1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1998MAY 31, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _____ to _____
Commission File Number 0-22645
LAI WORLDWIDE, INC.
------------------------------------------------------- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
Florida 59-277644159-3547281
- ------------------------------- -------------------------------
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
200 Park Avenue
New York, New York
10166-0136
----------------------------------------- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(212) 953-7900
-----------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- -------- -----
At December 31, 1998,June 30, 1999, the Registrant had outstanding 8,027,0578,024,071 shares of
$.01 par value common stock.
2
LAI WORLDWIDE, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income
for the three- and nine-month periods
ended November 30, 1998 and 1997 3
Condensed Consolidated Balance Sheets at
November 30, 1998 and February 28, 1998 4
Condensed Consolidated Statements of Cash Flows
for the nine-month periods ended
November 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION 15
SIGNATURES 18
2
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
for the three-month periods
ended May 31, 1999 and 1998 3
Condensed Consolidated Balance Sheets at
May 31, 1999 and February 28, 1999 4
Condensed Consolidated Statements of Cash Flows
for the three-month periods ended
May 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION 14
SIGNATURES 17
3
LAI WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended
Nine Months Ended
November 30, November 30,
-------------------- --------------------May 31,
--------------------------------------
1999 1998
1997 1998 1997
------- ------- ------- ------------------------ -----------------
Fee revenue, net $23,311 $15,349 $70,984 $45,847$ 18,964 $ 23,494
Operating expenses:
Compensation and benefits 17,404 11,651 51,151 35,15216,520 17,317
General and administrative 4,945 1,997 13,920 5,87212,978 3,718
Goodwill amortization 182194 206
Restructuring charges 2,789 --
582 --
------- ------- ------- ----------------- -----------
Total operating expenses 22,531 13,648 65,653 41,024
------- ------- ------- -------32,481 21,241
---------- -----------
Operating income 780 1,701 5,331 4,823(loss) (13,517) 2,253
Other income (expense), net 170 153 358 45
------- ------- ------- -------259 (118)
---------- -----------
Income (loss) before provision for income taxes 950 1,854 5,689 4,868
Provision for income taxes 939 798 3,309 2,094
------- ------- ------- -------(13,258) 2,135
Income tax expense (benefit) (5,436) 938
---------- -----------
Net income (loss) $ 11(7,822) $ 1,056 $ 2,380 $ 2,774
======= ======= ======= =======1,197
---------- -----------
---------- -----------
Basic net income (loss) per common share $ --(.97) $ .20 $ .33 $ .64
======= ======= ======= =======.21
---------- -----------
---------- -----------
Weighted average common shares 8,016 5,348 7,116 4,310
======= ======= ======= =======8,046 5,625
---------- -----------
---------- -----------
Diluted net income (loss) per common and common equivalent share $ --(.97) $ .19 $ .33 $ .63
======= ======= ======= =======.20
---------- -----------
---------- -----------
Weighted average common and common equivalent shares 8,094 5,559 7,389 4,423
======= ======= ======= =======8,046 6,005
---------- -----------
---------- -----------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
4
LAI WORLDWIDE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
ASSETS November 30,
May 31, February 28,
1998 1998
------------ ------------1999 1999
------------- -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,37520,535 $ 23,780
Short-term investments 33,850 --29,899
Accounts receivable, less allowance of $1,700$3,795 and $2,120,$3,250, respectively 27,582 22,21919,987 22,419
Prepaid expenses 2,609 1,420673 628
Refundable income taxes -- 1,822870 3,591
Deferred tax assets 1,721 486
--------- ---------3,201 2,438
---------- ----------
Total current assets 69,137 49,727
--------- ---------45,266 58,975
---------- ----------
Property and equipment, net of accumulated depreciation and amortization
of $3,609$5,093 and $2,608,$4,228, respectively 10,161 5,612
Non-current deferred9,006 9,521
Deferred tax assets 5,441 3,6989,341 4,927
Goodwill, net of accumulated amortization of $599$987 and $17,$793, respectively 22,720 24,79022,298 22,492
Other assets 8,065 5,0897,764 7,908
---------- -------------------
Total assets $ 115,52493,675 $ 88,916
========= =========103,823
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 4,4394,900 $ 6,8076,027
Accrued compensation 11,069 20,573
Income taxes payable 546 --7,435 8,234
Current maturities of long-term debt 2,994 3,070
Other current liabilities 886 8,976
--------- ---------1,418 3,004
Accrued restructuring charges 1,281 577
---------- ----------
Total current liabilities 19,934 39,426
--------- ---------15,034 17,842
---------- ----------
Accrued rent 1,100 1,0131,101 1,279
Deferred compensation 8,977 6,9518,949 8,239
Long-term debt, less current maturities 5,772 6,055
--------- ---------2,878 2,903
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock; $0.01 par value; 3,000,000 shares authorized; no
shares issued and outstanding -- --
Common stock; $0.01 par value; 35,000,000 shares authorized;
8,027,0578,120,427 and 5,576,4468,112,927 shares issued, respectively, and 8,024,071
and 8,082,953 shares outstanding, respectively 80 5682 82
Additional paid-in capital 74,837 32,87377,497 78,065
Unamortized stock-based compensation (1,747) (2,732)
Common stock in treasury, at cost; 96,356 and 29,974 shares, respectively (619) (196)
Cumulative translation adjustment (98) --adjustments 18 37
Retained earnings 4,922 2,542
--------- ---------(9,518) (1,696)
---------- ----------
4
Total stockholders' equity 79,741 35,471
--------- ---------65,713 73,560
---------- ----------
---------- ----------
Total liabilities and stockholders' equity $ 115,52493,675 $ 88,916
========= =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
5
LAI WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months
Ended November 30,
-------------------------------
1998 1997
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,380 $ 2,774
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 1,001 592
Goodwill amortization 582 --
Amortization of deferred compensation 508 --
Changes in operating assets and liabilities (17,416) (4,426)
-------- --------
Net cash used in operating activities (12,945) (1,060)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short term investments, net (33,363) --
Capital expenditures (5,550) (1,308)
Investment in life insurance (1,416) (998)
Acquisition of Ward Howell International, Inc. (8,384) --
-------- --------
Net cash used in investing activities (48,713) (2,306)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 1,000 4,576
Repayments (1,129) (6,359)
Proceeds from public offering of common stock 41,392 25,226
Other issuances of common stock 88 --
-------- --------
Net cash provided by financing activities 41,351 23,443
-------- --------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (20,307) 20,077
CASH AND CASH EQUIVALENTS, at beginning of period 23,780 1,662
Foreign currency translation adjustment (98) --
-------- --------
CASH AND CASH EQUIVALENTS, at end of period $ 3,375 $ 21,739
======== ========103,823
---------- ----------
---------- ----------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
LAI WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months
Ended May 31,
-------------------------------
1999 1998
----------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (7,822) $ 1,197
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 789 295
Write-down of property and equipment 1,088 --
Goodwill amortization 194 206
Amortization of deferred compensation (5) 88
Changes in operating assets and liabilities (635) (12,843)
--------- ---------
Net cash used in operating activities (6,391) (11,057)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,362) (775)
Investment in life insurance -- (467)
Acquisition of Ward Howell International, Inc. -- (8,092)
--------- ---------
Net cash used in investing activities (1,362) (9,334)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt (1,611) (31)
--------- ---------
Net cash used in financing activities (1,611) (31)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (9,364) (20,422)
CASH AND CASH EQUIVALENTS, at beginning of period 29,899 23,780
--------- ---------
--------- ---------
CASH AND CASH EQUIVALENTS, at end of period $ 20,535 $ 3,358
--------- ---------
--------- ---------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
LAI WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Organization
Effective at the close of business on December 31, 1998, Lamalie Associates,
Inc., a Florida corporation ("LAI"), reorganized into a holding company
structure (the "Reorganization") in which LAI Worldwide, Inc., a Florida
corporation, became the new holding company with its shares of common stock
registered under the Securities Exchange Act of 1934 (the "1934 Act") under the
Commission file number on the cover of this Quarterly Report. In this and
certain other respects, LAI Worldwide, Inc. isand its wholly-owned subsidiaries ("LAI" or the successor to"Company")
provide consulting services aimed specifically at solving its clients'
leadership needs by identifying, evaluating and recommending qualified
candidates for senior level positions. LAI which
becameprovides executive search and
selection services exclusively on a wholly owned subsidiary of the new holding companyretained basis primarily in the Reorganization. Prior to the Reorganization, LAI Worldwide, Inc. had been an
indirect wholly-owned subsidiary of LAI. Prior to the Reorganization, shares of
LAI's common stock were registered under the 1934 Act and LAI was assigned the
same Commission file number as is now used by LAI Worldwide, Inc. In the
Reorganization, each share of LAI common stock outstanding immediately prior to
the Reorganization, together with the preferred stock purchase right associated
therewith, was converted into one share of the common stock of LAI Worldwide,
Inc., together with one preferred stock purchase right associated therewith. As
a result, persons who were LAI stockholders before the Reorganization now hold
common stock and preferred stock purchase rights of the LAI Worldwide, Inc.
(instead of LAI). For additional information regarding the Reorganization, see
the Current Report on Form 8-K and the exhibits thereto filed with the
Commission on January 5, 1999.
As used in the Notes to Condensed Consolidated Financial Statements, unless the
context otherwise requires, references to the "Company" are intended to refer
to LAI and its consolidated subsidiaries with respect to events occurring prior
to the effectiveness of the Reorganization and to the new holding company, LAI
Worldwide, Inc., and its consolidated subsidiaries with respect to events
occurring from and after the effectiveness of the Reorganization.United
States.
Note 2. Condensed Consolidated Financial Statements
In the opinion of the Company, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position of the
Company as of November 30, 1998,May 31, 1999, and February 28, 1998,1999, and the results of operations
for the three- and nine-monththree-month periods ended November 30,May 31, 1999 and 1998, and 1997 and cash flows for the
nine-monththree-month periods ended November 30, 1998May 31, 1999 and 1997.1998.
The condensed 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.
6
7
These condensed consolidated financial statements, including the condensed
consolidated balance sheet as of February 28, 1998,1999, which has been derived from
audited financial statements, are presented in accordance with the requirements
of Form 10-Q and consequently may not include all disclosures normally required
by generally accepted accounting principles or those normally made in the
Company's Annual Report on Form 10-K. The accompanying condensed consolidated
financial statements and related notes should be read in conjunction with the
Company's fiscal year 1999 Annual Report on Form 10-K/A10-K as filed with the
Securities and Exchange Commission on June 12, 1998.May 27, 1999.
Certain prior year balances have been reclassified in order to conform to the
current year financial statement presentation.
Note 3. Short-term Investments
AsMerger with TMP Worldwide, Inc.
Effective as of November 30, 1998, short-term investments consistsMarch 11, 1999, the Company entered into an Agreement and Plan
of investmentsMerger (the "Merger Agreement") with TMP Worldwide, Inc. ("TMP"), pursuant to
which TMP is to merge with LAI in commercial paper, certificatesa pooling of deposit,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
7
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.
8
Note 4. Restructuring Charges
During the first and investments in Federal Home Loan
Bank discount notes. These securities are classified as available-for-sale, and
accounted for in accordance with Statementsecond quarters of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
All securities mature within 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. A restructuring charge of approximately $3.5 million
was recorded in the fourth quarter of fiscal 1999.
In March 1999, the Company completed a second review of its international
operations and assessed the impact of the actions taken in fiscal 1999. The
Company determined that the projections for revenues from international
operations were not being met. The Company immediately enacted a plan of closure
for its two international offices. In connection with the latest maturity date being
February 1,closure, the Company
recorded a restructuring charge of approximately $2.8 million. This charge
included approximately $900,000 for write-downs of abandoned assets,
approximately $800,000 of severance benefits payable to 24 employees whose
positions were eliminated and approximately $1.0 million of legal and other
costs directly related to the restructuring. A summary of the changes in the
accrued expenses related to the restructuring is as follows:
Balance at Charged to Balance at
February 28, 1999 Costs and Expenses Deductions May 31, 1999
---------------------- ---------------------- ---------------------- -----------------------
(in thousands)
Fiscal 1999
restructuring $ 577 $ 116 $ 198 $ 495
Fiscal 2000
restructuring -- 2,673 1,887 786
---------------------- ---------------------- ---------------------- -----------------------
$ 577 $2,789 $2,085 $1,281
Note 5. Advertising Costs
In May 1999, the Company entered into a four-year co-operative advertising
arrangement with TMP, under which the Company agreed to provide $10 million in
television and print advertising in May and June 1999. Unrealized holding gains/losses are immaterial as of November
30, 1998, and there have been no sales or transfers of securitiesAs a result, the Company
recorded $7.6 million in advertising costs during the
current year.May 1999.
9
Note 4.6. Net Income (Loss) Per Common and Common Equivalent Share
Basic net earnings per common share ("basic EPS") was determined by dividing
the net income (loss) by the weighted average number of shares of common
stock outstanding during the period. Diluted net earnings per common and
common equivalent share ("diluted EPS") 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 convertible debt assuming conversion upon
issuance. The following reconciles the numerator and denominator of basic EPS
to diluted EPS:
Three Months Ended Three Months Ended
November 30,May 31, 1999 May 31, 1998
November 30, 1997
---------------------------------------------- -------------------------------------------------------------------------------------------
Income (loss) Shares Per-Share Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
(dollars in thousands)thousands, except per share amounts)
BASIC EPS
Income (loss) available to
common stockholders $(7,822) 8,046 $ 11 8,016(.97) $ --1,197 5,625 $ 1,056 5,348 $ .20.21
EFFECT OF DILUTIVE SECURITIES
Options -- 22 -- 211-- 322
Convertible promissory note 12 56 -- -- ---- ----- ------- -----12 58
------------ -------------- ------------ --------------
DILUTED EPS
Income (loss) available to
common stockholders +
assumed conversions $(7,822) 8,046 $ 23 8,094(.97) $1,209 6,005 $ -- $ 1,056 5,559 $ .19
==== ===== ===== ======= ===== ======
7
8
Nine Months Ended Nine Months Ended
November 30, 1998 November 30, 1997
---------------------------------------------- --------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
(dollars in thousands)
BASIC EPS
Income available to common
stockholders $ 2,380 7,116 $ .33 $ 2,774 4,310 $ .64
EFFECT OF DILUTIVE SECURITIES
Options -- 216 -- 113
Convertible promissory note 35 57 -- --.20
------- ----- ------ ------ ----- -------
------- ----- DILUTED EPS
Income available to common
stockholders + assumed
conversions $ 2,415 7,389 $ .33 $ 2,774 4,423 $ .63
======= ===== ====== ======= ===== ======------ ------ ----- -------
All share and per share information in these condensed consolidated financial
statements has been adjusted to give effect to the 1,000 for one common stock
split and par value restatement which became effective June 3, 1997, in
connection with the reincorporation of the Company in Florida.
Note 5. Newly Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting7. Comprehensive Income" (SFAS
130). SFAS 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in the financial statements and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in-capital in the stockholders' equity
section of the consolidated balance sheets for annual financial statements. The
Company adopted SFAS 130 in fiscal 1999 and accordingly, comprehensiveIncome
Comprehensive income is as follows:
Three Months Ended
Nine Months Ended
November 30, November 30,
------------------------ -----------------------May 31,
---------------------------------
1999 1998
1997 1998 1997
----- ------- ------- ------------------------ ------------
(in thousands)
Net income (loss) $ 11(7,822) $ 1,056 $ 2,380 $ 2,7741,197
Other comprehensive income (loss), net of tax:
Foreign currencyCumulative translation adjustment (73) -- (98) --
------ ------- ------- -------18 4
--------- ---------
Comprehensive income (loss) $ (62)(7,804) $ 1,056 $ 2,282 $ 2,774
====== ======= ======= =======1,201
--------- ---------
--------- ---------
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS 131). SFAS 131 establishes standards for the way companies report
information about operating segments
810
9
including the related disclosures about the different economic environments in
which it operates. The Company has elected to adopt SFAS 131 during the period
ended November 30, 1998. See Note 6 where8. Segment Reporting
During March 1999, the Company discloses information
aboutclosed both its operating segments.London and Hong Kong offices (see
Note 6. Segment Reporting
The4). Prior to that time, the Company iswas divided into two operating
segments, domestic and international. Domestic operations arewere, and continue to
be, conducted from 17 offices located in most major cities throughout the United
States. International operations are focused primarilywere conducted from offices in EuropeLondon and Asia.Hong
Kong. Both segments provideprovided 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.
Information concerning the operations in theseof the Company's reportable segments is as
follows:
Three Months Ended
Nine Months Ended
November 30, November 30,
------------------------- ------------------------May 31,
------------------------------
1999 1998
1997 1998 1997
------------------------- -------------------------------- --------
(in thousands)
Fee revenue, net:
Domestic $ 22,148 $15,34918,844 $ 68,139 $45,84723,494
International 1,163120 --
2,845 --
--------- ------- -------- ---------------
Consolidated $ 23,311 $15,34918,964 $ 70,984 $45,847
========= ======= ======== =======
Compensation and benefits:23,494
-------- --------
-------- --------
Restructuring charges:
Domestic $ 14,615 $11,651-- $ 46,377 $35,152--
International 2,789 --
4,774 --
--------- ------- -------- ---------------
Consolidated $ 17,404 $11,6512,789 $ 51,151 $35,152
========= ======= ======== =======
General and administrative:
Domestic $ 3,010 $ 1,997 $ 10,440 $ 5,872
International 1,935 --
3,480 --
--------- ------- -------- -------
Consolidated $ 4,945 $ 1,997 $ 13,920 $ 5,872
========= ======= ======== =======--------
-------- --------
Operating income/income (loss):
Domestic $(10,355) $ 4,3402,572
International (3,162) (319)
-------- --------
Consolidated $(13,517) $ 1,701 $ 10,738 $ 4,823
International (3,560) -- (5,407) --
--------- -------2,253
-------- -------
Consolidated $ 780 $ 1,701 $ 5,331 $ 4,823
========= ======= ======== =======
November 30, February 28,
------------ ------------
1998 1998
------------ --------------------
-------- --------
May 31,
1999
--------
Total assets:
Domestic $ 107,827 $ 88,91689,110
International 7,697 --
---------4,565
--------
Consolidated $ 115,524 $ 88,916
========= ========93,675
--------
--------
911
10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
Effective atDuring the closefirst and second quarters of businessfiscal 1999, LAI 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. LAI also signed
exclusivity and confidentiality letter agreements in December 31, 1998, Lamalie Associates,
Inc., a Florida corporationwith
Futura Beteiligungs GmbH ("LAI"Futura"), reorganizedthe majority owner of Neumann Holding
AG, one of Europe's largest executive search and assessment consulting firms.
The parties entered into a holding company
structure and began doing business underpreliminary talks about the name of the new holding company,
LAI Worldwide, Inc. The reorganization is 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 LAI, which became a wholly owned subsidiary of the new holding
company in the reorganization. In the reorganization, each sharepossibility of LAI
common
stock outstanding immediately prioracquiring Futura. These talks were terminated in March 1999, when LAI signed
the Merger Agreement with TMP.
Due to economic conditions and the reorganization was converted into
one share ofinherent difficulties in establishing
start-up operations, revenues for the new holding company's common stock.London and Hong Kong offices were less
than projected, resulting in substantial losses from LAI's international
business segment. As a result, persons whoin December 1998, LAI decided to significantly
reduce the size and scope of its London office. In connection with this
downsizing, a restructuring charge of approximately $3.5 million was
recorded. This charge included write-downs of abandoned assets, severance
benefits payable to international employees whose positions were LAI stockholders before the reorganization now hold common stock of LAI
Worldwide, Inc. (instead of LAI). Prioreliminated,
and legal and other costs directly related to the reorganization, LAI's common
stock traded onrestructuring.
In March 1999, LAI completed a second review of its international operations
and assessed 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 ticker symbol "LAIX." As used herein,
unless the context otherwise requires, references to the "Company" are intended
to refer to LAI and its consolidated subsidiaries with respect to events
occurring prior to the effectivenessimpact of the reorganization, and to the new
holding Company, LAI Worldwide, Inc., and its consolidated subsidiaries with
respect to events occurring from and after the effectivenessactions taken as a result of the reorganization. See "Note 1decision made
in December 1998. LAI determined that projections for revenues from
international operations were not being met. Consistent with its previously
stated intentions to Notes to Condensed Consolidated Financial
Statements."prevent further operating losses from international
operations in fiscal 2000, LAI immediately enacted 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
office closures resulted in a further restructuring charge of $2.8 million
during the first quarter of fiscal 2000.
FISCAL 19992000 COMPARED TO FISCAL 1998
Fee revenue.1999
FEE REVENUE. The Company's fee revenue increased 51.9% and 54.8%decreased $4.5 million, or 19.3%, respectively,
to
$23.3 million and $71.0$19.0 million for the three- and nine-month periodsthree-month period ended November 30, 1998, compared to $15.3 million and $ 45.8May 31, 1999, from $23.5 million
for the same periodsperiod in fiscal 1998.1999.
The Company's domestic revenue increased 44.3% and 48.6%decreased $4.7 million, or 19.8%, respectively,to $18.8
million for the three- and nine-month periodsthree-month period ended November 30, 1998.May 31, 1999, from $23.5 million for
the same period in fiscal 1999. This increasedecrease is attributable to an increasea 23.5%
decrease in the number of consultants. As of November 30,
1998, the Company employed 114 consultants domestically, a net increase of 43
since November 30, 1997. The increase was primarily attributable to the hiring
of 35 consultants in connection with two acquisitions during the fourth quarter
of fiscal 1998. The average revenue per consultant employed for a full year decreased 14.1%, to
$652,000$169,000 for the nine-monththree-month period ended November 30, 1998,
compared to $759,000May 31, 1999, from $221,000 for the
same period in fiscal 1998. This decrease resulted
from consultants added through acquisitions of companies that had historically
lower consultant productivity.1999. The average first-year cash compensation of
positions for which the Company conducted searches decreased 11.6%increased 13.4% to $208,000$228,000
for the nine-monththree-month period ended November 30, 1998, compared to $233,000May 31, 1999, from $201,000 for the same period
in fiscal 1998, also attributable primarily1999. As of May 31, 1999, the
12
Company employed 116 consultants domestically, compared to acquisitions.
10115 domestic
consultants employed as of May 1998.
13
11
International revenuesThe Company's selection services, LAIcompass.com ("Compass"), launched during
the first quarter of fiscal 2000, accounted for 5.0%1.0% of the Company's domestic
revenue for the three-month period ended May 31, 1999.
Revenues from international operations, which commenced in May 1998, and 4.0%ended
in March 1999, accounted for less than 1.0% of total Company revenue for the
three- and nine-month periodsthree-month period ended November 30, 1998. International
operations commenced in May 1998, with the opening of the London, England
office. As of November 30, 1998, there were 16 consultants employed
internationally.
Compensation and benefits.31, 1999.
COMPENSATION AND BENEFITS. Compensation and benefits increased 49.4% and 45.5%decreased $797,000, or
4.6%, respectively, to $17.4 and $51.2$16.5 million for the three- and nine-month periodsthree-month period ended November 30, 1998, compared to $11.7 million and $35.2May 31, 1999, from $17.3
million for the same periodsperiod in fiscal 1998.1999. As a percentage of fee revenue,
compensation and benefits decreasedincreased to 74.7% and 72.1%, respectively,87.1% for the three- and
nine-month periodsthree-month period ended
November 30, 1998,May 31, 1999, compared to 75.9% and 76.7%,
respectively,73.7% for the same periodsperiod in fiscal 1998.1999.
Domestic compensation and benefits increased 25.4% and 31.9%decreased $762,000, or 4.4%, respectively,to $16.4 million
for the three- and nine-month periodsmonth period ended November 30, 1998.May 31, 1999, from $17.2 million for the same
period in fiscal 1999. As a percentage of domestic fee revenue, domestic
compensation and benefits decreasedincreased to 66.0% and
68.1%, respectively,87.1% for the three-month period ended
May 31, 1999, compared to 75.9% and 76.7%73.1% for the same periodsperiod in fiscal 1998.1999. This
decreaseincrease was primarily due to lower discretionaryspreading compensation accruals and revisions tobenefits for the
consultantCompany's administrative and support staff, which are primarily fixed, over a
smaller fee revenue base.
Compass accounted for 1.8% of the Company's domestic compensation plan.and benefits
expense for the three-month period ended May 31, 1999.
International compensation and benefits accounted for 16.0% and 9.3%less than 1.0% of total
Company compensation and benefits expense for the three- and nine-month periodsthree-month period ended
November 30, 1998. In order to attract qualified executive search
consultants, and consistent with industry practice, the Company 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 the Company typically experiences domestically.
General and administrative expenses.May 31, 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased approximately $2.9$9.3 million and $8.0 million, respectively, to $4.9
and $13.9$13.0 million for the three- and nine-month periodsthree-month period ended November 30,
1998, compared to $2.0 and $5.9May 31,
1999, from $3.7 million for the same periodsperiod in fiscal 1998.1999. As a percentage of
fee revenue, general and administrative expenses increased to 21.2% and 19.6%68.4% for the
three- and nine-month periodsthree-month period ended November 30, 1998,May 31, 1999, compared to 13.0% and 12.8%15.8% for the same period in
fiscal 1998.1999.
Domestic general and administrative expenses increased $1.0$9.1 million and $4.6to $12.6
million or 50.7% and 77.8%, respectively, for the three- and nine-month periodsthree-month period ended November 30, 1998.May 31, 1999, from $3.5 million for the
same period in fiscal 1999. As a percentage of domestic fee revenue, domestic
general and administrative expenses increased to 13.6% and 15.3%, respectively,66.8% for the three-month
period ended May 31, 1999, compared to 13.0% and 12.8%15.1% for thesethe same periodsperiod in fiscal 1998. These
increases were1999.
This increase was primarily due to traveltelevision advertising costs of $7.6 million
incurred in May 1999. The Company entered into a four-year co-operative
advertising arrangement with TMP in May 1999, under which the Company agreed to
provide $10 million in television and meetingprint advertising in May and June 1999.
The television advertising campaign was designed to promote the Company's
relationship with TMP's Monster.com Internet site and the
14
availability of the link to LAIcompass.com from Monster.com. The Company also
recorded a charge of approximately $870,000 related to excess capacity in
three of its offices and approximately $650,000 of expenses related to conferences designed to focus marketing efforts within practice group areas,
provide post-acquisition cultural integration, and train new consultants. These
expenses were higher than the
Company has typically experienced due to the
significant number of new employees hired in connectionproposed merger with acquisitions in
the fourth quarter of fiscal 1998. The Company also incurred higher occupancy,
consulting, legal and accounting expenses.
11TMP.
15
12
International general and administrative expenses accounted for 39.1% and 25.0%3.0% of total
Company general and administrative expenses for the three- and
nine-month periodsthree-month period ended
November 30, 1998. GeneralMay 31, 1999.
GOODWILL AMORTIZATION. Goodwill amortization was $194,000 for the three-month
period ended May 31, 1999, compared to $206,000 for the same period in fiscal
1999.
OPERATING INCOME (LOSS). For the three-month period ended May 31, 1999, the
Company experienced an operating loss of $13.5 million compared to operating
income of $2.3 million for the same period in fiscal 1999. This decrease was
primarily due to increased 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 $182,000 and $582,000,
respectively, for the three- and nine-month periods ended November 30, 1998,
compared to no amortization for the same periods in fiscal 1998. This change
was a result of goodwill acquired in connection with two acquisitions during
the fourth quarter of fiscal 1998.
Operating income. Operating income decreased 54.1% to $780,000as previously discussed.
RESTRUCTURING CHARGES. Restructuring charges were $2.8 million for the
three-month period ended November 30, 1998,May 31, 1999, and related to the closure of the
Company's two international offices. See Note 4 to the accompanying Condensed
Consolidated Financial Statements.
OTHER INCOME,(EXPENSE) NET. For the three-month period ended May 31, 1999, the
Company generated other income of $259,000 compared to $1.7 millionother expense of $118,000
for the same period in fiscal 1998. This decrease was primarily due to operating losses
experienced in the Company's international operations. Total operating income
increased 10.5% to $5.3 million for the nine-month period ended November 30,
1998, compared to $4.8 million for the same period in fiscal 1998. This change
was primarily due to domestic revenue growth as the result of two acquisitions
during the fourth quarter of fiscal 1998. The decrease in compensation and
benefits as a percentage of fee revenue which was partially offset by an
increase in general and administrative expenses as a percentage of fee revenue
also contributed to the increase.
Other income, net. Other income, net increased $17,000 and $313,000,
respectively, to $170,000 and $358,000 for the three- and nine-month periods
ended November 30, 1998, compared to $153,000 and $45,000 for the same periods
in fiscal 1998. These changes were a result of earnings associated with
investment of the net proceeds from the secondary public offering in June 1998,
which was partially offset by foreign currency transaction losses.
Provision for income taxes.1999.
INCOME TAX EXPENSE (BENEFIT). The effective income tax rate for the nine-monththree-month
period ended November 30, 1998,May 31, 1999, of 58.2%41.0% varied from the statutory ratesrate of 35%
and 31% for domestic and international operations, respectively. A significant
portion of the difference between the statutory rate and the effective rates
was34% due to
the losses from international operations which are carried on
through a foreign subsidiary corporation. The remainder of the difference was a
result of state and localforeign income tax effects andnet of the non-deductibility of certain
expenses, including goodwill amortization, premiums on key person life insurance
policies, and a portion of meals and entertainment. The Company's United Kingdom
subsidiary was treated as a branch operation for tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
On June 9, 1998, the Company completed a secondary public offering covering 3.2
million shares of its common stock (including an exercised over-allotment),
approximately 2.3 million of which were offered by the Company, with the
balance being offered by certain stockholders of the Company. Net proceeds to
the Company from the offering were approximately $41.4 million.
12
13
The Company has used and expects to continue to use the net proceeds of the
offering to support its international expansion, to pursue strategic domestic
and international acquisitions, to support continued enhancements to the
Company's technology-based infrastructure and for general corporate purposes.
The Company relies primarily upon cash flows from operations and available
borrowings under its credit facilities to finance its operations. During the
nine-monththree-month period ended November 30, 1998,May 31, 1999, cash used in operations was
approximately $12.9$6.4 million. A significant portion of the Company's
compensation expense for fiscal 1998 was accrued and paid shortly after the end
of the Company's fiscal year. This resulted in significant cash outflows during
the Company's first quarter. In addition, the Company experienced significant
cash outflows during the second and third quarters of fiscal 1999 to provide
the working capital for the start-up of the London office. To provide additional liquidity, the Company
has obtainedmaintains a line of credit from a bank to
provide credit facilitieswhich provides for maximum borrowings of approximately $25 million. Borrowings under these
facilities will accrue$25.0
million bearing interest at various rates based on either a LIBOR index or
the bank's prime lending rate, as determined at the Company's option. No
borrowings on the line of credit were outstanding at November 30, 1998May 31, 1999 or 1997.1998.
Capital expenditures totaled approximately $5.6$1.4 million for the nine-monththree-month
period ended November 30, 1998, including $2.4 million related to the London
office.May 31, 1999. These expenditures consisted primarily of upgrades
to information systems, purchasessystems. Cash used in financing activities for the three-month
period ended May 31, 1999, was approximately $1.6 million and reflects the
repayment of office furniture and equipment and leasehold
improvements. Additionally, investments in life insurance policies intended to
fund the Company's deferred compensation liabilities were approximately $1.4
million.debt.
The Company believes that funds from operations, its expanded credit facilities, and
the net proceeds from its 19981999 secondary public offering will be sufficient
to meet its anticipated
16
working capital, capital expenditure and general corporate requirements for the
foreseeable future.
17
YEAR 2000 COMPLIANCE
The CompanyLAI 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. The Company is currently
assessing Year 2000LAI 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 the Company'sLAI's
operations. This analysis is expected to be complete by the end
of fiscal 1999. Based on its preliminary assessment, the CompanyLAI does not expect to be materially
affected by any non-compliant third-party vendors. Nevertheless, the Company intends to identifyLAI has
identified alternate vendors during its assessment. The CompanyLAI believes that costs
associated with Year 2000 compliance will not have a material impact on the Company'sLAI's
financial statements.
13
14
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Quarterly Report on Form 10-Q contain
forward-looking statements that are based on the current beliefs and
expectations of the Company's management, as well as assumptions made by, and
information currently available to, the Company's management. Such statements
include those regarding general economic and executive search industry trends
and the Company's ability to successfully execute its operational and growth strategies.
Because such statements involve risks and uncertainties, actual actions and
strategies and the timing and expected results thereof may differ materially
from those expressed or implied by such forward-looking statements, and the
Company's future results, performance, or achievements could differ materially
from those expressed in, or implied by, any such forward-looking statements.
Future events and actual results could differ materially from those set forth in
or underlying the forward-looking statements.
Forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted. These potential risks and uncertainties
include dependence on attracting and retaining qualified executive search
consultants, portability of client relationships, the proposed acquisition by
TMP, difficulties in managing growth, restrictions imposed by blocking
arrangements, competition, implementation of acquisition strategy,
reliance on information processing systems, Year 2000
compliance issues, and employment liability risk.development of LAIcompass.com. In addition to the factors
noted above, other risks, uncertainties, assumptions, and factors that could
affect the Company's financial results are described in the Company's fiscal
year 1999 Annual Report on Form 10-K/A10-K filed with the Securities and Exchange
Commission on June 12, 1998.
14May 27, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any material exposure associated with activities in
derivative financial instruments, other financial instruments or derivative
commodity instruments.
18
15
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
Exhibit
Number Description
- ------ -----------
2.1 (4) - Agreement--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--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--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 (6) - Articles--Articles of Incorporation of the Registrant as now in effect
3.2 (6) - Bylaws--Bylaws of the Registrant as now in effect
4.1 (6) - Form--Form of Common Stock Certificate
4.2 (6) - Stockholder--Stockholder 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 (6) - 1997--1997 Omnibus Stock and Incentive Plan as now in effect
10.2 (6) - Non-Employee--Non-Employee Directors' Stock Option Plan as now in effect
10.3 (6) - Profit--Profit Sharing and Savings Plan as now in effect
10.4 (6) - 1997--1997 Employee Stock Purchase Plan as now in effect
10.5 (1) - Form--Form of Agreement for Deferred Compensation Plan
10.6 (1) - Managing--Managing Partners' Compensation Plan +
10.7 (1) - Partners'--Partners' Compensation Plan +
19
10.8 (1) - Employment--Employment Agreement for Mr. Gow +
10.9 (6) --1998 Omnibus Stock and Incentive Plan as now in effect
1520
16
Exhibit
Number Description
- ------ -----------
10.9 (6) - 1998 Omnibus Stock and Incentive Plan as now in effect
10.10 (1) - Employment--Employment Agreement for Mr. Rothschild +
10.11 (2) - Form--Form of Indemnification Agreement entered into with 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'--Directors' Deferral Plan as now in effect
10.13 (3) - Employment--Employment Agreement with Robert L. Pearson dated October 8,
1997
10.14 (4) - Form--Form of Employment Agreement for Former Ward Howell
International, Inc. Shareholders
10.15 (5) - Employment--Employment Agreement with Patrick J. McDonnell dated September
15, 1998
10.16 - Letter(7) --Letter Agreement with Philip R. Albright dated November 9, 1998
10.17 - Credit(7) --Credit Agreement with NationsBank, including amendment thereto
10.18 (9) --Employment Agreement with Richard L. Baird dated January 18,
1999
10.19 (9) --Letter Agreement with Joe D. Goodwin dated January 28, 1999
10.20 (9) --Letter Agreement with Philip R. Albright dated February 25, 1999
10.21 (9) --Settlement Agreement with former Ward Howell International, Inc.
Shareholders dated April 14, 1999
10.22 (9) --Co-op Advertising Agreement between TMP Interactive, Inc. and
LAI Worldwide, Inc. dated May 7, 1999
10.23 (9) --Advertising Agreement between TMP Interactive, Inc. and LAI
Worldwide, Inc. dated May 7, 1999
21.1 (9) --Subsidiaries of the Registrant
27 - Financial--Financial Data Schedule (for SEC use only)
(1) Incorporated by reference to the correspondingly numbered exhibit to the
Registrant's Registration Statement on Form S-1 (File No. 333-26027),
originally filed April 29, 1997, as amended and as effective July 1, 1997.
21
Exhibit
Number Description
- ------ -----------
(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.
16
17
(5) Incorporated by reference to the correspondingly numbered exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended August 31,
1998, filed 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, 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.
(9) Incorporated by reference to the correspondingly numbered exhibit to the
Registrant's Annual Report on Form 10-K for the year ended February 28,
1999, filed on May 27, 1999.
+ Confidential treatment has been granted with respect to portions of this
Exhibit.
17(b) Reports on Form 8-K.
During the quarter ended May 31, 1999, the Company filed a Current Report on
Form 8-K on March 22, 1999, describing under "Item 5. Other Events," the
proposed merger of the Company with TMP Worldwide, Inc. No financial statements
were filed with this report.
22
18
LAI WORLDWIDE, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, Registrant's principal financial officer, thereunto duly
authorized.
January 11,July 9, 1999 LAI WORLDWIDE, INC.
(Registrant)
By: /s/ Philip R. Albright
--------------------------------------------------------------------------------
Philip R. Albright
Chief Financial Officer
(Authorized officer of Registrant and principal
financial officer)
1823