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, 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 August 1, 2000:
Common Stock, $0.01 par value 6,060,393
----------------------------- --------------------
Class Number of Shares
<PAGE>
<TABLE>
<CAPTION>
Right Management Consultants, Inc.
Condensed Consolidated Balance Sheets
(Dollars in Thousands Except Share Data)
June 30, December 31,
2000 1999
---- ----
(Unaudited)
Assets
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 8,270 $ 11,187
Accounts receivable, trade, net of allowance for doubtful accounts
of $1,645 and $1,467 in 2000 and 1999, respectively 33,096 34,042
Royalties and fees receivable from Affiliates 2,902 2,831
Other current assets 4,438 4,392
--------- ---------
Total current assets 48,706 52,452
Property and equipment, net of accumulated depreciation of $33,174
and $28,487 in 2000 and 1999, respectively 17,475 18,488
Intangible assets, net of accumulated amortization of $13,605 and
$11,524 in 2000 and 1999, respectively 51,865 43,730
Equity investment in joint venture 2,329 2,130
Other noncurrent assets 3,044 3,792
--------- ---------
Total Assets $ 123,419 $ 120,592
========= =========
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt and other obligations $ 5,119 $ 6,008
Accounts and commissions payable 7,111 9,591
Accrued incentive compensation and benefits 4,539 12,341
Other accrued expenses 5,894 7,337
Deferred income 7,604 8,064
--------- ---------
Total current liabilities 30,267 43,341
--------- ---------
Long-term debt and other obligations 29,132 18,279
--------- ---------
Deferred compensation and retirement benefits 4,466 1,991
--------- ---------
Minority interest in subsidiaries -- 999
--------- ---------
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;
7,544,677 and 7,512,193 shares issued in 2000 and 1999, respectively 75 75
Additional paid-in capital 19,617 19,340
Retained earnings 57,931 53,598
Accumulated other comprehensive income (1,976) (938)
--------- ---------
75,647 72,075
Less treasury stock, at cost, 1,494,552 shares (16,093) (16,093)
--------- ---------
Total shareholders' equity 59,554 55,982
--------- ---------
Total Liabilities and Shareholders' Equity $ 123,419 $ 120,592
========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Right Management Consultants, Inc.
Condensed Consolidated Statements of Income
(Dollars and Shares in Thousands Except Earnings per Share Data)
(Unaudited)
Three Months Ended June 30,
2000 1999
------- -------
<S> <C> <C>
Revenue:
Company office revenue $42,600 $40,709
Affiliate royalties 1,093 942
------- -------
Total revenue 43,693 41,651
------- -------
Expenses:
Consultants' compensation 15,718 16,430
Office sales and consulting support 2,885 2,829
Office depreciation 1,371 1,266
Office administration 14,212 13,351
General sales and administration 4,148 2,871
Depreciation and amortization 1,646 1,186
------- -------
Total expenses 39,980 37,933
------- -------
Income from operations 3,713 3,718
Net interest expense 602 150
------- -------
Income before income taxes 3,111 3,568
Provision for income taxes 1,349 1,517
Minority interest in net income of subsidiary -- 104
Equity in earnings of minority-owned subsidiary 241 140
------- -------
Net income $ 2,003 $ 2,087
======= =======
Basic earnings per share $ 0.33 $ 0.31
======= =======
Diluted earnings per share $ 0.33 $ 0.31
======= =======
Basic weighted average number of shares outstanding 6,048 6,641
======= =======
Diluted weighted average number of shares outstanding 6,049 6,757
======= =======
The accompanying notes are an integral part of these
condensed consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Right Management Consultants, Inc.
Condensed Consolidated Statements of Income
(Dollars and Shares in Thousands Except Earnings per Share Data)
(Unaudited)
Six Months Ended June 30,
2000 1999
------- -------
<S> <C> <C>
Revenue:
Company office revenue $89,100 $89,356
Affiliate royalties 2,125 2,234
------- -------
Total revenue 91,225 91,590
------- -------
Expenses:
Consultants' compensation 34,073 36,114
Office sales and consulting support 5,892 6,451
Office depreciation 2,837 2,426
Office administration 28,637 28,362
General sales and administration 8,046 7,685
Depreciation and amortization 3,261 2,308
------- -------
Total expenses 82,746 83,346
------- -------
Income from operations 8,479 8,244
Net interest expense 1,047 195
------- -------
Income before income taxes 7,432 8,049
Provision for income taxes 3,199 3,463
Minority interest in net income of subsidiary -- 158
Equity in earnings of minority-owned subsidiary 100 140
------- -------
Net income $ 4,333 $ 4,568
======= =======
Basic earnings per share $ 0.72 $ 0.68
======= =======
Diluted earnings per share $ 0.72 $ 0.67
======= =======
Basic weighted average number of shares outstanding 6,038 6,676
======= =======
Diluted weighted average number of shares outstanding 6,043 6,782
======= =======
The accompanying notes are an integral part of these
condensed consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Right Management Consultants, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
Six Months Ended June 30,
2000 1999
-------- --------
<S> <C> <C>
Operating Activities:
Net income $ 4,333 $ 4,568
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,098 4,734
Deferred income taxes (10) (268)
Minority interest in net income of subsidiary -- 158
Provision for doubtful accounts 363 265
Equity in earnings of unconsolidated joint venture (100) (140)
Other non-cash items 63 377
Changes in operating accounts:
Decrease in operating assets 1,987 5,081
(Decrease) in operating liabilities (12,131) (13,933)
-------- --------
Net cash provided by operating activities 603 842
-------- --------
Investing Activities:
Purchase of property and equipment (3,136) (4,668)
Equity Investment -- (1,680)
Net cash paid for acquisitions and earnouts (9,912) (6,370)
Increase in cash surrender value of
company-owned life insurance (467) --
Capital contribution to joint venture (99) --
-------- --------
Net cash utilized for investing activities (13,614) (12,718)
-------- --------
Financing Activities:
Borrowings 12,923 5,529
Payment of long-term debt and other obligations (3,106) (2,661)
Tax benefit from the exercise of stock options -- 66
Repurchase of Common Stock -- (1,682)
Proceeds from stock issuances 277 776
-------- --------
Net cash provided by financing activities 10,094 2,028
-------- --------
Decrease in cash and cash equivalents (2,917) (9,848)
Cash and cash equivalents, beginning of period 11,187 20,800
-------- --------
Cash and cash equivalents, end of period $ 8,270 $ 10,952
======== ========
Supplemental Disclosures of Cash Flow Information
Cash paid for:
Interest $ 1,099 $ 599
======== ========
Income taxes $ 3,354 $ 4,033
======== ========
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 six months ended June
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 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, 2000
and 1999 was $1,639,000 and $2,187,000, respectively. Total comprehensive income
for the six months ended June 30, 2000 and 1999 was $3,295,000 and $4,627,000,
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.
Also, 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. The Company is in the process of analyzing the impact of SAB No.
101 on its Consolidated Financial Statements and related disclosures.
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. The initial cash
purchase price for these acquisitions totaled approximately $6,476,000, which
exceeds the fair value of the assets acquired by $5,396,000. 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 acquisition of the remaining
minority interest in Davidson & Associates, the Company borrowed $4,900,000
under its Credit Agreement.
On a year-to-date basis through June 30, 2000, the Company paid approximately
$3,154,000 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 pro-forma impact of these acquisitions on results of operations, 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.
6
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE C - DEBT AND OTHER OBLIGATIONS
As of June 30, 2000, total borrowings under the Company's Credit Agreement
amounted to $33,708,000. This includes the $4,900,000 borrowing bearing interest
at a three month LIBOR rate for the acquisition of the remaining minority
interest in Davidson & Associates (See Note B). This also includes a floating
rate borrowing totaling $14,900,000 of which $8,000,000 was borrowed during the
first quarter 2000 to fund incentive and earnout payments. The interest rate on
this floating rate borrowing was 7.86% at June 30, 2000.
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
July 31, 2000, the Company had approximately $26,292,000 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.
As of June 30, 2000, the Company had entered into five fixed interest rate swap
agreements ("Swap Agreements") with an aggregate notional principal of
$13,908,000 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 7.10%. 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 6.83% and its lenders pay the Company interest at a
weighted average variable rate of 7.04% at June 30, 2000. 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 June 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.
Subsequent to June 30, 2000, the Company entered into a new fixed interest rate
swap agreement with an aggregate notional principal of $30,000,000 and an
effective date of August 15, 2000. The five Swap Agreements discussed above,
were either matured or terminated as a result of this new swap agreement.
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, 2000 and 1999 are detailed below.
7
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE D - EARNINGS PER SHARE (Continued)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, 2000 ended June 30, 2000
------------------- -------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income $2,003,000 6,048,000 $ 0.33 $4,333,000 6,038,000 $ 0.72
======== ========
Impact of options --- 1,000 --- 5,000
---------- ---------- ---------- ----------
Diluted EPS:
Net income $2,003,000 6,049,000 $ 0.33 $4,333,000 6,043,000 $ 0.72
========== ========== ======== ========== ========== ========
<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
========== ========== ======== ========== ========== ========
</TABLE>
For the three months ended June 30, 2000, outstanding options to purchase
1,324,062 shares of Company Common Shares at option exercise prices ranging from
$11.00 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 Shares. For the six months ended June 30, 2000, outstanding options to
purchase 1,127,312 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 human resources (including career management) consulting
("consulting"). 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
8
<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 building competencies, organizational
change, leadership development, employee communications 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 June 30, 2000 and 1999 and for the three and six months then
ended are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
June 30, 2000 United States Canada Europe Austral-Asia Consolidated
------------- ------------- ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Identifiable assets $ 91,841 $ 10,798 $ 14,534 $ 6,246 $123,419
======== ======== ======== ======== ========
June 30, 1999
-------------
Identifiable assets 80,165 7,049 16,446 6,265 109,925
======== ======== ======== ======== ========
For the three months ended
June 30, 2000
-------------
Revenue 32,657 3,163 4,536 3,337 43,693
======== ======== ======== ======== ========
Operating income (1) 2,356 606 130 621 3,713
======== ======== ======== ======== ========
Depreciation and amortization 2,625 95 107 190 3,017
======== ======== ======== ======== ========
Capital expenditures 1,032 35 757 13 1,837
======== ======== ======== ======== ========
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 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)
NOTE E - SEGMENTS (Continued)
<TABLE>
<CAPTION>
(Dollars in Thousands)
For the six months ended
June 30, 2000 United States Canada Europe Austral-Asia Consolidated
------------- ------------- ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue $67,374 $ 7,512 $ 9,148 $ 7,191 $91,225
======= ======= ======= ======= =======
Operating income (1) 4,862 1,884 298 1,435 8,479
======= ======= ======= ======= =======
Depreciation and amortization 5,288 190 218 402 6,098
======= ======= ======= ======= =======
Capital expenditures 1,995 112 981 48 3,136
======= ======= ======= ======= =======
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
======= ======= ======= ======= =======
<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 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 six months ended June 30, 2000 and 1999 are
as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) (Dollars in Thousands)
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>
2000
Company office
revenue $34,303 $ 8,297 $42,600 $74,208 $14,892 $89,100
======= ======= ======= ======= ======= =======
Company office
operating income 6,189 2,225 8,414 15,083 2,578 17,661
======= ======= ======= ======= ======= =======
</TABLE>
10
<PAGE>
RIGHT MANAGEMENT CONSULTANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE E - SEGMENTS (Continued)
<TABLE>
<CAPTION>
(Dollars in Thousands) (Dollars in Thousands)
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
======= ======= ======= ======= ======= =======
</TABLE>
NOTE F - SUBSEQUENT EVENTS
During July, the Company entered into three letters of intent to acquire three
separate businesses, as follows: Sinova International Holding A/S, an
organizational development and human resource consulting practice headquartered
in Copenhagen, Denmark, and serving Denmark, Sweden and Norway; Irwin &
Browning, an organizational development and human resource consulting practice
headquartered in Atlanta, Georgia, serving clients throughout the United States;
and Saad-Fellipelli/Coaching, a Brazilian career transition and human resource
consulting practice headquartered in Sao Paulo, Brazil. The
Saad-Fellipelli/Coaching transaction is structured as a joint venture in which
the Company will initially acquire a 51% equity interest. These acquisitions are
subject to documentation, due diligence and completion. The aggregate purchase
price for these acquisitions is approximately $15 million, plus earnout
payments. A portion of the Sinova purchase price will be paid by Common Shares
of the Company. These acquisitions will be accounted for using the purchase
method.
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 June 30, 2000, revenue generated by Company offices
increased by 5% or $1,891,000 from the corresponding quarter in 1999. This
increase is due to $2,346,000 in incremental revenues from acquisitions
consummated after July 1, 1999, partly offset by a same office revenue decrease
of 1% or $455,000.
For the three months ended June 30, 2000, revenue generated by Company offices
within the career transition line of business decreased by 1% or $405,000. This
career transition revenue decrease is due to a same office revenue decrease of
5% or $1,860,000, partly offset by $1,455,000 in incremental revenues from
acquisitions. The same office revenue decrease within the career transition line
of business was primarily experienced in the western United States and in
continental Europe.
For the three months ended June 30, 2000, revenue generated by Company offices
within the consulting line of business increased by 38% or $2,296,000. This
increase in consulting revenue is due to a same office increase of 23% or
$1,405,000, in addition to $891,000 in incremental revenues from acquisitions.
The same office revenue increase within the consulting line of business was
primarily experienced throughout North America.
For the six months ended June 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 second quarter 1999
totaled $4,384,000, and were offset by a same office revenue decrease of 5% or
$4,640,000 for the six months ended June 30, 2000, as compared to the
corresponding period in the prior year.
For the three months ended June 30, 2000, Affiliate royalties increased 16% or
$151,000 from the corresponding period in 1999, reflecting a higher volume of
business experienced by the Company's Affiliates during the second quarter 2000.
For the six months ended June 30, 2000, Affiliate royalties decreased 5% or
$109,000 from the corresponding period in 1999.
For the three months ended June 30, 2000, total Company office expenses
increased 1% or $310,000 from the corresponding quarter in 1999. This increase
is due to $1,936,000 in incremental costs from acquisitions consummated
subsequent to the second quarter 1999, partly offset by a decrease in
incentives, salaries for delivery personnel, adjunct costs, and career center
staffing costs.
For the six months ended June 30, 2000, total Company office expenses decreased
3% or $1,914,000 from the corresponding period in 1999. This decrease is
primarily due to a decrease in incentives, partly offset by $3,730,000 in
incremental costs from acquisitions consummated subsequent to the second quarter
1999.
12
<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 six months ended June 30,
2000 were 20%, compared to 17% for the second quarter 1999 and 18% for the six
months ended June 30, 1999. This increase in margin in the second 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, a decrease of $1,073,000 and $3,242,000 in same office costs for the
three months and six months ended June 30, 2000, respectively, is attributable
to the higher margins in the current year.
For the three months ended June 30, 2000, G & A expenses increased by 43% or
$1,737,000 from the second quarter 1999. This increase is due primarily to an
increase in incentives, amortization expense, consulting services, and
professional fees. G & A expenses as a percentage of total revenues were
approximately 13% for the second quarter 2000 versus 10% for the second quarter
1999.
For the six months ended June 30, 2000, G & A expenses increased by 13% or
$1,314,000 from the corresponding period in 1999. This increase is due primarily
to an increase in amortization expense and consulting services, offset by a
decrease in incentives and currency translation expense. G & A expenses as a
percentage of total revenues were approximately 12% for year-to-date 2000 versus
11% for year-to-date 1999.
The Company's effective tax rates for the three and six months ended June 30,
2000 and 1999 remained consistent at approximately 43%.
Capital Resources and Liquidity
-------------------------------
At June 30, 2000 and December 31, 1999, the Company had cash and cash
equivalents of $8,270,000 and $11,187,000, respectively. At June 30, 2000 and
December 31, 1999, the Company had working capital of $18,439,000 and
$9,111,000, respectively.
Net cash utilized for investing activities amounted to $13,614,000 and
$12,718,000 for the six months ended June 30, 2000 and 1999, respectively. This
change in cash is primarily the result of the Company acquiring the remaining
equity interest in Davidson & Associates, 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.
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 $10,094,000 and $2,028,000
for the six months ended June 30, 2000 and 1999, respectively. The net cash
inflow for 2000 was primarily the result of the $12,900,000 borrowing made to
complete the acquisition of the remaining equity interest in Davidson &
Associates 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 $3,100,000 on the Company's borrowings.
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
July 31, 2000, the Company had approximately $26,292,000 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. 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.
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.
Also, 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. The Company is in the process of analyzing the impact of SAB No.
101 on its Consolidated Financial Statements and related disclosures.
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, 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) would 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.
15
<PAGE>
PART II - OTHER INFORMATION
Items 1, 2, 3 and 5 were not applicable in the six months ended June 30, 2000.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The 2000 Annual Meeting of Shareholders of the Company was held on May
4, 2000.
At this meeting, the shareholders voted on the following two items: 1.
The election of eleven directors to hold office until the Annual
Meeting of Shareholders in 2001 and until their respective successors
are duly elected and qualified. 2. 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 5,421,070 60,620
Richard J. Pinola 4,923,042 558,648
Joseph T. Smith 5,426,208 55,482
John J. Gavin 5,423,032 58,658
Larry A. Evans 4,916,426 565,264
John R. Bourbeau 5,425,958 55,732
Raymond B. Langton 5,423,636 58,054
Rebecca J. Maddox 5,423,536 58,154
Catherine Y. Selleck 5,422,932 58,758
Marti D. Smye 5,419,538 62,152
Frederick R. Davidson 4,920,985 560,705
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
--------- ------------- ----------- ----------------
5,426,191 6,674 32,681 16,144
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.
16
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RIGHT MANAGEMENT CONSULTANTS, INC.
BY:/S/ RICHARD J. PINOLA August 14, 2000
------------------------ ---------------
Richard J. Pinola Date
Chairman of the Board and
Chief Executive Officer
BY :/S/ CHARLES J. MALLON August 14, 2000
------------------------ ---------------
Charles J. Mallon Date
Chief Financial Officer and
Principal Accounting Officer
17
