<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 September 30, 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 21044-3530
COLUMBIA, MARYLAND (Zip Code)
(Address of principal executive offices)
(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 September 30, 1998, 14,938,385 shares of common stock $0.10 par value
("Common Stock") of the Registrant were outstanding.
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RWD TECHNOLOGIES, INC.
INDEX
FORM 10-Q
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
September 30, 1998, (Unaudited) and December
31, 1997 1
Consolidated Statements of Income for the
Quarter and Nine Months ended September 30,
1998, and 1997 (Unaudited) 2
Consolidated Statements of Cash Flows for the
Nine Months ended September 30, 1998, and
1997 (Unaudited) 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
PART II - OTHER INFORMATION
Item 1. Legal Proceedings N/A
Item 2. Changes in Securities 11
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 12
Signatures 13
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RWD TECHNOLOGIES, INC., AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and investments................................................... $50,648 $40,045
Contract accounts receivable, net...................................... 17,414 13,328
Costs and estimated earnings in excess of billings on
uncompleted contracts............................................... 10,449 4,779
Prepaid expenses and other............................................. 1,073 1,013
------- -------
Total Current Assets...................................... 79,584 59,165
NET FIXED ASSETS:......................................................... 9,063 8,476
OTHER ASSETS.............................................................. 293 246
------- -------
Total Assets.............................................. $88,940 $67,887
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses.................................. $12,588 $ 4,895
Billings in excess of costs and estimated earnings on
uncompleted contracts............................................... 3,782 3,646
Deferred tax liability................................................. 1,191 1,191
Current portion of obligation.......................................... 45 52
------- -------
Total Current Liabilities................................. 17,606 9,784
NONCURRENT LIABILITIES:
Capital lease obligation, net of current portion....................... -- 31
Other liabilities...................................................... 834 1,018
Deferred tax liability................................................. 1,175 2,090
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Total Liabilities......................................... 19,615 12,923
------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock........................................................... 1,494 1,442
Additional paid-in capital............................................. 51,341 46,627
Accumulated comprehensive income....................................... 53 25
Retained earnings...................................................... 16,437 6,870
------- -------
Total Stockholders' Equity................................ 69,325 54,964
------- -------
Total Liabilities and Stockholders' Equity........ $88,940 $67,887
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
1
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RWD TECHNOLOGIES, INC., AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited) (In thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1998 1997 1998 1997
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Revenue................................. $ 30,151 $ 22,016 $ 83,767 $ 61,821
Cost of services........................ 20,952 15,768 58,612 43,453
-------- -------- ------- --------
Gross profit.......................... 9,199 6,248 25,155 18,368
General and administrative expenses..... 3,804 2,738 10,752 8,206
-------- -------- -------- --------
Operating income........................ 5,395 3,510 14,403 10,162
Other income, net....................... 294 483 1,186 485
-------- -------- -------- --------
Income before taxes..................... 5,689 3,993 15,589 10,647
Provision for income tax................ 2,190 1,514 5,953 6,503
-------- -------- -------- --------
Net income............................ $ 3,499 $ 2,479 $ 9,636 $ 4,144
======== ======== ======== ========
Diluted earnings per share............ $ .22 $ 0.16 $ .60 $ 0.30
======== ======== ======== ========
Basic earnings per share.............. $ .23 $ 0.17 $ .65 $ 0.34
======== ======== ======== ========
Pro Forma Information:
Income before taxes, as reported...... $ 5,689 $ 3,993 $ 15,589 $ 10,647
Pro forma income tax provision to
recognize C corporation provision for
income taxes.......................... 2,190 1,514 5,953 4,175
-------- -------- -------- --------
Pro forma net income............... $ 3,499 $ 2,479 $ 9,636 $ 6,472
======== ======== ======== ========
Pro forma diluted earnings per share.. $ .22 $ 0.16 $ .60 $ 0.46
======== ======== ======== ========
Pro forma basic earnings per share.... $ .23 $ 0.17 $ .65 $ 0.53
======== ======== ======== ========
Weighted average shares outstanding
Diluted calculation.................. 16,005 15,724 16,014 14,025
======== ======== ======== ========
Basic calculation.................... 14,938 14,237 14,854 12,187
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
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RWD TECHNOLOGIES, INC., AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited) (In thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income......................................................... $ 9,636 $ 4,143
Adjustments to reconcile net income to net cash
provided by operations
Depreciation and amortization................................. 2,638 2,282
Loss/(Gain) on sale of fixed assets........................... 271 (20)
Deferred income taxes......................................... (915) 4,500
Increase in trade accounts receivable......................... (4,086) (1,141)
Increase in costs and earnings in
excess of billings on uncompleted contracts................ (5,670) (4,883)
Decrease/(Increase) in prepaid expense and other............. 117 (228)
Increase in accounts payable and accrued expenses............. 11,220 5,093
(Decrease)/Increase in other liabilities...................... (184) 1,018
Increase in billings in
excess of earnings on uncompleted contracts................ 136 1,393
--------- ---------
Net Cash provided by operating activities..................... 13,163 12,157
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Sales/(Purchases) of Investments.......................... 874 (33,923)
Purchase of fixed assets...................................... (3,377) (2,957)
Increase in other assets...................................... (46) (3)
Proceeds from sale of fixed assets............................ 25 35
--------- ---------
Net Cash used in investing activities......................... (2,524) (36,848)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal portion paid on capital lease....................... (38) (30)
Payments on shareholder loans................................. -- (3,800)
Distributions to shareholders................................. -- (9,864)
Public Offering Costs......................................... -- (4,028)
Issuance of common stock...................................... 920 47,563
Repurchase of common stock.................................... (73) (820)
--------- ---------
Net Cash provided by financing activities..................... 809 29,021
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS............................. 11,448 4,330
CASH AND CASH EQUIVALENTS, beginning of period........................ 3,619 3,531
--------- ---------
CASH AND CASH EQUIVALENTS, end of period.............................. $ 15,067 $ 7,861
========= =========
SUPPLEMENTAL DISCLOSURE:
Income Taxes Paid............................................. $ 959 $ 749
========= =========
Interest Expense Paid......................................... $ 12 $ 182
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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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, financial statements and notes thereto
included in the Company's annual report on Form 10-K.
The accompanying consolidated condensed 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 and 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
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(3.) Initial Public Offering
In June 1997, the Company completed an initial public offering of
approximately 3 million 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 have
been made at an effective 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 used includes the shares exercised in connection with the IPO by the
majority shareholder and the number of shares calculated 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. 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 nonowner sources. The
Company adopted SFAS No. 130 during the nine months ended September 30, 1998,
and has presented comprehensive income in the accompanying consolidated
financial statements. The Company's income in accordance with SFAS No. 130,
consists of net income of $9,636,400 and $4,143,500, plus unrealized gains on
investments available-for-sale of $53,000 and $11,000 for the nine months ended
5
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September 30, 1998 and 1997, respectively. The Company's income in accordance
with SFAS No. 130, consists of net income of $3,499,400 and $2,479,300 plus
unrealized gains on investments available-for-sale of $21,000 and $11,000 for
the three months ended September 30, 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 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 SEPTEMBER 30, 1998, COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1997.
Revenue. Revenue increased by $8.1 million, or 37.0 percent, from $22.0
million in the third quarter of 1997 to $30.2 million in the third quarter of
1998. The Company experienced growth in most of its service areas in the third
quarter of 1998 compared to the same period in 1997; with enterprise systems
implementation support services revenue increasing by 148.6 percent, from $4.3
million to $10.8 million; information technology services revenue increasing by
25.6 percent, from $5.6 million to $7.1 million; lean manufacturing consulting
services revenue increasing by 17.4 percent from $3.7 million to $4.4 million;
and performance support services revenue decreasing by 4.9 percent, from $8.3
million to $7.9 million. Enterprise systems implementation support services,
performance support services, information technology services, and lean
manufacturing consulting generated 35.8 percent, 26.2 percent, 23.5 percent, and
14.5 percent of total revenue, respectively, in the third quarter of 1998.
Revenue from the Company's largest client, Chrysler, increased from $6.3
million in the third quarter of 1997 and $6.7 million in the same period in 1998
primarily as a result of increases in lean manufacturing consulting services
provided by the Company. Revenue from Chrysler decreased as a percentage of
total Company revenue from 28.7 percent of revenue in the third quarter of 1997
to 22.2 percent in the third quarter of 1998.
Gross Profit. Gross profit increased by $3.0 million, or 47.2 percent, from
$6.2 million in the third quarter of 1997 to $9.2 million in the same period of
1998 and increased from 28.4 percent of revenue in 1997 to 30.5 percent in 1998.
This increase in gross profit as a percent of revenues resulted primarily from
higher average billing rates and increases in the proportion of labor revenue to
other revenue, partially offset by increases in marketing costs, employee
recruiting, employee relocation, temporary labor, and costs for on-going
development of client service processes.
6
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General and Administrative Expenses. General and administrative expenses
increased by $1.1 million, or 38.9 percent, from $2.7 million in the third
quarter of 1997 to $3.8 million in the same period in 1998, increasing from 12.4
percent of revenue in 1997 to 12.6 percent of revenue in 1998. The increase in
general and administrative expenses reflected the general increase in the level
of spending necessary to support the Company's growth in revenues. The increase
in general and administrative expenses as a percentage of revenue resulted
primarily from increases, as a percent of revenue, in professional services
fees, recruiting expenses, and facility rent, partially offset by a decrease, as
a percent of revenue, in depreciation expense.
Operating Income. As a result of the foregoing, the Company's operating
income increased by $1.9 million, or 53.7 percent, from $3.5 million in the
third quarter of 1997 to $5.4 million in the same period in 1998 and increased
from 15.9 percent of revenue in 1997 to 17.9 percent of revenue in 1998.
Other Income (Expense), net. Other income (expense), net was $483,600 in the
third quarter of 1997 and $294,600 in the third quarter of 1998. For 1997, this
income consisted primarily of interest income from cash and investment balances,
partially offset by interest paid on the Company's capital lease obligations.
For 1998, this income consisted primarily of interest income from cash and
investment balances, partially offset by the one-time write-off of capital
equipment, having a net book value of $226,000, and interest paid on the
Company's capital lease obligations.
Net Income. As a result of the foregoing, the Company's net income increased
by $1.0 million, or 41.1 percent from $2.5 million in the third quarter of 1997
to $3.5 million in the third quarter of 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1998, COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1997.
Revenue. Revenue increased by $21.9 million, or 35.5 percent, from $61.8
million in the nine months ended September 30, 1997, to $83.8 million in the
same period of 1998. The Company experienced growth in most of its service areas
in the nine months ended September 30, 1998, compared to the same period in
1997, with performance support services revenue unchanged at $23.8 million;
enterprise systems implementation support services revenue increasing by 119.4
percent, from $12.2 million to $26.8 million; information technology services
revenue increasing by 22.1 percent, from $16.3 million to $19.9 million; and
lean manufacturing consulting services revenue increasing by 39.9 percent from
$9.5 million to $13.3 million. Enterprise systems implementation support
services, performance support services, information technology services, and
lean manufacturing consulting generated 32.0 percent, 28.4 percent, 23.7
percent, and 15.9 percent of total revenue, respectively, in the first nine
months of 1998.
Revenue from the Company's largest client, Chrysler, increased by 7.8 percent
in the nine months ended September 30, 1998, from $17.9 million in the nine
months ended September 30, 1997, to $19.2 million in the same period in 1998, as
a result of increases in lean manufacturing and performance support services,
partially offset by a decrease in information technology services provided by
the Company. Revenue from Chrysler decreased as a percentage of total Company
revenue from 28.9 percent of revenue during the first nine months of 1997 to
23.0 percent during the first nine months of 1998.
7
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Gross Profit. Gross profit increased by $6.8 million, or 36.9 percent, from
$18.4 million in the nine months ended September 30, 1997 to $25.2 million in
the same period in 1998 and increased from 29.7 percent of revenue in 1997 to
30.0 percent in 1998. This increase in gross profit as a percent of revenue
resulted primarily from higher average billing rates and increases in the
proportion of labor revenue to other revenue, partially offset by increases in
unreimbursed travel, employee recruiting, employee health insurance, payroll
taxes, and costs for on-going development of client service processes.
General and Administrative Expenses. General and administrative expenses
increased by $2.5 million, or 31.0 percent, from $8.2 million in the nine months
ended September 30, 1997, to $10.8 million in the same period in 1998,
decreasing from 13.3 percent of revenue in 1997 to 12.8 percent of revenue in
1998. The increase in general and administrative expenses reflected the general
increase in the level of spending necessary to support the Company's growth in
revenues. The decrease in general and administrative expenses as a percentage of
revenue resulted primarily from decreases, as a percent of revenue, in training
costs as a result of a state training grant, depreciation, and professional
services fees, partially offset by increases, as percent of revenue, in payroll
taxes, recruiting fees, and temporary labor costs.
Operating Income. As a result of the foregoing, the Company's operating
income increased by $4.2 million, or 41.7 percent, from $10.2 million in the
nine months ended September 30, 1997, to $14.4 million in the same period in
1998 and increased from 16.4 percent of revenue in 1997 to 17.2 percent of
revenue in 1998.
Other Income (Expense), net. Other income, net was $484,500 in the nine
months ended September 30, 1997, and $1.2 million in the same period of 1998. In
1997, this income consisted primarily of interest income from cash and
investment balances, partially offset by interest expenses paid on Stockholder
Notes. In 1998, this income consisted primarily of interest income from cash and
investment balances, partially offset by interest expense paid on the Company's
capital lease obligations and the one-time write-off of capital equipment.
Pro forma Net Income. Pro forma net income increased by $3.1 million, or 48.9
percent from $6.5 million in the nine months ended September 30, 1997, to $9.6
million in the same period in 1998. Pro forma results assume the Company was a C
corporation throughout each of the periods. The Company converted from S
corporation status to C corporation status in June 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and investments were $50.6 million at September 30, 1998,
compared to $40.0 million at December 31, 1997. Increases in cash and
investments at September 30, 1998, were attributable primarily to increases in
cash provided by operating activities and interest earned on proceeds from the
Company's June 1997 initial public offering. The Company's working capital was
$61.9 million at September 30, 1998, and $49.4 million at December 31, 1997.
The Company's operating activities provided cash of $13.2 million for the
nine months ended September 30, 1998, compared to $12.2 million for the same
period in 1997. The increase in cash from operations resulted primarily from
increases in net income, trade accounts payable, and
8
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depreciation expense, partially offset by increases in unbilled revenue and
accounts receivable and a decrease in deferred income taxes.
Investing activities used cash of $2.5 million in the nine months ended
September 30, 1998, compared to $36.8 million for the same period in 1997. Cash
used for investing activities in the nine months ended September 30, 1998,
consisted primarily of the net purchase of capital assets, partially offset by
the sale of investments.
Financing activities provided cash of $809,100 in the nine months ended
September 30, 1998, compared to $29.0 million for the same period in 1997. Cash
provided from financing activities in the nine months ended September 30, 1998,
consisted primarily of the proceeds from the issuance of common stock due to the
exercise of employee stock options.
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 (6.9 percent on September 30, 1998). The Company utilizes this line of
credit to finance a portion of its working capital needs. There was no balance
outstanding on the line of credit as of September 30, 1998, or on December 31,
1997.
The Company's Board of Directors, at its most recent meeting, authorized
the repurchase of Company shares from time to time funded by the cash received
from the exercise of outstanding stock options. The cash utilized may include
both the exercise proceeds and the associated tax benefit the Company receives
from option exercise. These repurchases may be open market purchases or block
purchases within limits as permitted by Securities and Exchange Commission
rules, or purchases directly from option holders. This program is intended to
allow the mitigation of the increase in outstanding shares that results from the
periodic exercise of employee stock options.
During the second quarter of 1997, the Company converted from S corporation
to C corporation tax status and as a result recognized a $4.5 million charge to
establish a deferred tax liability. This tax liability becomes due ratably over
the four years beginning with 1997.
During the first nine months of 1998, the Company made $3.4 million in
capital expenditures, primarily for office furniture, computer and office
equipment, and leasehold improvements to support the 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.
YEAR 2000 COMPLIANCE
The Company has commenced a process to assure Year 2000 compliance of all
hardware, software, and ancillary equipment that are date dependent. The process
involves four phases:
Phase I - Inventory and Data Collection. This phase involves an identification
of all items that are date dependent. The Company commenced this phase in the
fourth quarter of 1997 and is now complete.
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Phase II - Compliance Requests. This phase involves requests to systems vendors
for verification that the systems identified in Phase I are Year 2000 compliant.
The Company will identify and begin to replace critical systems that cannot be
updated or certified as compliant. The Company commenced this phase in the first
quarter of 1998 and expects to complete this phase before the end of the first
quarter of 1999. To date, the Company has verified that its accounting, payroll,
human resources, banking and local wide area network hardware and software
systems are compliant. In addition, the Company has determined that
substantially all of its personal computers and PC applications are compliant.
The Company is currently reviewing its security systems and other miscellaneous
systems.
Phase III - Test, Fix, and Verify. This phase involves testing all items that
are date dependent and upgrading all non-compliant systems. The Company expects
to complete this phase during the first and second quarter of 1999.
Phase IV - Final Testing, New Item Compliance. This phase involves review of all
systems for compliance and re-testing as necessary. During this phase, all new
systems and equipment will be tested for compliance. The Company expects to
complete this phase by the end of the second quarter of 1999.
To date, the Company believes that its major systems are Year 2000
compliant. This substantial compliance has not required significant
expenditures, and has been achieved without the need to acquire significant new
hardware, software, or systems other than in the ordinary course of business.
The Company is not aware of any material non-compliance that would require
repair or replacement that would have a material effect on its financial
position. The Company is not aware of any non-compliance by its suppliers that
would have material impact on the Company's business. Nevertheless, there can be
no assurance that unanticipated non-compliance will not occur, and such non-
compliance could require material costs to repair or could cause material
disruptions if not repaired.
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.
FORWARD LOOKING STATEMENTS
Certain statements contained herein, including statements regarding
development of the Company's services, markets, and future demands for the
Company's services, and other statements regarding matters that are not
historical facts, are forward-looking statements (as defined in the Private
Securities Litigation Reform Act of 1995). Such forward-looking statements
include risks and uncertainties; consequently, actual results may differ
materially from those expressed or implied thereby. Factors that could cause
actual results to differ materially include, but are not limited to, reliance on
a few key clients, reliance on strategic partners, concentration of revenues in
the automotive industry, which is subject to cyclical and economic factors
outside the Company's control,
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the Company's ability to effectively manage its growth, variability of operating
results, various project risks associated with individual projects that could
materially impact operating results, the Company's ability to attract and retain
sufficient employees, dependence on key personnel, technological change, and
substantial competition.
11
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PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
(c) Issuance of Securities
N/A
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27. Financial Data Schedule
(b) Current Reports on Form 8-K
N/A
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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: November 6, 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, November 6, 1998
- --------------------- Chief Executive Officer, and
Robert W. Deutsch Director
/s/ Ronald E. Holtz Vice President, Chief Financial November 6, 1998
- ------------------- Officer, and Director
Ronald E. Holtz
</TABLE>
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 15,067,000
<SECURITIES> 35,581,300
<RECEIVABLES> 17,841,700
<ALLOWANCES> 427,800
<INVENTORY> 0
<CURRENT-ASSETS> 79,584,600
<PP&E> 18,754,000
<DEPRECIATION> 9,691,200
<TOTAL-ASSETS> 88,940,300
<CURRENT-LIABILITIES> 17,605,900
<BONDS> 0
0
0
<COMMON> 1,493,800
<OTHER-SE> 67,831,400
<TOTAL-LIABILITY-AND-EQUITY> 88,940,300
<SALES> 0
<TOTAL-REVENUES> 83,767,200
<CGS> 0
<TOTAL-COSTS> 58,612,500
<OTHER-EXPENSES> 10,752,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,200
<INCOME-PRETAX> 15,589,400
<INCOME-TAX> 5,953,000
<INCOME-CONTINUING> 9,636,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,636,400
<EPS-PRIMARY> .65
<EPS-DILUTED> .60
</TABLE>
