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 June 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 July 31, 1999:
Common Stock, $0.01 par value 6,593,404
----------------------------- --------------------
Class Number of Shares
<PAGE>
Right Management Consultants, Inc.
Condensed Consolidated Balance Sheets
(Dollars in Thousands Except Share Data)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 10,952 $ 20,800
Accounts receivable, trade, net of allowance for doubtful accounts
of $1,236 and $1,066 in 1999 and 1998, respectively 29,963 33,271
Royalties and fees receivable from Affiliates 2,655 3,809
Other current assets 4,333 3,004
--------- ---------
Total current assets 47,903 60,884
Property and equipment, net of accumulated depreciation of $25,174
and $22,086 in 1999 and 1998, respectively 17,660 15,983
Intangible assets, net of accumulated amortization of $9,489 and
$8,114 in 1999 and 1998, respectively 38,625 33,947
Equity investment 1,820 --
Other noncurrent assets 3,917 3,781
--------- ---------
Total Assets $ 109,925 $ 114,595
========= =========
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt and other obligations $ 4,867 $ 5,124
Accounts and commissions payable 8,035 10,086
Accrued incentive compensation and benefits 6,889 15,490
Other accrued expenses 6,569 8,191
Deferred income 7,223 6,712
--------- ---------
Total current liabilities 33,583 45,603
--------- ---------
Long-term debt and other obligations 12,309 9,065
--------- ---------
Deferred compensation 1,946 1,785
--------- ---------
Minority interest in subsidiaries 1,482 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;
7,299,446 and 7,255,765 shares issued in 1999 and 1998, respectively 72 72
Additional paid-in capital 17,290 16,448
Retained earnings 49,538 44,970
Accumulated other comprehensive income (668) (727)
--------- ---------
66,232 60,763
Less treasury stock, at cost, 662,952 and 547,952 shares (5,627) (3,945)
in 1999 and 1998, respectively --------- ---------
Total shareholders' equity 60,605 56,818
--------- ---------
Total Liabilities and Shareholders' Equity $ 109,925 $ 114,595
========= =========
</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)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1999 1998
---- ----
<S> <C> <C>
Revenue:
Company office revenue $40,709 $39,802
Affiliate royalties 942 1,003
------- -------
Total revenue 41,651 40,805
------- -------
Expenses:
Consultants' compensation 16,430 16,304
Office sales and consulting support 2,829 2,384
Office depreciation 1,266 965
Office administration 13,351 12,865
General sales and administration 2,871 4,038
Depreciation and amortization 1,186 979
------- -------
Total expenses 37,933 37,535
------- -------
Income from operations 3,718 3,270
Net interest expense 150 157
------- -------
Income before income taxes 3,568 3,113
Provision for income taxes 1,517 1,318
Minority interest in net income of subsidiary 104 119
Equity in earnings of minority-owned subsidiary 140 --
------- -------
Net income $ 2,087 $ 1,676
======= =======
Basic earnings per share $ 0.31 $ 0.25
======= =======
Diluted earnings per share $ 0.31 $ 0.25
======= =======
Basic weighted average number of shares outstanding 6,641 6,698
======= =======
Diluted weighted average number of shares outstanding 6,757 6,793
======= =======
</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>
Six Months Ended June 30,
-------------------------
1999 1998
---- ----
<S> <C> <C>
Revenue:
Company office revenue $89,356 $77,034
Affiliate royalties 2,234 2,043
------- -------
Total revenue 91,590 79,077
------- -------
Expenses:
Consultants' compensation 36,114 32,100
Office sales and consulting support 6,451 4,673
Office depreciation 2,426 1,891
Office administration 28,362 25,002
General sales and administration 7,685 7,376
Depreciation and amortization 2,308 1,919
------- -------
Total expenses 83,346 72,961
------- -------
Income from operations 8,244 6,116
Net interest expense 195 394
------- -------
Income before income taxes 8,049 5,722
Provision for income taxes 3,463 2,434
Minority interest in net income of subsidiary 158 149
Equity in earnings of minority-owned subsidiary 140 --
------- -------
Net income $ 4,568 $ 3,139
======= =======
Basic earnings per share $ 0.68 $ 0.47
======= =======
Diluted earnings per share $ 0.67 $ 0.46
======= =======
Basic weighted average number of shares outstanding 6,676 6,696
======= =======
Diluted weighted average number of shares outstanding 6,782 6,784
======= =======
</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>
Six Months Ended June 30,
-------------------------
1999 1998
---- ----
<S> <C> <C>
Operating Activities:
Net income $ 4,568 $ 3,139
Adjustments to reconcile net income to net cash
provided by (utilized for) operating activities:
Depreciation and amortization 4,734 3,810
Deferred income taxes (268) 423
Provision for doubtful accounts 265 240
Minority interest in net income of subsidiary 158 149
Equity in earnings of minority-owned subsidiary (140) --
Other non-cash items 377 360
Changes in operating accounts:
(Increase) decrease in operating assets 5,081 (9,065)
Increase (decrease) in operating liabilities (13,933) 8,080
-------- --------
Net cash provided by operating activities 842 7,136
-------- --------
Investing Activities:
Purchase of property and equipment (4,668) (3,278)
Equity investment (1,680) --
Net cash paid for acquisitions and earnouts (6,370) (6,180)
-------- --------
Net cash utilized for investing activities (12,718) (9,458)
-------- --------
Financing Activities:
Borrowings 5,529 5,900
Payment of long-term debt and other obligations (2,661) (2,575)
Tax benefit from the exercise of stock options 66 --
Repurchase of Common Stock (1,682) --
Proceeds from stock issuances 776 284
-------- --------
Net cash provided by financing activities 2,028 3,609
-------- --------
Increase (decrease) in cash and cash equivalents (9,848) 1,287
Cash and cash equivalents, beginning of period 20,800 7,583
-------- --------
Cash and cash equivalents, end of period $ 10,952 $ 8,870
======== ========
Supplemental Disclosures of Cash Flow Information
Cash paid for:
Interest $ 599 $ 523
======== ========
Income taxes $ 4,033 $ 1,258
======== ========
</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 six months ended June
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 June 30, 1999
and 1998 was $2,187,000 and $1,431,000, respectively. Total comprehensive income
for the six months ended June 30, 1999 and 1998 was $4,627,000 and $2,981,000,
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. The aggregate purchase price for these acquisitions totaled
approximately $5,337,000, including costs of acquisitions and have been
accounted for using the purchase method. The Company has funded $5,100,000 of
these acquisitions through borrowings under the Credit Agreement. The Company
acquired $1,000,000 in cash from these acquisitions resulting in net cash paid
year-to-date of approximately $4,085,000, including costs of acquisitions.
The Company also paid year-to-date approximately $2,192,000 in earnout payments
related to prior acquisitions.
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 Tokyo, Nagoya, Osaka and Fukuoka. The purchase price of this interest
approximated $1,680,000, which was paid in cash, and will be accounted for using
the equity method. At June 30, 1999 the total equity investment in Way Station
was $1,820,000, including the excess of the cost of the investment over the
underlying equity acquired, which will be amortized over a period of 15 years.
There were no intercompany transactions made with Way Station during the second
quarter 1999. The equity in earnings of Way Station was recorded net of tax, as
reflected in the accompanying Condensed Consolidated Statements of Income.
The pro-forma impact of these acquisitions on results of operations, as if any
one of the acquisitions had been consummated at the beginning of each period
presented, is immaterial to the consolidated financial statements as a whole,
and has been omitted.
NOTE C - DEBT AND OTHER OBLIGATIONS
As of June 30, 1999, total borrowings under the Company's Credit Agreement
amounted to $16,100,000, including the $5,100,000 floating rate borrowing for
the three recent European acquisitions (See Note B).
As of June 30, 1999, the Company has entered into five fixed interest rate swap
agreements ("Swap Agreements") with an aggregate notional principal of
$11,000,000 with scheduled quarterly reductions of notional principal over three
to five years. The fixed interest rates under these Swap Agreements range from
5.79% to 7.08% at June 30, 1999. 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 6.59% and its lenders are paying the Company
interest at a weighted average variable rate of 5.77% at June 30, 1999. The
6
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE C - DEBT AND OTHER OBLIGATIONS (Continued)
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 June 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.
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 June
30, 1999 and 1998 are detailed below.
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, 1999 ended June 30, 1999
------------------- -------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income $2,087,000 6,641,000 $ 0.31 $4,568,000 6,676,000 $ 0.68
======== ========
Impact of options --- 116,000 --- 106,000
---------- ---------- ---------- ----------
Diluted EPS:
Net income $2,087,000 6,757,000 $ 0.31 $4,568,000 6,782,000 $ 0.67
========== ========== ======== ========== ========== ========
For the three months For the six months
ended June 30, 1998 ended June 30, 1998
------------------- -------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic EPS:
Net income $1,676,000 6,698,000 $ 0.25 $3,139,000 6,696,000 $ 0.47
======== ========
Impact of options --- 95,000 --- 88,000
---------- ---------- ---------- ----------
Diluted EPS:
Net income $1,676,000 6,793,000 $ 0.25 $3,139,000 6,784,000 $ 0.46
========== ========== ======== ========== ========== ========
</TABLE>
For the three months and six months ended June 30, 1999, outstanding options to
purchase 281,188 shares of Company Common Stock at prices ranging from $16.75 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.
7
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
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 organizational realignment and redeployment, 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, interventions in change management, leadership and executive
development, transformation planning, cultural integration in mergers and
acquisitions, career development, and restructuring planning. With more than 170
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 June 30, 1999 and 1998 and for the three month and six month
periods then ended are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
1999 United States Canada Europe Asia-Pacific Consolidated
- ---- ------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Identifiable assets $ 80,165 $ 7,049 $ 16,446 $ 6,265 $109,925
======== ======== ======== ======== ========
1998
- ----
Identifiable assets 77,613 6,365 7,697 5,354 97,029
======== ======== ======== ======== ========
For the three months ended
June 30, 1999
- --------------------------
Revenue 30,750 2,253 5,108 3,540 41,651
======== ======== ======== ======== ========
Operating income (1) 2,330 462 552 374 3,718
======== ======== ======== ======== ========
Depreciation and amortization 2,083 67 122 180 2,452
======== ======== ======== ======== ========
Capital expenditures 1,491 40 57 168 1,756
======== ======== ======== ======== ========
<FN>
(1) The operating income reported for the United States segment includes total
general sales and administration expense reported on the Condensed
Consolidated Statements of Income.
</FN>
</TABLE>
8
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE E - SEGMENTS (Continued)
<TABLE>
<CAPTION>
(Dollars in Thousands)
United States Canada Europe Asia-Pacific Consolidated
------------- ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
For the three months ended
June 30, 1998
- -------------
Revenue $31,439 $ 2,441 $ 3,655 $ 3,270 $40,805
======= ======= ======= ======= =======
Operating income (1) 2,032 403 479 356 3,270
======= ======= ======= ======= =======
Depreciation and amortization 1,535 136 123 150 1,944
======= ======= ======= ======= =======
Capital expenditures 1,287 21 4 224 1,536
======= ======= ======= ======= =======
For the six months ended
June 30, 1999
- -------------
Revenue 68,912 4,845 10,833 7,000 91,590
======= ======= ======= ======= =======
Operating income (1) 5,731 730 1,187 596 8,244
======= ======= ======= ======= =======
Depreciation and amortization 4,041 141 223 329 4,734
======= ======= ======= ======= =======
Capital expenditures 3,765 107 135 661 4,668
======= ======= ======= ======= =======
For the six months ended
June 30, 1998
- -------------
Revenue 60,522 5,136 7,020 6,399 79,077
======= ======= ======= ======= =======
Operating income (1) 3,771 813 1,076 456 6,116
======= ======= ======= ======= =======
Depreciation and amortization 3,005 264 235 306 3,810
======= ======= ======= ======= =======
Capital expenditures 2,630 143 153 352 3,278
======= ======= ======= ======= =======
<FN>
(1) The operating income reported for the United States segment includes total
general sales and administration expense 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 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.
9
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE E - SEGMENTS (Continued)
Revenue and Company office operating income for each of the Company's lines of
business in the aggregate for the three months and six months ended June 30,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
--------------------- ------------------
Career Career
Transition Consulting Consolidated Transition Consulting Consolidated
---------- ---------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
1999
- ----
Company office
revenue $34,708 $ 6,001 $ 40,709 $76,420 $12,936 $89,356
======= ======= ======== ======= ======= =======
Company office
operating income $ 6,562 $ 271 $ 6,833 $15,253 $ 750 $16,003
======= ======= ======== ======= ======= =======
1998
- ----
Company office
revenue $32,225 $ 7,577 $ 39,802 $63,997 $13,037 $77,034
======= ======= ======== ======= ======= =======
Company office
operating income $ 5,427 $ 1,857 $ 7,284 $10,711 $ 2,657 $13,368
======= ======= ======== ======= ======= =======
</TABLE>
NOTE F - 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 1998 and 1997, the Company repurchased 167,500 and 127,500 shares of
Common Stock at an aggregate purchase price of approximately $2,049,000 and
$1,379,000, respectively.
For the six months ended June 30, 1999, the Company repurchased 115,000 shares
of Common Stock at an aggregate purchase price of $1,682,000, or $14.63 per
share.
During July 1999 and in early August 1999, the Company repurchased 85,500 shares
of Common Stock at an aggregate purchase price of approximately $1,264,000, or
$14.78 per share.
As of early August 1999, the Company has repurchased a total of 495,500 shares
of Common Stock at an aggregate purchase price of approximately $6,374,000, or
$12.86 per share, under this stock repurchase program.
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 June 30, 1999, revenue generated by Company offices
increased by 2% or $907,000 from the corresponding quarter in 1998. This
increase is due to $1,818,000 in incremental revenues from the three European
acquisitions detailed in Note B to the Condensed Consolidated Financial
Statements, partly offset by a same office revenue decrease of approximately 2%
or $911,000. The same office revenue decrease was primarily due to a decline in
the consulting line of business.
For the three months ended June 30, 1999, revenue generated by Company offices
within the outplacement line of business increased by 8% or $2,483,000. This
outplacement revenue increase is due to same office revenue growth of
approximately 6% or $1,996,000, primarily attributed to increased activity from
its new and existing major international and national accounts across all
industries under a stabilized pricing environment.
For the three months ended June 30, 1999, revenue generated by Company offices
within the consulting line of business decreased by 21% or $1,576,000. This
decrease in consulting revenues is due primarily to a same office revenue
decrease of 38% or $ $2,907,000, partly offset by $1,331,000 in incremental
revenues from consulting acquisitions consummated subsequent to the second
quarter 1998.
For the six months ended June 30, 1999, revenue generated by Company offices
increased by 16% or $12,322,000 from the corresponding period in 1998. This
increase is due to overall same office revenue growth of 10%, primarily within
the outplacement line of business in addition to $4,447,000 in incremental
revenues from acquisitions consummated subsequent to the second quarter 1998.
For the three months ended June 30, 1999, Affiliate royalties decreased 6% or
$61,000 from the corresponding quarter in 1998. For the six months ended June
30, 1999, Affiliate royalties increased 9% or $191,000 from the corresponding
period in 1998.
For the three months ended June 30, 1999, total Company office expenses
increased 4% or $1,358,000 over the corresponding quarter in 1998. This increase
is due to $1,417,000 in incremental costs from acquisitions consummated
subsequent to the second quarter 1998. Additionally, there was an increase in
office adjunct costs and depreciation expense, partly offset by a decrease in
field incentive compensation expense as a result of a reduction in incentive
accruals based on second quarter performance.
For the six months ended June 30, 1999, total Company office expenses increased
15% or $9,687,000 from the corresponding period in 1998. This increase is due to
$4,021,000 in incremental costs from acquisitions consummated subsequent to the
second quarter 1998, as well as an increase in office level employee incentives,
payroll taxes and career center costs.
11
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CONTINUED
Aggregate Company office margins were 17% and 18% for the second quarter 1999
and 1998, respectively. This decrease in margin is primarily attributable to the
previously mentioned decrease in same office revenue for the consulting line of
business, offset by the corresponding decrease in provision for incentive
compensation expense.
Year-to-date aggregate Company office margins were 18% and 17% for 1999 and
1998, respectively. The increase in margin is attributable primarily to the
previously mentioned revenue growth, particularly in the outplacement line of
business, and to improved results in the Asia-Pacific segment over the same
period last year, all of which were partly offset by increased funding for
office level incentives.
For the three months ended June 30, 1999, general sales and administration
expenses decreased by 19% or $960,000 from the second quarter 1998. This
decrease is due primarily to a reduction in Corporate incentive compensation
expense, offset by increased charges for depreciation and conventions and
meetings. General sales and administrative expenses as a percentage of total
revenues were approximately 10% for the second quarter 1999 versus 12% for the
second quarter 1998.
For the six months ended June 30, 1999, general sales and administration
expenses increased 8% or $698,000 from the corresponding period in 1998. This
increase is due to increased charges for foreign currency translation expense,
depreciation, travel, and salaries. General sales and administrative expenses as
a percentage of total revenues were approximately 11% for year-to-date 1999 and
12% for year-to-date 1998.
The Company's effective tax rates for the three months ended June 30, 1999 and
1998 were approximately 42.5% and 42.3%, respectively. The Company's effective
tax rates for the six months ended June 30, 1999 and 1998 were approximately
43.0% and 42.5%, respectively.
Capital Resources and Liquidity
At June 30, 1999 and December 31, 1998, the Company had cash and cash
equivalents of $10,952,000 and $20,800,000, respectively. At June 30, 1999 and
December 31, 1998, the Company had working capital of $14,320,000 and
$15,281,000, respectively.
Net cash provided by operating activities amounted to $842,000 and $7,136,000
for the six months ended June 30, 1999 and 1998, respectively. The change in
cash is the result of incremental incentive compensation payments made in the
first quarter 1999 for 1998 revenue and operating income performance above
targets, as compared to the same period in the prior year.
12
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CONTINUED
Net cash utilized for investing activities amounted to $12,718,000 and
$9,458,000 for the six months ended June 30, 1999 and 1998, respectively. During
the first six months of 1999, the Company acquired two European consulting
firms, one European career transition firm and a 20% equity interest in a
Japanese firm 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.
Net cash provided by financing activities amounted to $2,028,000 and $3,609,000
for the six months ended June 30, 1999 and 1998, respectively. The net cash
inflow for 1999 was primarily the result of the $5,100,000 borrowing made to
complete the three European acquisitions (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 with its two primary lenders, the Company
has a $40,000,000 borrowing capacity. The Company had approximately $23,900,000
available under the revolving credit facility at June 30, 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, operational and
communication applications. As part of its year 2000 project plan, the Company
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
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 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 in the range of $1,400,000 to $1,600,000
during 1999, of which approximately $800,000 is
13
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CONTINUED
attributable to normal costs for 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 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, 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.
14
<PAGE>
PART II - OTHER INFORMATION
Items 1, 2, 3 and 5 were not applicable in the six months ended June 30, 1999.
Item 4. Submission of Matters to a Vote of Security Holders
The 1999 Annual Meeting of Shareholders of the Company was held on May 6, 1999.
At this meeting, the shareholders voted on the following four items: 1. The
election of eleven directors to hold office until the annual meeting of
shareholders in 2000 and until their respective successors are duly elected and
qualified. 2. A proposal to amend the Company's 1993 Stock Incentive Plan to
increase the number of shares of common stock authorized to be issued under the
Plan and to extend the term of the Plan to December 31, 2003. 3. A proposal to
amend the Company's 1996 Employee Stock Purchase Plan to increase the number of
shares of common stock authorized to be issued under the Plan, to change the
persons eligible to purchase shares under the Plan and to extend the term of the
Plan to December 31, 2003. 4. A proposal to ratify the selection by the Board of
Directors of Arthur Andersen LLP as the Company's independent public accountants
for the current fiscal year.
Votes were cast for the election of directors as follows, each of whom continued
in office after the meeting:
Nominee Votes For Votes Withheld
- ------- --------- --------------
Frank P. Louchheim 5,339,950 522,326
Richard J. Pinola 5,339,248 523,028
Joseph T. Smith 5,334,846 527,430
John J. Gavin 5,334,134 528,142
Larry A. Evans 5,332,420 529,856
John R. Bourbeau 5,340,146 522,130
Raymond B. Langton 5,341,546 520,730
Rebecca J. Maddox 5,339,886 522,390
Catherine Y. Selleck 5,338,298 523,978
Marti D. Smye 5,204,673 657,603
Frederick R. Davidson 5,211,346 650,930
The amendment of the Company's 1993 Stock Incentive Plan was approved as
follows:
Votes For Votes Against Abstentions Broker Non-votes
- --------- ------------- ----------- ----------------
2,085,461 2,034,518 405,912 1,336,385
The amendment of the Company's 1996 Employee Stock Purchase Plan was approved as
follows:
Votes For Votes Against Abstentions Broker Non-votes
- --------- ------------- ----------- ----------------
4,245,648 251,187 29,056 1,336,385
15
<PAGE>
PART II - OTHER INFORMATION
CONTINUED
Item 4. Submission of Matters to a Vote of Security Holders (Continued)
The ratification of the selection by the Board of Directors of Arthur Andersen
LLP as the Company's independent public accountants for the current fiscal year
was approved as follows:
Votes For Votes Against Abstentions Broker Non-votes
- --------- ------------- ----------- ----------------
5,694,814 100,054 3,148 64,260
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 August 16, 1999
------------------------ ---------------
Richard J. Pinola Date
Chairman of the Board and
Chief Executive Officer
BY :/S/ G. LEE BOHS August 16, 1999
--------------------------------- ---------------
G. Lee Bohs Date
Chief Financial Officer and
Principal Accounting Officer
16
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