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 March 31, 1997
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 April 30, 1997:
Common Stock, $0.01 par value 6,598,642
Class Number of Shares
<PAGE>
Right Management Consultants, Inc.
Condensed Consolidated Balance Sheets
(Dollars in Thousands Except Share Data)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(Unaudited)
Assets
<S> <C> <C>
Current Assets:
Cash and cash equivalents $8,379 $18,055
Accounts receivable, trade, net of allowance for doubtful accounts
of $592 and $552 in 1997 and 1996, respectively 21,377 18,878
Royalties and fees receivable from Affiliates 3,715 3,505
Other current assets 2,376 2,270
-------- --------
Total current assets 35,847 42,708
Property and equipment, net of accumulated depreciation of $13,792
and $12,917 in 1997 and 1996, respectively 9,730 9,666
Other Assets:
Intangible assets, net of accumulated amortization of $9,006 and
$8,525 in 1997 and 1996, respectively 20,463 18,724
Other noncurrent assets 2,997 2,837
-------- --------
Total Assets $69,037 $73,935
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt and other obligations $1,115 $1,011
Accounts and commissions payable 5,160 5,536
Accrued expenses 2,156 6,951
Deferred income 4,652 3,868
-------- --------
Total current liabilities 13,083 17,366
-------- --------
Long-term debt and other obligations 5,700 6,904
-------- --------
Deferred compensation 1,776 1,864
-------- --------
Shareholders' 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;
6,839,229 and 6,713,573 shares issued 68 67
Additional paid-in capital 12,223 11,956
Retained earnings 37,014 36,290
Cumulative translation adjustment (310) 5
-------- --------
48,995 48,318
Less treasury stock, at cost, 252,952 shares (517) (517)
-------- --------
Total shareholders' equity 48,478 47,801
-------- --------
Total Liabilities and Shareholders' Equity $69,037 $73,935
======== ========
</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 and Shares in Thousands Except Earnings per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
<S> <C> <C>
Revenue:
Company office revenue $28,990 $31,208
Affiliate royalties 1,055 1,247
-------- --------
Total revenue 30,045 32,455
-------- --------
Expenses:
Consultants' compensation 12,786 11,968
Office sales and consulting support 1,490 1,388
Office administration 10,984 11,367
General sales and administration 3,044 3,716
Restructuring costs (Note B) 630 --
-------- --------
28,934 28,439
-------- --------
Income from operations 1,111 4,016
Other income (expense):
Interest income 204 153
Interest expense (110) (172)
-------- --------
94 (19)
-------- --------
Income before income taxes 1,205 3,997
Provision for income taxes 481 1,588
-------- --------
Net income $724 $2,409
======== ========
Earnings per share $0.11 $0.36
======== ========
Weighted average number of shares outstanding 6,870 6,626
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
Right Management Consultants, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
<S> <C> <C>
Operating Activities:
Net income $ 724 $2,409
Adjustments to reconcile net income to net cash
(utilized for) provided by operating activities:
Depreciation and amortization 1,427 1,155
Deferred income taxes -- (10)
Restricted stock compensation (470) 182
Restructuring costs 630 --
Other non-cash items (320) 100
Provision for doubtful accounts 75 75
Changes in operating accounts:
(Increase) in operating assets (2,743) (5,449)
Increase (decrease) in operating liabilities (5,528) 3,772
-------- --------
Net cash (utilized for) provided by operating activities (6,205) 2,234
-------- --------
Investing Activities:
Purchase of property and equipment (796) (1,003)
Net cash paid for acquisitions (3,195) --
-------- --------
Net cash utilized for investing activities (3,991) (1,003)
-------- --------
Financing Activities:
Payment of long-term debt and other obligations (218) (786)
Proceeds from stock issuances 738 690
-------- --------
Net cash provided by (utilized for) financing activities 520 (96)
-------- --------
(Decrease) increase in cash and cash equivalents (9,676) 1,135
Cash and cash equivalents, beginning of period 18,055 8,965
-------- --------
Cash and cash equivalents, end of period $8,379 $10,100
======== ========
Supplemental Disclosures of Cash Flow Information
Cash paid for:
Interest $96 $82
======== ========
Income taxes $1,606 $1,123
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 three months ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. 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, 1996.
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.
Reclassifications
Certain 1996 amounts have been reclassified to conform with the 1997
presentation.
NOTE B - RESTRUCTURING COSTS
To better align costs with revenue levels experienced in the first quarter of
1997, the Company announced on March 20, 1997 a corporate restructuring for
which a restructuring charge would be recorded. The restructuring charge of
$630,000 ($380,000 or $0.06, net of taxes) was primarily for severance payments
and lease costs related to reductions in force and "satellite" office closures
with no future economic benefit to the Company. The Company anticipates that all
payments for severance and office closures will be completed during 1997.
NOTE C - ACQUISITIONS
Effective January 1, 1997, the Company acquired the assets and/or the
outstanding stock of five career transition firms and one search firm for a
combination of cash and future defined incentive payments. The five career
transition firms included Nelson, O'Connor & Associates (Phoenix, Arizona),
Corporate Resource Group (San Francisco, California), and the former St. Louis,
Missouri, Knoxville, Tennessee, and Richmond, Virginia Affiliates. The search
firm acquired was Nelson, O'Connor Cox (Tucson, Arizona).
5
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE C - ACQUISITIONS (Continued)
The acquisitions were accounted for under the purchase method. The accompanying
consolidated financial statements reflect the year to date results of all of the
above acquisitions.
The purchase price for these acquisitions was $3,195,000, including the costs of
acquisitions. The purchase price exceeded the fair value of the assets acquired
by $3,259,000. The Company funded these acquisitions through operating cash.
The pro-forma impact of these acquisitions on results of operations, if all of
the acquisitions had been consummated at the beginning of each period presented,
is immaterial to the consolidated financial statements as a whole and has been
omitted.
NOTE D - ACCRUED EXPENSES
The decrease in accrued expenses existing at December 31, 1996 is a result of
payments made by the Company during the first quarter of 1997 for 1996 income
taxes and incentive compensation.
NOTE E - SHAREHOLDERS' EQUITY
In March 1997, the Board of Directors (the "Board") approved a stock repurchase
program under which the Company is authorized to repurchase up to 10% of its
currently outstanding common stock. Any shares repurchased will be held as
treasury shares and be available to the Company for use in various benefit plans
and, when authorized by the Board, for other general corporate purposes. The
Board has authorized Company management to pursue the repurchase program in open
market transactions from time-to-time, depending upon market conditions and
other factors.
Stock option activity for the three month period ended March 31, 1997 is
summarized as follows:
Wtd. Avg.
Exercise
Shares Price
Outstanding at January 1, 1997 1,238,295 $10.92
Granted 203,288 18.50
Canceled or expired during the period (3,750) 13.67
Exercised during the period (120,725) 5.33
--------- ------
Outstanding at March 31,1997 1,317,108 $12.59
========= ======
Exercise prices for options outstanding as of March 31, 1997 ranged from $4.22
to $24.33. The weighted average remaining contractual life of these options is
approximately 8 years.
6
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE F - EARNINGS PER SHARE
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128
replaces the presentation of primary earnings per share ("EPS") with a
presentation of basic EPS. Additionally, SFAS No. 128 requires a dual
presentation of basic and diluted EPS within the consolidated income statement
and a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS calculation.
SFAS No. 128 is effective for financial statements for periods ending after
December 15, 1997, with earlier adoption not permitted. Accordingly, the Company
will adopt SFAS No. 128 for the year ended December 31, 1997.
The following table details the pro forma amounts that would have been reported
by the Company in both the current and prior year quarters had SFAS No. 128 been
adopted.
Three Months
Ended March 31,
Per share amounts: 1997 1996
Primary EPS as reported $0.11 $0.36
Effect of SFAS No. 128 -- 0.03
----- -----
Basic EPS as restated $0.11 $0.39
===== =====
Fully diluted EPS as reported $0.11 $0.36
Effect of SFAS No. 128 -- --
----- -----
Diluted EPS as reported $0.11 $0.36
===== =====
7
<PAGE>
NOTE G - GEOGRAPHIC SEGMENTS
Summarized operations of each of the Company's geographic segments in the
aggregate as of March 31, 1997 and 1996 and for the three month periods then
ended are as follows:
(Dollars in Thousands)
1997 U.S. Canada Europe Consolidated
Identifiable assets $57,191 $6,759 $5,087 $69,037
======= ======= ======= =======
Revenue $24,315 $2,607 $3,123 $30,045
======= ======= ======= =======
Operating income $244 $331 $536 $1,111
======= ======= ======= =======
Depreciation and amortization $1,267 $62 $98 $1,427
======= ======= ======= =======
Capital expenditures $708 $14 $74 $796
======= ======= ======= =======
1996
Identifiable assets $58,445 $7,338 $5,452 $71,235
======= ======= ======= =======
Revenue $27,913 $1,794 $2,748 $32,455
======= ======= ======= =======
Operating income $3,626 $226 $164 $4,016
======= ======= ======= =======
Depreciation and amortization $960 $86 $109 $1,155
======= ======= ======= =======
Capital expenditures $943 $27 $33 $1,003
======= ======= ======= =======
NOTE H - SUBSEQUENT EVENTS
In April 1997, the Company reached an agreement in principle to purchase the
outstanding stock of a Portland, Oregon career management firm, Chapel Stowell,
Inc. The purchase price of this acquisition will approximate $375,000, including
costs of acquisition, and will be funded through operating cash. The acquisition
will be closed in May 1997, with an effective date of April 1, 1997.
8
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE H - SUBSEQUENT EVENTS (Continued)
Additionally, on May 12, 1997, the Company announced that a letter of intent has
been signed for the acquisition of 51% of the outstanding stock of Davidson &
Associates Pty Ltd., a career management firm headquartered in Melbourne,
Australia. The purchase price of this acquisition will approximate $6,600,000,
including costs of acquisition, 85% of which will be paid in cash and the
remaining 15% in shares of the Company's common stock. The cash payment will be
completed through a combination of operating cash and borrowings under the
Company's revolving credit facility. The Company anticipates the transaction
will be completed in July 1997, with an effective date of July 1, 1997.
The Company will account for both of the above acquisitions using the purchase
method.
9
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
For the three months ended March 31, 1997, revenue generated by Company offices
decreased 7% or $2,218,000 from the corresponding quarter in 1996. Company
office revenue, on a same office basis, decreased approximately 13% due
primarily to a general slowdown in the North American career transition market,
partly offset by revenue growth in the Company's European operations. European
revenues totaled $3,124,000, a 14% or $376,000 same office increase over the
corresponding quarter in 1996. Incremental revenues generated from the 1997
acquisitions detailed in Note C to the Condensed Consolidated Financial
Statements, as well as two additional months of revenue from the March 1996
acquisition of People Tech, approximated $1,870,000 for the first quarter 1997.
For the three months ended March 31, 1997, Affiliate royalties decreased 15% or
$192,000 from the corresponding quarter in 1996. The decrease is attributable to
the aforementioned decline in the North American career transition market, as
well as the acquisitions of three former Affiliates in the first quarter 1997
(See Note C to the Condensed Consolidated Financial Statements). Affiliate
royalties, on a same office basis, decreased 9% over the corresponding quarter
in 1996.
For the three months ended March 31, 1997, total Company office expenses in the
aggregate, exclusive of restructuring costs, increased 2% or $537,000 over the
corresponding quarter in 1996. This dollar increase is primarily due to
$1,800,000 in incremental costs from acquisitions, offset by a reduction of
costs of $1,263,000 resulting from reduced payroll costs and a decrease in
discretionary spending in Company office locations.
Aggregate Company office margins, exclusive of restructuring costs, were 13% for
the quarter versus 21% for the prior year's quarter. The decrease in margins is
a function of the decline in career transition revenues, partly offset by
improved margins in the consulting line of business and in Europe. European
office margins approximated 17% and 6% for the first quarters 1997 and 1996,
respectively.
For the three months ended March 31, 1997, general sales and administration
expense decreased 18% or $672,000 from the corresponding quarter in 1996. Due to
the Company's decreasing stock price during the first quarter of 1997, total
compensation expense related to restricted stock grants included within general
sales and administration expenses was reduced by approximately $470,000. The
remaining decrease is a result of reduced incentive compensation costs for the
quarter as the Company's internal targets were not achieved. Should the Company
meet internal operating targets in subsequent quarters of 1997, incentive
compensation costs will increase accordingly.
10
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CONTINUED
The Company's effective tax rate for the three months ended March 31, 1996 and
1997 was approximately 40%.
Capital Resources and Liquidity
At March 31, 1997 and December 31, 1996, the Company had cash and cash
equivalents of $8,379,000 and $18,055,000, respectively. The significant
decrease in cash and cash equivalents is generally the result of lower net
income and payments made for acquisitions, income taxes and 1996 incentive
compensation (see Notes C and D to the Condensed Consolidated Financial
Statements).
Net cash utilized for investing activities amounted to $3,991,000 and $1,003,000
for the three months ended March 31, 1997 and 1996, respectively. The Company
continues to invest in equipment and technology to meet the needs of its
operations and enhance operating efficiencies. During the first quarter of 1997,
the Company acquired six career management firms for a combination of cash and
future defined incentive payments. The approximate $3,195,000 net cash paid for
acquisitions was funded by operating cash.
Net cash provided by (utilized for) financing activities amounted to $520,000
and ($96,000) for the three months ended March 31, 1997 and 1996, respectively.
The net cash inflow during 1997 is a result of stock option proceeds in excess
of repayments on the Company's borrowings and defined incentives for
acquisitions made in previous years.
The Company has borrowing facilities to provide for increased working capital
needs as well as to make funds available for future acquisition opportunities.
During 1996, the Company increased its borrowing capacity to $40,000,000 from
the previous $15,000,000 level through the execution of its Credit Agreement
with its two primary lenders. The Company had approximately $34,300,000
available under the Credit Agreement at March 31, 1997. The Company plans to
utilize the Credit Agreement to assist in the financing of acquisitions as they
arise and for other general corporate purposes.
The Company anticipates that its cash and working capital will be sufficient to
service its existing debt, commitments and to 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.
11
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CONTINUED
Forward Looking Statements
This report includes certain forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from the
results discussed herein. Recipients of this report are cautioned to consider
these risks and uncertainties and to not place undue reliance on these
forward-looking statements.
PART II - OTHER INFORMATION
Items 1, 2, 3, 4 and 5 were not applicable in the period ended March 31,1997.
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.
12
<PAGE>
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 May 14, 1997
------------------------ ------------
Richard J. Pinola Date
Chairman of the Board and Chief Executive Officer
BY: /S/ G. LEE BOHS May 14, 1997
------------------------ ------------
G. Lee Bohs Date
Chief Financial Officer and
Principal Accounting Officer
13
Right Management Consultants, Inc.
Exhibit 11 - Consolidated Earnings Per Share Calculation
For the Three Months Ended March 31,
1997 1996
Earnings per common share
Primary and Fully Diluted EPS:
Primary EPS
- - ------------
Net income $724,000 $2,409,000
========== ==========
Weighted average number of shares
issued and outstanding 6,516,000 6,143,000
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 354,000 483,000
---------- ----------
Adjusted weighted average number
of shares outstanding 6,870,000 6,626,000
========== ==========
Earnings per common share $0.11 $0.36
========== ==========
Fully Diluted EPS
- - -----------------
Net income $724,000 $2,409,000
========== ==========
Weighted average number of shares
issued and outstanding 6,516,000 6,143,000
Dilutive effect (excess of number
of shares issuable over number
of shares assumed to be issued
using the greater of the market
price at the end of the period or
the average market price during the
period) of outstanding options 354,000 541,000
---------- ----------
Adjusted weighted average number
of shares outstanding 6,870,000 6,684,000
========== ==========
Earnings per common share $0.11 $0.36
========== ==========
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,379
<SECURITIES> 0
<RECEIVABLES> 21,969
<ALLOWANCES> 592
<INVENTORY> 0
<CURRENT-ASSETS> 35,847
<PP&E> 23,522
<DEPRECIATION> 13,792
<TOTAL-ASSETS> 69,037
<CURRENT-LIABILITIES> 13,083
<BONDS> 0
<COMMON> 68
0
0
<OTHER-SE> 48,410
<TOTAL-LIABILITY-AND-EQUITY> 69,037
<SALES> 30,045
<TOTAL-REVENUES> 30,045
<CGS> 12,786
<TOTAL-COSTS> 25,890
<OTHER-EXPENSES> 3,044
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94
<INCOME-PRETAX> 1,205
<INCOME-TAX> 481
<INCOME-CONTINUING> 724
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 724
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
