<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File Number: 0-22145
RWD TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its Charter)
MARYLAND 52-1552720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10480 LITTLE PATUXENT PARKWAY
COLUMBIA, MARYLAND 21044-3530
(Address of principal executive offices) (Zip Code)
(410) 730-4377
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year - if changed since last
report)
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
- -
As of March 31, 1998, 14,766,397 shares of common stock $0.10 par value ("Common
Stock") of the Registrant were outstanding.
<PAGE>
RWD TECHNOLOGIES, INC.
INDEX
FORM 10-Q
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION ----
Item 1. Financial Statements
<S> <C> <C>
Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997 1
Consolidated Statements of Income for the three months ended
March 31, 1998 and 1997 2
Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1997 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk N/A
<CAPTION>
PART II - OTHER INFORMATION
<S> <C> <C>
Item 1. Legal Proceedings N/A
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of Security Holders N/A
Item 5. Other Information N/A
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RWD TECHNOLOGIES, INC., AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
March 31, 1998 December 31,
1997
-------------- ----------------
(Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and investments...................................................................... $41,640 $40,045
Contract accounts receivable, net......................................................... 13,307 13,328
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................................................. 8,140 4,779
Prepaid expenses and other................................................................ 1,303 1,013
---------------- ----------------
Total Current Assets................................................................... 64,390 59,165
NET FIXED ASSETS............................................................................ 8,884 8,476
OTHER ASSETS................................................................................ 279 246
---------------- ----------------
Total Assets........................................................................... $73,553 $67,887
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................................................... $ 5,188 $ 4,895
Billings in excess of costs and estimated earnings on
uncompleted contracts................................................................... 3,694 3,646
Deferred tax liability.................................................................... 1,191 1,191
Current portion of capital lease obligation............................................... 55 52
---------------- ----------------
Total Current Liabilities.............................................................. 10,128 9,784
NONCURRENT LIABILITIES:
Capital lease obligation, net of current portion.......................................... 16 31
Other liabilities......................................................................... 834 1,018
Deferred tax liability.................................................................... 1,785 2,090
---------------- ----------------
Total Liabilities...................................................................... 12,763 12,923
---------------- ----------------
STOCKHOLDERS' EQUITY:
Common stock.............................................................................. 1,477 1,442
Additional paid-in capital................................................................ 49,447 46,627
Unrealized gain on marketable securities.................................................. 29 25
Retained earnings......................................................................... 9,837 6,870
---------------- ----------------
Total Stockholders' Equity.............................................................. 60,790 54,964
---------------- ----------------
Total Liabilities and Stockholders' Equity............................................ $73,553 $67,887
================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
RWD TECHNOLOGIES, INC., AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited) (In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
------------ -----------
<S> <C> <C>
Revenue............................................... $ 26,204 $ 19,100
Cost of services...................................... 18,411 13,413
------------ -----------
Gross profit........................................ 7,793 5,687
General and administrative expenses................... 3,446 2,686
------------ -----------
Operating income...................................... 4,347 3,001
Other income.......................................... 439 117
------------ -----------
Income before taxes................................... 4,786 3,023
Provision for income taxes............................ 1,819 100
------------ -----------
Net income.......................................... $ 2,967 $ 2,923
============ ===========
Diluted earnings per share.......................... $ 0.19 $ 0.23
Basic earnings per share............................ $ 0.20 $ 0.27
============ ===========
Pro Forma Information (unaudited):
Income before taxes, as reported.................... $ 4,786 $ 3,023
Pro forma income tax provision to recognize
C Corporation provision for income taxes.......... 1,819 1,209
------------ -----------
Pro forma net income............................... $ 2,967 $ 1,814
============ ===========
Pro forma diluted earnings per share................ $ 0.19 $ 0.14
Pro forma basic earnings per share.................. $ 0.20 $ 0.17
============ ===========
Weighted average shares outstanding
Diluted calculation................................. 15,947 12,968
============ ===========
Basic calculation................................... 14,766 10,918
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
RWD TECHNOLOGIES, INC., AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited) (In thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income.................................................. $ 2,967 $ 2,923
Adjustments to reconcile net income to net cash
Depreciation and Amortization............................. 865 723
Loss/(Gain) on Sale of Fixed Assets....................... 37 (24)
Deferred income taxes..................................... (305) -
Decrease in trade accounts receivable..................... 21 354
Increase in costs and earnings in
excess of billings on uncompleted contracts............. (3,361) (3,599)
(Increase)/Decrease in prepaid expense and other.......... (262) 43
Increase in accounts payable and accrued expenses......... 2,493 841
Decrease in other liabilities............................. (184) -
Increase in billings in excess of
earnings on uncompleted contracts....................... 48 266
------------ -----------
Net Cash provided by operating activities.................. 2,319 1,527
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Purchases)/Sale of Investments........................ (239) 1,503
Purchase of fixed assets................................... (1,314) (1,049)
(Increase)/Decrease in other assets........................ (32) 16
Proceeds from sale of fixed assets......................... 5 25
------------ -----------
Net Cash (used in) provided by investing activities........ (1,580) 495
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal portion paid on capital lease.................... (12) (13)
Distributions to shareholders.............................. - (240)
Public Offering Costs...................................... - (175)
Issuance of common stock................................... 624 47
Repurchase of common stock................................. - (302)
------------ -----------
Net Cash (used in) provided by financing activities........ 612 (683)
------------ -----------
NET INCREASE IN CASH BALANCE................................. 1,351 1,339
CASH, beginning of period.................................... 3,620 3,531
------------ -----------
CASH, end of period.......................................... $ 4,971 $ 4,870
============ ===========
SUPPLEMENTAL DISCLOSURE
Income Taxes Paid.......................................... $ 246 $ 4
============ ===========
Interest Expense Paid...................................... $ 5 $ 93
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
RWD TECHNOLOGIES, INC., AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1.) Organization and Business
RWD Technologies, Inc., and subsidiaries (the "Company") was
incorporated on January 22, 1988, in the state of Maryland. The Company provides
a broad range of integrated solutions designed to improve the productivity and
effectiveness of workers in complex operating environments.
The Company's operations depend upon, among other things, the
Company's ability to attract, develop, and retain a sufficient number of highly
skilled professional employees. In addition, the Company's revenue is generated
from a limited number of clients in specific industries. Future operations may
be affected by its ability to retain these clients, and cyclical and economic
factors that could have an impact on those industries.
(2.) Basis of Presentation
The interim consolidated financial statements included herein for RWD
Technologies, Inc., and subsidiaries (the Company) have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. In management's opinion, the interim financial data
presented herein include all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation. Certain information and footnote
disclosures normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. Results for interim periods are not
necessarily indicative of results to be expected for the full year. It is
suggested that these consolidated financial statements be read in conjunction
with the Company's December 31, 1997, consolidated financial statements and
notes thereto included in the Company's annual report on Form 10-K.
The accompanying consolidated balance sheets are presented on the
accrual basis of accounting in accordance with generally accepted accounting
principles. The preparation of consolidated 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, the disclosure of contingent assets and liabilities as of the date
of the consolidated financial statements, and the reported amounts of total
revenues and expenses during the reporting period. While actual results could
differ from those estimates, management believes that actual results will not be
materially different from amounts provided in the accompanying consolidated
balance sheets.
4
<PAGE>
(3.) Initial Public Offering
In June 1997, the Company completed an initial public offering ("IPO")
of 3,300,000 shares of Common Stock at the price per share of $13.00. After the
underwriting discounts, commissions, and other expenses, net proceeds to the
Company from the initial public offering were approximately $38.5 million.
(4.) Income Taxes
Historically, the Company had elected to be taxed under the provisions
of Subchapter S of the Internal Revenue Code which provide that, in lieu of
corporate federal and some state income taxes, the stockholders are taxed on
their proportionate share of the Company's taxable income. In connection with
the IPO of the Company's common stock during 1997, the Company elected to change
its tax status from an S corporation to a C corporation. As a result of the
Company's Subchapter S election, the accompanying consolidated statements of
income do not include an income tax provision for federal and most state income
taxes during the periods of the S Corporation election; however, pro forma
adjustments have been made to reflect the income tax provision as if the Company
was taxed as a C corporation during all periods. The pro forma adjustments to
1997 have been made to reflect an effective tax rate of 40.0 percent, which is
the tax rate that would have been in effect had the Company been taxed as a C
corporation for the duration of each of those periods.
(5.) Earnings Per Share
During 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128 (SFAS No. 128), "Earnings Per Share," which establishes new
standards for computing and presenting earnings per share. The Company adopted
SFAS No. 128 during 1997 and has restated earnings per share data presented to
reflect the new standard. SFAS No. 128 requires presentation of basic earnings
per share and diluted earnings per share. Dilutive common equivalent shares
include shares issuable upon the exercise of stock options, using the treasury
stock method. For the periods prior to the IPO, the weighted average number of
shares includes shares exercised in connection with the IPO by the majority
shareholder and the number of shares calculated to be issued pursuant to the
Securities and Exchange Commission Staff Accounting Bulletin No. 1.B.3.
(6.) New Authoritative Standards
During 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income" (SFAS No. 130), which is effective for fiscal years
beginning after December 15, 1997, including interim periods. This statement
establishes standards for reporting and display of comprehensive income and its
components. Comprehensive income is defined as the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. The Company's comprehensive income in
accordance with SFAS No. 130, consists of net income of $2,967,000 and
$1,814,000 plus unrealized gains on investments available-for-sale of $29,000
and $0, for the three months ended March 31, 1998 and 1997, respectively.
During 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS No. 131), which is
effective for fiscal years beginning
5
<PAGE>
after December 15, 1997. This statement establishes revised standards under
which an entity must report business segment information in its financial
statements and what segment information must be disclosed. The Company believes
it has reportable operating segments, as defined by SFAS No. 131, and is
currently evaluating what those segments are and the financial statement
presentation required for those segments.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998, COMPARED WITH
THREE MONTHS ENDED MARCH 31, 1997.
Revenue. Revenue increased by $7.1 million, or 37.2 percent, from
$19.1 million in the first quarter of 1997 to $26.2 million in the same period
of 1998. The Company experienced growth in all of its service areas in the first
quarter of 1998 compared to the same period in 1997, with Performance Support
Services revenue increasing by 6.0 percent, from $7.6 million to $8.1 million;
Enterprise Systems Implementation Support Services revenue increasing by 99.0
percent, from $3.7 million to $7.3 million; Information Technology Services
revenue increasing by 23.6 percent, from $5.0 million to $6.2 million; and Lean
Manufacturing Consulting Services revenue increasing by 66.5 percent from $2.8
million to $4.6 million. Performance Support Services, Enterprise Systems
Implementation Support Services, Information Technology Services, and Lean
Manufacturing Consulting generated 30.9 percent, 27.8 percent, 23.8 percent, and
17.5 percent of total revenue, respectively, in the first quarter of 1998.
Revenue from the Company's largest client, Chrysler, increased by 19.3
percent in the first quarter of 1998, from $5.3 million in the first quarter of
1997 to $6.3 million in the same period in 1998, as a result of increases in all
services provided by the Company.
Gross Profit. Gross profit increased by $2.1 million, or 37.0 percent,
from $5.7 million in the first quarter of 1997 to $7.8 million in the same
period of 1998 and decreased from 29.8 percent of revenue in 1997 to 29.7
percent in 1998. This decrease in gross profit margin resulted primarily from
increases in recruiting fees paid by the Company and increases in the proportion
of reimbursable costs as a proportion of total revenue, partially offset by
stronger utilization.
General and Administrative Expenses. General and administrative
expenses increased by $760,100, or 28.3 percent, from $2.7 million in the first
quarter of 1997 to $3.4 million in the same period in 1998, decreasing from 14.1
percent of revenue in 1997 to 13.2 percent of revenue in 1998. This decrease in
general and administrative expenses as a percentage of revenue resulted
primarily from short-term decreases in labor costs, and lower depreciation, bad
debt accruals, training costs as a result of a state training grant, and
professional services costs, partially offset by increases in payroll taxes,
recruiting fees, and temporary labor costs.
Operating Income. As a result of the foregoing, the Company's
operating income increased by $1.3 million, or 44.9 percent, from $3.0 million
in the first quarter of 1997 to $4.3 million in the same period in 1998 and
increased from 15.7 percent of revenue in 1997 to 16.6 percent of revenue in
1998.
6
<PAGE>
Other Income (Expense). Other income was $22,100 in the first quarter
of 1997 and $439,500 in the first quarter of 1998. In 1997, other income
consisted primarily of interest income from cash and investment balances,
partially offset by interest expense paid on the Stockholder Notes. In 1998,
other income consisted primarily of interest income from cash and investment
balances, partially offset by interest expense paid on the Company's capital
lease.
Net Income (Pro forma for 1997). Net income increased by $1.2 million,
or 63.6 percent from $1.8 million in the first quarter of 1997 to $3.0 million
in the first quarter of 1998. Pro forma results for 1997 assume the Company was
taxed as a C corporation during the period. The Company converted from S
corporation to C corporation status in June 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and investments were $41.6 million at March 31, 1998,
compared to $40.0 million at December 31, 1997. Increases in cash and
investments at March 31, 1998, were attributable primarily to cash provided from
operating activities and interest earned on cash balances including the proceeds
from the Company's June 1997 initial public offering. The Company's working
capital was $54.3 million at March 31, 1998, and $49.4 million at December 31,
1997.
The Company's operating activities provided cash of $2.3 million for the
three months ended March 31, 1998, compared to $1.5 million for the same period
in 1997. The increase in cash from operations resulted primarily from increases
in trade accounts payable and accrued expenses, and reduced average collection
period for accounts receivable.
Investing activities used cash of $1.6 million in the three months ended
March 31, 1998, compared to providing cash of $494,800 for the same period in
1997. Cash used for investing activities in the three months ended March 31,
1998, consisted primarily of the net purchase of capital assets. Cash used for
investing activities for the three months ended March 31, 1997, consisted
primarily of the purchase of capital assets, offset by the sale of investments.
Financing activities provided cash of $612,500 in the three months
ended March 31, 1998, compared to the use of $682,900 for the same period in
1997. Cash provided from financing activities in the three months ended March
31, 1998, consisted primarily of proceeds from the issuance of common stock due
to the exercise of employee options, compared to stock repurchases from
employees, shareholder distributions, and public offering costs for the same
period in 1997 .
The Company has a $10.0 million unsecured revolving line of credit with
a commercial bank, which bears interest at the 30-day, LIBOR rate, plus 1.0
percent (6.99 percent on March 31, 1998). The Company utilizes this line of
credit to finance a portion of its working capital needs. There was no balance
outstanding as of March 31, 1998, or on December 31, 1997.
During the first quarter of 1998, the Company made $1.3 million in
capital expenditures, primarily for office furniture, computer and office
equipment, and leasehold improvements to support the current and anticipated
growth in its professional and administrative staff. Capital expenditures
currently are funded from available cash, although the Company may consider
alternative financing methods, such as equipment leases or asset-based
borrowings in future periods.
7
<PAGE>
EFFECTS OF INFLATION
Inflation has not had a significant effect on the Company's business
during the past three years. The Company cannot predict what effect, if any,
inflation may have on its future results of operations.
8
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
(c) Issuance of Securities
During the first quarter, the Company issued 534 shares of its Common
Stock, having a market value of $10,000, to each of its three independent
directors (or an aggregate of 1,602 shares), pursuant to the Company's Director
Compensation Plan.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27. Financial Data Schedule
(b) Current Reports on Form 8-K
N/A
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
RWD TECHNOLOGIES, INC.
By: /s/ Ronald E. Holtz
--------------------
Ronald E. Holtz
Vice President, Chief Financial Officer,
and Director
Dated: May 11, 1998
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.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
- ----------------------- ---------------------------------------- ------------
<S> <C> <C>
/s/ Robert W. Deutsch Chairman of the Board, May 11, 1998
- -----------------------
Robert W. Deutsch Chief Executive Officer, and Director
/s/ Ronald E. Holtz Vice President, Chief Financial Officer, May 11, 1998
- -----------------------
Ronald E. Holtz and Director
</TABLE>
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,970,400
<SECURITIES> 36,669,200
<RECEIVABLES> 13,735,100
<ALLOWANCES> (427,800)
<INVENTORY> 0
<CURRENT-ASSETS> 64,390,300
<PP&E> 17,308,700
<DEPRECIATION> 8,424,700
<TOTAL-ASSETS> 73,553,000
<CURRENT-LIABILITIES> 10,128,000
<BONDS> 0
0
0
<COMMON> 1,476,600
<OTHER-SE> 59,313,100
<TOTAL-LIABILITY-AND-EQUITY> 73,553,000
<SALES> 26,203,800
<TOTAL-REVENUES> 26,203,800
<CGS> 0
<TOTAL-COSTS> 18,410,800
<OTHER-EXPENSES> 7,793,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,800
<INCOME-PRETAX> 4,786,400
<INCOME-TAX> 1,819,100
<INCOME-CONTINUING> 2,967,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,967,300
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.19
</TABLE>
