-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S3QQ1QVCQKwxWaZ4RZ0FVW+8uPMe1LA+nSC37y51KRPEMn9BvEWV1ggMvRalEltV EzAY/yXtzp18xH27SyxAxA== 0000950116-99-000631.txt : 19990402 0000950116-99-000631.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950116-99-000631 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIGHT MANAGEMENT CONSULTANTS INC CENTRAL INDEX KEY: 0000802806 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 232153729 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-15539 FILM NUMBER: 99582619 BUSINESS ADDRESS: STREET 1: 1818 MARKET ST STREET 2: 14TH FL CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2159881588 MAIL ADDRESS: STREET 1: 1818 MARKET STREET STREET 2: 14TH FL CITY: PHILADELPHIA STATE: PA ZIP: 19103 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X Annual Report Pursuant to Section 13 or 15(d) of the ----- Securities Exchange Act of 1934 for the fiscal year ended December 31, 1998 OR Transition Report Pursuant to Section 13 or 15(d) of the ----- Securities Exchange Act of 1934 Commission File No. 0-15539 RIGHT MANAGEMENT CONSULTANTS, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Pennsylvania 23-2153729 - ---------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or 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 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - ------------------- ----------------------------------------- None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value per share 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant using the closing stock price as of March 1, 1999 was $97,908,000. The number of shares outstanding of the registrant's Common Stock as of March 1, 1999 was 6,714,000. DOCUMENTS INCORPORATED BY REFERENCE Parts I & II Portions of the Company's 1998 Annual Report to Shareholders for the fiscal year ended December 31, 1998. Part III The Company's definitive proxy statement with respect to its 1999 Annual Meeting of Shareholders to be held on May 6, 1999. PART I Item 1: Business General Right Management Consultants, Inc. (the "Company") is an international career management and human resource consulting firm headquartered in Philadelphia, Pennsylvania. Founded in 1980, the Company has been publicly owned since 1986. The Company is the largest worldwide firm in the career management industry with 1998 revenues in excess of $168 million. Worldwide operations are structured into seven geographic groups that provide management oversight to more than 170 service locations worldwide. The Company licenses its Affiliates to use its service marks and licenses and trains them to use its proprietary materials and methods. The Company receives fees directly from employers for services rendered by Company offices and royalties and fees from the Affiliates. The Company's fees for its services are paid exclusively by the employer. The Company does not provide its services to employees who are not sponsored by employers, since it is not a "retail" career counseling firm or employment agency. The Company's operations are divided into two lines of business: career transition services, and human resources and career management consulting, which specializes in change management, communication, strategy implementation, merger integration and executive development. Career Transition Services The Company provided career transition services to approximately 5,200 client companies during 1998, including a majority of the companies that comprise the Fortune 500. No single customer or client accounted for a material amount of the Company's business in 1998. Career transition services are divided into two principal categories - Individual Outplacement Services and Group Outplacement Services. Individual Outplacement Services The Company's individual outplacement services for the employer include advice on conducting the termination interview, terms of severance pay and other termination benefits. Services by the Company to terminated employees include assistance in handling the initial difficulties of termination; identifying continuing career goals and options and in planning an alternative career; aiding in developing skills for the search for a new job, such as resume writing, identifying and researching types of potential employers, preparing and rehearsing for interviews; continuing consulting and motivation throughout the job search campaign; assessing new employment offers and methods of accepting such offers (including consideration of relocation issues) and, where appropriate, consulting with the employee's spouse regarding the stresses of the employment search and the positive role the spouse may play in all aspects of the new job search, as well as assisting with financial planning and health maintenance. Approximately 77% of the career transition revenue generated by Company offices during 1998 was for individual outplacement services. Group Outplacement Services The remaining significant portion of the Company's career transition business consists of providing consulting in group contexts for companies making group reductions in their work force due to reorganization, restructuring or other reasons. The Company's group programs have, as their core, seminars for generally up to 12 employees per group, in sessions extending over one to five days. Often, the group seminar is preceded or followed by individual counseling. These group programs are designed for each employer-client and are generally competitively priced and bid, based on the number of consulting hours, number of employees involved and the type of programs to be provided. The group program may also be used for "voluntary separation" due to reorganizations or other reasons. Approximately 23% of the career transition revenue generated by Company offices during 1998 was for group outplacement services. The career transition business in total, including individual and group outplacement services, provided approximately 85% of total Company office revenue for the year ended December 31, 1998. Subsequent to December 31, 1998, the Company completed the acquisition of N.V. Claessens Belgium, S.A., a leading career transition firm with four offices in Belgium. See Note M to the Consolidated Financial Statements for more details on this transaction. Human Resources and Career Management Consulting The Company provides career management consulting services that assist employers and their employees in identifying and improving areas of job performance, refining communication skills and improving employee productivity. The Company also provides human resource consulting to corporations on restructuring and realignment issues, offering customized services to help manage all aspects of organizational change, including planning, selection, retention strategy and communication issues. Other services are designed to enhance the abilities of executives and managers to evaluate employees' performance in making employment and promotion decisions. To broaden and diversify its business base, the Company has begun its commitment to the consulting line of business by acquiring in 1996 the outstanding stock of People Tech Consulting, Inc. ("PeopleTech"), a Canadian corporation. Since the addition of People Tech's human resources consulting business to the Company's previously established career management consulting practice, the Company has continued to acquire firms with human resources consulting expertise. 2 During 1998, the Company made two acquisitions of consulting firms and entered into an exclusive licensing agreement with another consulting firm. The acquisitions of Manus Associates, a human resources consulting firm, and the acquired 51% interest in Teams International, Inc., a technology-based assessment firm, contributed diverse capabilities to the human resources consulting practice. Areas of specialty include 360-degree feedback systems, the development of competency models, leadership development, team-building, and performance and pay management. The Company further expanded its exposure and methodologies in the human resources and career management consulting practice with an exclusive licensing agreement with The Atlanta Consulting Group, an organizational consulting firm. The Company continues to integrate these products and methodologies into its consulting business. The consulting business in total, including career management consulting and human resources consulting, provided approximately 15% of total Company office revenue for the year ended December 31, 1998. No single customer or client accounted for a material amount of business within the human resources and career management consulting line of business in 1998. Subsequent to December 31, 1998, the Company completed the acquisition of two European consulting firms, which will further strengthen its human resources consulting practice internationally. The transactions include Groupe ARJ, with offices in Paris and Lyon, France and Jouret Management Center located in Brussels, Belgium. See Note M to the Consolidated Financial Statements for more details on these transactions. Fees for Services Provided by Company Offices For individual career transition services provided by Company offices, the Company normally receives a negotiated fee, depending upon the services provided, which generally ranges between 10% and 20% of the terminated employee's annual compensation. Fees for group career transition programs and consulting projects are individually billed depending upon the type of services the employer requests, the amount of consulting time required and the number of employees involved. Organization and Distribution of Company Offices and Affiliates The current network of Company offices and Affiliates is outlined in the Company's 1998 Annual Report to Shareholders, attached as Exhibit 13 hereto, that portion of which is incorporated herein by reference. Management of Company Offices and Affiliates The Company believes that a decentralized approach of organizing its business into geographic groups and related regions, which may be comprised of more than one Company office or Affiliate office, allows the Company to be responsive to individual clients, as well as allowing it to better serve its local and regional markets. Each region is responsible for the marketing and sales of career transition and consulting activities in its assigned area. Through the Company's Affiliate network arrangement, the Company's clients have access to the entire Company network of Company offices and Affiliates. See "Business - Affiliate Arrangements." 3 Affiliate Arrangements The Basic Affiliate Relationship The Company has previously entered into agreements with Affiliates ("Affiliate Agreements"), which are independent franchisee businesses, to provide the Company's career transition and consulting services within the geographic area defined in each Affiliate Agreement (the "Exclusive Territory"). Affiliates render such services exclusively under the Company's registered service marks, including "Right Associates(R)". Under the Affiliate Agreements, the Company assists the Affiliates in various ways in the provision of career transition and consulting services. The Company has no present intention to enter into any additional Affiliate Agreements. Under the Affiliate Agreements, the Company is precluded from establishing or maintaining Company offices or otherwise soliciting customers, providing consulting services or licensing other Affiliates to operate in the Exclusive Territory of a particular Affiliate. In turn, the Affiliate is prohibited from establishing or maintaining its own offices or "satellites" soliciting customers or engaging in career transition or consulting services within Exclusive Territories which the Company currently or in the future grants or assigns to Company offices. There is not a formal Affiliate organization; however, a Management Advisory Committee (the "Advisory Committee") exists which considers matters of general concern to the Affiliates. The Advisory Committee is comprised of four members appointed by the Company's management and three members elected by the Affiliates for a three year term. Company Training of Affiliates The Affiliate Agreements require the Company to train the Affiliate and its employees in marketing and delivering career transition and consulting services. The Company is responsible for overall guidance and has established Company standards and policies relating to its services. The Company provides proprietary sales and consulting materials, administrative forms (including, among other things, guidelines for consulting client-employers and terminated employees), materials used in conjunction with marketing the services and administration of its office and materials relating to the Company's system of monitoring the progress of terminated employees. The Company provides guidance, if requested by the Affiliates, with respect to the hiring of the Affiliates' employees, the use and development of sales programs and general issues of office operation and sales. The cost of such optional assistance by the Company is paid by the Affiliate, unless the Company otherwise agrees not to charge for these services. The Company also provides marketing support, public relations, advertising and promotional support, consisting of national and international media efforts directed by an in-house marketing staff. 4 Affiliates' Payment of Fees and Royalties to Company In consideration of the Company providing services, training and licensing the use of its federally-registered service mark, the Affiliate generally pays to the Company the following fees (which are not in the order of their contribution to Company revenue): (1) a one-time non-refundable initial Affiliate (franchise) fee; (2) a 10% royalty on the Affiliate's total gross receipts; (3) a fee for services rendered in assisting the Affiliate in selling the Company's programs to the employer-client; and (4) a fee for services rendered in providing career transition services to terminated employees on certain contracts and accounts sold and managed by Affiliates. Term, Supervision and Termination of Affiliate Agreements The Company's Affiliate Agreements provide for an initial term of three or five years and are automatically renewed from year to year unless either party gives the other notice of non-renewal (which may be without cause) at least 120 days prior to the expiration of the then current term (unless a longer notice period is required by local franchise laws). During the term of the Affiliate Agreement, the Company may terminate the arrangement, subject to local franchise laws and cure periods specified in the Affiliate Agreements, for a variety of reasons, including a material breach of such Agreement by the Affiliate, the failure by the Affiliate to achieve at least 75% of the minimum volume of business set forth in its Affiliate Agreement in any year of the Affiliate's operation or the Affiliate's failure to otherwise conduct normal business operations diligently and regularly or to use its best efforts to sell and provide career transition consulting services, or the Affiliate's failure to adhere to the written service standards established by the Company in consultation with the Advisory Committee. The Company may also terminate an Affiliate Agreement due to the death, disability or retirement of key Affiliate personnel or of principal shareholders of an Affiliate. The Company has offered and implemented with substantially all of its existing North American Affiliates an addendum to their respective Affiliate Agreements. Under the terms of the addendum, the Company relinquishes its right to give notice of non-renewal of the Affiliate's Affiliate Agreement upon the expiration of its initial or one of its renewal terms. However, the Advisory Committee is empowered to terminate, upon specified grounds, the Affiliate Agreement of Affiliates who sign the addendum. In addition, the addendum permits the Company to terminate the Affiliate Agreement of any Affiliate if certain trends in the volume of business generated by the Affiliate deviate by more than specified amounts below the comparably defined trends for all North American offices of the Company and its Affiliates measured as a group. 5 The Company has agreed with substantially all of its existing North American Affiliates that in the event the Company offers to any other North American Affiliate any provision in the Affiliate Agreement with such other North American Affiliate which is more beneficial to such other North American Affiliate than the terms of the existing Affiliate Agreements with the rest of the current North American Affiliates, then the new provision will be offered to all existing North American Affiliates, except for provisions added or deleted to (a) comply with a particular state or provincial law or regulation; (b) maintain in force prior agreements with specific Affiliates; or (c) address the unique nature or character of other businesses or activities engaged in by a specific Affiliate. Affiliates' Right of First Refusal Pursuant to the Affiliate Agreements, the Affiliates may have a right of first refusal to purchase shares of the Company's Common Stock in case of certain proposed sales or exchanges of the Company's Common Stock. Under the terms of the Affiliate Agreements, in the event that 51% or more of the Common Stock of the Company is proposed to be sold by one or more shareholders of the Company in a single transaction (exclusive of a corporate merger or consolidation in which the Company is not the surviving party and transactions in which the common stock of another company is exchanged for the Common Stock of the Company), the Affiliates may have a right of first refusal to acquire the Common Stock of the Company being sold under the same terms as the proposed transaction. Acquisitions During 1998, the Company completed two separate consulting acquisitions and entered into an exclusive licensing agreement with a third consulting firm. See Note C to the Consolidated Financial Statements for a detailed description of the acquisitions. The total purchase price for these acquisitions aggregated approximately $6,285,000, including the costs of acquisitions. The acquisitions were consummated through combinations of cash and future defined incentives, including the assumption of incomplete consulting contracts. During the period 1991 through 1997, the Company completed twenty-six separate acquisitions of career transition and consulting firms for combinations of cash, future defined incentives, incomplete career transition contracts and other considerations. The total purchase price for these transactions aggregated approximately $39,660,000, including the costs of acquisitions. During the period 1991 through 1998, the total number of acquisitions completed by the Company included ten former Affiliates. At December 31,1998, there were five Affiliate regions remaining in the Company's network of offices. 6 Government Regulation Certain aspects of the on-going relationship between the Company and the Affiliates are subject to the franchise regulations of the Federal Trade Commission (the "FTC") and to various franchise laws enacted by certain of the states in which the Company's Affiliates are located. The provisions and scope of the state laws vary. In some states, the Company is required to register the offering of the Affiliate Agreements with regulatory agencies and to license Company personnel who are directly involved in offering the Affiliate Agreement to prospective Affiliates. Some states also regulate certain terms of the Affiliate Agreement, primarily the terms upon which the Company can terminate an Affiliate Agreement for cause or can decline to renew an Affiliate Agreement upon expiration. Other states' laws impose on the Company general duties of fair dealing with the Affiliates and prohibit unfair discrimination among or against Affiliates. As a result of such laws regulating relationships with the Affiliates in certain states, the Company has less flexibility than it would otherwise have in structuring such relationships. As part of the Company's operating strategy, new Affiliates are not being sought and the Company will likely acquire the remaining Affiliate territories when and if they become available. Financial Information Relating to Foreign Operations See the Company's Consolidated Financial Statements, Note L, "Segments" contained in the Company's 1998 Annual Report to Shareholders, the incorporated portions of which are included as Exhibit 13 to this Form 10-K (the "Report"), for information regarding the Company's foreign operations. This information is responsive to Item 101(d) of Regulation S-K and is incorporated by reference herein. Employees At February 28, 1999, the Company and its subsidiaries employed 978 persons full-time, including 15 in senior management, 68 in other managerial and professional roles, 562 in field operations as consultants, and 333 in clerical capacities. In addition, the Company employed 428 persons on a part-time basis as professional consultants. Consultants are generally required to have prior executive or management experience and are provided Company training. None of the Company's employees are subject to collective bargaining agreements. In general, the Company believes that its employee relations are good. Risk Factors In addition to the other matters discussed elsewhere in this Report, the following risk factors should be taken into account in evaluating the Company and its business: 7 1. Government Regulation: In connection with its arrangement with its Affiliates, the Company devotes resources to complying with state and federal franchise laws and regulations. The Company believes that its practices and procedures are not in violation of the material provisions of such state and federal laws and it has not received notices of material claims or assertions from Affiliates regarding non-compliance. Nevertheless, the Company's past practices may give rise to possible liability, and given the scope of the Company's business and the nature of franchise regulation, compliance problems could be encountered in the future. For a discussion of the Company's past and current compliance with state and federal franchising laws, other regulatory aspects of the Company's relations with its Affiliates and possible liability of the Company for certain of its past activities, see "Business - Government Regulation." Although career transition and human resource consulting services are not currently specifically subject to state or federal regulation, the Company is aware that such regulation has been considered by the legislatures of several states. There can be no assurance that such regulation will not be adopted in the future. 2. Relations with Affiliates: The Company's revenue depends in part on royalties and fees paid by Affiliates. Under the current Affiliate Agreements, royalties equal 10% of the Affiliate's total gross receipts. The fees paid by Affiliates to the Company vary depending on the services provided by the Company. The Company believes that the 10% royalty is reasonable and currently has no plans to reduce it, although there can be no assurance that royalties will continue to be maintained at such level under all circumstances. The Company believes that its relations with its Affiliates are good; however, there can be no assurance that such relations will remain so. A deterioration of these relationships among the Company and its Affiliates, or among the Affiliates themselves, or an inability to collect royalties and fees payable to the Company or payable by one Affiliate to another could materially adversely effect the Company. See "Business - Affiliate Arrangements." 3. Possible Effects of Change in Company Control and Possible Future Issuance of Preferred Stock: Under certain circumstances and pursuant to its Affiliate Agreements, upon certain contemplated sales of 51% or more of the Company's outstanding Common Stock, or a Company merger, consolidation or reorganization, the Affiliates may have a right of first refusal to acquire the Common Stock of the Company being sold or exchanged, on the same terms as the proposed transaction with a third party. In addition, under the Affiliate Agreements and under certain circumstances, upon sales of 51% or more of the Company's assets or capital stock in one or more transactions, or a Company merger, consolidation or reorganization, then, regardless of the time remaining on the term of such Affiliate's current Affiliate Agreement, the term of such Affiliate Agreement is automatically altered to either (i) one year, with the Affiliate also having an option to renew the Affiliate Agreement for an additional four year period upon the expiration of such one year term, or (ii) five years, extending from the date of such transaction, merger, consolidation or reorganization. 8 Also, in the event of such transaction or reorganization, under the Company's Employment Agreements with its executive officers, such officers have an option to extend the term of their respective Employment Agreement for an additional two years. The Company's Articles of Incorporation authorize the issuance of up to 1,000,000 shares of Preferred Stock, at the discretion of the Board of Directors. The Board of Directors may also fix from time to time in the future, the designations, limitations, and preferences for any such series of Preferred Stock issuance, without any further vote or action by shareholders. The Affiliates' right of first refusal and the alteration of the term of their Affiliate Agreements, or the executive officers' right to extend the term of their Employment Agreements, or the issuance of Preferred Stock at the discretion of the Board of Directors may make the Company less attractive to an entity or group considering acquiring control of the Company or may make an acquisition materially more difficult, resulting in a lower acquisition price per share, or may otherwise materially adversely affect an investment in the Company's Common Stock. 4. Competition: The Company competes against other providers of career transition services and other human resource consulting services. Based on consolidated revenues for 1998, the Company has maintained its status as the world's largest provider of career management services. However, the Company's primary national and international competitors are divisions of companies much larger than the Company, and these competitors may have access to financial and other resources substantially greater than those available to the Company. The Company believes that the principal methods of competition in its industry are quality of service, professional staff and price. On a regional basis, the Company also competes against local career transition and other human resources and career management consulting firms that are well-established in a particular region. The Company believes that the cost for its services are competitive, based on the quality and value of services offered. The Company may also face competition from future expansion by other entities into the career transition and other human resource and career management consulting businesses. 5. Dependence on Personnel: As with other service businesses, the Company depends upon the continued services of its executive, sales, and consulting personnel. The loss of these personnel, or an inability to attract and retain new qualified personnel or to retain qualified Affiliates, could have an adverse impact on the Company. 6. Risks Related to the Company's Acquisition Strategy: The Company has grown both internally and through acquisitions, and intends to continue to grow by both of these methods. Historically, the Company has primarily acquired outside firms within the highly fragmented career transition services industry. See "Business - Acquisitions." In future periods, the Company will continue to consider opportunistic acquisitions of career transition providers. However, it is more likely that the Company will look to acquire other consulting service providers, thereby allowing the Company to continue to diversify its range of services provided. 9 Increased competition for acquisition candidates may develop, in which case there may be fewer acquisition opportunities available to the Company, as well as higher acquisition prices. There can be no assurance that the Company will be able to continue to identify, acquire, or profitably manage additional businesses or successfully integrate acquired businesses, if any, without substantial costs, delays or other operational or financial problems. Further, acquisitions involve a number of special risks, including possible adverse effects on the Company's operating results, diversion of management's attention, failure to retain key acquired personnel, risks associated with unanticipated events or liabilities and amortization of acquired tangible and intangible assets, some or all of which could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, there can be no assurances that the Company's existing business or future acquisitions will achieve anticipated revenues and earnings. 7. Economic Conditions on a Local, Regional, National, and International Basis: The demand for the Company's services, primarily career transition services, is impacted by the overall economic strength on a local, regional, national and international basis. In general, a stronger economy can lead to easier and more rapid job change and reentry, which can reduce the demand for the Company's services or compress the length of the services provided, thereby negatively impacting prices. Weaker economic conditions can also lead to reluctance on outside companies' part to incur the expenditure associated with the Company's services. Item 2: Properties All office space for Company offices is leased. The leases typically have three to five year terms and some have renewal options. The Company leases approximately 675,000 square feet for all Company offices, including the corporate headquarters, at an aggregate yearly rental cost of approximately $16,037,000. Most of these leases are also subject to annual operating expense escalation clauses. The Company believes its facilities are adequate to provide services to its clients. Item 3: Legal Proceedings The Company is not a party to, nor is its property the subject of, any material pending legal proceedings. Item 4: Submission of Matters to a Vote of Security Holders Not applicable. 10 Executive Officers of the Registrant Each of the following executive officers of the Company has been appointed by the Board of Directors to their current position set forth opposite his or her name. All of the executive officers are expected to devote their full business time to the Company's affairs. Name Age Position(s) Richard J. Pinola 53 Chairman of the Board of Directors and Chief Executive Officer Frank P. Louchheim 75 Founding Chairman and Director Joseph T. Smith 63 Vice Chairman of the Board of Directors John J. Gavin 42 President, Chief Operating Officer and Director G. Lee Bohs 39 Executive Vice President, Chief Financial Officer, Secretary and Treasurer Larry A. Evans 56 Executive Vice President and Director Dr. Marti D. Smye 48 Executive Vice President and Director Frederick R. Davidson 62 Chairman of Davidson & Associates, Pty. Ltd. and Director Peter J. Doris 52 Executive Vice President James E. Greenway 52 Executive Vice President Erik A. Dithmer 67 EVP - Northeast Group Terry W. Szwec 48 EVP - Canadian Group Gilbert A. Wetzel 66 EVP - Southeast Group Joan Strewler 48 EVP - North Central Group Timothy D. Dorman 51 EVP - Western Group Suzanne B. Levasseur 50 EVP - International Group 11 Mr. Pinola was elected as a Director by the Board in October 1989. Mr. Pinola is a Certified Public Accountant and joined Penn Mutual Life Insurance Company in 1969. He was appointed President and Chief Operating Officer of Penn Mutual Life Insurance Company in 1988, which positions he held until his resignation in September 1991. Mr. Pinola was a financial consultant to various organizations from September 1991 until July 1992, at which time he was appointed President and Chief Executive Officer of the Company. Effective January 1, 1994, Mr. Pinola was appointed Chairman of the Board of Directors and continues as Chief Executive Officer. Mr. Pinola also serves as a director of two outside companies: Epitaxx and K-Tron International, a publicly held company. Mr. Louchheim was one of the founders of the Company. From November 1980 until September 1987, he served as President, Chief Executive Officer and Chairman of the Board of Directors of the Company. He continued to serve as Chief Executive Officer and Chairman of the Board through December 1991. From January 1992 to December 1993, he served as the full-time Chairman of the Board of Directors. Effective January 1, 1994, Mr. Louchheim was appointed Founding Chairman and continues as a Director. Mr. Smith joined the Penn Mutual Life Insurance Company in 1963. In 1976, he was promoted to Vice President of Administration and Human Resources, which position he held until his resignation in 1980. From 1981 to 1984, Mr. Smith worked as an independent consultant offering a range of consulting services to businesses. He joined the Company as a Senior Consultant in Professional Services in August 1984 and, from August 1988 until September 1992 held the position of Regional Managing Principal of the Company's Philadelphia office. Mr. Smith was elected as a Director in May 1991. From September 1992 through December 1998, Mr. Smith served as the Company's Chief Operating Officer. Effective January 1, 1994, Mr. Smith was appointed President in which capacity he served until December 1998. Effective January 1, 1999, Mr. Smith was appointed Vice Chairman of the Board of Directors. Mr. Gavin was employed at Arthur Andersen LLP in Philadelphia for 18 years, during which time he served as the partner in charge of the manufacturing/distribution industries. Mr. Gavin joined the Company in December 1996 as Executive Vice President. In this capacity, Mr. Gavin was responsible for the overall marketing strategy and business development activities for the Company's worldwide locations. Effective January 1, 1999, Mr. Gavin was appointed President and Chief Operating Officer of the Company. Also effective January 1, 1999, Mr. Gavin was elected a Director by the Board of Directors. Mr. Gavin is a member of the Board of Advisors for Temple University's Fox School of Business and he is a member of the Board of Trustees of the Eagle's Fly for Leukemia Foundation. Mr. Bohs was employed at the regional Certified Public Accounting firm of Asher & Company, Ltd., from June 1981 to January 1987, initially as a staff accountant, and then as an accounting and auditing manager. He joined the Company as Manager of Financial Reporting in January 1987, and was elected Treasurer in December 1987 and Vice President, Finance, effective January 1989. From March 1991 until December 1995, Mr. Bohs served as Senior Vice President and Chief Financial Officer. He was appointed Secretary by the Board of Directors in May 1995. Effective January 1996, he was promoted to Executive Vice President and continues to serve as Chief Financial Officer. Mr. Bohs also serves as a director of Advantis Inc., a public company which provides short term office space and comprehensive business support services. 12 Mr. Evans was professionally involved in the international finance and venture capital industries, prior to May 1978. From May 1978 to November 1980, Mr. Evans was employed as an independent outplacement consultant for Bernard Haldane Associates, Inc., reporting to Mr. Louchheim. Since November 1980, Mr. Evans has served as Executive Vice President and a Director of the Company. From January 1990 until May 1995, Mr. Evans served as Regional Managing Principal of several Company offices. In May 1995, Mr. Evans joined the Company's corporate office where he works together with the Company's regional offices in marketing to major national and international accounts. Mr. Evans serves on various boards of both non-profit organizations and community associations. He also holds directorships with Data Com International, a silicon chip manufacturing company, 4 Internet, an internet company, and Knite, Inc., an automotive components manufacturing company. Dr. Smye was a partner of the industrial psychology firm, Jackson Smith, from 1981 to 1989. In 1989 she founded the change leadership consulting firm, People Tech Consulting, Inc. ("People Tech"). People Tech was acquired by the Company in April 1996. In addition, she is the author of three books titled You Don't Change a Company by Memo: The Simple Truths About Managing Change, Corporate Abuse: How "Lean and Mean" Robs People and Profits and Is It Too Late to Runaway and Join the Circus? Dr. Smye also serves on various boards of both private companies and community associations, including the Harvard Business School Club of Toronto. In March 1999, Dr. Smye was elected an Executive Vice President of the Company by the Board of Directors. Mr. Davidson is the Chairman of Davidson and Associates, Pty. Ltd., an Asia-Pacific career transition firm of which the Company acquired a fifty-one percent interest during 1997 (see Note C to the Consolidated Financial Statements). Mr. Davidson was elected a Director by the Board of Directors in July 1997. Mr. Davidson has published numerous articles on career planning, termination practices and managing large scale staff reductions, and he is the author of The Art of Executive Firing and Handbook of Executive Survival. Mr. Davidson is the founding president of the Australian Association of Outplacement Consulting Firms. Mr. Doris was Senior Vice President of Human Resources for a large New York City based bank, prior to joining the Company in 1986. From 1986 to 1990, Mr. Doris was Senior Vice President, Sales and Operations of the Company. Effective January 1991, he became a Group Executive Vice President for the Southern region of the United States in which capacity he served until 1996. Since 1997, Mr. Doris has been working with the Company's regional offices in marketing to major national and international accounts. 13 Mr. Greenway was President of Consulting Group, Inc., an organizational and management development consulting firm. He has held management positions with Drake Beam Morin, McGraw-Hill and Lucky Stores. From 1989 to 1993, Mr. Greenway was Executive Vice President of Lee Hecht Harrison, a human resource and outplacement firm. He also was a member of their Executive Committee and Advisory Council. In addition, Mr. Greenway served as President of the Workforce Consulting Group, a global organizational and career management firm. Mr. Greenway joined the Company in September 1997 as a Senior Vice President. Effective July 1, 1998, he was promoted to Executive Vice President responsible for coordinating the sales and marketing activities for the firm, in which capacity he currently serves. Mr. Dithmer had a 25-year career at Union Carbide, where he held a number of senior sales, marketing and general management positions, both domestic and international. Mr. Dithmer joined the Company in 1982 as a Client Services Consultant and successfully built a major portfolio of corporate clients. In 1990, he became Senior Vice President responsible for the total sales activities of the New York office. At the end of 1997, Mr. Dithmer was promoted to Group Executive Vice President for the Metro New York Group. In 1998 his responsibilities were expanded to include three more offices, in which Mr. Dithmer currently serves as the Executive Vice President for the Northeast Group. Mr. Dithmer has been affiliated with various associations and he is the Founder and former President of the American Chamber of Commerce, Costa Rica. Mr. Szwec was employed as Product Manager for Bristol Myers Canada, Ltd. from 1969 until 1970, when he left to become Manager of Training and Development for de Havilland Aircraft, Ltd. In 1976, Mr. Szwec became Director of Human Resources for Control Data Canada, Ltd., where he stayed until 1986 when he began his own consulting practice specializing in executive training and development, human resources effectiveness and career planning. Mr. Szwec joined the Right Associates(R) network in 1987 as the Regional Managing Principal of the Toronto Affiliate office. Mr. Szwec joined the Company in November 1990 as Regional Managing Principal of the Company's Toronto region. Effective January 1, 1994, Mr. Szwec became Group Executive Vice President for the Canadian operations of the Company in which capacity he currently serves. Mr. Wetzel was associated with the Bell System serving as Chairman and Chief Executive Officer of Bell of Pennsylvania and Diamond State Telephone, prior to joining the Company in 1994. Effective December 1996, Mr. Wetzel became the Group Executive Vice President for the Company's Eastern Group. In 1998 his responsibilities were expanded to include overseeing operations for the entire Southeastern region of the United States in which capacity he currently serves. Mr. Wetzel serves as a director of Ace*Comm Corporation, a public company which develops, markets and services operations support systems products for networks deployed by telecommunications service providers using intranets and the Internet. 14 Ms. Strewler was the President of Career Dynamics, Inc. ("CDI") (see Note C to the Consolidated Financial Statements), an innovative leader in career transition services and organizational consulting. Effective with the Company's acquisition of CDI on August 1, 1997, Ms. Strewler became the Group Executive Vice President for the North Central Group of the United States in which capacity she currently serves. Ms. Strewler also serves on various boards of both private and not-for-profit companies, as well as industry trade associations, including the Association of Outplacement Consulting Firms - North America (AOCFNA) and the International Board of Career Management Certification. Mr. Dorman has held various executive positions in the career management industry. From 1990 to 1997, Mr. Dorman was a partner with Transitions Management Group, a regional career transition firm in San Francisco. From 1994 to 1997, he also served as Chairman and Chief Executive Officer of Outplacement International, a worldwide network of career management companies. Mr. Dorman joined the Company in early 1997 and in July 1997, he became the Group Executive Vice President for the West Group in which capacity he currently serves. Ms. Levasseur served in Japan as a consultant and advisor to various Japanese and US companies. She has worked for the U.S. Office of Personnel Management, in charge of European management design, communication and training. She has also worked as a Training Officer for NATO/SHAPE. In 1988, Ms. Levasseur established the international operations of the Management Research Group (MRG), a consulting firm, which included 38 partner locations in Europe, Africa and Asia Pacific when she left in 1998. Effective April 1, 1998, Ms. Levasseur joined the Company as Executive Vice President of the International Group. In this role she is responsible for the European operations of the Company and developing operations in Latin America. Each executive officer serves at the pleasure of the Board of Directors and has been elected for a term expiring with the first Board of Directors' meeting held after the next annual meeting of shareholders. PART II Item 5: Market for Registrant's Common Equity and Related Stockholder Matters The information required by this Item is incorporated by reference to the section titled "Common Stock Data" in the Company's 1998 Annual Report to Shareholders, the incorporated portions of which are included as Exhibit 13 to this Report. 15 Item 6: Selected Financial Data The information required by this Item is incorporated by reference to the section titled "Selected Financial Data" in the Company's 1998 Annual Report to Shareholders, the incorporated portions of which are included as Exhibit 13 to this Report. Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations The information required by this Item is incorporated by reference to the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 1998 Annual Report to Shareholders, the incorporated portions of which are included as Exhibit 13 to this Report. Item 7A: Quantitative and Qualitative Disclosures About Market Risks The information required by this Item is incorporated by reference to the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 1998 Annual Report to Shareholders, the incorporated portions of which are included as Exhibit 13 to this Report. Item 8: Financial Statements and Supplementary Data The information required by this Item is incorporated by reference to the sections titled "Consolidated Balance Sheets", "Consolidated Statements of Income", "Consolidated Statements of Shareholders' Equity", "Consolidated Statements of Cash Flows" and "Notes to Consolidated Financial Statements" in the Company's 1998 Annual Report to Shareholders, the incorporated portions of which are included as Exhibit 13 to this Report. Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 16 PART III The information called for by Items 10 through 13 of Form 10-K (except for the information set forth on pages 11-15 with respect to Executive Officers of the Registrant) is hereby incorporated by reference to the information set forth under the captions "Election of Directors", "Executive Compensation", "Voting Securities, Voting Rights and Security Ownership" and "Ratification of Appointment of Independent Public Accountants" contained in the Company's definitive Proxy Statement with respect to its 1999 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company's fiscal year. PART IV Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) The following documents are filed as a part of this Report: 1. Financial statements: The following is a list of financial statements which have been incorporated by reference from the Company's 1998 Annual Report to Shareholders, as set forth in Item 8: Report of Arthur Andersen LLP, Independent Public Accountants Consolidated Balance Sheets as of December 31, 1998 and 1997 Consolidated Statements of Income for each of the three years in the period ended December 31, 1998 Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 1998 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1998 Notes to Consolidated Financial Statements 2. Financial statement schedule: The following financial statement schedule for the Company is filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of the Company: Report of Arthur Andersen LLP, Independent Public Accountants Schedule II - Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable, not required, or because the required information is contained in the Company's Consolidated Financial Statements or the notes thereto. 17 3. Exhibits: The Exhibits listed on the accompanying Index to Exhibits are filed as part of, or incorporated by reference into, this Report, under Item 601 of Regulation S-K: INDEX TO EXHIBITS Exhibit No. - ------------ 3.1 Company's Articles of Incorporation, together with all amendments thereto (incorporated by reference to the Company's Form S-1 (File No. 33-9034), filed November 12, 1986). 3.2 Company's By-Laws (incorporated by reference to the Company's report on Form 10-K for the fiscal year ended December 31, 1988, filed March 30, 1989). 10.01 1986 Shareholders' Agreement (incorporated by reference to the Company's Form S-1 (File No. 33-9034), filed November 12, 1986). 10.02 401(k) Savings Plan (incorporated by reference to the Company's Form S-1 (File No. 33-9034), filed September 25, 1986). * 10.03 Amendment to Employment Agreement between Right Management Consultants, Inc. and Frank P. Louchheim, dated January 1, 1992 (incorporated by reference to the Company's report on Form 10-K for the fiscal year ended December 31, 1991, filed March 30, 1992). * 10.04 Supplemental Deferred Compensation Plan for Richard J. Pinola, dated July 1, 1992 (incorporated by reference to the Company's report on Form 10-K for the fiscal year ended December 31, 1991, filed March 30, 1992). * 10.05 Further Amendment to Amended and Restated Employment Agreement between Right Management Consultants, Inc. and Frank P. Louchheim dated February 16, 1993 (incorporated by reference to the Company's report on Form 10-K for the fiscal year ended December 31, 1992, filed March 31, 1993). * 10.06 1993 Stock Option Plan (incorporated by reference as Exhibit 4 filed in the Company's report on Form S-8 (File No. 33-58698), filed February 23, 1993). * 10.07 Purchase Agreement dated September 1, 1994 by and between Registrant and Jannotta, Bray and Associates, Inc. (Schedules omitted) (incorporated by reference to the Company's Form 8-K, dated September 1, 1994). 10.08 Purchase Agreement dated February 15, 1995 by and between Registrant and Worth Associates, Inc. and Robert A. Fish (incorporated by reference to the Company's report on Form 10-Q for the quarter ended March 15, 1995, filed May 15, 1995). 10.09 1993 Stock Incentive Plan, as amended (incorporated by reference to the Company's Proxy Statement for Annual Meeting of Shareholders held on May 4, 1995).* 10.10 Directors' Stock Option Plan of the Company (incorporated by reference to the Company's Proxy Statement for Annual Meeting of Shareholders held on May 4, 1995).* 10.11 Employment Agreement dated December 12, 1995 by and between Right Management Consultants, Inc. and Richard J. Pinola (incorporated by reference to the Company's Form 10K for the year ended December 31, 1995, filed March 31, 1996). * * These documents are compensatory plans or agreements required to be filed as Exhibits. 18 10.12 Employment Agreement and Supplemental Deferred Compensation Plan dated December 12, 1995 by and between Right Management Consultants, Inc. and Joseph T. Smith (incorporated by reference to the Company's Form 10K for the year ended December 31, 1995, filed March 31, 1996).* 10.13 Purchase Agreement between PTR Right Acquisition Co. Inc. and Marti Smye, Margaret Smith, Richard Zuliani, Margaret Smith Family Trust, Richard Zuliani Family Trust and People Tech Consulting, Inc. dated April 10, 1996 (incorporated by reference to the Company's report on Form 10-Q for the quarter ended March 31, 1996, filed May 14, 1996) 10.14 Employee Stock Purchase Plan of the Company (incorporated by reference as Exhibit 4 filed in the Company's report on Form S-8 (File No. 333-06211), filed June 18, 1996).* 10.15 Amendment to the 1993 Stock Incentive Plan (incorporated by reference to the Company's report on Form S-8 (File No. 333-07975), filed July 11, 1996).* 10.16 Credit Agreement between Right Management Consultants, Inc. and its wholly owned subsidiaries and PNC Bank, National Association dated December 20, 1996 (incorporated by reference to the Company's Form 8-K, dated January 17, 1997) 10.17 Employment Agreement dated April 10, 1996 by and between Right Management Consultants, Inc. and Marti Smye (incorporated by reference to the Company's report on Form 10K for the year ended December 31, 1996, filed March 28, 1997). * 10.18 Purchase Agreement between and among Right Management Consultants, Inc. and Frederick R. Davidson, Stradis Pty. Ltd., William D.T. Cowan, Phillip A. Lovett and David Stratford, and Right D&A Pty. Ltd. dated July 1,1997 (incorporated by reference to the Company's report on Form 10K for the year ended December 31, 1997, filed March 30, 1998). 10.19 Option and Escrow Agreement between and among Right Management Consultants, Inc. and Frederick R. Davidson, Stradis Pty. Ltd., William D.T. Cowan, Phillip A. Lovett and David Stratford, and B&McK Nominees dated July 1,1997 (incorporated by reference to the Company's report on Form 10K for the year ended December 31, 1997, filed March 30, 1998). 10.20 Amendment to Employment Agreement dated as of January 1, 1999 by and between Right Management Consultants, Inc. and Richard J. Pinola. * 10.21 Amendment to Employment Agreement dated as of January 1, 1999 by and between Right Management Consultants, Inc. and Joseph T. Smith. * 10.22 Employment Agreement and Supplemental Deferred Compensation Plan dated as of January 1, 1999 by and between Right Management Consultants, Inc. and John J. Gavin. * 10.23 Amendment to the 1993 Stock Incentive Plan * 10.24 Amendment to the 1996 Employee Stock Purchase Plan * * These documents are compensatory plans or agreements required to be filed as Exhibits. 19 13 Portions of the Company's 1998 Annual Report to Shareholders expressly incorporated by reference. 21 Subsidiaries of the Company. 23 Consent of Arthur Andersen LLP 27 Financial Data Schedule - 1998 + + Filed in electronic form only. (b) Reports on Form 8-K No Reports on Form 8-K were filed by the Company during the fiscal quarter ended December 31, 1998. 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 ------------------------------------ Richard J. Pinola, Chairman of the Board and Chief Executive Officer Dated: 3/25/99 21 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signatures Title Date /S/ RICHARD J. PINOLA Chairman of the Board 3/25/99 - -------------------------- and Chief Executive Officer Richard J. Pinola /S/ G. LEE BOHS Chief Financial 3/25/99 - -------------------------- Officer and Principal G. Lee Bohs Accounting Officer /S/ FRANK P. LOUCHHEIM Director 3/25/99 - -------------------------- Frank P. Louchheim /S/ JOSEPH T. SMITH Director 3/25/99 - -------------------------- Joseph T. Smith /S/ JOHN J. GAVIN Director 3/25/99 - -------------------------- John J. Gavin /S/ DR. MARTI D. SMYE Director 3/25/99 - -------------------------- Dr. Marti D. Smye /S/ JOHN R. BOURBEAU Director 3/25/99 - -------------------------- John R. Bourbeau /S/ RAYMOND B. LANGTON Director 3/25/99 - -------------------------- Raymond B. Langton /S/ CATHERINE Y. SELLECK Director 3/25/99 - -------------------------- Catherine Y. Selleck /S/ LARRY A. EVANS Director 3/25/99 - -------------------------- Larry A. Evans 22 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Right Management Consultants, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements of Right Management Consultants, Inc. and subsidiaries included in this Form 10-K and have issued our report thereon dated February 2, 1999. Our audit was made for the purpose of forming an opinion on those financial statements taken as a whole. The financial statement schedule listed on page 17 is the responsibility of the Company's management and is presented for the purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /S/ ARTHUR ANDERSEN LLP Philadelphia, Pennsylvania February 2, 1999 Right Management Consultants, Inc. Schedule II - Valuation and Qualifying Accounts and Reserves For the Years 1998, 1997 and 1996
Additions ----------------------------- Balance at Charged to Charged to Balance at Beginning of Costs and Other End of Description Year Expenses Accounts Deductions Year - ----------- ---- -------- -------- ---------- ---- 1998: - ----- Allowance for doubtful accounts $ 663,000 $ 576,000 -- $ 173,000 $1,066,000 =========== ========== Deferred income tax asset valuation reserve $ -- -- -- -- $ -- =========== ========== 1997: - ----- Allowance for doubtful accounts $ 552,000 $ 329,000 -- $ 218,000 $ 663,000 =========== ========== Deferred income tax asset valuation reserve $ 192,000 -- -- $ 192,000(1) $ -- =========== ========== 1996: - ----- Allowance for doubtful accounts $ 754,000 $ 28,000 -- $ 230,000 $ 552,000 =========== ========== Deferred income tax asset valuation reserve -- $ 192,000 -- -- $ 192,000 =========== ==========
(1) Reduction due to the utilization and expiration of certain foreign net operating losses. Exhibit Index Exhibit No. Description - ----------- ----------- 10.20 Amendment to Employment Agreement dated as of January 1, 1999 by and between Right Management Consultants, Inc. and Richard J. Pinola 10.21 Amendment to Employment Agreement dated as of January 1, 1999 by and between Right Management Consultants, Inc. and Joseph T. Smith 10.22 Employment Agreement and Supplemental Deferred Compensation Plan dated as of January 1, 1999 by and between Right Management Consultants, Inc. and John J. Gavin 10.23 Amendment to the 1993 Stock Incentive Plan 10.24 Amendment to the 1996 Employee Stock Purchase Plan 13 The Company's 1998 Annual Report to Shareholders, portions of which are incorporated by reference 21 Subsidiaries of the Company 23 Consent of Arthur Andersen LLP 27 Financial Data Schedule - 1998 + + Filed in electronic form only. EX-10 2 EXHIBIT 10.20 AMENDMENT TO EMPLOYMENT AGREEMENT THIS AMENDMENT TO EMPLOYMENT AGREEMENT is made as of the 1st day of January, 1999 by and between RIGHT MANAGEMENT CONSULTANTS, INC., a Pennsylvania corporation and RICHARD J. PINOLA. WHEREAS, the Company and Employee entered into an employment agreement as of December 12, 1995 (the "1995 Employment Agreement") which replaced an earlier employment entered into as of July 1, 1992. Pursuant to these two earlier agreements, Employee has been continuously employed by the Company since July 1, 1992. Defined terms used herein, shall have the same meaning as ascribed to them in the 1995 Employment Agreement, unless the context herein requires a different interpretation. WHEREAS, the Company desires to continue the employment of Employee, in accordance with the terms of the 1995 Employment Agreement, except as modified herein, and Employee desires to accept such employment. NOW, THEREFORE, in consideration of the facts, mutual promises and covenants contained in the 1995 Employment Agreement and herein, and intending to be legally bound hereby, Company and Employee agree as follows: 1. Term. Term of Employee's employment with Company shall be extended for a three (3) year period commencing as of January 1, 1999 and continuing up to and through December 31, 2001. 2. Base Salary. The base salary provided for in Section 4(a) of the 1995 Employment Agreement is amended from Four Hundred and Fifty Thousand Dollars ($450,000) to Five Hundred and Thirty Thousand Dollars ($530,000). The corresponding references to Four Hundred and Fifty Thousand Dollars ($450,000) in Sectopm 3(c) (regarding Change of Control) and Section 6(a) regarding Severance Compensation) are amended from Four Hundred and Fifty Thousand Dollars ($450,000) to Five Hundred and Thirty Thousand Dollars. ($530,000). 3. Deletion of Section 13. Sections 13 of 1995 Employment Agreement relating to Travel is deleted in its entirety; and Sections 14 (Company Property); 15 (Prior Agreements); and 16 (Miscellaneous) are changed respectively to be numbered Sections 13, 14 and 15. 4. Definition of Company's Business Activities. The definition of Company's Business Activites for purposes of Section 9 of the 1995 Employment Agreement is hereby amended to read as follows: For purposes of this Section 9, Company's business activities shall include, without limitation, the following: corporate outplacement, human resource consulting, and career consulting for employees, including spouse placement, career assessment, second career planning, and career options planning, career development, and consulting on the subjects of termination, severance policies, and retirement planning, reporting, evaluation, advisory, and communications services, and other human resources consulting and personnel services to client organizations; and any other such products, programs, and services as Company may hereafter commence marketing in the area of human resource consulting. 5. Ratification In All Other Respects. The 1995 Employment Agreement is hereby ratified and affirmed. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written. RIGHT MANAGEMENT CONSULTANTS, INC. By: /S/ JOSEPH T. SMITH ------------------------------- Joseph T. Smith, Vice Chairman EMPLOYEE /S/ RICHARD J. PINOLA ------------------------------- Richard J. Pinola EX-10 3 EXHIBIT 10.21 AMENDMENT TO EMPLOYMENT AGREEMENT THIS AMENDMENT TO EMPLOYMENT AGREEMENT is made as of the 1st day of January, 1999 by and between RIGHT MANAGEMENT CONSULTANTS, INC., a Pennsylvania corporation and JOSEPH T. SMITH. WHEREAS, the Company and Employee entered into an employment agreement as of December 12, 1995 (the "1995 Employment Agreement"). Defined terms used herein, shall have the same meaning as ascribed to them in the 1995 Employment Agreement, unless the context herein requires a different interpretation. WHEREAS, the Company desires to continue the employment of Employee, in accordance with the terms of the 1995 Employment Agreement, except as modified herein, and Employee desires to accept such employment. NOW, THEREFORE, in consideration of the facts, mutual promises and covenants contained in the 1995 Employment Agreement and herein, and intending to be legally bound hereby, Company and Employee agree as follows: 1. Term. Term of Employee's employment with Company shall be extended for a three (3) year period commencing as of January 1, 1999 and continuing up to and through December 31, 2001. 2. Base Salary. The base salary provided for in Section 4(a) of the 1995 Employment Agreement is amended from Three Hundred Thousand Dollars ($300,000) to Three Hundred and Fifty Thousand Dollars ($350,000). The corresponding references to Three Hundred Thousand Dollars ($300,000) in Section 3(c) (regarding Change of Control) and Section 6(a) regarding Severance Compensation) are amended from Three Hundred Thousand Dollars ($300,000) to Three Hundred and Fifty Thousand Dollars. ($350,000). 3. Deletion of Section 13. Sections 13 of 1995 Employment Agreement relating to Travel is deleted in its entirety; and Sections 14 (Company Property); 15 (Prior Agreements); and 16 (Miscellaneous) are changed respectively to be numbered Sections 13, 14 and 15. 4. Definition of Company's Business Activities. The definition of Company's Business Activites for purposes of Section 9 of the 1995 Employment Agreement is hereby amended to read as follows: For purposes of this Section 9, Company's business activities shall include, without limitation, the following: corporate outplacement, human resource consulting, and career consulting for employees, including spouse placement, career assessment, second career planning, and career options planning, career development, and consulting on the subjects of termination, severance policies, and retirement planning, reporting, evaluation, advisory, and communications services, and other human resources consulting and personnel services to client organizations; and any other such products, programs, and services as Company may hereafter commence marketing in the area of human resource consulting. 5. Ratification In All Other Respects. The 1995 Employment Agreement is hereby ratified and affirmed. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written. RIGHT MANAGEMENT CONSULTANTS, INC. By: /S/ RICHARD J. PINOLA --------------------------------- Richard J. Pinola, Chairman and Chief Executive Officer EMPLOYEE /S/ JOSEPH T. SMITH ---------------------- Joseph T. Smith EX-10 4 EXHIBIT 10.22 EMPLOYMENT AGREEMENT THIS AGREEMENT made as of the 1st day of January, 1999 by and between RIGHT MANAGEMENT CONSULTANTS, INC., a Pennsylvania corporation (hereinafter called "Company"), and JOHN J. GAVIN, an individual (hereinafter called "Employee"). WITNESSETH: Company desires to employ Employee, and employee desires to be employed by Company, on the terms and conditions hereinafter stated. NOW THEREFORE, in consideration of the facts, mutual promises and covenants contained herein and intending to be legally bound hereby, Company and Employee agree as follows: 1. Employment. Company hereby employs Employee and employee hereby accepts employment by Company for the period and upon the terms and conditions contained in this Agreement. 2. Office and Duties. (a) Employee shall serve Company as its President and Chief Operating Officer ("COO"), and, subject to continued election thereto by the Company's shareholders, as a member of Company's Board of Directors (the "Board"). The powers, authority and duties of the offices of President and COO of Company shall be those customary to such offices with corporations comparable to Company. (b) Throughout the term of this Agreement, Employee shall devote Employee's entire working time, energy, skill and best efforts to the performance of Employee's duties hereunder in a manner which will faithfully and diligently further the business and interests of Company. 3. Term. (a) The initial term of Employee's employment with Company under this Agreement shall be as of January 1, 1999 and continuing up to and through December 31, 2001. (b) Unless either party gives written notice of its intention to terminate Employee's employment under this Agreement at the end of the initial or any renewal term by giving the other party such notice, at least one hundred twenty (120) days prior to the expiration of the then current term, employee's employment under this Agreement shall be deemed to have been renewed for an additional term of one (1) year commencing on the day after the expiration of the then current term. Notwithstanding the foregoing, employee's employment with Company will not be renewed under this Agreement on or after December 31 of the calendar year in which Employee reaches sixty-five (65) years of age. (c) Notwithstanding the provisions of Sections 3(a) and 3(b) hereof, in the event that: (i) a "controlling interest" in the capital stock of Company is sold in a single transaction or a group of related transactions to one or more buyers acting in concert; (ii) Company sells all or substantially all of its assets; or (iii) Company is a party to any corporate merger or consolidation in which one or more parties acting in concert who did not previously hold a "controlling interest" in the capital stock of Company acquires or acquire such a "controlling interest" in the capital stock of Company or its successor entity (each such a event to constitute a "Change in Control"), Employee may, upon written notice to Company within sixty (60) days of such Change in Control, elect to: (A) continue Employee's employment with Company for the greater of the then current term or a period that expires two years from the date of the Change in Control; or (B) voluntarily terminate Employee's employment with Company and receive severance compensation as if this were a "Compensated Termination" pursuant to Section 6 hereof for a "Section 6 Period" that expires upon the later of the date the then current term would have expired but for the earlier termination described herein or two years from the date of the Change in Control. In the event that Employee elects to remain employed by Company pursuant to (A) above, the total amounts payable annually to employee for the period described in (A) shall be not less than the greater of: (I) the total amount of the Base Salary and Incentive Payments paid under Sections 4(a) and 4(b) during the 12-month period for the calendar year immediately preceding the Change in Control; or (II) Three Hundred Fifty Thousand Dollars ($350,000). For the purposes of this Section 3(c), a "controlling interest" in the capital stock will constitute that number of shares which, as a practical matter, permits the holder or holders to elect a majority of the members of the Board. It is agreed that shares of capital stock possessing the right to cast a majority or more of the votes entitled to be cast for the election of directors of Company shall conclusively constitute a "controlling interest", but that a block of shares possessing the right to cast less than a majority of the number of votes entitled to be voted may, under the circumstances then pertaining, constitute a "controlling interest". 4. Compensation and Benefits. (a) Base Salary. For all of the service rendered by Employee to Company, Employee shall receive a base salary (the "Base Salary") payable at an annual rate equal to Three Hundred Fifty Thousand Dollars ($350,000). Such Base Salary shall be payable in reasonable periodic installments in accordance with Company's regular payroll practices in effect from time to time. Employee's Base Salary is subject to annual review and adjustment at the discretion of Company, but in no event shall Company reduce the Base Salary to less than the amounts specified above during the periods referred to without the consent of employee. (b) Incentive Payments. In addition to the Base Salary, throughout the term of Employee's employment with Company hereunder, Company shall pay to Employee annually, a cash bonus as incentive compensation based upon Company's financial performance for that year ("Incentive Payments") in such amounts as are decided upon by the Board or its Compensation Committee. Any and all bonuses shall be determined based upon target and comparison that are consistent with those to be used by the Board in determining the amounts payable under Company's Incentive Compensation Plan for Senior Corporate Staff. In the event that the employment of Employee terminates otherwise than pursuant to Section 6 hereof, on a day other than the last day of a fiscal year of Company, in addition to Base Salary and other payments accrued through the effective date of the termination, Company shall pay to Employee the "pro rata portion" (as hereafter defined) of the Incentive Payments which would have been due to Employee if he had remained in the employ of Company for the full fiscal year in which Employee's employment terminated. For purposes of the immediately preceding sentence, the "pro rata portion" shall be obtained by dividing the number of days (including intervening weekend days and holidays) in the fiscal year that Employee was employed by Company by the number 365. (c) Fringe Benefits. Throughout the term of this Agreement and as long as they are kept in force by Company, employee shall be entitled to participate in and receive the benefits of any profit sharing or retirement plans and any health, life, accident or disability insurance plans or programs made available to other similarly situated employees of Company and shall be entitled to participate in the Supplemental Deferred Compensation Program attached hereto as Exhibit "A", but the participation of employee, if any, in Company's stock option, stock appreciation, "phantom" stock plans or similar plans, will be wholly within the discretion of the Board. With respect to the term of Employee's employment with Company under this Agreement, the Board has not made any determination with regard to Employee's participation in any stock option, stock appreciation, "phantom" stock plans or similar plans. However, the Company shall consider each year whether or not Employee shall be awarded any stock options. Company may, at its sole discretion add, delete or change any stock option, stock appreciation, or phantom stock plans that Employee may participate in upon notice to Employee. If this Agreement is not renewed by Company after the expiration of the then current term, Company shall provide to Employee outplacement consulting services then generally being made available by Company to executive candidates. (d) Vacation. Employee shall be entitled to vacation in accordance with Company's general policies with respect thereto from time to time. (e) Automobile. During the term of Employee's employment with Company under this Agreement, Company shall furnish Employee with the use of a luxury automobile, insurance thereon, and the costs of fuel, maintenance and necessary repairs as incurred. Employee shall be permitted unrestricted use of such automobile without the obligation to account or reimburse Company for any personal use thereof. During the same period, Company shall provide Employee, at no cost to Employee, one private-reserved covered parking space located in or close to the building in which Employee's office is located. (f) Accounting Services. At an appropriate time each year during the term of Employee's employment with Company under this Agreement, Company shall make available to Employee, at no cost to Employee, the services of the certified public accounting firm which audits Company's financial statements for the purpose of preparing all of Employee's federal, state and local income tax and estimated income tax returns for such year and counselling Employee with respect thereto. Employee hereby acknowledges that Company shall bear no responsibility for the accuracy, quality or completeness of any such tax returns prepared by such certified public accounting firm. (g) Financial Planning Services. During the term of Employee's employment with Company under this Agreement, Company shall furnish Employee, at no cost to Employee, ten (10) hours per year of financial counselling services. The services shall be rendered by any national accounting firm or firms with which Company from time to time has an ongoing relationship for the purpose of providing financial counselling in conjunction with Company's outplacement services, providing that such firm has a Philadelphia, Pennsylvania office, or if and for as long as there is no such firm, by a financial counsellor or financial counselling firm selected by Employee and approved by Company. (h) Withholding Taxes. The Base Salary, Incentive Payments and all other cash and non-cash payments to Employee hereunder shall be subject to, and paid net of all applicable withholding requirements of federal, state and local law. 5. Expenses. Company will reimburse Employee for all reasonable expenses incurred by Employee in connection with the performance of Employee's duties upon receipt of vouchers therefore and in accordance with Company's regular reimbursement procedures and practices in effect from time to time. 6. Severance Compensation. (a) In the event of a "Compensated Termination" (as that term is defined below), Company shall pay Employee as severance compensation, payable in equal monthly installments (with properly pro rated payments for periods of less than a full month) during the "Section 6 Period" (as that term is hereafter as defined), an amount equal to the greater of: (i) the Base Salary plus Incentive Payments paid to Employee during the 12 month period immediately preceding such Compensated Termination; or (ii) Three Hundred Fifty Thousand Dollars ($350,000). As used herein the term "Compensated Termination" shall mean any one of the following events: I. Company elects to terminate Employee's employment under this Agreement pursuant to the provisions of Section 3(b) hereof at the end of the initial term or any renewal term hereof; II. Company at any time other than the end of initial term or any renewal term hereof terminates the employment of Employee under the Agreement, otherwise than as provided in Section 10 ("Discharge for Cause") hereof; or III. Employee terminates employment with Company pursuant to Section 11 hereof. As used herein, the term "Section 6 Period" shall mean the longer of: (i) one year from the date a Compensated Termination occurs; or (ii) the period beginning on the date a Compensated Termination occurs and ending on the date upon which the then current term of Employee's employment with Company, as such term may have been extended pursuant to Section 3(c) hereof, would have ended but for the occurrence of the Compensated Termination. (b) In the event of a Compensated Termination, for the entire Section 6 Period, Company shall continue to provide, at no cost to Employee, life, medical and dental insurance to Employee providing coverages equal to the coverages made available to Employee and his dependents on the date of the termination of his employment. (c) In the event that any part of any payment or benefit to Employee under Sections 6(a) and 6(b) of the Agreement or under this Section 6(c) or any other payment made or benefit conferred by Company to Employee constitutes an "excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and any regulations or other authorities relating thereto, but excluding payments which are described in Section 280G(b)(2)(B) of the Code, Company will pay to Employee as additional compensation (i) the amount of all taxes due from Employee under Section 4999 of the Code and (ii) the amount equal to all federal, state and local income taxes and business privilege taxes based upon net income (collectively, the "Taxes") due from Employee upon all payments made by Company to Employee under this Section 6(c). It is the intention of the parties that Employee receive all payments and benefits from Company net of the tax under Section 4999 of the Code and net of all taxes due upon all payments under this Section 6(c), and the terms of this Section 6(c) shall be construed and implemented by the parties to effectuate this intent. (d) Notwithstanding anything to the contrary contained above in this Section 6 or any other portion of this Agreement, the Company shall not be required to make any of the payments or provide any of the other benefits set forth above in this Section 6 or otherwise on account of any Compensated Termination unless and until Employee has, if the Company so requests after Employee's termination, resigned from the Boards of Directors (and/or any committees thereof) of the Company and any affiliates of the Company, all as requested by the Company. 7. Disability. (a) If Employee becomes unable to perform Employee'ss duties hereunder due to partial or total disability or incapacity resulting from a mental or physical illness, injury or any similar cause, Company will continue the payment of Employee's total compensation at its then current rate for a period of three (3) months following the date Employee is first unable to perform the duties due to such disability or incapacity. Thereafter, Company shall have no obligation for the Base Salary or other compensation payments to Employee during the continuance of such disability or incapacity, except that Company shall pay to Employee, based upon the portion of the calendar year that Employee was able to perform the duties prior to the disability, the pro rata portion of the Incentive Payments that Employee would have earned if he had remained in the employ of the Company for the full calendar year (payable at such time that Employee would have received such Incentive Payment). Employee shall receive such benefits, if any, as are then provided under Company's standard disability coverage provided to employees generally, if and only if the same is then in effect. (b) If Employee is unable to perform Employee's duties hereunder due to partial or total disability or incapacity resulting from a mental or physical illness, injury or any similar cause for a period of six (6) consecutive months, Company shall have the right to terminate this Agreement at any time thereafter, in which event Company shall have no further obligations or liabilities hereunder after the date of such termination. 8. Death. If Employee dies, all payments hereunder shall continue for a period of three (3) months after the end of the week in which Employee's death shall occur, at which point such payments shall cease and Company shall have no further obligations or liabilities' hereunder to Employee's estate or legal representative or otherwise, except that Company shall pay to Employee's estate or legal representative, based upon the portion of the calendar year that Employee was employed by Company prior to Employee's death, the prorated portion of the Incentive Payments Employee would have earned if he had remained in the employ of Company for the full calendar year (payable at such time that Employee would have received such Incentive Payment). 9. Non-Competition, Trade Secrets, etc. (a) During the term of this Agreement and for a period of two (2) years after the termination of such Agreement, Employee shall not directly or indirectly induce or attempt to influence any employee of Company to terminate employment with Company and shall not engage in (as a principal, partner, director, officer, agent, employee, consultant or otherwise) or be financially interested in any business operating within the continental United States, which business is involved in the business activities which are the same as, similar to or in competition with business activities carried on by Company, or being definitely planned by Company, at the time of such termination. For purposes of this Section 9, Company's business activities shall include, without limitation, the following: corporate outplacement, human resource consulting, and career consulting for employees, including spouse placement, career assessment, second career planning, and career options planning, career development, and consulting on the subjects of termination, severance policies, and retirement planning, reporting, evaluation, advisory, and communications services, and other human resources consulting and personnel services to client organizations; and any other such products, programs, and services as Company may hereafter commence marketing in the area of human resource consulting. (b) For a similar period of two (2) years after termination of this Agreement, Employee shall not contact directly or indirectly or cause to be contacted directly or indirectly any clients or customers of Company for the purpose of competitively soliciting business in competition with Company. Without limiting the foregoing, for a period of two (2) years after termination of this Agreement, Employee shall not competitively solicit business from clients, customers or competitors of Company within the continental United States through the means or use of property in which Company has an ownership interest or a license pursuant to Section 9(d) hereof. (c) During the term of this Agreement and at all times thereafter, Employee shall not use for Employee's personal benefit, or disclose, communicate or divulge to, or use for the direct or indirect benefit of any person, firm, association or company other than Company, any information regarding the business methods, business policies, procedures, techniques, research or development projects or results, trade secrets, or other knowledge or processes used or developed by Company or any name or addresses of customers or clients or any data on or relating to past, present or prospective customers or clients or any other confidential information relating to or dealing with the business operations or activities of Company, made known or learned or acquired by Employee while in the employ of Company. (d) Any and all writings, inventions, improvements, computer programs, processes, procedures or techniques (hereinafter "Inventions") which Employee may make, discover or develop either solely or jointly with any other person or persons (hereinafter "Co-Inventor(s)") at any time during the term of and as part of Employee's employment with Company which relate to any business being conducted or carried on by Company at the time of invention shall be the sole and exclusive property of Company, subject to the rights of the Co-Inventor(s) in the Inventions. Any and all Inventions which Employee may make, discover or develop either solely or jointly with any Co-Inventor(s) other than a part of Employee's employment with Company which are useful in connection with any business being conducted, carried on or definitely planned by Company at the time of invention shall be subject to a perpetual license to Company, subject to any rights of Co-Inventor (s). The amount of the royalty shall be agreed upon by Company and Employee. In the event that they cannot agree, such royalty shall be determined by arbitration by three arbitrators, one selected by Company, one selected by Employee and the third selected by the first two arbitrators. During the term of this Agreement, Employee shall make full disclosure to Company of all such Inventions. It shall be presumed that any Inventions which Employee shall make, discover or develop either solely or jointly with any Co-Inventor(s) during the two-year period after termination of employment with Company shall have been developed in part during the term of employment, and Employee shall have the burden of proof in demonstrating that no such development occurred during such term of employment. With respect to those Inventions as to which Company is to acquire title hereunder, Employee shall do everything necessary or desirable to vest such title in Company, and Employee shall write and prepare all specifications and procedures regarding such Inventions and otherwise aid and assist Company so that Company can prepare and present applications for copyrights or patents therefor and can secure such copyrights or patents wherever possible, as well as reissues, renewals and extensions thereof, and can obtain record title to such copyright or patents in all countries in which it may desire to have copyright or patent protection. Employee shall not be entitled to any additional or special compensation for rights to Inventions which Company acquires hereunder. (e) Employee also agrees, during the term of this Agreement and thereafter, not to disparage or deprecate, directly or indirectly, the reputation, professionalism, character, competence, integrity or motives of the Company, any subsidiary or any affiliate thereof, or any of their officers, trustees, directors, employees, attorneys, agents or family members. (f) Employee acknowledges that the restrictions contained in this Section 9, in view of the nature of the business in which Company is engaged, are reasonable and necessary in order to protect the legitimate interests of Company, and that any violation thereof would result in irreparable injuries to Company, and Employee therefore acknowledges that, in the event of Employee's violation of any of these restrictions, Company shall be entitled to obtain from any court of competent jurisdiction preliminary and permanent injunctive relief a well as damages and an equitable accounting of all earnings, profits and other benefits arising from such violation, which rights will be cumulative and in addition to any other rights or remedies to which Company may be entitled. (g) If the period of time or the area specified in this Section 9 should be adjudged unreasonable in any proceeding, then the period of time shall be reduced by such number of months or the area shall be reduced by the elimination of such portion thereof or both so that such restrictions may be enforced in such area and for such time as is adjudged to be reasonable. If Employee violates any of the restrictions contained in the foregoing subparagraph (a), the restrictive period shall not run in favor of Employee from the time of the commencement of any such violation until such time as such violation shall be cured by Employee to the satisfaction of Company. 10. Discharge for Cause. Company may discharge Employee at any time for criminal conduct (whether or not related to Employee's employment), gross negligence, any violation of any express direction or any reasonable rule or regulation established by Company's Board from time to time regarding the conduct of its business, or any violation by Employee of the terms and conditions of this Agreement, in which event Company shall have no further obligations or liabilities hereunder after the date of such discharge. 11. Compensated Termination by Employee. The occurrence of any of the following events shall give Employee grounds to effect a Compensated Termination under Section 6 hereof: (a) Employee is not elected or reelected, as the case may be, to the executive offices of Company when and as specified in Section 1 hereof or Employee's responsibilities as an executive officer, employee and Board member of Company are materially changed by Company without Employee's prior written consent; (b) At any time during the term of Employee's employment with Company, the removal of Employee from membership on the Board or the failure of the shareholders of Company to reelect Employee to the Board; (c) Company, without the consent of Employee, relocates its corporate headquarters offices outside of the Philadelphia Metropolitan Statistical Area, as such term is defined by the Office of Management and Budget, or bases Employee elsewhere than in its corporate headquarters offices; (d) Any material reduction in the facilities, staff and support services made available to Employee by Company at any time provided that such reduction was made without the consent of Employee. Employee may effect a Compensated Termination only if Employee shall terminate employment with Company for any of the reasons set forth within thirty (30) days of the date Employee discovers the existence of the event which gives rise to a right of termination, by giving notice of termination to Company. 12. Indemnification. At all times during and after Employee's employment with Company, Company shall indemnify Employee against expenses (including legal fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by Employee, to the extent now or hereafter permitted by law and Company's By-Laws, in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, brought or threatened to be brought against Employee, including actions or suits by or in the right of Company, by reason of the fact that Employee is or was a director, officer, employee or agent of Company, its parent or any of its subsidiaries, or acted as a director, officer, employee or agent or in any other capacity on behalf of Company, its parent or any of its subsidiaries or is or was serving at the request of Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, provided that Employee acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of Company and, with respect to any criminal proceeding, Employee had no reasonable cause to believe Employee's conduct was unlawful. Company shall pay expenses incurred by Employee in defending such a civil or criminal action, suit or proceeding in advance of the final disposition of such suit or proceeding upon receipt of an undertaking by or on behalf of Employee to repay such amount if it is ultimately determined that he is not entitled to be indemnified by Company as authorized by Company's By-Laws or by law. 13. Company Property. (a) All counseling, advertising, sales, and other materials or articles of information, including without limitation data processing reports, customer sales analyses, invoices, price lists or information, samples or any other materials or data of any kind furnished to Employee by Company or developed by Employee on,behalf of Company or at Company's direction or for Company s use or otherwise in connection with Employee's employment hereunder, are and shall remain the sole and confidential property of Company; if Company requests the return of such materials at any time during or at or after the termination of Employee's employment, Employee shall immediately deliver the same to Company. (b) Upon the termination of employment for any reason other than for cause or the death of Employee, Employed shall have the option, exercisable only by written notice given to Company within twenty (20) days after termination of employment (i) to acquire any automobile then being used by Employee and owned by Company for a purchase price equal to the then book value of such automobile, as determined by Company or (ii) to acquire Company's leasehold rights to any such automobile leased by Company (if, and only if, the lessor agrees to such acquisition without requiring any payment or guarantee or any other concessions by Company) by assuming, and agreeing to hold Company harmless against, all of Company's obligations with respect thereto accruing from and after the date that the transfer of title takes place. Employee shall pay all sales and use taxes relating to any such sale or acquisition. Closing of any such acquisition by Employee shall take place at such time as shall be mutually agreeable to the parties, but in no event more than twenty (20) days after the exercise of this option, at such place as Company shall specify. 14. Prior Agreements. Employee represents to Company (a) that there are no restrictions, agreements or understandings whatsoever to which Employee is a party which would prevent or make unlawful Employee's execution of this Agreement or Employee's employment hereunder, (b) that Employee's execution of this Agreement and employment hereunder shall not constitute a breach of any contract, agreement or understanding, oral or written, to which Employee is a party or by which Employee is bound and (c) that Employee is free and able to execute this Agreement and to enter into employment by Company. 15. Miscellaneous. (a) Indulgences, Etc. Neither the failure nor the delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as.a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver. (b) Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance and enforcement (including, without limitation, provisions concerning limitations of actions), shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, notwithstanding any conflict-of-laws doctrines of such state or other jurisdiction to the contrary, and without the aid of any canon, custom or rule of law requiring construction against the draftsman. (c) Notices. All notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made and received two days following the day when deposited with an overnight courier service such as Federal Express, for delivery to the intended addressee or two days following the day when deposited in the United States mails, registered mail return receipt requested, addressed as set forth below: If to Employee: Mr. John J. Gavin 1612 Claudia Way North Wales, PA 19454 If to Company: Right Management Consultants, Inc. 1818 Market Street, 33rd Floor Philadelphia, PA 19103 Attention: Chairman of the Board In addition, notice by mail shall be by air mail if posted outside of the continental United States. Any party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this paragraph for the giving of notice. (a) Binding Nature of Agreement. This Agreement shall be binding and inure to the benefit of Company and its successors and assigns and shall be binding upon Employee, Employee's heirs and legal representatives. (b) Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. Any photographic or xerox copy of this Agreement, with all signatures reproduced on one or more sets of signature pages, shall be considered for all purposes as if it were an executed counterpart of this Agreement. (c) Provisions Separable. The provisions of this Agreement are independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. (d) Entire Agreement. This Agreement constitutes the entire understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or condition, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. (e) Paragraph Headings. The paragraph headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. (f) Gender, Etc. Words used herein, regardless of the number of gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context indicates is appropriate. (g) Number of Days. In computing the number of days for purposes of this Agreement, all days shall be counted, including Saturdays, Sundays and holidays; provided, however, that if the final day of any time period falls on a Saturday, Sunday or holiday on which federal banks are or may elect to be closed, then the final day shall be deemed to be the next day which is not a Saturday, Sunday or holiday. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written. RIGHT MANAGEMENT CONSULTANTS, INC. By: /S/ RICHARD J. PINOLA -------------------------------------- Richard J. Pinola, Chairman and Chief Executive Officer /S/ JOHN G. GAVIN (SEAL) -------------------------------------- John J. Gavin, Employee EXHIBIT "A" SUPPLEMENTAL DEFERRED COMPENSATION PLAN Supplemental Deferred Compensation Plan ("Plan") for John J. Gavin ("Employee") pursuant to Section 4(c) of the Employment Agreement dated as of January 1, 1999 (the "Employment Agreement") between Employee and Right Management Consultants, Inc. ("Company"). Except as otherwise specified herein, all terms used herein shall have the same meaning as such terms have in the Employment Agreement. 1. Definitions. A. "Age" shall mean the age of Employee as of Employee's last birthdate. B. Compensation. "Compensation" shall mean Employee's cash compensation, which includes Base Salary and Incentive Payments only, earned by Employee in Employee's capacity as an employee of Company with respect to a Plan Year. C. Deferred Benefit Account. "Deferred Benefit Account" shall mean the account maintained on the books of Company for Employee pursuant to Paragraph 2 hereof. D. Determination Date. "Determination Date" shall mean the last day of each Plan Year or such other dates as may be established by the Committee. E. Disability. "Disability" shall mean that Employee is unable to perform Employee's duties hereunder due to partial or total disability or incapacity resulting from a mental or physical illness, injury or any similar cause for a period of six (6) consecutive months. If there is any dispute as to Employee's physical or mental disability, the question shall be settled by the opinion of a duly licensed medical or osteopathic physician selected by the mutual consent of Employee and Company or their representatives. Certification of that physician as to the matter in dispute shall be final and binding upon the parties. F. Interest Yield. "Interest Yield" shall mean an effective annual yield which, with respect to any calendar year, is a rate equal to the annual interest rate of the two year guaranteed investment contract index as published in the Wall Street Journal on the November 30 of that calendar year. Company may, in its discretion and with notice to Employee no later than November 15 of such calendar year, base the Interest Yield instead on a rate that is consistent with annual interest rates used by Company in connection with Company's other non-qualified deferred compensation plans for other senior executives of Company. G. Plan Year. "Plan Year" shall mean the calendar year. H. Normal Retirement Date. "Normal Retirement Date" shall mean the first date of the month following Employee's sixty-fifth (65th) birthday. I. Termination of Service. "Termination of Service" shall mean Employee's ceasing to be an employee of the Company for any reason other than death or discharge for cause pursuant to Section 10 of the Employment Agreement. 2. Deferred Benefit Account. A. Establishment of Account. Company shall establish a Deferred Benefit Account on its books for Employee. The balance of Employee's Deferred Benefit Account shall consist of the sum of all amounts credited to the account pursuant to Paragraph 2B, less the sum of all distributions and benefit payments made to Employee. Employee's Deferred Benefit Account shall be utilized solely as a device for the measurement and determination of the amounts to be paid to Employee pursuant to the plan. B. Credits to Account. Company shall credit Employee's Deferred BenefIt Account with the following amounts at the times specified: (1) Five percent (5%) of Compensation credited as of the Determination Date, provided, however, that (i) the amount credited may be reduced, at the discretion of Company, by the amount Company is required to withhold under any federal, state or local law for taxes or other charges. (2) As of the Determination Date, an amount equal to the interest earned since the last preceding Determination Date. For purposes of the foregoing, interest earned shall be calculated by applying the Interest Yield, reduced to a nominal monthly rate, to the average daily balance of the Deferred Benefit Account since the last preceding Determination Date. 3. Vesting of Deferred Benefit Account Balance. Employee shall be vested in the Deferred Benefit Account balance according to the following schedule. Age % Vested 61 20% 62 40% 63 60% 64 80% 65 100% Notwithstanding the above schedule, Employee shall become fully-vested upon Employee's Death, Disability or Termination of Service. The Board may elect to accelerate the Age or time in which Employee can become fully vested in the Deferred Benefit Account balance. 4. Benefits. A. Retirement Benefits. Upon Employee's Termination of Service on or after his Normal Retirement Date, provided that Employee continuously served Company as an employee to that time, Employee shall receive, as deferred compensation for services rendered prior to such date, a benefit equal to the amount of Employee's Deferred Benefit Account balance (determined in accordance with Paragraph 2B(2)), payable as a life annuity in equal monthly installments with interest on the unpaid balance at a rate equal to the Interest Yield. Such annuity payments shall be based upon the 1983 Group Annuity Mortality tables. B. Benefits Upon Early Termination of Service. Upon Employee's Termination of Service prior to Employee's Normal Retirement Date, Employee shall receive, as deferred compensation for services rendered prior to such date, a benefit equal to the amount of Employee's Deferred Benefit Account balance (determined in accordance with Paragraph 2B(2)), payable in a lump sum within one (1) month of such Termination of Service; provided however, that Company may, at Company's sole option, elect to retain in the Deferred Benefit Account that amount of the Deferred Benefit Account Balance in excess of $100,000 to be payable to Employee as a life annuity in equal monthly installments with interest on the unpaid balance at a rate equal to the Interest Yield , beginning on the first day of the month after the date that would have been Employee's Normal Retirement Date had such Termination of Service not earlier occurred. Company shall notify Employee of such an election prior to the date the lump sum payment is due. The annuity payments shall be based upon the 1983 Group Annuity Mortality tables. C. Disability. If Employee suffers a Disability prior to Termination of Service and before receiving any benefits under Paragraph 4A, Employee's beneficiary shall receive payment equal to the amount of Employee's Deferred Benefit Account balance (determined in accordance with Paragraph 2B(2)), in a lump sum within one (1) month of the date of Employee's Disability. Payment of such benefit shall relieve Company of the obligation to pay any other benefit which Employee would have otherwise received under this plan. D. Survivorship Benefits. (1) Prior to Commencement of Retirement Benefits. If Employee dies prior to Termination of Service and before receiving any benefits under Paragraph 4A, Employee's beneficiary shall receive payment equal to the amount of Employee's Deferred Benefit Account balance (determined in accordance with Paragraph 2B(2)), in a lump sum within one (1) month of the date of Employee's death. Payment of such benefit shall relieve Company of the obligation to pay any other benefit which Employee would have otherwise received under this plan. (2) After Commencement of Benefits. If Employee dies after benefit payments under Paragraphs 4A or 4B have commenced, Company shall continue to pay the remaining payments to Employee's beneficiary in accordance with the payment terms and schedule in effect at the time of death until the full balance of the Deferred Benefit Account are paid. E. Commencement of Payments. Benefit payments required under Paragraphs 4A, 4B, 4C or 4D shall commence on the first day of the month following the Employee's Termination of Service, Disability or death, as the case may be. F. Special Distributions. The foregoing provisions of this Paragraph 4 notwithstanding, Company may, in its sole discretion, make distributions to Employee or beneficiaries in a lump sum or in such other payment forms not provided for in Paragraphs 4A, 4B, 4C or 4D. Any such distribution shall reduce the Deferred Benefit Account balance of Employee or beneficiary by the amount of the distribution. 5. Beneficiaries. A. Designation. Employee shall designate a beneficiary or beneficiaries to receive any benefits payable on Employee's behalf after Employee's death by delivering a written notice of such designation to Company in such form as Company shall prescribe. Employee may revoke or modify the designation at any time by a further written designation. Employee's beneficiary designation shall be deemed automatically revoked in the event the designated beneficiary predeceases Employee. If no designation shall be in effect at the time when any benefits payable to a beneficiary under this plan shall become due, the beneficiary shall be the spouse of Employee, or if no spouse is then living, the beneficiaries shall be the Employee's children, per stirpes, or, if none, all payments under this plan shall be made to Employee's estate. B. Payments to Minors and Incompetents. In the event Employee is an incompetent, or a benefit is payable to a beneficiary who is a minor or person declared incompetent, or who is a person incapable of handling the disposition of Employee's property, Company may pay such benefit to the guardian or legal representative, or if none, to any other person having the care or custody of the Employee or beneficiary. Company may require such proof of incompetency, minority, legal custody, guardianship, etc. as it deems appropriate prior to distribution of the benefit. Such distribution shall completely discharge Company and its officers and directors from all liability with respect to such benefit. 6. Benefits Subject to Company's Creditors. Any amounts subject to this plan, shall be subject to claims of general creditors of Company. The right of Employee or Employee's beneficiary to receive payment of plan benefits from Company assets shall be solely that of a general, unsecured creditor of Company. 7. Change of Control. Notwithstanding the provisions of Paragraph 6, in the event that: (i) a "controlling interest" in the capital stock of Company is sold in a single transaction or a group of related transactions to one or more buyers acting in concert, (ii) Company sells all or substantially all of its assets, or (iii) Company is a party to any corporate merger or consolidation in which one or more parties acting in concert who did not previously hold a "controlling interest" in the capital stock of Company acquires or acquire such a "controlling interest" in the capital stock of Company or its successor entity (individually and collectively a "Change in Control"), Company shall establish a trust agreement and shall from time to time transfer into the trust sufficient assets to meet Company's obligation to pay Plan benefits to Employee and Employee's beneficiaries. The Agreement under which the trust is created shall provide that the trustee shall hold the trust assets separate and apart from the other assets of Company; the trust shall not terminate until all benefits payable under this Plan are actually paid to trust beneficiaries or Company is no longer obligated to pay benefits to Employee under this Plan pursuant to Section 9 hereof; and that the trust shall be structured so that Employee shall not be charged with income, for Federal and state income tax purposes, at the time the trust is funded or upon the lapse of the noncompetition forfeiture provision of Section 9 hereof (so as to be structured as what is commonly referred to as a "Rabbi Trust"). At the termination of the trust, trust assets not needed to pay benefits under the Plan shall be returned to Company. In addition, if there shall be a Termination of Service within two (2) years of a Change in Control, Employee shall be entitled to begin receiving retirement benefits under this Plan as if Employee had reached the Normal Retirement Date at or prior to such termination. For the purposes of this Paragraph 7, a "controlling interest" in the capital stock will constitute that number of shares which, as a practical matter, permits the holder or holders to elect a majority of the members of the Board. It is agreed that shares of capital stock possessing the right to cast a majority or more of the votes entitled to be cast for the election of directors of Company shall conclusively constitute a "controlling interest", but that a block of shares possessing the right to cast less than a majority of the number of votes entitled to be voted may, under the circumstances then pertaining, constitute a "controlling interest". 8 Amendment and Termination. A0 The Company may at any time amend or terminate the Plan; provided, however, that the Deferred Benefit Account balance may not be reduced or terminated thereby. B0 Notwithstanding any other provision of this Plan to the contrary, upon the termination of this Plan for any reason, the Deferred Benefit Account Balance at the time of such termination shall be determined in accordance with Paragraph 2B(2) hereof. 9 Non-Competition, Trade Secrets, etc. If Employee shall act in such a manner as to, in Company's judgment; violate the provisions of Section 9 of the Employment Agreement ("Non-Competition, Trade Secrets, etc."), Employee shall forfeit all benefits accrued under this Plan and Company shall have no further obligations to Employee hereunder. 10 Miscellaneous. A0 Assignment of Benefits. Neither Employee nor any beneficiary under this plan shall have any right to assign, transfer, pledge or otherwise encumber the right to receive any benefits hereunder, and any attempted assignment, transfer, pledge or other encumbrance shall be void and have no effect. B0 Employment Not Guaranteed by Plan. Neither this plan nor any action taken hereunder shall be construed as giving Employee the right to remain as an employee of Company for any period. C0 Tax Deduction. Company shall deduct from all benefit payments all applicable federal, state or local taxes required by law to be withheld from such payments. D0 Construction. This Plan shall be construed according to the laws of the Commonwealth of Pennsylvania. E0 Form of Communication. Any election, claim, notice or other communication required or permitted to be made by a Employee or beneficiary under this plan shall be made in writing and in such form as shall be prescribed by Company. Such communication shall be effective upon mailing if sent first class mail, postage pre-paid, return receipt requested. F0 Captions. The captions at the head of a paragraph of this plan are designed for convenience of reference only and are not to be resorted to for the purpose of interpreting any provision of this Plan. G0 Entire Agreement. This plan constitutes the entire understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings inducements or conditions, express or implied, oral or written, except as herein contained. ADOPTED as of this 1st day of January, 1999, pursuant to authority vested in the undersigned officer. RIGHT MANAGEMENT CONSULTANTS, INC. By: /S/ RICHARD J. PINOLA -------------------------------------- Richard J. Pinola, Chairman and Chief Executive Officer EX-10 5 EXHIBIT 10.23 AMENDMENT TO RIGHT MANAGEMENT CONSULTANTS, INC. 1993 STOCK INCENTIVE PLAN The 1993 Stock Incentive Plan of Right Management Consultants, Inc. is hereby amended as follows: 1. Shares Subject to Plan. The aggregate maximum number of Shares for which Options may be granted pursuant to the Plan is increased by the addition of Seven Hundred and Fifty Thousand (750,000) Shares, subject to adjustment as provided in Section 11 of the Plan. 2. Term of the Plan. The provision of Section 7 of the Plan which provides that no Option may be granted under the Plan after October 27, 2002 is hereby amended to provide that no Option may be granted under the Plan after December 31, 2003. In all other respects, the 1993 Stock Incentive Plan is ratified and affirmed. This Amendment to the Plan has been adopted by the Board of Directors of Right Management Consultants, Inc. on March 25, 1999, subject to approval by the shareholders. If the Amendment is not so approved on or before March 24, 2000, all Options granted under the Amendment shall be null and void; provided, however that options granted under the 1993 Stock Incentive Plan up to an aggregate maximum number of Shares for which Options may be granted without the Amendment will not be effected if the Amendment not be approved by the shareholders. EX-10 6 EXHIBIT 10.24 AMENDMENT TO RIGHT MANAGEMENT CONSULTANTS, INC. 1996 EMPLOYEE STOCK PURCHASE PLAN The 1996 Employee Stock Purchase Plan of Right Management Consultants, Inc. is hereby amended as follows: 1. Shares Available for Purchase. The number of Shares available for purchase under the Plan is hereby increased by One Hundred and Fifty Thousand (150,000) Shares, subject to adjustment as provided in the Plan. 2. Eligibility. Section 2 of the Plan is hereby amended in its entirety to read as follows: Except as provided below, all employees of the Company or its subsidiaries shall be eligible to participate in the Plan in accordance with such rules as may be prescribed by the Committee from time to time, which rules, however, shall neither permit nor deny participation in the Plan contrary to the requirements of the Internal Revenue Code of 1986, as amended (the "Code") (including, but not limited to, Section 423(b)(3),(4),(5), and (8) thereof) and the regulations promulgated thereunder. No employee may be granted the right to acquire stock under the Plan if such employee, immediately after such right is granted, owns 5% or more of the total combined voting power or value of the stock of the Company or any subsidiary. Eligibility to the Plan begins on each January 1, April 1, July 1, and October 1 for those employees who have completed one-half year of service. A one-half year of service is earned at the end of any six month period, beginning with the date of hire, in which the employee has 500 or more hours of service. 3. Termination of the Plan. Section 16 of the Plan is hereby amended to provide that no offering under the Plan shall be made which shall extend beyond December 31, 2003. In all other respects, the 1996 Employee Stock Purchase Plan is ratified and affirmed. This Amendment to the Plan has been adopted by the Board of Directors of Right Management Consultants, Inc. on March 25, 1999, subject to approval by the shareholders. If the Amendment is not so approved on or before March 24, 2000, the Amendment shall be null and void. EX-13 7 EXHIBIT 13 Right Management Consultants, Inc. Selected Financial Data (Dollars and Shares in Thousands Except Earnings Per Share and Stock Prices)
Year Ended December 31, ---------------------------------------------------------------- 1998 1997 1996 1995 1994 ---------------------------------------------------------------- Results of Operations (1) - --------------------------------------------------------------------------------------------------------------------------------- Total revenue $168,258 $125,786 $125,269 $114,005 $89,134 - --------------------------------------------------------------------------------------------------------------------------------- Costs and expenses 155,186 121,366 108,994 101,090 79,345 - --------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 13,072 4,420 16,275 12,915 9,789 - --------------------------------------------------------------------------------------------------------------------------------- Net income 6,607 2,073 9,675 7,819 5,714 - --------------------------------------------------------------------------------------------------------------------------------- Diluted earnings per share (2) (3) $ 0.98 $ 0.31 $ 1.45 $ 1.24 $ 0.93 - --------------------------------------------------------------------------------------------------------------------------------- Diluted weighted average number of shares outstanding (2) (3) 6,758 6,725 6,663 6,290 6,125 - --------------------------------------------------------------------------------------------------------------------------------- Balance Sheet Data - --------------------------------------------------------------------------------------------------------------------------------- Working capital $15,281 $15,491 $25,342 $13,134 $9,883 - --------------------------------------------------------------------------------------------------------------------------------- Total assets 114,595 81,704 73,935 60,231 48,969 - --------------------------------------------------------------------------------------------------------------------------------- Long-term obligations 10,850 10,597 8,768 7,360 6,004 - --------------------------------------------------------------------------------------------------------------------------------- Shareholders' equity 56,818 50,450 47,801 33,626 24,405 - --------------------------------------------------------------------------------------------------------------------------------- Total debt-to-equity ratio 25% 25% 17% 28% 28% - --------------------------------------------------------------------------------------------------------------------------------- Return on average equity 12% 4% 24% 27% 27% - --------------------------------------------------------------------------------------------------------------------------------- Stock Price Ranges - --------------------------------------------------------------------------------------------------------------------------------- Low price (3) $ 11.00 $ 8.75 $ 15.00 $ 6.89 $ 6.55 - --------------------------------------------------------------------------------------------------------------------------------- High price (3) 15.75 23.50 27.50 19.50 11.11 - ---------------------------------------------------------------------------------------------------------------------------------
(1) See Note C to the Consolidated Financial Statements for information regarding acquisitions. (2) See Note K to the Consolidated Financial Statements for information regarding earnings per share. (3) Amounts presented have been restated for both the November 1995 and July 1996 three-for-two stock splits (see Note J to the Consolidated Financial Statements). REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Right Management Consultants, Inc. We have audited the accompanying consolidated balance sheets of Right Management Consultants, Inc. (a Pennsylvania corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Right Management Consultants, Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP Philadelphia, Pennsylvania February 2, 1999 Right Management Consultants, Inc. Consolidated Balance Sheets (Dollars in Thousands Except Share Data)
December 31, 1998 1997 ------------------- -------------------- Assets Current Assets: Cash and cash equivalents $ 20,800 $ 7,583 Accounts receivable, trade, net of allowance for doubtful accounts of $1,066 and $663 in 1998 and 1997, respectively 33,271 21,888 Royalties and fees receivable from Affiliates 3,809 2,511 Prepaid expenses and other current assets 2,189 1,681 Deferred income taxes 815 1,074 ------------------- -------------------- Total current assets 60,884 34,737 Property and equipment, net 15,983 13,342 Intangible assets, net 33,947 30,703 Deferred income taxes 1,937 1,426 Other 1,844 1,496 ------------------- -------------------- Total Assets $ 114,595 $ 81,704 =================== ==================== Liabilities and Shareholders' Equity Current Liabilities: Current portion of long-term debt and other obligations $ 5,124 $ 3,943 Accounts payable 7,514 4,651 Commissions payable 2,572 1,431 Accrued incentive compensation and benefits 15,490 2,022 Other accrued expenses 8,191 4,272 Deferred income 6,712 2,927 ------------------- -------------------- Total current liabilities 45,603 19,246 ------------------- -------------------- Long-term debt and other obligations 9,065 8,775 ------------------- -------------------- Deferred compensation 1,785 1,822 ------------------- -------------------- Minority interests in subsidiaries 1,324 1,411 ------------------- -------------------- Commitments and Contingent Liabilities (Notes E, G and I) Shareholders' Equity (Note J): Preferred stock, no par value; 1,000,000 shares authorized; no shares issued - - Common stock, $.01 par value; 20,000,000 shares authorized; 7,255,765 and 7,084,104 shares issued in 1998 and 1997, respectively 72 71 Additional paid-in capital 16,448 14,492 Retained earnings 44,970 38,363 Accumulated other comprehensive income (727) (580) ------------------- -------------------- 60,763 52,346 Less treasury stock, at cost, 547,952 and 380,452 shares in 1998 and 1997, respectively (3,945) (1,896) ------------------- -------------------- Total shareholders' equity 56,818 50,450 ------------------- -------------------- Total Liabilities and Shareholders' Equity $ 114,595 $ 81,704 =================== ====================
The accompanying notes are an integral part of these consolidated financial statements. 2 Right Management Consultants, Inc. Consolidated Statements of Income (Dollars and Shares in Thousands Except Earnings per Share Data)
Year Ended December 31, 1998 1997 1996 ----- ----- ---- Revenue: Company office revenue $ 163,847 $ 122,281 $ 120,679 Affiliate royalties 4,411 3,505 4,590 ----------------- ------------------ ----------------- Total revenue 168,258 125,786 125,269 ----------------- ------------------ ----------------- Expenses: Consultants' compensation 68,550 52,085 47,402 Office sales and consulting support 10,854 7,291 6,367 Office administration 56,675 47,767 41,617 General sales and administration 18,378 13,438 13,644 Restructuring costs (Note B) - 630 - ----------------- ------------------ ----------------- 154,457 121,211 109,030 ----------------- ------------------ ----------------- Income from operations 13,801 4,575 16,239 ----------------- ------------------ ----------------- Other income (expense): Interest income 496 663 606 Interest expense (1,225) (818) (570) ----------------- ------------------ ----------------- (729) (155) 36 ----------------- ------------------ ----------------- Income before income taxes 13,072 4,420 16,275 Provision for income taxes 5,882 2,009 6,600 Minority interests in net income of subsidiaries 583 338 - ----------------- ------------------ ----------------- Net income $ 6,607 $ 2,073 $ 9,675 ================= ================== ================= Basic earnings per share $ 0.99 $ 0.31 $ 1.55 ================= ================== ================= Diluted earnings per share $ 0.98 $ 0.31 $ 1.45 ================= ================== ================= Basic weighted average shares outstanding 6,674 6,596 6,252 ================= ================== ================= Diluted weighted average shares outstanding 6,758 6,725 6,663 ================= ================== =================
The accompanying notes are an integral part of these consolidated financial statements. 3 Right Management Consultants, Inc. Consolidated Statements of Shareholders' Equity (Dollars in Thousands Except Share Data)
Accumulated Other Total Common Stock Additional Retained Comprehensive Treasury Stock Shareholders Shares Par Value Paid-in Capital Earnings Income Shares Cost Equity ------- --------- --------------- -------- ------ ------ ---- ------ Balance, January 1, 1996 4,313,816 $ 43 $ 7,655 $ 26,636 $ (191) 252,952 $ (517) $ 33,626 Stock options exercised 316,039 3 1,332 - - - - 1,335 Tax benefit from exercise of stock options - - 2,223 - - - - 2,223 Shares issued under restricted stock awards 29,250 - 658 - - - - 658 Three-for-two stock split 2,050,100 21 - (21) - - - - Shares issued under the Employee Stock Purchase Plan 4,368 - 88 - - - - 88 Comprehensive Income: Net income - - - 9,675 - - - 9,675 Translation adjustment - - - - 196 - - 196 -------- Total comprehensive income 9,871 --------- ---- -------- -------- ---- ------- ------ -------- Balance, December 31, 1996 6,713,573 $ 67 $ 11,956 $ 36,290 $ 5 252,952 $ (517) $ 47,801 Stock options exercised 236,095 3 1,198 - - - - 1,201 Tax benefit from exercise of stock options - - 597 - - - - 597 Davidson & Associates acquisition (Note C) 96,577 1 988 - - - - 989 Shares issued under the Employee Stock Purchase Plan 37,859 - 386 - - - - 386 Restricted stock compensation - - (633) - - - - (633) Repurchase of common stock - - - - - 127,500 (1,379) (1,379) Comprehensive Income: Net income - - - 2,073 - - - 2,073 Translation adjustment - - - - (585) - - (585) -------- Total comprehensive income 1,488 --------- ---- -------- -------- ---- ------- ------- -------- Balance, December 31, 1997 7,084,104 $ 71 $ 14,492 $ 38,363 $ (580) 380,452 $(1,896) $ 50,450 Stock options exercised 169,500 1 1,208 - - - - 1,209 Tax benefit from exercise of stock options - - 364 - - - - 364 Shares issued under the Employee Stock Purchase Plan 36,151 - 384 - - - - 384 Restricted stock forfeiture/ cancellations (33,990) - - - - - - - Repurchase of common stock - - - - - 167,500 (2,049) (2,049) Comprehensive Income: Net income - - - 6,607 - - - 6,607 Translation adjustment - - - - (147) - - (147) -------- Total comprehensive income 6,460 --------- ---- -------- -------- ---- ------- ------- -------- Balance, December 31, 1998 7,255,765 $ 72 $ 16,448 $ 44,970 $ (727) 547,952 $ (3,945) $ 56,818 ========== ===== ========= ========= ======= ======== ========= ========
The accompanying notes are an integral part of these consolidated financial statements. 4 Right Management Consultants, Inc. Consolidated Statements of Cash Flows (Dollars in Thousands)
Year Ended December 31, 1998 1997 1996 ----- ----- ---- Operating Activities: Net income $6,607 $2,073 $9,675 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,039 6,494 4,923 Deferred income taxes (252) (510) (169) Restricted stock compensation - (633) 658 Restructuring costs (Note B) - 630 - Revenue recognized upon completion of incomplete contracts assumed in acquisitions (90) (807) (512) Provision for doubtful accounts 576 329 28 Minority interests in net income of subsidiaries 583 338 - Other non-cash items 411 (332) 444 Changes in operating accounts: Accounts receivable, trade and from Affiliates (13,273) 531 (460) Prepaid expenses and other assets (582) (596) 499 Accounts payable and accrued expenses 19,925 (5,620) 640 Commissions payable and other liabilities 1,141 1,414 (1,782) Deferred income 3,785 (941) 459 -------------- --------------- -------------- Net cash provided by operating activities 26,870 2,370 14,403 -------------- --------------- -------------- Investing Activities: Purchase of property and equipment (7,786) (5,201) (4,873) Acquisitions, net of cash acquired (6,285) (13,199) (3,401) -------------- --------------- -------------- Net cash utilized by investing activities (14,071) (18,400) (8,274) -------------- --------------- -------------- Financing Activities: Borrowings under credit agreements 6,012 7,500 2,935 Payment of long-term debt and other obligations (4,770) (2,458) (3,660) Cash dividends paid to minority interests (Note J) (670) - - Tax benefit from the exercise of stock options 364 597 2,223 Repurchase of common stock (2,049) (1,379) - Proceeds from stock issuances 1,593 1,587 1,420 -------------- --------------- -------------- Net cash provided by financing activities 480 5,847 2,918 -------------- --------------- -------------- Effect of exchange rate changes on cash and cash equivalents (62) (289) 43 -------------- --------------- -------------- Increase (decrease) in cash and cash equivalents 13,217 (10,472) 9,090 Cash and cash equivalents, beginning of year 7,583 18,055 8,965 -------------- --------------- -------------- Cash and cash equivalents, end of year $20,800 $7,583 $18,055 ============== =============== ============== Supplemental Disclosures of Cash Flow Information Cash paid for: Interest $1,019 $ 687 $ 351 ============== =============== ============== Income taxes $3,031 $3,395 $5,252 ============== =============== ==============
The accompanying notes are an integral part of these consolidated financial statements. 5 31 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of business Right Management Consultants, Inc. (the "Company") operations are segregated into two lines of business: career transition and human resources and career management consulting. Through a worldwide network of Company and Affiliate offices, Right Management Consultants, Inc. develops and delivers career transition services and provides human resources and career management consulting services, specializing in change management, communication, strategy implementation, merger integration and executive development. The Company primarily delivers its services to mid-size and large industrial and service companies, with no concentration in specific companies or industries. Principles of consolidation The consolidated financial statements include the accounts of Right Management Consultants, Inc. and its wholly-owned and majority-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue recognition The Company recognizes contract revenue and the related direct compensation for the services provided by Company offices upon the performance of its obligations under consulting service contracts. Revenue, recorded at the start of performance of services, is deferred and recognized over the estimated average period within which the contracts are essentially completed. All direct and indirect costs are charged to expense in the period in which the obligations are incurred. Franchise revenue Royalties from the members of the Company's network arise from agreements made with Affiliates, which generally operate exclusively in designated regional locations. The terms of these agreements require the Affiliates to provide services under the Company's service marks in accordance with programs and standards developed by the Company. Affiliate royalties are typically 10% of each Affiliate's gross billings and are recorded when the Affiliate bills its customers for services. 6 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Cash equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Property and equipment Property and equipment is carried at cost, or allocated cost for companies acquired in a purchase transaction. Depreciation is provided on the straight-line method over the estimated useful lives of the assets, which are generally three to seven years for furniture, fixtures and computer equipment. Leasehold improvements are depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the remaining term of the lease. Intangible assets
Amortization (Dollars in Thousands) Period 1998 1997 (Years) ---- ---- ------- Trademarks $ 1,150 $ 1,644 5 Contact lists and Affiliate agreements 129 538 5 Covenants not to compete -- 1,118 5 to 10 Goodwill 40,782 38,239 15 to 40 ------ ------ 42,061 41,539 Less accumulated amortization 8,114 10,836 ------- ------- $33,947 $30,703 ======= =======
Amortization of these intangible assets was $2,761,000, $2,311,000, and $1,868,000 in 1998, 1997 and 1996, respectively. Impairment of Long-Lived Assets Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of", the Company is required to evaluate the potential impairment of long-lived assets and certain intangible assets on a periodic basis. The Company reviews the realizability of its long-lived assets and certain intangible assets by analyzing the projected cash flows and profitability of the acquired entities and adjusts the net book value of recorded assets when necessary. No material adjustments have been recorded for each of the three years in the period ended December 31, 1998. 7 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Accounting for Interest Rate Swaps 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, 1999. 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, 2000. Earnings per Share The Company utilizes SFAS No. 128, "Earnings per Share," to compute earnings per share. SFAS No. 128 requires dual presentation of basic and diluted earnings per share ("EPS") for complex capital structures on the Statements of Income. Basic EPS is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution from the exercise or conversion of securities into common stock. See Note K for further disclosure. Currency translation The accounts of the international subsidiaries are translated in accordance with SFAS No. 52, "Foreign Currency Translation", which requires that assets and liabilities of international operations be translated using the exchange rate in effect at the balance sheet date, and that the results of operations be translated at average exchange rates during the year. The effects of exchange rate fluctuations in translating assets and liabilities of international operations into U.S. dollars are accumulated and reflected as the cumulative translation adjustment in shareholders' equity. The effects of exchange rate fluctuations in translating the foreign currency transactions are included in general sales and administration expense for 1998, 1997 and 1996. There are no material transaction gains or losses in the accompanying Consolidated Financial Statements for each of the three years in the period ended December 31, 1998. Accumulated Other Comprehensive Income In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income" which is effective for financial statements issued for fiscal years beginning after December 15, 1997. Comprehensive income is defined as net income plus revenues, expenses, gains and losses that, under generally accepted accounting principles, are excluded from net income. These items, which are excluded from net income, represent accumulated other comprehensive income. The Company's accumulated other comprehensive income is comprised of unrealized gains and losses from foreign currency translation adjustments and is presented in the Consolidated Statements of Shareholders' Equity. Prior year financial statements have been reclassified to conform to the SFAS No. 130 requirements. 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 on those earnings or translation adjustments has been provided. 8 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Income taxes The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting for Income Taxes." In accordance with SFAS No. 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the difference is reversed. Euro Conversion On January 1, 1999, eleven of the fifteen member countries of the European Union established fixed conversion rates between their existing sovereign currencies and the euro. The participating countries have agreed to adopt the euro as the common legal currency. The Company has European operations in the United Kingdom, France, and Belgium. France is a participating country in this euro conversion. The Company does not anticipate any material impact to its business or financial condition resulting from the conversion to the euro currency. Reclassifications Certain amounts have been reclassified in the prior years' Consolidated Financial Statements and Notes to the Consolidated Financial Statements to conform with the 1998 presentation. NOTE B - RESTRUCTURING COSTS During the first quarter 1997, the Company announced a corporate restructuring. The restructuring charge of $630,000 ($380,000 or $0.06, net of taxes) was primarily for severance payments related to reductions in employees and lease termination costs for the closure of several small "satellite" offices with limited future economic benefit to the Company. The Company has completed all payments for severance and office closures during 1998. NOTE C - ACQUISITIONS AND LICENSING AGREEMENT Effective January 1, 1998, the Company acquired certain assets and the business of Manus Associates ("Manus"), a Stamford, Connecticut human resource consulting firm, for a combination of cash and future defined incentives. The Company borrowed the full purchase price of $3,600,000 from its revolving credit facility in order to complete this transaction. Effective April 1, 1998, the Company acquired 51% of the outstanding shares of Teams International, Inc. ("Teams"), a technology-based assessment firm specializing in 360-degree feedback instruments to support a wide spectrum of organizational change initiatives. The purchase price of this acquisition, including costs of acquisition, approximated $2,308,000. The Company borrowed $2,300,000 from its revolving credit facility in order to complete this transaction. As a part of the purchase agreement, the minority shareholders of Teams have provided the Company with an option to acquire the remaining 49% of 9 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE C - ACQUISITIONS AND LICENSING AGREEMENT (Continued) the outstanding shares of Teams beginning on April 1, 2001. Additionally, the minority shareholders of Teams have the right to require the Company to purchase the remaining 49% of the outstanding shares of Teams over a three year period beginning on April 1, 2001. If either of these options is exercised, the purchase price will be based on a multiple of gross revenues. These transactions were accounted for as purchases. The accompanying consolidated financial statements reflect the year to date results from the effective dates of acquisition for all of the above transactions. For the year ended December 31, 1998, the aggregate purchase price for acquisitions was approximately $6,285,000, including the costs of acquisitions and adjustments for prior acquisitions. The purchase price exceeded the fair value of the assets acquired by $6,375,000. Additionally, effective January 1, 1998, the Company entered into an exclusive licensing agreement with The Atlanta Consulting Group ("TACG"), an organizational consulting firm located in Atlanta, Georgia. Under this exclusive licensing agreement, the Company sells and delivers TACG's full range of products and methodologies and hired all former TACG employees. Effective January 1, 1997, the Company acquired the assets and/or the outstanding stock of six career transition firms and one search firm for a combination of cash and future defined incentive payments. The six career transition firms included Nelson, O'Connor & Associates (Phoenix, Arizona), Corporate Resource Group (San Francisco, California), Cavendish Partners (London, England) and the former St. Louis, Missouri, Knoxville, Tennessee, and Richmond, Virginia Affiliates. The search firm acquired was Nelson, O'Connor & Cox (Tucson, Arizona). Effective April 1, 1997, the Company acquired the outstanding stock of another career transition firm, Chapel Stowell, Inc. (Portland, Oregon). Effective July 1, 1997, the Company acquired 51% of the outstanding shares of the Australia based career management firm, Davidson & Associates, Pty., Ltd ("Davidson & Associates"). Davidson & Associates has operations in eleven locations throughout Australia, New Zealand, Singapore and Hong Kong. The purchase price of this acquisition approximated $6,935,000, including costs of acquisition, 85% of which was paid in cash (approximately $5,946,000) and the remaining 15% in shares of the Company's common stock (96,577 shares). The Company borrowed $5,500,000 from its revolving credit facility in order to complete this transaction. As a part of the purchase agreement, the minority shareholders of Davidson & Associates have provided the Company with an option to acquire the remaining 49% of the outstanding shares of Davidson & Associates, at fair value as defined, beginning on July 1, 2000. Additionally, the minority shareholders of Davidson & Associates have the right to require the Company to purchase in 10% annual increments, the remaining 49% of the outstanding shares of Davidson & Associates, at fair value as defined, beginning on July 1, 2000. Effective August 1, 1997, the Company acquired the business and certain assets of a Minneapolis, Minnesota career management firm, Career Dynamics, Inc. The purchase was funded through a borrowing of $2,000,000 under the Company's revolving credit facility. The acquisition included future defined incentives contingent upon the results of the operations in Minnesota subsequent to the transaction. 10 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE C - ACQUISITIONS AND LICENSING AGREEMENT (Continued) Effective December 1, 1997, the Company acquired the business and certain assets of a Houston, Texas career transition firm, Michael D. McKee & Associates. The acquisition included future defined incentives contingent upon the results of the operations in the Company's southwest region subsequent to the transaction. The aggregate purchase price of these eleven acquisitions was approximately $15,556,000, including costs of acquisitions. The purchase price exceeded the fair value of the net tangible assets acquired by approximately $14,847,000, which will be amortized over a period of fifteen years. The following represents the assets acquired and liabilities assumed to arrive at net cash paid for acquisitions discussed above for each of the two years in the period ended December 31, 1998: (Dollars in Thousands) 1998 1997 ---- ---- Assets acquired: Accounts receivable $ 12 $2,875 Prepaid expenses and other assets 149 423 Fixed assets 245 2,983 Intangible assets 6,375 14,847 ----- ------ 6,781 21,128 Liabilities acquired: Accounts payable and accrued expenses 104 4,765 Assumption of incomplete contracts 90 807 Long term debt 274 -- ----- ------ 468 5,572 Cash acquired 28 1,368 Equity issued -- 989 ----- ------ Net cash paid for acquisitions $6,285 $13,199 ====== ======= Each acquisition has been accounted as a purchase and the operating results of each entity have been consolidated with the Company's results since the effective date of the respective acquisition. The purchase price of each acquisition has been allocated to the assets acquired based upon their estimated fair value at the date of acquisition. The pro forma effect of the acquisitions detailed above on the Company's results of operations as if the acquisitions had occurred at January 1, 1997, is immaterial and has been omitted. 11 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE D - PROPERTY AND EQUIPMENT (Dollars in Thousands) 1998 1997 ---- ---- Furniture and computer equipment $32,125 $25,577 Leasehold improvements 5,944 4,696 ------- ------- 38,069 30,273 Less accumulated depreciation 22,086 16,931 ------- ------- $15,983 $13,342 ======= ======= Depreciation expense was $5,278,000, $4,183,000, and $3,055,000 in 1998, 1997, and 1996, respectively. NOTE E - DEBT AND OTHER OBLIGATIONS Credit Agreement On December 20, 1996, the Company signed a new Credit Agreement (the "Credit Agreement") with its two primary lenders (the "Lenders") to increase its maximum unsecured revolving line of credit to $40,000,000. The Credit Agreement became effective December 23, 1996. The Credit Agreement has a three year maturity. Subsequent to the first anniversary, and annually thereafter, the Company has the ability to extend the Credit Agreement for an additional year upon Lenders' approval. In September 1998, the Company extended the Credit Agreement from December 31, 1999 to December 31, 2000. The Company may borrow, repay and re-borrow during the term of the Credit Agreement, with any balance due at maturity. Interest rates are tiered at LIBOR plus a margin contingent upon certain financial ratios of the Company. The Company also has the option to borrow at a base rate equal to the lesser of the Lenders' Prime Rate less 1/4% or the Federal Funds Effective Rate plus 1%. Long-term debt and other obligations consist of the following:
(Dollars in Thousands) December 31, 1998 1997 ---- ---- Floating rate borrowings under the Credit Agreement repaid in 1998 $ -- $1,900 Borrowings under the Credit Agreement, bearing interest at a weighted average variable rate of 6.06% 13,516 9,708 Other 673 1,110 ------- ------- 14,189 12,718 Less current portion 5,124 3,943 ------- ------- $ 9,065 $ 8,775 ======= =======
12 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E - DEBT AND OTHER OBLIGATIONS (Continued) Under the Credit Agreement, the major covenants require the maintenance of certain minimum financial ratios and restrict the level of indebtedness with other banks, as defined. At December 31, 1998, the Company is in compliance with all such covenants. For the years subsequent to December 31, 1998, aggregate maturities on long-term debt and other obligations, are as follows: (Dollars in Thousands) Year Ending December 31, Amount ------------------------- ------ 1999 $ 5,124 2000 8,653 2001 301 2002 108 2003 3 ------- $14,189 ======= The Company intends to make scheduled quarterly payments during 1999 to reduce the outstanding balance under the Credit Agreement to agree with the notional principal balance under its fixed interest rate swap agreements. Therefore, the scheduled 1999 payments are presented in the current portion of the long term debt. The remaining amounts due under the Credit Agreement is shown as maturing as of December 31, 2000. Interest Rate Swaps During 1998 and 1997, the Company entered into two and three fixed interest rate swap agreements ("Swap Agreements"), respectively, with an aggregate notional principal at December 31, 1998 of $13,516,000 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 December 31, 1998. 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 6.61% and its Lenders are paying the Company interest at a weighted average variable rate of 6.06% at December 31, 1998. 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 December 31, 1998, 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. 13 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE F - INCOME TAXES The provision for income taxes consists of the following: (Dollars in Thousands) Year Ended December 31, 1998 1997 1996 ------- ------- ------- Current: Federal $ 3,499 $ 1,388 $ 5,429 State 662 561 861 Foreign 1,973 570 479 ------- ------- ------- 6,134 2,519 6,769 ------- ------- ------- Deferred: Federal (295) (226) (290) State (58) 60 (59) Foreign 101 51 (12) ------- ------- ------- (252) (115) (361) ------- ------- ------- Utilization and benefit of foreign operating loss carryforwards -- (203) -- ------- ------- ------- 5,882 2,201 6,408 Provision for valuation allowance -- (192) 192 ------- ------- ------- $ 5,882 $ 2,009 $ 6,600 ======= ======= ======= The total tax provision for each year differs from the amount that would have been provided by applying the statutory U.S. Federal income tax rate to income before income taxes. The reconciliation of these differences is as follows: 1998 1997 1996 ---- ---- ---- U.S. Federal income tax rate 34% 34% 34% Provision for tax contingencies 4 4 -- State income taxes, net of federal tax benefit 3 4 4 Nondeductible expenses 2 4 1 Foreign earnings not subject to U.S. Federal 2 1 1 income tax, net of foreign taxes Deferred tax valuation allowance -- (4) 1 Other -- 2 -- ------ ------ ----- 45% 45% 41% ====== ====== ===== Income before income taxes is comprised of domestic and foreign components, respectively, as follows: 1998 -- $7,488,000 and $5,584,000, 1997 -- $1,565,000 and $2,855,000, and 1996 -- $14,184,000 and $2,091,000. 14 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE F - INCOME TAXES (Continued) Deferred income taxes arise primarily as a result of utilizing depreciation lives for income tax reporting that are in excess of those used for financial reporting purposes, as well as recognizing deferred compensation expense, the provision for doubtful accounts and certain accrued expenses for financial reporting purposes, which are not currently deductible for income tax purposes. Taxes on income of international subsidiaries are provided at the tax rates applicable to their respective tax jurisdictions. The Company's share of the cumulative undistributed earnings of such subsidiaries was approximately $8,093,000 and $4,167,000 at December 31, 1998 and 1997, respectively. No provision has been made for additional income taxes on the undistributed earnings of the international subsidiaries because earnings are expected to be reinvested indefinitely in the subsidiaries' operations or because under existing law, international tax credits would be available to substantially reduce U.S. taxes payable in the event of distribution. The deferred tax asset as of December 31, 1998 and 1997 is comprised of the following: (Dollars in Thousands) 1998 1997 ---- ---- Allowance for doubtful accounts $ 409 $ 254 Accruals not currently deductible for income taxes 406 134 Deferred compensation 687 641 Depreciation and amortization 1,175 1,295 Tax benefit of foreign net operating losses 75 176 ------- ------ Net deferred tax asset $ 2,752 $ 2,500 ======= ======= NOTE G - BENEFIT AND COMPENSATION AGREEMENTS The Company has a non-qualified supplemental executive retirement plan (the "Plan") for its Founding Chairman. The Plan is designed to provide retirement income based on past compensation, reduced by other retirement sources. Effective January 1, 1997, the Founding Chairman began collecting benefits in accordance with the Plan. The Company accounts for this Plan in accordance with the provisions of SFAS No. 87, "Employer's Accounting for Pensions." SFAS No. 87 requires the Company to recognize a liability equal to the amount by which the actuarial present value of the accumulated benefit obligation exceeds the fair value of the Plan's assets. This liability was approximately $1,116,000 and $1,151,000 for 1998 and 1997, respectively, using a discount rate of 7.25%. Since the Plan is not funded by the Company, the recorded liability equals the present value of the accumulated benefit obligation. The Company has non-qualified supplemental executive retirement plans for its Chief Executive Officer, Vice Chairman and President/Chief Operating Officer to which a percentage of compensation, including base salary and incentive bonuses, is credited annually. Deferred amounts earn annual interest equal to the two-year Guaranteed Investment Contract Index on November 30 of the current plan year, or 6%, whichever is higher (6% at both November 30, 1998 and 1997). The account balance is payable as a life annuity in equal monthly installments with 15 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE G - BENEFIT AND COMPENSATION AGREEMENTS (Continued) interest on the unpaid balance upon termination of service with the Company. The Chief Executive Officer and Vice Chairman's interest in the plans vest at the rate of 10% and 20% per year, respectively, which began in 1993 and 1996, respectively. The President's interest in the plan vests at 20% per year which begins at the age of 61. The Company also maintains life insurance policies on the lives of key executives, naming the Company as the beneficiary. The cash surrender value of these policies is included in the Other non-current assets section of the Consolidated Balance Sheets. The Company also maintains employment agreements and incentive compensation agreements with certain key management employees. The agreements typically result from the Company's acquisitions of outside firms. The agreements provide for additional compensation over and above the individual's annual salary, based upon the achievement of certain levels of overall Company, individual group or region performance. These agreements provide for aggregate minimum annual compensation for these employees of approximately $3,023,000 in 1999, $1,533,000 in 2000, $195,000 in 2001, and $35,000 in 2002. NOTE H - EMPLOYEE BENEFIT PLANS The Company maintains a defined contribution savings plan, available to substantially all employees, under Section 401(k) of the Internal Revenue Code. Under this plan, the Company will contribute 25% of the participating employee's annual contribution. In 1998 and 1996, in connection with achieving a certain level of targeted Company profits, the Company contributed an additional 12.5% of the participating employee's contribution for a total of 37.5%. The Company made no additional contribution for 1997 based on the Company's failure to meet internal targets. Employee contributions are generally limited to 10% of their compensation subject to Internal Revenue Code limitations. Company contributions were approximately $764,000, $469,000, and $704,000 for 1998, 1997 and 1996, respectively. In addition, the Company maintains a non-qualified deferred compensation plan for certain employees. Under the plan, participants may defer payment of up to 10% of their annual cash compensation reduced by amounts contributed to the Company's 401(k) plan. Deferred amounts earn annual interest equal to the two-year Guaranteed Investment Contract Index on November 30 preceding each plan year or 6%, whichever is higher (6% at both November 30, 1998 and 1997). The deferred amounts will be paid from the general assets of the Company and are included in deferred compensation as of December 31, 1998 and 1997. 16 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE I - LEASE OBLIGATIONS The Company leases office space and equipment at various locations and accounts for these obligations as operating leases. Rentals relating to these leases are recorded on a straight-line basis. Rental expense approximated $16,037,000, $14,350,000 and $13,000,000 in 1998, 1997, and 1996, respectively. Contingent rentals may be due each year under the terms of the various office space leases as the result of certain increases in building operating expenses over the base year amounts. The following is a schedule, by year, of future minimum rental payments required under operating leases with remaining non-cancelable lease terms in excess of one year as of December 31, 1998: (Dollars in Thousands) Year Ending December 31, Amount ------------------------- ------ 1999 $12,889 2000 11,164 2001 8,808 2002 4,993 2003 2,925 2004 and subsequent years 2,060 NOTE J - SHAREHOLDERS' EQUITY Stock Splits Effective November 10, 1995, the Company's Common Stock split into three shares for each two shares outstanding. Additionally, effective July 26, 1996, the Company's Common Stock split a second time into three shares for each two shares outstanding. The stated par value per share of Common Stock was not changed for both stock splits from its existing amount of $0.01 per share. All share and per share amounts referred to in the financial statements and notes thereto have been restated to reflect both stock splits, including rounding up for fractional shares, where appropriate. Stock Option Plans The Company has a 1986 Stock Option Plan (the "1986 Plan") under which 968,000 shares of Common Stock are reserved for issuance upon the exercise of incentive stock options, stock appreciation rights or non-qualified stock options that may be granted to employees. Outstanding options granted under this plan are exercisable, cumulatively, in three or four equal annual installments beginning one year from the date of grant. Effective September 8, 1996, no further stock options can be granted under the 1986 Plan. The Company also has a 1993 Stock Incentive Plan, as amended in 1996, with 2,475,000 shares of Common Stock reserved for issuance upon the exercise of incentive stock options or non-qualified stock options that may be granted to employees. Outstanding options granted under this plan have ten year terms and are exercisable, cumulatively, in three equal annual installments, beginning one year from the date of grant. At December 31, 1998, 870,368 shares were available for issuance under this plan. In addition, in January 1995, the Company Shareholders adopted amendments to the 1993 Stock Incentive Plan permitting awards of restricted stock under such plan. The amendments to the 1993 Stock Incentive Plan permit awards of up to an aggregate of 675,000 shares of the Company's Common Stock to certain 17 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE J - SHAREHOLDERS' EQUITY (Continued) officers and key employees. Restrictions generally limit the sale or transfer of the shares during a restricted period of approximately three years. Thereafter, the restricted stock will either vest, in whole or in part, with the participant or be forfeited, in whole or in part, back to the Company based on its earnings performance for this three year period. During 1996 and 1995, 29,250 and 44,550 shares of restricted stock were awarded, respectively. Also during 1996 and 1995, approximately $658,000 and $230,000, respectively, was charged to general sales and administration expenses for compensation expense related to these shares. Due to the Company's decreasing stock price during 1997 and the forfeiture of certain awards, total compensation expense related to restricted stock grants included within general sales and administration expenses was reduced by approximately $633,000 in 1997 and no compensation expense related to restricted stock grants was charged in 1998. During 1998, 21,750 shares of restricted stock awards were cancelled due to employment terminations. Pursuant to the Restricted Stock Award Agreement dated January 1, 1995, under the 1993 Stock Incentive Plan, 12,240 shares of the remaining restricted shares awarded during 1995 were forfeited due to the Company's failure to achieve certain earnings per share targets. The Company also has a Directors' Stock Option Plan, under which 225,000 shares of Common Stock are reserved for issuance upon the exercise of incentive stock options or non-qualified stock options that may be granted to non-employee Directors of the Board of Directors. Outstanding options granted under this plan have five year terms and are exercisable, cumulatively, in three equal annual installments, beginning one year from the date of grant. At December 31, 1998, 153,000 option shares were available for issuance under this plan. The Company has elected to follow APB No. 25, "Accounting for Stock Issued to Employees" in accounting for its stock options. Under APB No. 25, no compensation expense is recognized because the exercise price of the Company's stock options equals the market price of the underlying stock on the date of the grant. Had compensation cost for these plans been determined with SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's net income and earnings per share for 1998, 1997 and 1996 would have been reduced to the following pro forma amounts: 1998 1997 1996 ---- ---- ---- Net income - as reported $6,607,000 $2,073,000 $9,675,000 Net income - pro forma $4,788,000 $ 108,000 $8,389,000 Basic EPS - as reported $0.99 $0.31 $1.55 Basic EPS - pro forma $0.72 $0.02 $1.34 Diluted EPS - as reported $0.98 $0.31 $1.45 Diluted EPS - pro forma $0.71 $0.02 $1.26 The fair value of the options was estimated at the date of grant using a Black-Scholes option pricing model. The following weighted-average assumptions used for grants in 1998 were a risk-free interest rate of 5.3%, no dividend yield, expected volatility of 75%, and a weighted-average expected life of the option of 7 years. The same weighted-average assumptions were used for grants in 1997 and 1996, except for the risk-free interest rate which was 6.4% for both 1997 and 1996 and the expected volatility of 70% for both 1997 and 1996. Under SFAS No. 123, total compensation expense, net of tax benefit, approximated $1,819,000, $1,965,000, and $1,286,000 in 1998, 1997, and 1996, respectively. 18 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE J - SHAREHOLDERS' EQUITY (Continued) A summary of the status of the Company's stock option plans at December 31, 1998, 1997 and 1996 and changes during the years then ended is presented in the table and narrative below:
1998 1997 1996 ---- ---- ---- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------ ----- ------ ----- ------ ----- Outstanding at beginning of year 1,200,238 $13.26 1,238,295 $10.92 1,274,534 $7.89 Granted 154,250 13.42 241,788 17.31 311,300 16.77 Exercised (169,500) 7.14 (236,095) 5.08 (316,039) 4.23 Canceled (46,075) 14.51 (43,750) 13.08 (31,500) 15.29 --------- ------ --------- ------ -------- ------ Outstanding at end of year 1,138,913 $14.14 1,200,238 $13.26 1,238,295 $10.92 Exercisable at end of year 764,348 $13.39 672,492 $10.93 610,247 $7.63 Weighted average fair value $9.87 $12.10 $11.21 of options granted
Exercise prices for options outstanding as of December 31, 1998 ranged from $7.78 to $24.33. The weighted average remaining contractual life of these options is approximately 6 years. Employee Stock Purchase Plan On May 9, 1996, the Company Shareholders approved the creation of the Company's 1996 Employee Stock Purchase Plan (the "ESPP"). Effective July 1, 1996, 150,000 shares were reserved for issuance under the ESPP. The ESPP permits employees to purchase Company Common Stock at 85% of the average market price on the last day of the applicable quarterly period. All Company employees, except executive employees, are eligible to participate in the ESPP. During 1998, 1997, and 1996, 36,151, 37,859, and 4,368 shares, respectively, were purchased through the ESPP. Repurchase of Common Stock In March 1997, the Board of Directors 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 use in various benefit plans and, when authorized by the Board, for other general corporate purposes. The Board of Directors 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 $2,049,000 and $1,379,000, respectively. Subsequent to December 31, 1998, the Company repurchased 40,000 shares of Common Stock at an aggregate purchase price of $605,000. 19 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE J - SHAREHOLDERS' EQUITY (Continued) Dividends The Company has never paid any dividends on its Common Stock and currently expects that all of its earnings will be retained and reinvested in the Company's business. During 1998, Davidson & Associates paid cash dividends to its shareholders. The Company recognized no dividend income for its 51% ownership of Davidson & Associates as this is an intercompany transaction which eliminates in consolidation. However, the Company recorded the remaining 49% of the dividends paid and declared in 1998 as a reduction in minority interest. NOTE K - EARNINGS PER SHARE In 1997, the Company adopted SFAS No. 128, "Earnings per Share". The calculations of earnings per share ("EPS") under SFAS No. 128 are detailed below. For the year ended 12/31/98 Income Shares EPS ------ ------ --- Basic EPS: Net income $6,607,000 6,674,000 $0.99 ===== Impact of options --- 84,000 ---------- --------- Diluted EPS: Net income $6,607,000 6,758,000 $0.98 ========== ========= ===== For the year ended 12/31/97 Income Shares EPS ------ ------ --- Basic EPS: Net income $2,073,000 6,596,000 $0.31 ===== Impact of options --- 129,000 ---------- --------- Diluted EPS: Net income $2,073,000 6,725,000 $0.31 ========== ========= ===== For the year ended 12/31/96 Income Shares EPS ------ ------ --- Basic EPS: Net income $9,675,000 6,252,000 $1.55 ===== Impact of options --- 411,000 ---------- --------- Diluted EPS: Net income $9,675,000 6,663,000 $1.45 ========== ========= ===== For the year ended December 31, 1998, outstanding options to purchase 861,514 shares of Company Common Stock at $13.25 to $24.33 were excluded from the computation of diluted EPS, as the options' exercise price was greater than the average market price of the Common Stock. 20 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE K - EARNINGS PER SHARE (Continued) As a result of the Company's adoption of SFAS No. 128, the Company's reported EPS for 1996 was restated. The effect of this accounting change on previously reported EPS data was as follows: Per Share Amounts: 1996 ---- Primary EPS as reported $1.45 Effect of SFAS No. 128 0.10 ----- Basic EPS as restated $1.55 ===== Fully diluted EPS as reported $1.44 Effect of SFAS No. 128 0.01 ---- Diluted EPS as restated $1.45 ===== NOTE L - 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 areas 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, as well as career development and restructuring planning. Consulting offers organizational and individual assessment, interventions in change management, leadership and executive development, transformation planning and cultural integration in mergers and acquisitions. With more than 170 service locations worldwide, the Company manages operations by geographic area 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. 21 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE L - SEGMENTS (Continued) Summarized operations of each of the Company's geographic segments in the aggregate for each of the three years in the period ended December 31, 1998, are as follows (See Note A for discussion relating to currency translation and Note F for discussion relating to income taxes):
(Dollars in Thousands) 1998 United States Canada Europe Asia-Pacific Consolidated - ---- ------------- ------ ------ ------------ ------------ Identifiable assets $91,588 $7,562 $9,668 $5,777 $114,595 ======= ====== ====== ====== ======= Revenue 127,353 10,884 15,836 14,185 168,258 ======= ====== ====== ====== ======= Operating income (1) 7,536 1,784 2,394 2,087 13,801 ======= ====== ====== ====== ======= Depreciation and amortization 6,379 523 501 636 8,039 ======= ====== ====== ====== ======= Capital expenditures 6,250 435 298 803 7,786 ======= ====== ====== ====== ======= 1997 United States Canada Europe Asia-Pacific Consolidated - ---- ------------- ------ ------ ------------ ------------ Identifiable assets $63,881 $7,006 $5,600 $5,217 $81,704 ======= ====== ====== ====== ======= Revenue 97,358 9,784 11,475 7,169 125,786 ======= ====== ====== ====== ======= Operating income (1) 1,720 1,138 598 1,119 4,575 ======= ====== ====== ====== ======= Depreciation and amortization 5,500 245 444 305 6,494 ======= ====== ====== ====== ======= Capital expenditures 3,893 126 755 427 5,201 ======= ====== ====== ====== ======= 1996 United States Canada Europe Asia-Pacific Consolidated - ---- ------------- ------ ------ ------------ ------------ Identifiable assets $ 60,414 $ 7,155 $ 6,366 $ --- $ 73,935 ======== ====== ====== ====== ======= Revenue 105,028 9,167 11,074 --- 125,269 ======== ====== ====== ====== ======= Operating income (1) 14,115 1,142 982 --- 16,239 ======== ====== ====== ====== ======= Depreciation and amortization 4,038 475 410 --- 4,923 ======== ====== ====== ====== ======= Capital expenditures 4,707 80 86 --- 4,873 ======== ====== ====== ====== =======
(1) The operating income reported for the United States segment includes total general sales and administration expense reported on the Consolidated Statements of Income. 22 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE L - SEGMENTS (Continued) 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. Revenue and Company office operating income for each of the Company's lines of business in the aggregate for each of the three years for the period ended December 31, 1998, excluding the $630,000 restructuring charge (see Note B) in 1997, are as follows:
Career 1998 Transition Consulting Consolidated - ---- ---------- ---------- ------------ Company office revenue $139,903 $23,944 $163,847 ======== ======= ======== Company office operating 25,440 2,328 27,768 income ====== ===== ====== Career 1997 Transition Consulting Consolidated - ---- ---------- ---------- ------------ Company office revenue $111,181 $11,100 $122,281 ======== ======= ======== Company office operating 13,510 1,628 15,138 income ====== ===== ====== Career 1996 Transition Consulting Consolidated - ---- ---------- ---------- ------------ Company office revenue $111,110 $9,569 $120,679 ======== ====== ======== Company office operating 24,990 303 25,293 income ====== === ======
NOTE M - SUBSEQUENT EVENTS Subsequent to December 31, 1998, 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 incentive 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. All of these transactions were effective January 1, 1999. The aggregate purchase price for these acquisitions totaled approximately $5,337,000 and will be accounted for using the purchase method. The Company has funded $5,100,000 of these acquisitions through borrowings under the Credit Agreement with the remainder being funded through working capital. 23 RIGHT MANAGEMENT CONSULTANTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth results of operations before income taxes for the years indicated. Certain amounts have been reclassified in the 1997 and 1996 Consolidated Statements of Income to conform with the 1998 presentation. This discussion and analysis is to be read in conjunction with the consolidated financial statements and accompanying notes thereto.
(Dollars in Thousands) Year Ended December 31, 1998 1997 1996 ---- ---- ---- Company office revenue $163,847 $122,281 $120,679 Company office expenses 136,079 107,143 95,386 -------- -------- -------- Company office margin 27,768 15,138 25,293 Affiliate royalties 4,411 3,505 4,590 General sales and administration (18,378) (13,438) (13,644) Restructuring costs (Note B) -- (630) -- Interest income (expense), net (729) (155) 36 -------- -------- -------- Income before income taxes $ 13,072 $ 4,420 $ 16,275 ======== ======= ========
1998 Compared to 1997 For the year ended December 31, 1998, revenue generated by Company offices increased by 34% or $41,566,000 over 1997. This increase is attributable to the combination of $18,092,000 in incremental revenues from acquisitions, and a 19% same office revenue increase. The significant same office revenue increase is due primarily to the strong career transition environment throughout the network, and the growth in the consulting line of business discussed below. The revenue increase is also attributable to the new and continued high unit volume of programs from clients with national or international operations. In contrast with the compression in the length of the programs, which negatively impacted the average fees by program in 1997, the Company experienced more stable average program fees during 1998. The Company's consulting line of business reported total revenues of $23,944,000, which represents a 116% increase over 1997. The increase is due to $9,242,000 in incremental revenues primarily from the two consulting acquisitions and the licensing agreement made during 1998 and a 33% same office increase. As reflected by the acquisitions consummated and the favorable results achieved in the consulting line of business in 1998, the Company is committed to further growth in this line of business. For the year ended December 31, 1998, Affiliate royalties increased 26%, or $906,000 from 1997. The increase is attributable to the previously mentioned strong career transition market throughout the network. 24 RIGHT MANAGEMENT CONSULTANTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the year ended December 31, 1998, total Company office expenses increased 27% or $28,936,000 over 1997. This increase is due to approximately $17,137,000 in incremental costs from acquisitions. The Company's same office expenses increased by approximately $11,799,000 from 1997 due primarily to incentive compensation funding for operating results significantly above target performance. Aggregate Company office margins were 17% and 12% for 1998 and 1997, respectively. The increase in margins is attributable primarily to the previously mentioned increase in career transition and consulting revenues, partly offset by the incremental incentive funding for operating performance significantly above target. For the year ended December 31, 1998, general sales and administration expenses increased by 37% or $4,940,000 over 1997. This increase was largely attributable to incentive compensation, increased charges for consulting services, and an increase in depreciation and amortization expense. Despite these increases, for the year ended December 31, 1998, general sales and administration expenses as a percentage of total revenues remained at 11%, as in 1997. For the year ended December 31, 1998, the Company's effective tax rate was approximately 45%, consistent with that of 1997. An additional provision of $200,000 was made for the expected results of pending tax audits during the fourth quarter of 1998. See Note F to the Consolidated Financial Statements for the composition of the Company's effective tax rate. 1997 Compared to 1996 For the year ended December 31, 1997, revenue generated by Company offices increased by 1%, or $1,602,000 over 1996. This increase is due to $15,662,000 in incremental revenues from acquisitions, offset by a 12% same office revenue decrease. The year to date 1997 incremental revenues from acquisitions include the results of the entities detailed in Note C to the Consolidated Financial Statements, as well as two additional months' revenue from the People Tech acquisition consummated effective March 1, 1996. The same office revenue decrease is due to a general slow down in both the North American and European career transition markets associated with the continued strength of each economy. Additionally, the Company experienced compression in the length of career transition programs provided which negatively impacted office revenues by lowering average fees by program. The Company's consulting line of business reported total revenues of $11,100,000, which represents a 16% increase over 1996. The Company is committed to the growth of this line of business as evident in the two acquisitions and the licensing agreement announced subsequent to December 31, 1997. For the year ended December 31, 1997, Affiliate royalties decreased 24%, or $1,085,000 from 1996. The decrease is attributable to the aforementioned decline in the North American career transition market, as well as the acquisitions of three former Affiliates in the first quarter 1997 (see Note C to the Consolidated Financial Statements). Revenue from the acquisition of the three former Affiliates is reflected as Company office revenue subsequent to the acquisition. On a same office basis, Affiliate royalties decreased 19% or $816,000 from 1996. 25 RIGHT MANAGEMENT CONSULTANTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the year ended December 31, 1997, total Company office expenses, exclusive of formal restructuring costs (see Note B to the Consolidated Financial Statements), increased 12% or $11,757,000 over 1996. This increase is due to approximately $12,959,000 in incremental costs from acquisitions, as well as approximately $1,150,000 in additional office level charges for severance, lease reductions and strategic planning during the fourth quarter of 1997. Exclusive of costs from acquisitions, formal restructuring costs and the one time charges during the fourth quarter, the Company's same office expenses decreased by approximately $2,352,000 from 1996 due to general cost containment measures implemented by the Company necessary to align the cost infrastructure with the decreased same office revenues. Aggregate Company office margins, exclusive of formal restructuring costs, were 12% and 21% for 1997 and 1996, respectively. The decrease in margins is attributable primarily to the previously mentioned decline in career transition revenues and program compression, partly offset by improved margins in the consulting line of business and favorable results for the Company's Davidson & Associates acquisition (see Note C to the Consolidated Financial Statements). For the year ended December 31, 1997, general sales and administration expenses decreased by 2% or $206,000 over 1996. Due to the Company's decreasing stock price during 1997 and the forfeiture of certain awards of common stock, total compensation expense related to restricted stock grants included within general sales and administration expenses was reduced by approximately $633,000 for 1997. This decrease is offset by the fourth quarter 1997 costs associated with the Company's updated strategic plan, amortization costs associated with the Company's eleven acquisitions during 1997 (see Note C to the Consolidated Financial Statements), and the additions of key management personnel during the latter half of 1996 and throughout 1997. For the years ended December 31, 1997 and 1996, general sales and administration expenses as a percentage of total revenues were both approximately 11%. For the year ended December 31, 1997, the Company's effective tax rate was approximately 45% versus 41% for 1996. The increase in the effective tax rate is due primarily to the impact of an income tax charge of approximately $190,000 related to the expected results of pending tax audits (see Note F to the Consolidated Financial Statements). Capital Resources and Liquidity At December 31, 1998 and 1997, the Company had cash and cash equivalents of $20,800,000 and $7,583,000, respectively. The significant increase in cash and cash equivalents is the result of higher net income, improved collection results on accounts receivable and significantly lower cash payments made for acquisitions and 1997 incentive compensation. At December 31, 1998, with the increase in account receivable balance offset by the increase in accrued incentive compensation resulting from a record revenue year, the Company's working capital was $15,281,000, approximately the same level as that of December 31, 1997. 26 RIGHT MANAGEMENT CONSULTANTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Net cash utilized by investing activities amounted to $14,071,000 and $18,400,000 for 1998 and 1997, respectively. The Company continues to purchase equipment and technology to meet the needs of its expanding operations and to enhance its operating efficiency. During 1998, in addition to the completed license agreement, the Company acquired two consulting firms for a combination of cash and future defined incentive payments (see Note C to the Consolidated Financial Statements). During 1997, the $13,199,000 net cash paid for acquisitions on the Consolidated Statement of Cash Flows is net of $1,368,000 of cash acquired from acquisitions. Additionally, in connection with the Davidson & Associates acquisition (see Note C to the Consolidated Financial Statements), the net cash paid for acquisitions on the Consolidated Statement of Cash Flows excludes the value of the issuance of 96,577 shares which is considered a non-cash investing activity. Net cash provided by financing activities amounted to $480,000 and $5,847,000 in 1998 and 1997, respectively. The net cash provided by financing activities for 1998 was mostly the result of $5,900,000 in borrowings from the Company's revolving credit facility in order to complete two acquisitions (see Note C to the Consolidated Financial Statements) and proceeds from the issuance of stock. Net cash provided by financing activities are partly offset by repayments on the Company's borrowings, defined incentives for acquisitions made in previous years and dividend payments made by Davidson & Associates, as well as the repurchase of Common Stock (see Note J to the Consolidated Financial Statements). In addition to cash flow provided by operations, the Company has borrowing facilities to provide for increased working capital needs as well as to provide for future acquisition opportunities. During 1996, the Company increased its borrowing capacity to $40,000,000 from the previous $15,000,000 level through the execution of its Credit Agreement with its two primary lenders (See Note E to the Consolidated Financial Statements). The Company had approximately $26,484,000 and $28,392,000 available under the Credit Agreement at December 31, 1998 and 1997, respectively. Subsequent to December 31, 1998, the Company announced the acquisition of two European consulting firms and one European career transition firm for a combination of cash and future defined incentive payments (see Note M to the Consolidated Financial Statements). The Company funded these acquisitions through borrowings under the Credit Agreement. The Company plans to utilize the Credit Agreement in future periods to assist in the financing of 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 and maintain Company operations at current levels for the foreseeable future. The Company will continue to consider 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 devote to further expansion. 27 RIGHT MANAGEMENT CONSULTANTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Year 2000 In 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 of 2000. As a service company, the Company's operating systems principally include financial, operational and communication applications. As part of its year 2000 project plan, the Company is developing a replacement billing system which is progressing on schedule and is expected to be completed prior to the middle of 1999. The 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 the timetable set forth with respect to all aspects of the Y2K Plan and believes that the potential risks to its business operations are not material. 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 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-K, 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 hereafter identified, among others, as well as other risks and uncertainties identified from time to time in the Company's reports filed with the Securities and Exchange Commission. 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. Among the factors that create risk and uncertainty are (i) government regulation of the Company's Affiliates; (ii) the Company's ability to maintain good relationships with its remaining Affiliates; (iii) competition within the highly fragmented career transition and human resource consulting services industries; (iv) the dependence on key management or operating personnel within the Company or an Affiliate; (v) economic conditions on a local, regional, national and international basis, which affect the demand for the Company's services; for example, a stronger economy can lead to easier and more rapid job change and reentry, which can reduce the demand for the Company's services or compress the length of the services provided, thereby negatively impacting prices. Weaker economic conditions can also lead to reluctance on outside companies' part to incur the expenditure associated with the Company's services. 28 RIGHT MANAGEMENT CONSULTANTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) As discussed in Note E, the Company believes that its interest risk associated with the Swap Agreements would have an immaterial impact on the financial position, the results of operations and cashflow of the Company. Furthermore, as discussed in Note A, the Company has international operations and does not anticipate any material currency risk to its business or financial condition resulting from currency fluctuations. RIGHT MANAGEMENT CONSULTANTS, INC. STATEMENT OF MANAGEMENT'S FINANCIAL RESPONSIBILITY Management has prepared and is responsible for the integrity and objectivity of the financial statements and related financial information contained in this Annual Report. The financial statements are in conformity with generally accepted accounting principles consistently applied and reflect management's informed judgment and estimation as to the effect of events and transactions that are accounted for or disclosed. Management maintains a system of internal control. This system, which undergoes periodic evaluation, is designed to provide reasonable assurance that assets are safeguarded and records are adequate for the preparation of reliable financial data. In determining the extent of the system of internal control, management recognizes that the cost should not exceed the benefits derived. The evaluation of these factors requires estimates and judgment by management. Arthur Andersen LLP is engaged to render an opinion as to whether management's financial statements present fairly Right Management Consultants, Inc.'s financial position, results of operations and cash flows. The scope of their engagement included a review of the internal control system to the extent deemed necessary to render an opinion on these financial statements. The Report of Independent Public Accountants is presented in the enclosed document. The Audit Committee of the Board of Directors meets directly with the Independent Public Accountants and management to ascertain whether they are properly discharging their responsibilities. Right Management Consultants, Inc. /s/ G. Lee Bohs ------------------------------------------------ G. Lee Bohs Executive Vice President, Chief Financial Officer, Treasurer and Secretary 29 RIGHT MANAGEMENT CONSULTANTS, INC. DIRECTORS AND EXECUTIVE OFFICERS
Richard J. Pinola Chairman of the Board of Directors and Chief Executive Officer Frank P. Louchheim Founding Chairman and Director Joseph T. Smith Vice Chairman of the Board of Directors John J. Gavin President, Chief Operating Officer and Director Larry A. Evans Executive Vice President and Director Dr. Marti D. Smye Executive Vice President and Director Frederick Davidson Chairman of Davidson & Associates and Director DIRECTORS John R. Bourbeau President of Right Associates(R) of the Great Lakes Region, an Affiliate of the Company Raymond B. Langton President and Chief Executive Officer of SKM Applied Technology Partners Rebecca J. Maddox President of Capital Rose, Inc. Catherine Y. Selleck Business Consultant OTHER EXECUTIVE OFFICERS G. Lee Bohs Executive Vice President, Chief Financial Officer, Treasurer and Secretary Peter J. Doris Executive Vice President James E. Greenway Executive Vice President Erik A. Dithmer Executive Vice President - Northeast Group Terry W. Szwec Executive Vice President - Canadian Group Gilbert A. Wetzel Executive Vice President - Southeastern Group Joan Strewler Executive Vice President - North Central Group Timothy D. Dorman Executive Vice President - Western Group Suzanne B. Levasseur Executive Vice President - International Group Corporate Headquarters Independent Public Accountants Right Management Consultants, Inc. Arthur Andersen LLP 1818 Market Street Philadelphia, Pennsylvania 33rd Floor Philadelphia, Pennsylvania 19103 General Counsel Fox, Rothschild, O'Brien & Frankel, LLP Philadelphia, Pennsylvania
30 RIGHT MANAGEMENT CONSULTANTS, INC.
Subsidiaries Right Associates Government Services, Inc. Conviction Right France, SA Right Human Resources, Inc. Right Associates License, Inc. Right License Holding, Inc. Right D&A Pty. Ltd. (51% ownership) Teams International, LLC (51% ownership) Right Associates, Ltd. Right Associates (Belgium), Inc. Right Associates (France), Inc. Right Associates & Co., SNC R.M.C. & Co., SNC Service Marks and Right Associates, THinc, Partners in Managing Trade Marks Change, The Right Fit, Key Executive Service, Zeroing-in-Process (Z.I.P.), Right Match, Zenith, People Tech, Matrix, Compass, and the Globe Design are registered Service Marks of Right Management Consultants, Inc. and its wholly owned subsidiaries. The Right Report is a registered Trademark of Right Management Consultants, Inc. Right Management Consultants is a Service Mark of Right Management Consultants, Inc.
31 RIGHT MANAGEMENT CONSULTANTS, INC. Right Management Consultants, Inc.'s Common Stock trades on The NASDAQ Stock Market under the symbol RMCI. Common Stock Data 1998 High Low ---- ---- --- First Quarter 13 1/8 11 1/4 Second Quarter 15 11 3/8 Third Quarter 15 11 Fourth Quarter 15 3/4 11 1/8 1997 High Low ---- ---- --- First Quarter 23 1/2 8 3/4 Second Quarter 11 3/4 9 5/8 Third Quarter 11 1/2 9 1/4 Fourth Quarter 13 1/2 9 1/8 The above prices reflect interdealer prices, without retail markup, markdown or commission and may not necessarily represent actual transactions. As of March 18, 1999, there were 142 record holders and approximately 2,125 beneficial owners of the Company's Common Stock. The Company has never paid any dividends on its Common Stock and currently expects that all of its earnings will be retained and reinvested in the Company's business. Registrar and StockTrans, Inc. Transfer Agent Ardmore, Pennsylvania Availability of A copy of the Company's Annual Report 10-K Annual Report to the Securities and Exchange Commission on Form 10-K may be obtained by writing to: Cindy Ng Vice President and Controller Right Management Consultants, Inc. 1818 Market Street Thirty-third Floor Philadelphia, PA 19103 32 [LOGO] RIGHT MANAGEMENT CONSULTANTS, INC. ---------------------------------- The Company's global operations are structured into seven geographic groups that provide management, leadership and resources to more than 170 service locations around the world.
UNITED STATES Illinois New York Utah Chicago Buffalo Salt Lake City WORLD Northbrook Melville HEADQUARTERS Oak Brook New York City Virginia Philadelphia, PA Fairfax Indiana North Carolina Richmond Alabama Fort Wayne Charlotte Vienna Birmingham Indianapolis Greensboro Raleigh Washington Alaska Iowa Seattle Anchorage Des Moines Ohio Cincinnati West Virginia Arizona Kansas Cleveland Charleston Phoenix Wichita Columbus Tucson Dayton Wisconsin Kentucky Toledo Madison California Lexington Milwaukee Cupertino Louisville Oklahoma Irvine Oklahoma City PUERTO RICO Los Angeles Louisiana Tulsa San Juan Pasadena New Orleans Sacramento Oregon CANADA San Bernardino Maryland Portland Alberta San Diego Hunt Valley Calgary San Francisco Pennsylvania Edmonton San Ramon Massachusetts Allentown Woodland Hills Boston Erie British Columbia Burlington Lancaster Vancouver Colorado Malvern Colorado Springs Michigan Philadelphia Manitoba Denver Detroit Pittsburgh Winnipeg Grand Rapids Connecticut Kalamazoo Rhode Island New Brunswick Hartford Lansing Providence Moncton Stamford Midland St. John South Carolina Delaware Minnesota Greenville Nova Scotia Wilmington Minneapolis Halifax Tennessee District of Columbia Missouri Knoxville Ontario Washington Kansas City Memphis Kingston Saint Louis Nashville London Florida Mississauga Boca Raton Nebraska Texas Ottawa Fort Lauderdale Omaha Austin Richmond Hill Jacksonville Dallas Toronto Miami Nevada Fort Worth Orlando Las Vegas Houston Quebec Palm Beach San Antonio Montreal Saint Petersburg New Jersey Quebec City Tampa Parsippany Princeton Georgia Upper Saddle River Atlanta New Mexico Albuquerque
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AFRICA The Netherlands LATIN AMERICA South Africa Amersfoort Argentina Cape Town Amsterdam Buenos Aires Durban Breda East London Rotterdam Brazil Johannesburg Rio de Janeiro Port Elizabeth Norway Sao Paulo Oslo EUROPE Chile Austria ASIA/PACIFIC REGION Santiago Vienna Australia Adelaide Colombia Belgium Brisbane Bogota Antwerp Canberra Cali Brussels Melbourne Medellin Perth Denmark Sydney Mexico Copenhagen Mexico City China England Hong Kong THE MIDDLE EAST London Israel Swindon Japan Tel Aviv Fukuoka Finland Nagoya Helsinki Osaka Tokyo France Paris Malaysia Lyon Kuala Lumpur Germany New Zealand Berlin Auckland Bonn Wellington Dusseldorf Frankfurt Singapore Hamburg Munich Stuttgart Ireland Cork Dublin Galway Limerick Waterford Italy Bologna Genoa Milan Rome Teramo Turin
34 EX-21 8 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY 1. Right Associates Government Services, Inc., a Virginia corporation 2. Conviction Right France, SA, a French corporation 3. Right Human Resources, Inc., a Canadian corporation 4. Right Associates License, Inc., a Delaware corporation 5. Right License Holding, Inc., a Delaware corporation 6. Right D&A Pty. Ltd. (51% ownership), an Australian corporation 7. Teams International, LLC (51% ownership), an Arizona limited liability corporation 8. Right Associates, Ltd., a U.K. corporation 9. Right Associates (Belgium), Inc., a Delaware corporation 10. Right Associates (France), Inc., a Delaware corporation 11. Right Associates & Co., SNC, a Belgium corporation 12. R.M.C. & Co., SNC, a Belgium corporation EX-23 9 EXHIBIT 23 ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Right Management Consultants, Inc.: As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K into the Company's previously filed Registration Statements No. 333-06211, File No. 333-07975, File No. 33-58698, File No. 33-62997, and File No. 33-62999. /s/ ARTHUR ANDERSEN LLP Philadelphia, Pennsylvania March 30, 1999 EX-27 10 ART. 5 FDS FOR YEAR ENDED 12/31/98 FORM 10-K
5 1,000 12-MOS DEC-31-1998 DEC-31-1998 20,800 0 38,146 1,066 0 60,884 38,069 22,086 114,595 45,603 0 0 0 72 56,746 114,595 168,258 168,258 68,550 136,079 18,378 0 729 13,072 5,882 6,607 0 0 0 6,607 0.99 0.98
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