-----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, WXS12TIQJ9Pq+HapZBH1CP2hN4W5fNsHLkYBV9cELK1qvAyIoatzg+uwX1A4pKpk IyH5s8gSdcbTAAv3RngNGw== 0000950159-97-000082.txt : 19970507 0000950159-97-000082.hdr.sgml : 19970507 ACCESSION NUMBER: 0000950159-97-000082 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIGHT MANAGEMENT CONSULTANTS INC CENTRAL INDEX KEY: 0000802806 STANDARD INDUSTRIAL CLASSIFICATION: 8742 IRS NUMBER: 232153729 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15539 FILM NUMBER: 97566862 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: 19454 10-K 1 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, 1996 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 25, 1997 was $58,689,318. The number of shares outstanding of the registrant's Common Stock as of March 25, 1997 was 6,566,637. DOCUMENTS INCORPORATED BY REFERENCE Parts I & II Portions of the Company's 1996 Annual Report to Shareholders for the fiscal year ended December 31, 1996. Part III The Company's definitive proxy statement with respect to its 1997 Annual Meeting of Shareholders to be held on May 8, 1997. PART I Item 1: Business General Right Management Consultants, Inc. (the "Company") is an international career management and organizational consulting firm headquartered in Philadelphia, Pennsylvania. Founded in 1980, the Company has been publicly owned since 1986. In 1996, the Company became the largest firm in the career management industry with revenues in excess of $125 million. Worldwide operations are structured into eight geographic groups that provide management oversight to approximately 120 global locations, including both Company owned and Affiliate offices. 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, employment agency, or an executive search firm. The Company's operations can be segregated into two lines of business: Right Associates(R), specializing in career transition services, and People Tech Consulting ("People Tech"), specializing in career development and organizational consulting. Right Associates(R) Right Associates(R) currently provides career transition services to approximately 4,500 client companies, including over 80% of the Fortune 500. In the previous two year period, approximately 500,000 individuals have been assisted by Right Associates'(R) consultants during their career transition. Right Associates'(R) services can be separated into two principal categories - Individual Outplacement Services and Group Outplacement Services. Individual Outplacement Services The Company's individual outplacement services for the employer includes advice on conducting the termination interview, terms of severance pay and other termination benefits and identification of termination-related issues for which the employer may wish to seek legal counsel. 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 counseling 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. 1 Approximately 76% of the career transition revenue generated by Company offices during 1996 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 consulting. 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 type of programs to be provided. The group program may also be used for "voluntary separation" due to reorganizations or other reasons. Approximately 24% of the career transition revenue generated by Company offices during 1996 was for group outplacement services. Other The Company is also providing a combination of individual and group career transition services through a cost reimbursement plus fixed fee contract between the Company and Resource Consultants Inc. ("RCI") for the United States Army. Through this contract, counseling services are provided to United States Army soldiers, civilians and their families who are leaving active duty as a result of planned force reductions. These services are provided through 31 Job Assistance Centers in the United States and abroad, which are staffed by employees of a government subsidiary of the Company created for this contract, and RCI, a Vienna, Virginia based consulting firm. The contract contains annual renewal options for RCI and the United States Army to extend through May 1997. All renewal options have been exercised and the Company's anticipated share of the cost plus fixed fee contract revenue will approximate $4,800,000 over the eighteen month period through May 1997. The Company is currently in the process of negotiating an extension of the above contract for periods subsequent to May 1997. The Company remains optimistic that an extension will be granted. Revenues from the contract are included in both the individual outplacement and group outplacement services described above. The career transition business in total, including individual outplacement services, group outplacement services and the contract with RCI, provided approximately 93% of total Company office revenue for the year ended December 31, 1996. 2 People Tech Consulting During 1996, the Company acquired the outstanding stock of People Tech Consulting, Inc., a Canadian corporation. See the "Acquisitions" section of this document. With the addition of People Tech's organizational consulting business to the Company's previously established career management consulting practice, the Company is strongly committed to developing and broadening this line of business. The Company provides career management consulting services which assist employers and their employees in identifying and improving areas of job performance, refining communication skills and improving employee productivity. The Company also provides organizational 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. The consulting business in total, including career management consulting and organizational consulting, provided approximately 7% of total Company office revenue for the year ended December 31, 1996. The Company intends to focus on and expand this line of business in future years. 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 1996 Annual Report to Shareholders. Management of Company Offices and Affiliates The Company believes that a decentralized approach of organizing its business into geographic 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 ("Affiliate Agreements") with Affiliates, 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. See "Business - Affiliate Arrangements - Company Training of Affiliates" and "Affiliates' Payment of Fees and Royalties to Company." Under the Affiliate Agreements, the Company is precluded from establishing or maintaining Company offices or otherwise soliciting customers, conducting consulting business 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. 4 Company Training of Affiliates The Affiliate Agreement requires the Company to train the Affiliate and its employees in marketing and delivery of 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 Affiliate's 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 for 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. 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 stockholders of an Affiliate. 5 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. 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 stockholders 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. 6 Acquisitions During 1996, the Company completed four separate acquisitions consisting of two career transition firms and two organizational consulting firms. See Note B to the Consolidated Financial Statements. The Company acquired the outstanding stock of People Tech, a consulting company headquartered in Toronto, Canada. The other three transactions involved the purchase of the business, assets and/or the outstanding stock of three other smaller firms located in the United States and Canada. The total purchase price for these acquisitions aggregated approximately $3,412,000, including costs of acquisition. The acquisitions were consummated through combinations of cash and non-cash considerations, including the assumption of incomplete consulting contracts. During the period 1991 through 1995, the Company completed eleven 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 $20,692,000, including costs of acquisition. Competition The Company competes against other providers of career transition services and other human resource consulting services. Based on revenues for 1996, the Company became the largest provider of career management services worldwide, surpassing Drake Beam Morin, Inc., a subsidiary of Harcourt General, Inc. 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 competes against local career transition and other human resource 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 consulting businesses. 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. 7 Financial Information Relating to Foreign Operations See the Company's Consolidated Financial Statements, Note J, "Geographic Segments", contained in the Company's 1996 Annual Report to Shareholders, 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, 1997, the Company and its subsidiaries employed 806 persons full-time, including 16 in senior management, 86 in other managerial and professional roles, 378 in field operations as consultants, and 326 in clerical capacities. In addition, the Company employed 272 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. Item 2: Properties The Company leases approximately 22,618 square feet for its corporate headquarters in the 1818 Market Street Building in Philadelphia, Pennsylvania. The initial term of the lease expires December 15, 2005 and is at an annual base rent of approximately $509,000, subject to annual operating expense escalation clauses. The Company has the option to extend the lease for an additional term of five years on the same terms and conditions, except that the rent will be changed to the then current market rate for the building. 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 563,000 square feet for all Company offices, including the corporate headquarters, at an aggregate base yearly rental of approximately $13,000,000. 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. 8 Executive Officers of the Registrant Each of the following executive officers of the Company has been appointed by the Board of Directors and served during 1996 in the following roles at the discretion of the Board. 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 51 Chairman of the Board of Directors and Chief Executive Officer Frank P. Louchheim 73 Founding Chairman and Director Joseph T. Smith 61 President, Chief Operating Officer and Director G. Lee Bohs 37 Executive Vice President, Chief Financial Officer, Secretary and Treasurer John J. Gavin 39 Executive Vice President of Corporate Marketing Manville D. Smith 58 Executive Vice President of Business Development Larry A. Evans 54 Executive Vice President and Director Nancy N. Geffner 57 New York Group EVP and Director Dr. Marti D. Smye 46 President of People Tech Consulting, Inc. and Director Peter J. Doris 50 Southeast United States Group EVP David S. Orr 62 North Central United States Group EVP Warren R. Radtke 61 Northeast United States Group EVP Gary L. Saenger 52 Southwest United States Group EVP Terry W. Szwec 46 Canadian Group EVP George L. Whitwell 56 Northwest and South Central United States Group EVP Gilbert A. Wetzel 63 Mid-Atlantic United States Group EVP 9 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 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 K-Tron International, a publicly held company. Mr. Louchheim was one of the founders of the Company and from November 1980 until September 1987, Mr. Louchheim served as President, Chief Executive Officer and Chairman of the Board of Directors of the Company. From January 1992 to December 31, 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. Joseph 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 1993, Mr. Smith served as the Company's Chief Operating Officer. Effective January 1, 1994, Mr. Smith was appointed President and continues as Chief Operating Officer. From June 1981 to January 1987, Mr. Bohs was employed at the regional Certified Public Accounting firm of Asher & Company, Ltd., 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. Gavin was employed at Arthur Andersen LLP in Philadelphia for 18 years in which he served as the partner in charge of the manufacturing/distribution industries. Mr. Gavin joined the Company in December 1996 as Executive Vice President of Corporate Marketing. In this capacity, Mr. Gavin is responsible for the overall marketing strategy and business development activities for the Company's worldwide locations. Mr. Gavin serves as the Chairman of Temple University's Accounting Advisory Board and is a member of the Board of Trustees of the Eagle's Fly for Leukemia Foundation. 10 Mr. Manville Smith worked for the 3M Company where he had a twenty year career in a variety of positions, including Managing Director for several international subsidiaries and operations. Subsequently, Mr. Smith went to work for the Parker Pen Company where he served as Vice President of Strategic Planning from July 1980 to April 1981. In April 1981, Mr. Smith was promoted to President of the Parker Pen Company with worldwide responsibility for this manufacturer of quality writing instruments, where he served until July 1984. From July 1984 until July 1988, Mr. Smith provided strategic planning consulting to various organizations. In 1988, Mr. Smith joined the operations of the Company's Florida Affiliate as Executive Director, where he provided consulting services. In July 1994, Mr. Smith joined the Company as Executive Vice President, Business Development, responsible for strategic business development on a worldwide basis and has served in this capacity through 1996. Prior to May 1978, Mr. Evans was professionally involved in the international finance and venture capital industries. 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. From August 1979 to February 1981, Ms. Geffner was a Career Consultant with Bernard Haldane Associates, Inc. Since March 1981, Ms. Geffner has served as Regional Managing Principal of the Company's New York City office. In December 1983, Ms. Geffner was named an Executive Vice President of the Company. In 1993, Ms. Geffner took on the additional responsibilities of directing the Company's Key Executive Service program, the consulting program for senior executives, throughout the United States and Canada. Effective January 1996, Ms. Geffner resigned from this role and was appointed Group Executive Vice President for the Greater New York Region. From 1981 to 1989, Dr. Smye was a partner of the industrial psychology firm, Jackson Smith. From this company, 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 two books titled "You Don't Change a Company by Memo: The Simple Truths About Managing Change" and "Corporate Abuse: How "Lean and Mean" Robs People and Profits." Dr. Smye also serves on various boards of both private companies and community associations, including the Public Policy Forum and the Harvard Business School Club of Toronto. Prior to joining Right Associates(R), Mr. Doris was Senior Vice President of Human Resources for a large New York City based bank. From 1986 to 1990, Mr. Doris was Senior Vice President, Sales and Operations of the Company. Effective January 1991, he became a Group EVP for the Southeast region of the United States in which capacity he served during 1996. 11 Prior to 1990, Mr. Orr had a thirty one year career in the telecommunications industry in which he was a senior officer for Indiana Bell, Vice President - Regional Business Services for AT&T, Vice President - Marketing Planning with Ameritech Services and, finally, President of Ameritech Communications. In 1990, Mr. Orr joined Jannotta, Bray & Associates as an Executive Program Consultant, a position he held until it was acquired by the Company in September 1994. Subsequent to the acquisition, Mr. Orr served as Regional Managing Principal for the Chicago Region of Right/Jannotta Bray until February 1995 when he was promoted to Group EVP in which capacity he is currently responsible for the North Central region of the United States. From 1965 to 1980, Mr. Radtke was the owner of an independent human resource consulting firm specializing in executive outplacement, performance appraisal systems, career management, organizational development and management assessments. He joined the Right Associates(R) network in 1980 as the Regional Managing Principal of the Boston, Massachusetts Affiliate office. Mr. Radtke joined the Company in December 1992 and through December 31, 1993 served as the Regional Managing Principal of the Company's Boston region. Effective January 1, 1994, Mr. Radtke became Group EVP for the Northeast region of the United States and continued in this capacity through 1996. Mr. Saenger spent over ten years with American Hospital Supply Corporation, where he served in various human resources functions at the senior management level. From 1982 to 1985, Mr. Saenger was with Transaction Technology Incorporated, a subsidiary to CitiCorp, where he managed the human resources function. From 1985 to 1991, Mr. Saenger was Senior Vice President of Security Pacific Automation Company, Inc., a subsidiary of Security Pacific Corporation, where he had full responsibility for human resource policy and implementation. In 1991, Mr. Saenger joined the Company as the Regional Managing Principal of the Company's Los Angeles region. Effective February 1995, Mr. Saenger became Group EVP for the Southwest region of the United States. Mr. Saenger has an M.A. in Personnel from Idaho State University. 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 then 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 EVP for the Canadian operations of the Company. From July 1968 to February 1983, Mr. Whitwell held various management positions, including Director of Outplacement for Fox-Morris Associates, Inc., a Philadelphia, Pennsylvania-based personnel consulting firm. From February 1983 to June 1986, Mr. Whitwell served as Senior Vice President, Field Operations, of the Company. Mr. Whitwell was a Director of the Company from March 1985 to May 1991 and from June 1986 to September 1987 was Executive Vice President, Field Operations of the Company. For the period October 1987 through December 1990, Mr. Whitwell served as the Regional Managing Principal of the Company's Parsippany, New Jersey office. Effective January 1991, he became a Group EVP in which capacity he was responsible for the Northwest and South Central regions of the United States through 1996. Mr. Whitwell also serves as the Regional Managing Principal of the Company's San Francisco region. 12 Prior to joining Right Associates in 1994, Mr. Wetzel was associated with the Bell System serving as Chairman and Chief Executive Officer of Bell of Pennsylvania and Diamond State Telephone. Effective December 1996, Mr. Wetzel became the Group EVP for the Eastern region of the United States in which capacity he still serves. Each executive officer 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 1996 Annual Report to Shareholders, the incorporated portions of which are included as Exhibit 13 to this Report. 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 1996 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 1996 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 Stockholders' Equity", "Consolidated Statements of Cash Flows" and "Notes to Consolidated Financial Statements" in the Company's 1996 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. 13 PART III The information called for by Items 10 through 13 of Form 10-K (except for the information set forth on pages 9-13 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 1997 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 1996 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, 1996 and 1995 Consolidated Statements of Income for each of the three years in the period ended December 31, 1996 Consolidated Statements of Stockholders' Equity for each of the three years in the period ended December 31, 1996 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1996 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. 14 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 Agreement among Right Management Consultants, Inc. and Right Human Resources Consultants, Inc., dated December 26, 1984 (incorporated by reference to the Company's Form S-1 (File No. 33-9034), filed September 25, 1986). 10.02 Agreement among Right Management Consultants, Inc. and Midwest Reemployment Consultants, Inc. dated February 15, 1985 (incorporated by reference to the Company's Form S-1 (File No. 33-9034), filed September 25, 1986). 10.03 Agreement among Right Management Consultants, Inc. and Human Resources, Inc., dated December 26, 1984 (incorporated by reference to the Company's Form S-1 (File No. 33-9034), filed September 25, 1986). 10.04 Non-Qualified Stock Option Plan, adopted, as of April 30, 1984 (incorporated by reference to the Company's Form S-1 (File No. 33-9034), filed September 25, 1986).* 10.05 1986 Shareholders' Agreement (incorporated by reference to the Company's Form S-1 (File No. 33-9034), filed November 12, 1986). 10.06 401(k) Savings Plan (incorporated by reference to the Company's Form S-1 (File No. 33-9034), filed September 25, 1986). * 10.07 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). * 10.08 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). * 10.09 Further Amendment to Amended and Restated Employment Agreement between Right Management Consultants, Inc. and Frank P. Louchheim dated February 16, 1993. * 10.10 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). * *These documents are compensatory plans or agreements required to be filed as Exhibits. 15 10.11 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). 10.12 Lease Agreement between Metropolitan Life Insurance Company and Right Management Consultants, Inc., dated October 18, 1983 and amended on August 12, 1986; November 6, 1987; and July 15, 1991. 10.13 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). 10.14 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).* 10.15 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).* 10.16 Employment Agreement dated December 12, 1995 by and between Right Management Consultants, Inc. and Richard J. Pinola. * 10.17 Employment Agreement and Supplemental Deferred Compensation Plan dated December 12, 1995 by and between Right Management Consultants, Inc. and Joseph T. Smith. * 10.18 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) 10.19 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).* 10.20 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).* 10.21 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) 10.22 Employment Agreement dated April 10, 1996 by and between Right Management Consultants, Inc. and Marti Smye. * 11. Consolidated Earnings per Share Calculations. 13. Portions of the Company's 1996 Annual Report to Shareholders expressly incorporated by reference. 21. Subsidiaries of the Company. 23. Consent of Arthur Andersen LLP, Independent Public Accountants 27. Financial Data Schedule. + (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the fiscal quarter ended December 31, 1996. *These documents are compensatory plans or agreements required to be filed as Exhibits. + Filed in electronic form only. 16 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: MARCH 27, 1997 17 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 - - --------------------- and Chief Executive Officer MARCH 27, 1997 Richard J. Pinola /S/ G. LEE BOHS Chief Financial - - --------------------- Officer and Principal G. Lee Bohs Accounting Officer MARCH 27, 1997 /S/ FRANK P. LOUCHHEIM Director MARCH 27, 1997 - - --------------------- Frank P. Louchheim /S/ JOSEPH T. SMITH Director MARCH 27, 1997 - - --------------------- Joseph T. Smith /S/ LARRY A. EVANS Director MARCH 27, 1997 - - --------------------- Larry A. Evans /S/ JOHN R. BOURBEAU Director MARCH 27, 1997 - - --------------------- John R. Bourbeau /S/ RAYMOND B. LANGTON Director MARCH 27, 1997 - - --------------------- Raymond B. Langton /S/ REBECCA J. MADDOX Director MARCH 27, 1997 - - --------------------- Rebecca J. Maddox /S/ CATHERINE Y. SELLECK Director MARCH 27, 1997 - - --------------------- Catherine Y. Selleck /S/ DR. MARTI D. SMYE Director MARCH 27, 1997 - - --------------------- Dr. Marti D. Smye 18 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 January 31, 1997. Our audit was made for the purpose of forming an opinion on those financial statements taken as a whole. The financial statement schedule listed in the index above 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 January 31, 1997 Right Management Consultants, Inc. Schedule II - Valuation and Qualifying Accounts and Reserves For the Years 1996, 1995 and 1994
Additions Balance at Charged to Charged to Balance at Beginning of Costs and Other End of Description Year Expenses Accounts Deductions Year 1996: Allowance for doubtful accounts $754,000 $28,000 -- $230,000 $552,000 ======== ======= ======== ======== Deferred income tax asset valuation reserve -- $192,000 -- -- $192,000 ======== ======== 1995: Allowance for doubtful accounts $651,000 $400,000 -- $297,000 $754,000 ======== ======== ======== ======== Deferred income tax asset valuation reserve $391,000 -- -- $391,000 (1) -- ======== ======== 1994: Allowance for doubtful accounts $794,000 $75,000 -- $218,000 $651,000 ======== ======= ======== ======== Deferred income tax asset valuation reserve $583,000 -- -- $192,000 (1) $391,000 ======== ======== ======== (1) Reduction due to the utilization and expiration of certain foreign net operating losses.
Exhibit Index Exhibit No. Description 10.22 Employment Agreement dated April 10, 1996 by and between Right Management Consultants, Inc. and Marti Smye 11 Consolidated Earnings per Share Calculations 13 The Company's 1996 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 + + Filed in electronic form only. EX-10.22 2 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is made as of the 10th day of April, 1996, by and between People Tech Consulting Inc., federal Canadian corporation ("Employer"), and Marti Smye ("Executive"). As used herein, "Employer" shall mean Employer and all direct and indirect subsidiaries of Employer. BACKGROUND Pursuant to a Stock Purchase Agreement dated April 10, 1996, between PTR Right Acquisition Co. Inc. ("PTR"), a federal Canadian corporation and a wholly-owned subsidiary of Right Management Consultants, Inc., a Pennsylvania corporation ("RMC"), as buyer, and the shareholders of Employer, as sellers (the "Stock Purchase Agreement"), PTR is purchasing all of the capital stock of Employer for the purpose of operating Employer's business on the closing date thereof (the "Closing Date"). Simultaneous with the execution of this Employment Agreement, Executive is selling shares of Employer to PTR pursuant to the Stock Purchase Agreement. In connection with the sale of the stock of Employer, Employer desires to employ Executive as Executive Vice President-Management Consulting, and Executive desires to be so employed by Employer. In consideration of the mutual promises and covenants contained herein and intending to be legally bound hereby, Employer and Executive agree as follows: 1. Employment and Duties. (a) Employer hereby employs Executive and Executive hereby accepts employment by Employer as Executive Vice President-Management Consulting, for a period of three (3) years (the "Term"), effective as of March 1, 1996 (the "Effective Date"), and upon the terms and conditions contained in this Agreement. From and after the expiration of the Term, Executive will be retained as an employee of Employer, with either party having the right to terminate employment upon notice to the other party. Any such termination of employment after the expiration of the Term is in accordance with the provisions of this Agreement. (b) As Executive Vice President, Executive shall have senior management responsibility for the business of Employer in connection with the types of business conducted as of the date hereof by Employer, and perform such other duties as Employer -1- shall from time to time reasonably direct. From and after the date hereof and up to and including the date that Executive's employment hereunder is terminated, Executive shall devote Executive's full working time, skill and best efforts to the performance of Executive's duties hereunder. Notwithstanding anything in this paragraph to the contrary, Executive is free to engage in lecturing, speaking, writing, and teaching activities on a scale similar to those she has historically engaged in. All fees and royalties generates by such activities shall be the property of Employer. (c) Employer shall not, without the consent of Executive, require Executive to change the location of her residence. 2. Compensation. (a) Base Salary. As compensation for services rendered by Executive hereunder Executive shall receive, effective as of the Effective Date, an annual base salary of Three Hundred Twenty-Eight Thousand Five Hundred Canadian Dollars (C$328,500), payable on a semi-monthly basis. In addition, for the period from the Effective Date to February 28, 1999, Executive shall be entitled to receive the Special Bonus provided in subparagraph 2.(b) below. (b) Special Bonus. In addition to the base salary provided for in subparagraph 2.(a) above, Employer shall pay a special bonus ("Special Bonus") to Executive based on the Net Earnings of Employer for the three fiscal years in the period beginning March 1, 1996 and ending on February 28, 1999 (each a "Fiscal Year"), according to the following schedule: Percentage of Net Earnings for each level of Net Earnings on an incremental (not cumulative) basis Net Earnings Fiscal Fiscal Fiscal (Canadian Dollars) Year 1 Year 2 Year 3 Up to $500,000 - - - $500,001-$1,500,000 19.44% 15.56% 11.66% $1,500,001-$2,000,000 31.12% 27.22% 23.34% $2,000,001-$2,500,000 35.00% 31.12% 27.22% $2,500,001 and above 38.90% 35.00% 31.12% In addition, and as an additional Special Bonus, if the Net Earnings, as calculated for the purposes of this Agreement, for any Fiscal Year exceed C$2,500,000, Executive shall be paid the sum of C$156,000 with respect to each such Fiscal Year; provided, however, that once the total amount of Special Bonus payments to Executive, including additional Special Bonus payments, has reached C$777,800, (i) Special Bonus payments to Executive shall -2- be made at the rate of 95% of the percentages shown above and (ii) additional Special Bonus payments to Executive shall be in the amount of C$148,200. Any Special Bonus payments due under this Agreement shall be paid within 60 days of the end of the Fiscal Year for which the Special Bonus payment is due. Net Earnings or Loss means, with respect to any Fiscal Year, the Net Earnings or Loss of People Tech before income taxes and bonuses (other than any Special Bonus) to principals for such year determined in a fashion consistent with the determination of such earnings for the year ended March 31, 1995, as determined by Smith, Nixon & Co., Chartered Accountants, in its report dated July 14, 1995, as adjusted to make the fiscal period herein correspond as if it were a regular fiscal year (meaning the application of appropriate year end adjustments), and with the following further adjustments: For purposes of the foregoing calculation, only direct costs of providing services outside Employer shall be deducted, including costs associated with the severance of current employees of Employer, but not any outplacement costs or allocations of overhead from offices (other than Employer's offices), or from the corporate headquarters of RMC. In the event that operations of People Tech are changed after the Effective Date so that such operations are not conducted in Employer, or RMC fails to meet its commitments under the Operating Plan (as such term is used in the Stock Purchase Agreement), the parties will adjust the method of calculation for purposes of the Special Bonus compensation to equitably reflect such circumstances. (c) All compensation payable to Executive hereunder shall be subject to any tax withholding obligations under applicable laws. 3. Executive Benefits. In addition to the compensation set forth in Section 2 of this Agreement, Executive shall be entitled to the following: (a) Four weeks paid vacation annually; including without limitation the pro rata portion thereof for the remainder of calendar year 1996 and for the period from January 1, 1999 through the end of the Term. (b) All medical, life, retirement and other benefits that are currently available to other senior management of Employer. (c) Executive shall participate in all other benefit, annual bonus, incentive and expense reimbursement programs offered by Employer from time to time to its senior management on the general terms of such programs, reasonably comparable to RMC corporate-wide policies regarding such programs from time to -3- time, provided, however, that Executive understands and agrees that Employer reserves the right to unilaterally revise the terms of the benefits and expense reimbursement programs or to eliminate any benefits thereunder altogether. Executive agrees that benefits will be provided in accordance with the formal plan documents or policies and issues with respect to entitlement or payment of benefits under any of the benefit and expense reimbursement programs will be governed by the terms of such documents or policies establishing the benefit in issue. Commencing 1997, Executive shall be eligible for stock options consistent with RMC Corporate Executive Vice Presidents. For purposes of the vesting and eligibility requirements, if any, for the benefits which are available under this Section 3, Executive shall be deemed to have been hired on January 1, 1978. 4. Termination. (a) Employer reserves the right to terminate Executive's employment at any time, for Cause, as hereinafter set forth, effective immediately upon written notice of such termination. In the event that Employer terminates Executive for Cause or in the event Executive voluntarily terminates her employment, Executive will receive only all salary and all accrued but unused vacation and other benefits during the period up through the date of termination. (b) For purposes of this Agreement, "for Cause" shall be defined as (i) any material act of fraud or dishonesty by the Executive; (ii) any action by Executive which materially and adversely affects the ability of Executive to perform her professional duties as described herein; or (iii) any failure by Executive to cure any material breach of any term of (A) any contract between Executive and Employer or RMC, or (B) any written, generally disseminated policy of Employer or RMC regarding employee conduct, within thirty (30) days of the effective date of the written notice of such breach by Employer or RMC to the Executive. (c) This Agreement shall terminate automatically in the event of Executive's death or permanent disability which prevents Executive from performing Executive's essential duties under this Agreement. In either event, base salary shall be paid to the last day of the month in which the event occurs, and bonus will be pro rated to such later date. For purposes of this subparagraph, "permanent disability" shall have the same meaning as in Employer's Long Term Disability benefit policy as in effect from time to time. (d) Notwithstanding any other provision of this Agreement, Executive shall be entitled to receive the Special Bonus hereunder without regard to Executive's death, disability -4- or continued employment by Employer, unless Executive voluntarily terminates her employment or is terminated for Cause in which event Executive shall not be entitled to receive any Special Bonus payable after the date of termination of Executive's employment. (e) In the event that Employment Standards legislation provides for a greater benefit to Executive on termination than contained in this Agreement, Executive is entitled to receive the benefit provided in such legislation in place of the termination benefit provided for in this Agreement; provided, however, that this subparagraph 4(e) shall not in any way restrict or limit the payment of any Special Bonus provided under subparagraph 2(b) hereof. 5. Restrictive Covenants. (a) In order to induce Employer to execute this Agreement, Executive hereby covenants and agrees that during Executive's Employment by Employer and for a period of one year after Executive's employment with Employer is terminated for any reason whatsoever (the "Restricted Period"), Executive shall not, directly or indirectly, either for Executive's own account or as a partner or joint venturer, or as an agent for any person or entity other than Employer, or as a shareholder, owner, or otherwise (other than as the holder of five percent (5%) or less of an exchange listed entity), anywhere within the Territory (hereinafter defined): (i) engage in the business of selling or providing corporate change management consulting services; (ii) contact or solicit any entity which is or has been a client or customer of Employer's consulting division(s) at any time throughout Executive's employment with Employer or any entity which has been actively solicited by Employer within six months prior to termination of Executive's employment with Employer on behalf of any competitor of Employer for the purpose of providing change management or organizational consulting services to such clients or customers on an in-house basis, to the extent that so doing would compete with the change management or organizational consulting services provided by Employer; (iii) enter into any agreement or arrangement with or perform any change management or organizational management consulting services for any client or customer of Employer for whom Executive has performed services at any time during Executive's employment with Employer; or (iv) solicit or induce any employee of Employer to terminate such employee's employment with Employer. Notwithstanding anything herein to the contrary, Executive shall be permitted to engage in lecturing, speaking, writing and teaching activities on a scale similar to those she has historically engaged in during the term of Executive's employment by Employer. For the purposes of this Agreement, Territory shall mean the Provinces of Canada and the states of the United States which together constitute the continent of North America. -5- (b) Executive hereby covenants and agrees that, except to the extent required by law, at all times after the date of this Agreement, Executive shall not use for Executive's benefit, or disclose, communicate or divulge to, or use for the direct or indirect benefit of any person, firm, association or company other than Employer, any confidential information regarding the business methods, business policies, procedures, techniques, research or development projects or results not in the public domain; trade secrets, or other knowledge or processes used or developed by Employer in or for Employer's business; or any names or the addresses of any customers or clients of Employer; or any non-public data on or relating to past, present or prospective customers or clients of Employer; or any other confidential information relating to or dealing with the business operations or activities of Employer (collectively, "Confidential Information"). Provided, however, that Confidential Information does not include information that (x) is, was, or becomes available to Executive on a nonconfidential basis; (y) has been or is made available on a unrestricted basis to a third party by Employer, by an individual authorized to do so; or (z) is known by Executive prior to its disclosure to Executive by Employer. Furthermore, Executive is specifically permitted to use and disclose Confidential Information to the extent necessary to assert any right or defend against any claim arising under this Agreement or pertaining to Confidential Information or its use, to the extent necessary to comply with any applicable statute, constitution, treaty, rule, regulation, ordinance, or order of the Untied States, Canada, or any other jurisdiction applicable to Executive, or if Executive receives a request to disclose any Confidential Information under the terms of a subpoena, order, civil investigative demand, or similar process issued by a Court of competent jurisdiction or by a governmental body or agency of the United States or Canada or any subdivision thereof. (c) Any and all writings, inventions, improvements, computer programs, processes, procedures or techniques (hereinafter "Inventions") which Executive 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 Executive's employment with Employer which relate to any business being conducted or carried on by Employer at the time of invention shall be the sole and exclusive property of Employer, subject to the rights of the Co-Inventor(s) in the Inventions. Any and all Inventions which Executive may make, discover or develop either solely or jointly with any Co-Inventor(s) other than as part of Executive's employment with Employer which are useful in connection with any business being conducted, carried on or definitely planned by Employer at the time of invention shall be subject to a perpetual license to Employer, subject to any rights of Co-Inventor(s). The amount of the royalty shall be agreed upon by Employer and Executive. In -6- the event that they cannot agree, such royalty shall be determined by arbitration by three arbitrators, one selected by Employer, one selected by Executive and the third selected by the first two arbitrators. During the term of this Agreement, Executive shall make full disclosure to Employer of all such Inventions. It shall be presumed that any Inventions which Executive shall make, discover or develop either solely or jointly with any Co-Inventor(s) during the two-year period after termination of Executive's employment with Employer shall have been developed in part during the term of employment, and Executive 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 Employer is to acquire title hereunder, Executive shall do everything necessary or desirable to vest such title in Employer, and Executive shall write and prepare all specifications and procedures regarding such Inventions and otherwise aid and assist Employer so that Employer 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. Executive shall not be entitled to any additional or special compensation for rights to Inventions which Employer acquires hereunder. (d) Executive 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 Employer, any subsidiary or any affiliate thereof, or any of their officers, trustees, directors, employees, attorneys, agents or family members. (e) Executive acknowledges that the restrictions contained in this Section 5, in view of the nature of the business in which Employer is engaged, are reasonable and necessary in order to protect the legitimate interests of Employer, and that any violation thereof would result in irreparable injuries to Employer. Executive therefore acknowledges that, in the event of a violation of any of these restrictions, Employer shall be entitled to obtain from any court of competent jurisdiction emergency, preliminary and permanent injunctive relief, as well as damages and an accounting of all earnings, profits and other benefits from Executive arising from such violation, which rights will be cumulative and in addition to any other rights or remedies to which Employer may be entitled from Executive. (f) If for any reason any paragraph or portion of a paragraph from this Section 5 shall be invalid or unenforceable, it is agreed that the same shall not affect any other paragraph or portion hereof, but the remaining covenants and restrictions -7- or portions hereof shall remain in full force and effect; and that if such invalidity or enforceability is due to the unreasonableness of the time or geographical area covered by the said covenants and restrictions, said covenants and restrictions of this Agreement shall nevertheless be effective for such period of time and for such area as may be determined to be reasonable by a court of competent jurisdiction. 6. Stock Options. It is the intention of management of Employer to recommend to the Compensation and Stock Option Committee of RMC's Board of Directors ("Committee"), the issuance to Executive of options to purchase up to 6,000 of RMC's common shares on terms set by the Committee, including an option price at or above the fair market price of such shares on the date of grant. 7. Royalty Assignments. Executive hereby assigns to Employer all of her right, title and interest in and to any royalties and other payments ("Royalties") to which Executive would otherwise be entitled to receive throughout the term of Executive's employment by Employer with respect to the following completed or to be completed books (collectively, the "Books"): You Don't Change A Company By Memo, Corporate Abuse and Your Second Life (working title, subject to change). Executive shall promptly notify the publishers of each of the Books in writing of such assignment. Upon the termination of Executive's employment with Employer, the right to receive the Royalties shall revert to Executive and Employer shall promptly notify the publishers of each of the Books in writing of such reversion. 8. Notices. Any notice hereunder shall be in writing and shall be deemed to have been duly given, if delivered personally, when delivered and, if mailed, when mailed by certified mail, postage prepaid, return-receipt requested, addressed to the following addresses: If to Employer: People Tech Consulting Inc. c/o Right Management Consultants, Inc. 1818 Market Street, 33rd Floor Philadelphia, PA 19103-3614 Attn: Chairman If to Executive: Marti Smye People Tech Consulting Inc. 154 University Avenue 2nd Floor Toronto, Ontario M5H 3Y9 -8- Canada Either party may change the address to which notices shall be mailed or delivered to it at any time by notice to the other party given in the manner provided herein. 9. Amendments. This Agreement cannot be changed or terminated orally and no waiver of compliance with any provision or condition hereof and no consent provided for herein shall be effective unless evidenced by an instrument in writing duly executed by the proper party. 10. Indulgences. Neither the failure nor any delay on the part of either party hereto to exercise any right, remedy, power or privilege under this Agreement will operate as a waiver thereof, nor will any single or potential exercise of any right, remedy, power or privilege preclude any other or future exercise of the same or of any other right, remedy, power or privilege. Any waiver of such item with respect to any one occurrence will not be construed as a similar waiver with respect to any other occurrence. 11. 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. 12. Miscellaneous and Governing Law. This Agreement sets forth the entire understanding of the parties and supersedes any and all prior agreements, arrangements and understandings relating to the subject matter hereof. This Agreement and the relationship of the parties in connection therewith shall be construed and governed in accordance with the laws of the Commonwealth of Pennsylvania, including laws with regard to any conflicts of law provisions. 13. 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. -9- 14. Successors and Assigns; Assignment. This Agreement shall be binding upon and inure to the benefit of Employer's successors and assigns. Employer shall not assign this Agreement without Executive's prior written consent and Executive may not assign her interest in this Agreement. 15. Representation of Executive. Executive represents, warrants and acknowledges to Employer that she has had the opportunity to obtain, and in fact has obtained, independent legal advice with respect to this Agreement and all matters described herein or relating hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written. PEOPLE TECH CONSULTING INC. By:/s/ Marti Smye ------------------- Marti Smye The undersigned hereby unconditionally guaranties all obligations of Employer to Executive under this Employment Agreement. RIGHT MANAGEMENT CONSULTANTS, INC. By: /s/ G. Lee Bohs ------------------- G. Lee Bohs, Executive Vice President and Chief Financial Officer -10- EX-11 3 Right Management Consultants, Inc. Exhibit 11 - Consolidated Earnings Per Share Calculation For the Year Ended December 31, 1996 1995 1994 Earnings per common share Primary and Fully Diluted EPS: Primary EPS ** Net income $9,675,000 $7,819,000 $5,714,000 ========== ========== ========== Weighted average number of shares issued and outstanding 6,252,000 5,984,000 5,921,000 Dilutive effect (excess of number of shares issuable over number of shares assumed to be issued using the average market price during the period) of outstanding options 411,000 306,000 204,000 --------- --------- --------- Adjusted weighted average number of shares outstanding 6,663,000 6,290,000 6,125,000 ========== ========== ========== Earnings per common share $1.45 $1.24 $0.93 ========== ========== ========== Fully Diluted EPS ** Net income $9,675,000 $7,819,000 $5,714,000 ========== ========== ========== Weighted average number of shares issued and outstanding 6,252,000 5,984,000 5,921,000 Dilutive effect (excess of number of shares issuable over number of shares assumed to be issued using the market price at the end of the period) of outstanding options 446,000 411,000 209,000 --------- --------- --------- Adjusted weighted average number of shares outstanding 6,698,000 6,395,000 6,130,000 ========== ========== ========== Earnings per common share $1.44 $1.22 $0.93 ========== ========== ========== ** Shares have been restated to reflect both the November 1995 and July 1996 three-for-two stock splits. EX-13 4 Right Management Consultants, Inc. Selected Financial Data (Dollars and Shares in Thousands Except Earnings Per Share and Stock Prices)
Year Ended December 31, 1996 1995 1994 1993 1992 Results of Operations (1) Total revenue $125,269 $114,005 $89,134 $70,726 $53,617 Costs and expenses 108,994 101,090 79,345 64,279 50,278 Income before income taxes 16,275 12,915 9,789 6,447 3,339 Net income 9,675 7,819 5,714 3,297 1,324 Earnings per share (2) $1.45 $1.24 $0.93 $0.56 $0.23 Weighted average number of 6,663 6,290 6,125 5,918 5,859 shares outstanding (2) Balance Sheet Data Working capital $25,342 $13,134 $9,883 $8,940 $6,317 Total assets 73,935 60,231 48,969 35,734 25,262 Long-term obligations 8,768 7,360 6,004 2,403 2,831 Stockholders' equity 47,801 33,626 24,405 18,032 14,498 Total debt-to-equity ratio 17% 28% 28% 16% 18% Return on equity 24% 27% 27% 20% 10% Stock Price Ranges Low price $15.00 $6.89 $6.55 $3.33 $1.67 High price 27.50 19.50 11.11 9.22 9.00 (1) See Note B to the Consolidated Financial Statements for information regarding acquisitions (2) Amounts presented have been restated for both the November 1995 and July 1996 three-for-two stock splits (See Note I to the Consolidated Financial Statements)
Graph Data 1996 1995 1994 1993 1992 Total revenue $125,269 $114,005 $89,134 $70,726 $53,617 Earnings per share (2) $1.45 $1.24 $0.93 $0.56 $0.23 Total debt-to-equity 17% 28% 28% 16% 18% Return on equity 24% 27% 27% 20% 10%
1 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders 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, 1996 and 1995, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. 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 financial position of Right Management Consultants, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP ________________________ Philadelphia, Pennsylvania January 31, 1997 Right Management Consultants, Inc. Consolidated Balance Sheets (Dollars in Thousands Except Share Data)
December 31, 1996 1995 Assets Current Assets: Cash and cash equivalents $18,055 $8,965 Accounts receivable, trade, net of allowance for doubtful accounts of $552 and $754 in 1996 and 1995, respectively 18,878 16,918 Royalties and fees receivable from Affiliates 3,505 4,303 Prepaid expenses and other current assets 1,868 1,593 Deferred income taxes 402 600 ------- ------- Total current assets 42,708 32,379 ------- ------- Property and equipment, net 9,666 7,447 ------- ------- Other Assets: Intangible assets, net 18,724 17,824 Deferred income taxes 1,588 1,221 Other 1,249 1,360 ------- ------- 21,561 20,405 ------- ------- Total Assets $73,935 $60,231 ======= ======= Liabilities and Stockholders' Equity Current Liabilities: Line of credit $ -- $1,325 Current portion of long-term debt and other obligations 1,011 2,227 Accounts payable 4,584 3,643 Commissions payable 952 2,735 Accrued incentive compensation and benefits 4,651 3,543 Other accrued expenses 2,300 2,337 Deferred income 3,868 3,435 ------- ------- Total current liabilities 17,366 19,245 ------- ------- Long-term debt and other obligations 6,904 5,741 ------- ------- Deferred compensation 1,864 1,619 ------- ------- Commitments and Contingent Liabilities (Notes D, F and H) Stockholders' Equity: Preferred stock, no par value; 1,000,000 shares authorized; no shares issued or outstanding -- -- Common stock, $.01 par value; 20,000,000 shares authorized; 6,713,573 and 4,313,816 shares issued 67 43 Additional paid-in capital 11,956 7,655 Retained earnings 36,290 26,636 Cumulative translation adjustment 5 (191) ------- ------- 48,318 34,143 Less treasury stock, at cost, 252,952 shares (517) (517) ------- ------- Total Stockholders' Equity 47,801 33,626 ------- ------- Total Liabilities and Stockholders' Equity $73,935 $60,231 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 3 Right Management Consultants, Inc. Consolidated Statements of Income (Dollars and Shares in Thousands Except Earnings per Share Data)
Year Ended December 31, 1996 1995 1994 Revenue: Company office revenue $120,679 $109,741 $84,712 Affiliate royalties 4,590 4,264 4,422 -------- -------- ------- Total revenue 125,269 114,005 89,134 Expenses: Consultants' compensation 47,624 42,518 32,402 Office sales and consulting support 5,661 4,797 3,853 Office administration 42,665 41,110 31,164 General sales and administration 13,080 12,236 11,879 -------- -------- ------- 109,030 100,661 79,298 -------- -------- ------- Income from operations 16,239 13,344 9,836 Other income (expense): Interest income 606 302 282 Interest expense (570) (731) (329) -------- -------- ------- 36 (429) (47) -------- -------- ------- Income before income taxes 16,275 12,915 9,789 Provision for income taxes 6,600 5,096 4,075 -------- -------- ------- Net income $9,675 $7,819 $5,714 ======== ======== ======= Earnings per share $1.45 $1.24 $0.93 ======== ======== ======= Weighted average number of shares outstanding 6,663 6,290 6,125 ======== ======== =======
The accompanying notes are an integral part of these consolidated financial statements. 4 Right Management Consultants, Inc. Consolidated Statements of Stockholders' Equity (Dollars in Thousands Except Share Data)
Cumulative Total Common Stock Additional Retained Translation Treasury Stockholders' Shares Par Value Paid-in Capital Earnings Adjustment Stock Equity Balance, January 1, 1994 2,845,362 $29 $5,935 $13,116 $(531) $(517) $18,032 Stock options exercised 46,609 -- 362 -- -- -- 362 Tax benefit from exercise of stock options -- -- 247 -- -- -- 247 Translation adjustment -- -- -- -- 50 -- 50 Net income -- -- -- 5,714 -- -- 5,714 --------- ----- ----- ------ ---- ---- ------ Balance, December 31, 1994 2,891,971 29 6,544 18,830 (481) (517) 24,405 Stock options exercised 72,612 1 629 -- -- -- 630 Tax benefit from exercise of stock options -- -- 252 -- -- -- 252 Shares issued under restricted stock awards 29,700 -- 230 -- -- -- 230 Three-for-two stock split 1,319,533 13 -- (13) -- -- -- Translation adjustment -- -- -- -- 290 -- 290 Net income -- -- -- 7,819 -- -- 7,819 --------- ----- ----- ------ ---- ---- ------ Balance, December 31, 1995 4,313,816 43 7,655 26,636 (191) (517) 33,626 Stock options exercised 316,039 3 1,332 -- -- -- 1,335 Tax benefit from exercise -- -- 2,223 -- -- -- 2,223 of stock options Shares issued under restricted 29,250 -- 658 -- -- -- 658 stock awards Three-for-two stock split 2,050,100 21 -- (21) -- -- -- Shares issued under the 4,368 -- 88 -- -- -- 88 Employee Stock Purchase Plan Translation adjustment -- -- -- -- 196 -- 196 Net income -- -- -- 9,675 -- -- 9,675 --------- ----- ----- ------ ---- ---- ------ Balance, December 31, 1996 6,713,573 $67 $11,956 $36,290 $5 $(517) $47,801 ========= ===== ======= ====== ==== ==== ======
The accompanying notes are an integral part of these consolidated financial statements. 5 Right Management Consultants, Inc. Consolidated Statements of Cash Flows (Dollars in Thousands)
Year Ended December 31, 1996 1995 1994 Operating Activities: Net income $9,675 $7,819 $5,714 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,923 4,284 3,246 Deferred income taxes (169) (93) (153) Restricted stock compensation 658 230 -- Tax benefit from the exercise of stock options 2,223 252 247 Other non-cash charges 444 241 195 Revenue recognized upon completion of incomplete contracts assumed in acquisitions (512) (630) (716) Provision for doubtful accounts 28 400 75 Changes in operating accounts: Accounts receivable, trade and from Affiliates (460) (3,504) (2,989) Prepaid expenses and other assets 499 (787) (755) Accounts payable and accrued expenses 640 (2,333) 1,147 Commissions payable (1,782) 366 (230) Deferred income 459 1,090 734 ------ ----- ----- Net cash provided by operating activities 16,626 7,335 6,515 Investing Activities: Purchase of property and equipment (4,873) (2,643) (2,921) Net cash paid for acquisitions (466) (2,665) (1,628) ------ ----- ----- Net cash utilized by investing activities (5,339) (5,308) (4,549) Financing Activities: Payment of long-term debt and other obligations (3,660) (2,880) (1,855) Proceeds from stock issuances 1,420 630 362 ------ ----- ----- Net cash utilized by financing activities (2,240) (2,250) (1,493) Effect of exchange rate changes on cash and cash equivalents 43 32 44 ------ ----- ----- Increase (decrease) in cash and cash equivalents 9,090 (191) 517 Cash and cash equivalents, beginning of year 8,965 9,156 8,639 ------ ----- ----- Cash and cash equivalents, end of year $18,055 $8,965 $9,156 ======= ====== ====== Supplemental Disclosures of Cash Flow Information Cash paid for: Interest $351 $445 $219 ======= ====== ====== Income taxes $5,252 $4,370 $4,721 ======= ====== ======
The accompanying notes are an integral part of these consolidated financial statements. 6 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") does business as Right Associates(R), Right/Jannotta Bray and (in France) as LM&P and Conviction Right France, developing and delivering career transition services through a network of Company and Affiliate offices worldwide. During 1996, the Company acquired the outstanding stock of People Tech Consulting, Inc. ("People Tech") (see Note B). People Tech provides organizational 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 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. Cash equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. 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 and related direct expense, recorded at the start of performance of services, are deferred and recognized over the estimated average period within which the contracts are completed. All indirect costs are charged to expense in the period in which the obligations are incurred. 7 NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. 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 Intangible assets acquired in acquisitions consist of the following:
Amortization (Dollars in Thousands) Period 1996 1995 (Years) Trademarks $1,520 $ 1,520 5 Contact lists and Affiliate agreements 615 470 5 Covenants not to compete 1,811 1,811 5 to 10 Goodwill 23,303 20,680 15 to 40 ------ ------ 27,249 24,481 Less accumulated amortization 8,525 6,657 ------ ------ $18,724 $17,824 ======= =======
Amortization of these intangible assets amounted to $1,868,000, $1,867,000, and $1,501,000 in 1996, 1995 and 1994, respectively. 8 NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Impairment of Long-Lived Assets The Financial Accounting Standards Board issued 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 " in March 1995. Pursuant to SFAS No. 121, the Company is required to evaluate the 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 such adjustment has been recorded for each of the three years in the period ended December 31, 1996. 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. The results of operations are 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 stockholders' equity. The effects of exchange rate fluctuations in translating the results of operations are included in general sales and administration for 1996, 1995 and 1994. 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, 1996. Earnings per share Earnings per share are computed based on the weighted average number of Company common stock ("Common Stock") and Common Stock equivalent shares outstanding during the year. Outstanding stock options, unless anti-dilutive, are considered Common Stock equivalents and are included in the computation of outstanding shares using the Treasury Stock method. 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. 9 NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Reclassifications Certain amounts have been reclassified in the prior years' Consolidated Financial Statements to conform with the 1996 presentation. NOTE B - ACQUISITIONS Effective March 1, 1996, the Company acquired the outstanding stock of People Tech headquartered in Toronto, Canada. Additionally during 1996, the Company acquired the business, assets and/or the outstanding stock of two career transition firms and one other organizational consulting firm. The aggregate purchase price of these four acquisitions was approximately $3,412,000, including costs of acquisition. The purchase price exceeded the fair value of the net tangible assets acquired by approximately $3,653,000. These acquisitions were made for a combination of cash and non-cash consideration, including the assumption of incomplete consulting contracts. During 1995 and 1994, the Company acquired the business, certain assets and/or the outstanding stock of LM&P, SA ("LM&P") and Jannotta, Bray & Associates, Inc. ("JBA"), as well as the assets and/or outstanding stock of five Affiliate career transition consulting firms. The aggregate purchase price of these acquisitions was approximately $8,150,000 in 1995 and $8,618,000 in 1994, including costs of acquisition. The purchase price of these acquisitions exceeded the fair value of the net tangible assets acquired by approximately $7,388,000 and $8,200,000 in 1995 and 1994, respectively. These acquisitions were made for a combination of cash and non-cash consideration, including the assumption of incomplete career transition contracts and the present value of future defined incentives. The future defined incentives are contingent upon the results of the acquired entities subsequent to the transactions. The present value of these determinable contingent payments aggregated $3,530,000 in 1995 and $491,000 in 1994 and have been accounted for as part of the purchase price. In connection with the acquisition of JBA, the Company provided approximately $1,000,000 for the incremental costs associated with restructuring or exiting operating activities of JBA. These costs included approximately $750,000 for closures of duplicate JBA offices, approximately $200,000 for involuntary employee terminations, and approximately $50,000 for other incremental charges all of which had no future economic benefit to the Company. The Company completed the restructuring and exiting process during 1996. Simultaneously with the JBA acquisition, the Company sold certain assets, including goodwill and other intangible assets totaling approximately $1,019,000 associated with JBA's Michigan operations, to the Company's Michigan Affiliate for $1,200,000, and received a $700,000 note receivable from this Affiliate related to this sale. The assumption of incomplete contracts did not result in material revenue in each of the three years in the period ended December 31, 1996. 10 NOTE B - ACQUISITIONS (Continued) The following represents the assets acquired and liabilities assumed to arrive at net cash paid for acquisitions discussed above for each of the three years in the period ended December 31, 1996:
(Dollars in Thousands) 1996 1995 1994 Assets acquired: Accounts receivable $827 $404 $242 Prepaid expenses and other assets 716 554 131 Fixed assets 458 522 1,211 Intangible assets 3,653 7,388 7,181 Note receivable from Michigan Affiliate -- -- 700 ----- ----- ----- 5,654 8,868 9,465 ----- ----- ----- Liabilities acquired: Accounts payable and accrued expenses 1,741 718 483 Assumption of incomplete contracts 512 630 716 ----- ----- ----- 2,253 1,348 1,199 Accrued restructuring costs -- -- 1,000 Contingent payments -- 3,530 491 Net due from seller -- -- 147 Term loan payable to bank (Note D) -- 1,325 5,000 Borrowing under Revolving Credit Agreement (Note D) 2,935 -- -- ----- ----- ----- Net cash paid for acquisitions $466 $2,665 $1,628 ===== ===== =====
Each acquisition has been accounted for by the purchase method 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. 11 NOTE C - PROPERTY AND EQUIPMENT (Dollars in Thousands) 1996 1995 Furniture and fixtures $17,414 $14,182 Computer equipment 2,557 691 Leasehold improvements 2,612 2,092 ------- ------- 22,583 16,965 Less accumulated depreciation 12,917 9,518 ------- ------- $9,666 $7,447 ======= ======= NOTE D - DEBT AND OTHER OBLIGATIONS 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 replaces the previous $10,000,000 Amended and Restated Revolving Credit and Term Loan Agreement (the "Revolving Credit Agreement") executed with the Company's primary lender in June 1994 and amended various times thereafter, as well as a separate $5,000,000 unsecured line of credit with a second lender. The Company used $5,737,000 from the Credit Agreement to refinance all existing bank indebtedness. 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. 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 bank's Prime Rate less 1/4% or the Federal Funds Effective Rate plus 1%. Under the terms of the Credit Agreement, the effective borrowing rate was 6.53% at December 31, 1996. In connection with the 1996 acquisition of People Tech (Note B), the Company utilized 4,000,000 Canadian dollars (or approximately $2,935,000) from the Revolving Credit Agreement. This entire amount was repaid from the proceeds of the Credit Agreement. In connection with the 1995 acquisition of LM&P (Note B), the Company utilized 6,500,000 French francs (or approximately $1,325,000) from the Revolving Credit Agreement. The balance was paid in full during 1996. Additionally, in connection with the 1994 acquisition of JBA (Note B), the Company entered into a five year $5,000,000 unsecured term loan, the outstanding balance of which was repaid from the proceeds of the Credit Agreement. 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, 1996, the Company is in compliance with all such covenants. 12 NOTE D - DEBT AND OTHER OBLIGATIONS (Continued) Long-term debt and other obligations consist of the following:
(Dollars in Thousands) December 31, 1996 1995 Borrowings under the Credit Facility, due December 23, 1999, bearing $5,737 $--- interest at 6.53% per annum at 12/31/96 Bank term loan, payable in 60 equal monthly principal installments of $83,000 through August 31, 1999, bearing interest at 8.36% per annum -- 3,667 Bank term loan, payable in 48 equal monthly principal installments of $19,000 through December 8, 1996, bearing interest at 6.96% per annum -- 225 Bank term loan, payable in 60 equal monthly principal installments of $13,000 through March 31, 1997, bearing interest at 5.97% per annum -- 187 Obligations payable to third parties in connection with acquisitions, noninterest-bearing and discounted at 7.5%-10% per annum, due through 1998, estimated and contingent on future operating results of regions where acquired businesses are operating 2,178 3,889 ------ ------ 7,915 7,968 Less current portion 1,011 2,227 ------ ------ $6,904 $5,741 ====== ======
Aggregate maturities on long-term debt and other obligations for the years subsequent to December 31, 1996 are as follows: (Dollars in Thousands) Year Ending December 31, Amount 1997 $1,011 1998 1,167 1999 5,737 ------ $7,915 ====== 13 NOTE E - INCOME TAXES The provision for income taxes consists of the following:
(Dollars in Thousands) Year Ended December 31, 1996 1995 1994 Current: Federal $5,429 $4,107 $3,185 State 861 852 671 Foreign 479 551 459 ------ ------ ------ 6,769 5,510 4,315 ------ ------ ------ Deferred: Federal (290) (85) (75) State (59) (8) (66) Foreign (12) -- (12) ------ ------ ------ (361) (93) (153) ------ ------ ------ Utilization and benefit of foreign operating loss carryforwards -- (321) (87) ------ ------ ------ 6,408 5,096 4,075 Provision for valuation allowance 192 -- -- ------ ------ ------ $6,600 $5,096 $4,075 ====== ====== ======
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: 1996 1995 1994 U.S. Federal income tax rate 34% 34% 34% State income taxes, net of federal tax benefit 4 4 4 Nondeductible expenses 1 1 1 Foreign earnings not subject to U.S. Federal (2) (3) (3) income tax Foreign income taxes 3 4 5 Utilization and benefit of foreign operating loss -- (2) (1) carryforwards Deferred tax valuation allowance 1 -- -- Other -- 2 2 ------ ------ ------ 41% 40% 42% ====== ====== ====== Income before income taxes is comprised of domestic and foreign components, respectively, as follows: 1996-- $14,184,000 and $2,091,000; 1995--$11,449,000 and $1,466,000 and 1994--$8,855,000 and $934,000. 14 NOTE E - 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 $3,034,000 and $2,413,000 at December 31, 1996 and 1995, 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, 1996 and 1995 is comprised of the following: (Dollars in Thousands) 1996 1995 Allowance for doubtful accounts $209 $317 Accruals not currently deductible for income taxes 193 283 Deferred compensation 726 665 Depreciation and amortization 724 160 Tax benefit of foreign net operating losses 313 301 Other 17 95 ------ ------ 2,182 1,821 Valuation reserve (192) -- ------ ------ Net deferred tax asset $1,990 $1,821 ====== ====== At this time, management believes it is prudent to record a full valuation reserve against the operating loss incurred at People Tech, given the relative lack of history at People Tech for which future estimates of income can be made. However, if in subsequent years, People Tech achieves sufficient profitability to utilize a greater portion of the deferred tax asset, the valuation allowance would be adjusted accordingly. NOTE F - EXECUTIVE 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. 15 NOTE F - EXECUTIVE BENEFIT AND COMPENSATION AGREEMENTS (Continued) 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 $1,184,000 and $910,000 for 1996 and 1995, 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 and President 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, 1996 and 1995). The account balance is payable as a life annuity in equal monthly installments with interest on the unpaid balance upon his termination of service with the Company. The Chief Executive Officer and President's interest in the plans vests at the rate of 10% per year, which began in 1993 and 1996, respectively. The Company also maintains a life insurance policy on the lives of the Chief Executive Officer and Founding Chairman with the Company as beneficiary. The cash surrender value of these policies are 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 management employees. 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 $1,900,000 in 1997, $1,692,000 in 1998, $580,000 in 1999 and $205,000 in 2000. NOTE G - 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 1996 and 1995, 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%. Employee contributions are generally limited to 10% of their compensation subject to Internal Revenue Code limitations. Company contributions were approximately $704,000, $686,000, and $489,000 for 1996, 1995 and 1994, respectively. 16 NOTE G - EMPLOYEE BENEFIT PLANS (Continued) 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, 1996 and 1995). The deferred amounts will be paid from the general assets of the Company and are included in deferred compensation as of December 31, 1996 and 1995. NOTE H - 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 $13,000,000, $11,998,000 and $8,916,000 in 1996, 1995, and 1994, 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, 1996: (Dollars in Thousands) Year Ending December 31, Amount 1997 $11,673 1998 9,862 1999 7,300 2000 6,093 2001 4,933 2002 and subsequent years 4,202 NOTE I - STOCKHOLDERS' 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. 17 NOTE I - STOCKHOLDERS' EQUITY (Continued) 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 of which the Company increased in 1996 the number of shares reserved for issuance under this plan by 900,000 shares. After this increase, there were 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, 1996, 1,097,591 option 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 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. Approximately $658,000 and $230,000 compensation expense related to these shares was charged to general sales and administration expenses in 1996 and 1995, respectively. 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, 1996, 189,000 option shares were available for issuance under this plan. 18 NOTE I - STOCKHOLDERS' EQUITY (Continued) The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25) 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 1996 and 1995 would have been reduced to the following pro forma amounts: 1996 1995 Net income - as reported $9,675,000 $7,819,000 Net income - pro forma 8,538,000 7,645,000 Primary EPS - as reported $1.45 $1.24 Primary EPS - pro forma 1.28 1.22 The fair value of the options were estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1996 and 1995, respectively: risk-free interest rates of 6.1% for both years; no dividend yield for both years; expected volatility of 50% for both years; and a weighted average expected life of the option of 7 years. Under SFAS No. 123, total compensation expense, net of tax benefit, approximated $1,137,000 and $174,000 in 1996 and 1995, respectively. Because the accounting under SFAS No. 123 has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. A summary of the status of the Company's stock option plans at December 31, 1994, 1995 and 1996 and changes during the years then ended is presented in the table and narrative below:
1994 1995 1996 Weighted Weighted Range of Average Average Exercise Exercise Exercise Shares Prices Shares Price Shares Price Outstanding at beginning of year 900,884 $1.11 - $6.89 1,033,577 $5.77 1,274,534 $7.89 Granted 288,377 8.06 - 10.83 390,000 12.82 311,300 16.77 Exercised (104,871) 1.11- 6.61 (108,918) 5.78 (316,039) 4.23 Canceled (50,813) 1.11- 6.89 (40,125) 6.82 (31,500) 15.29 ------- ---- ---- ------- ---- ------- ----- Outstanding at end of year 1,033,577 $1.83-10.83 1,274,534 $7.89 1,238,295 $10.92 Exercisable at end of year 464,717 $1.83-6.89 671,939 $4.63 610,247 $7.63 Weighted average fair value of options granted N/A $7.66 $9.29
Exercise prices for options outstanding as of December 31, 1996 ranged from $1.83 to $24.33. The weighted average remaining contractual life of these options is approximately 7.8 years. 19 NOTE I - STOCKHOLDERS' EQUITY (Continued) 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 1996, 4,368 shares were purchased through the ESPP. NOTE J - GEOGRAPHIC SEGMENTS Summarized operations of each of the Company's segments in the aggregate for each of the three years in the period ended December 31, 1996, are as follows (See Note A for discussion relating to currency translation and Note E for discussion relating to income taxes):
(Dollars in Thousands) 1996 United States Canada Europe Consolidated Identifiable assets $60,414 $7,155 $6,366 $73,935 ======= ====== ====== ======= Revenue 105,028 9,167 11,074 125,269 ======= ====== ====== ======= Operating income 14,115 1,142 982 16,239 ======= ====== ====== ======= Depreciation and amortization 4,038 475 410 4,923 ======= ====== ====== ======= Capital expenditures 4,707 80 86 4,873 ======= ====== ====== ======= 1995 Identifiable assets $51,530 $2,181 $6,520 $60,231 ======= ====== ====== ======= Revenue 97,940 7,078 8,987 114,005 ======= ====== ====== ======= Operating income (loss) 11,874 1,987 (517) 13,344 ======= ====== ====== ======= Depreciation and amortization 3,788 173 323 4,284 ======= ====== ====== ======= Capital expenditures 2,393 96 154 2,643 ======= ====== ====== ======= 1994 Identifiable assets $44,217 $2,141 $2,611 $48,969 ======= ====== ====== ======= Revenue 78,753 4,662 5,719 89,134 ======= ====== ====== ======= Operating income (loss) 8,900 1,456 (520) 9,836 ======= ====== ====== ======= Depreciation and amortization 2,897 143 206 3,246 ======= ====== ====== ======= Capital expenditures 2,510 263 148 2,921 ======= ====== ====== =======
20 NOTE K - SUBSEQUENT EVENT Effective January 1, 1997, the Company acquired the assets and/or outstanding stock of four career transition firms and one search firm for a combination of cash and future defined incentive payments. The firms included Nelson O'Connor and Associates, Nelson O'Connor Cox, Corporate Resource Group, and the former St. Louis, Missouri and Knoxville, Tennessee Affiliates. The purchase price for these acquisitions totaled approximately $3,260,000, including contingent payments and costs of acquisition, and will be accounted for using the purchase method. The Company funded these acquisitions through operating cash. 21 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 1995 and 1994 Consolidated Statements of Income to conform with the 1996 presentation. This discussion and analysis is to be read in conjunction with the financial statements and accompanying notes thereto.
(Dollars in Thousands) Year Ended December 31, 1996 1995 1994 Company office revenue $120,679 $109,741 $84,712 Company office expenses 95,950 88,425 67,419 -------- -------- -------- Company office margin 24,729 21,316 17,293 Affiliate royalties 4,590 4,264 4,422 General sales and administration (13,080) (12,236) (11,879) Interest income (expense), net 36 (429) (47) -------- -------- -------- Income before income taxes $ 16,275 $ 12,915 $ 9,789 ======== ======== ========
1996 Compared to 1995 For the year ended December 31, 1996, revenue generated by Company offices increased 10%, or $10,938,000 over 1995. This increase is attributable to revenue growth in existing Company offices, coupled with the additional full year revenues from the LM&P and Providence acquisitions, and partial year revenues from the People Tech acquisition. Incremental revenue generated through these acquisitions totaled $6,158,000 or 56% of the total revenue increase. The remaining increase was provided by same office revenue growth of approximately 4%. For the year ended December 31, 1996, Affiliate royalties increased 8%, or $326,000 over 1995. This increase is attributable to revenue growth in existing Affiliate offices, offset by reduced Affiliate royalties from the acquisition of the Providence Affiliate on October 1, 1995. Revenue from Providence is reflected as Company office revenue subsequent to the acquisition. On a same office basis, Affiliate royalties increased 13% in 1996 due primarily to significant billings from our Affiliates in the North Central region of the United States. For the year ended December 31, 1996, Company office expenses in the aggregate increased 9%, or $7,525,000 over 1995. This dollar increase is primarily due to the incremental costs from the LM&P, Providence and People Tech acquisitions, in addition to growth in existing Company offices. The acquisitions accounted for $5,376,000 or 71% of the total increase. The remainder of the increase is a function of revenue growth in existing Company offices. Despite the cost increase, office operating margins improved to 21% in 1996 from 19% in 1995. This improvement is a reflection of higher operating efficiencies in the career transition business, enhanced pricing, and strong European results, partly offset by a loss in the consulting business. 22 RIGHT MANAGEMENT CONSULTANTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) For the year ended December 31, 1996, general sales and administration expense increased 7%, or $844,000 over 1995. The increase is due primarily to the Company's continued investments in technology and the additional costs of the 1996 and 1995 restricted stock grants attributable to the Company's stock price increase. Despite the increase in 1996, general sales and administration expenses as a percentage of total revenues decreased to 10% from 11% in 1995. For the year ended December 31, 1996, income before income taxes increased 26%, or $3,360,000 over 1995. The increase is attributable to the combination of greater Company office revenue and Affiliate royalties, improved office operating margins and generally more efficient general sales and administration expenses as compared to Company growth. For the year ended December 31, 1996, the Company's effective tax rate was approximately 41% versus 40% for 1995. The increase resulted from the operating loss incurred by People Tech for which the Company cannot currently recognize a tax benefit. 1995 Compared to 1994 Revenue generated by Company offices increased 30%, or $25,029,000 in 1995 compared to 1994. This increase was due to revenue growth in existing Company offices and the acquisitions made since June 1994 which included the Carolina region, JBA, Cupertino, LM&P and Providence. Revenue generated through these acquisitions totaled $14,590,000 or approximately 58% of the total revenue increase. On a same office basis, Company office revenue was $94,056,000 in 1995, or an 11% increase over 1994. Affiliate royalties decreased 4%, or $158,000 in 1995 compared to 1994 due primarily to the acquisition by the Company of two Affiliates in 1995 and another in June 1994, whereby revenue is reflected as Company office revenue subsequent to the acquisitions. On a same office basis, Affiliate royalties increased 11% in 1995 over 1994. This resulted primarily from increased market penetration particularly in the North Central and Great Lakes regions in the United States. Company office expenses in the aggregate increased 31%, or $21,006,000 in 1995 compared to 1994, reflecting a combination of growth in existing Company offices, the 1995 acquisitions and the acquisition of JBA in September 1994. The 1995 acquisitions accounted for $5,535,000 or 26% of the total cost increase. The remaining increases were due to certain duplicate facilities and administration from the acquisition of JBA as well as general expense increases from existing Company offices related to the revenue growth during 1995. 23 RIGHT MANAGEMENT CONSULTANTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) General sales and administration expense reflected an increase of approximately $357,000 or 3%, in 1995 compared to 1994. This increase was primarily due to investments made in the development of the Company's consulting services, increases in amortization relating to recent acquisitions and additional charges for duplicate Company office closures primarily related to the redundant Company offices from the JBA acquisition. Despite the increase, the total expenses in this category as a percentage of total revenues decreased to 11% in 1995 from 13% in 1994. In 1995, income before income taxes increased 32% to $12,915,000 from $9,789,000 in 1994. This increase resulted principally from the combination of greater Company office revenue and improved efficiencies in general sales and administration. The Company's effective tax rate was approximately 40% in 1995 compared to 42% in 1994. This reduction resulted from a combination of factors including a decrease in foreign income taxes payable by the Company and an increase in the utilization and benefit of foreign operating loss carryforwards (See Note E to the Consolidated Financial Statements). Capital Resources and Liquidity At December 31, 1996 and 1995, the Company had cash and cash equivalents of $18,055,000 and $8,965,000 respectively. The significant increase in cash and cash equivalents is generally the result of higher net income, improved accounts receivable collections, and proceeds from stock option exercises, offset by debt payments and investments in property, equipment, and technology. The Company's working capital increased to $25,342,000 from $13,134,000 at December 31, 1996 and 1995, respectively. Cash flow from operations continues to provide the principal source of the Company's liquidity. Net cash provided by operating activities amounted to $16,626,000 and $7,335,000 for 1996 and 1995, respectively. For both 1996 and 1995, the source of cash was derived principally from net income plus non cash charges, such as depreciation and amortization. Additionally, during 1996 the Company recognized a significant tax benefit upon the exercise of non-qualified stock options. Net cash utilized by investing activities amounted to $5,339,000 and $5,308,000 for 1996 and 1995, respectively. The Company continues to purchase equipment and technology to meet the needs of its expanding operations and to enhance its operating efficiency and effectiveness. During 1996, the Company made a significant investment in technology with the implementation of a new financial system. Management believes the new financial system will improve the Company's ability to monitor and manage operations in a more effective manner. 24 RIGHT MANAGEMENT CONSULTANTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) In 1996 and 1995, the Company acquired the business, assets, and/or outstanding stock of five career management consulting firms and two Affiliates for a combination of cash and non-cash items, including the assumption of incomplete consulting contracts, future defined incentives and other considerations. The present value of these future defined incentives, which are only applicable to certain 1995 acquisitions, are contingent upon operating results of the region in which the successor Company office now operates. These incentives generally relate to the three years subsequent to the respective acquisitions. The Company anticipates that ongoing cash flow from operations and working capital will be sufficient to fund these incentive payments as they become due. The $466,000 net cash paid for acquisitions on the 1996 Consolidated Statement of Cash Flows is net of the borrowing made in connection with the financing of the People Tech acquisition (see Note B to the Consolidated Financial Statements). Net cash utilized by financing activities amounted to $2,240,000 and $2,250,000 in 1996 and 1995, respectively. These amounts represent payments of the Company's borrowings and defined incentives for acquisitions made in previous years, as discussed above, which were in excess of proceeds from stock issuance resulting from option exercises. 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 D to the Consolidated Financial Statements). The Company had approximately $34,263,000 available under the Credit Agreement at December 31, 1996, as the initial $5,737,000 disbursed under the Credit Agreement was used to repay existing indebtedness. The Company plans to utilize the Credit Agreement 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. Forward-Looking Statements Except for the historical information contained herein, certain of the matters discussed in this report are forward-looking statements which are subject to risks and uncertainties that could cause actual results to differ materially. Readers of this report are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. 25 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 26 RIGHT MANAGEMENT CONSULTANTS, INC. 1996 DIRECTORS AND EXECUTIVE OFFICERS Frank P. Louchheim Founding Chairman and Director Richard J. Pinola Chairman of the Board of Directors and Chief Executive Officer Joseph T. Smith President, Chief Operating Officer and Director Larry A. Evans Executive Vice President and Director Nancy N. Geffner Executive Vice President - New York Group and Director Dr. Marti D. Smye President of People Tech Consulting, Inc. and Director DIRECTORS John R. Bourbeau President of Right Associates(R) of the Great Lakes Region, an Affiliate of the Company Raymond B. Langton Former President and Chief Executive Officer of SKF USA, Inc. Rebecca J. Maddox President and Co-founder of Capital Rose, Inc. Catherine Y. Selleck Business Consultant OTHER EXECUTIVE OFFICERS G. Lee Bohs Executive Vice President, Chief Financial Officer, Treasurer and Secretary John J. Gavin Executive Vice President - Corporate Marketing Manville D. Smith Executive Vice President - Business Development Peter J. Doris Executive Vice President - Southeast Group David S. Orr Executive Vice President - North Central Group Warren R. Radtke Executive Vice President - Northeast Group Gary L. Saenger Executive Vice President - Southwest Group Terry W. Szwec Executive Vice President - Canadian Group George L. Whitwell Executive Vice President - Northwest and South Central Group Gilbert A. Wetzel Executive Vice President - Mid-Atlantic 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 Philadelphia, Pennsylvania 27 RIGHT MANAGEMENT CONSULTANTS, INC. Subsidiaries Right Associates Government Services, Inc. Right Associates Acquisition Co. Conviction Right France, SA Right Associates (Belgium), Inc. Right Associates (France), Inc. Right Associates & Co., SNC Right Human Resources, Inc. Right Associates, Ltd. Right Associates, Inc. Right Associates License, Inc. R.M.C. & Co., SNC The THinc Consulting Group International (U.K.), Ltd. People Tech Consulting Corporation People Tech Consulting, Ltd. ProTransition, Inc. Service Marks and Right Associates, THinc, Partners in Managing Change, Trade Marks The Right Fit, The Right Way, Key Executive Service and Zeroing-in-Process (Z.I.P.) are registered Service Marks of Right Management Consultants, Inc. People Tech is a registered Service Mark of a wholly owned subsidiary. The Right Report is a registered Trademark of Right Management Consultants, Inc. Rightrack and the Globe Design are Service Marks of Right Management Consultants, Inc. 28 RIGHT MANAGEMENT CONSULTANTS, INC. Right Management Consultants, Inc. Common Stock Listed on NASDAQ Stock Market Symbol RMCI Common Stock Data 1996 High Low First Quarter 20 5/8 15 Second Quarter 25 20 Third Quarter 27 1/2 19 1/4 Fourth Quarter 24 1/2 18 1/2 1995 High Low First Quarter 9 5/16 6 7/8 Second Quarter 10 1/4 7 7/16 Third Quarter 15 1/8 10 Fourth Quarter 19 1/2 13 5/16 The above prices reflect interdealer prices, without retail markup, markdown or commission and may not necessarily represent actual transactions. As of March 25, 1997, there were 154 record holders 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 Corporate Controller Right Management Consultants, Inc. 1818 Market Street Thirty-third Floor Philadelphia, PA 19103 29 WORLD HEADQUARTERS Philadelphia, PA US OFFICES Arizona Phoenix Tucson Arkansas Little Rock California Cupertino Irvine Los Angeles Pasadena Sacramento San Bernardino San Diego San Francisco Torrance Walnut Creek Woodland Hills Colorado Colorado Springs Denver Connecticut Hartford Stamford Delaware Wilmington District of Columbia Washington Florida Boca Raton Fort Lauderdale Jacksonville Miami Orlando Palm Beach Saint Petersburg Tampa Georgia Atlanta Illinois Chicago Northbrook Oak Brook Indiana Indianapolis Iowa Des Moines Kansas Wichita Kentucky Fort Mitchell Lexington Louisville Louisiana New Orleans Maryland Baltimore Hunt Valley Massachusetts Boston Burlington Michigan Detroit Grand Rapids Kalamazoo Lansing Midland Minnesota Minneapolis Mississippi Jackson Missouri Kansas City St. Louis Nebraska Omaha Nevada Las Vegas New Jersey Montvale Parsippany Princeton New Mexico Albuquerque New York Buffalo Melville New York Westchester North Carolina Charlotte Greensboro Raleigh Winston-Salem Ohio Cincinnati Cleveland Columbus Dayton Toledo Oklahoma Oklahoma City Tulsa Pennsylvania Allentown Lancaster Malvern Philadelphia Pittsburgh Rhode Island Providence South Carolina Greenville Tennessee Kingsport Knoxville Memphis Nashville Texas Austin Dallas Fort Worth Houston San Antonio Virginia Fairfax Richmond Vienna Virginia Beach Washington Seattle Wisconsin Madison Milwaukee CANADA Calgary Edmonton Kingston London Mississauga Montreal Ottawa Regina Richmond Hill Saskatoon Toronto Vancouver Winnipeg INTERNATIONAL Aberdeen Antwerp Brussels Geneva Glasgow Leeds London Paris San Juan Swindon EX-21 5 SUBSIDIARIES OF THE COMPANY 1. Right Associates Government Services, Inc., a Virginia corporation 2. Right Associates Acquisition Co., a Delaware corporation 3. Conviction Right France, SA, a French corporation 4. Right Associates (Belgium), Inc., a Delaware corporation 5. Right Associates (France), Inc., a Delaware corporation 6. Right Associates & Co., SNC, a Belgium corporation 7. Right Human Resources, Inc., a Canadian corporation 8. Right Associates, Ltd., a U.K. corporation 9. Right Associates, Inc., a Delaware corporation 10. Right Associates License, Inc., a Delaware corporation 11. R.M.C. & Co., SNC, a Belgium corporation 12. The THinc Consulting Group International (U.K.), Ltd., a U.K. corporation 13. People Tech Consulting Corporation, a Delaware corporation 14. People Tech Consulting, Ltd., a Canadian corporation 15. Pro Transition, Inc., a Canadian corporation EX-23 6 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 27, 1997 EX-27 7
5 1,000 12-MOS DEC-31-1996 DEC-31-1996 18,055 0 22,935 552 0 42,708 22,583 12,917 73,935 17,366 0 0 0 67 47,734 73,935 125,269 125,269 47,624 95,950 13,080 0 36 16,275 6,600 9,675 0 0 0 9,675 1.45 1.44
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