FORM 10-Q
UNITED STATES 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, 1999
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, 1999:
Common Stock, $0.01 par value 5,858,491
----------------------------- --------------------
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,
1999 1998
--------- ---------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 9,567 $ 20,800
Accounts receivable, trade, net of allowance for doubtful accounts
of $1,326 and $1,066 in 1999 and 1998, respectively 31,344 33,271
Royalties and fees receivable from Affiliates 2,890 3,809
Other current assets 4,499 3,004
--------- ---------
Total current assets 48,300 60,884
Property and equipment, net of accumulated depreciation of $27,983
and $22,086 in 1999 and 1998, respectively 18,151 15,983
Intangible assets, net of accumulated amortization of $10,671 and
$8,114 in 1999 and 1998, respectively 43,223 33,947
Equity Investment 1,950 --
Other noncurrent assets 4,028 3,781
--------- ---------
Total Assets $ 115,652 $ 114,595
========= =========
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt and other obligations $ 4,464 $ 5,124
Accounts and commissions payable 8,894 10,086
Accrued incentive compensation and benefits 8,850 15,490
Other accrued expenses 6,826 8,191
Deferred income 8,979 6,712
--------- ---------
Total current liabilities 38,013 45,603
--------- ---------
Long-term debt and other obligations 14,699 9,065
--------- ---------
Deferred compensation 1,982 1,785
--------- ---------
Minority interest in subsidiaries 1,540 1,324
--------- ---------
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;
7,340,856 and 7,255,765 shares issued in 1999 and 1998, respectively 73 72
Additional paid-in capital 17,691 16,448
Retained earnings 51,345 44,970
Accumulated other comprehensive income (503) (727)
--------- ---------
68,606 60,763
Less treasury stock, at cost, 910,952 and 547,952 shares
in 1999 and 1998, respectively (9,188) (3,945)
--------- ---------
Total shareholders' equity 59,418 56,818
--------- ---------
Total Liabilities and Shareholders' Equity $ 115,652 $ 114,595
========= =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
1
</TABLE>
<PAGE>
Right Management Consultants, Inc.
Condensed Consolidated Statements of Income
(Dollars and Shares in Thousands Except Earnings per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended September 30,
1999 1998
------- -------
Revenue:
Company office revenue $41,318 $39,895
Affiliate royalties 1,130 1,039
------- -------
Total revenue 42,448 40,934
------- -------
Expenses:
Consultants' compensation 16,851 17,265
Office sales and consulting support 3,086 2,641
Office depreciation 1,304 1,054
Office administration 13,480 13,036
General sales and administration 3,108 3,077
Depreciation and amortization 1,551 1,009
------- -------
Total expenses 39,380 38,082
------- -------
Income from operations 3,068 2,852
Net interest expense 137 206
------- -------
Income before income taxes 2,931 2,646
Provision for income taxes 1,246 1,138
Minority interest in net income of subsidiary 8 191
Equity in earnings of minority-owned subsidiary 130 --
------- -------
Net income $ 1,807 $ 1,317
======= =======
Basic earnings per share $ 0.28 $ 0.20
======= =======
Diluted earnings per share $ 0.27 $ 0.20
======= =======
Basic weighted average number of shares outstanding 6,535 6,640
======= =======
Diluted weighted average number of shares outstanding 6,583 6,721
======= =======
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
2
<PAGE>
Right Management Consultants, Inc.
Condensed Consolidated Statements of Income
(Dollars and Shares in Thousands Except Earnings per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Months Ended September 30,
1999 1998
-------- --------
Revenue:
Company office revenue $130,674 $116,930
Affiliate royalties 3,364 3,082
-------- --------
Total revenue 134,038 120,012
-------- --------
Expenses:
Consultants' compensation 52,965 49,362
Office sales and consulting support 9,537 7,316
Office depreciation 3,730 2,945
Office administration 41,844 38,041
General sales and administration 10,790 10,453
Depreciation and amortization 3,859 2,928
-------- --------
Total expenses 122,725 111,045
-------- --------
Income from operations 11,313 8,967
Net interest expense 332 600
-------- --------
Income before income taxes 10,981 8,367
Provision for income taxes 4,710 3,571
Minority interest in net income of subsidiary 166 340
Equity in earnings of minority-owned subsidiary 270 --
-------- --------
Net income $ 6,375 $ 4,456
======== ========
Basic earnings per share $ 0.96 $ 0.67
======== ========
Diluted earnings per share $ 0.95 $ 0.66
======== ========
Basic weighted average number of shares outstanding 6,628 6,678
======== ========
Diluted weighted average number of shares outstanding 6,709 6,763
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE>
Right Management Consultants, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Months Ended September 30,
1999 1998
-------- --------
Operating Activities:
Net income $ 6,375 $ 4,456
Adjustments to reconcile net income to net cash
provided by (utilized for) operating activities:
Depreciation and amortization 7,589 5,873
Deferred income taxes (268) 423
Provision for doubtful accounts 385 320
Minority interest in net income of subsidiary 216 340
Equity in earnings of minority-owned subsidiary (270) --
Other non-cash items 355 414
Changes in operating accounts:
(Increase) decrease in operating assets 3,311 (13,895)
Increase (decrease) in operating liabilities (9,614) 12,830
-------- --------
Net cash provided by operating activities 8,079 10,761
-------- --------
Investing Activities:
Purchase of property and equipment (6,857) (4,589)
Equity Investment (1,680) --
Net cash paid for acquisitions and earnouts (11,672) (6,180)
-------- --------
Net cash utilized for investing activities (20,209) (10,769)
-------- --------
Financing Activities:
Borrowings 8,834 5,900
Payment of long-term debt and other obligations (3,938) (3,694)
Tax benefit from the exercise of stock options 66 --
Repurchase of Common Stock (5,243) (1,935)
Proceeds from stock issuances 1,178 382
-------- --------
Net cash provided by financing activities 897 653
-------- --------
Increase (decrease) in cash and cash equivalents (11,233) 645
Cash and cash equivalents, beginning of period 20,800 7,583
-------- --------
Cash and cash equivalents, end of period $ 9,567 $ 8,228
======== ========
Supplemental Disclosures of Cash Flow Information
Cash paid for:
Interest $ 895 $ 855
======== ========
Income taxes $ 5,056 $ 2,245
======== ========
</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, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. For further information, refer
to the financial statements and footnotes thereto included in Right Management
Consultants Inc.'s Annual Report on Form 10-K for the year ended December 31,
1998.
Principles of Consolidation
The consolidated financial statements include the accounts of Right Management
Consultants, Inc. (the "Company") and its wholly-owned and majority-owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated in consolidation. The Company's investment in a minority-owned
subsidiary, in which it owns a 20% interest, is accounted for using the equity
method.
Comprehensive Income
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 adjustments. The
earnings associated with the Company's investment in its foreign subsidiaries
are considered to be permanently invested and no provision for U.S. federal and
state income taxes has been provided for on these foreign currency translation
adjustments. Total comprehensive income for the three months ended September 30,
1999 and 1998 was $1,973,000 and $1,258,000, respectively. Total comprehensive
income for the nine months ended September 30, 1999 and 1998 was $6,600,000 and
$4,239,000, respectively.
Reclassifications
Certain 1998 amounts have been reclassified to conform to the 1999 presentation.
5
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE B - ACQUISITIONS AND INVESTMENTS
Effective January 1, 1999, the Company acquired the outstanding stock of two
European consulting firms and one European career transition firm for a
combination of cash and future defined contingent payments. The firms included
Groupe ARJ, with offices in Lyon and Paris France, Jouret Management Center,
based in Brussels, Belgium, and N.V. Claessens Belgium, S.A., with four offices
in Belgium.
Effective August 1, 1999 the Company acquired the assets of Transition
Management, Inc., a career transition firm with offices in Salt Lake City and
Ogden, Utah, for a combination of cash and future defined contingent payments.
Also effective August 1, 1999, the Company acquired the outstanding stock of the
consulting firm Key Management Strategies, located in Philadelphia,
Pennsylvania, for a combination of cash and future defined contingent payments.
Effective September 1, 1999, the Company acquired the outstanding stock of
Mainstream Access Corporation, a career transition firm with offices in eleven
cities throughout Canada.
Effective September 30, 1999, the Company acquired an additional interest in
Davidson & Associates, a career transition firm with offices throughout
Australia, New Zealand, Singapore and Hong Kong, increasing its total ownership
from 51% to 64%.
The aggregate purchase price for these acquisitions totaled approximately
$10,530,000, including costs of acquisitions and have been accounted for using
the purchase method. The Company has funded $8,400,000 of these acquisitions
through borrowings under the Credit Agreement (See Note C). The Company acquired
$1,246,000 in cash from these acquisitions resulting in net cash paid
year-to-date of approximately $9,284,000, including costs of acquisitions.
On a year-to-date basis, the Company paid approximately $2,388,000 in earnout
payments related to acquisitions made in prior years.
Effective April 1, 1999, the Company acquired a 20% equity interest in Way
Station, Inc., a leading career transition consulting firm in Japan, with
offices in eight cities throughout Japan. The purchase price of this interest
approximated $1,680,000, which was paid in cash, and has been accounted for
using the equity method. At September 30, 1999 the total equity investment in
Way Station was $1,950,000, including the excess of the cost of the investment
over the underlying equity acquired, which excess amount will be amortized over
a period of 15 years. There were no intercompany transactions made with Way
Station during the second or third quarters in 1999. The equity in earnings of
Way Station was recorded net of tax, and is reflected in the accompanying
Condensed Consolidated Statements of Income.
The unaudited pro-forma results of operations for each of the two periods ended
September 30, 1998 and 1999, reflecting the combined results of the Company and
the acquisitions detailed above as if the acquisitions had occurred at January
1, 1998 and 1999, excluding the additional interest in Davidson and Associates,
acquired effective September 30, 1999, are presented as follows:
6
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE B - ACQUISITIONS AND INVESTMENTS (Continued)
(Dollars in Thousands)
1999 1998
Revenues $137,868 $129,912
======== ========
Income before income taxes $ 10,312 $ 8,838
======== ========
Net Income $ 6,117 $ 4,926
======== ========
Diluted earnings per share $ 0.91 $ 0.73
======== ========
NOTE C - DEBT AND OTHER OBLIGATIONS
As of September 30, 1999, total borrowings under the Company's Credit Agreement
amounted to $18,142,000. This includes the $8,400,000 floating rate borrowing
for certain acquisitions made during 1999 (See Note B). Subsequent to September
30, 1999, the Company borrowed $6,500,000 for the purchase of shares of its
Common Stock (See Note F). The Company pays a floating interest rate on this
borrowing which approximated 6.27% at October 31, 1999.
As of September 30, 1999, the Company had entered into five fixed interest rate
swap agreements ("Swap Agreements") with an aggregate notional principal of
$9,742,000 with scheduled quarterly reductions of notional principal over three
to five years. The fixed interest rates under these Swap Agreements range from
6.06% to 6.27% at September 30, 1999. Subsequent to September 30, 1999, the
Company entered into another interest rate swap agreement for the total
$8,400,000 floating rate borrowing with a four-year maturity and a 6.35% fixed
rate. The purpose of these Swap Agreements is to fix interest rates on variable
rate debt and reduce exposure to interest rate fluctuations. Under these Swap
Agreements, the Company pays its lenders interest at a weighted average fixed
rate of 6.58% and its lenders are paying the Company interest at a weighted
average variable rate of 6.09% at September 30, 1999. The notional amounts do
not represent amounts exchanged by the parties and thus are not a measure of
exposure of the Company. The amounts exchanged are normally based on the
notional amounts and other terms of the swaps. The weighted average variable
rates are subject to change over time as LIBOR fluctuates.
At September 30, 1999, the Company has no exposure to credit loss on these
interest rate swaps. The Company is not a party to leveraged derivatives and
does not hold or issue financial instruments for speculative purposes. The
Company has made adjustments to interest expense for the net cash paid or
received on interest rate swap agreements. 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 D - EARNINGS PER SHARE
The Company utilizes SFAS No. 128, "Earnings per Share" to calculate its
earnings per share ("EPS"). The calculation of EPS under SFAS No. 128 for
September 30, 1999 and 1998 are detailed below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
For the three months For the nine months
ended September 30, 1999 ended September 30, 1999
------------------------ ------------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic EPS:
Net income $1,807,000 6,535,000 $0.28 $6,375,000 6,628,000 $0.96
===== =====
Impact of options --- 48,000 --- 81,000
---------- --------- ---------- ---------
Diluted EPS:
Net income $1,807,000 6,583,000 $0.27 $6,375,000 6,709,000 $0.95
========== ========= ===== ========== ========= =====
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
========== ========= ===== ========== ========= =====
</TABLE>
For the three months ended September 30, 1999, outstanding options to purchase
1,049,650 shares of Company Common Stock at prices ranging from $14.00 to $24.33
per share were excluded from the computation of diluted EPS, as the options'
exercise price was greater than the average market price of the Common Stock.
For the nine months ended September 30, 1999, outstanding options to purchase
471,012 shares of Company Common Stock at prices ranging from $15.44 to $24.33
per share were excluded from the computation of diluted EPS, as the options'
exercise price was greater than the average market price of the Common Stock.
NOTE E - SEGMENTS
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," was issued effective for fiscal years ending after
December 15, 1998. SFAS No. 131 establishes standards for reporting information
about operating segments and related disclosures about products and services,
geographic areas, and major customers. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
8
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE E - SEGMENTS (Continued)
The Company's operations are segregated into two lines of business: career
transition and human resources and career management consulting ("consulting").
The Company operates these lines of business across the geographic segments of
the United States, Canada, Europe and Asia- Pacific. These operations offer
different services and require different marketing strategies. Career transition
offers support for organizations separating employees, including assistance in
handling the initial difficulties of termination, identifying continuing career
goals and options, and aiding in developing skills for the search for a new job.
Consulting offers organizational and individual assessment, change management
and transformation planning, leadership development and executive coaching,
cultural integration in mergers and acquisitions, career development, and
workforce redeployment and retention. With more than 200 service locations
worldwide, the Company manages operations by geographic segments to enhance
global growth and establish major accounts with global clients. The Company
primarily delivers its services to mid-size and large industrial and service
companies, with no concentration in specific companies or industries.
Summarized operations of each of the Company's geographic segments in the
aggregate as of September 30, 1999 and 1998 and for the three and nine month
periods then ended are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
(Dollars in Thousands)
1999 United States Canada Europe Asia-Pacific Consolidated
------------- -------- -------- ------------ ------------
Identifiable assets $ 82,246 $ 9,700 $ 17,890 $ 5,816 $ 115,652
======== ======= ======== ======= =========
1998
Identifiable assets 80,656 6,350 8,343 4,969 100,318
======== ======= ======== ======= =========
For the three months ended
September 30, 1999
Revenue 31,607 2,640 4,617 3,584 42,448
======== ======= ======== ======= =========
Operating income (1) 2,430 679 (65) 24 3,068
======== ======= ======== ======= =========
Depreciation and amortization 2,490 68 109 188 2,855
======== ======= ======== ======= =========
Capital expenditures 1,887 29 158 115 2,189
======== ======= ======== ======= =========
<FN>
(1) The operating income reported for the United States segment includes total
general sales and administration and depreciation and amortization expenses
("G & A expenses"), reported on the Condensed Consolidated Statements of
Income.
</FN>
</TABLE>
9
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NOTE E - SEGMENTS (Continued)
(Dollars in Thousands)
United States Canada Europe Asia-Pacific Consolidated
------------- -------- -------- ------------ ------------
For the three months ended
September 30, 1998
Revenue $ 31,288 $ 2,144 $ 3,748 $ 3,754 $ 40,934
======== ======== ======== ======== ========
Operating income (1) 1,455 163 444 790 2,852
======== ======== ======== ======== ========
Depreciation and amortization 1,639 126 141 157 2,063
======== ======== ======== ======== ========
Capital expenditures 1,044 40 (46) 273 1,311
======== ======== ======== ======== ========
For the nine months ended
September 30, 1999
Revenue 100,519 7,484 15,450 10,585 134,038
======== ======== ======== ======== ========
Operating income (1) 8,162 1,409 1,122 620 11,313
======== ======== ======== ======== ========
Depreciation and amortization 6,531 209 332 517 7,589
======== ======== ======== ======== ========
Capital expenditures 5,652 136 293 776 6,857
======== ======== ======== ======== ========
For the nine months ended
September 30, 1998
Revenue 91,811 7,280 10,768 10,153 120,012
======== ======== ======== ======== ========
Operating income (1) 5,225 976 1,520 1,246 8,967
======== ======== ======== ======== ========
Depreciation and amortization 4,644 390 376 463 5,873
======== ======== ======== ======== ========
Capital expenditures 3,674 183 107 625 4,589
======== ======== ======== ======== ========
<FN>
(1) The operating income reported for the United States segment includes total
G & A expenses reported on the Condensed Consolidated Statements of Income.
</FN>
</TABLE>
Revenues and expenses of the Company's lines of business for the Company
offices, excluding the total general sales and administration and depreciation
and amortization expenses ("G & A expenses"), and Affiliate royalties, are
evaluated by management. The Company does not measure assets by lines of
business as assets are generally not distinctive to a particular line of
business and they are not fundamental in assessing segment performance. Revenue
and Company office operating income for each of the Company's lines of business
in the aggregate for the three and nine months ended September 30, 1999 and 1998
are as follows:
10
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE E - SEGMENTS (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
For the three months For the nine months
ended September 30, ended September 30,
Career Career
Transition Consulting Consolidated Transition Consulting Consolidated
1999
Company office
revenue $ 34,801 $ 6,517 $ 41,318 $111,221 $ 19,453 $130,674
======== ======== ======== ======== ======== ========
Company office
operating income $ 6,104 $ 493 $ 6,597 $ 21,355 $ 1,243 $ 22,598
======== ======== ======== ======== ======== ========
1998
Company office
revenue $ 34,117 $ 5,778 $ 39,895 $ 98,115 $ 18,815 $116,930
======== ======== ======== ======== ======== ========
Company office
operating income $ 5,535 $ 364 $ 5,899 $ 16,246 $ 3,020 $ 19,266
======== ======== ======== ======== ======== ========
</TABLE>
NOTE F - SHAREHOLDERS' EQUITY
In March 1997, the Board of Directors (the "Board") approved a stock repurchase
program under which the Company was authorized to repurchase up to 10% of its
then outstanding Common Stock, or 658,628 shares. Shares repurchased are held as
treasury shares and are available to the Company for any use in various benefit
plans and, when authorized by the Board, for other general corporate purposes.
The Board authorized Company management to pursue the repurchase program in open
market transactions from time-to-time, depending upon market conditions and
other factors. In September 1999, the Board expanded the stock repurchase
program, authorizing the Company to repurchase an additional 10% of its then
outstanding Common Stock, or 642,990 shares.
During 1998 and 1997, the Company repurchased a total of 295,000 shares of
Common Stock at an aggregate purchase price of approximately $3,428,000, or
$11.62 per share.
During the nine months ended September 30, 1999, the Company repurchased 363,000
shares of Common Stock at an aggregate purchase price of approximately
$5,243,000, or $14.44 per share.
During October 1999, the Company repurchased 583,600 shares of Common Stock at
an aggregate purchase price of approximately $6,905,000, or $11.83 per share.
The Company borrowed $6,500,000 to fund the share repurchase (See Note C).
As of October 1999, the Company has repurchased a total of 1,241,600 shares of
Common Stock at an aggregate purchase price of approximately $15,576,000, or
$12.55 per share, under this stock repurchase program.
11
<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, 1999, revenue generated by Company
offices increased by 4% or $1,423,000 from the corresponding quarter in 1998.
This increase is due to $2,256,000 in incremental revenues from acquisitions
detailed in Note B to the Condensed Consolidated Financial Statements, partly
offset by a same office revenue decrease of approximately 2% or $833,000. The
same office revenue decrease was primarily due to a decline in the consulting
line of business.
For the three months ended September 30, 1999, revenue generated by Company
offices within the career transition line of business increased by 2% or
$684,000. This career transition revenue increase is due to $868,000 in
incremental revenues from acquisitions, partly offset by a same office revenue
decrease of approximately 1% or $184,000.
For the three months ended September 30, 1999, revenue generated by Company
offices within the consulting line of business increased by 13% or $739,000.
This increase in consulting revenues is due to $1,388,000 in incremental
revenues from acquisitions, offset by a same office revenue decrease of 11% or
$649,000.
For the nine months ended September 30, 1999, revenue generated by Company
offices increased by 12% or $13,744,000 from the corresponding period in 1998.
This increase is due to overall same office revenue growth of 6%, primarily
within the career transition line of business in addition to $6,703,000 in
incremental revenues from acquisitions consummated subsequent to the third
quarter 1998.
For both the three and nine months ended September 30, 1999, Affiliate royalties
increased 9% from the corresponding periods in 1998.
For the three months ended September 30, 1999, total Company office expenses
increased 2% or $725,000 over the corresponding quarter in 1998. This increase
is due to $2,205,000 in incremental costs from acquisitions consummated
subsequent to the third quarter 1998, offset by a decrease in salaries for
delivery personnel, foreign correspondents and career center staff, as well as a
decrease in office level incentive compensation expense.
For the nine months ended September 30, 1999, total Company office expenses
increased 11% or $10,412,000 from the corresponding period in 1998. This
increase is due to $6,226,000 in incremental costs from acquisitions consummated
subsequent to the third quarter 1998, as well as an increase in depreciation.
Aggregate Company office margins were 16% and 15% for the third quarter 1999 and
1998, respectively. This increase in margin is attributable to the previously
mentioned increase in Company office revenue, in addition to a decrease in same
office costs and incentive compensation expense.
12
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CONTINUED
Year-to-date aggregate Company office margins were 17% and 16% for 1999 and
1998, respectively. The increase in margin is attributable primarily to the
previously mentioned revenue growth.
For the three months ended September 30, 1999, G & A expenses increased by 14%
or $573,000 from the third quarter 1998. This increase is due primarily to an
increase in charges for amortization and depreciation. General sales and
administrative expenses as a percentage of total revenues were approximately 11%
for the third quarter 1999 versus 10% for the third quarter 1998.
For the nine months ended September 30, 1999, G & A expenses increased 9% or
$1,268,000 from the corresponding period in 1998. This increase is due to
increased charges for foreign currency translation expense, amortization and
depreciation, and incentives. G & A expenses as a percentage of total revenues
were approximately 11% for year-to-date 1999 and 1998.
The Company's effective tax rates for the three and nine-month periods ended
September 30, 1999 and 1998 ranged between approximately 42.5% and 43.0%.
Capital Resources and Liquidity
At September 30, 1999 and December 31, 1998, the Company had cash and cash
equivalents of $9,567,000 and $20,800,000, respectively. At September 30, 1999
and December 31, 1998, the Company had working capital of $10,287,000 and
$15,281,000, respectively.
Net cash provided by operating activities amounted to $8,079,000 and $10,761,000
for the nine months ended September 30, 1999 and 1998, respectively. The
reduction in cash is the result of incremental incentive compensation payments
made in the first quarter 1999 due to the Company exceeding revenue and
operating income targets in 1998, as compared to the same period in the prior
year.
Net cash utilized for investing activities amounted to $20,209,000 and
$10,769,000 for the nine months ended September 30, 1999 and 1998, respectively.
During the first nine months of 1999, the Company acquired three career
transition firms, three consulting firms, a 20% equity interest in a Japanese
firm, and an additional interest in Davidson and Associates for a combination of
cash and future defined contingent payments (See Note B to the Condensed
Consolidated Financial Statements). Additionally, the Company continues to
purchase equipment and technology to meet the needs of its expanding operations
and to enhance its operating efficiency.
13
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CONTINUED
Net cash provided by financing activities amounted to $897,000 and $653,000 for
the nine months ended September 30, 1999 and 1998, respectively. The net cash
inflow for 1999 was primarily the result of the $8,400,000 borrowing made to
complete certain acquisitions during 1999 (See Note B to the Condensed
Consolidated Financial Statements), partly offset by repayments on the Company's
borrowings and the repurchase of Common Stock.
Under its revolving credit facility, the Company has a $40,000,000 borrowing
capacity. The Company had approximately $16,050,000 available under the
revolving credit facility at October 31, 1999. 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.
Year 2000
During 1998, the Company completed its evaluation of the potential impact of the
year 2000 and developed a project plan (the "Y2K Plan") to ensure the compliance
of its major operating systems by the year 2000. As a service company, the
Company's operating systems principally include financial and communication
applications. As part of its Y2K Plan, the Company has developed a replacement
billing system which began operating in April 1999. The Y2K Plan also details
the timetable to upgrade or replace non-compliant systems as well as to confirm
year 2000 compliance with the Company's key vendors. At this time, the Company
is progressing in accordance with its anticipated timetable with respect to all
aspects of the Y2K Plan and believes that the potential risks to its business
operations are not material. As of July 1999, the Company has successfully
tested all of its critical systems for year 2000 compliance. The Company
estimates that the total capital expenditures to be incurred under the Y2K Plan
will be approximately $1,500,000 in 1999, of which approximately $800,000 is
attributable to systems upgrades or replacements that the Company normally would
undertake in its ongoing operations. Capitalized items will be depreciated over
the useful life of the asset. Non-capitalizable costs related to year 2000
issues are estimated to be $300,000, which will be expensed as incurred. The
Company does not expect these costs to have a material impact on its operations
or financial condition.
14
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CONTINUED
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, 1998 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.
The Company believes that its interest risk associated with the Swap Agreements
(See Note C to the Condensed Consolidated Financial Statements) would have an
immaterial impact on the financial position, the results of operations and
cashflow of the Company. Furthermore, the Company has international operations
and does not anticipate any material currency risk to its business or financial
condition resulting from currency fluctuations.
15
<PAGE>
PART II - OTHER INFORMATION
Items 1, 2, 3, 4 and 5 were not applicable in the nine months ended September
30, 1999.
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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RIGHT MANAGEMENT CONSULTANTS, INC.
BY:/S/ RICHARD J. PINOLA November 15, 1999
------------------------ -----------------
Richard J. Pinola Date
Chairman of the Board and Chief Executive Officer
BY:/S/ CHARLES J. MALLON November 15, 1999
------------------------ -----------------
Charles J. Mallon Date
Chief Financial Officer and
Principal Accounting Officer
16
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