UNITED STATES
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 JUNE 30, 2005 |
|
OR |
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
FOR THE TRANSITION PERIOD FROM to |
COMMISSION FILE NUMBER 000-21571
MONSTER WORLDWIDE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE |
13-3906555 |
(STATE OR OTHER JURISDICTION OF |
(IRS EMPLOYER |
INCORPORATION OR ORGANIZATION) |
IDENTIFICATION NUMBER) |
622
Third Avenue, New York, New York 10017
(ADDRESS
OF PRINCIPAL EXECUTIVE OFFICES)
(212)
351-7000
(REGISTRANTS
TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by checkmark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12 b-2). Yes x No o
Indicate the number of shares outstanding of each of the issuers class of common stock as of August 1, 2005, the latest practicable date.
Class |
|
Outstanding on |
|
||
Common Stock |
|
|
117,027,558 |
|
|
Class B Common Stock |
|
|
4,762,000 |
|
|
MONSTER
WORLDWIDE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Page |
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No. |
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3 |
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4 |
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5 |
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6 |
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15 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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16 |
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27 |
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27 |
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28 |
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28 |
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29 |
(All other items on this report are inapplicable)
2
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
||||||||
|
|
|
June 30, |
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June 30, |
|
|
||||||||
|
|
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2005 |
|
2004 |
|
2005 |
|
2004 |
|
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||||
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Revenue |
|
$ |
238,979 |
|
$ |
181,328 |
|
$ |
471,032 |
|
$ |
342,538 |
|
|
|
Salaries and related |
|
105,564 |
|
82,353 |
|
206,120 |
|
153,822 |
|
|||||
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Office and general |
|
44,588 |
|
36,961 |
|
88,616 |
|
71,902 |
|
|||||
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Marketing and promotion |
|
47,692 |
|
38,086 |
|
96,138 |
|
75,931 |
|
|||||
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Amortization of intangibles |
|
2,274 |
|
1,241 |
|
4,628 |
|
1,846 |
|
|||||
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Total operating expenses |
|
200,118 |
|
158,641 |
|
395,502 |
|
303,501 |
|
|||||
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Operating income |
|
38,861 |
|
22,687 |
|
75,530 |
|
39,037 |
|
|||||
|
Interest and other, net |
|
1,043 |
|
(429 |
) |
976 |
|
(715 |
) |
|||||
|
Income from continuing operations before income taxes |
|
39,904 |
|
22,258 |
|
76,506 |
|
38,322 |
|
|||||
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Income taxes |
|
13,967 |
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7,428 |
|
27,035 |
|
12,763 |
|
|||||
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Losses in equity interests |
|
(367 |
) |
|
|
(576 |
) |
|
|
|||||
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Income from continuing operations |
|
25,570 |
|
14,830 |
|
48,895 |
|
25,559 |
|
|||||
|
Income (loss) from discontinued operations, net of tax |
|
(5,994 |
) |
1,410 |
|
(8,749 |
) |
3,086 |
|
|||||
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Net income |
|
$ |
19,576 |
|
$ |
16,240 |
|
$ |
40,146 |
|
$ |
28,645 |
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|||||
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Income from continuing operations |
|
$ |
0.21 |
|
$ |
0.13 |
|
$ |
0.40 |
|
$ |
0.22 |
|
|
|
Income (loss) from discontinued operations, net of tax |
|
(0.05 |
) |
0.01 |
|
(0.07 |
) |
0.03 |
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|||||
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Net income |
|
$ |
0.16 |
|
$ |
0.14 |
|
$ |
0.33 |
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$ |
0.25 |
|
|
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Diluted earnings (loss) per share(1): |
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|
|
|
|
|
|
|
|
|||||
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Income from continuing operations |
|
$ |
0.21 |
|
$ |
0.12 |
|
$ |
0.40 |
|
$ |
0.21 |
|
|
|
Income (loss) from discontinued operations, net of tax |
|
(0.05 |
) |
0.01 |
|
(0.07 |
) |
0.03 |
|
|||||
|
Net income |
|
$ |
0.16 |
|
$ |
0.14 |
|
$ |
0.33 |
|
$ |
0.24 |
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|||||
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Basic |
|
121,049 |
|
117,431 |
|
120,853 |
|
116,479 |
|
|||||
|
Diluted |
|
123,181 |
|
120,192 |
|
123,320 |
|
119,004 |
|
(1) Earnings per share in the three months ended June 30, 2004 period do not add due to rounding.
See accompanying notes.
3
MONSTER WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
|
|
|
June 30, |
|
December 31, |
|
||||
|
|
|
2005 |
|
2004 |
|
||||
|
|
|
(unaudited) |
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ASSETS |
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Current assets: |
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|
|
|
|
|
||
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Cash and cash equivalents |
|
$ |
235,818 |
|
|
$ |
198,111 |
|
|
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Accounts receivable, net of allowance for doubtful accounts of $14,779 and $12,551 in 2005 and 2004, respectively |
|
317,378 |
|
|
318,530 |
|
|
||
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Prepaid and other |
|
54,128 |
|
|
51,826 |
|
|
||
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Current assets of discontinued operations |
|
|
|
|
135,044 |
|
|
||
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Total current assets |
|
607,324 |
|
|
703,511 |
|
|
||
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Property and equipment, net |
|
83,352 |
|
|
81,415 |
|
|
||
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Goodwill |
|
592,752 |
|
|
607,753 |
|
|
||
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Other intangibles, net |
|
48,198 |
|
|
56,985 |
|
|
||
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Investment in unconsolidated affiliate |
|
49,351 |
|
|
|
|
|
||
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Other assets |
|
26,640 |
|
|
17,171 |
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|
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Non-current assets of discontinued operations |
|
|
|
|
76,778 |
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|
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Total assets |
|
$ |
1,407,617 |
|
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$ |
1,543,613 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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|
|
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Accounts payable |
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$125,145 |
|
|
$111,430 |
|
|
||
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Accrued expenses and other current liabilities |
|
200,954 |
|
|
196,630 |
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|
||
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Deferred revenue |
|
245,713 |
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|
231,382 |
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|
||
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Current portion of long-term debt |
|
26,572 |
|
|
29,262 |
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|
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Current liabilities of discontinued operations |
|
|
|
|
162,039 |
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|
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Total current liabilities |
|
598,384 |
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|
730,743 |
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Long-term debt, less current portion |
|
14,363 |
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|
33,975 |
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Other long-term liabilities |
|
36,156 |
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|
23,259 |
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Non-current liabilities of discontinued operations |
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|
|
|
122 |
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Total liabilities |
|
648,903 |
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|
788,099 |
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||
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Commitments and Contingencies |
|
|
|
|
|
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|
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Stockholders equity: |
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|
|
|
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Preferred stock, $.001 par value, authorized 800 shares; issued and outstanding: none |
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|
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Common stock, $.001 par value, authorized 1,500,000 shares; issued: 117,737 and 116,697 shares, respectively; outstanding: 116,810 and 115,770 shares, respectively |
|
117 |
|
|
117 |
|
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||
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Class B common stock, $.001 par value, authorized 39,000 shares; issued and outstanding: 4,762 shares |
|
5 |
|
|
5 |
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|
||
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Additional paid-in capital |
|
1,167,900 |
|
|
1,146,708 |
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|
||
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Accumulated other comprehensive income |
|
40,267 |
|
|
98,027 |
|
|
||
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Unamortized stock-based compensation |
|
(2,981 |
) |
|
(2,603 |
) |
|
||
|
Accumulated deficit |
|
(446,594 |
) |
|
(486,740 |
) |
|
||
|
Total stockholders equity |
|
758,714 |
|
|
755,514 |
|
|
||
|
Total liabilities and stockholders equity |
|
$ |
1,407,617 |
|
|
$ |
1,543,613 |
|
|
See accompanying notes.
4
MONSTER
WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
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|
Six Months Ended |
|
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|
|
|
June 30, |
|
||||||||
|
|
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2005 |
|
2004 |
|
||||||
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Cash flows provided by operating activities: |
|
|
|
|
|
|
|||||
|
Net income |
|
$ |
40,146 |
|
$ |
28,645 |
|
|
|||
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|||||
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(Income) loss from discontinued operations, net of tax |
|
8,749 |
|
(3,086 |
) |
|
|||||
|
Depreciation and amortization |
|
18,459 |
|
14,834 |
|
|
|||||
|
Provision for doubtful accounts |
|
4,379 |
|
2,301 |
|
|
|||||
|
Tax benefit from stock option exercises |
|
3,840 |
|
1,605 |
|
|
|||||
|
Net loss on disposal and write-off of fixed assets |
|
(63 |
) |
306 |
|
|
|||||
|
Non-cash compensation |
|
1,981 |
|
1,346 |
|
|
|||||
|
Common stock issued for matching contribution to 401(k) plan and other |
|
2,005 |
|
3,474 |
|
|
|||||
|
Deferred income taxes |
|
9,609 |
|
14,751 |
|
|
|||||
|
Minority interests and other |
|
576 |
|
26 |
|
|
|||||
|
Changes in assets and liabilities, net of businesses acquired and divested: |
|
|
|
|
|
|
|||||
|
Accounts receivable |
|
96 |
|
(31,297 |
) |
|
|||||
|
Prepaid and other |
|
(22,114 |
) |
8,287 |
|
|
|||||
|
Deferred revenue |
|
10,341 |
|
11,652 |
|
|
|||||
|
Accounts payable, accrued liabilities and other |
|
35,131 |
|
3,790 |
|
|
|||||
|
Net cash used for operating activities of discontinued operations |
|
(18,850 |
) |
(50,297 |
) |
|
|||||
|
Total adjustments |
|
54,139 |
|
(22,308 |
) |
|
|||||
|
Net cash provided by operating activities |
|
94,285 |
|
6,337 |
|
|
|||||
|
Cash flows used for investing activities: |
|
|
|
|
|
|
|||||
|
Capital expenditures |
|
(15,553 |
) |
(9,038 |
) |
|
|||||
|
Payments for acquisitions and intangible assets, net of cash acquired |
|
(49,487 |
) |
(116,113 |
) |
|
|||||
|
Investment in unconsolidated affiliate |
|
(50,137 |
) |
|
|
|
|||||
|
Cash funded for sale of subsidiaries |
|
(432 |
) |
|
|
|
|||||
|
Sale of long-term investment |
|
1,878 |
|
|
|
|
|||||
|
Net proceeds from sales of businesses |
|
50,181 |
|
|
|
|
|||||
|
Net cash used for investing activities of discontinued operations |
|
(710 |
) |
(7,495 |
) |
|
|||||
|
Net cash used for investing activities |
|
(64,260 |
) |
(132,646 |
) |
|
|||||
|
Cash flows provided by financing activities: |
|
|
|
|
|
|
|||||
|
Net repayments under line of credit and capital lease obligations |
|
(1,835 |
) |
(370 |
) |
|
|||||
|
Proceeds from the issuance of common stock |
|
|
|
55,673 |
|
|
|||||
|
Cash received from the exercise of employee stock options |
|
14,386 |
|
10,765 |
|
|
|||||
|
Repurchase of common stock |
|
(1,398 |
) |
|
|
|
|||||
|
Net cash provided by financing activities |
|
11,153 |
|
66,068 |
|
|
|||||
|
Effect of exchange rate changes on cash and cash equivalents |
|
(3,471 |
) |
190 |
|
|
|||||
|
Net increase (decrease) in cash and cash equivalents |
|
37,707 |
|
(60,051 |
) |
|
|||||
|
Cash and cash equivalents, beginning of period |
|
198,111 |
|
142,255 |
|
|
|||||
|
Cash and cash equivalents, end of period |
|
$ |
235,818 |
|
$ |
82,204 |
|
|
|||
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|||||
|
Cash paid (received) during the period for: |
|
|
|
|
|
|
|||||
|
Interest |
|
$ |
1,493 |
|
$ |
512 |
|
|
|||
|
Income taxes |
|
$ |
1,919 |
|
$ |
(1,854 |
) |
|
|||
|
Non-cash financing and investing activities: |
|
|
|
|
|
|
|||||
|
Common stock issued in connection with business combinations |
|
$ |
|
|
$ |
55,852 |
|
|
|||
|
Liabilities created in connection with business combinations |
|
$ |
10,236 |
|
$ |
52,762 |
|
|
|||
See accompanying notes.
5
MONSTER
WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in thousands, except per share amounts)
(unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Monster Worldwide Inc. (the Company) has continuing operations that consist of two operating segments: Monster and Advertising & Communications. Revenue in the Companys Monster segment is primarily earned from job postings placed on the Companys career website; licensed access to the Companys resume database; and the display of advertising on the Companys online properties. Revenue in the Companys Advertising & Communications division is primarily earned from selling and placing recruitment advertising and resume screening services. These services are provided to customers in a variety of industries throughout North America, Europe and the Asia-Pacific region.
Basis of Presentation
The consolidated interim financial statements included herein are unaudited and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The consolidated interim financial statements include the accounts of the Company and all of its wholly-owned and majority-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.
These statements reflect all normal recurring adjustments that, in the opinion of management, are necessary for fair presentation of the information contained herein. These consolidated interim financial statements should be read in conjunction with the financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2004. The Company adheres to the same accounting policies in preparation of interim financial statements. As permitted under generally accepted accounting principles, interim accounting for certain expenses, including income taxes are based on full year assumptions. Such amounts are expensed in full in the year incurred. For interim financial reporting purposes, income taxes are recorded based upon estimated annual income tax rates.
For the period January 1, 2004 through June 30, 2005, the Company completed five business combinations (see Note 3). Although none of the acquisitions was considered to be a significant subsidiary, either individually or in the aggregate, they do affect the comparability of results from period to period.
2. EARNINGS PER SHARE AND STOCK-BASED COMPENSATION
Basic earnings per share does not include the effects of potentially dilutive stock options and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects, in periods in which they have a dilutive effect, commitments to issue common stock and common stock issuable upon exercise of stock options for periods in which the options exercise price is lower than the Companys average share price for the period.
A reconciliation of shares used in calculating basic and diluted earnings per common and Class B common share follows. Certain stock options and stock issuable under employee compensation plans were excluded
6
from the computation of earnings per share due to their anti-dilutive effect. The weighted average number of such common stock equivalents is approximately 6,535 and 4,500 for the three months ended June 30, 2005 and 2004, respectively and 6,459 and 7,039 for the six months ended June 30, 2005 and 2004, respectively.
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||
|
|
June 30, |
|
June 30, |
|
||||||
|
|
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
Basic weighted average shares outstanding |
|
121,049 |
|
117,431 |
|
120,853 |
|
116,479 |
|
||
Effect of common stock equivalents - stock options and stock issuable under employee compensation plans |
|
2,132 |
|
2,761 |
|
2,467 |
|
2,525 |
|
||
Diluted weighted average shares outstanding |
|
123,181 |
|
120,192 |
|
123,320 |
|
119,004 |
|
||
The Companys financial statements are presented in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. Under APB 25, generally, no compensation expense is recognized in connection with the awarding of stock option grants to employees provided that, as of the grant date, all terms associated with the award are fixed and the quoted market price of the stock is equal to or less than the amount an employee must pay to acquire the stock as defined. As the Company has only issued fixed term employee stock option grants at or above the quoted market price on the date of the grant, there has been no compensation expense associated with stock options recognized in the accompanying financial statements. The Company adopted the disclosure only provisions of SFAS 123, Accounting for Stock-Based Compensation, which requires certain financial statement disclosures, including pro forma operating results had the Company prepared its consolidated financial statements in accordance with the fair value based method of accounting for stock-based compensation.
The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no restrictions and are fully transferable and negotiable in a free trading market. Black-Scholes does not consider the employment, transfer or vesting restrictions that are inherent in the Companys employee options. Use of an option valuation model, as required by SFAS 123, includes highly subjective assumptions based on long-term predictions, including the expected stock price volatility and average life of each option grant. Because the Companys employee options have characteristics significantly different from those of freely traded options, and because changes in the subjective input assumptions can materially affect the Companys estimate of the fair value of those options, in the Companys opinion, the existing valuation models, including Black-Scholes, are not reliable single measures and may misstate the fair value of the Companys employee options.
The pro forma effects of stock-based compensation on net income and net income per share have been estimated at the date of grant using the Black-Scholes option-pricing model based on the following weighted average assumptions:
|
|
Three Month Ended |
|
Six Months Ended |
|
||||||||||||
|
|
June 30, |
|
June 30, |
|
||||||||||||
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
||||||||
Risk-free interest rate |
|
|
3.7 |
% |
|
|
4.6 |
% |
|
|
3.7 |
% |
|
|
4.6 |
% |
|
Volatility |
|
|
47.2 |
% |
|
|
56.5 |
% |
|
|
47.2 |
% |
|
|
56.5 |
% |
|
Expected life (years) |
|
|
4.2 |
|
|
|
5.0 |
|
|
|
4.2 |
|
|
|
5.0 |
|
|
7
For purposes of pro forma disclosures, the estimated fair value of the options is assumed to be expensed over the options vesting periods. The pro forma effects of recognizing compensation expense under the fair value method on the Companys operating results and per share data are as follows:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
June 30, |
|
June 30, |
|
||||||||
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
||||
Net income as reported |
|
$ |
19,576 |
|
$ |
16,240 |
|
$ |
40,146 |
|
$ |
28,645 |
|
Add: Stock based employee compensation expense included in reported net income, net of tax |
|
347 |
|
567 |
|
976 |
|
875 |
|
||||
Deduct: Compensation expense determined under fair value based method for all awards, net of tax |
|
(34,122 |
) |
(8,549 |
) |
(55,674 |
) |
(16,180 |
) |
||||
Pro forma net income (loss) |
|
$ |
(14,199 |
) |
$ |
8,258 |
|
$ |
(14,552 |
) |
$ |
13,340 |
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
||||
Net income - as reported |
|
$ |
0.16 |
|
$ |
0.14 |
|
$ |
0.33 |
|
$ |
0.25 |
|
Net income (loss)- pro forma |
|
(0.12 |
) |
0.07 |
|
(0.12 |
) |
0.11 |
|
||||
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
||||
Net income - as reported |
|
$ |
0.16 |
|
$ |
0.14 |
|
$ |
0.33 |
|
$ |
0.24 |
|
Net income (loss)- pro forma |
|
(0.12 |
) |
0.07 |
|
(0.12 |
) |
0.11 |
|
On December 28, 2004, the Company granted 2.8 million options to executives and employees. Such options vested over a five-month period ending on May 31, 2005 and vested options generally become exercisable in four annual installments commencing December 28, 2005. For the three and six months ended June 30, 2005, the Company recognized approximately $8,619 and $22,229, respectively, of pro forma compensation expense, net of tax, related to this grant.
On February 10, 2005, the Companys board of directors approved accelerated option vesting terms for approximately 134,000 employee stock options whose exercise price was above the Companys closing stock price on such date. As a result, included in pro forma compensation expense for the six months ended June 30, 2005 is a charge of approximately $940 net of tax, resulting from accelerated vesting of such options. The decision to accelerate vesting of these options was made primarily to avoid recognizing compensation cost in the consolidated statement of operations in the Companys future financial statements upon the effectiveness of SFAS 123R.
On May 4, 2005, the Companys board of directors approved accelerated option vesting terms for approximately 2.6 million employee stock options whose exercise price was above the Companys closing stock price on such date. As a result, included in pro forma compensation expense for the three and six months ended June 30, 2005 is a charge of approximately $20,500 net of tax, resulting from accelerated vesting of such options. The decision to accelerate vesting of these options was made primarily to avoid recognizing compensation cost in the consolidated statement of operations in the Companys future financial statements upon the effectiveness of SFAS 123R. As a result of this acceleration, it is estimated that approximately $24.0 million of pre-tax compensation expense will be avoided upon implementation of SFAS 123R on January 1, 2006.
In December 2004 the Financial Accounting Standards Board (FASB) issued Statement 123R (Revised 2004), Share Based Payment, which requires all companies to measure compensation cost for all share-based payments, including employee stock options, at fair value. The Company is required to adopt the statement beginning with the first quarter of 2006. Upon adoption, the Company will be required to recognize compensation on all share-based grants made on or after January 1, 2006, and for the unvested
8
portion of share-based grants made prior to January 1, 2006. Restatement of previously issued statements is permitted, but not required.
As a result of SFAS 123R, the Company will be required to expense the fair value of our stock option grants rather than disclose the impact on its consolidated statement of operations within the Companys footnotes, as is current practice. Based on stock options currently outstanding and utilizing the Companys current Black Scholes valuation model, share based payment expense is anticipated to be approximately $7,300 ($4,500, net of tax), in the year ending December 31, 2006.
The following table summarizes the Companys business combinations completed from January 1, 2004 through June 30, 2005:
Acquired Business |
|
Acquisition Date |
|
Business Segment/Region |
Military Advantage, Inc. |
|
March 1, 2004 |
|
Monster, North America |
jobpilot GmbH |
|
April 22, 2004 |
|
Monster, Europe |
Tickle Inc. |
|
May 21, 2004 |
|
Monster, North America |
WebNeuron Services Limited (JobsAhead.com) |
|
June 18, 2004 |
|
Monster, Asia/Pacific |
Emailjob.com SAS |
|
February 11, 2005 |
|
Monster, Europe |
In February 2005, the Companys Monster division purchased Emailjob.com SAS, a leading online recruiter in France. The acquisition of Emailjob.com SAS was made to establish Monsters leadership position in France and strengthen the Companys position in a key European market. Under the terms of the purchase agreement, the consideration for this acquisition was approximately $26,000 in cash, of which $23,000 was paid on February 11, 2005. The remaining $3,000 is payable over the next twelve months. As of June 30, 2005, the Company has preliminarily recorded $25,154 of goodwill and is in the process of determining the fair value of all assets acquired and liabilities assumed, in order to complete the final purchase price allocation. None of the goodwill recorded in connection with the acquisition is deductible for tax purposes.
During the year ended December 31, 2004, the Companys Monster division acquired WebNeuron Services Limited (JobsAhead), a leading job search website in India. The acquisition of JobsAhead was made to expand Monsters market share and geographic reach in the Asia-Pacific region. Consideration for the acquisition included $4,483 of net cash paid and 147,156 shares of the Companys common stock. None of the goodwill recorded in connection with the acquisition is deductible for tax purposes.
In May 2004, the Companys Monster division purchased Tickle Inc. (Tickle), a market leader in online career assessment testing. The addition of Tickles popular interpersonal content and subscriber services in the areas of self-discovery, career assessment and social networking was done with a view toward expanding Monsters subscriber base, enhancing its career-related content and further fueling its viral marketing growth. Initial consideration for this acquisition included $24,454 of net cash paid, 1,000,000 shares of the Companys common stock and minimum cash payments of $13,332 per year, over a three-year period following the acquisition date. Future minimum cash payments have been recorded as long-term debt, at their present values, in the accompanying consolidated balance sheet. Additional purchase price commitments are possible, subject to Tickle achieving certain agreed-upon financial thresholds for each of the years ending December 31, 2005 and 2006. Such financial thresholds were exceeded in 2004 and therefore an additional $798 was recorded in current portion of long-term debt and goodwill as of December 31, 2004. None of the goodwill recorded in connection with the acquisition is deductible for tax purposes.
9
In April 2004, the Companys Monster division purchased jobpilot GmbH (jobpilot), a leading European online career portal, from Adecco S.A. The acquisition of jobpilot was made to help establish Monster as one of the leaders in key European markets, particularly Germany. Consideration for the acquisition included $60,552 net cash paid and 1,000,000 shares of common stock. The Company has incurred charges to integrate and restructure jobpilots operations and therefore has recorded additional costs to goodwill since the acquisition date, as described in Accrued Integration and Restructuring Costs below. Goodwill recorded in connection with the jobpilot acquisition is fully deductible for tax purposes.
In March 2004, the Companys Monster division purchased Military Advantage, Inc. as a complementary business to Monsters government product offerings. Military Advantage, Inc. offers its members access to information about benefits and career opportunities. Consideration for the acquisition included $23,418 of net cash paid and $7,500 guaranteed cash payments in each of 2005 and 2006, recorded at their present values in the accompanying consolidated balance sheet. None of the goodwill recorded in connection with the acquisition is deductible for tax purposes.
None of the business combinations made by the Company in 2005 or 2004 were considered to be significant subsidiaries, either individually or in the aggregate.
The following unaudited pro forma financial information presents the combined results of operations of the Company and its purchase acquisitions as if they had occurred as of the beginning of the periods presented. The unaudited pro forma financial information is not necessarily indicative of what the Companys results of operations would have been had the acquisitions been completed at the beginning of each period. In addition, the unaudited pro forma financial information does not attempt to project the future results of operations of the combined company.
|
|
Three Months |
|
|
|
|||||||
|
|
Ended |
|
Six Months Ended |
|
|||||||
|
|
June 30, |
|
June 30, |
|
|||||||
|
|
2004 |
|
2005 |
|
2004 |
|
|||||
Revenue |
|
|
$ |
205,261 |
|
|
$ |
472,406 |
|
$ |
378,283 |
|
Income from continuing operations |
|
|
17,722 |
|
|
49,225 |
|
29,730 |
|
|||
Net income |
|
|
19,132 |
|
|
40,476 |
|
32,816 |
|
|||
Pro-forma basic earnings per share: |
|
|
|
|
|
|
|
|
|
|||
Income from continuing operations |
|
|
$ |
0.15 |
|
|
$ |
0.41 |
|
$ |
0.25 |
|
Net income |
|
|
$ |
0.16 |
|
|
$ |
0.33 |
|
$ |
0.27 |
|
Pro-forma diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|||
Income from continuing operations |
|
|
$ |
0.14 |
|
|
$ |
0.40 |
|
$ |
0.25 |
|
Net income |
|
|
$ |
0.16 |
|
|
$ |
0.33 |
|
$ |
0.27 |
|
The unaudited pro forma financial information above reflects the following:
a. Interest expense, net of tax benefits, of approximately $430 for the three months ended June 30, 2004. For the six months ended June 30, 2005 and 2004, interest expense, net of tax benefits was $12 and $636, respectively. Incremental interest expense has been recorded for guaranteed deferred purchase price payable for acquired companies. The decrease in interest income relates to interest foregone on the aggregate cash paid for the acquisitions.
b. Additional depreciation and amortization expense, net of tax benefits, of $2,203 for the three months ended June 30, 2004. For the six months ended June 30, 2004, additional depreciation and amortization expense was $3,262. Additional depreciation and amortization relate to the estimated fair value of identifiable intangible assets and proprietary software from the purchase price allocation. Identifiable intangible assets are being amortized over their estimated useful lives over a range of 1 to 10 years and proprietary software is being depreciated over its estimated useful life of 6 years.
c. Additional weighted average shares outstanding of 2,147 for the three months ended June 30, 2004. Incremental shares reflect the amounts issued upon acquisition as being outstanding from the beginning of the periods presented.
10
Accrued Integration and Restructuring Costs
The Company has formulated integration and restructuring plans to eliminate redundant facilities, personnel and duplicate assets in connection with its business combinations. These costs were recognized as liabilities assumed in connection with the Companys business combinations. Accordingly, these costs are considered part of the purchase price of the business combinations and have been recorded as increases to goodwill. Amounts charged to goodwill for the six months ended June 30, 2005 primarily relate to the Companys acquisitions of Emailjob.com and jobpilot.
The components of the accrued integration and restructuring costs, reported as a component of accrued expenses and other current liabilities, are as follows:
|
|
Liability at |
|
Charged to |
|
Change in |
|
|
|
Liability at |
|
|||||||||||||||
Six Months Ended June 30, 2005 |
|
12/31/04 |
|
Goodwill |
|
Estimate |
|
Utilization |
|
6/30/05 |
|
|||||||||||||||
Assumed lease obligations and office consolidation costs (a) |
|
|
$ |
8,247 |
|
|
|
$ |
1,357 |
|
|
|
$ |
460 |
|
|
|
$ |
(2,342) |
|
|
|
$ |
7,722 |
|
|
Employee terminations and other (b) |
|
|
1,245 |
|
|
|
190 |
|
|
|
|
|
|
|
(965) |
|
|
|
470 |
|
|
|||||
Total |
|
|
$ |
9,492 |
|
|
|
$ |
1,547 |
|
|
|
$ |
460 |
|
|
|
$ |
(3,307) |
|
|
|
$ |
8,192 |
|
|
a) Accrued liabilities for assumed lease obligations represent the present value of lease payments (net of expected sublease income) for office locations of acquired companies that are either under utilized prior to the acquisition date or closed by the Company in connection with acquisition-related restructuring plans. Office consolidation costs represent charges to terminate contracts in connection with software and computer systems, other contractual arrangements with third parties and above market lease costs.
b) Costs associated with employee severance, benefits and relocation and other miscellaneous costs associated with the integration of acquired businesses.
Changes in the Companys approved restructuring plans or costs related to new restructuring initiatives may be recorded in goodwill for up to one year following acquisition date and must be recorded in the Companys operating results thereafter. Reductions to integration and restructuring reserves established in connection with purchase business combinations are recorded as a reduction to goodwill. Due to changes in estimates and assumptions, the Company provided additional real estate provisions of $460 during the six months ended June 30, 2005. The amount has been recorded in operating expenses in the 2005 periods.
4. INVESTMENT IN UNCONSOLIDATED AFFILIATE
In February 2005, the Company acquired a 40% interest in ChinaHR.com Holdings Ltd. (ChinaHR) for consideration of $50,000 in cash. ChinaHR is a leading recruitment website in China and provides online recruiting, campus recruiting and other human resource solutions. As a result of the transaction, the Company has the right to occupy three of seven seats on ChinaHRs Board of Directors. In addition, the Company also has certain rights and obligations to acquire a 51% or more interest in ChinaHR in the event of an initial public offering or February 1, 2008, whichever comes first.
The Company accounts for its investment in ChinaHR under the equity method. As of June 30, 2005, the carrying value of the investment was $49,351 and is recorded on the consolidated balance sheet as an investment in unconsolidated affiliate. The Company is in the process of determining the fair value of the assets and liabilities of ChinaHR and has preliminarily attributed its entire investment to goodwill. In addition, the Company accounts for its share in the earnings and losses of ChinaHR as an equity interest in the consolidated statements of operations. For the six months ended June 30, 2005, the Company recorded a loss in equity interest of $576, which is 40% of ChinaHRs results from the date the Company acquired its equity interest.
11
5. BUSINESS REORGANIZATION AND OTHER SPECIAL CHARGES
In the second quarter of 2002, the Company announced a reorganization initiative to streamline its operations, lower its cost structure, integrate businesses previously acquired and improve its return on capital. The reorganization program included workforce reduction, consolidation of excess facilities, restructuring of certain business functions and other special charges, primarily for exiting activities that were no longer part of the Companys strategic plan. In the fourth quarter of 2002, the Company announced further reorganization efforts related to the spin-off of Hudson Highland Group, Inc. The additional charge consisted of further workforce reduction, office consolidation costs, related asset write-offs, professional fees and other special charges. Substantially all of these charges were recorded in the fourth quarter of 2002 and first quarter of 2003.
|
|
Liability at |
|
Change in |
|
Liability at |
|
|
|
||||||||||||
|
|
Dec. 31, 2004 |
|
Estimate |
|
Utilization |
|
June 30, 2005 |
|
||||||||||||
Consolidation of excess facilities |
|
|
$ |
21,177 |
|
|
|
$ |
(460 |
) |
|
|
$ |
(2,661 |
) |
|
|
$ |
18,056 |
|
|
Other costs |
|
|
418 |
|
|
|
|
|
|
|
(284 |
) |
|
|
134 |
|
|
||||
Total |
|
|
$ |
21,595 |
|
|
|
$ |
(460 |
) |
|
|
$ |
(2,945 |
) |
|
|
$ |
18,190 |
|
|
Consolidation of excess facilities includes property consolidation and abandonment costs (including related professional fees) and disposal of property and equipment related to such properties. Property and equipment disposed of included leasehold improvements, computer equipment, software, and furniture and fixtures. Other costs primarily relate to workforce reduction and professional fees. Due to changes in estimates and assumptions, the Company reversed excess real estate provisions during the six months ended June 30, 2005. As a result, $460 has been recorded as a reduction to operating expenses in the 2005 period.
6. COMPREHENSIVE INCOME (LOSS)
The Companys comprehensive income (loss) is as follows:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
June 30, |
|
June 30, |
|
||||||||
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
||||
Net income |
|
$ |
19,576 |
|
$ |
16,240 |
|
$ |
40,146 |
|
$ |
28,645 |
) |
Foreign currency translation adjustment and other |
|
(31,536 |
) |
2,105 |
|
(57,760 |
) |
(3,168 |
) |
||||
Comprehensive income (loss) |
|
$ |
(11,960 |
) |
$ |
18,345 |
|
$ |
(17,614 |
) |
$ |
25,477 |
|
7. DISCONTINUED OPERATIONS
During the six months ended June 30, 2005, the Company disposed of the following businesses that comprised substantially all of its former Directional Marketing operating segment. These businesses are reflected as discontinued operations in the consolidated statements of operations for the three and six months ended June 30, 2005 and 2004:
· On June 1, 2005, the Company sold substantially all of its Directional Marketing division to a private equity firm for net cash consideration of $49,586 ($80 million purchase price less working capital and other adjustments and $2,500 of cash placed in escrow for an 18 month period following the disposition date) and a $7,000, 3% promissory note due to the Company after 7 years. The sale included the Companys Yellow Pages business in North America and Japan along with its online relocation business. The Company recognized a loss on sale of these businesses of $10,729 ($1,803 net of tax benefits) in the second quarter of 2005. The sale of the Directional Marketing business did not include the Companys Directional Marketing operations in the United Kingdom. The Companys European Advertising & Communications management will continue to operate that
12
business, and accordingly, those results have been reclassified to our Advertising & Communications operating segment.
· On May 2, 2005, the Company sold its interests in TMP Direct, an order fulfillment business, formerly part of the Companys Directional Marketing segment. The business was purchased by GECKO Inc., an entity owned 65% by George Eisele, a director of Monster Worldwide, for $2,500 cash, paid at closing plus an amount equal to 50% of TMP Directs working capital as of the closing date payable on May 2, 2006. George Eisele and another individual shareholder of GECKO personally guaranteed the May 2, 2006 payment obligation of GECKO Inc. The sale was not considered material and did not include a significant amount of assets. The Company recognized a pre-tax and after tax loss on sale of this business of $551 in the second quarter of 2005.
During the year ended December 31, 2004, the Company disposed of the following businesses, which are reflected as discontinued operations in the consolidated statements of operations for the three and six months ended June 30, 2004:
· In December 2004, the Company sold and disposed of certain Advertising & Communications businesses in Continental Europe, in order to focus more fully on our Monster business. None of these dispositions were considered material or included a significant amount of assets. The Company recognized a loss on sale of these businesses of $7,055 ($6,234 net of tax) in the fourth quarter of 2004.
· On October 5, 2004, the Company completed the sale of our wholly owned subsidiary US Motivation, Inc., formerly part of our Directional Marketing segment, to General Yellow Pages Consultants, Inc. d/b/a The Marquette Group for $10,000 cash, subject to a post-closing adjustment. The Company recognized a pre-tax and after-tax gain on the sale of US Motivation of $7,413 in the fourth quarter of 2004.
The following amounts related to our dispositions in 2005 and 2004, as well as residual costs related to our disposition of HH Group in 2003, have been segregated from continuing operations and are reflected as discontinued operations in each periods consolidated statement of operations:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
June 30, |
|
June 30, |
|
||||||||
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
||||
Revenue |
|
$ |
8,500 |
|
$ |
28,056 |
|
$ |
23,402 |
|
$ |
54,578 |
|
Income (loss) before income taxes |
|
$ |
(5,967 |
) |
$ |
2,737 |
|
$ |
(10,339 |
) |
$ |
5,769 |
|
Income tax expense (benefit) |
|
(2,327 |
) |
1,372 |
|
(3,944 |
) |
2,683 |
|
||||
Net income (loss) of discontinued operations |
|
(3,640 |
) |
1,410 |
|
(6,395 |
) |
3,086 |
|
||||
Pre-tax loss on sale of discontinued businesses |
|
(11,280 |
) |
|
|
(11,280 |
) |
|
|
||||
Income tax benefit |
|
(8,926 |
) |
|
|
(8,926 |
) |
|
|
||||
Loss on sale of businesses, net of tax |
|
(2,354 |
) |
|
|
(2,354 |
) |
|
|
||||
Income (loss) from discontinued operations, net of tax |
|
$ |
(5,994 |
) |
$ |
1,410 |
|
$ |
(8,749 |
) |
$ |
3,086 |
|
8. SEGMENT AND GEOGRAPHIC DATA
The Company conducts business in two operating segments: Monster and Advertising & Communications. Corporate operating expenses are not allocated to the Companys operating segments. The Companys Advertising & Communications division recognizes a commission on the sale of certain Monster products. Revenue recognized by the Advertising & Communications segment for such sales was $5,179 and $2,709 for the three months ended June 30, 2005 and 2004, respectively and $8,614 and $4,794 for the six months ended June 30, 2005 and 2004, respectively.
13
The following tables present the Companys operations by business segment and by geographic region, for the three and six months ended June 30, 2005 and 2004.
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
June 30, |
|
June 30, |
|
||||||||
Revenue |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
||||
Monster |
|
$ |
198,091 |
|
$ |
141,904 |
|
$ |
387,625 |
|
$ |
264,066 |
|
Advertising & Communications |
|
40,888 |
|
39,424 |
|
83,407 |
|
78,472 |
|
||||
Total revenue |
|
$ |
238,979 |
|
$ |
181,328 |
|
$ |
471,032 |
|
$ |
342,538 |
|
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
June 30, |
|
June 30, |
|
||||||||
Operating Income (Loss) |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
||||
Monster |
|
$ |
48,215 |
|
$ |
30,528 |
|
$ |
92,692 |
|
$ |
53,234 |
|
Advertising & Communications |
|
763 |
|
1,478 |
|
3,202 |
|
2,646 |
|
||||
Corporate |
|
(10,117 |
) |
(9,319 |
) |
(20,364 |
) |
(16,843 |
) |
||||
Total operating income |
|
$ |
38,861 |
|
$ |
22,687 |
|
$ |
75,530 |
|
$ |
39,037 |
|
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
June 30, |
|
June 30, |
|
||||||||
Revenue by Geographic Region |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
||||
United States |
|
$ |
168,094 |
|
$ |
132,734 |
|
$ |
333,803 |
|
$ |
251,648 |
|
United Kingdom |
|
27,374 |
|
22,107 |
|
50,638 |
|
44,660 |
|
||||
Continental Europe |
|
33,163 |
|
21,458 |
|
67,942 |
|
33,710 |
|
||||
Other (a) |
|
10,348 |
|
5,029 |
|
18,649 |
|
12,520 |
|
||||
Total |
|
$ |
238,979 |
|
$ |
181,328 |
|
$ |
471,032 |
|
$ |
342,538 |
|
The following table reconciles each reportable segments assets to total assets reported on the Companys consolidated balance sheets as of June 30, 2005 and December 31, 2004:
|
|
June 30, |
|
December 31, |
|
||||
Total Assets |
|
2005 |
|
2004 |
|
||||
Monster |
|
$ |
827,756 |
|
|
$ |
747,066 |
|
|
Advertising & Communications |
|
296,575 |
|
|
364,014 |
|
|
||
Corporate |
|
237,392 |
|
|
161,598 |
|
|
||
Shared Assets (b) |
|
45,894 |
|
|
59,113 |
|
|
||
Assets of discontinued operations |
|
|
|
|
211,822 |
|
|
||
Total |
|
$ |
1,407,617 |
|
|
$ |
1,543,613 |
|
|
(a) Includes Canada and the Asia Pacific region.
(b) Shared assets represent assets that provide economic benefit to all of the Companys operating segments. Shared assets are not allocated to operating segments for internal reporting or decision-making purposes.
14
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Monster Worldwide, Inc.
New York, New York
We have reviewed the consolidated balance sheet of Monster Worldwide, Inc. as of June 30, 2005, and the related consolidated statements of operations for the three-month and six-month periods ended June 30, 2005 and 2004, and cash flows for the six-month periods ended June 30, 2005 and 2004 included in the accompanying Securities and Exchange Commission Form 10-Q for the period ended June 30, 2005. These interim financial statements are the responsibility of the Companys management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board, the consolidated balance sheet of Monster Worldwide, Inc. as of December 31, 2004, and the related consolidated statements of operations, stockholders equity, and cash flows for the year then ended (not presented herein); and in our report dated February 18, 2005, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2004 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.
/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
New York, New York
July 26, 2005
15
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We make forward-looking statements in this report and in other reports and proxy statements that we file with the SEC. In addition, our senior management might make forward-looking statements. Broadly speaking, forward-looking statements include:
· projections of our revenues, income, earnings per share, capital expenditures, capital structure or other financial items;
· descriptions of plans or objectives of our management for future operations, products or services, including pending acquisitions and dispositions;
· forecasts of our future economic performance; and
· descriptions of assumptions underlying or relating to the foregoing.
Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements often include words such as anticipate, believe, estimate, expect, intend, plan, project, target, can, could, may, should, will, would, or similar expressions. Do not unduly rely on forward-looking statements. They give our expectations and are not guarantees. Forward-looking statements speak as of only the date they are made, and we might not update them to reflect changes that occur after the date they are made.
There are many factorsmany beyond our controlthat could cause results to differ significantly from our expectations. Some of these factors are described in Item 1. Business Risk Factors of our annual report on Form 10-K.
Founded in 1967, we are the parent company of Monster, the leading global online careers property. We also own TMP Worldwide, one of the worlds largest recruitment advertising agency networks. Our clients range from Fortune 100 companies to small and medium-sized enterprises and government agencies.
Monster is our flagship brand. Our Monster division operates in 23 countries and accounted for 82% of our total revenue for the six months ended June 30, 2005. Monster connects employers with job seekers and offers innovative technology and services that give employers more control over the recruiting process. We have been able to capitalize on Monsters brand and create worldwide awareness by offering online recruiting solutions that we believe are redefining the way employers and job seekers connect. These tools, which include searchable job postings, a resume database and career management content and advice, provide users with more control over the employment process. Monsters job search, resume posting services and basic networking are free to the job seeker. Monster also offers premium career services at a fee to job seekers. Employers and human resources professionals pay to post jobs, search Monsters resume database and use career site hosting and applicant tracking systems and other ancillary services.
16
For the period January 1, 2004 through June 30, 2005, we completed five business combinations accounted for using the purchase method of accounting. Although none of the following acquisitions was considered to be a significant subsidiary, either individually or in the aggregate, they do affect the comparability of results from period to period. The acquisitions and the acquisition dates are as follows:
Acquired Business |
|
Acquisition Date |
|
Business Segment/Region |
Military Advantage, Inc. |
|
March 1, 2004 |
|
Monster, North America |
jobpilot GmbH |
|
April 22, 2004 |
|
Monster, Europe |
Tickle Inc. |
|
May 21, 2004 |
|
Monster, North America |
WebNeuron Services Limited (JobsAhead.com) |
|
June 18, 2004 |
|
Monster, Asia/Pacific |
Emailjob.com SAS |
|
February 11, 2005 |
|
Monster, Europe |
Discontinued Operations
During the six months ended June 30, 2005, the Company disposed of the following businesses that comprised substantially all of its former Directional Marketing operating segment. These businesses are reflected as discontinued operations in the consolidated statements of operations for the three and six months ended June 30, 2005 (dollar amounts in thousands):
· On June 1, 2005, the Company sold substantially all of its Directional Marketing division to a private equity firm for net cash consideration of $49,586 ($80 million purchase price less working capital and other adjustments and $2,500 of cash placed in escrow for an 18 month period following the disposition date) and a $7,000, 3% promissory note due to the Company after 7 years. The sale included the Companys Yellow Pages business in North America and Japan along with its online relocation business. The Company recognized a loss on sale of these businesses of $10,729 ($1,803 net of tax benefits) in the second quarter of 2005. The sale of the Directional Marketing business did not include the Companys Directional Marketing operations in the United Kingdom. The Companys European Advertising & Communications management will continue to operate that business, and accordingly, those results have been reclassified to our Advertising & Communications operating segment.
· On May 2, 2005, the Company sold its interests in TMP Direct, an order fulfillment business, formerly part of the Companys Directional Marketing segment. The business was purchased by GECKO Inc, an entity owned 65% by George Eisele, a director of Monster Worldwide, for $2,500 cash, paid at closing plus an amount equal to 50% of TMP Directs working capital as of the closing date payable on May 2, 2006. George Eisele and another individual shareholder of GECKO personally guaranteed the May 2, 2006 payment obligation of GECKO Inc. The sale was not considered material and did not include a significant amount of assets. The Company recognized a pre-tax and after tax loss on sale of this business of $551 in the second quarter of 2005.
During the year ended December 31, 2004, the Company disposed of the following businesses, which are reflected as discontinued operations in the consolidated statements of operations for the three and six months ended June 30, 2004:
· In December 2004, the Company sold and disposed of certain Advertising & Communications businesses in Continental Europe, in order to focus more fully on our Monster business. None of these dispositions were considered material or included a significant amount of assets. The Company recognized a loss on sale of these businesses of $7,055 ($6,234 net of tax) in the fourth quarter of 2004.
17
· On October 5, 2004, the Company completed the sale of our wholly owned subsidiary US Motivation, Inc., formerly part of our Directional Marketing segment, to General Yellow Pages Consultants, Inc. d/b/a The Marquette Group for $10,000 cash, subject to a post-closing adjustment. The Company recognized a pre-tax and after-tax gain on the sale of US Motivation of $7,413 in the fourth quarter of 2004.
The following amounts related to our dispositions in 2005 and 2004, as well as residual costs related to our disposition of HH Group in 2003, have been segregated from continuing operations and are reflected as discontinued operations in each periods consolidated statement of operations:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
June 30, |
|
June 30, |
|
||||||||
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
||||
Revenue |
|
$ |
8,500 |
|
$ |
28,056 |
|
$ |
23,402 |
|
$ |
54,578 |
|
Income (loss) before income taxes |
|
$ |
(5,967 |
) |
$ |
2,737 |
|
$ |
(10,339 |
) |
$ |
5,769 |
|
Income tax expense (benefit) |
|
(2,327 |
) |
1,372 |
|
(3,944 |
) |
2,683 |
|
||||
Net income (loss) of discontinued operations |
|
(3,640 |
) |
1,410 |
|
(6,395 |
) |
3,086 |
|
||||
Pre-tax loss on sale of discontinued businesses |
|
(11,280 |
) |
|
|
(11,280 |
) |
|
|
||||
Income tax benefit |
|
(8,926 |
) |
|
|
(8,926 |
) |
|
|
||||
Loss on sale of businesses, net of tax |
|
(2,354 |
) |
|
|
(2,354 |
) |
|
|
||||
Income (loss) from discontinued operations, net of tax |
|
$ |
(5,994 |
) |
$ |
1,410 |
|
$ |
(8,749 |
) |
$ |
3,086 |
|
Critical Accounting Policies and Items Affecting Comparability
Quality financial reporting relies on consistent application of Company accounting policies that are based on accounting principles generally accepted in the United States. The policies discussed below are considered by management to be critical to understanding our financial statements and often require management judgment and estimates regarding matters that are inherently uncertain. When such judgments and estimates are required, all material developments and resolutions are discussed with our audit committee.
Revenue Recognition
Monster. Our Monster division primarily earns revenue from the placement of job postings on the websites within the Monster network, access to the Monster networks online resume database and other ancillary services. We recognize revenue at the time that job postings are displayed on the Monster network websites. Revenue earned from subscriptions to the Monster networks resume database is recognized over the length of the underlying subscriptions, typically from two weeks to twelve months. Revenue associated with multiple element contracts is allocated based on the relative fair value of the services included in the contract. Unearned revenues are reported on the balance sheet as deferred revenue.
Advertising & Communications. Our Advertising & Communications division derives revenue from job advertisements placed in newspapers, Internet career job boards such as Monster and other media, plus associated fees for related services. Revenue is recorded net of media placement costs, which are passed on to the customer. Revenue is generally recognized upon placement date for newspapers and other print and offline media. Online media revenue is recognized when services are purchased.
Accounts Receivable
We are required to estimate the collectibility of our trade receivables. A considerable amount of judgment is required in assessing the ultimate realization of these receivables, including the current credit-worthiness of our customers. Changes in required reserves may occur due to changing circumstances, including
18
changes in the current market environment or in the particular circumstances of individual customers. We assess the recoverability of accounts receivable by performing a specific account review of significant customer accounts and applying general reserve percentages (based on historical collection experience) to the remaining population of customer accounts. The allowance for doubtful accounts approximates 4.4% of our accounts receivable portfolio as of June 30, 2005. A 1% change in the calculation of bad debt reserves for the six months ended June 30, 2005 would have impacted the allowance for doubtful accounts by approximately $3.3 million.
Business Combinations, Goodwill and Intangible Assets
The purchase method of accounting requires that assets acquired and liabilities assumed be recorded at their fair values on the date of a business acquisition. Our consolidated financial statements and results of operations reflect an acquired business from the completion date of an acquisition and are not restated. The costs to acquire a business, including transaction costs, are allocated to the fair value of net assets acquired upon acquisition. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.
The judgments that we make in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact net income in periods following a business combination. For material purchase acquisitions, we often use independent valuation specialists to aid in our conclusions of such fair values and asset lives. We evaluate our goodwill annually for impairment or more frequently if indicators of potential impairment exist. The determination of whether or not goodwill has become impaired involves a significant level of judgment in the assumptions underlying the approach used to determine the value of our reporting units. Changes in our strategy and/or market conditions could significantly impact these judgments and require reductions to recorded amounts of intangible assets.
Merger, Integration, Restructuring and Business Reorganization and Spin-off Plans
We have recorded significant charges and accruals in connection with our merger, integration, restructuring and business reorganization and spin-off plans. These accruals include estimates pertaining to future lease obligations, employee separation costs and the settlements of contractual obligations resulting from our actions. Our accruals for future lease obligations include estimates of sublease income and can extend for several years, depending on the terms of each lease. Although we do not anticipate significant changes, the actual costs may differ from these estimates.
Constant Currencies
We define the term constant currency to be a comparison of financial information from period to period that excludes the effect of translating foreign currencies to U.S. dollars at differing exchange rates. Changes in our revenues and core operating expenses, which we identify as salaries and related, office and general, and marketing and promotion expenses, include the effect of changes in foreign currency exchange rates because they are translated at average exchange rates for each period, as required by generally accepted accounting principles.
19
We believe that these calculations are a useful measure, providing additional detail about the change in operations from period to period. Earnings from subsidiaries are rarely repatriated to the United States and there are no significant gains or losses on foreign currency transactions between subsidiaries. Therefore, changes in foreign currency exchange rates generally impact only reported earnings.
(dollars in thousands) |
|
Three Months Ended |
|
Three Months |
|
Constant Currency |
|
|||||||||||||||||
|
|
Reported |
|
Currency |
|
Constant |
|
Reported |
|
$ |
|
% |
|
|||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Monster |
|
$ |
141,904 |
|
|
$ |
891 |
|
|
$ |
142,795 |
|
|
$ |
198,091 |
|
|
$ |
55,296 |
|
|
38.7 |
|
|
Advertising & Communications |
|
39,424 |
|
|
851 |
|
|
40,275 |
|
|
40,888 |
|
|
613 |
|
|
1.5 |
|
|
|||||
Total revenue |
|
$ |
181,328 |
|
|
$ |
1,742 |
|
|
$ |
183,070 |
|
|
$ |
238,979 |
|
|
$ |
55,909 |
|
|
30.5 |
|
|
Core Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Salaries and related |
|
$ |
82,353 |
|
|
$ |
1,277 |
|
|
$ |
83,630 |
|
|
$ |
105,564 |
|
|
$ |
21,934 |
|
|
26.2 |
|
|
Office and general |
|
36,961 |
|
|
504 |
|
|
37,465 |
|
|
44,588 |
|
|
7,123 |
|
|
19.0 |
|
|
|||||
Marketing and promotion |
|
38,086 |
|
|
211 |
|
|
38,297 |
|
|
47,692 |
|
|
9,395 |
|
|
24.5 |
|
|
|||||
Core operating expenses |
|
$ |
157,400 |
|
|
$ |
1,992 |
|
|
$ |
159,392 |
|
|
$ |
197,844 |
|
|
$ |
38,452 |
|
|
24.1 |
|
|
(dollars in thousands) |
|
Six Months Ended |
|
Six Months |
|
Constant Currency |
|
|||||||||||||||||
|
|
Reported |
|
Currency |
|
Constant |
|
Reported |
|
$ |
|
% |
|
|||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Monster |
|
$ |
264,066 |
|
|
$ |
1,887 |
|
|
$ |
265,953 |
|
|
$ |
387,625 |
|
|
$ |
121,672 |
|
|
45.7 |
|
|
Advertising & Communications |
|
78,472 |
|
|
1,627 |
|
|
80,099 |
|
|
83,407 |
|
|
3,308 |
|
|
4.1 |
|
|
|||||
Total revenue |
|
$ |
342,538 |
|
|
$ |
3,514 |
|
|
$ |
346,052 |
|
|
$ |
471,032 |
|
|
$ |
124,980 |
|
|
36.1 |
|
|
Core Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Salaries and related |
|
$ |
153,822 |
|
|
$ |
2,355 |
|
|
$ |
156,177 |
|
|
$ |
206,120 |
|
|
$ |
49,943 |
|
|
32.0 |
|
|
Office and general |
|
71,902 |
|
|
880 |
|
|
72,782 |
|
|
88,616 |
|
|
15,834 |
|
|
21.8 |
|
|
|||||
Marketing and promotion |
|
75,931 |
|
|
433 |
|
|
76,364 |
|
|
96,138 |
|
|
19,774 |
|
|
25.9 |
|
|
|||||
Core operating expenses |
|
$ |
301,655 |
|
|
$ |
3,668 |
|
|
$ |
305,323 |
|
|
$ |
390,874 |
|
|
$ |
85,551 |
|
|
28.0 |
|
|
The Three Months Ended June 30, 2005 Compared to the Three Months Ended June 30, 2004
Monster
The operating results of our Monster division for the three months ended June 30, 2005 and 2004 are as follows:
|
|
Three Months Ended |
|
Increase |
|
|||||||||
(dollars in thousands) |
|
2005 |
|
2004 |
|
$ |
|
% |
|
|||||
Revenue |
|
$ |
198,091 |
|
$ |
141,904 |
|
$ |
56,187 |
|
|
39.6 |
|
|
Operating income |
|
$ |
48,215 |
|
$ |
30,528 |
|
$ |
17,687 |
|
|
57.9 |
|
|
20
Our Monster division benefited significantly from our 2004 sales force expansion and an accelerating shift of recruitment advertising to the Internet, particularly overseas. Monsters international revenue, which includes Europe and the Asia-Pac region, increased 76.4% over the prior year period and currently accounts for 23.2% of the Monster divisions revenue, compared to 18.3% in the 2004 period. On an organic basis, which excludes the effects of currency exchange rates and the acquisitions that have not been owned the entire duration of each comparable period, international revenue increased $10.4 million, or 38.5%. Revenue in our North American operations increased 31.3% over the 2004 period, as we penetrated deeper into local help-wanted markets and targeted a greater number of small to medium sized businesses. In addition, we are continuing to see greater demand for our self-service job-posting product, which we refer to as our eCommerce channel. Our eCommerce channel is an excellent source of new customers in North America and we are in the process of implementing this model across our international operations.
Operating income at the Monster division increased due to the strong operating leverage in our North American operations. North American operating income was $50.3 million, a 69.6% increase over the prior year period. Our international operations posted an operating loss in the second quarter of 2005 of $2.1 million, as we continue to invest in additional sales people and continued our marketing and re-branding efforts of our jobpilot Gmbh properties.
Advertising & Communications
The operating results of our Advertising & Communications division for the three months ended June 30, 2005 and 2004 are as follows:
|
|
Three Months Ended |
|
Increase |
|
|||||||
|
|
June 30, |
|
(Decrease) |
|
|||||||
(dollars in thousands) |
|
2005 |
|
2004 |
|
$ |
|
% |
|
|||
Revenue |
|
$ |
40,888 |
|
$ |
39,424 |
|
$ |
1,464 |
|
3.7 |
|
Operating income |
|
$ |
763 |
|
$ |
1,478 |
|
$ |
(715) |
|
(48.4) |
|
Revenue at our Advertising & Communications division increased primarily due to a stronger recruitment advertising market in North America, while international revenue was flat compared to the second quarter of 2004. The division made stronger progress in North America, with revenue growth of approximately 8% compared to the same period last year. The increase in North America was offset by a lack of growth internationally. For the three months ended June 30, 2005 and 2004, Advertising & Communications recognized approximately $5.2 million and $2.7 million of commissions related to the sale of certain Monster products.
The division posted operating income in the second quarter of 2005, however both North American and international operating results decreased compared to the 2004 period. We focused on management of expenses in the current period in order to maintain positive operating income. We remain dedicated to monitoring our cost structure to ensure that costs are in line with revenue.
21
Consolidated Operating Expenses and Operating Income
Consolidated operating expenses and operating income for the three months ended June 30, 2005 and 2004 are as follows:
|
|
Three Months Ended |
|
|
|
|||||||||
|
|
June 30, |
|
Increase |
|
|||||||||
(dollars in thousands) |
|
2005 |
|
2004 |
|
$ |
|
% |
|
|||||
Salaries and related |
|
$ |
105,564 |
|
$ |
82,353 |
|
$ |
23,211 |
|
|
28.2 |
|
|
Office and general |
|
44,588 |
|
36,961 |
|
7,627 |
|
|
20.6 |
|
|
|||
Marketing and promotion |
|
47,692 |
|
38,086 |
|
9,606 |
|
|
25.2 |
|
|
|||
Amortization of intangibles |
|
2,274 |
|
1,241 |
|
1,033 |
|
|
83.2 |
|
|
|||
Total operating expenses |
|
$ |
200,118 |
|
$ |
158,641 |
|
$ |
41,477 |
|
|
26.1 |
|
|
Operating income |
|
$ |
38,861 |
|
$ |
22,687 |
|
$ |
16,174 |
|
|
71.3 |
|
|
Our Monster division accounted for substantially all of the year over year increase in total operating expenses, stemming mainly from hiring initiatives that we undertook in the 2004 period, acquisitions and increased marketing and promotion of the Monster brand. Costs associated with our hiring initiatives mainly reflect increased commissions and the addition of approximately 440 sales and support staff across the Monster division since the second quarter of 2004. In addition, approximately $8.7 million of the increase in operating expenses is associated with acquired companies. The 2005 period also includes a $2.0 million increase in operating expenses related to currency exchange rates.
Income Taxes
Income taxes for the three months ended June 30, 2005 and 2004 are as follows:
|
|
Three Months Ended |
|
|
|
|||||||||
|
|
June 30, |
|
Increase |
|
|||||||||
(dollars in thousands) |
|
2005 |
|
2004 |
|
$ |
|
% |
|
|||||
Income from continuing operations before income taxes |
|
$ |
39,904 |
|
$ |
22,258 |
|
$ |
17,646 |
|
|
79.3 |
|
|
Income taxes |
|
$ |
13,967 |
|
$ |
7,428 |
|
$ |
6,539 |
|
|
88.0 |
|
|
Effective tax rate |
|
35.0% |
|
33.4% |
|
|
|
|
|
|
|
Our effective tax rates differ from the statutory rate due to the impact of state and local income taxes, certain nondeductible expenses, foreign earnings taxed at different tax rates and valuation allowances. Our future effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates, changes in the valuation of our deferred tax assets or liabilities, or changes in tax laws or interpretations thereof. In addition, our filed tax returns are subject to the examination by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.
22
Income from Continuing Operations and Net Income
Income from continuing operations, net income and per share amounts for the three months ended June 30, 2005 and 2004 are as follows:
|
|
Three Months Ended |
|
|
|
|||||||
|
|
June 30, |
|
Increase (Decrease) |
|
|||||||
(dollars in thousands, except per share amounts) |
|
2005 |
|
2004 |
|
Amount |
|
% |
|
|||
Net income: |
|
|
|
|
|
|
|
|
|
|||
Income from continuing operations |
|
$ |
25,570 |
|
$ |
14,830 |
|
$ |
10,740 |
|
72.4 |
|
Income (loss) from discontinued operations, net of tax |
|
(5,994 |
) |
1,410 |
|
(7,404 |
) |
(525.1 |
) |
|||
Net income |
|
$ |
19,576 |
|
$ |
16,240 |
|
$ |
3,336 |
|
20.5 |
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|||
Income from continuing operations |
|
$ |
0.21 |
|
$ |
0.12 |
|
$ |
0.09 |
|
|
|
Income (loss) per share from discontinued operations, net of tax |
|
(0.05 |
) |
0.01 |
|
(0.06 |
) |
|
|
|||
Diluted earnings per share |
|
$ |
0.16 |
|
$ |
0.14 |
|
$ |
0.02 |
|
|
|
Diluted weighted average shares outstanding |
|
123,181 |
|
120,192 |
|
2,989 |
|
2.5 |
|
* Earnings per share does not add in the 2004 period due to rounding
The Six Months Ended June 30, 2005 Compared to the Six Months Ended June 30, 2004
Monster
The operating results of our Monster division for the six months ended June 30, 2005 and 2004 are as follows:
|
|
Six Months Ended |
|
|
|
|||||||||
|
|
June 30, |
|
Increase |
|
|||||||||
(dollars in thousands) |
|
2005 |
|
2004 |
|
$ |
|
% |
|
|||||
Revenue |
|
$ |
387,625 |
|
$ |
264,066 |
|
$ |
123,559 |
|
|
46.8 |
|
|
Operating income |
|
$ |
92,692 |
|
$ |
53,234 |
|
$ |
39,458 |
|
|
74.1 |
|
|
Our Monster divisions increase in revenue over the prior year period was primarily driven by our North American and European operations. North American revenue increased 36.1% and represents 77.5% of our total Monster revenue. The increase in revenue is a direct result of investments we made in our sales force in the latter half of 2004 and the integration of acquired companies. In addition, our self service job-posting product, referred to as our eCommerce channel, continues to attract new customers and generate strong revenue across North America. International revenue increased 101.7% over the 2004 period as our acquisitions of jobpilot GmbH in Germany and Emailjob.com in France increased our presence in these two key European markets. Additional increases in international revenue resulted from our continued investments in sales force expansion and marketing efforts throughout Europe. Revenue from our international operations accounted for 22.5% of our Monster revenue. We are encouraged by the current pace of adoption of online recruitment in the United Kingdom and Europe.
Our North American operations accounted for the entire increase in total operating income over the 2004 period. Our North American management has been diligent managing costs and keeping expenses in line with revenues. Expenses increased across the division primarily due to the addition of sales staff, our investments in marketing and additional costs associated with businesses that we acquired. North American operating income was $96.4 million for the six months ended June 30, 2005, a 77.2% increase over the prior year period. Our international operations posted a $3.7 million operating loss in the first six
23
months of 2005, as investments in marketing and additional sales people negatively impacted operating margins.
Advertising & Communications
The operating results of our Advertising & Communications division for the six months ended June 30, 2005 and 2004 are as follows:
|
|
Six Months Ended |
|
|
|
|||||||||
|
|
June 30, |
|
Increase |
|
|||||||||
(dollars in thousands) |
|
2005 |
|
2004 |
|
$ |
|
% |
|
|||||
Revenue |
|
$ |
83,407 |
|
$ |
78,472 |
|
$ |
4,935 |
|
|
6.3 |
|
|
Operating income |
|
$ |
3,202 |
|
$ |
2,646 |
|
$ |
556 |
|
|
21.0 |
|
|
Advertising & Communications revenue primarily increased due to higher demand of online print advertising, especially in North America. Our North American revenue increased 10.4% over the 2004 period, while our international revenue increased 3.0%. For the six months ended June 30, 2005, our international revenue accounted for 53.6% of the total divisions revenue, while North America made up the remaining 46.4%. For the six months ended June 30, 2005, the division recognized approximately $8.6 million of revenue related to the sale of certain Monster products to customers, an increase of 79.8% over the $4.8 million of revenue the division recorded in the first six months of 2004.
Operating income increased 21.0% over the first half of 2004, primarily due to increased revenue and disciplined management of core operating expenses. Management is continually analyzing the cost structure of the business to ensure that costs are in line with revenues.
Consolidated Operating Expenses and Operating Income
Consolidated operating expenses and operating income for the six months ended June 30, 2005 and 2004 are as follows:
|
|
Six Months Ended |
|
|
|
|||||||
|
|
June 30, |
|
Increase |
|
|||||||
(dollars in thousands) |
|
2005 |
|
2004 |
|
$ |
|
% |
|
|||
Salaries and related |
|
$ |
206,120 |
|
$ |
153,822 |
|
$ |
52,298 |
|
34.0 |
|
Office and general |
|
88,616 |
|
71,902 |
|
16,714 |
|
23.2 |
|
|||
Marketing and promotion |
|
96,138 |
|
75,931 |
|
20,207 |
|
26.6 |
|
|||
Amortization of intangibles |
|