UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 0-15539
RIGHT MANAGEMENT CONSULTANTS, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2153729
(State or other jurisdiction of (I.R.S. Employer
incorporation or 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value per share
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant using the closing stock price as of March 25, 1997 was $58,689,318.
The number of shares outstanding of the registrant's Common Stock as of March
25, 1997 was 6,566,637.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I & II Portions of the Company's 1996 Annual Report to Shareholders
for the fiscal year ended December 31, 1996.
Part III The Company's definitive proxy statement with respect to its 1997
Annual Meeting of Shareholders to be held on May 8, 1997.
<PAGE>
PART I
Item 1: Business
General
Right Management Consultants, Inc. (the "Company") is an international career
management and organizational consulting firm headquartered in Philadelphia,
Pennsylvania. Founded in 1980, the Company has been publicly owned since 1986.
In 1996, the Company became the largest firm in the career management industry
with revenues in excess of $125 million. Worldwide operations are structured
into eight geographic groups that provide management oversight to approximately
120 global locations, including both Company owned and Affiliate offices.
The Company licenses its Affiliates to use its service marks and licenses and
trains them to use its proprietary materials and methods. The Company receives
fees directly from employers for services rendered by Company offices and
royalties and fees from the Affiliates. The Company's fees for its services are
paid exclusively by the employer. The Company does not provide its services to
employees who are not sponsored by employers, since it is not a "retail" career
counseling firm, employment agency, or an executive search firm.
The Company's operations can be segregated into two lines of business: Right
Associates(R), specializing in career transition services, and People Tech
Consulting ("People Tech"), specializing in career development and
organizational consulting.
Right Associates(R)
Right Associates(R) currently provides career transition services to
approximately 4,500 client companies, including over 80% of the Fortune 500. In
the previous two year period, approximately 500,000 individuals have been
assisted by Right Associates'(R) consultants during their career transition.
Right Associates'(R) services can be separated into two principal categories -
Individual Outplacement Services and Group Outplacement Services.
Individual Outplacement Services
The Company's individual outplacement services for the employer includes advice
on conducting the termination interview, terms of severance pay and other
termination benefits and identification of termination-related issues for which
the employer may wish to seek legal counsel. Services by the Company to
terminated employees include assistance in handling the initial difficulties of
termination; identifying continuing career goals and options and in planning an
alternative career; aiding in developing skills for the search for a new job,
such as resume writing, identifying and researching types of potential
employers, preparing and rehearsing for interviews; continuing counseling and
motivation throughout the job search campaign; assessing new employment offers
and methods of accepting such offers (including consideration of relocation
issues) and, where appropriate, consulting with the employee's spouse regarding
the stresses of the employment search and the positive role the spouse may play
in all aspects of the new job search, as well as assisting with financial
planning and health maintenance.
1
<PAGE>
Approximately 76% of the career transition revenue generated by Company offices
during 1996 was for individual outplacement services.
Group Outplacement Services
The remaining significant portion of the Company's career transition business
consists of providing consulting in group contexts for companies making group
reductions in their work force due to reorganization, restructuring or other
reasons. The Company's group programs have, as their core, seminars for
generally up to 12 employees per group, in sessions extending over one to five
days. Often, the group seminar is preceded or followed by individual consulting.
These group programs are designed for each employer-client and are generally
competitively priced and bid, based on the number of consulting hours, number of
employees involved and type of programs to be provided. The group program may
also be used for "voluntary separation" due to reorganizations or other reasons.
Approximately 24% of the career transition revenue generated by Company offices
during 1996 was for group outplacement services.
Other
The Company is also providing a combination of individual and group career
transition services through a cost reimbursement plus fixed fee contract between
the Company and Resource Consultants Inc. ("RCI") for the United States Army.
Through this contract, counseling services are provided to United States Army
soldiers, civilians and their families who are leaving active duty as a result
of planned force reductions. These services are provided through 31 Job
Assistance Centers in the United States and abroad, which are staffed by
employees of a government subsidiary of the Company created for this contract,
and RCI, a Vienna, Virginia based consulting firm.
The contract contains annual renewal options for RCI and the United States Army
to extend through May 1997. All renewal options have been exercised and the
Company's anticipated share of the cost plus fixed fee contract revenue will
approximate $4,800,000 over the eighteen month period through May 1997. The
Company is currently in the process of negotiating an extension of the above
contract for periods subsequent to May 1997. The Company remains optimistic that
an extension will be granted. Revenues from the contract are included in both
the individual outplacement and group outplacement services described above.
The career transition business in total, including individual outplacement
services, group outplacement services and the contract with RCI, provided
approximately 93% of total Company office revenue for the year ended December
31, 1996.
2
<PAGE>
People Tech Consulting
During 1996, the Company acquired the outstanding stock of People Tech
Consulting, Inc., a Canadian corporation. See the "Acquisitions" section of this
document. With the addition of People Tech's organizational consulting business
to the Company's previously established career management consulting practice,
the Company is strongly committed to developing and broadening this line of
business.
The Company provides career management consulting services which assist
employers and their employees in identifying and improving areas of job
performance, refining communication skills and improving employee productivity.
The Company also provides organizational consulting to corporations on
restructuring and realignment issues, offering customized services to help
manage all aspects of organizational change, including planning, selection,
retention strategy and communication issues. Other services are designed to
enhance the abilities of executives and managers to evaluate employees'
performance in making employment and promotion decisions.
The consulting business in total, including career management consulting and
organizational consulting, provided approximately 7% of total Company office
revenue for the year ended December 31, 1996. The Company intends to focus on
and expand this line of business in future years.
Fees for Services Provided by Company Offices
For individual career transition services provided by Company offices, the
Company normally receives a negotiated fee, depending upon the services
provided, which generally ranges between 10% and 20% of the terminated
employee's annual compensation. Fees for group career transition programs and
consulting projects are individually billed depending upon the type of services
the employer requests, the amount of consulting time required and the number of
employees involved.
Organization and Distribution of Company Offices and Affiliates
The current network of Company offices and Affiliates is outlined in the
Company's 1996 Annual Report to Shareholders.
Management of Company Offices and Affiliates
The Company believes that a decentralized approach of organizing its business
into geographic regions, which may be comprised of more than one Company office
or Affiliate office, allows the Company to be responsive to individual clients,
as well as allowing it to better serve its local and regional markets. Each
region is responsible for the marketing and sales of career transition and
consulting activities in its assigned area. Through the Company's Affiliate
network arrangement, the Company's clients have access to the entire Company
network of Company offices and Affiliates. See "Business - Affiliate
Arrangements."
3
<PAGE>
Affiliate Arrangements
The Basic Affiliate Relationship
The Company has previously entered into agreements ("Affiliate Agreements") with
Affiliates, which are independent franchisee businesses, to provide the
Company's career transition and consulting services within the geographic area
defined in each Affiliate Agreement (the "Exclusive Territory"). Affiliates
render such services exclusively under the Company's registered service marks,
including "Right Associates(R)". Under the Affiliate Agreements, the Company
assists the Affiliates in various ways in the provision of career transition and
consulting services. See "Business - Affiliate Arrangements - Company Training
of Affiliates" and "Affiliates' Payment of Fees and Royalties to Company."
Under the Affiliate Agreements, the Company is precluded from establishing or
maintaining Company offices or otherwise soliciting customers, conducting
consulting business or licensing other Affiliates to operate in the Exclusive
Territory of a particular Affiliate. In turn, the Affiliate is prohibited from
establishing or maintaining its own offices or "satellites" soliciting
customers or engaging in career transition or consulting services within
Exclusive Territories which the Company currently or in the future grants or
assigns to Company offices.
There is not a formal Affiliate organization; however, a Management Advisory
Committee (the "Advisory Committee") exists which considers matters of general
concern to the Affiliates. The Advisory Committee is comprised of four members
appointed by the Company's management and three members elected by the
Affiliates for a three year term.
4
<PAGE>
Company Training of Affiliates
The Affiliate Agreement requires the Company to train the Affiliate and its
employees in marketing and delivery of career transition and consulting
services. The Company is responsible for overall guidance and has established
Company standards and policies relating to its services. The Company provides
proprietary sales and consulting materials, administrative forms (including,
among other things, guidelines for consulting client-employers and terminated
employees), materials used in conjunction with marketing the services and
administration of its office and materials relating to the Company's system of
monitoring the progress of terminated employees. The Company provides guidance,
if requested by the Affiliates, with respect to the hiring of the Affiliate's
employees, the use and development of sales programs and general issues of
office operation and sales. The cost of such optional assistance by the Company
is paid for by the Affiliate, unless the Company otherwise agrees not to charge
for these services. The Company also provides marketing support, public
relations, advertising and promotional support, consisting of national and
international media efforts directed by an in-house marketing staff.
Affiliates' Payment of Fees and Royalties to Company
In consideration of the Company providing services, training and licensing the
use of its federally-registered service mark, the Affiliate generally pays to
the Company the following fees (which are not in the order of their contribution
to Company revenue): (1) a one-time non-refundable initial Affiliate (franchise)
fee; (2) a 10% royalty on the Affiliate's total gross receipts; (3) a fee for
services rendered in assisting the Affiliate in selling the Company's programs
to the employer-client; and (4) a fee for services rendered in providing career
transition services to terminated employees on certain contracts and accounts
sold and managed by Affiliates.
Term, Supervision and Termination of Affiliate Agreements
The Company's Affiliate Agreements provide for an initial term of three or five
years and are automatically renewed from year to year unless either party gives
the other notice of non-renewal (which may be without cause) at least 120 days
prior to the expiration of the then current term (unless a longer notice period
is required by local franchise laws).
During the term of the Affiliate Agreement, the Company may terminate the
arrangement, subject to local franchise laws and cure periods specified in the
Affiliate Agreements, for a variety of reasons, including a material breach of
such Agreement by the Affiliate, the failure by the Affiliate to achieve at
least 75% of the minimum volume of business set forth in its Affiliate Agreement
in any year of the Affiliate's operation or the Affiliate's failure to otherwise
conduct normal business operations diligently and regularly or to use its best
efforts to sell and provide career transition consulting services, or the
Affiliate's failure to adhere to the written service standards established by
the Company in consultation with the Advisory Committee. The Company may also
terminate an Affiliate Agreement due to the death, disability or retirement of
key Affiliate personnel or of principal stockholders of an Affiliate.
5
<PAGE>
The Company has offered and implemented with substantially all of its existing
North American Affiliates an addendum to their respective Affiliate Agreements.
Under the terms of the addendum, the Company relinquishes its right to give
notice of non-renewal of the Affiliate's Affiliate Agreement upon the expiration
of its initial or one of its renewal terms. However, the Advisory Committee is
empowered to terminate, upon specified grounds, the Affiliate Agreement of
Affiliates who sign the addendum. In addition, the addendum permits the Company
to terminate the Affiliate Agreement of any Affiliate if certain trends in the
volume of business generated by the Affiliate deviate by more than specified
amounts below the comparably defined trends for all North American offices of
the Company and its Affiliates measured as a group.
The Company has agreed with substantially all of its existing North American
Affiliates that in the event the Company offers to any other North American
Affiliate any provision in the Affiliate Agreement with such other North
American Affiliate which is more beneficial to such other North American
Affiliate than the terms of the existing Affiliate Agreements with the rest of
the current North American Affiliates, then the new provision will be offered to
all existing North American Affiliates, except for provisions added or deleted
to (a) comply with a particular state or provincial law or regulation; (b)
maintain in force prior agreements with specific Affiliates; or (c) address the
unique nature or character of other businesses or activities engaged in by a
specific Affiliate.
Affiliates' Right of First Refusal
Pursuant to the Affiliate Agreements, the Affiliates may have a right of first
refusal to purchase shares of the Company's Common Stock in case of certain
proposed sales or exchanges of the Company's Common Stock. Under the terms of
the Affiliate Agreements, in the event that 51% or more of the Common Stock of
the Company is proposed to be sold by one or more stockholders of the Company in
a single transaction (exclusive of a corporate merger or consolidation in which
the Company is not the surviving party and transactions in which the common
stock of another company is exchanged for the Common Stock of the Company), the
Affiliates may have a right of first refusal to acquire the Common Stock of the
Company being sold under the same terms as the proposed transaction.
6
<PAGE>
Acquisitions
During 1996, the Company completed four separate acquisitions consisting of two
career transition firms and two organizational consulting firms. See Note B to
the Consolidated Financial Statements. The Company acquired the outstanding
stock of People Tech, a consulting company headquartered in Toronto, Canada. The
other three transactions involved the purchase of the business, assets and/or
the outstanding stock of three other smaller firms located in the United States
and Canada. The total purchase price for these acquisitions aggregated
approximately $3,412,000, including costs of acquisition. The acquisitions were
consummated through combinations of cash and non-cash considerations, including
the assumption of incomplete consulting contracts.
During the period 1991 through 1995, the Company completed eleven separate
acquisitions of career transition and consulting firms for combinations of cash,
future defined incentives, incomplete career transition contracts and other
considerations. The total purchase price for these transactions aggregated
approximately $20,692,000, including costs of acquisition.
Competition
The Company competes against other providers of career transition services and
other human resource consulting services. Based on revenues for 1996, the
Company became the largest provider of career management services worldwide,
surpassing Drake Beam Morin, Inc., a subsidiary of Harcourt General, Inc. The
Company believes that the principal methods of competition in its industry are
quality of service, professional staff and price. On a regional basis, the
Company competes against local career transition and other human resource
consulting firms that are well-established in a particular region. The Company
believes that the cost for its services are competitive, based on the quality
and value of services offered. The Company may also face competition from future
expansion by other entities into the career transition and other human resource
consulting businesses.
Government Regulation
Certain aspects of the on-going relationship between the Company and the
Affiliates are subject to the franchise regulations of the Federal Trade
Commission (the "FTC") and to various franchise laws enacted by certain of the
states in which the Company's Affiliates are located. The provisions and scope
of the state laws vary. In some states, the Company is required to register the
offering of the Affiliate Agreements with regulatory agencies and to license
Company personnel who are directly involved in offering the Affiliate Agreement
to prospective Affiliates. Some states also regulate certain terms of the
Affiliate Agreement, primarily the terms upon which the Company can terminate an
Affiliate Agreement for cause or can decline to renew an Affiliate Agreement
upon expiration. Other states' laws impose on the Company general duties of fair
dealing with the Affiliates and prohibit unfair discrimination among or against
Affiliates. As a result of such laws regulating relationships with the
Affiliates in certain states, the Company has less flexibility than it would
otherwise have in structuring such relationships.
7
<PAGE>
Financial Information Relating to Foreign Operations
See the Company's Consolidated Financial Statements, Note J, "Geographic
Segments", contained in the Company's 1996 Annual Report to Shareholders, for
information regarding the Company's foreign operations. This information is
responsive to Item 101(d) of Regulation S-K and is incorporated by reference
herein.
Employees
At February 28, 1997, the Company and its subsidiaries employed 806 persons
full-time, including 16 in senior management, 86 in other managerial and
professional roles, 378 in field operations as consultants, and 326 in clerical
capacities. In addition, the Company employed 272 persons on a part-time basis
as professional consultants. Consultants are generally required to have prior
executive or management experience and are provided Company training. None of
the Company's employees are subject to collective bargaining agreements. In
general, the Company believes that its employee relations are good.
Item 2: Properties
The Company leases approximately 22,618 square feet for its corporate
headquarters in the 1818 Market Street Building in Philadelphia, Pennsylvania.
The initial term of the lease expires December 15, 2005 and is at an annual base
rent of approximately $509,000, subject to annual operating expense escalation
clauses. The Company has the option to extend the lease for an additional term
of five years on the same terms and conditions, except that the rent will be
changed to the then current market rate for the building.
All office space for Company offices is leased. The leases typically have three
to five year terms and some have renewal options. The Company leases
approximately 563,000 square feet for all Company offices, including the
corporate headquarters, at an aggregate base yearly rental of approximately
$13,000,000. Most of these leases are also subject to annual operating expense
escalation clauses. The Company believes its facilities are adequate to provide
services to its clients.
Item 3: Legal Proceedings
The Company is not a party to, nor is its property the subject of, any material
pending legal proceedings.
Item 4: Submission of Matters to a Vote of Security Holders
Not applicable.
8
<PAGE>
Executive Officers of the Registrant
Each of the following executive officers of the Company has been appointed by
the Board of Directors and served during 1996 in the following roles at the
discretion of the Board. All of the executive officers are expected to devote
their full business time to the Company's affairs.
Name Age Position(s)
Richard J. Pinola 51 Chairman of the Board of Directors and
Chief Executive Officer
Frank P. Louchheim 73 Founding Chairman and Director
Joseph T. Smith 61 President, Chief Operating
Officer and Director
G. Lee Bohs 37 Executive Vice President, Chief Financial
Officer, Secretary and Treasurer
John J. Gavin 39 Executive Vice President of Corporate
Marketing
Manville D. Smith 58 Executive Vice President of Business
Development
Larry A. Evans 54 Executive Vice President and Director
Nancy N. Geffner 57 New York Group EVP and Director
Dr. Marti D. Smye 46 President of People Tech Consulting, Inc.
and Director
Peter J. Doris 50 Southeast United States Group EVP
David S. Orr 62 North Central United States Group EVP
Warren R. Radtke 61 Northeast United States Group EVP
Gary L. Saenger 52 Southwest United States Group EVP
Terry W. Szwec 46 Canadian Group EVP
George L. Whitwell 56 Northwest and South Central United States
Group EVP
Gilbert A. Wetzel 63 Mid-Atlantic United States Group EVP
9
<PAGE>
Mr. Pinola was elected as a Director by the Board in October 1989. Mr. Pinola is
a Certified Public Accountant and joined Penn Mutual Life Insurance Company in
1969. He was appointed President and Chief Operating Officer in 1988, which
positions he held until his resignation in September 1991. Mr. Pinola was a
financial consultant to various organizations from September 1991 until July
1992, at which time he was appointed President and Chief Executive Officer of
the Company. Effective January 1, 1994, Mr. Pinola was appointed Chairman of the
Board of Directors and continues as Chief Executive Officer. Mr. Pinola also
serves as a director of K-Tron International, a publicly held company.
Mr. Louchheim was one of the founders of the Company and from November 1980
until September 1987, Mr. Louchheim served as President, Chief Executive Officer
and Chairman of the Board of Directors of the Company. From January 1992 to
December 31, 1993, he served as the full-time Chairman of the Board of
Directors. Effective January 1, 1994, Mr. Louchheim was appointed Founding
Chairman and continues as a Director.
Mr. Joseph Smith joined the Penn Mutual Life Insurance Company in 1963. In 1976,
he was promoted to Vice President of Administration and Human Resources, which
position he held until his resignation in 1980. From 1981 to 1984, Mr. Smith
worked as an independent consultant offering a range of consulting services to
businesses. He joined the Company as a Senior Consultant in Professional
Services in August 1984 and, from August 1988 until September 1992 held the
position of Regional Managing Principal of the Company's Philadelphia office.
Mr. Smith was elected as a Director in May 1991. From September 1992 through
December 1993, Mr. Smith served as the Company's Chief Operating Officer.
Effective January 1, 1994, Mr. Smith was appointed President and continues as
Chief Operating Officer.
From June 1981 to January 1987, Mr. Bohs was employed at the regional Certified
Public Accounting firm of Asher & Company, Ltd., initially as a staff
accountant, and then as an accounting and auditing manager. He joined the
Company as Manager of Financial Reporting in January 1987, and was elected
Treasurer in December 1987 and Vice President, Finance, effective January 1989.
From March 1991 until December 1995, Mr. Bohs served as Senior Vice President
and Chief Financial Officer. He was appointed Secretary by the Board of
Directors in May 1995. Effective January 1996, he was promoted to Executive Vice
President and continues to serve as Chief Financial Officer.
Mr. Gavin was employed at Arthur Andersen LLP in Philadelphia for 18 years in
which he served as the partner in charge of the manufacturing/distribution
industries. Mr. Gavin joined the Company in December 1996 as Executive Vice
President of Corporate Marketing. In this capacity, Mr. Gavin is responsible for
the overall marketing strategy and business development activities for the
Company's worldwide locations. Mr. Gavin serves as the Chairman of Temple
University's Accounting Advisory Board and is a member of the Board of Trustees
of the Eagle's Fly for Leukemia Foundation.
10
<PAGE>
Mr. Manville Smith worked for the 3M Company where he had a twenty year career
in a variety of positions, including Managing Director for several international
subsidiaries and operations. Subsequently, Mr. Smith went to work for the Parker
Pen Company where he served as Vice President of Strategic Planning from July
1980 to April 1981. In April 1981, Mr. Smith was promoted to President of the
Parker Pen Company with worldwide responsibility for this manufacturer of
quality writing instruments, where he served until July 1984. From July 1984
until July 1988, Mr. Smith provided strategic planning consulting to various
organizations. In 1988, Mr. Smith joined the operations of the Company's Florida
Affiliate as Executive Director, where he provided consulting services. In July
1994, Mr. Smith joined the Company as Executive Vice President, Business
Development, responsible for strategic business development on a worldwide basis
and has served in this capacity through 1996.
Prior to May 1978, Mr. Evans was professionally involved in the international
finance and venture capital industries. From May 1978 to November 1980, Mr.
Evans was employed as an independent outplacement consultant for Bernard Haldane
Associates, Inc., reporting to Mr. Louchheim. Since November 1980, Mr. Evans has
served as Executive Vice President and a Director of the Company. From January
1990 until May 1995, Mr. Evans served as Regional Managing Principal of several
Company offices. In May 1995, Mr. Evans joined the Company's corporate office
where he works together with the Company's regional offices in marketing to
major national and international accounts.
From August 1979 to February 1981, Ms. Geffner was a Career Consultant with
Bernard Haldane Associates, Inc. Since March 1981, Ms. Geffner has served as
Regional Managing Principal of the Company's New York City office. In December
1983, Ms. Geffner was named an Executive Vice President of the Company. In 1993,
Ms. Geffner took on the additional responsibilities of directing the Company's
Key Executive Service program, the consulting program for senior executives,
throughout the United States and Canada. Effective January 1996, Ms. Geffner
resigned from this role and was appointed Group Executive Vice President for the
Greater New York Region.
From 1981 to 1989, Dr. Smye was a partner of the industrial psychology firm,
Jackson Smith. From this company, in 1989 she founded the change leadership
consulting firm, People Tech Consulting, Inc. ("People Tech"). People Tech was
acquired by the Company in April 1996. In addition, she is the author of two
books titled "You Don't Change a Company by Memo: The Simple Truths About
Managing Change" and "Corporate Abuse: How "Lean and Mean" Robs People and
Profits." Dr. Smye also serves on various boards of both private companies and
community associations, including the Public Policy Forum and the Harvard
Business School Club of Toronto.
Prior to joining Right Associates(R), Mr. Doris was Senior Vice President of
Human Resources for a large New York City based bank. From 1986 to 1990, Mr.
Doris was Senior Vice President, Sales and Operations of the Company. Effective
January 1991, he became a Group EVP for the Southeast region of the United
States in which capacity he served during 1996.
11
<PAGE>
Prior to 1990, Mr. Orr had a thirty one year career in the telecommunications
industry in which he was a senior officer for Indiana Bell, Vice President -
Regional Business Services for AT&T, Vice President - Marketing Planning with
Ameritech Services and, finally, President of Ameritech Communications. In 1990,
Mr. Orr joined Jannotta, Bray & Associates as an Executive Program Consultant, a
position he held until it was acquired by the Company in September 1994.
Subsequent to the acquisition, Mr. Orr served as Regional Managing Principal for
the Chicago Region of Right/Jannotta Bray until February 1995 when he was
promoted to Group EVP in which capacity he is currently responsible for the
North Central region of the United States.
From 1965 to 1980, Mr. Radtke was the owner of an independent human resource
consulting firm specializing in executive outplacement, performance appraisal
systems, career management, organizational development and management
assessments. He joined the Right Associates(R) network in 1980 as the Regional
Managing Principal of the Boston, Massachusetts Affiliate office. Mr. Radtke
joined the Company in December 1992 and through December 31, 1993 served as the
Regional Managing Principal of the Company's Boston region. Effective January 1,
1994, Mr. Radtke became Group EVP for the Northeast region of the United States
and continued in this capacity through 1996.
Mr. Saenger spent over ten years with American Hospital Supply Corporation,
where he served in various human resources functions at the senior management
level. From 1982 to 1985, Mr. Saenger was with Transaction Technology
Incorporated, a subsidiary to CitiCorp, where he managed the human resources
function. From 1985 to 1991, Mr. Saenger was Senior Vice President of Security
Pacific Automation Company, Inc., a subsidiary of Security Pacific Corporation,
where he had full responsibility for human resource policy and implementation.
In 1991, Mr. Saenger joined the Company as the Regional Managing Principal of
the Company's Los Angeles region. Effective February 1995, Mr. Saenger became
Group EVP for the Southwest region of the United States. Mr. Saenger has an M.A.
in Personnel from Idaho State University.
Mr. Szwec was employed as Product Manager for Bristol Myers Canada, Ltd. from
1969 until 1970, when he left to become Manager of Training and Development for
de Havilland Aircraft, Ltd. In 1976, Mr. Szwec became Director of Human
Resources for Control Data Canada, Ltd., where he stayed until 1986 when he
began his own consulting practice specializing in executive training and
development, human resources effectiveness and career planning. Mr. Szwec joined
the Right Associates(R) network in 1987 as then Regional Managing Principal of
the Toronto Affiliate office. Mr. Szwec joined the Company in November 1990 as
Regional Managing Principal of the Company's Toronto region. Effective January
1, 1994, Mr. Szwec became Group EVP for the Canadian operations of the Company.
From July 1968 to February 1983, Mr. Whitwell held various management positions,
including Director of Outplacement for Fox-Morris Associates, Inc., a
Philadelphia, Pennsylvania-based personnel consulting firm. From February 1983
to June 1986, Mr. Whitwell served as Senior Vice President, Field Operations, of
the Company. Mr. Whitwell was a Director of the Company from March 1985 to May
1991 and from June 1986 to September 1987 was Executive Vice President, Field
Operations of the Company. For the period October 1987 through December 1990,
Mr. Whitwell served as the Regional Managing Principal of the Company's
Parsippany, New Jersey office. Effective January 1991, he became a Group EVP in
which capacity he was responsible for the Northwest and South Central regions of
the United States through 1996. Mr. Whitwell also serves as the Regional
Managing Principal of the Company's San Francisco region.
12
<PAGE>
Prior to joining Right Associates in 1994, Mr. Wetzel was associated with the
Bell System serving as Chairman and Chief Executive Officer of Bell of
Pennsylvania and Diamond State Telephone. Effective December 1996, Mr. Wetzel
became the Group EVP for the Eastern region of the United States in which
capacity he still serves.
Each executive officer has been elected for a term expiring with the first Board
of Directors' meeting held after the next annual meeting of shareholders.
PART II
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters
The information required by this Item is incorporated by reference to the
section titled "Common Stock Data" in the Company's 1996 Annual Report to
Shareholders, the incorporated portions of which are included as Exhibit 13 to
this Report.
Item 6: Selected Financial Data
The information required by this Item is incorporated by reference to the
section titled "Selected Financial Data" in the Company's 1996 Annual Report to
Shareholders, the incorporated portions of which are included as Exhibit 13 to
this Report.
Item 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by this Item is incorporated by reference to the
section titled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company's 1996 Annual Report to Shareholders, the
incorporated portions of which are included as Exhibit 13 to this Report.
Item 8: Financial Statements and Supplementary Data
The information required by this Item is incorporated by reference to the
sections titled "Consolidated Balance Sheets", "Consolidated Statements of
Income", "Consolidated Statements of Stockholders' Equity", "Consolidated
Statements of Cash Flows" and "Notes to Consolidated Financial Statements" in
the Company's 1996 Annual Report to Shareholders, the incorporated portions of
which are included as Exhibit 13 to this Report.
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
13
<PAGE>
PART III
The information called for by Items 10 through 13 of Form 10-K (except for the
information set forth on pages 9-13 with respect to Executive Officers of the
Registrant) is hereby incorporated by reference to the information set forth
under the captions "Election of Directors", "Executive Compensation", "Voting
Securities, Voting Rights and Security Ownership" and "Ratification of
Appointment of Independent Public Accountants" contained in the Company's
definitive Proxy Statement with respect to its 1997 Annual Meeting of
Shareholders, to be filed with the Securities and Exchange Commission within 120
days following the end of the Company's fiscal year.
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as a part of this Report:
1. Financial statements: The following is a list of financial
statements which have been incorporated by reference from the
Company's 1996 Annual Report to Shareholders, as set forth in
Item 8:
Report of Arthur Andersen LLP, Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for each of the three years in
the period ended December 31, 1996
Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended December 31, 1996
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1996
Notes to Consolidated Financial Statements
2. Financial statement schedule: The following financial
statement schedule for the Company is filed as part of this
Report and should be read in conjunction with the Consolidated
Financial Statements of the Company.
Report of Arthur Andersen LLP, Independent Public Accountants
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable,
not required, or because the required information is contained in
the Company's consolidated financial statements or the notes
thereto.
14
<PAGE>
3. Exhibits: The Exhibits listed on the accompanying Index to
Exhibits are filed as part of, or incorporated by reference into,
this Report, under Item 601 of Regulation S-K:
INDEX TO EXHIBITS
Exhibit No.
3.1 Company's Articles of Incorporation, together with all amendments
thereto, (incorporated by reference to the Company's Form S-1 (File
No. 33-9034), filed November 12, 1986).
3.2 Company's By-Laws (incorporated by reference to the Company's report
on Form 10-K for the fiscal year ended December 31, 1988, filed March
30, 1989).
10.01 Agreement among Right Management Consultants, Inc. and Right Human
Resources Consultants, Inc., dated December 26, 1984 (incorporated by
reference to the Company's Form S-1 (File No. 33-9034), filed
September 25, 1986).
10.02 Agreement among Right Management Consultants, Inc. and Midwest
Reemployment Consultants, Inc. dated February 15, 1985 (incorporated
by reference to the Company's Form S-1 (File No. 33-9034), filed
September 25, 1986).
10.03 Agreement among Right Management Consultants, Inc. and Human
Resources, Inc., dated December 26, 1984 (incorporated by reference to
the Company's Form S-1 (File No. 33-9034), filed September 25, 1986).
10.04 Non-Qualified Stock Option Plan, adopted, as of April 30, 1984
(incorporated by reference to the Company's Form S-1 (File No.
33-9034), filed September 25, 1986).*
10.05 1986 Shareholders' Agreement (incorporated by reference to the
Company's Form S-1 (File No. 33-9034), filed November 12, 1986).
10.06 401(k) Savings Plan (incorporated by reference to the Company's Form
S-1 (File No. 33-9034), filed September 25, 1986). *
10.07 Amendment to Employment Agreement between Right Management
Consultants, Inc. and Frank P. Louchheim, dated January 1, 1992
(incorporated by reference to the Company's report on Form 10-K for
the fiscal year ended December 31, 1991, filed March 30, 1992). *
10.08 Supplemental Deferred Compensation Plan for Richard J. Pinola, dated
July 1, 1992 (incorporated by reference to the Company's report on
Form 10-K for the fiscal year ended December 31, 1991, filed March 30,
1992). *
10.09 Further Amendment to Amended and Restated Employment Agreement between
Right Management Consultants, Inc. and Frank P. Louchheim dated
February 16, 1993. *
10.10 1993 Stock Option Plan (incorporated by reference as Exhibit 4 filed
in the Company's report on Form S-8 (File No. 33-58698), filed
February 23, 1993). *
*These documents are compensatory plans or agreements required to be filed as
Exhibits.
15
<PAGE>
10.11 Purchase Agreement dated September 1, 1994 by and between Registrant
and Jannotta, Bray and Associates, Inc. (Schedules omitted)
(incorporated by reference to the Company's Form 8-K, dated September
1, 1994).
10.12 Lease Agreement between Metropolitan Life Insurance Company and Right
Management Consultants, Inc., dated October 18, 1983 and amended on
August 12, 1986; November 6, 1987; and July 15, 1991.
10.13 Purchase Agreement dated February 15, 1995 by and between Registrant
and Worth Associates, Inc. and Robert A. Fish (incorporated by
reference to the Company's report on Form 10-Q for the quarter ended
March 15, 1995, filed May 15, 1995).
10.14 1993 Stock Incentive Plan, as amended (incorporated by reference to
the Company's Proxy Statement for Annual Meeting of Shareholders held
on May 4, 1995).*
10.15 Directors' Stock Option Plan of the Company (incorporated by reference
to the Company's Proxy Statement for Annual Meeting of Shareholders
held on May 4, 1995).*
10.16 Employment Agreement dated December 12, 1995 by and between Right
Management Consultants, Inc. and Richard J. Pinola. *
10.17 Employment Agreement and Supplemental Deferred Compensation Plan dated
December 12, 1995 by and between Right Management Consultants, Inc.
and Joseph T. Smith. *
10.18 Purchase Agreement between PTR Right Acquisition Co. Inc. and Marti
Smye, Margaret Smith, Richard Zuliani, Margaret Smith Family Trust,
Richard Zuliani Family Trust and People Tech Consulting, Inc. dated
April 10, 1996 (incorporated by reference to the Company's report on
Form 10-Q for the quarter ended March 31, 1996, filed May 14, 1996)
10.19 Employee Stock Purchase Plan of the Company (incorporated by reference
as Exhibit 4 filed in the Company's report on Form S-8 (File No.
333-06211), filed June 18, 1996).*
10.20 Amendment to the 1993 Stock Incentive Plan (incorporated by reference
to the Company's report on Form S-8 (File No. 333-07975), filed July
11, 1996).*
10.21 Credit Agreement between Right Management Consultants, Inc. and its
wholly owned subsidiaries and PNC Bank, National Association dated
December 20, 1996 (incorporated by reference to the Company's Form
8-K, dated January 17, 1997)
10.22 Employment Agreement dated April 10, 1996 by and between Right
Management Consultants, Inc. and Marti Smye. *
11. Consolidated Earnings per Share Calculations.
13. Portions of the Company's 1996 Annual Report to Shareholders expressly
incorporated by reference.
21. Subsidiaries of the Company.
23. Consent of Arthur Andersen LLP, Independent Public Accountants
27. Financial Data Schedule. +
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
fiscal quarter ended December 31, 1996.
*These documents are compensatory plans or agreements required to be filed as
Exhibits.
+ Filed in electronic form only.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
---------------------
Richard J. Pinola,
Chairman of the Board and
Chief Executive Officer
Dated: MARCH 27, 1997
17
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signatures Title Date
/S/ RICHARD J. PINOLA Chairman of the Board
- - --------------------- and Chief Executive Officer MARCH 27, 1997
Richard J. Pinola
/S/ G. LEE BOHS Chief Financial
- - --------------------- Officer and Principal
G. Lee Bohs Accounting Officer MARCH 27, 1997
/S/ FRANK P. LOUCHHEIM Director MARCH 27, 1997
- - ---------------------
Frank P. Louchheim
/S/ JOSEPH T. SMITH Director MARCH 27, 1997
- - ---------------------
Joseph T. Smith
/S/ LARRY A. EVANS Director MARCH 27, 1997
- - ---------------------
Larry A. Evans
/S/ JOHN R. BOURBEAU Director MARCH 27, 1997
- - ---------------------
John R. Bourbeau
/S/ RAYMOND B. LANGTON Director MARCH 27, 1997
- - ---------------------
Raymond B. Langton
/S/ REBECCA J. MADDOX Director MARCH 27, 1997
- - ---------------------
Rebecca J. Maddox
/S/ CATHERINE Y. SELLECK Director MARCH 27, 1997
- - ---------------------
Catherine Y. Selleck
/S/ DR. MARTI D. SMYE Director MARCH 27, 1997
- - ---------------------
Dr. Marti D. Smye
18
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Right Management Consultants, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Right Management Consultants, Inc. and
subsidiaries included in this Form 10-K and have issued our report thereon dated
January 31, 1997. Our audit was made for the purpose of forming an opinion on
those financial statements taken as a whole. The financial statement schedule
listed in the index above is the responsibility of the Company's management and
is presented for the purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
_______________________
Philadelphia, Pennsylvania
January 31, 1997
<PAGE>
Right Management Consultants, Inc.
Schedule II - Valuation and Qualifying Accounts and Reserves
For the Years 1996, 1995 and 1994
<TABLE>
<CAPTION>
Additions
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Description Year Expenses Accounts Deductions Year
1996:
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $754,000 $28,000 -- $230,000 $552,000
======== ======= ======== ========
Deferred income tax asset valuation
reserve -- $192,000 -- -- $192,000
======== ========
1995:
Allowance for doubtful accounts $651,000 $400,000 -- $297,000 $754,000
======== ======== ======== ========
Deferred income tax asset valuation
reserve $391,000 -- -- $391,000 (1) --
======== ========
1994:
Allowance for doubtful accounts $794,000 $75,000 -- $218,000 $651,000
======== ======= ======== ========
Deferred income tax asset valuation
reserve $583,000 -- -- $192,000 (1) $391,000
======== ======== ========
<FN>
(1) Reduction due to the utilization and expiration of certain foreign net
operating losses.
</FN>
</TABLE>
<PAGE>
Exhibit Index
Exhibit No. Description
10.22 Employment Agreement dated April 10, 1996 by and between
Right Management Consultants, Inc. and Marti Smye
11 Consolidated Earnings per Share Calculations
13 The Company's 1996 Annual Report to Shareholders, portions
of which are incorporated by reference
21 Subsidiaries of the Company
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule +
+ Filed in electronic form only.
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made as of the 10th day of
April, 1996, by and between People Tech Consulting Inc., federal Canadian
corporation ("Employer"), and Marti Smye ("Executive"). As used herein,
"Employer" shall mean Employer and all direct and indirect subsidiaries of
Employer.
BACKGROUND
Pursuant to a Stock Purchase Agreement dated April 10, 1996, between
PTR Right Acquisition Co. Inc. ("PTR"), a federal Canadian corporation and a
wholly-owned subsidiary of Right Management Consultants, Inc., a Pennsylvania
corporation ("RMC"), as buyer, and the shareholders of Employer, as sellers (the
"Stock Purchase Agreement"), PTR is purchasing all of the capital stock of
Employer for the purpose of operating Employer's business on the closing date
thereof (the "Closing Date"). Simultaneous with the execution of this Employment
Agreement, Executive is selling shares of Employer to PTR pursuant to the Stock
Purchase Agreement.
In connection with the sale of the stock of Employer, Employer desires
to employ Executive as Executive Vice President-Management Consulting, and
Executive desires to be so employed by Employer.
In consideration of the mutual promises and covenants contained herein
and intending to be legally bound hereby, Employer and Executive agree as
follows:
1. Employment and Duties.
(a) Employer hereby employs Executive and Executive hereby
accepts employment by Employer as Executive Vice President-Management
Consulting, for a period of three (3) years (the "Term"), effective as of March
1, 1996 (the "Effective Date"), and upon the terms and conditions contained in
this Agreement. From and after the expiration of the Term, Executive will be
retained as an employee of Employer, with either party having the right to
terminate employment upon notice to the other party. Any such termination of
employment after the expiration of the Term is in accordance with the provisions
of this Agreement.
(b) As Executive Vice President, Executive shall have senior
management responsibility for the business of Employer in connection with the
types of business conducted as of the date hereof by Employer, and perform such
other duties as Employer
-1-
<PAGE>
shall from time to time reasonably direct. From and after the date hereof and up
to and including the date that Executive's employment hereunder is terminated,
Executive shall devote Executive's full working time, skill and best efforts to
the performance of Executive's duties hereunder. Notwithstanding anything in
this paragraph to the contrary, Executive is free to engage in lecturing,
speaking, writing, and teaching activities on a scale similar to those she has
historically engaged in. All fees and royalties generates by such activities
shall be the property of Employer.
(c) Employer shall not, without the consent of Executive,
require Executive to change the location of her residence.
2. Compensation.
(a) Base Salary. As compensation for services rendered by
Executive hereunder Executive shall receive, effective as of the Effective Date,
an annual base salary of Three Hundred Twenty-Eight Thousand Five Hundred
Canadian Dollars (C$328,500), payable on a semi-monthly basis. In addition, for
the period from the Effective Date to February 28, 1999, Executive shall be
entitled to receive the Special Bonus provided in subparagraph 2.(b) below.
(b) Special Bonus. In addition to the base salary provided for
in subparagraph 2.(a) above, Employer shall pay a special bonus ("Special
Bonus") to Executive based on the Net Earnings of Employer for the three fiscal
years in the period beginning March 1, 1996 and ending on February 28, 1999
(each a "Fiscal Year"), according to the following schedule:
Percentage of Net Earnings for
each level of Net Earnings on an
incremental (not cumulative) basis
Net Earnings Fiscal Fiscal Fiscal
(Canadian Dollars) Year 1 Year 2 Year 3
Up to $500,000 - - -
$500,001-$1,500,000 19.44% 15.56% 11.66%
$1,500,001-$2,000,000 31.12% 27.22% 23.34%
$2,000,001-$2,500,000 35.00% 31.12% 27.22%
$2,500,001 and above 38.90% 35.00% 31.12%
In addition, and as an additional Special Bonus, if the Net Earnings,
as calculated for the purposes of this Agreement, for any Fiscal Year exceed
C$2,500,000, Executive shall be paid the sum of C$156,000 with respect to each
such Fiscal Year; provided, however, that once the total amount of Special Bonus
payments to Executive, including additional Special Bonus payments, has reached
C$777,800, (i) Special Bonus payments to Executive shall
-2-
<PAGE>
be made at the rate of 95% of the percentages shown above and (ii) additional
Special Bonus payments to Executive shall be in the amount of C$148,200. Any
Special Bonus payments due under this Agreement shall be paid within 60 days of
the end of the Fiscal Year for which the Special Bonus payment is due.
Net Earnings or Loss means, with respect to any Fiscal Year, the Net
Earnings or Loss of People Tech before income taxes and bonuses (other than any
Special Bonus) to principals for such year determined in a fashion consistent
with the determination of such earnings for the year ended March 31, 1995, as
determined by Smith, Nixon & Co., Chartered Accountants, in its report dated
July 14, 1995, as adjusted to make the fiscal period herein correspond as if it
were a regular fiscal year (meaning the application of appropriate year end
adjustments), and with the following further adjustments: For purposes of the
foregoing calculation, only direct costs of providing services outside Employer
shall be deducted, including costs associated with the severance of current
employees of Employer, but not any outplacement costs or allocations of overhead
from offices (other than Employer's offices), or from the corporate headquarters
of RMC. In the event that operations of People Tech are changed after the
Effective Date so that such operations are not conducted in Employer, or RMC
fails to meet its commitments under the Operating Plan (as such term is used in
the Stock Purchase Agreement), the parties will adjust the method of calculation
for purposes of the Special Bonus compensation to equitably reflect such
circumstances.
(c) All compensation payable to Executive hereunder shall be
subject to any tax withholding obligations under applicable laws.
3. Executive Benefits.
In addition to the compensation set forth in Section 2 of this
Agreement, Executive shall be entitled to the following:
(a) Four weeks paid vacation annually; including without
limitation the pro rata portion thereof for the remainder of calendar year 1996
and for the period from January 1, 1999 through the end of the Term.
(b) All medical, life, retirement and other benefits that are
currently available to other senior management of Employer.
(c) Executive shall participate in all other benefit, annual
bonus, incentive and expense reimbursement programs offered by Employer from
time to time to its senior management on the general terms of such programs,
reasonably comparable to RMC corporate-wide policies regarding such programs
from time to
-3-
<PAGE>
time, provided, however, that Executive understands and agrees that Employer
reserves the right to unilaterally revise the terms of the benefits and expense
reimbursement programs or to eliminate any benefits thereunder altogether.
Executive agrees that benefits will be provided in accordance with the formal
plan documents or policies and issues with respect to entitlement or payment of
benefits under any of the benefit and expense reimbursement programs will be
governed by the terms of such documents or policies establishing the benefit in
issue. Commencing 1997, Executive shall be eligible for stock options consistent
with RMC Corporate Executive Vice Presidents.
For purposes of the vesting and eligibility requirements, if any, for
the benefits which are available under this Section 3, Executive shall be deemed
to have been hired on January 1, 1978.
4. Termination.
(a) Employer reserves the right to terminate Executive's
employment at any time, for Cause, as hereinafter set forth, effective
immediately upon written notice of such termination. In the event that Employer
terminates Executive for Cause or in the event Executive voluntarily terminates
her employment, Executive will receive only all salary and all accrued but
unused vacation and other benefits during the period up through the date of
termination.
(b) For purposes of this Agreement, "for Cause" shall be
defined as (i) any material act of fraud or dishonesty by the Executive; (ii)
any action by Executive which materially and adversely affects the ability of
Executive to perform her professional duties as described herein; or (iii) any
failure by Executive to cure any material breach of any term of (A) any contract
between Executive and Employer or RMC, or (B) any written, generally
disseminated policy of Employer or RMC regarding employee conduct, within thirty
(30) days of the effective date of the written notice of such breach by Employer
or RMC to the Executive.
(c) This Agreement shall terminate automatically in the event
of Executive's death or permanent disability which prevents Executive from
performing Executive's essential duties under this Agreement. In either event,
base salary shall be paid to the last day of the month in which the event
occurs, and bonus will be pro rated to such later date. For purposes of this
subparagraph, "permanent disability" shall have the same meaning as in
Employer's Long Term Disability benefit policy as in effect from time to time.
(d) Notwithstanding any other provision of this Agreement,
Executive shall be entitled to receive the Special Bonus hereunder without
regard to Executive's death, disability
-4-
<PAGE>
or continued employment by Employer, unless Executive voluntarily terminates her
employment or is terminated for Cause in which event Executive shall not be
entitled to receive any Special Bonus payable after the date of termination of
Executive's employment.
(e) In the event that Employment Standards legislation
provides for a greater benefit to Executive on termination than contained in
this Agreement, Executive is entitled to receive the benefit provided in such
legislation in place of the termination benefit provided for in this Agreement;
provided, however, that this subparagraph 4(e) shall not in any way restrict or
limit the payment of any Special Bonus provided under subparagraph 2(b) hereof.
5. Restrictive Covenants.
(a) In order to induce Employer to execute this Agreement,
Executive hereby covenants and agrees that during Executive's Employment by
Employer and for a period of one year after Executive's employment with Employer
is terminated for any reason whatsoever (the "Restricted Period"), Executive
shall not, directly or indirectly, either for Executive's own account or as a
partner or joint venturer, or as an agent for any person or entity other than
Employer, or as a shareholder, owner, or otherwise (other than as the holder of
five percent (5%) or less of an exchange listed entity), anywhere within the
Territory (hereinafter defined): (i) engage in the business of selling or
providing corporate change management consulting services; (ii) contact or
solicit any entity which is or has been a client or customer of Employer's
consulting division(s) at any time throughout Executive's employment with
Employer or any entity which has been actively solicited by Employer within six
months prior to termination of Executive's employment with Employer on behalf of
any competitor of Employer for the purpose of providing change management or
organizational consulting services to such clients or customers on an in-house
basis, to the extent that so doing would compete with the change management or
organizational consulting services provided by Employer; (iii) enter into any
agreement or arrangement with or perform any change management or organizational
management consulting services for any client or customer of Employer for whom
Executive has performed services at any time during Executive's employment with
Employer; or (iv) solicit or induce any employee of Employer to terminate such
employee's employment with Employer. Notwithstanding anything herein to the
contrary, Executive shall be permitted to engage in lecturing, speaking, writing
and teaching activities on a scale similar to those she has historically engaged
in during the term of Executive's employment by Employer. For the purposes of
this Agreement, Territory shall mean the Provinces of Canada and the states of
the United States which together constitute the continent of North America.
-5-
<PAGE>
(b) Executive hereby covenants and agrees that, except to the
extent required by law, at all times after the date of this Agreement, Executive
shall not use for Executive's benefit, or disclose, communicate or divulge to,
or use for the direct or indirect benefit of any person, firm, association or
company other than Employer, any confidential information regarding the business
methods, business policies, procedures, techniques, research or development
projects or results not in the public domain; trade secrets, or other knowledge
or processes used or developed by Employer in or for Employer's business; or any
names or the addresses of any customers or clients of Employer; or any
non-public data on or relating to past, present or prospective customers or
clients of Employer; or any other confidential information relating to or
dealing with the business operations or activities of Employer (collectively,
"Confidential Information"). Provided, however, that Confidential Information
does not include information that (x) is, was, or becomes available to Executive
on a nonconfidential basis; (y) has been or is made available on a unrestricted
basis to a third party by Employer, by an individual authorized to do so; or (z)
is known by Executive prior to its disclosure to Executive by Employer.
Furthermore, Executive is specifically permitted to use and disclose
Confidential Information to the extent necessary to assert any right or defend
against any claim arising under this Agreement or pertaining to Confidential
Information or its use, to the extent necessary to comply with any applicable
statute, constitution, treaty, rule, regulation, ordinance, or order of the
Untied States, Canada, or any other jurisdiction applicable to Executive, or if
Executive receives a request to disclose any Confidential Information under the
terms of a subpoena, order, civil investigative demand, or similar process
issued by a Court of competent jurisdiction or by a governmental body or agency
of the United States or Canada or any subdivision thereof.
(c) Any and all writings, inventions, improvements, computer
programs, processes, procedures or techniques (hereinafter "Inventions") which
Executive may make, discover or develop either solely or jointly with any other
person or persons (hereinafter "Co-Inventor(s)") at any time during the term of
and as part of Executive's employment with Employer which relate to any business
being conducted or carried on by Employer at the time of invention shall be the
sole and exclusive property of Employer, subject to the rights of the
Co-Inventor(s) in the Inventions. Any and all Inventions which Executive may
make, discover or develop either solely or jointly with any Co-Inventor(s) other
than as part of Executive's employment with Employer which are useful in
connection with any business being conducted, carried on or definitely planned
by Employer at the time of invention shall be subject to a perpetual license to
Employer, subject to any rights of Co-Inventor(s). The amount of the royalty
shall be agreed upon by Employer and Executive. In
-6-
<PAGE>
the event that they cannot agree, such royalty shall be determined by
arbitration by three arbitrators, one selected by Employer, one selected by
Executive and the third selected by the first two arbitrators. During the term
of this Agreement, Executive shall make full disclosure to Employer of all such
Inventions. It shall be presumed that any Inventions which Executive shall make,
discover or develop either solely or jointly with any Co-Inventor(s) during the
two-year period after termination of Executive's employment with Employer shall
have been developed in part during the term of employment, and Executive shall
have the burden of proof in demonstrating that no such development occurred
during such term of employment. With respect to those Inventions as to which
Employer is to acquire title hereunder, Executive shall do everything necessary
or desirable to vest such title in Employer, and Executive shall write and
prepare all specifications and procedures regarding such Inventions and
otherwise aid and assist Employer so that Employer can prepare and present
applications for copyrights or patents therefor and can secure such copyrights
or patents wherever possible, as well as reissues, renewals and extensions
thereof, and can obtain record title to such copyright or patents in all
countries in which it may desire to have copyright or patent protection.
Executive shall not be entitled to any additional or special compensation for
rights to Inventions which Employer acquires hereunder.
(d) Executive also agrees, during the term of this Agreement
and thereafter, not to disparage or deprecate, directly or indirectly, the
reputation, professionalism, character, competence, integrity or motives of
Employer, any subsidiary or any affiliate thereof, or any of their officers,
trustees, directors, employees, attorneys, agents or family members.
(e) Executive acknowledges that the restrictions contained in
this Section 5, in view of the nature of the business in which Employer is
engaged, are reasonable and necessary in order to protect the legitimate
interests of Employer, and that any violation thereof would result in
irreparable injuries to Employer. Executive therefore acknowledges that, in the
event of a violation of any of these restrictions, Employer shall be entitled to
obtain from any court of competent jurisdiction emergency, preliminary and
permanent injunctive relief, as well as damages and an accounting of all
earnings, profits and other benefits from Executive arising from such violation,
which rights will be cumulative and in addition to any other rights or remedies
to which Employer may be entitled from Executive.
(f) If for any reason any paragraph or portion of a paragraph
from this Section 5 shall be invalid or unenforceable, it is agreed that the
same shall not affect any other paragraph or portion hereof, but the remaining
covenants and restrictions
-7-
<PAGE>
or portions hereof shall remain in full force and effect; and that if such
invalidity or enforceability is due to the unreasonableness of the time or
geographical area covered by the said covenants and restrictions, said covenants
and restrictions of this Agreement shall nevertheless be effective for such
period of time and for such area as may be determined to be reasonable by a
court of competent jurisdiction.
6. Stock Options.
It is the intention of management of Employer to recommend to
the Compensation and Stock Option Committee of RMC's Board of Directors
("Committee"), the issuance to Executive of options to purchase up to 6,000 of
RMC's common shares on terms set by the Committee, including an option price at
or above the fair market price of such shares on the date of grant.
7. Royalty Assignments.
Executive hereby assigns to Employer all of her right, title
and interest in and to any royalties and other payments ("Royalties") to which
Executive would otherwise be entitled to receive throughout the term of
Executive's employment by Employer with respect to the following completed or to
be completed books (collectively, the "Books"): You Don't Change A Company By
Memo, Corporate Abuse and Your Second Life (working title, subject to change).
Executive shall promptly notify the publishers of each of the Books in writing
of such assignment. Upon the termination of Executive's employment with
Employer, the right to receive the Royalties shall revert to Executive and
Employer shall promptly notify the publishers of each of the Books in writing of
such reversion.
8. Notices.
Any notice hereunder shall be in writing and shall be deemed to have
been duly given, if delivered personally, when delivered and, if mailed, when
mailed by certified mail, postage prepaid, return-receipt requested, addressed
to the following addresses:
If to Employer: People Tech Consulting Inc.
c/o Right Management Consultants,
Inc.
1818 Market Street, 33rd Floor
Philadelphia, PA 19103-3614
Attn: Chairman
If to Executive: Marti Smye
People Tech Consulting Inc.
154 University Avenue
2nd Floor
Toronto, Ontario M5H 3Y9
-8-
<PAGE>
Canada
Either party may change the address to which notices shall be mailed or
delivered to it at any time by notice to the other party given in the manner
provided herein.
9. Amendments.
This Agreement cannot be changed or terminated orally and no waiver of
compliance with any provision or condition hereof and no consent provided for
herein shall be effective unless evidenced by an instrument in writing duly
executed by the proper party.
10. Indulgences.
Neither the failure nor any delay on the part of either party hereto to
exercise any right, remedy, power or privilege under this Agreement will operate
as a waiver thereof, nor will any single or potential exercise of any right,
remedy, power or privilege preclude any other or future exercise of the same or
of any other right, remedy, power or privilege. Any waiver of such item with
respect to any one occurrence will not be construed as a similar waiver with
respect to any other occurrence.
11. Paragraph Headings.
The paragraph headings in this Agreement are for convenience only. They
form no part of this Agreement and shall not affect its interpretation.
12. Miscellaneous and Governing Law.
This Agreement sets forth the entire understanding of the parties and
supersedes any and all prior agreements, arrangements and understandings
relating to the subject matter hereof. This Agreement and the relationship of
the parties in connection therewith shall be construed and governed in
accordance with the laws of the Commonwealth of Pennsylvania, including laws
with regard to any conflicts of law provisions.
13. Provisions Separable.
The provisions of this Agreement are independent of and separable from
each other, and no provision shall be affected or rendered invalid or
unenforceable by virtue of the fact that for any reason any other or others of
them may be invalid or unenforceable in whole or in part.
-9-
<PAGE>
14. Successors and Assigns; Assignment.
This Agreement shall be binding upon and inure to the benefit of
Employer's successors and assigns. Employer shall not assign this Agreement
without Executive's prior written consent and Executive may not assign her
interest in this Agreement.
15. Representation of Executive.
Executive represents, warrants and acknowledges to Employer that she
has had the opportunity to obtain, and in fact has obtained, independent legal
advice with respect to this Agreement and all matters described herein or
relating hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
PEOPLE TECH CONSULTING INC.
By:/s/ Marti Smye
-------------------
Marti Smye
The undersigned hereby unconditionally guaranties all obligations of
Employer to Executive under this Employment Agreement.
RIGHT MANAGEMENT CONSULTANTS, INC.
By: /s/ G. Lee Bohs
-------------------
G. Lee Bohs, Executive Vice
President and Chief Financial
Officer
-10-
Right Management Consultants, Inc.
Exhibit 11 - Consolidated Earnings Per Share Calculation
For the Year Ended December 31,
1996 1995 1994
Earnings per common share
Primary and Fully Diluted EPS:
Primary EPS **
Net income $9,675,000 $7,819,000 $5,714,000
========== ========== ==========
Weighted average number of shares
issued and outstanding 6,252,000 5,984,000 5,921,000
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 411,000 306,000 204,000
--------- --------- ---------
Adjusted weighted average number
of shares outstanding 6,663,000 6,290,000 6,125,000
========== ========== ==========
Earnings per common share $1.45 $1.24 $0.93
========== ========== ==========
Fully Diluted EPS **
Net income $9,675,000 $7,819,000 $5,714,000
========== ========== ==========
Weighted average number of shares
issued and outstanding 6,252,000 5,984,000 5,921,000
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
446,000 411,000 209,000
--------- --------- ---------
Adjusted weighted average number
of shares outstanding 6,698,000 6,395,000 6,130,000
========== ========== ==========
Earnings per common share $1.44 $1.22 $0.93
========== ========== ==========
** Shares have been restated to reflect both the November 1995 and July 1996
three-for-two stock splits.
Right Management Consultants, Inc.
Selected Financial Data
(Dollars and Shares in Thousands Except Earnings Per Share and Stock Prices)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
Results of Operations (1)
<S> <C> <C> <C> <C> <C>
Total revenue $125,269 $114,005 $89,134 $70,726 $53,617
Costs and expenses 108,994 101,090 79,345 64,279 50,278
Income before income taxes 16,275 12,915 9,789 6,447 3,339
Net income 9,675 7,819 5,714 3,297 1,324
Earnings per share (2) $1.45 $1.24 $0.93 $0.56 $0.23
Weighted average number of 6,663 6,290 6,125 5,918 5,859
shares outstanding (2)
Balance Sheet Data
Working capital $25,342 $13,134 $9,883 $8,940 $6,317
Total assets 73,935 60,231 48,969 35,734 25,262
Long-term obligations 8,768 7,360 6,004 2,403 2,831
Stockholders' equity 47,801 33,626 24,405 18,032 14,498
Total debt-to-equity ratio 17% 28% 28% 16% 18%
Return on equity 24% 27% 27% 20% 10%
Stock Price Ranges
Low price $15.00 $6.89 $6.55 $3.33 $1.67
High price 27.50 19.50 11.11 9.22 9.00
<FN>
(1) See Note B to the Consolidated Financial Statements for information
regarding acquisitions
(2) Amounts presented have been restated for both the November 1995 and July
1996 three-for-two stock splits (See Note I to the Consolidated Financial
Statements)
</FN>
</TABLE>
<TABLE>
<CAPTION>
Graph Data 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Total revenue $125,269 $114,005 $89,134 $70,726 $53,617
Earnings per share (2) $1.45 $1.24 $0.93 $0.56 $0.23
Total debt-to-equity 17% 28% 28% 16% 18%
Return on equity 24% 27% 27% 20% 10%
</TABLE>
1
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Right Management Consultants, Inc.
We have audited the accompanying consolidated balance sheets of Right Management
Consultants, Inc. (a Pennsylvania corporation) and subsidiaries as of December
31, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Right Management Consultants,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
________________________
Philadelphia, Pennsylvania
January 31, 1997
<PAGE>
Right Management Consultants, Inc.
Consolidated Balance Sheets
(Dollars in Thousands Except Share Data)
<TABLE>
<CAPTION>
December 31,
1996 1995
Assets
Current Assets:
<S> <C> <C>
Cash and cash equivalents $18,055 $8,965
Accounts receivable, trade, net of allowance for doubtful accounts
of $552 and $754 in 1996 and 1995, respectively 18,878 16,918
Royalties and fees receivable from Affiliates 3,505 4,303
Prepaid expenses and other current assets 1,868 1,593
Deferred income taxes 402 600
------- -------
Total current assets 42,708 32,379
------- -------
Property and equipment, net 9,666 7,447
------- -------
Other Assets:
Intangible assets, net 18,724 17,824
Deferred income taxes 1,588 1,221
Other 1,249 1,360
------- -------
21,561 20,405
------- -------
Total Assets $73,935 $60,231
======= =======
Liabilities and Stockholders' Equity
Current Liabilities:
Line of credit $ -- $1,325
Current portion of long-term debt and other obligations 1,011 2,227
Accounts payable 4,584 3,643
Commissions payable 952 2,735
Accrued incentive compensation and benefits 4,651 3,543
Other accrued expenses 2,300 2,337
Deferred income 3,868 3,435
------- -------
Total current liabilities 17,366 19,245
------- -------
Long-term debt and other obligations 6,904 5,741
------- -------
Deferred compensation 1,864 1,619
------- -------
Commitments and Contingent Liabilities (Notes D, F and H)
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;
6,713,573 and 4,313,816 shares issued 67 43
Additional paid-in capital 11,956 7,655
Retained earnings 36,290 26,636
Cumulative translation adjustment 5 (191)
------- -------
48,318 34,143
Less treasury stock, at cost, 252,952 shares (517) (517)
------- -------
Total Stockholders' Equity 47,801 33,626
------- -------
Total Liabilities and Stockholders' Equity $73,935 $60,231
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
Right Management Consultants, Inc.
Consolidated Statements of Income
(Dollars and Shares in Thousands Except Earnings per Share Data)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
Revenue:
<S> <C> <C> <C>
Company office revenue $120,679 $109,741 $84,712
Affiliate royalties 4,590 4,264 4,422
-------- -------- -------
Total revenue 125,269 114,005 89,134
Expenses:
Consultants' compensation 47,624 42,518 32,402
Office sales and consulting support 5,661 4,797 3,853
Office administration 42,665 41,110 31,164
General sales and administration 13,080 12,236 11,879
-------- -------- -------
109,030 100,661 79,298
-------- -------- -------
Income from operations 16,239 13,344 9,836
Other income (expense):
Interest income 606 302 282
Interest expense (570) (731) (329)
-------- -------- -------
36 (429) (47)
-------- -------- -------
Income before income taxes 16,275 12,915 9,789
Provision for income taxes 6,600 5,096 4,075
-------- -------- -------
Net income $9,675 $7,819 $5,714
======== ======== =======
Earnings per share $1.45 $1.24 $0.93
======== ======== =======
Weighted average number of shares
outstanding 6,663 6,290 6,125
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
Right Management Consultants, Inc.
Consolidated Statements of Stockholders' Equity
(Dollars in Thousands Except Share Data)
<TABLE>
<CAPTION>
Cumulative Total
Common Stock Additional Retained Translation Treasury Stockholders'
Shares Par Value Paid-in Capital Earnings Adjustment Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 2,845,362 $29 $5,935 $13,116 $(531) $(517) $18,032
Stock options exercised 46,609 -- 362 -- -- -- 362
Tax benefit from exercise
of stock options -- -- 247 -- -- -- 247
Translation adjustment -- -- -- -- 50 -- 50
Net income -- -- -- 5,714 -- -- 5,714
--------- ----- ----- ------ ---- ---- ------
Balance, December 31, 1994 2,891,971 29 6,544 18,830 (481) (517) 24,405
Stock options exercised 72,612 1 629 -- -- -- 630
Tax benefit from exercise
of stock options -- -- 252 -- -- -- 252
Shares issued under restricted
stock awards 29,700 -- 230 -- -- -- 230
Three-for-two stock split 1,319,533 13 -- (13) -- -- --
Translation adjustment -- -- -- -- 290 -- 290
Net income -- -- -- 7,819 -- -- 7,819
--------- ----- ----- ------ ---- ---- ------
Balance, December 31, 1995 4,313,816 43 7,655 26,636 (191) (517) 33,626
Stock options exercised 316,039 3 1,332 -- -- -- 1,335
Tax benefit from exercise -- -- 2,223 -- -- -- 2,223
of stock options
Shares issued under restricted 29,250 -- 658 -- -- -- 658
stock awards
Three-for-two stock split 2,050,100 21 -- (21) -- -- --
Shares issued under the 4,368 -- 88 -- -- -- 88
Employee Stock Purchase Plan
Translation adjustment -- -- -- -- 196 -- 196
Net income -- -- -- 9,675 -- -- 9,675
--------- ----- ----- ------ ---- ---- ------
Balance, December 31, 1996 6,713,573 $67 $11,956 $36,290 $5 $(517) $47,801
========= ===== ======= ====== ==== ==== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
Right Management Consultants, Inc.
Consolidated Statements of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Operating Activities:
Net income $9,675 $7,819 $5,714
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,923 4,284 3,246
Deferred income taxes (169) (93) (153)
Restricted stock compensation 658 230 --
Tax benefit from the exercise of stock options 2,223 252 247
Other non-cash charges 444 241 195
Revenue recognized upon completion of incomplete
contracts assumed in acquisitions (512) (630) (716)
Provision for doubtful accounts 28 400 75
Changes in operating accounts:
Accounts receivable, trade and
from Affiliates (460) (3,504) (2,989)
Prepaid expenses and other assets 499 (787) (755)
Accounts payable and accrued expenses 640 (2,333) 1,147
Commissions payable (1,782) 366 (230)
Deferred income 459 1,090 734
------ ----- -----
Net cash provided by operating activities 16,626 7,335 6,515
Investing Activities:
Purchase of property and equipment (4,873) (2,643) (2,921)
Net cash paid for acquisitions (466) (2,665) (1,628)
------ ----- -----
Net cash utilized by investing activities (5,339) (5,308) (4,549)
Financing Activities:
Payment of long-term debt and other obligations (3,660) (2,880) (1,855)
Proceeds from stock issuances 1,420 630 362
------ ----- -----
Net cash utilized by financing activities (2,240) (2,250) (1,493)
Effect of exchange rate changes on cash and
cash equivalents 43 32 44
------ ----- -----
Increase (decrease) in cash and cash equivalents 9,090 (191) 517
Cash and cash equivalents, beginning of year 8,965 9,156 8,639
------ ----- -----
Cash and cash equivalents, end of year $18,055 $8,965 $9,156
======= ====== ======
Supplemental Disclosures of Cash Flow Information
Cash paid for:
Interest $351 $445 $219
======= ====== ======
Income taxes $5,252 $4,370 $4,721
======= ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Description of business
Right Management Consultants, Inc. (the "Company") does business as Right
Associates(R), Right/Jannotta Bray and (in France) as LM&P and Conviction Right
France, developing and delivering career transition services through a network
of Company and Affiliate offices worldwide. During 1996, the Company acquired
the outstanding stock of People Tech Consulting, Inc. ("People Tech") (see Note
B). People Tech provides organizational and career management consulting
services, specializing in change management, communication, strategy
implementation, merger integration and executive development. The Company
primarily delivers its services to mid-size and large industrial and service
companies, with no concentration in specific companies or industries.
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.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Revenue recognition
The Company recognizes contract revenue and the related direct compensation for
the services provided by Company offices upon the performance of its obligations
under consulting service contracts. Revenue and related direct expense, recorded
at the start of performance of services, are deferred and recognized over the
estimated average period within which the contracts are completed. All indirect
costs are charged to expense in the period in which the obligations are
incurred.
7
<PAGE>
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Franchise revenue
Royalties from the members of the Company's network arise from agreements made
with Affiliates, which generally operate exclusively in designated regional
locations. The terms of these agreements require the Affiliates to provide
services under the Company's service marks in accordance with programs and
standards developed by the Company. Affiliate royalties are typically 10% of
each Affiliate's gross billings and are recorded when the Affiliate bills its
customers for services.
Property and equipment
Property and equipment is carried at cost, or allocated cost for companies
acquired in a purchase transaction. Depreciation is provided on the
straight-line method over the estimated useful lives of the assets, which are
generally three to seven years for furniture, fixtures and computer equipment.
Leasehold improvements are depreciated using the straight-line method over the
shorter of the estimated useful life of the asset or the remaining term of the
lease.
Intangible assets
Intangible assets acquired in acquisitions consist of the following:
<TABLE>
<CAPTION>
Amortization
(Dollars in Thousands) Period
1996 1995 (Years)
<S> <C> <C> <C>
Trademarks $1,520 $ 1,520 5
Contact lists and Affiliate agreements 615 470 5
Covenants not to compete 1,811 1,811 5 to 10
Goodwill 23,303 20,680 15 to 40
------ ------
27,249 24,481
Less accumulated amortization 8,525 6,657
------ ------
$18,724 $17,824
======= =======
</TABLE>
Amortization of these intangible assets amounted to $1,868,000, $1,867,000, and
$1,501,000 in 1996, 1995 and 1994, respectively.
8
<PAGE>
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Impairment of Long-Lived Assets
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to Be Disposed Of " in March 1995.
Pursuant to SFAS No. 121, the Company is required to evaluate the impairment of
long-lived assets and certain intangible assets on a periodic basis. The Company
reviews the realizability of its long-lived assets and certain intangible assets
by analyzing the projected cash flows and profitability of the acquired entities
and adjusts the net book value of recorded assets when necessary. No such
adjustment has been recorded for each of the three years in the period ended
December 31, 1996.
Currency translation
The accounts of the international subsidiaries are translated in accordance with
SFAS No. 52, "Foreign Currency Translation", which requires that assets and
liabilities of international operations be translated using the exchange rate in
effect at the balance sheet date. The results of operations are translated at
average exchange rates during the year. The effects of exchange rate
fluctuations in translating assets and liabilities of international operations
into U.S. dollars are accumulated and reflected as the cumulative translation
adjustment in stockholders' equity. The effects of exchange rate fluctuations in
translating the results of operations are included in general sales and
administration for 1996, 1995 and 1994. There are no material transaction gains
or losses in the accompanying consolidated financial statements for each of the
three years in the period ended December 31, 1996.
Earnings per share
Earnings per share are computed based on the weighted average number of Company
common stock ("Common Stock") and Common Stock equivalent shares outstanding
during the year. Outstanding stock options, unless anti-dilutive, are considered
Common Stock equivalents and are included in the computation of outstanding
shares using the Treasury Stock method.
Income taxes
The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting for
Income Taxes." In accordance with SFAS No. 109, the liability method is used in
accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax basis of assets and liabilities and are measured using enacted tax rates
and laws that are expected to be in effect when the difference is reversed.
9
<PAGE>
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Reclassifications
Certain amounts have been reclassified in the prior years' Consolidated
Financial Statements to conform with the 1996 presentation.
NOTE B - ACQUISITIONS
Effective March 1, 1996, the Company acquired the outstanding stock of People
Tech headquartered in Toronto, Canada. Additionally during 1996, the Company
acquired the business, assets and/or the outstanding stock of two career
transition firms and one other organizational consulting firm.
The aggregate purchase price of these four acquisitions was approximately
$3,412,000, including costs of acquisition. The purchase price exceeded the fair
value of the net tangible assets acquired by approximately $3,653,000. These
acquisitions were made for a combination of cash and non-cash consideration,
including the assumption of incomplete consulting contracts.
During 1995 and 1994, the Company acquired the business, certain assets and/or
the outstanding stock of LM&P, SA ("LM&P") and Jannotta, Bray & Associates, Inc.
("JBA"), as well as the assets and/or outstanding stock of five Affiliate career
transition consulting firms. The aggregate purchase price of these acquisitions
was approximately $8,150,000 in 1995 and $8,618,000 in 1994, including costs of
acquisition. The purchase price of these acquisitions exceeded the fair value of
the net tangible assets acquired by approximately $7,388,000 and $8,200,000 in
1995 and 1994, respectively. These acquisitions were made for a combination of
cash and non-cash consideration, including the assumption of incomplete career
transition contracts and the present value of future defined incentives. The
future defined incentives are contingent upon the results of the acquired
entities subsequent to the transactions. The present value of these determinable
contingent payments aggregated $3,530,000 in 1995 and $491,000 in 1994 and have
been accounted for as part of the purchase price.
In connection with the acquisition of JBA, the Company provided approximately
$1,000,000 for the incremental costs associated with restructuring or exiting
operating activities of JBA. These costs included approximately $750,000 for
closures of duplicate JBA offices, approximately $200,000 for involuntary
employee terminations, and approximately $50,000 for other incremental charges
all of which had no future economic benefit to the Company. The Company
completed the restructuring and exiting process during 1996.
Simultaneously with the JBA acquisition, the Company sold certain assets,
including goodwill and other intangible assets totaling approximately $1,019,000
associated with JBA's Michigan operations, to the Company's Michigan Affiliate
for $1,200,000, and received a $700,000 note receivable from this Affiliate
related to this sale.
The assumption of incomplete contracts did not result in material revenue in
each of the three years in the period ended December 31, 1996.
10
<PAGE>
NOTE B - ACQUISITIONS (Continued)
The following represents the assets acquired and liabilities assumed to arrive
at net cash paid for acquisitions discussed above for each of the three years in
the period ended December 31, 1996:
<TABLE>
<CAPTION>
(Dollars in Thousands)
1996 1995 1994
Assets acquired:
<S> <C> <C> <C>
Accounts receivable $827 $404 $242
Prepaid expenses and other assets 716 554 131
Fixed assets 458 522 1,211
Intangible assets 3,653 7,388 7,181
Note receivable from Michigan Affiliate -- -- 700
----- ----- -----
5,654 8,868 9,465
----- ----- -----
Liabilities acquired:
Accounts payable and accrued expenses 1,741 718 483
Assumption of incomplete contracts 512 630 716
----- ----- -----
2,253 1,348 1,199
Accrued restructuring costs -- -- 1,000
Contingent payments -- 3,530 491
Net due from seller -- -- 147
Term loan payable to bank (Note D) -- 1,325 5,000
Borrowing under Revolving Credit Agreement (Note D) 2,935 -- --
----- ----- -----
Net cash paid for acquisitions $466 $2,665 $1,628
===== ===== =====
</TABLE>
Each acquisition has been accounted for by the purchase method and the operating
results of each entity have been consolidated with the Company's results since
the effective date of the respective acquisition. The purchase price of each
acquisition has been allocated to the assets acquired based upon their estimated
fair value at the date of acquisition.
11
<PAGE>
NOTE C - PROPERTY AND EQUIPMENT
(Dollars in Thousands)
1996 1995
Furniture and fixtures $17,414 $14,182
Computer equipment 2,557 691
Leasehold improvements 2,612 2,092
------- -------
22,583 16,965
Less accumulated depreciation 12,917 9,518
------- -------
$9,666 $7,447
======= =======
NOTE D - DEBT AND OTHER OBLIGATIONS
On December 20, 1996, the Company signed a new Credit Agreement (the "Credit
Agreement") with its two primary lenders (the "Lenders") to increase its maximum
unsecured revolving line of credit to $40,000,000. The Credit Agreement became
effective December 23, 1996. The Credit Agreement replaces the previous
$10,000,000 Amended and Restated Revolving Credit and Term Loan Agreement (the
"Revolving Credit Agreement") executed with the Company's primary lender in June
1994 and amended various times thereafter, as well as a separate $5,000,000
unsecured line of credit with a second lender. The Company used $5,737,000 from
the Credit Agreement to refinance all existing bank indebtedness.
The Credit Agreement has a three year maturity. Subsequent to the first
anniversary, and annually thereafter, the Company has the ability to extend the
Credit Agreement for an additional year upon Lenders' approval. The Company may
borrow, repay and re-borrow during the term of the Credit Agreement, with any
balance due at maturity. Interest rates are tiered at LIBOR plus a margin
contingent upon certain financial ratios of the Company. The Company also has
the option to borrow at a base rate equal to the lesser of the bank's Prime Rate
less 1/4% or the Federal Funds Effective Rate plus 1%. Under the terms of the
Credit Agreement, the effective borrowing rate was 6.53% at December 31, 1996.
In connection with the 1996 acquisition of People Tech (Note B), the Company
utilized 4,000,000 Canadian dollars (or approximately $2,935,000) from the
Revolving Credit Agreement. This entire amount was repaid from the proceeds of
the Credit Agreement.
In connection with the 1995 acquisition of LM&P (Note B), the Company utilized
6,500,000 French francs (or approximately $1,325,000) from the Revolving Credit
Agreement. The balance was paid in full during 1996. Additionally, in connection
with the 1994 acquisition of JBA (Note B), the Company entered into a five year
$5,000,000 unsecured term loan, the outstanding balance of which was repaid from
the proceeds of the Credit Agreement.
Under the Credit Agreement, the major covenants require the maintenance of
certain minimum financial ratios and restrict the level of indebtedness with
other banks, as defined. At December 31, 1996, the Company is in compliance with
all such covenants.
12
<PAGE>
NOTE D - DEBT AND OTHER OBLIGATIONS (Continued)
Long-term debt and other obligations consist of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands)
December 31,
1996 1995
<S> <C> <C>
Borrowings under the Credit Facility, due December 23, 1999, bearing $5,737 $---
interest at 6.53% per annum at 12/31/96
Bank term loan, payable in 60 equal monthly principal installments of
$83,000 through August 31, 1999, bearing interest at 8.36% per annum -- 3,667
Bank term loan, payable in 48 equal monthly principal installments of
$19,000 through December 8, 1996, bearing interest at 6.96% per annum -- 225
Bank term loan, payable in 60 equal monthly principal installments of
$13,000 through March 31, 1997, bearing interest at 5.97% per annum -- 187
Obligations payable to third parties in connection with acquisitions,
noninterest-bearing and discounted at 7.5%-10% per annum, due through
1998, estimated and contingent on future operating results of regions
where acquired businesses are operating 2,178 3,889
------ ------
7,915 7,968
Less current portion 1,011 2,227
------ ------
$6,904 $5,741
====== ======
</TABLE>
Aggregate maturities on long-term debt and other obligations for the years
subsequent to December 31, 1996 are as follows:
(Dollars in Thousands)
Year Ending December 31, Amount
1997 $1,011
1998 1,167
1999 5,737
------
$7,915
======
13
<PAGE>
NOTE E - INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands)
Year Ended December 31,
1996 1995 1994
Current:
<S> <C> <C> <C>
Federal $5,429 $4,107 $3,185
State 861 852 671
Foreign 479 551 459
------ ------ ------
6,769 5,510 4,315
------ ------ ------
Deferred:
Federal (290) (85) (75)
State (59) (8) (66)
Foreign (12) -- (12)
------ ------ ------
(361) (93) (153)
------ ------ ------
Utilization and benefit of foreign operating
loss carryforwards -- (321) (87)
------ ------ ------
6,408 5,096 4,075
Provision for valuation allowance 192 -- --
------ ------ ------
$6,600 $5,096 $4,075
====== ====== ======
</TABLE>
The total tax provision for each year differs from the amount that would have
been provided by applying the statutory U.S. federal income tax rate to income
before income taxes. The reconciliation of these differences is as follows:
1996 1995 1994
U.S. Federal income tax rate 34% 34% 34%
State income taxes, net of federal tax benefit 4 4 4
Nondeductible expenses 1 1 1
Foreign earnings not subject to U.S. Federal (2) (3) (3)
income tax
Foreign income taxes 3 4 5
Utilization and benefit of foreign operating loss -- (2) (1)
carryforwards
Deferred tax valuation allowance 1 -- --
Other -- 2 2
------ ------ ------
41% 40% 42%
====== ====== ======
Income before income taxes is comprised of domestic and foreign components,
respectively, as follows: 1996-- $14,184,000 and $2,091,000; 1995--$11,449,000
and $1,466,000 and 1994--$8,855,000 and $934,000.
14
<PAGE>
NOTE E - INCOME TAXES (Continued)
Deferred income taxes arise primarily as a result of utilizing depreciation
lives for income tax reporting that are in excess of those used for financial
reporting purposes, as well as recognizing deferred compensation expense, the
provision for doubtful accounts and certain accrued expenses for financial
reporting purposes, which are not currently deductible for income tax purposes.
Taxes on income of international subsidiaries are provided at the tax rates
applicable to their respective tax jurisdictions. The Company's share of the
cumulative undistributed earnings of such subsidiaries was approximately
$3,034,000 and $2,413,000 at December 31, 1996 and 1995, respectively. No
provision has been made for additional income taxes on the undistributed
earnings of the international subsidiaries because earnings are expected to be
reinvested indefinitely in the subsidiaries' operations or because under
existing law, international tax credits would be available to substantially
reduce U.S. taxes payable in the event of distribution.
The deferred tax asset as of December 31, 1996 and 1995 is comprised of the
following:
(Dollars in Thousands)
1996 1995
Allowance for doubtful accounts $209 $317
Accruals not currently deductible for income taxes 193 283
Deferred compensation 726 665
Depreciation and amortization 724 160
Tax benefit of foreign net operating losses 313 301
Other 17 95
------ ------
2,182 1,821
Valuation reserve (192) --
------ ------
Net deferred tax asset $1,990 $1,821
====== ======
At this time, management believes it is prudent to record a full valuation
reserve against the operating loss incurred at People Tech, given the relative
lack of history at People Tech for which future estimates of income can be made.
However, if in subsequent years, People Tech achieves sufficient profitability
to utilize a greater portion of the deferred tax asset, the valuation allowance
would be adjusted accordingly.
NOTE F - EXECUTIVE BENEFIT AND COMPENSATION AGREEMENTS
The Company has a non-qualified supplemental executive retirement plan (the
"Plan") for its Founding Chairman. The Plan is designed to provide retirement
income based on past compensation, reduced by other retirement sources.
15
<PAGE>
NOTE F - EXECUTIVE BENEFIT AND COMPENSATION AGREEMENTS (Continued)
The Company accounts for this Plan in accordance with the provisions of SFAS No.
87, "Employer's Accounting for Pensions." SFAS No. 87 requires the Company to
recognize a liability equal to the amount by which the actuarial present value
of the accumulated benefit obligation exceeds the fair value of the Plan's
assets. This liability was approximately $1,184,000 and $910,000 for 1996 and
1995, respectively, using a discount rate of 7.25%. Since the Plan is not funded
by the Company, the recorded liability equals the present value of the
accumulated benefit obligation.
The Company has non-qualified supplemental executive retirement plans for its
Chief Executive Officer and President to which a percentage of compensation,
including base salary and incentive bonuses, is credited annually. Deferred
amounts earn annual interest equal to the two-year Guaranteed Investment
Contract Index on November 30 of the current plan year, or 6%, whichever is
higher (6% at both November 30, 1996 and 1995). The account balance is payable
as a life annuity in equal monthly installments with interest on the unpaid
balance upon his termination of service with the Company. The Chief Executive
Officer and President's interest in the plans vests at the rate of 10% per year,
which began in 1993 and 1996, respectively. The Company also maintains a life
insurance policy on the lives of the Chief Executive Officer and Founding
Chairman with the Company as beneficiary. The cash surrender value of these
policies are included in the Other non-current assets section of the
Consolidated Balance Sheets.
The Company also maintains employment agreements and incentive compensation
agreements with certain management employees. The agreements provide for
additional compensation over and above the individual's annual salary, based
upon the achievement of certain levels of overall Company, individual group or
region performance. These agreements provide for aggregate minimum annual
compensation for these employees of approximately $1,900,000 in 1997, $1,692,000
in 1998, $580,000 in 1999 and $205,000 in 2000.
NOTE G - EMPLOYEE BENEFIT PLANS
The Company maintains a defined contribution savings plan, available to
substantially all employees, under Section 401(k) of the Internal Revenue Code.
Under this plan, the Company will contribute 25% of the participating employee's
annual contribution. In 1996 and 1995, in connection with achieving a certain
level of targeted Company profits, the Company contributed an additional 12.5%
of the participating employee's contribution for a total of 37.5%. Employee
contributions are generally limited to 10% of their compensation subject to
Internal Revenue Code limitations. Company contributions were approximately
$704,000, $686,000, and $489,000 for 1996, 1995 and 1994, respectively.
16
<PAGE>
NOTE G - EMPLOYEE BENEFIT PLANS (Continued)
In addition, the Company maintains a non-qualified deferred compensation plan
for certain employees. Under the plan, participants may defer payment of up to
10% of their annual cash compensation reduced by amounts contributed to the
Company's 401(k) plan. Deferred amounts earn annual interest equal to the
two-year Guaranteed Investment Contract Index on November 30 preceding each plan
year or 6%, whichever is higher (6% at both November 30, 1996 and 1995). The
deferred amounts will be paid from the general assets of the Company and are
included in deferred compensation as of December 31, 1996 and 1995.
NOTE H - LEASE OBLIGATIONS
The Company leases office space and equipment at various locations and accounts
for these obligations as operating leases. Rentals relating to these leases are
recorded on a straight-line basis. Rental expense approximated $13,000,000,
$11,998,000 and $8,916,000 in 1996, 1995, and 1994, respectively. Contingent
rentals may be due each year under the terms of the various office space leases
as the result of certain increases in building operating expenses over the base
year amounts. The following is a schedule, by year, of future minimum rental
payments required under operating leases with remaining non-cancelable lease
terms in excess of one year as of December 31, 1996:
(Dollars in Thousands)
Year Ending December 31, Amount
1997 $11,673
1998 9,862
1999 7,300
2000 6,093
2001 4,933
2002 and subsequent years 4,202
NOTE I - STOCKHOLDERS' EQUITY
Stock Splits
Effective November 10, 1995, the Company's Common Stock split into three shares
for each two shares outstanding. Additionally, effective July 26, 1996, the
Company's Common Stock split a second time into three shares for each two shares
outstanding. The stated par value per share of Common Stock was not changed for
both stock splits from its existing amount of $0.01 per share. All share and per
share amounts referred to in the financial statements and notes thereto have
been restated to reflect both stock splits, including rounding up for fractional
shares, where appropriate.
17
<PAGE>
NOTE I - STOCKHOLDERS' EQUITY (Continued)
Stock Option Plans
The Company has a 1986 Stock Option Plan (the 1986 Plan) under which 968,000
shares of Common Stock are reserved for issuance upon the exercise of incentive
stock options, stock appreciation rights or non-qualified stock options that may
be granted to employees. Outstanding options granted under this plan are
exercisable, cumulatively, in three or four equal annual installments beginning
one year from the date of grant. Effective September 8, 1996, no further stock
options can be granted under the 1986 Plan.
The Company also has a 1993 Stock Incentive Plan of which the Company increased
in 1996 the number of shares reserved for issuance under this plan by 900,000
shares. After this increase, there were 2,475,000 shares of Common Stock
reserved for issuance upon the exercise of incentive stock options or
non-qualified stock options that may be granted to employees. Outstanding
options granted under this plan have ten year terms and are exercisable,
cumulatively, in three equal annual installments, beginning one year from the
date of grant. At December 31, 1996, 1,097,591 option shares were available for
issuance under this plan.
In addition, in January 1995, the Company Shareholders adopted amendments to the
1993 Stock Incentive Plan permitting awards of restricted stock under such plan.
The amendments to the 1993 Stock Incentive Plan permit awards of up to an
aggregate of 675,000 shares of the Company's Common Stock to certain officers
and key employees. Restrictions generally limit the sale or transfer of the
shares during a restricted period of approximately three years. Thereafter, the
restricted stock will either vest, in whole or in part, with the participant or
be forfeited, in whole or in part, back to the Company based on its earnings
performance for this three year period. During 1996 and 1995, 29,250 and 44,550
shares of restricted stock were awarded, respectively. Approximately $658,000
and $230,000 compensation expense related to these shares was charged to general
sales and administration expenses in 1996 and 1995, respectively.
The Company also has a Directors' Stock Option Plan, under which 225,000 shares
of Common Stock are reserved for issuance upon the exercise of incentive stock
options or non-qualified stock options that may be granted to non-employee
Directors of the Board of Directors. Outstanding options granted under this plan
have five year terms and are exercisable, cumulatively, in three equal annual
installments, beginning one year from the date of grant. At December 31, 1996,
189,000 option shares were available for issuance under this plan.
18
<PAGE>
NOTE I - STOCKHOLDERS' EQUITY (Continued)
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB No. 25) in accounting for its
stock options. Under APB No. 25, no compensation expense is recognized because
the exercise price of the Company's stock options equals the market price of the
underlying stock on the date of the grant. Had compensation cost for these plans
been determined with SFAS No. 123, "Accounting for Stock-Based Compensation",
the Company's net income and earnings per share for 1996 and 1995 would have
been reduced to the following pro forma amounts:
1996 1995
Net income - as reported $9,675,000 $7,819,000
Net income - pro forma 8,538,000 7,645,000
Primary EPS - as reported $1.45 $1.24
Primary EPS - pro forma 1.28 1.22
The fair value of the options were estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: risk-free interest
rates of 6.1% for both years; no dividend yield for both years; expected
volatility of 50% for both years; and a weighted average expected life of the
option of 7 years. Under SFAS No. 123, total compensation expense, net of tax
benefit, approximated $1,137,000 and $174,000 in 1996 and 1995, respectively.
Because the accounting under SFAS No. 123 has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
A summary of the status of the Company's stock option plans at December 31,
1994, 1995 and 1996 and changes during the years then ended is presented in the
table and narrative below:
<TABLE>
<CAPTION>
1994 1995 1996
Weighted Weighted
Range of Average Average
Exercise Exercise Exercise
Shares Prices Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 900,884 $1.11 - $6.89 1,033,577 $5.77 1,274,534 $7.89
Granted 288,377 8.06 - 10.83 390,000 12.82 311,300 16.77
Exercised (104,871) 1.11- 6.61 (108,918) 5.78 (316,039) 4.23
Canceled (50,813) 1.11- 6.89 (40,125) 6.82 (31,500) 15.29
------- ---- ---- ------- ---- ------- -----
Outstanding at end of year 1,033,577 $1.83-10.83 1,274,534 $7.89 1,238,295 $10.92
Exercisable at end of year 464,717 $1.83-6.89 671,939 $4.63 610,247 $7.63
Weighted average fair value
of options granted N/A $7.66 $9.29
</TABLE>
Exercise prices for options outstanding as of December 31, 1996 ranged from
$1.83 to $24.33. The weighted average remaining contractual life of these
options is approximately 7.8 years.
19
<PAGE>
NOTE I - STOCKHOLDERS' EQUITY (Continued)
Employee Stock Purchase Plan
On May 9, 1996, the Company Shareholders approved the creation of the Company's
1996 Employee Stock Purchase Plan (the "ESPP"). Effective July 1, 1996, 150,000
shares were reserved for issuance under the ESPP. The ESPP permits employees to
purchase Company Common Stock at 85% of the average market price on the last day
of the applicable quarterly period. All Company employees, except executive
employees, are eligible to participate in the ESPP. During 1996, 4,368 shares
were purchased through the ESPP.
NOTE J - GEOGRAPHIC SEGMENTS
Summarized operations of each of the Company's segments in the aggregate for
each of the three years in the period ended December 31, 1996, are as follows
(See Note A for discussion relating to currency translation and Note E for
discussion relating to income taxes):
<TABLE>
<CAPTION>
(Dollars in Thousands)
1996 United States Canada Europe Consolidated
<S> <C> <C> <C> <C>
Identifiable assets $60,414 $7,155 $6,366 $73,935
======= ====== ====== =======
Revenue 105,028 9,167 11,074 125,269
======= ====== ====== =======
Operating income 14,115 1,142 982 16,239
======= ====== ====== =======
Depreciation and amortization 4,038 475 410 4,923
======= ====== ====== =======
Capital expenditures 4,707 80 86 4,873
======= ====== ====== =======
1995
Identifiable assets $51,530 $2,181 $6,520 $60,231
======= ====== ====== =======
Revenue 97,940 7,078 8,987 114,005
======= ====== ====== =======
Operating income (loss) 11,874 1,987 (517) 13,344
======= ====== ====== =======
Depreciation and amortization 3,788 173 323 4,284
======= ====== ====== =======
Capital expenditures 2,393 96 154 2,643
======= ====== ====== =======
1994
Identifiable assets $44,217 $2,141 $2,611 $48,969
======= ====== ====== =======
Revenue 78,753 4,662 5,719 89,134
======= ====== ====== =======
Operating income (loss) 8,900 1,456 (520) 9,836
======= ====== ====== =======
Depreciation and amortization 2,897 143 206 3,246
======= ====== ====== =======
Capital expenditures 2,510 263 148 2,921
======= ====== ====== =======
</TABLE>
20
<PAGE>
NOTE K - SUBSEQUENT EVENT
Effective January 1, 1997, the Company acquired the assets and/or outstanding
stock of four career transition firms and one search firm for a combination of
cash and future defined incentive payments. The firms included Nelson O'Connor
and Associates, Nelson O'Connor Cox, Corporate Resource Group, and the former
St. Louis, Missouri and Knoxville, Tennessee Affiliates. The purchase price for
these acquisitions totaled approximately $3,260,000, including contingent
payments and costs of acquisition, and will be accounted for using the purchase
method. The Company funded these acquisitions through operating cash.
21
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth results of operations before income taxes for the
years indicated. Certain amounts have been reclassified in the 1995 and 1994
Consolidated Statements of Income to conform with the 1996 presentation. This
discussion and analysis is to be read in conjunction with the financial
statements and accompanying notes thereto.
<TABLE>
<CAPTION>
(Dollars in Thousands)
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Company office revenue $120,679 $109,741 $84,712
Company office expenses 95,950 88,425 67,419
-------- -------- --------
Company office margin 24,729 21,316 17,293
Affiliate royalties 4,590 4,264 4,422
General sales and administration (13,080) (12,236) (11,879)
Interest income (expense), net 36 (429) (47)
-------- -------- --------
Income before income taxes $ 16,275 $ 12,915 $ 9,789
======== ======== ========
</TABLE>
1996 Compared to 1995
For the year ended December 31, 1996, revenue generated by Company offices
increased 10%, or $10,938,000 over 1995. This increase is attributable to
revenue growth in existing Company offices, coupled with the additional full
year revenues from the LM&P and Providence acquisitions, and partial year
revenues from the People Tech acquisition. Incremental revenue generated through
these acquisitions totaled $6,158,000 or 56% of the total revenue increase. The
remaining increase was provided by same office revenue growth of approximately
4%.
For the year ended December 31, 1996, Affiliate royalties increased 8%, or
$326,000 over 1995. This increase is attributable to revenue growth in existing
Affiliate offices, offset by reduced Affiliate royalties from the acquisition of
the Providence Affiliate on October 1, 1995. Revenue from Providence is
reflected as Company office revenue subsequent to the acquisition. On a same
office basis, Affiliate royalties increased 13% in 1996 due primarily to
significant billings from our Affiliates in the North Central region of the
United States.
For the year ended December 31, 1996, Company office expenses in the aggregate
increased 9%, or $7,525,000 over 1995. This dollar increase is primarily due to
the incremental costs from the LM&P, Providence and People Tech acquisitions, in
addition to growth in existing Company offices. The acquisitions accounted for
$5,376,000 or 71% of the total increase. The remainder of the increase is a
function of revenue growth in existing Company offices. Despite the cost
increase, office operating margins improved to 21% in 1996 from 19% in 1995.
This improvement is a reflection of higher operating efficiencies in the career
transition business, enhanced pricing, and strong European results, partly
offset by a loss in the consulting business.
22
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
For the year ended December 31, 1996, general sales and administration expense
increased 7%, or $844,000 over 1995. The increase is due primarily to the
Company's continued investments in technology and the additional costs of the
1996 and 1995 restricted stock grants attributable to the Company's stock price
increase. Despite the increase in 1996, general sales and administration
expenses as a percentage of total revenues decreased to 10% from 11% in
1995.
For the year ended December 31, 1996, income before income taxes increased 26%,
or $3,360,000 over 1995. The increase is attributable to the combination of
greater Company office revenue and Affiliate royalties, improved office
operating margins and generally more efficient general sales and administration
expenses as compared to Company growth.
For the year ended December 31, 1996, the Company's effective tax rate was
approximately 41% versus 40% for 1995. The increase resulted from the operating
loss incurred by People Tech for which the Company cannot currently recognize a
tax benefit.
1995 Compared to 1994
Revenue generated by Company offices increased 30%, or $25,029,000 in 1995
compared to 1994. This increase was due to revenue growth in existing Company
offices and the acquisitions made since June 1994 which included the Carolina
region, JBA, Cupertino, LM&P and Providence. Revenue generated through these
acquisitions totaled $14,590,000 or approximately 58% of the total revenue
increase. On a same office basis, Company office revenue was $94,056,000 in
1995, or an 11% increase over 1994.
Affiliate royalties decreased 4%, or $158,000 in 1995 compared to 1994 due
primarily to the acquisition by the Company of two Affiliates in 1995 and
another in June 1994, whereby revenue is reflected as Company office revenue
subsequent to the acquisitions. On a same office basis, Affiliate royalties
increased 11% in 1995 over 1994. This resulted primarily from increased market
penetration particularly in the North Central and Great Lakes regions in the
United States.
Company office expenses in the aggregate increased 31%, or $21,006,000 in 1995
compared to 1994, reflecting a combination of growth in existing Company
offices, the 1995 acquisitions and the acquisition of JBA in September 1994. The
1995 acquisitions accounted for $5,535,000 or 26% of the total cost increase.
The remaining increases were due to certain duplicate facilities and
administration from the acquisition of JBA as well as general expense increases
from existing Company offices related to the revenue growth during 1995.
23
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
General sales and administration expense reflected an increase of approximately
$357,000 or 3%, in 1995 compared to 1994. This increase was primarily due to
investments made in the development of the Company's consulting services,
increases in amortization relating to recent acquisitions and additional charges
for duplicate Company office closures primarily related to the redundant Company
offices from the JBA acquisition. Despite the increase, the total expenses in
this category as a percentage of total revenues decreased to 11% in 1995 from
13% in 1994.
In 1995, income before income taxes increased 32% to $12,915,000 from $9,789,000
in 1994. This increase resulted principally from the combination of greater
Company office revenue and improved efficiencies in general sales and
administration.
The Company's effective tax rate was approximately 40% in 1995 compared to 42%
in 1994. This reduction resulted from a combination of factors including a
decrease in foreign income taxes payable by the Company and an increase in the
utilization and benefit of foreign operating loss carryforwards (See Note E to
the Consolidated Financial Statements).
Capital Resources and Liquidity
At December 31, 1996 and 1995, the Company had cash and cash equivalents of
$18,055,000 and $8,965,000 respectively. The significant increase in cash and
cash equivalents is generally the result of higher net income, improved accounts
receivable collections, and proceeds from stock option exercises, offset by debt
payments and investments in property, equipment, and technology. The Company's
working capital increased to $25,342,000 from $13,134,000 at December 31, 1996
and 1995, respectively.
Cash flow from operations continues to provide the principal source of the
Company's liquidity. Net cash provided by operating activities amounted to
$16,626,000 and $7,335,000 for 1996 and 1995, respectively. For both 1996 and
1995, the source of cash was derived principally from net income plus non cash
charges, such as depreciation and amortization. Additionally, during 1996 the
Company recognized a significant tax benefit upon the exercise of non-qualified
stock options.
Net cash utilized by investing activities amounted to $5,339,000 and $5,308,000
for 1996 and 1995, respectively. The Company continues to purchase equipment and
technology to meet the needs of its expanding operations and to enhance its
operating efficiency and effectiveness. During 1996, the Company made a
significant investment in technology with the implementation of a new financial
system. Management believes the new financial system will improve the Company's
ability to monitor and manage operations in a more effective manner.
24
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
In 1996 and 1995, the Company acquired the business, assets, and/or outstanding
stock of five career management consulting firms and two Affiliates for a
combination of cash and non-cash items, including the assumption of incomplete
consulting contracts, future defined incentives and other considerations. The
present value of these future defined incentives, which are only applicable to
certain 1995 acquisitions, are contingent upon operating results of the region
in which the successor Company office now operates. These incentives generally
relate to the three years subsequent to the respective acquisitions. The Company
anticipates that ongoing cash flow from operations and working capital will be
sufficient to fund these incentive payments as they become due. The $466,000 net
cash paid for acquisitions on the 1996 Consolidated Statement of Cash Flows is
net of the borrowing made in connection with the financing of the People Tech
acquisition (see Note B to the Consolidated Financial Statements).
Net cash utilized by financing activities amounted to $2,240,000 and $2,250,000
in 1996 and 1995, respectively. These amounts represent payments of the
Company's borrowings and defined incentives for acquisitions made in previous
years, as discussed above, which were in excess of proceeds from stock issuance
resulting from option exercises.
In addition to cash flow provided by operations, the Company has borrowing
facilities to provide for increased working capital needs as well as to provide
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 (See Note D
to the Consolidated Financial Statements). The Company had approximately
$34,263,000 available under the Credit Agreement at December 31, 1996, as the
initial $5,737,000 disbursed under the Credit Agreement was used to repay
existing indebtedness. 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 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.
Forward-Looking Statements
Except for the historical information contained herein, certain of the matters
discussed in this report are forward-looking statements which are subject to
risks and uncertainties that could cause actual results to differ materially.
Readers of this report are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this report.
25
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
STATEMENT OF MANAGEMENT'S FINANCIAL RESPONSIBILITY
Management has prepared and is responsible for the integrity and objectivity of
the financial statements and related financial information contained in this
Annual Report. The financial statements are in conformity with generally
accepted accounting principles consistently applied and reflect management's
informed judgment and estimation as to the effect of events and transactions
that are accounted for or disclosed.
Management maintains a system of internal control. This system, which undergoes
periodic evaluation, is designed to provide reasonable assurance that assets are
safeguarded and records are adequate for the preparation of reliable financial
data. In determining the extent of the system of internal control, management
recognizes that the cost should not exceed the benefits derived. The evaluation
of these factors requires estimates and judgment by management.
Arthur Andersen LLP is engaged to render an opinion as to whether management's
financial statements present fairly Right Management Consultants, Inc.'s
financial position, results of operations and cash flows. The scope of their
engagement included a review of the internal control system to the extent deemed
necessary to render an opinion on these financial statements. The Report of
Independent Public Accountants is presented in the enclosed document.
The Audit Committee of the Board of Directors meets directly with the
Independent Public Accountants and management to ascertain whether they are
properly discharging their responsibilities.
Right Management Consultants, Inc.
/s/ G. Lee Bohs
-----------------
G. Lee Bohs
Executive Vice President,
Chief Financial Officer, Treasurer and Secretary
26
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
1996 DIRECTORS AND EXECUTIVE OFFICERS
Frank P. Louchheim Founding Chairman and Director
Richard J. Pinola Chairman of the Board of Directors and
Chief Executive Officer
Joseph T. Smith President, Chief Operating Officer and Director
Larry A. Evans Executive Vice President and Director
Nancy N. Geffner Executive Vice President - New York Group and Director
Dr. Marti D. Smye President of People Tech Consulting, Inc. and Director
DIRECTORS
John R. Bourbeau President of Right Associates(R) of the Great Lakes
Region, an Affiliate of the Company
Raymond B. Langton Former President and Chief Executive Officer of SKF
USA, Inc.
Rebecca J. Maddox President and Co-founder of Capital Rose, Inc.
Catherine Y. Selleck Business Consultant
OTHER EXECUTIVE OFFICERS
G. Lee Bohs Executive Vice President, Chief Financial Officer,
Treasurer and Secretary
John J. Gavin Executive Vice President - Corporate Marketing
Manville D. Smith Executive Vice President - Business Development
Peter J. Doris Executive Vice President - Southeast Group
David S. Orr Executive Vice President - North Central Group
Warren R. Radtke Executive Vice President - Northeast Group
Gary L. Saenger Executive Vice President - Southwest Group
Terry W. Szwec Executive Vice President - Canadian Group
George L. Whitwell Executive Vice President - Northwest and South Central
Group
Gilbert A. Wetzel Executive Vice President - Mid-Atlantic Group
Corporate Headquarters Independent Public Accountants
Right Management Consultants, Inc. Arthur Andersen LLP
1818 Market Street Philadelphia, Pennsylvania
33rd Floor
Philadelphia, Pennsylvania 19103
General Counsel
Fox, Rothschild, O'Brien & Frankel
Philadelphia, Pennsylvania
27
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
Subsidiaries Right Associates Government Services, Inc.
Right Associates Acquisition Co.
Conviction Right France, SA
Right Associates (Belgium), Inc.
Right Associates (France), Inc.
Right Associates & Co., SNC
Right Human Resources, Inc.
Right Associates, Ltd.
Right Associates, Inc.
Right Associates License, Inc.
R.M.C. & Co., SNC
The THinc Consulting Group International (U.K.), Ltd.
People Tech Consulting Corporation
People Tech Consulting, Ltd.
ProTransition, Inc.
Service Marks and Right Associates, THinc, Partners in Managing Change,
Trade Marks The Right Fit, The Right Way, Key Executive Service
and Zeroing-in-Process (Z.I.P.) are registered Service
Marks of Right Management Consultants, Inc. People Tech
is a registered Service Mark of a wholly owned subsidiary.
The Right Report is a registered Trademark of Right
Management Consultants, Inc.
Rightrack and the Globe Design are Service Marks of
Right Management Consultants, Inc.
28
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
Right Management Consultants, Inc.
Common Stock Listed on NASDAQ Stock Market
Symbol RMCI
Common Stock Data
1996 High Low
First Quarter 20 5/8 15
Second Quarter 25 20
Third Quarter 27 1/2 19 1/4
Fourth Quarter 24 1/2 18 1/2
1995 High Low
First Quarter 9 5/16 6 7/8
Second Quarter 10 1/4 7 7/16
Third Quarter 15 1/8 10
Fourth Quarter 19 1/2 13 5/16
The above prices reflect interdealer prices, without retail markup, markdown or
commission and may not necessarily represent actual transactions.
As of March 25, 1997, there were 154 record holders of the Company's Common
Stock.
The Company has never paid any dividends on its Common Stock and currently
expects that all of its earnings will be retained and reinvested in the
Company's business.
Registrar and StockTrans, Inc.
Transfer Agent Ardmore, Pennsylvania
Availability of A copy of the Company's Annual Report
10-K Annual Report to the Securities and Exchange Commission
on Form 10-K may be obtained by writing to:
Cindy Ng
Vice President and Corporate Controller
Right Management Consultants, Inc.
1818 Market Street
Thirty-third Floor
Philadelphia, PA 19103
29
<PAGE>
WORLD
HEADQUARTERS
Philadelphia, PA
US OFFICES
Arizona
Phoenix
Tucson
Arkansas
Little Rock
California
Cupertino
Irvine
Los Angeles
Pasadena
Sacramento
San Bernardino
San Diego
San Francisco
Torrance
Walnut Creek
Woodland Hills
Colorado
Colorado Springs
Denver
Connecticut
Hartford
Stamford
Delaware
Wilmington
District of Columbia
Washington
Florida
Boca Raton
Fort Lauderdale
Jacksonville
Miami
Orlando
Palm Beach
Saint Petersburg
Tampa
Georgia
Atlanta
Illinois
Chicago
Northbrook
Oak Brook
Indiana
Indianapolis
Iowa
Des Moines
Kansas
Wichita
Kentucky
Fort Mitchell
Lexington
Louisville
Louisiana
New Orleans
Maryland
Baltimore
Hunt Valley
Massachusetts
Boston
Burlington
Michigan
Detroit
Grand Rapids
Kalamazoo
Lansing
Midland
Minnesota
Minneapolis
Mississippi
Jackson
Missouri
Kansas City
St. Louis
Nebraska
Omaha
Nevada
Las Vegas
New Jersey
Montvale
Parsippany
Princeton
New Mexico
Albuquerque
New York
Buffalo
Melville
New York
Westchester
North Carolina
Charlotte
Greensboro
Raleigh
Winston-Salem
Ohio
Cincinnati
Cleveland
Columbus
Dayton
Toledo
Oklahoma
Oklahoma City
Tulsa
Pennsylvania
Allentown
Lancaster
Malvern
Philadelphia
Pittsburgh
Rhode Island
Providence
South Carolina
Greenville
Tennessee
Kingsport
Knoxville
Memphis
Nashville
Texas
Austin
Dallas
Fort Worth
Houston
San Antonio
Virginia
Fairfax
Richmond
Vienna
Virginia Beach
Washington
Seattle
Wisconsin
Madison
Milwaukee
CANADA
Calgary
Edmonton
Kingston
London
Mississauga
Montreal
Ottawa
Regina
Richmond Hill
Saskatoon
Toronto
Vancouver
Winnipeg
INTERNATIONAL
Aberdeen
Antwerp
Brussels
Geneva
Glasgow
Leeds
London
Paris
San Juan
Swindon
SUBSIDIARIES OF THE COMPANY
1. Right Associates Government Services, Inc., a Virginia corporation
2. Right Associates Acquisition Co., a Delaware corporation
3. Conviction Right France, SA, a French corporation
4. Right Associates (Belgium), Inc., a Delaware corporation
5. Right Associates (France), Inc., a Delaware corporation
6. Right Associates & Co., SNC, a Belgium corporation
7. Right Human Resources, Inc., a Canadian corporation
8. Right Associates, Ltd., a U.K. corporation
9. Right Associates, Inc., a Delaware corporation
10. Right Associates License, Inc., a Delaware corporation
11. R.M.C. & Co., SNC, a Belgium corporation
12. The THinc Consulting Group International (U.K.), Ltd., a U.K.
corporation
13. People Tech Consulting Corporation, a Delaware corporation
14. People Tech Consulting, Ltd., a Canadian corporation
15. Pro Transition, Inc., a Canadian corporation
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Right Management Consultants, Inc.:
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K into the Company's previously filed
Registration Statements No. 333-06211, File No. 333-07975, File No. 33-58698,
File No. 33-62997, and File No. 33-62999.
/s/ ARTHUR ANDERSEN LLP
_______________________
Philadelphia, Pennsylvania
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 18,055
<SECURITIES> 0
<RECEIVABLES> 22,935
<ALLOWANCES> 552
<INVENTORY> 0
<CURRENT-ASSETS> 42,708
<PP&E> 22,583
<DEPRECIATION> 12,917
<TOTAL-ASSETS> 73,935
<CURRENT-LIABILITIES> 17,366
<BONDS> 0
0
0
<COMMON> 67
<OTHER-SE> 47,734
<TOTAL-LIABILITY-AND-EQUITY> 73,935
<SALES> 125,269
<TOTAL-REVENUES> 125,269
<CGS> 47,624
<TOTAL-COSTS> 95,950
<OTHER-EXPENSES> 13,080
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36
<INCOME-PRETAX> 16,275
<INCOME-TAX> 6,600
<INCOME-CONTINUING> 9,675
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,675
<EPS-PRIMARY> 1.45
<EPS-DILUTED> 1.44
</TABLE>
