, the agreement provides that, on November 9, 2000 (and each succeeding
November 9th), the term of Mr. Baird's employment shall be extended for an
additional one year period, such that the remaining term of the agreement is
then one year, unless either LAI or Mr. Baird gives notice not less than 90
days prior to any extension date of an intention not to extend. Under his
employment agreement, Mr. Baird is entitled to receive an annual base salary of
not less than $300,000, and is eligible to earn annual incentive bonuses based
upon such plans and criteria as may be established from time to time by the
Compensation Committee. Under the plan currently in effect, Mr. Baird is
eligible to earn a target bonus equal to 60% of his base salary and a maximum
bonus equal to 120% of his base salary. For LAI's 2000 fiscal year, the
agreement requires LAI to pay a $100,000 minimum bonus to Mr. Baird.
Mr. Baird may terminate his employment agreement upon 90 days prior
written notice. Mr. Baird is entitled to receive certain severance benefits if
his employment is terminated by LAI "without good cause" (as defined in the
employment agreement). In the event of termination "without good cause," Mr.
Baird will receive his base salary for one year after termination and an amount
payable over the one year equal to the target bonus for the year of
termination.
30
31
In connection with the negotiation of his employment agreement, the
Compensation Committee awarded Mr. Baird stock options to purchase 100,000
shares of LAI Common Stock with an initial exercise price of $8.939 per share.
LAI also loaned Mr. Baird of $100,000 as a sign on benefit. LAI forgave the
loan and accrued interest on February 28, 1999. If before November 8, 2000, Mr.
Baird voluntarily terminates his employment or LAI terminates his employment
for "good cause," Mr. Baird must pay to LAI as liquidated damages cash equal to
part or all of the sign on bonus, as follows: (1) if termination is between
November 9, 1998 and November 8, 1999, $100,000 and (2) if termination is
between November 9, 1999 and November 8, 2000, $50,000.
In addition, upon any termination of Mr. Baird's employment "without
good cause" or following a "change of control," all vesting or performance
requirements with respect to any stock options or other similar equity-based
compensation awards shall be deemed to have been satisfied. With respect to any
payments under his employment agreement upon death, disability, or termination
"without good cause" or following a "change of control", Mr. Baird would
receive additional cash payments in an amount necessary to pay any federal
excise taxes. Mr. Baird's employment agreement is also subject to voluntary
termination by Mr. Baird or termination by LAI "for cause."
Joe D. Goodwin. LAI has also entered into an agreement with Mr.
Goodwin, who is not currently serving as an executive officer, on January 28,
1999. Pursuant to that agreement, Mr. Goodwin is guaranteed annual compensation
at the rate of $500,000 for a one year period. In addition, if Mr. Goodwin
leaves LAI after April 30, 1999, he is entitled to $125,000 as severance pay,
plus medical and dental insurance benefits for the remainder of the one year
term of the agreement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
InformationThe following table sets forth, as of March 31, 1999, the number of
shares of LAI's Common Stock beneficially owned by (i) each person known to be includedLAI
as having beneficial ownership of more than 5% of LAI's Common Stock together
with such person's address, (ii) each of its directors and nominees to become a
director, (iii) each Named Executive Officer (as defined herein under
"Executive Compensation" and pursuant to Securities and Exchange Commission
rule) and (iv) all directors and executive officers as a group.
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OR NUMBER IN GROUP OWNERSHIP (1) OF CLASS
- ------------------------------------------- ------------- --------
Robert L. Pearson (2) 175,210 2.18%
Patrick J. McDonnell 15,000 *
Philip R. Albright (3) 3,752 *
Richard L. Baird (4) 139 *
Joe D. Goodwin (5) 83,457 1.04
Roderick C. Gow (6) 97,780 1.22
John F. Johnson (7) 166,124 2.07
Neal L. Maslan (8) 23,633 *
John S. Rothschild (9) 82,423 1.03
Ray J. Groves (10), (13) 5,000 *
Richard W. Pogue (11), (13) 13,000 *
John C. Pope (12), (13) 13,000 *
All Directors and Executive Officers as a Group (12 persons) 678,518 8.46
Wellington Management Company, LLP (14) 768,000 9.57
31
32
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OR NUMBER IN GROUP OWNERSHIP (1) OF CLASS
- ------------------------------------------- ------------- --------
Heartland Advisors, Inc. (15) 610,000 7.60
FMR Corp. (16) 496,500 6.19
Cannell Capital Management (17) 414,100 5.16
Bricoleur Capital Management LLC (18) 410,800 5.12
- --------------------
(*) Less than 1%.
(1) Beneficial ownership of shares, as determined in accordance with
applicable Securities and Exchange Commission rules, includes shares
as to which a person has or shares sole voting power and/or investment
power.
(2) Includes 7,026 shares of Common Stock held in the Proxy Statement underProfit Sharing Plan;
6,408 shares held as trustee for the heading
"Security Ownership"benefit of certain family
members, which Mr. Pearson is hereby incorporateddeemed to beneficially own; and 16,939
restricted shares subject to a risk of forfeiture.
(3) Includes 252 shares of Common Stock held in the Profit Sharing Plan
and 2,500 shares underlying currently exercisable stock options deemed
beneficially owned.
(4) Includes 139 shares of Common Stock held in the Profit Sharing Plan
(5) Includes 1,364 shares of Common Stock held in the Profit Sharing Plan,
and 2,093 restricted shares subject to a risk of forfeiture.
(6) Includes 435 shares of Common Stock held in the Profit Sharing Plan,
and 20,930 restricted shares subject to a risk of forfeiture.
(7) Includes (i) 16,702 shares of Common Stock held in the Profit Sharing
Plan, (ii) 5,682 restricted shares subject to a risk of forfeiture,
(iii) 5,000 shares held by referenceMr. Johnson's wife, which Mr. Johnson may
be deemed to beneficially own, and (iv) 200 shares held by Mr.
Johnson's children, which Mr. Johnson may be deemed to beneficially
own. Does not include 100 shares held by Mr. Johnson's brother, as indicated above.
21to
which Mr. Johnson disclaims beneficial ownership.
(8) Includes 1,099 restricted shares subject to a risk of forfeiture and
5,500 shares underlying currently exercisable stock options deemed
beneficially owned.
(9) Includes (i) 2,000 shares of Common Stock held by two of Mr.
Rothschild's children, which Mr. Rothschild is deemed to beneficially
own, (ii) 3,000 shares held by Mr. Rothschild's spouse, which Mr.
Rothschild may be deemed to beneficially own, and (iii) 5,581
restricted shares subject to a risk of forfeiture.
(10) Includes 5,000 shares underlying currently exercisable stock options
deemed beneficially owned.
(11) Includes 8,000 shares of Common Stock held by a revocable trust which
Mr. Pogue, as trustee, is deemed to beneficially own and 5,000 shares
underlying currently exercisable stock options deemed beneficially
owned.
(12) Includes 5,000 shares underlying currently exercisable stock options
deemed beneficially owned.
(13) Each of Messrs. Groves, Pogue and Pope has elected to defer certain
retainer and meeting fees and to have such deferral credited in the
form of stock deferral "units" pursuant to the Directors' Deferral
Plan. The number of units credited is determined December 31st of each
year based on average month-end stock values during the year. Using
the actual 1998 average month-end stock values and the month-end stock
values for the first three months of calendar 1999, Messrs. Grove,
Pogue and Pope would be credited with 6,825 units, 4,837 units, and
7,982 units, respectively. Each unit is equal in value to one share of
Common Stock.
(14) This information is derived from a Schedule 13G dated February 9,
1999, filed with the Securities and Exchange Commission (the
"Commission") by Wellington Management Company, LLP ("Wellington").
Wellington possesses shared dispositive power with respect to all
768,000 shares and shared voting power with respect to 425,000 shares.
Wellington's address is 75 State Street, Boston, Massachusetts 02109.
(15) This information is derived from a Schedule 13G dated February 9,
1999, filed with the Commission by Heartland Advisors, Inc.
("Heartland"). Heartland possesses sole dispositive power with respect
to all 610,000 shares and no voting power with respect to these
shares. Heartland's address is 790 North Milwaukee Street, Milwaukee,
Wisconsin 53202.
(16) This information is derived from a Schedule 13G dated February 18,
1999, filed with the Commission by FMR Corp ("FMR"). FMR possesses
sole dispositive power with respect to all 496,500 shares and no
voting power with respect to these shares. FMR's address is 82
Devonshire Street, Boston, Massachusetts 02109.
(17) This information is derived from a Schedule 13G dated January 29,
1999, filed with the Commission by J. Carlo Cannell D/B/A Cannell
Capital Management ("Cannell"), Tonga Partners, LP ("Tonga"), Pleiades
Investment Partners, LP ("Pleiades"), Goldman Sachs Performance
Partners (Offshore), LP, ("Offshore"), and Goldman Sachs Performance
Partners, L.P. ("Partners"). Cannell possesses shared voting and
dispositive power with respect to all 414,100 shares. Tonga, Pleiades,
Offshore and Partners possess sole voting and dispositive power with
respect to 183,700, 89,000, 61,000 and 80,400 shares, respectively.
Cannell's address is 600 California Street, Floor 14, San Francisco,
California 94108.
32
2233
(18) This information is derived from a Schedule 13G dated February 2,
1999, filed with the Commission by Bricoleur Capital Management LLC
("Bricoleur"), Bricoleur Partners I, L.P. ("Partners"), Daniel P.
Wimsatt ("Wimsatt"), and Robert M. Poole. ("Poole"). Bricoleur has
sole voting and dispositive power with respect to all 410,800 shares.
Partners, Wimsatt and Poole have shared voting and dispositive power
with respect to all 410,800 shares. Bricoleur's address is 8910
University Center Lane, Suite 570, San Diego, California 92122.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
InformationIn August 1997, LAI made a non-interest bearing loan of $105,000 to
John S. Rothschild, the proceeds of which were used to pay certain initiation
fees for a country club joined by Mr. Rothschild in connection with his
employment responsibilities. So long as Mr. Rothschild does not voluntarily
terminate his employment with LAI, 20% of the principal amount of the loan will
be includedforgiven on July 1 of each year, commencing July 1, 1998. LAI also has
agreed to pay Mr. Rothschild the amount of any tax on income that may be
imputed to him as a result of such forgiveness.
LAI's Bylaws provide that LAI shall have the power, but generally not
the obligation, to indemnify directors and officers to the fullest extent
permitted by the laws of the State of Florida. LAI has entered into
indemnification agreements with all of its executive officers and directors
creating certain indemnification obligations on LAI's part in favor of the
Proxy Statementdirectors and executive officers. These indemnification agreements clarify and
expand the circumstances under the heading
"Management -- Certain Relationships and Transactions" is hereby incorporated by
reference as indicated above.which a director or executive officer will be
indemnified.
33
34
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements beginning on Page 2438 of this Report, as
follows:
Report of Independent Certified Public Accountants.......... 24Accountants 38
Consolidated Balance Sheets............................... 25Sheets 39
Consolidated Statements of Operations..................... 26Operations 40
Consolidated Statements of Stockholders' Equity........... 27Equity 41
Consolidated Statements of Comprehensive Income 41
Consolidated Statements of Cash Flows..................... 28Flows 42
Notes to Consolidated Financial Statements................ 29
Statements 43
2. Financial Statement Schedules
Report of Independent Certified Public Accountants.......... 42Accountants 60
Schedule II: Valuation on and Qualifying Accounts........... 43
Accounts 61
3. Exhibits.
EXHIBIT
NUMBER DESCRIPTION
-Exhibit
Number Description
------- -----------
2.1 (4) -- Agreement and Plan of Merger dated February 27, 1998, by and among Lamalie Associates, Inc.,
LAI Mergersub, Inc. and Ward Howell International, Inc.
2.2 (4) -- Asset Purchase Agreement dated December 29, 1997, by and among Lamalie Associates, Inc.,
Chartwell Partners International, Inc. and David M. DeWilde
2.3 (6) -- Agreement and Plan of Merger dated December 23, 1998, by and among Lamalie Associates, Inc.,
Registrant and LAI MergerSub, Inc.
2.4 (8) -- Agreement and Plan of Merger dated March 11, 1999, by and among LAI Worldwide, Inc., TMP
Worldwide, Inc. and TMP Florida Acquisition Corp.
3.1 (1)(6) -- Articles of Incorporation of the Registrant as now in effect
3.2 (1)(6) -- Bylaws of the Registrant as now in effect
4 (1)4.1 (6) -- Form of Common Stock Certificate
34
35
Exhibit
Number Description
------- -----------
4.2 (6) -- Form of Common Stock CertificateStockholder Rights Agreement dated December 30, 1998, between Registrant and ChaseMellon
Shareholder Services, L.L.C.
4.3 (8) -- Amendment to Stockholder Rights Agreement
10.1 (3)(6) -- 1997 Omnibus Stock and Incentive Plan as now in effect
10.2 (1)(6) -- Non-Employee Directors' Stock Option Plan as now in effect
10.3 (1)(6) -- Profit Sharing and Savings Plan as now in effect
10.4 (1)(6) -- 1997 Employee Stock Purchase Plan as now in effect
10.5 (1) -- Form of Agreement for Deferred Compensation Plan
10.6 (1) -- Managing Partners' Compensation Plan+Plan +
10.7 (1) -- Partners' Compensation Plan+Plan +
10.8 (1) -- Employment Agreement for Mr. Gow+Gow +
10.9 (6) -- 1998 Omnibus Stock and Incentive Plan 10.10(1)as now in effect
10.10 (1) -- Employment Agreement for Mr. Rothschild+
10.11(2)Rothschild +
10.11 (2) -- Form of Indemnification Agreement entered into with certain
Directors and Officers
10.12(1)Messrs. Philip R. Albright, Richard L.
Baird, Michael Brenner, Arthur J. Davidson, Mark P. Elliott, David W. Gallagher, Joe D.
Goodwin, Roderick C. Gow, Ray J. Groves, Harold E. Johnson, John F. Johnson, Patrick J.
McDonnell, Robert L. Pearson, Richard W. Pogue, John C. Pope, John S. Rothschild, Thomas M.
Watkins III, Jack P. Wissman
10.12 (6) -- Directors' Deferral Plan 10.13(3) -- Employment Agreement with Robert L. Pearson dated October 8,
1997
22
23
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.14(4)as now in effect
10.13 (3) -- Employment Agreement with Robert L. Pearson dated October 8, 1997
10.14 (4) -- Form of Employment Agreement for Former Ward Howell International, Inc. Shareholders
10.15 (5) -- Employment Agreement with Patrick J. McDonnell dated September 15, 1998
10.16 (7) -- Letter Agreement with Philip R. Albright dated November 9, 1998
10.17 (7) -- Credit Agreement with NationsBank, including amendment thereto
10.18 -- Employment Agreement with Richard L. Baird dated January 18, 1999
10.19 -- Letter Agreement with Joe D. Goodwin dated January 28, 1999
35
36
10.20 -- Letter Agreement with Philip R. Albright dated February 25, 1999
10.21 -- Settlement Agreement with former Ward Howell International, Inc. Shareholders dated April 14,
1999
10.22 -- Co-op Advertising Agreement between TMP Interactive, Inc. and LAI Worldwide, Inc. dated May 7,
1999
10.23 -- Advertising Agreement between TMP Interactive, Inc. and LAI Worldwide Inc. dated May 7, 1999
21.1 (5) -- Subsidiaries of the Registrant
23.223.1 -- Consent of Arthur Andersen LLP
27 -- Consent of Arthur Andersen LLPFinancial Data Schedule (for SEC use only)
- ---------------
(1) Incorporated by reference to the correspondingly numbered exhibit to
the Registrant'sRegistrant=s Registration Statement on Form S-1 (File No.
333-26027), originally filed April 29, 1997, as amended and as
effective July 1, 1997.
(2) Incorporated by reference to the correspondingly numbered exhibit to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
May 31, 1997, filed on August 8, 1997.
(3) Incorporated by reference to the correspondingly numbered exhibit to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1997, filed on January 13, 1998.
(4) Incorporated by reference to the correspondingly numbered exhibit to
the Registrant's current Report on Form 8-K filed March 13, 1998.
(5) Incorporated by reference to the correspondingly numbered exhibit to
the Registrant's Registration StatementQuarterly Report on Form S-1 (File No. 333-52075),
originally10-Q for the quarter ended
August 31, 1998, filed May 7,on October 14, 1998.
(6) Incorporated by reference to the correspondingly numbered exhibit to
the Registrant's current Report on Form 8-K filed January 5, 1999.
(7) Incorporated by reference to the correspondingly numbered exhibit to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
November 31, 1998, including as subsequently amended.filed on January 11, 1998.
(8) Incorporated by reference to the correspondingly numbered exhibit to
the Registrant's current Report on Form 8-K filed on March 22, 1999.
+ Confidential treatment has been granted with respect to
portions of this Exhibit.
(b) Reports on Form 8-K.
The Company did not file a Current Report on Form 8-K during the fourth
fiscal quarter of the period covered by this Report.36
37
On March 17, 1998, the
CompanyJanuary 5, 1999, LAI filed a Form 8-K reporting the acquisitionreorganization
of Ward Howell International,Lamalie Associates, Inc. ("WHI"Lamalie"), into a holding company structure whereby
LAI Worldwide, Inc. became the ninth largest executive search firm inholding company and Lamalie became a wholly-owned
subsidiary of LAI Worldwide, Inc. See "Business--Reorganization."
On November 6, 1998, LAI filed a Form 8-K reporting the United States,declaration of
a dividend distribution of one preferred stock purchase right for each share of
Common Stock of LAI outstanding at the close of business on November 16, 1998,
pursuant to the terms of a Stockholder Right Agreement dated November 6, 1998,
between LAI and Chartwell Partners,ChaseMellon Shareholder Services, L.L.C. as Rights Agent.
On March 22, 1999, LAI filed a Form 8-K reporting that LAI entered
into an Agreement and Plan of Merger with TMP Worldwide, Inc. ("CPI"TMP") pursuant
to which TMP will acquire LAI in a pooling of interests transaction.
See "Business--Merger Agreement with TMP Worldwide, Inc."
ANY LAI STOCKHOLDER MAY RECEIVE A COPY OF LAI'S ANNUAL REPORT ON FORM
10-K FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1999, INCLUDING FINANCIAL
STATEMENTS AND FINANCIAL STATEMENT SCHEDULES AND AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION (WITHOUT EXHIBITS), a prominent executive search firm based in
California specializing primarily in the financial services industry. Such
report included financial statements of WHI and CPI and pro forma financial
information related to these acquisitions.
23A COPY OF LAI'S ANNUAL REPORT TO
STOCKHOLDERS AND OTHER INFORMATION REGARDING LAI, ALL AT NO CHARGE, UPON
REQUEST DIRECTED TO LAI INVESTOR RELATIONS, METRO CENTER, ONE STATION PLACE,
STAMFORD, CT 06902, (203) 326-4650. EXHIBITS TO THE FORM 10-K ARE AVAILABLE,
UPON REQUEST TO THE SAME ADDRESS, UPON PAYMENT OF LAI'S REASONABLE EXPENSES IN
FURNISHING SUCH EXHIBITS. INFORMATION ALSO MAY BE ACCESSED ON LAI'S WEB SITE AT
WWW.LAIX.COM.
37
2438
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Lamalie Associates,LAI Worldwide, Inc.:
We have audited the accompanying consolidated balance sheets of Lamalie
Associates,LAI Worldwide,
Inc. (a Florida corporation) and subsidiaries as of February 28, 19971999 and 1998,
and the related consolidated statements of operations, stockholders' equity,
comprehensive income and cash flows for each of the three years in the period
ended February 28, 1998.1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lamalie Associates,LAI Worldwide, Inc. and
subsidiaries as of February 28, 19971999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
February 28, 1998,1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Tampa, Florida,
April 8, 1998
247, 1999
38
25
LAMALIE ASSOCIATES,39
LAI WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, FEBRUARY 28,
1997 1998
------------ ------------
(DOLLARS IN THOUSANDS)
AS OF FEBRUARY 28,
1998 1999
-------- ---------
ASSETS:
Current assets:
Cash and cash equivalents.................................equivalents $ 1,662 $23,78023,780 $ 29,899
Accounts receivable, less allowance of $850$2,120 and $2,120,
respectively........................................... 14,238 22,219$3,250,
respectively 22,950 22,419
Prepaid expenses.......................................... 1,033 1,420expenses 689 628
Refundable income taxes................................... 58taxes 1,822 ------- -------3,591
Current deferred tax assets 486 2,438
-------- ---------
Total current assets.............................. 16,991 49,241
------- -------assets 49,727 58,975
-------- ---------
Property and equipment, net................................. 4,184net 5,612 9,521
Deferred tax assets......................................... 1,958 4,185assets 3,699 4,927
Goodwill, net............................................... --net 24,790 22,492
Cash value of life insurance................................ 2,255insurance 4,363 5,823
Other assets................................................ 173assets 725 ------- -------2,085
-------- ---------
Total assets...................................... $25,561 $88,916
======= =======assets $ 88,916 $ 103,823
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued liabilities..................liabilities $ 2,0897,191 $ 7,1916,027
Payable to former WHI stockholders........................stockholders 8,592 --
8,592
Accrued compensation...................................... 13,255compensation 20,573 8,234
Current maturities of long-term debt...................... 387debt 3,070 Current deferred tax liabilities.......................... 6433,004
Accrued restructuring charges -- ------- -------577
-------- ---------
Total current liabilities......................... 16,374liabilities 39,426 ------- -------17,842
-------- ---------
Accrued rent................................................ 1,038rent 1,013 1,279
Deferred compensation....................................... 3,872compensation 6,951 8,239
Long-term debt, less current maturities..................... 1,650maturities 6,055 ------- -------2,903
-------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock; $0.01 par value; 3,000,000 shares authorized; no
shares issued and outstanding...........outstanding -- --
Common stock; $0.01 par value; 35,000,000 shares authorized; 3,075,0005,576,446
and 8,112,927 shares issued, respectively, and
5,576,446 and 8,082,953 shares issued and
outstanding, respectively.............................. 31respectively 56 82
Additional paid-in capital................................ 4,087capital 32,873 Subscriptions receivable.................................. (153)78,065
Unamortized stock-based compensation -- (2,732)
Common stock in treasury, at cost; 29,974 shares at
February 28, 1999 -- (196)
Cumulative translation adjustments -- 37
Retained earnings (accumulated deficit)................... (1,338) 2,542 ------- -------(1,696)
-------- ---------
Total stockholders' equity........................ 2,627equity 35,471 ------- -------73,560
-------- ---------
Total liabilities and stockholders' equity........ $25,561 $88,916
======= =======equity $ 88,916 $ 103,823
======== =========
The accompanying notes are an integral part of these consolidated statements.
2539
26
LAMALIE ASSOCIATES,40
LAI WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED
------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1997 1998
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED FEBRUARY 28,
--------------------------------------
1997 1998 1999
-------- -------- --------
Fee revenue, net..................................... $35,088 $46,437 $61,803net $ 46,437 $ 61,803 $ 86,811
Operating expenses:
Compensation and benefits.......................... 30,693benefits 39,928 46,513 66,897
General and administrative......................... 4,467administrative 6,685 8,680
------- ------- -------8,663 21,628
Goodwill amortization -- 17 776
Restructuring charges -- -- 3,543
-------- -------- --------
Total operating expenses................... 35,160expenses 46,613 55,193 ------- ------- -------92,844
-------- -------- --------
Operating income (loss).............................. (72) (176) 6,610 ------- ------- -------(6,033)
-------- -------- --------
Interest income...................................... 117income 125 887 1,806
Interest expense..................................... (157)expense (501) (690) ------- ------- -------
Net interest(1,188)
Foreign currency transaction losses -- -- (329)
Other -- -- (41)
-------- -------- --------
Other income (expense).............. (40) (376) 197 ------- ------- -------248
-------- -------- --------
Income (loss) before provision for income taxes...... (112)taxes (552) 6,807 Provision for income taxes........................... 90(5,785)
Income tax expense (benefit) 15 2,927 ------- ------- -------(1,547)
-------- -------- --------
Net income (loss).................................... $ (202) $ (567) $ 3,880 ======= ======= =======$ (4,238)
======== ======== ========
Basic net income (loss) per common share............. $ (0.07)share $ (0.18) $ 0.85 ======= ======= =======$ (0.58)
======== ======== ========
Weighted average common shares....................... 2,921shares 3,199 4,573 ======= ======= =======7,346
======== ======== ========
Diluted net income (loss) per common and common
equivalent share................................... $ (0.07)share $ (0.18) $ 0.82 ======= ======= =======(0.58)
======== ======== ========
Weighted average common and common equivalent shares............................................. 2,921shares 3,199 4,751 ======= ======= =======7,346
======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
2640
27
LAMALIE ASSOCIATES,41
LAI WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
RETAINED
COMMON STOCK ADDITIONAL EARNINGS/ TOTAL
---------------UNAMORTIZED SUBSCRIP-
----------------- PAID-IN SUBSCRIPTIONS (ACCUMULATED STOCKHOLDERS'STOCK-BASED TIONS TREASURY TRANSLATION
SHARES AMOUNT CAPITAL COMPENSATION RECEIVABLE DEFICIT) EQUITYSTOCK ADJUSTMENTS
------ ------ ---------- ------------- ------------ -------------
(IN THOUSANDS)---------- -------- -----------
BALANCE AS OF FEBRUARY 29, 1996 2,790 $ 28 1995........................... 2,278 $23 $ 2,9433,652 $ (72)-- $ (569)(399) $ 2,325-- $ --
Redemption of common stock....... (100) (1) (136) -- -- (137)
Issuance of common stock......... 612 6 845 (851) -- --
Reduction of subscriptions
receivable from stockholders... -- -- -- 524 -- 524
Net loss......................... -- -- -- -- (202) (202)
----- --- ------- ------ ------- -------
BALANCE AS OF FEBRUARY 29,
1996........................... 2,790 28 3,652 (399) (771) 2,510
Redemption of common stock.......stock (345) (3) (509) -- -- (512)-- --
Issuance of common stock.........stock 630 6 944 -- (950) -- --
Reduction of subscriptions
receivable from stockholders...stockholders -- -- -- -- 1,196 -- 1,196--
Net loss.........................loss -- -- -- -- (567) (567)
----- --- --------- -- --
------ ------- ------------- ---------- ----------- ---------- -------- -----------
BALANCE AS OF FEBRUARY 28, 1997...........................1997 3,075 31 4,087 -- (153) -- --
Redemption of common stock (50) (1) (76) -- -- -- --
Initial public offering of
common stock 2,300 23 24,628 -- -- -- --
Other issuance of common stock 251 3 4,183 -- -- -- --
Reduction of subscriptions
receivable from shareholders -- -- -- -- 153 -- --
Amortization of discounted
options -- -- 51 -- -- -- --
Net income -- -- -- -- -- -- --
------ ------ ---------- ----------- ---------- -------- -----------
BALANCE AS OF FEBRUARY 28, 1998 5,576 56 32,873 -- -- -- --
Secondary public offering of
common stock 2,265 23 41,365 -- -- -- --
Other issuance of common stock 272 3 4,072 (3,900) -- -- --
Amortization of discounted
options and stock-based
compensation -- -- 151 576 -- -- --
Acquisition of treasury stock (30) -- (396) 592 -- (196) --
Translation adjustments -- -- -- -- -- -- 37
Net loss -- -- -- -- -- -- --
------ ------ ---------- ----------- ---------- -------- -----------
BALANCE AS OF FEBRUARY 28, 1999 8,083 $ 82 $ 78,065 $ (2,732) $ -- $ (196) $ 37
====== ====== ========== =========== ========== ======== ===========
RETAINED
EARNINGS/ TOTAL
(ACCUMULATED STOCKHOLDERS'
DEFICIT) EQUITY
------------ ------------
BALANCE AS OF FEBRUARY 29, 1996 $ (771) $ 2,510
Redemption of common stock -- (512)
Issuance of common stock -- --
Reduction of subscriptions
receivable from stockholders -- 1,196
Net loss (567) (567)
----------- ------------
BALANCE AS OF FEBRUARY 28, 1997 (1,338) 2,627
Redemption of common stock....... (50) (1) (76) --stock -- (77)
Initial public offering of
common stock.......................... 2,300 23 24,628 --stock -- 24,651
Other issuance of common stock... 251 3 4,183 --stock -- 4,186
Reduction of subscriptions
receivable from stockholders... -- -- -- 153shareholders -- 153
Amortization of discounted
options........................ -- -- 51 --options -- 51
Net income....................... -- -- -- --income 3,880 3,880
----- --- ------- ------ ------- ------------------ ------------
BALANCE AS OF FEBRUARY 28, 1998........................... 5,576 $56 $32,8731998 2,542 35,471
Secondary public offering of
common stock -- 41,388
Other issuance of common stock -- 175
Amortization of discounted
options and stock-based
compensation -- 727
Acquisition of treasury stock -- --
Translation adjustments -- 37
Net loss (4,238) (4,238)
----------- ------------
BALANCE AS OF FEBRUARY 28, 1999 $ (1,696) $ 73,560
=========== ============
LAI WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
YEAR ENDED FEBRUARY 28,
----------------------------------------
1997 1998 1999
-------- --------- ---------
Net income (loss) $ (567) $ 3,880 $ (4,238)
Other comprehensive income, net of tax:
Cumulative translation adjustments -- -- 37
-------- --------- ----------
Comprehensive income $ 2,542 $35,471
===== === ======= ====== ======= =======(567) $ 3,880 $ (4,201)
======== ========= =========
The accompanying notes are an integral part of these consolidated statements.
2741
28
LAMALIE ASSOCIATES,42
LAI WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED ------------------------------------------
FEBRUARY 29, FEBRUARY 28,
FEBRUARY 28,
1996---------------------------------
1997 1998 ------------ ------------ ------------
(IN THOUSANDS)1999
------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ (202) $ (567) $ 3,880 $ (4,238)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 449amortization 768 885 1,620
Write-down of property and equipment -- -- 1,385
Amortization of goodwill..................................goodwill -- 17 776
Write-down of goodwill -- -- 171,522
Gain on short-term investments -- -- (776)
Amortization of discounted options........................ --options and stock-based
compensation -- 51 727
Deferred income taxes..................................... (738)taxes (276) (897) (3,180)
Changes in assets and liabilities
Accounts receivable, net................................ (3,796)net (4,679) (1,367)(1,718) 531
Prepaid expenses........................................ (218)expenses (331) (319)32 61
Refundable income taxes................................. 465taxes (1,146) (1,707) Other assets............................................ (35) (36) (532)(1,769)
Accounts payable and accrued liabilities................ 1,843liabilities (155) 361 (1,164)
Accrued compensation.................................... 2,362compensation 3,376 (493) (12,339)
Accrued rent............................................ 122rent 531 (25) 266
Deferred compensation................................... 1,314compensation 1,862 3,079 1,288
Accrued restructuring charges -- -- 577
Other (36) (532) (1,060)
------- ------- --------------- --------
Net cash provided by (used in) operating
activities....................................... 1,566activities (653) 2,933 (15,773)
------- ------- --------------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments -- -- (38,271)
Proceeds from short-term investments -- -- 39,047
Investment in life insurance................................ (779)insurance (1,048) (2,109) (1,968)
Purchases of property and equipment......................... (2,483)equipment (1,825) (2,187) (6,914)
Acquisition of WHI.......................................... --WHI -- 1,318 (8,384)
Acquisition of CPI.......................................... --CPI -- (1,387) --
------- ------- --------------- --------
Net cash used in investing activities.............. (3,262)activities (2,873) (4,365) (16,490)
------- ------- --------------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings.................................................. --Borrowings 3,995 -- 2,221
Repayments of debt.......................................... --debt (2,262) (1,783) Redemption(5,439)
Proceeds from public offering of certificatecommon stock 1,197 25,410 41,388
Other issuances of deposit........................ 109common stock -- -- Proceeds from issuance of common stock...................... 524 1,197 25,410175
Payments to redeem common stock............................. (217)stock (271) (77) --
------- ------- --------------- --------
Net cash provided by financing activities............... 416activities 2,659 23,550 38,345
------- ------- --------------- --------
Net increase (decrease) increase in cash and cash
equivalents............................................. (1,280)equivalents (867) 22,118 6,082
Cash and Cash Equivalents, at beginning of period........... 3,809period 2,529 1,662 23,780
Cumulative translation adjustment -- -- 37
------- ------- --------------- --------
Cash and Cash Equivalents, at end of period................. $ 2,529period $ 1,662 $23,780$ 23,780 $ 29,899
======= ======= =============== ========
Supplemental disclosures of cash flow information --
Cash paid for interest...................................... $ 8interest $ 204 $ 145 $ 466
Cash paid for income taxes.................................. 362taxes 1,437 4,691 2,526
Supplemental disclosures of non-cash activities --
Debt issued in connection with acquisitions.................acquisitions -- 8,802 -- 8,802
Equity issued in connection with acquisitions...............acquisitions -- 3,580 -- 3,580
Payable in connection with acquisitions.....................acquisitions -- -- 8,592 (208)
The accompanying notes are an integral part of these consolidated statements.
2842
29
LAMALIE ASSOCIATES,43
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 19981999
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Lamalie Associates,LAI Worldwide, Inc. and its wholly-owned subsidiaries ("LAI" or the
"Company") provide consulting services aimed specifically at solving its
clients' leadership needs by identifying, evaluating and recommending qualified
candidates for senior level positions. LAI provides executive search services
exclusively on a retained basis from 16 regional offices located throughoutprimarily in the United States.
INITIAL PUBLIC OFFERINGOFFERINGS & REINCORPORATION
The Company completed its initial public offering (the "IPO") of 2,300,0002.3
million shares of common stock on July 1, 1997. The proceeds of $24.7 million,
net of underwriters' discounts and other offering costs, were used to repay
outstanding indebtedness under the Company's credit facilities, to finance
business acquisitions and to provide additional working capital. On June 3,
1997, in connection with the IPO, the Company reincorporated from Delaware to
Florida.
On June 9, 1998, the Company completed a secondary public offering of
3.2 million shares of common stock, approximately 2.3 million of which were
offered by the Company with the balance being offered by certain stockholders
of the Company. The proceeds to the Company of approximately $41.4 million, net
of underwriters' discounts and other offering costs, were used to support the
Company's international expansion efforts, to pursue strategic acquisitions, to
support continued enhancements to the Company's technology-based infrastructure
and to provide additional working capital.
REORGANIZATION
Effective at the close of business on December 31, 1998, Lamalie
Associates, Inc., a Florida corporation, reorganized into a holding company
structure in which LAI Worldwide, Inc., a Florida corporation, became the new
holding company.
STOCK SPLIT
On June 3, 1997, in connection with the IPO, the Company effected a
1,000 for one stock split of each outstanding share of common stock. All share
related data in these consolidated financial statements have been adjusted
retroactively to give effect to this event as if it had occurred at the
beginning of the earliest period presented.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial position
and results of operations of the Company and its wholly-owned subsidiaries. All
material intercompany profits, transactions and balances have been eliminated.
43
44
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly-liquid investment instruments with
original maturities of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Office furniture and equipment are stated at cost less accumulated
depreciation. Effective March 1, 1996, the Company adopted the straight-line
method of depreciation for all newly acquired assets. All assets acquired prior
to March 1, 1996, are depreciated using an accelerated method. The effect of the
change in depreciation methods on newly acquired assets is not material to the
Company's financial statements. Depreciation is provided on a straight-line basis over the
assets' estimated useful lives of 7 years for office furniture and equipment
and 5 years for software. Leasehold improvements are stated at cost less
accumulated amortization using the straight-line method over the related
remaining lease terms which range from 21 to 915 years. Repair and maintenance
costs which do not extend the useful lives of the assets are expensed as
incurred.
29
30
LAMALIE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GOODWILL
Goodwill relates to acquisitions made during the year ended February
28, 1998, (see Note 2),3) and is being amortized on a straight-line basis over
thirty years. During the year ended February 28, 1999, the Company finalized
its analysis of the fair market value of assets acquired and the acquisition
reserves and, accordingly, decreased goodwill by approximately $1.5 million.
Accumulated amortization as of February 28, 1998 and 1999, was approximately
$17,000.$17,000 and $793,000, respectively.
At each balance sheet date, the Company evaluates the realizability of
its goodwill based upon expectations on non-discounted cash flows and operating
income. Based upon its most recent analysis, the Company believes that no
material impairment of its goodwill exists at February 28, 1999.
REVENUE RECOGNITION
The Company derives substantially all of its revenues from fees for
professional services, which are recognized as fee revenue as clients are
billed, generally over a 60- to 90-day period commencing with the initial
acceptance of a search. Fee revenue is presented net of adjustments to original
billings.
44
45
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOREIGN CURRENCY TRANSLATION
Foreign currency translation adjustments arise primarily from
activities of the Company's international operations. Results of operations are
translated using the average exchange rates during the period, while assets and
liabilities are translated into U.S. dollars using current rates. Resulting
foreign currency translation adjustments are recorded in stockholders' equity
and foreign currency transaction gains or losses are recorded in the
consolidated statements of operations.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Deferred tax assets and
liabilities are measured by applying enacted statutory tax rates applicable to
the future years in which the related deferred tax assets or liabilities are
expected to be settled or realized. Provision for income taxesIncome tax expense (benefit) consists of
the taxes payable for the current period and the change during the period in
deferred tax assets and liabilities.
The Company's United Kingdom subsidiary is treated as a branch
operation for tax purposes.
NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share was determined by dividing
the net income (loss) by the weighted average number of shares of common stock
outstanding during the year. Diluted net income (loss) per common and common
equivalent share was determined by dividing the net income (loss) by the
weighted average number of shares of common stock outstanding and dilutive
common equivalent shares from stock options using the treasury stock method and
from the convertible debt assuming conversion upon issuance. (Seeissuance (see Note 4)9).
Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, shares of common stock issued by the Company during the 12
months preceding the IPO have been included in the calculation of weighted
average shares of common stock outstanding as if the shares were outstanding
for all periods presented.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentration of credit risk consist primarily of accounts receivable. Credit
risk arising from receivables is minimal due to the large number of clients
comprising the Company's customer base. The customers arebase, which is concentrated primarily in the
Company's U.S. market areas. Credit losses in the past have not been material.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments as of
February 28, 19971998 and 1998,1999, approximate fair value.
45
46
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NEWLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130 requires that an enterprise (a)
classifyall items that are
required to be recognized under accounting standards as components of other
comprehensive income by their naturebe reported in a financial statement and (b) displaythat is displayed
with the accumulated balance ofsame prominence as other comprehensive income
separately from retained
30
31
LAMALIE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
earnings and additional paid-in capital in the equity section of a statement of
financial position.statements. The Company has
implemented SFAS 130 is effective for financial statements for periods
beginning after December 15, 1997. Management believes the effect of adopting
SFAS 130 would not have a material impact on the accompanying consolidated
financial statements.year ended February 28, 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131
requires that a
public business enterpriseestablishes standards for the way companies report financial and descriptive information about its reportable operating
segments. SFAS 131 is effective for fiscal years
beginning after December 15, 1997. Management has not yet determinedsegments including the effect
of adopting SFAS 131.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure
about Pension and Other Post Retirement Benefits" ("SFAS 132"). SFAS 132 revises
employers'related disclosures about pension and other post retirement benefit plans.
SFAS 132 is effective for fiscal years beginning after December 15, 1997;
earlier application is encouraged. Managementthe different economic
environments in which it operates. The Company has implemented SFAS 132131 for the
year ended February 28, 1998.1999 (see Note 10).
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
provides guidance for capitalizing and expensing the costs of computer software
developed or obtained for internal use. SOP 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998.
The Company has implemented SOP 98-1 for the year ended February 28, 1999.
In June 1998, The FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 established
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It requires that
entities recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. SFAS 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
1999. Management believes the effect of adopting SOP 98-1SFAS 133 would not have a
material impact on the accompanying consolidated financial statements.
RECLASSIFICATIONS
Certain prior year balances have been reclassified in order to conform
to the current year financial statement presentation.
(2) RESTRUCTURING CHARGES
During the first and second quarters of fiscal 1999, the Company
focused its growth strategy on international expansion, opening offices in
London, England and Wanchai, Hong Kong. This expansion involved the hiring of
15 executive search consultants and 47 support staff, principally in London.
Due to economic conditions and the inherent difficulties in establishing
start-up operations, revenues from international operations were less than
projected, resulting in substantial losses from this business segment. As a
result, in December 1998, the Company decided to significantly reduce the size
and scope of its London office.
46
47
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The results of operations for the year ended February 28, 1999,
include a restructuring charge of approximately $3.5 million. This charge
included approximately $2.1 million for write-downs of abandoned assets,
approximately $925,000 of severance benefits payable to 28 employees whose
positions were eliminated and approximately $500,000 of legal and other costs
directly related to the restructuring. Approximately $577,000 of accrued
expenses related to the above charges were payable as of February 28, 1999, and
are accrued for in the accompanying consolidated balance sheets.
(3) ACQUISITIONS
On February 27, 1998, the Company completed the acquisition by merger
of Ward Howell International, Inc. ("WHI"). WHI and its subsidiary were merged
into a wholly-owned subsidiary of the Company and WHI was the surviving
corporation in the merger. The purchase price was approximately $19.5 million
including $7.6 million in notes payable and approximately 190,000 shares or
$3.1 million of common stock. The remaining $8.8 million of the purchase
consideration was payable to the former WHI stockholders as of February 28,
1998, and is accrued
for in the accompanying consolidated balance sheets. Also, additional
acquisition costs of approximately $3.1 million have been accrued for in the accompanying consolidated balance sheets. The
acquisition was accounted for as a purchase with goodwill being recognized for
the excess of the purchase amount over the fair market value of the assets
acquired.
On January 2, 1998, the Company acquired Chartwell Partners
International, Inc. ("CPI"). The acquisition cost was approximately $3.1
million and consisted of approximately $1.4 million cash, a $1.25 million
convertible subordinated note payable, and approximately 26,000 shares or
$424,000 of common stock. The acquisition was accounted for as a purchase with
goodwill being recognized for the excess of the purchase amount over the fair
market value of the assets acquired.
31
32
LAMALIE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Had the acquisitions of WHI and CPI been completed on March 1, 1996
and 1997, respectively, the combined pro formaproforma unaudited results of operations
would have been as follows for the year ended February 28:
1997 1998
------- ------------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Fee revenue, net............................................net $74,193 $91,730
Net income..................................................income 2,943 4,485
Basic net income per common share...........................share 0.86 0.94
Diluted net income per common and common equivalent share...share 0.86 0.90
The unaudited pro forma combined results of operations for the yearsyear
ended February 28, 1997 and 1998 were prepared using the financial statements
of WHI and CPI for the years ended December 31, 1996 and 1997, respectively.
(3)47
48
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of February 28:
1997 1998 ------ ------1999
-------- --------
(IN THOUSANDS)
Office furniture and equipment.............................. $2,884 $3,934equipment $ 3,934 $ 6,419
Leasehold improvements...................................... 2,305improvements 2,614 Software.................................................... 7214,209
Software 1,672 ------ ------
5,9103,121
-------- --------
8,220 13,749
Less: accumulated depreciation and amortization............. (1,726)amortization (2,608) ------ ------
$4,184 $5,612
====== ======(4,228)
-------- --------
$ 5,612 $ 9,521
======== ========
32
33
LAMALIE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4)(5) LONG-TERM DEBT
Long-term debt consists of the following as of February 28:
1997 1998 ------ ------1999
------- -------
(IN THOUSANDS)
Notes payable to former WHI stockholders dated February 27, 1998, payable
in three equal annual installments plus accrued interest
bearing interest at 5.0%................. $ -- $7,5527,552 $ 4,892
Convertible subordinated promissory note to a former CPI stockholder,
dated January 2, 1998, payable in three equal annual installments
plus accrued interest, bearing interest at 6.75%, and convertible into
shares of common stock at each anniversary date at prices specified
in the asset purchase agreement.................................. --agreement 1,250 Term loan dated March 1996, payable in monthly principal
installments of $23,810 plus accrued interest secured by
accounts receivable, repaid in full during fiscal 1998.... 1,733 --833
Notes payable due to former LAI stockholders, non-interest bearing
(interest imputed at 6.5%), payable in three equal annual
installments maturing through April 2000........... 3042000 254 140
Notes payable to former WHI stockholders bearing interest from 5.8% to
9.5% maturing through February 2003.......... --2003
69 ------ ------
2,03742
------- -------
9,125 5,907
Less: current maturities of long-term debt.................. (387)debt (3,070) ------ ------
$1,650 $6,055
====== ======(3,004)
------- -------
$ 6,055 $ 2,903
======= =======
48
49
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long-term debt are as follows (in thousands):
YEAR ENDING AMOUNT
- ----------- ------
February 28, 1999........................................... $3,070
February 29, 2000........................................... 3,0702000 $3,004
February 28, 2001........................................... 2,9712001 2,889
February 28, 2002...........................................2002 7
February 28, 2003...........................................2003 7
------
$9,125$5,907
======
The Company maintains a line of credit which provides for maximum
borrowings of $6.5$25 million bearing interest at various rates based on either a
LIBOR index or the bank's prime lending rate (8.5%(7.75% at February 28, 1998).1999) as
determined at the Company's option. Interest is payable monthly and the
principal balance is due upon demand. The line of credit is collateralized by
accounts receivable with borrowings limited to 75% of qualifying receivables.
Additionally, the Company is required to comply with certain working capital and
liquidity covenants. The Company was in compliance with or has obtained waivers
for the terms and covenants of its debt agreements as of February 28, 19971998 and
1998.1999. No amounts were outstanding under the line of credit as of February 28,
19971998 or 1998. During fiscal 1998,1999.
(6) INCOME TAXES
Significant components of the Company obtained
a commitment letter for credit facilities providing for maximum borrowingsincome tax expense (benefit) are summarized
as follows as of $15.0 million. Subsequent to year end, this commitment was increased to $25.0
million.
33February 28:
1997 1998 1999
------- ------- -------
(IN THOUSANDS)
Current:
Federal $ 235 $ 2,931 $ 485
State 56 893 272
------- ------- -------
291 3,824 757
------- ------- -------
Deferred:
Federal (220) (683) (1,377)
State (56) (214) (829)
Foreign -- -- (98)
------- ------- -------
(276) (897) (2,304)
------- ------- -------
$ 15 $ 2,927 $(1,547)
======= ======= =======
49
34
LAMALIE ASSOCIATES,50
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) INCOME TAXES
Significant components of the provision forThe income taxes are summarized as
follows:
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1997 1998
------------ ------------ ------------
(IN THOUSANDS)
Current:
Federal.................................... $ 662 $ 235 $2,931
State...................................... 166 56 893
----- ----- ------
828 291 3,824
----- ----- ------
Deferred:
Federal.................................... (591) (220) (683)
State...................................... (147) (56) (214)
----- ----- ------
(738) (276) (897)
----- ----- ------
$ 90 $ 15 $2,927
===== ===== ======
The provision for income taxestax expense (benefit) differs from the amount computed by
applying the U.S. federal corporate tax rate to income (loss) before provision for income taxestax
expense (benefit) as follows:follows as of February 28:
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1997 1998 ------------ ------------ ------------1999
----- ---- -----
Statutory U.S. federal income tax rate....... 35.0% 35.0%rate 35.0 % 34.0% (34.0)%
Meals, entertainment and dues.............. (101.0)dues (31.2) 2.1 4.9
Keyperson life insurance premiums.......... (6.6)premiums (3.8) .5 .6
Nondeductible goodwill -- -- 4.7
Stock-based compensation -- -- 3.5
Foreign operations -- -- (1.7)
State taxes, net of federal benefit........ (7.3)benefit (2.8) 6.4 ------(6.0)
Other -- -- 1.3
----- ---- -----
Effective income tax rate............... (79.9)%rate (2.8)% 43.0% ======(26.7)%
===== ==== =====
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the corresponding amounts used for income tax reporting
purposes. As of February 28, 1998, the Company has changed its method of reporting
for income
34
35
LAMALIE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) taxes from the cash basis to the accrual basis. Significant
components of the Company's deferred tax assets and liabilities as of February
28, 19971998 and 1998,1999, are as follows:
1997 1998 1999
------- -------
(IN THOUSANDS)
Deferred tax assets:
Accounts payable and accrued liabilities.................. $ 766liabilities $ 124 $ 2,129
Accrued compensation...................................... 4,539 --
Accrued rent.............................................. 415rent 408 499
Allowance for uncollectible accounts...................... --accounts 595 1,137
Deferred compensation..................................... 1,549compensation 2,798 3,213
Net operating loss carryforward...........................carryforward 2,207 2,122
Stock-based compensation -- 2,207
Other..................................................... 7083
Other 35 74
------- -------
Total deferred tax assets......................... 7,339assets 6,167 9,257
------- -------
Deferred tax liabilities:
Accrued compensation...................................... --compensation (117) Accounts receivable, net.................................. (5,757) --(418)
Liability for change in tax method........................ --method (1,241) Prepaid expenses.......................................... (261) --(860)
Property and equipment, net............................... (6)net (623) Other..................................................... --(569)
Other (1) (45)
------- -------
Total deferred tax liabilities.................... (6,024)liabilities (1,982) (1,892)
------- -------
Net deferred tax asset............................ $ 1,315asset $ 4,185 $ 7,365
======= =======
During the year ended February 28, 1999, the Company increased its
deferred tax assets related to the WHI purchase and decreased goodwill
accordingly (see Note 1).
The Company has net operating loss carryforwards of approximately $5.5$6.0
million, expiring in 2018. Approximately $4.2$4.3 million of this amount relates to
the acquisition of WHI (see Note 2)3). The remaining $1.3These losses are limited to approximately
$1.0 million relates to the
change from calendar to fiscaleach year end for tax reporting purposes.
(6)in accordance with IRC Section 382.
50
51
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) EMPLOYEE BENEFIT PLANS
PROFIT SHARING AND SAVINGS PLAN
The Company maintains a defined contribution retirementprofit sharing plan
covering substantially all employees. In August 1998, the plan was amended to
add a 401(k) savings and Company matching feature. Company profit sharing and
matching contributions are discretionary and are funded annually as approved by
the Board of Directors. As of February 28, 1997 and 1998, the Company hashad accrued for
contributions totaling approximately $2,183,000 and $1,585,000,
respectively,$1.6 million, which areis included in accrued
compensation in the accompanying consolidated balance sheets. No amount was
accrued as of February 28, 1999.
DEFERRED COMPENSATION PLAN
The Company has deferred compensation agreements with 59 of its69 employees and
former employees. Under the terms of the agreements, employees electare eligible to
make annual elections, on a calendar year basis, to defer a portion of their
compensation. This compensation, to be received, together with accrued interest, is paid upon
termination of the agreements, as defined. Effective January 1, 1999, the plan
was amended to prohibit future deferrals of compensation to the plan. The
present value of the obligation is recorded as deferred compensation in the
accompanying consolidated balance sheets. Interest is earned on deferred amounts
at a rate determined annually by the Company (8.5%(6.25% at February 28, 1998)1999).
The Company is the beneficiary of whole life insurance policies with an
aggregate cash surrender value of approximately $2,255,000$4.4 million and $4,363,000,$5.8 million,
and an aggregate face amount of $14,725,000$13.5 million and $13,450,000,$22.3 million, as of February
28, 19971998 and 1998,1999, respectively. Proceeds from the policies are intended to fund
the deferred compensation agreements.
EMPLOYEE STOCK PURCHASE PLAN
The Company maintains an employee stock purchase plan (the "ESPP")
covering all eligible employees meeting length of service requirements as
specified in the ESPP. An aggregate of 200,000 shares of common 35
36
LAMALIE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock is
reserved for issuance under the ESPP. Eligible employees are given the right to
purchase shares of common stock two times a year at a price equal to 85% of the
then current market price of the common stock. The second purchase window for
calendar year 1999 will be suspended due to the pending transaction with TMP
Worldwide, Inc. (see Note 13).
(8) STOCK OPTION PLANS
The Company has two employee stock option plans, the 1997 Omnibus Stock
and Incentive Plan (the "1997 Plan") and the 1998 Omnibus Stock and Incentive
Plan (the "1998 Plan"). Under the 1997 Plan and the 1998 Plan, incentive stock
options, nonqualified stock options, stock appreciation rights, performance
units, performance shares, restricted stock, restricted stock units and stock
not subject to restrictions may be granted to employees of the Company at prices
determined at the time of grant. Generally, incentive stock options,
nonqualified stock options, restricted stock and restricted stock units will
vest each year beginning on the first anniversary of the date of grant at 20-25%
per year and will expire after 10 years. An aggregate of 950,000 and 1,000,0001,500,000
shares of common stock areis reserved for
51
52
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
issuance under the 1997 Plan and the 1998 Plan, respectively. Certain options
under the 1997 Plan and the 1998 Plan which have been granted to executive
officers of the Company vest immediately upon the Company's stock price
exceeding specified closing prices for a specified length of time as determined
by the Board of Directors. If the specified criteria are not met, the options
become 100% exercisable six years from the date of grant.
The Company also maintains a non-employee directors' stock plan (the
"Directors' Stock Plan"). An aggregate of 80,000 shares of common stock areis
reserved for issuance under the Directors' Stock Plan. Among other provisions,
outside directors will annually receive options to purchase 5,000 shares of
common stock at an exercise price equal to the market price of the common stock
on the date of grant. The options will vest fully on the first anniversary of
the date of grant and expire after fiveten years.
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25 ("APB 25"), under which approximately
$51,000 and $151,000 of compensation expense has been recognized for options
with an exercise price less than the market price on the date of grant.grant for the
years ended February 28, 1998 and 1999, respectively. In October 1995, the FASB
issued SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"),
which was effective for fiscal years beginning after December 15, 1995. SFAS 123
allows companies to continue following the accounting guidance of APB 25, but
requires pro forma disclosure of net income and earnings per share for the
effects on compensation expense had the accounting guidance of SFAS 123 been
adopted.
36
37
LAMALIE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company adopted SFAS 123 for disclosure purposes during the year
ended February 28, 1998. For SFAS 123 purposes, the fair value of each option
grant has been estimated as of the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions;assumption: risk-free interest
rates ranging from 5.564.2 to 6.436.4 percent, depending on the date of grant, expected
life of 7 years, dividend rate of zero percent, and expected volatility of 45
percent.percent and 66 percent for the years ended February 28, 1998 and 1999,
respectively. Using these assumptions, the fair value of the stock options
granted in the yearyears ended February 28, 1998 and 1999, is approximately $10,934,000, which would be amortized as compensation expense over the vesting
period of the options.$10.9
million and $5.9 million, respectively. Had compensation cost been determined
consistent with SFAS 123, utilizing the assumptions detailed above, the
Company's net income (loss) and net income (loss) per share, as reported would
have been the following pro forma amounts (in thousands except per share data):amounts:
1998 ------1999
-------- --------
(IN THOUSANDS EXCEPT PER SHARE DATE)
Net Incomeincome (loss)
As reported............................................... $3,880reported $ 3,880 $ (4,238)
Pro forma.................................................forma 3,399 (5,938)
Basic net income (loss) per common sharestare
As reported...............................................reported $ 0.85 $ (0.58)
Pro forma.................................................forma 0.74 (0.81)
Diluted net income (loss) per common and
common equivalent share
As reported...............................................reported $ 0.82 $ (0.58)
Pro forma.................................................forma 0.72 (0.81)
52
53
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Company's stock option plans' activity for the years
ended February 28, 1998 and 1999 and a status of the Company's stock option
plans as of February 28, 1998, and for the year then ended1999, is presented in the table and narrative below:
1998
--------------------------
WEIGHTEDWEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES EXERCISE PRICE
--------- ------------------------ --------
Outstanding -- beginning of year...........................Options outstanding at February 28, 1997 -- $ --
Granted....................................................Option activity:
Granted 1,211,615 15.97
--------- ------
OutstandingExercised -- end of year.................................--
Cancelled or expired -- --
---------- --------
Options outstanding at February 28, 1998 1,211,615 $15.97
========= ======15.97
Option activity:
Granted 1,652,740 11.30
Exercised (5,750) 12.00
Cancelled or expired (1,224,267) 16.35
---------- --------
Options outstanding at February 28, 1999 1,634,338 10.99
========== ========
OPTIONS OUTSTANDING
-----------------------------------------------------------------------------------------------------------------------
NUMBER WEIGHTED- WEIGHTED-
OUTSTANDING AVERAGE AVERAGE
AS OF REMAINING EXERCISE
RANGE OF EXERCISE PRICES FEBRUARY 28, 19981999 CONTRACTUAL LIFE PRICE
- ------------------------ ----------------- ---------------- -----------------------
$7.50............................... 67,500 9.3$ 5.63 - 8.00 838,315 10 years $ 7.507.11
$ 8.50 - 12.00 -- 17.88...................... 538,500 9.4372,850 9 years 13.12
19.13 -- 19.56...................... 605,615 10.010.11
$17.88 - 21.50 423,173 9 years 19.4519.44
As of February 28, 1998 and 1999, options to purchase an aggregate of
1,211,615 and 1,634,338 shares, respectively, were outstanding with a weighted
average fair value of $9.02.$9.02 and $6.25, respectively. Of the options outstanding
at February 28, 1999, 136,380 were immediately exercisable with a weighted
average exercise price of $15.74. No options were exercisable as of February 28,
1998. No options were granted during the yearsyear ended February 29, 1996 or February 28, 1997.
37On October 8, 1998, the Compensation and Management Development
Committee (the "Compensation Committee") of the Board of Directors approved a
program to permit the exchange of certain outstanding options to purchase LAI
common stock for a smaller number of newly issued options with lower exercise
prices (the "Option Exchange Program"). The Option Exchange Program applied to
options issued under the 1997 Plan and 1998 Plan with initial exercise prices of
$12.00 per share or higher. Under the Option Exchange Program, such options were
exchanged for options with initial exercise prices of $8.00 or $10.00. The
closing price of the Company's common stock as reported on the Nasdaq Stock
Market on October 8, 1998, was $6.75. A total of 943,175 options were exchanged
for 632,640 newly granted options. These options are included in the option
activity as cancelled or expired and granted, respectively.
53
38
LAMALIE ASSOCIATES,54
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7)(9) NET INCOME (LOSS) PER SHARE
The Company adopted SFAS 128, "Earnings per Share" during the year
ended February 28, 1998. Accordingly, basic and diluted earnings per share
("EPS") are shown on the face of the accompanying consolidated statements of
operations. The following is a reconciliation of the numerator and denominator
of basic EPS to diluted EPS.
FOR THE YEARS ENDED ---------------------------------------------------------------------------
FEBRUARY 29, 1996 FEBRUARY 28,
----------------------------------------------------------------------------------
1997 ------------------------------------ ------------------------------------1998
----------------------------------------------------------------------------------
INCOME PER- INCOME PER- (LOSS) SHARES PER SHARE INCOME (LOSS) SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------ ----------- ------------- ------
(IN THOUSANDS)
BASIC EPS
Income (loss) available to
common stockholders............... $(202) 2,921 $(0.07) $(567)stockholders $ (567) 3,199 $(0.18) Effect of Dilutive
Securities Options.........$ 3,880 4,573 $ 0.85
EFFECT OF DILUTIVE
SECURITIES
Options -- -- -- --121
Convertible
promissory
note.......................note -- -- -- --
----- ----- ----- -----14 57
------- ------- ------ ------- ------- -------
DILUTED EPS
Income (loss) available to
common stockholders +
assumed conversions................ $(202) 2,921 $(0.07) $(567)conversions $ (567) 3,199 $(0.18) ===== =====$ 3,894 4,751 $ 0.82
======= ======= ====== ===== ===== ============= ======= =======
FOR THE YEARS ENDED ------------------------------------
FEBRUARY 28,
1998
------------------------------------
INCOME PER-
(LOSS)----------------------------------------
1999
----------------------------------------
INCOME(LOSS) SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
(IN THOUSANDS)-------
BASIC EPS
Income (loss) available to
common stockholders............... $3,880 4,573 $0.85
Effect of Dilutive
Securities Options.........stockholders $(4,238) 7,346 $(0.58)
EFFECT OF DILUTIVE
SECURITIES
Options -- 121-- --
Convertible
promissory
note....................... 14 57note -- -- --
------- ------- ------ -----
DILUTED EPS
Income (loss) available to
common stockholders +
assumed conversions................ $3,894 4,751 $0.82conversions $(4,238) 7,346 $(0.58)
======= ======= ====== ===== =====
Options to purchase 605,615 shares of common stock at prices ranging
from $19.13 to $19.56 per share and options to purchase 1,634,338 shares of
common stock at prices ranging from $5.63 to $21.50 and $833,000 of debt
convertible into 32,829 shares of common stock were outstanding as of February
28, 1998 and 1999, respectively, but were not included in the computation of
diluted EPS because the options' exercise
priceseffect would be antidilutive.
(10) SEGMENT REPORTING
During March 1999, the Company closed both its London and Hong Kong
offices (see Note 13). Prior to that time, the Company was divided into two
operating segments, domestic and international. Domestic operations were, greater thanand
continue to be, conducted from offices located in most major cities throughout
the average market priceUnited States. International operations were conducted from offices in
London and Hong Kong. Both segments provided consulting services aimed
specifically at solving their clients' leadership needs by identifying,
evaluating, and recommending qualified candidates for senior executive positions
primarily at Fortune 500 and large private companies exclusively on a retained
basis.
The Company evaluates each segment's performance based on its operating
profit or loss. The Company did not have international operations for the years
ended February 28, 1997 and 1998. Information concerning the operations of the
Company's reportable segments for the year ended February 28, 1999, is as
follows:
54
55
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DOMESTIC INTERNATIONAL CONSOLIDATED
-------- ------------- ------------
(IN THOUSANDS)
Fee revenue, net $ 83,449 $ 3,362 $ 86,811
Depreciation and amortization (2,155) (241) (2,396)
Restructuring charges -- (3,543) (3,543)
Operating income (loss) 6,531 (12,564) (6,033)
Interest income 1,799 7 1,806
Interest expense (1,188) -- (1,188)
Income tax (expense) benefit (3,453) 5,000 1,547
Purchases of property and equipment 3,823 3,091 6,914
Total assets 95,980 7,843 103,823
(11) EQUITY TRANSACTIONS
On November 16, 1998, the Company announced that it had adopted a
Stockholder Rights Agreement. To implement this plan, the Company declared
a dividend of one Preferred Stock Purchase Right on each outstanding share
of the Company's common shares.
(8)stock. The dividend distribution was payable to
stockholders of record on November 16, 1998. The rights will be exercisable
for fractions of a share of the Company's Series A Junior Participating
Preferred Stock only if a person or group of persons acquires 20 percent or
more of the Company's common stock or announces a tender offer, the
consummation of which would result in ownership by a person or group of
persons of 20 percent or more of the common stock.
Subsequent to year end, the Company amended the Stockholder Rights
Agreement to exclude TMP Worldwide, Inc. ("TMP") as an Acquiring Person, as
defined in the agreement (see Note 13).
(12) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases certain office equipment and real property under
noncancellable operating leases.
Future minimum lease payments, net of sublease income, under these leases
are as follows:
YEAR ENDING AMOUNT
- ----------- --------------------
(IN THOUSANDS)
February 29, 2000 $ 5,921
February 28, 1999......................................... $ 4,6062001 5,795
February 28, 2002 4,861
February 28, 2003 4,470
February 29, 2000......................................... 4,078
February 28, 2001......................................... 3,394
February 28, 2002......................................... 2,802
February 28, 2003......................................... 2,511
Thereafter................................................ 5,7882004 3,731
Thereafter 17,140
-------
$23,179$41,918
=======
55
56
LAI WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense totaled approximately $1,769,000, $2,947,000$2.9, $3.4 and $3,396,000$7.7 million during
the years ended February 29, 1996, February 28, 1997, 1998 and February 28,
1998,1999, respectively. Certain real
property leases provide for periods of free rent or escalating lease payments
throughout the lease term. In accordance with generally accepted accounting
principles, rent expense is recognized ratably over the term of the agreement.
38
39
LAMALIE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LETTERS OF CREDIT
As of February 28, 1998,1999, the Company has four standby letters of credit
totaling approximately $417,000.$2.6 million at February 28, 1999. The letters of credit,
which are required by certain lessors as security deposits, expire between
OctoberAugust and December 1998.1999.
LITIGATION
The Company is involved in various legal actions arising in the normal
course of business. While it is not possible to determine with certainty the
outcome of these matters, in the opinion of management, the eventual resolution
of these claims and actions outstanding will not have a material adverse effect
on the Company's financial position or results of operations.
39EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain
executive officers which provide for minimum compensation under certain
circumstances. The agreements also provide for a payment of amounts up to three
times their annual salary if a change in control, as defined, of the Company
occurs and include a covenant against competition with the Company which extends
for two to three years after termination. In the event all the covered
executives elected to terminate their employment during a specified period
following a change in control, the Company's maximum liability would be
approximately $5.2 million.
(13) SUBSEQUENT EVENTS
ACQUISITION BY TMP WORLDWIDE, INC.
Effective as of March 11, 1999, the Company entered into an Agreement
and Plan of Merger (the "Merger Agreement") with TMP Worldwide, Inc. ("TMP"),
pursuant to which TMP is to acquire LAI in a pooling of interests transaction.
Under the terms of the Agreement, each share of LAI common stock or option to
purchase LAI common stock will be exchanged for a specified number of shares of
TMP common stock or options to purchase TMP common stock, respectively. The
Merger Agreement is subject to customary closing conditions, including approval
by the shareholders of LAI.
56
4057
INTERNATIONAL OPERATIONS
In March 1999, the Company completed a second review of its
international operations and assessed the impact of the actions taken as a
result of the decision made in December 1998, to significantly reduce the size
and scope of its London office (see Note 2). The Company determined that
projections for revenues from international operations were not being met.
Consistent with its previously stated intentions to prevent further operating
losses from international operations in fiscal 2000, the Company determined to
immediately enact a plan of closure for its two international offices. In
accordance with this plan, both the London and Hong Kong offices were closed
during the first quarter of fiscal 2000. The Company expects that the office
closures will result in further restructuring charges which will be recorded in
the first quarter of fiscal 2000.
57
58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, as of the 29th25th day of
May, 1998.
LAMALIE ASSOCIATES,1999.
LAI WORLDWIDE, INC.
By: /s/ ROBERT L. PEARSON
------------------------------------
Robert L. Pearson,
PresidentChairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ ROBERT L. PEARSON Chief Executive Officer May 25, 1999
- ------------------------------------------------------ and Director (Principal Executive
Robert L. Pearson Officer)
/s/ PATRICK J. MCDONNELL President, Chief ExecutiveOperating May 29, 199825, 1999
- ----------------------------------------------------------------------------------------------------------- Officer and Director
Robert L. Pearson (Principal Executive
Officer)
/s/ JACK P. WISSMAN Executive Vice President, May 29, 1998
- ----------------------------------------------------- Chief Financial Officer
Jack P. Wissman (Principal Financial
Officer)Patrick J. McDonnell
/s/ PHILIP R. ALBRIGHT Vice President, FinanceChief May 29, 199825, 1999
- ----------------------------------------------------- and Controller (Principal------------------------------------------------------ Financial Officer
Philip R. Albright (Principal Accounting Officer)
/s/ RICHARD L. BAIRD Executive Vice President May 25, 1999
- ------------------------------------------------------
Richard L. Baird
/s/ JOE D. GOODWIN Director May 29, 199825, 1999
- -----------------------------------------------------------------------------------------------------------
Joe D. Goodwin
/s/ RODERICK C. GOW Director May 29, 199825, 1999
- -----------------------------------------------------------------------------------------------------------
Roderick C. Gow
/s/ JOHN F. JOHNSON Director May 25, 1999
- ------------------------------------------------------
John F. Johnson
/s/ NEAL L. MASLAN Director May 25, 1999
- ------------------------------------------------------
Neal L. Maslan
/s/ JOHN S. ROTHSCHILD Director May 25, 1999
- ------------------------------------------------------
John S. Rothschild
/s/ RAY J. GROVES Director May 29, 199825, 1999
- -----------------------------------------------------------------------------------------------------------
Ray J. Groves
/s/ JOHN F. JOHNSON Director May 29, 1998
- -----------------------------------------------------
John F. Johnson
/s/ RICHARD W. POGUE Director May 28, 1998
- -----------------------------------------------------
Richard W. Pogue
/s/ JOHN C. POPE Director May 29, 1998
- -----------------------------------------------------
John C. Pope
4058
4159
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JOHN S. ROTHSCHILDRICHARD W. POGUE Director May 29, 199825, 1999
- -----------------------------------------------------
John S. Rothschild------------------------------------------------------
Richard W. Pogue
/s/ DAVID L. WITTEJOHN C. POPE Director May 29, 199825, 1999
- -----------------------------------------------------
David L. Witte------------------------------------------------------
John C. Pope
4159
4260
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Lamalie Associates,LAI Worldwide, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Lamalie Associates,LAI Worldwide, Inc. included in this Form
10-K and have issued our report thereon dated April 8, 1998.7, 1999. Our audits were
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedule listed in the index in item 14(a)(2)Item 16(b) is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange CommissionCommission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the auditsaudit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Tampa, Florida,
April 8, 1998
427, 1999
60
4361
SCHEDULE II
LAMALIE ASSOCIATES,LAI WORLDWIDE, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS
-----------------------------
BALANCE AT CHARGED TO AMOUNT ADDED BALANCE AT
BEGINNING OF COST AND THROUGH END OF
DESCRIPTION OF PERIOD EXPENSES ACQUISITIONS DEDUCTIONS PERIOD
- -------------------- -------- ------------ ---------- ------------ -----------------
Year ended February 29, 1996
Deducted from asset account:28, 1997
Allowance for doubtful accounts.... $275 $350accounts $ 625 $ 225 $ -- $ 625
Year ended February 28, 1997
Deducted from asset account:
Allowance for doubtful accounts.... 625 225 -- $ 850
Accrued restructuring charges -- -- -- -- --
Year ended February 28, 1998
Deducted from asset account:
Allowance for doubtful accounts....accounts 850 450 820 -- 2,120
Accrued restructuring charges -- -- -- -- --
Year ended February 28, 1999
Allowance for doubtful accounts 2,120 1,130 -- -- 3,250
Accrued restructuring charges -- 3,543 -- 2,966 577
4361