FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-15539
RIGHT MANAGEMENT CONSULTANTS, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2153729
(State of other jurisdiction of (IRS Employer
incorporation of organization) Identification No.)
1818 Market Street, Philadelphia, Pennsylvania 19103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 988-1588
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of July 31, 1996:
Common Stock, $0.01 par value 6,549,811
Class Number of Shares
<PAGE>
Right Management Consultants, Inc.
Consolidated Balance Sheets
(Dollars in Thousands Except Share Data)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(Unaudited)
Assets
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 13,776 $ 8,965
Accounts receivable, trade, net of allowance for doubtful accounts
of $787 and $754 in 1996 and 1995, respectively 19,457 16,918
Royalties and fees receivable from Affiliates 4,364 4,303
Note receivable 233 233
Prepaid expenses and income taxes 3,048 1,360
Deferred income taxes 620 600
-------- --------
Total current assets 41,498 32,379
-------- --------
Property and equipment, less accumulated depreciation of
$11,342 and $9,518 in 1996 and 1995, respectively 8,619 7,447
-------- --------
Other Assets:
Intangible assets, less accumulated amortization of $8,237 and $6,657
in 1996 and 1995, respectively 19,146 17,824
Deferred income taxes 1,211 1,221
Note receivable 59 146
Other 1,439 1,214
-------- --------
21,855 20,405
-------- --------
Total Assets $ 71,972 $ 60,231
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Line of credit $ 2,960 $ 1,325
Current portion of long-term debt and other obligations 2,440 2,227
Accounts payable 3,859 3,643
Commissions payable 1,521 2,735
Accrued incentive compensation and benefits 3,893 3,543
Accrued redundancy costs 75 115
Other accrued expenses 4,264 2,222
Deferred income 5,157 3,435
-------- --------
Total current liabilities 24,169 19,245
Long-term debt and other obligations 3,680 5,741
-------- --------
Deferred compensation 1,868 1,619
-------- --------
Commitments and Contingent Liabilities
Stockholders' Equity:
Preferred stock, no par value; 1,000,000 shares authorized; no
shares issued or outstanding
Common stock, $.01 par value; 20,000,000 shares authorized;
6,801,263 shares issued in 1996; 4,313,816 shares
issued in 1995 68 43
Additional paid-in capital 11,196 7,655
Retained earnings 31,642 26,636
Cumulative translation adjustment (134) (191)
-------- --------
42,772 34,143
Less treasury stock, at cost, 252,952 shares (517) (517)
-------- --------
42,255 33,626
-------- --------
Total Liabilities and Stockholders' Equity $ 71,972 $ 60,231
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
2
<PAGE>
Right Management Consultants, Inc.
Consolidated Statements of Income
(Dollars in Thousands Except Share Data)
Three months ended
June 30,
1996 1995
(Unaudited) (Unaudited)
Revenue:
Company Office revenue $ 31,590 $ 27,609
Affiliate royalties 1,031 1,010
----------- -----------
Total revenue 32,621 28,619
Costs and expenses:
Consultants' compensation 11,363 10,241
Company Office sales and consulting support 2,038 1,904
Company Office administration 11,158 9,995
General sales, consulting and administration 3,620 3,310
----------- -----------
28,179 25,450
----------- -----------
Income from operations 4,442 3,169
Other income (expense):
Interest income 105 75
Interest expense (163) (136)
----------- -----------
(58) (61)
----------- -----------
Income before income taxes 4,384 3,108
Provision for income taxes 1,787 1,229
----------- -----------
Net income $ 2,597 $ 1,879
=========== ===========
Earnings per share:
Net income $ 0.38 $ 0.30
=========== ===========
Weighted average number of shares outstanding 6,809,000 6,237,000
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE>
Right Management Consultants, Inc.
Consolidated Statements of Income
(Dollars in Thousands Except Share Data)
<TABLE>
<CAPTION>
Six months ended
June 30,
1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
Revenue:
Company Office revenue $ 62,807 53,888
Affiliate royalties 2,277 2,135
----------- ------
Total revenue 65,084 56,023
Costs and expenses:
Consultants' compensation 22,208 19,731
Company Office sales and consulting support 4,549 3,989
Company Office administration 22,524 19,674
General sales, consulting and administration 7,348 6,513
----------- ------
56,629 49,907
----------- ------
Income from operations 8,455 6,116
Other income (expense):
Interest income 258 173
Interest expense (335) (332)
----------- ------
(77) (159)
----------- ------
Income before income taxes 8,378 5,957
Provision for income taxes 3,372 2,356
----------- ------
Net income $ 5,006 $ 3,601
=========== =========
Earnings per share:
Net income $ 0.75 $ 0.58
=========== =========
Weighted average number of shares outstanding 6,720,000 6,209,000
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
4
<PAGE>
Right Management Consultants, Inc.
Consolidated Statements of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months ended June 30,
1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
Operating Activities:
Net income $ 5,006 $ 3,601
Adjustments to reconcile net income to net cash
provided (utilized) by operating activities:
Depreciation and amortization 2,334 2,103
Deferred income taxes (10) (537)
Compensation from restricted stock agreements 430 70
Tax benefit from the exercise of stock options 1,919 36
Other non-cash charges 275 184
Revenue recognized for assumption of incomplete contracts -- (172)
Provision for doubtful accounts 150 250
Changes in operating accounts:
Accounts receivable, trade and from Affiliates (1,498) (4,005)
Prepaid expenses and other assets (1,792) (53)
Accounts payable and accrued expenses 1,562 (3,863)
Commissions payable (1,213) 605
Deferred income 1,318 1,257
-------- --------
Net cash provided (utilized) by operating activities 8,481 (524)
Investing Activities:
Purchase of property and equipment (2,159) (1,386)
Net cash paid for acquisitions (169) (2,050)
-------- --------
Net cash utilized by investing activities (2,328) (3,436)
Financing Activities:
Payment of long-term debt and other obligations (2,539) (985)
Proceeds from stock issuances 1,217 161
-------- --------
Net cash utilized by financing activities (1,322) (824)
Effect of exchange rate changes on cash and
cash equivalents (20) 48
-------- --------
Increase (decrease) in cash and cash equivalents 4,811 (4,736)
Cash and cash equivalents, beginning of year 8,965 9,156
-------- --------
Cash and cash equivalents, end of period $ 13,776 $ 4,420
======== ========
Supplemental Disclosures of Cash Flow Information
Cash paid for:
Interest $ 223 $ 247
======== ========
Income taxes $ 3,030 $ 3,056
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
5
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnote disclosures necessary for a fair presentation of consolidated financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the six months ended June
30, 1996 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996. Certain amounts have been reclassified in the
1995 Consolidated Statement of Income and Consolidated Statement of Cash Flows
to conform with the 1996 presentation. For further information, refer to the
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1995.
On September 20, 1995, the Board of Directors declared a three-for-two split of
the Company's common stock, effective November 10, 1995 for shareholders of
record on October 27, 1995. On June 27, 1996, the Board of Directors declared a
second three-for-two split of the Company's common stock, effective July 26,
1996 for shareholders of record on July 12, 1996. The stated par value per share
of common stock was not changed from its existing amount of $.01 per share for
both stock splits. All share and per share data presented in the financial
statements herein have been restated to retroactively reflect both stock splits.
Principles of Consolidation
The consolidated financial statements include the accounts of Right Management
Consultants, Inc., and its wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
Currency Translation
There are no material transaction gains or losses in the accompanying
consolidated financial statements.
NOTE B - ACQUISITIONS
Effective March 1,1996, the Company acquired the outstanding stock of People
Tech Consulting, Inc. ("People Tech"), located in Toronto, Canada. This
transaction has been accounted for using the purchase method. The aggregate
purchase price of the acquisition was approximately $2,960,000, including the
costs of acquisition. The purchase price exceeded the fair value of the assets
acquired by $2,750,000.
6
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In connection with this acquisition, the Company utilized 4.0 million Canadian
dollars (or approximately $2,960,000) from its line of credit at the floating
overnight borrowing rate of the bank.
NOTE C - DEBT
The composition of long term debt and other obligations as of June 30, 1996,
including the acquisition debt and the line of credit borrowings reflects the
$2,960,000 borrowing in connection with the acquisition of People Tech, offset
primarily by adjustments to existing acquisition debt.
NOTE D - GEOGRAPHIC SEGMENTS
Summarized operations of each of the Company's geographic segments in the
aggregate as of June 30, 1996 and 1995 and for the six month periods then ended
are as follows:
(Dollars in Thousands)
1996 US Canada Europe Total
Identifiable assets $59,312 $ 6,605 $ 6,055 $71,972
======= ======= ======= =======
Revenue $53,863 $ 5,539 $ 5,682 $65,084
======= ======= ======= =======
Operating income $ 8,165 $ 9 $ 281 $ 8,455
======= ======= ======= =======
Depreciation and
amortization $ 1,929 $ 179 $ 226 $ 2,334
======= ======= ======= =======
Capital expenditures $ 2,037 $ 52 $ 70 $ 2,159
======= ======= ======= =======
1995 US Canada Europe Total
Identifiable assets $46,454 $ 2,351 $ 7,498 $56,303
======= ======= ======= =======
Revenue $48,692 $ 3,412 $ 3,919 $56,023
======= ======= ======= =======
Operating income (loss) $ 5,309 $ 968 $(161 ) $ 6,116
======= ======= ======= =======
Depreciation and
amortization $ 1,876 $ 85 $ 142 $ 2,103
======= ======= ======= =======
Capital expenditures $ 1,252 $ 49 $ 85 $ 1,386
======= ======= ======= =======
7
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE E- STOCKHOLDERS' EQUITY
Effective January 1, 1996, the Company awarded 29,250 shares of restricted stock
to its Executive Officers, pursuant to its 1993 Stock Incentive Plan.
Approximately $430,000 related to these shares and a 1995 grant, was charged to
general sales, consulting and administration expenses during the six months
ended June 30, 1996.
On May 9, 1996, the Board of Directors approved the creation of the Company's
Employee Stock Purchase Plan, effective July 1, 1996, thereby authorizing the
issuance of 150,000 shares of the Company's common stock.
Stock option activity for the six month period ended June 30, 1996 is summarized
as follows:
Outstanding at January 1, 1996 1,274,534
Granted at $15.17 - $24.33 per share 258,300
Canceled or expired during the period (5,250)
Exercised during the period (301,289)
---------
Outstanding at June 30, 1996 1,226,295
=========
PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
For the quarter ended June 30, 1996, revenue generated by Company Offices
increased 14% or $3,981,000 over the corresponding quarter in 1995. Revenue
generated by Company Offices increased 17% or $8,919,000 for the six months
ended June 30, 1996 over the same period in 1995. This increase was due to
revenue growth in existing Company Offices and the acquisitions made since the
first quarter of 1995 which included LM&P, the Company's former Providence
Affiliate and People Tech. Revenue from these acquisitions totaled approximately
one third of the total revenue increase for the quarter ended June 30, 1996 and
$3,906,000 or 44% of the total revenue increase for the six months ended June
30, 1996. For both the three and six month periods ended June 30, 1996, Company
Office revenue, on a same Office basis, increased approximately 9% over the
corresponding periods in 1995.
Affiliate royalties increased 2% or $21,000, for the quarter ended June 30, 1996
from the corresponding quarter in 1995 and 7% or $142,000 for the six months
ended June 30, 1996 from the corresponding prior period. Same office growth in
Affiliate royalties was approximately 9% and 14% for the three and six months
ended June 30, 1996, respectively. This same office growth was the result of
increased market penetration particularly in the Southeast and North Central
regions in the United States, offset by reduced royalties resulting from the
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
acquisition of the Providence Affiliate. Revenue from the Providence office is
reflected as Company Office revenue subsequent to the acquisition.
Company Office expenses in the aggregate increased 11% or $2,419,000 for the
quarter ended June 30, 1996 and 14% or $5,887,000 for the six months ended June
30, 1996 over the corresponding periods in 1995. Company Office expenses in the
aggregate decreased as a percentage of revenue for both the quarter and six
month period ended June 30, 1996. Aggregate Company Office margins were 22% for
both the quarter and six months ended June 30, 1996, versus 20% for both
corresponding periods in the prior year. The improvement is a reflection of
enhanced pricing and certain operating efficiencies in the core business, partly
offset by a loss in the Company's People Tech consulting business.
General sales, consulting and administration expense increased 9% or $310,000
for the second quarter and 13% or $835,000 for the six months ended June 30,
1996 over the corresponding periods in 1995. These increases were primarily due
to continued investments made in technology and the development of the Company's
consulting business, as well as charges relating to the issuance of restricted
stock in January 1995 and 1996. Despite these increases, the total expenses in
this category as a percentage of revenue remained at 11% for both the quarter
and six months ended June 30, 1996, as compared to 12% for both corresponding
periods in 1995.
For the quarter ended June 30, 1996, income before income taxes increased 41%,
over the corresponding quarter in 1995, to $4,384,000. For the six months ended
June 30, 1996, income before income taxes also increased 41%, over the
corresponding period in the prior year, to $8,378,000. These increases resulted
principally from the combination of greater Company Office revenue and improved
efficiencies in aggregate Company Offices.
The Company's effective tax rate for the quarter ended June 30, 1996 was
approximately 41% compared to approximately 40% for the same quarter in 1995.
This increase resulted primarily from the operating loss incurred by People
Tech, as well as higher effective rates at the state level. The Company's
effective tax rate was approximately 40% for both the six months ended June 30,
1996 and 1995.
Capital Resources and Liquidity
At June 30, 1996 and December 31, 1995, the Company had cash and cash
equivalents of $13,776,000 and $8,965,000, respectively. The improvement in cash
and cash equivalents and working capital were a result of improved accounts
receivable collections, increased net income and proceeds from stock issuances,
offsetting payments of debt and increased purchases of property and equipment.
Net cash utilized by investing activities amounted to $2,328,000 and $3,436,000
for the six months ended June 30, 1996 and 1995, respectively. The Company has
strategically made acquisitions and invested in purchases of equipment and
technology to meet the needs of its expanding operations and to enhance its
operating efficiency. In 1996 and 1995, the Company acquired the assets and/or
outstanding stock of four consulting firms, including People Tech, for a
combination of cash and non-cash items,
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
including assumption of incomplete consulting contracts, future defined
incentives and other considerations. The Company anticipates that ongoing cash
flow and working capital will be sufficient to fund these incentive payments as
they become due.
Net cash utilized by financing activities amounted to $1,322,000 and $824,000
for the six months ended June 30, 1996 and 1995, respectively. The activity
during 1996 and 1995 were payments on the Company's borrowings and defined
incentives for acquisitions made in previous years, as discussed above, in
excess of proceeds from stock issuances.
In addition to cash flow provided by operations, the Company has borrowing
facilities to provide for increased working capital needs as well as to make
funds available for future acquisition opportunities. The Company's total
borrowing capacity has increased from $10,000,000 to $15,000,000 through its
Revolving Credit Agreement with its primary bank and a second lender. During
1996, the Company completed the acquisition of People Tech, utilizing 4.0
million Canadian dollars (approximately $2,960,000) from its revolving credit
facility at the floating overnight borrowing rate of the bank, all of which
remains outstanding at June 30, 1996.
The Company anticipates that its cash and working capital will be sufficient to
service its existing debt and maintain Company operations at current levels for
the foreseeable future. The Company will continue to consider expansion
opportunities as they arise, although the economics, strategic implications and
other circumstances justifying the expansion will be key factors in determining
the amount and type of resources the Company will devote to further expansion.
PART II - OTHER INFORMATION
Items 1, 2, 3, and 5 were not applicable in the period ended June 30, 1996.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of shareholders on May 9, 1996. At
the meeting, ten of the nominees for the election of directors, being
Frank P. Louchheim, Richard J. Pinola, Joseph T. Smith, Larry A.
Evans, Nancy N. Geffner, John R. Bourbeau, Raymond B. Langton, Rebecca
J. Maddox, Catherine Y. Selleck and Marti D. Smye were elected as
directors. The amendment of the Right Management Consultants, Inc.
1993 Stock Incentive Plan, the adoption of the Right Management
Consultants, Inc. 1996 Employee Stock Purchase Plan, and the
ratification of the selection by the Board of Directors of Arthur
Andersen LLP as the Company's independent public accountants for the
current fiscal year were approved.
10
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
11 - Consolidated Earnings per Share Calculation
27 - Financial Data Schedule *
b. No reports on Form 8-K were filed during the period for which
this Report is filed.
* - Filed in electronic form only.
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, thereunto duly authorized.
RIGHT MANAGEMENT CONSULTANTS, INC.
BY:\S\ RICHARD J. PINOLA August 14, 1996
Richard J. Pinola Date
Chairman of the Board and Chief Executive Officer
BY:\S\ G. LEE BOHS August 14, 1996
G. Lee Bohs Date
Chief Financial Officer and Principal Accounting Officer
11
Right Management Consultants, Inc.
Exhibit 11 - Consolidated Earnings Per Share Calculation
For the Three and Six Month Periods Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Earnings per common share
Primary and Fully Diluted EPS:
Primary EPS **
Net income $2,597,000 $1,879,000 $5,006,000 $3,601,000
========== ========== ========== ==========
Weighted average number of shares
issued and outstanding 6,303,000 5,964,000 6,224,000 5,955,000
Dilutive effect (excess of number
of shares issuable over number
of shares assumed to be issued
using the average market price
during the period) of
outstanding options 506,000 273,000 496,000 254,000
---------- ---------- ---------- ----------
Adjusted weighted average number
of shares outstanding 6,809,000 6,237,000 6,720,000 6,209,000
========== ========== ========== ==========
Earnings per common share $ 0.38 $ 0.30 $ 0.75 $ 0.58
========== ========== ========== ==========
Fully Diluted EPS **
Net income $2,597,000 $1,879,000 $5,006,000 $3,601,000
========== ========== ========== ==========
Weighted average number of shares
issued and outstanding 6,303,000 5,964,000 6,224,000 5,955,000
Dilutive effect (excess of number
of shares issuable over number
of shares assumed to be issued
using the market price at the
end of the period) of
outstanding options
521,000 276,000 573,000 237,000
---------- ---------- ---------- ----------
Adjusted weighted average number
of shares outstanding 6,824,000 6,240,000 6,797,000 6,192,000
========== ========== ========== ==========
Earnings per common share $ 0.38 $ 0.30 $ 0.74 $ 0.58
========== ========== ========== ==========
</TABLE>
** Share and per share data above reflect both the November 10, 1995 and July
26, 1996 three-for-two stock splits.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 13,776
<SECURITIES> 0
<RECEIVABLES> 24,113
<ALLOWANCES> 787
<INVENTORY> 0
<CURRENT-ASSETS> 41,498
<PP&E> 19,961
<DEPRECIATION> 11,342
<TOTAL-ASSETS> 71,972
<CURRENT-LIABILITIES> 24,169
<BONDS> 0
0
0
<COMMON> 68
<OTHER-SE> 42,704
<TOTAL-LIABILITY-AND-EQUITY> 71,972
<SALES> 65,084
<TOTAL-REVENUES> 65,084
<CGS> 22,208
<TOTAL-COSTS> 49,281
<OTHER-EXPENSES> 7,348
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77
<INCOME-PRETAX> 8,378
<INCOME-TAX> 3,372
<INCOME-CONTINUING> 5,006
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,006
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.74
</TABLE>
