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 September 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 October 31, 1996:
Common Stock, $0.01 par value 6,570,679
Class Number of Shares
<PAGE>
Right Management Consultants, Inc.
Condensed Consolidated Balance Sheets
(Dollars in Thousands Except Share Data)
<TABLE>
September 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 15,395 $ 8,965
Accounts receivable, trade, net of allowance for doubtful accounts
of $772 and $754 in 1996 and 1995, respectively 17,253 16,918
Royalties and fees receivable from Affiliates 3,765 4,303
Other current assets 2,593 2,193
-------- --------
Total current assets 39,006 32,379
-------- --------
Property and equipment, less accumulated depreciation of
$12,143 and $9,518 in 1996 and 1995, respectively 8,914 7,447
Intangible assets, less accumulated amortization of $8,639 and $6,657
in 1996 and 1995, respectively 19,397 17,824
Other non-current assets 2,800 2,581
-------- --------
Total Assets $ 70,117 $ 60,231
======== ========
Current Liabilities:
Current portion of long-term debt and other current obligations $ 5,152 $ 3,552
Accounts and commissions payable 4,460 6,378
Accrued expenses 5,897 5,880
Deferred income 5,212 3,435
-------- --------
Total current liabilities 20,721 19,245
Long-term debt and other non-current obligations 4,857 7,360
-------- --------
Commitments and Contingent Liabilities
Stockholders' Equity:
Preferred stock
Common stock, $.01 par value; 20,000,000 shares authorized;
6,819,263 shares issued in 1996;
6,470,724 shares issued in 1995 68 65
Additional paid-in capital 11,292 7,655
Retained earnings 33,788 26,614
Cumulative translation adjustment (92) (191)
-------- --------
45,056 34,143
Less treasury stock, at cost, 252,952 shares (517) (517)
-------- --------
44,539 33,626
-------- --------
Total Liabilities and Stockholders' Equity $ 70,117 $ 60,231
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
2
<PAGE>
Right Management Consultants, Inc.
Condensed Consolidated Statements of Income
(Dollars in Thousands Except Share Data)
<TABLE>
Three months ended
September 30,
-------------
(Unaudited)
1996 1995
<S> <C> <C>
Revenue:
Company office revenue $ 26,741 $ 26,597
Affiliate royalties 1,323 1,029
----------- -----------
Total revenue 28,064 27,626
Expenses:
Consultants' compensation 10,577 9,695
Company office sales and consulting support 2,019 1,512
Company office administration 9,330 9,940
General sales, consulting and administration 2,448 3,201
----------- -----------
24,374 24,348
----------- -----------
Income from operations 3,690 3,278
Other income (expense):
Interest income 160 72
Interest expense (136) (234)
----------- -----------
24 (162)
----------- -----------
Income before income taxes 3,714 3,116
Provision for income taxes 1,545 1,207
----------- -----------
Net income $ 2,169 $ 1,909
=========== ===========
Earnings per share $ 0.32 $ 0.30
=========== ===========
Weighted average number of shares outstanding 6,877,000 6,354,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
Right Management Consultants, Inc.
Condensed Consolidated Statements of Income
(Dollars in Thousands Except Share Data)
<TABLE>
Nine months ended
September 30,
-------------
(Unaudited)
1996 1995
<S> <C> <C>
Revenue:
Company office revenue $ 89,548 $ 80,485
Affiliate royalties 3,600 3,164
----------- -----------
Total revenue 93,148 83,649
Expenses:
Consultants' compensation 32,785 29,426
Company office sales and consulting support 6,569 5,501
Company office administration 31,854 29,614
General sales, consulting and administration 9,792 9,714
----------- -----------
81,000 74,255
----------- -----------
Income from operations 12,148 9,394
Other income (expense):
Interest income 418 245
Interest expense (474) (566)
----------- -----------
(56) (321)
----------- -----------
Income before income taxes 12,092 9,073
Provision for income taxes 4,917 3,563
----------- -----------
Net income $ 7,175 $ 5,510
=========== ===========
Earnings per share $ 1.07 $ 0.88
=========== ===========
Weighted average number of shares outstanding 6,675,000 6,255,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
Right Management Consultants, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
<TABLE>
Nine Months ended September 30,
-------------------------------
(Unaudited)
1996 1995
<S> <C> <C>
Operating Activities:
Net income $ 7,175 $ 5,510
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,597 3,156
Deferred income taxes (10) (537)
Compensation from restricted stock agreements 400 103
Tax benefit from the exercise of stock options 1,919 137
Other non-cash charges 80 53
Changes in operating accounts:
(Increase) decrease in operating assets 961 (3,460)
Increase (decrease) in operating liabilities (1,230) (1,046)
-------- --------
Net cash provided by operating activities 12,892 3,916
Investing Activities:
Purchase of property and equipment (3,243) (1,908)
Net cash paid for acquisitions (740) (2,066)
-------- --------
Net cash utilized by investing activities (3,983) (3,974)
Financing Activities:
Payment of long-term debt and other obligations (3,786) (1,626)
Proceeds from stock issuances 1,321 342
-------- --------
Net cash utilized by financing activities (2,465) (1,284)
Effect of exchange rate changes on cash and
cash equivalents (14) 57
-------- --------
Increase (decrease) in cash and cash equivalents 6,430 (1,285)
Cash and cash equivalents, beginning of year 8,965 9,156
-------- --------
Cash and cash equivalents, end of period $ 15,395 $ 7,871
======== ========
Supplemental Disclosures of Cash Flow Information
Cash paid for:
Interest $ 389 $ 356
======== ========
Income taxes $ 3,231 $ 3,931
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED 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 nine months ended
September 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 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 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.
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 approximately $2,750,000.
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.
6
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE C - GEOGRAPHIC SEGMENTS
Summarized operations of each of the Company's geographic segments in the
aggregate as of September 30, 1996 and 1995 and for the nine month periods then
ended are as follows:
(Dollars in Thousands)
1996 US Canada Europe Total
Identifiable assets $57,855 $ 6,260 $ 6,002 $ 70,117
======= ======= ======= ========
Revenue $78,638 $ 6,361 $ 8,149 $93,148
======= ======= ======= ========
Operating income $11,568 $ 78 $ 502 $12,148
======= ======= ======= ========
Depreciation and
amortization $ 2,901 $ 359 $ 337 $ 3,597
======= ======= ======= ========
Capital expenditures $ 3,099 $ 59 $ 85 $ 3,243
======= ======= ======= ========
1995 US Canada Europe Total
Identifiable assets $49,265 $ 2,786 $ 6,763 $58,814
======= ======= ======= ========
Revenue $72,572 $ 4,870 $ 6,207 $83,649
======= ======= ======= ========
Operating income (loss) $ 8,425 $ 1,256 $ (287) $ 9,394
======= ======= ======= ========
Depreciation and
amortization $ 2,815 $ 129 $ 212 $ 3,156
======= ======= ======= ========
Capital expenditures $ 1,745 $ 77 $ 86 $ 1,908
======= ======= ======= ========
NOTE D - 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.
Compensation expense of approximately $400,000, related to these shares and to
a 1995 restricted share grant, was charged to general sales, consulting and
administration expense during the nine months ended September 30, 1996.
7
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On May 9, 1996, the Board of Directors approved the creation of an Employee
Stock Purchase Plan, effective July 1, 1996, thereby authorizing under this Plan
the issuance of 150,000 shares of the Company's common stock. The Plan allows
employees to purchase the Company's common stock at 85% of the market price.
Stock option activity for the nine month period ended September 30, 1996 is
summarized as follows:
Outstanding at January 1, 1996 1,274,534
Granted at $15.17 - $24.33 per share 273,300
Canceled or expired during the period (31,500)
Exercised during the period (313,789)
---------
Outstanding at September 30, 1996 1,202,545
=========
PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- - ---------------------
For the three months ended September 30, 1996, income before income taxes
increased 19% or $598,000 over the corresponding quarter in 1995. For the nine
months ended September 30, 1996, income before income taxes increased 33% or
$3,019,000 over the corresponding period in the prior year. These increases
resulted principally from a combination of greater Company office revenue and
improved operating efficiencies in Company offices, offset by pre-tax losses at
the Company's People Tech consulting business. The pre-tax losses at People Tech
were $482,000 and $1,107,000 for the three months and nine months ended
September 30, 1996, respectively.
For the three months ended September 30, 1996, revenue generated by Company
offices increased 1% or $144,000 over the corresponding quarter in 1995. Company
office revenue, on a same office basis, decreased approximately 4% due to a
general industry slow down during the summer months, offset by revenue growth
from acquisitions made since the third quarter of 1995, which included the
Company's former Providence Affiliate and People Tech. Revenue from these
acquisitions totaled approximately $1,134,000 for the quarter ended September
30, 1996.
For the nine months ended September 30, 1996, revenue generated by Company
offices increased 11% or $9,063,000 over the corresponding period in 1995. This
increase was due to 5% revenue growth in existing Company offices and also a
result of the acquisitions made since the third quarter of 1995 detailed in the
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
preceding paragraph. Revenue from these acquisitions totaled approximately
$3,457,000 for the nine months ended September 30, 1996.
For the three months ended September 30, 1996, Affiliate royalties increased 29%
or $294,000 over the corresponding quarter in 1995. For the nine months ended
September 30, 1996, Affiliate royalties increased 14% or $436,000. Same office
growth in Affiliate royalties was approximately 34% and 21% for the quarter and
nine months ended September 30, 1996, respectively. This same office growth for
Affiliates 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 Company's acquisition of the Providence Affiliate.
Revenue from the Providence office is reflected as Company office revenue
subsequent to the acquisition.
For the three months ended September 30, 1996, consultants' compensation and
Company office expenses in the aggregate increased 4% or $779,000 over the
corresponding quarter in 1995. Aggregate Company office margins were 18% for the
quarter versus 20% for the prior year's quarter. The decrease in margins is due
primarily to a loss incurred in the Company's People Tech consulting business.
Aggregate Company office margins in the core outplacement business for the
quarter were 20%, which is consistent with the corresponding quarter in 1995.
For the nine months ended September 30, 1996, consultants' compensation and
Company office expenses in the aggregate increased 10% or $6,667,000 over the
corresponding period in 1995. Aggregate Company office margins were 20% for both
the current and prior year's nine month period. Aggregate Company office margins
in the core outplacement business for year-to-date 1996 were 22%. The
improvement is a reflection of enhanced pricing and certain operating
efficiencies in the core outplacement business.
For the three months ended September 30, 1996, general sales, consulting and
administration expense decreased 24% or $753,000 over the corresponding quarter
in 1995. The decrease is primarily due to reduced incentive compensation costs
for the quarter as Company targets were not achieved. The Company's incentive
compensation structure is linked principally to operating results. Should the
Company meet internal operating targets in the fourth quarter of 1996, incentive
compensation costs will increase accordingly.
For the nine months ended September 30, 1996, general sales, consulting and
administration expense increased $78,000 or 1% over the corresponding period in
1995. The minor increase is due to the reduction in incentive compensation costs
in the current quarter detailed above, offset by increased costs for the
Company's continuing investments in technology and charges relating to the
issuance of restricted stock in January 1995 and 1996. Expenses in this category
as a percentage of total revenue were 11% for the nine months ended September
30, 1996, as compared to 12% for the corresponding period in 1995.
The Company's effective tax rate for the quarter ended September 30, 1996 was
approximately 42% compared to approximately 39% for the same quarter in 1995.
The Company's effective tax rate for the nine months ended September 30, 1996
was approximately 41% compared to approximately 39% for the same period in 1995.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
This increase resulted primarily from the operating loss incurred by People Tech
for which the Company can not currently recognize a tax benefit, as well as
increases in certain state income taxes.
Capital Resources and Liquidity
- - -------------------------------
At September 30, 1996 and December 31,1995, the Company had cash and cash
equivalents of $15,395,000 and $8,965,000, respectively. In general, the
increase in cash and cash equivalents is the result of higher net income,
improved accounts receivable collections, and proceeds from stock issuances,
offset by debt payments and investments in property and equipment.
Net cash utilized by investing activities amounted to $3,983,000 and $3,974,000
for the nine months ended September 30, 1996 and 1995, respectively. The Company
continues to purchase equipment and technology to meet the needs of its
expanding operations and enhance operating efficiencies. Additionally, during
1995 and 1996, the Company has acquired five consulting firms, including People
Tech, for a combination of cash and non-cash items, including assumption of
incomplete contracts, future defined incentives and other considerations. The
nine month 1996 net cash paid for acquisitions amount on the statement of cash
flows is net of the borrowing made for the People Tech acquisition, which is
described below.
Net cash utilized by financing activities amounted to $2,465,000 and $1,284,000
for the nine months ended September 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 September 30, 1996.
The Company anticipates that its cash and working capital will be sufficient to
service its existing debt, commitments and maintain Company operations at
current levels for the foreseeable future. The Company will continue to consider
acquisitions and other 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 commit.
10
<PAGE>
PART II - OTHER INFORMATION
Items 1, 2, 3, 4, and 5 were not applicable in the period ended September
30, 1996.
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 November 14, 1996
------------------------ Date
Richard J. Pinola
Chairman of the Board
and Chief Executive Officer
BY:\S\ G. LEE BOHS November 14, 1996
------------------------ Date
G. Lee Bohs
Chief Financial Officer
and Principal Accounting Officer
11
Right Management Consultants, Inc.
Exhibit 11 - Consolidated Earnings Per Share Calculation
For the Three and Nine Month Periods Ended September 30, 1996 and 1995
<TABLE>
Three months ended Nine months ended
September 30, September 30,
------------- -------------
(Unaudited) (Unaudited)
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Earnings per common share
Primary and Fully Diluted EPS:
Primary EPS **
- - ---------------
Net income $2,169,000 $1,909,000 $7,175,000 $5,510,000
========== ========== ========== ==========
Weighted average number of shares
issued and outstanding 6,400,000 5,991,000 6,201,000 5,965,000
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 477,000 363,000 474,000 290,000
---------- ---------- ---------- ----------
Adjusted weighted average number
of shares outstanding 6,877,000 6,354,000 6,675,000 6,255,000
========== ========== ========== ==========
Earnings per common share $ 0.32 $ 0.30 $ 1.07 $ 0.88
========== ========== ========== ==========
Fully Diluted EPS **
- - --------------------
Net income $2,169,000 $1,909,000 $7,175,000 $5,510,000
========== ========== ========== ==========
Weighted average number of shares
issued and outstanding 6,400,000 5,991,000 6,201,000 5,965,000
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
497,000 415,000 530,000 416,000
--------- --------- --------- ---------
Adjusted weighted average number
of shares outstanding 6,897,000 6,406,000 6,731,000 6,381,000
========== ========== ========== ==========
Earnings per common share $ 0.31 $ 0.30 $ 1.07 $ 0.86
========== ========== ========== ==========
</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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 15,395
<SECURITIES> 0
<RECEIVABLES> 21,018
<ALLOWANCES> 772
<INVENTORY> 0
<CURRENT-ASSETS> 39,006
<PP&E> 21,057
<DEPRECIATION> 12,143
<TOTAL-ASSETS> 70,117
<CURRENT-LIABILITIES> 20,721
<BONDS> 0
0
0
<COMMON> 68
<OTHER-SE> 44,471
<TOTAL-LIABILITY-AND-EQUITY> 70,117
<SALES> 93,148
<TOTAL-REVENUES> 93,148
<CGS> 32,785
<TOTAL-COSTS> 71,208
<OTHER-EXPENSES> 9,792
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56
<INCOME-PRETAX> 12,092
<INCOME-TAX> 4,917
<INCOME-CONTINUING> 7,175
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,175
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
</TABLE>
