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, 2000
-----------------------------------
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 November 1, 2000:
Common Stock, $0.01 par value 6,248,429
----------------------------- ----------------------
Class Number of Shares
<PAGE>
Right Management Consultants, Inc.
Condensed Consolidated Balance Sheets
(Dollars in Thousands Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
Assets
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 7,200 $ 11,187
Accounts receivable, trade, net of allowance for doubtful accounts
of $1,571 and $1,467 in 2000 and 1999, respectively 33,746 34,042
Royalties and fees receivable from Affiliates 3,827 2,831
Other current assets 4,633 4,392
------------------------------------
Total current assets 49,406 52,452
Property and equipment, net of accumulated depreciation of $33,627
and $28,487 in 2000 and 1999, respectively 18,695 18,488
Intangible assets, net of accumulated amortization of $14,778 and
$11,524 in 2000 and 1999, respectively 64,166 43,730
Equity investment in joint venture 2,280 2,130
Other noncurrent assets 3,419 3,792
------------------------------------
Total Assets $ 137,966 $ 120,592
====================================
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt and other obligations $ 77 $ 6,008
Accounts and commissions payable 6,584 9,591
Accrued incentive compensation and benefits 4,848 12,341
Other accrued expenses 8,352 7,337
Deferred income 6,974 8,064
------------------------------------
Total current liabilities 26,835 43,341
------------------------------------
Long-term debt and other obligations 44,538 18,279
------------------------------------
Deferred compensation and retirement benefits 4,598 1,991
------------------------------------
Minority interest in subsidiary -- 999
------------------------------------
Commitments and Contingent Liabilities
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;
7,554,945 and 7,512,193 shares issued in 2000 and 1999, respectively 76 75
Additional paid-in capital 19,709 19,340
Retained earnings 59,145 53,598
Accumulated other comprehensive income (3,209) (938)
------------------------------------
75,721 72,075
Less treasury stock, at cost, 1,277,652 and 1,494,552 shares in
2000 and 1999, respectively (13,726) (16,093)
------------------------------------
Total shareholders' equity 61,995 55,982
------------------------------------
Total Liabilities and Shareholders' Equity $ 137,966 $ 120,592
====================================
</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 in Thousands Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
2000 1999
-------- --------
Revenue:
<S> <C> <C>
Company office revenue $ 41,629 $ 41,318
Affiliate royalties 922 1,130
--------- ---------
Total revenue 42,551 42,448
--------- ---------
Expenses:
Consultants' compensation 15,894 16,851
Office sales and consulting support 3,003 3,086
Office depreciation 1,603 1,304
Office administration 13,903 13,480
General sales and administration 3,026 3,108
Depreciation and amortization 1,724 1,551
--------- ---------
Total expenses 39,153 39,380
--------- ---------
Income from operations 3,398 3,068
Net interest expense 657 137
--------- ---------
Income before income taxes 2,741 2,931
Provision for income taxes 1,295 1,246
Minority interest in net income of subsidiary -- 8
Equity in earnings (losses) of
unconsolidated joint venture (47) 130
--------- ---------
Net income $ 1,399 $ 1,807
========= =========
Basic earnings per share $ 0.23 $ 0.28
========= =========
Diluted earnings per share $ 0.23 $ 0.27
========= =========
Basic weighted average number of shares outstanding 6,106,282 6,534,731
========= =========
Diluted weighted average number of shares outstanding 6,110,161 6,582,717
========= =========
</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 in Thousands Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
-------- --------
<S> <C> <C>
Revenue:
Company office revenue $130,729 $130,674
Affiliate royalties 3,047 3,364
--------- ---------
Total revenue 133,776 134,038
--------- ---------
Expenses:
Consultants' compensation 49,967 52,965
Office sales and consulting support 8,895 9,537
Office depreciation 4,440 3,730
Office administration 42,540 41,844
General sales and administration 11,072 10,790
Depreciation and amortization 4,985 3,859
--------- ---------
Total expenses 121,899 122,725
--------- ---------
Income from operations 11,877 11,313
Net interest expense 1,704 332
--------- ---------
Income before income taxes 10,173 10,981
Provision for income taxes 4,494 4,710
Minority interest in net income of subsidiary -- 166
Equity in earnings of unconsolidated joint venture 53 270
--------- ---------
Net income $ 5,732 $ 6,375
========= =========
Basic earnings per share $ 0.95 $ 0.96
========= =========
Diluted earnings per share $ 0.94 $ 0.95
========= =========
Basic weighted average number of shares outstanding 6,060,802 6,628,448
========= =========
Diluted weighted average number of shares outstanding 6,072,249 6,708,768
========= =========
</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>
Nine Months Ended September 30,
2000 1999
-------- -------
<S> <C> <C>
Operating Activities:
Net income $ 5,732 $ 6,375
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,425 7,589
Deferred income taxes (10) (268)
Minority interest in net income of subsidiary -- 216
Provision for doubtful accounts 483 385
Equity in earnings of unconsolidated joint venture (53) (270)
Other non-cash items (319) 355
Changes in operating accounts:
Decrease in operating assets 2,829 3,311
(Decrease) in operating liabilities (14,406) (9,614)
------------ ------------
Net cash provided by operating activities 3,681 8,079
------------ ------------
Investing Activities:
Purchase of property and equipment (5,825) (6,857)
Equity Investment -- (1,680)
Net cash paid for acquisitions and earnouts (21,542) (11,672)
Increase in cash surrender value of
company-owned life insurance (467) --
Capital contribution to joint venture (99) --
------------ ------------
Net cash utilized for investing activities (27,933) (20,209)
------------ ------------
Financing Activities:
Borrowings 23,923 8,834
Payment of long-term debt and other obligations (3,710) (3,938)
Tax benefit from the exercise of stock options -- 66
Repurchase of Common Stock (318) (5,243)
Proceeds from stock issuances 370 1,178
------------ ------------
Net cash provided by financing activities 20,265 897
------------ ------------
Decrease in cash and cash equivalents (3,987) (11,233)
Cash and cash equivalents, beginning of period 11,187 20,800
------------ ------------
Cash and cash equivalents, end of period $ 7,200 $ 9,567
============ ============
Supplemental Disclosures of Cash Flow Information
Cash paid for:
Interest $ 2,018 $ 895
============== ==============
Income taxes $ 5,427 $ 5,056
============== ==============
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
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, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. 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,
1999.
Principles of Consolidation
The consolidated financial statements include the accounts of Right Management
Consultants, Inc. (the "Company") and its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated in
consolidation. The Company's investment in a 20% minority-owned subsidiary, 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,
2000 and 1999 was $166,000 and $1,973,000, respectively. Total comprehensive
income for the nine months ended September 30, 2000 and 1999 was $3,461,000 and
$6,600,000, respectively.
New Accounting Pronouncement
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", was issued and is effective for fiscal years beginning after June
15, 2000. SFAS No. 133, as it applies to the Company, requires the impact of
fluctuations in interest rates on hedging instruments to be reported in other
comprehensive income. 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
5
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
value of the underlying exposures being hedged. The Company will adopt SFAS No.
133 effective January 1, 2001. Management believes that the adoption of SFAS No.
133 will not have a material impact on the Company's financial position or
results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 expresses the views of the SEC staff in applying
generally accepted accounting principles to revenue recognition for certain
transactions and is required to be adopted by the Company in the fourth quarter
of fiscal 2000. The Company will adopt SAB No. 101 effective December 31, 2000
and will record the cumulative effect of the change as of January 1, 2000. The
Company is in the process of completing a final analysis of the impact of SAB
No. 101 on its financial statements; however, management currently estimates
that the cumulative effect of the adoption of SAB No. 101 effective January 1,
2000 will result in additional deferred revenues ranging from $8,000,000 to
$9,500,000, net of tax. Management believes that the adoption of SAB No. 101
will not have a material impact on the Company's fiscal 2000 total revenue or
net income before the cumulative effect of the change in accounting.
NOTE B - ACQUISITIONS AND INVESTMENTS
Effective January 1, 2000, the Company acquired the remaining 36% minority
interest in its Austral-Asian joint venture, Davidson & Associates, and the
remaining 49% minority interest in its U.S. joint venture, TEAMS, Inc., located
in Tempe, Arizona. Also effective January 1, 2000, the Company acquired the
outstanding stock of Career Development Group, Inc., a career transition firm
based in Appleton, Wisconsin, for a combination of cash and future defined
contingent payments.
Effective April 1, 2000, the Company acquired certain assets of Career
Directions, Inc., a firm based in Chicago, Illinois, specializing in career and
talent management consulting services, for a combination of cash and future
defined contingent payments.
Effective August 1, 2000, the Company acquired the outstanding stock of Sinova
International Holding A/S ("Sinova"), an organizational consulting practice
based in Copenhagen, Denmark, and serving Denmark, Sweden and Norway, for a
combination of cash, Company stock, and future defined contingent payments.
Effective September 1, 2000, the Company purchased the outstanding stock of
Irwin & Browning, an organizational consulting practice based in Atlanta,
Georgia, for a combination of cash and future defined contingent payments.
6
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE B - ACQUISITIONS AND INVESTMENTS (Continued)
The initial purchase price for these acquisitions totaled approximately
$17,757,000 in cash and Company Common Stock issued from treasury shares with a
market value of $2,500,000 at the time of the acquisition of Sinova (see Note
F). This initial purchase price exceeds the fair value of the assets acquired by
$19,219,000. The purchase price allocations for these acquisitions are based
upon information available at this time and are subject to change. These
acquisitions have been accounted for using the purchase method. In connection
with the acquisitions of the remaining minority interest in Davidson &
Associates, Sinova and Irwin & Browning, the Company borrowed $15,900,000 under
its Credit Agreement.
On a year-to-date basis through September 30, 2000, the Company paid
approximately $3,338,000 in earnout payments related to acquisitions made in
prior years. The total net cash paid for acquisitions on the Condensed
Consolidated Statements of Cash Flows includes an installment payment and
miscellaneous adjustments made for prior acquisitions.
The unaudited pro-forma results of operations for the nine months ended
September 30, 2000 and 1999, reflecting the combined results of the Company and
the acquisitions detailed above as if the acquisitions had been consummated at
the beginning of each period presented, are as follows:
(Dollars in Thousands
Except Share Data)
Nine Months Ended September 30,
2000 1999
---- ----
Revenue $142,276 $140,058
========= =========
Income before income taxes $9,704 $9,546
========= =========
Net income $5,487 $5,711
========= =========
Diluted earnings per share $0.87 $0.82
========= =========
Diluted weighted average
number of shares outstanding 6,322,249 6,957,853
========= =========
NOTE C - DEBT AND OTHER OBLIGATIONS
In June 2000, the Company expanded its credit facility by an additional
$20,000,000 to an aggregate of $60,000,000 borrowing capacity. As of September
30, 2000, total borrowings under the Company's Credit Agreement amounted to
$44,125,000. The Company plans to utilize the credit facility in the financing
of future acquisitions as they arise and for other general corporate purposes.
7
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE C - DEBT AND OTHER OBLIGATIONS (Continued)
The Company's total $44,125,000 borrowing included $11,175,000 at a daily
floating interest rate which was 7.59% at September 30, 2000.
Effective August 15, 2000, the Company entered into a new fixed interest rate
swap agreement with an aggregate notional principal of $30,000,000, with a term
of three years. Under the terms of this swap agreement, there are no scheduled
payments of notional principal. This swap agreement is established for the full
notional principal with a fixed interest rate at September 30, 2000 of 9.25%. To
further reduce exposure to interest rate fluctuations, a purchased interest rate
floor for 87% of the notional principal with a fixed interest rate at September
30, 2000 of 9.25% is connected to this swap agreement. The swap transaction is
calculated using a variable rate of one-month LIBOR, while the purchased
interest rate floor offsets the swap transaction if LIBOR falls below the floor
level. At September 30, 2000, under this swap agreement and the purchased
interest rate floor, the Company pays its lenders interest at a fixed rate of
9.25% and its lenders pay the Company interest at a combined variable rate of
9.07%.
The notional amounts of the swap agreements discussed above 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 variable rates are subject to change over time as
LIBOR fluctuates.
At September 30, 2000, 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
September 30, 2000 and 1999 are detailed below.
8
<PAGE>
<TABLE>
<CAPTION>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE D - EARNINGS PER SHARE (Continued)
For the three months For the nine months
ended September 30, 2000 ended September 30, 2000
------------------------ ------------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income $1,399,000 6,106,282 $0.23 $5,732,000 6,060,802 $0.95
===== =====
Impact of options -- 3,879 -- 11,447
---------- --------- ---------- ---------
Diluted EPS:
Net income $1,399,000 6,110,161 $0.23 $5,732,000 6,072,249 $0.94
========== ========= ===== ========== ========= =====
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 6,534,731 $0.28 $6,375,000 6,628,448 $0.96
===== =====
Impact of options -- 47,986 -- 80,320
---------- --------- ---------- ---------
Diluted EPS:
Net income $1,807,000 6,582,717 $0.27 $6,375,000 6,708,768 $0.95
========== ========= ===== ========== ========= =====
</TABLE>
For the three months ended September 30, 2000, outstanding options to purchase
1,297,562 shares of Company Common Shares at option exercise prices ranging from
$10.87 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 Shares. For the nine months ended September 30, 2000, outstanding options
to purchase 1,097,312 shares of Company Common Shares at option exercise prices
ranging from $11.50 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 Shares.
NOTE E - SEGMENTS
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," provides 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 organizational consulting ("consulting"), including career
management. The Company operates these lines of business across the geographic
areas of the United States, Canada, Europe and Austral-Asia. These operations
offer different services and require different marketing strategies. Career
transition offers support for organizations separating employees, including
assistance in
9
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE E - SEGMENTS (Continued)
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 help to companies with organizational performance, leadership
development, and talent management. 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 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, 2000 and 1999 and for the three and nine months
then ended are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
September 30, 2000 United States Canada Europe Austral-Asia Consolidated
<S> <C> <C> <C> <C> <C>
Identifiable assets $ 105,411 $ 11,230 $ 15,248 $ 6,077 $ 137,966
========= ======== ======== ======= =========
September 30, 1999
Identifiable assets 82,246 9,700 17,890 5,816 115,652
========= ======== ======== ======= =========
For the three months ended
September 30, 2000
Revenue 31,274 3,256 4,925 3,096 42,551
========= ======== ======== ======= =========
Operating income (loss)(1) 2,423 942 (357) 390 3,398
========= ======== ======== ======= =========
Depreciation and amortization 2,887 91 165 184 3,327
========= ======== ======== ======= =========
Capital expenditures 2,318 21 253 97 2,689
========= ======== ======== ======= =========
For the three months ended
September 30, 1999
Revenue 31,607 2,640 4,617 3,584 42,448
========= ======== ======== ======= =========
Operating income (loss)(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>
10
<PAGE>
<TABLE>
<CAPTION>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE E - SEGMENTS (Continued)
(Dollars in Thousands)
For the nine months ended
September 30, 2000 United States Canada Europe Austral-Asia Consolidated
<S> <C> <C> <C> <C> <C>
Revenue $98,649 $10,768 $14,072 $10,287 $133,776
====== ====== ====== ====== =======
Operating income (loss)(1) 7,198 2,914 (59) 1,824 11,877
====== ====== ====== ====== =======
Depreciation and amortization 8,175 281 383 586 9,425
====== ====== ====== ====== =======
Capital expenditures 4,313 133 1,234 145 5,825
====== ====== ====== ====== =======
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
====== ====== ====== ====== =======
<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>
Revenues and expenses of the Company's lines of business for 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, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) (Dollars in Thousands)
For the three months For the nine months
ended September 30, ended September 30,
<S> <C> <C> <C> <C> <C> <C>
Career Career
Transition Consulting Consolidated Transition Consulting Consolidated
2000
Company office
revenue $ 31,617 $ 10,012 $ 41,629 $105,825 $ 24,904 $130,729
======== ======== ======== ======== ======== ========
Company office
operating income 4,566 2,660 7,226 19,649 5,238 24,887
======== ======== ======== ======== ======== ========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE E - SEGMENTS (Continued)
(Dollars in Thousands) (Dollars in Thousands)
For the three months For the nine months
ended September 30, ended September 30,
<S> <C> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== ======== ========
</TABLE>
NOTE F - SHAREHOLDER'S EQUITY
In September 2000, the Company issued 250,000 Common Shares from treasury shares
with an aggregate market value of $2,500,000, for a part of the purchase price
of the acquisition of Sinova (see Note B).
Under the Company's stock repurchase program, which was initiated in March 1997,
Company management is authorized to pursue the repurchase program in open market
transactions from time-to-time, depending upon market conditions and other
factors. 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. In September 2000, the Company repurchased
33,100 Common Shares at an aggregate purchase price of approximately $318,000,
or $9.625 per share.
In October 2000, the Company repurchased 37,000 Common Shares at an aggregate
purchase price of approximately $375,000, or $10.125 per share.
As of October 30, 2000, the Company has repurchased a total of 1,311,700 Common
Shares at an aggregate purchase price of approximately $16,269,000, or $12.40
per share, under this stock repurchase program. Currently there are
approximately 595,000 shares remaining that are authorized to be repurchased.
Prior to the institution of this stock repurchase program, the Company held
252,952 in treasury shares.
NOTE G - SUBSEQUENT EVENT
In November 2000, the Company entered into a definitive agreement to acquire an
additional 31% interest in its Japanese joint venture, Way Station, Inc. The
purchase price for this transaction will total approximately $10,000,000 and
will be accounted for
12
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE G - SUBSEQUENT EVENT (Continued)
using the purchase method. In accordance with the terms of the agreement,
two-thirds of the purchase price was paid in November 2000, with the remaining
one-third due at closing, scheduled for early January 2001. In connection with
the two-thirds purchase price payment for the 31% interest in Way Station, the
Company borrowed $6,000,000 under its Credit Agreement. The Company also entered
into an $8,000,000 cross currency swap agreement for the cumulative amount of
its investment in Way Station.
13
<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, 2000, revenue generated by Company
offices increased by 1% or $311,000 from the corresponding quarter in 1999. This
increase is due to $3,285,000 in incremental revenues from acquisitions
consummated after October 1, 1999, partly offset by a same office revenue
decrease of 7% or $2,974,000.
For the three months ended September 30, 2000, revenue generated by Company
offices within the career transition line of business decreased by 9% or
$3,184,000. This career transition revenue decrease is due to a same office
revenue decrease of 12% or $4,000,000, offset by $816,000 in incremental
revenues from acquisitions. The same office revenue decrease within the career
transition line of business was impacted by low unemployment rates primarily
experienced in the western and northeastern United States, and in continental
Europe.
For the three months ended September 30, 2000, revenue generated by Company
offices within the consulting line of business increased by 54% or $3,495,000.
This increase in consulting revenue is due to a same office increase of 16% or
$1,026,000, in addition to $2,469,000 in incremental revenues from acquisitions.
The same office revenue increase within the consulting line of business was
primarily experienced throughout North America due to higher sales volume.
For the nine months ended September 30, 2000, revenue generated by Company
offices remained level with revenues from the corresponding period in 1999.
Incremental revenues from acquisitions consummated subsequent to the third
quarter 1999 totaled $7,669,000, and were offset by a same office revenue
decrease of 6% or $7,614,000 for the nine months ended September 30, 2000, as
compared to the corresponding period in the prior year.
For the nine months ended September 30, 2000, revenue generated by Company
offices for its career transition and consulting lines of business yielded
similar results as the third quarter 2000. The aforementioned low unemployment
rates impacted the career transition line of business and the higher sales
volume contributed to the consulting line of business. Both lines of business
also experienced incremental revenues from acquisitions on a year-to-date basis.
For the three months ended September 30, 2000, Affiliate royalties decreased 18%
or $208,000 from the corresponding period in 1999, reflecting the aforementioned
negative impact of low unemployment rates across North America. For the nine
months ended September 30, 2000, Affiliate royalties decreased 9% or $317,000
from the corresponding period in 1999.
For the three months ended September 30, 2000, total Company office expenses
decreased 1% or $318,000 from the corresponding quarter in 1999. This decrease
is due to a decrease in incentives, salaries for delivery personnel, adjunct
costs, counseling materials and career center staffing costs, partly offset by
$2,925,000 in incremental costs from acquisitions consummated subsequent to the
third quarter 1999.
For the nine months ended September 30, 2000, total Company office expenses
decreased 2% or $2,234,000 from the corresponding period in 1999. This decrease
is primarily due to a decrease in incentives, salaries for delivery personnel,
career center staffing costs, and general office costs, partly offset by
$6,655,000 in incremental costs from acquisitions consummated subsequent to the
third quarter 1999.
14
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CONTINUED
Aggregate Company office margins for the three and nine months ended September
30, 2000 were 17% and 19%, respectively, compared to 16% for the third quarter
1999 and 17% for the nine months ended September 30, 1999. This increase in
margin in the third quarter 2000 is primarily attributable to the previously
mentioned increase in same office revenue for the consulting line of business.
In addition to a decrease in incentives, the higher margins in the current year
are attributable to a decrease of $1,638,000 and $4,882,000 in same office costs
for the three months and nine months ended September 30, 2000, respectively.
For the three months ended September 30, 2000, G & A expenses increased by 2% or
$91,000 from the third quarter 1999. This increase is due primarily to an
increase in severance, foreign currency translation expense, amortization and
consulting services, partly offset by a decrease in incentives. G & A expenses
as a percentage of total revenues were approximately 11% for both the third
quarter 2000 and 1999.
For the nine months ended September 30, 2000, G & A expenses increased by 10% or
$1,408,000 from the corresponding period in 1999. This increase is due primarily
to an increase in amortization, consulting services and severance expense,
offset by a decrease in incentives. G & A expenses as a percentage of total
revenues were approximately 12% for year-to-date 2000 versus 11% for
year-to-date 1999.
Net interest expense for the three and nine months ended September 30, 2000
increased $520,000 and $1,372,000, respectively, due to an increase in
borrowings primarily for acquisition activities and funding for incentives and
earnout payments.
The Company's effective tax rates for the three months ended September 30, 2000
and 1999 were 47% and 43%, respectively. The effective tax rates for the nine
months ended September 30, 2000 and 1999 were 44% and 43%, respectively. The
increase in the effective tax rate is primarily due to an increase in the impact
of non-deductible amortization expense related to acquisitions.
Capital Resources and Liquidity
At September 30, 2000 and December 31, 1999, the Company had cash and cash
equivalents of $7,200,000 and $11,187,000, respectively. At September 30, 2000
and December 31, 1999, the Company had working capital of $22,571,000 and
$9,111,000, respectively. Cash flow or earnings before interest, taxes,
depreciation and amortization for the nine months ended September 30, increased
13% to $21,302,000 in 2000 from $18,902,000 in 1999.
Net cash utilized for investing activities amounted to $27,933,000 and
$20,209,000 for the nine months ended September 30, 2000 and 1999, respectively.
This investment activity is primarily the result of the Company acquiring the
remaining equity interest in Davidson & Associates, and the outstanding stock of
Sinova and Irwin & Browning, as well as payments for earnouts related to
acquisitions made in prior years (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.
15
<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 $20,265,000 and $897,000
for the nine months ended September 30, 2000 and 1999, respectively. This
financing activity for 2000 was primarily the result of the $23,900,000
borrowing made to complete certain acquisitions during the year and to fund the
payments of incentives and earnouts (See Notes B and C to the Condensed
Consolidated Financial Statements), partly offset by repayments of $3,710,000 on
the Company's borrowings and other obligations.
During the second quarter 2000, the Company expanded its credit facility by an
additional $20,000,000 to an aggregate of $60,000,000 borrowing capacity. At
November 14, 2000, the Company had approximately $9,875,000 available under this
revolving credit facility. The Company plans to utilize the credit facility 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. However, the Company
will need to increase its credit facility or develop other sources of expansion
capital to pursue acquisitions beyond those to which the Company already
committed. The Company will continue to consider acquisitions and other
expansion opportunities as they arise, subject to access to capital, 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.
Impact of Recently Issued Accounting Standards
In June 1998, SFAS No. 133, " Accounting for Derivative Instruments and Hedging
Activities, " was issued and is effective for fiscal years beginning after June
15, 2000. SFAS No. 133, as it applies to the Company, requires the impact of
fluctuations in interest rates on hedging instruments to be reported in other
comprehensive income. 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 will adopt SFAS No.
133 effective January 1, 2001. Management believes that the adoption of SFAS No.
133 will not have a material impact on the Company's financial position or
results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 expresses the views of the SEC staff in applying
generally accepted accounting principles to revenue recognition for certain
transactions and is required to be adopted by the Company in the fourth quarter
of fiscal 2000. The Company will adopt SAB No. 101 effective December 31, 2000
and will record the cumulative effect of the change as of January 1, 2000. The
Company is in the process of completing a final analysis of the impact of SAB
No. 101 on its financial statements; however, management currently estimates
that the cumulative effect of the adoption of SAB No. 101 effective January 1,
2000 will result in additional deferred revenues ranging
16
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CONTINUED
from $8,000,000 to $9,500,000, net of tax. Management believes that the adoption
of SAB No. 101 will not have a material impact on the Company's fiscal 2000
total revenue or net income before the cumulative effect of the change in
accounting.
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, and discussions
concerning the planned increase in the Company's borrowing capacity 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 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, 1999 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.
Quantitative and Qualitative Disclosures About Market Risks
The Company believes that its interest risk associated with the swap agreements
(See Note C to the Condensed Consolidated Financial Statements) will not have a
material impact on the financial position, the results of operations and cash
flows 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.
17
<PAGE>
PART II - OTHER INFORMATION
Items 1, 2, 3, 4 and 5 were not applicable in the nine months ended September
30, 2000.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
10.25 - Third Amendment, dated June 29, 2000, to the Credit
Agreement between Right Management Consultants, Inc. and its
wholly owned subsidiaries and PNC Bank, National Association
dated December 20, 1996.
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 14, 2000
------------------------ -----------------
Richard J. Pinola Date
Chairman of the Board and Chief Executive Officer
BY :/S/ CHARLES J. MALLON November 14, 2000
------------------------ -----------------
Charles J. Mallon Date
Chief Financial Officer and
Principal Accounting Officer
18
