FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-15539
RIGHT MANAGEMENT CONSULTANTS, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2153729
(State of other jurisdiction of (IRS Employer
incorporation of organization) Identification No.)
1818 Market Street, Philadelphia, Pennsylvania 19103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 988-1588
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of October 31, 1998:
Common Stock, $0.01 par value 6,632,014
Class Number of Shares
<PAGE>
Right Management Consultants, Inc.
Condensed Consolidated Balance Sheets
(Dollars in Thousands Except Share Data)
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
1998 1997
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 8,228 $ 7,583
Accounts receivable, trade, net of allowance for doubtful accounts
of $935 and $663 in 1998 and 1997, respectively 33,790 21,888
Royalties and fees receivable from Affiliates 3,301 2,511
Other current assets 3,270 2,755
--------- ---------
Total current assets 48,589 34,737
Property and equipment, net of accumulated depreciation of $20,636
and $16,931 in 1998 and 1997, respectively 14,085 13,342
Intangible assets, net of accumulated amortization of $13,430 and
$10,702 in 1998 and 1997, respectively 34,626 30,703
Other noncurrent assets 3,018 2,922
--------- ---------
Total Assets $ 100,318 $ 81,704
========= =========
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt and other obligations $ 5,175 $ 3,943
Accounts and commissions payable 7,327 6,082
Accrued expenses 14,156 6,294
Deferred income 7,030 2,927
--------- ---------
Total current liabilities 33,688 19,246
--------- ---------
Long-term debt and other obligations 10,030 8,775
--------- ---------
Deferred compensation 1,713 1,822
--------- ---------
Minority interest in subsidiaries 1,751 1,411
--------- ---------
Shareholders' Equity:
Preferred stock, no par value; 1,000,000 shares authorized; no
shares issued or outstanding -- --
Common stock, $.01 par value; 20,000,000 shares authorized;
7,089,503 and 7,084,104 shares issued in 1998 and 1997, respectively 71 71
Additional paid-in capital 14,874 14,492
Retained earnings 42,819 38,363
Accumulated total comprehensive income (797) (580)
--------- ---------
56,967 52,346
Less treasury stock, at cost, 537,952 shares and 380,452 shares
in 1998 and 1997, respectively (3,831) (1,896)
--------- ---------
Total shareholders' equity 53,136 50,450
--------- ---------
Total Liabilities and Shareholders' Equity $ 100,318 $ 81,704
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
1
<PAGE>
Right Management Consultants, Inc.
Condensed Consolidated Statements of Income
(Dollars and Shares in Thousands Except Earnings per Share Data)
(Unaudited)
Three Months Ended
September 30,
1998 1997
Revenue:
Company office revenue $39,895 $32,039
Affiliate royalties 1,039 785
------- -------
Total revenue 40,934 32,824
------- -------
Expenses:
Consultants' compensation 17,265 13,609
Office sales and consulting support 2,641 2,084
Office administration 14,266 12,500
General sales and administration 3,910 3,079
------- -------
Total expenses 38,082 31,272
------- -------
Income from operations 2,852 1,552
Interest expense, net 206 80
------- -------
Income before income taxes 2,646 1,472
Provision for income taxes 1,138 618
Minority interest in net income of subsidiaries 191 209
------- -------
Net income $ 1,317 $ 645
======= =======
Basic earnings per share $ 0.20 $ 0.10
======= =======
Diluted earnings per share $ 0.20 $ 0.10
======= =======
Basic weighted average number of shares outstanding 6,640 6,627
======= =======
Diluted weighted average number of shares outstanding 6,721 6,745
======= =======
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
<PAGE>
Right Management Consultants, Inc.
Condensed Consolidated Statements of Income
(Dollars and Shares in Thousands Except Earnings per Share Data)
(Unaudited)
Nine Months Ended
September 30,
1998 1997
Revenue:
Company office revenue $116,930 $ 91,086
Affiliate royalties 3,082 2,610
-------- --------
Total revenue 120,012 93,696
-------- --------
Expenses:
Consultants' compensation 49,362 38,917
Office sales and consulting support 7,316 5,372
Office administration 41,402 34,723
General sales and administration 12,965 9,327
Restructuring costs (Note B) -- 630
-------- --------
Total expenses 111,045 88,969
-------- --------
Income from operations 8,967 4,727
Interest expense, net 600 22
-------- --------
Income before income taxes 8,367 4,705
Provision for income taxes 3,571 1,930
Minority interest in net income of subsidiaries 340 209
-------- --------
Net income $ 4,456 $ 2,566
======== ========
Basic earnings per share $ 0.67 $ 0.39
======== ========
Diluted earnings per share $ 0.66 $ 0.38
======== ========
Basic weighted average number of shares outstanding 6,678 6,572
======== ========
Diluted weighted average number of shares outstanding 6,763 6,731
======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE>
Right Management Consultants, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Months Ended September 30,
1998 1997
Operating Activities:
Net income $ 4,456 $ 2,566
Adjustments to reconcile net income to net cash
provided by (utilized for) operating activities:
Depreciation and amortization 5,873 4,591
Deferred income taxes 423 --
Restricted stock compensation -- (658)
Tax benefit from the exercise of stock options -- 400
Restructuring costs (Note B) -- 630
Minority interest in net income of subsidiaries 340 209
Provision for doubtful accounts 320 225
Other non-cash items 414 (461)
Changes in operating accounts:
(Increase) in operating assets (13,895) (1,053)
Increase (decrease) in operating liabilities 12,830 (5,964)
-------- --------
Net cash provided by operating activities 10,761 485
-------- --------
Investing Activities:
Purchase of property and equipment (4,589) (3,657)
Net cash paid for acquisitions (6,180) (4,268)
-------- --------
Net cash utilized for investing activities (10,769) (7,925)
-------- --------
Financing Activities:
Borrowings under revolving credit facility 5,900 --
Payment of long-term debt and other obligations (3,694) (1,650)
Repurchase of common stock (1,935) (1,379)
Proceeds from stock issuances 382 1,271
-------- --------
Net cash provided by (utilized for) financing activities 653 (1,758)
-------- --------
Increase (decrease) in cash and cash equivalents 645 (9,198)
Cash and cash equivalents, beginning of period 7,583 18,055
-------- --------
Cash and cash equivalents, end of period $ 8,228 $ 8,857
======== ========
Supplemental Disclosures of Cash Flow Information
Cash paid for:
Interest $ 855 $ 393
======== ========
Income taxes $ 2,245 $ 2,097
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnote disclosures necessary for a fair presentation of consolidated financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the nine months ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. For further information, refer
to the financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
Principles of Consolidation
The consolidated financial statements include the accounts of Right Management
Consultants, Inc. and its majority-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" which is effective for financial statements issued for fiscal years
beginning after December 15, 1997. Comprehensive income is defined as net income
plus revenues, expenses, gains and losses that, under generally accepted
accounting principles, are excluded from net income. The Company's comprehensive
income includes net income and unrealized gains and losses from foreign currency
translation. Total comprehensive income for the three months ended September 30,
1998 and 1997 was $1,283,000 and $662,000, respectively. Total comprehensive
income for the nine months ended September 30, 1998 and 1997 was $4,332,000 and
$2,437,000, respectively.
Reclassifications
Certain 1997 amounts have been reclassified to conform to the 1998 presentation.
5
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE B - RESTRUCTURING COSTS
During the first quarter 1997, the Company announced a corporate restructuring.
The restructuring charge of $630,000 ($380,000 or $0.06 per share, net of taxes)
was primarily for severance payments related to reductions in employees and
lease termination costs for the closure of several small "satellite" offices
with limited future economic benefit to the Company. The Company has completed
all payments for severance and office closures during 1998.
NOTE C - ACQUISITIONS AND LICENSING AGREEMENT
Effective January 1, 1998, the Company acquired certain assets and the business
of Manus Associates ("Manus"), a Stamford, Connecticut human resource consulting
firm, for a combination of cash and future defined incentives. The Company
borrowed $3,600,000 from its revolving credit facility in order to complete this
transaction.
Additionally, effective January 1, 1998, the Company entered into an exclusive
licensing agreement with The Atlanta Consulting Group ("TACG"), an
organizational consulting firm located in Atlanta, Georgia. Under this exclusive
licensing agreement, the Company will sell and deliver TACG's full range of
products and methodologies and has hired all TACG former employees.
Effective April 1, 1998, the Company acquired 51% of the outstanding shares of
Teams International, Inc. ("Teams"), a technology-based assessment firm
specializing in 360-degree feedback instruments to support a wide spectrum of
organizational change initiatives. The purchase price of this acquisition,
including costs of acquisition, approximated $2,308,000. The Company borrowed
$2,300,000 from its revolving credit facility in order to complete this
transaction. As a part of the purchase agreement, the minority shareholders of
Teams have agreed to provide the Company with options to acquire the remaining
49% of the outstanding shares of Teams beginning on April 1, 2001. Additionally,
the minority shareholders of Teams have the right to require the Company to
purchase the remaining 49% of the outstanding shares of Teams over a three year
period beginning on April 1, 2001.
These transactions were accounted for as purchases. The accompanying
consolidated financial statements reflect the year to date results from the
effective dates of acquisition for all of the above transactions. For the nine
months ended September 30, 1998, the aggregate purchase price for acquisitions
was approximately $6,180,000, including the costs of acquisitions. The purchase
price exceeded the fair value of the assets acquired by $6,270,000.
6
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE C - ACQUISITIONS AND LICENSING AGREEMENT (Continued)
The pro-forma impact of these acquisitions on results of operations is
immaterial to the consolidated financial statements as a whole, and has been
omitted.
NOTE D - ACCRUED EXPENSES
The increase in accrued expenses existing at September 30, 1998 is attributable
to incentive compensation accruals due to the Company's achievement of certain
internal revenue and earnings targets in 1998. The internal revenue and earnings
targets were not met in 1997.
NOTE E - DEBT
In September 1998, the Company extended its existing Credit Agreement (the
"Credit Agreement") with its two primary lenders from December 31, 1999 to
December 31, 2000.
At September 30, 1998, the Company has entered into four interest rate swap
agreements with an aggregate notional principal of $12,283,000 and quarterly
payments scheduled over two to five years. At September 30, 1998, the Company's
interest rates under these interest rate swaps ranged from 6.7% to 7.3%.
The floating rate borrowing of $2,300,000 to complete the acquisition of Teams
(see Note C to the Condensed Consolidated Financial Statements) had an interest
rate which approximated 7.1% at September 30, 1998. In early October 1998, the
Company entered into another interest rate swap agreement for the entire
$2,300,000 borrowing noted above.
The Company uses interest rate swaps to reduce exposure to adverse fluctuations
in interest rates. While these hedging instruments are subject to fluctuations
in value, such fluctuations are offset by the change in value of the underlying
exposures being hedged. The Company is not a party to leveraged derivatives and
does not hold or issue financial instruments for speculative purposes. The net
cash paid or received on interest rate swap agreements is recognized as an
adjustment to interest expense. The impact of the above interest rate swap
agreements on interest expense has been immaterial to date.
7
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE F - EARNINGS PER SHARE
In 1997, the Company adopted SFAS No. 128, "Earnings per Share". The
calculations of earnings per share ("EPS") under SFAS No. 128 are detailed
below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
For the three months For the nine months
ended September 30, 1998 ended September 30, 1998
Income Shares EPS Income Shares EPS
Basic EPS:
Net income $1,317,000 6,640,000 $0.20 $4,456,000 6,678,000 $0.67
===== =====
Impact of options --- 81,000 --- 85,000
-------- --------- ---------- ---------
Diluted EPS:
Net income $1,317,000 6,721,000 $0.20 $4,456,000 6,763,000 $0.66
========== ========= ===== ========== ========= =====
For the three months For the nine months
ended September 30, 1997 ended September 30, 1997
Income Shares EPS Income Shares EPS
Basic EPS:
Net income $645,000 6,627,000 $0.10 $2,566,000 6,572,000 $0.39
===== =====
Impact of options --- 118,000 --- 159,000
-------- --------- ---------- ---------
Diluted EPS:
Net income $645,000 6,745,000 $0.10 $2,566,000 6,731,000 $0.38
======== ========= ===== ========== ========= =====
</TABLE>
For the three months and nine months ended September 30, 1998, outstanding
options to purchase 914,714 shares of Company Common Stock at prices ranging
from $12.75 to $24.33 per share were excluded from the computation of diluted
EPS, as the options' average exercise price was greater than the market price of
the Common Stock.
8
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE G - SEGMENTS
Summarized operations of each of the Company's geographic segments in the
aggregate as of September 30, 1998 and 1997 and for the nine month periods then
ended are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Asia-
1998 U.S. Canada Europe Pacific Consolidated
Identifiable assets $ 80,656,000 $ 6,350,000 $ 8,343,000 $ 4,969,000 $100,318,000
============ ============ ============ ============ ============
Total revenue $ 91,811,000 $ 7,280,000 $ 10,768,000 $ 10,153,000 $120,012,000
============ ============ ============ ============ ============
Income from operations (1) $ 5,225,000 $ 976,000 $ 1,520,000 $ 1,246,000 $ 8,967,000
============ ============ ============ ============ ============
Depreciation and amortization $ 4,644,000 $ 390,000 $ 376,000 $ 463,000 $ 5,873,000
============ ============ ============ ============ ============
Capital expenditures $ 3,674,000 $ 183,000 $ 107,000 $ 625,000 $ 4,589,000
============ ============ ============ ============ ============
1997
Identifiable assets $ 63,391,000 $ 6,708,000 $ 5,889,000 $ 5,641,000 $ 81,629,000
============ ============ ============ ============ ============
Revenue $ 73,361,000 $ 7,703,000 $ 8,882,000 $ 3,750,000 $ 93,696,000
============ ============ ============ ============ ============
Income from operations (1) $ 2,187,000 $ 1,080,000 $ 738,000 $ 722,000 $ 4,727,000
============ ============ ============ ============ ============
Depreciation and amortization $ 3,914,000 $ 185,000 $ 333,000 $ 159,000 $ 4,591,000
============ ============ ============ ============ ============
Capital expenditures $ 2,683,000 $ 94,000 $ 678,000 $ 202,000 $ 3,657,000
============ ============ ============ ============ ============
<FN>
(1) The income from operations for the United States segment includes total
general sales and administration expense reported on the Condensed
Consolidated Statements of Income.
</FN>
</TABLE>
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which is effective for financial statements
issued for fiscal years beginning after December 15, 1997. SFAS No. 131
establishes standards for reporting financial and descriptive information about
an enterprise's operating segments in its financial statements. Although this
statement need not be applied to interim financial statements in the initial
year of application, expanded comparative information will be required for
interim periods subsequent to the fiscal year ending December 31, 1998. The
Company has elected not to comply early with SFAS No. 131.
9
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE H - SHAREHOLDERS EQUITY
In March 1997, the Board of Directors (the "Board") approved a stock repurchase
program under which the Company is authorized to repurchase up to 10% of its
currently outstanding Common Stock. Any shares repurchased will be held as
treasury shares and be available to the Company for any use in various benefit
plans and, when authorized by the Board, for other general corporate purposes.
The Board has authorized Company management to pursue the repurchase program in
open market transactions from time-to-time, depending upon market conditions and
other factors.
During 1997, the Company repurchased 127,000 shares of Common Stock at an
aggregate purchase price of $1,379,000.
During the three months ended September 30, 1998, the Company repurchased
157,500 shares of Common Stock at an aggregate purchase price of $1,935,000.
In October 1998, the Company repurchased another 10,000 shares of Common Stock
at an aggregate purchase price of $114,000.
10
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
For the three months ended September 30, 1998, revenue generated by Company
offices increased by 25% or $7,856,000 from the corresponding quarter in 1997.
This increase is due to same office revenue growth of approximately 15%, in
addition to $2,938,000 in incremental revenues from acquisitions consummated
subsequent to the third quarter 1997. The same office revenue growth was derived
primarily from the U.S. and European operations and was evident in both the
outplacement and human resource consulting lines of business.
For the three months ended September 30, 1998, revenue generated by Company
offices within the outplacement line of business increased by 16% or $4,726,000.
This increase is due to same office outplacement revenue growth of 15% resulting
from new and recurring activity from major international and national accounts
across all geographic regions.
For the three months ended September 30, 1998, revenue generated by Company
offices within the human resource consulting line of business increased by 118%
or $3,130,000. This significant increase in consulting revenues is due to same
office consulting revenue growth of approximately 21%, in addition to $2,568,000
in incremental consulting revenues from the acquisitions consummated subsequent
to the third quarter 1997 (see Note C to the Condensed Consolidated Financial
Statements).
For the nine months ended September 30, 1998, revenue generated by Company
offices increased 28% or $25,844,000 from the corresponding period in 1997. This
increase is due to same office revenue growth within both the outplacement and
human resource consulting lines of business, in addition to $15,674,000 in
incremental revenues from acquisitions. For the nine months ended September 30,
1998, same office revenues in total increased by 11%.
Affiliate royalties increased from the prior year by 32% and 18% for the three
months and nine months ended September 30, 1998, respectively. This increase is
attributable to the previously mentioned revenue growth from major international
and national accounts.
For the three months ended September 30, 1998, total Company office expenses
increased 21% or $5,979,000 over the corresponding quarter in 1997. This
increase is due to $2,627,000 in incremental costs from acquisitions consummated
subsequent to the third quarter 1997, as well as an increase in office level
employee incentives. The Company's achievement of certain revenue and operating
income targets in the third quarter 1998 has triggered this increase in office
level incentives.
11
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CONTINUED
For the nine months ended September 30, 1998, total Company office expenses
increased 24% or $19,068,000 over the corresponding period in 1997, excluding
the 1997 restructuring charge of $630,000 (see Note B to the Condensed
Consolidated Financial Statements). This increase is due primarily to
$14,106,000 in incremental costs from acquisitions, as well as an increase in
office level employee incentives.
Aggregate Company office margins were 14% and 12% for the third quarter 1998 and
1997, respectively. Year to date aggregate Company office margins, exclusive of
the 1997 restructuring charge (see Note B to the Condensed Consolidated
Financial Statements), were 16% and 13% for 1998 and 1997, respectively. The
increase in margin over 1997 is attributable primarily to the previously
mentioned revenue growth, particularly in the consulting line of business, and
improved U.S. and European results, partly offset by increased funding for
office level incentives.
For the three months ended September 30, 1998, general sales and administration
expenses increased by 27% or $831,000 over the corresponding quarter in 1997.
This increase is due primarily to incentive compensation expense and increased
charges in consulting services for technology initiatives. General sales and
administrative expenses as a percentage of total revenues were approximately 10%
for the third quarter 1998 versus 9% for the third quarter 1997.
For the nine months ended September 30, 1998, general sales and administration
expenses increased 39% or $3,638,000 over the corresponding period in 1997. This
increase is due to the previously mentioned increases in incentive compensation
expense and charges in consulting services for technology initiatives, as well
as the forfeiture of restricted stock awards in 1997 which reduced the general
sales and administrative expenses in that year. General sales and administrative
expenses as a percentage of total revenues were approximately 11% for year to
date 1998 versus 10% for year to date 1997.
The Company's effective tax rates for the three months ended September 30, 1998
and 1997 were approximately 43% and 42%, respectively. The Company's effective
tax rates for the nine months ended September 30, 1998 and 1997 were
approximately 43% and 41%, respectively. The increase in the effective tax rate
is due to a shift in the Company's taxable income to foreign jurisdictions with
higher tax rates, as well as an increase in the non-deductible portion of
goodwill amortization and other non-deductible expenses related to the Company's
significant acquisition activity during 1997. The Company expects the effective
tax rate to remain at 43% for the remainder of 1998.
12
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CONTINUED
Liquidity and Capital Resources
At September 30, 1998 and December 31, 1997, the Company had cash and cash
equivalents of $8,228,000 and $7,583,000, respectively. At September 30, 1998
and December 31, 1997, the Company had working capital of $14,901,000 and
$15,491,000, respectively.
Net cash provided by operating activities amounted to $10,761,000 and $485,000
for the nine months ended September 30, 1998 and 1997, respectively. The
improvement is due to increased earnings and a reduction in the use of cash for
operating activities.
Net cash utilized for investing activities amounted to $10,769,000 and
$7,925,000 for the nine months ended September 30, 1998 and 1997, respectively.
The Company continues to invest in equipment and technology to meet the needs of
its operations and enhance operating efficiencies. Additionally, during 1998,
the Company acquired two consulting firms and entered into a licensing agreement
with an outside firm for a combination of cash and future defined incentive
payments (see Note C to the Condensed Consolidated Financial Statements).
Net cash provided by financing activities amounted to $653,000 for the nine
months ended September 30, 1998 versus cash utilized for financing activities of
$1,758,000 for the nine months ended September 30, 1997. The net cash inflow for
1998 was the result of the $5,900,000 borrowing made to complete the Manus and
Teams acquisitions (see Note C to the Condensed Consolidated Financial
Statements). This was partly offset by repayments on the Company's borrowings
and defined incentives for acquisitions made in previous years, as well as
additional repurchases of the Company's Common Stock in the third quarter 1998
as compared to the prior year (see Note H to the Condensed Consolidated
Financial Statements).
Under its revolving credit facility with its two primary lenders, the Company
has a $40,000,000 borrowing capacity. The Company had approximately $25,417,000
available under the revolving credit facility at September 30, 1998. The Company
plans to utilize the revolving credit facility to assist in the financing of
future 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, outstanding commitments and to maintain Company
operations at current levels for the foreseeable future. The Company will
continue to consider acquisitions and other expansion opportunities as they
arise, although the economics, strategic implications and other circumstances
justifying the expansion will be key factors in determining the amount and type
of resources the Company will commit.
13
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CONTINUED
Year 2000
The Company has completed its evaluation of the potential impact of the year
2000 and has developed and is implementing a project plan ("the Plan") to ensure
compliance for all of its major operating systems by the year of 2000. As a
service company, the Company's operating systems principally include financial,
operational and communication applications. As part of its year 2000 project
plan, the Company is developing a replacement billing system which is
progressing on schedule and is expected to be completed prior to the middle of
1999. The Plan also details the timetable to upgrade or replace non-compliant
systems in the above areas as well as to confirm year 2000 compliance with the
Company's key vendors. At this time, the Company is progressing in accordance
with the timetable set forth with respect to all aspects of the Plan and
believes that the potential risks to its business operations are not material.
Non-capitalizable costs related to year 2000 issues will be expensed as
incurred. Capitalized items will be depreciated over the useful life of the
asset. The Company estimates that the total costs to be incurred under the Plan
will be in the range of $1,500,000 to $1,700,000 over the next fifteen months,
of which approximately $1,000,000 is attributable to normal costs for systems
upgrades or replacements that the Company normally would undertake in its
ongoing operations. The Company does not expect these costs to have a material
impact on its business, operations or its financial condition.
Forward Looking Statements
Statements included in this Report on Form 10-Q, including within this
Management's Discussion and Analysis of Financial Condition and Results of
Operations which are not historical in nature, are intended to be, and hereby
are identified as "forward looking statements" for purposes of the safe harbor
provided by the Private Securities Litigation Reform Act of 1995. The Company
cautions readers that forward looking statements including without limitation
those relating to the Company's future business prospects, revenues, working
capital, liquidity, capital needs, interest costs and income are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those indicated in the forward looking statements due to several
important factors identified from time to time in the Company's reports filed
with the Securities and Exchange Commission (the "SEC"). The Company hereby
incorporates by reference the discussion concerning forward looking statements
set forth in the Management's Discussion and Analysis of Financial Condition and
Results of Operations section of the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 filed with the SEC, as well as the risk factors
identified within the same Annual Report on Form 10-K. Readers of this Report
are cautioned not to place undue reliance upon these forward looking statements,
which speak only as of the date hereof. The Company undertakes no obligation to
publicly release any revisions to these forward looking statements or reflect
events or circumstances after the date hereof.
14
<PAGE>
PART II - OTHER INFORMATION
Items 1, 2, 3, 4 and 5 were not applicable in the nine months ended September
30, 1998.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
27 - Financial Data Schedule *
b. No reports on Form 8-K were filed during the period for which
this Report is filed.
* - Filed in electronic form only.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RIGHT MANAGEMENT CONSULTANTS, INC.
BY: /s/ G. LEE BOHS November 12, 1998
--------------------------------- -----------------
G. Lee Bohs Date
Chief Financial Officer and
Principal Accounting Officer (Dual
signature as duly authorized officer and
principal financial officer)
16
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
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